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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, 2000
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
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COMPUTER LEARNING CENTERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 36-3501869
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION IDENTIFICATION
OR ORGANIZATION) NUMBER)
10021 BALLS FORD ROAD,
SUITE 200,
MANASSAS, VIRGINIA 20109
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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(703) 367-7000
(TELEPHONE NUMBER, INCLUDING AREA CODE)
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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
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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 non-affiliates of the
Registrant based on the last sale price for such stock at May 11, 2000:
$16,284,466
Number of shares of Common Stock, $0.01 par value, outstanding at May 11,
2000.
18,610,818
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III is incorporated by reference to the
Company's definitive Proxy Statement for its 2000 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.
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COMPUTER LEARNING CENTERS, INC.
FORM 10-K
INDEX
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PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 20
Item 3. Legal Proceedings........................................... 21
Item 4. Submission of Matters to a Vote of Security Holders......... 22
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 23
Item 6. Selected Consolidated Financial Data........................ 24
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 25
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 35
Item 8. Consolidated 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-2
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. I-2
Item 13. Certain Relationships and Related Transactions.............. I-2
PART IV
Item 14. Exhibits, Consolidated Financial Statement Schedules, and
Reports on Form 8-K......................................... I-2
Signatures............................................................. S-1
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This Annual Report on Form 10-K contains forward-looking statements.
Additional written or oral forward-looking statements may be made by us 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, the effect of inflation, government
regulation and plans relating to programs of CLC, as well as assumptions
relating to the foregoing. We make 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 consolidated 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
"Certain Factors That May Affect Future Results" in this Annual Report on Form
10-K for the year ended January 31, 2000.
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PART I
ITEM 1. BUSINESS
You should keep in mind the following points as you read this report:
- References in this document to "we," "us," "our" and "CLC" refer to
Computer Learning Centers, Inc. and its subsidiaries.
- The term "Learning Center" refers to an individual school owned and
operated by CLC. The terms "institution" (in singular or plural form)
refer to a main campus or school and its additional locations or branch
campuses, if any.
- References in this document to "fiscal 2001," "fiscal 2000," "fiscal
1999" and fiscal 1998 refer to the years ended January 31, 2001, 2000,
1999 and 1998, respectively.
- References in this document to the "Department of Education" or
"Department" refer to the U.S. Department of Education.
OVERVIEW
We provide information technology and computer-related education and
training. We design 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
our accredited career programs, we offer associate degrees and non-degree
diplomas in six primary areas of study to adults seeking entry-level jobs in
information technology including: business applications; electronics, systems
and hardware; programming; networking; information technology support; and
business applications with networking.
We enrolled approximately 12,700 new students in fiscal 2000 at our
twenty-eight Learning Centers in the United States and Canada. We opened one new
Learning Center during the second quarter of fiscal 2000 in Norcross, GA. We
intend to close our San Jose, CA Learning Center by August 2001. CLC's Canadian
Learning Centers consist of three campuses located in and around Montreal,
Quebec, and collectively operate under the name of Delta College, Inc. ("CLC
Delta").
CLC was incorporated in Delaware in March 1987. Effective March 2000, our
executive offices are located at 10021 Balls Ford Road, Manassas, Virginia 20109
(see Note 3 to Item 2). Our telephone number is 703-367-7000.
THE INFORMATION TECHNOLOGY EDUCATION AND TRAINING MARKET
We believe that 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. We believe 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 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.
- According to the U.S. Department of Education, the number of students
graduating from high school is expected to increase by approximately 1.5%
annually from 1999 to 2008. 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
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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 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. There
has been an increasing number of training providers of all types utilizing
internet based delivery systems; however, we have chosen to utilize strictly
traditional methods of classroom instruction.
THE CLC APPROACH
We have designed a series of programs that we believe are well-suited to
meet the information technology education and training needs of adults pursuing
information technology-related careers. Our 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 our students to complete their education and training
and enter the work force in as little as 8 to 17 months, while maintaining
eligibility for financial aid programs. CLC's program schedules are designed to
accommodate our students' needs 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 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. Finally, we provide our students with job placement
assistance, including assistance with resume writing, interview preparation and
employment searches for recent graduates and alumni.
BUSINESS STRATEGY
Our objective is to strengthen and expand CLC's position as one of the
leading providers of information technology education and training programs for
adults. To achieve this objective, we intend to employ the following key
strategies:
Increase Operating Margins and Improve our Financial Strength. We have
invested heavily in our infrastructure and expended considerable working capital
to open new Learning Centers and upgrade existing locations over the last three
fiscal years. We now will work to optimize our Learning Centers' capacity by
seeking to increase our enrollments. We do not expect to open any new Learning
Centers in fiscal 2001 thereby using our cash from operations to reduce our debt
and add to our working capital in order to improve CLC's financial strength. In
fiscal 2001 we began employing benchmarking techniques to improve the
operational efficiency of all of our Learning Centers.
Develop New Programs/Enhance Existing Programs. We intend 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. We are currently implementing programs
or program enhancements in Windows 2000, information technology support, and
Internet related technologies. We maintain relationships with a wide network of
employers who provide CLC with data on trends related to computer and
information technology skills.
Improve Student Outcomes. We seek to continuously improve the retention
and placement rates at our Learning Centers by providing extensive academic
services and placement assistance. CLC offers tutoring, academic counseling and
other services to its students to help them complete their programs of study. In
addition, CLC helps students prepare resumes, conduct employment searches and
sharpen interviewing skills through our Graduate Placement Services Resource
Center.
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Increase Enrollment and Availability of Associate Degree Programs. We
currently offer associate degree programs at nine Learning Centers. We intend to
increase the number of our Learning Centers that offer degree-granting programs
in order to broaden available programs and increase student enrollments. In
addition, we intend to focus our recruiting efforts with a goal of enrolling
more of our students in associate degree curricula.
CAREER PROGRAMS
Our Learning Centers offer comprehensive career programs of study in six
areas of information technology including: business applications; electronics,
systems and hardware; programming; networking; information technology support;
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. CLC 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 day and afternoon students to 21 months for evening students. Nine
Learning Centers offer associate degree programs in computer electronics,
information technology and network support; computer systems and networking
technology; client/server; computer applications and network administration; and
computer programming. These associate degree programs combine the curricula from
a diploma program with state-mandated general education requirements and
additional advanced material to create 17-month (day and afternoon) programs.
Career programs are delivered year-round in a modular format that provides
for monthly start dates and allows students to complete their education in less
time than we believe is possible at many other institutions. Each program
consists of 8 to 17 modules, with each module lasting approximately one month
for day and afternoon students and consisting of a single course with an
intensive and focused format. Day and afternoon students typically attend
classes for approximately five hours per day, five days per week, with sessions
available three evenings per week for evening 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
appropriate textbooks together with visual aids and lab activities to achieve a
specific set of student performance outcomes and proficiencies. To foster a
professional work environment, we require that students attend classes in
business attire. We design and update 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, we regularly evaluate our curricula and eliminate those
elements relating to technologies that have become obsolete or offer
significantly fewer or less attractive job opportunities for our 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 and networking programs 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. Our 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
Microsoft Certified Systems Engineers and to obtain employment as network
administrators, engineers and systems analysts. Graduates of the information
technology support program have obtained employment as computer support
specialists, help desk operators, and user support analysts.
Tuition is fixed at the time of a student's initial enrollment, and varies
among Learning Centers based on local market conditions. At January 31, 2000,
tuition ranges were from $9,695 to $16,500 for diploma programs and from $17,250
to $23,874 for associate degree programs.
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CURRICULUM CRITERIA, REVIEW AND DEVELOPMENT
We have established specific criteria for CLC programs. Each career program
is designed to prepare students for information technology-related entry-level
jobs. Career programs are designed to engage adult students by employing
hands-on teaching methods; train students in computer technology widely used in
the work place; respond to market requirements and train students to satisfy
those requirements; and optimize use of CLC's resources.
We use several means to ensure that our programs meet these criteria. We
regularly solicit input directly from employers through a system of Employer
Advisory Groups in each of our 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 us monitor
faculty, course and school effectiveness and to gather student input.
Historically, student surveys have identified opportunities for improvement,
which have been implemented where appropriate, and have provided a means of
setting quantitative benchmarks. We maintain an 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 CLC's strategic direction and to
make recommendations regarding our curricula. Curriculum recommendations are
referred to faculty subject matter experts and academic managers for review
prior to formal development by curriculum product managers.
STUDENT CHARACTERISTICS
Our programs are targeted at adults seeking to expand their career
opportunities through the acquisition of technical skills and knowledge. At
January 31, 2000, 49% of CLC's students (excluding CLC Delta) were college
graduates or had some college experience, including 8% who had four-year college
degrees or higher levels of educational attainment and 7% who had two-year
degrees. At that time, 29% of CLC's students (excluding CLC Delta) were between
18 and 22 years of age, 50% were between 23 and 34, and 21% were over 35.
Approximately 64% of the student population of U.S. Learning Centers was male
and 36% was female.
STUDENT RECRUITMENT
We utilize a broad range of means 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, the majority of our advertising is directed at
local markets where Learning Centers are located. We monitor the effectiveness
of our various marketing efforts by measuring the number of resulting student
enrollments. We estimate that for our U.S. Learning Centers for fiscal 2000, 36%
of our new enrollments resulted from referrals by current students and
graduates, 27% of our new enrollments resulted from television advertising,
newspaper advertising accounted for 11%, yellow pages listings accounted for 7%
and the remaining 19% were classified as resulting from miscellaneous sources
and other media including the internet.
The television advertising for each Learning Center is developed and
coordinated by CLC's senior management. All advertising includes a toll-free
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.
STUDENT ADMISSIONS AND RETENTION
CLC 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 an independently developed
aptitude
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examination. We believe 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 a director of admissions who oversees a staff
of admissions representatives. Admissions policies and procedures, along with
marketing materials, are established centrally and are monitored both 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, arranging for the testing of the candidate to determine his
or her aptitude for different programs and counseling qualified candidates about
available career paths. Our regulatory compliance department reviews the
admissions processes and practices of the admissions representatives to monitor
compliance with CLC's policies and applicable state, federal and accrediting
agency requirements.
Once a student enrolls, we focus 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.
Student withdrawals prior to program completion have negative financial and
marketing effects on an educational institution. To minimize withdrawals, each
Learning Center employs a student services manager who is available to advise
students encountering problems that interfere with their education. To help
students overcome financial obstacles, we assist students in finding part-time
employment when their resources in combination with available financial aid are
not adequate to meet their financial needs. Each Learning Centers' performance
is measured in part by their ability to ensure that students successfully
complete their programs of study. Our programs 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. The weighted average Learning Center retention rates, as calculated
under standards of the Accrediting Council for Independent Colleges and Schools
("ACICS"), the accrediting agency that accredits the U.S. Learning Centers, were
77% and 76%, respectively, for the twelve-month periods ended June 30, 1999 and
1998.
GRADUATE PLACEMENT SERVICES
The Graduate Placement Services Resource Center (the "Placement Center") is
a vital component of each Learning Center's programs. The Placement Center
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.
Utilizing ACICS standards, for the twelve-month periods ended June 30, 1999
and 1998, approximately 76% and 79%, respectively, of our net placeable
graduates obtained employment in a field related to their program of study. Net
placeable graduates excludes graduates who were not seeking employment due to
health-related situations or continued education or who entered military
service. Students who graduated during the twelve-month period beginning July 1
and ending June 30 and obtained employment in a field related to their program
of study prior to the required filing date of September 15 of each respective
year are counted as graduates placed.
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Based on information from students and employers who have responded to
inquiries, we estimate the average annual starting salaries for students who
obtained employment in fields related to their education during the twelve-month
period ended June 30, 1999 were as follows:
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ESTIMATED
LEARNING CENTER AVERAGE ANNUAL
PROGRAM GRADUATES PLACED STARTING SALARY
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Business Applications (Associate Degree and Diploma)........ 1,536 $23,138
Programming (Associate Degree and Diploma).................. 792 $30,081
Networking (Diploma)........................................ 1,099 $33,303
Electronics, Systems and Hardware (Associate Degree and
Diploma).................................................. 927 $26,301
Information Technology & Support Professional (Diploma)..... 730 $23,893
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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 technology-oriented companies as well
as major corporations and agencies and their affiliates, including Bell Atlantic
Corp., CompUSA, Inc., UUNet, Network Solutions, Media One, Aetna U.S. Healthcare
and Shared Medical Systems.
FACULTY
We employ both full-time and part-time faculty who are hired in accordance
with criteria established by CLC, 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 continuously improve instruction and curricula. Faculty members
participate in educational associations, professional organizations and
continuing education in their respective fields.
After completing each module of instruction, students evaluate their
instructors using a confidential survey prepared, distributed and processed by
an independent third-party firm. The survey asks students to rate the faculty in
such areas as teaching effectiveness, substantive knowledge, fairness and
quality of delivery as well as course content.
ADMINISTRATION AND EMPLOYEES
Each Learning Center is managed by a local administrative team headed by a
school director who is accountable for the maintenance of educational quality
and placement success of the Learning Center, regulatory compliance and
profitability. Within the framework of federal and state regulations as well as
the framework of CLC's own policies, we encourage Learning Center school
directors to act autonomously in responding to local market conditions. Each
school director reports to a regional manager who oversees the activities of
several Learning Centers grouped by geographic region. Learning Center school
directors work closely with the regional managers to implement marketing plans
and curricula, expand capacity and maintain facilities. Regional managers report
directly to CLC's Vice President of Operations, who in turn reports directly to
the President.
Each Learning Center's administrative team also includes a director of
education, a director of admissions, a director of student financial services, a
business office director, and a director of placement. As of January 31, 2000,
CLC employed approximately 1,283 full-time and 594 part-time employees. In
addition, we employed 251 CLC students under the Federal Work-Study Program.
None of our employees are represented by a labor union or are subject to a
collective bargaining agreement. CLC has never experienced a work stoppage and
we believe that our employee relations are satisfactory.
As of January 31, 2000, CLC employed 76 people at our corporate
headquarters in Fairfax, Virginia. CLC's corporate headquarters moved from
Fairfax, VA to a facility adjacent to the new Manassas, VA school location in
March 2000. CLC's corporate headquarters provides centralized services to all of
the Learning
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Centers in the areas of accounting, marketing, public relations, curriculum
development, purchasing, human resources, regulatory affairs and real estate. In
addition, headquarters personnel develop policies and procedures and perform
oversight for the Learning Centers in the areas of admissions, education, career
services and administrative support.
As of January 31, 2000, CLC employed 16 people at our student receivables
division in Plymouth Meeting, Pennsylvania. The student receivables division
provides centralized services to all of the Learning Centers related to the
collection of student loans financed directly by CLC for those students who
graduated or otherwise withdrew.
COMPETITION
The postsecondary adult education and training market is highly fragmented,
with no single institution or company holding a dominant market share. We
compete 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.
We believe that the Learning Centers' fast paced and intensely focused
programs in information technology education and training help us attract
students. Students may choose CLC over its competitors because of our 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 we offer. In addition, flexible
morning, afternoon and evening courses allow students to maintain their current
jobs while attending our programs.
FINANCIAL AID AND REGULATION
FINANCING STUDENT EDUCATION
Approximately 64% of the fiscal 2000 tuition revenues of our U.S. based
schools were funded either directly or indirectly from the federal student
financial aid programs under Title IV (referred to herein as "Title IV Programs"
or "Title IV") of the Higher Education Act of 1965, as amended (referred to
herein as "Higher Education Act"). The majority of our U.S. Learning Center
students receive some form of Title IV Program funding.
The Title IV Programs provide financial assistance to students who are
enrolled at an eligible postsecondary institution. The Title IV Programs consist
of grants, subsidies for part-time work and several different types of loans. To
determine financial need and eligibility for need-based Title IV Program aid, we
use the national standard need analysis system established by the Higher
Education Act. The Higher Education Act also requires that all students who
receive financial aid maintain satisfactory academic progress toward completion
of their educational program. A student who does not meet the prescribed
academic standards will, after a probationary period, be denied further federal
aid.
In addition to the Title IV Programs, CLC offers loans to certain students
that meet our criteria of creditworthiness. During the first quarter of fiscal
2000, we established a relationship with SLM Financial Corporation ("SLM"), a
subsidiary of the SLM Holding Corp. or "Sallie Mae," whereby SLM provides
student loans with terms generally more favorable than CLC's loan program to
students meeting SLM's standards of creditworthiness. As of January 31, 2000,
the SLM loan program is available to students at all of our U.S. Learning
Centers. In addition to CLC's and SLM's student loan programs, CLC participates
in several state administered financial aid programs in certain states in which
we operate.
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Title IV Programs
CLC students receive funding under the following Title IV Programs:
- the Federal Family Education Loan ("FFEL") program, which includes the
subsidized and unsubsidized Federal Stafford loans and PLUS (parental)
loans. Tuition funded by FFEL loans accounted for approximately 29% of
our U.S. revenues in fiscal 2000;
- the William D. Ford Federal Direct Loan ("FDL") program, which includes
subsidized and unsubsidized Federal Direct Stafford loans and Federal
Direct PLUS loans. Tuition funded by FDL loans accounted for
approximately 22% of our U.S. revenues in fiscal 2000;
- the Federal Pell Grant ("Pell") program. Tuition funded by Pell grants
accounted for approximately 11% of our U.S. revenues in fiscal 2000;
- the Federal Supplemental Educational Opportunity Grant ("FSEOG") program.
Tuition funded by FSEOG grants accounted for approximately 1% of our U.S.
revenues in fiscal 2000;
- the Federal Perkins Loan ("Perkins") program. Tuition funded by Perkins
loans accounted for approximately 1% of our U.S. revenues in fiscal 2000;
and
- the Federal Work-Study ("FWS") program, which makes available federal
funds to help subsidize the cost of part-time employment for needy
students. In fiscal 2000, the Learning Centers employed approximately 560
FWS students, who received a total of approximately $697,000.
CLC matches every three dollars of FSEOG, Perkins and FWS federal funds
with one dollar of our own funds. In fiscal 2000, CLC's matching contribution
was $465,000 for FSEOG, $239,000 for Perkins loans and $174,000 for the FWS
program.
Availability of Lenders and Guarantors
The FFEL program provides government guaranteed loans through banks and
other private lenders. Although the number of lenders willing to make federally
guaranteed student loans has declined in recent years, this decline has not
affected the ability of Learning Center students to obtain federally guaranteed
loans. As of January 31, 2000, CLC students use approximately twenty private
lenders, one of which currently provides approximately 39% of the FFEL loans
provided to our students. We believe that other lenders, including the
Department of Education through participation in the FDL program, would be
willing to make federally guaranteed loans to our students if any or all of
CLC's current lenders ceased participating in the FFEL program or decided not to
make loans available to our students. Even if no private lenders were available
to provide loans to our students, the Higher Education Act provides for a
"lender of last resort" to make such loans. However, lenders of last resort are
not required to provide PLUS loans. Tuition derived from PLUS loans accounted
for approximately 7% of our revenues in fiscal 2000.
FFEL loans made by private lenders are guaranteed by student loan guaranty
agencies. As of January 31, 2000, FFEL loans to Learning Center students are
guaranteed by 9 guaranty agencies, and one student loan guaranty agency
currently guarantees nearly 22% of such loans. We believe that other guaranty
agencies would be willing to guaranty loans to CLC students if any of our
existing guaranty agencies ceased guaranteeing such loans or limited the volume
of loans it would guarantee. As of January 31, 2000, each our U.S. Learning
Centers participating in the FFEL program had at least one guaranty agency. All
states have a designated guaranty agency that we believe would guarantee most
FFEL loans made to Learning Center students in that state. Based on the
safeguards built into the FFEL program, we do not believe that any reduction in
the number of agencies currently guaranteeing FFEL loans made to Learning Center
students would have a material adverse effect on CLC.
U.S. DEPARTMENT OF EDUCATION -- REGULATION AND REVIEW
To provide students with access to financial aid provided through the Title
IV Programs, each Learning Center must meet specific legal standards. These
standards are prescribed by the Higher Education Act and
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regulations issued by the Department of Education. To be eligible to participate
in the Title IV Programs, each Learning Center must:
- be authorized by the state within which it operates to offer its
educational programs;
- be accredited by an accrediting agency recognized by the Secretary of
Education as a reliable authority as to the quality of the institution's
educational programs; and
- enter into a Program Participation Agreement with the Department of
Education.
Generally, each Learning Center must individually comply with applicable
regulatory standards with respect to the administration of Title IV funds on
behalf of its students. During fiscal 2000, twenty-three of the twenty-five U.S.
Learning Centers participated in the Title IV Programs. Of these twenty-three
U.S. Learning Centers, as of January 31, 2000, nine are considered to be main
campuses and fourteen are additional locations of a main campus. Each year every
institution that participates in the Title IV Programs must submit to the
Department of Education audited financial statements as well as the results of
an audit by an independent accounting firm of that institution's compliance with
Title IV Program requirements. Approximately every four years institutions
participating in the Title IV Programs are reviewed for continued participation
in the Title IV Programs. The Department of Education annually conducts its own
compliance reviews of hundreds of institutions, and the Department's Inspector
General, state education agencies and guaranty agencies conduct other reviews of
Title IV Program compliance. The Higher Education Act also requires accrediting
agencies to consider an institution's compliance with Title IV Program
requirements in making accrediting decisions. Each of the U.S. Learning Centers
is therefore subject to frequent and detailed oversight and must comply with a
complex framework of laws and regulations. The violation of regulatory standards
governing the Title IV Programs by us or any Learning Center could be the basis
for the Department of Education to initiate a proceeding to take one or more of
the following actions: (a) seek repayment of previously disbursed Title IV
Program funds, (b) seek repayment of interest or special allowance subsidies the
Department paid to lenders with respect to student loans, (c) impose a fine, or
(d) limit, suspend or terminate the participation of CLC or the particular
Learning Center in the Title IV Programs. The Department also may take emergency
action to suspend temporarily an institution's participation in the Title IV
Programs without advance notice if it determines that a regulatory violation
creates an imminent risk of material loss of public funds.
The Department also has discretion to alter the way it provides Title IV
Program funds to participating institutions. It may transfer an institution from
the "advance" system of funding, under which an institution receives funding
from the Department 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 Program funds before receiving funds
from the Department. The Department may also impose a requirement known as
"heightened cash monitoring," of which there are multiple levels, which requires
additional reporting to and review by the Department of all Title IV funds
requests.
In addition, if as a result of a compliance review, a Learning Center were
required to repay more than 5% of the Title IV funds the Learning Center
received during the year under review, the Learning Center could be required to
post a letter of credit equal to not less than 10% of the Title IV Program funds
received by the Learning Center during its most recent fiscal year and take
additional steps, including receipt of its Title IV Program funds on the
reimbursement basis, to establish its financial responsibility to maintain its
participation in the Title IV Programs.
On April 6, 1998, the Department placed all our U.S. Learning Centers on
heightened cash monitoring status I ("HCM1"), based on the Department's
monitoring of litigation then pending against us (refer to Item 3, "Legal
Proceedings") and certain student complaints lodged against us or individual
Learning Centers. Under HCM1, our Learning Centers have continued to receive all
of the Title IV Program funds to which our students are entitled, but the funds
are drawn after they have been credited to student accounts and we are required
subsequently to provide supporting documentation to the Department. The
Department does not consider HCM1 to represent either an adverse or punitive
action. This action by the Department has not had any effect on the availability
of Title IV funding to our students, or has it had a material effect on our cash
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flow or operating results. This requirement has led to delays (estimated by us
as generally two to three days) in the timing of our cash receipts, but has not
impaired our business operations.
In May 1998, the Department of Education initiated a program review of the
administration of the Title IV Programs by our Alexandria, VA and Manassas, VA
Learning Centers for the period July 1, 1996 through June 30, 1998. In September
1998, the Department issued a preliminary report containing a number of findings
alleging non-compliance with certain Title IV Program requirements. We have
performed file reviews at these schools and provided additional materials
requested by the Department. In order to conclude this review, the Department
has requested that we perform an additional file review of returns of federal
funds during the review period. The Department has expanded its review of that
issue to include our San Jose, Philadelphia and Houston Learning Centers. We
continue to work with the Department in an effort to conclude this matter. We do
not believe the resolution of this program review will have a material adverse
effect on our operations.
The Department reviewed the results of our independent audit on
administration of our Title IV Programs for the year ended January 31, 1998 and
issued a preliminary audit determination report in December 1998. The
Department's report alleged that we failed to make certain student refunds at
our Learning Centers operating during fiscal 1998 within the timeframes
established by the Department. The Department required us to perform more
expansive reviews of student account files at five Learning Centers, which were
deemed to have findings of non-compliance in excess of rates acceptable to the
Department. By letter dated September 28, 1999, the Department of Education
issued its final audit determination letter ("FADL") related to this matter. In
the FADL, the Department assessed repayment liabilities of immaterial amounts.
In addition, the Department deferred resolution of any matters related to the
Alexandria, VA and Laurel, MD Learning Centers to the open program reviews
conducted by the Department related to those locations. Although the deferred
issues remain open as part of the Alexandria, VA and Laurel, MD Learning Center
program reviews, the Department's review of the fiscal 1998 compliance audit is
considered closed.
In January 1999, the Department of Education initiated a program review of
the administration of the Title IV Programs by our Laurel, MD Learning Center
for the period July 1, 1997 through June 30, 1999. The Department issued a
preliminary report in February 2000, which contained a number of findings
alleging non-compliance with certain Title IV Program requirements similar to
those found in the Alexandria and Manassas program reviews discussed above. We
have submitted our initial response to the Department concerning all of the
findings in March and April 2000. We continue to work with the Department in an
effort to conclude this matter. We do not believe the resolution of this program
review will have a material adverse effect on our operations.
In July 1999, we submitted the results of our independent audit of our
administration of the Title IV Programs for the year ended January 31, 1999 to
the Department. The audit identified certain findings of non-compliance with
respect to our administration of the Title IV Programs. The audit identified
eight Learning Centers with late refund frequency rates in excess of 5% for the
students sampled in the audit. In April and May of 1999, we introduced new
procedures in all of our Learning Centers to ensure that student refunds are
processed on a timely basis. Our submission to the Department incorporated a
supplemental report prepared by the same independent auditors, which found that
in the eight Learning Centers referred to above, there were no late refunds
during approximately a 45-day period beginning in May 1999.
On December 10, 1999, we received a subpoena from the Office of Inspector
General of the Department of Education for the production of various documents
and materials related to the compensation of our admissions representatives and
the calculation of our student loan cohort default rates. The Office of
Inspector General also served subpoenas on the accounting firm that had audited
our financial statements and the accounting firm that had performed our Title IV
Programs compliance audits, for copies of certain of their audits, workpapers
and other materials prepared in the course of their work on our behalf. In
discussion with the responsible attorney at the U.S. Department of Justice in
December 1999 regarding the subpoena, our attorney determined that the subpoena
was issued with respect to a qui tam lawsuit filed against us in Federal
District Court in Texas alleging that our compensation of certain employees was
not in compliance with
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provisions of Title IV of the Higher Education Act. We have submitted all the
documents requested by the Department. We believe that our compensation plans
are in compliance with the Higher Education Act.
On March 8, 2000, the Department notified us that it was placing all of our
Learning Centers on heightened cash monitoring status II ("HCM2"). HCM2 does not
affect the ability of Learning Centers to obligate Title IV Program funds or the
ability of their students to receive all applicable forms of Title IV Program
aid. However, under HCM2, Learning Centers are required to document to the
Department each student's eligibility for Title IV funding before being
reimbursed by the Department for funds which they must advance to their eligible
students. Under HCM2, the affected Learning Centers submit to the Department
information supporting Title IV awards and disbursements every thirty days. The
Department then selects a sample of those awards for which we are required to
submit extensive documentation proving student eligibility. Those documents are
reviewed by the Department, a process that customarily requires a minimum of
thirty days. Management expects that this action will have a material impact on
the timing of the cash flows of the affected Learning Centers, such that the
funds would be delayed for approximately 75 days.
The Department stated that this action was based on information obtained
during its program reviews, which indicated that we had failed to make refunds
for some students and had failed to make refunds on a timely basis for other
students. We vigorously disputed the Department's basis for this action and
explained the significant adverse financial effects such action would have. On
March 14, 2000, we reached an agreement with the Department resulting in a
modification of the terms of its March 8 action. The key terms of the agreement
are that only our Alexandria, VA and Laurel, MD Learning Centers would be placed
on HCM2, that our remaining Learning Centers would continue on HCM1 with the
condition that we submit additional reports and documentation regarding their
future Title IV funds requests, and that we must engage an independent
accountant to attest to the compliance with the Title IV regulations of refunds
and returns of funds at all of our Title IV eligible Learning Centers (the
"Special Attestation").
The Special Attestation required by the Department as part of the March 14,
2000 agreement relates to the review of the payment of refunds and other returns
of federal funds by all of our Title IV eligible Learning Centers for the
seven-month period ended January 31, 2000. The results of the Special
Attestation must be submitted to the Department by June 1, 2000.
As part of the March 14, 2000 agreement, the Department agreed it "will
re-evaluate CLC's funding methods upon the receipt and review of the Special
Attestation, and upon review of CLC's overall compliance with Title IV statutory
and regulatory requirements." We believe should the Special Attestation
substantiate compliance with Title IV requirements acceptable to the Department
and with our continued compliance with Title IV Program requirements, the
Department may return some or all of our Learning Centers to the "advance"
system of payment. However, should the Special Attestation demonstrate
noncompliance with Title IV Program requirements in excess of rates tolerable by
the Department, the Department may take additional actions against us, including
the possibility of placing additional Learning Centers on HCM2. If any further
adverse actions are initiated by the Department, including a change in status
from HCM1 to HCM2 for any of our Learning Centers, CLC could be materially and
adversely affected.
Reauthorization of the Higher Education Act, as amended
In October 1998, the U.S. Congress enacted legislation reauthorizing and
extending the Higher Education Act until September 30, 2004. In general, the
material Title IV Program provisions and requirements remain in the same form
and the Title IV Programs were authorized at the same or higher levels. However,
the new law did make certain potentially significant changes in the Title IV
Programs. Chief among these are:
- a change in the requirements for determining the amount of Title IV
Program funds that must be refunded when a student withdraws from our
Learning Centers;
- an increase in the adverse effect of high student loan default rates on
schools;
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- an increase, from 85% to 90%, in the amount of revenues an institution
may derive from the Title IV Programs; and
- the streamlining of the process for recertifying an institution's
participation in the Title IV Programs following a change of ownership or
control so that the Department of Education may allow an institution to
continue uninterrupted participation in the Title IV Programs in certain
circumstances.
Although Congress has consistently reauthorized the Higher Education Act,
and there is no present indication that Congress will fail to make annual
appropriations to properly fund the Title IV Programs, there can be no assurance
that government funding for the Title IV Programs will be maintained at current
levels or that the current requirements for student and institutional
participation in such programs will not change in ways that might be unfavorable
to CLC.
Student Loan Defaults
Under the Higher Education Act, an educational institution may lose its
eligibility to participate in some or all Title IV Programs if more than a
certain proportion of its former students default on the repayment of their
federal student loans. Each year the Department of Education calculates a rate
of student defaults (known as the "cohort default rate") for each institution
whose students participate in the FFEL or FDL loan programs. If an institution's
cohort default rate is at least 25% for three consecutive years, the school
loses its eligibility to participate in the FFEL and FDL programs as well as the
Pell program for the remainder of the year in which the Department makes that
determination and the subsequent two years. An institution whose cohort default
rate exceeds 40% for one year may lose its eligibility to participate in all of
the Title IV Programs. An institution has the right to appeal the Department of
Education's calculation of its cohort default rates. An institution would remain
eligible to participate in FFEL, FDL and Pell programs while its appeal is being
considered.
The official FY 1997 cohort default rates published in October 1999 for our
nine U.S. Learning Centers that are institutions as defined by the Department,
and which were then participating in the FFEL or FDL programs, averaged 15.5%
and ranged from a low of 3.3% to a high of 20.4% for that period. The average
rate for all proprietary institutions in the United States offering programs of
studies less than two years in length for the same period was 18.2%. All of the
Learning Centers have well-established default management programs consisting of
student counseling and post-enrollment contacts to minimize the risk of
excessive loan defaults.
If an institution has an FFEL or FDL cohort default rate of 25% or more in
any one of the three most recent years or a default rate on Perkins loans of
more than 15% in a year, the Department of Education can place the school on
"provisional certification" for up to four years. Provisional certification
allows an institution to continue to participate in the Title IV Programs
subject to conditions imposed by the Department. However, if the school violates
a Department requirement, it can lose its eligibility with less procedural
protection than is afforded a standard certified institution. Four of our U.S.
Learning Centers are provisionally certified through dates extending to July
2000 through September 2001 due either to their cohort default rates or the
change of control following our acquisition of those Learning Centers. We expect
to apply for recertification as the provisional certifications expire.
We administer the Perkins loan program on a combined basis for seven of our
nine U.S. institutions, and these seven combined institutions share one Perkins
loan default rate. For the remaining two U.S. institutions, the Perkins loan
program is administered individually for one and the other institution does not
participate. For the year ending June 30, 1999, the most recent year for which
such rates have been calculated, we had a default rate for Perkins loans of
24.8% for the seven institutions combined and 0.0% for the remaining
institution. Tuition funded by the Perkins program accounted for approximately
1% of our revenues in fiscal 2000.
Financial Responsibility
The Higher Education Act and the Department of Education regulations
require institutions participating in the Title IV Programs to demonstrate that
they have sufficient resources to properly administer Title IV
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funds on behalf of their students and provide appropriate educational services
to their students. The regulations allow the Department to evaluate an
institution based on its own financial condition or that of the consolidated
corporation. Historically, the Department has evaluated the financial condition
of the Learning Centers on a consolidated basis.
The Department evaluates an institution's financial responsibility based on
three ratios: an equity ratio, a primary reserve ratio and a net income ratio:
- the equity ratio measures an institution's capital resources, ability to
borrow and financial viability;
- the primary reserve ratio measures an institution's ability to support
current operations from expendable resources; and
- the net income ratio measures the ability of an institution to operate at
a profit.
The ratios are calculated each year based on an institution's annual
audited financial statements. The results of each ratio are assigned a strength
factor and then combined under a weighted formula to arrive at a composite score
for the institution ranging from minus one to three, the latter being the
highest possible score. An institution that achieves a composite score of at
least 1.5 is considered to be financially responsible without the need for
further oversight. If an institution achieves a composite score of at least 1.0
but less than 1.5, it may continue to participate in the Title IV Programs under
additional reporting and monitoring procedures as determined by the Department,
including the receipt of its Title IV Program funds on the "cash monitoring"
basis. Such reporting and monitoring procedures also would require the
institution to report significant financial or regulatory events, such as any
violation of a loan agreement. All of our U.S. Learning Centers that are
eligible to participate in the Title IV Programs currently operate under
"heightened cash monitoring." If an institution's composite score is less than
1.0, an institution may establish its financial responsibility by posting an
irrevocable letter of credit in favor of the Secretary of Education in an amount
equal to not less than 10 percent of the Title IV Program funds received by the
institution during its most recent fiscal year, as well as accepting additional
reporting and monitoring procedures, including using either the "cash
monitoring" or "reimbursement" methods of disbursing its Title IV Program funds,
and accepting provisional certification. In addition, regardless of its
financial condition, an institution may establish its financial responsibility
by posting an irrevocable letter of credit in favor of the Secretary of
Education in an amount equal to not less than one-half of the Title IV Program
funds received by the institution during its most recent fiscal year.
Based on our audited financial statements for fiscal 2000, we have
calculated a composite score of 1.3 for CLC. Although we believe the
Department's emphasis is on CLC as a whole, the Department has the right to
apply the financial responsibility measures on an individual institution basis.
Based on our audited financial statements for fiscal 2000 we have determined
that two of our institutions have a composite score below 1.0, and the remaining
seven institutions have composite scores that exceed 1.5.
Under a separate standard of administrative responsibility, an institution
that has made late student refunds in more than 5% of cases in either of its
last two fiscal years must post a letter of credit in favor of the Secretary of
Education in an amount equal to 25% of the total Title IV Program refunds paid
by the institution in its prior fiscal year. Based on this standard, CLC has
posted a letter of credit in the amount of $2.2 million with respect to all U.S.
Learning Centers except our Learning Center in Paramus, NJ, for which a letter
of credit was not required.
Incentive Compensation
The Higher Education Act 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. We
have implemented several compensation plans for admissions representatives and
other personnel involved in the operations of the Learning Centers. Although
there can be no assurance that the Department of Education will not find
deficiencies in our present or former compensation plans, we believe that our
compensation plans comply with the requirements of the Higher Education Act.
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The 90/10 Rule
Under a provision of the Higher Education Act now known as the "90/10
Rule," a proprietary institution loses 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 90% of the institution's applicable revenues for the
prior fiscal year was derived from Title IV Programs. Approximately 64% of CLC's
revenues in fiscal 2000 (ranging from a low of 56% and a high of 84% on an
individual institution basis) consisted of tuition funded by the Title IV
Programs.
To reduce the risk that any Learning Center could lose its eligibility to
participate in the Title IV Programs under the 90/10 Rule, we closely monitor
the sources of revenue funding for each Learning Center. We also continuously
pursue 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 this rule, such loss would have a material adverse effect on CLC.
Restrictions on Adding Locations
The Higher Education Act requires a proprietary institution to be in full
operation for two years before such institution can qualify to participate in
the Title IV Programs. However, the Higher Education Act and applicable
regulations permit an institution that is already certified to participate in
the Title IV Programs to establish an additional location that may immediately
qualify for such participation 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. We
opened one new U.S. Learning Center in fiscal 2000. Our long-term expansion
plans assume our continued ability to establish new Learning Centers as
additional locations of existing Learning Center main campuses without incurring
the two-year waiting period for Title IV Program participation that is applied
to new institutions.
Although state requirements and accrediting agency standards may in certain
instances limit our ability to establish additional locations in certain areas
and certain situations, we do not believe, based on our current understanding of
how these standards will be applied, that these standards will have a material
adverse effect on CLC or our long-term expansion plans.
CLC Recertification of Title IV Program Participation
During fiscal 2000, six of our nine U.S. institutions were due for renewal
of certification for continued participation in the Title IV Programs. We
submitted all six of the renewal applications in September 1999. Additionally,
one of our U.S. institution's renewal was due and filed in March 2000. We have
received no written communication from the Department of Education regarding
these renewals. Each of our Learning Centers continues to participate in the
Title IV Programs while the Department reviews our recertification applications.
If a Learning Center lost its eligibility to participate in certain of the Title
IV Programs, or if the amount of Title IV funding was reduced, we would seek to
arrange alternative sources of funding for that Learning Center's students.
There are a number of private organizations that provide loans to students.
Although we believe that one or more private organizations would be willing to
provide loans to Learning Center students, there is no assurance that this would
be the case, and the interest rate and other terms of such student loans might
not be as favorable as for Title IV Program funds. Accordingly, the loss of
eligibility of a Learning Center to participate in the Title IV Programs would
be expected to have a material adverse effect on CLC even if we could arrange
alternative sources of funding for the Learning Center's students.
Our two newest Learning Centers, Norcross, GA and Las Vegas, NV, have not
obtained Title IV Program participation. We do not have an application filed
with the Department; however, we may do so at any time. We continue to seek
additional third-party funding sources for the students at these locations as
well as providing our own direct financing to these students. The Department has
communicated to us that these new locations would not be approved for Title IV
Program eligibility until the Alexandria and Manassas program reviews are
resolved. Currently, the alternative funding sources for students at these
locations have been adequate; however, prolonged ineligibility for Title IV
Program participation at these Learning Centers
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will continue to have a negative affect on our operations as self-pay
receivables have more credit risk than Title IV funding sources.
STATE AUTHORIZATION AND ACCREDITATION
CLC is dependent on the authorization of the applicable agency or agencies
of each state within which a Learning Center is located to allow us 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. We are subject to extensive and varying
regulation in each of the states in which the Learning Centers currently
operate. State laws and regulations affect our operations and may limit our
ability 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 or newly acquired Learning Center to obtain state authorization
would render the affected Learning Center ineligible to participate in the Title
IV Programs, would adversely affect its accreditation and would have a material
adverse effect on CLC.
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 within their borders to become and continue to be
accredited as a condition of continuing state authorization. All of our U.S.
Learning Centers are accredited by ACICS, which is an accrediting agency
recognized by the Department of Education. Three of our nine institutions
operating in the United States were due for renewal of accreditation during
fiscal 2000. All three received renewals of their accreditation during the third
and fourth quarters of fiscal 2000.
The loss of state authorization by an existing Learning Center or the
failure of a new or newly acquired Learning Center to obtain state authorization
would render the affected Learning Center ineligible to enroll students or award
credentials and to participate in the Title IV Programs and would have a
material adverse effect on our results of operations and financial condition.
The loss of accreditation by an existing Learning Center or the failure of a
newly acquired Learning Center to obtain accreditation would render the affected
Learning Center ineligible to participate in the Title IV Programs and would
have a material adverse effect on our results of operations and financial
condition.
Change of Control
Upon a change of ownership resulting in a change of control as that term is
defined in the Higher Education Act and Department of Education regulations, an
institution participating in the Title IV Programs must be recertified to
continue its participation. A change of control could also trigger similar
reapproval requirements at the state level and with an institution's accrediting
agency. For a publicly traded corporation like CLC, Department of Education
regulations specify that a change of control occurs when there is an event that
would obligate the corporation to file a current report on Form 8-K with the
Securities and Exchange Commission disclosing a change of control. Each state
and accrediting agency has its own requirements with respect to what constitutes
a change of control and the consequences of such a change. A change of control
could, depending on the nature of such change, have a material adverse effect on
CLC.
When CLC acquires an institution that participates in the Title IV
Programs, that institution undergoes a change of control and must demonstrate
that it meets the standards of institutional eligibility to be recertified by
the Department for such participation under its new ownership. Pursuant to the
1998 reauthorization of the Higher Education Act, the Department may temporarily
and provisionally certify an institution undergoing a change of control while
the Department reviews the institution's application. To obtain such temporary
certification, the institution must submit a "materially complete" application
for recertification within 10 business days of the closing date of the sale. A
"materially complete" application normally would include all state and
accrediting agency approvals that those agencies require to be obtained before
the closing date. If the Department finds the application to be "materially
complete," it then issues a temporary provisional Program Participation
Agreement, and affords the institution a further period to submit additional
required
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materials. If all the remaining documentation is timely submitted, the
Department will continue the temporary provisional Program Participation
Agreement until it issues a new certification, which, in the case of changes of
ownership, is always provisional for at least one year. If an institution fails
to file a "materially complete" application or the additional required materials
within the prescribed times, it would become ineligible to participate in the
Title IV Programs until the Department completes its review and recertifies the
institution under its new ownership.
The standards and practices of ACICS, the accrediting agency that accredits
all of the Learning Centers, generally provide that, after an institution
obtains confirmation of continued authorization by the appropriate states
following a change of control, and submits a complete application, ACICS will
determine whether to temporarily reinstate the institution's accreditation,
during which period the institution must apply for permanent reinstatement of
its accreditation. The states with jurisdiction over the Learning Centers have
widely varying requirements for an institution to confirm its reauthorization
following a change of control as defined by each state.
A material adverse effect on CLC's financial position, results of
operations and cash flows could result if, in connection with a change in
control, we experienced significant delay in obtaining or failed to obtain the
accreditation of any Learning Center, experienced significant delay in obtaining
or failed to obtain authorization from any state in which we have 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. A change of control may also delay our ability to establish new
institutions and may have other adverse regulatory effects.
Canadian Regulation
Students who are residents of the province of Quebec are eligible to
receive loans and bursaries ("grants") from the Quebec Loans and Bursaries
Program ("QLBP"). Under the QLBP, student financial assistance is initially
provided in the form of a loan. CLC Delta is subject to the Act Respecting
Private Education ("ARPE") in Quebec. In accordance with ARPE, in order to
operate a private educational institution, CLC Delta must hold a permit issued
by the Quebec Minister of Education (the "QME") for the institution itself and
for the educational services to be provided. The QME will issue the permit after
consulting with the Commission Consultative de l'Enseignement Prive (the
"Commission") concerning the particular institution and the educational services
to determine if such institution and services meet certain qualifying
conditions. Permits cannot be transferred without the written authorization of
the QME, and any entity holding a permit must advise the QME of any
consolidation, sale or transfer affecting such entity. Prior to any action, the
QME, after consultation with the Commission, has the authority to modify or
revoke a permit where the holder of the permit, among other things: does not
comply with the conditions, restrictions or prohibitions relating to the
institution or, is about to become insolvent. Prior to any action, the QME must
provide the institution with an opportunity to present its views before revoking
a permit. Given that the QME periodically revises its regulations and other
requirements and changes its interpretations of existing laws and regulations,
there can be no assurance that the QME will agree with our understanding of each
requirement of the QME.
We do not believe that the QME's requirements would limit our plans to add
new educational programs at CLC Delta, in Quebec. In addition, we do not believe
that there will be any impediment to renewal of the permit issued to CLC Delta,
in Quebec, under the ARPE.
During fiscal 2000, the legislative and regulatory requirements that relate
to student financial assistance programs in Quebec were changed. Effective May
1, 1999, the amount of financial assistance a student is eligible to receive
became significantly less than the amount of financial assistance historically
available. For students that have a remaining tuition balance not funded by
Quebec's financial assistance programs, CLC Delta may make available to
qualifying students alternative financing arrangements to help fund their
education.
18
<PAGE> 19
Federal Income Tax Relief
Federal income tax relief in the form of tax credits, tax deductions and
income exclusions is available to eligible students and their families beginning
in 1998 under the Taxpayer Relief Act of 1997, as amended by the Internal
Revenue Service ("IRS") Restructuring and Reform Act of 1998 ("TRA-97"). The
TRA-97:
- provides an annual Hope Scholarship tax credit of up to $1,500 for
tuition and related expenses incurred on or after January 1, 1998, for
each of a student's first two years of postsecondary education.
- provides an annual Lifetime Learning tax credit of up to $1,000 in 1998
through 2002 and up to $2,000 in subsequent years for tuition and related
expenses incurred on or after July 1, 1998. The Lifetime Learning tax
credit is not available in any tax year in which the taxpayer is claiming
the Hope Scholarship tax credit.
- provides an annual tax deduction, ranging from $1,000 in 1998 to up to
$2,500 in 2001 and thereafter, for interest paid during the first 60
months in which interest payments are required on any student loans
incurred solely to pay qualified higher education expenses.
- provides an annual income exclusion of up to $5,250 for undergraduate
educational expenses incurred on or after January 1, 1998, and before
June 1, 2000, that are paid by the student's employer.
- allows taxpayers to establish Education IRAs, for taxable years beginning
on or after January 1, 1998, that can be funded with non-deductible
contributions of up to $500 annually for any child up to the age of 18
years.
The tax benefits provided by the TRA-97 may reduce the effective cost of
postsecondary education to the student and his or her family, which may decrease
student dependence on Title IV Program funds and may decrease Title IV Program
loan defaults. Educational institutions are required to submit certain
information about the student and the student's family to the IRS in order for
the student and the student's family to qualify for some of the tax benefits
under the TRA. Although these IRS reporting requirements have increased the
administrative burden on us, such compliance is not expected to have a material
adverse effect on CLC's financial condition, results of operations or cash
flows.
19
<PAGE> 20
ITEM 2. PROPERTIES
All Learning Center facilities are leased by CLC. The table below sets
forth certain information regarding these facilities as of January 31, 2000.
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE
LOCATION FOOTAGE
- -------- -----------
<S> <C>
Alexandria, VA.............................................. 60,300
Alexandria, VA(1)........................................... 7,300
Anaheim, CA................................................. 26,800
Brossard, Quebec............................................ 5,400
Cherry Hill, NJ............................................. 21,000
Chicago, IL................................................. 24,100
Denver, CO(2)............................................... 22,000
Fairfax, VA(3).............................................. 17,500
Garland, TX................................................. 16,400
Hurst, TX................................................... 21,600
Houston, TX................................................. 26,700
Las Vegas, NV............................................... 20,000
Laval, Quebec............................................... 13,100
Laurel, MD.................................................. 38,100
Los Angeles, CA............................................. 46,700
Lowell, MA.................................................. 20,300
Madison Heights, MI......................................... 29,500
Manassas, VA(3)............................................. 89,200
Marietta, GA................................................ 16,100
Montreal, Quebec............................................ 44,900
Norcross, GA................................................ 26,900
Paramus, NJ................................................. 26,500
Philadelphia, PA............................................ 29,000
Pittsburgh, PA.............................................. 28,900
Plymouth Meeting, PA(4)..................................... 32,800
San Francisco, CA........................................... 22,000
San Jose, CA(5)............................................. 20,000
Schaumburg, IL.............................................. 30,000
Somerville, MA.............................................. 33,200
South Plainfield, NJ........................................ 20,000
Woodhaven, PA............................................... 21,500
--------
Total....................................................... 857,100
========
</TABLE>
- ---------------
(1) This was an additional administrative facility primarily used for employee
training. Effective May 2000, this facility was subleased to a third-party.
(2) We had executed a lease for this space expected to begin in October 2000
with the intent to open a new Learning Center at the location in the
future.
(3) CLC's corporate headquarters moved from Fairfax, VA to a facility adjacent
to the new Manassas, VA school location (consisting of 15,000 square feet)
in March 2000. CLC's existing Manassas Learning Center (consisting of
20,200 square feet) will move to the new Manassas, VA facility (consisting
of 54,000 square feet) during May 2000.
(4) Two locations, one (consisting of 3,200 square feet) for administrate
support personnel only, the other (consisting of 29,600 square feet)
represents a Learning Center location.
(5) We expect to close this location by August 2001. The lease expires in
December 2001.
Learning Center site selection is based upon a number of factors, including
population density, incomes, occupations, education levels, projected demand for
our programs, concentration of technology-oriented employers and applicable
state and accrediting agency requirements. We believe our facilities are
suitable, adequate and well utilized.
20
<PAGE> 21
ITEM 3. LEGAL PROCEEDINGS
Active Litigation
On May 5, 1998, a class action lawsuit was filed against CLC in the
Superior Court of New Jersey in Bergen County, New Jersey. The complaint
alleges, among other things, that our Learning Centers in New Jersey failed to
provide certain educational services and resources, misrepresented certain
information respecting services, resources, occupational opportunities and
student outcomes and violated certain provisions of the New Jersey Consumer
Fraud Act. On November 19, 1999, the Court certified a class consisting of all
persons who, during the six years immediately preceding the commencement of this
action, had enrolled in a course or courses of study, education or training
provided by CLC at our New Jersey locations for which they incurred tuition
expenses. On December 6, 1999, CLC filed a motion with the Appellate Division of
the Superior Court of New Jersey to appeal the November 19, 1999 decision to
certify a class. On January 19, 2000, that motion was denied. We are unable to
estimate the outcome of the matter or any potential liability.
On July 9, 1999, a class action lawsuit was filed against CLC in the Court
of Common Pleas in Philadelphia County, Pennsylvania, on behalf of all students
who attended the Learning Center located on Market Street in Philadelphia within
six years of July 9, 1999, who have not obtained employment in a
computer-related job through our placement services. On August 2, 1999, the case
was removed to the United States District Court for the Eastern District of
Pennsylvania. On October 12, 1999, the United States District Court for the
Eastern District of Pennsylvania remanded the case to the Court of Common Pleas
in Philadelphia County, Pennsylvania. The complaint alleges, among other things,
that this Learning Center failed to provide certain educational services and
resources, misrepresented certain information respecting services, resources,
occupational opportunities and student outcomes, and violated certain provisions
of the Pennsylvania Unfair Trade Practices and Consumer Protection Law. We are
unable to estimate the outcome of the matter or any potential liability.
Between June 1, 1998 and October 31, 1999, CLC was named as defendant in
three other lawsuits in Texas and New Jersey by individual students or groups of
students who formerly attended one of our Learning Centers. In two of these
lawsuits, various present and former officers, directors and employees of CLC
have also been named as defendants. The complaints allege, among other things,
that our affected Learning Centers failed to provide plaintiffs with certain
educational services and resources and misrepresented certain information
respecting services, resources, and student outcomes and violated certain
provisions of the applicable state consumer laws. We are unable to estimate the
outcome of these matters or any potential liability.
In addition to the lawsuits discussed above, CLC is a defendant in a number
of civil lawsuits involving current and former employees, which we consider
incidental to our business and unlikely to have a material effect on our
business, financial condition and future operations. However, there can be no
assurance that these matters will not have a material adverse effect on our
results of operations in a future period, depending in part on the results for
such period.
We intend to defend CLC vigorously in the lawsuits referred to above;
however, there can be no assurance that we will be successful in defending CLC
in any of these proceedings. Even if we prevail on the merits in such
litigation, we expect to continue to incur significant legal and other defense
costs as a result of such proceedings. These proceedings could involve
substantial diversion of the time of some members of management, and an adverse
determination in, or settlement of, such litigation could involve the payment of
significant amounts, or could include terms in addition to such payments, which
could have a severe impact on our business, financial condition and results of
operations.
There can be no assurance that additional significant legal proceedings
will not be filed or that adverse action will not be initiated against us,
either by federal or state regulators, or other parties. Any such legal
proceedings or adverse action could have a severe impact on our business,
financial condition and results of operations.
21
<PAGE> 22
Settled Litigation
During fiscal year 1999 and 2000, CLC was named as defendant in five other
lawsuits in California, Michigan, Texas and Virginia by individual students or
groups of students who formerly attended one of our Learning Centers. The
complaints alleged, among other things, that our affected Learning Centers
failed to provide plaintiffs with certain educational services and resources and
misrepresented certain information respecting services, resources, and student
outcomes and violated certain provisions of the applicable state consumer laws.
During the course of fiscal 2000, these cases were settled resulting in
aggregate payments to the former students of immaterial amounts. Settlement
expenses are combined with legal fees and included within general and
administrative expenses in the consolidated financial statements.
The Attorney General of Illinois filed a complaint against CLC in Circuit
Court in Cook County, Illinois, on March 10, 1998, asserting that we had
violated the Illinois Private Business and Vocational Schools Act and the
Illinois Consumer Fraud and Deceptive Business Practices Act (the "Acts") at our
Schaumburg, Illinois Learning Center. The complaint alleged that at the
Schaumburg Learning Center, we failed to provide certain educational services
and resources and misrepresented certain information respecting services,
resources, occupational opportunities and student outcomes. On June 8, 1998, we
reached an agreement with the Attorney General settling the litigation in the
form of a final judgment and Consent Decree approved by the court ("Consent
Decree"). The settlement includes payment of a voluntary contribution of $90,000
to the Attorney General's consumer education fund, a provision annually for a
four year period of $95,000 worth of computer hardware and software to schools,
programs, community sites and other non-profit and public institutions in the
Chicago area designated by the Attorney General, and $10,000 worth of training
in computer skills annually at our Schaumburg or Chicago Learning Centers for
teachers and other community based personnel to enable them to make effective
use of the computer equipment. We also agreed to take certain measures to assure
compliance with state regulatory requirements, and to establish an ombudsman
program and binding arbitration for the resolution of certain student
complaints. We have implemented the measures called for under the first and
second years of the Consent Decree. Failure by us to continue to comply with the
terms of the Consent Decree could result in adverse action against the Learning
Centers located in Illinois, including suspension or termination of our licenses
to operate within Illinois and other sanctions. The loss of operating authority
in Illinois could have a material adverse effect on CLC.
On March 13, 1998, a class action lawsuit was filed against CLC in the
United States District Court for the Central District of California on behalf of
all purchasers of CLC Common Stock from October 31, 1997 through March 10, 1998.
Over the following two months, eight additional similar cases were filed in
United States District Courts. The complaints alleged violations of the
Securities Exchange Act of 1934, including allegations that the Company was
experiencing "operations difficulties" and failed to disclose the alleged
difficulties. The complaints also alleged that CLC insiders realized profits by
trading their shares of CLC stock while in possession of material adverse
information. All of these shareholder lawsuits were consolidated and transferred
to the United States District Court for the Eastern District of Virginia. We
entered into a settlement agreement with the plaintiffs in February 1999,
whereby we settled these allegations and agreed to compensation to members of
the plaintiffs' class. The terms of the settlement, which received final
judicial approval on July 9, 1999 and have been approved by the plaintiffs,
provided for the payment of $3.0 million in cash ($2.35 million was covered by
our insurance policy) and the issuance of 550,000 shares of CLC Common Stock,
subject to certain price protection features, which resulted in an additional
463,152 shares of CLC Common Stock being issued to guarantee a total settlement
of $7.5 million. All cash settlements were paid in fiscal 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the stockholders of CLC during the
fourth quarter of fiscal 2000.
22
<PAGE> 23
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
Our Common Stock is traded on the NASDAQ National Market under the symbol
"CLCX." 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 1999:
First Quarter............................................. $39.38 $ 8.63
Second Quarter............................................ 30.63 11.13
Third Quarter............................................. 28.25 4.50
Fourth Quarter............................................ 12.75 4.69
FISCAL YEAR 2000:
First Quarter............................................. $ 7.13 $ 4.00
Second Quarter............................................ 6.47 3.69
Third Quarter............................................. 5.88 2.94
Fourth Quarter............................................ 4.19 1.75
</TABLE>
These over-the-counter market quotations may reflect inter-dealer prices
without retail mark-up, markdown or commission and may not necessarily represent
actual transactions.
At May 11, 2000, there were approximately 121 holders of record of our
Common Stock. We estimate that, including shareholders whose shares are held in
nominee accounts by brokers, there are approximately 7,400 total holders of our
Common Stock.
We have never paid cash dividends on our Common Stock and we do not
anticipate paying cash dividends in the foreseeable future. It is the current
policy of our Board of Directors to retain earnings to finance the operations
and expansion of CLC's business.
23
<PAGE> 24
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial and operating data is qualified by
reference to, and should be read in conjunction with, the consolidated 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 Consolidated Statements of Operations for each of the three years
in the period ended January 31, 2000 and the Consolidated Balance Sheets as of
January 31, 2000 and 1999, and the independent accountant's report thereon are
included in Item 8 of this Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
----------------------------------------------------
1999(a) 1998(a) 1997(a) 1996(a)
2000 RESTATED RESTATED RESTATED RESTATED
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues..................................... $134,640 $$144,189 $95,761 $63,480 $45,849
-------- -------- ------- ------- -------
Costs and expenses:
Costs of instruction and services.......... 100,252 93,802 53,845 35,405 26,041
Selling and promotional.................... 21,315 21,729 15,289 11,407 7,884
General and administrative................. 17,299 15,614 7,657 5,584 4,052
Provision for doubtful accounts............ 8,911 8,388 4,794 3,084 2,613
Amortization of intangible assets.......... 562 558 362 362 363
-------- -------- ------- ------- -------
148,339 140,091 81,947 55,842 40,953
-------- -------- ------- ------- -------
(Loss) income from operations................ (13,699) 4,098 13,814 7,638 4,896
Litigation settlement expense................ -- (5,599) -- -- --
Interest (expense) income, net............... (249) 513 1,391 721 (96)
Gain on sale of investment securities........ -- 279 -- 332 --
-------- -------- ------- ------- -------
(Loss) income before income taxes and
cumulative effect of accounting change..... (13,948) (709) 15,205 8,691 4,800
(Benefit from) provision for income taxes.... (5,827) (383) 6,234 3,370 1,997
-------- -------- ------- ------- -------
(Loss) income from operations before
cumulative effect of accounting change..... (8,121) (326) 8,971 5,321 2,803
Cumulative effect of accounting change....... -- (245) -- -- --
-------- -------- ------- ------- -------
Net (loss) income............................ $ (8,121) $ (571) $ 8,971 $ 5,321 $ 2,803
======== ======== ======= ======= =======
Earnings (loss) per share
Basic................................... $ (0.45) $ (0.03) $ 0.56 $ 0.39 --(b)
======== ======== ======= ======= =======
Diluted................................. $ (0.45) $ (0.03) $ 0.52 $ 0.35 $ 0.25
======== ======== ======= ======= =======
Weighted average number of shares
outstanding --
Basic................................... 18,061 17,318 15,893 13,719 --(b)
======== ======== ======= ======= =======
Diluted................................. 18,061 17,318 17,189 15,018 11,393
======== ======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31,
--------------------------------------------------
2000 1999(A) 1998(A) 1997(A) 1996(A)
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................... $ 7,819 $ 7,691 $ 24,377 $26,950 $ 8,260
Total current assets........................ 73,957 78,389 78,617 59,016 29,776
Total assets................................ 124,308 132,507 116,529 76,565 40,481
Total current liabilities................... 72,397 71,016 62,316 35,749 22,586
Long term liabilities....................... 6,752 8,649 5,167 2,124 1,559
Total stockholders' equity.................. 45,159 52,842 49,046 38,692 16,336
</TABLE>
- ---------------
(a) See Note 2 of Item 8, "Consolidated Financial Statements and Supplementary
Data," regarding restatement of fiscal 1999 and prior financial statements.
(b) Basic earnings per share is not presented for fiscal 1996 as such amount
does not present a meaningful comparison to fiscal 1997 thru 2000 amounts
due to the differing capital structures as a result of public offerings.
24
<PAGE> 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should keep in mind the following points as you read this report:
- References in this document to "we," "us," "our" and "CLC" refer to
Computer Learning Centers, Inc. and its subsidiaries.
- The term "Learning Center" refers to an individual school owned and
operated by CLC. The terms "institution" (in singular or plural form)
refer to a main campus or school and its additional locations or branch
campuses, if any.
- References in this document to "fiscal 2001," "fiscal 2000," "fiscal
1999" and "fiscal 1998" refer to the years ended January 31, 2001, 2000,
1999 and 1998, respectively.
- References in this document to "Department of Education" or "Department"
refer to the U.S. Department of Education.
The following discussion should be read with the Selected Financial Data
and the Consolidated Financial Statements and Notes to Consolidated Financial
Statements included elsewhere in the Annual Report on Form 10-K.
Background and Overview
We provided information technology education and training to over 13,600
students in fiscal 2000. CLC provides programs and courses to meet current
information technology education needs, offering instruction in rapidly growing
technologies such as client/server, internet, database, networking and
object-oriented programming through its twenty-eight locations throughout the
United States and Canada.
During fiscal 2000, we derived approximately 98% of revenues from Learning
Centers course tuition, with the remaining revenues derived from sales of books,
interest on CLC loans to our students and fees charged directly to students. We
enroll students on a monthly basis and deliver our curricula over an 8- to
17-month period for "day" students and over a 15- to 21-month period for
"evening" students. Our 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 our students qualify for financial assistance under various
government-supported student financial aid programs, especially the Title IV
Programs. We are highly dependent on the continued availability of
government-supported student financial aid.
We manage 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 internally
produced reports detailing student accounts receivable balances, following up on
student delinquencies via telephone and letters as well as employing other
activities related to collection. We make available to qualifying students
alternative financing arrangements ("CLC financing"), which help fund their
education. Dependent upon the creditworthiness of the individual, CLC financing
may be offered to assist students with meeting their financial obligations
related to attending our schools. We require students receiving CLC financing to
make regular monthly payments. Depending on the level of financing extended to
students, payment plans offered generally range from six months to three years.
All amounts due to CLC in periods beyond one year are classified as long-term
receivables. Additionally, our employees help students overcome financial
obstacles to completing their educational programs by assisting students in
finding part-time employment when their own resources, CLC financing and Title
IV financial aid are not adequate to meet their financial needs.
Costs of instruction and services consist primarily of costs related to the
delivery and administration of CLC'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 Learning Centers
property and equipment. Selling and promotional costs consist primarily of
advertising, admission representative salaries and benefits and other
25
<PAGE> 26
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 our students. Provision for doubtful accounts
represents our estimate of student accounts receivable balances, that we will be
unable to collect. Amortization of intangible assets consists primarily of
amortization of capitalized costs of original Department of Education
certifications.
RESULTS OF OPERATIONS
The following table sets forth certain items from our consolidated
statements of operations as a percentage of revenues for the periods indicated.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JANUARY 31,
-----------------------------
1999(A) 1998(A)
2000 RESTATED RESTATED
----- -------- --------
<S> <C> <C> <C>
Revenues.................................................... 100.0% 100.0% 100.0%
----- ----- -----
Costs and expenses:
Costs of instruction and services........................... 74.5 65.1 56.2
Selling and promotional..................................... 15.8 15.1 16.0
General and administrative.................................. 12.8 10.8 8.0
Provision for doubtful accounts............................. 6.6 5.8 5.0
Amortization of intangible assets........................... 0.4 0.4 0.4
----- ----- -----
110.1 97.2 85.6
----- ----- -----
(Loss) income from operations............................... (10.1) 2.8 14.4
Litigation settlement expense............................... -- (3.9) --
Interest (expense) income, net.............................. (0.2) 0.4 1.5
Gain on sale of investment securities....................... -- 0.2 --
----- ----- -----
(Loss) income before income taxes and cumulative effect of
accounting change......................................... (10.3)% (0.5)% 15.9%
===== ===== =====
</TABLE>
- ---------------
(a) See (a) on page 24.
Fiscal 2000 Compared with Fiscal 1999
Revenues decreased approximately 7% to $134.6 million for fiscal 2000 from
$144.2 million for fiscal 1999 primarily due to a decrease in our student
population. The number of students attending Learning Center programs as of
January 31, 2000 decreased 8.5% to 10,158 from 11,095 at the end of fiscal 1999.
When evaluating enrollment growth, we view all Learning Centers opened or
acquired during the last two fiscal years (current and preceding) as "new
centers" (eight Learning Centers in fiscal 2000) in order to account for the
start-up period inherent in new Learning Center openings. Learning Centers
opened for more than two fiscal years are "same centers" (twenty Learning
Centers in fiscal 2000). The following table shows a comparison of student
enrollments in new centers and same centers:
<TABLE>
<CAPTION>
FISCAL YEAR
--------------- INCREASE/
2000 1999 (DECREASE) %
------ ------ ---------- ---
<S> <C> <C> <C> <C>
New centers................................................. 2,512 2,086 426 20%
Same centers................................................ 10,204 12,251 (2,047) (17%)
------ ------ ------ ---
Total............................................. 12,716 14,337 (1,621) (11%)
====== ====== ====== ===
</TABLE>
26
<PAGE> 27
Accounts receivable, (both long and short-term), decreased 9% as compared
to the revenues decrease of 7%. The larger percentage decrease in accounts
receivable as compared to revenue can be attributed to the following:
When students enroll in CLC, accounts receivables are established for the
balance of course tuition (however, only for the current year of multi-academic
year programs) with a corresponding amount recorded as deferred revenue. While
the accounts receivable balance may be paid at any time during the course,
deferred revenue is recognized ratably as tuition revenue over the period of
instruction, regardless of when accounts receivable are paid.
Since accounts receivable increases immediately by the full tuition when
students enroll, while tuition revenues are earned ratably over the period of
instruction, there will not be a direct correlation between the percentage
increases in tuition revenues (and correspondingly deferred revenues) and in
accounts receivable balances. This "lag" effect of revenues to receivables is
further pronounced during the initial operations of a new Learning Center since
tuition revenues will be minimal when compared to the corresponding accounts
receivables. Additionally, Learning Centers in their second year of operations
(those opened in fiscal 1999) contribute significantly to the lag effect due to
the large levels of growth occurring in year two versus year one of operations.
Conversely, in periods of declining enrollments of the larger and more
established Learning Centers (as experienced in fiscal 2000), the relative
percentage of accounts receivable reduction will be greater than the relative
percentage of revenue reduction. The following summarizes the actual Learning
Center openings and acquisitions for the last three fiscal years.
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
SCHOOL OPENINGS/ACQUISITIONS 2000 1999 1998
- ---------------------------- ------ ------ ------
<S> <C> <C> <C>
First Quarter............................................... -- 5 --
Second Quarter.............................................. 1 1 2
Third Quarter............................................... -- -- 1
Fourth Quarter.............................................. -- 1 3
-- -- --
Total....................................................... 1 7 6
== == ==
</TABLE>
Costs of instruction and services increased 7% to $100.3 million in fiscal
2000 from $93.8 million in fiscal 1999 due primarily to approximately $3.0
million of costs at our Norcross, GA and Las Vegas, NV Learning Centers, as well
as general increases in instructional salaries. Costs of instruction and
services consist primarily of compensation and related benefits, facility costs
(including rent and depreciation) and textbook and other instructional
materials. Instruction costs and services as a percentage of revenues increased
to 74.5% in fiscal 2000 from 65.1% in fiscal 1999. This increase in cost of
instruction and services as a percentage of revenue is primarily attributable to
the costs incurred at our new centers, lower enrollments during fiscal 2000 at
several of our more established Learning Centers, and increased costs in
anticipation of growth that was not achieved at expected levels. Certain
expenses of our Learning Centers are fixed in nature, such as costs of
facilities and administrative support, while other expenses are variable, such
as textbook expenses and additional instructor salaries. Lower enrollments at
our more established U.S. Learning Centers resulted in a higher ratio of cost of
instruction due to decreased revenues without a corresponding decrease in fixed
costs. Same center enrollments have declined 17% in fiscal 2000 versus fiscal
1999. The decline in same center enrollments has been greatest in terms of
number of students at our Learning Centers in Houston, TX, the Chicago area, the
Washington, DC area and in Southern California which have had enrollment
declines of 56%, 33%, 31% and 31%, respectively, for fiscal 2000 compared to
fiscal 1999. We attribute the decreases in enrollments to negative publicity
generated by various regulatory actions, optimizing of class sizes and a reduced
lead conversion rate at these centers.
Selling and promotional expenses decreased 2% to $21.3 million in fiscal
2000 from $21.7 million in fiscal 1999. We have expanded our geographic coverage
of advertising with the increase in number of cities CLC is now located.
However, we have offset this increase by cutting back in the breadth of our
advertising and expending our resources on those mediums that prove most
successful. Selling and promotional expenses as a percentage of revenues
increased to 15.8% in fiscal 2000 from 15.1% in fiscal 1999.
27
<PAGE> 28
General and administrative expenses increased 11% to $17.3 million in
fiscal 2000 from $15.6 million in fiscal 1999. Severance costs of our former
chief executive officer and chief financial officer account for approximately
$674,000 of this increase. Also contributing to this increase is approximately
$720,000 of costs related to developing a new proprietary administrative
software system, and $300,000 of increased legal fees and other legal expenses
incurred in defense of lawsuits brought by former students and employees of
certain Learning Centers and other regulatory matters. General and
administrative expenses as a percentage of revenues increased to 12.8% in fiscal
2000 from 10.8% in fiscal 1999.
Provision for doubtful accounts increased 6% to $8.9 million in fiscal 2000
from $8.4 million in fiscal 1999. Provision for doubtful accounts as a
percentage of revenues increased to 6.6% in fiscal 2000 from 5.8% in fiscal
1999. We attribute this increase to a shift in student enrollments to higher
priced tuition programs, which typically have higher amounts of self-pay
accounts receivable after application of applicable financial aid. The self-pay
accounts receivable have historically had lower collection rates than loans from
third-party lenders.
In fiscal 1999, we provided $5.1 million for CLC's obligation related to a
shareholder litigation settlement agreed to in February 1999. In addition to the
settlement obligation, the Company incurred $0.5 million of legal defense costs
during fiscal year 1999 in excess of reimbursements from its insurance carrier.
We incurred net interest expense of $249,000 for fiscal 2000, compared to
net interest income of $513,000 for fiscal 1999, primarily as a result of a
substantial increase in our borrowings under our credit facility coupled with a
reduction of our average available cash balances.
CLC's effective tax rate decreased to 42% in fiscal 2000 from 54% in fiscal
1999. The fiscal 2000 rates reflect greater losses (on an absolute basis) in our
U.S. operations than the operating income contributed by our Canadian
subsidiaries. Thus, the consolidated effective rate more closely approximates
our U.S. effective tax rate than those experienced in fiscal 1999.
Fiscal 1999 Compared with Fiscal 1998
Revenues increased 51% to $144.2 million for fiscal 1999 from $95.8 million
for fiscal 1998 primarily due to an increase in enrollments at our new Learning
Centers including the opening of four new Learning Centers in fiscal 1999. In
addition to the opening of the four new Learning Centers, we acquired five
Learning Centers in the fourteen-month period ending January 31, 1999, two in
Quebec, Canada and the others in Paramus, NJ and Somerville and Methuen, MA.
The number of students attending Learning Center programs as of the end of
the year increased 10% to 11,095 in fiscal 1999 from 10,112 in fiscal 1998,
which was the result of student enrollment growth of 11%. In fiscal 1999,
enrollments at the fourteen Learning Centers opened for more than two fiscal
years declined 20% to 9,618 from 12,031 students in fiscal 1998. Enrollments at
the thirteen Learning Centers opened or acquired during the last two fiscal
years increased by 3,800 to 4,719 from 919 students in fiscal 1998.
Accounts receivable, (both long and short-term), increased 21% as compared
to the revenues increase of 51%. The larger percentage increase in revenue as
compared to accounts receivable can be attributed to the lag effect previously
described.
Costs of instruction and services increased 74% to $93.8 million in fiscal
1999 from $53.8 million in fiscal 1998 due primarily to the direct costs
necessary to support the increase in student population. These direct costs
consist primarily of compensation and related benefits, and depreciation.
Instruction costs and services as a percentage of revenues increased to 65.1% in
fiscal 1999 from 56.2% in fiscal 1998. This increase is primarily attributable
to the start up of four Learning Centers since January 1998, lower enrollments
during fiscal 1999 at several of our more established Learning Centers, the
elimination of new enrollments at Advantec Institutes as retail operations of
their programs were phased-out, and increased expense profiles of acquisitions
with respect to revenues generated at those Learning Centers. Due to the
start-up period inherent in Learning Centers open less than one year, the ratio
of cost of instruction and services to revenues generated typically is very high
as fixed costs typically exceed revenues during their first year. Lower
enrollments at some of our
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more established Learning Centers resulted in a higher ratio of cost of
instruction due to decreased revenues without a corresponding decrease in fixed
costs.
Selling and promotional expenses increased 42% to $21.7 million in fiscal
1999 from $15.3 million in fiscal 1998 due primarily to increased marketing and
advertising necessary to support the growth in student enrollments as well as to
support the increase in the number of Learning Center locations. Selling and
promotional expenses as a percentage of revenues decreased to 15.1% in fiscal
1999 from 16.0% in fiscal 1998 primarily due to increased efficiencies
associated with our marketing.
General and administrative expenses increased 104% to $15.6 million in
fiscal 1999 from $7.7 million in fiscal 1998, primarily as a result of
increasing the level of infrastructure needed to support the growth of the
business. Also impacting the relative increase was increased legal fees
associated with regulatory matters coupled with the payment of student refunds
and related costs of $2.2 million associated with concluding these issues.
General and administrative expenses as a percentage of revenues increased to
10.8% in fiscal 1999 from 8.0% in fiscal 1998.
Provision for doubtful accounts increased 75% to $8.4 million in fiscal
1999 from $4.8 million in fiscal 1998, primarily due to the increase in revenues
of 51% and related accounts receivable balances. Provision for doubtful accounts
as a percentage of revenues increased to 5.8% in fiscal 1999 from 5.0% in fiscal
1998. We attribute this increase to a shift in student enrollments to higher
priced tuition programs, which typically have higher amounts of self-pay
accounts receivable after application of available financial aid. The self-pay
receivables have historically had lower collection rates than loans from
traditional third-party lenders.
We provided $5.1 million for our obligations related to a shareholder
litigation settlement agreed to in February 1999. In addition to the settlement
obligation, we incurred $0.5 million of legal defense costs during fiscal 1999
in excess of reimbursements from our insurance carrier.
We realized net interest income of $0.5 million for fiscal 1999, compared
to net interest income of $1.4 million for fiscal 1998, primarily as a result of
the reduction of cash balances.
CLC's effective income tax rate increased to 54% in fiscal 1999 from 41% in
fiscal 1998. This is a result of relative higher tax rates applied to losses
sustained our U.S. operations principally offset by income from operations of
our Canadian subsidiary. The statutory rates in Quebec, Canada, are lower than
those of our U.S. operations on a weighted average basis.
CYCLICAL PATTERN OF ENROLLMENTS
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. We believe CLC is less affected by this
seasonal pattern than many other educational institutions because we permit
students to enroll in 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 prior years in the number of
students attending Learning Center programs, the varying lengths of such
programs, and Learning Centers opened during fiscal 1999 and 1998.
HEIGHTENED CASH MONITORING
The Department of Education has discretion to alter the way it provides
Title IV Program funds to participating institutions. It may transfer an
institution from the "advance" system of payment of Title IV Program funds,
under which an institution receives funding from the Department 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 Program funds before receiving funds from the Department.
The Department may also impose a modified requirement known as "heightened
cash monitoring." On April 6, 1998, the Department placed all our U.S. Learning
Centers on heightened cash monitoring status I
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("HCM1"), based on the Department's monitoring of litigation then pending
against us (refer to Item 3, "Legal Proceedings") and certain student complaints
lodged against us or individual Learning Centers. Under HCM1, the Learning
Centers have continued to receive all of the Title IV Program funds to which
their students are entitled, but the funds are drawn after they have been
credited to student accounts and we are required subsequently to provide
supporting documentation to the Department. The Department does not consider
HCM1 to represent either an adverse or punitive action. This action by the
Department has not had any effect on the availability of Title IV funding to our
students, nor has it had a material effect on our cash flow or operating
results. This requirement has led to delays (estimated by us as generally two to
three days) in the timing of our cash receipts, but has not impaired our
business operations.
On March 8, 2000, the Department notified us that it was placing all our
U.S. Learning Centers on heightened cash monitoring status II ("HCM2"). HCM2
does not affect the ability of Learning Centers to obligate Title IV funds or
the ability of their students to receive all applicable forms of Title IV
Program aid. However, under HCM2, Learning Centers are required to document to
the Department each student's eligibility for Title IV Program funding before
being reimbursed by the Department for funds which we must advance to the
eligible students. Under HCM2, we submit to the Department information
supporting Title IV Program awards and disbursements of the affected Learning
Centers every thirty days. The Department then selects a sample of those awards
for which we are required to submit extensive documentation proving student
eligibility. Those documents are reviewed by the Department, a process that
customarily requires a minimum of thirty days. We expect that HCM2 would delay
the timing of Title IV cash flows for approximately 75 days.
The Department stated that this action was based on information obtained
during its Alexandria, VA, Manassas, VA and Laurel, MD program reviews, which
indicated that we had failed to make refunds for some students and had failed to
make refunds on a timely basis for other students. We vigorously disputed the
Department's basis for this action and explained the significant adverse
financial effects such action would have. On March 14, 2000, we reached an
agreement with the Department resulting in a modification of the terms of its
March 8 action. The key terms of the agreement are that only our Alexandria, VA
and Laurel, MD Learning Centers would be placed on HCM2, that our remaining
Learning Centers would continue on HCM1 with the condition that we submit
additional reports and documentation in conjunction with their future Title IV
funds requests, and that we must engage an independent accountant to attest to
the compliance with Title IV regulations of refunds and returns of funds at all
of our Title IV eligible Learning Centers (the "Special Attestation"). we expect
that this action will have a significant impact on the timing of the cash flows
at these Learning Centers and estimate the impact of the 75 day delay will
approximate $3 million.
The Special Attestation required by the Department as part of the March 14,
2000 agreement relates to the review of the payment of refunds and other returns
of federal funds by all of our Title IV eligible Learning Centers for the
seven-month period ended January 31, 2000. The results of the Special
Attestation must be submitted to the Department by June 1, 2000.
As part of the March 14, 2000 agreement, the Department agreed it "will
re-evaluate CLC's funding methods upon the receipt and review of the Special
Attestation, and upon review of CLC's overall compliance with Title IV statutory
and regulatory requirements." We believe should the Special Attestation
substantiate compliance with Title IV requirements acceptable to the Department
and with our continued compliance with Title IV Program requirements, the
Department may return some or all of our Learning Centers to the "advance"
system of payment. However, should the Special Attestation demonstrate
noncompliance with Title IV Program requirements in excess of rates tolerable by
the Department, the Department may take additional actions against us, including
the possibility of placing additional Learning Centers on HCM2. If the
Department initiates any further adverse actions against us, including a change
in status from HCM1 to HCM2 for any of our Learning Centers, CLC could be
materially and adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
During the last three fiscal years, CLC has financed its operating and
capital expenditure requirements principally through a combination of cash on
hand and cash provided by operating activities and bank
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borrowings. Cash (used in) provided by operating activities for fiscal 2000,
1999 and 1998 was $(261,000), $(2.3) million, and $16.2 million, respectively.
Our principal sources of funds at January 31, 2000 were cash and cash
equivalents of approximately $7.8 million and net current accounts receivable of
$51.1 million. Additionally, we had a credit agreement with a bank that provided
for a $15.0 million (as amended, from $12.0 million) revolving credit facility,
expiring in February 2001. We have granted the bank a security interest in
substantially all of our assets. The interest on the facility was based on the
bank's U.S. prime rate plus one percent. The bank's prime rate was 8.5% at
January 31, 2000. We had borrowings outstanding of approximately $11.0 million
on our line of credit as of January 31, 2000. In addition, the Company had
outstanding letters of credit of $4.0 million primarily to the Department of
Education, and an insurance company, for surety bonds required by various states
and to our lessors on behalf of certain Learning Centers. These outstanding
letters of credit reduced the amount available under the credit facility.
We obtained an amendment of our credit facility from our bank on January
29, 2000. The terms of the amendment temporarily increased the facility from $12
million to $15 million on that date. The credit agreement, as amended required
maintenance of certain financial ratios and contained other restrictive
covenants including limitations on purchases and sales of assets. As of January
31, 2000, we failed to meet three of the four financial ratio requirements and
certain non-financial covenants. We obtained a waiver of these covenant
violations from our lender in May 2000. We are in compliance with all other
covenants as of and for the year ended January 31, 2000. We are also required to
maintain a certain financial responsibility score and satisfy other measures to
maintain compliance with regulatory standards. As of January 31, 2000, we fell
below certain minimum measures for certain institutions and for CLC as a whole.
If our financial condition continues to deteriorate, we may no longer be able to
meet minimum regulatory standards which could lead the Department to place
additional Learning Centers on HCM2 or require that we post an additional letter
of credit on behalf of some or all of our Learning Centers.
We obtained an amendment of our credit facility from our lender dated May
15, 2000. This amendment separates the maximum amount of letters of credit we
may extend from the maximum borrowing capacity of the facility. The borrowing
capacity was established at $9.2 million with scheduled reductions through
November 1, 2000 when the maximum borrowing capacity will be $2.5 million. We
have pledged our expected income tax refunds of $6.1 million for immediate
prepayment on this facility. Both the facilities expire on May 31, 2001. In
addition, the interest rate on outstanding balances increases to the bank's U.S.
prime rate plus two percent with a facility charge of up to 3% dependent on the
outstanding borrowings. We have extended approximately $3.3 million in letters
of credit at May 15, 2000. The amendment provides for $3.3 million as the
maximum limit for the facility through July 31, 2000 and reduces to $2.6 million
thereafter. Furthermore, the financial ratio covenants were modified to include
only a fixed charge ratio and a minimum tangible net worth requirement.
As previously discussed, we began operating under HCM2 procedures at two of
our Learning Centers as of March 14, 2000. These procedures delay the receipt of
Title IV Program funding for approximately 75 days. While implementing these
procedures with the Department, we have experienced a delay in Title IV Program
funding for two of our other Learning Centers, since they are a part of the same
institution or campus group. We estimate that this delay has required us to use
additional working capital to fund operations during the delay period of
approximately $3 million.
Historically, our 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 $7.7 million, $18.4 million, and $19.6 million for fiscal 2000,
1999, and 1998, respectively. CLC leases all of its facilities under operating
lease agreements. We continue to expand current facilities and upgrade
equipment, as necessary; however, we do not expect to open any new Learning
Centers during fiscal 2001. We expect fiscal 2001 capital expenditures to be
approximately $2.6 million.
A majority of our revenues are derived from tuitions funded by the Title IV
Programs. Disbursement of Title IV Program funds is dictated by federal
regulations. For students enrolled in programs of one academic
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year or less in length, disbursements generally are made in two equal
increments, one in the first 35 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 CLC is subject to a
student's directions to the lender and to existing regulatory requirements
regarding such disbursements, we typically receive student loan funds upon their
disbursement by the lender. During fiscal 2000, we collected approximately
$125.0 million, of accounts receivable, which was utilized for various operating
activities and capital expenditures.
On April 17, 2000, we made a decision to close our San Jose, CA Learning
Center. This school had 114 students as of March 31, 2000 and accounted for
approximately $1.9 million and $3.5 million of our revenue in fiscal 2000 and
1999, respectively. We decided to close this school as it had contributed
approximately $(1.1) million to CLC's pre-tax operating loss in fiscal 2000 and
our evaluation of the market indicates that this school could not return to
profitable operations. This Learning Center will continue to teach existing
students through approximately July 31, 2001.
We continuously review our cash flow, and seek strategies to provide
favorable returns on our capital. Our Board of Directors authorized a program to
repurchase up to 1,000,000 shares of our Common Stock over a two-year period
ending August 31, 2000. As of April 29, 2000, we had not purchased any stock
under this program and the terms of our credit facility restrict us from making
any future purchases of our Common Stock. We were required to issue 1,013,152
shares of our Common Stock in settlement of a shareholder lawsuit, which
received judicial approval in July 1999.
We have undertaken the development of a new proprietary administrative
software system, which we believe will serve to mitigate deficiencies in our
record-keeping systems identified by previous regulatory reviews. We expect to
expend approximately $3 million to develop and implement this system, which we
anticipate will be completed by January 31, 2001. To date, we have expended
approximately $1.9 million to develop and implement this system.
We have experienced a decline in our working capital over the last several
quarterly periods. During this time, we have utilized an increasing amount of
our available line of credit with our principal bank and as of January 31, 2000
there were no additional borrowings available under the line. However, when
considering our projected enrollments over the next twelve months, we expect our
available cash on hand and cash from operating activities will be sufficient to
meet our cash requirements for at least the next twelve months (see "Certain
Factors That May Affect Future Results -- Financial Condition," contained
herein). During this time, we will continue to evaluate all sources of capital
available to us, including bank financing or additional equity or debt
offerings, to satisfy ongoing working capital and capital expenditure
requirements.
YEAR 2000
We have not experienced any significant disruptions to our financial or
operating activities caused by failure of our computerized systems resulting
from Year 2000 issues. We do not expect Year 2000 issues to have a material
adverse effect on CLC's operations or financial results in fiscal 2001. We
estimated that direct costs for CLC's Year 2000 readiness would approximate $300
during fiscal 2000, not including salaries of our employees involved in the
process, costs of replacements to our information technology and other equipment
in the normal course of operations. Our actual costs did not vary materially
from this original estimate.
IMPACT OF INFLATION
Inflation has not had a significant impact on our 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.
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FINANCIAL CONDITION
We have experienced a decline in our working capital and available cash
balances over the last several quarterly periods. During this time, we have
utilized an increasing amount of our available line of credit with our principal
bank and as of January 31, 2000, there were no additional borrowings available
under the line. In addition, we have utilized significant financial resources to
improve and expand existing Learning Centers. These uses of capital combined
with the operating losses we have experienced has resulted in a deterioration of
our financial condition as evidenced by our declining financial ratios. We have
had to seek modification of our credit facility covenants and obtain waivers of
these covenants when we have failed to meet the lender's minimum requirements.
We are also required to maintain a certain financial responsibility score and
satisfy other measures to maintain compliance with regulatory standards. As of
January 31, 2000, for certain institutions, as defined by the Department, and
for CLC as a whole, we fell below the financial responsibility score and other
minimum measures. In order for us to meet our long-term plan of expanding in new
and existing markets, we may need additional capital resources either from a
financial institution or the capital markets. If we are unable to obtain capital
from these or other sources, we may not meet these long-term plans. In addition,
if our financial condition continues to deteriorate, we may not meet minimum
regulatory standards, which could lead the Department to place additional
Learning Centers on HCM2 or require that we post an additional letter of credit
on behalf of some or all of our Learning Centers.
LITIGATION
CLC has been named as defendant in numerous lawsuits filed by former
students and employees and other parties. We intend to defend CLC vigorously in
these lawsuits; however, there can be no assurance that we will be successful in
defending CLC in any of these proceedings. Even if we prevail on the merits in
such litigation, we expect to continue to incur significant legal and other
defense costs as a result of such proceedings. These proceedings could involve
substantial diversion of the time of some members of management, and an adverse
determination in, or settlement of, such litigation could involve the payment of
significant amounts, or could include terms in addition to such payments, which
could have a severe impact on our business, financial condition and results of
operations. Refer to Item 3 -- "Legal Proceedings" herein.
There can be no assurance that additional legal proceedings will not be
filed or that adverse actions will not be initiated against CLC, either by
federal or state regulators or other parties. Any such legal proceedings or
adverse action could have a severe impact on CLC's business, financial condition
and results of operations.
POTENTIAL ADVERSE EFFECTS OF REGULATION
CLC 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. We are subject to extensive and varying
regulation in each of the states in which the Learning Centers currently
operate.
The loss of state authorization by an existing Learning Center or the
failure of a new or newly acquired Learning Center to obtain state 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 CLC. Refer to Item 1 -- "Business -- Financial Aid and Regulation"
contained herein.
As educational institutions that participate in various foreign and
domestic federal and state financial aid programs, CLC is subject to extensive
governmental regulation. In particular, the U.S. Higher Education Act of 1965,
as amended, and the regulations promulgated thereunder, subject us 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 CLC or any of our Learning Centers or its students
to participate in government sponsored financial aid programs would have a
material adverse effect on CLC.
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 CLC or any Learning Center could result in
the restriction or loss of a Learning Center's ability to participate in
government funding programs or to offer education and training programs. Any
such loss or restriction would have a material
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adverse effect on CLC. For further information on CLC's current regulatory
matters, refer to Item 1 -- "Business -- U.S. Department of
Education -- Regulation and Review" and "Business -- State Authorization and
Accreditation" contained herein. Any unfavorable outcomes or adverse actions
resulting from regulatory reviews could have a material adverse effect on CLC's
business, financial condition and results of operations.
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 16.0% of the outstanding
shares of our Common Stock. Consequently, the General Atlantic Entities, and GAC
in particular, will continue to have significant influence over the policies and
affairs of CLC 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 our Certificate of Incorporation and the approval of
mergers and sales of our assets.
Because of the control position of the General Atlantic Entities, any
disposition of our Common Stock by the General Atlantic Entities or issuance of
stock by us that results in a loss of control by the General Atlantic Entities
may give rise to a change of ownership resulting in a change of control of CLC
under applicable federal and state regulations and accrediting agency
requirements, resulting in potential interruption of the eligibility of Learning
Centers to participate in the Title IV Programs. Upon a change of ownership
resulting in a change of control of CLC, as defined in the Higher Education Act
and the Department of Education's regulations, each Learning Center would have
to be recertified to continue to participate in the Title IV Programs with the
possible loss of a portion, or all, of its Title IV Program funding during the
reapproval period. Refer to Item 1 -- "Business -- Financial Aid and Regulation"
contained herein.
CHANGE IN TITLE IV PROGRAM FUNDING ADMINISTRATIVE AGENT
We utilize a third-party agent to perform maintenance of the required
regulatory requirements associated with transfers of Title IV Program funds to
our bank accounts. This responsibility will be transferred to a new third-party
administrative agent in June 2000. We expect this transfer of responsibility to
occur without significant impact on our business. However, should we experience
impediments related to this transition, it may result in delays in the timing of
our cash receipts, which could result in material adverse effects on our
business, results of operations, and financial condition.
COMPETITION
The postsecondary adult education and training market is highly fragmented,
with no single institution or company holding a dominant market share. We
compete 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.
DEPENDENCE ON NEW PROGRAMS AND LOCATIONS; RISKS ASSOCIATED WITH CHANGES IN
TECHNOLOGY AND GROWTH
The market for our programs and services is characterized by rapidly
changing requirements and characteristics. Our 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 we are 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 CLC fail to gain or maintain widespread
commercial acceptance, our business may be materially and adversely affected.
We offer 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 our ability to market CLC's programs and services. This may require us to
make substantial expenditures to develop new programs and services and to
acquire new faculty, equipment and
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facilities. If we are unable, for financial, regulatory or other reasons, to
make those expenditures or acquisitions, our business may be materially and
adversely affected.
CLC's ability to meet future operating and financial goals will depend upon
our ability to successfully implement our financial strategy and meet enrollment
growth plans, which will include the introduction of new programs as well as
obtaining alternative sources of financing for our students. CLC's success in
this area will depend on our ability to find strategic partners, effectively
anticipate facility needs and maintain successful admission campaigns. There can
be no assurance that we will be able to accomplish or manage this change
effectively.
DEPENDENCE UPON KEY EMPLOYEES
CLC's success depends to a significant extent upon the continued service of
its executive officers and other key personnel. Certain of our executive
officers are subject to employment or non-competition agreements. The loss of
the services of any of our executive officers or other key employees could have
a material adverse effect on CLC. CLC's future success will depend in part upon
our continuing ability to attract and retain highly qualified personnel. There
can be no assurance that we 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 CLC'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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
CLC has minimal exposure to market risks as it relates to effects of
changes in interest rates and foreign currency exchange rates. We do not hold or
issue derivative financial instruments.
Interest Rate Risk
We principally invest our available cash balances in U.S. government
securities with maturity dates less than 90 days as well as overnight repurchase
agreements with its primary banking institution. These investments are
classified as cash and cash equivalents in our financial statements. The fair
value of these instruments would not be significantly impacted by either a 100
basis point increase or decrease in interest rates due primarily to the
short-term nature of the investments. CLC's credit facility is directly impacted
by changing interest rates in the Commercial Prime Rate of its lender. Assuming
we maintained a $5 million outstanding loan balance, and an instantaneous
increase or decrease of one percentage point in the Commercial Prime Rate, our
after-tax earnings would change by $40,000 over a twelve month period. We
believe that any material changes to interest rates on sources of loans for our
students may have a material effect on enrollments and an indirect effect on our
financial condition and results of operation; however, such change would be
deemed extraordinary and is not expected to occur in the foreseeable future.
Foreign Currency Exchange Risk
We began transacting business in Quebec, Canada upon acquisition of our
subsidiary, CLC Delta, in February 1998. We do not currently hedge our exposure
to the effects of changes in the exchange rate of the Canadian to U.S. dollar.
We experienced an unrealized loss due to foreign currency translation of
approximately $11,000 in fiscal 2000 recorded as other comprehensive loss in the
consolidated statement of changes in stockholders' equity. We had revenues of
approximately $7 million from our Canadian operations during fiscal 2000.
Assuming the same level of activity for fiscal 2001, and an instantaneous
increase or decrease of ten percent in the Canadian exchange rate, CLC's
comprehensive income could change by approximately $91,000 during fiscal 2001.
35
<PAGE> 36
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
COMPUTER LEARNING CENTERS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Statements of Operations for the Years Ended
January 31, 2000, 1999 and 1998........................... F-3
Consolidated Balance Sheets at January 31, 2000 and 1999.... F-4
Consolidated Statements of Stockholders' Equity at January
31, 2000, 1999, and 1998.................................. F-5
Consolidated Statements of Cash Flows for the Years Ended
January 31, 2000, 1999 and 1998........................... F-6
Notes to Consolidated Financial Statements.................. F-7
Consolidated Financial Statement Schedules for the Years
Ended January 31, 2000, 1999 and 1998
Schedule II--Valuation and Qualifying Accounts.............. I-7
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.
F-1
<PAGE> 37
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Computer Learning Centers, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Computer Learning Centers, Inc. and its subsidiaries at January 31,
2000 and 1999, and the results of their operations and their cash flows for each
of the three years in the period ended January 31, 2000, in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the
accompanying index presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedule are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, 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.
As discussed in Notes 1 and 3 to the accompanying consolidated financial
statements, the Company is subject to significant regulatory oversight and
ongoing reviews by the U.S. Department of Education. Management's progress to
date and future plans with respect to regulatory and related matters are also
discussed in Notes 1 and 3.
As discussed in Note 2, the Company has restated its financial statements
for the years ended January 31, 1999 and 1998.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
May 15, 2000
F-2
<PAGE> 38
COMPUTER LEARNING CENTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
---------------------------------
1999 1998
RESTATED RESTATED
2000 (NOTE 2) (NOTE 2)
--------- --------- ---------
<S> <C> <C> <C>
Revenues.................................................... $134,640 $144,189 $95,761
-------- -------- -------
Costs and expenses:
Costs of instruction and services...................... 100,252 93,802 53,845
Selling and promotional................................ 21,315 21,729 15,289
General and administrative............................. 17,299 15,614 7,657
Provision for doubtful accounts........................ 8,911 8,388 4,794
Amortization of intangible assets...................... 562 558 362
-------- -------- -------
148,339 140,091 81,947
-------- -------- -------
(Loss) income from operations............................... (13,699) 4,098 13,814
Litigation settlement expense............................... -- (5,599) --
Interest (expense) income, net.............................. (249) 513 1,391
Gain on sale of investment securities....................... -- 279 --
-------- -------- -------
(Loss) income before income taxes and cumulative effect of
accounting change......................................... (13,948) (709) 15,205
(Benefit from) provision for income taxes................... (5,827) (383) 6,234
-------- -------- -------
(Loss) income before cumulative effect of accounting
change.................................................... (8,121) (326) 8,971
Cumulative effect of accounting change (Note 1)............. -- (245) --
-------- -------- -------
Net (loss) income........................................... $ (8,121) $ (571) $ 8,971
======== ======== =======
Earnings (loss) per share (Notes 1 and 6):
Basic --
(Loss) income before cumulative effect of accounting
change............................................ $ (0.45) $ (0.02) $ 0.56
Cumulative effect of accounting change............... -- (0.01) --
-------- -------- -------
Net (loss) income.................................... $ (0.45) $ (0.03) $ 0.56
======== ======== =======
Diluted --
(Loss) income before cumulative effect of accounting
change............................................ $ (0.45) $ (0.02) $ 0.52
Cumulative effect of accounting change............... -- (0.01) --
-------- -------- -------
Net loss income...................................... $ (0.45) $ (0.03) $ 0.52
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 39
COMPUTER LEARNING CENTERS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JANUARY 31,
-------------------
1999
RESTATED
2000 (NOTE 2)
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 7,819 $ 7,691
Accounts receivable, net............................... 51,074 56,697
Income taxes receivable................................ 6,083 3,658
Deferred tax assets.................................... 5,541 4,671
Prepaid expenses and other current assets.............. 3,440 5,672
-------- --------
Total current assets.............................. 73,957 78,389
Fixed assets, net........................................... 34,558 37,604
Long-term accounts receivable, net.......................... 10,439 10,660
Other long-term assets...................................... 5,354 5,854
-------- --------
Total assets...................................... $124,308 $132,507
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable................................. $ 3,520 $ 6,503
Accrued employee expenses.............................. 3,091 1,775
Accrued other expenses................................. 6,498 8,341
Current portion of long-term debt, net of the current
portion............................................... 8,455 --
Deferred revenues...................................... 50,833 54,397
-------- --------
Total current liabilities......................... 72,397 71,016
Long-term deferred revenues................................. 1,191 3,073
Long-term debt.............................................. 2,500 3,000
Other long-term liabilities................................. 3,061 2,576
-------- --------
Total liabilities................................. 79,149 79,665
-------- --------
Stockholders' equity:
Preferred stock $.01 par value, 1,000,000 authorized
shares, no shares issued or outstanding............... -- --
Common stock, $.01 par value, 35,000,000 authorized
shares, 18,610,818 shares issued and
outstanding -- 2000; 17,493,251 issued and outstanding
shares -- 1999........................................ 186 175
Additional paid-in capital............................. 41,120 40,682
Accumulated other comprehensive loss................... (59) (48)
Retained earnings...................................... 3,912 12,033
-------- --------
Total stockholders' equity........................ 45,159 52,842
-------- --------
Commitments and contingencies (Note 12)
Total liabilities and stockholders' equity........ $124,308 $132,507
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 40
COMPUTER LEARNING CENTERS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL COMPREHENSIVE
PREFERRED COMMON PAID-IN COMPREHENSIVE RETAINED STOCKHOLDERS' INCOME
STOCK STOCK CAPITAL INCOME EARNINGS EQUITY (LOSS)
--------- ------ ------- ------------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT FEBRUARY 1, 1997, AS
REPORTED.............................. $-- $156 $32,104 $112 $ 7,420 $39,792
-- ---- ------- ---- ------- -------
Restatement adjustment, net of $764 for
income taxes (Note 2)................. -- -- -- -- (1,100) (1,100)
Exercise of stock options............... -- 4 807 -- -- 811
Employee stock purchase plan............ -- -- 121 -- -- 121
Tax benefit of nonqualified option
exercises............................. -- -- 1,365 -- -- 1,365
BEC acquisition (Note 5)................ -- 2 128 -- (1,092) (962)
Net income.............................. -- -- -- -- 8,971 8,971 8,971
Unrealized gain on investment........... -- -- -- 48 -- 48 48
-------
Comprehensive income for fiscal
1998............................. -- -- -- -- -- -- $ 9,019
-- ---- ------- ---- ------- ------- -------
BALANCE AT JANUARY 31, 1998............. -- 162 34,525 160 14,199 49,046
-- ---- ------- ---- ------- -------
Exercise of stock options............... -- 2 472 -- -- 474
CLC Paramus acquisition (Note 5)........ -- 5 32 -- 350 387
CLC Delta acquisition (Note 5).......... -- 5 680 -- (1,945) (1,260)
Tax benefit of nonqualified option
exercises............................. -- -- 250 -- -- 250
Litigation settlement................... -- -- 4,500 -- -- 4,500
Employee stock purchase plan............ -- 1 223 -- -- 224
Net loss................................ -- -- -- -- (571) (571) (571)
Unrealized gain, net of realized gain on
investment............................ -- -- -- (160) -- (160) (160)
Foreign exchange translation
adjustments........................... -- -- -- (48) -- (48) (48)
-------
Comprehensive loss for fiscal
1999............................. -- -- -- -- -- -- $ (779)
-- ---- ------- ---- ------- ------- -------
BALANCE AT JANUARY 31, 1999............. -- 175 40,682 (48) 12,033 52,842
-- ---- ------- ---- ------- -------
Exercise of stock options............... -- -- 18 -- -- 18
Tax benefit of nonqualified option
exercises............................. -- -- 273 -- -- 273
Litigation settlement................... -- 10 (10) -- -- --
Employee stock purchase plan............ -- 1 157 -- -- 158
Net loss................................ -- -- -- -- (8,121) (8,121) (8,121)
Foreign exchange translation
adjustments........................... -- -- -- (11) -- (11) (11)
-------
Comprehensive loss for fiscal
2000............................. -- -- -- -- -- -- $(8,132)
-- ---- ------- ---- ------- ------- =======
BALANCE AT JANUARY 31, 2000............. $-- 186 $41,120 $(59) $ 3,912 $45,159
== ==== ======= ==== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 41
COMPUTER LEARNING CENTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
---------------------------------
1999 1998
RESTATED RESTATED
2000 (NOTE 2) (NOTE 2)
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income........................................... $ (8,121) $ (571) $ 8,971
Adjustments to reconcile net (loss) income to cash from
operating activities:
Provision for doubtful accounts...................... 8,911 8,388 4,794
Depreciation......................................... 10,788 7,521 4,020
Litigation settlement expense........................ -- 4,500 --
Amortization of intangible assets.................... 562 558 362
Deferred tax benefit................................. (825) (3,629) (1,179)
Changes in net assets and liabilities:
Accounts receivable.................................. (3,288) (13,850) (22,405)
Income taxes receivable.............................. (2,152) (3,658) --
Prepaid expenses and other current assets............ 2,232 (959) (1,158)
Long-term accounts receivable........................ 221 (4,275) (4,888)
Other long-term assets............................... (106) (230) (203)
Trade accounts payable............................... (2,983) 4,140 (795)
Accrued employee expenses............................ 1,316 (1,343) 654
Accrued other expenses............................... (1,843) 1,160 5,265
Deferred revenues.................................... (3,564) (885) 19,845
Long-term deferred revenues.......................... (1,882) (640) 2,371
Other long-term liabilities.......................... 473 1,455 581
-------- -------- --------
Cash (used for) provided by operating
activities...................................... (261) (2,318) 16,235
-------- -------- --------
Cash flows from investing activities:
Capital expenditures................................. (7,742) (18,367) (19,548)
Other................................................ -- (113) (215)
Cash from acquired companies......................... -- 932 324
-------- -------- --------
Cash used for investing activities................ (7,742) (17,548) (19,439)
-------- -------- --------
Cash flows from financing activities:
Exercise of stock options............................ 18 474 811
Proceeds from sales of common stock through employee
stock purchase plan............................... 158 224 121
Borrowing from debt.................................. 8,455 3,000 --
Repayments of debt................................... (500) (518) (301)
-------- -------- --------
Cash provided by financing activities............. 8,131 3,180 631
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents....................................... 128 (16,686) (2,573)
Cash and cash equivalents, beginning of year......... 7,691 24,377 26,950
-------- -------- --------
Cash and cash equivalents, end of year............... $ 7,819 $ 7,691 $ 24,377
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 42
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000, 1999, AND 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 1 -- NATURE OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of the business
Computer Learning Centers, Inc. (the "Company" or "CLC"), is a public
company traded on the NASDAQ National Market. As of January 31, 2000, the
Company had twenty-eight operating Learning Centers in the U.S. and Canada and
was headquartered in Manassas, Virginia.
As described in Note 3, the Company is subject to significant regulatory
oversight and ongoing reviews by the U. S. Department of Education ("Department
of Education" or the "Department"). The failure to comply with requirements
promulgated by the Department could result in the restriction or loss by the
Company or its Learning Centers of their ability to participate in federal
financial aid programs. Since financial aid programs fund the majority of the
tuition revenues, such restrictions could have a severe impact on the Company's
business financial condition and results of operations. During fiscal 1999 and
2000, the Department conducted various program reviews of the Company's
administration of financial aid programs at the Alexandria VA, Manassas VA, and
Laurel MD Learning Centers. The Department issued reports alleging
non-compliance with certain Title IV Program requirements. The Company was
required to and has performed additional reviews of student files at these
Learning Centers and continues to cooperate with all subsequent Department
requests.
On the basis of the above program reviews, on and effective March 8, 2000,
the Department placed all of the Company's Title IV eligible Learning Centers on
a cash monitoring program which would have delayed all cash receipts from
federal programs for up to 75 days (the "delay period"). The delay would be
caused while the Department conducted various reviews of student eligibility
data prior to disbursing the funds. The anticipated cash need during this delay
period was projected to be significantly in excess of the Company's available
cash or borrowing capability. On March 14, 2000, the Company reached an
agreement with the Department resulting in a modification of the terms of its
March 8 action. The modified terms were such that only the Alexandria, VA and
Laurel, MD Learning Centers were placed on this restricted cash status. This
modification was conditioned on certain additional reporting by the other
Learning Centers, and that the Company engage its independent accountants to
conduct an attestation engagement related to the Company's compliance with Title
IV regulations of student refunds for those students who attended and withdrew,
as well as returns of funds for federal aid received whereby the student was not
in attendance (the "Special Attestation"). The Special Attestation, as more
fully described in Note 3, is required to be completed by June 1, 2000. The
results of such engagement may cause the Department to change the federal
funding procedures at certain or all of the Learning Centers, including the
potential for the Department to reinstate the restrictive cash procedures, which
would have a severe impact on the Company.
Further, the Company is required to complete certain of the open matters
relative to its program reviews. The completion of these reviews with results
that do not substantiate compliance with Title IV requirements acceptable to the
Department could similarly have a severe impact on the Company.
The above matters, as well as state regulatory issues described in Note 3,
have had both direct and indirect negative impacts on the Company's financial
results for the periods in which the reviews have been ongoing. Direct costs
include those monies expended on legal and other professional services provided;
program reviews and refunds to students. Indirect costs include the shareholder
and student lawsuits discussed in Note 12 as well as the adverse effects caused
by negative publicity on student enrollments and therefore student populations.
The costs have resulted in the decline in working capital and available cash
balances over the last several quarterly periods. During this time, the Company
has utilized an increasing amount of its available line of credit borrowings
(see note 9) to fund its capital expenditure needs and operating losses. These
uses of capital, combined with the operating losses, have resulted in the
decline of the Company's
F-7
<PAGE> 43
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000, 1999 AND 1998 -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 1 -- NATURE OF THE BUSINESS AND SIGNIFICANT ACCOUNTING
POLICIES -- (CONTINUED)
financial condition and financial ratios required to be maintained for
compliance with its credit agreement. Due to noncompliance with certain loan
covenants of this agreement, the Company has had to modify its credit agreement,
which has resulted in the reduction of available borrowing capability. The
Company is also required to maintain certain financial ratios and other measures
to maintain compliance with regulatory standards. As of January 31, 2000, the
Company met certain of these ratios, and for certain institutions, as defined by
the Department, the Company fell below these minimum measures. Should the
Department apply increased funding restrictions on the individual institutions
that were below these minimum ratios, as defined, resulting in further
limitation of financial aid funding, the Company's financial position would be
severely impacted.
However, management believes that its progress to date and future plans
will provide cash from operations sufficient to meet the Company's obligations
as they become due. As discussed in Note 9, the Company has recently
restructured its credit facility to provide cash to support operations through
the expiration of the facility in May 2001. In addition, management's plans to
resolve the open regulatory compliance matters are discussed in Note 3.
Management believes that the resolution of these regulatory matters is unlikely
to have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company is involved in litigation incident to its business (See note
12).
As used herein, the fiscal years ended January 31, 2000, 1999, and 1998 are
referred to as "2000", "1999," and "1998," respectively.
Basis of presentation and principles of consolidation
The consolidated financial statements include the Company and its wholly
owned subsidiaries, Computer Learning Centers of Quebec, Inc. and Delta College,
Inc. All significant intercompany balances and transactions have been
eliminated.
(Loss) earnings per share
(Loss) earnings per share are calculated as both basic earnings per share,
which is based on the weighted-average number of common shares outstanding and
diluted earnings per share, which is based on the weighted-average number of
common shares outstanding and all potentially dilutive common shares
outstanding.
Revenue recognition
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 tuition revenues on a pro rata basis over the
term of instruction. Revenue is recognized on an instructional day basis as
total instructional days elapsed divided by the total instructional days in the
program applied to the total course tuition. Refer to Note 2 for discussion of
CLC's change in its revenue recognition policy and the restatement of these
consolidated financial statements.
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. Prior to
F-8
<PAGE> 44
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000, 1999 AND 1998 -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 1 -- NATURE OF THE BUSINESS AND SIGNIFICANT ACCOUNTING
POLICIES -- (CONTINUED)
1999, such capitalized costs were amortized on a straight-line basis over a
one-year period commencing with the date of the start of the first class. In the
fourth quarter of 1999, the Company adopted AICPA Statement of Position 98-5
"Reporting on the Costs of Start-Up Activities," which required that the Company
expense these start-up costs as they are incurred. Accordingly, the Company
recorded a charge of $245 (net of income tax benefit of $169) in 1999
representing the cumulative effect of this change in accounting principal.
Fair value of financial instruments
The carrying amount reported in the consolidated 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.
Statement of cash flows
For purposes of reporting cash flows, the Company considers investments
having a maturity of three months or less to be cash equivalents. Cash paid for
income taxes in 2000, 1999, and 1998 aggregated $160, $7,188, and $4,580,
respectively.
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 $1,033, and $1,224 at January 31, 2000 and
1999, 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 to
eight years) 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.
Intangible assets
Identifiable intangible net assets of $2,171 and $2,733 at January 31, 2000
and 1999, included in other long-term assets, consist primarily of U.S.
Department of Education certifications of Title IV Program eligibility. These
assets are being amortized through 2007, using a straight-line method.
Accumulated amortization for these assets aggregated $4,757 and $4,195 at
January 31, 2000 and 1999, respectively.
Advertising costs
The Company expenses all advertising costs as incurred. Total advertising
expense was $10,133, $9,389, and $6,212, for 2000, 1999, and 1998, respectively.
Income taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" which
requires the recognition of deferred tax assets and
F-9
<PAGE> 45
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000, 1999 AND 1998 -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 1 -- NATURE OF THE BUSINESS AND SIGNIFICANT ACCOUNTING
POLICIES -- (CONTINUED)
liabilities for the expected future tax consequences of temporary differences
between the book and tax bases of assets, liabilities and revenues.
Impairment of Long-Lived and Intangible Assets
The Company reviews long-lived assets, including intangible assets, for
impairment whenever events or changes in business circumstances indicate that
the carrying amount of the assets may not be fully recoverable or that the
useful lives of these assets are no longer appropriate. Each impairment test is
based on a comparison of the undiscounted cash flows to the recorded value of
the asset. If impairment is indicated, the asset is written down to its
estimated fair value of the discounted cash flow basis.
Other Comprehensive Income (Loss)
Comprehensive income includes net earnings or losses adjusted for gains and
losses that are excluded from net earnings under generally accepted accounting
principles. The components of accumulated other comprehensive income (loss)
include foreign currency translation adjustments and unrealized holding gains on
marketable securities.
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 and the disclosure of
contingent 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 allowance for doubtful accounts, useful lives of intangible assets,
regulatory provisions and deferred income taxes. Actual results could differ
from these estimates.
Reclassifications
Prior year financial statements have been reclassified to conform with
current year presentation.
NOTE 2 -- RESTATEMENT OF FINANCIAL STATEMENTS
In the fourth quarter of fiscal 2000, management reviewed its policies with
respect to revenue recognition relative to other companies within the industry.
This review was predicated upon a heightened awareness of revenue recognition
policies. As previously disclosed, the Company recognized revenues on a pro rata
basis over the term of instruction, which varies based on the length of the
program. The Company recognized revenue using a half-month convention by
recognizing one-half month of tuition revenue during the starting and graduating
months of a student's program of study, without consideration of the number of
days scheduled for class during such start month. For all of the interim months,
a full month of revenue was recognized.
CLC commences new classes every month and the start dates of these classes
are typically near the end of the month. For example, the Company determined
that on average, students were, and continue to be, in attendance for one-sixth
of a month in the start month, and five-sixths of a month in the graduating
month. The half-month convention was applied primarily for administrative ease.
As a result of the Company's review, the method of recognizing revenue has
changed to an instructional day basis, thereby matching the recognition of
revenue to the instructional term for all students.
F-10
<PAGE> 46
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000, 1999 AND 1998 -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 2 -- RESTATEMENT OF FINANCIAL STATEMENTS -- (CONTINUED)
In addition, the Company had historically expensed all direct student
acquisition costs as incurred. These costs primarily related to recruiting
representatives' salaries, employee benefits and other direct costs. As such,
the half-month revenue convention served to mitigate the impact of this
immediate expensing. Current accounting guidelines, notably the Securities and
Exchange Commission's Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements," issued in December 1999, now require the deferral of
"incremental direct" acquisition costs over the contract period with the
expensing of all other acquisition costs. As a significant portion of student
acquisition costs defined above do not qualify as "incremental direct" costs,
these costs would not be eligible for deferral.
Accordingly, the Company has also modified its policy to defer incremental
direct acquisition costs, which consist primarily of certain third party fees
paid on behalf of the students, net of nominal enrollment fees collected from
the students at the beginning of their programs. The impact of this net cost
deferral adjustment in the fourth quarter of 2000 was not material.
The total effect of the adjustments was immaterial in Fiscal 2000,
decreased the net loss by $15 in 1999 and reduced net income by $609 in 1998.
Accordingly, the financial statements have been restated as follows (see Note 14
for the unaudited interim financial results for 2000 and 1999 restated for the
impact of these adjustments):
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
AS REPORTED RESTATED AS REPORTED RESTATED
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
Revenues......................................... $144,351 $144,189 $96,989 $95,761
Costs and Expenses............................... 140,278 140,091 82,143 81,947
Income from operations........................... 4,073 4,098 14,846 13,814
Net income (loss)................................ (586) (571) 9,580 8,971
Net income (loss) per share
Basic.......................................... (0.03) (0.03) 0.60 0.56
Diluted........................................ (0.03) (0.03) 0.56 0.52
CONSOLIDATED BALANCE SHEETS DATA
Income taxes receivable.......................... 3,835 3,658 -- --
Prepaid expenses and other current assets........ 5,078 5,672 4,137 4,544
Other long term assets........................... 4,500 5,854 4,532 5,383
Accrued other expenses........................... 8,341 8,341 6,519 6,183
Deferred revenues................................ 50,932 54,397 48,231 51,534
Retained earnings................................ 13,727 12,033 15,908 14,199
</TABLE>
The effect of these adjustments at February 1, 1997 decreased retained
earnings by $1,100, net of $764 for income taxes.
NOTE 3 -- FINANCIAL AID PROGRAMS AND REGULATORY MATTERS
U.S. Department of Education -- Regulation and Review
The Company is subject to extensive regulation as a participant in various
federal and state government supported financial aid programs. 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
F-11
<PAGE> 47
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000, 1999 AND 1998 -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 3 -- FINANCIAL AID PROGRAMS AND REGULATORY MATTERS -- (CONTINUED)
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. For 2000, approximately 64% of the Company's revenues
were derived from tuitions that are funded by various federal student financial
aid programs.
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 to place that institution on
provisional certification for up to four years for lack of administrative
capability. As of January 31, 2000, four of the Company's Learning Centers are
provisionally certified for participation in FFEL, due either to cohort default
rates or due to a change of control following the Company's acquisition of these
campuses. The provisional certifications on these four centers extend through
July 2000 to September 2001. The Company expects to apply for recertification as
the provisional certifications expire.
Under the standards of financial responsibility of the Department of
Education, if an institution's annual financial aid compliance audit or a review
by another regulatory agency finds that the institution made refunds late (as
defined by the Department) to 5% or more of its students in either of the two
most recent fiscal years, the institution is required to post a letter of credit
in favor of the Department in an amount equal to 25% of the total Title IV
Program refunds paid by the institution in its prior fiscal year. During 1999,
the Company was required to post a letter of credit of $1.5 million with respect
to all U.S. Learning Centers except for the Somerville and Lowell, MA Learning
Centers for which a separate letter of credit had been required to meet the
Department's financial responsibility requirements, and the Paramus, NJ Learning
Center for which no letter of credit was required. During 2000, the Department
changed the Company's requirement to a single letter of credit of approximately
$2.2 million for all of the Company's U.S. Learning Centers, excluding the
Paramus Learning Center, for which no letter of credit was required.
In May 1998, the Department of Education initiated a program review of the
administration of the Title IV Programs by the Company's Alexandria, VA and
Manassas, VA Learning Centers for the period July 1, 1996 through June 30, 1998.
In September 1998, the Department issued a preliminary report containing a
number of findings alleging non-compliance with certain Title IV Program
requirements. CLC has performed file reviews at these schools and provided
additional materials requested by the Department. In order to conclude this
review, the Department has requested CLC to perform an additional file review of
returns of federal funds during the review period. The Department has expanded
its review of that issue to include the Company's San Jose, Philadelphia and
Houston Learning Centers. The Company does not believe that the resolution of
these reviews will have a severe impact on the Company's business, financial
condition and results of operations.
The Department reviewed the results of the independent audit on
administration of the Company's Title IV Programs for the year ended January 31,
1998 and issued a preliminary audit determination report in December 1998. The
Department's report alleged that the Company failed to make certain student
refunds at its Learning Centers operating during 1998 within the timeframes
established by the Department. The Department required the Company to perform
more expansive reviews of student account files at five of these Learning
Centers, which were deemed to have findings of non-compliance in excess of rates
acceptable to the Department. By letter dated September 28, 1999, the Department
of Education issued its final audit determination letter ("FADL") related to
this matter. In the FADL, the Department assessed repayment liabilities of
immaterial amounts. In addition, the Department deferred resolution of any
matters related to the Alexandria, VA and Laurel, MD Learning Centers to the
open program reviews conducted by the Department related to those locations.
Although the deferred issues remain open as part of the Alexandria, VA and
Laurel,
F-12
<PAGE> 48
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000, 1999 AND 1998 -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 3 -- FINANCIAL AID PROGRAMS AND REGULATORY MATTERS -- (CONTINUED)
MD Learning Center program reviews, the Department's review of the 1998
compliance audit is considered closed.
In January 1999, the Department of Education initiated a program review of
the administration of the Title IV Programs by the Company's Laurel, MD Learning
Center for the period July 1, 1997 through June 30, 1999. The Department issued
a preliminary report in February 2000, which contained a number of findings
alleging non-compliance with certain Title IV Program requirements similar to
those found in the Alexandria and Manassas program reviews discussed above. The
Company has submitted responses to the Department in March and April 2000
concerning all of the findings. The Company does not believe that the resolution
of this review will have a severe impact on the Company's business, financial
condition and results of operations.
In July 1999, the Company submitted the results of its independent audit on
its administration of Title IV Programs for the year ended January 31, 1999 to
the Department. The audit identified certain findings of non-compliance with
respect to the Company's administration of the Title IV Programs. The Company
has not received any written communication from the Department with respect to
this compliance audit. The Company does not believe that the resolution of this
matter will have a severe impact on the Company's business, financial condition
and results of operations.
Heightened Cash Monitoring
The Department also has discretion to alter the way it provides Title IV
Program funds to participating institutions. It may transfer an institution from
the "advance" system of funding, under which an institution receives funding
from the Department 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 Program funds before receiving funds
from the Department. The Department may also impose a requirement known as
"heightened cash monitoring," of which there are multiple levels, which requires
additional reporting to and review by the Department of all Title IV funds
requests.
On April 6, 1998, the Company was notified by the Department of Education
that, based upon the Department's monitoring of litigation involving the Company
and certain student complaints lodged against the Company, it had placed all
Learning Centers on a heightened cash monitoring status 1 ("HCM1"). This status
allows all Learning Centers to continue to receive federal student financial
assistance funds so long as the funds requested are drawn after they have been
credited to student accounts and CLC subsequently provides evidence of such
credit and other supporting information to the Department. The Department does
not consider HCM1 to represent either an adverse or punitive action. This action
by the Department has not had an effect on the availability or timing of
financial assistance to the Company's students, nor has it had a material effect
on the Company's cash flow or operating results.
On March 8, 2000, the Department notified the Company that is was placing
all of the Company's Learning Centers on heightened cash monitoring status 2
("HCM2"). HCM2 does not affect the ability of Learning Centers to obligate Title
IV Program funds or the ability of their students to receive all applicable
forms of federal student aid. However, under HCM2, Learning Centers are required
to document to the Department each student's eligibility for Title IV Program
funding before being reimbursed by the Department for funds which they must
advance to their eligible students. HCM2 procedures require the affected
Learning Centers to submit extensive documentation proving student eligibility.
Those documents are then reviewed by the Department, a process that customarily
requires a minimum of thirty days. Management expects that HCM2 would delay the
timing of Title IV cash flow for approximately 75 days.
F-13
<PAGE> 49
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000, 1999 AND 1998 -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 3 -- FINANCIAL AID PROGRAMS AND REGULATORY MATTERS -- (CONTINUED)
The Department stated that this action was based on information obtained
during its Alexandria, Manassas and Laurel program reviews, which indicated that
the Company had failed to make refunds for some students and had failed to make
refunds on a timely basis for other students. The Company vigorously disputed
the Department's basis for this action and explained the significant adverse
financial effects such action would have. On March 14, 2000, the Company reached
an agreement with the Department resulting in the modification of the terms of
its March 8 action. The key terms of the agreement are that only the Company's
Alexandria, VA and Laurel, MD Learning Centers would be placed on HCM2, that the
remaining Learning Centers would continue on HCM1 with the condition that the
Company submit additional reports and documentation in conjunction with their
future Title IV funds requests, and that the Company must engage an independent
accountant to attest to the compliance with Title IV regulation of refunds and
returns of funds at all of the Company's U.S. Learning Centers receiving Title
IV funds (the "Special Attestation"). Management expects HCM2 will have a
significant impact on the timing of cash flows at these Learning Centers and has
estimated the impact of the 75 day delay will approximate $3 million.
The Special Attestation required by the Department as part of the March 14,
2000 agreement relates to the review of the payment of refunds and other returns
of federal funds for the seven-month period ended January 31, 2000. The results
of the Special Attestation must be submitted to the Department by June 1, 2000.
The Company's management believes that should the Special Attestation
substantiate compliance with Title IV requirements acceptable to the Department
and with CLC's continued compliance with Title IV Program requirements the
Department may remove HCM1 and HCM2 requirements at some or all of the Learning
Centers. However, should the Special Attestation demonstrate noncompliance with
Title IV Program requirements in excess of rates tolerable by the Department,
the Department may take additional actions against CLC, including the
possibility of placing additional Learning Centers on HCM2. Any further adverse
actions initiated by the Department, including a change in status from HCM1 to
HCM2 for any of the Learning Centers could have a severe impact on the Company's
business, financial condition and results of operations.
State Authorization and Accreditation
In addition to Federal oversight, the Company is subject to state level
regulation. During 1999, the Maryland Higher Education Commission ("MHEC") and
Texas Workforce Commission ("TWC") reviewed programs at the Company's Laurel,
Maryland, and Houston, Texas Learning Centers, respectively. In October 1998,
the MHEC and TWC both issued reports citing several findings of regulatory
noncompliance. During 2000 and 1999, the Company recorded expenses of $738 and
$2,226, respectively, representing the total of fines and expenditures for
agreed-upon student refunds as well as an accrual for estimated costs associated
with resolving the findings included in these regulatory matters. These matters
are now considered closed.
The Company has no significant state regulatory actions open that
management expects to result in adverse action or material fines and
assessments.
NOTE 4 -- SEGMENT INFORMATION
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
131, "Disclosures about Segments of an Enterprise and Related Information," the
Company considers its U.S. and Canadian operations to be two separate reportable
segments. Segment assets are identifiable assets that can be directly associated
with the segments. The accounting policies of these segments are the same as
those described in
F-14
<PAGE> 50
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000, 1999 AND 1998 -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 4 -- SEGMENT INFORMATION -- (CONTINUED)
Note 1. There are no significant revenue or expense transactions between the two
segments. The following table illustrates the financial information for both
segments for 2000 and 1999. The Company operated exclusively in the U.S. prior
to 1999.
<TABLE>
<CAPTION>
UNITED STATES CANADA CONSOLIDATED
------------- ------ ------------
<S> <C> <C> <C>
AS OF AND FOR THE YEAR ENDED JANUARY 31, 2000:
Total revenues.............................................. $127,635 $7,005 $134,640
Long-lived assets........................................... 33,531 1,027 34,558
AS OF AND FOR THE YEAR ENDED JANUARY 31, 1999:
Total revenues.............................................. $136,708 $7,481 $144,189
Long-lived assets........................................... 36,564 1,040 37,604
</TABLE>
NOTE 5 -- ACQUISITIONS
On December 23, 1997, the Company completed the acquisition of Boston
Education Corp. ("BEC"), a privately held provider of information technology
education and training. The acquisition, which qualified as a tax-free
organization, was accounted for as a pooling of interests in accordance with
Accounting Principles Bulletin No. 16, "Business Combinations" ("APB 16") and
was completed by issuing 200,148 shares of CLC common stock in exchange for
substantially all of the rights, title and interest in the assets and
substantially all of the liabilities of BEC. BEC had calendar 1997 revenues of
$5.2 million and had approximately 650 students enrolled at the date of
acquisition, at its two campuses: a main campus located in Somerville, MA and a
branch in Methuen, MA. In connection with this acquisition, the Company incurred
$400 of pooling expenses related to certain legal and accounting fees, which are
reflected in 1998 results of operations.
On February 17, 1998 the Company acquired Markerdowne Corporation or
Computer Learning Centers Paramus ("Markerdowne"), a privately held provider of
information technology education and training based in Paramus, New Jersey. The
acquisition, which qualified as a tax-free reorganization, was accounted for as
a pooling of interests in accordance with APB 16. The acquisition was completed
by issuing 510,287 shares of CLC Common Stock in exchange for substantially all
of the rights, title and interest in the assets and substantially all of the
liabilities of Markerdowne. Markerdowne had calendar 1997 revenues of $6.7
million and had approximately 800 students enrolled at the date of acquisition.
In connection with this acquisition, the Company incurred $385 of pooling
expenses related to certain legal and accounting fees, which are reflected in
1999 results of operations.
On February 20, 1998 the Company acquired Delta College, Inc. ("Delta
College"), a Montreal, Quebec-based, privately held provider of information
technology education and training. The acquisition, which was accounted for as a
pooling of interests in accordance with APB 16, was completed by means of an
exchange of all outstanding shares of Delta College for 548,408 shares of CLC
Common Stock. Delta College had revenues of $6.7 million for its fiscal year
ended June 30, 1997 and had enrollment of approximately 800 students at the date
of acquisition at two locations: Montreal and Laval, Quebec. In connection with
this acquisition, the Company incurred $467 of pooling expenses related to
certain legal and accounting fees, which are reflected in 1999 results of
operations.
The prior years' financial statements were not restated to include the
operations of BEC, Markerdowne and Delta College on the basis of the
immateriality of these acquisitions to the Company.
F-15
<PAGE> 51
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000, 1999 AND 1998 -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 6 -- (LOSS) EARNINGS PER SHARE
The following table sets forth the basic and diluted earnings per share
calculations for the years 2000, 1999, and 1998 follow:
<TABLE>
<CAPTION>
NET INCOME PER SHARE
(LOSS) SHARES AMOUNT
---------- ---------- ---------
<S> <C> <C> <C>
2000
Loss per share of common stock -- basic and
diluted............................................ $(8,121) 18,060,612 $(0.45)
======= ========== ======
1999
Loss per share of common stock -- basic and
diluted............................................ $ (571) 17,318,049 $(0.03)
======= ========== ======
1998
Earnings per share of common stock -- basic.......... $ 8,971 15,892,943 $ 0.56
Dilutive securities:
Stock options...................................... -- 1,295,921 --
------- ---------- ------
Earnings per share of common stock -- diluted........ $ 8,971 17,188,864 $ 0.52
======= ========== ======
</TABLE>
The Company had 2,332,033 and 1,664,831 options outstanding as of January
31, 2000 and 1999, respectively, however, these options are not included in the
calculation of the number of dilutive securities outstanding as their impact is
antidulitive due to the net losses realized in 2000 and 1999. All options of the
Company's stock had a dilutive effect for 1998.
NOTE 7 -- ACCOUNTS RECEIVABLE
Student accounts receivables are initially established for the balance of
course tuition (however, only for the current academic year of multi-academic
year programs) at the time a student enrolls in the Learning Center. An academic
year is determined based on the length of the student program and consideration
of regulatory guidelines. Accounts receivables consist of financial aid,
third-party and self-pay receivable balances. Financial aid receivables are
student receivable balances expected to be paid through Title IV program funds.
Third party student receivable balances are those to be paid by employer
companies or various non-Title IV federal, state and non-governmental agencies.
Self-pay student receivables consist of those amounts to be paid by the student.
The Company makes available to qualifying students alternative financing
arrangements ("CLC financing"), which help fund their education. Dependent upon
the credit worthiness of the individual, CLC financing may be offered to assist
students with meeting their financial obligations related to attending CLC. The
Company requires students receiving CLC financing to make regular monthly
payments. Depending on the level of financing extended to students, payment
plans offered generally range from six months to three years. All amounts due to
the Company in periods beyond one year are classified as long-term receivables.
When a student withdraws, tuition paid in excess of earned tuition revenues
is refunded based on the applicable refund policy. Conversely, tuition revenues
earned in excess of tuition paid remains as an accounts receivable. Based on
comparison to historical levels, the Company provides for estimated student
withdrawals, as reductions to accounts receivable and related deferred revenue
balances, thus presenting these amounts at estimated net realizable value.
Accounts receivable balances are reviewed no less than quarterly for the
purposes of determining appropriate levels of the allowance for doubtful
accounts. The Company establishes the allowance for doubtful accounts using an
objective model, which applies various expected loss percentages to aging
categories based
F-16
<PAGE> 52
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000, 1999 AND 1998 -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 7 -- ACCOUNTS RECEIVABLE -- (CONTINUED)
on historical bad debt experience. The Company typically charges-off accounts
receivable balances deemed to be uncollectible usually after they are delinquent
120 days. All charge offs are recorded as reductions in the allowance for
doubtful accounts, with any recoveries of previously written off accounts
receivables recorded as increases to the allowance for doubtful accounts.
As of January 31, 2000 and 1999, net accounts receivable consisted of the
following:
<TABLE>
<CAPTION>
JANUARY 31, 2000
------------------------------
CURRENT LONG TERM TOTAL
------- --------- --------
<S> <C> <C> <C>
Accounts receivable.................................... $68,632 $14,623 $ 83,255
Student withdrawal allowance........................... (9,380) (2,463) (11,843)
Allowance for doubtful accounts........................ (8,178) (1,721) (9,899)
------- ------- --------
$51,074 $10,439 $ 61,513
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31, 1999
-------------------------------
CURRENT LONG TERM TOTAL
-------- --------- --------
<S> <C> <C> <C>
Accounts receivable................................... $ 75,360 $14,780 $ 90,140
Student withdrawal allowance.......................... (12,664) (1,986) (14,650)
Allowance for doubtful accounts....................... (5,999) (2,134) (8,133)
-------- ------- --------
$ 56,697 $10,660 $ 67,357
======== ======= ========
</TABLE>
NOTE 8 -- FIXED ASSETS
Fixed assets consisted of the following:
<TABLE>
<CAPTION>
JANUARY 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Furniture and equipment..................................... $ 37,360 $ 36,829
Leasehold improvements...................................... 23,544 20,567
-------- --------
60,904 57,396
Less: Accumulated depreciation and amortization............. (26,346) (19,792)
-------- --------
$ 34,558 $ 37,604
======== ========
</TABLE>
The Company performed an asset impairment analysis of two underperforming
Learning Centers as well as of an administrative training facility resulting in
a charge of $1,151 during the fourth quarter of 2000. This amount is recorded as
depreciation within cost of instruction and services in these consolidated
financial statements.
NOTE 9 -- LONG-TERM DEBT
As of January 31, 2000, the Company had a $15 million revolving credit
facility with a bank expiring on February 28, 2001. The credit facility was
reduced, from the original $20 million, in December 1999, based on negotiations
with the bank relative to defaulted covenants as of October 31, 1999. At January
31, 2000 and 1999 there were $10,955 and $3,000 outstanding balances on this
facility, respectively. The interest rate associated with the facility was the
U.S. prime rate plus 1%, which was 9.5% at January 31, 2000. The
F-17
<PAGE> 53
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000, 1999 AND 1998 -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 9 -- LONG-TERM DEBT -- (CONTINUED)
Company had outstanding letters of credit of $4,045 and $5,991 at January 31,
2000 and 1999, respectively, primarily to the Department of Education for
recertification for the Title IV Programs of its Learning Centers and an
insurance company for surety bonds required by various states in which the
Company operates. These outstanding letters of credit reduced the amount
available under the Company's credit facility.
The credit agreement, as amended, requires maintenance of certain financial
ratios and contains other restrictive covenants including limitations on
purchases and sales of assets or Company stock. As of January 31, 2000, the
Company failed to meet three of the financial ratio requirements and certain
non-financial covenants. In May 2000, the Company obtained a waiver of these
financial ratio requirements and covenants from its lender. The Company was in
compliance with all other covenants as of and for the year ended January 31,
2000.
Also, in May 2000, the Company obtained an amendment to the facility, which
created a stand-alone revolving credit facility with a maximum borrowing
capacity of $9.2 million as well as a separate facility for letters of credit of
$3.3 million. Both facilities were extended to May 31, 2001. The declining
amounts of available credit over the term of each facility is structured as
follows:
<TABLE>
<CAPTION>
LETTER OF CREDIT
CREDIT FACILITY* FACILITY TOTAL
---------------- ---------------- -------
<S> <C> <C> <C>
May 15 -- July 31, 2000 $9,200 $3,300 $12,500
August 1 -- September 30, 2000 3,700 2,575 6,275
October 1 -- October 31, 2000 3,000 2,575 5,575
November 1, 2000 -- May 31, 2001 2,500 2,575 5,075
</TABLE>
* The facility provides for required prepayments based on tax refunds and other
collateral which when received by the bank would reduce the available credit
to the $2,500 level prior to November 1, 2000.
In addition, effective with the amendment, the interest rate on outstanding
balances increases to the bank's U.S. prime rate plus two percent with an
additional interest fee of up to three percent based on the amount of
outstanding borrowings. The Company had extended approximately $3.3 million of
outstanding letters of credit at May 15, 2000. Furthermore, the financial ratio
covenants were modified to include only a fixed charge ratio and minimum
tangible net worth requirement. Lastly, beginning on August 1, 2000 and every
month thereafter, the Company is required to deposit $250 into a restricted cash
account, until the balance is equal to 110% of the outstanding letters of
credit, or the facility is terminated.
NOTE 10 -- INCOME TAXES
The components of income (loss) before income taxes and cumulative effect
of accounting change are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-------------------------------
2000 1999 1998
--------- -------- --------
<S> <C> <C> <C>
United States........................................... $(14,974) $(2,107) $15,205
Canadian................................................ 1,026 1,398 --
-------- ------- -------
Total................................................... $(13,948) $ (709) $15,205
======== ======= =======
</TABLE>
F-18
<PAGE> 54
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000, 1999 AND 1998 -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 10 -- INCOME TAXES -- (CONTINUED)
The components of the provisions for (benefits from) income taxes are as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
---------------------------------
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal................................................ $(4,428) $ 2,069 $ 5,965
State.................................................. (966) 634 1,448
Canadian............................................... 392 543 --
Deferred:
Federal and state...................................... (825) (3,629) (1,179)
------- ------- -------
Net (benefit from) provision for income taxes............ $(5,827) $ (383) $ 6,234
======= ======= =======
</TABLE>
Deferred tax assets (liabilities) arise due to the recognition of income
and expense items for tax purposes which differ from those used for financial
statement purposes. At January 31, 2000 and 1999, the net deferred tax asset was
comprised of the following:
<TABLE>
<CAPTION>
JANUARY 31,
---------------
2000 1999
------ ------
<S> <C> <C>
Allowance for doubtful accounts............................. $2,897 $2,454
Shareholder litigation settlement obligation................ 1,845 2,112
Revenue recognition method.................................. 1,286 1,421
Deferred rent accrual....................................... 1,370 1,153
Vacation pay accrual........................................ 310 341
Employee benefits........................................... 259 156
Other accruals.............................................. 229 --
------ ------
Total deferred tax assets.............................. 8,196 7,637
------ ------
Depreciation and amortization............................... (634) (499)
Other deferred tax liabilities.............................. -- (401)
------ ------
Total deferred tax liabilities......................... (634) (900)
------ ------
Net deferred tax assets................................ $7,562 $6,737
====== ======
</TABLE>
Management believes, based on prior years' earnings and the non-recurring
nature of the past two years' losses, that future income from 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. The long-term portion is included in other long-term assets
in the consolidated balance sheets.
F-19
<PAGE> 55
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000, 1999 AND 1998 -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 10 -- 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,
------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. federal income tax rate...................... 35.0% 35.0% 35.0%
State income taxes, net of federal benefit.................. 4.5 6.6 6.4
Taxes on foreign earnings under the U.S. tax rate........... (0.2) (2.0) --
Permanent differences and other............................. 2.5 14.4 (0.4)
---- ---- ----
Effective income tax rate................................... 41.8% 54.0% 41.0%
==== ==== ====
</TABLE>
The fiscal 1999 effective tax rate is the result of relative higher tax
rates applied to losses sustained in the Company's U.S. operations principally
offset by income from operations of the Company's Canadian subsidiary in 1999.
The statutory rates in Quebec, Canada, are lower than those of the Company's
U.S. operations on a weighted average basis. On an individual country basis,
effective income tax rates for the U.S. and Canada were 41.5% and 38.0% in 2000
and 43.9% and 38.9% in 1999, respectively.
NOTE 11 -- SAVINGS AND EMPLOYEE STOCK PURCHASE PLANS
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 $271, $260 and $99 for 2000, 1999, and
1998, respectively.
On March 13, 1997, the Board of Directors ("Board") adopted, and on July
10, 1997, the Company's stockholders approved the 1997 Employee Stock Purchase
Plan ("ESPP"). With certain limited exceptions, all full-time employees,
including executive officers, employed by the Company for at least one year, are
eligible to participate in the ESPP. The Company maintains payroll deduction
accounts for all participating employees and an employee may authorize a payroll
deduction in any whole percentage from 1% to 10% of the employee's eligible
compensation, not to exceed $25 per annum. Under the terms of the ESPP, the
Company's Common Stock may be acquired for an amount equal to 85% of the fair
market value per share of Common stock on either the first day or the last day
of the offering period, whichever is lower. The first offering period commenced
on August 1, 1997 and terminated on January 31, 1998. Thereafter, the offering
period commences on February 1 and terminates on January 31, unless otherwise
determined by the Board. A total of 400,000 shares are authorized and available
for purchase under the plan. There were 99,215, 51,064 and 5,392 shares of
Common Stock issued under the ESPP to eligible employees during 2000, 1999 and
1998, respectively.
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
Active Litigation
On May 5, 1998, a class action lawsuit was filed against the Company in the
Superior Court of New Jersey in Bergen County, New Jersey. The complaint
alleges, among other things, that the Company, at its Learning Centers located
in the State of New Jersey failed to provide certain educational services and
resources, misrepresented certain information respecting services, resources,
occupational opportunities and student outcomes and violated certain provisions
of the New Jersey Consumer Fraud Act. On November 19,
F-20
<PAGE> 56
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000, 1999 AND 1998 -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 12 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
1999, the court certified a class consisting of all persons who, during the six
years immediately preceding the commencement of this action, had enrolled in a
course or courses of study, education or training provided by the Company at its
New Jersey locations for which they incurred tuition expenses. On December 6,
1999, the Company filed a motion with the Appellate Division of the Superior
Court of New Jersey to appeal the November 19, 1999 decision to certify a class.
On January 19, 2000, that motion was denied. The Company is unable to estimate
the outcome of the matter or any potential liability.
On July 9, 1999, a class action lawsuit was filed against the Company in
the Court of Common Pleas in Philadelphia County, Pennsylvania, on behalf of all
students who attended the Learning Center located on Market Street in
Philadelphia within six years of July 9, 1999, who have not obtained employment
in a computer-related job through the Company's placement services. On August 2,
1999, the case was removed to the United States District Court for the Eastern
District of Pennsylvania. On October 12, 1999, the United States District Court
for the Eastern District of Pennsylvania remanded the case to the Court of
Common Pleas in Philadelphia County, Pennsylvania. The complaint alleges, among
other things, that this Learning Center failed to provide certain educational
services and resources, misrepresented certain information respecting services,
resources, occupational opportunities and student outcomes, and violated certain
provisions of the Pennsylvania Unfair Trade Practices and Consumer Protection
Law. The Company is unable to estimate the outcome of the matter or any
potential liability.
Between June 1, 1998 and October 31, 1999, the Company was named as
defendant in three other lawsuits in Texas and New Jersey by individual students
or groups of students who formerly attended one of its Learning Centers. In two
of these lawsuits, various present or former officers, directors and employees
of the Company have also been named as defendants. The complaints allege, among
other things, that the Company, at the affected Learning Centers, failed to
provide plaintiffs with certain educational services and resources and
misrepresented certain information respecting services, resources, student
outcomes and violated certain provisions of the applicable state consumer laws.
The Company is unable to estimate the outcome of these matters or any potential
liability.
In addition to the lawsuits discussed above, the Company is a defendant in
a number of civil lawsuits involving current and former employees and other
third parties, which the Company considers incidental to its business and
unlikely to have a material effect on the Company's future operations. However,
there can be no assurance that these matters will not have a severe impact on
the results of operations of the Company in a future period, depending in part
on the results for such period.
The Company intends to defend itself vigorously in the lawsuits referred to
above; however, there can be no assurance that the Company will be successful in
defending itself in any of these proceedings. Even if the Company prevails on
the merits in such litigation, the Company has incurred and expects to continue
to incur significant legal and other defense costs as a result of such
proceedings. These proceedings could involve substantial diversion of the time
of some members of management. An adverse determination in, or settlement of,
such litigation could involve the payment of significant amounts, or could
include terms in addition to such payments, or could lead to other adverse
consequences, including the suspension or termination of the Company's licenses
to operate within the respective state, which would have a severe impact on the
Company's business, financial condition and results of operations.
Settled Litigation
During fiscal 1999 and 2000, the Company was named as defendant in five
other lawsuits in California, Michigan, Texas and Virginia by individual
students or groups of students who formerly attended one of its
F-21
<PAGE> 57
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000, 1999 AND 1998 -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 12 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
Learning Centers. The complaints alleged, among other things, that the affected
Learning Centers failed to provide plaintiffs with certain educational services
and resources and misrepresented certain information respecting services,
resources, and student outcomes and violated certain provisions of the
applicable state consumer laws. During fiscal 2000, these cases were settled
resulting in payments to the former students of immaterial amounts. Settlement
expenses are combined with legal fees and included within general and
administrative expenses in these consolidated financial statements.
On March 13, 1998, a class action lawsuit was filed against the Company in
the United States District Court for the Central District of California on
behalf of all purchasers of Company Common Stock from October 31, 1997 through
March 10, 1998. Over the following two months, eight additional similar cases
were filed in United States District Courts. The complaints alleged violations
of the Securities Exchange Act of 1934, including allegations that the Company
was experiencing "operations difficulties" and failed to disclose the alleged
difficulties. The complaints also alleged that Company insiders realized profits
by trading their shares of Company stock while in possession of material adverse
information. All of these shareholder lawsuits were consolidated and transferred
to the United States District Court for the Eastern District of Virginia. The
Company entered into a settlement agreement with the plaintiffs in February
1999, whereby the Company settled these allegations and agreed to compensation
to members of the plaintiffs' class. The terms of the settlement, which received
final judicial approval on July 9, 1999 and have been approved by the
plaintiffs, provided for the payment of $3.0 million in cash ($2.35 million was
covered by the Company's insurance policy) and the issuance of 550,000 shares of
CLC Common Stock, subject to certain price protection features, which resulted
in an additional 463,152 shares of CLC Common Stock being issued to guarantee a
total settlement of $7.5 million. All cash settlements were paid in 2000.
Employee Agreements
The Company has various employment agreements with certain senior
executives. The employment agreements would entitle the executives to one to two
years of salary and benefits, which would be payable with respect to the year in
which any breach of such agreements occurred, including termination without
cause. In addition, if they were terminated as the result of a change of control
as defined in the agreements, they would receive amounts of one and one half
times base salary or total compensation, as defined.
During the fourth quarter of 2000, the Company's former Chief Executive
Officer and Chief Financial Officer resigned, which resulted in the Company
incurring $674 of severance expenses. This amount is included in general and
administrative expenses in the fiscal 2000 results of operations. In addition,
the allowable exercise periods of the executives outstanding options were
extended based on the Board of Directors' discretion. The amount of compensation
expense relative to this additional option benefit is immaterial.
Lease Commitments
The Company leases substantially all of its facilities and certain of its
office equipment 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 twenty 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.
F-22
<PAGE> 58
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000, 1999 AND 1998 -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 12 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
Future minimum rental payments required under operating leases that have
initial or remaining non-cancelable lease terms in excess of one year as of
January 31, 2000 are as follows:
<TABLE>
<S> <C>
2001........................................................ $ 12,828
2002........................................................ 12,298
2003........................................................ 10,272
2004........................................................ 9,640
2005........................................................ 8,923
Thereafter.................................................. 48,198
--------
$102,159
========
</TABLE>
Rent expense under these lease agreements aggregated $12,960, $9,710, and
$6,299, for 2000, 1999, and 1998, respectively.
NOTE 13 -- 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 Company has
provided that no further grants may be made under the plan. As of January 31,
2000, options to purchase 95,465 shares of common stock were outstanding under
this plan.
The 1995 Stock Incentive Plan ("1995 Stock 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 non-qualified 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 1,460,460 shares of common stock for
grant under the plan. As of January 31, 2000 options to purchase 1,275,858
shares of common stock were outstanding under this plan, and 11,460 options were
available for grant.
In August 1998 the stockholders' approved the Company's 1998 Stock
Incentive Plan, which provides for the same types of awards as under the 1995
Stock Plan. The Company has reserved 1,000,000 shares of common stock for grant
under this plan. As of January 31, 2000 options to purchase 779,650 shares of
common stock were outstanding under this plan, and 220,350 options were
available for grant.
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 210,534 shares for issuance under this plan. As of January
31, 2000, options to purchase 181,060 shares of common stock were outstanding
under this plan, and 15,434 options were available for grant.
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 stock appreciation rights are outstanding.
Options may be granted in tandem with stock 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.
F-23
<PAGE> 59
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000, 1999 AND 1998 -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 13 -- STOCK INCENTIVE PLANS -- (CONTINUED)
The Company accounts for stock compensation costs in accordance with the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." Accordingly, no compensation costs have been recognized
for its option plans.
The following table sets forth pro forma information as if compensation
cost for its stock option plans had been determined based on the fair value at
the grant date for awards consistent with the requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation."
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JANUARY 31,
--------------------------
2000 1999 1998
------- ------- ------
<S> <C> <C> <C>
Net (loss) income -- as reported............................ $(8,121) $ (571) $8,971
Net (loss) income -- pro forma.............................. (9,019) (1,515) 7,270
(Loss) earnings per share -- as reported:
Basic............................................. $ (0.45) $ (0.03) $ 0.56
Diluted........................................... (0.45) (0.03) 0.52
(Loss) earnings per share -- pro forma:
Basic............................................. $ (0.50) $ (0.09) $ 0.46
Diluted........................................... $ (0.50) $ (0.09) $ 0.42
</TABLE>
The fair value of options at date of grant was estimated using the
Black-Scholes model with the following weighted average assumptions:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JANUARY 31,
------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Expected life (years)....................................... 5 5 5
Interest rate............................................... 5.9% 4.8% 5.6%
Volatility.................................................. 67.3% 64.3% 43.3%
</TABLE>
F-24
<PAGE> 60
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000, 1999 AND 1998 -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 13 -- STOCK INCENTIVE PLANS -- (CONTINUED)
The calculated weighted average fair values of stock options granted during
2000, 1999 and 1998, using the Black-Scholes model, were $1.44, $3.20 and $7.61
per option, respectively.
<TABLE>
<CAPTION>
NON WEIGHTED
INCENTIVE QUALIFIED AVERAGE
STOCK STOCK EXERCISE
OPTIONS OPTIONS PRICES
--------- --------- --------
<S> <C> <C> <C>
Outstanding at February 1, 1997............................. 1,679,162 23,550 $ 5.22
--------- ------- ------
Options granted........................................... 160,050 -- 16.43
Options exercised......................................... (399,196) -- 2.03
--------- ------- ------
Outstanding at January 31, 1998............................. 1,440,016 23,550 7.31
--------- ------- ------
Options granted........................................... 311,505 1,245 5.54
Options exercised......................................... (84,935) (23,550) 3.91
Options cancelled......................................... (3,000) -- 10.16
--------- ------- ------
Outstanding at January 31, 1999............................. 1,663,586 1,245 6.77
--------- ------- ------
Options granted........................................... 790,650 150,000 2.65
Options exercised......................................... (43,950) -- 5.16
Options cancelled......................................... (229,498) -- 7.25
--------- ------- ------
Outstanding at January 31, 2000............................. 2,180,788 151,245 $ 4.98
========= ======= ======
</TABLE>
The weighted average exercise prices for the nonqualified stock options
outstanding, included above, as of January 31, 2000, 1999 and 1998 was $1.88,
$5.06 and $4.84, respectively. Incentive stock options and nonqualified stock
options exercisable were 1,069,796 and 249 at January 31, 2000, 747,313 and none
at January 31, 1999, and 535,615 and 23,550 at January 31, 1998, respectively.
The following table summarizes information about options outstanding at
January 31, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
------------------------------ EXERCISABLE
WEIGHTED -------------------------------
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISABLE PRICE
--------------- ----------- ---------------- -------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$ 1.84 to $ 2.25..... 829,606 9.4 years $ 1.87 99,606 $ 1.84
$ 2.26 to $ 6.67..... 839,181 7.6 years 4.16 347,565 3.72
$ 6.68 to $12.00..... 589,946 6.9 years 8.36 564,240 8.30
$12.01 to $22.25..... 73,300 7.4 years 22.25 58,634 22.25
---------- --------- ------ ---------- ------
2,332,033 8.1 years $ 4.98 1,070,045 $ 6.98
========== ========= ====== ========== ======
</TABLE>
F-25
<PAGE> 61
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000, 1999 AND 1998 -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 14 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
As discussed in Note 2, the Company has restated financial statements for
fiscal 1999 and prior. The previously reported fiscal 2000 quarterly periods
have also been restated as follows:
<TABLE>
<CAPTION>
FISCAL YEAR 2000
THREE MONTHS ENDED
---------------------------------------------------------------------------------------------------
APRIL 30, APRIL 30, JULY 31, JULY 31, OCTOBER 31, OCTOBER 31, JANUARY 31,
1999 1999 1999 1999 1999 1999 2000
REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED RESTATED
--------- --------- -------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................... $35,982 $36,289 $32,845 $33,087 $32,955 $32,817 $32,447
Costs and expenses.......... 38,652 38,674 35,341 35,357 35,560 35,504 38,804
Loss from operations........ (2,670) (2,385) (2,496) (2,270) (2,605) (2,687) (6,357)
Interest expense, net....... (9) (9) (66) (66) (74) (74) (100)
Net loss.................... $(1,568) $(1,400) $(1,497) $(1,363) $(1,533) $(1,581) $(3,776)
Loss per share:
Basic and Diluted......... $ (0.09) $ (0.08) $ (0.08) $ (0.08) $ (0.08) $ (0.09) $ (0.20)
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR 1999
THREE MONTHS ENDED
---------------------------------------------------------------------------------------------------
APRIL 30, APRIL 30, JULY 31, JULY 31, OCTOBER 31, OCTOBER 31, JANUARY 31, JANUARY 31,
1999 1999 1999 1999 1999 1999 2000 2000
REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED
--------- --------- -------- -------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................... $36,056 $35,864 $35,273 $35,371 $37,076 $36,932 $35,946 $36,022
Costs and expenses.......... 31,133 31,073 34,025 33,995 36,322 36,256 38,798 38,767
Income (loss) from
operations................ 4,923 4,791 1,248 1,376 754 676 (2,852) (2,745)
Interest income, net........ 284 284 135 135 36 36 58 58
Gain on sale of investment
securities................ 279 279 -- -- -- -- -- --
Litigation settlement
expense................... (210) (210) -- -- -- -- (5,389) (5,389)
Cumulative effect of
accounting change......... -- -- -- -- -- -- (245) (245)
Net income (loss)........... $ 3,143 $ 3,065 $ 862 $ 938 $ 473 $ 427 $(5,064) $(5,001)
Earnings (loss) per share:
Basic..................... $ 0.18 $ 0.18 $ 0.05 $ 0.05 $ 0.03 $ 0.02 $ (0.29) $ (0.29)
Diluted................... $ 0.17 $ 0.17 $ 0.05 $ 0.05 $ 0.03 $ 0.02 $ (0.29) $ (0.29)
</TABLE>
NOTE 15 -- SUBSEQUENT EVENTS
Due to recurring operating losses and declining student enrollment trends,
the Company announced its intent to close its San Jose, CA Learning Center. This
Learning Center had 114 students at March 31, 2000 and had $1.9 million and $3.5
million in revenues in 2000 and 1999, respectively. The Company expects to incur
expenses of approximately $250 during the quarter ended April 30, 2000 related
to the closing of this Learning Center. The Learning Center is scheduled to
teach existing students through July 31, 2001.
F-26
<PAGE> 62
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information regarding directors of CLC will be set forth in CLC's
definitive Proxy Statement for our 2000 Annual Meeting of the Stockholders which
will be filed pursuant to Regulation 14A within 120 days after the end of CLC's
last fiscal year, and is incorporated herein by reference. The following sets
forth information as of April 30, 2000 concerning our executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John L. Corse 58 President, Chief Executive Officer and Director
Mark M. Nasser 35 Vice President and Chief Financial Officer
Susan L. Luster 48 Vice President of Operations
Marie A. Bennett 51 Vice President of Regulatory Compliance
Harry H. Gaines 62 Chairman of the Board of Directors
</TABLE>
Mr. Corse joined CLC in November 1998 as President and Chief Operating
Officer and has served as a Director of CLC since October 1994. Mr. Corse was
appointed Chief Executive Officer of CLC in February 2000. Since September 1997,
Mr. Corse had been a self-employed business consultant. From February 1995 to
August 1997, he served as President of Hughes Advanced Systems, a subsidiary of
Hughes Aircraft Corporation and a provider of information systems and services
to businesses. From 1993 to 1995, Mr. Corse was a self-employed business
consultant. From 1992 to 1993, he served as President and Chief Executive
Officer of Security Software America, Inc., a software publisher serving
government contractors and government agencies. From 1990 to 1992, Mr. Corse was
a self-employed business consultant.
Mr. Nasser joined CLC in 1992 as Controller of CLC. He was promoted to Vice
President, Chief Financial Officer and Secretary of CLC in January 2000. Prior
to CLC, he served as Controller of ESI Engineering Services, Inc., a commercial
subsidiary of Planning Research Corporation ("PRC"), now PRC/ Litton, Inc. Prior
to that, Mr. Nasser served in various financial management capacities in PRC's
Government Services Division. Mr. Nasser is a Certified Public Accountant.
Ms. Luster joined CLC in November 1995 as Vice President. She served as
Chief Operating Officer of CLC from November 1995 until November 1998. 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.
Ms. Bennett joined CLC in December 1998 as Vice President of Regulatory
Compliance. From February 1998 to December 1998, she was Title IV Project
Liaison for National Computer Systems, Inc. From September 1995 to October 1997
she served as Director of Education for ACCSCT, a national accreditation agency.
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 CLC and
of Mohr Development Incorporated, respectively. From 1989 through September
1995, Mr. Gaines served as President of Blessing/White.
I-1
<PAGE> 63
ITEM 11. EXECUTIVE COMPENSATION
This information required by this Item 11 concerning remuneration of CLC's
officers and directors and information concerning material transactions
involving such officers and Directors is incorporated herein by reference to
CLC's definitive Proxy Statement for its 2000 Annual Meeting of Stockholders
which will be filed pursuant to Regulation 14A within 120 days after the end of
fiscal 2000.
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 CLC's definitive Proxy Statement for its 2000 Annual Meeting of
Stockholders which will be filed pursuant to Regulation 14A within 120 days
after the end of fiscal 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
EMPLOYMENT AGREEMENTS
The Company has various employment agreements with certain senior
executives. The employment agreements would entitle the executives to one to two
years of salary and benefits, which would be payable with respect to the year in
which any breach of such agreements occurred, including termination without
cause. In addition if they were terminated as the result of a change of control
as defined in the agreements, they would receive amounts of one and one half of
base salary or total compensation, as defined.
In January 2000, the Company's former Chief Executive Officer and Chief
Financial Officer resigned, which resulted in the Company incurring $674 of
severance expenses. These amounts have been recorded in the Company's fiscal
2000 results of operations.
OTHER RELATED PARTY TRANSACTIONS
We have adopted a policy that all transactions between CLC and its
officers, directors and other affiliates must be approved by a majority of the
members of CLC's Board of Directors and by a majority of the disinterested
members of CLC's Board of Directors and on terms no less favorable to us than
could be obtained from unaffiliated third parties. In addition, this policy
requires that any loans by CLC to our officers, directors or other affiliates be
for bona fide business purposes only.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
A. Consolidated Financial Statements, see index in Item 8 on page F-1
(1) Report of Independent Accountants
(2) Consolidated Financial Statements
(a) Consolidated Statements of Operations for the years ended January
31, 2000, 1999 and 1998;
(b) Consolidated Balance Sheets as of January 31, 2000 and 1999;
(c) Consolidated Statements of Stockholders' Equity as of January 31,
2000, 1999, 1998 and 1997;
(d) Consolidated Statements of Cash Flows for the years ended January
31, 2000, 1999 and 1998;
(e) Notes to Consolidated Financial Statements
B. Consolidated Financial Statement Schedules, see index in Item 8 on page
F-1
I-2
<PAGE> 64
C. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT SEQUENTIALLY NUMBERED PAGE
- ------- ---------------------- --------------------------
<S> <C> <C>
2.1 Asset Purchase Agreement dated November Incorporated by reference to Exhibit 2 of
7, 1997, by and among the Company, BEC, the Registrant's Form S-3 Registration
CTG, David F. Carney and Sandra E. Carney Statement filed January 22, 1998 (No.
333-44729)
2.2 Asset Purchase Agreement dated December Incorporated by reference to Exhibit 99.1
31, 1997 by and among the Company, of the Company's Current Report on Form
Markerdowne Corporation, Graeme Dorras, 8-K filed March 10, 1998 (the "Form 8-K")
Randy Proto and Chris Coutts
2.3 Amended and Restated Share Purchase Incorporated by reference to Exhibit 99.2
Agreement dated February 20, 1998 by and of the Form 8-K
among Computer Learning Centers, Inc.,
Computer Learning Centers of Quebec,
Inc., Delta College, Inc., Roger Matte,
Marie Josee-Matte, Dominique Matte,
Johanne Matte, Suzanne Matte and Dolmen
(1994) Inc.
3.1 Second Amended and Restated Certificate Incorporated by reference to Exhibit 3.1
of Incorporation, as amended of the Registrant's report on Form 10-Q
for the quarter ended July 31, 1997 filed
September 9, 1997
3.2 Second Amended and Restated Certificate Incorporated by reference to Exhibit 3.3
of Incorporation of the Registrant of the Registrant's Report on Form 10-Q
filed July 14, 1995 (the "1995 Form
10-Q")
3.3 Amended and Restated Bylaws of the Incorporated by reference to Exhibit 3.4
Registrant 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 Incorporated by reference to Exhibit 4.1
Registrant's Common Stock of Form S-1
10.1 Severance Agreement, dated January 15, Incorporated by reference to Exhibit 10
1998, by and between Charles L. Cosgrove of the Registrant's S-3 Registration
and the Registrant Statement filed January 22, 1998
10.2* Long-Term Incentive Plan, as amended Incorporated by reference to Exhibit 10.1
of the Form S-1
10.3* 1995 Stock Incentive Plan, as amended by Incorporated by reference to Exhibit 10.1
the Board of Directors on March 23, 1996 of the Registrant's Report on Form 10-Q
filed June 13, 1996
10.4* 1995 Non-Employee Directors Stock Option Incorporated by reference to Exhibit 10.3
Plan of the Form S-1
10.5 Second Amended and Restated Shareholders' Incorporated by reference to Exhibit 10.1
Agreement of the 1995 Form 10-Q
10.6 Assignment Agreement, dated as of Incorporated by reference to Exhibit 10.6
February 27, 1995, by and among Blessing/ of the Form S-1
White Inc., Harry H. Gaines and the
Registrant
</TABLE>
I-3
<PAGE> 65
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT SEQUENTIALLY NUMBERED PAGE
- ------- ---------------------- --------------------------
<S> <C> <C>
10.7 Voting Agreement dated May 5, 1995 by and Incorporated by reference to Exhibit
among General Atlantic Corporation, 10.16 of the Form S-1
General Atlantic Partners II, L.P. and
GAP-CLC Partners, L.P.
10.8 Stock Repurchase Agreement, dated May 5, Incorporated by reference to Exhibit
1995, by and between Bankers Trust 10.17 of the Form S-1
(Delaware) and the Registrant
10.9 Stock Repurchase Agreement, dated May 5, Incorporated by reference to Exhibit
1995 by and between BancBoston Capital, 10.18 of the Form S-1
Inc. and the Registrant
10.10 Stock Repurchase Agreement, dated May 5, Incorporated by reference to Exhibit
1995 by and between GAP-CLC Partners, 10.19 of the Form S-1
L.P. and the Registrant
10.11 Tax Sharing and Indemnification Agreement Incorporated by reference to Exhibit
by and between the Registrant and 10.26 of the Form 1996 10-K
Blessing/White, Inc.
10.13 Employment Agreement, dated February 1, Incorporated by reference to Exhibit
1997, by and between Reid Bechtle and the 10.33 of the Registrant's Form 10-K filed
Registrant April 30, 1997
10.15 Severance Agreement, dated June 15, 1998, Incorporated by reference to Exhibit 10.1
by and between Susan L. Luster and the of the Form 10-Q filed September 14, 1998
Registrant
10.16 Severance Agreement, dated November 3, Incorporated by reference to Exhibit
1998, by and between John L. Corse and 10.16 of the Form 10-K filed May 3, 1999
the Registrant
10.17* 1998 Stock Incentive Plan Incorporated by reference to Exhibit 99.1
of the Registrant's Form S-8 filed
December 23, 1998
10.18 Severance Agreement, dated July 20, 1999 Incorporated by reference to Exhibit 10.2
by and between Christine Strachota and of the Registrant's report on Form 10-Q
the Registrant for the quarter ended July 31, 1999 filed
September 13, 1999.
10.20 Stipulation and Agreement of Settlement, Incorporated by reference to Exhibit
dated February 17, 1999, by and between 10.20 of the Form 10-K filed May 3, 1999
Ganesh, L.L.C., et al., On Behalf of
themselves and All Others Similarly
Situated and the Registrant (Civil Action
No. 98-859-A filed in the U.S. District
Court-Eastern District of Virginia)
10.21 First Amendment of Credit Agreement, Incorporated by reference to Exhibit 10.1
dated October 31, 1998 by and between of the Registrant's report on Form 10-Q
First Union National Bank and the for the quarter ended April 30, 1999
Registrant filed June 14, 1999
</TABLE>
I-4
<PAGE> 66
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT SEQUENTIALLY NUMBERED PAGE
- ------- ---------------------- --------------------------
<S> <C> <C>
10.22 Second Amendment of Credit Agreement, Incorporated by reference to Exhibit 10.2
dated June 10, 1999 by and between First of the Registrant's report on Form 10-Q
Union National Bank and the Registrant for the quarter ended April 30, 1999
filed June 14, 1999
10.23 Second Amended and Restated Credit Filed herewith
Agreement, dated May 15, 2000 by and
between First Union National Bank and the
Registrant
10.24 First Loan Modification Agreement, dated Filed herewith
January 29, 2000 by and between First
Union National Bank and the Registrant
10.25 Second Amended and Restated Pledge and Filed herewith
Security Agreement dated May 15, 2000 by
and between First Union National Bank and
the Registrant
10.26 Severance Agreement, dated January 15, Filed herewith
2000, by and between Mark M. Nasser and
the Registrant
10.27 Severance Agreement, dated October 27, Filed herewith
1999, by and between Marie Bennett and
the Registrant
10.28 Third Amended and Restated Revolving Filed herewith
Credit Note dated May 15, 2000 by and
between First Union National Bank and the
Registrant
21.1 List of subsidiaries Incorporated by reference to Exhibit 21.1
of the Form S-1
23.1 Consent of PricewaterhouseCoopers LLP Filed herewith
27 Financial Data Schedule Filed herewith
99.1* Computer Learning Centers, Inc. Employee Incorporated by reference to Exhibit 99.1
Stock Purchase Plan dated July 10, 1998 of the Registrant's Form S-8 Registration
Statement filed December 31, 1997
* This exhibit is a compensatory plan or
arrangement in which executive officers
or directors of the Registrant
participate.
</TABLE>
D. Reports on Form 8-K
<TABLE>
<CAPTION>
REPORT DATE EVENT REPORTED
----------- --------------
<S> <C>
November 4, 1999 The Registrant announced that it had retained an
investment bank to explore opportunities to maximize
shareholder value, including the possible sale of the
Company.
December 31, 1999 The Registrant entered into an Amended and Restated
Credit Agreement with its commercial bank lender.
</TABLE>
I-5
<PAGE> 67
SCHEDULE II
COMPUTER LEARNING CENTERS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND NET BALANCE AT
YEAR EXPENSES WRITE-OFFS END OF YEAR
------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
January 31, 1998
Allowance for doubtful accounts................. 2,250 4,794 (3,131) 3,913
January 31, 1999
Allowance for doubtful accounts................. 3,913 8,388 (4,168) 8,133
January 31, 2000
Allowance for doubtful accounts................. 8,133 8,911 (7,145) 9,899
</TABLE>
The Company's allowance for doubtful accounts at January 31, 2000 and 1999
includes amounts applicable to current accounts receivable ($8,178 and $5,999,
respectively) and long-term accounts receivable ($1,721 and $2,134,
respectively).
I-6
<PAGE> 68
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/ JOHN L. CORSE
------------------------------------
John L. Corse
President and Chief Executive
Officer
Dated: May 16, 2000
Pursuant to the requirements of the Securities 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN L. CORSE President, Chief Executive May 16, 2000
- ----------------------------------------------------- Officer, and Director (Principal
John L. Corse Executive Officer)
/s/ MARK M. NASSER Vice President, Chief Financial May 16, 2000
- ----------------------------------------------------- Officer and Controller
Mark M. Nasser (Principal Financial Officer)
/s/ HARRY H. GAINES Director May 16, 2000
- -----------------------------------------------------
Harry H. Gaines
/s/ RALPH W. CLARK Director May 16, 2000
- -----------------------------------------------------
Ralph W. Clark
/s/ REID R. BECHTLE Director May 16, 2000
- -----------------------------------------------------
Reid R. Bechtle
/s/ STEPHEN P. REYNOLDS Director May 16, 2000
- -----------------------------------------------------
Stephen P. Reynolds
</TABLE>
S-1
<PAGE> 1
EXHIBIT 10.23
SECOND
AMENDED AND RESTATED
CREDIT AGREEMENT
between
COMPUTER LEARNING CENTERS, INC.,
and
FIRST UNION NATIONAL BANK,
as successor-by-merger to
CORESTATES BANK, N.A.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1. CONSTRUCTION AND DEFINITIONS 2
1.1 Defined Terms 2
1.2 Other Definitional Provisions 14
SECTION 2. AMOUNT AND TERMS OF LOAN COMMITMENTS 15
2.1 Revolving Credit Commitment 15
2.2 Revolving Credit Note 16
2.3 Procedure for Revolving Credit Borrowing 16
2.4 Facility Fee 17
2.5 Default Fees 17
2.6 Payment at Revolving Credit Termination Date 17
2.7 Conversion of Revolving Credit Loans to Convertible Term
Loans 17
2.8 Convertible Term Loan Units 17
2.9 Convertible Term Loan Note 18
2.10 Principal Prepayments 18
2.11 Interest Rate Conversion Options; Minimum Amount of Loans 18
2.12 Number and Amounts of Eurodollar Tranches 18
2.13 Interest Rates and Payment Dates 18
2.14 Computation of Interest and Fees 19
2.15 Inability to Determine Interest Rate 19
2.16 Payments 19
2.17 Illegality 19
2.18 Requirements of Law 20
2.19 Taxes 21
2.20 Indemnity 21
2.21 Certain Calculations 21
SECTION 3. LETTERS OF CREDIT 21
3.1 Letter of Credit Commitment 21
3.2 Procedure for Issuance and Renewal of Letters of Credit 22
3.3 Reimbursement of the Lender 22
3.4 Commissions, Fees and Charges 23
3.5 Interest on Amounts Disbursed under Letters of Credit 23
3.6 Computation of Interest and Fees; Payment not on Business
Days 23
3.7 Increased Costs 23
3.8 Nature of Obligations and Indemnities 24
3.9 Inconsistency in Documents 26
3.10 Cash Collateral for Letters of Credit 26
SECTION 4. REPRESENTATIONS AND WARRANTIES 26
4.1 Financial Condition 26
4.2 No Change 27
</TABLE>
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Initial Initial
<PAGE> 3
<TABLE>
<S> <C>
4.3 Organization and Good Standing; Compliance with Law 27
4.4 Authorization; Enforceable Obligations 27
4.5 No Legal Bar 28
4.6 No Material Litigation; Labor Matters 28
4.7 No Default 28
4.8 Ownership of Property; Liens 29
4.9 Business Premises 29
4.10 Subsidiaries 29
4.11 Environmental 29
4.12 Solvency 30
4.13 Taxes 30
4.14 Federal Regulations 30
4.15 Employee Matters 30
4.16 Investment Company Act; Other Regulations 33
4.17 Accuracy and Completeness of Information 33
4.18 Purpose of Loans 33
4.19 CLCQ and Delta College 33
4.20 No Intent to File Bankruptcy 35
SECTION 5. CONDITIONS PRECEDENT 35
5.1 Conditions to Initial Extensions of Credit 35
(a) Credit Documents 36
(b) Borrowing Certificate 36
(c) Borrower Proceedings 36
(d) Borrower Incumbency Certificate 36
(e) Filings, Registrations and Recordings 36
(f) Other Documents 36
(g) Payment of Expenses 36
5.2 Conditions to Each Loan 37
(a) Representations and Warranties 37
(b) No Default 37
(c) No Material Litigation 37
(d) No Material Adverse Changes 37
(e) Additional Matters 37
5.3 Post-Closing Requirements 37
(a) Landlord Waivers 37
(b) Bank Notice Letters 38
(c) Board of Director Approval 38
SECTION 6. AFFIRMATIVE COVENANTS 38
6.1 Financial Information 38
6.2 Payment of Obligations 40
6.3 Conduct of Business and Maintenance of Existence 40
6.4 Maintenance of Property; Insurance 41
6.5 Inspection of Property and Books and Records 41
6.6 Notices 41
6.7 Government Regulations 42
</TABLE>
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Initial Initial
<PAGE> 4
<TABLE>
<S> <C>
6.8 Employee Benefit Plans 42
6.9 Environmental 42
6.10 Perfection of Security Interest 44
6.11 Year 2000 Compatibility 44
6.12 Primary Bank Accounts 44
6.13 Weekly Cash Flow Projections 44
6.14 Delivery of Original Retail Installment
Contracts 44
6.15 Business Consultant 45
6.16 Business Plan 45
6.17 Tax Refunds 45
6.18 Borrowing Base 45
6.19 Monthly Meeting 45
6.20 Correspondence from Department of Education 46
6.21 HCM2 Information 46
6.22 Financial Covenants 46
SECTION 7. NEGATIVE COVENANTS 47
7.1 Financial Condition Covenants 47
7.2 Limitation on Indebtedness 47
7.3 Limitation on Liens 48
7.4 Limitation on Negative Pledge Clauses 48
7.5 Limitation on Contingent Obligations 48
7.6 Limitations on Fundamental Changes 48
7.7 Limitation on Acquisitions 49
7.8 Limitation on Sale of Assets 49
7.9 Limitation on Restricted Payments 49
7.10 Limitation on Transactions with Affiliates 49
7.11 Limitation on Subsidiaries 49
7.12 Limitation on Investments, Loans and Advances 49
7.13 Limitation on Optional Payments and Modifications 50
7.14 Limitation on Sale and Leaseback 50
7.15 Fiscal Year 50
7.16 Places of Business 50
7.17 Change of Name 50
7.18 ERISA 50
7.19 Environmental 51
7.20 Limitation on Inconsistent Agreements 51
7.21 Limitation on Capital Expenditures 51
SECTION 8. EVENTS OF DEFAULT 51
SECTION 9. MISCELLANEOUS 54
9.1 Amendments and Waivers 54
9.2 More Restrictive Provisions 55
9.3 Notices 55
</TABLE>
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Initial Initial
<PAGE> 5
<TABLE>
<S> <C>
9.4 No Waiver; Cumulative Remedies 56
9.5 Survival of Representations and Warranties 56
9.6 Payment of Expenses and Taxes 56
9.7 Further Assurances 57
9.8 Unenforceability 58
9.9 Indemnification Concerning Fees 58
9.10 Waiver of Trial by Jury 58
9.11 Additional Waivers 58
9.12 Successors and Assigns; Transfers of Interests 58
9.13 Counterparts 59
9.14 Governing Law 59
9.15 Submission To Jurisdiction 59
9.16 Release 60
9.17 Consent to Relief from Stay 60
9.18 Other Bankruptcy Relief 60
9.19 Waiver by Lender 61
Schedule I Borrower Business Premises
Schedule 4.6 Litigation
Schedule 4.11 Environmental Matters
Schedule 7.3 Permitted Liens
Exhibit A Form of Officer Default Certificate
Exhibit B Form of Officer Financial Covenant Certificate
Exhibit C Sweep Plus Loan and Investment Services Description
Sweep Plus Loan and Investment Services Agreement
Exhibit D Form of Borrowing Certificate
Exhibit E Form of Projections
Exhibit F CLCQ Capital Stock
Exhibit G Form of Notice of Collateral Assignment of Deposit Accounts
Exhibit H Form of Borrowing Base Certificate
</TABLE>
- iv -
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Initial Initial
<PAGE> 6
SECOND
AMENDED AND RESTATED
CREDIT AGREEMENT
This SECOND AMENDED AND RESTATED CREDIT AGREEMENT is made as of the 15th
day of May, 2000, by and between COMPUTER LEARNING CENTERS, INC., a Delaware
corporation (the "Borrower"), and FIRST UNION NATIONAL BANK, as successor by
merger to CORESTATES BANK, N.A. (the "Lender").
RECITALS
1. The Lender and the Borrower are parties to an Amended and Restated
Credit Agreement dated as of December 31, 1999, which sets forth the terms and
conditions of a credit facility for advances under a line of credit for working
capital, and for the issuance of letters of credit for the account of the
Borrower. The Amended and Restated Credit Agreement was amended pursuant to a
First Loan Modification Agreement dated January 29, 2000.
2. The debt under the credit facility is evidenced by a Second
Amended and Restated Revolving Credit Note dated December 31, 1999, as amended
by the First Loan Modification Agreement dated January 29, 2000, in the face
amount of $15,000,000.
3. Payment of the Second Amended and Restated Revolving Credit Note
is secured by a security interest in the personal property collateral described
in an Amended and Restated Security Agreement dated December 31, 1999.
4. As of May 10, 2000, there was due under the Second Amended and
Restated Revolving Credit Note principal of $4,914,000.00 and interest of
$17,369.44. In addition, the following letters of credit issued by the Lender
under the credit facility for the account of the Borrower are still in effect:
Letter of Credit Number Amount
M 409910 $25,800.00
M 409947 $34,000.00
406477 $2,142,000.00
400152P $91,128.50
400153 $1,000,000.00
-------------
$3,292,928.50
5. The Borrower has requested that the Lender modify certain terms of
the Existing Credit Facility (as defined below), and waive the Borrower's
failure to comply with certain terms of the Amended and Restated Credit
Agreement. The Lender is agreeable to modifying certain terms and conditions of
the Existing Credit Facility, and waiving the
- 1 -
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Initial Initial
<PAGE> 7
Borrower's failure to comply with certain terms of the Amended and Restated
Credit Agreement, as set forth below and in documents executed contemporaneously
with this Agreement.
In consideration of the foregoing, the Lender and the Borrower 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 the 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 the 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) the 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.
"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 Second Amended and Restated Credit Agreement, as
amended, modified, extended, renewed, supplemented or replaced from time to
time.
- 2 -
-------------- -------------
Initial Initial
<PAGE> 8
"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.
"Borrower": Computer Learning Centers, Inc., a Delaware corporation.
"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 10021 Balls Ford Road, Manassas, Virginia 20109.
"Borrower Institution": any campus or institution of the Borrower, or any
branch or location of any thereof, engaged or created or intended to be engaged,
directly or indirectly, in any business or business operations of the Borrower,
including the provision of information technology training or services,
computer-related training or services or other educational training or services.
"Borrower Security Agreement": as amended, modified, extended, renewed,
supplemented or replaced from time to time, the Second Amended and Restated
Security Agreement dated of even date herewith, by the Borrower in favor of the
Lender.
"Borrowing Base": the sum of (i) thirty-eight percent (38%) of the total
account balances (principal and interest only) as of the most current date
available of Graduate RIC's in the possession of the Lender plus (ii) ten
percent (10%) of the total account balances (principal and interest only) as of
the most current date available of Drop RIC's in the possession of the Lender.
"Borrowing Date": any Business 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 McLean, Virginia are authorized or required by law to close.
"Canadian Corporations": collectively, CLCQ and Delta College.
"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 insurance proceeds paid on account of loss of or
damage to the
- 3 -
-------------- -------------
Initial Initial
<PAGE> 9
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 Collateral Account": the interest-bearing account owned by the
Borrower and pledged to the Lender, which the Borrower shall have no access to
or be permitted to make withdrawals from unless the balance exceeds 110% of the
L/C Exposure.
"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 12 months from the
date of acquisition; (b) time deposits with the Lender and certificates of
deposit issued by the Lender; (c) repurchase obligations with a term of not more
than 7 days underlying securities of the types described in clauses (a) and (b)
above entered into with the Lender; and (d) commercial paper of the Lender or
the holding company controlling the Lender.
"Certified" shall mean that the information, statement, schedule, report
or other document required to be "Certified" contains a representation by the
Borrower that to the Borrower's knowledge and belief after diligent inquiry,
such information, statement, schedule, report or other document is true and
complete in all material respects.
"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) of 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 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) and shall for any reason cease to
constitute a majority of the Board of Directors of the Borrower.
"CLCQ": Computer Learning Centers of Quebec, Inc., a Quebec corporation
"Closing Date": the date on which this Agreement and all other documents
as set forth in Section 5 are executed by the Borrower and the Subsidiaries (as
applicable) and delivered to the Lender, and all other closing conditions set
forth in Section 5 are satisfied.
"Code": the Internal Revenue Code of 1986, as amended from time to time.
- 4 -
-------------- -------------
Initial Initial
<PAGE> 10
"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 and the L/C 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.
"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.
"Credit Documents": the collective reference to this Agreement, the Note,
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, 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.
"Credit Facilities": the Revolving Credit Facility and the Standby Letter
of Credit Facility.
"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.
- 5 -
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Initial Initial
<PAGE> 11
"Delta College": Delta College, Inc., a Quebec corporation.
"Disqualified": the certification, eligibility, authorization or
accreditation (provisional or otherwise) of the Borrower or any Borrower
Institution, or any educational program of any thereof, to receive, commit or
disburse funds under, or to administer or participate in, any Student Financial
Aid Program, or the participation therein of any thereof, shall for any reason
expire or be revoked, suspended, terminated or determined to be invalid, in
whole or in part, retroactively or prospectively.
"Dollars" and "$": dollars in lawful currency of the United States of
America.
"Drop RICs": RICs executed by students who have dropped out of classes
given by the Borrower.
"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, 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
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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.
"Event of Default": any of the events specified in Section 8.
"Excess Prepayments": Before November 1, 2000, all Prepayment Sources to
the extent they exceed the Standard Prepayments, and on and after November 1,
2000, all Prepayment Sources.
"Existing Credit Facility": The credit facility made available by the
Lender to the Borrower and evidenced by the Second Amended and Restated
Revolving Credit Note, the Amended and Restated Credit Agreement and the Amended
and Restated Security Agreement, as amended by the First Loan Modification
Agreement dated January 29, 2000, as described in the recitals of this
Agreement.
"Existing LCs": The letters of credit listed in paragraph 4 of the
Recitals.
"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 amounts
required to be deposited into the Cash Collateral Account in the next twelve
months.
"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 Section 7 or definitions contained in Section
1 relating 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.
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"Graduate RICs": RICs executed by students who have graduated from
classes given by the Borrower.
"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 or other
property or other aspect of the environment which requires remedial action under
any Environmental Law.
"HCM2 Prepayments": cash paid to the Borrower as a result of the
termination or modification of the Borrower's Heightened Cash Monitoring II
status by the Department of Education, representing deferred Title IV loan
fundings owing to the Borrower.
"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.
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"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": the first day of each month, for interest due
for the preceding month, commencing on June 1, 2000.
"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 of 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": two percent (2.00%) 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 of such time and (b) L/C Reimbursement Obligations as of such
time.
"L/C Facility": the facility for the issuance of Letters of Credit by the
Lender for the Borrower.
"L/C Reimbursement Obligations": at a particular time, the aggregate
amount of all drawings made under Letters of Credit which, as of such time, have
not been reimbursed by the Borrower to the Lender.
"Lender": First Union National Bank, a North Carolina banking
corporation.
"Letters of Credit": as defined in Subsection 3.1.
"Leverage Ratio": at a particular time, the ratio of (a) Total
Liabilities as of such time, to (b) Tangible Net Worth as of such time.
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"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 Revolving Credit Loans.
"Long-Term Debt": all Indebtedness of the Borrower and its Subsidiaries
which matures more than one (1) year from the date of the financial statement
reflecting 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 collection in full of the Obligations.
"Multiemployer Plan": a Plan which is a multiemployer plan as defined in
Section 4001(a) (3) of ERISA.
"Note": the Revolving Credit Note.
"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
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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 of its Subsidiaries or any Other Obligor.
"Officer Default Certificate": an appropriately completed certificate in
form substantially similar to Exhibit A, but in form and content satisfactory to
the Lender, signed by the chief financial officer of the Borrower certifying
whether, as of a particular date 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 Aid Program Certificate": a certificate in form and
content satisfactory to the Lender, signed by the chief financial officer of the
Borrower and certifying, as of and for a particular time and to the knowledge
and belief of such officer after diligent inquiry (a) for the Borrower and each
Borrower Institution, the Student Financial Aid Programs with respect to which
the Borrower, or such Borrower Institution, or its educational programs, is
authorized, accredited, certified and eligible (provisionally or otherwise) to
participate and is not Disqualified, (b) for the Borrower, and each Borrower
Institution, default rates with respect to Student Financial Aid Programs, and
(c) a summary of the current status of any actions, proceedings, investigations
or reviews of which the Borrower was required to notify the Lender pursuant to
clause (ii) of Subsection 6.6(b) of this Agreement.
"Officer Financial Covenant Certificate": an appropriately completed
certificate substantially similar to Exhibit B, 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 of a particular time or for a particular period.
"Operating Account": the demand deposit account, no. 2014139511328,
maintained with the Lender.
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"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.
"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.
"Prepayment Sources": Tax Refund Prepayments and HCM2 Prepayments.
"Prime Rate": the rate which the Lender announces from time to time as
its prime lending rate, as in effect from time to time. The Prime Rate is a
reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer. The Lender may make commercial loans or other
loans at rates of interest at, above or below the 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,
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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.
"Revolving Credit Commitment": as defined in Subsection 2.1.
"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 Facility": the Revolving Credit loans by the Lender to
the Borrower.
"Revolving Credit Loan": as defined in Subsection 2.1.
"Revolving Credit Maximum Amount": $9,200,000 less all Standard
Prepayments (which shall be applied to permanently reduce the Revolving Credit
Maximum Amount and the Revolving Credit Loan Balance) from the Closing Date
through and including July 31, 2000; $3,700,000 less all Standard Prepayments
(which shall be applied to permanently reduce the Revolving Credit Maximum
Amount and the Revolving Credit Loan Balance) from August 1, 2000 through and
including September 30, 2000; $3,000,000 less all Standard Prepayments (which
shall be applied to permanently reduce the Revolving Credit Maximum Amount and
the Revolving Credit Loan Balance) from October 1, 2000 through and including
October 31, 2000; and the lesser of $2,500,000 or the applicable Borrowing Base
on and after November 1, 2000.
"Revolving Credit Note": as defined in Subsection 2.2.
"Revolving Credit Termination Date": May 31, 2001.
"RICs": Retail Installment Contracts executed by students who have
graduated from or dropped out of classes given by the Borrower from all states
except Illinois.
"Standard Prepayments": payments by the Borrower to the Lender, between
the Closing Date through and including October 31, 2000, from Prepayment
Sources, up to the amount necessary to permanently reduce the Revolving Credit
Facility to $2,500,000.
"Student Financial Aid Program": any program under Title IV of the Higher
Education Act of 1965, under which financial aid or financial assistance is
provided to or for students by the United States of America or any Governmental
Authority of the United States of America.
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"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.
"Sweep Plus": the cash management product of the Lender which monitors
the Operating Account and triggers advances under the Revolving Credit Loan to
fund the Operating Account to maintain a target level, to cover checks presented
on the Operating Account, and to sweep excess cash above the target level to
minimize the Revolving Credit Loan balance, all as further described in the
Sweep Plus Loan and Investment Services Description attached as Exhibit C.
"Tangible Net Worth": at a particular date, the amount, if any, by which
(a) Total Assets as of such date, exclusive of goodwill, trademarks, trade
names, licenses and such other assets as are properly classified as intangible
assets in conformity with GAAP, exceeds (b) Total Liabilities as of such time.
"Tax Refund Prepayments": all tax refunds owed to the Borrower by
federal, state and local taxing authorities, which the Borrower has pledged to
the Lender and has agreed to pay over to the Lender upon receipt.
"Total Assets": at a particular date, the aggregate amount which, in
conformity with GAAP, would be included in a total assets or comparable account
reflected in a consolidated balance sheet of the Borrower and its Subsidiaries
as of such date.
"Total Liabilities": at a particular date, 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 of such date.
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 Note, the
Borrower Security Agreement or any other Credit Document.
(b) As used herein, in the Note, 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.
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(c) As used herein, in the Note, in the Borrower Security
Agreement and in any other Credit Document, terms defined by the Uniform
Commercial Code as in effect in the Commonwealth of Virginia 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 Note, the Borrower Security Agreement or any other Credit
Document to this Agreement, the Note, the Borrower Security Agreement or any
other Credit Document shall be deemed to refer to this Agreement, the Note, 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 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. 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"). During the
Revolving Credit Commitment Period, the Borrower may use the
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<PAGE> 21
Revolving Credit Commitment by borrowing, paying 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.
2.2 Revolving Credit Note. The Revolving Credit Loans made by the
Lender shall be evidenced by, and payable with interest in accordance with, the
Third Amended and Restated Revolving Credit Note dated May 15, 2000 (as amended,
modified, extended, renewed, supplemented or replaced from time to time, the
"Revolving Credit Note"), payable to the order of the Lender. 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, as reflected on the Lender's
books and records with respect to the Revolving Credit Note, shall constitute
prima facie evidence, absent manifest error, of the accuracy of the information
so reflected. 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.
(a) Unless otherwise determined by the Lender, the terms of the
Lender's Sweep Plus product shall control the manner in which funds are
transferred between the Operating Account and the Revolving Credit Loan for
credit or debit to the Revolving Credit Loan.
(b) If the Lender determines that the Lender's Sweep Plus
product shall no longer be used for Revolving Credit Loans, the procedure for
borrowing set forth in this Subsection 2.3(b) shall apply. The Lender may
withdraw the Sweep Plus product at any time in the sole and absolute discretion
of the Lender. The Borrower may borrow under the Revolving Credit Commitment
during the Revolving Credit Commitment Period on any Business Day, provided that
the Borrower shall give the Lender irrevocable notice (which must be received by
the Lender prior to 11:00 a.m., McLean, Virginia time) two Business Days prior
to the requested Borrowing Date, specifying (i) the amount to be borrowed, and
(ii) the requested Borrowing Date. Each borrowing pursuant to the Revolving
Credit Commitment shall be in an aggregate principal amount of One Thousand
Dollars ($1,000.00) or a whole multiple 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.
(c) Effective November 1, 2000, availability under the
Revolving Credit Facility shall be subject to the delivery to the Lender of a
Borrowing Base Certificate and updated information pertaining to all RICs in the
Lender's possession. Without limiting in any way the provisions of Section 5.2,
in no event shall the Lender be obligated to make a Revolving Credit Loan on and
after November 1, 2000 if the Revolving Credit Loan would cause the total
principal amount of Revolving Credit Loans made and outstanding to exceed the
lesser of $2,500,000 or the then current Borrowing Base. Even if the total
principal amount of Revolving
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Credit Loans outstanding shall at any time and for any reason exceed the lesser
of $2,500,000 or the then current Borrowing Base, the Borrower shall nonetheless
be liable for the entire principal amount of Revolving Credit Loans outstanding,
with interest and other charges, as provided in this Agreement. If the total
principal amount of Revolving Credit Loans shall at any time exceed the lesser
of $2,500,000 or the then current Borrowing Base, the Borrower shall immediately
pay to the Lender upon demand the amount of such excess, with interest as
provided in this Agreement.
2.4 Facility Fee. The Borrower agrees to pay to the Lender a facility
fee from and including May 15, 2000 to the Revolving Credit Termination Date,
computed at the rate set forth below on the average daily amount of the
Revolving Credit Maximum Amount during the period for which payment is made,
payable monthly in arrears on the first day of each month, commencing on June 1,
2000, and on the Revolving Credit Termination Date or such earlier date as the
Revolving Credit Commitment shall terminate as provided herein.
(a) During monthly periods when the Revolving Credit Maximum
Amount exceeds or equals $3,000,000, the Facility Fee shall be 3% per annum.
(b) During monthly periods when the Revolving Credit Maximum
Amount is less than $3,000,000, the Facility Fee shall be 1% per annum.
If the Borrower fully repays all debt under the Revolving Credit
Facility, terminates or cancels all Letters of Credit, and terminates all Credit
Facilities, by September 30, 2000, the Lender shall refund to the Borrower 75%
of all facility fees paid by the Borrower since June 1, 2000.
If the Borrower fully repays all debt under the Revolving Credit
Facility, terminates or cancels all Letters of Credit, and terminates all Credit
Facilities, by December 15, 2000, the Lender shall refund to the Borrower 50% of
all facility fees paid by the Borrower since June 1, 2000.
The Borrower will, effective with the payment due on June 1, 2000, no
longer have to pay an unused facility fee.
2.5 Default Fees. For each Default of which the Lender gives notice to
the Borrower, the Borrower shall pay on demand to the Lender a $5,000 default
fee. For each Default that becomes an Event of Default, the Borrower shall pay
on demand to the Lender a $10,000 default fee. For each Event of Default for
which no cure period is applicable, the Borrower shall pay to the Lender and
immediately be liable for a $15,000 default fee.
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.
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2.7 Conversion of Revolving Credit Loans to Convertible Term Loans.
(intentionally deleted).
2.8 Convertible Term Loan Units. (intentionally deleted).
2.9 Convertible Term Loan Note. (intentionally deleted).
2.10 Principal Payments.
(a) Unless otherwise determined by the Lender, the terms of the
Lender's Sweep Plus Product shall control the manner in which funds are
transferred between the Operating Account and the Revolving Credit Loan for
credit or debit to the Revolving Credit Loan.
(b) If the Lender determines that the Lender's Sweep Plus
Product shall no longer be used for Revolving Credit Loans, the procedure for
borrowing set forth in this Subsection 2.10(b) shall apply. The Borrower may at
any time from time to time pay the principal of Revolving Credit 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 payment. If any such payment
notice is given by the Borrower, the payment amount specified in such notice
shall be due and payable on the date specified therein.
(c) The Borrower shall pay to the Lender all Prepayment
Sources, to the extent required under this Agreement, and which are
characterized as Standard Prepayments, and which shall permanently reduce the
amount of Revolving Credit Loans available to the Borrower. The Borrower's
failure to receive any Prepayment Source by the date necessary to reduce the
Revolving Credit Maximum Amount as required by this Agreement shall not relieve
the Borrower of its obligation to permanently reduce the amount outstanding
under the Revolving Credit Facility by the dates and in the amounts as required
in this Agreement.
2.11 Interest Rate Conversion Options: Minimum Amount of Loans.
(intentionally deleted).
2.12 Number and Amounts of Eurodollar Tranches. (intentionally
deleted).
2.13 Interest Rates and Payment Dates.
(a) Revolving Credit Loans shall bear interest for the period
from and after the Closing Date on the unpaid principal amount at a rate per
annum equal to the Prime Rate plus 2%.
(b) (intentionally deleted)
(c) (intentionally deleted)
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<PAGE> 24
(d) If an Event of Default shall occur, all Revolving Credit
Loans shall, at the Lender's option, bear interest on the unpaid principal
amount thereof at a rate per annum equal to the Prime Rate plus five percent
(5%) 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 amounts.
(f) Interest shall be payable in arrears on each Interest
Payment Date, and the Borrower authorizes the Lender to debit the Operating
Account for all such interest payments.
2.14 Computation of Interest and Fees. (a) 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 Prime Rate (as a result of a change in
the Prime Rate) shall become effective as of the opening of business on the day
on which such change in the Prime Rate 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.
2.15 Inability to Determine Interest Rate. (intentionally deleted).
2.16 Payments. All payments (including prepayments) to be made by the
Borrower under this Agreement, the Note 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 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. The Lender may charge
and deduct from any deposit account of the Borrower at the Lender any amounts
credited to such account and apply the same to pay principal, interest, service
charges, fees (including Default Fees and Facility Fees), expenses or any other
sums or charges due and unpaid under this Agreement, the Note or any other
Credit Documents. The Lender may, in addition to all other rights and remedies
available to it, set off against any Obligations due and unpaid any sums or
property owing to the Borrower by the Lender or held or controlled by the Lender
for the Borrower. The Borrower confirms the Lender's right to a banker's lien
and setoff, and nothing in this Agreement or any other Credit Document shall be
deemed to replace, supercede, limit, waive or prohibit the Lender's right of
banker's lien and setoff.
2.17 Illegality. (intentionally deleted).
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<PAGE> 25
2.18 Requirements of Law.
(a) If any generally applicable 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 or the Note, 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, 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 reasonably allocable to this
Agreement, together with interest on such additional amounts from the date
demand is made until payment in full thereof at the rate applicable to Revolving
Credit Loans. 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 Note
for a period of 1 year.
(b) If the Lender shall have determined that the adoption from
and after the Closing Date of any generally applicable 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,
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<PAGE> 26
then from time to time, within 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 reasonably allocable to this Agreement 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 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 Note 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 Note 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 Note and all other amounts
payable hereunder and under the other Credit Documents for a period of 1 year.
2.20 Indemnity. (intentionally deleted).
2.21 Certain Calculations (intentionally deleted).
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 Revolving Credit Termination Date (the "L/C
Commitment"); provided that the L/C Exposure shall not on any date exceed
$3,300,000 through and including July 31, 2000, and $2,575,000 thereafter. No
Letter of Credit (including any renewal or extension thereof, whether
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<PAGE> 27
or not automatic) shall have an expiry date which is later than the date which
is one year after the date of issuance, renewal or extension of such Letter of
Credit; and provided further that, from and after September 30, 2000, no Letter
of Credit (including any renewal or extension thereof, whether or not automatic)
shall have an expiry date which is later than six months following the Revolving
Credit Termination Date; and provided further that the Lender shall be under no
obligation to issue a new Letter of Credit unless all existing Letters of Credit
shall be cash secured to the extent of 110% of their face amount, and the new
Letter of Credit to be issued would be cash secured to the extent of 110% of its
face amount.
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 the Lender may require, 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 forty-five calendar 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 receives 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 the
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. The Borrower authorizes the
Lender to debit the Cash Collateral Account for the amount of any reimbursement
or payment obligation under this Subsection 3.3. 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 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.
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<PAGE> 28
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 Five Hundred Dollars ($500.00), 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). The Borrower
shall not be entitled to receive a refund or rebate of any such fees or
commissions in the event of early termination of a Letter of Credit.
(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, the Borrower shall pay such fees before 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 applicable to Revolving Credit 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 Prime Rate shall become effective as of the
opening of business on the day on which such change in the Prime Rate becomes
effective.
(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 generally applicable law or regulation or
other Requirement of Law, or any change in the interpretation or application
thereof by any
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<PAGE> 29
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
reasonably allocable to this Agreement 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 Note 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 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;
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<PAGE> 30
(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 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, reasonable 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
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<PAGE> 31
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 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.
3.10 Cash Collateral for Letters of Credit.
(a) Beginning on August 1, 2000, and each month thereafter
until the amount on deposit in the Cash Collateral Account equals 110% of the
face amount of all Letters of Credit, the Borrower shall deposit $250,000 into
an interest-bearing account maintained at the Lender (the "Cash Collateral
Account"). The sums on deposit in the Cash Collateral Account shall secure
payment of all Letters of Credit.
(b) In addition to and not in substitution of the Borrower's
payment obligations set forth in Subsection 3.10(a) above, the Borrower shall
pay to the Lender, for deposit into the Cash Collateral Account, all Excess
Prepayments, until the amount on deposit in the Cash Collateral Account equals
110% of the face amount of all Letters of Credit.
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:
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<PAGE> 32
(a) the audited consolidated statement of income and retained
earnings of the Borrower for the fiscal year of the Borrower ended January 31,
2000, 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 January 31,
2000, 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 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 Note 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
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<PAGE> 33
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 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. 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, the Borrower has
failed to comply with:
(a) the Fixed Charge Coverage Ratio covenant (Subsection 7.1 of
the Amended and Restated Credit Agreement) for the fiscal year ending January
31, 2000;
(b) the Leverage Ratio covenant (Subsection 7.1 of the Amended
and Restated Credit Agreement) for the quarter ending January 31, 2000;
(c) the Minimum Tangible Net Worth covenant (Subsection 7.1 of
the Amended and Restated Credit Agreement) for the quarter ending January 31,
2000;
(d) the requirement to reduce the Existing Letters of Credit to
$3,500,000 by March 1, 2000 (Subsection 3.1 of the Amended and Restated Credit
Agreement);
(e) the requirement to deliver the original RICs to the Lender
by no later than February 29, 2000 (Subsection 6.14 of the Amended and Restated
Credit Agreement);
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(f) the requirement to obtain approval of its business plan by
its Board of Directors by no later than March 27, 2000 (Subsection 6.16 of the
Amended and Restated Credit Agreement); and
(g) the requirement that the Borrower deliver its final 10-K to
the Lender within 100 days of its fiscal year end (Subsection 6.1(f) of the
Amended and Restated Credit Agreement).
As of the Closing Date, upon execution of this Agreement and all
documents to be executed in connection with this Agreement, all existing Events
of Default shall have been cured or waived.
4.8 Ownership of Property; Liens. The Borrower has good title to all
of its property, and none of its 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 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 Virginia 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 except for the
Canadian Corporations.
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;
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(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 cleanup; 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 as
reflected in its most current balance sheet, (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 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 the 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 Regulation U.
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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
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,"
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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 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;
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(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.
(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 Borrower shall use the proceeds of all
Revolving Credit Loans for working capital and to fund a limited amount of
Capital Expenditures.
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4.19 CLCQ and Delta College.
(a) Each of CLCQ and Delta College (i) is a Quebec corporation
duly organized, validly existing and in good standing, (ii) 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, (iii) is duly
qualified to conduct business and is in good standing in each jurisdiction in
which such qualification is required by applicable Requirement of Law, and (iv)
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.
(b) The authorized capital stock of CLCQ consists of two (2)
classes, namely Common Shares, having voting rights, and Dividend Access Shares,
having no voting rights except as provided in Sections 10.1, 11.1 and 12.2 of
the Articles of Incorporation of CLCQ. All of the issued and outstanding capital
stock of each class of CLCQ stock is legally and beneficially owned by the
persons and in the amounts set forth in Exhibit F attached hereto. All of the
issued and outstanding capital stock of each class of Delta College is legally
and beneficially owned by CLCQ, with the discretionary power and right to
exercise all rights and privileges, including voting rights, with respect
thereto.
(c) 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 CLCQ
or Delta College or against any of their properties or revenues which, if
determined adversely to CLCQ or Delta College, as the case may be, could
reasonably be expected to have a Material Adverse Effect. 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 CLCQ or
Delta College and any employees of CLCQ or Delta College, respectively, or
between CLCQ or Delta College and any union or other collective bargaining unit
representing employees of CLCQ or Delta College, respectively, which could
reasonably be expected to have a Material Adverse Effect.
(d) Neither CLCQ nor Delta College is in default under or with
respect to any Contractual Obligation in any respect which could reasonably be
expected to have a Material Adverse Effect. The sum of the assets of each of
Delta College and CLCQ, at a fair valuation, exceeds the debts of CLCQ and Delta
College, respectively, exclusive, in the case of Delta College, of debts of
Delta College to the Borrower or CLCQ. The present fair salable value of the
assets of each of CLCQ and Delta College is greater than the amount required to
pay the liability on the debts of CLCQ and Delta College, respectively, as such
debts become absolute and matured, exclusive, in the case of Delta College, of
debts of Delta College to the Borrower or CLCQ. Each of CLCQ and Delta College
has 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
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reduced to judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured or unsecured.
(e) Each of CLCQ and Delta College 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.
(f) To the Borrower's knowledge: (i) no Hazardous Substance has
been released, discharged, spilled, emitted or disposed of on any Obligor Use
Property by CLCQ or Delta College or under any circumstances as a result of
which CLCQ or Delta College would be liable or financially responsible for
damages or the cost of remediation or clean-up; (ii) there is no existing
Hazardous Substance Contamination of any Obligor Use Property which was caused
by CLCQ or Delta College or under circumstances as a result of which CLCQ or
Delta College would be liable or financially responsible for damages or the cost
of remediation or clean-up; (iii) all operations now or previously conducted on
Obligor Use Property by CLCQ or Delta College comply with all Environmental
Laws; (iv) no underground storage tanks have been installed on any Obligor Use
Property by CLCQ or Delta College or under circumstances as a result of which
CLCQ or Delta College would be liable or financially responsible for damages or
the cost of removal, remediation or clean-up; and (v) neither CLCQ nor Delta
College has received, and neither CLCQ nor Delta College is aware of, any
Environmental Claim against, relating to or affecting in any way CLCQ or Delta
College or the use of any Obligor use Property by CLCQ or Delta College or any
operations conducted on any Obligor Use Property by CLCQ or Delta College.
(g) Each of CLCQ and Delta College has filed or caused to be
filed all tax returns which are required to be filed by it, and each of CLCQ and
Delta College has paid all taxes shown to be due and payable on said returns 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 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 CLCQ or
Delta College, as applicable), and, to the knowledge of the Borrower, no claim
is being asserted with respect to any such tax, fee or other charge. No tax lien
has been filed against CLCQ or Delta College or any of their assets.
4.20 No Intent to File Bankruptcy. The Borrower does not have any
present intent (i) to file any voluntary petition in bankruptcy under any
chapter of the Bankruptcy Code or to have any involuntary petition in bankruptcy
filed against it under any chapter of the Bankruptcy Code or (ii) in any manner
directly or indirectly to seek relief, protection, reorganization, liquidation,
dissolution, or similar relief for debtors under any federal, state or local
law, or in equity, or (iii) in any manner directly or indirectly to cause any
part of the Collateral to be the subject of any bankruptcy or insolvency
proceedings or the property of any bankruptcy or insolvency estate; and the
Borrower acknowledges and agrees that the filing of any such petition or any
action taken by the Borrower to cause the filing of any such petition would be
in bad faith, contrary to the purposes of the Bankruptcy Code, and solely for
purposes
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of delaying, inhibiting, or interfering with the exercise by the Lender of its
rights and remedies with respect to the Collateral and the Credit Facilities.
SECTION 5. CONDITIONS PRECEDENT
5.1 Documents and Other Deliveries at Closing. No waiver or other
agreement of the Lender as set forth in this Agreement or any other document
executed contemporaneously with this Agreement shall be effective or binding on
the Lender until and unless the Lender shall have received:
(a) Credit Documents. In form and content satisfactory to the
Lender: (i) this Agreement, duly executed and delivered by an Authorized Officer
of the Borrower; (ii) the Third Amended and Restated Revolving Credit Note,
conforming to the requirements hereof and duly executed and delivered by an
Authorized Officer of the Borrower; (iii) the Second Amended and Restated
Security Agreement duly executed and delivered by an Authorized Officer of the
Borrower; and (iv) 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 the Credit Documents.
(b) Borrowing Certificate. A Borrowing Certificate of the
Borrower dated the Closing Date, substantially in the form of Exhibit D, 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.
(c) Borrower Proceedings. Copies 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 and
the other Credit Documents as described in subparagraph (a) above, (ii) the
borrowings contemplated thereunder 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.
(d) Borrower Incumbency Certificate. 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 the Authorized Officers of the Borrower.
(e) 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, with the payment of any necessary fee, tax or expense relating
thereto.
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(f) Other Documents. Such other documents as the Lender or its
counsel shall reasonably require.
(g) Payment of Expenses. Payment of all expenses of the Lender
then incurred, pursuant to Section 9.6 below.
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, to the Borrower's knowledge, 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 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.
5.3 Post-Closing Requirements.
(a) Landlord Waivers. The Borrower shall make its best,
diligent effort to deliver to the Lender on or before June 30, 2000 a written
agreement of (i) the owners of the Borrower Institutions located in Virginia,
(ii) the owners of the Borrower Institutions located in Pennsylvania, and (iii)
the owners of the Borrower Institutions located in Texas, consenting to
enforcement of the Lender's rights in connection therewith, shall deliver to the
Lender promptly
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upon delivery to a landlord a copy of each piece of correspondence directed to
the landlord by the Borrower requesting or with respect to such consent, and
shall deliver to the Lender promptly upon receipt copies of all correspondence
received from any landlord with respect to such consent. The Borrower authorizes
the Lender to communicate directly with any landlord to resolve any issues
regarding the landlord's consent to the Lender's enforcement of its rights in
the Borrower's property located at the landlord's premises.
(b) Bank Notice Letters. Promptly upon request of the Lender,
the Borrower shall execute and deliver to the Lender letters in the form of
Exhibit G directed to each bank where the Borrower maintains a depository
account notifying the bank of the Lender's superior security interest in the
account.
(c) Board of Director Approval. On or before May 31, 2000, the
Borrower shall deliver evidence satisfactory to the Lender of the approval by
the Borrower's Board of Directors of the business plan (and the May 5, 2000
budget) described in Subsection 6.16.
SECTION 6. AFFIRMATIVE COVENANTS
The Borrower 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 by mail at 1970 Chain
Bridge Road, VA-1954, McLean, Virginia 22102-4099, attention J. David Linthicum,
or by facsimile to J. David Linthicum at 703-760-5817:
(a) as soon as available, but in no event more than 35 days
after the end of each month of February, March, May, June, August, September,
November and December, a statement of income and retained earnings of the
Borrower and its Subsidiaries for the month, a balance sheet of the Borrower and
its Subsidiaries as of the end of the month, and a statement of cash flows for
the Borrower and its Subsidiaries for the month, all with supporting schedules,
and all in detail and scope satisfactory to the Lender, including sufficient
detail showing the calculation of each component of each financial covenant set
forth in Subsection 7.1 below, and Certified by the chief financial officer of
the Borrower;
(b) as soon as available, but in no event more than 45 days
after the end of each fiscal quarter ending on April 30, July 31 and October 31,
a statement of income and retained earnings of the Borrower and its Subsidiaries
for the quarter, a balance sheet of the Borrower and its Subsidiaries as of the
end of the quarter, and a statement of cash flows for the Borrower and its
Subsidiaries for the quarter, all with supporting schedules, and all in detail
and scope satisfactory to the Lender, including sufficient detail showing the
calculation of each component of each financial covenant set forth in Subsection
7.1 below, and Certified by the chief financial officer of the Borrower;
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(c) as soon as available but in no event more than 60 days
after the end of each fiscal year, a statement of income and retained earnings
for the Borrower and its Subsidiaries for the fiscal year, a balance sheet of
the Borrower and its Subsidiaries as of the end of the fiscal year, and a
statement of cash flows for the Borrower and its Subsidiaries for the fiscal
year, all with supporting schedules, and all in detail and scope satisfactory to
the Lender, including sufficient detail showing the calculation of each
component of each financial covenant set forth in Subsection 7.1 below, and
Certified by the chief financial officer of the Borrower;
(d) not later than the earlier of (i) 24 hours after filing
with the Securities and Exchange Commission or (ii) 55 days after the end of
each quarterly accounting period of the Borrower (A) a copy of the Borrower's
Securities and Exchange Commission Form l0-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 period,
and a consolidated balance sheet of the Borrower and its Subsidiaries as of the
end of such quarterly accounting period, all prepared in accordance with GAAP
consistently applied, and accompanied by (x) an Officer Default Certificate as
of the end of such quarterly accounting period, and (y) an Officer Financial
Covenant Certificate as of the end of such quarterly accounting period, and, if
applicable, (B) 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 of the end
of such quarterly accounting period, all prepared in accordance with GAAP
consistently applied;
(e) not later than 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 (including in-school
and out-of-school receivables) of the Borrower and its Subsidiaries as of the
end of such quarterly accounting period;
(f) not later than the earlier of (i) 24 hours after filing
with the Securities and Exchange Commission or (ii) 100 days after the end of
each fiscal year of the Borrower (A) 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
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<PAGE> 45
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 (zz) an Officer Financial Aid
Program Certificate for each fiscal year, and, if applicable, (B) 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 exercised in good faith;
(g) as soon as available but 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 and its Subsidiaries for the fiscal year of the Borrower
and its Subsidiaries, in substantially the form attached as Exhibit E; and (ii)
as soon as available but not later than one (1) week after its submission to the
U.S. Department of Education, a copy of a compliance audit of the administration
by the Borrower and its Domestic Subsidiaries of Student Financial Aid Programs
under Title IV of the Higher Education Act of 1965 conducted by independent
certified public accountants or a government auditor and complying with all
Requirements of Law;
(h) 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
(i) promptly after transmission thereof, but in no event less
than once each year, a copy of the Management Letter or Internal Control Letter
prepared by the Borrower's CPA firm and delivered to the Borrower; and
(j) promptly after transmission thereof, all written
information submitted to the Board of Directors, and all minutes of Board of
Director and Committee meetings; and
(k) 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.
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<PAGE> 46
6.3. Conduct of Business and Maintenance of Existence. (a) Continue,
and cause each of its Subsidiaries to continue, to engage in the business of
information technology education; (b) preserve, renew and keep in full force and
effect, and cause each of its Subsidiaries to preserve, renew and keep in full
force and effect, its organizational existence; (c) take, and cause each of its
Subsidiaries to 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, and cause each of its Subsidiaries to 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, such insurance
being acceptable 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 to review, audit, check and inspect the Borrower's books
and records at any time with or without notice and to make abstracts and
photocopies thereof, and to discuss the affairs, finances and accounts of the
Borrower with the officers, directors, and other representatives of the Borrower
and its accountant all at such times during normal business hours and other
reasonable times and as often as the Lender may request. The Borrower shall pay
to the Lender, upon demand, a cost of all such audits, field examinations,
reviews, verifications and inspections.
6.6 Notices. Promptly give notice to the Lender:
(a) of the occurrence of any Default or Event of Default;
(b) (i) 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; (ii) of any notice or knowledge that the Borrower or
any Borrower Institution, or any educational program of any thereof, has been
Disqualified, and (iii) of any notice or knowledge of any action or proceeding
against, or any investigation or review of, the Borrower, any of its
Subsidiaries or any Borrower Institution, or any educational program conducted
by any thereof, by or on behalf of any accrediting agency, the Department of
Education or any State of the United States of America or any other Governmental
Authority;
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<PAGE> 47
(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 One Hundred
Thousand Dollars ($100,000.00) 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 6.6 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.
6.7 Government Regulations. Subject to any other more specific
provisions of this Agreement, comply with, and cause each of its Subsidiaries to
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
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.
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<PAGE> 48
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 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 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 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 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 the Borrower or any of its Subsidiaries would
be liable or
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<PAGE> 49
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 Note
for a period of 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
preceding sentence.
6.10 Perfection of Security Interest. Cause the security interest
granted to the Lender pursuant to the Borrower Security Agreement and any other
documents executed contemporaneously with this Agreement to be duly perfected in
accordance with applicable law with respect to all of the Collateral.
6.11 Year 2000 Compatibility. (intentionally deleted).
6.12 Primary Bank Accounts. Maintain all primary depository accounts at
the Lender. The Borrower shall either deposit or (to the extent cash receipts
are deposited into a non-Lender bank account because the Lender does not have a
branch near the Borrower Institution) transfer daily all cash receipts into the
Operating Account. Upon the occurrence of an Event of Default, and immediately
upon demand by the Lender, the Borrower shall deposit all cash receipts directly
into the Operating Account, and shall make all disbursements (except for tuition
refunds) from the Operating Account.
6.13 Weekly Cash Flow Projections. Furnish to the Lender by facsimile
to Mr. J. David Linthicum at 703-760-5817, each Tuesday beginning on May 16,
2000, the Borrower's cash flow projection (of expected cash inflows and outflows
and of expected borrowing requirements) for each of the next six weekly periods,
together with the actual cash flow data for the prior week ending the previous
Friday, in detail and scope satisfactory to the Lender in the Lender's sole and
absolute discretion, certified by the Chief Financial Officer of the Borrower.
6.14 Delivery of Original Retail Installment Contracts. Deliver by the
25th day of each month physical possession to the Lender of originals (with
original signatures) of all Retail Installment Contracts (except those relating
to Borrower Institutions located in Illinois), with respect to which the
obligor/payor is no longer attending any classes being given by the Borrower,
having either dropped the program or graduated from the program, and on which
payments are due and owing to the Borrower, which are in the Borrower's
possession and which the Borrower has failed to deliver to the Lender. The
Lender acknowledges that the original RICs will be delivered to the Lender in a
sealed envelope. The Borrower shall deliver with the originals of the RICs
copies of the Borrower's business records setting forth payments received
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<PAGE> 50
on the RIC and the current balance owing on the RIC, an assignment (subject to
the terms of the Borrower Security Agreement) executed by the Borrower covering
each original RIC (on a form to be supplied by the Lender), and a certificate of
the Borrower's CPA firm confirming that the CPA firm has reviewed the contents
of the package of RICs delivered to the Lender and that the list prepared by the
Borrower setting forth the contents of the package of RICs is true, accurate and
complete. The Borrower shall deliver to the Lender within twenty-five (25) days
after the end of each month a report showing payments and current balances on
each original RIC, possession of which the Borrower has delivered to the Lender.
6.15 Business Consultant. The Borrower acknowledges that it has
retained McShane Group, Inc., a professional turnaround consultant (the
"Consultant"). The Borrower acknowledges that the Consultant shall assist the
Borrower in making permanent improvements in all aspects of the daily operations
and management of the Borrower. The Borrower acknowledges that the Consultant
shall assess the Borrower's current financial operations and organization, and
shall render advice to the Borrower regarding cost reduction measures,
streamlining of the organization and improving profitability. The Borrower
authorizes the Consultant to communicate directly with the Lender at any and all
times to discuss or review any aspect of the Borrower's business and any matter
regarding the engagement between the Borrower and the Consultant, and to
transmit any information relating to the Borrower's business to the Lender, all
without any further authorization from or notice to the Borrower. The Borrower
shall not terminate its contract with the Consultant unless the Lender shall so
consent in writing, which consent shall not be unreasonably withheld or delayed.
The Borrower shall continue employing the services of the Consultant until the
Lender is satisfied, in its absolute and sole discretion, that the Consultant
has fulfilled the functions and purposes for which it was retained.
6.16 Business Plan. The Lender acknowledges that the Borrower has
delivered to the Lender a business plan setting forth in specific detail the
precise actions which the Borrower plans to take to enable it to replenish the
Borrower's working capital, address operational issues of the Borrower, and
return to profitability, which business plan shall be approved by the board of
directors of the Borrower, and shall be consistent with the terms and conditions
of the Credit Documents. The Consultant shall assist the Borrower in
implementing the Business Plan and shall monitor and report to the Lender at
least once every two weeks as to the progress being made toward implementing the
Business Plan. The Business Plan shall include the budget dated May 5, 2000
printed at 9:33 a.m., and attached as Exhibit E.
6.17 Tax Refunds. Make, execute and deliver all such assurances,
instruments and documents as the Lender may request to vest in and assure to the
Lender its rights and claims in and to any and all tax refunds owing to the
Borrower, and execute and deliver to the Lender any agreements, notices and/or
assignments and do such other things as may be satisfactory to the Lender in
order that all sums due and to become due to the Borrower in the form of tax
refunds shall be duly assigned to the Lender and paid over to the Lender by all
federal or state governments which owe tax refunds to the Borrower.
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<PAGE> 51
6.18 Borrowing Base. Deliver to the Lender on November 1, 2000 and on
or before the 25th day of each month, commencing on November 25, 2000, a
Borrowing Base Certificate as of the end of the preceding month, in the form
attached as Exhibit H accompanied by a schedule listing all RICs in the
Borrower's possession, including those RICs delivered with the Borrowing Base
Certificate.
6.19 Monthly Meeting. Hold a meeting at least once every month (face to
face meetings once each quarter and all other meetings to be by telephone) to
discuss the Borrower's financial condition, among the Lender, the Borrower's
management, the Consultant and two members of the Borrower's Board of Directors,
including the Chairman of the Board of Directors and at least one member of the
Audit Committee.
6.20 Correspondence from Department of Education. Deliver to the Lender
promptly upon receipt all correspondence or other written documents received
with respect to the Borrower from the Department of Education, pertaining to
student loan or cash flow issues.
6.21 HCM2 Information. Deliver to the Lender each month by the 25th day
of the month a running tally of all deferred payments owing to the Borrower by
the Department of Education on account of or as a result of the Borrower's HCM2
status. Immediately upon the Department of Education's modification of the
Borrower's HCM2 status, the Borrower shall notify the Lender in writing of such
change in status and of what the Borrower expects to collect from the Department
of Education as a result of such modification. The Borrower agrees to
immediately bill for and collect all such deferred payments becoming due as a
result of such modification within 30 days following such notice to the Lender.
All such HCM2 payments shall constitute Prepayment Sources.
6.22 Financial Covenants. Comply with the following financial
covenants:
(a) Fixed Charge Coverage Ratio. As of the end of each of the
following quarterly accounting periods, achieve at least the following Fixed
Charge Coverage Ratio for the 12-month period then ending, calculated on a
rolling four quarter basis:
<TABLE>
<CAPTION>
Quarter Ending Ratio
-------------- -----
<S> <C>
April 30, 2000 1.00 to 1.00
July 31, 2000 .90 to 1.00
October 31, 2000 1.15 to 1.00
January 31, 2001 1.40 to 1.00
April 30, 2001 1.50 to 1.00
</TABLE>
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<PAGE> 52
(b) Tangible Net Worth. As of the following dates, achieve at
least the Tangible Net Worth as follows:
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
July 31, 2000 Tangible Net Worth as of April 30, 2000 less $2,300,000
October 31, 2000 Tangible Net Worth as of April 30, 2000 less $2,200,000
January 31, 2001 Tangible Net Worth as of April 30, 2000 less $1,700,000
April 30, 2001 Tangible Net Worth as of April 30, 2000 less $1,200,000
</TABLE>
With respect to the calculation of the Borrower's Tangible Net Worth as
of April 30, 2000, the Borrower shall deliver to the Lender on or before June
15, 2000 in writing a calculation of the Borrower's Tangible Net Worth as of
April 30, 2000 Certified by the Borrower's Chief Financial Officer and CPA firm.
(c) Net Profit After Taxes. For each quarter, beginning with
the quarter ending on January 31, 2001, generate a net profit after taxes.
(d) Accounts Receivable. Beginning October 1, 2000, and
continuing at all times thereafter, achieve total Accounts Receivable (short
term and long term) of at least $50,000,000. If the Borrower fails to comply
with this financial covenant, the Borrower shall immediately deposit into the
Cash Collateral Account an amount sufficient to equal 110% of the L/C Exposure.
SECTION 7. NEGATIVE COVENANTS
The Borrower 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 (moved to Subsection 6.22).
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, except for:
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<PAGE> 53
(a) Indebtedness of the Borrower or any of its Subsidiaries
under this Agreement and the other Credit Documents; and
(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).
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 the 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 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; and
(d) Liens in favor of the Lender created pursuant to the Credit
Documents;
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 the 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
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<PAGE> 54
(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. Enter into, or permit any of
its Subsidiaries to enter into, any merger, consolidation, amalgamation or share
exchange, or, 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. Purchase or otherwise acquire, or
permit any of its Subsidiaries to purchase or otherwise acquire, any assets of
any other Person.
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 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; and
(b) the sale of inventory in the ordinary course of business.
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 the Borrower;
(b) payments 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 in the form of capital stock of the
Borrower by the Borrower to stockholders of the Borrower;
(d) payments made by the Borrower to repurchase securities of
the Borrower, to the extent that such payments are made with proceeds of a
public offering of securities of the Borrower.
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.
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<PAGE> 55
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) loans to CLCQ and/or Delta College so long as CLCQ and
Delta College are Subsidiaries of the Borrower, which loans may not exceed
$500,000 in the aggregate;
(c) Investments in Cash Equivalents; and
(d) other Investments approved by the Lender in writing.
7.13 Limitation on Optional Payments and Modifications. (a) 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 or any of its
Subsidiaries 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 60 days prior written notice of the new location.
7.17 Change of Name. Without giving the Lender at least 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
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permit to be changed, the name 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.
7.21 Limitation on Capital Expenditures. For the fiscal year ending on
January 31, 2001, permit Capital Expenditures to exceed $2,600,000.
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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
Note, 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, other than as provided in Section 8(a), 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)(Regulation U), 4.18(Use of Loan Proceeds), 6.3(a)(Type of
Business), 6.6(Inspection), 6.8(d)(Reportable Event Under ERISA), 6.22(Financial
Covenants), 7.4(Negative Pledge), 7.6 through 7.11, inclusive (Limitations on
Corporate Transactions), or 7.13 through 7.18, inclusive (Additional Limitations
on Corporate Transactions), or Subsection 2.3(b) and 2.3(d) of the Borrower
Security Agreement, such failure shall continue for five Business Days following
notice ; 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 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, any of its Subsidiaries 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 of any Contingent
Obligation 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
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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, any of its Subsidiaries 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 part of its assets, or the
Borrower, any of its Subsidiaries 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, any
of its Subsidiaries or any Other Obligor any case, proceeding or other action of
a nature referred to in clause (i) above; or (iii) there shall be commenced
against the Borrower, any of its Subsidiaries 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 part of its assets
which results in the entry of an order for any such relief; or (iv) the
Borrower, any of its Subsidiaries 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, any of its Subsidiaries or any Other Obligor shall be insolvent (as
defined in Section 101(32) of the United States Bankruptcy Code, or any
successor legislation), or generally not able to, 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; or
(k) There shall occur any event or condition which the Lender
determines has or will have a Material Adverse Effect, whether or not such event
or condition otherwise constitutes an Event of Default; or
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(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, any of its Subsidiaries or any Other Obligor involving in the
aggregate liabilities (not paid or fully covered by insurance) equal to or
exceeding One Hundred Thousand Dollars ($100,000.00) and all such judgments or
decrees shall not have been vacated, discharged or stayed pending appeal; or
(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;
(o) There shall occur a Change of Control; or
(p) The Borrower or any Borrower Institution, or any
educational program of any thereof, is Disqualified,
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, with or without 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, the 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
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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 Note, and any Default or Event of
Default waived shall be deemed to be 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. If 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
Section 7, this Agreement shall be deemed to be automatically and immediately
amended to include such Additional/More Restrictive Provisions. If 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 9.2
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 the amendment of this Agreement effected pursuant to this Subsection
9.2 as a result of such Additional/More Restrictive Provisions. If, after an
amendment of this Agreement effected pursuant to this Subsection 9.2 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 Section 7 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 the Lender may request to further memorialize
amendments of this Agreement pursuant to this Subsection 9.2.
9.3 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
facsimile transmission), and, shall be deemed to have been given when hand
delivered to the party to whom directed, or, if transmitted by facsimile
transmission or by mail whether or not registered or certified, when transmitted
by facsimile transmission or deposited in the mail postage prepaid,
respectively, addressed as follows (or to such other address as may be hereafter
notified by the respective parties hereto and any future holder of the Note):
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The Borrower: 10021 Balls Ford Road
Manassas, Virginia 20109
Attention: Mark Nasser, Vice President
and Chief Financial Officer
Fax: (703) 352-4558
with a copy to: Shaw Pittman
1675 International Drive
McLean, Virginia 22102
Attention: Jack L. Lewis, Esquire
Fax: (703) 790-7901
The Lender: First Union National Bank
1970 Chain Bridge Road
7th Floor South - VA 1954
McLean, Virginia 22102
Attention: J. David Linthicum, Vice President
Fax: (703) 760-5549
with a copy to: Piper Marbury Rudnick & Wolfe LLP
6225 Smith Avenue
Baltimore, Maryland 21209-3600
Attention: David S. Musgrave, Esquire
Fax: (410) 580-3222
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 effective until received. No
failure of any party hereto to provide a copy of any notice, request or demand
to Shaw Pittman or Piper Marbury Rudnick & Wolfe LLP 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
Note.
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9.6 Payment of Expenses and Taxes. The Borrower agrees (a) to pay or
reimburse the Lender for all of its costs and expenses incurred in connection
with the development, preparation and execution of, and any administration,
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 of its costs and expenses incurred in connection with the legal
interpretation, 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
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 Note for a period of 2
years. The Borrower authorizes the Lender to debit from the Operating Account
all such payments or reimbursements which the Borrower is required to make under
this Subsection 9.6.
9.7 Further Assurances, Power of Attorney. 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. Borrower hereby appoints Lender
and its designees as attorney-in-fact of Borrower, irrevocably and with power of
substitution, with authority to execute and deliver from time to time, in the
name and stead of the Borrower, all documents which Borrower is required to, but
has failed or refused to, execute and deliver to Lender pursuant to this
Agreement or any of the Credit Documents, and with authority to take all of the
actions from time to time on behalf of the Borrower, and in the name and stead
of the Borrower, which Lender is authorized to take under this Agreement and the
Credit Documents or which Lender in its good faith discretion deems necessary or
advisable to cause Borrower to be in compliance with any of the terms of this
Agreement or any of the Credit Documents or to carry out and enforce this
Agreement and the Credit Documents. The attorney or designee shall not be liable
for any acts of commission or omission nor for any error of judgment or mistake
of fact or law which does not arise from its gross negligence or willful
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misconduct. This power of attorney is coupled with an interest and is
irrevocable so long as any of the Obligations remain unpaid or unperformed or
there exists any commitment by the Lender which could give rise to any
Obligations.
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 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.
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9.12 Successors and Assigns: Transfers of Interests.
(a) This Agreement shall be binding upon and inure to the
benefit of the Borrower, the Lender, all future holders of the Note 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, participation in its
interests under this Agreement 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, the Note and the other Credit
Documents, 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 Commonwealth of Virginia, exclusive of principles
of conflicts of laws.
9.15 Submission To Jurisdiction. The Borrower hereby irrevocably and
unconditionally:
(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 the United States District Court for the
Eastern District of Virginia or the Circuit Court of Fairfax County, Virginia;
(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;
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(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.
9.16 Release. The Borrower releases and forever waives and relinquishes
all claims, demands, obligations, liabilities and causes of action of whatsoever
kind or nature, whether known or unknown, which it has, may have, or might have
or assert now or in the future against the Lender and its directors, officers,
employees, attorneys, agents, successors, predecessors and assigns and any
Affiliates, Subsidiaries or related entities of the Lender and their directors,
officers, employees, attorneys, agents, successors, predecessors and assigns,
directly or indirectly, arising out of, based upon, or in any manner connected
with any transaction, event, circumstance, action, failure to act, or occurrence
of any sort or type, whether known or unknown, which occurred, existed, was
taken, permitted, or begun before the execution of this Agreement.
9.17 Consent to Relief from Stay. The Borrower acknowledges and agrees
that if the Collateral or any part thereof shall ever become the subject of any
bankruptcy or insolvency estate, then the Lender shall immediately become
entitled, among other relief to which the Lender may be entitled, to obtain upon
ex parte application therefor and without further notice of action of any kind,
(i) an order from the court prohibiting the use by the trustee in bankruptcy or
by the Borrower as debtor in possession of the Lender's "cash collateral" (as
such term is defined in Section 363 of the Bankruptcy Code) in connection with
the Loan, and (ii) an order from the Court granting immediate relief from the
automatic stay pursuant to Section 362 of the Bankruptcy Code so as to permit
the Lender to exercise all of its rights and remedies hereunder, under the other
Loan Documents and at law and in equity, and the Borrower further acknowledges
and agrees that the occurrence or existence of any Event of Default under this
Agreement shall, in and of itself, constitute "cause" for relief from the
automatic stay pursuant to the provisions of Section 362(d)(1) of the Bankruptcy
Code.
9.18 Other Bankruptcy Relief. The Borrower acknowledges and agrees that
in the event of the filing of any voluntary or involuntary petition in
bankruptcy by or against the Borrower, the Borrower shall not assert or request
any other party to assert that the automatic stay provided by Section 362 of the
Bankruptcy Code shall operate or be interpreted to stay, interdict, condition,
reduce, or inhibit the ability of the Lender to enforce any rights it has by
virtue of this Agreement or the other Loan Documents, or any other rights the
Lender has, whether now or hereafter acquired, against any person or entity
which is not a debtor in such bankruptcy proceedings or against any property
owned by any such non-debtor; and further that, in the event of the filing of
any voluntary or involuntary petition in bankruptcy by or against the Borrower,
the Borrower shall not seek a supplemental stay or any other relief, whether
injunctive or otherwise, pursuant to Section 105 of the Bankruptcy Code or any
other provision of the
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<PAGE> 66
Bankruptcy Code, to stay, interdict, condition, reduce, or inhibit the ability
of the Lender to enforce any rights it has by virtue of this Agreement or the
other Loan Documents, or at law or in equity, or any other rights the Lender
has, whether now or hereafter acquired, against any person or entity which is
not a debtor in such bankruptcy proceedings, or against any property owned by
any such non-debtor.
9.19 Waiver by Lender. Subject to compliance with each and every
closing condition set forth in Section 5, the Lender waives (as to (a), (b) and
(c), such waiver shall be a point-in-time waiver) the Borrower's failure to
comply with:
(a) the Fixed Charge Coverage Ratio covenant for the fiscal
year ending January 31, 2000;
(b) the Leverage Ratio covenant for the quarter ending January
31, 2000;
(c) the Minimum Tangible Net Worth covenant for the quarter
ending January 31, 2000;
(d) the requirement to reduce the amounts of the Letters of
Credit to $3,500,000 by March 1, 2000;
(e) the requirement to deliver the RICs to the Lender by no
later than February 29, 2000;
(f) the requirement to obtain approval of its business plan by
its Board of Directors by no later than March 27, 2000;
(g) the requirement to deliver the final 10-K to the Lender
within 100 days of its fiscal year end.
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.
<TABLE>
<S> <C>
ATTEST/WITNESS: COMPUTER LEARNING CENTERS, INC.
By: /s/ John L. Corse (SEAL)
- ------------------------------- ---------------------------------------
John L. Corse, President and Chief
Executive Officer
FIRST UNION NATIONAL BANK
By: /s/ J. David Linthicum (SEAL)
- ------------------------------- ---------------------------------------
J. David Linthicum, Vice President
</TABLE>
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<PAGE> 67
Schedule I
to Credit Agreement
BORROWER BUSINESS PREMISES
222 South Harbor Boulevard
Anaheim, CA 92805
3580 Wilshire Boulevard
Suite 100
Los Angeles, CA 90010
667 Mission Street
San Francisco, CA 94105
111 North Market Street
Suite 105
San Jose, CA 95113
2359 Windy Hill Road #280
Marietta, GA 30076
200 South Michigan Avenue
Chicago, IL 60604
920 East Algonquin Road, #110
Schaumberg, IL 60173
312 Marshall Avenue
Laurel, MD 20707
211 South Plain Street
Lowell, MA 01852
5 Middlesex Avenue
Somerville, MA 02145
32500 Concord Drive
Madison Heights, MI 48071
The Plaza
2290 Corporate Circle, Suite 100
Henderson, NV 89014
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<PAGE> 68
2 Executive Campus #200
Cherry Hill, NJ 08002
160 East Route 4
Paramus, NJ 07652
50 Cragwood Road
1st Floor
South Plainfield, NJ 07080
3031-A Walton Road
Suite 301
Norristown, PA 19401
3600 Market Street
Philadelphia, PA 19104
Appletree Corporate Center
2180 Hornig Road, Building A
Philadelphia, PA 19116
777 Penn Center Boulevard
3rd Floor
Pittsburgh, PA 15235
One Plymouth Meeting
Suite 300
Plymouth Meeting, PA 19462
1500 Eastgate Drive
Suite 200
Garland, TX 75041
3030 South Gessner
Suite 150
Houston, TX 77063
301 NE Loop 820
Hurst, TX 76053
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<PAGE> 69
6295 Edsall Road
Suite 210
Alexandria, VA 22312
5675 Jimmy Carter Boulevard
Suite 100
Norcross, Georgia 30071
7005 Boulevard Taschereau
Suite 300
Brossard, Quebec J4Z 1A7
Carrefour Laval
2525, Boul, Daniel-Johnson
Suite 610
Laval, Quebec H7T 1S9
416 Boulevard De Maisonneuve Quest
Bureau 700
Montreal, Quebec H3A 1L2
10021 Balls Ford Road
Manassas, Virginia 20109
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<PAGE> 70
Schedule 4.6
to Credit Agreement
ITEM 3. LEGAL PROCEEDINGS
Active Litigation
On May 5, 1998, a class action lawsuit was filed against CLC in the
Superior Court of New Jersey in Bergen County, New Jersey. The complaint
alleges, among other things, that CLC Learning Centers in New Jersey failed to
provide certain educational services and resources, misrepresented certain
information respecting services, resources, occupational opportunities and
student outcomes and violated certain provisions of the New Jersey Consumer
Fraud Act. On November 19, 1999, the Court certified a class consisting of all
persons who, during the six years immediately preceding the commencement of this
action, had enrolled in a course or courses of study, education or training
provided by CLC at CLC's New Jersey locations for which they incurred tuition
expenses. On December 6, 1999, CLC filed a motion with the Appellate Division of
the Superior Court of New Jersey to appeal the November 19, 1999 decision to
certify a class. On January 19, 2000, that motion was denied. CLC is unable to
estimate the outcome of the matter or any potential liability.
On July 9, 1999, a class action lawsuit was filed against CLC in the Court
of Common Pleas in Philadelphia County, Pennsylvania, on behalf of all students
who attended the Learning Center located on Market Street in Philadelphia within
six years of July 9, 1999, who have not obtained employment in a
computer-related job through our placement services. On August 2, 1999, the case
was removed to the United States District Court for the Eastern District of
Pennsylvania. On October 12, 1999, the United States District Court for the
Eastern District of Pennsylvania remanded the case to the Court of Common Pleas
in Philadelphia County, Pennsylvania. The complaint alleges, among other things,
that this Learning Center failed to provide certain educational services and
resources, misrepresented certain information respecting services, resources,
occupational opportunities and student outcomes, and violated certain provisions
of the Pennsylvania Unfair Trade Practices and Consumer Protection Law. CLC is
unable to estimate the outcome of the matter or any potential liability.
Between June 1, 1998 and October 31, 1999, CLC was named as defendant in
three other lawsuits in Texas and New Jersey by individual students or groups of
students who formerly attended one of CLC's Learning Centers. In two of these
lawsuits, various present and former officers, directors and employees of CLC
have also been named as defendants. The complaints allege, among other things,
that CLC's affected Learning Centers failed to provide plaintiffs with certain
educational services and resources and misrepresented certain information
respecting services, resources, and student outcomes and violated certain
provisions of the applicable state consumer laws. CLC is unable to estimate the
outcome of these matters or any potential liability.
In addition to the lawsuits discussed above, CLC is a defendant in a number
of civil lawsuits involving current and former employees, which we consider
incidental to our business and unlikely to have a material effect on our future
operations. However, there can be no assurance that these matters will not have
a material adverse effect on CLC's results of operations in a future period,
depending in part on the results for such period.
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<PAGE> 71
CLC intends to defend itself vigorously in the lawsuits referred to above;
however, there can be no assurance that CLC will be successful in defending
itself in any of these proceedings. Even if CLC prevails on the merits in such
litigation, CLC expects to incur significant legal and other defense costs as a
result of such proceedings. These proceedings could involve substantial
diversion of the time of some members of management, and an adverse
determination in, or settlement of, such litigation could involve the payment of
significant amounts, or could include terms in addition to such payments, which
could have a severe impact on CLC's business, financial condition and results of
operations.
There can be no assurance that additional legal proceedings will not be
filed or that adverse action will not be initiated against CLC, either by
federal or state regulators, or other parties. Any such legal proceedings or
adverse action could have a severe impact on our business, financial condition
and results of operations.
Settled Litigation
During fiscal year 1999 and 2000, CLC was named as defendant in five other
lawsuits in California, Michigan, Texas and Virginia by individual students or
groups of students who formerly attended one of its Learning Centers. The
complaints allege, among other things, that CLC's affected Learning Centers
failed to provide plaintiffs with certain educational services and resources and
misrepresented certain information respecting services, resources, and student
outcomes and violated certain provisions of the applicable state consumer laws.
During the course of fiscal 2000, these cases were settled resulting in payments
to the former students of immaterial amounts. Settlement expenses are combined
with legal fees and included within general and administrative expenses in the
consolidated financial statements.
In addition to the student lawsuits, the Attorney General of Illinois filed
a complaint against CLC in Circuit Court in Cook County, Illinois, on March 10,
1998, asserting that CLC had violated the Illinois Private Business and
Vocational Schools Act and the Illinois Consumer Fraud and Deceptive Business
Practices Act (the "Acts") at its Schaumburg, Illinois Learning Center. The
complaint alleged that at the Schaumburg Learning Center, CLC failed to provide
certain educational services and resources and misrepresented certain
information respecting services, resources, occupational opportunities and
student outcomes. On June 8, 1998, CLC reached an agreement with the Attorney
General settling the litigation in the form of a final judgment and Consent
Decree approved by the court ("Consent Decree"). The settlement includes payment
of a voluntary contribution of $90,000 to the Attorney General's consumer
education fund, a provision annually for a four year period of $95,000 worth of
computer hardware and software to schools, programs, community sites and other
non-profit and public institutions in the Chicago area designated by the
Attorney General, and $10,000 worth of training in computer skills annually at
CLC's Schaumburg or Chicago Learning Centers for teachers and other community
based personnel to enable them to make effective use of the computer equipment.
CLC also agreed to take certain measures to assure compliance with state
regulatory requirements, and to establish an ombudsman program and binding
arbitration for the resolution of certain student complaints. CLC has
implemented the measures called for under the first and second years of the
Consent Decree. Failure by CLC to continue to comply with the terms of the
Consent Decree could result in adverse action against the Learning Centers
located in Illinois, including suspension or termination of our licenses to
operate within Illinois and other sanctions. The loss of operating authority in
Illinois could have a material adverse effect on CLC.
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<PAGE> 72
Schedule 4.11
to Credit Agreement
ENVIRONMENTAL MATTERS
NONE
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<PAGE> 73
Schedule 7.3
to Credit Agreement
PERMITTED LIENS
NONE
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<PAGE> 74
EXHIBIT A
to Credit Agreement
OFFICER DEFAULT CERTIFICATE
I, MARK M. NASSER, pursuant to the Amended and Restated Credit Agreement
(the "Credit Agreement") dated December 23, 1999, between COMPUTER LEARNING
CENTERS, INC., a Delaware corporation ("Borrower"), and FIRST UNION NATIONAL
BANK, as successor-by-merger to CORESTATES BANK, N.A. ("Lender"), hereby certify
to Lender that:
1. I am the chief financial officer of Borrower.
2. I have conducted a diligent inquiry concerning whether, as of
____________________ _____, there existed any Default (as defined in the Credit
Agreement) or any Event of Default (as defined in the Credit Agreement).
3. Based upon such inquiry, to my actual knowledge and belief, as of
such date, [there existed no Default (as defined in the Credit Agreement) or
Event of Default (as defined in the Credit Agreement).] [the following
Default[s] (as defined in the Credit Agreement) and Event[s] of Default (as
defined in the Credit Agreement) existed and the relevant facts with respect
thereto are as follows:]
WITNESS my signature of this ______ day of ___________________, _____.
----------------------------
Name:
Title:
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<PAGE> 75
EXHIBIT B
to Credit Agreement
OFFICER FINANCIAL COVENANT CERTIFICATE
I, MARK M. NASSER, pursuant to the Second Amended and Restated Credit
Agreement (the "Credit Agreement") dated May 15, 2000, between COMPUTER LEARNING
CENTERS, INC., a Delaware corporation ("Borrower"), and FIRST UNION NATIONAL
BANK, successor-by-merger to CORESTATES BANK, N.A. ("Lender"), hereby certify to
Lender, that:
1. I am the chief financial officer of Borrower.
2. As of __________________, ____ (all capitalized terms used hereinafter
without definition having the meanings assigned to such terms in the Credit
Agreement):
<TABLE>
<CAPTION>
(a) TANGIBLE NET WORTH FOR Q_____ EQUALED $ ___________
<S> <C> <C> <C> <C>
Q ____ Q ____ Q ____ Q ____
(i) Total Assets $______ $______ $______ $______
(ii) Less Intangible Assets ($______) ($______) ($______) ($______)
(iii) Equals Tangible Assets $______ $______ $______ $______
(iv) Total Liabilities $______ $______ $______ $______
(iv) Tangible Net Worth $______ $______ $______ $______
</TABLE>
<TABLE>
<CAPTION>
(b) FIXED CHARGE COVERAGE RATIO FOR 12 MONTH ROLLING PERIOD EQUALED ________ TO 1.00
<S> <C> <C> <C> <C> <C>
Q ____ Q ____ Q ____ Q ____ 12 Mo. Rolling
(i) Net Income before tax
for the quarterly periods ended $______ $______ $______ $______ $________
(ii) Depreciation, amortization $______ $______ $______ $______ $________
(iii) Other non-cash charges deducted
in determining such net income $______ $______ $______ $______ $________
(iv) Interest Expense for period $______ $______ $______ $______ $________
</TABLE>
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<PAGE> 76
<TABLE>
<S> <C> <C> <C> <C> <C>
(v) Payments under Operating Leases
during the periods then ended $______ $______ $______ $______ $________
(vi) Less 50% of Capital Expenditures
during the periods then ended ($______) ($______) ($______) ($______) ($________)
(vii) ADJUSTED NET INCOME (NUMERATOR) $______ $______ $______ $______ $________
(viii) Payments under Operating Leases
during the periods then ended $______ $______ $______ $______ $________
(ix) Interest Expense for period $______ $______ $______ $______ $________
(x) Current portion of Long-Term
Debt for then ended periods $______ $______ $______ $______ $________
(xi) FIXED CHARGES (DENOMINATOR) $______ $______ $______ $______ $________
</TABLE>
WITNESS my signature of this ______ day of ____________________, _____
----------------------------
Name:
Title:
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<PAGE> 77
EXHIBIT C
to Credit Agreement
Sweep Plus Loan and Investment Services Description
Sweep Plus Loan and Investment Services Agreement
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<PAGE> 78
EXHIBIT D
to Credit Agreement
BORROWING CERTIFICATE
This Certificate is made pursuant to Subsection 5.1(d) of the Second Amended and
Restated Credit Agreement of even date herewith (the "Credit Agreement") between
COMPUTER LEARNING CENTERS, INC., a Delaware corporation (the "Borrower"), and
FIRST UNION NATIONAL BANK, as successor-by-merger to CORESTATES BANK, N.A.
Capitalized terms used herein without definition shall have the meanings
assigned to such terms in the Credit Agreement. The undersigned hereby certifies
that, to his actual knowledge and belief:
1. The representations and warranties of the Borrower set
forth in the Credit Agreement and the other Credit Documents, or which
are contained in any certificate, document or financial or other
statement furnished pursuant to or in connection with the Credit
Agreement, are true and complete in all material respects on and as of
the date hereof;
2. There are no bankruptcy, insolvency, reorganization,
liquidation or dissolution proceedings pending or, to my knowledge,
threatened against the Borrower, nor has any other event occurred
affecting or threatening the existence of the Borrower; and
3. As of the date of this Agreement, no Default or Event of
Default exists.
IN WITNESS WHEREOF, the undersigned has hereunto set his name as
of the _____ day of __________________, _________.
-----------------------------------
Name: Mark M. Nasser
Title: Vice President and Chief
Financial Officer
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<PAGE> 79
COMMONWEALTH OF VIRGINIA
COUNTY OF MANASSAS
I HEREBY CERTIFY that on this 15th day of May, 2000, before me, the
undersigned, a Notary Public of said State, personally appeared Mark M.
Nasser, who acknowledged himself to be the Vice President and Chief
Financial Officer 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:
- ----------------------
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<PAGE> 80
EXHIBIT G
to Credit Agreement
PROJECTIONS
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<PAGE> 81
EXHIBIT F
to Credit Agreement
CLCQ CAPITAL STOCK
<TABLE>
<CAPTION>
Class Shareholder Shares
- ----- ----------- ------
<S> <C> <C>
Common Shares Borrower 100
Dividend Access Shares Borrower 512,551
Dividend Access Shares Marie-Josee Matte 7,229
Dividend Access Shares Dolmen (1994) Inc. 28,628
</TABLE>
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<PAGE> 82
EXHIBIT G
to Credit Agreement
NOTICE OF COLLATERAL ASSIGNMENT
OF DEPOSIT ACCOUNTS
May 15, 2000
SunTrust Bank FKA Crestar Bank ("Bank")
5701 Duke Street
Alexandria, VA 22304
Attn: Ms. Person
Re: Computer Learning Centers, Inc. ("Borrower")
Ladies and Gentlemen:
The Borrower named above has obtained or may hereafter obtain certain loans and
other financial accommodations from First Union National Bank (the "Lender")
under a certain Second Amended and Restated Credit Agreement dated as of May 15,
2000 (as amended from time to time, the "Loan Agreement"), which sets forth the
terms and conditions of a credit facility for advances under a line of credit
for working capital, and for the issuance of letters of credit for the account
of the Borrower. The extensions of credit made pursuant to the Loan Agreement
are secured in part by the cash proceeds of collateral described in a Second
Amended and Restated Security Agreement ("Security Agreement"), which cash
proceeds have been deposited into the Borrower's accounts maintained with you,
and by a certain Assignment of Deposit Accounts dated May 15, 2000 (as at any
time amended, the "Assignment") pursuant to which the Borrower has assigned and
granted to the Lender a security interest in all deposit accounts now or
hereafter maintained with you, including but not limited to account number(s)
________________ , _____________ , and ______________ (collectively, the
"Deposit Accounts"). Copies of the Assignment and the Security Agreement are
enclosed herewith.
Lender hereby notifies you of such assignment and security interest
in the Deposit Accounts.
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<PAGE> 83
This letter of notification shall continue in full force and effect until
terminated in writing by a duly authorized officer of the Lender. By its
signature appearing below, Borrower hereby (I) irrevocably confirms that it has
granted Lender its power of attorney with respect to all Deposit Accounts as set
forth in the Assignment, (ii) instructs you to comply with any instructions of
Lender which are promptly confirmed by it in writing, without any additional
requirement for further endorsement, consent or instruction from the Borrower,
(iii) agrees to indemnify and save Bank harmless from and against any and all
losses arising out of compliance by Bank with the instructions contained herein,
and (iv) agrees to pay Bank's charges for maintenance of the Deposit Accounts
and reasonable legal fees incurred by Bank in connection with the execution and
delivery of this agreement.
If you have any questions or comments, please contact the undersigned at the
address or telephone number appearing below.
Very truly yours,
FIRST UNION NATIONAL BANK ("Lender")
By:
----------------------------------------------
J. David Linthicum, Vice President
Address:
1970 Chain Bridge Road
7th Floor South Tower, Mail Stop VA-1954
McLean, Virginia 22102-4099
Agreed to and accepted on May 15, 2000:
COMPUTER LEARNING CENTERS, INC. ("Borrower")
By:
----------------------------------------------
John L. Corse, President
Address:
10021 Balls Ford Road
Manassas, Virginia 20109
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<PAGE> 84
SunTrust Bank FKA Crestar Bank ("Bank"), the depository institution referenced
above, hereby acknowledges that it is presently holding the Depository
Account(s) identified above. Bank acknowledges notice of Lender's interest in
the Deposit Account(s) and Lender's power of attorney with respect thereto, and
agrees to accept instructions from Lender with respect to the Deposit
Account(s), so long as such are confirmed promptly in writing from Lender,
without requiring further instruction, consent, or endorsement form Borrower.
Bank confirms that it has not received any prior notice of any other right or
claim to any Deposit Account.
SUNTRUST BANK FKA CRESTAR BANK ("Bank")
By:
------------------------------------
Title:
---------------------------------
Address:
5701 Duke Street
Alexandria, Virginia 22304
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<PAGE> 85
EXHIBIT H
to Credit Agreement
BORROWING BASE CERTIFICATE
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<PAGE> 1
EXHIBIT 10.24
FIRST LOAN MODIFICATION AGREEMENT
This First Loan Modification Agreement ("Modification") is dated January
29, 2000 and is between Computer Learning Centers, Inc., a Delaware corporation
(the "Borrower"), and First Union National Bank (the "Lender").
RECITALS
1. The Borrower is indebted to the Lender under a Second Amended and
Restated Revolving Credit Note dated December 31, 1999, in the face amount of
Twelve Million Dollars ($12,000,000) (the "Note").
2. As of January 28, 2000, there was due on the Note principal of
$7,955,000 plus interest of $46,565.83 and attorneys' fees. As of December 31,
1999, attorneys' fees and expenses totaled $24,052.91. Additional attorneys'
fees and expenses have accrued since December 31, 1999.
3. The Note is governed by the terms of an Amended and Restated
Credit Agreement dated December 31, 1999 between the Borrower and the Lender
(the "Credit Agreement").
4. Payment of the Note is secured by the collateral described in an
Amended and Restated Security Agreement dated December 31, 1999 between the
Borrower and the Lender (the "Security Agreement").
5. Computer Learning Centers of Quebec, Inc., a wholly-owned
subsidiary of the Borrower, guarantees payment of the Note pursuant to an
Unconditional Guaranty Agreement dated January 17, 2000.
6. To secure payment of the Unconditional Guaranty Agreement,
Computer Learning Centers of Quebec, Inc. executed in favor of the Lender a Deed
of Hypothec dated January 17, 2000.
7. To secure payment of amounts owing to both the Borrower and
Computer Learning Centers of Quebec, Inc., Delta College, Inc., a wholly-owned
subsidiary of Computer Learning Centers of Quebec, Inc., executed in favor of
each of the Borrower and Computer Learning Centers of Quebec, Inc. a Deed of
Hypothec dated January 14, 2000.
8. The Borrower has requested that the Lender make certain
modifications to the Credit Agreement and the Note, to enable the Lender to
advance to the Borrower additional sums. The Lender is willing to consent to the
Borrower's requests subject to the terms and provisions of this Modification.
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<PAGE> 2
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and adequacy of which are acknowledged, the
parties agree as follows:
Section 1. Recitals. The parties hereby acknowledge the accuracy of
the Recitals and incorporate the Recitals into this Modification.
Section 2. Amendment to Note. The FOR VALUE RECEIVED paragraph of the
Note is deleted in its entirety and replaced with the following:
FOR VALUE RECEIVED, COMPUTER LEARNING CENTERS, INC., a
Delaware corporation, unconditionally promises to pay on the
Revolving Credit Termination Date, to the order of FIRST UNION
NATIONAL BANK, successor-by-merger to CoreStates Bank, N.A. (the
"Lender"), at the office of the Lender at 1970 Chain Bridge Road,
McLean, Virginia 22102, in lawful money of the United States of
America and in immediately available funds, the principal amount
of the lesser of (a) Fifteen Million Dollars ($15,000,000), as
reduced pursuant to the terms and conditions of the Amended and
Restated Credit Agreement dated December 31, 1999, between the
Borrower and the Lender (as the same may be amended, modified,
extended, renewed, supplemented or replaced from time to time, the
"Credit Agreement"), or (b) the aggregate unpaid principal amount
of all Revolving Credit Loans made by the Lender to the Borrower
pursuant to the Credit Agreement. The Credit Agreement is
incorporated into and made a part of this Note. Capitalized terms
hereinbefore or hereinafter used without definition shall have the
meanings assigned to such terms in the Credit Agreement.
Section 3. Amendment to Credit Agreement.
A. Revolving Credit Maximum Amount. The definition of
Revolving Credit Maximum Amount in Subsection 1.1 of the Credit Agreement is
deleted in its entirety and replaced with the following:
"Revolving Credit Maximum Amount": Fifteen Million Dollars
($15,000,000) effective January 29, 2000; provided, however, that
on and after February 8, 2000, the Revolving Credit Maximum Amount
may exceed Twelve Million Dollars ($12,000,000) only in the sole
and absolute discretion of the Lender; on and after March 1, 2000,
the Revolving Credit Maximum Amount may exceed Eleven Million
Dollars ($11,000,000) only in the sole and absolute discretion of
the Lender; and on and after May 1, 2000, the Revolving Credit
Maximum Amount may exceed Ten Million Dollars ($10,000,000)
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<PAGE> 3
only in the sole and absolute discretion of the Lender, all
subject to the provisions of Subsection 6.17 below.
B. Procedure for Revolving Credit Borrowing. Subsection 2.3 of
the Credit Agreement is deleted in its entirety and replaced with the following:
Procedure for Revolving Credit Borrowing. (a) On and after
February 8, 2000, the terms of the Lender's Sweep Plus product
shall control the manner in which funds are transferred between
the Operating Account and the Revolving Credit Loan for credit or
debit to the Revolving Credit Loan. The initial Sweep Plus Ceiling
shall be Five Million Five Hundred Thousand Dollars ($5,500,000).
The Lender agrees to make advances under the Revolving Credit Loan
in excess of the Sweep Plus Ceiling, subject to Subsection 2.1
above and any other provision of this Agreement, and provided
that, in such cases the Borrower shall also disclose to the Lender
(i) the amount to be borrowed, (ii) the requested Borrowing Date,
(iii) the specified purpose of the borrowing, (iv) the specified
source of repayment of the advance, and (v) the anticipated
repayment date of the advance. The Lender may adjust the Sweep
Plus Ceiling not more than once for each of the Borrower's fiscal
quarters.
(b) Before February 8, 2000, the procedure for borrowing
set forth in this Subsection 2.3(b) shall apply. The Borrower may
borrow under the Revolving Credit Commitment during the Revolving
Credit Commitment Period on any Business Day, provided that the
Borrower shall give the Lender irrevocable notice (which must be
received by the Lender prior to 11:00 a.m., McLean, Virginia time)
two (2) Business Days before the requested Borrowing Date,
specifying (i) the amount to be borrowed, and (ii) the requested
Borrowing Date. Each borrowing pursuant to the Revolving Credit
Commitment shall be in an aggregate principal amount of Fifty
Thousand Dollars ($50,000) or a whole multiple 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.
C. Principal Payments. Subsection 2.10 of the Credit Agreement
is deleted in its entirety and replaced with the following:
Principal Payments. (a) On and after February 8, 2000, the
terms of the Lender's Sweep Plus product shall control the manner
in which funds are transferred between the Operating Account and
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<PAGE> 4
the Revolving Credit Loan for credit or debit to the Revolving
Credit Loan.
(b) Before February 8, 2000, the procedure for borrowing
set forth in this Subsection 2.10(b) shall apply. The Borrower may
at any time from time to time pay the principal of Revolving
Credit 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 payment. If any such payment notice is given by
the Borrower, the payment amount specified in such notice shall be
due and payable on the date specified therein.
D. Post-Closing Requirements. Subsection 5.2 of the Credit
Agreement is deleted in its entirety and replaced with the following:
The Borrower shall deliver to the Lender, on or before
February 1, 2000, the following:
(a) Borrower Proceedings. Copies 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 Modification, and (ii) the
borrowings contemplated thereunder, Certified as to authenticity
by an Authorized Officer of the Borrower, as of January 29, 2000,
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.
(b) Related Agreements. 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 the Lender may
reasonably request, including, without limitation, a copy of any
debt instrument or security agreement to which the Borrower is a
party.
(c) Subsidiary Proceedings. Copies of all corporate
proceedings undertaken by both CLCQ and Delta College, in form and
substance satisfactory to the Lender, authorizing (i) the
execution, delivery and performance of the Credit Documents as
described in Subsection 5.2(c) of the Amended and Restated Credit
Agreement dated December 31, 1999, (ii) the borrowings
contemplated thereunder and (iii) the granting by them of the
security interests and other Liens granted or to be granted by
them pursuant to the Credit Documents, Certified as to
authenticity by an Authorized Officer of CLCQ or Delta College,
which certificate shall state that the proceedings thereby
Certified are in full force
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<PAGE> 5
and effect and have not been amended, modified, revoked or
rescinded as of the date of such certificate.
(d) Subsidiary Incumbency Certificates. Certificate of an
Authorized Officer of each of CLCQ and Delta College, as to the
incumbency and signature of the Authorized Officer of CLCQ and
Delta College executing any Credit Document as described in
Subsection 5.2(c) of the Amended and Restated Credit Agreement
dated December 31, 1999, satisfactory in form and substance to the
Lender and its counsel, duly executed by the Authorized Officers
of CLCQ and Delta College.
(e) Legal Opinions. The executed legal opinions of counsel
to the Borrower and each of CLCQ and Delta College, in form and
content satisfactory to the Lender, which legal opinions shall
cover such matters incident to the transactions contemplated by
the Amended and Restated Credit Agreement dated December 31, 1999,
and this Modification, as the Lender may reasonably require.
(f) Landlord Agreement. A written agreement of the owner of
the Borrower Chief Executive Office to be located in Manassas,
Virginia, consenting to enforcement of the Lender's rights in
connection therewith.
(g) Payment of Expenses. Payment of all expenses of the
Lender then incurred, pursuant to Section 9.6 of the Credit
Agreement.
E. Weekly Cash Flow Projection. A new Section 6.13 is added to
the Credit Agreement as follows:
6.13 Weekly Cash Flow Projections. Furnish to the Lender
by facsimile to Mr. J. David Linthicum at 703-760-5817, each
Friday beginning on February 4, 2000, the Borrower's cash flow
projection (of expected cash inflows and outflows and of expected
borrowing requirements) for each of the next six weekly periods,
in detail and scope satisfactory to the Lender in the Lender's
sole and absolute discretion, certified by the Chief Financial
Officer of the Borrower.
F. Delivery of Retail Installment Contracts. A new Section
6.14 is added to the Credit Agreement as follows:
6.14 Delivery of Original Retail Installment Contracts.
Use its best efforts to deliver by February 15, 2000, but in any
event no later than February 29, 2000, physical possession to the
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Lender of originals (with original signatures) of all Retail
Installment Contracts with respect to which the obligor/payor is
no longer attending any classes being given by the Borrower,
having either dropped the program or graduated from the program,
and on which payments are due and owing to the Borrower, unless
the delivery of such originals would violate a state, federal or
accreditation regulatory requirement, as confirmed by a written
legal opinion acceptable to the Lender in its reasonable
discretion, and subject to the Lender's receipt of a copy of the
applicable regulation and the Lender's independent confirmation of
the regulatory requirement with the regulatory body. The Borrower
shall deliver with the originals of the contracts copies of the
Borrower's business records setting forth payments received on the
contract and the current balance owing on the contract, and an
assignment (subject to the terms of the Security Agreement)
executed by the Borrower covering each original Retail Installment
Contract (on a form to be supplied by the Lender). The Borrower
shall furnish to the Lender by mail at 1970 Chain Bridge Road,
VA-1954, McLean, Virginia 22102-4099, Attention: J. David
Linthicum, as soon as available, but in no event more than thirty
(30) days after the end of each month, a report showing payments
and current balances on each original Retail Installment Contract,
possession of which the Borrower has delivered to the Lender. The
Borrower shall provide to the Lender unfettered physical access,
during normal business hours with prior notice to the Borrower, to
all credit files, payment history files and any other data
regarding the original Retail Installment Contracts delivered to
Lender.
G. Business Consultant. A new Section 6.15 is added to the
Credit Agreement as follows:
6.15 Business Consultant. As soon as possible but no
later than February 9, 2000, engage and employ under a fully
executed contract (a copy of which the Borrower shall immediately
deliver to the Lender) a professional turnaround consultant chosen
from the Lender's list of approved professional turnaround
consultants attached hereto as Exhibit 1 (the "Consultant"), cause
the Consultant to undertake a comprehensive study of the
Borrower's business and to prepare a written report, and take all
necessary action to cause the Consultant to deliver to the Lender
within thirty (30) days after engagement the written report
together with a plan of implementation acceptable to the Lender in
its sole discretion. The Consultant shall assist the Borrower in
making permanent improvements in all aspects of the daily
operations and
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<PAGE> 7
management of the Borrower. The Consultant shall assess the
Borrower's current financial operations and organization, and
shall render advice to the Borrower regarding cost reduction
measures, streamlining of the organization and improving
profitability. The Borrower authorizes the Consultant to
communicate directly with the Lender at any and all times to
discuss or review any aspect of the Borrower's business and any
matter regarding the engagement between the Borrower and the
Consultant, or to transmit any information relating to the
Borrower's business to the Lender, all without any further
authorization from or notice to the Borrower. The Borrower shall
not terminate its contract with the Consultant unless the Lender
shall so consent in writing, which consent shall not be
unreasonably withheld or delayed. The Borrower shall continue
employing the services of the Consultant until the Lender is
satisfied, in its reasonable discretion, that the Consultant has
fulfilled the functions and purposes for which it was retained.
H. Business Plan. A new Section 6.16 is added to the Credit
Agreement as follows:
6.16 Business Plan. Furnish to the Lender by mail at 1970
Chain Bridge Road, VA-1954, McLean, Virginia 22102-4099,
Attention: J. David Linthicum, or by facsimile to J. David
Linthicum at 703-750-5817, as soon as available, but in no event
later than March 20, 2000, a business plan setting forth in
specific detail the precise actions which the Borrower plans to
take to enable it to replenish the Borrower's working capital,
address operational issues of the Borrower, and return to
profitability, which business plan shall be approved by the board
of directors of the Borrower, and shall be consistent with the
terms and conditions of the Credit Agreement, as modified by this
Modification. The Consultant shall assist the Borrower in
implementing the Business Plan and shall monitor and report to the
Lender at least once every two weeks as to the progress being made
toward implementing the Business Plan.
I. Tax refunds. A new Section 6.17 is added to the Credit
Agreement as follows:
6.17 Tax Refunds. Make, execute and deliver all such
assurances, instruments and documents as the Lender may request to
vest in and assure to the Lender its rights and claims in and to
any and all tax refunds owing to the Borrower, and execute and
deliver to the Lender any agreements, notices and/or assignments
and do such other things as may be satisfactory to the Lender in
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order that all sums due and to become due to the Borrower in the
form of tax refunds shall be duly assigned to the Lender and paid
over to the Lender by the federal government. Upon receipt by the
Lender of any such tax refunds, the Lender shall apply any such
tax refunds to permanently reduce the principal balance of the
Revolving Credit Loans to an amount no less than $10,000,000 (and
notwithstanding the definition of Revolving Credit Maximum Amount,
which shall be deemed amended to conform to this Subsection 6.17),
and shall promptly notify the Borrower as to such application.
Section 4. Other Terms. Except as specifically modified herein, all other
terms and conditions of the Credit Agreement, the Note, and all other documents
evidencing, securing or otherwise documenting the terms and provisions of the
Revolving Credit Loan remain in full force and effect and are hereby ratified
and confirmed. The modifications contained herein shall not constitute a
novation of the Borrower's obligations under the Revolving Credit Loan.
Section 5. Representations. The Borrower represents, warrants and agrees
that (i) there are no claims, defenses or setoffs with respect to the Note, or
with respect to the indebtedness evidenced or secured thereby or with respect to
the collection or enforcement of any of the same; (ii) to the best of the
Borrower's knowledge, information and belief, no event of default has occurred
and is continuing under the Credit Agreement, except that the Borrower believes
that, upon finalization of the January 31, 2000 financial statements, the
Borrower will be in violation of the Tangible Net Worth requirement for January
31, 2000 set forth in Subsection 7.1(d) of the Credit Agreement; (iii) the
representations and warranties of the Borrower set forth in the Credit Agreement
and the other Credit Documents or which are contained in any certificate,
document or financial or other statement furnished pursuant to or in connection
with the Credit Agreement are true and complete in all material respects on and
as of the date of this Modification; (iv) the Lender has made no representations
or commitments, oral or written, or undertaken any obligations other than as
expressly set forth in this Modification; and (v) it shall take no action to
challenge the first priority perfected security interest granted to the Lender
under the Security Agreement and shall affirmatively represent to third parties
that it has granted such a security interest to the Lender.
Section 6. Release. To induce the Lender to enter into this Modification,
the Borrower releases and forever discharges the Lender and each of its
employees, agents, directors, officers, attorneys, successors, and assigns, from
any and all matters or claims, actions, causes of action, suits, debt,
agreements, and demands whatsoever whether known or unknown, in law or in
equity, or otherwise, which the Borrower ever had, now has, or shall have
against the Lender or any of the parties described above by reason of any act,
cause, matter or thing whatsoever existing or done from the beginning of time to
the date of this Modification.
Section 7. Amendments. No amendment of this Modification and no waiver of
any one or more of the provisions hereof shall be effective unless set forth in
writing and signed by the parties hereto.
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Section 8. Binding Nature. This Modification shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
Section 9. Choice of Law. This Modification shall be governed by, and
enforced pursuant to, the internal laws of the Commonwealth of Virginia, and the
parties hereto consent to the jurisdiction and venue of the Circuit Court of any
county in the Commonwealth of Virginia or the United States District Court for
the Eastern District of Virginia.
Section 10. Waiver of Jury Trial. Each party to this Modification agrees
that any suit, action or proceeding, whether claim or counterclaim, brought or
instituted by any party hereto or any successor or assign of any party, on or
with respect to this Modification or which in any way relates to the Revolving
Credit Loan, shall be tried only by a court and not by a jury. Each party hereby
expressly waives any right to a trial by jury in any such suit, action or
proceeding.
IN WITNESS WHEREOF, the Borrower and the Lender have executed this
Modification with the specific intention of creating a document under seal as of
the date and year first above stated.
BORROWER
WITNESS: COMPUTER LEARNING CENTERS, INC,
By: /S/ Mark M. Nasser
- ---------------------------- -----------------------------------
(SEAL)
Mark M. Nasser, Vice President and Chief
Financial Officer
LENDER
FIRST UNION NATIONAL BANK
By: /S/ J. David Linthicum
- ---------------------------- -------------------------------
(SEAL) J. David Linthicum, Vice President
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<PAGE> 1
EXHIBIT 10.25
SECOND AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT
This SECOND AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (this
"Agreement") is made this 15th day of May, 2000, by and between COMPUTER
LEARNING CENTERS, INC. ("Debtor") and FIRST UNION NATIONAL BANK,
successor-by-merger to CoreStates Bank, N.A. ("Secured Party").
RECITALS
1. The Debtor and the Secured Party executed an Amended and Restated
Security Agreement dated December 31, 1999.
2. The Debtor and the Secured Party wish to amend the Amended and
Restated Security Agreement in accordance with the terms of a Second Amended and
Restated Credit Agreement of even date herewith.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are acknowledged, the Debtor and the Secured Party agree as follows:
SECTION 1. CONSTRUCTION OF AGREEMENT AND DEFINITIONS
Unless the context otherwise requires, all of the terms used herein
without definition which are defined by the Virginia Uniform Commercial Code
shall have the meanings assigned to them by the Virginia Uniform Commercial Code
except to the extent varied by this Agreement. Unless the context otherwise
requires, all capitalized terms used in this Agreement without definition shall
have the meanings assigned to such terms in the Credit Agreement (as hereinafter
defined). The phrases "satisfactory to Secured Party," "acceptable to Secured
Party" and similar phrases shall mean reasonably satisfactory or reasonably
acceptable to Secured Party, in Secured Party's reasonable discretion exercised
in good faith. The use of the singular herein shall also refer to the plural and
vice versa, and the use herein of any gender, including the neuter, shall also
refer to each of the other genders, including the neuter. 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. In addition to terms defined elsewhere in this Agreement, the
following terms shall have the following meanings when used herein:
"Business Day" shall mean any day that is not a Saturday, Sunday or
other day on which banking institutions in the Commonwealth of Virginia are
authorized or obligated to remain closed.
"Collateral" shall mean all of the Debtor's right, title and
interest in and to the following tangible and intangible assets owned by the
Debtor, wherever located, whether now owned or hereafter acquired by the Debtor:
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(a) all accounts (including Receivables), inventory, chattel paper,
documents, general intangibles (including trademarks, trade names,
patents, copyrights and the goodwill associated therewith),
instruments, retail installment contracts, equipment (except for
equipment leased under operating leases or subject to purchase money
financing), and securities (including the capital stock of all
Subsidiaries);
(b) all bank accounts, including the Operating Account and the Cash
Collateral Account, as described in the Credit Agreement, and all deposit
accounts maintained by the Debtor at banks other than the Secured Party;
(c) all records relating to or pertaining to any of the above, and
all present and future books and records in any form, in or on any media,
including data processing materials in any form (including software, tapes,
discs and the like), whether in the possession of Debtor or any other person;
and
(d) all present and future proceeds and products of all of the
foregoing in any form whatsoever and all rights, including rights to the payment
of money for any reason, arising on account of any sale, assignment, lease,
rental, license, exchange, liquidation, condemnation, taking, theft or any
disposition of any nature of, or any damage or casualty to, or any loss with
respect to, any of the foregoing or any rights or interests of Debtor in any of
the foregoing, including, without limitation, cash proceeds (including all
payments under any indemnities, warranties or guaranties payable with respect to
any of the foregoing), non-cash proceeds and proceeds acquired with cash
proceeds, whether any such proceeds constitute consumer goods, farm products,
equipment, inventory, documents of title, chattel paper, accounts, instruments
or general intangibles, and all proceeds of insurance policies insuring any of
the foregoing or any risks to Debtor associated with any of the foregoing.
"Credit Agreement" shall mean, as the same may be amended,
modified, extended, renewed, supplemented or replaced from time to time, the
Second Amended and Restated Credit Agreement of even date herewith between the
Secured Party and the Debtor.
"Debtor Notice Address" shall mean 10021 Balls Ford Road, Manassas,
Virginia 20109, attention: John L. Corse, President and Chief Executive Officer.
"good faith" shall mean, with respect to a determination, request
or other action to be made or taken by Secured Party "in good faith," that
Secured Party shall make or take such determination, request or other action
honestly and not maliciously.
"Obligations" shall mean, as the same may be amended, modified,
extended, renewed, supplemented, increased, refinanced, consolidated or replaced
from time to time, all present and future obligations, indebtedness and
liabilities of Debtor to Secured Party of every kind and nature, whether arising
under the Credit Agreement, this Agreement, other Credit Documents or otherwise
(including, without limitation. all principal amounts, including future
advances, interest charges, late charges, fees and all other charges and sums,
as well as all costs and expenses, including attorneys' fees and expenses,
payable or reimbursable by Debtor under or pursuant to the Credit Agreement,
this Agreement, other Credit Documents and otherwise),
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whether direct or indirect, contingent or noncontingent, matured or unmatured,
accrued or not accrued, liquidated or unliquidated, secured or unsecured,
related or unrelated to the Credit Agreement or this Agreement, whether or not
now contemplated, whether arising in contract, tort or otherwise, whether the
liability of Debtor with respect thereto is joint or several or both whether or
not any instrument or agreement relating thereto specifically refers to this
Agreement, and whether or not of the same character or class as the obligations
of Debtor under the Credit Agreement, including, without limitation,
reimbursement obligations of Debtor in connection with letters of credit issued
by Secured Party, obligations of Debtor in connection with guaranties by Debtor
of obligations, indebtedness or liabilities to Secured Party of other persons,
obligations of Debtor in connection with overdrafts in any checking or other
account of Debtor at Secured Party, all claims against Debtor acquired by
assignment to Secured Party, and all claims of Secured Party against Debtor
arising or re-arising on account of or as a result of any payment made by Debtor
or any other person with respect to any obligations included in this definition
which is rescinded or recovered from or restored or returned by Secured Party
under authority of any law, rule, regulation, order of court or governmental
agency, 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.
"person" shall mean any individual, corporation, partnership, joint
venture, association, trust, Governmental Authority (or subdivision, agency or
department thereof) or other entity of any kind.
"Receivables" shall mean all of the Debtor's accounts, instruments,
documents, chattel paper, general intangibles, notes, notes receivable,
reimbursements, commissions, fees, choses in action, and all other rights or
entitlements to moneys or property payable by any individual or entity to the
Debtor, now existing or hereafter created or arising, and all cash and non-cash
proceeds and products thereof, and all rights thereto including rights in
rejected, returned or repossessed goods arising from the sale of or providing of
goods or services by the Debtor.
"Secured Party Notice Address" shall mean 1970 Chain Bridge Road,
Seventh Floor South, VA-1954, McLean, Virginia 22102, Attention: J. David
Linthicum, Vice President, Fax no. (703) 760-5817.
SECTION 2. SECURITY INTEREST AND COLLATERAL.
2.1 Grant of Security Interest. As security for all of the
Obligations, whether or not any agreement or instrument relating to any
Obligations specifically refers to this Agreement or the security interest
created hereunder, Debtor hereby grants to Secured Party a lien and continuing
security interest in, and pledges and assigns to Secured Party, the Collateral.
The Debtor assigns, transfers and sets over to the Secured Party all of the
Debtor's right, title and interest in and to, and confirms and grants to the
Secured Party a continuing security interest in, all amounts that may be owing
at any time and from time to time by the Secured Party to the
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Debtor in any capacity, including, but not limited to, any balance or share
belonging to the Debtor of any deposit or other account with the Secured Party,
which security interest shall be independent of and in addition to any right of
set-off which the Secured Party may possess. Even if the Obligations shall at
any time or from time to time be paid in full, Secured Party's security interest
shall continuously exist until this Agreement has been terminated, the
Obligations have been paid in full and there exists no contingent or
noncontingent commitment by Secured Party which could give rise to any
Obligations.
2.2 Notices, Additional Documents. Debtor agrees to execute and
deliver to Secured Party, or cause to be executed and delivered to Secured
Party, from time to time promptly after request by Secured Party and in form and
content reasonably satisfactory to Secured Party, such security agreements,
financing statements, amendments of financing statements, assignments of
financing statements, security interest filing statements, mortgages, deeds of
trust, assignments, notices, consents and other documents as Secured Party may
reasonably request in good faith in order to confirm, supplement, preserve,
protect or perfect, or to maintain the perfection of, Secured Party's security
interest in the Collateral and Secured Party's rights under this Agreement. In
the case of any contract entered into by Debtor with the United States of
America or any State, county, municipality or other governmental entity, or any
department or agency thereof (a) if the aggregate amount which is due or,
through performance of Debtor or otherwise, which may become due under such
contract exceeds One Million Dollars ($1,000000.00), Debtor agrees to notify
Secured Party thereof promptly; and (b) if requested by Secured Party, Debtor
agrees to execute and deliver to Secured Party, or cause to be executed and
delivered to Secured Party, from time to time promptly after request by Secured
Party and in form and content reasonably satisfactory to Secured Party, such
agreements, notices, consents, assignments, acknowledgments and other documents
as Secured Party may reasonably request, and to do such other things as Secured
Party may reasonably request, in order that all sums due and to become due to
Debtor under or in connection with such contract shall be duly assigned and paid
to Secured Party in accordance with the Federal Assignment of Claims Act and/or
any other laws, rules and regulations relating to the assignment or payment of
such contract and sums.
2.3 Additional Warranties, Agreements Concerning Collateral. Debtor
warrants and agrees that:
(a) no financing statement, mortgage, deed of trust, assignment,
notice of lien or other security document publicizing a security interest in or
lien upon any of the Collateral is or will be on file in any recording or filing
office, except for financing statements or other security documents publicizing
liens permitted by Subsection 7.3 of the Credit Agreement (other than liens for
taxes), and the Collateral is and shall remain free and clear of all liens,
security interests and encumbrances of every kind, except for such permitted
liens;
(b) Debtor will not, without Secured Party's prior written consent,
sell, assign, transfer, convey or lease, or suffer or permit to occur any sale,
assignment, transfer, conveyance or lease of any of the Collateral, or any
interest therein, except for transactions in the ordinary course of business;
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(c) Debtor will use prudent business judgment in extending credit
to account debtors and other customers of Debtor;
(d) Debtor will not permit, consent to or agree to, without Secured
Party's prior written consent, any material extension, modification or
compromise of any kind with respect to any Receivable, other than in the
ordinary course of Debtor's business;
(e) whenever requested by Secured Party and periodically if Secured
Party shall so request, Debtor will promptly deliver to Secured Party, with such
endorsements and/or assignments as Secured Party may from time to time request
in good faith, all promissory notes and other instruments, certificates, chattel
paper, guaranties and documents of title, as well as other documents reasonably
requested by Secured Party, previously or hereafter coming into Debtor's
possession or control and constituting, evidencing, securing, guaranteeing or
otherwise relating to, any of the Collateral or proceeds of any of the
Collateral;
(f) no check, draft, money order or other item of payment made or
applied on account of any of the Obligations shall constitute a final payment to
Secured Party unless and until the item of payment shall be honored and finally
paid to Secured Party in immediately available funds;
(g) a carbon, photographic or other reproduction of this Agreement
or any financing statement signed by Debtor in connection with this Agreement
shall be sufficient as a financing statement; and
(h) Debtor may make no withdrawals from the Cash Collateral
Account, except to the extent that the balance in the Cash Collateral Account
exceeds 110% of the L/C Exposure, as defined in the Credit Agreement.
SECTION 3. DEFAULT
3.1 Remedies. Upon and at any time after the occurrence of any
Event of Default, Secured Party may, without notice or demand, exercise in any
jurisdiction in which enforcement hereof is sought, the following rights and
remedies, in addition to the rights and remedies available to Secured Party
under the Credit Agreement and other Credit Documents, the rights and remedies
of a secured party under the Uniform Commercial Code and all other rights and
remedies available to Secured Party under law, all such rights and remedies
being cumulative and enforceable alternatively, successively or concurrently:
(a) take exclusive possession of any or all of the Collateral from
time to time and/or place a custodian in exclusive possession of any or all of
the Collateral from time to time and, so far as Debtor may give authority
therefor, enter upon any premises on which any of the Collateral may be situated
and remove the same therefrom, Debtor hereby waiving any and all rights to prior
notice and to judicial hearing with respect to repossession of Collateral,
and/or require Debtor, at Debtor's expense, to assemble and deliver any or all
of the Collateral to such place or places as Secured Party may reasonably
request;
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(b) enforce the liens and security interests granted to Secured
Party hereunder and under the other Credit Documents by collecting or
liquidating all or any part of the Collateral or selling, assigning, leasing,
renting, licensing or otherwise disposing of all or any part of the Collateral
or any interest therein, in one or more parcels, at the same or different times,
at public or private sale or disposition, or otherwise;
(c) demand, compromise, collect, sue for and receive any money or
property at any time due, payable or receivable on account of any or all
accounts, promissory notes or other instruments, guaranties, chattel paper,
security agreements, contract rights, tax refunds or other Receivables or
general intangibles of Debtor, or on account of any or all other debts,
liabilities or obligations payable to Debtor;
(d) institute any proceeding or proceedings to enforce any of the
Obligations and any security interests, liens or other rights or interests of
Secured Party;
(e) sign Debtor's name on any invoices to, drafts against and other
notices and documents to account debtors or other obligors of Debtor and
requests for verification of accounts and other amounts which may be due to
Debtor;
(f) execute proofs of claim and loss on behalf of Debtor;
(g) set off and apply all Collateral and proceeds of Collateral
delivered to Secured Party or coming into Secured Party's possession or control
from time to time to such of the Obligations, whether matured or unmatured, as
Secured Party may determine in its discretion, or hold the same as security for
any contingent or future Obligations;
(h) at Debtor's expense, continue or complete, or cause to be
continued or completed, performance of Debtor's obligations under any contracts
of Debtor, and collect all income and revenues therefrom; and/or
(i) use, operate, manage, control and exercise all rights of Debtor
relating to the Collateral and any other assets of Debtor, and collect all
income and revenues therefrom.
3.2 Collateral Dispositions. Debtor agrees that commercial
reasonableness and good faith require Secured Party to give Debtor no more than
ten (10) Business Days prior written notice of the time and place of any public
disposition of Collateral or of the time after which any private disposition or
any other intended disposition is to be made. All sales or other dispositions of
Collateral may be made for cash, upon credit or for future delivery. In no event
shall Debtor be credited with any part of the proceeds of liquidation, sale or
other disposition of any Collateral until final payment thereon has been
received by Secured Party in immediately available funds, and Secured Parry
shall have no obligation to delay any liquidation, sale or other disposition
because the same may result in the imposition of any forfeiture, premium or
penalty.
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<PAGE> 7
3.3 Expenses. Debtor agrees to pay to Secured Party, upon demand by
Secured Party from time to time, the amount of all expenses, including
reasonable attorneys' fees and expenses, paid or incurred by Secured Party (a)
in exercising or enforcing or, after the occurrence of an Event of Default,
consulting with counsel concerning, any of its rights hereunder or under law, or
(b) in defending any and all non-meritorious or previously waived demands,
claims, counterclaims, cross-claims, causes of action, litigation and
proceedings of every kind and nature asserted, commenced or instituted against
Secured Party, or any of Secured Party's officers, directors, employees or
agents, by Debtor, any Subsidiary of Debtor or any Other Obligor on account of,
as a result of or relating to, any action taken or not taken by Secured Party in
connection with the Collateral or the enforcement or exercise by Secured Party
of any rights or remedies of Secured Party under this Agreement or under law
unless caused by Secured Party's negligence or willful misconduct. Debtor also
agrees to pay to Secured Party, upon demand by Secured Party from time to time,
interest on the outstanding amount of such expenses paid by Secured Party, from
the date of Secured Party's payment of such expenses until the same are paid in
full by Debtor, at the rate applicable to Revolving Credit Loans.
SECTION 4. ADDITIONAL PROVISIONS
4.1 Further Assurances, Power of Attorney. Debtor agrees promptly
to do, make, execute and deliver all such additional and further acts, things,
deeds, assurances, instruments and documents as Secured Party may reasonably
request to vest in and assure to Secured Party its rights hereunder or in any of
the Collateral.
4.2 Waiver of Trial by Jury. Debtor and Secured Party each 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 liabilities, rights or interests of Debtor, Secured Party
or any other person arising out of or in any way relating directly or
indirectly, to this Agreement, shall be tried by a court and not by a jury. To
the fullest extent permitted by applicable law, Debtor and Secured Party each
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, the Credit
Agreement or other Credit Documents. This waiver is knowingly, willingly and
voluntarily made by Debtor and Secured Party, and Debtor and Secured Party each
acknowledges and agrees that this waiver of trial by jury is a material aspect
of the agreements between Debtor and Secured Party 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.
4.3 Additional Waivers. Debtor hereby waives notice of each and
every one of the following acts, events and/or conditions and agrees that,
without necessity for any express reservation of rights against Debtor, neither
the occurrence or existence of any such act, event or condition, nor Secured
Party's commission of or omission to do any such act, event or condition, in any
number of instances, shall in any way release, discharge, impair or diminish any
of the Obligations, except as otherwise specifically agreed by Secured Party in
writing:
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<PAGE> 8
(a) the amendment, modification, renewal, extension or refinancing
of, or the granting by Secured Party of any indulgence of any nature with
respect to, or the invalidity, voidability, unenforceability, compromise,
settlement, release, waiver, discharge or impairment, in whole or in part, of
the Credit Agreement, this Agreement, any of the other Credit Documents, any of
the Obligations or any obligation of any Other Obligor with respect to any of
the Obligations;
(b) the addition of any maker, guarantor, surety, endorser,
indemnitor or other person primarily or secondarily liable for or obligated upon
any of the Obligations;
(c) assumption of any of the Obligations by any other person,
whether by assignment, sale, merger, consolidation, sublease, conveyance or
otherwise;
(d) delivery to Secured Party or acceptance by Secured Party of any
promissory note or other instrument or writing evidencing or otherwise relating
to any of the Obligations;
(e) the institution of any suit, the obtaining of any judgment or
the exercise of any other right or remedy against Debtor or any Other Obligor;
(f) the sale, exchange, pledge, release, disposition, surrender,
loss, destruction, damage to or impairment of, any Collateral; and
(g) the creation, perfection continuation, amendment, modification,
invalidity, voidability, unenforceability, compromise, settlement,
subordination, release, waiver, discharge, impairment or loss of priority, in
whole or in part, of, any security interest, lien, other encumbrance directly or
indirectly securing any of the Obligations.
Debtor also hereby waives, to the extent the same may be waived under applicable
law:
(a) notice of acceptance by Secured Party of this Agreement;
(b) all claims, causes of action and rights of Debtor against
Secured Party on account of actions taken or not taken by Secured Party in the
exercise of Secured Party's rights or remedies under this Agreement or under
law, provided that the same did not arise from Secured Party's negligence or
willfull misconduct;
(c) all claims and causes of action of Debtor against Secured Party
for punitive, exemplary, indirect, special, consequential or other
non-compensatory damages;
(d) all rights of redemption of Debtor with respect to any of the
Collateral;
(e) in the event Secured Party seeks to repossess any or all of the
Collateral by judicial proceedings, any bonds or demands for possession which
otherwise may be required;
(f) all rights of Debtor to have marshaled the Collateral or any
other security for any of the Obligations;
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<PAGE> 9
(g) diligence in the enforcement or collection of all of the
Obligations;
(h) except as otherwise provided in the Credit Agreement,
presentment, protest, notice of protest and notice of non-payment with respect
to all of the Obligations; and
(i) any duty or obligation of Secured Party to disclose to Debtor
any information concerning any other customer or client, or prospective customer
or client, of Secured Party. Debtor agrees that Secured Party may exercise any
or all of its rights and/or remedies under the Credit Agreement, under this
Agreement, under other Credit Documents and under law without resorting to,
without regard to, and regardless of the adequacy of, any security or other
sources of liability with respect to any of the Obligations. Neither any failure
nor any delay on the part of Secured Party in exercising any right, power or
remedy under the Credit Agreement, under this Agreement, under other Credit
Documents or under law shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or remedy.
4.4 Modifications. Notices. No modification or waiver of any
provision of this Agreement, and no consent by Secured Party to any failure of
Debtor to comply with any provision of this Agreement, shall in any event be
effective unless the same shall be in writing and signed by the person against
whom enforcement thereof is sought, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice to or demand upon Debtor in any circumstance shall entitle Debtor to any
other or further notice or demand in the same, similar or other circumstances.
All written notices and communications in connection with this Agreement shall
be deemed to have been given when hand-delivered to the party to whom directed,
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, provided that
any such notice or communication to the Debtor shall be hand-delivered or
transmitted to the Debtor, Attention: Chief Financial Officer, at the Debtor
Notice Address (or at such other address as the Debtor may specify to the
Secured Party in writing from time to time), with a copy to Jack L. Lewis,
Esquire, Shaw Pittman, 2300 N Street, N.W., Washington, D.C. 20037-1128, Fax no.
(202) 663-8007 (provided that no failure of the Secured Party or any other party
to provide such copy shall impair in any way the effectiveness of any such
notice or communication) and any such notice or communication to the Secured
Party shall be hand-delivered or transmitted to the Secured Party at the Secured
Party Notice Address (or such other address as the Secured Party may specify to
the Debtor in writing from time to time), with a copy to David S. Musgrave,
Esquire, Piper Marbury Rudnick & Wolfe LLP at 6225 Smith Avenue, Baltimore,
Maryland 21209-3600, Fax no. (410) 580-3222 (provided that no failure of the
Debtor or any other party to provide such copy shall impair in any way the
effectiveness of any such notice or communication).
4.5 Survival, Merger and Counterparts. All representations,
warranties, covenants, conditions and agreements contained herein shall survive
the execution and delivery hereof. Debtor shall continue to observe, comply with
and perform all warranties, covenants, conditions and agreements to be observed,
complied with or performed by Debtor under this
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<PAGE> 10
Agreement until all of the Obligations have been paid in full, there exist no
commitment by Secured Party which could give rise to any Obligations and the
security interests granted under this Agreement have been released by Secured
Party in writing. This Agreement and the other Credit Documents executed in
connection with this Agreement contain the entire agreement of the parties with
respect to the matters covered and the transactions contemplated hereby and
thereby, and no agreement, statement or promise made by any party hereto, or by
any employee, officer, agent or attorney of any party hereto, which is not
contained herein or therein, shall be valid or binding. This Agreement may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which, when so executed and delivered, shall be an
original, but all such counterparts shall together constitute one and the same
agreement.
4.6 Law, Jurisdiction, Transfers of Interests and Unenforceabilitv.
The performance and construction of this Agreement shall be governed by the
internal laws of the Commonwealth of Virginia (exclusive of principles of
conflicts of laws). The Debtor agrees that any suit, action or proceeding
instituted by the Secured Party with respect to the Collateral or this Agreement
may be brought in the United States District Court for the Eastern District of
Virginia or the Circuit Court of Fairfax County, Virginia. In addition, any such
suit, action or proceeding instituted by Secured Party may be brought in such
other courts in which jurisdiction and venue may be appropriate. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, and each reference in this Agreement to any
of the parties hereto shall be deemed to include the successors and assigns of
such party, including, in the case of Debtor, the debtor in possession or
trustee in any case under any chapter of the United States Bankruptcy Code in
which Debtor is debtor. Debtor may not assign this Agreement or any of its
rights hereunder without Secured Party's prior written consent. Subject to the
provisions of Subsection 9.12 of the Credit Agreement, Secured Party 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 or any of its rights
hereunder. In addition, subject to the provisions of Subsection 9.12 of the
Credit Agreement, Secured Party may sell, in such amounts, upon such terms and
to such persons as Secured Party may determine, participations in its interest
under this Agreement. In the case of each such assignment, transfer, pledge,
grant or sale, Secured Party may from time to time provide to the assignee,
transferee, pledgee, secured party or participant, any information and documents
(or copies thereat) relating to this Agreement and related transactions, and
relating to the business, assets, operations, business prospects or financial
condition of Debtor, Subsidiaries of Debtor and Other Obligors. If any term,
provision or condition, or any part thereof of this Agreement shall for any
reason be found or held invalid or unenforceable by any court or governmental
agency, 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 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 does or shall exceed the maximum interest rate which Debtor is
permitted by law to contract or agree to pay, 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.
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<PAGE> 11
4.7 No Novation. All of the terms, covenants and conditions of the
Amended and Restated Security Agreement shall continue in full force and effect,
as amended and restated by this Agreement. This Agreement is not intended to be,
and shall not constitute, a substitution or novation of the Amended and Restated
Security Agreement.
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<PAGE> 12
IN WITNESS WHEREOF, Debtor and Secured Party have duly executed
this Agreement under seal as of the day and year first written above.
ATTEST/WITNESS: COMPUTER LEARNING CENTERS, INC.
- --------------------------- By: /s/ John L. Corse (SEAL)
---------------------------------
John L. Corse
Chief Executive Officer
ATTEST/WITNESS: FIRST UNION NATIONAL BANK
- ------------------------------- By: J. David Linthicum (SEAL)
---------------------------------
J. David Linthicum, Vice President
COMMONWEALTH OF VIRGINIA
COUNTY OF MANASSAS
I HEREBY CERTIFY that on this 15th day of May, 2000, before me, the
undersigned, a Notary Public of said State, personally appeared John L. Corse
who acknowledged himself to be the President of Computer Learning Centers, Inc.,
and that he, as such7 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:
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<PAGE> 13
COMMONWEALTH OF VIRGINIA
COUNTY OF MANASSAS
I HEREBY CERTIFY that on this 15th day of May, 2000, before me, the
undersigned, a Notary Public of said State, personally appeared J. David
Linthicum, who acknowledged himself to be the Vice President of First Union
National Bank and that he. as such, being authorized so to do, executed the
foregoing instrument on behalf of First Union National Bank, for the purposes
therein contained.
WITNESS my hand and Notarial Seal.
------------------------------
Notary Public
My Commission expires:
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<PAGE> 14
COLLATERAL LOCATIONS EXHIBIT
222 South Harbour Boulevard
Anaheim, California 92805
3580 Wilshire Boulevard
Suite 100
Los Angeles, California 90010
667 Mission Street
San Francisco, California 94105
111 North Market Street
Suite 105
San Jose, California 95113
2359 Windy Hill Road
Marietta, Georgia 30067
5675 Jimmy Carter Boulevard
Suite 100
Norcross, Georgia 30071
200 South Michigan Avenue
Chicago, Illinois 60604
920 East Algonquin Street
Suite 110
Schaumburg, Illinois 60173
312 Marshall Avenue
Laurel, Maryland 20707
436 Broadway Village Mall
Methuen, Massachusetts 01844
5 Middlesex Avenue
Somerville, Massachusetts 02145
32500 Concord Drive
Madison Heights, Michigan 48071
2290 Corporate Circle
Suite 100
Henderson, Nevada 89014
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<PAGE> 15
2 Executive Campus
Suite 200
Cherry Hill, New Jersey 08002
160 East Route 4
Paramus, New Jersey 07652
50 Cragwood Road
First Floor
South Plainfield, New Jersey 07080
3031-A Walton Road
Suite 301
Norristown, Pennsylvania 19401
3600 Market Street
Philadelphia, Pennsylvania 19104
One Plymouth Meeting
Suite 300
Plymouth Meeting, Pennsylvania 19462
777 Penn Center Boulevard
Third Floor
Pittsburgh, Pennsylvania 15235
Appletree Corporate Center
2180 Hornig Rd.
Building A
Woodhaven, Pennsylvania 19116
1500 Eastgate Drive
Suite 200
Garland, Texas 75041
3030 South Gessner
Suite 150
Houston, Texas 77063
301 NE Loop 820
Hurst, Texas 76053
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<PAGE> 16
6295 Edsall Road
Suite 210
Alexandria, Virginia 22312
7005 Boulevard Taschereau
Suite 300
Brossard, Quebec J4Z 1A7
Carrefour Laval
2525, Boul, Daniel-Johnson
Suite 610
Laval, Quebec H7T 1S9
416 Boulevard De Maisonneuve Quest
Bureau 700
Montreal, Quebec H3A 1L2
10021 Balls Ford Road
Manassas, Virginia 20109
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<PAGE> 1
EXHIBIT 10.26
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (this "Agreement") made as of the 18th day of
January, 2000 by and between COMPUTER LEARNING CENTERS, INC., a Delaware
corporation (the "Company"), and MARK M. NASSER (the "Executive").
The Executive is accepting a new position with the Company as its
Chief Financial Offier.
The Executive and the Company are parties to a Severance Agreement
dated January 15, 1999 (the "Prior Severance Agreement").
The Executive and the Company agree to terminate the Prior Severance
Agreement and replace it with this Agreement.
The Board of Directors of the Company (the "Board") desires to set
forth the nature and amount of compensation and other benefits to be provided
to Executive and any of the rights of the Executive in the event of his
termination of employment with the Company. 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 under 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 of Executive's employment under Section 1 will
terminate upon the termination of Executive's employment with the Company for
any reason whatsoever. No such termination shall affect any of the Company's
other obligations under this Agreement arising at or after such termination of
employment.
3. Position and Duties. The Executive shall serve as Chief
Financial Officer of the Company and shall have such responsibilities and
authority as may normally be exercised by a chief financial officer of a
company.
4. Place of Performance. 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.
5. Compensation and Related Matters.
(a) Base Salary. During the Executive's employment with
the Company, the Company shall pay to the Executive a salary at a rate of not
less than One Hundred Sixty-Five
<PAGE> 2
Thousand Dollars ($165,000) 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 and, if so increased, shall not thereafter be decreased during the term of
this Agreement.
(b) Bonus. The Executive shall be eligible to receive an
annual bonus (the "Annual Bonus") payable under the Company's bonus plan in
accordance with the bonus criteria established by the Board for the Executive on
an annual basis.
(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) Benefits. During the term of the Executive's
employment hereunder, 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 benefits, or plans or arrangements
providing the Executive with at 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 amounts payable to the Executive pursuant to this Section 5.
6. Termination and Definitions.
(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 8 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.
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<PAGE> 3
(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 below its
level in effect on the date hereof, (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 twenty-five percent (25%) of more of the
combined voting power of the Company's then outstanding securities, (B) during
any period of two (2) 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 of 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.
7. Compensation upon Termination.
(a) Termination for Cause or Resignation Without Good
Reason. If (i) the Executive's employment shall be terminated for Cause, or
(ii) the Executive voluntarily resigns from the employ of the Company and Good
Reason shall not have occurred, then the Company shall pay the Executive his
Base Salary through the date of delivery to him of a Notice of Termination at
the rate then in effect at the time and date the Notice of Termination is
delivered, and the Company shall have no further obligations to the Executive
under this Agreement.
(b) Termination Without Cause or Resignation for Good
Reason. If 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
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<PAGE> 4
disputed and finally determined not to have been pursuant to Section 6(a) shall
be a termination by the Company pursuant to Section 6(b)), then:
(i) the Company shall pay to the Executive (A)
his Base Salary through the date of termination at the rate in effect at the
time Notice of Termination is delivered, plus (B) his Annual Bonus 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, a lump sum payment in an amount equal to one (1) times the
Executive's Base Salary in effect as of the date of termination.
(c) Termination Upon a Change in Control. 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 other than pursuant to Section
6(a) hereof by the Company or a successor entity, then:
(i) the Company shall pay to the Executive (A)
his Base Salary through the date of termination at the rate in effect at the
time Notice of Termination is given, plus (B) his Annual Bonus 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, a lump sum payment in an amount equal to (A) one and one half (1
1/2) times the Executive's Base Salary in effect as of the date of termination
plus (B) one and one half (1 1/2) times the Annual Bonus paid to the Executive
in the prior fiscal year of the Company or the current year target bonus, which
ever is larger.
(d) Continuation of Benefit Plans. Upon any termination
of the Executive's employment other than pursuant to Section 6(a) hereof, the
Company shall maintain in full force and effect for the continued benefit of
the Executive for twelve (12) months, or eighteen (18) months 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.
(e) Participation in Benefit Plans after Termination of
Employment. The Executive shall be entitled to continue to participate in any
benefit plan or program of the Company for twelve (12) months after the
expiration of the period provided for in 7(d), provided, that the Executive
pays the direct cost of any such benefit plan or program.
8. 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
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<PAGE> 5
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 in the geographical
area of the contiguous forty-eight (48) states of the United States. 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.
9. Successors; Binding Agreement.
(a) Successors. 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 9 or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.
(b) Binding Agreement. 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.
10. 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: Mark M. Nasser
15161 Windy Hollow Cir.
Gainsville, Virginia 20155
If to the Company: 11350 Random Hills Road
Suite 240
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<PAGE> 6
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.
11. Prior Agreement. All prior agreements between the Company and
the Executive with respect to the employment of the Executive, including
without limitation the Prior Severance Agreement, are hereby superseded and
terminated effective as of the date hereof and shall be without further force
or effect.
12. 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.
13. 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.
14. 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.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date and year first above written.
COMPUTER LEARNING CENTERS, INC.
Date: January 18, 2000 By:/s/ Stephen Reynolds
---------------------------------------
Stephen Reynolds, Director
EXECUTIVE:
Date: January 18, 2000 /s/ Mark M. Nasser
------------------------------------------
Mark M. Nasser
-7-
<PAGE> 1
EXHIBIT 10.27
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (this "Agreement") made as of the 27th day of
October, 1999 by and between COMPUTER LEARNING CENTERS, INC., a Delaware
corporation (the "Company"), and MARIE BENNETT (the "Executive").
The Executive is presently employed by the Company as its Vice
President for Regulatory Compliance.
The Board of Directors of the Company (the "Board") desires to set
forth the nature and amount of compensation and other benefits to be provided
to the Executive and any of the rights of the Executive in the event of her
termination of employment with the Company. The Executive is willing to commit
herself 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 under 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 of Executive's employment under Section 1 will
terminate upon the termination of Executive's employment with the Company for
any reason whatsoever. No such termination shall affect any of the Company's
other obligations under this Agreement arising at or after such termination of
employment.
3. Position and Duties. The Executive shall serve as Vice
President for Regulatory Compliance of the Company and shall have such
responsibilities and authority as may normally be exercised by a person in such
position at a company.
4. Place of Performance. 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.
5. Compensation and Related Matters.
(a) Base Salary. During the Executive's employment with
the Company, the Company shall pay to the Executive a salary at a rate of not
less than One Hundred Five Thousand Dollars ($105,000) 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 and, if so increased, shall not thereafter be
decreased during the term of this Agreement.
<PAGE> 2
(b) Bonus. The Executive shall be eligible to receive an
annual bonus (the "Annual Bonus") payable under the Company's bonus plan in
accordance with the bonus criteria established by the Board or the Chief
Executive Officer for the Executive on an annual basis.
(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) Benefits. During the term of the Executive's
employment hereunder, 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 benefits, or plans or arrangements
providing the Executive with at 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 amounts payable to the Executive pursuant to this Section 5.
6. Termination and Definitions.
(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 8 hereof, if the Executive's employment is
terminated for Cause.
(b) Termination by the Executive. The Executive may
terminate her 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.
-2-
<PAGE> 3
(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 below its
level in effect on the date hereof, (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 her 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 twenty-five percent (25%) of more of the
combined voting power of the Company's then outstanding securities, (B) during
any period of two (2) 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 of 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.
7. Compensation upon Termination.
(a) Termination for Cause or Resignation Without Good
Reason. If (i) the Executive's employment shall be terminated for Cause, or
(ii) the Executive voluntarily resigns from the employ of the Company and Good
Reason shall not have occurred, then the Company shall pay the Executive her
Base Salary through the date of delivery to her of a Notice of Termination at
the rate then in effect at the time and date the Notice of Termination is
delivered, and the Company shall have no further obligations to the Executive
under this Agreement.
(b) Termination Without Cause or Resignation for Good
Reason. If 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 pursuant to Section 6(a) shall be a termination by
the Executive pursuant to Section 6(b)) or if the Executive terminates her
employment for Good Reason, then:
(i) the Company shall pay to the Executive her
Base Salary through the date of termination at the rate in effect at the time
Notice of Termination is delivered; and
-3-
<PAGE> 4
(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, a lump sum payment in an amount equal to one hundred percent (100%)
of the Executive's Base Salary in effect as of the date of termination.
(c) Termination Upon a Change in Control. 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 other than pursuant to Section
6(a) hereof by the Company or a successor entity or is terminated with Good
Reason by the Executive, then:
(i) the Company shall pay to the Executive her
Base Salary through the date of termination at the rate in effect at the time
Notice of Termination is given; 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, a lump sum payment in an amount equal to one hundred fifty percent
(150%) of the Executive's Base Salary in effect as of the date of termination.
(d) Continuation of Benefit Plans. Upon any termination
of the Executive's employment, other than pursuant to Section 6(a) hereof or by
the Executive without Good Reason, the Company shall maintain in full force and
effect for the continued benefit of the Executive for twelve (12) months, or
eighteen (18) months 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.
(e) Participation in Benefit Plans after Termination of
Employment. The Executive shall be entitled to continue to participate in any
benefit plan or program of the Company for twelve (12) months after the
expiration of the period provided for in Section 7(d), provided, that the
Executive pays the direct cost of any such benefit plan or program.
8. Covenants Not to Compete or Hire Employees. It is recognized
and understood by the parties hereto that the Executive, through the
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 the
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 the Executive. Consequently, as a material inducement to the
Company to enter into this Agreement, the Executive covenants and agrees that
for the period commencing with the date hereof and ending one (1) year after
the Executive's termination of employment with the Company, the Executive shall
not engage, directly, indirectly or in concert with any other person or entity,
in the information technology training industry in the geographical area of the
contiguous forty-eight (48) states of the United States. The Executive further
covenants and agrees that for the period commencing on the date of the
-4-
<PAGE> 5
Executive's termination of employment for any reason whatsoever and ending one
(1) year after the Executive's termination of employment with the Company, the
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 the Executive's
termination of employment with the Company, whether for or on behalf of the
Executive or for any entity in which the 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.
9. Successors; Binding Agreement.
(a) Successors. 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 9 or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.
(b) Binding Agreement. 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 her hereunder if she 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.
10. 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, if to the Executive, to her address as it appears
in the records of the Company, or if to the Company, as follows:
Computer Learning Centers, Inc.
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.
11. 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.
-5-
<PAGE> 6
12. 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.
13. 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.
14. 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.
[Signatures Next Page]
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<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date and year first above written.
COMPUTER LEARNING CENTERS, INC.
Date: October 27, 1999 By: /s/ Reid Bechtle
---------------------------------------
Reid Bechtle, Chief Executive Officer
EXECUTIVE
Date: October 27, 1999 /s/ Marie Bennett
------------------------------------------
Marie Bennett
-7-
<PAGE> 1
EXHIBIT 10.28
IMPORTANT NOTICE
THIS NOTE CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH
CONSTITUTES A WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A
BORROWER AND ALLOWS THE LENDER TO OBTAIN A JUDGMENT AGAINST
YOU WITHOUT FURTHER NOTICE.
THIRD AMENDED AND RESTATED
REVOLVING CREDIT NOTE
This THIRD AMENDED AND RESTATED REVOLVING CREDIT NOTE (this "Note") is
made this 15th day of May, 2000, between COMPUTER LEARNING CENTERS, INC. (the
"Borrower") and FIRST UNION NATIONAL BANK, successor-by-merger to CORESTATES
BANK, N.A. (the "Lender").
RECITALS
1. The Borrower is indebted to the Lender under a Second Amended and
Restated Revolving Credit Note dated December 31, 1999, as amended by a First
Modification of Loan Documents dated January 29, 2000, in the face amount of
$15,000,000.00 (the "Revolving Credit Note"). The Revolving Credit Note
evidences a $15,000,000.00 credit facility which the Lender has made available
to the Borrower.
2. The Borrower and the Lender have agreed to execute this Note
pursuant to the terms and conditions of a Second Amended and Restated Credit
Agreement of even date herewith (the "Credit Agreement").
NOW, THEREFORE, in consideration of the foregoing, the Borrower and the
Lender agree as follows:
FOR VALUE RECEIVED, the undersigned, COMPUTER LEARNING CENTERS,
INC., a Delaware corporation, hereby unconditionally promises to pay on the
Revolving Credit Termination Date, to the order of FIRST UNION NATIONAL BANK,
successor-by-merger to CoreStates Bank, N.A. (the "Lender"), at the office of
the Lender at 1970 Chain Bridge Road, McLean, Virginia 22102, in lawful money of
the United States of America and in immediately available funds, the principal
amount of the lesser of (a) Nine Million Two Hundred Thousand Dollars
($9,200,000), or (b) the aggregate unpaid principal amount of all Revolving
Credit Loans made by the Lender to the undersigned pursuant to the Credit
Agreement. The Credit Agreement is incorporated into and made a part of this
Note. Capitalized terms hereinbefore or hereinafter used without definition
shall have the meanings assigned to such terms in the Credit Agreement.
-1-
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Initial Initial
<PAGE> 2
The undersigned further agrees to pay interest in like money at
such office on the unpaid principal amount hereof from time to time from the
date hereof until and after such amount shall become due and payable (whether at
stated maturity, by demand, by acceleration or otherwise) on the dates and at
the applicable rates per annum as provided in Subsections 2.13 and 2.14 of the
Credit Agreement; provided that all accrued and unpaid interest shall be payable
in full on the Revolving Credit Termination Date.
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, as reflected on the Lender's books and records with respect to the
Revolving Credit Note, shall constitute prima facie evidence, absent manifest
error, of the accuracy of the information so reflected.
If any payment under this Note 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 at the then applicable rate during such extension.
Upon the occurrence of any one or more Events of Default, all
amounts then remaining unpaid on this Note shall become, or may be declared to
be, immediately due and payable, all as provided in the Credit Agreement.
The Borrower duly constitutes and appoints Gregory A. Baugher, J.
David Linthicum (each of whom is an officer of the Lender), and the Lender
through an officer duly authorized by the Lender (any of the foregoing may act)
as the true and lawful attorneys-in-fact for it, in its name, place and stead,
and upon the occurrence of an Event of Default, to confess judgment against it,
in favor of the Lender, before the Clerk of the Circuit Court for Fairfax
County, Virginia, in accordance with 1950 Code of Virginia, Section 8.01-431 et
seq, and any successor statute, for all amounts owed with respect to the
Obligations under and pursuant to this Note including, without limitation, all
costs of collection, attorneys' fees in an amount equal to 15% of the
Obligations then outstanding (which shall be deemed reasonable attorneys' fees
for the purposes of this paragraph), and court costs, hereby ratifying and
confirming the acts of said attorney-in-fact as if done by itself. Upon request
of the Lender, the Borrower will execute an amendment or other agreement
substituting attorneys-in-fact appointed to act for the Borrower hereunder.
Except as expressly provided herein and in the Credit Agreement,
the undersigned hereby waives presentment, demand, protest, notice of protest
and all other notices of any kind.
THE LENDER, BY ITS ACCEPTANCE HEREOF, AND THE UNDERSIGNED EACH
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 NOTE, OR ANY LIABILITIES, RIGHTS OR INTERESTS OF THE UNDERSIGNED OR THE
LENDER ARISING OUT OF
-2-
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Initial Initial
<PAGE> 3
OR IN ANY WAY RELATING, DIRECTLY OR INDIRECTLY, TO THIS NOTE, SHALL BE TRIED BY
A COURT AND NOT BY A JURY. THE LENDER, BY ITS ACCEPTANCE HEREOF, AND THE
UNDERSIGNED EACH 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 NOTE, THE CREDIT AGREEMENT OR THE OTHER CREDIT DOCUMENTS. THIS
WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE LENDER AND THE
UNDERSIGNED, AND EACH OF THE LENDER AND THE UNDERSIGNED 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.
This Note amends and restates in its entirety that certain Second
Amended and Restated Revolving Credit Note dated December 31, 1999, in the
principal amount of $12,000,000.00 executed by the Borrower in favor of the
Lender, as amended by a First Loan Modification Agreement dated January 29, 2000
(the "Original Note"). The Lender and the Borrower intend that the execution and
delivery of this Note shall not constitute or be construed to operate as a new
indebtedness of the Borrower, but the terms of the indebtedness of the Borrower
pursuant to the Original Note shall be modified in accordance herewith.
This Note shall be governed by, and construed and interpreted in
accordance with, the internal laws of the Commonwealth of Virginia, exclusive of
principles of conflicts of laws.
IN WITNESS WHEREOF, the undersigned has duly executed, or caused to
be duly executed, this Note under sale the day and year first above written.
ATTEST/WITNESS: COMPUTER LEARNING CENTERS, INC.
- --------------------------- By: /s/ John L. Corse
--------------------
John L. Corse
President and Chief Executive Officer
-3-
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Initial Initial
<PAGE> 4
COMMONWEALTH OF VIRGINIA, COUNTY OF __________________, to wit:
I HEREBY CERTIFY, that on this _____ day of May, 2000, before me, the
undersigned Notary Public, personally appeared John L. Corse, who acknowledged
himself to be the President of Computer Learning Centers, Inc., known to me (or
satisfactorily proven) to be the person who executed the foregoing instrument
and acknowledged that he, being authorized so to do, executed the foregoing
instrument on behalf of Computer Learning Centers, Inc., for the purposes
therein contained.
WITNESS my hand and Notarial Seal.
-------------------------------
Notary Public
My Commission Expires:
------------------------
The Lender hereby accepts this Third Amended and Restated Revolving
Credit Note and agrees to the restatement of the terms of the Original Note as
set forth in this Third Amended and Restated Revolving Credit Note.
ATTEST/WITNESS: FIRST UNION NATIONAL BANK
------------------------------ By: /s/ J. David Linthicum (SEAL)
-------------------------
J. David Linthicum, Vice President
-4-
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Initial Initial
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-17009,333-43633 and 333-69583) of Computer
Learning Centers, Inc. of our report dated May 15, 2000 relating to the
financial statements and financial statement schedules, which appears in this
Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
May 15, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THIS
CONSOLIDATED STATEMENT OF OPERATIONS AND THE CONSOLIDATED BALANCE SHEET
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 7,819
<SECURITIES> 0
<RECEIVABLES> 83,255
<ALLOWANCES> (21,742)
<INVENTORY> 1,033
<CURRENT-ASSETS> 73,957
<PP&E> 60,904
<DEPRECIATION> (26,346)
<TOTAL-ASSETS> 124,308
<CURRENT-LIABILITIES> 72,397
<BONDS> 0
0
0
<COMMON> 186
<OTHER-SE> 44,973
<TOTAL-LIABILITY-AND-EQUITY> 124,308
<SALES> 0
<TOTAL-REVENUES> 134,640
<CGS> 0
<TOTAL-COSTS> 148,339
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (249)
<INCOME-PRETAX> (13,948)
<INCOME-TAX> (5,827)
<INCOME-CONTINUING> (8,121)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,121)
<EPS-BASIC> (0.45)
<EPS-DILUTED> (0.45)
</TABLE>
