<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended JANUARY 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER 0-26040
COMPUTER LEARNING CENTERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 36-3501869
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
11350 RANDOM HILLS ROAD, SUITE 240, 22030
FAIRFAX, VIRGINIA 22030 (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
(703) 359-9333
(TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------------
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
------------------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. /X/ Yes / / No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference to Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
------------------------
Aggregate market value of the voting stock held by nonaffiliates of the
Registrant based on the last sale price for such stock at April 28, 1997:
$193,689,070
Number of shares of Common Stock, $.01 par value, outstanding at April 28,
1997:
7,825,821
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III is incorporated by reference to the
Company's definitive Proxy Statement for its 1997 Annual Meeting of
Stockholders, which will be filed pursuant to Regulation 14A within 120 days
after the end of the Company's last fiscal year.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
COMPUTER LEARNING CENTERS, INC.
FORM 10-K
INDEX
<TABLE>
<S> <C> <C>
PART I
Item 1. Business..................................................................... 1
Item 2. Properties................................................................... 16
Item 3. Legal Proceedings............................................................ 16
Item 4. Submission of Matters to a Vote of Security Holders.......................... 16
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........ 17
Item 6. Selected Consolidated Financial Data......................................... 18
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................... 19
Item 8. Financial Statements and Supplementary Data.................................. F-1
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure................................................................... I-1
PART III
Item 10. Directors and Executive Officers of the Registrant........................... I-1
Item 11. Executive Compensation....................................................... I-1
Item 12. Security Ownership of Certain Beneficial Owners and Management............... I-1
Item 13. Certain Relationships and Related Transactions............................... I-2
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............. I-4
Signatures.............................................................................. S-1
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
Computer Learning Centers, Inc. ("CLC" or the "Company") provides
information technology and computer-related education and training. The Company
designs programs and courses to meet current information technology education
needs, offering instruction in rapidly growing technologies such as
client/server, databases, networking and object-oriented programming. Through
its accredited career programs, the Company offers associate degrees and
non-degree diplomas in five primary areas of study to adults seeking entry-level
jobs in information technology including: business applications; electronics,
systems and hardware; programming; networking; and business applications with
networking. In addition to its traditional career and associate degree programs,
the Company offers its Advantec Institute ("AI") courses in intensive two- to
six-week formats for the continuing education and training of information
technology professionals. The Company enrolls over 8,000 new students annually
at its fourteen locations in California, Illinois, Pennsylvania, Texas,
Virginia, Maryland and Michigan. The Company began enrolling students at four
new Learning Centers in fiscal 1997 at Plymouth Meeting, Pennsylvania (February
1996), Laurel, Maryland (October 1996), Madison Heights, Michigan (December
1996), and Manassas, Virginia (January 1997).
Computer Learning Centers, Inc. was incorporated in Delaware in March 1987.
The Company's executive offices are located at 11350 Random Hills Road, Suite
240, Fairfax, Virginia 22030, and its telephone number is 703-359-9333.
THE INFORMATION TECHNOLOGY EDUCATION AND TRAINING MARKET
The rapidly growing role of information technology in business and
government organizations is creating a significant and increasing demand for
information technology education and training. The factors driving this growth
in demand include the following:
- Information technology is evolving rapidly, often requiring those already
skilled in the field to learn new technologies or broaden their
understanding of existing applications. Examples include the widespread
migration by businesses from legacy mainframe computer systems to
client/server architectures and from conventional software technologies to
more contemporary approaches, such as relational databases, groupware and
object-oriented programming.
- As corporate and governmental restructuring continues and employers seek
to improve productivity, an increasing number of functions are being
automated. As a result, corporate and government organizations need to
educate and train existing employees and displaced workers in a broader
range of software applications and other information technology skills.
- According to the Department of Education, the number of students
graduating from high school is expected to increase by approximately 21%
from 1994 to 2006. This growth will enlarge the pool of candidates for
career-oriented education and training, including education and training
in information technology skills.
Providers of information technology education and training include
vocational and technical training schools, degree-granting colleges and
universities, continuing education programs and commercial training programs.
Vocational and technical training schools range from relatively small local
market schools focused on teaching a single or limited number of skills to
larger institutions that offer information technology training as a subset of a
more diversified curriculum. Colleges and universities are structured primarily
to serve the needs of the full-time 18- to 24-year old student through four-year
programs that are lecture-based and focused on a theoretical presentation of the
subject matter rather than on teaching specific career-oriented skills.
Continuing education programs tend to cover a broad range of technical and
non-technical topics, and such programs generally do not focus on providing
career placement for their
1
<PAGE>
students. Commercial training providers generally offer fast-paced, one- to
five-day courses that are based on the assumption that individuals have a basic
familiarity with information technology concepts.
THE CLC APPROACH
The Company has designed a series of programs it believes are uniquely
suited to meet the information technology education and training needs of adults
pursuing information technology-related careers. In addition to its traditional
career programs aimed at equipping students for entry-level jobs, the Company
offers advanced, intensive skill-building courses through its AI course
offerings targeted to information technology professionals.
The Company's traditional career programs are designed to meet the needs of
adult students in a number of ways. The focused nature of each program of study
enables full-time students to complete their education and training and enter
the work force in as little as 8 to 16 months, while maintaining eligibility for
financial aid programs. CLC's program schedules are designed to accommodate its
students' need for flexibility through programs offered in modular formats with
new program start dates each month and convenient morning, afternoon and evening
hours. Each Learning Center is equipped with up-to-date computer hardware and
software for students' in-class use, and each program requires students to spend
at least 50% of their in-school time working directly on a computer. Learning
Center faculty members generally have direct experience working in the
information technology industry, enabling them to provide students with useful
career-related insights and guidance in connection with education and training.
CLC designs and operates its programs to provide students with efficient access
to various forms of government-supported financial assistance as well as private
financing sources. Finally, CLC provides its students with job placement
assistance, including assistance with resume writing, interview preparation and
employment searches for recent graduates and alumni.
The Company's AI programs are marketed directly to individuals, commercial
organizations and government employees. AI programs provide ongoing technology
training to information technology professionals through intensive two- to
six-week programs that focus on current and emerging technologies. AI programs
provide immediate skills training in technologies such as networking,
client/server, programming, databases and the Internet. Programs are offered at
AI training facilities in Tysons Corner, Virginia and Laurel, Maryland as well
as at client sites. The Company intends to leverage its existing relationships
with employers, its career program facilities and its resources and market
responsiveness to expand its presence in the professional education and training
market.
BUSINESS STRATEGY
The Company's objective is to strengthen and expand its position as one of
the leading providers of information technology education and training programs
for adults. To achieve this objective, the Company employs the following key
strategies:
ESTABLISH NEW LEARNING CENTERS. The Company plans to increase the number
of its Learning Centers throughout the United States. The expansion will
include opening new Learning Centers in areas of the country that the
Company currently serves, as well as establishing Learning Centers in new
geographical areas.
BROADEN AVAILABILITY OF ASSOCIATE DEGREE PROGRAMS. The Company is
focused on increasing the availability of its existing associate degree
programs at each of the Learning Centers. The Company currently offers
associate degree programs at seven Learning Centers. The Company believes
that expanding its current degree-granting programs at existing Learning
Centers and increasing scheduling flexibility will enhance CLC's appeal to a
larger population of students.
2
<PAGE>
DEVELOP NEW PROGRAMS/ENHANCE EXISTING PROGRAMS. The Company will
continue to capitalize on new market opportunities by monitoring changes in
the information technology industry and developing new education and
training programs or enhancing current offerings in response to those
changes. The Company is currently evaluating programs or program
enhancements in Windows NT, information technology support professional, the
Internet and communications. The Company maintains relationships with a wide
network of employers who provide the Company with data on trends related to
computer and information technology skills.
EXPAND ADVANTEC INSTITUTE. The Company plans to increase the number of
AI course offerings and to expand its AI programs to new locations. The
Company intends to continue leveraging its existing relationships with past
graduates and employers and its resources and market responsiveness to meet
the information technology education and training requirements within
companies and government agencies.
IMPROVE STUDENT OUTCOMES. The Company continually seeks to improve the
graduation and placement rates at its Learning Centers by providing
extensive academic services and placement assistance. The Company offers
tutoring, academic counseling and other services to its students to help
them complete their programs of study. In addition, the Company helps
students prepare resumes, conduct employment searches and sharpen
interviewing skills through its Graduate Placement Services Resource Center.
COMPANY PROGRAMS
CLC has designed a series of programs to meet the information technology
education and training needs of career-minded adults. In addition to its
traditional career programs aimed at preparing students for entry-level jobs,
the Company offers its AI courses for the continuing education and training of
information technology professionals.
CAREER PROGRAMS
The Learning Centers offer comprehensive career programs of study in five
areas of information technology including: business applications; electronics,
systems and hardware; programming; networking; and business applications with
networking. Each career program is designed to teach the comprehensive
information technology skills required to obtain an entry-level job in the
targeted information technology field. The Company offers career programs that
allow students to receive either a diploma or a degree. Each diploma program
generally follows a standard format ranging in length from 8 months for
full-time students to 16 months for part-time students. Seven Learning Centers
offer associate degree programs in electronics, systems, and hardware; business
applications with networking; and programming. These associate degree programs
combine the curricula from a diploma program with state-mandated general
education requirements and additional advanced material to create 16-month
(full-time) or 32-month (part-time) programs. Program curricula are generally
uniform across all Learning Centers and are offered in morning, afternoon and
evening sessions depending on market demand.
Career programs are delivered year-round in a modular format that provides
monthly start dates and allows students to complete their education in less time
than the Company believes is possible at many other institutions. Each program
consists of 8 to 16 modules, with each module lasting approximately one month
for full-time students and consisting of a single course with an intensive and
focused format. Full-time students typically attend classes for approximately
five hours per day, five days per week, with sessions available three evenings
per week for part-time students.
In CLC's career programs, students spend at least 50% of their time in
computer labs performing hands-on workplace simulations and their remaining time
in classrooms attending lectures and participating in group discussions. Each
module is delivered according to an outline and instructor's guide that links an
appropriate textbook or books together with visual aids and lab activities to
achieve a specific set of
3
<PAGE>
student performance outcomes and proficiencies. To foster a professional work
environment, the Company requires that students attend classes in business
attire. The Company designs and updates curricula to meet current information
technology industry standards, offering instruction in widely-used computer
applications and information technologies to provide students with marketable
skills. In addition, the Company regularly evaluates its curricula and
eliminates those elements relating to technologies that have become obsolete or
offer significantly fewer or less attractive job opportunities for graduates.
The primary focus of each career program is to prepare students for
employment in their fields of study upon graduation. Graduates of the business
applications program have obtained employment as PC specialists, help desk
administrators and executive, technical and accounting support personnel.
Graduates of the electronics, systems and hardware program have obtained
employment as technicians in computer support and network installation and as
specialists in the repair of commercial and industrial data processing
equipment. The Company's programming curriculum prepares graduates for
employment as computer programmers, database administrators and systems
analysts. The networking program is designed to prepare students to obtain
certification as Certified Novell Engineers and to obtain employment as network
administrators, engineers and systems analysts.
Tuition is fixed at the time of a student's initial enrollment. At January
31, 1997, tuition ranges were from $8,400 to $14,150 for diploma programs and
from $16,150 to $18,060 for associate degree programs.
ADVANTEC INSTITUTE
The Company currently offers AI courses at its Tysons Corner, Virginia and
Laurel, Maryland sites, as well as at client locations. Through AI, the Company
delivers training in two- to six-week intensive programs designed to enhance the
skills of information technology professionals. The AI programs currently
offered include local area network engineering using Novell NetWare and
Microsoft NT network operating systems, application development using Oracle 7
and Microsoft (MCSE) development tools, UNIX system administration, C and C++
programming languages and Internet programming languages Java and Perl. Although
AI courses are aimed at a different market segment than the Company's
traditional career programs, the courses may utilize the same faculty and other
resources and are offered within two existing Learning Centers as well as at
client locations as of January 31, 1997.
At January 31, 1997, tuition ranges for AI courses were from $3,500 to
$6,995. In fiscal 1997, the Company provided AI training to numerous employees
of companies and government organizations, including Bell Atlantic Corporation,
GTE Corporation, Hughes Aircraft Corporation, International Business Machines
Corporation, PRC/Litton, Inc., TRW Inc., the United States House of
Representatives and the United States Department of Defense.
CURRICULUM CRITERIA, REVIEW AND DEVELOPMENT
The Company has established specific criteria for its programs. Each career
program is designed to prepare students for information technology-related
entry-level jobs, while each AI course is designed for the retraining or ongoing
training of information technology professionals. Career and AI courses are
designed to (i) engage adult students by employing hands-on teaching methods;
(ii) train students in computer technology widely used in the work place; (iii)
respond to market requirements and train students to satisfy those requirements;
and (iv) optimize use of the Company's resources.
The Company uses several means to ensure that its programs meet these
criteria. The Company regularly solicits input directly from employers through a
system of Employer Advisory Groups in each of its geographic market areas. These
advisory groups meet regularly to discuss the skills required in the information
technology field as well as to identify industry trends. In addition, an
independent marketing research firm conducts monthly student surveys to help the
Company monitor faculty, course and school effectiveness and to gather student
input. Historically, student surveys have identified opportunities for
improvement and have provided a means of setting quantitative benchmarks. The
Company maintains an
4
<PAGE>
internal Strategic Product Planning Group that includes senior managers, faculty
and other employees. This group meets regularly to analyze input from market
research, the Employer Advisory Groups, students, faculty, consultants and
management. The Strategic Product Planning Group uses the input to guide the
Company's strategic direction and to make recommendations regarding the
Company's curricula. Curriculum recommendations are referred to faculty subject
matter experts and academic managers for review prior to formal development by
curriculum project leaders.
STUDENT CHARACTERISTICS
The Company's programs are targeted at adults seeking to expand their career
opportunities through the acquisition of technical skills and knowledge. At
January 31, 1997, 56.4% of CLC's students were college graduates or had some
college experience, including 11.2% who had four-year college degrees or higher
levels of educational attainment and 15.5% who had two-year degrees. At that
time, 27.7% of CLC's students were between 18 and 22 years of age, 50.3% were
between 23 and 34, and 22.0% were over 35. Approximately 56% of the student
population was male and 44% was female.
AI students typically are employed by companies and government agencies in
positions that require periodic training in current information technology.
Generally, these students are relatively sophisticated and knowledgeable users
of computers and related technology.
STUDENT RECRUITMENT
The Company engages in a broad range of activities to make prospective
students aware of the programs of study available at the Learning Centers. These
activities include television, radio and newspaper advertising, direct mail
campaigns and listings in the yellow pages. Currently, all advertising is
directed at local markets where Learning Centers are located. The Company
monitors the effectiveness of its various marketing efforts by measuring the
number of resulting student enrollments. The Company estimates that for fiscal
1997, approximately 46% of its new enrollments resulted from television
advertising and approximately 29% of its new enrollments resulted from referrals
by current students and graduates.
The television advertising for each Learning Center is developed and
coordinated by CLC's senior management. All advertising includes a local
telephone number for direct responses and information about the Learning Center.
These responses are received by the admissions department of each Learning
Center, where the direct responses are recorded and tracked and then forwarded
to an admissions representative who responds to student inquiries. All
prospective student inquiries are handled at the local level, where an
admissions representative is assigned to each student from initial contact to
graduation.
The Company markets its AI courses to information technology professionals,
companies and government agencies through print advertising, direct mailings,
telemarketing, radio, trade shows and conferences. The Company employs a sales
staff that pursues potential customer contacts resulting from these marketing
efforts.
STUDENT ADMISSIONS AND RETENTION
The Company maintains admissions standards that require each career program
student to have proof of a high school diploma or a recognized equivalent such
as a General Education Development (GED) certificate. In addition, all career
program students must achieve a qualifying score on a scholastic level aptitude
exam recognized and approved by the Department of Education. The Company
believes admission requirements are important in ensuring that incoming career
program students have the necessary academic background and abilities to
complete their selected program of study.
Each Learning Center employs one director of admissions who oversees a staff
of admissions representatives. Admissions policies and procedures are
established centrally and are monitored both
5
<PAGE>
centrally and locally. Admissions representatives are responsible for scheduling
an initial appointment with an interested candidate, interviewing the candidate
to determine whether he or she meets admissions qualifications and has the
necessary motivation and ability to complete the Learning Center's intensive
programs of study, testing the candidate to determine his or her aptitude for
different programs and counseling qualified candidates about available career
paths. The Company's internal compliance department reviews the admissions
processes and practices of the individual admissions representatives to monitor
compliance with the Company's policies and applicable state and federal
requirements.
The Company focuses significant staff resources on assisting students to
overcome the academic, financial and personal obstacles that can interfere with
a student's ability to complete his or her career program. Each Learning Center
employs a student services manager/counselor who is available to counsel
students encountering problems that interfere with their education. To help
students overcome financial obstacles, the Company assists students in finding
part-time employment when their resources in combination with available
financial aid are not adequate to meet their financial needs. Learning Centers'
management, faculty and staff performance is measured in part by their ability
to ensure that students complete their programs of study. Curricula are designed
to include frequent progress reviews and performance measurements of both
students and faculty. Tutoring is available and encouraged for students who need
additional academic assistance. Student withdrawals prior to program completion
have negative regulatory, financial and marketing effects on an educational
institution. The average Learning Center retention rates, as calculated under
standards of CLC's accrediting agency, the Accrediting Council for Independent
Colleges and Schools ("ACICS"), were 74.2% and 72.8%, respectively , for the
twelve-month periods ended June 30, 1996 and 1995.
GRADUATE PLACEMENT SERVICES
The Graduate Placement Services Resource Center is a vital component of each
Learning Center's programs. It maintains job postings, coordinates employers'
recruiting efforts, provides on-line job search capabilities and maintains a
library of career and job search related publications. All career program
students are required to attend a 20-hour career development course, which is a
series of seminars related to resume writing, interview preparation and
employment searches.
The Company seeks to obtain data on the number of its students employed
following graduation. The reliability of this data is largely dependent on
information that students and employers provide to the Company. The Company
believes that for the 12-month periods ended October 31, 1996 and 1995 for
graduates placed through January 31, 1997 and 1996, approximately 90% and 87%,
respectively, of its net placeable graduates obtained employment in a field
related to their program of study. Net placeable graduates excludes graduates
who did not actively pursue employment, were not seeking employment due to
health-related situations, continued their education or entered military
service.
Based on information from students and employers who have responded to
inquiries, the Company estimates the average annual starting salaries reported
for fiscal 1997 graduates of certain programs offered by CLC who obtained
employment in fields related to their education were as follows:
<TABLE>
<CAPTION>
LEARNING CENTER AVERAGE ANNUAL
PROGRAM GRADUATES PLACED STARTING SALARY
- ---------------------------------------------------------- ----------------- ---------------
<S> <C> <C>
Business Applications (Associate Degree and Diploma)...... 1,471 $ 20,800
Programming (Associate Degree and Diploma)................ 1,253 $ 26,200
Electronics, Systems and Hardware (Associate Degree and
Diploma)................................................ 506 $ 23,200
Networking (Diploma)...................................... 389 $ 32,900
Business Applications with Networking (Diploma)........... 189 $ 23,100
</TABLE>
Average annual starting salaries for Learning Center graduates vary among
Learning Centers depending on local employment conditions and other factors.
Employers of CLC graduates include small
6
<PAGE>
technology-oriented companies as well as major corporations and agencies and
their affiliates, including America Online, Inc., Aetna Life and Casualty
Company, Bell Atlantic Corporation, Electronic Data Systems, Inc., International
Business Machines Corporation, McDonnell Douglas Corporation, Sears Roebuck and
Co. and the University of Pennsylvania.
FACULTY
The Company employs both full-time and part-time faculty who are hired in
accordance with criteria established by the Company, ACICS and applicable state
licensing authorities. Faculty members are carefully selected on the basis of
their knowledge and experience in the information technology field and their
ability to develop each student's potential. Faculty members generally have both
significant industry experience and educational and technical backgrounds.
Faculty members participate in a regular and systematic program of in-house
training to improve instruction and curricula. Faculty members participate in
educational associations, professional organizations and continuing education in
their respective fields.
After completing each module, students evaluate faculty using a confidential
survey prepared and distributed directly to students by an independent marketing
research firm. The survey asks students to rate the faculty on effectiveness,
fairness, delivery and course content.
ADMINISTRATION AND EMPLOYEES
Each Learning Center is managed by a local administrative team headed by a
director who is accountable for the profitability, regulatory compliance,
maintenance of educational quality and placement success of the Learning Center.
Each director may report to an area manager who oversees the activities of
several Learning Centers grouped by geographic region. Learning Center directors
work closely with the area managers to implement marketing plans and curricula,
expand capacity and maintain facilities. The Company encourages Learning Center
directors to act autonomously in responding to local market conditions. Learning
Center directors report either directly, or through an area manager, to the
Company's Chief Operating Officer.
Each local administrative team also includes a director of admissions, a
financial aid administrator, a business office manager, a director of education
and a director of placement. As of January 31, 1997, the Company employed
approximately 592 full-time and 166 part-time employees. In addition, the
Company employed 98 CLC students under the Federal Work-Study Program. None of
the Company's employees are represented by a labor union or are subject to a
collective bargaining agreement. The Company has never experienced a work
stoppage and believes that its employee relations are satisfactory.
COMPETITION
The postsecondary adult education and training market is highly fragmented,
with no single institution or company holding a dominant market share. The
Company competes for students with vocational and technical training schools,
degree-granting colleges and universities, continuing education programs and
commercial training programs. Certain public and private colleges may offer
programs similar to those of the Learning Centers at a lower tuition cost due in
part to government subsidies, foundation grants, tax deductible contributions or
other financial resources not available to proprietary institutions.
The Company believes that the Learning Centers' fast paced and intensively
focused programs in information technology education and training help the
Company attract students. Students may choose CLC over its competitors because
of the Company's broad course offerings, relatively short programs, placement
services, reputation and starting salaries after graduation. Students may choose
CLC instead of a four-year college because they want to enter the work force in
a shorter period of time or because a four-year institution does not provide
students with the type of focused, comprehensive program that CLC offers. In
addition, flexible afternoon and evening courses allow students to maintain
their current jobs while attending the Company's programs.
7
<PAGE>
FINANCIAL AID AND REGULATION
FINANCING STUDENT EDUCATION
The majority of Learning Center students participate in one or a combination
of several of the federally supported student financial aid programs. The
majority of the Company's revenues (approximately 75% in fiscal 1997) are
derived from the federal student financial aid programs under Title IV ("Title
IV Programs") of the Higher Education Act of 1965, as amended ("HEA").
CLC's financial aid programs are designed to provide financial assistance to
students who are enrolled or accepted for enrollment but whose financial
resources are inadequate to meet the full cost of their education. Eligibility
is determined on the basis of financial need, defined as the difference between
the cost of a program of study and the amount a student can reasonably be
expected to contribute to educational expenses. The Company uses the national
standard need analysis system established by the HEA to determine a student's
need for Title IV Program funds. All recipients of financial aid must maintain a
satisfactory grade point average and progress toward completion of a career
program in order to participate in the financial aid programs.
Any shortfall between available federal student financial aid awards and a
student's need may be fulfilled by a Learning Center's own financing options. In
addition, certain of the federally-supported programs require the Company to
participate financially in the funding of these programs through legislatively
mandated formulas.
TITLE IV PROGRAMS
Students at the Learning Centers receive grants and loans to fund the cost
of their education under the following Title IV Programs: (i) the Federal Pell
Grant ("Pell") program, which accounted in aggregate for approximately 13.7% of
the Company's revenues in fiscal 1997; (ii) the Federal Supplemental Educational
Opportunity Grant ("FSEOG") program, which accounted in aggregate for
approximately 1.8% of the Company's revenues in fiscal 1997; (iii) the Federal
Family Education Loan ("FFEL," formerly the Guaranteed Student Loan) program,
which accounted in aggregate for approximately 45.0% of the Company's revenues
in fiscal 1997 and includes the subsidized and unsubsidized Federal Stafford
Loan program (the latter of which replaced Federal Supplemental Loans for
Students ("SLS") loans in 1994) and PLUS (parental) loans; (iv) the Federal
Perkins loan ("Perkins") program, which accounted in aggregate for approximately
1.0% of the Company's revenues in fiscal 1997; (v) the Federal Work-Study
("Work-Study") program, under which federal funds are made available to provide
part-time employment to eligible students based on financial need and pursuant
to which the Learning Centers employed approximately 324 students and paid
$610,000 in total wages to these students in fiscal 1997; and (vi) the William
D. Ford Federal Direct Loan Program ("FDLP"), which accounted in aggregate for
approximately 13.5% of the Company's revenues in fiscal 1997 and which includes
the Federal Direct Stafford loans and the Federal Direct Student PLUS loans. The
FSEOG, Perkins and Work-Study programs each requires the institutions to make
matching contributions in the amount of 25% of all federal funds the institution
makes available under each program. During fiscal 1997, the Company did not
receive a federal cash contribution for the Perkins program. In fiscal 1997, the
25% matching contribution made by the Company amounted to $374,200 for the FSEOG
program, and $153,000 for the Work-Study program.
AVAILABILITY OF LENDERS
For a variety of reasons, the number of lenders willing to make federally
guaranteed student loans to students at certain proprietary institutions has
declined in recent years. Although there can be no assurance that the decline
will not affect the Company in the future, to date, this decline has not
affected the ability of Learning Center students to obtain federally guaranteed
loans. One lending institution currently provides approximately 34% of all loans
obtained by Learning Center students under the FFEL program. The Company
believes that other lenders would be willing to make such loans to its students
if
8
<PAGE>
such loans were no longer available from any of its current lenders. In
addition, if an eligible institution is unable to identify any lenders willing
to make FFEL program loans to the institution's students, the HEA requires that
each state secure the availability of a "lender of last resort" to make such
loans. Lenders of last resort are not required to provide PLUS loans, which
accounted for approximately 5.6% of the Company's revenues in fiscal 1997.
One student loan guaranty agency currently guarantees nearly 47% of all FFEL
loans made to Learning Center students. The Company believes that other guaranty
agencies would be willing to guarantee loans to Learning Center students if any
of its existing guaranty agencies ceased guaranteeing such loans or reduced the
volume of loans guaranteed. As of January 31, 1997, ten of the twelve eligible
Learning Centers had at least two guaranty agencies to provide guarantees under
the federal student loan programs. All states have a designated guaranty agency
that the Company believes would guarantee most, if not all, FFEL program loans
made to Learning Center students in that state. Given these state and federal
provisions, the Company does not believe that any reduction in the guaranty
agencies currently guaranteeing FFEL program loans made to Learning Center
students would have a material adverse effect on the Company.
REGULATION OF FEDERAL FINANCIAL AID PROGRAMS
To obtain and maintain the participation of the Learning Centers in the
Title IV Programs, the Company must comply with specific standards set forth in
the HEA and the regulations promulgated thereunder by the Department of
Education. To participate in the Title IV Programs, an institution must obtain
certification by the Department of Education as an "eligible institution," which
requires, among other things, that the institution be authorized by the state
within which it operates to offer its educational programs and be accredited by
an accrediting agency recognized by the Department of Education as a reliable
authority as to the quality of the institution's educational programs.
In recent years, the United States Congress has required the Department of
Education to increase its level of regulatory oversight of schools to ensure
that public funds are properly used. Each institution must annually submit to
the Department an audit by an independent accounting firm of that institution's
compliance with Title IV Program requirements, as well as audited financial
statements. The Department of Education conducts compliance reviews, which
include on-site evaluations, of several hundred institutions each year and
directs student loan guaranty agencies to conduct additional reviews relating to
student loan programs. The Office of the Inspector General of the Department of
Education also conducts audits and investigations in certain circumstances.
Under the HEA, accrediting agencies also have responsibilities for overseeing
institutions' compliance with Title IV Program requirements. As a result, each
participating institution, including each of the Learning Centers, is subject to
frequent and detailed oversight and must comply with a complex framework of laws
and regulations or risk being required to repay funds or becoming ineligible to
participate in the Title IV Programs.
Certain elements of the regulatory scheme applicable to the Company and the
Learning Centers are described below. Except as otherwise noted below, the
Company must comply with applicable regulatory standards separately with respect
to each Learning Center. For the purposes of these standards, an institution is
defined as a main campus and any additional locations of that campus. Of the
fourteen Learning Centers, seven are considered to be main campuses and seven
are additional locations of a main campus. Among the fourteen Learning Centers
operating in fiscal 1997, twelve participated in Title IV Programs. The
remaining two Learning Centers have become eligible to participate in Title IV
Programs subsequent to January 31, 1997.
STUDENT LOAN DEFAULTS
Under the HEA, an educational institution may lose its eligibility to
participate in some or all of the Title IV Programs if defaults on the repayment
of federally guaranteed student loans exceed certain rates.
9
<PAGE>
These rates are based on the repayment history of current and former students on
loans provided under certain FFEL programs, primarily the Stafford loan program
and the former SLS program as well as FDLP loans. A rate of student defaults
(known as the "cohort default rate") is calculated for each main campus annually
by determining the rate at which students at that main campus (and its
additional locations, if any) entering repayment in one federal fiscal year
ending September 30 ("FY") default by the end of the following federal fiscal
year.
With respect to the cohort default rates for FY 1994 (which were published
in January 1997), any institution that is determined to have had FFEL or FDLP
cohort default rates equal to or exceeding 25% for three consecutive federal
fiscal years is subject to immediate loss of eligibility to participate in the
FFEL and FDLP programs for the remainder of the federal fiscal year in which the
Department of Education makes such determination and the subsequent two federal
fiscal years. Furthermore, an institution whose FFEL or FDLP cohort default rate
for any federal fiscal year exceeds 40% may have its eligibility to participate
in all of the Title IV Programs limited, suspended or terminated. An institution
has the right to appeal the accuracy of the Department of Education's
calculations of its cohort default rates. Such appeals are intended to correct
any errors made by the applicable guaranty agencies in compiling the student
repayment data and to identify any material errors made in the third-party
servicing and collection of individual loans. Institutions remain eligible to
participate in the FFEL programs during the pendency of any such appeal. All
Learning Centers, regardless of their default rates, have adopted default
management plans.
The published cohort default rates for the seven Learning Center main
campuses participating in the Title IV Programs during FY 1994 averaged 21.0%
and ranged from a high of 26.9% to a low of 17.8% for that period. The average
rate for all proprietary institutions in the United States for the same period
was 21.1%. For FY 1994, excluding the Chicago and Philadelphia Learning Centers,
the other five Learning Center main campuses, (inclusive of their additional
locations) had published cohort default rates averaging 19.6 %.
The Chicago Learning Center's FY 1993 cohort default rate exceeded 25%,
which resulted in three consecutive years of default rates that exceed the 25%
threshold. The Company filed appeals with the Department of Education
challenging the accuracy of the default rates for all three affected years, and
the Department of Education previously rendered an unfavorable decision on the
Company's appeal with respect to FY 1992. By letter dated September 26, 1996,
the Department of Education notified the Company of its final decision on the
Company's appeals with respect to the FY 1991 and FY 1993 default rates. Because
the decided final rates for the three years in question remain above 25%, after
resolution of all appeals, the Department of Education notified the Company
that, effective upon receipt of the September 26, 1996 letter, the Chicago
Learning Center was no longer eligible to participate in the FFEL program and
further notified the Company that the Chicago Learning Center may reapply to
participate in the FFEL program on October 1, 1997 if its FY 1994 cohort default
rate, which has since been published at 21.1% ,was below 25%. In accordance with
a recently enacted statute, the Department of Education also stated that the
Chicago Learning Center cannot participate in the Pell Grant program until July
1, 1997. The Chicago Learning Center, which accounted for approximately 8.8% of
the Company's revenues in fiscal 1997, remains eligible to participate in other
Title IV Programs, including the FSEOG program and the Perkins program.
On October 7, 1996, the Company initiated legal action in federal court to
seek review of the Department of Education's decision on several grounds. In
that action, the Company primarily alleged that the Chicago Learning Center
should have remained eligible for the FFEL Programs based on its preliminary FY
1994 cohort default rate which, as issued by the Department of Education in July
1996, was 20.1%, below the 25% threshold for FFEL eligibility. While the
Department of Education does not consider such preliminary cohort default rates
to be official, since the receiving institution has a right to seek review of
the accuracy of the data used to calculate such rates, the Chicago Learning
Center did not seek such review and notified the Department of Education that it
waived its right to do so. As applicable
10
<PAGE>
law allows termination from participation in the FFEL program (and, until June
30, 1997, the Pell Grant program) only if the institution's cohort default rates
are above 25% for each of the "three most recent fiscal years for which data are
available", the Company had believed the Department of Education erred in
failing to consider the preliminary FY 1994 cohort default rate as the most
recent data "available" for the purposes of determining the status of the
Chicago Learning Center.
On February 14, 1997, the federal court denied the Company's motion for
partial summary judgment in this action and granted the Government's cross
motion thereby upholding the Chicago Learning Center's loss of participation in
the FFEL and Pell Grant programs. This ruling does not affect the Chicago
Learning Center's continued participation in the FSEOG or Perkins programs, nor
does it affect the Chicago Learning Center's ability to resume participation in
the Pell Grant program on July 1, 1997 and re-apply to resume participation in
the FFEL loan program on October 1, 1997.
The Philadelphia Learning Center's FY 1994 cohort default rate as published
is 26.9% which results in three consecutive years of default rates that exceed
the 25% threshold. The Company plans on appealing the FY 1994 cohort default
rate with the Department of Education to challenge the accuracy of such rate.
The Department of Education has decided the appeals of the Philadelphia Learning
Center's FY 1992 and FY 1993 cohort default rates, each of which remains above
25%. If the ultimate resolution for the FY 1994 cohort default rate appeal is
unfavorable, the Philadelphia Learning Center would be subject to the loss of
eligibility to participate in the FFEL and FDLP programs. The Company cannot
predict either the outcome or timing of when the Department of Education's
decision with respect to the Philadelphia Learning Center's FY 1994 cohort
default rate appeal. If the Philadelphia Learning Center, which represents 15.0%
of the Company's revenues in fiscal 1997, suffers an interuption of, or loses
its eligibility to participate in some or all of the Title IV Programs, such
interuption or loss would have a material adverse effect on the Company.
ADMINISTRATIVE CAPABILITY
Regulations issued by the Department of Education in 1994 specify revised
criteria an institution must satisfy to establish that the institution has the
requisite "administrative capability" to participate in the Title IV Programs.
These criteria pertain to student loan cohort default rates on FFEL loans and
student loan default rates on Perkins loans, among other factors. The failure by
a Learning Center to satisfy any of the criteria may lead the Department of
Education to determine that the institution lacks the requisite administrative
capability and, therefore, is subject to a proceeding to impose a fine or to
limit, suspend or terminate the participation of the Company or the particular
Learning Center in the Title IV Programs, or must be subject to additional
scrutiny as a condition of such continued participation. If the Department of
Education initiates a proceeding to impose a fine or to limit, suspend or
terminate the participation of the Company or a Learning Center, the Company or
institution would be afforded a hearing before an independent Department of
Education hearing officer and an opportunity to appeal any adverse decision to
the Secretary of Education before any enforcement action takes place.
Under the Department of Education's regulations, an FFEL cohort default rate
equal to or exceeding 25% in any one of the three most recent federal fiscal
years can be a basis for the Department of Education to place that institution
on provisional certification for up to four years for lack of administrative
capability. Provisional certification generally allows an institution to
continue to participate in the Title IV Programs subject to conditions imposed
by the Department of Education and, in the event of any material violation of
such conditions, subjects the institution to a loss of eligibility. The Learning
Centers in Chicago and Philadelphia could be subject to provisional
certification or continued provisional certification, respectively, on the basis
of their cohort default rates. The Chicago Learning Center submitted a
recertification application to the Department of Education on September 30, 1996
as part of the cyclical recertification of all institutions participating in the
Title IV Programs, and as of April 25, 1997, the Company had not received a
response from the Department of Education with respect to the Chicago Learning
Center's application.
11
<PAGE>
In the course of a 1994 review, the Philadelphia Learning Center was granted
provisional certification through September 1997, based upon the fact that its
published FY 1992 cohort default rate exceeded the applicable standard. The
terms of its provisional certification provide that, during this period, if,
after resolution of any appeals, the Philadelphia Learning Center's cohort
default rate is determined to exceed 32.9% for any single federal fiscal year,
the Department of Education may seek immediately to terminate the Philadelphia
Learning Center's eligibility to participate in the Title IV Programs. The
Philadelphia Learning Center's FY 1993 cohort default rate after resolution of
all appeals was 37.1%, thereby exceeding the 32.9% threshold. However, the
Company learned that the Department of Education had modified its policy,
consistent with applicable regulations, so as to eliminate the year-by-year
comparison that is currently called for in the Philadelphia Learning Center's
provisional certification. Instead, the Department of Education allows an
institution to maintain its provisional eligibility if there is no other
indication that the institution lacks administrative capability. The
Philadelphia Learning Center has been asked to submit a recertification
application to the Department of Education. The recertification application was
submitted to the Department of Education in April 1997.
The Department of Education's regulations also provide that an institution
may be found to lack administrative capability if its default rate for Perkins
loans exceeds 15% for any federal award year (i.e., July 1 through June 30). The
Company administers its Perkins loan funds on a Company-wide basis, and in the
past all of the Learning Centers have shared one Perkins loan default rate. The
Company had a default rate for Perkins loans of 18.2% for the 1995-96 federal
award year. The Perkins program accounted for approximately 1.0% of the
Company's revenues in fiscal 1997. It is not entirely clear what effect this
Perkins default rate will have, in practice, on the Department of Education's
assessment of any Learning Centers' administrative capability. However, during
fiscal 1997, four of the Company's Learning Centers were recertified for full
participation in the Title IV Programs notwithstanding the Company's Perkins
default rate.
FINANCIAL RESPONSIBILITY
The HEA and the Department of Education's regulations prescribe specific
standards of financial responsibility that institutions such as the Learning
Centers must satisfy to participate in the Title IV Programs. Historically, the
Department of Education has evaluated the financial condition of the Learning
Centers on a consolidated basis. The regulations allow the Department of
Education to consider both consolidated and individual Learning Center financial
statements. Pursuant to the three principal standards, known as the "numeric
standards," an institution must have: (i) a positive tangible net worth at the
end of the institution's most recent fiscal year; (ii) an "acid test" ratio
(defined as the ratio of cash, cash equivalents and current accounts receivable
to current liabilities) of at least 1-to-1 at the end of the institution's most
recent fiscal year; and (iii) net operating results for the institution's two
most recent fiscal years that do not result in an aggregate loss in excess of
10% of the institution's tangible net worth at the beginning of the two-year
period. At January 31, 1997, the Company reported on a consolidated basis an
acid test ratio of 1.63 to 1 and the Company believes that on a consolidated
basis, it has met all standards of financial responsibility. Additionally, the
state of California requires that institutions maintain a current ratio (defined
as current assets to current liabilities) of at least 1.25 to 1. At January 31,
1997, all of the Company's Learning Centers operating in the state of California
were in compliance with this requirement.
If, based upon the above measures, the Department of Education determined
that the Company or any Learning Center is not financially responsible, the HEA
would require the Department of Education to afford the Company an opportunity
to demonstrate financial responsibility through alternative means, most commonly
by demanding that the Company post an irrevocable letter of credit in favor of
the Secretary of Education in an amount equal to not less than one-half the
Title IV Program funds received by the affected Learning Center or Centers
during the last complete award year.
12
<PAGE>
INCENTIVE COMPENSATION
An additional requirement of the Title IV Programs prohibits an institution
from providing any commission, bonus or other incentive payment based directly
or indirectly on success in securing enrollments or financial aid to any person
or entity engaged in any student recruitment, admission or financial aid
awarding activity. The Company has implemented several compensation plans for
admissions representatives and other personnel involved in the operations of the
Learning Centers. The Company believes that its current compensation plans
comply with the requirements of the HEA, but the regulations do not establish
clear standards for compliance. Although there can be no assurance that the
Department of Education will not find deficiencies in the present or former
compensation plans, the Company has received a letter from the Department of
Education concluding that its former compensation plan, as established in March
1993, was in compliance with regulation existing at that time. If the Department
of Education determines that a compensation plan does not comply with the HEA
requirements and the applicable implementing regulations, the Company may be
required to modify prospectively such plans, repay certain previously disbursed
Title IV Program funds or be subject to a limitation, suspension, termination or
fine action. The Learning Centers could also lose their eligibility to continue
participating in the Title IV Programs as a result of such a determination.
THE 85/15 RULE
Another requirement of the HEA, commonly referred to as the "85/15 Rule,"
applies only to proprietary (i.e., for-profit) institutions, such as the
Learning Centers. Under the 85/15 Rule, a proprietary institution will lose its
eligibility to participate in the Title IV Programs for at least one fiscal year
if, under a modified cash basis of accounting, more than 85% of the
institution's applicable revenues for the prior fiscal year is derived from
applicable Title IV Programs. The Department of Education has indicated that it
will enforce the 85/15 Rule on an institution-by-institution basis.
Approximately 75% of the Company revenues in fiscal 1997 (ranging from a low of
69% to a high of 77% on an institution by institution basis), were derived from
the federal Title IV programs.
To reduce the risk that any Learning Center could lose its eligibility to
participate in the Title IV Programs under the 85/15 Rule, the Company closely
monitors the applicable revenues for each Learning Center on an ongoing basis
and is pursuing alternative sources of revenue and student financial assistance.
If any Learning Center were to lose its eligibility to participate in the Title
IV Programs under the 85/15 Rule, such loss would have a material adverse effect
on the Company.
RESTRICTIONS ON ADDING LOCATIONS
The HEA requires proprietary educational institutions to be in full
operation for two years before such institutions can qualify to participate in
the Title IV Programs. However, the HEA and applicable regulations permit an
institution that is already qualified to participate in the Title IV Programs to
establish an additional location that may immediately qualify to participate in
the Title IV Programs without satisfying the two-year requirement so long as
such location satisfies all other applicable requirements for institutional
eligibility, including approval of the additional location by the institution's
accrediting agency and the relevant state authorizing agency. The Company's
expansion plans assume its continued ability to establish new Learning Centers
as additional locations of existing Learning Center main campuses without
incurring the two-year delay in participation in the Title IV Programs that is
applied to new institutions.
Although state requirements and accrediting agency standards may in certain
instances limit the ability of the Company to establish additional locations in
certain areas and certain situations, the Company does not believe, based on its
current understanding of how these standards will be applied, that these
standards will have a material adverse effect on the Company or its expansion
plans.
13
<PAGE>
POTENTIAL EFFECT OF REGULATORY VIOLATIONS
The violation of regulatory standards governing the Title IV Programs by the
Company or any of the Learning Centers could be the basis for a proceeding by
the Department of Education to impose a fine or to limit, suspend or terminate
the participation of the Company or the particular Learning Center in these
programs. Although there are no such proceedings pending, and the Company does
not believe any such proceeding is contemplated, if such a proceeding were
initiated against the Company or one or more individual Learning Centers and
resulted in a substantial curtailment of the Company's participation in the
Title IV Programs, the Company would be materially and adversely affected.
In the event of a determination that one of the Company's Learning Centers
has improperly disbursed Title IV Program funds, the affected Learning Center
could be required to repay those funds. The Department of Education could
transfer that Learning Center from the "advance" system of payment of Title IV
Program funds, under which an institution requests and receives funding from the
Department of Education in advance based on anticipated need, to the
"reimbursement" system of payment, under which an institution must disburse
funds to students and document their eligibility for Title IV Programs funds
before receiving funds from the Department of Education.
If a Learning Center lost its eligibility to participate in certain of the
Title IV Programs, or if the amount of available federal student financial aid
was reduced, the Company would seek to arrange or provide alternative sources of
revenue or financial aid for that Learning Center's students. There are a number
of private organizations that provide loans to students. Although the Company
believes that one or more private organizations would be willing to provide
loans to students attending a Learning Center, there is no assurance that this
would be the case, and the interest rate and other terms of such student
financial aid might not be as favorable as for Title IV Program funds.
Accordingly, the loss of eligibility of a Learning Center or Centers to
participate in the Title IV Programs would be expected to have a material
adverse effect on the Company even if the Company could arrange or provide
alternative sources of revenue or student financial aid. If a Learning Center
lost its eligibility to participate in the Title IV Programs for an extended
period of time, and the Company could not arrange for alternative sources of
revenue or financial aid for the Learning Center's students, the Company would
have to close that Learning Center.
STATE AUTHORIZATION AND ACCREDITATION
The Company is dependent on the authorization of the applicable agency or
agencies of each state within which a Learning Center is located to allow it to
operate and to grant degrees or diplomas to students. State authorization is
also required in order for an institution to become and remain eligible to
participate in the Title IV Programs. The Company is subject to extensive and
varying regulation in each of the seven states in which the Learning Centers
currently operate. State laws and regulations affect the Company's operations
and may limit the ability of the Company to introduce degree programs or to
initiate new programs of study, or to obtain authorization to operate in certain
additional states. State regulatory requirements may overlap or exceed federal
requirements. The loss of state authorization by an existing Learning Center or
the failure of a new Learning Center to obtain authorization would render the
affected Learning Center ineligible to participate in the Title IV Programs,
could affect its accreditation and would have a material adverse effect on the
Company.
Accreditation by an accrediting agency recognized by the Department of
Education is required in order for an institution to become and remain eligible
to participate in the Title IV Programs. In addition, most states require
institutions operating therein to become and continue to be accredited as a
condition of continuing state authorization, particularly with regard to the
issuance of degrees. The Company's Learning Centers are accredited by ACICS,
which is an accrediting agency duly recognized by the Department of Education.
Two of the fourteen Learning Centers are due for renewal of accreditation during
fiscal 1998. The loss of accreditation by an existing Learning Center or the
failure of a new
14
<PAGE>
Learning Center to obtain accreditation would render the affected Learning
Center ineligible to participate in the Title IV Programs, could affect its
state authorization and would have a material adverse effect on the Company.
CHANGE OF CONTROL
Upon a change of ownership resulting in a change of control ("change of
control") of the Company, as defined in the HEA and the Department of
Education's regulations, each Learning Center would lose its eligibility to
participate in the Title IV Programs for an indeterminate period of time while
it applies to regain eligibility, with the likely loss of a portion of its Title
IV funding during the re-approval period. A change in control also could have
significant regulatory consequences for the Company at the state level and could
affect the accreditation of the Learning Centers. For a public corporation, such
as the Company, Department of Education regulations specify that a change in
control arises from the same circumstances that would require the Company to
file with the Securities and Exchange Commission a report on Form 8-K disclosing
a change in control. Each state and accrediting agency has its own requirements
with respect to a change of control and the consequences thereof. A change of
control of the Company could, depending on the nature of such change, have a
material adverse effect on the Company.
Upon a change in control of the Company under U.S. Department of Education
regulations, the Learning Centers would immediately become ineligible to
participate in Title IV Programs and their students would be unable to obtain
Title IV Program funds to pay their cost of education until such time as the
U.S. Department of Education recertifies the Learning Centers to participate in
Title IV Programs. The U.S. Department of Education will not preapprove a change
in control and will only reinstate an institution's eligibility to participate
in Title IV Programs upon approval of a proper application following the
institution's change in control. To be proper, among other things, such
application must demonstrate that the relevant Learning Center is authorized by
the appropriate states and accredited by the appropriate accrediting agency
under its new ownership. Therefore, before each Learning Center may regain
access to Title IV Program funds following a change in control (a) it must be
reaccredited (or continue to be accredited) by the appropriate accrediting
agency and reauthorized (or continue to be authorized) by the appropriate states
and (b) the change in control must otherwise be approved by the U.S. Department
of Education.
The standards and practices of ACICS, the accrediting agency that accredits
all of the Company's Learning Centers, generally provide that, within five
business days after an institution obtains reauthorization (or confirmation of
continued authorization) by the appropriate states following a change in
control, and submits a complete application, ACICS will determine whether to
temporarily reinstate the institution's accreditation, during which period in
which the institution must apply for permanent reinstatement of its
accreditation.
A material adverse effect on the Company's operations could result if the
Company experienced significant delay in obtaining or failed to obtain the
accreditation of any Learning Center, experience significant delay in obtaining
or failed to obtain authorization from any state in which the Company has a
Learning Center or experienced significant delay in reestablishing or failed to
reestablish the eligibility of any Learning Center to participate in Title IV
Programs. Any change of control may also delay the ability of the Company to
establish new institutions and may have other adverse regulatory effects.
15
<PAGE>
ITEM 2. PROPERTIES
All CLC facilities are leased by the Company. The table below sets forth
certain information regarding these facilities as of January 31, 1997.
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE
LOCATION FOOTAGE
- -------------------------------------------------------------------------------- ------------
<S> <C>
Alexandria, VA.................................................................. 51,000
Anaheim, CA..................................................................... 22,000
Chicago, IL..................................................................... 22,000
Fairfax, VA(1).................................................................. 8,000
Garland, TX..................................................................... 13,800
Houston, TX..................................................................... 14,000
Laurel, MD(2)................................................................... 18,400
Los Angeles, CA................................................................. 36,000
Madison Heights, MI............................................................. 19,500
Manassas, VA.................................................................... 15,100
Philadelphia, PA................................................................ 29,000
Plymouth Meeting, PA............................................................ 20,700
San Francisco, CA............................................................... 16,000
San Jose, CA.................................................................... 20,000
Schaumburg, IL.................................................................. 15,000
Tysons Corner, VA(3)............................................................ 5,600
------------
Total..................................................................... 326,100
------------
</TABLE>
- ------------------------
(1) Corporate headquarters.
(2) Combined Advantec Institute site and Learning Center.
(3) Advantec Institute.
Learning Center site selection is based upon a number of factors, including
population density, incomes, occupations, education levels, projected demand for
CLC's programs, concentration of technology-oriented employers and applicable
state and accrediting agency requirements. The Company believes its facilities
are suitable, adequate and well-utilized.
ITEM 3. LEGAL PROCEEDINGS
On February 14, 1997, the Company's motion for partial summary judgment in
the legal action initiated on October 7, 1996 by the Company against the
Department of Education was denied in federal court, thereby upholding the
Chicago Learning Center's inability to participate in the FFEL programs. This
ruling does not affect the Chicago Learning Center's continued participation in
the FSEOG or Perkins programs nor does it affect the Chicago Learning Center's
ability to resume participation in the Pell Grant program on July 1, 1997 and to
reapply for the resumed participation in the FFEL loan program on October 1,
1997. The Company is not a party to any other material litigation. The Company
may from time to time be involved in routine litigation incident to its
business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to vote to the stockholders of the Common Stock
during the fourth quarter of fiscal 1997.
16
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the NASDAQ National Market under the
symbol "CLCX." Public trading of the Common Stock commenced on May 31, 1995.
Prior to that time, there was no public market for the Company's Common Stock.
The following table sets forth the high and low sales prices for the Common
Stock reported by NASDAQ for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL YEAR 1996*:
Second Quarter............................................................. $ 6.33 $ 5.00
Third Quarter.............................................................. 7.83 5.00
Fourth Quarter............................................................. 7.33 4.67
FISCAL YEAR 1997*:
First Quarter.............................................................. $ 7.67 $ 5.50
Second Quarter............................................................. 16.83 7.17
Third Quarter.............................................................. 22.17 14.67
Fourth Quarter............................................................. 20.67 16.67
</TABLE>
- ------------------------
* Restated for stock split.
On March 24, 1997 the Company's Board of Directors declared a three for two
stock split, in the form of a stock dividend of one share of common stock for
every two shares owned. Distribution was made on April 14, 1997 to stockholders
of record as of the close of business on April 8, 1997. As a result of the
foregoing, the prices set forth in the above table and all other per share
amounts referenced in this document have been restated for all prior periods.
These over-the-counter market quotations may reflect inter-dealer prices without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.
At April 21, 1997, there were approximately 29 holders of Common Stock. The
Company estimates that, including shareholders whose shares are held in nominee
accounts by brokers, there are approximately 2,000 total holders of its Common
Stock.
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future. It is the current
policy of the Company's Board of Directors to retain earnings to finance the
operations and expansion of the Company's business.
17
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial and operating data is qualified by
reference to and should be read in conjunction with the financial statements and
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included in Items 7 and 8 of this Form 10-K. The
Statements of Operations for each of the three years in the period ended January
31, 1997 and the Balance Sheets as of January 31, 1997 and 1996, and the
independent accountant's report thereon are included in Item 8 of this Form
10-K. The earnings per share amounts in the table below have been restated to
reflect the three for two stock split (See item 8 "Notes to Financial
Statements"--Note 2.)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Revenues................................................... $ 64,025 $ 46,081 $ 39,297 $ 34,981 $ 31,231
--------- --------- --------- --------- ---------
Costs and expenses:
Costs of instruction and services........................ 35,475 26,076 22,227 19,406 18,061
Selling and promotional.................................. 11,407 7,884 6,371 6,259 5,464
General and administrative............................... 5,584 4,052 3,727 2,844 2,765
Provision for doubtful accounts.......................... 3,084 2,613 3,313 1,996 1,375
Amortization of intangibles.............................. 362 363 393 408 427
--------- --------- --------- --------- ---------
55,912 40,988 36,031 30,913 28,092
--------- --------- --------- --------- ---------
Income before interest..................................... 8,113 5,093 3,266 4,068 3,139
Interest (income) expense, net............................. (721) 96 948 1,356 2,049
Gain on sale of investment securities...................... (332) -- -- -- --
--------- --------- --------- --------- ---------
Income before income taxes, discontinued operations,
extraordinary item and cumulative effect of accounting
change................................................... 9,166 4,997 2,318 2,712 1,090
Provision for income taxes................................. 3,565 2,078 1,131 1,124 321
--------- --------- --------- --------- ---------
Income from continuing operations before discontinued
operations, extraordinary item and cumulative effect of
accounting change........................................ $ 5,601 $ 2,919 $ 1,187 $ 1,588 $ 769
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income per share -- 1997; supplemental pro forma income
per share from continuing operations -- 1996 and 1995.... $ 0.76 $ 0.48 $ 0.26
--------- --------- ---------
--------- --------- ---------
Weighted average number of shares outstanding -- 1997;
supplemental pro forma -- 1996 and 1995.................. 7,383 6,454 6,243
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 26,950 $ 8,260 $ 4,753 $ 4,388 $ 2,266
Total current assets....................................... 58,805 29,635 29,968 21,210 14,681
Total assets............................................... 75,727 39,808 39,922 36,011 32,964
Total current liabilities.................................. 33,811 21,093 18,460 16,286 19,823
Long-term liabilities...................................... 2,124 1,559 12,342 13,764 10,834
Total stockholders' equity................................. 39,792 17,156 9,120 5,961 2,307
</TABLE>
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BACKGROUND AND OVERVIEW
The Company provides information technology education and training to over
8,000 students annually. The Company designs programs and courses to meet
current information technology education needs, offering instruction in rapidly
growing technologies such as client/server, databases, networking and object-
oriented programming through its fourteen Learning Centers in California,
Illinois, Pennsylvania, Texas, Virginia, Maryland and Michigan.
During fiscal 1997, the Company derived approximately 92% of its revenues
from Learning Centers course tuition, approximately 4.8% from the Advantec
Institutes ("AI") course fees, with the remaining revenues derived from sales of
books and fees charged directly to students. The Company enrolls students on a
monthly basis and delivers its curricula over an 8- to 16-month period for
full-time students and over a 16- to 32-month period for part-time students. In
addition to its traditional career and associate degree programs, the Company
offers its AI courses in intensive two-to-six week formats for the continuing
education and training of information technology professionals. The Company's
revenues in any period are directly related to the number of enrolled students
(or student population), the number of new enrollments and the student retention
rate.
The majority of the Company's students qualify for financial assistance
under various government-supported student financial aid programs, especially
the Title IV Programs, and the Company is highly dependent on the continued
availability of government-supported student financial aid. Because students in
the Company's AI courses are not eligible to participate in the Title IV
Programs, revenues from these courses are received from companies, government
agencies and individuals that participate or sponsor employees enrolled in these
training programs.
Under the HEA, an educational institution may lose its eligibility to
participate in some or all of the Title IV Programs if defaults on the repayment
of federally guaranteed student loans exceed certain rates. These rates are
based on the repayment history of current and former students on loans provided
under certain FFEL programs, primarily the Stafford loan program and the former
SLS program as well as FDLP loans. A rate of student defaults (known as the
"cohort default rate") is calculated for each main campus annually by
determining the rate at which students at that main campus (and its additional
locations, if any) entering repayment in one federal fiscal year ending
September 30 ("FY") default by the end of the following federal fiscal year.
With respect to the cohort default rates for FY 1994 (which were published
in January 1997), any institution that is determined to have had FFEL or FDLP
cohort default rates equal to or exceeding 25% for three consecutive federal
fiscal years is subject to immediate loss of eligibility to participate in the
FFEL and FDLP programs for the remainder of the federal fiscal year in which the
Department of Education makes such determination and the subsequent two federal
fiscal years. Furthermore, an institution whose FFEL or FDLP cohort default rate
for any federal fiscal year exceeds 40% may have its eligibility to participate
in all of the Title IV Programs limited, suspended or terminated. An institution
has the right to appeal the accuracy of the Department of Education's
calculations of its cohort default rates. Such appeals are intended to correct
any errors made by the applicable guaranty agencies in compiling the student
repayment data and to identify any material errors made in the third-party
servicing and collection of individual loans. Institutions remain eligible to
participate in the FFEL programs during the pendency of any such appeal. All
Learning Centers, regardless of their default rates, have adopted default
management plans.
The Chicago Learning Center's FY 1993 cohort default rate as published is
36.2%, which results in three consecutive years of default rates that exceed the
25% threshold. The Company filed appeals with the Department of Education
challenging the accuracy of the default rates for all three years, and the
Department of Education previously rendered an unfavorable decision on the
Company's appeal with
19
<PAGE>
respect to FY 1992. By letter dated September 26, 1996, the Department of
Education notified the Company of its final decision on the Company's appeals
with respect to the FY 1991 and FY 1993 default rates. With respect to the
Chicago Learning Center's FY 1991 cohort default rate, the Department accepted
some but not all of the errors asserted by the Company, resulting in a reduction
of the FY 1991 cohort default rate to 26.4%. Because the decided rates for the
three years in question remain above 25%, in the September 26, 1996 letter, the
Department of Education notified the Company that, effective upon receipt of the
letter, the Chicago Learning Center was no longer eligible to participate in the
FFEL program and further notified the Company that the Chicago Learning Center
may reapply to participate in the FFEL program on October 1, 1997. In accordance
with a recently enacted statute, the Department of Education also stated that
the Chicago Learning Center is ineligible to participate in the Pell Grant
Program until July 1, 1997. The Chicago Learning Center, which accounted for
approximately 8.8% of the Company's revenues for fiscal 1997, remains eligible
to participate in other Title IV Programs, including the FSEOG program and the
Perkins program. (See "Financial Aid and Regulation")
The Philadelphia Learning Center's FY 1994 cohort default rate as published
is 26.9% which results in three consecutive years of default rates that exceed
the 25% threshold. The Company plans on appealing the FY 1994 default rate with
the Department of Education challenging the accuracy of the FY 1994 default
rate. The Department of Education has decided the appeals of the Philadelphia
Learning Center's FY 1992 and FY 1993 cohort default rates, each of which
remains above 25%. If the ultimate resolution of such appeal for the FY 1994
cohort default rate were unfavorable, the Philadelphia Learning Center would be
subject to the loss of eligibility to participate in the FFEL and FDLP programs.
The Company can not predict either the outcome or the timing of when the
Department of Education might decide the Philadelphia Learning Center's appeal
with respect to the FY 1994 default rate. The Philadelphia Learning Center
accounted for approximately 15.0% of the Company's revenues for fiscal 1997. If
the Philadelphia Learning Center loses its eligibility to participate in some or
all of the Title IV Programs, such loss would have a material adverse effect on
the Company.
An institution's eligibility to participate in the Title IV Programs is
subject to compliance with numerous regulations, including regulations
concerning cohort default rates on federally guaranteed student loans made to
the institution's students. Because certain student loan cohort default rates at
the Philadelphia Learning Center exceed the regulatory threshold, the future
eligibility of the Philadelphia Learning Center to participate in some or all of
the Title IV Programs is uncertain. The Company plans on appealing the
calculation of the FY 1994 cohort default rate and believes the Philadelphia
Learning Center will remain eligible to participate in the Title IV Programs
pending the resolution of the appeal. However, if the eligibility of the
Philadelphia Learning Center to participate in some or all of the Title IV
Programs were to be interrupted for any reason, the interruption of eligibility
would thereafter have a material adverse effect on the operations of the
Company.
To help control cohort default rates with respect to federally guaranteed
student loans, each Learning Center employs a professional management staff to
assist and educate student borrowers in understanding their rights and
responsibilities as borrowers under these student loan programs. Each Learning
Center also contracts with a professional loan management company to provide
further assistance to the former student upon the student's graduation or
withdrawal, including making required contacts with the borrower.
The Company manages the collection risks associated with student accounts
receivable for withdrawn and graduate students by utilizing an in house
centralized credit and collection function staffed with personnel whose primary
responsibility is the collection effort. The collection effort includes
reviewing management reports detailing student accounts receivable balances,
following up on student delinquencies via telephone and/or letter and employing
other activities related to collection of student accounts receivable. In
addition, Company personnel help students overcome financial obstacles to
completing their educational programs by assisting students in finding part-time
employment when their own resources and financial aid are not adequate to meet
their financial needs.
20
<PAGE>
Costs of instruction and services consist primarily of costs related to the
delivery and administration of the Company's programs, including faculty
compensation, salaries for administrative personnel who provide services
directly to students, the costs of educational materials sold, facility leases
and related occupancy costs, equipment rental and depreciation and amortization
of educational property and equipment. Selling and promotional costs consist
primarily of advertising, admission representative salaries and benefits and
other costs related to the selling and promotional functions. General and
administrative costs consist primarily of salaries for administrative personnel,
occupancy costs, depreciation and amortization of property and equipment, legal
expenses and other related costs for functions such as executive management,
corporate accounting, human resources, regulatory compliance, product strategy
and curricula development, new business development and other functions that do
not provide direct services to the Company's students. Provision for doubtful
accounts represents the Company's provision for doubtful student accounts
receivable. Amortization of intangibles consists primarily of amortization of
intangible assets related to capitalized costs of original Department of
Education certifications.
This Annual Report on Form 10-K contains forward-looking statements.
Additional written or oral forward-looking statements may be made by the Company
from time to time in filings with the Securities and Exchange Commission or
otherwise. The words "believe", "expect", "anticipate", and "project", and
similar expressions identify forward-looking statements, which speak only as of
the date the statement was made. Such forward looking statements are within the
meaning of that term in Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. Such
statements may include, but not be limited to, projections of revenues, income,
or loss, expenses, capital expenditures, plans, the effect of inflation and
government regulation and plans relating to programs of the Company, as well as
assumptions relating to the foregoing. The Company undertakes no obligation to
publicly update or revise any forward looking statements, whether as a result of
new information, future events, or otherwise.
Forward looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified. Future events
and actual results could differ materially from those set forth in, contemplated
by, or underlying the forward-looking statements. Statements in this Annual
Report on Form 10-K, including the notes to the financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," describe factors, among others, that could contribute to or cause
such differences. Additional factors that could cause actual results to differ
materially from those expressed in such forward looking statements are set forth
in "Business," "Financial Aid and Regulation" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Certain Factors
That May Affect Future Results" in this Annual Report on Form 10-K.
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's statements
of operations as a percentage of revenues for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Revenues................................................................................. 100.0% 100.0% 100.0%
--------- --------- ---------
Costs and expenses:
Costs of instruction and services...................................................... 55.4 56.6 56.6
Selling and promotional................................................................ 17.8 17.1 16.2
General and administrative............................................................. 8.7 8.8 9.5
Provision for doubtful accounts........................................................ 4.8 5.7 8.4
Amortization of intangibles............................................................ 0.6 0.8 1.0
--------- --------- ---------
87.3 89.0 91.7
--------- --------- ---------
Interest (income) expense, net........................................................... (1.1) 0.2 2.4
Gain on sale of investment securities.................................................... (0.5) -- --
--------- --------- ---------
Income from continuing operations before income taxes.................................... 14.3 10.8 5.9
--------- --------- ---------
--------- --------- ---------
</TABLE>
21
<PAGE>
FISCAL 1997 COMPARED WITH FISCAL 1996
Revenues increased 38.8% to $64.0 million for fiscal 1997 from $46.1 million
for fiscal 1996 primarily due to an increase in enrollments at the Company's
existing Learning Centers, the opening of six new Learning Centers since January
1996, the growing popularity of the Company's longer programs including
associate degree programs, and growth in AI enrollments. Of the six Learning
Centers opened since January 1996, two were operational for the full fiscal year
in 1997 (opened in January 1996), a third commenced operations in March 1996,
and three commenced operations during the fourth quarter of fiscal 1997.
The number of students attending Learning Center programs as of the end of
the year increased 32.8% to 6,485 in fiscal 1997 from 4,884 in fiscal 1996,
which was the result of student enrollment growth of 32.9%. Since January 1996,
six new Learning Centers commenced operations, collectively contributing 22.9%
of the enrollment growth and 22.8% of the student population growth. Revenues
from AI increased 172.7% to $3.0 million for fiscal 1997 from $1.1 million for
fiscal 1996 due primarily to an increase in the number of students trained
during the period.
Cost of instruction and services increased 36.0% to $35.5 million in fiscal
1997 from $26.1 million in fiscal 1996 due primarily to the direct costs
necessary to support the increase in student population. These direct costs
consist primarily of faculty compensation, related benefits and depreciation.
Instruction costs and services as a percentage of revenue decreased to 55.4% in
fiscal 1997 from 56.6% in fiscal 1996 due to greater revenues being spread over
the fixed costs related to instructional services.
Selling and promotional expenses increased 44.3% to $11.4 million in fiscal
1997 from $7.9 million in fiscal 1996 due primarily to increased marketing and
advertising necessary to support the growth in student enrollments and the
addition of six new Learning Centers since January 1996. Selling and promotional
salaries and benefits increased by approximately $1,513,000 primarily as a
result the six new Learning Centers operating since January 1996. Advertising
expenditures increased $998,000 due primarily to the increased television, radio
and direct mail activities associated with the six new Learning Centers. Selling
and promotional expenses as a percentage of revenues increased to 17.8% in
fiscal 1997 from 17.1% in fiscal 1996.
General and administrative expenses increased 36.6% to $5.6 million from
$4.1 million, primarily as a result of increasing the level of infrastructure
needed to support the growth of the business, which includes credit and treasury
administration, information systems, and other related personnel costs. These
expenses were partially offset by a decrease in corporate charges for management
support and treasury management allocated from a former subsidiary that was
divested in May 1995. General and administrative expenses as a percentage of
revenues decreased to 8.7% in fiscal 1997 from 8.8% in fiscal 1996.
Provision for doubtful accounts increased 19.2% to $3.1 million in fiscal
1997 from $2.6 million in fiscal 1996. On September 26, 1996, the Department of
Education notified the Chicago Learning Center of their loss of eligibility with
respect to the continued participation in the Pell Grant and FFEL programs and
as a result was terminated from the Title IV programs. (See "Financial Aid and
Regulation-- Regulation of Federal Aid Programs--Student Loan Defaults"). As a
result of this loss of Title IV funding, the Company provided self funded
financing options to the existing students that were comparable to what these
students would have received under the traditional FFEL loan program. As a
result of the increased collection risk associated with the increase in self
funding at the Chicago Learning Center, the Company increased its allowance for
doubtful accounts by $258,000 during the fourth quarter of fiscal 1997.
Provision for doubtful accounts as a percentage of revenues decreased to 4.8% in
fiscal 1997 from 5.7% in fiscal 1996. This is primarily the result of improved
financial aid processing and improved credit and collection activities.
Amortization of intangibles equaled $362,000 and $363,000, respectively in
fiscal 1997 and fiscal 1996.
The Company realized net interest income of $721,000 in fiscal 1997,
compared to net interest expense of $96,000 in fiscal 1996 primarily as a result
of interest generated by larger invested cash balances and the 1995 repayment of
debt from proceeds of the initial public offering.
22
<PAGE>
The income tax rate declined to 38.9% in fiscal 1997 from 41.6% in fiscal
1996. This was due to the fact that prior to May 31, 1995, state taxable income
included interest income on amounts owed from a subsidiary, which caused a
disproportionately higher state income tax rates. Also contributing to a lower
tax rate in fiscal 1997 versus fiscal 1996 is a capital loss carryforeward
offsetting the tax effect of the sale of investment securities sold during
fiscal 1997.
FISCAL 1996 COMPARED WITH FISCAL 1995
Revenues increased 17.3% to $46.1 million for fiscal 1996 from $39.3 million
for fiscal 1995 primarily due to the increased number of students attending
Learning Center programs, the addition of one Learning Center open for the full
fiscal year and the growth in AI enrollments. The number of students attending
Learning Center programs increased 15.4% to 4,884 in fiscal 1996 from 4,233 in
fiscal 1995, which was the result of student enrollment growth of 11.5% and
student population growth of 3.9% attributable to a greater percentage of
students enrolling in the longer programs such as associate degree programs. The
Schaumburg, Illinois (formerly Lombard, Illinois) center, the only new Learning
Center which was operational for the full fiscal year, contributed 3.8% of the
enrollment growth and 3.3% of the student population growth. Price increases for
the year averaged approximately 2.0%.
Costs of instruction and services increased 17.6% to $26.1 million for
fiscal 1996 from $22.2 million for fiscal 1995 due primarily to the direct costs
necessary to support the increase in student population. These direct costs
consist primarily of faculty compensation, related benefits and depreciation.
Costs of instruction and services as a percentage of revenues remained the same
for fiscal 1996 as for fiscal 1995.
Selling and promotional expenses increased 23.4% to $7.9 million in fiscal
1996 from $6.4 million in fiscal 1995 due primarily to increased marketing and
advertising to support the growth in student enrollments and the addition of one
new Learning Center. Selling and promotional salaries and benefits increased by
$760,000 primarily as a result of the Schaumburg Learning Center being open for
the full year and additional admission personnel required to support the
enrollment growth. Advertising expenditures increased $721,000 due primarily to
increased television and radio advertising and direct mail activities. The
Company also completed the production of additional television commercials and
marketing activities during the year. These production and marketing services,
for which comparable expenditures were not made in fiscal 1995, totaled $306,000
in fiscal 1996. The Company, however, expects to incur comparable production and
marketing expenses in future years. Excluding expenses for the new television
commercials, marketing activities and related advertising at the Schaumburg
Learning Center, selling and promotional expenses as a percentage of revenues
equaled 15.8% in fiscal 1996 compared to 16.2% in fiscal 1995.
General and administrative expenses increased 10.8% to $4.1 million for
fiscal 1996 from $3.7 million for fiscal 1995, primarily as a result of the
increased costs of operating as a public company, including costs of investor
relations activities, regulatory compliance and credit and treasury
administration. These expenses were partially offset by a decrease in corporate
charges for management support and treasury management allocated from a former
subsidiary that was divested in May 1995. General and administrative expenses as
a percentage of revenues decreased to 8.8% in fiscal 1996 from 9.5% in fiscal
1995.
Provision for doubtful accounts decreased 21.2% to $2.6 million in fiscal
1996 from $3.3 million in fiscal 1995. The primary reason for the decrease
related to a July 1, 1994 change in federal refund policy and its effect on
accounts receivable due from withdrawn students. Under a regulation that became
effective July 1, 1994, the Learning Centers were unable to retain any Title IV
Program funds awarded to a student withdrawing prior to reaching the midpoint of
his or her program or of the first academic year of his or her program and such
student was individually responsible for the cost of training owed to the
institution after application of the relevant refund calculation. This change in
Department of Education refund requirements significantly increased the accounts
receivable from withdrawn students and, in turn, the risk of collection and
provision for doubtful accounts. The Department of Education issued guidance
effective April 1, 1995 modifying implementation of the July 1, 1994 regulation
enabling the Company to retain portions of the federal financial aid of students
who withdraw prior to the program or academic year midpoint. This modification,
as well as improved student financial aid processing and improved student
23
<PAGE>
receivable collection activities, resulted in the decrease in the provision for
doubtful accounts. Provision for doubtful accounts as a percentage of revenues
decreased to 5.7% for fiscal 1996 from 8.4% for fiscal 1995.
Amortization of intangibles decreased to $363,000 in fiscal 1996 from
$393,000 in fiscal 1995 primarily due to a portion of the intangible assets
becoming fully amortized.
Net interest expense decreased 90% to $96,000 in fiscal 1996 from $948,000
in fiscal 1995 primarily as a result of the repayment of debt with proceeds from
the initial public offering and the interest income generated by invested cash
balances.
The income tax rate declined to 41.6% in fiscal 1996 from 48.8% in fiscal
1995. This was due to the fact that prior to May 31, 1995, state taxable income
included interest income owed from a subsidiary, which caused disproportionately
higher state income tax rates.
SEASONALITY
New enrollments in Learning Center programs tend to be higher in the third
and fourth fiscal quarters than in the first and second fiscal quarters because
the third and fourth quarters include the times of year traditionally associated
with the beginning of school semesters. The Company believes it is less affected
by this seasonal pattern than many other educational institutions because it
permits students to enroll in and begin Learning Center programs in any month of
the year. In addition, the impact of seasonality in new enrollments on results
of operations has been moderated to some extent by growth in the number of
students attending Learning Center programs, the varying lengths of such
programs, and new Learning Centers opened.
LIQUIDITY AND CAPITAL RESOURCES
On November 1, 1996, the Company completed a public offering of 1,957,500
shares of the Company's common stock at a price of $17.17 per share (1997 share
and per share amounts have been restated to reflect the April 1997 stock split
(See Item 8 "Notes to Financial Statements"-- Note 2). The Company received
total net proceeds of approximately $11.5 million from the sale of 750,000
shares. In connection with the offering, the Company also received approximately
$2.4 million from the exercise of options to purchase 351,528 shares of common
stock and approximately $666,000 for 105,972 shares of common stock issued upon
payment of subscription notes receivable of certain stockholders. The remaining
750,000 shares were sold by certain selling stockholders, and the Company did
not receive any proceeds from the sale of those shares.
On July 6, 1995, the Company completed its initial public offering of
2,290,000 shares of the Company's common stock at a price of $8.00 per share.
The Company received total net proceeds, after deduction of expenses and
underwriting discounts and commissions payable by the Company, of approximately
$14.8 million. After repayment of Company debt, net proceeds to the Company was
$1.3 million.
During the last two fiscal years, the Company has financed its operating and
capital expenditure requirements principally through cash provided by operating
activities, including cash provided by discontinued operations. Cash provided by
operating activities for fiscal 1997, fiscal 1996 and fiscal 1995 was $10.8
million, $7.0 million and $3.7 million, respectively. Excluding cash flow
provided by discontinued operations, cash provided by continuing operations for
fiscal 1996 and fiscal 1995, was $6.9 million and $1.3 million, respectively.
The Company's principal sources of funds at January 31, 1997 were cash and
cash equivalents of approximately $27.0 million and net current accounts
receivable of $28.3 million. On December 23, 1996 the Company executed a new
credit facility with a bank to replace the previous revolving credit facility
which expired on July 15, 1996. The terms of the agreement provide for a $8.5
million secured revolving credit facility which expires on December 22, 1998.
The line of credit consists of a revolving credit note, not to exceed $8.5
million, inclusive of a $2.0 million convertible term loan. The interest on the
facility is based either on the bank's US prime rate (8.25% at January 31, 1997)
or the London Interbank Offered Rate ("LIBOR") which was 5.4375% at January 31,
1997. Interest rates are equal to (i) US prime rate or
24
<PAGE>
LIBOR plus 1.25% for revolving credit loans and (ii) US prime rate plus 0.25% or
LIBOR plus 1.50% for the convertible term loans.
Historically, the Company's investment activity has primarily consisted of
capital asset purchases. Capital expenditures, including expenditures for
furniture, computer software and hardware and tenant improvements related to new
Learning Centers, were $7.5 million, $2.0 million and $2.1 million,
respectively, for fiscal 1997, 1996 and 1995, respectively. To date, cash
generated from operations has been sufficient to fund capital expenditures. The
Company leases substantially all of its facilities under operating lease
agreements. Existing future commitments will be paid from cash provided by
operating activities, cash on hand, and if necessary the existing credit
facility.
The Company plans to continue to expand current facilities, upgrade
equipment and open new Learning Centers. The Company expects fiscal 1998 capital
expenditures to be approximately $13.0 million. The capital expenditures for a
typical new Learning Center are estimated to be approximately $500,000 to $1.0
million. The Company anticipates that its planned capital expenditures can be
funded through cash generated from operations.
A majority of the Company's revenues are derived from the Title IV Programs.
Disbursement of Title IV Program funds is dictated by federal regulations. For
students enrolled in programs of one academic year or less in length,
disbursements generally are made in two equal increments, one in the first 30
days following the student's enrollment in a program and the second when the
student reaches the midpoint of the program. For students enrolled in programs
greater than one academic year in length, disbursements also are made at the
beginning and midpoint of the subsequent academic year. Although the timing of
loan disbursements to the Company is subject to a student's directions to the
lender and to existing regulatory requirements regarding such disbursements, the
Company typically receives student loan funds upon their disbursement by the
lender. During fiscal 1997, the Company collected approximately $62 million, of
accounts receivable, which was utilized for various operating activities and
capital expenditures.
The Company believes its available cash on hand and cash provided by
operating activities and existing lines of credit under the credit facility will
be sufficient to meet the Company's cash requirements for at least the next 12
months. Thereafter, the Company will continue to evaluate all sources of capital
available to it, including bank financing and additional equity or debt
offerings, to satisfy ongoing working capital and capital expenditure
requirements.
IMPACT OF INFLATION
Inflation has not had a significant impact on the Company's historical
operations.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The following factors, among others, could cause actual results to differ
materially from those contained in forward looking statements made in this
Annual Report on Form 10-K and presented elsewhere by management from time to
time.
POTENTIAL ADVERSE EFFECTS OF REGULATION
As educational institutions that participate in various federal and state
financial aid programs, the Company and the Learning Centers are subject to
extensive governmental regulation. In particular, the Higher Education Act of
1965, as amended ("HEA"), and the regulations promulgated thereunder, subject
the Company, the Learning Centers and all other higher education institutions
eligible to participate in the various Title IV Programs to significant
regulatory scrutiny. The termination or material limitation of the ability of
the Company or any of the Learning Centers to participate in the Title IV
Programs would have a material adverse effect on the Company.
Because certain statutory and regulatory provisions impose significant
requirements on the Company and the Learning Centers and because the agency
administering these regulations, the United States Department of Education, has
not fully developed administrative interpretations of certain of the statutory
and regulatory provisions, it is not clear how the requirements imposed by
statute and regulations or other
25
<PAGE>
applicable laws, rules or regulations could have a material adverse effect on
the accreditation, authorization to operate in various states, permissible
activities or costs of doing business of the Company or one or more of the
Learning Centers. The failure to maintain or renew any required regulatory
approvals, accreditations or authorizations by the Company or any of the
Learning Centers would have a material adverse effect on the Company.
The violation of federal requirements governing participation in the Title
IV Programs or of state or accrediting agency requirements governing the
provision of educational services by the Company or any Learning Center could
result in the restriction or loss by the Company or a Learning Center of its
ability to participate in government funding programs or to offer education and
training programs. Any such loss or restriction would have a material adverse
effect on the Company. Furthermore, current statutes or regulations or statutory
or regulatory standards that become effective in the future may be applied or
interpreted by the government in ways that will delay or change the Company's
expansion plans or otherwise adversely affect the operation of the Learning
Centers and their participation in the Title IV Programs. In addition, all
government-provided student financial aid programs, including the Title IV
Programs, are subject to the effects of federal and state budgetary processes
and the possible elimination or consolidation of the Department of Education,
and there can be no assurance that government funding for the financial aid
programs in which the Company's students participate will continue to be
available or be maintained at current levels. The loss of funding or a reduction
in funding levels for the Title IV Programs would have a material adverse effect
on the Company.
CONTROL BY GENERAL ATLANTIC ENTITIES; POTENTIAL ADVERSE REGULATORY EFFECTS OF
CHANGE OF CONTROL
General Atlantic Corporation ("GAC"), General Atlantic Partners II, L.P.
("GAP") and GAP-CLC Partners, L.P. ("GAP-CLC") (collectively, the "General
Atlantic Entities") beneficially own approximately 22.7% of the outstanding
shares of Common Stock. Consequently, the General Atlantic Entities, and GAC in
particular, will continue to have significant influence over the policies and
affairs of the Company and may be in a position to determine the outcome of
corporate actions requiring stockholder approval, including the election of
directors, the adoption of amendments to the Company's Certificate of
Incorporation and the approval of mergers and sales of the Company's assets.
Because of the control position of the General Atlantic Entities, any
disposition of CLC's common stock by the General Atlantic Entities or issuance
of stock by the Company that results in a loss of control by the General
Atlantic Entities may have material adverse consequences for the Company under
applicable federal and state regulations and accrediting agency requirements,
including potential loss of eligibility to participate in the Title IV Programs.
Upon a change of ownership resulting in a change of control of the Company, as
defined in the HEA and the Department of Education's regulations, each Learning
Center would lose its eligibility to participate in the Title IV Programs for an
indeterminate period of time while it applies to regain eligibility, with the
likely loss of a portion of its Title IV funding during the reapproval period. A
change of control also would have significant regulatory consequences for the
Company at the state level and could affect the accreditation of the Learning
Centers.
The HEA and the Department of Education's regulations include the sale of a
controlling interest of common stock of an institution or its parent corporation
in the definition of a change of control. For a publicly traded corporation such
as the Company, Department of Education regulations specify that a change of
control arises at the same time that a report on Form 8-K is required to be
filed with the Securities and Exchange Commission reporting a change of control.
Most states and accrediting agencies have similar requirements, but they do not
uniformly define a change of control. A change of control of the Company that
exceeds the threshold set by the Department of Education would have a material
adverse effect on the Company.
COMPETITION
The postsecondary adult education and training market is highly fragmented,
with no single institution or company holding a dominant market share. The
Company competes for students with vocational and technical training schools,
degree-granting colleges and universities, continuing education programs and
26
<PAGE>
commercial training programs. Certain public and private colleges may offer
programs similar to those of the Learning Centers at a lower tuition cost due in
part to government subsidies, foundation grants, tax-deductible contributions or
other financial resources not available to proprietary institutions.
DEPENDENCE ON NEW PROGRAMS AND LOCATIONS; RISKS ASSOCIATED WITH CHANGES IN
TECHNOLOGY AND GROWTH
The market for the Company's programs and services is characterized by
rapidly changing requirements and characteristics, and the Company's ability to
develop and offer new programs and services and to open new locations is subject
to extensive state and federal regulation and accrediting agency requirements.
If the Company is unable, for financial, regulatory or other reasons, to develop
and offer new programs and services in a timely manner in response to changes in
the industry, or if programs and services offered by the Company fail to gain or
maintain widespread commercial acceptance, the Company's business may be
materially and adversely affected.
The Company offers training programs and services for rapidly changing
information technology. The introduction of information products embodying new
technologies and the emergence of new information system standards or services
may adversely affect the Company's ability to market its programs and services.
This may require the Company to make substantial expenditures to develop new
programs and services and to acquire new faculty, equipment and facilities. If
the Company is unable, for financial, regulatory or other reasons, to make those
expenditures or acquisitions, the Company's business may be materially and
adversely affected.
The Company's ability to meet its future operating and financial goals will
depend upon the Company's ability to successfully implement its growth strategy,
which will include the introduction of new locations as well as the potential
acquisition of assets and programs complementary to the Company's operations.
The Company's success in this area will depend on its ability to integrate
successfully such new locations, assets and businesses. There can be no
assurance that the Company will be able to implement or manage expansion
effectively.
DEPENDENCE UPON KEY EMPLOYEES
The Company's success depends to a significant extent upon the continued
service of its executive officers and other key personnel. None of the Company's
executive officers or key employees, other than the President and Chief
Executive Officer, is subject to an employment or non-competition agreement. The
loss of the services of any of its executive officers or other key employees
could have a material adverse effect on the Company. The Company's future
success will depend in part upon its continuing ability to attract and retain
highly qualified personnel. There can be no assurance that the Company will be
successful in attracting and retaining such personnel.
GENERAL
Because of these and other factors, past financial performance should not be
considered an indicator of future performance. Investors should not use
historical trends to anticipate future results and should be aware that the
trading price of the Company's common stock may be subject to wide fluctuations
in response to quarter-to-quarter variations in operating results, general
conditions in the education and training industry, changes in earnings estimates
and recommendations by analysts or other events.
27
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
COMPUTER LEARNING CENTERS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Statement of Operations for the Year Ended January 31, 1997; Consolidated Statements of Operations for the
Years Ended January 31, 1996 and 1995.................................................................... F-3
Balance Sheets at January 31, 1997 and 1996................................................................ F-4
Statement of Cash Flows for the Year Ended January 31, 1997; Consolidated Statements of Cash Flows for the
Years Ended January 31, 1996 and 1995.................................................................... F-5
Notes to Financial Statements.............................................................................. F-6
Financial Statement Schedules for the Years Ended January 31, 1997, 1996 and 1995.......................... I-8
</TABLE>
Schedule II--Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Computer Learning Centers, Inc.
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Computer
Learning Centers, Inc. at January 31, 1997 and 1996 and the results of its
operations and its cash flows for each of the three years in the period ended
January 31, 1997, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
New York, New York
March 14, 1997, except for Note 2, which is as of March 24, 1997
F-2
<PAGE>
COMPUTER LEARNING CENTERS, INC.
STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues............................................................. $ 64,025 $ 46,081 $ 39,297
------------ ------------ ------------
Costs and expenses:
Costs of instruction and services.................................. 35,475 26,076 22,227
Selling and promotional............................................ 11,407 7,884 6,371
General and administrative......................................... 5,584 4,052 3,727
Provision for doubtful accounts.................................... 3,084 2,613 3,313
Amortization of intangibles........................................ 362 363 393
------------ ------------ ------------
55,912 40,988 36,031
------------ ------------ ------------
Income before interest............................................... 8,113 5,093 3,266
Interest (income) expense, net....................................... (721) 96 948
Gain on sale of investment securities................................ (332) -- --
------------ ------------ ------------
Income before income taxes and discontinued operations............... 9,166 4,997 2,318
Provision for income taxes........................................... 3,565 2,078 1,131
------------ ------------ ------------
Income from continuing operations before discontinued operations..... 5,601 2,919 1,187
------------ ------------ ------------
Income (loss) from discontinued operations, net of applicable income
taxes (Note 3)..................................................... -- (1,065) 1,901
------------ ------------ ------------
Net income........................................................... $ 5,601 $ 1,854 $ 3,088
------------ ------------ ------------
------------ ------------ ------------
Earnings per share (Notes 2 and 3):
Income per share from continuing operations--1997 (unaudited pro
forma--1996 and 1995)............................................ $0.76 $0.51 $0.29
Unaudited pro forma income (loss) per share from discontinued
operations....................................................... -- (0.19) 0.46
------------ ------------ ------------
Net income per share--1997 (unaudited pro forma--1996 and 1995).... $0.76 $0.32 $0.75
------------ ------------ ------------
------------ ------------ ------------
Weighted average number of shares outstanding--1997 (unaudited pro
forma--1996 and 1995)............................................ 7,383,117 5,696,712 4,105,511
Unaudited supplemental pro forma income per share from continuing
operations....................................................... $ 0.48 $ 0.26
------------ ------------
------------ ------------
Unaudited supplemental pro forma weighted average number of shares
outstanding...................................................... 6,454,463 6,242,816
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
COMPUTER LEARNING CENTERS, INC.
BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................................. $ 26,950 $ 8,260
Accounts receivable, net of allowance for doubtful accounts
of $1,734 and $1,507 for 1997 and 1996, respectively.................................... 28,274 19,095
Prepaid expenses and other current assets................................................. 3,581 2,280
--------- ---------
Total current assets.................................................................... 58,805 29,635
Fixed assets, net........................................................................... 9,571 4,434
Intangible assets, net of amortization...................................................... 3,048 3,410
Other long-term assets...................................................................... 4,303 2,329
Total assets............................................................................ $ 75,727 $ 39,808
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.................................................................... $ 1,779 $ 958
Accrued employee expenses................................................................. 2,134 1,333
Accrued other expenses.................................................................... 2,412 1,968
Deferred revenues......................................................................... 27,486 16,834
--------- ---------
Total current liabilities............................................................... 33,811 21,093
Other long-term liabilities................................................................. 2,124 1,559
--------- ---------
Total liabilities....................................................................... $ 35,935 $ 22,652
--------- ---------
Stockholders' equity :
Preferred stock $.01 par value, 1,000,000 authorized shares, no shares issued or
outstanding............................................................................. -- --
Common stock, $.01 par value, 10,000,000 authorized shares, 7,823,960 shares issued and
outstanding (including 2,607,987 issued in connection with the April 14, 1997 stock
split)--1997; 10,000,000 authorized shares, 4,329,515 issued and outstanding
shares--1996 (Note 2)................................................................... $ 78 $ 43
Additional paid-in capital................................................................ 32,182 15,749
Less--subscription note receivable, no shares--1997; 70,649 common shares at $9.43 per
share--1996............................................................................. -- (666)
Net unrealized gain on securities available for sale...................................... 112 211
Retained earnings......................................................................... 7,420 1,819
--------- ---------
Total stockholders' equity.............................................................. 39,792 17,156
--------- ---------
Commitments and contingencies (Note 11)
Total liabilities and stockholders' equity.............................................. $ 75,727 $ 39,808
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
COMPUTER LEARNING CENTERS, INC.
STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................................................... $ 5,601 $ 1,854 $ 3,088
Adjustments to reconcile net income to cash
provided by operating activities:
Provision for doubtful accounts.............................................. 3,084 2,613 3,313
Depreciation................................................................. 2,318 1,367 1,507
Amortization of intangibles and other assets................................. 362 363 393
Deferred tax provision (benefit)............................................. (150) 47 (294)
Changes in net assets and liabilities:
Accounts receivable........................................................ (12,263) (4,661) (5,186)
Net assets of discontinued operations...................................... -- 1,197 461
Prepaid expenses and other current assets.................................. (1,285) 337 (325)
Other long-term assets..................................................... (1,890) (365) (503)
Trade accounts payable..................................................... 821 796 (770)
Accrued employee expenses.................................................. 801 412 (114)
Accrued other expenses..................................................... 2,168 (562) 768
Deferred revenues.......................................................... 10,652 3,451 648
Other long-term liabilities................................................ 565 196 716
--------- --------- ---------
Cash provided by operating activities.................................... 10,784 7,045 3,702
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures......................................................... (7,455) (1,983) (2,147)
(Increase) decrease in restricted cash....................................... -- 700 (700)
Product development.......................................................... (108) (75) --
Perkins matching contributions -- (82) (64)
--------- --------- ---------
Cash used for investing activities....................................... (7,563) (1,440) (2,911)
--------- --------- ---------
Cash flows from financing activities:
Redemption of subscription note receivable................................... 666 -- --
Proceeds from issuance of common stock....................................... 11,530 14,847 --
Exercise of stock options.................................................... 3,273 183 71
Borrowings from long-term debt............................................... -- 9,694 23,790
Repayments of long-term debt................................................. -- (26,822) (24,287)
--------- --------- ---------
Cash provided by (used for) financing activities......................... 15,469 (2,098) (426)
--------- --------- ---------
Net increase in cash and cash equivalents........................................ 18,690 3,507 365
Cash and cash equivalents, beginning of year..................................... 8,260 4,753 4,388
--------- --------- ---------
Cash and cash equivalents, end of year........................................... $ 26,950 $ 8,260 $ 4,753
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 1--NATURE OF THE BUSINESS
Computer Learning Centers, Inc. (the "Company"), formerly Comprehensive
Learning Concepts, Inc. (a subsidiary of General Atlantic Corporation), is a
public company traded on the NASDAQ National Market after completion of an
initial public offering on July 6, 1995 (Note 3). As of January 31, 1997, the
Company had fourteen operating Learning Centers, two Advantec Instititutes and
is headquartered in Fairfax, Virginia.
In May 1989, the Company acquired substantially all of the assets of
Blessing/White Inc. ("Blessing/ White"). In fiscal 1990, the Company began
operations in the U.K. with the formation of Comprehensive Learning Concepts
(U.K.) Limited ("UK Ltd."). In connection with its 1996 initial public offering,
the Company spunoff these operations to stockholders (Note 3).
As used herein, the fiscal years ended January 31, 1997, 1996, and 1995 are
referred to as "1997", "1996" and "1995", respectively.
NOTE 2--SUBSEQUENT EVENT: STOCK SPLIT
On March 24, 1997 the Board of Directors declared a three for two stock
split, in the form of a 50% stock dividend on the Company's common stock,
payable April 14, 1997 to stockholders of record at the close of business on
April 8, 1997. The effect of the split is presented retroactively within
stockholders' equity at January 31, 1997 by transferring the par value for the
additional shares issued from the additional paid-in capital account to the
common stock account (Note 9). The earnings per share amounts for all prior
periods have been restated to reflect the stock split. The following table
summarizes information related to the restated number of shares of common stock.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE COMMON STOCK
SHARES OUTSTANDING OUTSTANDING
------------------ --------------
<S> <C> <C>
Balance January 31, 1997 (pre-split)...................... 4,922,078 5,215,973
Common stock split........................................ 2,461,039 2,607,987
---------- --------------
Restated balance January 31, 1997......................... 7,383,117 7,823,960
---------- --------------
---------- --------------
</TABLE>
NOTE 3--PUBLIC OFFERINGS
1997 PUBLIC OFFERING
On November 1, 1996, the Company completed a public offering (with an
effective date of October 3, 1996), filing a registration statement on Form S-1
with the Securities and Exchange Commission ("SEC") for the sale of 1,957,500
shares of the Company's common stock at a price of $17.17 per share (share
amounts have been restated to reflect the stock split as discussed in Note 2).
The Company received total net proceeds of approximately $11.5 million from the
sale of 750,000 shares. In connection with the offering, the Company also
received approximately $2.4 million from the exercise of options to purchase
351,528 shares of common stock and approximately $666 for 105,972 shares of
common stock issued upon payment of subscription notes receivable of certain
stockholders. The remaining 750,000 shares were sold by certain selling
stockholders, and the Company did not receive any proceeds from the sale of
those
F-6
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 3--PUBLIC OFFERINGS (CONTINUED)
shares. The total net proceeds of $14.6 million will be used for the expansion
of the Company's programs through additional locations, as well as for working
capital and general corporate purposes.
1996 INITIAL PUBLIC OFFERING
On July 6, 1995, the Company completed an initial public offering (with an
effective date of May 31, 1995), filing a registration statement on Form S-1
with the SEC for the sale of 2,290,000 shares of its common stock. The net
proceeds of this offering of $14.8 million were used to repay indebtedness, to
repay a portion of the subordinated notes payable to stockholders resulting from
the Repurchase Transactions discussed below and for working capital and general
corporate purposes.
REPURCHASE TRANSACTIONS
In connection with the 1996 initial public offering, certain outstanding
preferred shares were repurchased at their book value of $3.1 million. The
Company negotiated the repurchase of outstanding common stock warrants for an
aggregate price of $986. The amount of the repurchase price in excess of the
book value of these warrants ($962) was charged to stockholders' equity. The
Company issued subordinated notes aggregating $4.1 million in consideration of
these repurchases, which were repaid from the proceeds of the offering.
RECAPITALIZATION
In connection with the 1996 initial public offering, a series of
transactions (collectively, the "Recapitalization") were executed. The Company
canceled the remaining note receivable from Blessing/White and contributed to
Blessing/White other assets and its investment in U.K Ltd. All assets were
contributed at their net book value (approximately $8.0 million), which the
Company believed approximated fair value. The Company then distributed all of
the outstanding shares of common and preferred stock of Blessing/ White to
shareholders of the Company on a pro rata basis for common stockholders and for
preferred stockholders, based upon the ratio of relative fair values of these
companies to the total fair value of the Company. The results of operations of
Blessing/White and UK Ltd. have been reflected as discontinued operations in the
accompanying financial statements through May 31, 1995. Operating results for
these discontinued operations, after allocation of expenses for administration
of benefit and insurance programs and certain tax and treasury functions, were
as follows:
<TABLE>
<CAPTION>
FOR THE FOUR FOR THE YEAR
MONTHS ENDED ENDED
MAY 31, 1995 JANUARY 31, 1995
------------------------ -----------------
<S> <C> <C>
Revenues........................................ $ 4,115 $ 23,938
------- -------
------- -------
Income (loss) before income taxes............... (1,568) 3,098
(Provision) benefit for income taxes............ 503 (1,197)
------- -------
Net income (loss)............................... $ (1,065) $ 1,901
------- -------
------- -------
</TABLE>
F-7
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 3--PUBLIC OFFERINGS (CONTINUED)
REVERSE STOCK SPLIT
In connection with the 1996 initial public offering the Company effected an
approximate .314 for 1 reverse stock split of its outstanding common stock (the
"reverse stock split"), which reduced the number of shares outstanding from
67,500 to 21,195. In conjunction with the reverse stock split, the Company
reduced the rate at which the preferred stock was convertible into common stock
to reflect the split. This reduced the total number of shares of common stock
issuable upon conversion of the preferred stock from 5,816,017 to 1,826,205
shares. The 1996 and 1995 consolidated financial statements reflect these
events.
PREFERRED STOCK CONVERSION
Subsequent to the Recapitalization discussed above, and immediately prior to
the completion of the 1996 initial public offering, preferred stockholders
converted their preferred stock into shares of common stock in accordance with
the applicable preferred stock's conversion rates.
NOTE 4--SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The financial statements include the Company and its wholly owned
subsidiaries, Blessing/White, and UK Ltd., which are reflected as discontinued
operations through May 31, 1995 (Note 3). All significant intercompany balances
and transactions have been eliminated for these periods.
The Company's consolidated financial information for 1996 and 1995 included
herein is not necessarily indicative of the financial position, results of
operations and cash flows of the Company in the future or indicative of the
results that would have been reported if the Company had operated as an
unaffiliated enterprise prior to May 31, 1995. Management believes the
consolidated statements of operations prior to 1997 include a reasonable
allocation of costs to continuing and discontinued operations. Such expenses
include administration of benefit and insurance programs, which were allocated
based upon costs directly attributable to a subsidiary, and certain tax and
treasury functions, which were allocated based upon the percentages of time
spent on subsidiary matters or as a percentage of revenues. Total costs
allocated to continuing operations were $116 and $1,094 for 1996 (through May
31, 1995) and 1995, respectively.
1997 INCOME PER SHARE
The income per share from operations for the year ended January 31, 1997 is
equal to net income divided by the weighted average number of shares
outstanding. The weighted average number of shares outstanding is based on the
number of common shares and common share equivalents, using the treasury stock
method.
1996 AND 1995 INCOME PER SHARE FROM CONTINUING OPERATIONS (UNAUDITED)
The unaudited pro forma income per share from continuing operations for the
years ended January 31, 1996 and 1995 is equal to historical income from
continuing operations divided by the unaudited pro forma weighted average number
of shares outstanding. The unaudited pro forma weighted average
F-8
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 4--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
number of shares outstanding is based on the number of common shares and common
share equivalents, using the treasury stock method. The common stock equivalents
include shares representing the conversion of stock options, shares required to
be sold at the 1996 initial public offering price to repay subordinated notes
payable to stockholders, and shares representing the conversion of all classes
of preferred stock at their respective common share conversion rates after
giving effect to the Repurchase Transactions and the Recapitalization at January
31, 1996 and 1995, respectively, discussed in Note 3. The weighted average of
actual common stock outstanding includes those shares issued in connection with
the 1996 initial public offering.
Such share amounts consisted of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JANUARY 31,
----------------------
<S> <C> <C>
1996 1995
---------- ----------
Conversion of stock options......................................... 241,501 277,515
Subordinated notes shares........................................... 218,626 616,654
Conversion of preferred stock....................................... 1,755,697 1,826,205
Actual common stock................................................. 1,581,984 16,633
---------- ----------
Total pro forma weighted average.................................... 3,797,808 2,737,007
---------- ----------
---------- ----------
As restated for 3 for 2 split (Note 2).............................. 5,696,712 4,105,511
---------- ----------
---------- ----------
</TABLE>
The unaudited supplemental pro forma income per share from continuing
operations for the years ended January 31, 1996 and 1995 are equal to unaudited
supplemental pro forma income from continuing operations divided by the
unaudited supplemental pro forma weighted average number of shares outstanding.
Unaudited supplemental pro forma income from continuing operations is derived by
adjusting historical income from continuing operations to reflect the reduction
of interest expense ($150 and $425 net of applicable income taxes for 1996 and
1995, respectively) relating to the repayment as of February 1, 1994 of
long-term indebtedness totaling $9.5 million. The unaudited supplemental pro
forma weighted average number of shares outstanding at January 31, 1996 and
1995, is based upon the unaudited pro forma weighted average number of shares
outstanding increased by the weighted average estimated amount of additional
shares required to be sold at the 1996 initial public offering price to repay
long-term indebtedness as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JANUARY 31,
----------------------
<S> <C> <C>
1996 1995
---------- ----------
Total pro forma weighted average.................................... 3,797,808 2,737,007
Shares issued to repay indebtedness................................. 505,167 1,424,870
---------- ----------
Total supplemental weighted average................................. 4,302,975 4,161,877
---------- ----------
---------- ----------
As restated for 3 for 2 split (Note 2).............................. 6,454,463 6,242,816
---------- ----------
---------- ----------
</TABLE>
F-9
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 4--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company's capital structure prior to the 1996 initial public offering is
not indicative of its prospective structure due to the conversion of all shares
of preferred stock into common stock concurrent with the closing of such public
offering. Accordingly, historical net income per common share for these periods
is not considered meaningful and has not been presented herein.
REVENUE RECOGNITION
Revenues of the Company are derived principally from tuition income. The
Company records accounts receivable and related deferred revenues when students
are billed tuition for the programs they are attending. The deferred revenues
are then recognized as income on a pro rata basis over the term of instruction,
which varies from concentrated (two to six week) courses to eight to
thirty-two-month programs. On an individual basis, when a student withdraws,
tuition paid in excess of earned revenues is refunded based on the applicable
refund policy and revenue earned in excess of tuition paid is recorded as an
account receivable. When reporting accounts receivable and deferred revenues,
the Company provides for estimated future student withdrawals as reductions to
deferred revenues and related accounts receivable balances, thus stating the
appropriate deferred revenues and accounts receivable balances at an estimated
net realizable value. Such provision aggregated $7,359 and $5,800, at January
31, 1997 and 1996, respectively.
LEARNING CENTER START-UP COSTS
Learning Center start-up costs consist of all direct costs incurred at a new
Learning Center (excluding advertising costs) from the date a lease for a
facility is entered into until the start of the first class. Such capitalized
costs are amortized on a straight-line basis over a one-year period commencing
with the date of the start of the first class. Deferred start up costs included
in prepaid expenses and other current assets in the balance sheets were $177,
net of accumulated amortization of $333, and $254, with no amortization at
January 31, 1997 and 1996, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount reported in the balance sheets for cash and cash
equivalents, accounts receivable, trade accounts payable, accrued other expenses
and deferred revenues approximate fair value because of the immediate or short
term maturity of these financial instruments.
ADVERTISING COSTS
The Company defers advertising costs related to production of commercials
and expenses such costs at the time the commercials are first aired. There was
no deferred advertising at January 31, 1997 and 1996. The Company expenses all
other advertising costs as incurred. Total advertising expense was $4,739,
$3,322, and $2,601 for 1997, 1996 and 1995 respectively.
STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, the Company considers investments
having an original maturity of three months or less to be cash equivalents.
There was no cash paid for interest during 1997. Cash paid
F-10
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 4--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
for interest in 1996 and 1995 aggregated $315 and $940, respectively. Cash paid
for income taxes in 1997, 1996 and 1995 aggregated $2,429, $1,933, and $1,518,
respectively.
RESTRICTED CASH
Pursuant to July 1994 U.S. Department of Education ("Department")
regulations, during 1995 the Company maintained restricted cash balances of
$700, which equaled 25% of refunds paid in 1994. Restricted cash balances for
1996, based on 1995 refunds, were maintained at $1,100 through July 1, 1995, at
which time restrictions on cash were no longer required.
INVENTORIES
Inventories consisting principally of program materials, books and supplies
are stated at the lower of cost, determined on a first-in, first-out basis, or
market. Total inventories, included in prepaid and other current assets in the
consolidated balance sheets, were $576 and $259 at January 31, 1997 and 1996,
respectively.
FIXED ASSETS
Furniture, equipment and leasehold improvements are recorded at cost.
Furniture and equipment are depreciated using the straight-line method over the
estimated useful lives of the assets for financial reporting purposes (three
years for computer software and five years for all other fixed assets) and
accelerated methods over statutory lives for income tax purposes. Leasehold
improvements are amortized using the straight-line method over the term of the
lease for financial reporting purposes and over the statutory lives for income
tax purposes.
PERKINS MATCHING FUNDS
The Company participates in the Perkins loan program in order to provide
continuing long-term, low interest loans to qualifying students in need of
financial assistance. Perkins loans are available on the basis of student
financial need and are subject to the availability of Perkins loan funds at the
institution. There is a 25% matching requirement for institutions participating
in the Perkins loan program. In 1997, the Company did not receive a federal cash
contribution for the Perkins loan program. Pursuant to the 25% matching
requirement, the Company contributed $82 in 1996.
INTANGIBLE ASSETS
Identifiable intangible assets consist of Department of Education
certifications of Title IV Program eligibility. Such assets were valued based on
independent appraisals in connection with the March 1987 acquisition of certain
Learning Centers. These assets are being amortized through 2007, using a
straight-line method. Accumulated amortization for these assets aggregated
$3,471 and $3,109 at January 31, 1997 and 1996, respectively.
F-11
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 4--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITIES AVAILABLE FOR SALE
In November 1995, the Company's health insurance carrier, pursuant to a
demutualization, issued to the Company 13,649 shares of common stock
representing the Company's pro rata share of the carrier's policy holder surplus
at the demutualization date. In January 1997, the Company sold 9,300 shares of
the common stock and realized a gain of $332 which is included in the 1997
statement of operations. The remaining 4,349 shares of stock are classified as
available for sale, with unrealized gains (representing the market value of
stock, as the Company has no basis in the investment), net of tax, excluded from
income and reported as a separate component of stockholders' equity.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS
109") which requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of temporary differences between the book
and tax bases of assets and liabilities.
Prior to May 31, 1995, discontinued operations were included in the
consolidated tax return of the Company. Under that arrangement, income taxes
were allocated to members of the consolidated group based on amounts they would
pay or receive if they had filed a separate income tax return (the "separate
company basis"). Pursuant to the Recapitalization described in Note 3, the
Company files separate income tax returns and has entered into a Tax Sharing and
Indemnification Agreement with Blessing/White.
NEW ACCOUNTING STANDARD
In February 1997, The Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128, "Earnings Per Share" ("SFAS 128").
This statement establishes new standards for computing and presenting earnings
per share ("EPS"). The standard replaces Accounting Principles Board Opinion No.
15 ("APB 15") presentation of "primary EPS" with "basic EPS", computed as income
available to common stockholders divided by the weighted average number of
common shares outstanding during the period. SFAS 128 also requires dual
presentation of basic and diluted EPS on the face of the income statement for
entities with complex capital structures. Diluted EPS is computed similarly to
"fully diluted EPS," as defined in APB 15. In addition, the statement requires a
reconciliation of the numerator and denominator of the basic to diluted EPS.
SFAS 128 is effective for financial statements issued for periods ending after
December 15, 1997, with early adoption not permitted. Restatement of all prior
period EPS data is required.
The Company anticipates that adoption of this new accounting standard will
have a significant effect on financial reporting due to the dilutive effect of
stock options outstanding (Note 12). The following
F-12
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 4--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
represents pro forma disclosure of basic and diluted EPS relative to 1997
operating results (share and per share amounts restated to reflect stock
split--Note 2).
<TABLE>
<CAPTION>
BASIC DILUTED
------------ ------------
<S> <C> <C>
1997 net income................................................... $ 5,601 $ 5,601
------------ ------------
Weighted average number of common shares outstanding.............. 6,859,456 6,859,456
Effect of dilutive securities:
Options......................................................... -- 599,853
Subscription note............................................... -- 49,613
------------ ------------
6,859,456 7,508,922
------------ ------------
Earnings per share................................................ $ 0.82 $ 0.75
------------ ------------
</TABLE>
These amounts compare to reported primary EPS of $0.76 per common share for
the year ended January 31, 1997. All options of the Company's stock had a
dilutive effect for the year ended January 31, 1997.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires the use of estimates by management that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period, primarily in the areas of provisions for estimated
collections, useful lives of intangible assets, and deferred income taxes.
Actual results could differ from these estimates.
NOTE 5--FINANCIAL AID PROGRAMS
The Company is subject to extensive regulation as a participant in various
federal and state government supported financial aid programs. For 1997,
approximately 75% of the Company's revenues were derived from various federal
student financial aid programs under Title IV ("Title IV Programs") of the
Higher Education Act of 1965, as amended ("HEA"). These regulations require,
among other things, that the Company and its Learning Centers comply with
certain financial responsibility and administrative capability requirements.
Failure to comply with these requirements could result in restriction or loss by
the Company or its Learning Centers of their ability to participate in federal
or other financial aid programs or to provide educational and training services.
Such restrictions could have a severe impact on the Company's business,
financial condition and results of operations.
Under the HEA, an educational institution may lose its eligibility to
participate in some or all of the Title IV Programs if defaults on the repayment
of federally guaranteed student loans exceed certain rates. These rates are
based on the repayment history of current and former students on loans provided
under certain federal student loan programs including the Federal Family
Education Loan Program ("FFEL") and the Federal Direct Loan Program ("FDLP"). A
rate of student defaults (known as the "cohort default rate") is calculated for
each main campus (and its additional locations, if any) annually by determining
the
F-13
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 5--FINANCIAL AID PROGRAMS (CONTINUED)
rate at which students at that campus entering repayment in one federal fiscal
year ending September 30 ("FY") default by the end of the following federal
fiscal year.
With respect to the cohort default rates for FY 1994 (which were published
in January 1997), any institution that is determined to have had FFEL or FDLP
cohort default rates equal to or exceeding 25% for three consecutive federal
fiscal years is subject to immediate loss of eligibility to participate in these
loan programs, for the remainder of the federal fiscal year in which the
Department of Education makes such determination and the subsequent two federal
fiscal years. Furthermore, an institution whose FFEL or FDLP cohort default rate
for any federal fiscal year exceeds 40% may have its eligibility to participate
in all of the Title IV Programs limited, suspended or terminated. An institution
has the right to appeal the accuracy of the Department of Education's
calculations of its cohort default rates. Such appeals are intended to correct
any errors made by the applicable guaranty agencies in compiling the student
repayment data and to identify any material errors made in the third-party
servicing and collection of individual loans. Institutions remain eligible to
participate in the FFEL program and FDLP during the pendency of any such appeal.
All Learning Centers, regardless of their default rates, have adopted default
management plans.
The Chicago Learning Center's FY 1993 cohort default rate as published is
36.2%, which results in three consecutive years of default rates that exceed the
25% threshold. The Company filed appeals with the Department of Education
challenging the accuracy of the default rates for all three years, and the
Department of Education previously rendered an unfavorable decision on the
Company's appeal with respect to FY 1992. By letter dated September 26, 1996,
the Department of Education notified the Company of its final decision on the
Company's appeals with respect to the FY 1991 and FY 1993 default rates. With
respect to the Chicago Learning Center's FY 1991 cohort default rate, the
Department accepted some but not all of the errors asserted by the Company,
resulting in a reduction of the FY 1991 cohort default rate to 26.4%. Because
the decided rates for the three years in question remain above 25%, in the
September 26, 1996 letter, the Department of Education notified the Company
that, effective upon receipt of the letter, the Chicago Learning Center was no
longer eligible to participate in the FFEL program and further notified the
Company that the Chicago Learning Center may reapply to participate in the FFEL
program on October 1, 1997. In accordance with a recently enacted statute, the
Department of Education also stated that the Chicago Learning Center is
ineligible to participate in the Pell Grant Program until July 1, 1997. The
Chicago Learning Center remains eligible to participate in other Title IV
Programs, including the Federal Supplemental Education Opportunity Grant program
and the Perkins program.
The Philadelphia Learning Center's FY 1994 cohort default rate as published
is 26.9% which results in three consecutive years of default rates that exceed
the 25% threshold. The Company plans on appealing the FY 1994 default rate with
the Department of Education challenging the accuracy of the FY 1994 default
rate. The Department of Education has decided the appeals of the Philadelphia
Learning Center's FY 1992 and FY 1993 cohort default rates, each of which
remains above 25%. If the ultimate resolution of such appeal for the FY 1994
cohort default rate were unfavorable, the Philadelphia Learning Center would be
subject to the loss of eligibility to participate in the FFEL and FDLP programs.
The Company can not predict either the outcome or the timing of when the
Department of Education might decide the Philadelphia Learning Center would be
subject to the loss of appeal with respect to the FY 1994
F-14
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 5--FINANCIAL AID PROGRAMS (CONTINUED)
default rate. If the Philadelphia Learning Center loses its eligibility to
participate in some or all of the Title IV Programs, such loss would have a
material adverse effect on the Company.
Revenues from the Chicago and Philadelphia Learning Centers for 1997 were
8.8% and 15.0% of total Learning Center revenues, respectively. The Department
of Education's interuption or termination of the Philadelphia Learning Center's
continued eligibility to participate in the Title IV Programs could have a
severe impact on the Company's financial condition and results of operations.
The total assets of these Learning Centers as of January 31, 1997 were $3,040
and $4,973, respectively. Management does not believe that these assets are
impaired as a result of the potential noncompliance issues referenced above.
NOTE 6--FIXED ASSETS
Fixed assets consisted of the following:
<TABLE>
<CAPTION>
JANUARY 31,
----------------------
1997 1996
--------- -----------
<S> <C> <C>
Furniture and equipment............................................... $ 15,002 $ 9,814
Leasehold improvements................................................ 2,974 683
--------- -----------
17,976 10,497
Less: Accumulated depreciation and amortization....................... (8,405) (6,063)
--------- -----------
$ 9,571 $ 4,434
--------- -----------
--------- -----------
</TABLE>
During 1995, the Company accelerated depreciation on certain computer
software due to technological changes, which resulted in additional depreciation
expense of $318.
NOTE 7--CREDIT FACILITY
On December 23, 1996, the Company executed a new credit facility with a bank
to replace a previous $5.0 million credit facility which expired July 15, 1996.
The terms of the agreement provide for an $8.5 million secured revolving credit
facility which expires December 22, 1998. At January 31, 1997 there was no
outstanding balance. The line of credit consists of a revolving credit note, not
to exceed $8.5 million, inclusive of a $2.0 million convertible term loan. The
interest on the facility is based either on the bank's US prime rate (8.25% at
January 31, 1997) or the London Interbank Offered Rate ("LIBOR") which was
5.4375 % at January 31, 1997. Interest rates are equal to (i) US prime rate or
LIBOR plus 1.25% for revolving credit loans and (ii) US prime rate plus 0.25% or
LIBOR plus 1.50% for convertible term loans. All interest payments are payable
quarterly on the outstanding balance. The Company pays a commitment fee of 1/4%
based on the unused portion of the credit facility. The Company has granted the
bank a security interest in accounts receivable. The agreement requires
maintenance of certain financial ratios (current, leverage, and fixed charge
ratios) and contains other restrictive covenants including limitations on
purchases and sales of assets. At January 31, 1997, the Company was in
compliance with all financial ratio requirements and all covenants.
F-15
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 7--CREDIT FACILITY (CONTINUED)
The Company had letters of credit in the aggregate for $373 and $190
outstanding at January 31, 1997 and 1996, respectively, primarily with a
landlord securing future rental payments of a facility and with an insurance
company for surety bonds required by various states in which the Company
operates.
NOTE 8--INCOME TAXES
The components of the provisions for income taxes are summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Current:
Federal............................................................. $ 2,813 $ 1,433 $ 984
State............................................................... 902 598 441
Deferred.............................................................. (150) 47 (294)
--------- --------- ---------
Provision for income taxes............................................ $ 3,565 $ 2,078 $ 1,131
--------- --------- ---------
--------- --------- ---------
</TABLE>
Deferred tax assets (liabilities) arise due to the recognition of income and
expense items for tax purposes in periods which differ from those used for
financial statement purposes. At January 31, 1997 and 1996, the net deferred tax
asset was comprised of the following:
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Allowance for doubtful accounts............................................ $ 817 $ 669
Depreciation and amortization.............................................. 17 75
Deferred rent accrual...................................................... 355 304
Vacation pay accrual....................................................... 141 143
Accrued bonuses............................................................ -- 122
Employee benefits.......................................................... 107 --
Lease termination.......................................................... 103 --
Other accruals............................................................. 17 77
--------- ---------
Total deferred tax assets.................................................. 1,557 1,390
--------- ---------
Deferred start-up costs.................................................... (73) (104)
Other deferred tax liabilities............................................. (186) (138)
--------- ---------
Total deferred tax liabilities............................................. (259) (242)
--------- ---------
Net deferred tax asset..................................................... $ 1,298 $ 1,148
--------- ---------
--------- ---------
</TABLE>
Management believes, based on the Company's history of earnings, that income
from continuing operations will more likely than not be sufficient to fully
recognize this net deferred tax asset. The components of the net deferred tax
asset include a current and long-term portion, which are included in prepaid
expenses and other current assets and other long-term assets in the balance
sheets, respectively.
F-16
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 8--INCOME TAXES (CONTINUED)
Differences between effective income tax rates and the statutory U.S.
federal income tax rates are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Statutory U.S. federal income tax rate......................... 35.0% 35.0% 34.0%
State income taxes, net of federal benefit..................... 6.8% 7.8% 12.6%
Permanent differences and other................................ (2.9)% (1.2)% 2.2%
--- --- ---
Effective income tax rate...................................... 38.9% 41.6% 48.8%
--- --- ---
--- --- ---
</TABLE>
For the years ended January 31, 1996 (through May 31, 1995) and 1995, state
taxable income includes interest income on amounts owed from Blessing/White
which caused disproportionately higher income tax rates.
NOTE 9--STOCKHOLDERS' EQUITY
An analysis of the changes in stockholder's equity for the years ended
January 31, 1997, 1996 and 1995 is summarized below:
<TABLE>
<CAPTION>
COMMON
PREFERRED COMMON TREASURY SUBSCRIPTION PAID-IN STOCK
STOCK STOCK STOCK NOTES CAPITAL WARRANTS
----------- ------------- ----------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT FEBRUARY 1, 1994................ $ 19,018 -- $ (585) $ (1,169) $ 10 $ 24
Exercise of stock options.................. -- $ 1 -- -- 70 --
1995 net income............................ -- -- -- -- -- --
----------- --- ----- ------------- --------- ---
BALANCE AT JANUARY 31, 1995................ 19,018 1 (585) (1,169) 80 24
----------- --- ----- ------------- --------- ---
Retirement of treasury stock............... (585) -- 585 -- -- --
Repurchase transactions.................... (3,125) -- -- -- -- (24)
Recapitalization........................... (6,582) -- -- 503 (8,045) --
Conversion of preferred stock to common.... (8,726) 17 -- -- 8,709 --
1996 initial public offering (Note 3)...... -- 23 -- -- 14,824 --
Exercise of stock options.................. -- 2 -- -- 181 --
1996 net income............................ -- -- -- -- -- --
----------- --- ----- ------------- --------- ---
BALANCE AT JANUARY 31, 1996................ -- 43 -- (666) 15,749 --
----------- --- ----- ------------- --------- ---
1997 public offering (Note 3).............. -- 7 -- 666 13,925 --
Exercise of stock options.................. -- 2 -- -- 869 --
Tax benefit of non-qualified option
exercises................................ -- -- -- -- 1,665 --
1997 net income............................ -- -- -- -- -- --
Three for two stock split (Note 2)......... -- 26 -- -- (26) --
----------- --- ----- ------------- --------- ---
BALANCE AT JANUARY 31, 1997................ $ -- $ 78 $ -- $ -- $ 32,182 $ --
----------- --- ----- ------------- --------- ---
<CAPTION>
(ACCUMULATED
DEFICIT)
RETAINED
EARNINGS
-------------
<S> <C>
BALANCE AT FEBRUARY 1, 1994................ $ (11,337)
Exercise of stock options.................. --
1995 net income............................ 3,088
-------------
BALANCE AT JANUARY 31, 1995................ (8,249)
-------------
Retirement of treasury stock............... --
Repurchase transactions.................... (986)
Recapitalization........................... 9,200
Conversion of preferred stock to common.... --
1996 initial public offering (Note 3)...... --
Exercise of stock options.................. --
1996 net income............................ 1,854
-------------
BALANCE AT JANUARY 31, 1996................ 1,819
-------------
1997 public offering (Note 3).............. --
Exercise of stock options.................. --
Tax benefit of non-qualified option
exercises................................ --
1997 net income............................ 5,601
Three for two stock split (Note 2)......... --
-------------
BALANCE AT JANUARY 31, 1997................ $ 7,420
-------------
</TABLE>
F-17
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 10--SAVINGS PLAN
The Company maintains a 401(k) plan covering substantially all employees.
Under the terms of the plan, the Company will match 25% of employee
contributions up to a maximum of 6% of annual employee compensation. Company
contributions under the plan aggregated $76, $52 and $54 for 1997, 1996 and
1995, respectively.
NOTE 11--COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases substantially all of its facilities under operating lease
agreements. A majority of the operating leases contain renewal options that can
be exercised after the initial lease term. Renewal options are generally for
periods of one to five years. All operating leases will expire over the next ten
years, and management expects that leases will be renewed or replaced by other
leases in the normal course of business. There are no material restrictions
imposed by the lease agreements. The Company has not entered into any
significant guarantees related to the leases. The Company is required to make
additional payments under certain operating lease terms for taxes, insurance and
other operating expenses incurred during the operating lease period.
Future minimum rental payments required under operating leases that have
initial or remaining noncancelable lease terms in excess of one year as of
January 31, 1996 are as follows:
<TABLE>
<S> <C>
1998............................................................... $ 5,163
1999............................................................... 5,245
2000............................................................... 4,546
2001............................................................... 3,625
2002............................................................... 3,082
Thereafter......................................................... 9,739
---------
$ 31,400
---------
---------
</TABLE>
Rent expense under these lease agreements aggregated $5,176, $3,689 and
$3,540 for 1997, 1996 and 1995, respectively.
EMPLOYEE AGREEMENT
On February 1, 1997, the Company entered into an employment agreement with
the President and Chief Executive Officer of the Company, pursuant to which he
is entitled to 24 months of salary and benefits and a guaranteed bonus which
would be payable with respect to the year in which any breach of such agreement,
as specified. In addition, if he were terminated as the result of a change of
control as defined in the agreement, he would receive an amount equal to three
times the greater of the average annual total compensation paid to him over the
Company's last three fiscal years or the total compensation paid during the
Company's fiscal year ended January 31, 1997.
F-18
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 11--COMMITMENTS AND CONTINGENCIES (CONTINUED)
LITIGATION
The Company is not a party to any material litigation. The Company may from
time to time be involved in routine litigation incident to its business.
NOTE 12--STOCK INCENTIVE PLANS
The Company has a Long-Term Incentive Plan that provides for award of
incentive and nonqualified common stock options and common stock appreciation
rights to certain directors, officers and key employees. The plan is
administered by a compensation committee of the Board of Directors. The Company
had reserved 1,163,187 shares of common stock for grant under the plan. As of
January 31, 1997, options to purchase 242,847 shares of common stock were
outstanding under this plan (amounts restated for stock split--Note 2). The
Company has provided that no further grants may be made under the Long-Term
Incentive Plan.
The 1995 Stock Incentive Plan provides a variety of awards, including stock
options, stock appreciation rights and restricted and unrestricted stock grants
to the Company's employees, officers, consultants and advisors. Stock options
may be granted either in the form of incentive stock options or nonqualified
stock options. The option exercise price of incentive stock options may not be
less than the fair market value of the common stock on the date of grant. The
Company has reserved 730,230 shares of common stock for grant under the plan. As
of January 31, 1997 options to purchase 573,375 shares of common stock were
outstanding under this plan, and 151,230 options were available for grant
(amounts restated for stock split--Note 2).
The 1995 Non-Employee Directors Stock Option Plan, provides for the grant to
each of the current non-employee directors of an option exercisable for shares
of common stock. All options granted under the plan will have an exercise price
equal to the fair market value of the common stock on the date of grant. The
Company has reserved 105,267 shares for issuance under this plan. As of January
31, 1997, options to purchase 37,380 shares of common stock were outstanding
under this plan, and 60,867 options were available for grant (amounts restated
for stock split--Note 2).
Incentive and nonqualified options are exercisable at a price not less than
100% and 50%, respectively, of the fair market value of the common stock at the
date of grant, as determined by the administration committee. Stock appreciation
rights provide for payments equal to the base amount of the right, as determined
by the administration committee. No such appreciation rights are outstanding.
Options may be granted in tandem with appreciation rights; however, holders of
such tandem awards are subject to restrictions on the matter of exercise as
defined in the plan. Generally, stock options and rights vest ratably over five
years. All options and rights must be exercised within ten years from the date
of grant.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No., 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). Accordingly, no compensation cost has been
recognized for the stock option plans. Had compensation cost for the Company's
three stock option plans been determined based on the fair value at the grant
date for awards in 1997 and 1996, consistent with the provisions of SFAS 123,
the Company's net income and earnings per share would
F-19
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 12--STOCK INCENTIVE PLANS (CONTINUED)
have been reduced to the pro forma amounts indicated in the table below. The
effects of applying SFAS 123 in this disclosure are not indicative of future
amounts.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JANUARY 31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Net income--1997 as reported; income from continuing operations--1996 as reported.............. $ 5,601 $ 2,919
Net income--pro forma.......................................................................... 4,585 2,820
Earnings per share--1997 as reported; unaudited pro forma--1996 as reported.................... $ 0.76 $ 0.51
Earnings per share -- pro forma................................................................ 0.62 0.50
</TABLE>
The fair value of options at the date of grant was estimated using the
Black-Scholes model with the following weighted average assumptions:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JANUARY 31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Expected life (years)............................................................................ 5 5
Interest rate.................................................................................... 6.7% 6.7%
Volatility....................................................................................... 42.5% 14.1%
</TABLE>
The weighted average fair value of stock options granted during 1997 and
1996 was $7.07 and $1.62, respectively.
<TABLE>
<CAPTION>
WEIGHTED
INCENTIVE NONQUALIFIED AVERAGE
STOCK STOCK EXERCISE
OPTIONS OPTIONS PRICES
---------- ------------ -----------
<S> <C> <C> <C>
Outstanding at January 31, 1994 424,753 117,748 $ 6.34
---------- ------------ -----
Options granted.............................................................. 296,348 -- 5.50
Options exercised............................................................ (5,495) -- 12.74
Options cancelled............................................................ (97,149) -- 5.13
---------- ------------ -----
Outstanding at January 31, 1995.............................................. 618,457 117,748 6.00
---------- ------------ -----
Options granted.............................................................. 91,220 -- 8.00
Options exercised............................................................ (191,872) -- 0.95
Options cancelled............................................................ (4,407) -- 5.50
---------- ------------ -----
Outstanding at January 31, 1996.............................................. 513,398 117,748 7.83
Options granted.............................................................. 324,380 -- 22.35
Options exercised............................................................ (276,560) (109,898) 8.47
---------- ------------ -----
Outstanding at January 31, 1997.............................................. 561,218 7,850 15.67
---------- ------------ -----
As restated for 3 for 2 split................................................ 841,827 11,775 10.45
---------- ------------ -----
</TABLE>
The weighted average exercise prices for the nonqualified stock options
outstanding, included above, as of January 31, 1997 and 1996 were $14.52 and
$9.18, respectively. Incentive stock options and
F-20
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 12--STOCK INCENTIVE PLANS (CONTINUED)
nonqualified stock options exercisable were 125,760 and 7,850 at January 31,
1997 (188,640 and 11,775 as restated for stock split--Note 2), 332,956 and
117,748 at January 31, 1996, and 392,033 and 117,748 at January 31, 1995,
respectively.
The following table summarizes information about options outstanding at
January 31, 1997 (amounts restated for stock split--Note 2):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------------
EXERCISABLE OPTIONS EXERCISABLE
RANGE ---------------- WEIGHTED ------------------------------
OF WEIGHTED AVERAGE AVERAGE WEIGHTED
EXERCISE NUMBER REMAINING EXERCISE NUMBER AVERAGE
PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE EXERCISABLE PRICE
- ------------------ ----------- ---------------- ------------- ----------- -----------------
<C> <C> <S> <C> <C> <C>
$3.67 to $9.68..... 434,532 7.5 years $ 4.77 124,095 $ 4.97
$13.00 to $16.00... 59,070 9.4 years 13.53 16,320 14.91
$16.67 to $18.67... 360,000 9.8 years 16.79 60,000 16.67
----------- ------ ----------- ------
.................. 853,602 10.45 200,415 9.28
----------- ------ ----------- ------
</TABLE>
NOTE 13--QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR 1997
THREE MONTHS ENDED
----------------------------------------------
<S> <C> <C> <C> <C>
APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
1996 1996 1996 1997
--------- --------- ----------- -----------
Revenues.......................................................... $ 14,006 $ 14,977 $ 16,888 $ 18,154
Costs and expenses................................................ 12,047 12,938 14,674 16,253
Operating income.................................................. 1,959 2,039 2,214 1,901
Interest income, net.............................................. 104 110 183 324
Gain on sale of investment securities............................. -- -- -- 332
Net income........................................................ $ 1,207 $ 1,257 $ 1,402 $ 1,735
Earnings per share*............................................... $ 0.18 $ 0.18 $ 0.19 $ 0.21
</TABLE>
F-21
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 13--QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR 1996
THREE MONTHS ENDED
----------------------------------------------
<S> <C> <C> <C> <C> <C>
APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
1995 1995 1995 1996
--------- --------- ----------- -----------
Revenues................................................. $ 10,885 $ 10,659 $ 12,363 $ 12,174
Costs and expenses....................................... 10,005 9,602 10,702 10,679
Operating income......................................... 880 1,057 1,661 1,495
Interest income (expense), net........................... (189) (67) 71 89
Income from continuing operations before discontinued
operations............................................. 354 555 1,003 1,007
Discontinued operations, net of applicable income taxes:
Income (loss) from discontinued operations............. (1,264) 199 -- --
Net income (loss)........................................ ($ 910) $ 754 $ 1,003 $ 1,007
Income per share from continuing operations (pro forma
for the three months ended April 30 and July 31,
1995)*................................................. $ 0.09 $ 0.10 $ 0.15 $ 0.15
Pro forma income (loss) per share from discontinued
operations*............................................ ($ 0.31) $ 0.03 -- --
Earnings (loss) per share (pro forma for the three months
ended April 30 and July 31, 1995)*..................... ($ 0.22) $ 0.13 $ 0.15 $ 0.15
</TABLE>
* Restated to reflect April 1997 stock split (Note 2).
F-22
<PAGE>
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information regarding directors of the Company will be set forth in the
Company's definitive Proxy Statement for its 1997 Annual Meeting of the
Stockholders which will be filed pursuant to Regulation 14A within 120 days
after the end of the Company's last fiscal year, and is incorporated herein by
reference. The following sets forth information as of January 31, 1997
concerning the Company's executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Reid R. Bechtle...................................... 44 President, Chief Executive Officer and Director
Charles L. Cosgrove.................................. 42 Vice President and Chief Financial Officer
Susan L. Luster...................................... 45 Vice President and Chief Operating Officer
Harry H. Gaines...................................... 59 Chairman of the Board of Directors
</TABLE>
Mr. Bechtle joined the Company in 1991 as President of what was then its
Computer Learning Center division and has been President, Chief Executive
Officer and a director of the Company since October 1994. From 1982 to 1991, he
served as President of Multi-List, Inc., a software services subsidiary of
PRC/Litton, Inc. ("PRC").
Mr. Cosgrove joined the Company in 1992 as Vice President and Chief
Financial Officer of what was then its Computer Learning Center division and has
been Vice President and Chief Financial Officer of the Company since October
1994. From March 1990 to 1992, he served as Vice President, Controller of the
government operations division of PRC.
Ms. Luster joined the Company in November 1995 as Vice President and Chief
Operating Officer. From April 1994 to November 1995, she was a partner of Tower
Technologies, Inc., an information technology consulting company. From January
1992 to April 1994, she was Senior Vice President of Infodata Systems, Inc., a
document management software company, and from May 1986 to January 1992, she
served as Senior Vice President of Operations with AGS Information Services, a
systems development company.
Mr. Gaines has been Chairman of the Board of Directors since October 1994
and has served as a director since 1987. From 1987 to October 1994 and from 1988
to October 1994, he served as President and Chief Executive Officer of the
Company and of Mohr Development Incorporated, respectively. From 1989 through
September 1995, Mr. Gaines served as President of Blessing/White.
ITEM 11. EXECUTIVE COMPENSATION
This information required by this Item 11 concerning remuneration of the
Company's officers and directors and information concerning material
transactions involving such officers and Directors is incorporated herein by
reference to the company's definitive Proxy Statement for its 1997 Annual
Meeting of Stockholders which will be filed pursuant to Regulation 14A within
120 days after the end of the Company's last fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 concerning the stock ownership of
management and five percent beneficial owners is incorporated herein by
reference to the Company's definitive Proxy Statement
I-1
<PAGE>
for its 1997 Annual Meeting of Stockholders which will be filed pursuant to
Regulation 14A within 120 days after the end of the Company's last fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
EMPLOYMENT AGREEMENTS
On February 1, 1997, the Company entered into an employment agreement with
the President and Chief Executive Officer of the Company, Reid Bechtle. The
Agreement has a term of one year but shall be automatically renewed for
successive one-year periods unless the Company notifies Mr. Bechtle of non-
renewal at least 90 days prior to the end of the initial term or any renewal
term. The agreement provides for an annual salary of $250,000, which may be
increased from time to time by the Compensation Committee of the Company's Board
of Directors, a guaranteed annual bonus equal to 25% of Mr. Bechtle's salary and
an additional annual bonus payable based on achievement by the Company of
certain revenue and income targets.
In the event Mr. Bechtle's employment is terminated other than for cause, as
defined in the agreement, or due to his voluntary resignation, he is entitled to
receive an amount equal to two times his then effective base salary and
guaranteed bonus.
In addition, if Mr. Bechtle's employment is terminated as the result of a
change of control as defined in the agreement, he is entitled to receive an
amount equal to three times the greater of (i) the average annual total
compensation paid to him over the Company's last three fiscal years or (ii)
total compensation paid during the Company's fiscal year ended January 31, 1997.
The Company had an employment agreement with Harry H. Gaines with a term
extending through January 31, 1997, pursuant to which Mr. Gaines provided such
assistance to the Company as specified by the President of the Company. Pursuant
to the employment agreement, Mr. Gaines received a salary of $30,000 per year.
THE REPURCHASE TRANSACTION
In connection with the Company's refinancing of its credit agreement with
Bankers Trust Company ("BTC") and The First National Bank of Boston ("FNBB") in
1989, the Company sold an aggregate of 675,206 shares of its Class B Convertible
Preferred Stock ("Class B Stock") for $8.00 per share to the following principal
stockholders and other affiliates: 593,875 shares to General Atlantic Partners
II, L.P. ("GAP"), a principal stockholder of the Company; 15,500 shares to
GAP-CLC Partners L.P. ("GAP-CLC"), a principal stockholder of the Company;
32,072 shares to Bankers Trust (Delaware) ("BTD"), an affiliate of BTC, one of
the Company's commercial lenders; and 33,759 shares to BancBoston Capital, Inc.
("BCI"), an affiliate of FNBB, one of the Company's commercial lenders. In
addition, the Company sold 171,053 and 153,741 shares of its Class C Convertible
Preferred Stock ("Class C Stock") for $8.00 per share to BTD and BCI,
respectively. Mr. Reynolds, a director of the Company, is a managing member of
GAP.
In June 1995 the Company repurchased (i) 32,072 shares and 33,759 shares of
its Class B Stock from BTD and BCI, respectively, (ii) 171,053 shares of its
Class C Stock and warrants to purchase 188,397 shares of Common Stock from BTD
and (iii) 153,741 shares of its Class C Stock from BCI. These repurchases are
referred to collectively as the "Repurchase Transactions." Each share of
convertible preferred stock was repurchased for $8.00 per share, and the
warrants were repurchased for approximately $5.24 per share of common stock
purchasable thereunder. In consideration of the Repurchase Transactions, the
Company issued subordinated notes for $2,611,400 to BTD and $1,500,000 to BCI,
each of which notes were paid in full with a portion of the net proceeds from
the Company's initial public offering.
I-2
<PAGE>
THE RECAPITALIZATION
In connection with the Company's initial public offering, the Company (i)
transferred all of its shares of Comprehensive Learning Concepts (U.K.) Limited
and Mohr Development Incorporated to Blessing/ White, (ii) canceled the
promissory note payable to the Company dated February 1, 1990, which promissory
note had an outstanding balance of approximately $7.5 million (after netting the
receivable from the Company against the note on or about the date of its
cancellation), bore interest at the rate of prime plus 2% per annum and was
issued by Blessing/White to the Company to evidence the indebtedness of
Blessing/White to the Company for declared but unpaid dividends, (iii)
transferred 67,500 shares of Common Stock of Blessing/White to the holders of
Common Stock of the Company, (iv) transferred $500,000 of cash to Blessing/White
and (v) transferred all of the issued and outstanding shares of Preferred Stock
of Blessing/White to the holders of Preferred Stock of the Company. These
transactions are referred to collectively as the "Recapitalization."
As a result of the Recapitalization, GAP, GAP-CLC and GAC received 4,970,913
shares of Preferred Stock of Blessing/White with a cost basis of $5,950,083; Mr.
Gaines, the Chairman of the Company's Board of Directors, received 100,000
shares of Preferred Stock of Blessing/White with a cost basis of $50,568 and Mr.
Cohen, a Director of the Company, received 41,500 shares of Preferred Stock of
Blessing/White with a cost basis of $20,986. Mr. Reynolds, a director of the
Company, is the general partner and a limited partner of GAP-CLC. The general
partner of GAP is GAP LLC, and the sole limited partner is an indirect wholly-
owned subsidiary of General Atlantic Group Limited, a Bermuda corporation.
TAX SHARING AGREEMENT
The Company and Blessing/White are parties to a tax sharing and
indemnification agreement providing for, among other matters, (i) the payment of
tax liabilities and entitlement to tax refunds, (ii) the allocation of
responsibility and the providing of cooperation in the filing of tax returns,
(iii) the indemnification of Blessing/White by the Company from certain tax and
other liabilities related to the operation of the Company prior to the
Recapitalization and (iv) the indemnification of the Company by Blessing/White
from certain tax and other liabilities related to the operation of
Blessing/White prior to the Recapitalization.
OTHER RELATED PARTY TRANSACTIONS
The Company has adopted a policy that all transactions between the Company
and its officers, directors and other affiliates must be (i) approved by a
majority of the members of the Company's Board of Directors and by a majority of
the disinterested members of the Company's Board of Directors and (ii) on terms
no less favorable to the Company than could be obtained from unaffiliated third
parties. In addition, this policy requires that any loans by the Company to its
officers, directors or other affiliates be for bona fide business purposes only
I-3
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
A. Financial Statements, see index in Item 8 on page F-1
(1) Report of Price Waterhouse LLP
(2) Financial Statements
(a) Statement of Operations for the year ended January 31, 1997;
Consolidated Statements of Operations for the years ended January
31, 1996 and 1995
(b) Balance Sheets at January 31, 1997 and 1996
(c) Statement of Cash Flows for the year ended January 31, 1997;
Consolidated Statements of Cash Flows for the years ended January
31, 1996 and 1995
(d) Notes to Financial Statements
B. Financial Statement Schedule, see index in Item 8 on page F-1
C. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT SEQUENTIALLY NUMBERED PAGE
- ----------- --------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
3.1 Second Amended and Restated Certificate of Incorporated by reference to Exhibit 3.3 of the
Incorporation of the Registrant Registrant's Report on Form 10-Q filed July 14,
1995 (the "1995 Form 10-Q").
3.2 Amended and Restated Bylaws of the Registrant Incorporated by reference to Exhibit 3.4 of the
Registrant's Form S-1 Registration Statement, as
amended, filed March 29, 1995 (No. 33-90716) (the
"Form S-1".)
4.1 Form of Certificate for Shares of Registrant's Incorporated by reference to Exhibit 4.1 of Form
Common Stock S-1
10.1 Long-Term Incentive Plan, as amended Incorporated by reference to Exhibit 10.1 of the
Form S-1
10.2 1995 Stock Incentive Plan, as amended by the Board Incorporated, by reference to Exhibit 10.1 of the
of Directors on March 23, 1996. Registrant's Report on Form 10-Q filed June 13,
1996.
10.3 1995 Non-Employee Directors Stock Option Plan Incorporated by reference to Exhibit 10.3 of the
Form S-1.
10.4 Second Amended and Restated Shareholders' Agreement Incorporated by reference to Exhibit 10.1 of the
1995 Form 10-Q.
10.5 Assignment Agreement, dated as of February 27, Incorporated by reference to Exhibit 10.6 of the
1995, by and among Blessing/ White Inc., Harry H. Form S-1
Gaines and the Registrant.
10.6 Office lease, dated October 16, 1986, by and Incorporated by reference to Exhibit 10.7 of the
between Collins Tuttle & Company, Inc. and the Form S-1
Registrant, as amended.
</TABLE>
I-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT SEQUENTIALLY NUMBERED PAGE
- ----------- --------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
10.7 Office Lease dated October 1994, by and between Incorporated by reference to Exhibit 10.8 of the
Nancy B. Rogers and Robert Bernheim and the Form S-1
Registrant.
10.8 Standard Business Complex Lease, dated June 18, Incorporated by reference to Exhibit 10.9 of the
1993, by and between DAG Management, Inc. and the Form S-1
Registrant.
10.9 Office Space Lease, dated March 11, 1983, by and Incorporated by reference to Exhibit 10.10 of the
between Wilshire Commerce Building, Ltd. and the Form S-1
Registrant, as amended.
10.10 Office Lease Agreement, dated September 27, 1991, Incorporated by reference to Exhibit 10.11 of the
by and between ITEC Associates and the Registrant. Form S-1
10.11 Standard Office Lease, dated August 12, 1991, by Incorporated by reference to Exhibit 10.12 of the
and between Boccardo Properties and the Registrant. Form S-1
10.12 Office Lease, dated July 8, 1994, by and between Incorporated by reference to Exhibit 10.13 of the
LaSalle National Bank, as Trustee, and the Form S-1
Registrant, as amended.
10.13 Lease Agreement, dated April 14, 1994, by and Incorporated by reference to Exhibit 10.14 of the
between Lifeco Fair Oaks Office Building Joint Form S-1
Venture and the Registrant, as amended.
10.14 Lease Agreement, dated December 19, 1991 by and Incorporated by reference to Exhibit 10.15 of the
between Plaza 500 Limited Partnership and the Form S-1
Registrant, as amended.
10.15 Lease Agreement dated February 12, 1996 by and Incorporated by reference Exhibit 10.16 of the
between Plum Grove Associates, a Limited Registrant's Annual Report on Form 10-K filed April
Partnership, and the Registrant 30, 1996 (the "1996 Form 10-K")
10.16 Lease Agreement, dated April 1, 1996, by and Incorporated by reference Exhibit 10.17 of the 1996
between Mack R. Company No. 1, Plymouth Meeting , Form 10-K
PA and the Registrant.
10.17 Lease Agreement dated January 17, 1996 by and Incorporated by reference to Exhibit 10.18 of the
between Phase One Equities, Inc. and Litchfield Form S-1
Investments and the Registrant.
10.18 Lease Agreement dated August 1, 1995 by and between Incorporated by reference to Exhibit 10.19 of the
Eastgate Plaza Ltd. and the Registrant 1996 Form 10-K
10.19 Lease Agreement dated August 1, 1995 by and between Incorporated by reference to Exhibit 10.20 of the
Caroline Partners, Ltd. and the Registrant. 1996 Form 10-K
10.20 Lease Agreements, as amended dated December 20, Page
1996 by and between Community Towers, LLC and the
Registrant.
</TABLE>
I-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT SEQUENTIALLY NUMBERED PAGE
- ----------- --------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
10.21 Lease Termination Agreement dated April 11, 1997 by Page
and between Wilshire Shatto Group and the
Registrant.
10.22 Lease Agreement, dated January 15, 1997 by and Page
between Battlefield Building Five Limited
Partnership and the Registrant.
10.23 Lease Agreement, as amended, dated February 5, 1997 Page
by and between Battlefield Building Five Limited
Partnership and the Registrant.
10.24 Office Space Lease, dated September 17, 1996 and Incorporated by reference to Exhibit 10.11 of the
executed September 17, 1996 by and between Gordon Registrant's Report on Form 10-Q filed November 27,
Properties and Gita Begin d/ b/a Madison Office 1996.
Center and the Registrant.
10.25 Office Lease, dated April 1, 1996, and executed May Incorporated by reference to Exhibit 10.1 of the
1, 1996 by and between 312 Marshall Ave Limited Registrants Report on Form 10-Q filed September 4,
Partnership and the Registrant 1996
10.26 Voting Agreement dated May 5, 1995 by and among Incorporated by reference to Exhibit 10.16 of the
General Atlantic Corporation, General Atlantic Form S-1
Partners II, L.P. and GAP-CLC Partners, L.P.
10.27 Stock Repurchase Agreement, dated May 5, 1995, by Incorporated by reference to Exhibit 10.17 of the
and between Bankers Trust (Delaware) and the Form S-1
Registrant.
10.28 Stock Repurchase Agreement, dated May 5, 1995 by Incorporated by reference to Exhibit 10.18 of the
and between BancBoston Capital, Inc. and the Form S-1
Registrant.
10.29 Stock Repurchase Agreement, dated May 5, 1995 by Incorporated by reference to Exhibit 10.19 of the
and between GAP-CLC Partners, L.P. and the Form S-1
Registrant.
10.30 Lease Agreement, dated May 5, 1995 by and between Incorporated by reference to Exhibit 10.20 of the
General Atlantic Partners II, L.P. and the Form S-1
Registrant.
10.31 Tax Sharing and Indemnification Agreement by and Incorporated by reference to Exhibit 10.26 of the
between the Registrant and Blessing/ White, Inc. Form 1996 10-K
10.32 Employment Agreement, dated June 6, 1996, by and Incorporated by reference to Exhibit 10.2 of the
between Harry H.Gaines and the Registrant. Registrant's Report on Form 10-Q filed September 4,
1996
</TABLE>
I-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT SEQUENTIALLY NUMBERED PAGE
- ----------- --------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
10.33 Employment Agreement, dated February 1, 1997, by Page
and between Reid R. Bechtle and the Registrant.
10.34 Credit Agreement, dated December 23, 1996 by and Page
between CoreStates Bank, N.A. and the Registrant.
11.1 Computation of historical and supplemental pro Page
forma earnings per share.
21.1 List of subsidiaries. Incorporated by reference to Exhibit 21.1 of the
Form S-1
23.1 Consent of Price Waterhouse LLP. Page
27 Financial Data Schedule Page
</TABLE>
- ------------------------
* This exhibit is a compensatory plan or arrangement in which executive
officers or directors of the Registrant participate.
D. Reports on Form 8-K
No report on Form 8-K was filed by the Registrant during the last
quarter of fiscal 1997.
I-7
<PAGE>
SCHEDULE II
COMPUTER LEARNING CENTERS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-------------------------------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER NET BALANCE AT END
YEAR EXPENSES ACCOUNTS WRITE-OFFS OF YEAR
------------- ----------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
January 31, 1995
Allowance for doubtful accounts.......... $ 701 $ 3,313 $ 9 $ (2,286) $ 1,737
January 31, 1996
Allowance for doubtful accounts.......... 1,737 2,613 19 (2,862) 1,507
January 31, 1997
Allowance for doubtful accounts.......... 1,507 3,084 -- (2,341) 2,250
</TABLE>
The Company's allowance for doubtful accounts at January 31, 1997 of $2,250
includes an amount applicable to current accounts receivable and non-current
accounts receivable of $1,734 and $516, respectively.
I-8
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
COMPUTER LEARNING CENTERS, INC.
By: /s/ REID R. BECHTLE
-----------------------------------------
Dated: April 30, 1997 Reid R. Bechtle
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ REID R. BECHTLE President, Chief Executive April 30, 1997
- ------------------------------ Officer and Director
Reid R. Bechtle (Principal Executive
Officer)
/s/ CHARLES L. COSGROVE Vice President and Chief April 30, 1997
- ------------------------------ Financial Officer
Charles L. Cosgrove (Principal Financial
Officer)
/s/ MARK M. NASSER Controller (Principal April 30, 1997
- ------------------------------ Accounting Officer)
Mark M. Nasser
/s/ HARRY H. GAINES Director April 30, 1997
- ------------------------------
Harry H. Gaines
/s/ RALPH W. CLARK Director April 30, 1997
- ------------------------------
Ralph W. Clark
/s/ IRA D. COHEN Director April 30, 1997
- ------------------------------
Ira D. Cohen
/s/ JOHN L. CORSE Director April 30, 1997
- ------------------------------
John L. Corse
/s/ STEPHEN P. REYNOLDS Director April 30, 1997
- ------------------------------
Stephen P. Reynolds
S-1
<PAGE>
Exhibit 10.20
LEASE AMENDMENT NO. 1
This LEASE AMENDMENT NO. 1 (this amendment) is entered into as of
December 20, 1996, by and between Computer Learning Centers, Inc., Successor to
CLC TRAINING CORPORATION, a Delaware corporation ("Tenant"), and COMMUNITY
TOWERS, LLC, a Delaware limited liability company ("Landlord") , with reference
to the following facts:
A. Landlord and Tenant are the current parties to that certain
Standard Office Lease, dated as of August 12, 1991, together with an Addendum to
Lease dated August 19, 1991 (said lease and said addendum together shall be
referred to as the ("Lease"), for the lease by Tenant of space in a building
located at 111 North Market Street, San Jose, California, as more particularly
described in the Lease (the "Leased Premises") . All capitalized terms referred
to in this Amendment shall have the same meaning defined in the Lease, except
where expressly defined to the contrary in this Amendment.
B. Tenant has exercised its right to extend the Lease pursuant to
section 50 of the Addendum to Lease comprising a part of the Lease.
Accordingly, the parties desire to confirm such extension of the term of the
lease and the monthly Base Rent during said extended term, upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants hereinafter contained, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Confirmation. Tenant acknowledges and agrees that: (a) Tenant is
in sole possession of the Leased Premises demised under the Lease; (b) all work,
improvements and furnishings required by Landlord under the Lease have been
completed and accepted by Tenant; (c) all free rent and any other concession
required under the Lease have been granted, used and otherwise satisfied; and
(d) it has no offset, claim, recoupment or defense against the payment of rent
and other sums and the performance of all obligations of Tenant under the tease.
2. Extended Term. Tenant has exercised its right under section 50
of the Addendum to Lease comprising a part of the Lease to extend the term of
the Lease for five (5) years as provided in this Amendment. Accordingly section
1.5 of the Lease is amended to provide that the term of the Lease is extended
for five (5) years and shall expire on December 20, 2001 (said extended term
shall be referred to herein as the "Extended Term") . The parties acknowledge
that Tenant has no further right to extend the term of the Lease. As a result,
sections 50 and 60 of said Addendum to Lease are hereby deleted.
<PAGE>
3. Base Rent During Extended Term. Effective December 21,
1996, the monthly Base Rent during the Extended Term is $31,972.80, which
includes during the Extended Term the cost for the 100 parking spaces
provided in section 2.2 of the Lease and section 54 of said Addendum to
Lease. Monthly Base Rent for any partial month shall be prorated on a
daily basis.
4. Parking. During the Extended Term, Lessee shall continue to
have right to use 90 spaces at the so called "Church" parking lot and 10
spaces at the Boccardo parking lot fronting on San Pedro Street, as
provided in section 54 of said Addendum to Lease, or in each case at
another parking location within the radius set forth in section 54 of said
Addendum to Lease; however such other location does not have to be in a
facility controlled by Boccardo. The third paragraph (regarding Lessee
option to lease up to 30 additional spaces) of section 54 of said Addendum
to Lease is of no further force or effect. Neither Lessee nor any of its
officers, employees, agents, students or invitees shall have any right to
park without cost at the Office Building Project. Notwithstanding the
deletion of Lessee's option to purchase up to 30 additional parking spaces
under the third paragraph of section 54 of said Addendum, Lessor agrees to
cooperate in good faith with Lessee in connection with Lessee's efforts to
lease up to thirty (30) additional parking spaces at any parking facility
within a two (2) block radius of the Building; provided, however, that (i)
Lessee acknowledges and agrees that providing or obtaining all or any
portion of such additional spaces is not an obligation of Lessor nor a
condition to the performance of any obligation of Lessee, (ii) if all or
any number of such additional spaces are made available to Lessee, Lessee
shall be solely responsible for all costs and expenses for such additional
spaces, and (iii) if all or any number of such additional spaces are made
available, it may be done on terms and conditions acceptable to Lessor in
its good faith but sole and absolute discretion and there is no agreement,
guaranty, warranty or requirement that such additional space will be
available throughout the term of the Lease, as extended hereby.
5. HVAC. There currently exists a heating and air-conditioning
unit on the ground floor of the Building that services the Leased Premises
("Ground Floor HVAC Unit"). At such time as Landlord shall be able to
provide (and shall provide) the same level of comfort presently achieved
using the Ground Floor HVAC Unit through use of the HVAC system available
to the Building, Landlord shall have the right to disconnect the Ground
Floor HVAC Unit.
6. Hours of Operation. Section 53 of the Addendum to Lease
comprising a part of the Lease is amended to provide that Lessee's hours of
operation shall only be as follows:
7:00 a.m. to 11:00 p.m. - Mondays, Wednesday and Thursday
7:00 a.m. to 6:00 p.m. - Tuesdays and Fridays
10:00 a.m. to 4:00 p.rn. - Saturdays
None - Sundays
7. General Provisions.
<PAGE>
7.1 Further Assurances. Landlord and Tenant each agree to
execute any and all documents and agreements reasonably requested by the
other party to further evidence or effectuate this Amendment.
7.2 Successors and Assigns. This Amendment shall be
binding upon and inure to the benefit of the parties hereto and their
successors and assigns.
7.3 Reaffirmation. As amended hereby, the Lease shall
remain in full force and effect.
7.4 Conflicts. In case of any conflict between any term
or provision of this Amendment and the Lease, the term or provision of this
Amendment shall govern.
7.5 Counterparts. This Amendment may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which when taken together shall constitute one agreement.
IN WITNESS WHEREOF, this Amendment has been executed as of the
date first set forth above.
LANDLORD: COMMUNITY TOWERS, LLC,
a Delaware limited liability company
By: DIVCO COMMUNITY INVESTORS, LLC
Its: Manager
By:
Name:
Its:
TENANT: Computer Learning Centers, Inc., (successor to
CLC TRAINING CORPORATION,) a Delaware corporation
By:
Name:
Its:
<PAGE>
Exhibit 10.21
LEASE TERMINATION AGREEMENT AND RELEASE
This Lease Termination Agreement and Release ("AGREEMENT") is
entered into as of March ___, 1997, between KYUNG YONG LEE and YUN CHO LEE,
husband and wife ("LEES"), as community property, JAE MIN CHA and CE CIL CHA,
husband and wife ("CHAS"), as community property, PYUNG SUN KIM and KOOK JUNG
KIM, husband and wife ("KIMS"), as community property, and WSI FUND, INC.,
doing business as and collectively referred to herein as WILSHIRE SHATTO
GROUP ("WSG") on the one hand, and COMPUTER LEARNING CENTERS, INC. ("CLC"),
on the other hand. WSG and CLC are sometimes hereinafter referred to as "THE
PARTIES".
R E C I T A L S :
This AGREEMENT is made with respect to the following facts:
A. WSG are the true owners of certain property located at
3130 Wilshire Boulevard, Los Angeles, California ("PROPERTY"), and are the
current landlords under that certain lease dated July 26, 1988 affecting a
portion of the PROPERTY.
<PAGE>
B. CLC is the tenant of such portion of the PROPERTY
pursuant to such lease.
C. The July 26, 1988 lease has been amended by a series of
amendments, the last which is described as "Seventh Amendment To Lease" and
is dated August 23, 1996. True and correct copies of the said lease and all
Amendments thereto are attached to this AGREEMENT as Attachment "A" and are
incorporated herein and are sometimes herein referred to as "THE LEASE
AGREEMENT".
D. The Parties acknowledge that, subject to this AGREEMENT,
the terms of THE LEASE AGREEMENT are mutually enforceable until its
expiration date, as provided below.
E. THE PARTIES desire to provide in this AGREEMENT for the
termination of THE LEASE AGREEMENT prior to its current expiration date,
subject to and in accordance with the terms and conditions set forth in this
AGREEMENT.
F. This AGREEMENT is not intended to, and does not in fact,
adversely affect any rights and remedies of THE PARTIES under THE LEASE
AGREEMENT, all of which rights and remedies are hereby expressly reserved,
which accrue after the date of this AGREEMENT and prior to the termination of
THE LEASE AGREEMENT as provided below.
NOW, THEREFORE, in consideration of the foregoing facts and
the terms and conditions set forth herein, WSG and CLC agree as follows:
Incorporation of Recitals. The foregoing Recitals
are incorporated
<PAGE>
herein by reference.
Consideration.
Payment by CLC. CLC agree to
pay to WSG the sum of Five
Hundred Thousand Dollars
($500,000). CLC shall pay as
follows:
Concurrently with the full execution hereof, CLC
shall deliver to WSG a check
payable to the order of WSG in the
amount of Two Hundred Fifty
Thousand Dollars ($250,000).
No later than ninety days
after the full execution
hereof, CLC shall deliver to
WSG a check payable to the
order of WSG in the amount of
One Hundred Thousand Dollars
($100,000).
No later than September 30,
1997, CLC shall deliver to WSG
a check payable to the order
of WSG in the amount of One
Hundred Fifty Thousand Dollars
($150,000).
<PAGE>
No later than September 30,
1997, CLC shall pay to WSG
interest that accrues after
full execution hereof on any
unpaid balance of the above
stated Five Hundred Thousand
Dollars ($500,000) at an
annual rate of nine percent
(9%).
Security Deposit under THE LEASE AGREEMENT. Upon
full execution of this AGREEMENT, in addition to CLC's payment of the Five
Hundred Thousand Dollars ($500,000) plus interest, as stated above under a)
Payment by CLC, CLC shall lose all of its rights, remedies and/or claims
against WSG for the Security Deposit under THE LEASE AGREEMENT in the amount
of Thirty-One Thousand Three Hundred Ninety-One Dollars and Twenty-five Cents
($31,391.25). The said Security Deposit shall be used by WSG in repair and
restoration of the PROPERTY.
Early Termination. Effective upon execution of this
AGREEMENT, the term of THE LEASE AGREEMENT, which expires on September 30,
1998, is hereby amended to expire instead on September 30, 1997. In
addition, CLC shall have the option to extend such term by one month after
the September 30, 1997 termination date, exercisable by written notice to WSG
on or before September 15, 1997. If CLC exercises the said option, CLC shall
pay in advance a separate rent fee to WSG for the extension in the amount of
Fifty-Five Thousand Eight Hundred Eighty-four Dollars ($55,884) and CLC shall
vacate the PROPERTY by October 31, 1997.
General Release. Except for claims under the
provisions of Article 11 of THE
<PAGE>
LEASE AGREEMENT and Section 2 of the Addendum thereto dated July 1988, which
shall continue in effect until and after termination of THE LEASE AGREEMENT,
and except for such rights as are created or preserved herein, each of THE
PARTIES hereby releases and forever discharges the other, and its assignees,
transferees, principals, partners, officers, directors, shareholders,
employees, servants, subsidiaries, parents, heirs, successors, agents,
insurance carriers, attorneys and representatives, from any and all claims,
disputes, demands, damages, debts, liabilities, obligations, contracts,
agreements, causes of action, suits, and costs, of whatever nature, character
or description, whether known or unknown, anticipated or unanticipated, which
each may have or may hereafter have or claim to have against the other by
reason of any cause, or thing whatsoever occurring, done, omitted, or
suffered to be done prior to the date hereof arising from and/or regarding
THE LEASE AGREEMENT (collectively, "CLAIMS").
Intention of the Parties. It is the intention of
the parties that this AGREEMENT shall be effective as a full and final accord
and satisfactory release of all CLAIMS. In furtherance of this intention,
the Parties acknowledge that each is familiar with Section 1542 of the Civil
Code of the State of California, which provides as follows:
"A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him
must have materially affected his settlement with this
debtor.
CLC and WSG hereto waive and relinquish any rights and
benefits which they may have under Section 1542. CLC and WSG acknowledge
that they may hereafter discover facts in addition to or different from those
which they now know or believe to be true with respect to THE LEASE AGREEMENT
or the subject matter of this AGREEMENT, but it is their intention
<PAGE>
to fully and finally and forever settle and release any and all Claims, known
or unknown, suspected or unsuspected, which do now exist, may exist or prior
to the date hereof have existed between them in connection with THE LEASE
AGREEMENT. In furtherance of this intention, the releases herein shall be
and remain in effect as full and complete general releases notwithstanding
the discovery or existence of any such additional or different facts.
CLC and WSG, and each of them, warrant and represent to one
another that the effect and import of the provisions of Section 1542 have
been fully explained to them by their attorneys.
Ownership of Claims. CLC and WSG, and each of them,
warrant and represent that they are the only persons or entities
which have any interest in any of the matters herein released,
and that none of such CLAIMS, causes of action, costs or demands,
or any part thereof, have been assigned, granted or transferred
in any way to any other person.
Alterations. Landlord agrees that, notwithstanding
anything to the contrary in THE LEASE AGREEMENT, Tenant shall not
be required to remove, or pay for the removal of, any
alterations, additions or improvements made to the PROPERTY
during the term of THE LEASE AGREEMENT.
Survival. The provisions of Article 11 of THE LEASE
AGREEMENT and Section 2 of the Addendum thereto dated July 1988
shall survive the termination of THE LEASE AGREEMENT provided for
in this AGREEMENT with respect to any claims or liability arising
from events
<PAGE>
or circumstances occurring prior to such termination.
Fees and Costs. CLC and WSG, and each of them, agree
to bear their own costs and attorney's fees incurred with
respect to the EARLY TERMINATION, described above, and the
preparation of this AGREEMENT.
Severability. If any provision of this AGREEMENT shall
be adjudged by a Court to be void and/or unenforceable, the same
shall in no way affect: (a) any other provision in this
AGREEMENT; and (b) the validity and/or enforceability of the
AGREEMENT as a whole.
Entire Agreement. This AGREEMENT contains the entire
understanding and agreement between THE PARTIES with respect to
the matters referred to herein. No other representations,
covenants, undertakings and/or other prior or contemporaneous
agreements, oral or written, respecting such matters, which are
not specifically incorporated herein, shall be deemed in any way
to exist or bind any of THE PARTIES. Each of THE PARTIES
acknowledges that it has not executed this AGREEMENT in reliance
on any such representation, covenant, undertaking and/or other
agreement.
<PAGE>
Binding on Successors and Others. This AGREEMENT and
the covenants and conditions contained herein shall apply to, be
binding upon, and inure to the benefit of the respective
administrators, executors, heirs, trustees, legal
representatives, assignees, successors and agents of THE PARTIES.
Construction. THE PARTIES participated jointly in the
preparation of this AGREEMENT. Each party to this AGREEMENT has
had the opportunity to review, comment upon, and redraft this
AGREEMENT. It is agreed that no rule of construction shall apply
against any party and/or in favor of any party. This AGREEMENT
shall be construed as if THE PARTIES jointly prepared this
AGREEMENT and any uncertainty or ambiguity shall not be
interpreted against any one party. This AGREEMENT is to be
performed in Los Angeles County, California and be interpreted,
enforced and governed by and under the laws of the State of
California.
Venue and Jurisdiction. Any litigation arising from
this AGREEMENT shall be instituted in the Los Angeles County
Superior Court, and THE PARTIES hereby stipulate and confer venue
and jurisdiction over them for the purpose of resolving any
disputes under this AGREEMENT.
Modification. This AGREEMENT shall not be modified
except by written agreement executed by THE PARTIES.
Attorney's Fees. Should suit be brought to enforce or
interpret any part of this AGREEMENT, the "prevailing party"
shall be entitled to recover, as an element of costs of suit and
not
<PAGE>
as damages, reasonable attorney's fees to be fixed by the
Court. A party not entitled to recover his, her, or its costs
shall not be entitled to recover attorney's fees. No sum for
attorney's fees shall be counted and calculated in the amount of
a judgment for the purpose of determining if a party is entitled
to recover costs or attorney's fees.
Further Documents. CLC and WSG shall execute and
deliver all documents and perform all further acts that may be
reasonably necessary to effectuate the provisions of this
AGREEMENT.
Counterparts. This AGREEMENT may be executed in any
number of original counterparts. Any such counterpart, when
executed, shall constitute an original of this AGREEMENT, and all
such counterparts together shall constitute one and the same
AGREEMENT.
Notices. Any notices and/or correspondence pursuant to
this AGREEMENT shall be sent via facsimile with confirmation sent
by mail to the parties as follows:
If to CLC: COMPUTER LEARNING CENTERS, INC.
c/o Mr. Charles L. Cosgrove
11350 Random Hills Road, Suite 240
Fairfax, Virginia 22030
Fax No.: (703) 359-8225
With a Copy to: Thomas L. Hanavan, Esq.
DONAHUE, GALLAGHER, WOODS & WOOD
300 Lakeside Drive, Suite 1900
Oakland, California 94612-3570
Fax No.: (510) 832-1486
If to WSG: WILSHIRE SHATTO GROUP
c/o Mr. Jonathan Kim
3130 Wilshire Boulevard, Suite 400
Los Angeles, California 90010
<PAGE>
Fax No.: (213) 386-2279
With a Copy to: Robert M. Kim, Esq.
LAW OFFICES OF ROBERT M. KIM
800 Wilshire Boulevard, Ste. 530
Los Angeles, California 90017
Fax No.: (213) 489-9705
Advice of Counsel. CLC and WSG, and each of them,
acknowledge that they have been represented by counsel of their
own choice in the negotiations leading up to the execution of
this AGREEMENT and that they have read this AGREEMENT and have
had it fully explained to them by their counsel.
Powers and Authority. CLC and WSG, and each of them,
warrant and represent that the execution, delivery and
performance hereof are within their powers and authority, and all
requisite action and other steps have been taken by the
appropriate governing body, board, partners or group, to obtain
due authorization thereof pursuant to any and all organizational
documents of each party; and this AGREEMENT constitutes the valid
and binding obligation of THE PARTIES, and each of them,
enforceable in accordance with its terms.
No Conflicting Laws. CLC and WSG, and each of them,
warrant and represent that the execution and delivery of this
AGREEMENT will not, with or without the giving of notice or
passage of time, or both: (a) conflict with or violate any law,
statute, rule, regulation or administrative order to which THE
PARTIES, and each of them, are subject or by which the assets
of THE PARTIES, and each of them, are bound or affected; (b)
violate any judgment, order, writ or decree of any court or
administrative body in any suit or proceeding to which
THE PARTIES, and each of them, is a party;
<PAGE>
(c) conflict with the terms of any charter or other
organizational document of THE PARTIES, and each of them, or to
which CLC or WSG is a party; or (d) result in a breach of or
default under any material agreement, commitment, contract or
other material instrument to which CLC or WSG is a party or by
which any of the assets of CLC and/or WSG are bound or affected.
Freely and Voluntarily. In negotiating, executing and
carrying out the provisions hereof, THE PARTIES, and each of
them: (a) have at all times acted freely and voluntarily and of
its own accord, and without duress or coercion of any kind, and
(b) have not relied upon, and are not relying upon, the
continuing existence or effectiveness of any agreement, document,
instrument or covenant to which CLC or WSG is a party, or any
security therefor.
Time of the Essence. Time is of the essence of this
AGREEMENT.
Authority. The person signing below on behalf of CLC,
and the person signing below on behalf of WSI Fund, Inc.,
represents and warrants that he has the requisite authority to
bind the party on whose behalf he is signing.
No Third Parties Benefitted. This AGREEMENT is made
and entered into for the benefit of THE PARTIES, and the persons
and entities referenced in Paragraph 11 above, and no other
person or entity shall have any rights hereunder.
Survival of Representations and Warranties. All
representations and warranties of the
<PAGE>
respective parties contained herein shall be deemed to be
material and shall survive the execution and delivery (or
termination) of this AGREEMENT.
COMPUTER LEARNING CENTERS, INC.
Dated: March __, 1997 By:
---------------------------------
CHARLES L. COSGROVE
Vice President
"CLC"
Dated: March __, 1997 ------------------------------------
KYUNG YONG LEE
Dated: March __, 1997 ------------------------------------
YUN CHO LEE
Dated: March __, 1997 ------------------------------------
JAE MIN CHA
Dated: March __, 1997 ------------------------------------
CE CIL CHA
Dated: March __, 1997 ------------------------------------
PYUNG SUN KIM
Dated: March __, 1997 ------------------------------------
KOOK JUNG KIM
WSI FUND, INC.
By:
---------------------------------
"WSG"
APPROVED AS TO FORM AND CONTENT:
Dated: March __, 1997 LAW OFFICES OF ROBERT M. KIM
By:
---------------------------------
Robert M. Kim, Attorney for WSG
Dated: March __, 1997 DONAHUE, GALLAGHER, WOODS & WOOD
By:
---------------------------------
Thomas L. Hanavan,
Attorneys for CLC
<PAGE>
[LETTERHEAD]
THE
HOLLADAY
CORPORATION
3400 Idaho Avenue, N.W., Suite 500, Washington, D.C. 20016 202-362-2400
- -----------------------------------------------------------------------------
BUSINESS PARK LEASE
TENANT: COMPUTER LEARNING CENTERS, INC., a Delaware corporation SUITE: 200
------------------------------------------------------- ---
LEASE AGREEMENT
Table of Contents
<TABLE>
<S> <C> <C>
1. PREMISES.......................................................... 1
2. TERM.............................................................. 1
3. RENTAL............................................................ 1
4. ADDITIONAL RENT................................................... 1
5. RENT ADJUSTMENT................................................... 1
6. PAST DUE RENT, DISHONORED CHECKS AND LATE CHARGES................. 2
7. USE OF DEMISED PREMISES........................................... 2
8. COMMON AREAS...................................................... 2
9. PARKING........................................................... 2
10. DEPOSITS.......................................................... 2
11. SUBLETTING AND ASSIGNMENT......................................... 2
12. UPKEEP AND SURRENDER OF DEMISED PREMISES.......................... 2
13. ALTERATIONS....................................................... 3
14. FLOOR LOADING..................................................... 3
15. TENANT'S EQUIPMENT................................................. 3
16. NOTICE OF DEFECTS................................................. 3
17. LIABILITY......................................................... 3
18. SIGNS............................................................. 3
19. ORDINANCES, REGULATIONS AND RULES................................. 4
20. INDEMNITY......................................................... 4
21. ENTRY FOR REPAIRS AND INSPECTION.................................. 4
22. INTERRUPTION OF SERVICES OR UTILITIES.............................. 4
23. INSURANCE......................................................... 4
24. DAMAGE BY FIRE OR OTHER CASUALTY.................................. 5
25. EMINENT DOMAIN.................................................... 5
26. BANKRUPTCY OR INSOLVENCY.......................................... 5
27. DEFAULTS AND REMEDIES............................................. 5
28. WAIVER............................................................ 6
29. SUBORDINATION..................................................... 6
30. ESTOPPEL CERTIFICATES............................................. 6
31. FINANCING REQUIREMENTS............................................ 6
32. NO RECOURSE TO LANDLORD........................................... 7
33. HOLDING OVER...................................................... 7
34. SUBMISSION OF LEASE............................................... 7
35. COVENANTS OF LANDLORD............................................ 7
36. FORCE MAJEURE..................................................... 7
37. LIEN FOR RENT..................................................... 7
38. WAIVER OF TRIAL BY JURY........................................... 7
39. ATTORNEY'S FEES................................................... 7
40. BROKERS........................................................... 7
41. NOTICES........................................................... 7
42. MISCELLANEOUS..................................................... 7
43. AUTHORITY OF LANDLORD AND TENANT.................................. 8
44. [INTENTIONALLY OMITTED]........................................... 8
45. HAZARDOUS MATERIALS...............................................
46. TENANT'S RIGHT TO TERMINATE.......................................
47. [INTENTIONALLY OMITTED]...........................................
48. TENANT'S WORK.....................................................
</TABLE>
EXHIBITS
Exhibit A - Plan of the Property on which is outlined in red the Demised
Premises
Exhibit A-1 - Plan of Parking for the Demised Premises
Exhibit B - [INTENTIONALLY OMITTED.]
Exhibit C - [INTENTIONALLY OMITTED.]
Exhibit D - Certification of the Lease Commencement Date
Exhibit E - Tenant's Signage Plans
LEASE ADDENDA
Lease Addendum One - Additional Rent
Lease Addendum Two - Exclusive
<PAGE>
THE HOLLADAY CORPORATION
BUSINESS PARK LEASE
THIS LEASE is made this ___________________ day of _____________,
19_____, by and between BATTLEFIELD BUILDING FIVE LIMITED PARTNERSHIP,
----------------------------------------------
a Virginia limited partnership (hereinafter called "Landlord") and
____________________________
COMPUTER LEARNING CENTERS, INC., a Delaware corporation
---------------------------------------------------------------------
------------------------------------- (hereinafter called "Tenant").
WITNESSETH
In consideration of the mutual agreements hereinafter set
forth, the parties do hereby mutually agree as follows:
Premises 1. Landlord does hereby lease to Tenant and Tenant does
hereby lease from Landlord, for the term and on the
conditions hereinafter provided, 15,172 square feet of space
which
------
square footage is agreed upon and not subject to
remeasurement (hereinafter referred to as the "Demised
Premises") of the building situated at 7000 Infrantry
---------------
Ridge Road, Battlefield Business Park, Manassas, Virginia
--------------------------------------------------------
22110 (the "Building")
--------------------------------------------------------
(the building and land being hereinafter referred to as the
"Property"), together with the right to the non-exclusive
use, in common with others, of such footways, hallways,
parking areas and other facilities designed for common use
as may be installed by Landlord. The Demised Premises are
outlined in red on the plan attached hereto marked as
Exhibit A and incorporated herein by reference.
Term 2. (a) The Demised Premises are leased for a term
(hereinafter called the "Term") commencing on the Lease
Commencement Date (as defined in subparagraph (b) of this
Paragraph 2) and terminating at midnight on that date which
is five (5) years, zero (0) months after February 1, 1997
-------- --------
(said date of termination being hereinafter called the
"Lease Termination Date"), unless the Term shall sooner
cease, expire or be terminated as hereinafter provided.
(b) The Lease Commencement Date shall be As set forth
on Page 1A ________________, 19_____, and Landlord and
Tenant agree that Tenant accepts the Demised Premises "as
is" as of the date of this Lease subject to the other
provisions of this Lease.
Portions of the Demised Premises shall be delivered to
Tenant in two stages (Portion One is all of the Demised
Premises except the Broker Power Space and Portion Two
is the Broker Power Space). The Lease Commencement Date
(and Tenant's obligation to commence paying Rent) as to
each portion of the Demised Premises shall be that date
which is thirty (30) days after Landlord notifies Tenant
that such portion is available for occupancy by Tenant.
Landlord shall make the entire Demised Premises available
for Tenant's occupancy by not later than February 1, 1997,
except for the approximately 1,600 square feet of space on
the second floor of the Building which is currently leased
to Broker Power (the "Broker Power Space"). As to the
Broker Power Space, Landlord shall use reasonable efforts
to obtain from Broker Power by March 1, 1997 a signed
agreement by Broker Power to vacate the Broker Power Space.
If Landlord has obtained said signed agreement from Broker
Power by March 1, 1997, then Landlord shall have sixty (60)
days after the date of said written agreement to make the
Broker Power Space available for Tenant's occupancy. If
Landlord has not obtained said signed agreement from
Broker Power by March 1, 1997, then Tenant shall have
the right to select vacant and available space of
approximately the same size and rental rate located on
the first floor of the Building (the "Substitute Space"),
for Tenant's occupancy until such time as Landlord notifies
Tenant that the Broker Power Space is available for
Tenant's occupancy. The Lease Commencement Date (and
Tenant's obligation to commence paying Rent) as to the
Broker Power Space and Substitute Space, respectively,
shall be the date which is thirty (30) days after
Landlord notifies Tenant that such space is available
for occupancy by Tenant.
(d) After the Lease Commencement Date, upon request
of either party, Landlord and Tenant shall promptly execute,
acknowledge and deliver to one another a written instrument
certifying the Lease Commencement Date and expiration date,
which certificate shall be in the form set forth in Exhibit
D hereto.
(e) If Landlord shall be unable to give possession
of the Demised Premises on the date of the commencement of
the Term hereof by reason of the fact that the Property or
the Demised Premises are being constructed by Landlord and
have not been sufficiently completed to make the Demised
Premises ready for occupancy, or by reason of the fact
that a certificate of occupancy has not been procured by
Landlord (if procurement of same is Landlord's obligation),
or if Landlord is unable to give possession by reason of
the holding over or retention of possession of a previous
tenant or occupant, or if repairs, improvements or
decoration of the Demised Premises or of the Property
are the obligation of Landlord and are not completed,
Landlord shall not be subject to any liability for the
failure to give possession on said date. Under such
circumstances, the Rent reserved and covenanted to be
paid herein shall not commence until thirty (30) days after
the possession of Demised Premises is given or the Demised
Premises are available for occupancy by Tenant, and no such
failure to give possession on the date of commencement
shall in any other respect affect the validity of this
Lease or the obligations of Tenant hereunder, nor shall
same be construed in any way to extend the Term of this
Lease. If permission is given to Tenant to enter into
possession of the Demised Premises prior to the date
specified as the commencement of the Term of this Lease,
Tenant convenants and agrees that such occupancy shall
be deemed to be under all of the terms, conditions,
covenants and provisions of this Lease.
Rental 3. (a) Tenant shall pay as rent (hereinafter referred to
as "Rent") for the Demised Premises the sum of Two Hundred
------------
Forty-Nine Thousand Five Hundred Ninety-Five and 50/100
-----------------------------------------------------------
Dollars ($249,595.50) per annum, such sum being payable
---------------------
in equal monthly installments of Twenty Thousand Seven
--------------------------
Hundred Ninety-Nine and 63/100 Dollars ($20,799.63), the
---------------------------------------------------
first installment being due and payable upon execution of
this Lease and the remaining installments being due and
payable in advance on the first day of each and every month
beginning on the Lease Commencement Date at The Holladay
---------------
Corporation, 3400 Idaho Avenue, N.W., Suite 500,
-----------------------------------------------------------
Washington, D.C. 20016
-----------------------------------------------------------
(or at such other place as Landlord may designate in a
notice to Tenant), without prior demand therefor and without
any setoff, deduction or counterclaim whatsoever.
(b) If the Term of this Lease begins on a date
other than the first day of a month, Rent from such other
date to the first day of the following month shall be
prorated at the rate of one-thirtieth (1/30th) of the
fixed monthly rental for each day, payable in advance.
Additional Rent 4. The provisions of this Lease concerning Additional
Rent payable by Tenant are set forth in Lease Addendum
One attached hereto and incorporated herein by reference.
---
Rent Adjustment 5. In addition to the Rent and Additional Rent
hereinabove set forth, it is understood and agreed that
the basic annual Rent set forth in Paragraph 3(a) above
shall, commencing with the second lease year, be in the
amounts set forth on the following schedule:
Lease Year Rent Per Annum Rent Per Month
---------- -------------- --------------
2 $257,083.36 $21,423.61
3 $264,783.00 $22,065.25
4 $272,724.68 $22,727.06
5 $280,908.39 $23,409.03
If during the first Lease Year only a portion of the
Demised Premises has been made available for occupancy
by Tenant (as provided above), then the Rent for the
first Lease Year stated above shall be pro rated from
time to time as such portions are so made available
and shall be equal to the Rent (stated above) for such
first Lease Year multiplied by a fraction the numerator
of which is the square footage of the portion(s) so made
available for Tenant's occupancy as of the date of said
calculation and the denominator of which is 15,127.
For purposes of this Lease the term "lease year" shall
mean a twelve (12) month period, with the first lease
year commencing on the Lease Commencement Date and ending
on that date which is one day prior to the first anniversary
of the Lease
1
<PAGE>
Commencement Date, and each subsequent lease year shall
commence on the same day of each subsequent calendar year
of the Term as the Lease Commencement Date and shall end
on the day prior to the commencement of the next lease
year.
Past Due Rent, 6. If Tenant shall fail to pay, when the same is due
Dishonored Checks and payable, any Rent or any Additional Rent, or any
and Late Charges other amounts or charges, such unpaid amounts shall
bear interest from the due date thereof to the date
of payment to the rate of three percent (3%) over
the prime rate of Chase Manhattan Bank, N.A., but not
to exceed the highest lawful rate. In addition,
Tenant shall pay to Landlord, as a late charge, five
percent (5%) of any payment required to be made by
Tenant which is not actually received by Landlord
within five (5) days of the date such payment was due.
In the event any check for the payment of Rent or
Additional Rent is dishonored, Tenant shall pay to
Landlord a fee equal to the greater of (a) Twenty-Five
Dollars ($25.00) or (b) the charges assessed against
landlord by the bank in which the dishonored check was
deposited. Landlord will notify Tenant in the event
the charge for any dishonored check exceeds Twenty-Five
Dollars ($25.00). Immediately upon notification by
Landlord that Tenant's check has been dishonored,
Tenant shall pay to Landlord, in cash or by certified
or cashier's check, the amount of the Rent or
Additional Rent intended to be paid by such dishonored
check, the dishonored check charge and a late charge,
if applicable. Upon Landlord's receipt of any check
from Tenant which is dishonored for payment, Landlord
shall have the right to require Tenant to make all
future payments due to Landlord hereunder by cash,
certified or cashier's check.
Use of Demised 7. Tenant shall continuously use and occupy the
Premises Demised Premises solely for a computer training
school and/or general office use and related services
---------------------------------------
services subject to, and in accordance with, all
applicable zoning and other governmental regulations
and the Declaration of Covenants, Conditions and
Restrictions for Battlefield Business Park, recorded
on the Land Records of Prince William County, Virginia.
Tenant shall not abandon or substantially abandon the
Demised Premises. Tenant shall not obstruct,
interfere, or conflict with, the rights of other
tenants, or conflict with the fire laws or
regulations, or with any insurance policy upon the
Property or any part thereof, or with any statutes,
rules or regulations now existing or subsequently
enacted or established by local, state or federal
governments, nor shall Tenant use or permit the
Demised Premises, or any part hereof, to be used for
any disorderly, unlawful or extra hazardous purpose,
nor for any purpose other than hereinabove specified.
Tenant, at Tenant's sole cost and expense, shall be
required to enforce against Tenant's students and
visitors all of Landlord's rules and regulations for the
Building, the common areas and the parking areas.
Tenant shall ensure that its students refrain from
smoking in the Building, the common areas and the
parking areas. In addition, Tenant shall ensure that
its students conduct themselves in a business like
and professional manner and with regard for other
tenants in the Building while at or about the
Demised Premises. Tenant's failure to adhere to the
requirements set forth in this Paragraph 7 and
the continuation of such failure for five (5) days
after written notice thereof from Landlord to Tenant
(extendable up to the 30th day after such written
notice if Tenant is diligently pursuing curing such
failure) shall be a Default under Paragraph 27
hereof.
Common Areas 8. All common areas and facilities not within the
Demised Premises, which Tenant may be permitted to
use and occupy, are to be used and occupied in
accordance with this Lease and if the amount of such
areas shall be diminished, Landlord shall not be
subject to any liability nor shall Tenant be entitled
to any compensation or diminution or abatement of
Rent, nor shall such diminution of such areas be
deemed constructive or actual eviction.
Parking 9. All automobile parking areas, if any, shown on
the plans for the Property shall be under the sole
and exclusive control of Landlord, subject to
reasonable rules for the use thereof which may from
time to time be promulgated by Landlord, including,
but not limited to, rules designating areas for
employee parking, controlling of ingress and
egress, locating and arranging spaces, and generally
to maintain the parking lot in a manner determined
by Landlord, in its sole discretion, which is
consistent with the use of the areas by all tenants.
Tenant shall have the right to use one hundred
thirty-five (135) parking spaces in the asphalt
parking lot adjacent to the Demised Premises as
more fully set forth on Exhibit A-1
-----------
attached hereto and incorporated herein by this
reference on a first come, first served basis
without additional cost to Tenant. No other specific
spaces will be designated for use by Tenant. Tenant,
its agents, invitees, employees, licensees,
subtenants, assignees, customers, clients, guests,
visitors and students shall observe reasonable
safety precautions in the use of the parking lot and
shall at all times abide by all rules and
regulations promulgated by Landlord governing use of
the parking lot. Landlord does not assume any
responsibility for, and shall not be held liable
for, any damage or loss to any automobile or other
vehicle in the parking lot, or to any personal
property located therein.
Deposits 10. Upon execution of this Lease, Tenant shall
deposit with Landlord Nineteen Thousand Eight
-----------------------
Hundred Fifty-Four and 19/100 Dollars ($19,854.19),
----------------------------- ---------
as a deposit to be applied against the first month's
Rent. In addition, Tenant shall provide to Landlord as a
security deposit Nineteen Thousand Eight Hundred Fifty-Four
------------------------------------------
and 19/100 Dollars ($19,854.19). Such deposit shall be
---------- ---------
considered as security for the performance by Tenant of
all of Tenant's obligations under this Lease. Upon the
later of expiration of the Term hereof or vacating of the
Demised Premises by Tenant, Landlord shall (provided
that Tenant is not in default under the terms hereof)
return such security deposit to Tenant, less such
portion thereof as Landlord shall have appropriated to
make good any default by Tenant. In the event of any
default by Tenant hereunder, Landlord shall have the
right, but shall not be obligated, to apply all or
any portion of the security deposit to cure such
default, in which event Tenant shall be obligated to
promptly deposit with Landlord the amount necessary
to restore the security deposit to its original
amount. In the event of the sale or transfer of
Landlord's interest in the Property, Landlord shall
have the right to transfer the security deposit to
such purchaser or transferee, in which event Tenant
shall look to the new Landlord for the return of the
security deposit and Landlord shall thereupon be
released from all liability to Tenant for the return
of such security deposit. Landlord shall pay
interest on the security deposit at the passbook
rate.
Subletting and
Assignment 11. Tenant shall not sublet the Demised
Premises or any part thereof or transfer possession
or occupancy thereof to any person, firm or
corporation or transfer or assign this Lease without
the prior written consent of Landlord, nor shall any
subletting or assignment hereof be effected by operation
of law or otherwise than by the prior written consent
of the Landlord. If Tenant is a corporation whose stock
is not traded on a recognized stock exchange, any
transfer of a majority of Tenant's issued and outstanding
capital stock shall be deemed an assignment under this
paragraph. If Tenant is a partnership, any transfer
of any interest in the partnership or other change
in the composition of the partnership which results
in a change in the management of Tenant from the
person(s) managing the partnership on the date
hereof shall be deemed an assignment under this
paragraph. In the event Tenant desires to assign
this Lease or sublet all or any portion of the
Demised Premises, Tenant shall give to Landlord
seven (7) business day's written notice of Tenant's
intention so to do. Within seven (7) business days
after receipt of said notice, Landlord shall have
the right to sublet the Demised Premises from Tenant
at the same Rent and Additional Rent stipulated
herein. In the event Landlord has not exercised its
right to sublet the Demised Premises as provided
above in this paragraph, Tenant may assign this
Lease or sublet all or a portion of the Demised
Premises as is set forth in the notice after first
obtaining the written consent of Landlord, which
consent may be withheld for any reason. If Tenant
does not so assign or sublet within sixty (60) days
of the original notice to Landlord pursuant to this
paragraph, then Tenant shall again be required to
comply with the notice provisions hereof, and
Landlord shall again have the right to sublet the
Demised Premises. the consent by Landlord to any
assignment, transfer or subletting to any party
shall not be construed as a waiver or release of
Tenant from the terms of any covenant or obligation
under this Lease, nor shall the collection or
acceptance of Rent from any such assignee,
transferee, subtenant or occupant constitute a
waiver or release of Tenant of any covenant or
obligation contained in this Lease, nor shall any
such assignment or subletting be construed to
relieve Tenant from giving Landlord said seven (7)
business days' notice or from obtaining the consent
in writing of Landlord to any future assignment or
subletting. In the event that Tenant defaults
hereunder beyond any applicable notice and cure
period, Tenant hereby assigns to Landlord the rent
due from any subtenant of Tenant and hereby
authorizes each such subtenant to pay said rent
directly to Landlord.
Notwithstanding the foregoing, Landlord
agrees that it shall not unreasonably withhold,
condition or delay its consent to a proposed
subletting or assignment provided that all
of the following conditions are satisfied:
(a) there shall be no uncured events
of Default at the time of the proposed subletting or
assignment, (b) the proposed subtenant or
assignee shall be creditworthy, (c) the proposed
subtenant or assignee shall not be a governmental
entity or a person or entity enjoying sovereign or
diplomatic immunity, (d) the use of the Demised
Premises by the proposed subtenant or assignee shall
not attract a volume, frequency or type of visitor
or employee to the building which is not consistent
with the operations of Tenant or the standards of a
high-quality office building, (e) the proposed
subtenant (to the extent of the space sublet) or
assignee shall specifically covenant and agree to
perform the obligations of Tenant hereunder and to
occupy the Demised Premises subject to the
provisions of this Lease, and (f) Tenant remains
liable for the faithful performance of this Lease.
In addition, notwithstanding anything contained
herein to the contrary, Tenant shall have the right
to assign or sublet the Demised Premises to an
Affiliate of Tenant, and the consent requirement set
forth in this Paragraph 11 shall not be
applicable to any such subletting or assignment;
provided, however, that Tenant shall give Landlord
prior written notice thereof and a copy of the
proposed sublease or assignment document and
provided that Tenant shall nonetheless remain liable
for the faithful performance of this Lease. An
Affiliate, as used herein, shall be a person or
entity that directly, or indirectly through one or
more intermediaries, controls or is controlled by,
or is under common control with, Tenant. "Control"
as used herein shall mean the possession, direct or
indirect, of the power to direct or cause the
direction of the management and policies of a person
or entity, whether through ownership of voting
securities, by contract, or otherwise.
Upkeep and
Surrender of
Demised Premises 12. (a) The following shall be the responsibility of
Landlord: structural and roof repairs and replacements,
unless necessitated by Tenant's negligence; (ii)
maintenance of and repairs and replacements to services
or facilities which do not exclusively serve the Demised
Premises. The costs of maintenance, repairs and
replacements for which Landlord is responsible shall be
included in the calculation of Additional Rent
Maintenance (except as provided for in Paragraph
4(b)(iv) of Lease Addendum One) repair and replacement
of plate glass, entrance doors, overhead doors and
sprinkler systems (including periodic inspection thereof)
shall be the responsibility of Landlord to that part or
all of such glass, doors and systems within the Demised
Premises or within areas which exclusively serve the
Demised Premises.
(b) Subject to Lease Addendum One, Tenant shall
keep the Demised Premises and the fixtures and equipment
therein in clean, safe and sanitary condition, shall
take good care thereof, and shall suffer no waste or
injury thereto. Tenant shall be responsible for the
costs of any repairs to the Demised Premises
required by any negligent act or omission of Tenant,
or its employees or invitees. Tenant shall keep the
Demised Premises free of all insects, pests and
rodents and otherwise in a clean, safe and sanitary
condition, and Tenant further agrees not to allow,
suffer or permit any odors, vapors, steam,
vibrations, noises or undesirable effects to emanate
from the Demised Premises.
(c) Tenant shall at the expiration or other
termination of the Term of this Lease surrender and
deliver the Demised Premises, broom clean, in the
same order, repair and condition as the same now is
or shall be at the commencement of the Term
2
<PAGE>
hereof, ordinary wear and tear expected upon such termination
of this Lease, Landlord shall have the right to reenter and
resume possession of the Demised Premises.
(d) In the event Lease Addendum One is attached to
this Lease and made a part hereof, subsection (a) of this
Paragraph 12 shall be deemed modified to the extent set forth
in said Lease Addendum One. In the event of any inconsistency
___
between said subsection (a) and said Lease Addendum One, the
___
provisions of said Lease Addendum One shall control.
___
Alterations 13.(a) Tenant shall not make any alterations,
installations, changes, replacements, additions or
improvements (structural or otherwise) in or to the Demised
Premises or any part thereof, without the prior written
consent of Landlord which shall not be unreasonably withheld,
conditioned or delayed as to nonstructural items which do not
affect Building systems or other tenants.
(b) It is distinctly understood that all
alterations, installations, changes, replacements, additions
to or improvements, including wall-to-wall carpet, but
excluding Tenant's movable equipment and furniture, upon the
Demised Premises (whether with or without the Landlord's
consent) shall at the election of Landlord remain upon the
Demised Premises and be surrendered with the Demised Premises
at the expiration of this Lease without disturbance,
molestation or injury. Should Landlord elect that alterations,
installations, changes, replacements, additions to or
improvements made by Tenant upon the Demised Premises be
removed upon termination of this Lease, Tenant hereby
agrees to cause the same to be removed at Tenant's sole cost
and expense and to restore the Demised Premises to their
original condition, and should Tenant fail to remove the same,
then and in such event Landlord may cause same to be removed
and Tenant shall thereupon pay to Landlord, upon demand, all
costs of removal, storage and disposition of same, together
with any and all damages which Landlord may suffer and
sustain by reason of the failure of Tenant to remove same.
The foregoing sentence shall not apply to Tenant's Work,
which Tenant shall not be required to remove.
(c) In the event Landlord shall permit Tenant to
make any alterations, said alterations shall be performed in
a good and workmanlike manner in accordance with all
applicable legal requirements.
(d) If any mechanic's lien is filed against the
Demised Premises or the Property for work or materials
claimed to have been done for, or furnished to, Tenant, such
mechanic's lien shall be discharged by Tenant within ten
(10) days thereafter, at Tenant's sole cost and expense, by
payment thereof or posting such bond or paying such amount
as will effect a release of such lien. If Tenant shall fail
to discharge or obtain the release of any such mechanic's
lien, Landlord may, at its option, discharge or release
same and treat the cost thereof as Additional Rent payable
with the monthly installment of Rent next becoming due; and
such discharge or release by Landlord shall not be deemed to
waive the default of Tenant in not discharging or releasing
same. Tenant shall indemnify and hold Landlord harmless from
and against any and all expenses, liens, claims or damages
to person or property which may or might arise by reason of
the making of any alteration.
Floor Loading 14. Landlord shall have the right to prescribe the
weight, method of installation and position of safes or
other heavy fixtures or equipment. Tenant shall not install
in the Demised Premises any fixtures, equipment or machinery
that shall place a load upon any floor exceeding the floor
load per square foot area which such floor was designed to
carry. Tenant agrees that all damage done to the Property by
taking in or removing a safe or any other article of
Tenant's equipment, or due to its being in the Demised
Premises, shall be repaired at the expense of Tenant. No
freight, furniture or other bulky matter of any description
shall be received on the Property or carried in the
elevators, if any, except as approved by Landlord, who
shall, however, not be responsible for any damage to or
charges for moving same. Tenant agrees promptly to remove
from the public area any of Tenant's property there
delivered or deposited.
Tenant's 15.(a) Tenant may install and operate in the Demised
Equipment Premises computers, electrically operated typewriters,
adding machines, copying machines and such other
electrically operated office machinery and equipment as are
normally used in Tenant's typical computer school and/or
general office space in comparable buildings, as reasonably
determined by Landlord; provided that, except with the prior
written approval of Landlord, no such machinery or
equipment, nor any other machinery or equipment, may be
installed or operated in the Demised Premises which would
(i) use more than 120 volts of electrical current; (ii)
overload the central electrical service to the Property or
the Demised Premises; (iii) necessitate any changes,
replacements or additions to, or in the use of, the water,
heating, air-conditioning, plumbing or electrical systems of
the Property or of the Demised Premises; or (iv) violate the
floor loading provisions of this Lease. Such consent by
Landlord may be conditioned upon the payment by Tenant of
Additional Rent in compensation for the cost of installation
and maintenance of additional wiring and/or submeters as
may be occasioned by said equipment or machinery. Permitted
machinery and equipment belonging to Tenant which cause
noise or vibrations that may be transmitted to any part of
the Property to such a degree as to be objectionable to
Landlord or to any tenant of the Property shall be installed
and maintained by Tenant, at Tenant's expense, on vibration
eliminators or other devices sufficient to eliminate such
noise and vibrations.
(b) Maintenance and repair of equipment belonging
to Tenant such as kitchen fixtures, separate
air-conditioning equipment, or any other type of special
equipment, whether installed by Tenant or by Landlord on
behalf of Tenant, shall be the sole responsibility of
Tenant, and Landlord shall have no obligation in connection
therewith.
Notice of 16. Tenant shall give Landlord prompt notice of any
Defects defects or breakage in the structure, equipment or fixtures
of the Demised Premises or Property.
Liability 17.(a) Landlord assumes no liability or
responsibility whatsoever with respect to the conduct and
operation of the business to be conducted in the Demised
Premises. Landlord shall not be liable for any accident or
injury to any person or persons or property in or about the
Demised Premises or the Property which are caused by the
conduct and operation of said business or by virtue of
equipment or property of Tenant in the Demised Premises.
Tenant agrees to hold Landlord harmless against all such
claims. Tenant shall indemnify and hold harmless Landlord
from and against any loss, damage or liability occasioned by
or resulting from any default hereunder or any willful or
negligent act on the part of Tenant, its agents, employees
or invitees, or persons permitted in the Demised Premises by
Tenant.
(b) Landlord shall not be liable for any accident
or damage caused by electric light or wires, or any
accident or damage which may occur through the operation of
elevators, heating, air-conditioning, lighting or plumbing
apparatus, or any accident or injury occurring in connection
with the Property and its services. All personal property of
Tenant in the Demised Premises or on the Property shall be
at the sole risk of Tenant. Landlord shall not be liable
for loss or damage to property of Tenant caused by rain,
snow, water or steam that may leak into or flow from any
part of the Property through any defects in the roof or
plumbing or from any other source, including but not limited
to acts or omissions on the part of other tenants of
Property or persons using the Property or present therein.
It is understood and agreed that Tenant covenants to save
Landlord harmless and indemnified from all loss, damage,
liability or expense incurred by reason of Tenant's neglect
in its use of the Demised Premises or the Property or any
part thereof including the use of the water, steam, electric
or other systems, and the injury, loss or damage to any
person or party upon the Demised Premises.
(c) All injury to the Demised Premises or the
Property caused by moving the property of Tenant into, in or
out of, the Property and all breakage done by Tenant, or the
agents, servants, employees and visitors of Tenant, shall be
promptly repaired by Tenant, at the expense of Tenant. In
the event that Tenant shall fail to do so, then Landlord
shall have the right to make such necessary repairs,
alterations and replacements (structural, non-structural or
otherwise) and any charge or cost so incurred by Landlord
shall be paid by Tenant with the right on the part of
Landlord to elect, in its discretion, to regard the same as
Additional Rent, in which event such cost or charge shall
become Additional Rent payable with the installment of Rent
next becoming due or thereafter falling due under the terms
of this Lease. This provision shall be construed as an
additional remedy granted to Landlord and not in limitation
of any other rights and remedies which Landlord has or may
have in said circumstances.
Signs 18. Tenant agrees that no sign, advertisement or
notice shall be inscribed, painted or affixed on any part of
the outside or the inside of the Demised Premises, or the
Property, except on the directories and adjacent to the
doors of the Demised Premises, and then only in such size,
color, content and style as Landlord in its discretion shall
approve in advance and in writing from time to time.
Landlord shall have the right to prohibit any sign,
advertisement, or notice of Tenant which in Landlord's
opinion tends to
3
<PAGE>
impair the reputation, image or desirability of
the Property for its intended use, or which fails
at any time to conform to signage criteria
established from time to time by Landlord, and
upon written notice from Landlord, Tenant shall
refrain from, discontinue and remove such sign,
advertisement or notice and Landlord, in addition
to its other remedies for default hereunder, shall
have the right to remove same, and Tenant shall be
liable for any and all costs and expenses incurred
by Landlord in connection with said removal.
Notwithstanding the foregoing, Tenant may, at
Tenant's sole cost and expense, install (i) signage
on the Building and (ii) signage on the Property,
both in accordance with Tenant's signage plans
attached hereto as Exhibit E and incorporated
herein by this reference ("Tenant's Signage
Plans"). Tenant's Signage Plans shall be subject
to (x) the prior written approval of Landlord as
to the size, color, content, style and location of
said signs, which approval shall not be
unreasonably withheld, conditioned or delayed, and
(ii) the prior written approval of Prince William
County, Virginia to the extent the approval of
Prince William County, Virginia is required.
Landlord shall not be liable in any way for any
injury, loss or damage which may occur to Tenant's
signage. Tenant, at Tenant's sole cost and
expense, shall be required to maintain and repair
Tenant's signage. If Tenant fails to comply with
or perform any of Tenant's obligations with
respect to Tenant's signage, Landlord shall have
the right, but not the obligation to repair or
remove said signage and Tenant shall thereupon pay
to Landlord, upon demand, all costs of repair or
removal of same, together with any and all damages
which Landlord may suffer and sustain by reason of
the failure of Tenant to comply with or perform
any of Tenant's obligations under this
Paragraph 18.
Ordinances, Regulations 19. (a) Tenant shall, at Tenant's cost,
and Rules promptly comply with and carry out all orders,
requirements or conditions now or hereafter imposed
upon Tenant by the ordinances, laws, and/or
regulations of local, state or federal governments,
or by any of their various departments or agencies
(collectively "Legal Requirements"), whether
required of Landlord or otherwise to be done or
performed during the Term of this Lease, insofar as
they are occasioned by or required in the conduct
of the business of Tenant or its occupancy of the
Demised Premises. Tenant shall indemnify and save
Landlord harmless from all penalties, claims and
demands resulting from failure or negligence in
this respect.
Notwithstanding anything to the contrary in
this Lease, if any Legal Requirements require the
making of any capital improvement to the Demised
Premises which: (a) is not required because of the
use or buildout by Tenant or, (b) would cost in
excess of $10,000, then Tenant may, at its option,
so notify Landlord and if Landlord notifies Tenant
that Landlord elects not to perform such capital
improvements(s), at Landlord's cost, then Tenant
may elect to terminate this Lease within
thirty (30) days after such written notice from
Landlord to Tenant.
(b) Tenant, its agents, employees and
visitors, shall abide by and observe the rules and
regulations set forth below and such other
reasonable rules and regulations as may be
promulgated from time to time by Landlord for the
operation and maintenance of the Property provided
a copy thereof is sent to Tenant. Nothing contained
in this Lease shall be construed to impose upon
Landlord any duty or obligation to enforce such
rules and regulations, or the terms, conditions or
covenants contained in any other lease, as against
any other tenant, and Landlord shall not be liable
to Tenant for violation of same by any other
tenant, its employees, agents or invitees. In
particular, but not by way of limitation:
(i) The sidewalks, entries, passages,
elevators, public corridors, staircases and other
parts of the Property which are not occupied by
Tenant shall not be obstructed or used for any
purpose other than ingress and egress.
(ii) Tenant shall not install or
permit the installation of any awnings, shades,
and the like other than those approved by Landlord
in advance and in writing.
(iii) Landlord shall approve all
window coverings not included in the standard
tenant fit-up as designated by the Landlord's
architect.
(iv) No additional locks shall be
placed on any doors of the Demised Premises, and
the doors leading to common corridors, loading
areas or walkways shall be kept closed during
business hours except as they may be used for
ingress and egress.
(v) Tenant shall not construct,
maintain, use or operate within the Demised
Premises or elsewhere on the Property any
equipment or machinery which produces music, sound
or noise which is audible beyond the Demised
Premises.
(vi) Electric and telephone
distribution boxes and air conditioning equipment
must remain accessible at all times.
(vii) Bicycles, motor scooters or any
other types of vehicle shall not be brought into
the lobby or elevators or into the Demised
Premises.
(viii) Tenant shall not install or
authorize the installation of any coin operated
vending machines in the Demised Premises or on the
Property without the written prior permission of
Landlord, which shall not be unreasonably
withheld, conditioned or delayed.
Indemnity 20. Tenant shall indemnify Landlord and its
agents and employees and save them harmless from
and against any and all claims, actions, damages,
liabilities and expense in connection with loss of
life, personal injury and/or damage to property
arising from or out of any occurrence in, upon or
at the Demised Premises, or the occupancy or use by
Tenant of the Demised Premises or any part thereof,
or occasioned in whole or in part by any act or
omission of the Tenant, its agents, contractors,
employees, servants, permitted subtenants, invitees
or licensees, or resulting from any default,
breach, violation or non-performance of this Lease
by Tenant. In the event that Landlord or its
agents and employees shall, without fault on their
part, be made a party to any litigation commenced
by or against Tenant, then Tenant shall protect
and hold Landlord harmless and shall pay all
costs, expenses, and reasonable attorney's fees
incurred or paid in connection with such
litigation. Tenant shall pay, satisfy and
discharge any and all judgments, orders and
decrees which may be recovered against Landlord
in connection with the foregoing.
Entry for Repairs 21. (a) Tenant shall permit Landlord, or its
and Inspection representatives, to enter the Demised Premises, at
all reasonable times, without diminution of the
Rent or Additional Rent payable by Tenant, to
examine, inspect and protect same, and to make such
alterations and/or repairs as in the judgment of
Landlord may be deemed necessary, or to exhibit the
same to prospective tenants, mortgages or
purchasers.
(b) If Tenant refuses or neglects to
maintain, repair or make replacements to the
Demised Premises as required hereunder to the
reasonable satisfaction of Landlord as soon as is
reasonably possible, Landlord may make such
repairs without liability to Tenant for any loss
or damage that may accrue to Tenant's
merchandise, fixtures, or other property or to
Tenant's business by reason thereof, and upon
completion thereof, Tenant shall pay Landlord's
costs for such maintenance and for making such
repairs and replacements, plus twenty percent
(20%) for overhead, upon presentation of a bill
therefor as Additional Rent.
(c) Landlord shall have the right to enter
the Demised Premises and make reasonable
alterations and/or repairs without liability to
Tenant for any loss or damage that may accrue to
Tenant's merchandise, fixtures, or other property
or to Tenant's business by reason thereof.
(d) Landlord shall at all times have an
easement and the right to enter in and through the
Demised Premises for installation and maintenance
of utility connections and facilities reasonably
necessary to provide services to other portions of
the Property and the common areas; provided,
however, to the extent reasonably possible the
exercise of such rights shall not unreasonably
interfere with the operation of the Tenant's
business.
(e) Landlord's entrance upon the Demised
Premises occasioned by this Paragraph 21 shall not
constitute an eviction of Tenant in whole or in
part and the Rent and Additional Rent payable
hereunder shall not be abated or diminished while
said repairs, alterations, improvements, or
additions are being made, by reason of loss or
interruption of business of Tenant, or otherwise.
Interruption of Services 22. Any failure by Landlord to furnish any
or Utilities services or utilities to be provided by Landlord
or otherwise hereunder shall not render Landlord
liable in any respect for damages to either person
or property, nor be construed as an eviction of
Tenant, nor work an abatement of Rent, nor relieve
Tenant from Tenant's obligations hereunder. In no
event shall Landlord be obligated to provide any
such services or utilities in any manner or to any
extent deemed by Landlord not to be standard for
comparable buildings in the jurisdiction where the
Property is located.
Insurance 23. (a) Tenant shall not conduct or permit
to be conducted any activity or place any
equipment in or about the Demised Premises which
will, in any way, increase the rate of insurance
premiums on the Property and if any increase in
the rate of insurance premiums is stated by any
insurance company or by the applicable Insurance
Rating Bureau to be due to any activity or
equipment in or about the Demised Premises, such
statement shall be conclusive evidence that the
increase in such rate is due to such activity or
equipment and, as a result thereof, Tenant shall
be liable for such increase and shall reimburse
Landlord therefor, within ten (10) days of receipt
of written notice, said sum being deemed to be
Additional Rent.
(b) Landlord shall insure the building,
of which Demised Premises are a part, against
damage by fire, in any amount Landlord in its sole
discretion shall deem adequate, and shall maintain
such insurance throughout the Term hereby demised.
Tenant shall insure all of its property in the
Demised Premises against damage by fire, including
extended coverage, in an amount which, at
Landlord's option, shall be subject to approval by
Landlord, and Tenant shall maintain such insurance
throughout the Term hereby demised. In addition,
Tenant shall also maintain with respect to the
Demised Premises, comprehensive public liability
insurance, with minimum limits of
$500,000/$1,000,000 per personal injury or death,
with $100,000 for property damage.
4
<PAGE>
Tenant shall maintain the insurance coverage
required herein with a company or companies acceptable
to Landlord insuring Landlord and its managing
agent as additional named insureds, as well as Tenant,
against bodily injury to or death of persons, and
against property damage as herein provided. Tenant
shall deliver certificates of insurance reflecting the
above specified coverage to Landlord upon the
commencement of the Term of this Lease, and continuing
evidence of such coverage annually, or more often upon
request. Such insurance policy or policies shall be
reasonably satisfactory to Landlord and shall provide
that the policy or policies shall not be cancelled
without at least thirty (30) days' prior written
notice to Landlord. Landlord and Tenant agree to cause
a waiver of subrogation to be included in its policies
of fire and extended coverage insurance, if obtainable
from its insurers, and each party hereby waives any
right or recovery against the other for losses to the
extent covered by its policies of fire and extended
coverage insurance; provided that such waiver shall
not void such policies nor prohibit recovery
thereunder. In the event Tenant shall fail to maintain
the public liability insurance coverage required by
this Paragraph 23, Landlord may, at its option, pay
the same and treat the cost of the premiums as
Additional Rent, payable by Tenant with the monthly
installment of Rent next becoming due.
Damage by Fire or 24. If the Property (whether within or outside
Other Casualty of the Demised Premises) shall be partially damaged
by fire or other cause, other than the fault or
neglect of Tenant, Landlord shall as soon as
practicable after such damage occurs (taking into
account the time necessary to effectuate a
satisfactory settlement with any insurance company and
using only the proceeds, if any, of such insurance)
repair such damage at the expense of Landlord, and the
Rent shall be reduced in proportion to the extent the
Demised Premises are rendered untenantable until such
repairs are completed; provided, however, that if the
Property (whether within or outside of the Demised
Premises) is substantially damaged by fire or other
cause to such extent that the damage cannot be fully
repaired within ninety (90) days from the date of such
damage, Landlord, or Tenant if the Demised Premises
are rendered untenantable other than by the fault or
neglect of Tenant, shall be the option of terminating
this Lease by giving written notice to the other party
of such decision and the Term of this Lease shall
terminate ten (10) days after such notice is given. No
compensation or reduction of Rent shall be allowed or
paid by Landlord by reason of inconvenience,
annoyance, or injury to business arising from the
necessity of repairing the Demised Premises or any
portion of the Property.
Eminent Domain 25. If any part of the Demised Premises shall
be taken or condemned by governmental authority for
any public or quasi-public use or purpose, then the
Term of this Lease shall cease and terminate as of the
date when title vests in such governmental authority.
If the whole or a substantial part of the Property
other than the Demised Premises shall be taken or
condemned by governmental authority for any public
or quasi-public use or purpose, then Landlord shall
have the option of terminating this Lease by written
notice to Tenant and, in the event such notice is
given, this Lease shall terminate as of the date when
title vests in such governmental authority. If such
condemnation reduces the number of parking spaces
available to Tenant and if Landlord does not
substitute reasonably comparable parking spaces for
those taken or if such condemnation materially
interferes with Tenant's access to the Demised
Premises, then in either of said events, Tenant shall
have the option to terminate this Lease by written
notice to Landlord and, in the event such notice is
given, this Lease shall terminate as of the date when
title vests in such governmental authority. In any of
the events heretofore described in this Paragraph 25,
Tenant shall not have any claim against Landlord and
shall not have any claim for any portion of the amount
that may be awarded as damages as a result of such
taking or condemnation or for the value of any
unexpired Term of this Lease; provided, however, that
Tenant may separately assert any claim that it may
have against the condemning authority for compensation
for any fixtures owned by Tenant and for any
relocation expenses compensable by statute.
Bankruptcy or Insolvency 26. If Tenant shall make an assignment of its
assets for the benefit of creditors or if Tenant
shall file a voluntary petition in bankruptcy or if
any involuntary petition in bankruptcy or for
receivership be instituted against Tenant and not
dismissed within sixty (60) days of the filing
thereof, or it Tenant shall be adjudged bankrupt,
then and in any of said events this Lease shall
immediately cease and terminate at the option of
Landlord with the same force and effect as though the
date of said event was the day herein fixed for
expiration of the Term of this Lease.
Defaults and Remedies 27. (a) The following events shall constitute a
default (hereinafter referred to as a "Default") of
Tenant under this Lease:
(i) Failure of Tenant to make any payment
of Rent when due and the continuation of such failure
for five (5) days after written notice thereof from
Landlord to Tenant, provided that such notice and 5
day cure period shall apply only to the first two (2)
such failures to occur in any twenty-four (24) month
period.
(ii) Failure of Tenant to make any payment
of Additional Rent when due and the continuation of
such failure for five (5) days after written notice
thereof from Landlord to Tenant, provided that such
notice and 5 day cure period shall apply only to the
first two (2) such failures to occur in any
twenty-four (24) month period.
(iii) Failure of Tenant to perform or comply
with any provision of this Lease to be performed or
complied with by Tenant, other than provisions for the
payment of Rent or Additional Rent, where such failure
shall continue for a period of ten (10) business days
after written notice thereof by Landlord to Tenant;
(iv) The taking of this Lease or the
Demised Premises, or any part thereof, upon execution
or by other process of law directed against Tenant, or
upon or subject to any attachment at the instance of
any creditor of or claimant against Tenant, which
execution or attachment shall not be discharged or
disposed of within thirty (30) days after the levy
thereof;
(v) If Tenant fails to take possession of
the Demised Premises within a reasonable period of
time after the commencement of the Term of this Lease
or if Tenant substantially abandons the Demised
Premises prior to the normal expiration of the Term;
(vi) The involvement of Tenant, or any
guarantor of Tenant's obligations hereunder, in
financial difficulties as evidenced by (1) its
admitting in writing its inability to pay its debts
generally as they become due, or (2) its filing of a
petition in bankruptcy or for reorganization or for
the adoption of an arrangement under the Bankruptcy
Act (as now or hereafter existing), or an answer or
other pleading admitting the material allegations of
such a petition or seeking, consenting to or
acquiescing in the relief provided for under such Act,
or (3) its making an assignment of all or a
substantial part of its property for the benefit of
its creditors, or (4) its seeking or consenting to or
acquiescing in the appointment of a receiver or
trustee for all or a substantial part of its property
or of the Demised Premises, or (5) its being
adjudicated as bankrupt or insolvent, or (6) the entry
of a court order without its consent, which order
shall not be vacated, set aside or stayed within sixty
(60) days from the date of entry, appointing a
receiver or trustee for all or a substantial part of
its property or approving a petition filed against it
for the effecting of an arrangement in bankruptcy or
for a reorganization pursuant to the Bankruptcy Act or
for any other judicial modification or alteration of
the rights of creditors.
(b) The provisions of this Paragraph 27 shall
apply notwithstanding the payment by Tenant of the
security deposit and/or the continued willingness and
ability of Tenant to pay Rent and otherwise perform
hereunder. The receipt by Landlord of payments of
Rent, as such, accruing subsequent to the time of
Tenant's default under this Lease and before Landlord
has actual notice of the occurrence of an event of
Default under this Lease shall not be deemed a waiver
by Landlord of the provisions of this Lease.
(c) Upon the occurrence of a Default,
Landlord shall have the right at its election, then or
at any time thereafter either:
(i) To give Tenant written notice of
Landlord's intent to terminate this Lease on the date
of the notice or on any later date, specified in the
notice, and on such date Tenant's right to possession
of the Demised Premises shall cease and this Lease
shall thereupon be terminated; or
(ii) Without demand or notice to re-enter
and take possession of all or any part of the Demised
Premises and expel Tenant and those claiming through
Tenant, and remove the property of Tenant and any
other person, either by summary proceedings or by
action at law or in equity or otherwise, without being
deemed guilty of trespass and without prejudice to any
remedies for nonpayment or late payment of Rent or
breach of covenant. If Landlord elects to reenter the
Demised Premises, Landlord may terminate this Lease,
or, from time to time, without terminating this Lease,
may relet all or any part of the Demised Premises as
agent for Tenant for such term or terms and at such
rental and upon such other terms and conditions as
Landlord may deem advisable, with the right to make
alterations and repairs to the Demised Premises. No
such reentry or taking of possession of the Demised
Premises by the Landlord shall be construed as an
election on Landlord's part to terminate this Lease
unless a written notice of such intention is given to
Tenant or unless the termination be decreed by a court
of competent jurisdiction at the instance of Landlord.
5
<PAGE>
(d) If Landlord terminates this Lease pursuant to
the preceding subparagraph, Tenant shall remain liable
(in addition to accrued liabilities) for (i) adjusted
Rent, Additional Rent and any other sums provided for
in this Lease until the date this Lease would have
expired had such termination not occurred, and any
and all expenses (including attorney's fees,
disbursements and brokerage fees) incurred by Landlord
in reentering and repossessing the Demised
Premises, in making good any Default of Tenant, in
painting, altering, repairing or dividing the Demised
Premises, in protecting and preserving the
Demised Premises by use of watchmen and caretakers,
and in reletting the Demised Premises, and any and
all expenses which Landlord may incur during
the occupancy of any new tenant; less (ii) the net
proceeds of any reletting prior to the date this Lease
would have expired if it had not been terminated.
Tenant agrees to pay to Landlord the difference
between items (i) and (ii) above for each month during
the Term, at the end of each such month. Any suit
brought by Landlord to enforce collection of such
difference for any one month shall not prejudice
Landlord's right to enforce the collection of any
difference for any subsequent month. In addition
to the foregoing, and without regard to whether this
Lease has been terminated, Tenant shall pay to
Landlord all costs incurred by Landlord, including
reasonable attorney's fees, with respect to any
lawsuit or action instituted or taken by Landlord
to enforce the provisions of this Lease. Tenant's
liability shall survive the institution of summary
proceedings and the issuance of any writ of
restitution thereunder.
(e) If Landlord terminates this Lease, Landlord
shall have the right, at any time, at its option, to
require Tenant to pay to Landlord on demand, as
liquidated and agreed final damages in lieu of
Tenant's liability hereunder, the net present value
(calculated using an eight percent (8%) discount rate
of the following: the Rent, Additional Rent and all
other charges which would have been payable from the
date of such demand to the date when this Lease would
have expired if it had not been terminated, minus the
fair rental value, as determined by Landlord in good
faith, of the Demised Premises for the same period.
If the Demised premises shall have been relet for all
or part of the remaining balance of the Term by
Landlord after a Default but before presentation of
proof of such liquidated damages, the amount of rental
received upon such reletting shall be deemed the fair
rental value of the Demised Premises for the period
for which it was received for the purpose of the
foregoing determination of liquidated damages.
Upon payment of such liquidated and agreed final
damages, Tenant shall be released from all further
liability under this Lease with respect to the period
after the date of demand.
(f) Tenant, on its own behalf and on behalf of
all persons claiming through Tenant, including all
creditors, does hereby waive any and all rights and
privileges, so far as is permitted by law, which
Tenant and all such persons might otherwise have
under any present or future law (i) to the service of
any notice of intention to reenter which may otherwise
be required to be given, (ii) to redeem the Demised
Premises, (iii) to reenter or repossess the Demised
Premises, or (iv) to restore the operation of this
Lease, with respect to any dispossession of Tenant by
judgment or warrant of any court, whether such
dispossession, reentry, expiration or termination be by
operation of law or pursuant to the provisions of this
Lease.
(g) In the event of any breach or threatened
breach by Tenant or any person or persons claiming
through Tenant of any of the provisions contained
in this Lease, Landlord shall be entitled to enjoin
such breach or threatened breach and shall have
the right to invoke any right or remedy allowed at
law or otherwise as if reentry, summary proceedings
or other specific remedies were not provided for
in this Lease.
(h) Landlord shall, to the extent permitted by
law, have (in addition to all other rights) a right
of distress for Rent and Additional Rent and a lien
on all Tenant's personal property as security for
all adjusted Rent and any other sums payable under
this Lease.
(i) If Tenant defaults in the making of any
payment or in the doing of any act herein required to
be made or done by Tenant, then after ten (10) days
notice from Landlord, Landlord may, but shall not be
required to, make such payment or do such act,
and the amount and the expense thereof, if made or
done by Landlord, with interest thereon from the date
paid by the Landlord at the rate of three percent
over the prime rate of Chase Manhattan Bank, N.A. but
not to exceed the highest lawful rate shall be paid by
Tenant to Landlord and shall constitute Additional
Rent hereunder due and payable with the next monthly
installment of Rent; but the making of such payment or
the doing of such act by Landlord shall not operate to
cure such Default or to estop Landlord from the
pursuit of any remedy to which Landlord would otherwise
be entitled.
(j) All rights and remedies of Landlord under
this Lease shall be cumulative and shall not be
exclusive of any other rights and remedies provided
to Landlord now or hereafter under law or under this
Lease.
Waiver 28. If under the provisions hereof Landlord shall
institute proceedings and a compromise or settlement
thereof shall be made, the same shall not constitute
a waiver of any covenant herein contained nor of
any of Landlord's rights hereunder. No waiver
by Landlord or any breach of any covenant, condition
or agreement herein contained shall operate as a
waiver of such covenant, condition or agreement
itself, or of any subsequent breach thereof. No
payment by Tenant or receipt by Landlord of a
lesser amount than the monthly installments of Rent
herein stipulated shall be deemed to be other than
on account of the earliest stipulated Rent, nor shall
any endorsement or statement on any check or letter
accompanying a check for payment of Rent or Additional
Rent be deemed an accord and satisfaction, and
Landlord may accept such check or payment without
predjudice to Landlord's right to recover the balance
of such Rent or Additional Rent or to pursue any other
remedy provided in this Lease. No reentry by Landlord,
and no acceptance by Landlord of keys from Tenant,
shall be considered an acceptance of a surrender of
this Lease.
Subordination 29. This lease is subject and subordinate to all
ground or underlying leases and to all mortgages
and/or deeds of trust which may now or hereafter
affect such leases or the Property and to all
renewals, modifications, consolidations, replacements
and extensions thereof. This clause shall be
self-operative, and no further instrument of
subordination shall be required by any ground lessor,
mortgagee or trustee. Tenant shall execute promptly
any certificate that the Landlord may request
confirming such subordination. Provided, however that
notwithstanding the foregoing, the party secured by any
such deed of trust shall have the right to recognize
this Lease and, in the event of any foreclosure sale
under such deed of trust or deed in lieu thereof, this
Lease shall continue in full force and effect
at the option of the party secured by such deed of
trust or the purchase under any such foreclosure sale;
Tenant covenants and agrees that it shall at
the written request of the party secured by any such
deed of trust, execute, acknowledge and deliver any
instrument that has for its purpose and effect the
subordination of this Lease to the lien of said deed
of trust. At the option of any landlord under any
ground lease or underlying lease to which this
Lease is now or may hereafter become subject or
subordinate, Tenant agrees that neither the
cancellation nor termination of such ground or
underlying lease shall, by operation of law or
otherwise, result in cancellation or
termination of this Lease or the obligations of
Tenant hereunder, and Tenant covenants and agrees
to attorn to such landlord or to any successor to
Landlord's interest in such ground or underlying
lease, and in that event, this Lease shall continue
as a direct lease between Tenant herein and such
landlord or its successor, and, in any case, such
mortgagee or such landlord or successor under such
ground or underlying lease shall not be bound by any
payment on the part of Tenant of any Rent for more
than one month in advance, so that Rent shall be
payable under this Lease in accordance with its
terms, from the date of foreclosure or of the
termination of the ground or underlying lease, as
if such prepayment had not been made; such landlord
or successor under such ground or underlying lease
shall not be bound by this Lease or any amendment
or modification of this Lease unless, prior to the
termination of such ground or underlying lease,
a copy of this Lease or amendment or modification
thereof, as the case may be, shall have been
delivered to such landlord or successor.
Landlord agrees to obtain from Landlord's current
mortgagee for the Building a subordination,
non-disturbance and attornment agreement for Tenant,
in such mortgagee's usual form. The aforesaid agreement
from Landlord's present lender shall be delivered
to Tenant simultaneously with the delivery of this
Lease to Tenant. Notwithstanding anything in
this Lease to the contrary, as a condition of
subordination of this Lease to any future
mortgage or deed of trust, Landlord agrees to
obtain from each future mortgagee for the Building,
a subordination, nondisturbance and attornment
agreement for Tenant, in such mortgagee's usual
form, provided that (i) Tenant is not in default
beyond any applicable notice and cure period at the
time for Landlord to obtain such agreement,
(ii) Tenant furnishes to such mortgagee such
financial information concerning Tenant as such
mortgagee shall reasonably require, and (iii) Tenant
reasonably cooperates with Landlord with respect
to obtaining such agreement.
Estoppel Certificates 30. Tenant agrees, at any time and from time to
time, upon not less than 10 business days prior
notice by Landlord, to execute, acknowledge and
deliver to Landlord a statement in writing on a form
submitted to Tenant by landlord (i) certifying
that this Lease is unmodified (or if modified,
stating the modifications) and in full force and
effect (or if not in full force and effect, the
reasons therefor), (ii) stating the dates to which
the Rent, Additional Rent and other charges
hereunder have been paid by Tenant (iii) stating
the amount of any security deposit held by Landlord,
(iv) stating whether or not, to the best
knowledge of Tenant, Landlord is in default in the
performance of any covenant, agreement or condition
contained in this Lease, and if so, specifying each
such default of which Tenant may have knowledge,
and (v) stating the address to which notices to
Tenant should be sent. Any such statement delivered
pursuant hereto may be relied upon by an owner of
the Property, any prospective purchaser of the
Property, any mortgagee or prospective mortgagee
of the Property, any prospective assignee of any
such mortgagee, or any lessor or prospective lessor
of the land which is a part of the Property.
6
<PAGE>
No Recourse to Landlord 32. The obligations of Landlord under this Lease
do not constitute personal obligations of the
individual partners, directors, officers, or
shareholders of Landlord. Tenant shall look solely
to the Property of which the Demised Premises are
a part and to no other assets of the Landlord for
satisfaction of any liability in respect of this
Lease and shall not seek recourse against the
individual partners, directors, officers or
shareholders of Landlord or any of their personal
assets for such satisfaction.
Holding Over 33. If Tenant shall, with the knowledge and
consent of Landlord, continue to remain in the
Demised Premises after the expiration of the Term
of this Lease and any extensions thereof, then an
in that event, Tenant shall, by virtue of this
agreement become a tenant by the month at a monthly
rental equal to twice the monthly installment of
Rent and additional Rent agreed by Tenant to be
paid as aforesaid; commencing said monthly tenancy
with the first day next after the end of the Term
above demised; Tenant shall give to Landlord at least
thirty (30) days' written notice of any intention to
quit the Demised Premises, and Tenant shall be
entitled to thirty (30) days' written notice to quit
the Demised Premises, except in the event of
nonpayment of Rent or Additional Rent or of the
breach of any other covenant by Tenant, in which
event Tenant shall not be entitled to any notice
to quit, the usual thirty (30) days' notice to quit
being hereby expressly waived; provided, however,
that in the event that Tenant shall hold over after
the expiration of the Term hereby created, and if
Landlord shall desire to regain possession of the
Demised Premises promptly at the expiration of the
Term aforesaid, then at any time prior to Landlord's
acceptance of Rent from Tenant as a monthly tenant
hereunder, Landlord, at its option, may forthwith
reenter and take possession of the Demised Premises
without process, or by any legal process in force.
Submission of Lease 34. The submission of this Lease for examination
by Tenant does not constitute a reservation of or
option for the Demised Premises, and this Lease
shall become effective as a lease only upon execution
and delivery thereof by Landlord and Tenant.
Covenants of Landlord 35. Landlord covenants that it has the right
to make this Lease, and that if Tenant shall pay the
Rent and Additional Rent and shall perform all of
Tenant's obligations under this Lease, Tenant shall,
during the Term hereof, freely, peaceably and quietly
occupy and enjoy the full possession of the Demised
Premises without molestation or hindrance by
Landlord or any party claiming through or under
Landlord, except as otherwise provided herein. The
term "Landlord" as used herein shall mean solely the
owner of Landlord's interest in the Property,
whoever that may be at the relevant time, so that
in the event of any sale or transfer of Landlord's
interest in the Property, any prior Landlord shall
be freed and relieved of all covenants and
obligations of Landlord hereunder.
Force Majeure 36. If Landlord, as the result of any (i)
strikes, lockouts, or labor disputes; (ii) inability
to obtain labor, materials, fuel, electricity,
services or reasonable substitutes therefor, (iii)
acts of God, civil commotion, fire or other casualty;
(iv) governmental action of any kind; or (v) other
conditions similar or dissimilar to those enumerated
above beyond Landlord's reasonable control, fails
punctually to provide any services or to perform
any obligation on its part to be performed hereunder,
then, unless otherwise expressly provided, such
failure shall be excused and not be a breach
hereunder, but only to the extent occasioned by such
event.
Lien for Rent 37. Tenant hereby grants to Landlord a lien on
all personal property of Tenant now or hereafter
placed in or on the Demised Premises (except such
part of any property as may be exchanged, replaced,
or sold from time to time in the ordinary course of
business) and such property shall be and remain
subject to such lien of Landlord for payment of all
Rent, Additional Rent and all other sums agreed to
be paid by Tenant herein or for services or costs
relating to the Demised Premises that Tenant may
hereafter agree to pay to Landlord. Said lien shall
be in addition to and cumulative of the Landlord's
lien rights provided by law. Landlord may file and
sign for Tenant a Uniform Commercial Code (UCC-1)
financing statement describing such lien and
personalty.
Waiver of Trial 38. Tenant hereby waives all right to trial by
by Jury jury in any claim, action, proceeding or
counterclaim by either Landlord or Tenant against
each other on any matters arising out of or in any
way connected with this Lease, the relationship of
Landlord and Tenant, and/or Tenant's use or occupancy
of the Demised Premises.
Attorney's Fees 39. If, in the event of a default or
threatened default by Tenant, Landlord places the
enforcement of this Lease, or any part thereof, or
the collection of any Rent or Additional Rent due, or
to become due hereunder, or recovery of possession
of the Demised Premises in the hands of an attorney,
or files suit upon the same, Tenant agrees to pay
Landlord's attorney's fees in connection therewith.
Brokers 40. Landlord and Tenant each represent and
warrant that except as hereinafter set forth neither
of them has employed any broker in carrying on the
negotiations relating to this Lease. Landlord shall
indemnify and hold Tenant harmless, and Tenant
shall indemnify and hold Landlord harmless, from
and against any claim for brokerage or other
commission arising from or out of any breach of the
foregoing representation and warranty. Landlord
recognizes Norman Realty, Inc., as Landlord's agent,
-----------------------------------------
and Barnes, Morris, Pardoe & Foster, Inc. and The
-------------------------------------------------
Stuart Rabkin Company, as Tenant's agents
-----------------------------------------
to this Lease and Landlord agrees to be responsible
for the payment of all leasing commissions owed
to said agents, subject to separate agreements
between Landlord and said brokers.
Notices 41. All notices or other communications
hereunder shall be in writing and shall be deemed
duly given if delivered in person or by courier or
sent by certified or registered mail, return receipt
requested, first class, postage prepaid, (i) if to
Landlord, at 3400 Idaho Avenue, N.W., Suite 500,
Washington, D.C. 20016, c/o The Holladay
Corporation, with a copy to Abraham J. Greenstein,
----------------------
Esq., c/o Greenstein DeLorme & Luchs, P.C., 1620 L
--------------------------------------------------
Street, N.W., Suite 900, Washington, D.C. 20036
------------------------------------------------
and (ii) if to Tenant, at 11350 Random Hills Road,
-----------------------
Suite 240, Fairfax, VA 22030, Attn: Chief Financial
----------------------------------------------------
Officer with a copy to Jerry R. O'Conor, Esq.,
---------------------------------------------
Tucker, Flyer & Lewis, 1615 L Street, N.W., Suite
-------------------------------------------------
400, Washington, D.C. 20036
-----------------------------
prior to the date of commencement of this Lease
and at the Demised Premises after the date of
commencement of this Lease, unless notice of a
change of address is given pursuant to the
provisions of this Paragraph 41. The effective
date for any notice or communication hereunder
shall be the date of delivery if delivered
in person and three (3) business days after the
date of posting if sent by mail as hereinabove
provided.
Miscellaneous 42.(a) This Lease and the exhibits attached
hereto contain and embody the entire agreement of
the parties hereto, and no representations,
inducements, or agreements, oral or otherwise,
between Landlord and Landlord's agents and Tenant
not contained in this Lease and exhibits to this
Lease shall be of any force or effect. Except as
otherwise provided herein, this Lease may not be
modified, changed or terminated in whole or in part
in any manner other than by an agreement in writing
duly signed by both parties hereto.
(b) The terms, covenants and conditions
hereof shall be binding upon and inure to the
permitted successors in interest and assigns of the
parties hereto. Landlord may freely and fully
assign its interest hereunder.
(c) If any provision of this Lease or the
application thereof to any person or circumstance
shall to any extent be held void, unenforceable or
invalid, then the remainder of this Lease or the
application of such provision to persons or
circumstances other than those as to which it is
held void, unenforceable or invalid shall not be
affected thereby, and each provision of this Lease
shall be valid and enforceable to the fullest extent
permitted by law.
7
<PAGE>
(d) Tenant shall not record this Lease
without the written consent of Landlord, which any
be given or denied in Landlord's sole discretion. If
Landlord consents to such recordation, the cost
thereof shall be paid by Tenant.
(e) The captions and heading throughout
this Lease are for convenience and reference only,
and the words contained therein shall in no way be
held or deemed to define, limit, describe, explain,
modify, amplify or add to the interpretation,
construction or meaning of any provision of or the
scope of intent of this Lease nor in any way affect
this Lease.
(f) Nothing contained in this Lease shall
be deemed or construed to create a partnership or
joint venture of or between Landlord and Tenant, or
to create any other relationship between the parties
hereto other than that of Landlord and Tenant.
(g) Feminine or neuter pronouns shall be
substituted for those of the masculine form, the
plural shall be substituted for singular number and
vice versa in any place or places herein in which the
context may require such substitute or substitutions.
(h) If one or more Lease Addends are
executed by Landlord and Tenant and attached hereto,
the covenants and agreements contained in each such
Lease Addends shall be incorporated into and become a
part of the covenants and agreements of this Lease as
if they were set forth in this instrument.
(i) This Lease is to be construed under the
laws of the jurisdiction in which the Property is
located.
Authority of Landlord 43. Each individual executing this Lease on behalf
and Tenant of Landlord and Tenant represents and warrants that
he is duly authorized to execute and deliver this
Lease on behalf of Landlord or Tenant in accordance
with a partnership agreement or a duly adopted
resolution of the Board of Directors or in accordance
with bylaws and that this Lease is binding upon
Landlord and Tenant in accordance with its terms.
Bond Financing
45. Hazardous Materials.
(a) As use in this Lease, the term
"Hazardous Material" means any flammable items,
explosives, radioactive materials, hazardous or
toxic substances, material or waste or related
materials, including any substances defined as or
included in the definition of "hazardous
substances", "hazardous wastes", "infectious
wastes", "hazardous materials" or "toxic
substances" now or subsequently regulated under any
federal, state or local laws, regulations or
ordinances including, without limitation, oil,
petroleum-based products, paints, solvents, lead,
cyanide, DDT, printing inks, acids, pesticides,
ammonia compounds and other chemical products,
asbestos, PCBs and similar compounds, and including
any different products and materials which are
subsequently found to have adverse effects on the
environment or the health and safety of persons.
(b) To the best of Landlord's knowledge,
there are no Hazardous Materials in, on or under
the Property as of the date of this Lease. Landlord
shall be responsible for removing, at its sole cost
and expense, from the Demised Premises any
Hazardous Materials therein as of the date of this
Lease, as Tenant's sole remedy.
(c) Tenant shall not cause or permit any
Hazardous Material to be generated, produced,
brought upon, used, stored, treated, discharged,
released, spilled or disposed of on, in, under or
about the Demised Premises, the Building, or the
land (hereinafter referred to collectively as the
"Property") by Tenant, its affiliates, agents,
employees, contractors, subtenants, assignees or
invitees; provided, however, that Tenant shall have
the right to utilize such supplies as are customary
in the operation of an office, so long as the
storage, use and disposal thereof by Tenant are in
accordance with all applicable governmental laws
and regulations. Tenant shall indemnify, defend and
hold Landlord harmless from and against any and all
actions (including, without limitation, remedial or
enforcement actions of any kind, administrative or
judicial proceedings, and orders or judgements
arising out of or resulting therefrom), costs,
claims, damages (including, without limitation,
reasonable attorneys', consultants', and experts'
fees, court costs and amount paid in settlement of
any claims or actions), fines,forfeitures or other
civil, administrative or criminal penalties,
injunctive or other relief (whether or not based
upon personal injury, property damage, or
contamination of, or adverse effects upon, the
environment, water tables or natural resources),
liabilities or losses arising from a breach of this
prohibition by Tenant, its affiliates, agents,
employees, contractors, subtenants, assignee or
invitees.
(d) In the event that Hazardous Materials are
discovered upon, in, or under the Property, and any
governmental agency or entity having jurisdiction over
the Property requires the removal of such Hazardous
Materials, Tenant shall be responsible for removing
those Hazardous Materials introduced on the Property
by Tenant or its affiliates, agents, employees,
contractors, subtenants, assignees or invitees but
not those of its predecessors or any other person
or entity. Notwithstanding the foregoing, Tenant
shall not take any remedial action in or about the
Property or any portion thereof without first
notifying Landlord of Tenant's intention to do so
and affording Landlord the opportunity to protect
Landlord's interest with respect thereto. Tenant
immediately shall notify Landlord in writing of:
(i) any spill, release, discharge or disposal of
any Hazardous Material in, on or under the Property
or any portion thereof; (ii) any enforcement,
cleanup, removal or other governmental or
regulatory action instituted, contemplated, or
threatened (if Tenant has notice thereof) pursuant
to any laws respecting Hazardous Materials;
(iii) any claim made or threatened by any person
against Tenant or the Property or any portion
thereof relating to damage, contribution, cost
recovery, compensation, loss or injury resulting
from or claimed to result from any Hazardous
Materials; and (iv) any reports made to any
governmental agency or entity arising out of or in
connection with any Hazardous Materials in, on
under or about or removed from the Property or any
portion thereof, including any complaints, notices,
warnings, reports or asserted violations in
connection therewith of which Tenant is aware.
Tenant also shall supply to Landlord as promptly as
possible, and in any event within five (5)
business days after Tenant first receives or sends
the same, copies of all claims, reports,
complaints, notices, warnings or asserted
violations relating in any way to the Demised
Premises, the Property or Tenant's use or occupancy
thereof.
(e) The respective rights and obligations
of Landlord and Tenant under this Paragraph 45
shall survive the expiration or earlier termination
of this Lease.
Tenant's Right to 46. Tenant shall have the right to terminate
Terminate. this Lease, exercisable only by giving Landlord
written notice ("Tenant's Notice") at least ninety
(90) days' prior to the Termination Date (as
hereinafter defined), which termination shall become
effective only on either the last day of the second
(2nd) Lease Year, the last day of the third (3rd)
Lease Year, or the last day of the fourth (4th) Lease
Year (the "Termination Date"). In the event that
Tenant exercises its right hereunder, this Lease shall
continue in full force and effect until the
Termination Date, whereupon Tenant shall surrender
possession of the Premises in accordance with the
provisions of this Lease, this Lease shall
terminate as if the Termination Date were the date
originally set forth herein for the expiration of
the Term hereof, and all Additional Rent shall be
appropriately prorated as of the Termination Date;
provided, however, that Tenant's right to terminate
this Lease shall be subject to Tenant's paying to
Landlord, simultaneously with the delivery of
Tenant's Notice to Landlord, a termination fee in
an amount equal to (i) Sixty-One Thousand Three
Hundred Thirty-Nine and 98/100 Dollars ($61,339.98)
in the event Tenant terminates this Lease at the
end of the second (2nd) Lease Year, (ii)
Forty-Two Thousand One Hundred Twenty-Eight and
70/100 Dollars ($42,128.70) in the event Tenant
terminates this Lease at the end of the third (3rd)
Lease Year, or (iii) Twenty-One Thousand Six
Hundred Ninety-Four and 64/100 Dollars ($21,694.64)
in the event Tenant terminates this Lease at the
end of the fourth (4th) Lease Year, and in addition
in each case described in clauses (i), (ii)
and (iii), Tenant shall also pay to Landlord, on or
before such Termination Date, any and all Rent,
Additional Rent and other amounts due from Tenant
under this Lease through the date of such termination.
47. Tenant's Right to Terminate for Lack of Licensure or Accreditation.
(Intentionally omitted.)
Tenant's Work. 48. Tenant hereby accepts the Demised
Premises in their "AS-IS" condition as of the
date of this Lease, subject to the other provisions
of this Lease. Landlord shall have no obligation to
make any improvements or alterations to the Demised
Premises, except such as may be necessary to cure
any violations of Legal Requirements, existing as of
the date of this Lease, with respect to the Building
and/or the Demised Premises.
Subject to the satisfaction of each of the
conditions set forth below, Landlord shall grant an
allowance to Tenant in the amount of Thirty-Nine
Thousand Three Hundred Thirty and 20/100 Dollars
($39,330.20) (calculated on the basis of $2.60 per
rentable square foot of floor area in the Demised
Premises (the "Tenant Allowance").
The payment by Landlord of the Tenant
Allowance shall be made upon completion of
installation by Tenant of improvements and fixtures
(collectively, the "Tenant's Work") and shall be
subject to the satisfaction of the following
conditions: (1) no such payment shall be made
unless this Lease is then in full force and effect,
and no default by Tenant hereunder shall have
occurred and continued beyond any applicable notice
and cure period; (2) the Tenant Allowance shall be
used only for the construction of leasehold
improvements (including parking areas and signage)
and related space plans and working drawings and
for signage and other mutually agreed upon items;
(3) the request for and payment by Landlord of the
Tenant Allowance shall be accompanied by invoice(s)
from all contractor(s), subcontractors and
suppliers who have performed the Tenant's Work,
which shall describe the work performed in
reasonable detail and certify the amount paid
therefor, and by a written certification executed
by Tenant's general contractor, describing in
reasonable detail the Tenant's Work which is the
basis of Tenant's request for payment of the Tenant
Allowance, to which shall be attached an executed
waiver or release by each such contractor,
subcontractor and supplier of all liens as to said
work.
All Tenant's Work shall be subject to
approval of Landlord as provided in Paragraph 13 of
this Lease and Tenant shall submit to Landlord such
plans and specifications therefor as shall be
required by Landlord.
Prior to commencing the Tenant's Work,
Tenant shall provide to Landlord the name and
address of each contractor which Tenant intends to
employ to perform the Tenant's Work, the use of
which contractor shall be subject to Landlord's
prior written approval, which shall not be
unreasonably withheld, conditioned or delayed if
(i) the contractor is properly licensed, (ii)
Landlord has had no prior experience with such
contractor which was unsatisfactory to Landlord,
and (iii) Landlord knows of no prior unsatisfactory
experience that a third party has had with such
contractor. Prior to the commencement of any of the
Tenant's Work, Tenant shall deliver to Landlord,
with respect to each contractor which Tenant
intends to employ to perform any of the Tenant's
Work, a certificate of insurance from each such
contractor specifying Landlord as a named insured
and evidencing that each such contractor has
obtained the following insurance coverage:
(a) comprehensive general liability
insurance, including contractor's liability
coverage, contractual liability coverage, completed
operations coverage, broad form property damage
endorsement and contractor's protective liability
coverage, to afford protection, with limits for
each occurrence, of not less than One Million
Dollars ($1,000,000) with respect to bodily injury
or death and One Million Dollars ($1,000,000) with
respect to property damage or equivalent terms,
conditions and limits under a commercial liability
form policy;
(b) comprehensive automobile liability
insurance with limits for each occurrence of not
less than One Million Dollars ($1,000,000) with
respect to bodily injury or death and One Million
Dollars ($1,000,000) with respect to property
damage; and
(c) worker's compensation or similar
insurance in form and amounts required by law. Said
contractors shall also comply with other reasonable
industry requirements of Landlord.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease under
seal the day and year first hereinabove written.
WITNESS: LANDLORD:
BATTLEFIELD BUILDING FIVE LIMITED PARTNERSHIP,
a Virginia limited partnership
By: Holladay Partners, Inc., its general partner
- ----------------------- By: --------------------------------------(SEAL)
Its: --------------------------------------
ATTEST: TENANT:
(Corporate Seal) COMPUTER LEARNING CENTERS; INC. A Delaware
corporation --------
- ----------------------- By: --------------------------------------(SEAL)
Its: -------------------------------------------
8
<PAGE>
Exhibit 10.23
LEASE ADDENDUM ONE
ADDITIONAL RENT
The provisions of Paragraph 4 of the Lease are as follows:
(a) Any amounts required to be paid by Tenant under this
Lease Addendum and any charges or expenses incurred by Landlord on behalf of
Tenant under the terms of this Lease shall be considered Additional Rent
payable in the same manner and upon the same terms and conditions as the Rent
reserved hereunder. Any failure on the part of Tenant to pay such Additional
Rent when and as the same shall become due shall entitle Landlord to the
remedies available to it for nonpayment of Rent.
(b) In addition to the services to be provided by Landlord
pursuant to Paragraph 12 of this Lease, Landlord shall provide the following
additional services to Tenant (the costs of which shall be included in
Operating Expenses):
(i) If elevators are installed in the Property, Landlord
shall provide automatically operated elevator service.
(ii) Landlord shall provide replacement of light tubes or
bulbs for building standard lighting fixtures. (All light tube or bulb
replacements for special nonstandard light fixtures shall be furnished and
installed by Tenant at Tenant's direct expense.)
Landlord shall furnish to the Demised Premises during normal
business hours (i.e., weekdays 7:00 a.m. to 11:00 p.m., and Saturdays 7:00
a.m. to 12:00 noon, excluding Fedei7al and State holidays) electric current
for lighting and operation of normal desk-type office machines (such as
personal computers, typewriters, facsimile machines and other similar office
<PAGE>
machines), water, lavatory supplies, and heating, ventilating and
air-conditioning (HVAC) to the Demised Premises. Tenant shall provide for
its own telephone service (including any charges connected therewith) in the
Demised Premises at the commencement of the Term of this Lease, or Tenant's
occupancy, whichever shall first occur.
(iv) Landlord shall provide routine maintenance and repair of
the common areas of the Property, including landscaping maintenance, snow and
rubbish removal, re-painting and cleaning for all public areas and special
service areas of the Property, in the manner and to the extent deemed by
Landlord to be standard for comparable buildings in the jurisdiction where
the Property is located.
(v) Landlord shall provide a central trash dumping
are a .
(c) Commencing with the first day of the second lease year,
and for each subsequent calendar year or portion thereof for the Term, Tenant
agrees to pay to Landlord as Additional Rent its Pro Rata Share (as
hereinafter defined) of any increase in Operating Expenses, Taxes and
Assessments and Costs of Demised Premises Services paid during such calendar
year above the Base Costs of Operating Expenses, Taxes and Assessments and
Costs of Demised Premises Services. The annual portion of such excess above
Base Costs of Operating Expenses, Taxes and Assessments, and Costs of Demised
Premises Services which is attributable to increases in Costs of Demised
Premises Services shall be reasonably determined by Landlord. In order for
Tenant to be required to pay any increase in Operating Expenses, Taxes and
Assessments and Costs of Demised Premises Services for any year, the actual
amount of Operating Expenses, Taxes and Assessments and Costs of Demised
Premises Services in the aggregate must exceed the Base Costs of Operating
Expenses, Taxes and Assessments and Cost of Demised Premises Services in the
aggregate.
<PAGE>
0
Foy purposes of this Lease Addendum One, the first day of the
second lease year as to the entire Demised Premises shall be that date which
is the first anniversayy of the Lease Commencement Date with respect to the
poytion of the Demised Premises other than the Broker Power Space (said
portion of the Demised Premises other than the B@okey Powey Space is being
delivered to Tenant upon execution of this Lease and the Lease Commencement
Date therefor shall be determined pursuant to Paragraph 2(b) of this Lease).
(d) For purposes of this Lease:
"Base Costs of Operating Expenses, Taxes and Assessments and
Costs of Demised Premises Services" shall mean Operating Expenses, Taxes and
Assessments and Costs of Demised Premises Services incurred during the 1997
calendar year under the Lease.
(ii) "Pro Rata Share" shall mean 100'-. of increases in Costs
of Demised Premises Seyvices (i.e., Tenant shall pay the entire increase in
the Cost of Demised Premises Services for any calendar year above the Cost of
Demised Premises Seyvices for the first lease year under the Lease), and, as
to Operating Expenses and Taxes and Assessments, fifty-three point
seventy-se@en percent (53.77%), representing the ratio that the ayea of the
Demised Premises bears to the total rentable area in the Building.
(iii) "Taxes and Assessments" shall mean all taxes and
assessments and governmental charges (including personal property and real
estate taxes), whether federal, state, county or municipal, and whether they
be by taxing districts or authorities presently taxing the Property or by
others subsequently created, and any other taxes and assessments (including
franchise taxes) attributable to the Property or its operation, whether or
not directly paid by Landlord, excluding, however, federal and state taxes on
income, unless such income taxes replace real estate
taxes. Taxes and Assessments shall be the amount due in cash for any calendar
year and shall not be determined on an accrual or fiscal year basis. It is
agreed that Tenant shall be responsible for ad valorem taxes on its personal
property and on the -value of leasehold improvements to the extent that same
exceed building standard allowances.
(iv) "Operating Expenses" shall mean all costs as determined
by Landlord to be necessary to operate the Property, to the extent not
separately billed to and paid by Tenant, of operation, maintenance and repair
(except structural repairs) of the Property and its appurtenances and shall
include, but will not be limited to: all insurance premiums, the cost of
labor (including direct and indirect labor overhead), materials and services
foy the operation, maintenance and repair of the Property and its
appurtenances (including common areas, service roads and parking areas); gas,
electricity and other utilities; water and sewer charges; maintenance and
repair of heating, ventilating and air-conditioning; trash, refuse and
rubbish
<PAGE>
disposal; snow removal; license, permit and inspection fees (whether
denominated a fee, a tax or otherwise and whether based on gross receipts or
otherwise); management fees to the extent not in excess of three percent (3%)
of gross revenues from the Building during any Lease Year; janitorial
services; maintenance and service contracts; landscaping costs; the costs of
parking lot lighting; the cost of watchmen, guards, and any personnel engaged
in the operation, maintenance or repair of the Property and its appurtenances
together with payroll taxes and employee benefits applicable thereto; and
supplies. Notwithstanding anything in this Lease to the contrary, Operating
Expenses shall not include depreciation of the Building of which the Demised
Premises are a part or equipment therein; loan payments; executive salaries;
interest and amortization of funds borrowed
2
<PAGE>
0
by Landlord, whether secured or unsecured; leasing commissions
incurred in procuring tenants for the Building; income, excess
profits, franchise taxes or other such taxes imposed on or
measured by the income of Landlord from the operation of the
Building; Taxes and Assessments; Cost of Demised Premises Services; original
construction costs of the Building;
reserves for repairs, maintenance and replacements, until
utilized for costs which are included in Operating Expenses;,
costs or expenses associated with leasing space in the Building
or the sale of any interest in the Building, including, without limitation,
advertising and marketing; commissions or any amounts paid for or on behalf of a
Tenant such as space planning, moving costs, rental and other tenant
concessions; ground 2:ents; salaries, wages, or other compensation paid to
employees of any property management organization whose salaries are covered by
a management fee; amounts paid to any partners, shareholder, officer or director
of Landlord, for salary or other compensation; costs of electricity outside
normal business hours sold to tenants of the Building by Landlord or any other
special services to tenants if Landlord receives reimbursement from such tenants
as an additional charge; expenses for repairs, replacements or improvements
arising from the initial construction of the Building to the extent such
expenses are reimbursed to Landlord by virtue of warranties from contractors or
suppliers; any amounts paid to any person, firm or corporation related to or
otherwise affiliated with Landlord or any general partner, officer or director
of Landlord or any of its general partners, to the extent the same exceeds
arms-length competitive prices paid in the Manassas, Virginia area for the
services or goods provided; attorneys' fees and accountants' fees in connection
with any disputes, controversies or defaults under leases of other tenants
regarding the payment of 3fent; costs of repairs incurred by reason of fire or
other casualty or condemnation to the extent Landlord receives compensation
therefor through proceeds of insurance or condemnation awards; cost of
renovating or otherwise improving space for new tenants or in renovating space
vacated by any tenant; costs relating to maintaining Landlord's existence,
either as a corporation, partnership, or other entity, such as trustee's fees,
annual fees, partnership organization or administration expenses, deed
recordation expenses, and legal and accounting fees (other than with respect to
Building operations); interest or penalties arising by reason of Landlo2:dls
failure to timely pay any Operating Expenses when due, unless at the time of any
such failure Tenant is in default in the payment of any Rent then due under this
Lease; costs incurred for the operation (but not the maintenance, repair or
replacement) of any portion of any parking area of the Building, or compensation
paid to clerks, attendants, salespersons or other persons on or in commercial
concessions operated in the Building; and capital costs incurred to remove any
hazardous or toxic wastes, materials or substances, placed on the Property by
Landlord, from either the Building or the Property, but shall include
amortization, with reasonable interest, of capital items which reduce Operating
Expenses or are required by governmental authority
<PAGE>
pursuant to @equ3 . elements arising after the date of this Lease.
In the event that, during any calendar year or portion thereof
during the Term, Landlord shall furnish any utility or service which is
included in the definition of Operating Expenses to less than ninety-five
percent (956) of the rentable area of the Building because (i) less than all
of the rentable area of the Building is occupied, (ii) any such utility or
service is not desired or required by any tenant, or (iii) any tenant is
itself obtaining or providing any such utility or service, then the operating
Expenses for such calendar year shall be increased to equal the total
expenses that Landlord reasonably estimates it would have incurred if
Landlord had provided all such utilities and services to ninety-five percent
(9S-6) of the rentable area of the Building for the entire calendar year. For
3
<PAGE>
0 0
example, if the average occupancy rate of the Building during a calendar year is
eighty percent (80@), the janitorial contracto@'s charges aye $1.00 per occupied
rentable square foot per year, and the Building contains one hundred thousand
(100,000) rentable square feet of space, then it would be reasonable for
Landlord to estimate that, if the Building had been one hundred percent (loo-.)
occupied during the entire calendar year, janitorial charges for such calendar
year would have been Ninety-Fi@e Thousand Dollars ($95,000) and to compute the
Operating Expenses for such calendar year accoydingly. In no event shall the
provisions of this paragraph be used to enable Landlord to collect from the
tenants of the Building more than one hundred percent (100'@) of the costs and
expenses incurred by Landlord in managing, opeyating and maintaining the
Building and the Land, or to require Tenant to pay Operating Expenses for vacant
leasable area in the Building.
(v) "Demised Premises Sei7vices" means all services provided
by Landlord under this Lease for maintenance and repair of and services to
the Demised Premises, and the costs and expenses of Demised Premises Seyvices
are referred to herein as the "Costs of Demised Premises Services." Demised
Premises Services shall include, without limitation, regularly scheduled
reasonable cleaning service twice each day (Monday thyough Friday) to the
Demised Premises, the first such cleaning to be provided between S:00 p.m.
and 6:30 p.m. and the second such cleaning to be provided after 11:00 p.m.
and befoye 7:00 a.m. Monday through Friday.
(e) Landlord shall endeavor to give to give such statement by said date shall
Tenant on or before the fiyst day of not Landlord of its right to require an
April of each calendar year a statement Rent. Notwithstanding the foregoing,
of the increase in the Additional Rent if delivey a statement of the increase
payment by Tenant hereunder, but in the first day of October of a
failure by Landlord to constitute a calenday year, the right, by prior
waivey by increase in Additional written notice to
Landlord shall fail to Additional
Rent by the then Tenant shall have
<PAGE>
Landlord, to request said statement from Landlord and if said statement is not
delivered to Tenant within forty-five (45) days of Tenant's written request,
then and only then, shall Landlord have waived its right to require an increase
in Additional Rent under this Lease Addendum one for the calendar yeay in
question.
Upon receipt of the first such statement, Tenant shall pay, in
full, the total amount of the increase due. In addition, for the then
current year, an amount equal to 105'6 of any such increase shall be used as
an estimate for said cuy@ent year and this amount shall be divided into
twelve (12) equal monthly installments and Tenant shall pay to Landlord
concurrently with the regular monthly Rent payment next due following the
receipt of such statement, an amount equal to one (1) monthly installment.
subsequent installments shall be payable concurrently with the regular
monthly Rent payments for the balance of that calendar year and shall
continue until the next year's statement is @ende@ed. If the next or any
succeeding year results in a greater amount due -in respect of Taxes and
Assessments and Opeyating Expenses and Costs of Demised Premises Services,
then upon receipt of a statement from Landlord, Tenant shall pay a lump sum
equal to such increased amount, less the total of the monthly installments of
estimated increases paid in the previous calendar year for which comparison
is then being made; and the estimated monthly installments to be paid for the
next calendar year, following said comparison calendar year, shall be
adjusted to reflect 10SP6 of such increase in the manner set forth above. if
for any year Tenant's Pro Rata Share shall be less than estimated amounts
paid by Tenant in the immediately pyeceding calendar year, then upon receipt
of Landlord's statement, any excess payment made by Tenant on the monthly
installment basis provided above shall be credited toward the
4
<PAGE>
0
next monthly Rent falling due and the estimated monthly installments of Taxes
and Assessments and Operating Expenses and Costs of Demised Premises Services to
be paid shall be adjusted to reflect such lower Taxes and Assessments and
Operating Expenses and Costs of Demised Premises Services for the most recent
comparison calendar year, but not less than the Base Costs thereof. Upon
termination of this Lease, any money owed by one party to the other shall be
promptly paid.
(f) Each statement provided by Landlord pursuant to this
Lease Addendum shall be prima facie correct, unless manifestly in error.
Tenant shall have the right to request that Landlord provide, at Tenant's
expense, an audit of Landlo@d's books and records relating to the statement.
In order to exercise such right Tenant must notify Landlord of Tenant's
desire to do so within six (6) months after Tenant's receipt of Landlord's
statements for the preceding year. Such audit shall be conducted at
Landlo2:dls Building management office in the Building, during normal
business hours, within sixty (60) days after Tenant's notice requesting such
audit. Any such audit shall be made only by an auditor hired by Tenant who
is a Certified Public Accountant ("CPA") and who is employed on other than a
contingent fee basis. Tenant shall notify Landlord of the results of such
audit in writing. In the event that any such audit reveals an overstatement
or understatement of Tenant's Pro Rata Share of increases in Operating
Expenses, Taxes and Assessments, c3@ Cost of Demised Premises Services for
the preceding year, and such overstatement or understatement as revealed
thereby is agreed by Landlord to be, or is conclusively determined by a court
of competent jurisdiction to be, correct (and all periods for appeal have
expired and no appeal is pending), then Tenant shall pay to Landlord its Pro
Rata Share of any underpayment within thirty (30) days after the date such
audit is agreed to by Landlord or is conclusively determined by a court of
competent jurisdiction to be correct (and all periods for appeal have expired
and no appeal is pending), and Tenant shall have the right to a credit or
refund, at Tenant's option, in the amount of Tenant's percentage of any
overpayment. Such credit shall be applied against the Rent next coming due
and payable hereunder. In the event that such audit reveals that Operating
Expenses, Taxes and Assessments, or Cost of Demised Premises Services, or any
combination of the three were overstated in the amount of three percent (3-.)
or more, then Tenant shall have the right to receive from Landlord a
reimbursement of the reasonable costs and expenses incurred by Tenant in
connection with such audit of Operating Expenses, Taxes and Assessments, or
Cost of Demised Premises Services or any combination of
2
<PAGE>
the three. In the event that such audit reveals that Operating Expenses,
Taxes and Assessments, or Cost of Demised Premises Services or any
combination of the three were not overstated or were overstated in the amount
of five percent (5-.) or less, then Landlord shall have the right to receive
from Tenant a reimbursement of costs and expenses incurred by Landlord in
connection with such audit of Operating Expenses, Taxes and Assessments, or
Cost of Demised Premises Services or any combination of the three, including,
but not limited to, compensation for that portion, if any, of the time of
Landlord's property management personnel which is in excess of twenty (20)
hours. Tenant hereby agrees (i) that none of Tenant's shareholders (or
partners, if applicable) or Office Manager, Administrator or similarly titled
personnel shall, or shall authorize anyone else to, initiate any discussions
with, or respond to any requests for information from, any person as to the
existence, status or results of any such audit and (ii) that Tenant shall
instruct Tenant's auditor and attorney and their employees to keep the
results of such audit in strictest confidence; provided, however, that
Landlord hereby agrees that nothing set forth above shall preclude Tenant
from disclosing the results of such audit (A) in any judicial or
quasi-judicial proceeding, or pursuant to court order or discovery request, or
(B) to any current or prospective assignee or sublessee of
3
<PAGE>
Tenant, or (C) to any agent, representative or employee of Landlord who or which
requests the same, or (D) to any mortgagee of the Building, the Property or
both, who or which requests the same. Pending determination of the dispute,
Tenant shall pay within ten (10) days from notice any amounts due from Tenant in
accordance with the statement, but such payment shall be without prejudice to
Tenant's position.
If the term of this Lease ends prior to the last day of a
calendar year, then the amount of the increase in Taxes and Assessments,
Operating Expenses and Costs of Demised Premises Services due for that
calendar year shall be apportioned on a per them basis so that only that
portion attributable to the portion of the calendar year that occurs during
the term of this Lease shall be payable by Tenant.
(h) In determining the amounts payable by Tenant under this
Lease Addendum One, Landlord shall use its reasonable judgment to take into
account adjustments for (a) disproportionate use of services and utilities by
any tenant or tenants of the Building and (b) allocation of expenses for
services used exclusively by a particular tenant of the Building.
IN WITNESS WHEREOF, Landlord and Tenant have executed this
Lease Addendum as of the date of the Lease to which this Lease Addendum is
attached.
LANDLORD:
BATTLEFIELD
BUILDING FIVE
LIMITED PARTNERSHIP,
a
Virginia limited partnership
WITNESS: By: Holladay Partners, Inc.,
its g a@tne@
By: (SEAL)
f
4
<PAGE>
TENANT:
ATTEST: COMPUTER LEARNING CENTERS,
INC., a Delaware corporation
By: --iSEAL'
6
<PAGE>
LEASE ADDENDUM TWO
EXCLUSIVE
During the initial Term of this Lease and so long as Computer
Learning Centers, Inc., a Delaware corporation, is in occupancy of the
Demised Premises and is operating a -vocational computer training school in
the Demised Premises, and is not in Default under this Lease, Landlord shall
not, without the prior written consent of Tenant (which consent may be
granted or denied in Tenant's sole and absolute discretion), lease any other
space in the Building to any tenant whose primary use would be as a
vocational computer training school. The foregoing exclusive shall not be
applicable to (i) any tenant at the Property that obtains a judgment or court
order that the provisions of this Addendum are void or otherwise
unenforceable with respect to such tenant, or (ii) any similar uses which
exist pursuant to a valid lease or sublease with a tenant or subtenant as of
the date of execution of this Lease.
If Landlord is determined by a court to have entered into a
lease after the date of this Lease which permits or falls to prohibit the
primary use of space in the Building as a vocational computer training school
in violation of this Lease Addendum Two, Landlord shall pay (i) its own costs
to settle or litigate such dispute, (ii) Tenant's costs of enforcing this
exclusive (including reasonable attorney's fees and expenses) if Tenant
prevails in such action, and (iii) the costs of enforcing this exclusive
against any such other tenant in the Building. In the event of an alleged
violation by another tenant of the Building of the use clause in its lease
and such violation materially adversely affects Tenant's business in the
Demised Premises, then Tenant may request that Landlord enforce the exclusive
in this Lease Addendum Two against such other tenant, and, whether or not
Landlord prevails, Landlord and Tenant shall each bear fifty percent (50'-.)
of the reasonable costs actually incurred by Landlord to settle or litigate
the dispute with such other
tenant.
WITNESS: LANDLORD:
BATTLEFIELD BUILDING FIVE LIMITED
PARTNERSHIP, a Virginia limited partnership
By: Holladay Part rs, Inc., its General P@
py- A (Seal)
I)ct i @o
Its- e --,d e,@+
6
<PAGE>
ATTEST: TENANT:
[Corporate Seal] COMPUTER LEARNING CENTERS, INC.,
Delaware corporation
By:
Name
Its: vlo-- @o
- - - -------
7
<PAGE>
Exhibit 10.33
AGREEMENT
THIS AGREEMENT (this "Agreement") made as of the 1st day of
February, 1997, between COMPUTER LEARNING CENTERS, INC., a Delaware
corporation (the "Company"), and REID R. BECHTLE (the "Executive").
The Executive is presently employed by the Company as
President and Chief Executive Officer.
The Board of Directors of the Company (the "Board") recognizes
that the Executive's contribution to the growth and success of the Company
during the past six (6) years has been substantial. The Board desires to
provide for the continued employment of the Executive and to make certain
changes in the Executive's employment arrangements with the Company which the
Board has determined will reinforce and encourage the continued attention and
dedication to the Company of the Executive, as is deemed to be in the best
interest of the Company and its shareholders. The Executive is willing to
commit himself to continue to serve the Company, on the terms and conditions
herein provided.
In order to effect the foregoing, the Company and the
Executive wish to enter into this Agreement on the terms and conditions set
forth below. Accordingly, in consideration of the promises and the respective
covenants and agreements of the parties herein contained, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Employment. The Company hereby agrees to continue to
employ the Executive, and the Executive hereby agrees to continue to serve
the Company, on the terms and conditions set forth herein.
2. Term. The term hereof will commence on the date hereof
and end after one (1) year, unless sooner terminated as hereinafter provided
or unless renewed as provided in Section 8 herein.
3. Position and Duties. The Executive shall serve as
President and Chief Executive Officer of the Company and shall have such
responsibilities and authority as may normally be exercised by a chief
executive officer of a company.
4. Place of Performance. In connection with the Executive's
employment by the Company, the Executive shall be based at the current
principal executive offices of the Company in Northern Virginia, or in the
Company's headquarters, provided that such headquarters is not more than
thirty-five (35) miles from the location of the Company's principal executive
offices on the date hereof.
-8-
<PAGE>
5. Compensation and Related Matters.
---------------------------------
(a) Base Salary. During the period of the Executive's
employment hereunder, the Company shall pay to the Executive a salary at a
rate of not less than Two Hundred and Fifty Thousand Dollars ($250,000) per
annum in equal installments as nearly as practicable on the normal payroll
periods for employees of the Company generally (the "Base Salary"). The Base
Salary may be increased from time to time as determined by the Compensation
Committee of the Board and, if so increased, shall not thereafter during the
term of this Agreement be decreased.
(b) Bonuses. The Executive shall be paid on an annual
basis bonuses as follows (collectively, the "Annual Bonus"):
(i) At the end of each fiscal year during the
period of the Executive's employment hereunder, the Company shall pay a bonus
to the Executive equal to twenty-five percent (25%) of the Base Salary (the
"Guaranteed Bonus"). The Guaranteed Bonus shall be paid to the Executive
irrespective of any thresholds or benchmarks which trigger any other bonus or
incentive program to which the Executive is eligible.
(ii) Ninety (90) days after the end of each fiscal
year during the period of the Executive's employment hereunder, the Company
shall pay an additional bonus to the Executive as calculated pursuant to
Exhibit A attached hereto and made a part hereof (the "Formula Bonus"), it
being understood that the Formula Bonus shall be established, upon mutual
written agreement of the Company and the Executive, for each fiscal year of
the Company after the fiscal year ending January 31, 1998. If the Company
and the Executive are unable to agree on the terms of the Formula Bonus for
any such subsequent fiscal year prior to the date the Company issues its
final financial statements for the prior fiscal year, the Executive shall
receive as the Formula Bonus for such fiscal year a bonus calculated pursuant
to the formula set forth in Exhibit B attached hereto (the "Default Formula
Bonus").
(c) Expenses. During the term of the Executive's
employment hereunder, the Executive shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Executive in
performing services hereunder, including all expenses of travel and living
expenses while away from home on business or at the request of and in the
service of the Company, provided that such expenses are incurred and
accounted for in accordance with the policies and procedures established by
the Company.
(d) Insurance. During the term of the Executive's
employment hereunder and for a period of two (2) years thereafter, the
Company shall pay on behalf of the Executive or his designees, premiums on
life insurance policies under which the Executive and/or his spouse are the
insured, up to ______________ Dollars ($__________) per annum; provided,
however, that the Company shall continue to pay such premiums for three (3)
years after the term of the Executive's employment if there has been a Change
in Control of the Company, as defined herein; and provided, further, that the
Company shall not be obligated to pay such premiums after the term if there
shall be Termination for Cause of the Executive.
(e) Other Benefits. The Company shall maintain in full
force and effect, and the Executive shall be entitled to continue to
participate in, all of its employee benefit plans and arrangements in effect
on the date hereof in which the Executive participates or receives, or plans
or arrangements providing the Executive with a least equivalent benefits
thereunder. The Company shall not make any changes in such plans and
arrangements which would adversely affect the Executive's rights or benefits
thereunder, unless such change occurs pursuant to a program applicable to all
officers of the Company and does not result in a proportionately greater
reduction in the rights of or benefits to the Executive as compared with any
other officers of the Company. The Executive shall be entitled to
participate in or receive benefits under any employee benefit plan or
arrangement made available by the Company in the future to its officers and
key management employees, subject to and on a basis consistent with the
terms, conditions and overall administration of such plans and arrangements.
Nothing paid to the Executive under any plan or arrangement presently in
effect or made available in the future shall be deemed to be in lieu of any
-9-
<PAGE>
amounts payable to the Executive pursuant to Section 5 hereof. Any payments
(including bonus) or benefits payable to the Executive hereunder in respect
of any year during which the Executive is employed by the Company for less
than the entire such year shall, unless otherwise provided in the applicable
plan or arrangement, be prorated in accordance with the number of days in
such year during which he is so employed.
6. Termination. The Executive's employment hereunder may be
terminated without any breach of this Agreement only under the following
circumstances:
(a) Cause. This Agreement shall immediately be
terminated and neither party shall have any future obligation hereunder,
except for the Company's obligations in Section 7 hereof, and except for the
Executive's obligations in Section 10 hereof, if the Executive's employment
is terminated for Cause.
(b) Termination by the Executive. The Executive may
terminate his employment hereunder for Good Reason.
(c) Notice of Termination. Any termination of the
Executive's employment by the Company or by the Executive shall be
communicated by written Notice of Termination to the other party hereto.
(d) Definitions.
(i) For purposes of this Agreement, "Termination for
Cause" shall arise where termination results from theft or dishonesty in the
conduct of the Company's business, or intoxication while on duty, or
conviction of a felony, in each case having a material adverse effect on the
business of the Company.
(ii) For purposes of this Agreement, "Good Reason"
shall mean (A) a Change in Control of the Company (as defined below), (B) a
decrease in the total amount of the Executive's Base Salary or Guaranteed
Bonus below its level in effect on the date hereof, or a decrease in the
bonus percentage or formula to which the Executive is entitled, without the
Executive's consent (provided, however, nothing herein shall be construed to
guarantee the Executive's bonus award under Section 5.(b)(ii) hereof if
performance is below target), (C) a reduction in the importance of the
Executive's job responsibilities without the Executive's consent, or, (D) a
geographical relocation of the Executive without his consent.
(iii) For purposes of this Agreement, a "Change in
Control of the Company" shall be deemed to have occurred if (A) any person
(as such term is used in Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934 (the "Exchange Act"), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 25% of more of the combined voting
power of the Company's then outstanding securities, (B) during any period of
two consecutive years during the term of this Agreement, individuals who at
the beginning of such period constitute the Board cease for any reason to
constitute at least a majority thereof, unless the election of each director
who was not a director at the beginning of such period has been approved in
advance by directors representing at least two-thirds of the directors then
in office who were directors at the beginning of the period, (C) the
shareholders of the Company approve a merger or consolidation involving the
Company resulting in a change of ownership of a majority of the outstanding
shares of capital stock of the Company, or (D) the shareholders of the
Company approve a plan of liquidation or dissolution of the Company or the
sale or disposition by the Company of all or substantially all the Company's
assets.
(iv) For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated.
-10-
<PAGE>
7. Compensation upon Termination.
------------------------------
(a) If (A) the Executive's employment shall be
terminated for Cause, or (B) the Executive voluntarily resigns from the
employ of the Company and Good Reason shall not occurred, then the Company
shall pay the Executive his full salary through the date of delivery to him
of a Notice of Termination at the rate in effect at the time date of
termination is given plus his bonuses under Section 5.(b) hereof pro rated
through the time of date of termination, and the Company shall have no
further obligations to the Executive under this Agreement.
(b) If in the breach of this Agreement, the Company
shall terminate the Executive's employment other than pursuant to Section
6.(a) hereof (it being understood that a purported termination pursuant to
Section 6.(a) hereof which is disputed and finally determined not to have
been proper shall be a termination by the Company in breach of this
Agreement), then:
(i) the Company shall pay to the Executive his full
salary through the date of termination at the rate in effect at the time
Notice of Termination is given plus his bonuses under Section 5.(b) hereof
pro rated through the date of termination; and
(ii) in lieu of any further salary or bonus payments
to the Executive for periods subsequent to the date of termination, the
Company shall pay on the date of termination as severance pay to the
Executive an amount equal to two (2) times the following: (x) the Base
Salary rate in effect as of the date of termination plus (y) the Guaranteed
Bonus which would be payable to the Executive with respect to the year in
which the date of termination occurs.
(c) If there is a Change in Control of the Company or
there has been a public announcement of a Change in Control of the Company
(provided, however, that consummation of the Change in Control of the Company
shall be a condition precedent to the effectiveness of this provision) and at
any time thereafter the employment of the Executive under this Agreement is
terminated for any reason whatsoever, then:
(i) the Company shall pay to the Executive his full
salary through the date of termination at the rate in effect at the time
Notice of Termination is given plus his bonuses under Section 5.(b) hereof
pro rated through the date of termination; and
(ii) in lieu of any further salary or bonus payments
to the Executive for periods subsequent to the date of termination, the
Company shall pay on the date of termination as severance pay to the
Executive an amount equal to three (3) times the greater of: (x) the average
annual total compensation (cash plus the cash value of all benefits not
generally provided to all employees of the Company) paid to the Executive
over the Company's last three fiscal years prior to the date of termination;
or (y) the total compensation paid to the Executive during the Company's
fiscal year ended January 31, 1997 (i.e., Five Hundred and Sixty-Five
Thousand Six Hundred Dollars ($565,600);
(d) Upon any termination of the Executive's employment
for any reason whatsoever, the Company shall maintain in full force and
effect for the continued benefit of the Executive for two (2) years, or three
(3) years if there has previously occurred a Change in Control of the
Company, all employee benefit plans and programs in which the Executive was
entitled to participate, pursuant to Section 5.(e) or otherwise, immediately
prior to the date of termination, provided that the Executive's continued
participation is possible under the general terms and provisions of such
plans and programs. In the event that the Executive's participation in any
such plan or program is barred, the Company shall arrange to provide the
Executive with equivalent benefits substantially similar to those which the
Executive would otherwise have been entitled to receive under such plans and
program from which his continued participation is barred.
(e) The Executive shall be entitled to continue to
participate in any benefit plan or program of the
-11-
<PAGE>
Company for two (2) years after the expiration of the period provided for in
Section 7.(d), or three (3) years if there has previously occurred a Change
of Control, provided, that the Executive pays the direct cost of any such
benefit plan or program.
8. Renewal of Term of Agreement. At the end of the initial
term of this Agreement, the Agreement shall be automatically renewed each
year for an additional one year, unless the Company notifies the Executive of
nonrenewal, such notice to be delivered at least ninety (90) days prior to
the end of the initial term or any extended term. Upon notice of nonrenewal
by the Company, (i) the Executive will be entitled to the protections of this
Agreement for the remaining term of this Agreement, subject to all other
provisions of this Agreement, and (ii) the Executive shall be entitled to the
payments specified in Sections 7.(b)(i) and 7.(b)(ii) hereof.
9. Counsel Fees. In the event that (i) the Company
terminates, or seeks to terminate, this Agreement, alleging as justification
for such termination a material breach by Executive or a Cause, or Causes,
set out in Section 6.(a) hereof; Executive disputes such termination or
attempted termination; and Executive prevails, or (ii) Executive elects to
terminate his service hereunder pursuant to Section 6.(b) of this Agreement;
the Company disputes its obligation to pay to Executive his Base Salary,
Guaranteed Bonus or Formula Bonus as provided in Section 7; and Executive
prevails; the Company shall pay, or reimburse to Executive, all reasonable
costs incurred by him in such dispute, including attorneys' fees and costs.
10. Covenants Not to Compete or Hire Employees. It is
recognized and understood by the parties hereto that Executive, through
Executive's association with the Company as an employee, shall acquire a
considerable amount of knowledge and goodwill with respect to the business of
the Company, which knowledge and goodwill are extremely valuable to the
Company and which would be extremely detrimental to the Company if used by
Executive to compete with the Company. It is, therefore, understood and
agreed by the parties hereto that, because of the nature of the business of
the Company, it is necessary to afford fair protection to the Company from
such competition by Executive. Consequently, as a material inducement to the
Company to enter into this Agreement, Executive covenants and agrees that for
the period commencing with the date hereof and ending one (1) year after
Executive's termination of employment with the Company, Executive shall not
engage, directly, indirectly or in concert with any other person or entity,
in the information technology training industry; provided, however, that
nothing in this Section 10 or elsewhere in this Agreement shall prevent the
Executive from teaching or lecturing in any field or being employed or
engaged in any capacity by a non-profit entity exempt from Federal income
taxes. Executive further covenants and agrees that for the period commencing
on the date of Executive's termination of employment for any reason
whatsoever and ending one (1) year after Executive's termination of
employment with the Company, Executive shall not, directly or indirectly,
hire or engage or attempt to hire or engage any individual who shall have
been an employee of the Company at any time during the one (1)-year period
prior to the date of Executive's termination of employment with the Company,
whether for or on behalf of Executive or for any entity in which Executive
shall have a direct or indirect interest (or any subsidiary or affiliate of
any such entity), whether as a proprietor, partner, co-venturer, financier,
investor or stockholder, director, officer, employer, employee, servant,
agent, representative or otherwise.
11. Successors; Binding Agreement.
------------------------------
(a) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business and/or assets of the Company, by
agreement in form and substance satisfactory to the Executive, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company
as hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this
Section 11 or which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law.
-12-
<PAGE>
(b) This Agreement and all rights of the Executive
hereunder shall inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If the Executive should die
while any amounts would still be payable to him hereunder if he had continued
to live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, if there be no such designee, to the
Executive's estate.
12. Notice. For the purposes of this Agreement, notices,
demands and all other communications provided for in the Agreement shall be
in writing and shall be deemed to have been duly given when delivered or
(unless otherwise specified) mailed by United States registered mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive: 5606 Braddock Farms
Way
Clifton, Virginia 22024
If to the Company: 11350 Random Hills Road
Suite 240
Fairfax, Virginia 22030
or to such other address as any party may have furnished to the other in
writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
13. Prior Agreement. All prior agreements between the
Company and the Executive with respect to the employment of the Executive are
hereby superseded and terminated effective as of the date hereof and shall be
without further force or effect.
14. Miscellaneous. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing signed by the Executive and duly authorized officer
of the Company. No waiver by either party hereto at any time of any breach
by the other hereto of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver
of similar or dissimilar provisions or conditions at the same or at any prior
or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made
by either party which are not set forth expressly in this Agreement. The
validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the Commonwealth of Virginia.
15. Validity. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall remain
in full force and effect.
16. Arbitration. Any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by
arbitration, conducted before a panel of three arbitrators, in Washington,
D.C., in accordance with the rules of the American Arbitration Association
then in effect. The expense of such arbitration shall be borne by the
Company.
-13-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date and year first above written.
COMPUTER LEARNING CENTERS, INC.
By:________________________________
Harry Gaines, Chairman
of the Board
EXECUTIVE:
____________________________________
Reid R. Bechtle
-14-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CREDIT AGREEMENT
between
COMPUTER LEARNING CENTERS, INC.,
and
CORESTATES BANK, N.A.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
i
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1. CONSTRUCTION AND DEFINITIONS........................1
1.1 Defined Terms...........................................1
1.2 Other Definitional Provisions...........................18
SECTION 2. AMOUNT AND TERMS OF LOAN COMMITMENTS................19
2.1 Revolving Credit Commitment.............................19
2.2 Revolving Credit Notes..................................19
2.3 Procedure for Revolving Credit Borrowing................20
2.4 Unused Facility Fee.....................................20
2.5 Reduction of Revolving Credit Commitment................21
2.6 Payment at Revolving Credit Termination Date............21
2.7 Conversion of Revolving Credit Loans to Convertible
Term Loans........................................21
2.8 Convertible Term Loan Units.............................21
2.9 Convertible Term Loan Notes.............................22
2.10 Optional Prepayments...................................22
2.11 Interest Rate Conversion Options; Minimum Amount
of Loans..........................................22
2.12 Number and Amounts of Eurodollar Tranches..............23
2.13 Interest Rates and Payment Dates.......................23
2.14 Computation of Interest and Fees.......................24
2.15 Inability to Determine Interest Rate...................24
2.16 Payments...............................................25
2.17 Illegality.............................................25
2.18 Requirements of Law....................................26
2.19 Taxes..................................................27
2.20 Indemnity..............................................28
2.21 Certain Calculations...................................28
SECTION 3. LETTERS OF CREDIT...................................28
3.1 Letter of Credit Commitment.............................28
3.2 Procedure for Issuance and Renewal of Letters
of Credit.........................................29
3.3 Reimbursement of the Lender.............................29
3.4 Commissions, Fees and Charges...........................30
3.5 Interest on Amounts Disbursed under Letters of
Credit...........................................30
3.6 Computation of Interest and Fees; Payment not on
Business Days.....................................30
3.7 Increased Costs.........................................31
3.8 Nature of Obligations and Indemnities...................31
3.9 Inconsistency in Documents..............................33
SECTION 4. REPRESENTATIONS AND WARRANTIES......................33
4.1 Financial Condition.....................................33
4.2 No Change...............................................34
4.3 Organization and Good Standing; Compliance with Law.....34
i
<PAGE>
4.4 Authorization; Enforceable Obligations..................34
4.5 No Legal Bar............................................35
4.6 No Material Litigation; Labor Matters...................35
4.7 No Default..............................................35
4.8 Ownership of Property; Liens............................35
4.9 Business Premises.......................................36
4.10 Subsidiaries...........................................36
4.11 Environmental..........................................36
4.12 Solvency...............................................36
4.13 Taxes..................................................37
4.14 Federal Regulations....................................37
4.15 Employee Matters.......................................37
4.16 Investment Company Act; Other Regulations..............39
4.17 Accuracy and Completeness of Information...............39
4.18 Purpose of Loans.......................................40
SECTION 5. CONDITIONS PRECEDENT................................40
5.1 Conditions to Initial Extensions of Credit..............40
(a) Credit Documents.......................................40
(b) Consents...............................................40
(c) Related Agreements.....................................40
(d) Borrowing Certificate..................................41
(e) Borrower Proceedings...................................41
(f) Borrower Incumbency Certificate........................41
(g) Borrower Organizational Documents......................41
(h) Good Standing Certificates.............................41
(i) Financial Information..................................41
(j) Litigation.............................................41
(k) No Violation...........................................42
(l) Consents, Licenses and Approval........................42
(m) Filings, Registrations and Recordings..................42
(n) Lien Searches..........................................42
(o) Insurance..............................................42
(p) Legal Opinions.........................................42
(q) Landlord Agreement.....................................43
5.2 Conditions to Each Loan.................................43
(a) Representations and Warranties.........................43
(b) No Default.............................................43
(c) No Material Litigation.................................43
(d) No Material Adverse Change.............................43
(e) Additional Matters.....................................43
SECTION 6. AFFIRMATIVE COVENANTS...............................44
6.1 Financial Information...................................44
6.2 Payment of Obligations..................................45
6.3 Conduct of Business and Maintenance of Existence........45
6.4 Maintenance of Property; Insurance......................46
6.5 Inspection of Property and Books and Records............46
ii
<PAGE>
6.6 Notices.................................................46
6.7 Government Regulations..................................47
6.8 Employee Benefit Plans..................................47
6.9 Environmental...........................................47
6.10 Perfection of Security Interest........................49
SECTION 7. NEGATIVE COVENANTS..................................49
7.1 Financial Condition Covenants...........................49
(a) Leverage Ratio.........................................49
(b) Fixed Charge Coverage Ratio............................49
(c) Current Ratio..........................................49
7.2 Limitation on Indebtedness..............................49
7.3 Limitation on Liens.....................................50
7.4 Limitation on Negative Pledge Clauses...................50
7.5 Limitation on Contingent Obligations....................51
7.6 Limitations on Fundamental Changes......................51
7.7 Limitation on Acquisitions..............................51
7.8 Limitation on Sale of Assets............................51
7.9 Limitation on Restricted Payments.......................52
7.10 Limitation on Transactions with Affiliates.............52
7.11 Limitation on Subsidiaries.............................52
7.12 Limitation on Investments, Loans and Advances..........52
7.13 Limitation on Optional Payments and Modifications......53
7.14 Limitation on Sale and Leaseback.......................53
7.15 Fiscal Year............................................53
7.16 Places of Business.....................................53
7.17 Change of Name.........................................53
7.18 ERISA..................................................54
7.19 Environmental..........................................54
7.20 Limitation on Inconsistent Agreements..................54
SECTION 8. EVENTS OF DEFAULT...................................54
SECTION 9. MISCELLANEOUS.......................................58
9.1 Amendments and Waivers..................................58
9.2 More Restrictive Provisions.............................59
9.3 Notices.................................................59
9.4 No Waiver; Cumulative Remedies..........................61
9.5 Survival of Representations and Warranties..............61
9.6 Payment of Expenses and Taxes...........................61
9.7 Further Assurances......................................62
9.8 Unenforceability........................................62
9.9 Indemnification Concerning Fees.........................62
9.10 Waiver of Trial by Jury................................62
9.11 Additional Waivers.....................................63
9.12 Successors and Assigns; Transfers of Interests.........63
9.13 Counterparts...........................................63
9.14 Governing Law..........................................64
9.15 Submission To Jurisdiction.............................64
iii
<PAGE>
SCHEDULE I BORROWER BUSINESS PREMISES
SCHEDULE 4.6 LITIGATION
SCHEDULE 4.11 ENVIRONMENTAL MATTERS
SCHEDULE 7.3 PERMITTED LIENS
EXHIBIT A FORM OF CONVERTIBLE TERM LOAN NOTE
EXHIBIT B FORM OF OFFICER DEFAULT CERTIFICATE
EXHIBIT C FORM OF OFFICER FINANCIAL COVENANT CERTIFICATE
EXHIBIT D FORM OF REVOLVING CREDIT NOTE
EXHIBIT E FORM OF BORROWING CERTIFICATE
EXHIBIT F FORM OF PROJECTIONS
iv
<PAGE>
v
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made as of the 23rd day of
December, 1996, by and between COMPUTER LEARNING CENTERS,
INC., a Delaware corporation (the "Borrower"), and
CORESTATES BANK, N.A. (the "Lender").
The parties hereto hereby agree as follows:
SECTION 1. CONSTRUCTION AND DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the
following terms have the following meanings:
"Accountant Default Certificate": a certificate, in
form and content satisfactory to the Lender, of the
independent certified public accountants who reviewed annual
financial statements of the Borrower and its Subsidiaries
(a) certifying to the Lender whether, in the course of such
review, any information came to their attention causing them
to know or believe that any Default or Event of Default
existed and, if so, setting forth the facts relevant
thereto, and (b) certifying to the Lender that they reviewed
the Officer Financial Covenant Certificate accompanying such
financial statements and certifying to the Lender whether
they have any reason to know or believe that any of the
calculations contained in such Officer Financial Covenant
Certificate are not accurate in any material respect and, if
so, setting forth the facts relevant thereto.
"Adjusted Net Income": for a particular period, the consolidated net
income of the Borrower and its Subsidiaries for such period determined in
conformity with GAAP consistently applied, plus, to the extent deducted in
determining such net income for such period, (a) provision for taxes
applicable to such period, (b) the amount of all depreciation, amortization
and other noncash charges applicable to such period, (c) the amount of
Interest Expense applicable to such period, and (d) the amount of all
payments required to be made by the Borrower and its Subsidiaries (whether or
not actually made) during such period on account of Operating Leases, minus
fifty percent (50%) of the
<PAGE>
amount of Capital Expenditures during such period.
"Affiliate": as to any Person: (a) any Person in which such
Person legally or beneficially owns or holds, directly or indirectly,
twenty-five percent (25%) or more of the capital stock, partnership
interests, joint venture interests, membership interests or other equity
interests; (b) any partnership in which such Person is a general partner or
any joint venture in which such Person is a joint venturer; and (c) any
Person that is a director, officer or employee of any of the foregoing or of
such Person or that legally or beneficially owns or holds, directly or
indirectly, twenty-five percent (25%) or more of the capital stock,
partnership interests, joint venture interests, membership interests or other
equity interests in any of the foregoing or in such Person.
"Agreement": this Credit Agreement, as amended,
modified, extended, renewed, supplemented or replaced from
time to time.
"Applicable Margin":
(a) With respect to Revolving Credit Loans which
are Base Rate Loans: zero percent (0%);
(b) With respect to Convertible Term Loan Units
which are Base Rate Loans: one-quarter of one percent
(.25%);
(c) With respect to Revolving Credit Loans which
are Eurodollar Loans: one and one-quarter percent (1.25%);
and
(d) With respect to Convertible Term Loan Units
which are Eurodollar Loans: one and one-half percent
(1.50%).
"Authorized Officer": in the case of any Person, the
President or any Vice President of such Person whose name
and title appears on a certificate of incumbency of the
authorized officers of such Person delivered concurrently
with the execution of this Agreement, as such certificate of
incumbency may be amended from time to time.
"Available Commitment": at a particular time, the
amount, if any, by which the Revolving Credit Maximum Amount
as at such time exceeds the Total Applicable Usage as at
such time.
2
<PAGE>
"Base Rate": at a particular time, the Prime Rate as
at such time.
"Base Rate Loans": Revolving Credit Loans and
Convertible Term Loan Units at such time as they are made
and/or being maintained at a rate of interest based upon the
Base Rate.
"Borrower Business Premises": the collective reference
to the Borrower Chief Executive Office and the other
premises of the Borrower identified in Schedule I.
"Borrower Chief Executive Office": the real property
and improvements leased by the Borrower known as
11350 Random Hills Road, Suite 240, Fairfax, Virginia 22030.
"Borrower Security Agreement": as amended, modified,
extended, renewed, supplemented or replaced from time to
time, the Security Agreement executed and delivered, or to
be executed and delivered, by the Borrower in favor of the
Lender, pursuant to which the Borrower shall, among other
things, grant to the Lender a security interest in all
present and future accounts, receivables, contract rights,
instruments and general intangibles of the Borrower, as well
as certain other assets or types of assets of the Borrower.
"Borrowing Date": any Business Day or Working Day
specified in a notice pursuant to Subsection 2.3 as a date
on which the Borrower requests the Lender to make a
Revolving Credit Loan hereunder.
"Business Day": a day other than a Saturday, Sunday or
other day on which commercial banks in Philadelphia,
Pennsylvania, are authorized or required by law to close.
"Capital Expenditures": for a particular period, the
aggregate amount of expenditures made or accrued by the
Borrower and its Subsidiaries during such period (including
expenditures made with respect to Capital Leases) which, in
conformity with GAAP, are required to be included in a
property, plant, equipment or comparable fixed asset account
reflected in a consolidated balance sheet of the Borrower
and its Subsidiaries, but excluding expenditures made in
connection with the replacement or restoration of assets to
the extent reimbursed or financed from
3
<PAGE>
insurance proceeds paid on account of loss of or damage to the assets being
replaced or restored or from awards of compensation arising from the taking
by condemnation or eminent domain of the assets being replaced or restored.
"Capital Lease": in the case of any Person, any lease
of any property (real, personal or mixed) by such Person as
lessee which, in conformity with GAAP, would be required to
be capitalized on a balance sheet of such Person.
"Cash Equivalents": (a) securities issued or directly
and fully guaranteed or insured by the United States of
America, or any agency or instrumentality thereof, having
maturities of not more than twenty-four (24) months from the
date of acquisition; (b) time deposits with the Lender,
certificates of deposit issued by the Lender, and time
deposits with, and certificates of deposit issued by, any
commercial bank incorporated under the laws of the United
States of America or any state thereof which has a combined
capital, surplus and undivided profits at least equal to One
Hundred Million Dollars ($100,000,000.00), and having
maturities of not more than eighteen (18) months from the
date of acquisition; (c) repurchase obligations with a term
of not more than seven (7) days for underlying securities of
the types described in clauses (a) and (b) above entered
into with the Lender or with any commercial bank
incorporated under the laws of the United States of America
or any state thereof which has a combined capital, surplus
and undivided profits at least equal to One Hundred Million
Dollars ($100,000,000.00); and (d) commercial paper of the
Lender or the holding company controlling the Lender and
commercial paper rated at least A-1 or the equivalent
thereof by Standard & Poor's Corporation or P-1 or the
equivalent thereof by Moody's Investors Service, Inc., and,
in either case, maturing within twenty-four (24) months
after the date of acquisition.
"Change of Control": (a) any Person, or two or more
Persons acting in concert, shall directly or indirectly
acquire, after the date of this Agreement, beneficial
ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission under the Securities
Exchange Act of 1934) thirty percent (30%) or more of the
issued and outstanding voting capital stock of the Borrower
on a fully-diluted basis; or (b) individuals who, as of the
date of this Agreement, constitute the Board of Directors of
the Borrower (together with any new director whose election
by or whose nomination for election was approved by a vote
of at least
4
<PAGE>
two-thirds (2/3) of the directors then still in office who either were
directors as of such time or whose election or nomination for election was
previously so approved) shall for any reason cease to constitute a majority
of the Board of Directors of the Borrower.
"Closing Date": the date on which the Lender makes the
initial Revolving Credit Loan or issues the initial Letter
of Credit, whichever is earlier.
"Code": the Internal Revenue Code of 1986, as amended
from time to time.
"Collateral": all property, interests and rights, and
the products and proceeds thereof, now or hereafter directly
or indirectly securing any of the Obligations pursuant to
the Borrower Security Agreement.
"Commitments": the collective reference to the
Revolving Credit Commitment, the L/C Commitment and the
Convertible Term Loan Commitment.
"Commonly Controlled Entity": a Person, whether or not
incorporated, which is part of a controlled group including
the Borrower or which is under common control with the
Borrower, as defined in Sections 414(b) and (c) of the Code.
"Contingent Obligation": as to any Person, any
obligation of such Person guaranteeing or in effect
guaranteeing any Indebtedness, leases, dividends, letters of
credit or other obligations (the "primary obligations") of
any other Person (the "primary obligor") in any manner,
whether directly or indirectly, including, without
limitation, any obligation of such Person, whether or not
contingent (a) to purchase any such primary obligation or
any property constituting direct or indirect security
therefor, (b) to advance or supply funds (i) for the
purchase or payment of any such primary obligation or (ii)
to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency
of the primary obligor, (c) to purchase property, securities
or services primarily for the purpose of assuring the owner
of any such primary obligation of the ability of the primary
obligor to make payment of such primary obligation or (d)
otherwise to assure or hold harmless the owner of any such
primary obligation against loss in respect thereof.
5
<PAGE>
"Contractual Obligation": as to any Person, any
provision of any security issued by such Person or of any
agreement, instrument or undertaking to which such Person is
a party or by which it or any of its property is bound.
"Conversion": the conversion of a portion of the
Revolving Credit Loan Balance to a Convertible Term Loan
pursuant to Subsection 2.7.
"Conversion Date": any Business Day prior to the
Revolving Credit Termination Date on which a portion of the
Revolving Credit Loan Balance is, or is requested to be,
converted to a Convertible Term Loan.
"Convertible Term Loan": as defined in Subsection 2.7.
"Convertible Term Loan Commitment": the agreement of
the Lender set forth in Subsection 2.7 that Revolving Credit
Loans may be converted to Convertible Term Loans.
"Convertible Term Loan Maximum Amount": Two Million
Dollars ($2,000,000.00).
"Convertible Term Loan Note": as amended, modified,
extended, renewed, supplemented or replaced from time to
time, a promissory note of the Borrower, substantially in
the form of Exhibit A, appropriately completed, payable to
the order of the Lender and further evidencing the
obligation of the Borrower to pay with interest a
Convertible Term Loan.
"Convertible Term Loan Termination Date": in the case
of any Convertible Term Loan, the date on which the entire
unpaid principal amount thereof shall have become due and
payable in full.
"Convertible Term Loan Unit": as defined in
Subsection 2.8.
"Credit Documents": the collective reference to this
Agreement, the Notes, the Borrower Security Agreement, the
L/C Agreements and each other agreement, contract,
promissory note or other instrument, security agreement,
assignment, pledge agreement, indemnification agreement,
subordination agreement,
6
<PAGE>
mortgage, deed of trust, guaranty and other document now or hereafter
evidencing, guaranteeing, securing (directly or indirectly), subordinating
other obligations of the Borrower or any Other Obligor to, or containing any
warranties, covenants, agreements or representations of any Person relating
to, any Indebtedness, liability or obligation of the Borrower or any Other
Obligor to the Lender, as each of the documents referred to in this
definition may be amended, modified, extended, renewed, supplemented or
replaced from time to time.
"Current Ratio": at a particular time, the ratio of
(a) Total Current Assets as at such time to (b) Total
Current Liabilities as at such time.
"Default": the occurrence of any event which, with the
giving of notice or the lapse of time, or both, would
constitute an Event of Default.
"Dollars" and "$": dollars in lawful currency of the
United States of America.
"Environmental Assessment": an environmental site
assessment, including such audits, tests and procedures as
the Lender or the contractor performing the same may deem
necessary, together with a written report thereon, performed
and prepared by an experienced, responsible and reputable
contractor satisfactory to the Lender relating to past or
current presence, manufacture, generation, production,
processing, use, handling, treatment, storage or disposal of
Hazardous Substances on Obligor Use Property, past or
current Hazardous Substance Contamination, or compliance
with Environmental Laws of Obligor Use Property and past or
current operations conducted on Obligor Use Property.
"Environmental Claim": shall mean any letter, notice,
claim, demand, summons, citation, directive or other written
communication and any investigation, action, suit,
proceeding, litigation, judgment or decree by or from the
United States Environmental Protection Agency or any other
Person alleging, establishing or otherwise relating to any
Hazardous Substance Contamination or any violation of any
Environmental Law.
"Environmental Laws": the Resource Conservation and
Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Toxic Substances Control
Act,
7
<PAGE>
the Federal Insecticide, Fungicide, and Rodenticide Act, the Federal Water
Pollution Control Act, the Safe Drinking Water Act, the Clean Air Act, the
Solid Waste Disposal Act, the Emergency Planning and Community Right-To-Know
Act, as each of the foregoing may be amended from time to time, and all
rules, regulations, codes, orders, decrees, judgments, injunctions, notices
and demand letters now or hereafter enacted, promulgated, approved, issued or
entered thereunder, as the same may be amended from time to time, and all
other federal, state, local and foreign laws, rules, regulations, codes,
permits, directives, orders, decrees, judgments, injunctions, notices and
demand letters now or hereafter enacted, promulgated, approved, issued or
entered, and as amended from time to time, relating to the protection of the
health of human beings or other living things or relating to pollution or
protection of air, water, land or any other aspect of the environment,
including, without limitation, all of the same relating to the presence,
manufacture, generation, production, processing, use, handling, treatment,
storage, disposal, importation, transportation, distribution or registration,
or the release, emission, discharge or spilling into air, water, land or any
other aspect of the environment, of any Hazardous Substance.
"ERISA": the Employee Retirement Income Security Act
of 1974, as amended from time to time.
"Eurocurrency Reserve Requirements": for any day as
applied to a Eurodollar Loan, the aggregate (without
duplication) of the rates (expressed as a decimal fraction)
of reserve requirements in effect on such day (including,
without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board of
Governors of the Federal Reserve System or other
Governmental Authority having jurisdiction with respect
thereto), dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D of such Board) maintained by a
member bank of such System.
"Eurodollar Base Rate": with respect to each day
during each Interest Period pertaining to a Eurodollar Loan,
the rate per annum (rounded upwards, if necessary, to the
nearest 1/16ths of 1%) quoted at approximately 11:00 a.m.
London time, by the principal London branch of the Lender
two (2) Working Days prior to the first day of such Interest
Period for the offering to leading banks in the London
interbank market of Dollar deposits in
8
<PAGE>
immediately available funds for a period comparable to such Interest Period
and in an amount comparable to the principal amount of such Eurodollar Loan.
"Eurodollar Loans": Revolving Credit Loans and
Convertible Term Loan Units at such time as they are made
and/or are being maintained at a rate of interest based upon
the Eurodollar Rate.
''Eurodollar Rate'': with respect to each day during
each Interest Period pertaining to a Eurodollar Loan, a rate
per annum determined for such day in accordance with the
following formula (rounded upwards to the nearest whole
multiple of 1/100th of one percent):
Eurodollar Base Rate
------------------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Eurodollar Tranche": a collective reference to
(a) Revolving Credit Loans being maintained as Eurodollar
Loans having the same Interest Periods (whether or not
originally made on the same day), or (b) Convertible Term
Loan Units being maintained as Eurodollar Loans having the
same Interest Periods (whether or not originally made on the
same day).
"Event of Default": any of the events specified in
Section 8.
"Fixed Charge Coverage Ratio": for a particular
period, the ratio of (a) Adjusted Net Income for such
period, to (b) Fixed Charges for such period.
"Fixed Charges": for a particular period, the sum of
(a) the amount of all payments required to be made by the
Borrower and its Subsidiaries (whether or not actually made)
on account of Operating Leases during such period, (b) the
amount of Interest Expense applicable to such period, and
(c) the aggregate amount of Long-Term Debt which will be due
and payable within twelve (12) months after the end of such
period.
"GAAP": generally accepted accounting principles in
the United States of America in effect from time to time.
In the event of a change in GAAP affecting any of the
covenants contained in Subsection 7.1 or definitions
contained in Section 1 relating
9
<PAGE>
to such covenants, such covenants and definitions shall continue to be
applied as though such change in GAAP had not occurred unless and until the
Borrower and the Lender shall agree in writing to amend or adjust such
covenants or definitions as deemed necessary as a result of such change in
GAAP.
"good faith": with respect to any determination,
request or other action to be made or taken by any party
hereto "in good faith," that such party shall make or take
such determination, request or other action honestly and not
maliciously.
"Governmental Authority": any nation or government,
any state or other political subdivision thereof and any
entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to
government, and any Person owned or controlled directly or
indirectly by any of the foregoing, whether domestic or
foreign.
"Hazardous Substance": any hazardous substance,
hazardous material, hazardous waste, toxic substance, toxic
material, toxic waste, industrial waste, medical waste,
infectious waste, biomedical waste, biohazardous waste,
pollutant, contaminant, chemical, acid, solvent, caustic,
oil, petroleum, petroleum-based product, asbestos,
asbestos-containing substance or material, flammable
substance, flammable material, explosive substance,
explosive material, radon, radioactive substance,
radioactive material, urea formaldehyde foam insulation,
polychlorinated biphenyls, methane and any other substance
or material the presence, manufacture, generation,
production, processing, use, handling, treatment, storage,
disposal, release, emission, discharge, spilling,
importation, transportation, distribution or registration of
which is prohibited or regulated by any Environmental Law.
The meaning of each term used in this definition shall
include, without limitation, the meaning or meanings
assigned to such term by any Environmental Laws.
"Hazardous Substance Contamination": (a) the
contamination, as a result of any Hazardous Substance, of
any Obligor Use Property; or (b) the contamination, as a
result of any manufacture, generation, production,
processing, use, handling, treatment, storage, disposal,
release, emission, discharge or spilling of any Hazardous
Substance on or from any Obligor Use Property, of any
surrounding, adjacent or nearby air, water, land
10
<PAGE>
or other property or other aspect of the environment which requires remedial
action under any Environmental Law.
"Indebtedness": as to any Person, without duplication:
(a) any obligation, indebtedness or liability of such Person
for the payment of money or any other item, which, in
conformity with GAAP, would be required to be included in
the liability section of a balance sheet of such Person or
in a note to the liability section of a balance sheet of
such Person, excluding reserves to the extent that such
reserves do not constitute obligations; (b) any obligation,
indebtedness or liability of such Person arising under any
conditional sale or other title retention agreement with
respect to property acquired by such Person, notwithstanding
that the remedies of the seller, lender or lessor under such
agreement in case of default are limited to repossession or
sale of property; (c) any obligation, indebtedness or
liability of any Person secured directly or indirectly by
any contingent or noncontingent security interest or other
Lien in or upon any present or future property of such
Person, whether or not such Person is personally liable for
such obligation, indebtedness or liability; and (d) any
obligation, indebtedness or liability of such Person in
connection with any Capital Lease.
"Insolvency": at any particular time in respect of a
Multiemployer Plan, insolvency of such Multiemployer Plan
within the meaning of Section 4245 of ERISA.
"Interest Expense": for a particular period, the total
interest expense of the Borrower and its Subsidiaries for
such period on a consolidated basis.
"Interest Payment Date":
(a) With respect to Base Rate Loans which are
Revolving Credit Loans: the first day of each February,
May, August and November, commencing February 1, 1997;
(b) With respect to Base Rate Loans comprised of
Convertible Term Loan Units: quarterly as provided in the
applicable Convertible Term Loan Note; and
(c) With respect to Eurodollar Loans: the last
day of the Interest Period applicable thereto.
11
<PAGE>
"Interest Period": as to any Eurodollar Loan:
(a) initially, the period commencing on the
borrowing or conversion date, as the case may be, with
respect to such Eurodollar Loan and, if such Eurodollar Loan
is comprised of Revolving Credit Loans, ending one (1), two
(2) or three (3) months thereafter, as selected by the
Borrower in its notice of borrowing as provided in
Subsection 2.3 or its notice of conversion as provided in
Subsection 2.11, as the case may be, or, if such Eurodollar
Loan is comprised of Convertible Term Loan Units, ending one
(1) month thereafter; and
(b) thereafter, each period commencing on
the last day of the next preceding Interest Period
applicable to such Eurodollar Loan and, if such Eurodollar
Loan is comprised of Revolving Credit Loans, ending one (1),
two (2) or three (3) months thereafter, as selected by the
Borrower by irrevocable notice to the Lender not less than
three (3) Working Days prior to the last day of the then
current Interest Period with respect to such Eurodollar
Loan, or, if such Eurodollar Loan is comprised of
Convertible Term Loan Units, ending one (1) month
thereafter;
provided that all of the foregoing provisions relating to
Interest Periods are subject to the following:
(i) if any Interest Period with respect to a
Eurodollar Loan would otherwise end on a day which is not a
Working Day, that Interest Period shall be extended to the
next succeeding Working Day unless the result of such
extension would be to carry such Interest Period into
another calendar month, in which event such Interest Period
shall end on the immediately preceding Working Day;
(ii) no Interest Period applicable to a
Eurodollar Tranche comprised of Revolving Credit Loans or
Convertible Term Loan Units shall end after, respectively,
the Revolving Credit Termination Date or the Convertible
Term Loan Termination Date;
(iii) any Interest Period with respect to
a Eurodollar Loan that begins on the last Working Day of a
calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the
end of such Interest Period) shall end on the last Working
Day of a calendar month; and
12
<PAGE>
(iv) the Borrower shall select Interest
Periods so as not to require a payment or prepayment of any
Eurodollar Loan during an Interest Period for such Loan.
"Investment": legal or beneficial ownership of any
capital stock, partnership interest, joint venture interest,
membership interest or other equity interest in, or any
promissory note, bond, debenture or other Indebtedness of or
issued by, or any capital contribution to, or any other
investment in or security (as defined in the Securities Act
of 1933 or the Securities Exchange Act of 1934, or any
successor legislation, as amended from time to time) of or
issued by, any corporation, limited liability company,
partnership, joint venture or other Person.
"L/C Aggregate Undrawn Amount": at a particular
date, the aggregate undrawn amount, as at such date, of all
Letters of Credit issued and outstanding.
"L/C Agreements": as amended, modified, extended,
renewed, supplemented or replaced from time to time, such
applications, reimbursement agreements and other agreements
in form and content satisfactory to the Lender requesting
issuance of one or more Letters of Credit and setting forth
reimbursement obligations and other terms and conditions
relating thereto.
"L/C Commission Rate": one percent (1%) per annum.
"L/C Commitment": as defined in Subsection 3.1.
"L/C Exposure": at a particular time, the sum of
(a) the L/C Aggregate Undrawn Amount as at such time and
(b) L/C Reimbursement Obligations as at such time.
"L/C Reimbursement Obligations": at a particular time,
the aggregate amount of all drawings made under Letters of
Credit which, as at such time, have not been reimbursed by
the Borrower to the Lender.
"Letters of Credit": as defined in Subsection 3.1.
"Leverage Ratio": at a particular time, the ratio of (a) Total
Liabilities as at such time, to (b) Tangible Net Worth as at such time.
13
<PAGE>
"Lien": any mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien
(statutory or other) or preference, priority or other
security agreement or preferential arrangement of any kind
or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement, any
Capital Lease having substantially the same economic effect
as any of the foregoing, and the filing of any financing
statement under the Uniform Commercial Code or comparable
law of any jurisdiction in respect of any of the foregoing).
"Loans": the collective reference to the Revolving
Credit Loans and the Convertible Term Loans.
"Long-Term Debt": all Indebtedness of the Borrower and
its Subsidiaries which was payable more than one (1) year
from the date of creation of such Indebtedness (excluding
reserves for deferred income taxes and other reserves to the
extent that such reserves do not constitute obligations).
"Material Adverse Effect": a material adverse effect
with respect to the business, assets, operations, business
prospects or financial condition of the Borrower, any of its
Subsidiaries or any Other Obligor, or a material adverse
effect with respect to the risks to the Lender attending the
Collateral, with respect to the risks to the Lender
attending any commitments of the Lender which could give
rise to any Obligations, or with respect to the prospect for
payment or collection in full of the Obligations.
"Material Litigation": in the case of any Person, any
litigation, action, suit, proceeding or investigation
pending or overtly threatened in writing against such Person
or any Subsidiary of such Person, or any of their property,
at law or in equity, which, if determined adversely to such
Person or such Subsidiary, as the case may be, could
reasonably be expected to have a material adverse effect on
the business, assets, operations, business prospects or
financial condition of such Person or any Subsidiary of such
Person, or a material adverse effect with respect to the
risks to the Lender attending the Collateral, with respect
to the risks to the Lender attending any commitments of the
Lender which could give rise to any Obligations, or with
respect to the prospect for payment or
14
<PAGE>
collection in full of the Obligations.
"Multiemployer Plan": a Plan which is a multiemployer
plan as defined in Section 4001(a) (3) of ERISA.
"Notes": the collective reference to the Revolving
Credit Notes and the Convertible Term Loan Notes.
"Obligations": as amended, modified, extended,
renewed, supplemented, increased, refinanced, consolidated
or replaced from time to time, all present and future Loans
and other Indebtedness, liabilities and obligations of the
Borrower to the Lender of every kind and nature, whether
arising under or in connection with this Agreement, the
other Credit Documents or otherwise (including, without
limitation, all principal amounts, including future
advances, interest charges, fees and all other charges and
sums, as well as all costs and expenses, including
attorneys' fees and expenses, payable or reimbursable by the
Borrower under or pursuant to this Agreement, the other
Credit Documents and otherwise), whether direct or indirect,
contingent or noncontingent, matured or unmatured, accrued
or not accrued, liquidated or unliquidated, secured or
unsecured, related or unrelated to this Agreement, whether
or not now contemplated, whether arising in contract, tort,
equity or otherwise, whether the liability of the Borrower
with respect thereto is joint or several or both, and
whether or not any instrument or agreement relating thereto
specifically refers to this Agreement, including, without
limitation, all present and future obligations of the
Borrower in connection with overdrafts in any checking or
other account now or hereafter maintained by the Borrower
with the Lender, and all claims against the Borrower arising
or re-arising on account of or as a result of any payment
made by the Borrower or any Other Obligor with respect to
any obligations included in this definition which is
rescinded or recovered from or restored or returned under
authority of any law, rule, regulation, order of court or
Governmental Authority, or in connection with any compromise
or settlement relating thereto or relating to any pending or
threatened action, suit or proceeding relating thereto,
whether arising out of any proceedings under the United
States Bankruptcy Code or otherwise.
"Obligor Use Property": the collective reference to
any real property or improvements (or portion thereof)
owned, leased, subleased, occupied, used or operated by the
Borrower, any
15
<PAGE>
of its Subsidiaries or any Other Obligor.
"Officer Default Certificate": an appropriately
completed certificate in form substantially similar to
Exhibit B, but in form and content satisfactory to the
Lender, signed by the chief financial officer of the
Borrower certifying whether, as at a particular time and to
the knowledge and belief of such officer after diligent
inquiry, any Default or Event of Default existed and, if so,
setting forth all relevant facts with respect thereto.
"Officer Financial Covenant Certificate": an
appropriately completed certificate substantially similar to
Exhibit C, but in form and content satisfactory to the
Lender, signed by the chief financial officer of the
Borrower setting forth calculations of the covenants
contained in Subsection 7.1 as at a particular time or for a
particular period.
"Operating Lease": as to any Person, any lease of any
property (real, personal or mixed) by such Person as lessee
which is not a Capital Lease.
"Other Obligor": each Person other than the Borrower
that is now or hereafter primarily or secondarily, or
contingently or noncontingently, liable for or obligated
upon or in connection with any of the Obligations, or,
whether or not so liable, that has granted any lien or
security interest to or for the benefit of the Lender as
security for any of the Obligations or any obligations of
any other Person in connection with any of the Obligations,
or that has subordinated to any of the Obligations any
Indebtedness or obligations to such Person of any other
Person.
"PBGC": the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA.
"Permitted Acquisition": any acquisition by the Borrower or any
Subsidiary of the Borrower of all or substantially all of the assets or
business of any Person, or any assets of any Person in a transaction which is
subject to the Bulk Transfers Title of the Uniform Commercial Code of any
jurisdiction, whether by purchase of stock or assets, merger, consolidation
or otherwise, provided that (a) the aggregate amount expended by the Borrower
and its Subsidiaries in connection with all such acquisitions during any
period of four (4) consecutive quarterly
16
<PAGE>
accounting periods of the Borrower beginning on or after the date of this
Agreement (including Indebtedness assumed or incurred in connection with such
acquisitions in excess of cash and Cash Equivalents acquired by the Borrower
or its Subsidiaries in connection with such acquisitions, but excluding the
value of stock of the Borrower or any of its Subsidiaries issued in
connection therewith) does not exceed thirty percent (30%) of Tangible Net
Worth as at the end of such period, (b) the aggregate amount expended by the
Borrower and its Subsidiaries in connection with all such acquisitions
(including Indebtedness assumed or incurred in connection with such
acquisitions in excess of cash and Cash Equivalents acquired by the Borrower
or its Subsidiaries in connection with such acquisitions, but excluding the
value of stock of the Borrower or any of its Subsidiaries issued in
connection therewith) does not exceed Ten Million Dollars ($10,000,000.00),
and (c) no Default or Event of Default shall have occurred and be continuing
at the time of such acquisition.
"Permitted Factoring Agreement": any agreement for the
sale by the Borrower or any of its Subsidiaries without
recourse to the Borrower or any of its Subsidiaries of
accounts of the Borrower or any of its Subsidiaries,
provided that (a) the aggregate face amount of all such
accounts so sold during any period of four (4) consecutive
quarterly accounting periods of the Borrower beginning on or
after the date of this Agreement does not exceed Two Hundred
Fifty Thousand Dollars ($250,000.00), and (b) no Default or
Event of Default shall have occurred and be continuing at
the time of any such agreement or sale.
"Permitted PMSI": any purchase money security interest
(including Capital Leases, leases intended as security and
title retention agreements) created under the Uniform
Commercial Code of any jurisdiction in equipment of the
Borrower, provided that (a) such security interest is
assumed or created by the Borrower contemporaneously with
the Borrower's acquisition of rights in such goods, (b) such
security interest secures no obligations of the Borrower or
any other Person other than Indebtedness of the Borrower
incurred in connection with the acquisition of such goods,
(c) such security interest attaches to no property of the
Borrower other than such goods and the proceeds thereof, and
(d) neither the assumption or creation by the Borrower of
such security interest nor incurrence by the Borrower of
such Indebtedness violates any provision of this Agreement
or any of the other Credit Documents.
17
<PAGE>
"Person": an individual, partnership, corporation,
limited liability company, business trust, joint stock
company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit
plan which is covered by ERISA and in respect of which the
Borrower, any Subsidiary of the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at
such time, would under Section 4069 of ERISA be deemed to
be) an "employer" as defined in Section 3(5) of ERISA.
"Prime Rate": the per annum rate of interest announced
by the Lender from time to time as its Prime Rate.
"Reorganization": with respect to any Multiemployer
Plan, the condition that such plan is in reorganization
within the meaning of such term as used in Section 4241 of
ERISA.
"Requirement of Law": as to any Person, the
certificate of incorporation and by-laws or other
organizational or governing documents of such Person, and
any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any
of its property or to which such Person or any of its
property is subject.
"Restricted Payment": any payment or other transfer of
money or other tangible or intangible property of any kind
of the Borrower or any of its Subsidiaries to any Affiliate
of any of them which is not expressly permitted by this
Agreement, including, without limitation, any dividend or
other distribution on account of capital stock or other
securities, any loan, advance or capital contribution, any
repayment of any loan, advance or capital contribution, any
redemption or other repurchase of any securities, and any
payment for services.
"Revolving Credit Loan Balance": at a particular time,
the aggregate principal amount of Revolving Credit Loans
made and outstanding, whether as Base Rate Loans or
Eurodollar Loans.
"Revolving Credit Commitment": as defined in
Subsection 2.1.
18
<PAGE>
"Revolving Credit Commitment Period": the period from
and including the date of this Agreement to but not
including the Revolving Credit Termination Date or such
earlier date as the Revolving Credit Commitment shall
terminate as provided herein.
"Revolving Credit Loan": as defined in Subsection 2.1.
"Revolving Credit Maximum Amount": Eight Million Five
Hundred Thousand Dollars ($8,500,000.00), as such amount may
be reduced pursuant to Subsection 2.5.
"Revolving Credit Note": as defined in Subsection 2.2.
"Revolving Credit Termination Date": December 22,
1998; provided that, upon written request of the Borrower
delivered to the Lender not later than March 31 of each
year, such date (or any date to which such date is extended
in accordance herewith) may be extended for a period of
twelve (12) months upon the written agreement of the
Borrower and the Lender.
"Subsidiary": as to any Person, (a) a corporation of
which shares of capital stock having voting power to elect a
majority of the board of directors or other managers of such
corporation are owned, or the management of which is
otherwise controlled, directly or indirectly, or both,
through one or more intermediaries, by such Person, and
(b) any partnership, limited liability company, association,
joint venture or other business entity of which more than
fifty percent (50%) of the voting equity interests is owned,
or the management of which is otherwise controlled, directly
or indirectly, or both, through one or more intermediaries,
by such Person.
"Tangible Net Worth": at a particular time, the
amount, if any, by which (a) Total Assets as at such time,
exclusive of goodwill, trademarks, trade names, licenses and
such other assets as are properly classified as intangible
assets in conformity with GAAP, and exclusive of all
transactions with, and all amounts due or to become due to
the Borrower or its Subsidiaries from, and all investments
in, Affiliates, exceeds (b) Total Liabilities as at such
time.
"Total Assets": at a particular time, the aggregate
amount which, in conformity with GAAP, would be included in
a
19
<PAGE>
total assets or comparable account reflected in a consolidated balance sheet
of the Borrower and its Subsidiaries as at such time.
"Total Applicable Usage": at a particular time, the
sum of (a) the Revolving Credit Loan Balance as at such time
and (b) L/C Exposure as at such time.
"Total Current Assets": at a particular time, the
aggregate amount which, in conformity with GAAP, would be
included in a total current assets or comparable account
reflected in a consolidated balance sheet of the Borrower
and its Subsidiaries as at such time.
"Total Current Liabilities": at a particular time, the
aggregate amount which, in conformity with GAAP, would be
included in a total current liabilities or comparable
account reflected in a consolidated balance sheet of the
Borrower and its Subsidiaries as at such time.
"Total Liabilities": at a particular time, the
aggregate amount which, in conformity with GAAP, would be
included in a total liabilities or comparable account
reflected in a consolidated balance sheet of the Borrower
and its Subsidiaries as at such time.
"Type": as to any Revolving Credit Loan or Convertible
Term Loan Unit, its nature as a Base Rate Loan or a
Eurodollar Loan.
"Working Day": any Business Day on which dealings in
foreign currencies and exchange between banks may be carried
on in London, England.
1.2 Other Definitional Provisions. (a) Unless
otherwise specified therein, all terms defined in this
Agreement shall have the defined meanings when used in the
Notes, the Borrower Security Agreement or any other Credit
Document.
(b) As used herein, in the Notes, in the Borrower
Security Agreement and in any other Credit Document,
accounting terms not defined in Subsection 1.1 and
accounting terms partly defined in Subsection 1.1, to the
extent not defined, shall have the respective meanings given
to them under GAAP.
20
<PAGE>
(c) As used herein, in the Notes, in the Borrower
Security Agreement and in any other Credit Document, terms
defined by the Uniform Commercial Code as in effect in the
State of Maryland on the date hereof shall, except to the
extent that the context otherwise requires, have the
respective meanings given to them under such Uniform
Commercial Code.
(d) Unless the context otherwise requires, each
reference in this Agreement, the Notes, the Borrower
Security Agreement or any other Credit Document to this
Agreement, the Notes, the Borrower Security Agreement or any
other Credit Document shall be deemed to refer to this
Agreement, the Notes, the Borrower Security Agreement or
such other Credit Document as the same may be amended,
modified, extended, renewed, supplemented or replaced from
time to time.
(e) The words "hereof", "herein" and "hereunder"
and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and Section,
Subsection, Schedule and Exhibit references are to this
Agreement unless otherwise specified.
(f) The use of the singular in this Agreement
shall also refer to the plural and vice versa, and the use
of any gender, including the neuter, shall also refer to
each of the other genders, including the neuter.
(g) The captions and headings contained in this
Agreement are for convenience of reference only and shall
not affect the meaning, or the construction or
interpretation, of this Agreement.
(h) The phrases "satisfactory to the Lender,"
"acceptable to the Lender" and similar phrases shall mean
reasonably satisfactory or reasonably acceptable to the
Lender in its reasonable judgment exercised in good faith.
(i) In the event of any inconsistency between any
provision of this Agreement and any provision of any other
Credit Document, or in the event of the need in any context
for the construction or interpretation of any provision of
this Agreement or any other Credit Document, no such
inconsistency and no such
21
<PAGE>
provision shall be construed or interpreted against the Lender on the one
hand, and in favor of the Borrower or any Other Obligor on the other hand.
SECTION 2. AMOUNT AND TERMS OF LOAN COMMITMENTS
2.1 Revolving Credit Commitment. (a) Subject to the
terms and conditions hereof, the Lender agrees to make
revolving credit loans (individually, a "Revolving Credit
Loan," and, collectively, the "Revolving Credit Loans") to
the Borrower from time to time during the Revolving Credit
Commitment Period in an aggregate principal amount at any
one time outstanding not to exceed the Revolving Credit
Maximum Amount (the "Revolving Credit Commitment"); provided
that the Revolving Credit Loan Balance shall not at any time
exceed an amount equal to the Revolving Credit Maximum
Amount as at such time, minus the L/C Exposure as at such
time. During the Revolving Credit Commitment Period, the
Borrower may use the Revolving Credit Commitment by
borrowing, prepaying the Revolving Credit Loans in whole or
in part, and reborrowing, all in accordance with and subject
to the terms and conditions of this Agreement, including
Subsection 2.10 and 2.20.
(b) The Revolving Credit Loans may be
(i) Eurodollar Loans, (ii) Base Rate Loans, or (iii) a
combination thereof, as determined by the Borrower and
notified to the Lender in accordance with Subsection 2.3;
provided that no Eurodollar Loan shall be made after the day
that is one (1) month prior to the Revolving Credit
Termination Date.
2.2 Revolving Credit Notes. The Revolving Credit
Loans made by the Lender shall be evidenced by, and payable
with interest in accordance with, a promissory note of the
Borrower substantially in the form of Exhibit D, with
appropriate insertions as to date and principal amount (as
amended, modified, extended, renewed, supplemented or
replaced from time to time, the "Revolving Credit Note"),
payable to the order of the Lender. The Lender is hereby
authorized to record the date and amount of each Revolving
Credit Loan made by the Lender, and the date and amount of
each payment or prepayment of principal thereof, on the
schedule annexed to and constituting a part of the Revolving
Credit Note, and any such recordation shall constitute prima
facie evidence, absent manifest error, of the accuracy of
the information so recorded; provided that no failure of the
Lender to
22
<PAGE>
so record any such information shall relieve the
Borrower of its obligation to repay any Revolving Credit
Loan or interest thereon. The Revolving Credit Note shall
(a) be stated to mature on the Revolving Credit Termination
Date and (b) bear interest on the unpaid principal amount
thereof from time to time outstanding at the applicable
interest rate per annum determined as provided in
Subsections 2.13 and 2.14. Interest on the Revolving Credit
Note shall be payable on the dates specified in
Subsection 2.13(f).
2.3 Procedure for Revolving Credit Borrowing. The
Borrower may borrow under the Revolving Credit Commitment
during the Revolving Credit Commitment Period on any Working
Day if the borrowing is a Eurodollar Loan or on any Business
Day if the borrowing is a Base Rate Loan; provided that the
Borrower shall give the Lender irrevocable notice (which
must be received by the Lender prior to 11:00 a.m.,
Philadelphia, Pennsylvania, time) (a) four (4) Working Days
prior to the requested Borrowing Date, in the case of
Eurodollar Loans, and (b) two (2) Business Days prior to the
requested Borrowing Date, in the case of Base Rate Loans,
specifying (i) the amount to be borrowed, (ii) the requested
Borrowing Date, (iii) whether the borrowing is to be a
Eurodollar Loan, a Base Rate Loan or a combination thereof,
and (iv) if the borrowing is to be entirely or partly a
Eurodollar Loan, the length of the Interest Period for such
Eurodollar Loan. Each borrowing pursuant to the Revolving
Credit Commitment shall be in an aggregate principal amount
of (a) in the case of Base Rate Loans, Fifty Thousand
Dollars ($50,000.00) or a whole multiple thereof, and (b) in
the case of Eurodollar Loans, Five Hundred Thousand Dollars
($500,000.00) or a whole multiple of Ten Thousand Dollars
($10,000.00) in excess thereof. The proceeds of all
Revolving Credit Loans will be made available to the
Borrower by the Lender by transfer of such proceeds in
immediately available funds to a deposit account of the
Borrower at the Lender designated for such purpose.
2.4 Unused Facility Fee. The Borrower agrees to pay
to the Lender an unused facility fee from and including the
first day of the Revolving Credit Commitment Period to the
Revolving Credit Termination Date, computed at the rate of
one-quarter of one percent (1/4%) per annum on the average
daily amount of the Available Commitment during the period
for which payment is made, payable quarterly in arrears on
the first day of each February, May, August and November,
commencing February 1, 1997, and on the Revolving Credit
Termination Date or such earlier date as the
-23-
<PAGE>
Revolving Credit Commitment shall terminate as provided herein.
2.5 Reduction of Revolving Credit Commitment.
Effective as of the time of each Conversion, the Revolving
Credit Commitment shall be reduced by an amount equal to
that portion of the Revolving Credit Loan Balance converted
to a Convertible Term Loan pursuant to such Conversion.
2.6 Payment at Revolving Credit Termination Date. On
the Revolving Credit Termination Date, the Borrower shall
pay to the Lender in full the Revolving Credit Loan Balance,
together with all accrued and unpaid interest thereon.
2.7 Conversion of Revolving Credit Loans to
Convertible Term Loans. In the event that (a) all of the
conditions set forth in Subsection 5.2 are satisfied on a
Conversion Date, (b) the Borrower shall have given written
notice to the Lender not more than sixty (60) days and not
less than thirty (30) days prior to such Conversion Date of
the Borrower's desire to convert to a Convertible Term Loan
a portion of the Revolving Credit Loan Balance which is
equal to Five Hundred Thousand Dollars ($500,000.00) or a
whole multiple of Fifty Thousand Dollars ($50,000.00) in
excess thereof, and (c) the Lender shall have received, in
form and content satisfactory to the Lender, a Convertible
Term Loan Note conforming to the requirements hereof and
duly executed and delivered by an Authorized Officer of the
Borrower, then the Lender agrees that, on and as of such
Conversion Date, such portion of the Revolving Credit Loan
Balance shall be converted to a term loan (individually, a
"Convertible Term Loan", and, collectively, the "Convertible
Term Loans"); provided that no Conversion shall occur on or
after the Revolving Credit Termination Date; and provided
further that the aggregate principal amount of the Revolving
Credit Loan Balance converted to Convertible Term Loans
shall not exceed the Convertible Term Loan Maximum Amount.
No Conversion shall constitute a novation of any
Indebtedness of the Borrower to the Lender or an
extinguishment or satisfaction but, rather, shall constitute
a continuation of the Indebtedness of the Borrower with
respect thereto. The Borrower may not reborrow any portion
of the principal amount of any Convertible Term Loans which
is repaid or prepaid at any time or from time to time.
2.8 Convertible Term Loan Units. Portions of each
Convertible Term Loan (individually, a "Convertible Term
Loan
-24-
<PAGE>
Unit", and, collectively, "Convertible Term Loan
Units") may from time to time be (a) Eurodollar Loans,
(b) Base Rate Loans, or (c) a combination thereof, as
determined by the Borrower and notified to the Lender in
accordance with Subsection 2.11; provided that no Eurodollar
Loan shall be created after the day that is one (1) month
prior to the maturity of such Convertible Term Loan.
2.9 Convertible Term Loan Notes. Each Convertible
Term Loan shall be evidenced by, and payable in installments
with interest in accordance with, a Convertible Term Loan
Note. The original principal amount of each Convertible
Term Loan shall be payable by the Borrower in twenty (20)
consecutive equal quarterly installments, commencing ninety
(90) days after the applicable Conversion. In the case of
each Convertible Term Loan Note, the Lender is hereby
authorized to record on the schedule annexed thereto and
constituting part thereof the date, Type and amount of each
Convertible Term Loan Unit and the date and amount of each
payment or prepayment of principal thereof, and, in the case
of Eurodollar Loans comprised of Convertible Term Loan
Units, the Interest Period with respect thereto, and any
such recordation shall constitute prima facie evidence,
absent manifest error, of the accuracy of the information so
recorded; provided that no failure of the Lender to so
record any such information shall relieve the Borrower of
its obligation to repay any of the Convertible Term Loans or
interest thereon. Each Convertible Term Loan Note shall
(a) be dated the date of its issuance and (b) bear interest
on the unpaid principal amount thereof from time to time
outstanding at the applicable interest rates per annum
determined as provided in Subsections 2.13 and 2.14.
Interest on the Convertible Term Loan Notes shall be payable
on the dates specified in Subsection 2.13(f).
2.10 Optional Prepayments. The Borrower may on the
last day of the relevant Interest Period if the Revolving
Credit Loans or Convertible Term Loan Units to be prepaid
are in whole or in part Eurodollar Loans, or at any time and
from time to time if the Revolving Credit Loans or
Convertible Term Loan Units to be prepaid are Base Rate
Loans, prepay the Revolving Credit Loans and/or the
Convertible Term Loans in whole or in part, upon irrevocable
notice to the Lender at least one (1) Business Day in
advance, specifying the date and amount of prepayment and
whether the prepayment is of Eurodollar Loans or Base Rate
Loans or a combination thereof, and if of a combination
thereof, the amount
-25-
<PAGE>
of prepayment allocable to each. If any
such prepayment notice is given by the Borrower, the payment
amount specified in such notice shall be due and payable on
the date specified therein. Partial prepayments may only be
made if, after giving effect thereto, Subsection 2.12 shall
not have been contravened. In the case of each prepayment
of a Convertible Term Loan, such prepayment shall be applied
to the principal installment payments to become due under
such Convertible Term Loan in the inverse order of their
maturity.
2.11 Interest Rate Conversion Options; Minimum Amount
of Loans. (a) The Borrower may elect from time to time to
convert Revolving Credit Loans or Convertible Term Loan
Units which are Eurodollar Loans to Revolving Credit Loans
or Convertible Term Loan Units, respectively, which are Base
Rate Loans by giving the Lender at least three (3) Business
Days' prior irrevocable notice of such election; provided
that any such conversion of Eurodollar Loans shall only be
made on the last day of an Interest Period with respect
thereto. The Borrower may elect from time to time to
convert Revolving Credit Loans or Convertible Term Loan
Units which are Base Rate Loans to Revolving Credit Loans or
Convertible Term Loan Units, respectively, which are
Eurodollar Loans by giving the Lender at least three (3)
Working Days' prior irrevocable notice of such election.
All or any part of outstanding Eurodollar Loans and Base
Rate Loans may be converted as provided herein, provided
that (i) no Revolving Credit Loan or Convertible Term Loan
Unit may be converted into a Eurodollar Loan when any
Default or Event of Default has occurred and is continuing,
(ii) partial conversions shall, subject to Subsection 2.12,
be in an aggregate principal amount of One Hundred Thousand
Dollars ($100,000.00) or a whole multiple thereof, and
(iii) any such conversion may only be made if, after giving
effect thereto, Subsection 2.12 shall not have been
contravened.
(b) Any Eurodollar Loans may be continued as such
upon the expiration of an Interest Period with respect
thereto by compliance by the Borrower with the notice
provisions contained in Subsection 2.11(a); provided, that
no Eurodollar Loan may be continued as such when any Default
or Event of Default has occurred and is continuing, but
shall be automatically converted to a Base Rate Loan on the
last day of the then current Interest Period with respect
thereto.
-26-
<PAGE>
2.12 Number and Amounts of Eurodollar Tranches. All
borrowings, conversions, payments, prepayments and selection
of' Interest Periods hereunder shall be in such amounts and
be made pursuant to such elections so that, after giving
effect thereto, (a) the aggregate principal amount of any
Eurodollar Tranche shall not be less than Five Hundred
Thousand Dollars ($500,000.00), (b) no more than three (3)
Eurodollar Tranches comprised of Revolving Credit Loans or
Convertible Term Loan Units shall exist, and (c) each
Eurodollar Tranche shall be comprised only of Revolving
Credit Loans or Convertible Term Loan Units of a Convertible
Term Loan.
2.13 Interest Rates and Payment Dates. (a) Base Rate
Loans shall bear interest for the period from and including
the Borrowing Date or date of conversion thereof on the
unpaid principal amount thereof at a rate per annum equal to
the Base Rate plus the Applicable Margin.
(b) The Revolving Credit Loans comprising a
Eurodollar Tranche and the Convertible Term Loan Units
comprising a Eurodollar Tranche shall bear interest for each
day during each Interest Period with respect thereto on the
unpaid principal amount thereof at a rate per annum equal to
the Eurodollar Rate plus the Applicable Margin.
(c) In any case in which a Eurodollar Loan is not
effectively created or continued as such in accordance with
the notice and other provisions hereof, the Borrower shall
be deemed to have selected a Base Rate Loan in lieu of the
affected Eurodollar Loan.
(d) If an Event of Default shall occur, (i) each
Eurodollar Loan shall be converted to a Base Rate Loan at
the end of the last Interest Period with respect thereto,
and (ii) all Base Rate Loans shall, at the Lender's option,
bear interest on the unpaid principal amount thereof at a
rate per annum equal to the Base Rate plus the Applicable
Margin plus one percent (1%) per annum.
(e) Except to the extent prohibited by applicable
law, any judgment or order of any Governmental Authority
entered for payment of principal or any other amounts
bearing interest under this Agreement shall bear interest at
the rates and calculated in the manner applicable under this
Agreement to such
-27-
<PAGE>
amounts.
(f) Interest shall be payable in arrears on each
Interest Payment Date.
2.14 Computation of Interest and Fees. (a) Unused
facility fees under Subsection 2.4 and interest in respect
of the Loans shall be calculated on the basis of a 360 day
year for the actual days elapsed (including the first but
excluding the last day of the relevant period). Any change
in the interest rate on Loans resulting from a change in the
Base Rate (as a result of a change in the Prime Rate) or the
Eurocurrency Reserve Requirements shall become effective as
of the opening of business on the day on which such change
in the Prime Rate or the Eurocurrency Reserve Requirements
shall become effective.
(b) Each determination of an interest rate by the
Lender pursuant to any provision of this Agreement shall be
conclusive and binding on the Borrower in the absence of
manifest error. The Lender shall, at the request of the
Borrower, deliver to the Borrower a statement showing the
quotations used by the Lender in determining any interest
rate pursuant to Subsection 2.13(b).
2.15 Inability to Determine Interest Rate. In the
event that:
(a) the Lender shall have determined (which
determination shall be conclusive and binding upon the
Borrower) that, by reason of circumstances affecting the
interbank eurodollar market, adequate and reasonable means
do not exist for ascertaining the Eurodollar Rate for any
requested Interest Period; or
(b) the Lender shall have determined prior
to the first day of an Interest Period that the interest
rate determined pursuant to Subsection 2.13(b) for such
Interest Period does not accurately reflect the cost to the
Lender (as conclusively certified to the Borrower by the
Lender in a writing setting forth in reasonable detail the
facts giving rise to such determination) of making or
maintaining the Lender's affected Eurodollar Loans during
such Interest Period,
with respect to (i) requested Loans that the Borrower has
-28-
<PAGE>
requested be made as Eurodollar Loans, (ii) Eurodollar Loans
that will result from the requested conversion of Base Rate
Loans into Eurodollar Loans or (iii) the continuation of
Eurodollar Loans beyond the expiration of the then current
Interest Period with respect thereto, the Lender shall
forthwith give telecopy or telephonic notice of such
determination to the Borrower at least one (1) day prior to,
as the case may be, the requested Borrowing Date for such
Eurodollar Loans, the conversion date of such Base Rate
Loans or the last day of such Interest Period. If such
notice is given, unless the Borrower withdraws its notice of
borrowing, conversion or continuation, (i) any requested
Eurodollar Loans shall be made as Base Rate Loans, (ii) any
Base Rate Loans that were to have been converted to
Eurodollar Loans shall be continued as Base Rate Loans and
(iii) any outstanding Eurodollar Loans shall be converted,
on the last day of the then current Interest Period with
respect thereto, to Base Rate Loans. Until such notice has
been withdrawn by the Lender, no further Eurodollar Loans
shall be made, nor shall the Borrower have the right to
convert Base Rate Loans to Eurodollar Loans.
2.16 Payments. All payments (including prepayments) to
be made by the Borrower under this Agreement, the Notes or
any other Credit Document, whether on account of principal,
interest, fees, expenses or other amounts, shall be made
without deduction, setoff or counterclaim and shall be made
at the Lender's office set forth in Subsection 9.3, in
lawful money of the United States of America and in
immediately available funds. If any payment hereunder
(other than payments on Eurodollar Loans) becomes due and
payable on a day other than a Business Day, such payment
shall be extended to the next succeeding Business Day, and,
with respect to payments of principal, interest thereon
shall be payable during such extension. If any payment on a
Eurodollar Loan becomes due and payable on a day other than
a Working Day, the maturity thereof shall be extended to the
next succeeding Working Day unless the result of such
extension would be to extend such payment into another
calendar month, in which event such payment shall be made on
the immediately preceding Working Day.
2.17 Illegality. Notwithstanding any other provisions
herein, if any Requirement of Law or any change therein or
in the interpretation or application thereof shall in the
opinion of counsel to the Lender (which may include in-house
counsel) make it unlawful for the Lender to make or maintain
Eurodollar Loans as contemplated by this Agreement, (a) the
agreement of the Lender
-29-
<PAGE>
hereunder to make Eurodollar Loans and to convert Base
Rate Loans to Eurodollar Loans shall forthwith be
canceled and (b) the Convertible Term Loan Units then
outstanding as Eurodollar Loans, if any, shall be
converted automatically to Base Rate Loans on the
respective last days of the then current Interest Periods
for such Eurodollar Loans or within such earlier period
as required by law. If any such prepayment or conversion
of a Eurodollar Loan occurs on a day which is not the
last day of the current Interest Period with respect
thereto, the Borrower shall pay to the Lender such
amounts, if any, as may be required pursuant to
Subsection 2.20.
2.18 Requirements of Law. (a) In the event that any
Requirement of Law or any change therein or in the
interpretation or application thereof or compliance by the
Lender with any request or directive (whether or not having
the force of law) from any central bank or other
Governmental Authority arising from and after the Closing
Date:
(i) does or shall subject the Lender to any
additional tax of any kind whatsoever with respect to this
Agreement, any Note or any Eurodollar Loans made by it, or
change the basis of taxation of payments to the Lender of
principal, fees, interest or any other amount payable
hereunder (except for changes in the rate of tax on the
overall net income of the Lender);
(ii) does or shall impose, modify or hold
applicable any reserve, special deposit, assessment, capital
adequacy, compulsory loan or similar requirement against
assets held by, or deposits or other liabilities in or for
the account of, advances or loans by, or other credit
extended by, or any other acquisition of funds by, any
office of the Lender; or
(iii) does or shall impose on the Lender any
other condition;
and the result of any of the foregoing is to increase the
cost to the Lender, by any amount which the Lender deems to
be material, of making, renewing or maintaining advances or
extensions of credit or to reduce any amount receivable
hereunder, in each case, in respect of its Eurodollar Loans,
then, in any such case, the Borrower shall promptly pay the
Lender upon demand any additional amounts necessary to
compensate the Lender for such additional cost or reduced
amount receivable, together with interest on such
-30-
<PAGE>
additional amounts from the date demand is made until
payment in full thereof at the rate applicable to Base
Rate Loans which are Revolving Credit Loans plus the
Applicable Margin. If the Lender becomes entitled to
claim any additional amounts pursuant to this Subsection,
it shall promptly notify the Borrower of the event by
reason of which it has become so entitled. A certificate
as to any additional amounts payable pursuant to the
foregoing sentence submitted by the Lender to the
Borrower shall show the means by which such additional
amounts have been calculated and shall be conclusive in
the absence of manifest error. This covenant shall
survive the termination of this Agreement and payment of
the outstanding Notes for a period of one (1) year.
(b) In the event that the Lender shall have
determined that the adoption from and after the Closing Date
of any law, rule, regulation or guideline regarding capital
adequacy, or any change therein from and after the Closing
Date or in the interpretation or application thereof or
compliance by the Lender or any corporation controlling the
Lender with any request or directive regarding capital
adequacy (whether or not having the force of law) from any
central bank or Governmental Authority, including, without
limitation, the issuance of any final rule, regulation or
guideline, does or shall have the effect of reducing the
rate of return on the Lender's or such corporation's capital
as a consequence of its obligations hereunder to a level
below that which the Lender or such corporation could have
achieved but for such adoption, change or compliance (taking
into consideration the Lender's or such corporation's
policies with respect to capital adequacy) by an amount
deemed by the Lender to be material, then from time to time,
within two (2) Business Days after submission by the Lender
to the Borrower of a written request therefor showing the
means by which such additional amounts have been calculated
and stating in reasonable detail the reasons therefor, the
Borrower shall pay to the Lender such additional amount or
amounts as will compensate the Lender for such reduction.
2.19 Taxes. (a) All payments made by the Borrower
under this Agreement shall be made free and clear of, and
without reduction or withholding for or on account of, any
present or future income, stamp or other taxes, levies,
imposts, duties, charges, fees, deductions or withholdings,
now or hereafter imposed, levied, collected, withheld or
assessed by any Governmental Authority excluding, in the
case of the Lender, net
-31-
<PAGE>
income and franchise taxes imposed on the Lender by the
jurisdiction under the laws of which the Lender is
organized or any political subdivision or taxing
authority thereof or therein (all such non-excluded
taxes, levies, imposts, deductions, charges or
withholdings being hereinafter called "Taxes"). If any
Taxes are required to be withheld from any amounts
payable to the Lender hereunder, under the Notes or under
any other Credit Document, the amounts so payable to the
Lender shall be increased to the extent necessary to
yield to the Lender (after payment of all Taxes,
including those payable on additional amounts paid
pursuant to this Subsection) interest or other amounts
payable hereunder at the rates or in the amounts
specified in this Agreement, the Notes or any other
Credit Document. If the Borrower fails to pay any Taxes
when due to the appropriate taxing authority, the
Borrower shall indemnify the Lender for any incremental
taxes, interest or penalties that may become payable by
the Lender as a result of any such failure.
(b) The agreements in this Subsection shall
survive the termination of this Agreement and the payment of
the Notes and all other amounts payable hereunder and under
the other Credit Documents for a period of one (1) year.
2.20 Indemnity. The Borrower agrees to indemnify the
Lender and to hold the Lender harmless from any loss or
expense which the Lender may sustain or incur as a
consequence of (a) default by the Borrower in payment when
due of the principal amount of or interest due hereunder on
any Eurodollar Loans, (b) default by the Borrower in making
a borrowing or conversion after the Borrower has given a
notice of borrowing in accordance with Subsection 2.3 or a
notice of conversion pursuant to Subsection 2.11, except in
accordance with Subsection 2.15, (c) default by the Borrower
in making any prepayment after the Borrower has given a
notice in accordance with Subsection 2.10, or (d) the making
of a prepayment of a Eurodollar Loan on a day which is not
the last day of an Interest Period with respect thereto,
including, without limitation, in each case, any such loss
or expense arising from the reemployment of funds obtained
by the Lender to maintain Eurodollar Loans hereunder or from
fees payable to terminate the deposits from which such funds
were obtained. This covenant shall survive termination of
this Agreement and payment of the outstanding Notes and all
other amounts payable hereunder and under the other Credit
Documents for a period of one (1) year.
-32-
<PAGE>
2.21 Certain Calculations. Calculations of all amounts
payable to the Lender and other determinations under
Subsections 2.15, 2.17, 2.18 and 2.20 shall be made as
though the Lender had actually funded each of the relevant
Eurodollar Loans either (i) by obtaining a Dollar deposit
bearing interest at the rate the Lender would have offered
to first-class banks in the interbank market selected by the
Lender for Dollar deposits in same day funds in an amount
equal to the amount of such Eurodollar Loan and having a
maturity comparable to the relevant Interest Period or
(ii) through the transfer of such a Dollar deposit from an
offshore office of the Lender to a domestic office of the
Lender in the United States of America; provided, that the
Lender reserves the right to fund each of its Eurodollar
Loans in any manner it sees fit and the foregoing
assumptions shall be utilized only for the purposes of
calculating amounts payable and making other determinations
pursuant to said Subsections.
SECTION 3. LETTERS OF CREDIT
3.1 Letter of Credit Commitment. Subject to the terms
and conditions hereof, the Lender agrees to issue for the
account of the Borrower standby letters of credit for such
purposes, in such amounts, for the benefit of such Persons
and subject to such terms and conditions as may be
acceptable to the Lender in its discretion (individually, as
amended, modified, extended, renewed, supplemented or
replaced from time to time, a "Letter of Credit," and,
collectively, the "Letters of Credit"), from and including
the date of this Agreement to but not including the date
which is thirty (30) days prior to the Revolving Credit
Termination Date (the "L/C Commitment"); provided that the
L/C Exposure shall not at any time exceed an amount equal to
the Revolving Credit Maximum Amount as at such time, minus
the Revolving Credit Loan Balance as at such time; provided
further that no Letter of Credit (including any renewal or
extension thereof, whether or not automatic) shall have an
expiry date which is later than the date which is one (1)
year after the date of issuance, renewal or extension of
such Letter of Credit; and provided further that no Letter
of Credit (including any renewal or extension thereof,
whether or not automatic) shall have an expiry date which is
later than the date which is thirty (30) days prior to the
Revolving Credit Termination Date.
-33-
<PAGE>
3.2 Procedure for Issuance and Renewal of Letters of
Credit. (a) The Borrower may request the Lender to issue a
Letter of Credit by delivering to the Lender at its office
specified in Subsection 9.3 (i) such L/C Agreements as may
be required by the Lender, completed to the satisfaction of
the Lender, (ii) the proposed form of such Letter of Credit
(which shall comply with the applicable requirements set
forth herein) and (iii) such other certificates and
documents and information as the Lender may reasonably
request.
(b) The Borrower may request the extension or
renewal of a Letter of Credit issued hereunder which is not
automatically renewed in accordance with the terms contained
therein, by giving written notice to the Lender at least
three (3) Business Days prior to the then current expiry
date of such Letter of Credit (provided that the Lender may
accommodate notices on shorter notice in its sole
discretion).
3.3 Reimbursement of the Lender. In the case of each
drawing paid under any Letter of Credit, the Lender shall
promptly notify the Borrower of such drawing and of the
amount thereof, and the Borrower (i) shall reimburse the
Lender for the amount of such drawing not later than the
close of business on the first Business Day following the
day on which the Borrower received notice of such drawing,
and (ii) shall pay (A) all charges and expenses relating to
such drawing as may be payable in accordance with
Subsection 3.4 or applicable L/C Agreements and (B) interest
at the rate specified in Subsection 3.5 on the amount of
such drawing for the period commencing on and including the
date of payment of such drawing and ending on and including
the date the Borrower reimburses the Lender for such
drawing. Notwithstanding any other provision of this
Agreement, the payment by the Lender of each drawing under a
Letter of Credit shall be deemed to constitute an
irrevocable notice of borrowing by the Borrower under
Subsection 2.3 and, at any time after such request, the
Lender is irrevocably authorized by the Borrower to, and the
Lender may, make Revolving Credit Loans constituting Base
Rate Loans to the Borrower in an amount equal to the amount
of such payment and any charges, expenses or interest
referred to in the foregoing clauses (A) and (B),
notwithstanding any limitations set forth in Subsection 2.3,
and apply the proceeds of such Revolving Credit Loans in
payment of the Borrower's L/C Reimbursement Obligations and
other obligations in connection with such payment.
-34-
<PAGE>
3.4 Commissions, Fees and Charges. (a) In the case of
each issuance, renewal or extension of any Letter of Credit,
the Borrower agrees to pay to the Lender (i) an issuance fee
equal to Seventy-Five Dollars ($75.00), and (ii) a
commission on the face amount of such Letter of Credit
calculated at the L/C Commission Rate, based upon a year of
360 days and payable for the actual number of days in the
original term, the renewal term or the extended term of such
Letter of Credit, provided that the amount of such
commission shall not be less than Two Hundred Fifty Dollars
($250.00) per quarter annum (or a portion thereof).
(b) Payment of the fees set forth in this
Subsection shall be a condition to the issuance of each
Letter of Credit; provided that, in the case of any
automatic renewal or automatic extension of any Letter of
Credit in accordance with the terms thereof, such fees shall
be paid by the Borrower prior to the date of such automatic
renewal or automatic extension.
(c) In addition to the fees referred to above in
this Subsection, the Borrower agrees to pay or reimburse the
Lender for such normal and customary fees, costs and
expenses as are incurred or charged by the Lender or any
correspondents of the Lender in issuing, effecting payment
under, maintaining or administering any Letter of Credit
(including, without limitation, amendment fees,
correspondent bank fees, reissuance costs and cancellation
fees) upon notice and invoice by the Lender to the Borrower
of such costs and expenses.
3.5 Interest on Amounts Disbursed under Letters of
Credit. The Borrower agrees to pay to the Lender interest
on any and all amounts drawn under any Letter of Credit
until reimbursed in full at a fluctuating rate per annum
equal to the rate that would be applicable to Revolving
Credit Loans which are Base Rate Loans. Interest accrued
hereunder shall be payable on demand. All payments by the
Borrower to the Lender shall be made in lawful currency of
the United States and in immediately available funds without
setoff or counterclaim to the Lender at its office specified
in Subsection 9.3.
3.6 Computation of Interest and Fees; Payment not on
Business Days. (a) Any change in any interest rate under
this Section 3 resulting from a change in the Base Rate
shall become effective as of the opening of business on the
day on which such change in the Base Rate becomes effective.
-35-
<PAGE>
(b) If any payment under this Section 3 becomes
due and payable on a day which is not a Business Day, the
maturity thereof shall be extended to the next succeeding
Business Day, and, in the case of any amount drawn under a
Letter of Credit, interest thereon shall be payable at the
then applicable rate during such extension.
3.7 Increased Costs. If any law or regulation or
other Requirement of Law, or any change in the
interpretation or application thereof by any Governmental
Authority charged with the administration thereof, shall
either (a) impose, modify, assess or deem applicable any
reserve, special deposit, assessment, capital adequacy or
similar requirement against letters of credit issued by the
Lender or (b) impose on the Lender any other condition
regarding any Letter of Credit, and the result of any event
referred to in clauses (a) or (b) above shall be to increase
the cost to the Lender of issuing or maintaining such Letter
of Credit, then, within ten (10) Business Days after
delivery to the Borrower by the Lender of a certificate as
to the fact and amount of such increased cost, the Borrower
shall pay to the Lender such additional amounts which shall
be sufficient to compensate the Lender for such increased
cost, together with interest on each such amount from the
date such certificate is received by the Borrower until
payment in full thereof at the rate provided in
Subsection 3.5. A certificate as to the fact and amount of
such increased cost incurred by the Lender as a result of
any event mentioned in clauses (a) or (b) above, submitted
by the Lender to the Borrower, shall show the means by which
such additional amounts have been calculated and shall be
conclusive, absent manifest error. This covenant shall
survive the termination of this Agreement and payment of the
outstanding Notes for a period of one (1) year.
3.8 Nature of Obligations; Indemnities. (a) The
obligations of the Borrower under this Section 3 shall be
absolute and unconditional under any and all circumstances
and irrespective of any setoff, counterclaim or defense to
payment which the Borrower may have or have had against the
Lender, any correspondents of the Lender or any beneficiary
of a Letter of Credit; provided that this provision shall
not be deemed a waiver by the Borrower of the assertion of
any compulsory counterclaim. The Borrower assumes all risks
of the acts or omissions of the users of the Letters of
Credit and all risks of the misuse of the
-36-
<PAGE>
Letters of Credit. None of the Lender or any of its
correspondents shall be responsible: (i) for the form,
validity, sufficiency, accuracy, genuineness or legal
effect of any draft drawn under any Letter of Credit or
any document specified in any applications for any of the
Letters of Credit, even if it should in fact prove to be
in any or all respects invalid, insufficient, inaccurate,
fraudulent, or forged and even if the Borrower shall have
notified the Lender or any of its correspondents thereof;
(ii) for the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or
assign any of the Letters of Credit or any of the rights
or benefits thereunder or proceeds thereof in whole or in
part, which may prove to be invalid or ineffective for
any reason; (iii) for failure of any draft to bear any
reference or adequate reference to any of the Letters of
Credit, or failure of any Person to note the amount of
any draft on the reverse of any of the Letters of Credit
or to surrender or to take up any of the Letters of
Credit or to send forward any such document apart from
drafts as required by the terms of any of the Letters of
Credit, each of which provisions, if contained in a
Letter of Credit itself, it is agreed, may be waived by
the Lender; (iv) for errors, omissions, interruptions or
delays in transmission or delivery of any messages, by
mail, cable, telegraph, telex or otherwise, whether or
not in cipher; (v) for any error, neglect, default,
suspension or insolvency of any correspondents of the
Lender; (vi) for errors in translation or for errors in
interpretation of technical terms; (vii) for any loss or
delay, in the transmission or otherwise, of any such
document or draft or of proceeds thereof; (viii) for any
failure of any draft or document presented under a Letter
of Credit to comply with, or for any determination by the
Lender whether the same complies with, the terms of such
Letter of Credit; or (ix) for any other circumstances
whatsoever in making or failing to make payment under a
Letter of Credit; provided that the Borrower shall have a
claim against the Lender, and the Lender shall be liable
to the Borrower, to the extent, but only to the extent,
of any direct, as opposed to consequential, damages
suffered by the Borrower which the Borrower proves were
caused by the Lender's willful misconduct or gross
negligence. None of the above shall affect, impair or
prevent the vesting of any of the rights or powers of the
Lender. The Lender shall have the right to transmit the
terms of the Letter of Credit as requested without
translating them.
(b) In furtherance and extension and not in
-37-
<PAGE>
limitation of the specific provisions in this Section 3, (i)
any action taken or omitted by the Lender or by any of its
correspondents under or in connection with any of the
Letters of Credit, if taken or omitted in good faith or
pursuant to instructions of the Borrower, shall be binding
upon the Borrower and shall not put the Lender or any of its
correspondents under any resulting liability to the Borrower
and (ii) the Lender may accept documents that appear on
their face to be in order, without responsibility for
further investigation, regardless of any notice or
information to the contrary.
(c) The Borrower hereby agrees at all times to
protect, indemnify and save harmless the Lender and its
correspondents from and against any and all claims, actions,
suits and other legal proceedings, and from and against any
and all losses, claims, demands, liabilities, damages,
costs, charges, counsel fees and other expenses which they
or any of them may, at any time, sustain or incur by reason
of or in consequence of or arising out of the issuance of
any of the Letters of Credit unless caused by the Lender's
gross negligence or willful misconduct; it being the
intention of the parties that this Agreement shall be
construed and applied to protect and indemnify the Lender
and its correspondents against any and all risks involved in
the issuance of all of the Letters of Credit unless caused
by the Lender's gross negligence or willful misconduct, all
of which risks, whether or not foreseeable, being hereby
assumed by the Borrower, including, without limitation, any
and all risks of all acts by any Governmental Authority,
domestic or foreign. The Lender and its correspondents
shall not in any way be liable for any failure by any of
them or any other Person to pay a draft drawn under any of
the Letters of Credit as a result of any acts, whether
rightful or wrongful, of any Governmental Authority, or any
other cause not readily within their control or the control
of their respective correspondents, agents or sub-agents.
Without limiting the generality of the foregoing, the
Borrower shall reimburse the Lender and its correspondents,
and shall pay and indemnify the Lender and its
correspondents, against payment of, out-of-pocket costs and
expenses, withholding taxes, liabilities and damages,
including, without limitation, attorneys' fees, incurred or
sustained by any of them in connection with any of the
Letters of Credit or by reason of any such failure to pay.
Also, without limiting the generality of the foregoing, the
Borrower shall be responsible for, and shall reimburse the
Lender upon demand for, any and all commissions, fees and
other charges paid or payable by
-38-
<PAGE>
the Lender to any bank which shall be an advising bank or
a beneficiary of a Letter of Credit which shall, in
reliance thereon, have issued its own letter of credit in
respect of obligations of the Borrower.
3.9 Inconsistency in Documents. In the event of any
conflict or inconsistency between any provision of any L/C
Agreement, or the interpretation or construction thereof,
and any provision of this Agreement, or the interpretation
or construction thereof, then the provision of this
Agreement, or the interpretation or construction thereof,
shall control.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement and
to make the Revolving Credit Loans and to issue Letters of
Credit, the Borrower hereby represents and warrants to the
Lender that:
4.1 Financial Condition. The following financial
statements of the Borrower have been delivered to the
Lender:
(a) the audited consolidated statement of income
and retained earnings of the Borrower for the fiscal year of
the Borrower ended January 31, 1996, and the audited
consolidated statement of cash flows of the Borrower for
such fiscal year, and the audited consolidated balance sheet
of the Borrower as at the end of such fiscal year; and
(b) the statement of income and retained earnings
of the Borrower for the quarterly accounting period of the
Borrower ended April 30, 1996, and for the current fiscal
year of the Borrower through the end of such quarterly
accounting period, and the statement of cash flows of the
Borrower for such quarterly accounting period and for the
current fiscal year of the Borrower through the end of such
quarterly accounting period, and the balance sheet of the
Borrower as at the end of such quarterly accounting period.
The documents listed in this Subsection 4.1 have been
prepared in conformity with GAAP consistently applied, are
correct and complete in all material respects and present
fairly the financial position of the Borrower as of the
dates of such statements and the results of operations of
the Borrower for the periods covered
-39-
<PAGE>
by such statements.
4.2 No Change. As of the Closing Date, there shall
not have been any material adverse change in the business,
operations, property or financial or other condition of the
Borrower from the date of the most recent financial
statements referred to in Subsection 4.1 hereof.
4.3 Organization and Good Standing; Compliance with
Law. The Borrower (a) is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Delaware, (b) has the legal right to own and
operate its property, to lease the property it operates as
lessee and to conduct the business in which it is currently
engaged, (c) is duly qualified to conduct business and is in
good standing under the laws of the State of Delaware, the
Commonwealth of Virginia, the Commonwealth of Pennsylvania,
the State of Texas, the State of Illinois, the State of
California and each other jurisdiction in which such
qualification is required by applicable law, and (d) is in
compliance with all Requirements of Law except to the extent
that the failure to comply therewith could not, in the
aggregate, reasonably be expected to have a Material Adverse
Effect.
4.4 Authorization; Enforceable Obligations. The
Borrower has the legal right to make, deliver and perform
the Credit Documents to which it is a party and to borrow
hereunder and has taken all necessary action to authorize
the borrowings on the terms and conditions of this Agreement
and the Notes and to authorize the execution, delivery and
performance of the Credit Documents to which it is a party.
No consent or authorization of, filing with or other act by
or in respect of any Governmental Authority is required in
connection with the borrowings hereunder or with the
execution, delivery, performance, validity or enforceability
of the Credit Documents to which the Borrower is a party
except those which have been obtained or performed and are
in full force and effect. This Agreement has been, and each
other Credit Document to which it is a party will be, duly
executed and delivered on behalf of the Borrower. This
Agreement constitutes, and each other Credit Document to
which it is a party when executed and delivered will
constitute, a legal, valid and binding obligation of the
Borrower enforceable against the Borrower in accordance with
its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of
creditors' rights
-40-
<PAGE>
generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
4.5 No Legal Bar. The execution, delivery and
performance of the Credit Documents to which the Borrower is
a party, the borrowings hereunder and the use of the
proceeds thereof, will not violate any Requirement of Law or
any Contractual Obligation of the Borrower, and will not
result in, or require, the creation or imposition of any
Lien on any of its properties or revenues pursuant to any
Requirement of Law or Contractual Obligation, except as
contemplated by the Credit Documents.
4.6 No Material Litigation; Labor Matters. Except as
set forth in Schedule 4.6, no litigation, proceeding or, to
the Borrower's actual knowledge, investigation of or before
any arbitrator or Governmental Authority is pending or, to
the knowledge of the Borrower, threatened by or against the
Borrower or against any of its properties or revenues
(a) with respect to any of the Credit Documents or any of
the transactions contemplated hereby or thereby, or
(b) which, if determined adversely to the Borrower, could
reasonably be expected to have a Material Adverse Effect.
Case No. 128222 filed November 20, 1992, in the Circuit
Court for Fairfax County, Virginia, by Vending Services,
Inc., has been settled. There are no strikes, work
stoppages, grievance proceedings or other controversies
pending or, to the knowledge and belief of the Borrower,
imminent or threatened between the Borrower and any
employees of the Borrower or between the Borrower and any
union or other collective bargaining unit representing
employees of the Borrower which could reasonably be expected
to have a Material Adverse Effect.
4.7 No Default. The Borrower is not in default under
or with respect to any Contractual Obligation in any respect
which could reasonably be expected to have a Material
Adverse Effect. As of the date hereof, no Default or Event
of Default has occurred and is continuing and, as of the
Closing Date, no Default or Event of Default shall have
occurred and be continuing.
4.8 Ownership of Property; Liens. The Borrower has
good title to all of its property, and none of such property
is subject to any Lien, except as permitted by
Subsection 7.3. The Borrower is not the taxpayer against
whom the State of Texas filed in Dallas County, Texas, on
July 5, 1990, a state tax lien in the
-41-
<PAGE>
amount of $23,341.01, no. 90130-2027.
4.9 Business Premises. The Borrower does not own,
lease, sublease, occupy, use or operate any real property or
improvements other than the Borrower Business Premises. The
Borrower's chief executive office (within the meaning of
Section 9-103 of the Maryland Uniform Commercial Code) is
located at the Borrower Chief Executive Office. All
financial books and records of the Borrower are located at
the Borrower Business Premises.
4.10 Subsidiaries. The Borrower has no Subsidiaries.
4.11 Environmental. To the Borrower's knowledge and
except as set forth in Schedule 4.11: (a) no Hazardous
Substance has been released, discharged, spilled, emitted or
disposed of on any Obligor Use Property by the Borrower or
under circumstances as a result of which the Borrower would
be liable or financially responsible for damages or the cost
of remediation or clean-up; (b) there is no existing
Hazardous Substance Contamination of any Obligor Use
Property which was caused by the Borrower or under
circumstances as a result of which the Borrower would be
liable or financially responsible for damages or the cost of
remediation or clean-up; (c) all operations now or
previously conducted on Obligor Use Property by the Borrower
comply with all Environmental Laws; (d) no underground
storage tanks have been installed on any Obligor Use
Property by the Borrower or under circumstances as a result
of which the Borrower would be liable or financially
responsible for damages or the cost of removal, remediation
or clean-up; and (e) except as set forth in Schedule 4.11,
the Borrower has not received, and is not aware of, any
Environmental Claim against, relating to or affecting in any
way the Borrower or the Borrower's use of any Obligor Use
Property or any operations conducted on any Obligor Use
Property by the Borrower.
4.12 Solvency. On the Closing Date and after giving
effect to the borrowings hereunder on such date and to all
other Indebtedness being incurred on such date in connection
therewith (a) the sum of the assets, at a fair valuation, of
the Borrower will, as of such date, exceed the Borrower's
debts, (b) the present fair saleable value of the assets of
the Borrower will, as of such date, be greater than the
amount that will be required to pay the Borrower's liability
on its debts as such debts become absolute and matured, and
(c) the Borrower will have, as of such
-42-
<PAGE>
date, sufficient capital with which to conduct its
business. For purposes of this Subsection, "debt" means
"liability on a claim" and "claim" means any (i) right to
payment, whether or not such right is reduced to
judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal,
equitable, secured or unsecured, or (ii) right to an
equitable remedy for breach of performance if such breach
gives rise to a right to payment, whether or not such
right to an equitable remedy is reduced to judgment,
fixed, contingent, matured, unmatured, disputed,
undisputed, secured or unsecured.
4.13 Taxes. The Borrower has filed or caused to be
filed all tax returns which are required to be filed by the
Borrower, and the Borrower has paid all taxes shown to be
due and payable on said returns or on any assessments made
against it or any of its property and all other taxes, fees
or other charges imposed on it or any of its property by any
Governmental Authority (other than any taxes the amount or
validity of which are currently being contested in good
faith by appropriate proceedings and with respect to which
reserves in conformity with GAAP have been provided on the
books of the Borrower); and no tax lien has been filed and,
to the knowledge of the Borrower, no claim is being asserted
with respect to any such tax, fee or other charge.
4.14 Federal Regulations. (a) No part of the proceeds
of any of the Loans will be used for "purchasing" or
"carrying" any "margin stock" within the respective meanings
of each of the quoted terms under Regulation U of the Board
of Governors of the Federal Reserve System as now and from
time to time hereafter in effect or for any purpose which
violates the provisions of any Regulations of such Board of
Governors; and (b) if requested by the Lender, the Borrower
will furnish to the Lender a statement to the foregoing
effect in conformity with the requirements of FR Form U-I
referred to in said Regulation U.
4.15 Employee Matters. (a) With respect to each
employee pension benefit plan, as defined in Section 3(2) of
the ERISA (a "Retirement Plan"), established or maintained
or to which contributions have been made by or for the
Borrower, or any Subsidiary of the Borrower (including, for
purposes of this Section, any Commonly Controlled Entity):
(i) each Retirement Plan, including all amendments, that is
intended to be a qualified plan under Section 401 of the
Code (a "Qualified Plan"), is the subject of a favorable
determination letter from the Internal
-43-
<PAGE>
Revenue Service (or an application for such a letter is
presently pending); (ii) each Qualified Plan is and has
at all times been qualified, in form and operation, under
Section 401(a) of the Code; (iii) the Retirement Plan is
and has at all times been administered, maintained and
operated in compliance with its terms and with all
applicable provisions of the Code, ERISA and all other
applicable Requirements of Law; (iv) neither the Borrower
nor any Subsidiary of the Borrower, nor, to the actual
knowledge of any director or officer of the Borrower or
any Subsidiary of the Borrower, any other Person who or
which is a "party in interest" (as defined in Section
3(14) of ERISA), or a "disqualified person" (as defined
in Section 4975(e)(2) of the Code), has acted or failed
to act with respect to the Retirement Plan in any manner
which constitutes a breach of fiduciary responsibility
within the meaning of Title I, Subtitle B, Part 4 of
ERISA, a prohibited transaction within the meaning of
Section 4975 of the Code or Sections 406 through 408 of
ERISA, or any other material violation of ERISA; (v) no
contributions to or benefits payable under the Retirement
Plan are past due; (vi) no proceedings or investigations
are pending before the Internal Revenue Service, the
Department of Labor or any court with respect to the
Retirement Plan or the operation thereof; (vii) if the
Retirement Plan is a multiemployer plan, as defined in
Sections 3(37) or 4001(a)(3) of ERISA, neither the
Borrower nor any Subsidiary of the Borrower has incurred,
and neither the Borrower nor any Subsidiary of the
Borrower expects to incur, any withdrawal liability which
has not been satisfied in connection with any complete or
partial withdrawal from the Retirement Plan occurring on
or before the date hereof; and (viii) if subject thereto,
the Retirement Plan has been funded in accordance with
the minimum funding standards described in Section 412 of
the Code and Title I, Subtitle B, Part 3 of ERISA (for
which purpose there is no "accumulated funding
deficiency," whether or not waived), and in accordance
with principles that are actuarially sound for such
Retirement Plan.
(b) With respect to each Retirement Plan which is
a defined benefit plan, as defined in Section 3(35) of
ERISA: (i) no event has occurred within the twelve
(12)-month period preceding the date hereof, or, to the
knowledge of any director or officer of the Borrower or any
Subsidiary of the Borrower, is threatened or about to occur,
which would materially adversely affect the actuarial status
of the Retirement Plan; (ii) no fact exists in connection
with the Retirement Plan (or with respect to
-44-
<PAGE>
any other defined benefit plan maintained by the Borrower
or any Subsidiary of the Borrower at any time after
September 2, 1974) which constitutes a reportable event
(other than those for which notice has been waived by the
PBGC) under Section 4043(b) of ERISA or which constitutes
grounds for termination by, or other liability to, the
PBGC pursuant to Title IV of ERISA; (iii) all premiums
due the PBGC have been timely paid; and (iv) if the
Retirement Plan were terminated, the termination would
qualify under the standard termination procedure, as
described in Section 4041(b) of ERISA (and Part 2617 of
the PBGC regulations), without payment of any additional
contributions by the Borrower or any Subsidiary of the
Borrower.
(c) With respect to each employee welfare benefit
plan, as defined in Section 3(1) of ERISA (a "Welfare
Plan"), established or maintained or to which contributions
have been made by or for the Borrower or any Subsidiary of
the Borrower: (i) the Welfare Plan is and has at all times
been administered, maintained and operated in substantial
compliance with its terms and with all applicable provisions
of ERISA and the Code (including the continuation coverage
requirements for group health plans, commonly known as
"COBRA requirements," under former Sections 106(b),
162(i)(2) and (3), and 162(k) of the Code, Section 4980B of
the Code and Sections 601-608 of ERISA) and all other
applicable Requirements of Law; (ii) neither the Borrower
nor any Subsidiary of the Borrower nor, to the actual
knowledge of any director or officer of the Borrower or any
Subsidiary of the Borrower, any other Person who or which is
a party in interest as defined in Section 3(14) of ERISA,
has acted or failed to act with respect to the Welfare Plan
in any manner which constitutes a breach of fiduciary
responsibility within the meaning of Title I, Subtitle B,
Part 4 of ERISA, a prohibited transaction within the meaning
of Sections 406 through 408 of ERISA, or any other violation
of ERISA; (iii) no contributions to or benefits payable
under the Welfare Plan are past due; (iv) no proceedings,
investigations, filings or other matters are pending before
the Department of Labor or any court, with respect to the
Welfare Plan or the operation thereof; and (v) the Welfare
Plan is either unfunded or is funded solely through
insurance contracts.
(d) All Retirement Plans and Welfare Plans
(jointly "Benefit Plans") are in substantial compliance with
all applicable reporting, disclosure and other requirements
of the Code and ERISA.
-45-
<PAGE>
(e) There are no actions, suits or claims pending
or, to the best knowledge of the Borrower or any Subsidiary
of the Borrower, threatened with respect to any Benefit
Plan, or any administrator or fiduciary thereof, other than
routine claims for benefits under such Plan.
4.16 Investment Company Act; Other Regulations. The
Borrower is not an "investment company", or a company
"controlled" by an "investment company", within the meaning
of the Investment Company Act of 1940, as amended.
4.17 Accuracy and Completeness of Information. All
information and reports with respect to the Borrower (other
than projections) furnished to the Lender by the Borrower or
on behalf of the Borrower were, at the time the same were so
furnished, complete and correct in all material respects, or
have been subsequently supplemented by other information and
reports to the extent necessary to give the Lender a fair
and accurate knowledge of the subject matter in all material
respects. All projections with respect to the Borrower so
furnished by the Borrower, as supplemented, were prepared
and presented in good faith, it being recognized by the
Lender that such projections as to future events are not to
be viewed as facts and that actual results during the period
or periods covered by any such projections may differ from
the projected results. No fact is known to the Borrower
which materially and adversely affects or in the future may
(so far as the Borrower can reasonably foresee) materially
and adversely affect the business, assets or liabilities,
financial condition, results of operations or business
prospects of the Borrower which has not been set forth in
the financial statements referred to in Subsection 4.1 or in
such information and reports disclosed in writing to the
Lender prior to the date hereof. No document furnished or
statement made in writing to the Lender by the Borrower in
connection with the negotiation, preparation or execution of
this Agreement contains any untrue statement of a material
fact, or omits to state any such material fact necessary in
order to make the statements contained therein not
misleading, in either case which has not been corrected,
supplemented or remedied by subsequent documents furnished
or statements made in writing to the Lender.
4.18 Purpose of Loans. The proceeds of all Revolving
Credit Loans shall be used by the Borrower to provide
working
-46-
<PAGE>
capital and to fund Capital Expenditures.
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to Initial Extensions of Credit. The
agreement of the Lender to make the initial extension of
credit hereunder, whether the initial Revolving Credit Loan
or the initial Letter of Credit, is subject to the
satisfaction, immediately prior to or concurrently with the
making thereof, of the following conditions precedent:
(a) Credit Documents. The Lender shall have
received in form and content satisfactory to the Lender:
(i) this Agreement, duly executed and delivered by an
Authorized Officer of the Borrower; (ii) the Revolving
Credit Note, conforming to the requirements hereof and duly
executed and delivered by an Authorized Officer of the
Borrower; (iii) the Borrower Security Agreement; (iv) such
L/C Agreements as the Lender may require, duly executed and
delivered by an Authorized Officer of the Borrower; and
(v) such financing statements executed by the Borrower as
the Lender may require to further evidence or perfect the
rights and interests granted or contemplated to be granted
to or for the benefit of the Lender pursuant to this
Agreement and the other Credit Documents.
(b) Consents. The Lender shall have received
true and complete copies (in each case certified as to
authenticity on such date by an Authorized Officer of the
Borrower) of all documents and instruments, including all
consents, authorizations and filings, required or advisable
under any Requirement of Law or by Contractual Obligations
of the Borrower in connection with the execution, delivery,
performance, validity and enforceability of this Agreement,
the Notes and the other Credit Documents, and such consents,
authorizations and filings shall be satisfactory in form and
substance to the Lender and in full force and effect.
(c) Related Agreements. The Lender shall have
received true and complete copies, certified as to
authenticity by the Borrower, of such contracts, documents
or instruments to which the Borrower is a party as may be
reasonably requested by the Lender, including, without
limitation, a copy of any debt instrument or security
agreement to which the Borrower is a party.
-47-
<PAGE>
(d) Borrowing Certificate. The Lender shall have
received a Borrowing Certificate of the Borrower, dated the
Closing Date, substantially in the form of Exhibit E, with
appropriate insertions and attachments, satisfactory in form
and substance to the Lender and its counsel, duly executed
by an Authorized Officer of the Borrower.
(e) Borrower Proceedings. The Lender shall have
received a copy of all corporate proceedings undertaken by
the Borrower, in form and substance satisfactory to the
Lender, authorizing (i) the execution, delivery and
performance of this Agreement, the Notes and the other
Credit Documents to which it is a party, (ii) the borrowings
contemplated hereunder and (iii) the granting by it of the
security interests and other Liens granted or to be granted
by it pursuant to the Credit Documents, certified as to
authenticity by an Authorized Officer of the Borrower, as of
the Closing Date, which certificate shall state that the
proceedings thereby certified are in full force and effect
and have not been amended, modified, revoked or rescinded as
of the date of such certificate.
(f) Borrower Incumbency Certificate. The Lender
shall have received a certificate of an Authorized Officer
of the Borrower, dated the Closing Date, as to the
incumbency and signature of the Authorized Officers of the
Borrower executing any Credit Document, satisfactory in form
and substance to the Lender and its counsel, duly executed
by an Authorized Officer of the Borrower.
(g) Borrower Organizational Documents. The
Lender shall have received true and complete copies of the
certificate of incorporation and bylaws of the Borrower,
certified as of the Closing Date as true and complete copies
thereof by an Authorized Officer of the Borrower.
(h) Good Standing Certificates. The Lender shall
have received certificates dated as of a recent date from
the Secretary of State or other appropriate authority,
evidencing the good standing of the Borrower in each state
where the ownership, lease or operation of property or the
conduct of the business of the Borrower requires it to
qualify.
(i) Financial Information. The Lender shall have
-48-
<PAGE>
received a copy of each of the financial statements referred
to in Subsection 4.1.
(j) Litigation. No suit, action, investigation
or other proceeding by or before any arbitrator or any
Governmental Authority shall be pending and no preliminary
or permanent injunction or order by a state or federal court
shall have been entered (i) in connection with any Credit
Document or any of the transactions contemplated hereby or
(ii) which, in any such case, in the reasonable judgment of
the Lender, would have a Material Adverse Effect.
(k) No Violation. The consummation of the
transactions contemplated hereby shall not contravene,
violate or conflict with, nor involve the Lender in a
violation of, any Requirement of Law.
(l) Consents, Licenses and Approval. The Lender
shall have received a certificate of an Authorized Officer
of the Borrower either (i) attaching copies of all consents,
licenses and approvals required in connection with the
execution, delivery and performance by the Borrower, and the
validity and enforceability against the Borrower of, the
Credit Documents, and such consents, licenses and approvals
shall be in full force and effect, or (ii) stating that no
such consents, licenses or approvals are so required.
(m) Filings, Registrations and Recordings. All
filings, registrations and recordings necessary, in the
judgment of the Lender, to perfect, make enforceable or give
first priority to any security interest or other Lien
granted to or for the benefit of the Lender pursuant to the
Credit Documents shall have been properly filed, registered
or recorded. The Lender shall have received evidence
satisfactory to the Lender of each such filing, registration
or recordation and of the payment of any necessary fee, tax
or expense relating thereto.
(n) Lien Searches. The Lender shall have
received in writing the results of recent searches by a
Person satisfactory to the Lender, of the Uniform Commercial
Code filings which may have been filed with respect to
personal property of the Borrower, which searches shall
indicate that there are no financing statements on file
against the Borrower except for financing statements
publicizing Liens permitted by clauses (d),
-49-
<PAGE>
(e) and (f) of Subsection 7.3 and financing statements
for which duly executed termination statements in
recordable form have been delivered to counsel to the
Lender for filing.
(o) Insurance. The Lender shall have received
evidence satisfactory to the Lender that the Borrower has
obtained such insurance in such amounts, against such risks
and issued by such companies as shall be satisfactory to the
Lender.
(p) Legal Opinions. The Lender shall have
received the executed legal opinion of counsel to the
Borrower, in form and content satisfactory to the Lender.
Such legal opinion shall cover such matters incident to the
transactions contemplated by this Agreement and the other
Credit Documents as the Lender may reasonably require.
(q) Landlord Agreement. The Lender shall have
received a written agreement of each owner of the Borrower
Chief Executive Office consenting to enforcement of the
Lender's rights in connection therewith.
5.2 Conditions to Each Loan. The agreement of the
Lender to make any Revolving Credit Loan requested to be
made by it on any date, or to issue any Letter of Credit
requested to be issued by it on any date, is subject to the
satisfaction of the following conditions precedent as of the
date such Revolving Credit Loan is requested to be made or
such Letter of Credit is requested to be issued:
(a) Representations and Warranties. Each of the
representations and warranties made by the Borrower in or
pursuant to the Credit Documents shall be true and complete
in all material respects on and as of such date as if made
on and as of such date.
(b) No Default. No Default or Event of Default
shall be continuing on such date.
(c) No Material Litigation. No Material
Litigation shall be pending or overtly threatened in writing
against the Borrower or any Subsidiary of the Borrower.
(d) No Material Adverse Change. There shall not
have occurred any event or change since the date of the
financial statements referred to in Subsection 4.1 which has
had a Material
-50-
<PAGE>
Adverse Effect.
(e) Additional Matters. All corporate and other
proceedings, and all documents, instruments and other legal
matters in connection with the transactions contemplated by
this Agreement and the other Credit Documents shall be
satisfactory in form and substance to the Lender, and the
Lender shall have received such other instruments, legal
opinions and other documents in respect of any aspect or
consequence of the transactions contemplated hereby or
thereby as the Lender shall reasonably request. Each
borrowing by the Borrower hereunder shall constitute a
representation and warranty by the Borrower as of the date
of such borrowing that the conditions contained in this
Subsection 5.2 have been satisfied.
SECTION 6. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, until all of the
Obligations have been paid in full and there exists no
contingent or non-contingent commitment by the Lender which
could give rise to any Obligations, the Borrower shall:
6.1 Financial Information. Furnish to the Lender in
writing:
(a) not later than fifty-five (55) days after the
end of each quarterly accounting period of the Borrower
(i) a copy of the Borrower's Securities and Exchange
Commission Form 10-Q containing a consolidated statement of
income and retained earnings of the Borrower and its
Subsidiaries for such quarterly accounting period and for
the current fiscal year of the Borrower through the end of
such quarterly accounting period, and a consolidated
statement of cash flows of the Borrower and its Subsidiaries
for the current fiscal year of the Borrower through the end
of such quarterly accounting
-51-
<PAGE>
period, and a consolidated balance sheet of the Borrower
and its Subsidiaries as at the end of such quarterly
accounting period, all prepared in accordance with GAAP
consistently applied, and accompanied by (x) an Officer
Default Certificate as at the end of such quarterly
accounting period, and (y) an Officer Financial Covenant
Certificate as at the end of such quarterly accounting
period, and, if applicable, (ii) a consolidating
statement of income and retained earnings of the Borrower
and its Subsidiaries for such quarterly accounting period
and for the current fiscal year of the Borrower through
the end of such quarterly accounting period, and a
consolidating statement of cash flows of the Borrower and
its Subsidiaries for such quarterly accounting period and
for the current fiscal year of the Borrower through the
end of such quarterly accounting period, and a
consolidating balance sheet of the Borrower and its
Subsidiaries as at the end of such quarterly accounting
period, all prepared in accordance with GAAP consistently
applied;
(b) not later than fifty-five (55) days after the
end of each quarterly accounting period of the Borrower and
in form and content satisfactory to Lender, a schedule and
aging of student account receivables of the Borrower and its
Subsidiaries as at the end of such quarterly accounting
period;
(c) not later than one hundred (100) days after
the end of each fiscal year of the Borrower (i) a copy of
the Borrower's Securities and Exchange Commission Form 10-K
containing a consolidated statement of income and retained
earnings of the Borrower and its Subsidiaries for such
fiscal year, and a consolidated statement of cash flows of
the Borrower and its Subsidiaries for such fiscal year, and
a consolidated balance sheet of the Borrower and its
Subsidiaries as at the end of such fiscal year, setting
forth in each case in comparative form corresponding figures
for the preceding fiscal year of the Borrower, all prepared
in accordance with GAAP consistently applied and examined
and audited by independent certified public accountants
satisfactory to the Lender, in the discretion of the Lender
exercised in good faith, and accompanied by (w) a report of
such independent certified public accountants with respect
to such financial statements and examination which is
satisfactory to the Lender, (x) an Accountant Default
Certificate, (y) an Officer Financial Covenant Certificate
as at the end of such fiscal year, and (z) an Officer
Default Certificate as at the end of such fiscal year, and,
if applicable, (ii) a consolidating statement of income and
retained earnings of the Borrower and its Subsidiaries for
such fiscal year, and a consolidating statement of cash
flows of the Borrower and its Subsidiaries for such fiscal
year, and a consolidating balance sheet of the Borrower and
its Subsidiaries as at the end of such fiscal year, setting
forth in each case in comparative form corresponding figures
for the preceding fiscal year of the Borrower, all prepared
in accordance with GAAP consistently applied by independent
certified public accountants satisfactory to the Lender, in
the discretion of the Lender
-52-
<PAGE>
exercised in good faith;
(d) not later than April 30 of each year, a copy
of projections by the Borrower of the operating budget and
cash flow of the Borrower for such fiscal year of the
Borrower, in substantially the form attached hereto as
Exhibit F;
(e) promptly after transmission thereof, copies
of all registration statements and all final regular,
special or periodic reports which the Borrower or any of its
Subsidiaries files with the United States Securities and
Exchange Commission (or any successor thereto) or with any
stock exchange; and
(f) promptly, such additional financial and other
information as the Lender may from time to time reasonably
request.
6.2 Payment of Obligations. Pay, discharge or
otherwise satisfy at or before maturity or before they
become delinquent, as the case may be, all of its
obligations of whatever nature; and cause each of its
Subsidiaries to pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the
case may be, all of its obligations of whatever nature.
6.3 Conduct of Business and Maintenance of Existence.
(a) Continue to engage in the business of information
technology education; (b) preserve, renew and keep in full
force and effect its corporate existence; (c) take all
reasonable action to maintain all rights, privileges and
franchises necessary or desirable in the normal conduct of
its business; and (d) comply with all Contractual
Obligations and Requirements of Law except to the extent
that failure to comply therewith could not, in the
aggregate, reasonably be expected to have a Material Adverse
Effect.
6.4 Maintenance of Property; Insurance. (a) Keep, and
cause each of its Subsidiaries to keep, all property useful
and necessary in its business in good working order and
condition; and (b) maintain, and cause each of its
Subsidiaries to maintain, with financially sound and
reputable insurance companies such insurance in at least
such amounts and against at least such risks (but including
in any event property casualty, liability, product liability
and business interruption) as is reasonably prudent,
53
<PAGE>
such insurance being not unacceptable to the Lender; and furnish to the
Lender, upon written request, full information as to the insurance carried.
6.5 Inspection of Property and Books and Records.
(a) Keep, and cause each of its Subsidiaries to keep, proper
books and records in which true and complete entries in
conformity with GAAP and all Requirements of Law shall be
made of all dealings and transactions in relation to its
business and activities; and (b) permit representatives of
the Lender to visit and inspect any of its properties and
examine and make abstracts from any of its books and records
at any reasonable time and as often as may be desired, and
to discuss the business, operations, properties and
financial and other condition of the Borrower and any of its
Subsidiaries with any of the Authorized Officers of the
Borrower or any of its Subsidiaries and with its independent
certified public accountants.
6.6 Notices. Promptly give notice to the Lender:
(a) of the occurrence of any Default or Event of
Default;
(b) of receipt of any written notice of any
default or event of default under or as defined in any
Contractual Obligation of the Borrower or any of its
Subsidiaries which could reasonably be expected to have a
Material Adverse Effect;
(c) of Material Litigation pending or overtly
threatened in writing against the Borrower or any of its
Subsidiaries;
(d) of any litigation or proceeding pending
against the Borrower or any of its Subsidiaries involving an
uninsured amount of Five Hundred Thousand Dollars
($500,000.00) or more or in which injunctive or similar
relief is sought; and
(e) of the occurrence of any event which could
reasonably be expected to have a Material Adverse Effect.
Each notice pursuant to this Subsection shall be accompanied
by a statement of an Authorized Officer setting forth
details of the occurrence referred to therein and stating
what action the Borrower proposes to take with respect
thereto.
54
<PAGE>
6.7 Government Regulations. Subject to any other more
specific provisions of this Agreement, comply with all
applicable Requirements of Law relating to the conduct of
its business.
6.8 Employee Benefit Plans. (a) At all times
administer, maintain and operate, and cause each Subsidiary
of the Borrower at all times to administer, maintain and
operate, each of its Benefit Plans in conformity in all
material respects with all applicable provisions of ERISA
and other federal and state statutes relating to employee
benefit plans (including the continuation coverage
requirements of ERISA and the Code for group health plans
under Section 4980B of the Code and Sections 601-608 of
ERISA); (b) at all times make, and cause each such
Subsidiary of the Borrower at all times to make, all
required contributions and premium payments under each
Benefit Plan for all periods after the date hereof;
(c) comply in all material respects with, and cause each
such Subsidiary of the Borrower to comply in all material
respects with, all applicable reporting, disclosure and
other requirements of ERISA and the Code as they relate to
Benefit Plans, and, if reasonably requested by the Lender,
furnish the Lender with copies of all reports filed in
connection therewith promptly after the filing thereof;
(d) notify the Lender promptly of any fact, including,
without limitation, any reportable event under Section
4043(b) of ERISA, arising in connection with any Retirement
Plan which might constitute grounds for the termination
thereof by the PBGC; and (e) furnish to the Lender, promptly
upon its reasonable request therefor, such additional
information concerning any Benefit Plan as the Lender may
request.
6.9 Environmental. (a) Cause all operations of the
Borrower and its Subsidiaries to be conducted in compliance
in all material respects with all applicable Environmental
Laws; (b) promptly deliver to the Lender copies of all
reports prepared by any Governmental Authority, any
environmental auditor or engineer, or any other Person,
relating to or in connection with any Environmental Claim
against the Borrower or any of its Subsidiaries, unless the
Borrower cannot obtain such reports or copies thereof;
(c) notify the Lender in writing within ten (10) Business
Days after the Borrower or any of its Subsidiaries shall
have become aware of any Environmental Claim against the
Borrower or any of its Subsidiaries or caused by any
operations conducted by the Borrower or any of its
Subsidiaries; (d) in the event that, to the knowledge of the
Borrower or any of its Subsidiaries, any
55
<PAGE>
Hazardous Substance Contamination shall occur which was caused by the
Borrower or any of its Subsidiaries or under circumstances as a result of
which the Borrower or any of its Subsidiaries would be liable or financially
responsible for damages or the cost of remediation or clean-up, or the
Borrower or any of its Subsidiaries shall become aware of any non-compliance
in any material respect of any Obligor Use Property with any Environmental
Law by the Borrower or any of its Subsidiaries which occurred previously,
exists now or shall exist hereafter (i) notify the Lender thereof in writing
within ten (10) Business Days, (ii) if requested by the Lender, engage, at
the Borrower's expense, and deliver to the Lender as promptly as feasible an
Environmental Assessment with respect thereto containing or accompanied by a
plan and budget in form and content reasonably satisfactory to the Lender for
the remediation or cure thereof, (iii) as promptly as feasible, commence and
diligently pursue to completion, or cause to be promptly commenced and
diligently pursued to completion, all actions which are necessary to
remediate or cure the same, all contractors to perform any work in connection
therewith to be reasonably satisfactory to the Lender, and (iv) if requested
by the Lender, deliver to the Lender, within fifteen (15) days after request
therefor by the Lender, a bond, letter of credit or similar financial
assurance reasonably satisfactory to the Lender evidencing that the funds
necessary are available to pay the cost of such cure or remediation; and (e)
indemnify, protect and defend the Lender, and its officers, directors,
employees, attorneys and agents, and save harmless the Lender, and its
officers, directors, employees, attorneys and agents, from and against any
and all claims, demands, damages, losses, liabilities, obligations,
penalties, litigation, defenses, judgments, decrees, orders, directives,
suits, actions, proceedings, costs and expenses (including, without
limitation, counsel fees and expenses and experts' fees and expenses) of any
kind or nature whatsoever which may at any time be imposed upon, paid or
incurred by or asserted or awarded against any of them relating to, resulting
from or arising out of (i) the presence, manufacture, generation, production,
processing, use, handling, treatment, storage, disposal, transportation or
distribution on or about any Obligor Use Property of any Hazardous Substance
by the Borrower or under any circumstances as a result of which
56
<PAGE>
the Borrower or any of its Subsidiaries would be liable or financially
responsible for damages or the cost of remediation or clean-up, (ii) any
Hazardous Substance Contamination by the Borrower or any of its Subsidiaries
or under circumstances as a result of which the Borrower or any of its
Subsidiaries would be liable or financially responsible for damages or the
cost of remediation or clean-up, (iii) any non-compliance in any material
respect of any Obligor Use Property with any Environmental Law by the
Borrower or any of its Subsidiaries which occurred previously, now exists or
shall exist hereafter, or (iv) any costs associated with any remedial or
curative action relating to any Hazardous Substances, any Hazardous Substance
Contamination or any violation of any applicable Environmental Laws by the
Borrower or any of its Subsidiaries. The indemnification obligations of the
Borrower under this Subsection shall survive the termination of this
Agreement and payment of the outstanding Notes for a period of three (3)
years. The Lender agrees not to delay release of Collateral in accordance
with the last sentence of Subsection 2.2 of the Borrower Security Agreement
on account of any contingent obligation of the Borrower under the preceeding
sentence.
6.10 Perfection of Security Interest. Cause the
security interest granted to the Lender pursuant to the
Borrower Security Agreement to be duly perfected in
accordance with applicable law with respect to all of the
Collateral.
SECTION 7. NEGATIVE COVENANTS
The Borrower hereby agrees that, until all of the
Obligations have been paid in full and there exists no
contingent or non-contingent commitment by the Lender which
could give rise to any Obligations, the Borrower shall not,
directly or indirectly:
7.1 Financial Condition Covenants.
(a) Leverage Ratio. Permit Leverage Ratio to be
greater than 1.75 to 1.00 as at the end of any quarterly
accounting period of the Borrower.
(b) Fixed Charge Coverage Ratio. As at the end
of any quarterly accounting period of the Borrower, permit
Fixed Charge Coverage Ratio for the twelve (12)-month period
then ending to be less than 1.50 to 1.00.
(c) Current Ratio. As at the end of any
quarterly accounting period of the Borrower, permit Current
Ratio
57
<PAGE>
to be less than 1.00 to 1.00.
7.2 Limitation on Indebtedness. Create, incur, assume
or suffer to exist any Indebtedness, or permit any of its
Subsidiaries to create, incur, assume or suffer to exist any
Indebtedness, excepting for:
(a) Indebtedness of the Borrower or any of its
Subsidiaries under this Agreement and the other Credit
Documents;
(b) current Indebtedness of the Borrower and its
Subsidiaries in connection with trade accounts payable
incurred in the ordinary course of business (including
payment obligations under Operating Leases of the Borrower
and its Subsidiaries which the Lender acknowledges the
Borrower enters into in connection with its business);
(c) Indebtedness of the Borrower secured by
Permitted PMSIs; and
(d) other Indebtedness not exceeding Seven
Million Dollars ($7,000,000.00) in the aggregate at any time
outstanding, subject to the other provisions of this
Agreement, including Subsection 7.3.
7.3 Limitation on Liens. Create, incur, assume or
suffer to exist, or permit any of its Subsidiaries to
create, incur, assume or suffer to exist, any Lien upon any
of its property, assets or revenues, whether now owned or
hereafter acquired, except for:
(a) Liens for taxes not yet due or which are
being contested in good faith by appropriate proceedings,
provided that adequate reserves with respect thereto are
maintained on the books of the Borrower or such Subsidiary,
as the case may be, in conformity with GAAP and that no
notice of lien with respect thereto is filed in any
recording office;
(b) landlords', carriers', warehousemen's,
mechanics', materialmen's, repairmen's, or other like Liens
arising in the ordinary course of business with respect to
obligations which are not due or which are being contested
in good faith by appropriate proceedings in a manner which
will not jeopardize or diminish in any material respect any
interest of the
58
<PAGE>
Lender;
(c) pledges or deposits in connection with
workers' compensation, unemployment insurance and other
social security legislation and deposits securing liability
to insurance carriers under insurance or self-insurance
arrangements;
(d) Liens in favor of the Lender created pursuant
to the Credit Documents;
(e) Permitted PMSIs;
(f) Liens which are created for the benefit of a
Person solely to evidence a sale of accounts to such Person
by the Borrower or a Subsidiary of the Borrower pursuant to
a Permitted Factoring Agreement and which attach to no
property of the Borrower or any Subsidiary of the Borrower
other than such accounts and the proceeds thereof; and
(g) Liens, if any, described in Schedule 7.3.
7.4 Limitation on Negative Pledge Clauses. Enter
into, or permit any of its Subsidiaries to enter into, any
covenant or other agreement with or for the benefit of any
other Person, other than pursuant to this Agreement or the
other Credit Documents, which prohibits or limits the right,
power, authority or ability of the Borrower or such
Subsidiary to create, incur, assume or suffer to exist any
security interest or other Lien upon any of its assets,
whether now owned or hereafter acquired.
7.5 Limitation on Contingent Obligations. Create,
incur, assume or suffer to exist, or permit any of its
Subsidiaries to create, incur, assume or suffer to exist,
any Contingent Obligation except for:
(a) Contingent Obligations arising in connection
with Letters of Credit or otherwise arising under or in
connection with the Credit Documents; and
(b) Contingent Obligations in the nature of
performance bonds and performance guaranties arising in the
ordinary course of business.
7.6 Limitations on Fundamental Changes. Except for
59
<PAGE>
Permitted Acquisitions, enter into, or permit any of its
Subsidiaries to enter into, any merger, consolidation,
amalgamation or share exchange, or, except for Permitted
Acquisitions, suffer or permit any business, assets,
operations or books and records of the Borrower or any of
its Subsidiaries to be merged, consolidated or commingled
with any business, assets, operations or books and records
of any other Person, or make any material change in the
present method of conducting business.
7.7 Limitation on Acquisitions. Except in the
ordinary course of business and except for Permitted
Acquisitions, purchase or otherwise acquire, or permit any
of its Subsidiaries to purchase or otherwise acquire, all or
substantially all of the assets of any other Person, or any
assets of any other Person in a transaction which is subject
to the Bulk Transfers Title of the Uniform Commercial Code
of any jurisdiction.
7.8 Limitation on Sale of Assets. Convey, sell,
assign, transfer, lease or otherwise dispose of, or permit
any of its Subsidiaries to convey, sell, assign, transfer,
lease or otherwise dispose of, any of the Collateral or any
substantial part of its assets, whether now owned or
hereafter acquired, except:
(a) obsolete or worn-out equipment or inventory
disposed of in the ordinary course of business;
(b) the sale of inventory in the ordinary course
of business;
(c) sales of accounts of the Borrower or its
Subsidiaries pursuant to Permitted Factoring Agreement; and
(d) sales, leases or dispositions of assets of
the Borrower (not including the Collateral) having a value,
in the aggregate for all such sales, leases or dispositions,
not exceeding thirty percent (30%) of Total Assets at the
time of determination.
7.9 Limitation on Restricted Payments. Make or commit
to make, or permit any of its Subsidiaries to make or commit
to make, any Restricted Payments except:
(a) payments to the Borrower by any Subsidiary of
60
<PAGE>
the Borrower;
(b) payment of compensation, stock options,
bonuses, insurance, fringe benefits and reimbursement of
expenses to employees of the Borrower in the ordinary course
of business;
(c) payments of dividends (including dividends
paid in capital stock of the Borrower) by the Borrower to
stockholders of the Borrower;
(d) payments made by the Borrower to redeem
securities of the Borrower, provided that such payments are
made with proceeds of a public offering of securities of the
Borrower; and
(e) other payments not exceeding One Million
Dollars ($1,000,000.00) in the aggregate.
7.10 Limitation on Transactions with Affiliates.
Except as permitted by other provisions of this Agreement,
enter into, or permit any of its Subsidiaries to enter into,
any transaction with any Affiliate except for transactions
with Affiliates entered into in the ordinary course of
business on terms no less favorable than would apply in a
comparable arm's-length transaction with a Person that is
not an Affiliate.
7.11 Limitation on Subsidiaries. Form or acquire, or
permit any of its Subsidiaries to form or acquire, any
Subsidiary.
7.12 Limitation on Investments, Loans and Advances.
Purchase any Investment or make any advance, loan or
extension of credit to any Person, or permit any of its
Subsidiaries to purchase any Investment or make any advance,
loan or extension of credit to any Person, except for:
(a) extensions of trade credit in the ordinary
course of business;
(b) a loan or loans to any Person or Persons,
provided that the aggregate amount of all loans to all
Persons shall not at any time exceed Two Million Dollars
($2,000,000.00);
(c) Investments in Cash Equivalents;
61
<PAGE>
(d) other Investments in an aggregate amount not
to exceed Five Million Dollars ($5,000,000.00) during any
period of four (4) consecutive quarterly accounting periods
of the Borrower beginning on or after the date of this
Agreement; and
(e) other Investments approved by the Lender in
writing.
7.13 Limitation on Optional Payments and Modifications.
(a) Unless commercially reasonable to do so, make, or permit
any of its Subsidiaries to make, any optional payment or
prepayment on or redemption of any Indebtedness (other than
Indebtedness pursuant to this Agreement), or (b) unless
commercially reasonable to do so, amend, modify or change,
or consent or agree to any amendment, modification or change
to, any of the terms of any Indebtedness (other than any
such amendment, modification or change which would extend
the maturity or reduce the amount of any payment of
principal thereof or which would reduce the rate or extend
the date for payment of interest thereon).
7.14 Limitation on Sale and Leaseback. Enter into, or
permit any of its Subsidiaries to enter into, any
arrangement with any Person providing for the leasing by the
Borrower or such Subsidiary of real or personal property
which has been or is to be sold or transferred by the
Borrower or such Subsidiary to such Person or to any other
Person to whom funds have been or are to be advanced by such
Person on the security of such property or rental
obligations of the Borrower or such Subsidiary.
7.15 Fiscal Year. Permit the fiscal year of the
Borrower to end on a day other than January 31.
7.16 Places of Business. Change, or suffer or permit
to be changed, the location of the Borrower Chief Executive
Office or the location of the Borrower's books and records,
or have or maintain, other than the Borrower Business
Premises, any business, office or storage location unless
the Lender shall have received sixty (60) days prior written
notice of the new location.
7.17 Change of Name. Without giving the Lender at
least sixty (60) days prior written notice and executing and
delivering to the Lender such financing statements and other
documents as the Lender may reasonably require after receipt
of such notice, change, or suffer or permit to be changed,
the name
62
<PAGE>
of the Borrower or any of its Subsidiaries, or use any trade name, or permit
any of its Subsidiaries to use any trade name, other than its true corporate
name and "Advantec Institutes."
7.18 ERISA. (a) With respect to any Retirement Plan,
engage, or knowingly permit any "party in interest" (as
defined in Section 3(14) of ERISA) or any "disqualified
person" (as defined in Section 4975(e)(2) of the Code) to
engage, in any "prohibited transaction" within the meaning
of Section 4925 of the Code or Sections 406 through 408 of
ERISA; (b) with respect to any Retirement Plan, knowingly
incur, or permit any Subsidiary of the Borrower to knowingly
incur, any "accumulated funding deficiency" under
Section 302 of ERISA or Section 412 of the Code, whether or
not waived; (c) terminate any Retirement Plan in a manner
which could result in the imposition of a lien on any of its
property pursuant to Section 4068 of ERISA; or (d) take any
action which materially adversely affects the qualification
of any Qualified Plan.
7.19 Environmental. (a) Permit any Hazardous Substance
to be present, manufactured, generated, produced, processed,
used, handled, treated, stored or disposed of on any Obligor
Use Property in violation of any applicable Environmental
Law by the Borrower or any of its Subsidiaries or under
circumstances as a result of which the Borrower or any of
its Subsidiaries would be liable or financially responsible
for damages or the cost of remediation or clean-up;
(b) permit to occur any Hazardous Substance Contamination by
the Borrower or any of its Subsidiaries or under
circumstances as a result of which the Borrower or any of
its Subsidiaries would be liable or financially responsible
for damages or the cost of remediation or clean-up; or
(c) permit any underground storage tanks to be installed on
any Obligor Use Property by the Borrower or any of its
Subsidiaries or under circumstances as a result of which the
Borrower or any of its Subsidiaries would be liable or
financially responsible for damages or the cost of removal,
remediation or clean-up.
7.20 Limitation on Inconsistent Agreements. Enter
into, or permit any of its Subsidiaries to enter into, any
agreement which is inconsistent with any obligations of the
Borrower or any of its Subsidiaries under this Agreement or
any of the other Credit Documents.
63
<PAGE>
SECTION 8. EVENTS OF DEFAULT
Upon the occurrence of any of the following
events:
(a) The Borrower or any Other Obligor shall fail
to pay when and as due, whether by demand, stated maturity,
acceleration or otherwise, any of the Obligations,
including, without limitation, principal and interest on the
Notes, L/C Reimbursement Obligations, fees or expenses; or
(b) Any representation or warranty made or deemed
made by the Borrower or any Other Obligor herein or in the
other Credit Documents or which is contained in any
certificate, document or financial or other statement
furnished at any time under or in connection with this
Agreement or any such other Credit Document shall prove to
have been incorrect in any material respect on or as of the
date made or deemed made; or
(c) The Borrower or any Other Obligor shall fail
to observe, perform or comply with any covenant or agreement
contained in this Agreement or any of the other Credit
Documents (other than as provided in (a) above), and, in the
case of any failure of the Borrower or any Other Obligor to
observe, perform or comply with any covenant or agreement to
be observed, performed or complied with
(i) under Subsection 4.14(b), 6.1(f), 6.4(b)
or 6.8(e), or Subsection 2.2 of the Borrower Security
Agreement, such failure shall continue for three (3)
Business Days after written notice of such failure from the
Lender to the Borrower;
(ii) under Subsection 6.1(a) through (d),
inclusive, or 9.7 or under Subsection 4.1 of the Borrower
Security Agreement, such failure shall continue for five (5)
Business Days after written notice of such failure from the
Lender to the Borrower;
(iii) under Subsection 6.3(b), 6.10 or
7.3, such failure shall continue for five (5) Business Days
after the Borrower becomes aware of such failure, whether as
a result of notice from the Lender or otherwise;
(iv) under Subsection 6.5(b), such failure
64
<PAGE>
shall continue for one (1) Business Day after written notice
of such failure from the Lender to the Borrower;
(v) under Subsection 6.9(b) through (d),
inclusive, such failure shall continue for fifteen (15)
Business Days;
(vi) under Subsection 7.12, such failure
shall continue for five (5) Business Days;
(vii) under Subsection 2.3(e) of the
Borrower Security Agreement, such failure shall continue for
three (3) Business Days after notice of such failure from
the Lender to the Borrower; or
(viii) other than as provided in
Section 8(a) and Section 8(c)(i) through (vii), inclusive,
and except in the case of any failure of the Borrower or any
Other Obligor to observe, perform or comply with any
covenant or agreement to be observed, performed or complied
with under Subsection 4.14(a), 4.18, 6.3(a), 6.6, 6.8(d),
7.1, 7.4, 7.6 through 7.11, inclusive, or 7.13 through 7.18,
inclusive, or Subsection 2.3(b) and 2.3(d) of the Borrower
Security Agreement, such failure shall continue for thirty
(30) days; or
(d) (i) This Agreement or any of the other Credit
Documents shall be, or shall be held by a court of competent
jurisdiction to be, invalid or unenforceable in any respect
reasonably deemed material by the Lender, or (ii) the
security interests and other Liens created in favor of or
for the benefit of the Lender shall cease to be enforceable
in any respect reasonably deemed material by the Lender and
of the same effect and priority purported to be created
thereby; or
(e) The Borrower or any Other Obligor shall
revoke or terminate, or attempt to revoke or terminate, or
notify the Lender of revocation or termination of, any
continuing obligations or agreements of the Borrower or such
Other Obligor relating in any way to this Agreement or any
of the other Credit Documents; or
(f) The Borrower or any Other Obligor shall (i)
default in any payment of any Indebtedness (other than
Indebtedness referred to in paragraph (a) above) or in the
payment
65
<PAGE>
of any Contingent Obligation reasonably deemed material by the Lender, beyond
any period of grace but whether or not any required notice has been given, or
(ii) default in the observance or performance of any other agreement or
condition otherwise relating to any such Indebtedness or Contingent
Obligation or contained in any instrument or agreement evidencing, securing
or relating thereto, or any other event shall occur or condition exist, the
effect of which default or other event or condition is to cause, or to permit
the holder or holders of such Indebtedness or beneficiary or beneficiaries of
such Contingent Obligation (or a trustee or agent on behalf of such holder or
holders or beneficiary or beneficiaries) to cause, with the giving of notice
if required and expiration of any applicable grace period, such Indebtedness
to become due prior to its stated maturity or such Contingent Obligation to
become payable; or
(g) (i) The Borrower or any Other Obligor shall
commence any case, proceeding or other action (A) under any
existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization
or relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it
or its debts, or (B) seeking appointment of a receiver,
trustee, custodian or other similar official for it or for
all or any substantial part of its assets, or the Borrower
or any Other Obligor shall make a general assignment for the
benefit of its creditors, whether or not any court assumes
jurisdiction thereof; or (ii) there shall be commenced
against the Borrower or any Other Obligor any case,
proceeding or other action of a nature referred to in clause
(i) above which (A) results in the entry of an order for
relief or any such adjudication or appointment or
(B) remains undismissed for a period of sixty (60) days; or
(iii) there shall be commenced against the Borrower or any
Other Obligor any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or
similar process against all or any substantial part of its
assets which results in the entry of an order for any such
relief which shall not have been vacated, discharged or
stayed pending appeal, within sixty (60) days from the entry
thereof; or (iv) the Borrower or any Other Obligor shall
take any action in furtherance of, or indicating its consent
to, approval of, or acquiescence in, any of the acts set
forth in clause (i), (ii) or (iii) above; or (v) the
Borrower or any Other
66
<PAGE>
Obligor shall be insolvent (as defined in Section 101(32) of the United
States Bankruptcy Code, or any successor legislation), or generally not, or
shall be unable to, or shall admit in writing its inability to, pay its debts
as they become due; or
(h) Dissolution or liquidation of, or the entry
of any unstayed judgment, order, award or decree for the
dissolution or liquidation of, the Borrower or any Other
Obligor; or
(i) Injunction or restraint of the Borrower or
any Other Obligor in any manner from conducting its business
in whole or in part deemed material by the Lender in good
faith; or
(j) Any material assets of the Borrower or any
Subsidiary of the Borrower shall be attached, levied upon,
seized or repossessed and such assets shall not be released
or discharged from such attachment, levy, seizure or
repossession within sixty (60) days; or
(k) There shall occur any event or condition
which the Lender reasonably determines has or will have a
Material Adverse Effect, whether or not such event or
condition otherwise constitutes an Event of Default; or
(l) (i) The Borrower or any Commonly Controlled
Entity shall, or, in the judgment of the Lender exercised in
good faith, is likely to, incur any liability in connection
with a withdrawal from, or the Insolvency or Reorganization
of, a Multiemployer Plan, or (ii) any other event or
condition shall occur or exist, with respect to a Plan, and
in each case in clauses (i) and (ii) above, such event or
condition, together with all other such events or
conditions, if any, could reasonably be expected, in the
aggregate, to subject the Borrower or any Other Obligor to
any tax, penalty or other liabilities deemed material by the
Lender in good faith; or
(m) One or more judgments or decrees shall be
entered against the Borrower or any Other Obligor involving
in the aggregate liabilities (not paid or fully covered by
insurance) equal to or exceeding Five Hundred Thousand
Dollars ($500,000.00) and all such judgments or decrees
shall not have been vacated, discharged or stayed pending
appeal within thirty (30) days from the entry thereof; or
67
<PAGE>
(n) The Borrower, any of its Subsidiaries or any
Other Obligor shall be convicted of an offense (other than
traffic violations) punishable under any domestic or foreign
criminal statute or law; or
(o) There shall occur a Change of Control;
then, and in any such event, (A) if such event is an Event
of Default specified in paragraph (h) or in clause (i) or
(ii) of paragraph (g) above automatically the Commitments
shall immediately terminate and all of the Obligations (with
accrued interest thereon) shall immediately become due and
payable, and (B) if such event is any other Event of
Default, either or both of the following actions may be
taken: (i) the Lender may by notice to the Borrower declare
the Commitments to be terminated forthwith, whereupon the
Commitments shall immediately terminate; and (ii) the Lender
may by notice to the Borrower, declare all of the
Obligations (with accrued interest thereon) to be due and
payable, whereupon the same shall immediately become due and
payable. Except as expressly provided above in this
Agreement, presentment, demand, protest and all other
notices of any kind are hereby expressly waived.
SECTION 9. MISCELLANEOUS
9.1 Amendments and Waivers. Neither this Agreement,
any Note or any other Credit Document, nor any terms hereof
or thereof may be amended, modified, extended, renewed,
supplemented or replaced except in accordance with the
provisions of this Subsection. The Lender and the Borrower
may from time to time enter into written amendments,
modifications, extensions, renewals, supplements or
replacements for the purpose of amending, modifying,
extending, renewing, supplementing or replacing any
provisions of this Agreement or the other Credit Documents
or changing in any manner the rights of the parties
hereunder or thereunder or waiving, on such terms and
conditions as the Lender may specify in such instrument, any
of the requirements of this Agreement or the other Credit
Documents or any Default or Event of Default and its
consequences. In the case of any waiver, the Borrower and
the Lender shall be restored to their former positions and
rights hereunder and under the outstanding Notes, and any
Default or Event of Default waived shall be deemed to be
68
<PAGE>
cured; but no such waiver shall extend to any subsequent or
other Default or Event of Default, or impair any right
consequent thereupon.
9.2 More Restrictive Provisions. In the event that
the Borrower enters into or becomes bound by any credit
agreement, purchase agreement or other agreement, document
or instrument (but not including any statutory requirement
or any requirement imposed by regulatory authorities), or
any amendment, modification, supplement or restatement
thereof, which requires the Borrower to comply with any
financial covenants which are in addition to or more
restrictive (the "Additional/More Restrictive Provisions")
than the covenants contained in Subsection 7.1, this
Agreement shall be deemed to be automatically and
immediately amended to include such Additional/More
Restrictive Provisions. In the event that such credit
agreement, purchase agreement or other agreement or document
which contains the Additional/More Restrictive Provisions,
or the Additional/More Restrictive Provisions, are
terminated and of no further force or effect, then any
amendment of this Agreement effected as a result of the
provisions of this Subsection shall be of no further force
or effect and this Agreement shall be deemed to be
automatically and immediately amended to conform to the
terms of this Agreement prior to such amendment of this
Agreement effected pursuant to this Subsection as a result
of such Additional/More Restrictive Provisions. In the
event that, after an amendment of this Agreement effected
pursuant to this Subsection as a result of Additional/More
Restrictive Provisions, such Additional/More Restrictive
Provisions shall be amended or modified and the result of
such amendment or modification is to cause some or all of
such Additional/More Restrictive Provisions to be more
restrictive or less restrictive, but in any event more
restrictive than the financial covenants contained in
Subsection 7.1 prior to such amendment of this Agreement,
then this Agreement shall be deemed to be automatically and
immediately amended to conform to such Additional/More
Restrictive Provisions, as so amended or modified. Upon
request of the Lender at any time or from time to time, the
Borrower shall promptly execute and deliver to the Lender
such amendments of this Agreement, and such other
agreements, instruments and documents, as may be requested
by the Lender to further memorialize amendments of this
Agreement pursuant to this Subsection.
9.3 Notices. All notices, requests and demands to or
69
<PAGE>
upon the respective parties hereto to be effective shall be
in writing (including by facsimile transmission), and,
unless otherwise expressly provided herein, shall be deemed
to have been duly given or made when delivered by hand,
transmitted by facsimile transmission or, if sent via
Federal Express (or other reputable commercial overnight
courier), return receipt requested, three (3) days after
delivery of the return receipt to the sending party,
addressed as follows (or to such other address as may be
hereafter notified by the respective parties hereto and any
future holders of the Notes):
The Borrower: 11350 Random Hills Road
Suite 240
Fairfax, Virginia 22030
Attention: Chief Financial
Officer
Fax: (703) 359-8226
with a copy to: Tucker, Flyer & Lewis
1615 L Street, N.W.
Suite 400
Washington, DC 20036-5610
Attention: Jack L. Lewis, Esquire
Fax: (202) 429-3231
The Lender: CoreStates Bank, N.A.
The World Trade Center, Suite 2524
401 East Pratt Street
Baltimore, Maryland 21202
Fax: (410) 576-2245
with a copy to: Hogan & Hartson L.L.P.
111 South Calvert Street
Baltimore, Maryland 21202
Attention: J. Clinton Kelly,
Esquire
Fax: (410) 539-6981
provided that any notice, request or demand to or upon the
Lender pursuant to Subsections 2.3, 2.7, 2.10, and 2.11
shall not be
70
<PAGE>
effective until received. No failure of any party hereto to provide a copy
of any notice, request or demand to Tucker, Flyer & Lewis or Hogan & Hartson
L.L.P. as provided above shall impair in any way the effectiveness of any
such notice, request or demand.
9.4 No Waiver; Cumulative Remedies. No failure to
exercise and no delay in exercising, on the part of the
Lender, any right, remedy, power or privilege hereunder or
under the Credit Documents, shall operate as a waiver
thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder or thereunder
preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided
or provided in the other Credit Documents are cumulative and
not exclusive of any rights, remedies, powers and privileges
provided by law.
9.5 Survival of Representations and Warranties. All
representations and warranties made hereunder, in the other
Credit Documents and in any document, certificate or
statement delivered pursuant hereto or in connection
herewith shall survive the execution and delivery of this
Agreement and the Notes.
9.6 Payment of Expenses and Taxes. The Borrower
agrees (a) to pay or reimburse the Lender for all its costs
and expenses incurred in connection with the development,
preparation and execution of', and any amendment,
modification, extension, renewal, supplement or replacement
of, this Agreement, the other Credit Documents and any other
documents prepared in connection herewith or therewith, and
the consummation of the transactions contemplated hereby and
thereby, including, without limitation, the fees and
disbursements of counsel to the Lender, (b) to pay or
reimburse the Lender for all its costs and expenses incurred
in connection with the enforcement or preservation of any
rights under this Agreement, the other Credit Documents and
any such other documents, including, without limitation, the
fees and disbursements of counsel to the Lender, (c) to pay,
indemnify and hold the Lender harmless from, any and all
recording and filing fees and any and all liabilities with
respect to, or resulting from any delay in paying, stamp,
excise and other taxes, if any, which may be payable or
determined to be payable in connection with the execution
and delivery of, or consummation of any of the transactions
contemplated by, or any amendment, modification, extension,
renewal, supplement or replacement of, or any waiver or
71
<PAGE>
consent under or in respect of, this Agreement, the other
Credit Documents and any such other documents, and (d) to
pay, indemnify and hold the Lender harmless from, any and
all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever with respect
to the execution, delivery, enforcement, performance and
administration of this Agreement, the other Credit Documents
and any such other documents (all of the foregoing,
collectively, the "indemnified liabilities"); provided that
the Borrower shall have no obligation hereunder to the
Lender with respect to indemnified liabilities arising from
(i) the gross negligence or willful misconduct of the
Lender, or (ii) legal proceedings commenced against the
Lender by any security holder or creditor thereof arising
out of and based upon rights afforded any such security
holder or creditor solely in its capacity as such. The
agreements in this Subsection shall survive the termination
of this Agreement and payment of the outstanding Notes for a
period of two (2) years.
9.7 Further Assurances. The Borrower agrees promptly
to do, make, execute and deliver all such additional and
further acts, things, deeds, assurances, instruments and
documents as the Lender may reasonably request to vest in
and assure to the Lender its rights under this Agreement or
any of the other Credit Documents.
9.8 Unenforceability. If any term, provision or
condition, or any part thereof, of this Agreement or any of
the other Credit Documents shall for any reason be found or
held invalid or unenforceable by any court or Governmental
Authority, such invalidity or unenforceability shall not
affect the remainder of such term, provision or condition,
nor any other term, provision or condition, and this
Agreement and the other Credit Documents shall survive and
be construed as if such invalid or unenforceable term,
provision or condition had not been contained herein or
therein; provided, however, that if any rate of interest
provided under this Agreement or any of the other Credit
Documents does or shall exceed the maximum interest rate
permitted by law, then such rate of interest shall
immediately be deemed to be reduced to such maximum rate and
all previous payments of interest in excess of the maximum
rate shall be deemed to have been payments in reduction of
principal and not of interest.
9.9 Indemnification Concerning Fees. The Borrower
72
<PAGE>
agrees to indemnify, protect and defend the Lender, and save
the Lender harmless, from and against any and all claims,
demands, damages, losses, liabilities, obligations,
penalties, litigation, judgments, suits, actions,
proceedings, costs and expenses (including, without
limitation, counsel fees and expenses) of any kind or nature
whatsoever which may at any time be imposed upon, paid or
incurred by or asserted or awarded against the Lender
relating to, resulting from or arising out of any broker's
or finder's fee or commission which the Lender did not
directly contract to pay.
9.10 Waiver of Trial by Jury. Each of the Borrower and
the Lender agrees that any action, suit or proceeding
involving any claim, counterclaim or cross-claim arising out
of or in any way relating, directly or indirectly, to this
Agreement or any of the other Credit Documents, or any
liabilities, rights or interests of the Borrower, the Lender
or any other Person arising out of or in any way relating,
directly or indirectly, to any of the foregoing, shall be
tried by a court and not by a jury. Each of the Borrower
and the Lender hereby waives any right to trial by jury in
any such action, suit or proceeding, with the understanding
and agreement that this waiver constitutes a waiver of trial
by jury of all claims, counterclaims and cross-claims
against all parties to such actions, suits or proceedings,
including claims, counterclaims and cross-claims against
parties who are not parties to this Agreement or the other
Credit Documents. This waiver is knowingly, willingly and
voluntarily made by each of the parties hereto, and each of
the parties hereto acknowledges and agrees that this waiver
of trial by jury is a material aspect of the agreements
among them and that no representations of fact or opinion
have been made by any Person to induce this waiver of trial
by jury or to modify, limit or nullify its effect.
9.11 Additional Waivers. The Borrower hereby waives,
to the extent the same may be waived under applicable law:
(a) notice of acceptance of this Agreement or any of the
other Credit Documents by any other party hereto; and
(b) all claims and causes of action of the Borrower against
the Lender for punitive, exemplary, consequential, special
or other indirect or non-compensatory damages.
9.12 Successors and Assigns; Transfers of Interests.
(a) This Agreement shall be binding upon and inure to the
benefit
73
<PAGE>
of the Borrower, the Lender, all future holders of the Notes and their
respective successors and assigns, except that the Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the
prior written consent of the Lender.
(b) The Lender may at any time, in its
discretion, assign, transfer or pledge to any Person, or
grant to any Person a security interest in, this Agreement,
any of the other Credit Documents or any of its rights
hereunder or thereunder. In addition, the Lender may sell,
in such amounts, upon such terms and to such Persons as the
Lender may determine, participations in its interests under
this Agreement and/or any of the other Credit Documents. In
the case of each such assignment, transfer, pledge, grant or
sale (i) the Lender may from time to time provide to the
assignee, transferee, pledgee, secured party or participant,
any information and documents (or copies thereof) relating
to this Agreement and the other Credit Documents and related
transactions, and relating to the business, assets,
operations, business prospects or financial condition of the
Borrower, Subsidiaries of the Borrower and Other Obligors,
and (ii) subject to Requirements of Law, the Lender agrees
to continue to administer this Agreement and the other
Credit Documents subject to compensation of the Lender by
such assignees, transferees, pledgees, secured parties or
participants.
9.13 Counterparts. This Agreement may be executed by
one or more of the parties to this Agreement on any number
of separate counterparts and all of said counterparts taken
together shall be deemed to constitute one and the same
instrument.
9.14 Governing Law. This Agreement (other than the
provisions of Section 3), the Notes and the other Credit
Documents (other than the L/C Agreements), and the rights
and obligations of the parties hereunder and thereunder,
shall be governed by and construed and interpreted in
accordance with the internal laws of the State of Maryland,
exclusive of principles of conflicts of laws. The
provisions of Section 3 of this Agreement, and the rights
and obligations of the parties under Section 3 of this
Agreement, shall be governed by and construed and
interpreted in accordance with the internal laws of the
Commonwealth of Pennsylvania, exclusive of principles of
conflicts of laws.
9.15 Submission To Jurisdiction. The Borrower hereby
irrevocably and unconditionally:
74
<PAGE>
(a) submits for itself and its property in any
legal action or proceeding relating to this Agreement or any
of the other Credit Documents, or for recognition and
enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of any federal court in
the State of Maryland, the United States District Court for
the Eastern District of Virginia or the Circuit Court of
Montgomery County, Maryland;
(b) consents that any such action or proceeding
may be brought in such courts, and waives any objection that
it may now or hereafter have to the venue of any such action
or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees
not to plead or claim the same;
(c) agrees that service of process in any such
action or proceeding may be effected by mailing a copy
thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to the
Borrower at its address set forth in Subsection 9.3 or at
such other address of which the Lender shall have been
notified pursuant thereto; and
(d) agrees that nothing herein shall affect the
right to effect service of process in any other manner
permitted by law or shall limit the right to sue in any
other jurisdiction.
75
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed under seal and delivered by
their proper and duly authorized officers as of the day and
year first above written.
ATTEST/WITNESS: COMPUTER LEARNING CENTERS,
INC.
- ------------------------ By:------------------- (SEAL)
Name:
Title:
CORESTATES BANK, N.A.
- ------------------------ By:------------------- (SEAL)
Name: Keith A. Harding, Jr.
Title: Vice President
76
<PAGE>
Schedule I
to Credit Agreement
BORROWER BUSINESS PREMISES
11350 Random Hills Road 200 South Michigan Avenue
Suite 240 Chicago, IL 60604
Fairfax, VA 22030
312 Marshall Avenue 920 East Algonquin Road
Laurel, MD 20707 Schaumburg, IL 60173
6295 Edsall Road 1500 Eastgate Drive
Suite 210 Suite 200
Alexandria, VA 22312 Garland, TX 75041
8500 Leesburg Pike 3030 South Gessner
Suite 306 Suite 150
Vienna, VA 22182 Houston, TX 77063
222 South Harbour Boulevard 3600 Market Street
Anaheim, CA 92805 Philadelphia, PA 19104
3130 Wilshire Boulevard One Plymouth Meeting
Los Angeles, CA 90010 Suite 300
Plymouth Meeting, PA 19462
667 Mission Street 32500 Concord Drive
San Francisco, CA 94105 Madison Heights, MI 48071
111 North Market Street
Suite 105
San Jose, CA 95113
77
<PAGE>
Schedule 4.6
to Credit Agreement
LITIGATION
78
<PAGE>
Schedule 4.11
to Credit Agreement
ENVIRONMENTAL MATTERS
NONE
79
<PAGE>
Schedule 7.3
to Credit Agreement
PERMITTED LIENS
NONE
80
<PAGE>
________________ OF ________________, ________________,
____________, SS:
I HEREBY CERTIFY that on this _________ day of
______________, 1996, before me, the undersigned, a Notary
Public of said State, personally appeared
_______________________________, who acknowledged himself to
be the ______________________________ of Computer Learning
Centers, Inc., and that he, as such, being authorized so to
do, executed the foregoing instrument on behalf of the said
Computer Learning Centers, Inc., for the purposes therein
contained.
WITNESS my hand and Notarial Seal.
____________________
Notary Public
My Commission expires:
____________________
________________ OF ________________, ________________,
____________, SS:
I HEREBY CERTIFY that on this _________ day of
______________, 1996, before me, the undersigned, a Notary
Public of said State, personally appeared Keith A. Harding.
Jr., who acknowledged himself to be the Vice President of
CoreStates Bank, N.A., and that he, as such, being
authorized so to do, executed the foregoing instrument on
behalf of the said CoreStates Bank, N.A., for the purposes
therein contained.
WITNESS my hand and Notarial Seal.
____________________
Notary Public
My Commission expires:
81
<PAGE>
_____________________
82
<PAGE>
Computation of Earnings Per Share
January 31, 1997, 1996, and 1995
(dollar amounts in thousands, expect per share amounts)
See Notes 3 and 4 to Financial Statements
Exhibit 11.1
<TABLE>
<CAPTION>
1996 1995
1996 Supplemental 1995 Supplemental
1997* Pro forma(1)* Pro forma(1)* Pro forma(1)* Pro forma(1)*
------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Income from continuing operations $5,601 $2,919 $3,069 $1,187 $1,612
------ ------
------ ------
Income (loss) from discontinued
operations -- (1,065) $1,901
------ ------ ------
Net income $5,601 $1,854 $3,088
------ ------ ------
------ ------ ------
Weighted average number
of common shares
outstanding: 6,859,456 2,633,546 2,633,546 2,739,308 2,739,308
Preferred shares converted
to common stock -- 2,372,976 2,372,976 24,949 24,949
Common stock equivalents:
Employee stock options 402,501 348,573 348,573 405,074 405,074
Nonqualified stock options 66,134 11,248 11,248 11,199 11,199
Director shares 14,578 2,430 2,430 -- --
Subscription note receivable 40,448 -- -- -- --
Number of shares to be
sold to retire the following (2):
Bank debt of $5,500 -- -- 438,698 -- 1,237,388
Convertible subordinated debt
of $4,000 -- -- 319,053 -- 899,917
Subordinated notes to
certain preferred
stockholders of $4,111 -- 327,939 327,939 924,981 924,981
------ ------- ------- ------- --------
Weighted average number of common
shares outstanding 7,383,117 5,696,712 6,454,463 4,105,511 6,242,816
--------- --------- --------- --------- ----------
Income per share from
continuing operations $0.76 $0.51 $0.48 $0.29 $0.26
------ -----
------ -----
(Loss) income per share
from discontinued
operations $ -- ($0.19) $0.46
----- ----- -----
Net income per share $ 0.76 $0.32 $0.75
----- ----- -----
----- ----- -----
</TABLE>
(*) Share amounts and earnings per share restated to reflect the April 1997
three for two stock split.
(1) After giving pro forma effect for the conversion of Class D Convertible
Preferred Stock, Class B Convertible Preferred Stock and Class A
Convertible Preferred into Common Stock at 1:.408, 1:.369 and 1:.314,
respectively, and the subsequent reverse stock split).
(2) Based upon the initial public offering price of $8.00 per share ($5.33 per
share as restated for stock split).
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 of our report dated March 14, 1997, except for Note 2,
which is as of March 24, 1997 appearing on page F-2 of Computer Learning
Centers, Inc.'s Annual Report on Form 10-K for the year January 31, 1997.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
New York, New York
April 30, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Operations and the Consolidated Balance Sheet and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 26,950
<SECURITIES> 159
<RECEIVABLES> 30,008
<ALLOWANCES> 1,734
<INVENTORY> 576
<CURRENT-ASSETS> 58,805
<PP&E> 17,976
<DEPRECIATION> 8,405
<TOTAL-ASSETS> 75,727
<CURRENT-LIABILITIES> 33,811
<BONDS> 0
0
0
<COMMON> 78
<OTHER-SE> 39,714
<TOTAL-LIABILITY-AND-EQUITY> 75,727
<SALES> 0
<TOTAL-REVENUES> 64,025
<CGS> 0
<TOTAL-COSTS> 55,912
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,084
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 9,166
<INCOME-TAX> 3,565
<INCOME-CONTINUING> 5,601
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,601
<EPS-PRIMARY> 0.76
<EPS-DILUTED> 0
</TABLE>
