ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement, dated as of September 4, 2000 (this
"Agreement"), is entered into by and among Corinthian Schools, Inc., a Delaware
corporation ("Buyer"), Educorp, Inc. a California corporation ("Seller"), and
Xx. Xxxxxx X. Xxxxx and Xxx Xxxxx ("Owners").
BACKGROUND
A. Owners are the sole stockholders of Seller, which owns, operates
and administers those certain proprietary, post-secondary, vocational training
schools known as (A) Nova Institute of Health Technology located at (i) 0000 X.
Xxxxxxxxx Xxxx., Xxxxx Xxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000, (ii) 00000 Xxxxxx
Xxxxxx, Xxxxxxxx, Xxxxxxxxxx 00000, and (iii) 000 X. Xxxxxx Xxxxxx, Xxxxxxx,
Xxxxxxxxxx 00000, and (B) Educorp Career College, located at 000 X. Xxxxx
Xxxxxx, Xxxx Xxxxx, Xxxxxxxxxx 00000 (collectively, the "Schools," and
individually, a "School").
B. Buyer desires to buy, through the payment of cash and the
assumption of certain liabilities of Seller, and Seller desires to sell,
substantially all assets and property owned by Seller and used in the business
of the Schools, upon the terms and conditions hereinafter set forth.
AGREEMENT
In consideration of the mutual covenants contained in this Agreement
and intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
SALE AND PURCHASE OF ASSETS
1.1 Purchased Assets to be Transferred. Subject to the terms and
conditions of this Agreement, Seller hereby agrees to sell, assign, convey,
transfer and deliver to Buyer at the Closing (as defined herein), and Buyer
hereby agrees to purchase from Seller, all of the Seller's right, title and
interest in, to and under all of the business, properties, assets, goodwill,
rights and claims and property owned by Seller and used in the business of the
Schools of the types set forth below (the "Purchased Assets"), free and clear of
all mortgages, pledges, liens, claims, restrictions, encumbrances and security
interests of any kind or nature except as described on Schedule 5.8(b) (such
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mortgages, pledges, liens, etc., as described on Schedule 5.8(b), the "Permitted
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Exceptions"), and except for the Excluded Assets (as defined in Section 1.2
hereof):
1.1.1 Accounts Receivable. All of Seller's accounts receivable,
notes receivable and other receivables (and causes of action related to any of
the foregoing) ("Accounts Receivable");
1.1.2 Inventory. All of Seller's inventory, including without
limitation, textbooks, course materials and supplies;
1.1.3 Equipment. All of Seller's computer hardware, printers,
other data processing equipment, other machinery and equipment, furniture,
fixtures, leasehold improvements, furnishings, classroom equipment and other
tangible personal property used at the Schools;
1.1.4 Records. All of Seller's records related to or used in
connection with the operation of the Schools or pertaining to the Purchased
Assets, including, without limitation, all student
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records, ledgers, financial statements and records, operating data,
correspondence, employment records, placement records, marketing materials,
information and data, mailing lists and copies of all documents and other
information and data filed by Seller with any state, federal or local government
authority or any guaranty or accrediting agency, whether on computer disk, in
paper form or otherwise;
1.1.5 Contracts and Leases. All of the rights of Seller under
contracts, purchase orders and leases applicable to the Schools to which Seller
is a party entered into in the course of Seller's business, including, without
limitation, those identified as Assumed Contracts in Schedule 5.9;
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1.1.6 Intellectual Property. All rights of Seller with respect
to patents, trademarks, service marks, logos, licenses and copyrights (whether
or not registered) and all applications and registrations therefor, owned or
licensed by Seller, and all rights of Seller with respect to computer programs
and software, including those described in Schedule 5.10, except (a) such
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patents, trademarks, service marks, logos, licenses and copyrights with respect
to computer programs and software related to the "Edutown" enterprise of Seller
which are specifically set forth on Schedule 1.2.2, and (b) such rights to the
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Curriculum (as defined in Section 5.8.5) as Buyer shall license to Edutown LLC
on the Closing Date by entering into a license agreement in substantially the
form attached hereto as Exhibit D (the "License Agreement");
1.1.7 Warranty Rights. All rights of Seller relating to or
arising out of express or implied warranties, representations or guarantees from
suppliers with respect to any of the Purchased Assets, and all causes of action
arising therefrom;
1.1.8 Prepaid Expenses. All of Seller's prepaid security,
vendor, utility and other deposits and expenses;
1.1.9 Permits. To the extent transferable, Seller's licenses,
permits, certifications, approvals and other governmental and regulatory
authorizations required under all laws, rules and regulations applicable to or
affecting the Schools, including those described in Schedule 5.5(a);
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1.1.10 Goodwill and Other Intangibles. All of the goodwill and
going concern value of the Schools and all other intangibles used in connection
with the Schools;
1.1.11 Curriculum Materials. All rights of Seller with respect
to Curriculum used in connection with the educational programs of the Schools,
whether proprietary or licensed from third parties (including all periodic
updates to the curriculum as developed or used by Seller or any such third
parties); provided, however, that on the Closing Date, Buyer and Edutown LLC
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shall enter the License Agreement and Edutown shall thereby receive the rights
to use the Curriculum in the manner set forth in such agreement; and
1.1.12 Other Assets. All other assets and property of any kind,
wherever located, which is owned, leased or licensed by Seller and used in the
business of the Schools (other than the Excluded Assets), including, without
limitation, promotional and marketing materials.
1.2 Excluded Assets. The Excluded Assets shall not be conveyed
hereunder. The "Excluded Assets" means:
1.2.1 Cash. All of Seller's cash or cash equivalents on hand at
the Closing and Seller's bank accounts relating thereto;
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1.2.2 "Edutown" Assets. Edutown is a web based education portal
designed to offer a wide variety of career training programs online in
affiliation with other schools. The programs of study include all programs
which were offered at the Schools prior to the Closing Date; provided, however,
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that all such programs shall be offered solely online through Edutown LLC
through its Internet web sites. Additionally, Seller shall have the use of the
Curricula pursuant to the License Agreement after the Closing Date. Excluded
assets include Edutown LLC's Internet websites, software, programming language,
administration platform, the curricula and the adapted curricula and syllabi for
online delivery, together with all proprietary and intangible rights associated
therewith. Additionally, Excluded Assets include such tangible property of
Seller specifically identified on Schedule 1.2.2 attached hereto; and
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1.2.3 Other Assets. Such other assets as are identified on
Schedule 1.2.2 attached hereto.
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ARTICLE II
CONSIDERATION
2.1 Purchase Price. The purchase price payable to Seller in
connection with the transfer to Buyer of the Purchased Assets shall be (i) the
cash consideration referred to in Section 2.2, plus (ii) the assumption of
liabilities of Seller referred to in Section 2.3 (collectively, the "Purchase
Price").
2.2 Cash Consideration. The cash consideration portion of the
Purchase Price shall be Eleven Million, Nine Hundred and Sixty-Thousand
Dollars($11,960,000.00), payable as follows at the Closing: (A) Buyer shall pay
to Seller, by wire transfer to Seller's Account Number 001042211 of Marathon
Bank, 00000 Xxxx Xxxxxxx Xxxx, Xxx Xxxxxxx, XX 00000, Telephone Number (310)
000-0000, Routing Number 1222-40308, Ten Million, Seven Hundred and Sixty-
Thousand Dollars ($10,760,000.00) (the "Closing Payment"), and (B) Buyer shall
deposit with Xxxxx Fargo, or any other mutually satisfactory escrow agent (the
"Escrow Agent"), by wire transfer to an account designated by Escrow Agent on or
before the Closing Date, One Million, Two Hundred Thousand Dollars
($1,200,000.00) (the "Deferred Payment"), which amount shall be held and
distributed in accordance with the terms of the escrow agreement between Buyer,
Seller and the Owners, substantially in the form attached hereto as Exhibit A
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(the "Escrow Agreement"), and which shall be held to satisfy any Losses of Buyer
(as defined in Section 9.12) for which Seller and Owners, jointly and severally,
are required to indemnify Buyer pursuant to Section 9.12 hereof. Seller and the
Owners shall be solely responsible for the payment of all fees and costs for the
administration of the Escrow Agreement by the Escrow Agent, and shall defend,
indemnify and hold harmless Buyer from and against any and claims by Escrow
Agent for such fees and/or costs. Any fees or costs deducted by Escrow Agent
from the Deferred Payment, if any, shall be deducted from the amount of the
Deferred Payment that would otherwise be available for payment to Seller, and in
no event shall the amount of any such fees or costs be used as an offset or
credit against amounts owed to Buyer by Seller and the Owners pursuant to this
Agreement.
2.3 Obligations and Liabilities to be Assumed. Upon the terms and
subject to the conditions contained herein, at the Closing, Buyer shall, by an
instrument of assumption to be executed and delivered at the Closing
substantially in the form of Exhibit B hereto (the "Assignment and Assumption
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Agreement"), assume only the following liabilities (the "Assumed Liabilities")
of Seller and the Schools: (i) current trade accounts payable and accrued
expenses, except to the extent such accounts payable and accrued expenses relate
to liabilities of the types described in clauses (i) through (viii) in Section
2.4 below, (ii) all capital lease obligations (including current portion), (iii)
the School's
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teach-out obligation with respect to students enrolled as of the Closing, (iv)
all liabilities and obligations of Seller assumed by Buyer for the Assumed
Contracts identified in Schedule 5.9.
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2.4 Excluded Liabilities. Buyer shall not assume, or otherwise be
responsible for, any liabilities or obligations (whether actual or contingent,
matured or unmatured, liquidated or unliquidated, or known or unknown)
(collectively, the "Excluded Liabilities") of Seller, any other owner or
operator of the Schools prior to the Closing Date, or any Affiliate of any of
the foregoing, other than those liabilities and obligations which have been
specifically assumed by Buyer pursuant to Section 2.3. The "Excluded
Liabilities" shall include, without limitation, any liabilities or obligations
to the extent that they relate to, are connected with, are based upon or arise
out of the following: (i) regulatory liabilities imposed by the U.S. Department
of Education (the "DOE") and/or the applicable state regulatory agencies with
respect to Seller and/or the Schools for periods prior to the Closing Date, (ii)
liabilities relating to employees of Seller and the Schools for periods prior to
the Closing Date (including, without limitation, salary, bonuses, payroll taxes
payable, accrued vacation liability or other compensation or benefits), (iii)
liabilities with respect to accounts payable incurred on or before the Closing
Date that are set forth on Schedule 2.4, (iv) liabilities and costs (including
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those incurred post-Closing) associated with or caused by a determination by the
DOE that the Seller and/or Schools have not demonstrated compliance with 34 CFR
668.15 (Factors of Financial Responsibility) and 34 CFR 668.16 (Standards of
Administrative Capability) for dates and periods prior to Closing Date, (v) Tax
liabilities of Seller or the Owners (including, without limitation, sales tax
liabilities in connection with this Agreement), (vi) liabilities with respect to
the claims referenced on Schedule 5.14 hereto, (vii) liabilities associated with
Seller's line of credit or other long-term debt of Seller (including current
portion), (viii) any intercompany payables or debt (whether to any of the Owners
or any Affiliate of Seller or the Owners) and (ix) any other liability or
obligation which has not been specifically assumed by Buyer pursuant to Section
2.3.
2.5 Allocation of Purchase Price. Buyer and Seller agree that the
Purchase Price shall be allocated among the Purchased Assets in accordance with
the allocation set forth in Schedule 2.5 attached hereto. Buyer and Seller
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agree that each will report the federal, state and local income Tax and other
Tax consequences of the purchase and sale contemplated hereby in a manner
consistent with such allocation and that neither will take any position
inconsistent therewith upon examination of any Tax return, in any refund claim,
in any litigation or otherwise. For the purposes of this Agreement, the term
"Tax" or "Taxes" means any foreign, federal, state, county or local income,
sales and use, excise, franchise, real and personal property, transfer, gross
receipt, capital stock, production, business and occupation, disability,
employment, payroll, severance or withholding tax or charge imposed by any
governmental entity, and any interest and penalties (civil or criminal) related
thereto or to the nonpayment thereof.
2.6 Working Capital Adjustment. If the Purchased Working Capital (as
defined below) is less than that reflected by such assets and liabilities on the
Company's audited balance sheet dated as of November 30, 1999 (the "Working
Capital Threshold"), then Seller and/or the Owners, jointly and severally, shall
pay to Buyer within ten (10) business days after final determination of the
amount of the Purchased Working Capital (pursuant to the procedures set forth in
Section 2.7), by wire transfer of immediately available funds to Buyer's Account
Number 4500-154999 of Union Bank of California Bank, Orange, CA , ABA Routing
Number 000000000, an amount of cash which equals the amount by which such
Working Capital is less than the Working Capital Threshold (the "Working Capital
Adjustment"). The term "Purchased Working Capital" shall mean all current assets
purchased by Buyer hereunder (accounts receivable, net of allowance for doubtful
accounts, inventory and prepaid expenses), minus all assumed current liabilities
assumed by Buyer hereunder (current
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portion of capital lease obligation, short term accounts payable and accrued
expenses and deferred tuition), each as of the Closing Date.
2.7. Post-Closing Audit. (A) Within five (5) business days of the
Closing Date, Seller shall deliver to Buyer true and correct copies of all
financial books and records of Seller necessary for Buyer to prepare a balance
sheet of Seller dated as of the Closing Date. Within fifteen (15) business days
after receipt of such books and records from Seller, Buyer shall prepare, and
have audited, a balance sheet dated as of the Closing Date (the "Closing Balance
Sheet") on which shall be shown the purchased current assets and the assumed
current liabilities of the Seller as of the Closing Date, and from which the
Purchased Working Capital can be calculated.
(B) The Closing Balance Sheet shall be prepared in accordance with
Generally Accepted Accounting Principles ("GAAP"), applied on a basis consistent
with Buyer's past practices, and audited by Xxxxxx & Associates ("Almich") in
accordance with Generally Accepted Government Auditing Standards ("GAGAS").
Upon receipt of the Closing Balance Sheet prepared by Buyer, Seller shall have
fifteen (15) business days in which to review it and either accept it or
identify objections by written notice to Buyer. If, within fifteen (15)
business days following delivery of the Closing Balance Sheet to Seller, Seller
has not given notice to Buyer of objections to the Closing Balance Sheet (such
notice must contain a statement of the basis of Seller's objections in
reasonable detail), then the calculation of Purchased Working Capital as shown
on the Closing Balance Sheet shall be used in computing the Working Capital
Adjustment, if any. If exceptions or objections are noted by Seller, Buyer,
Seller and their respective accountants shall meet to resolve the dispute. If
such dispute has not been resolved within fifteen (15) business days after
Seller gives notice of an objection, then the issues in dispute shall be
submitted to the Los Angeles office of KPMG LLP(the "Accountants") for
resolution. If the issues are submitted to the Accountants for resolution: (i)
each party will furnish to the Accountants such work papers and other documents
and information relating to the disputed issues as the Accountants may request
and are available to such party (or its accountants), and will be afforded the
opportunity to present to the Accountants any material relating to the
determination and to discuss the determination with the Accountants; (ii) the
determination by the Accountants, as set forth in a notice delivered to the
parties, will be binding and conclusive on the parties; and (iii) Buyer, on the
one hand, and Seller, on the other hand, will each bear 50% of the fees of the
Accountants for such determination. The amount of Purchased Working Capital and
the Working Capital Adjustment for all purposes of this Agreement shall be as
determined in accordance with this Section 2.7.
ARTICLE III
CLOSING
3.1 Closing. Consummation of the purchase and sale of the Purchased
Assets contemplated hereby is referred to herein as the "Closing," and the date
on which the Closing takes place is referred to herein as the "Closing Date."
The Closing shall take place, as soon as practicable following satisfaction or
waiver of all conditions precedent to the parties' obligations to close, at the
offices of Buyer at 0 Xxxxxx Xxxxxx Xxxxx, Xxxxx 000, Xxxxx Xxx, Xxxxxxxxxx.
Delivery of documents at the Closing may be accomplished by facsimile, to be
followed by delivery of originals by overnight courier of national reputation on
the day after the Closing. The Closing shall be effective at 12:01 a.m. on the
Closing Date.
3.2 Deliveries by Seller and Owners at Closing. At the Closing,
Seller and Owners shall deliver or cause to be delivered to Buyer the following:
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(1) Certified resolutions of Seller's Board of Directors and, if
required by applicable law, Seller's shareholders, authorizing the
execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated herein;
(2) a duly executed Xxxx of Sale substantially in the form of
Exhibit C hereto (the "Xxxx of Sale") and such other instruments of
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conveyance as shall, in the opinion of Buyer and its counsel, be necessary
to vest in Buyer title to the Purchased Assets;
(3) a duly executed Assignment and Assumption Agreement;
(4) a duly executed Escrow Agreement;
(5) An officers' certificate signed by the President and the
Chief Financial Officer of Seller, or such other officer reasonably
acceptable to Buyer, certifying (i) as to the representations, warranties
and covenants of Seller made herein as provided in Sections 8.1(1), and
8.1(3), and (ii) as to the absence of a material adverse change as provided
in Section 8.1(2);
(6) Duly executed estoppel certificates and consents to
assignment of lease (executed by the landlords of the Facilities (as
defined below));
(7) Duly executed Assignments and Assumption of Lease for each
of the Facilities in form and substance satisfactory to Buyer and its
counsel (the "Lease Assignment");
(8) A duly executed Non-Competition Agreement substantially in
the form of Exhibit E attached hereto (the "Non-Competition Agreement"),
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executed by Seller and each of the Owners, in which Seller and the Owners
shall have agreed to not participate in the business of proprietary, post-
secondary education in the State of California for a period of five years
after the Closing Date;
(9) A duly executed License Agreement; and
(10) Any other documents reasonably requested by Buyer and its
counsel to effectuate the transactions contemplated hereby.
3.3 Deliveries by Buyer at Closing. At the Closing, Buyer shall
deliver or cause to be delivered to Seller the following:
(1) The Closing Payment;
(2) Certified resolutions of the Board of Directors of Buyer
authorizing the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated herein;
(3) A duly executed Assignment and Assumption Agreement;
(4) A duly executed Lease Assignments for each of the
Facilities;
(5) a duly executed Non-Competition Agreement;
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(6) a duly executed Escrow Agreement
(7) a duly executed License Agreement; and
(8) Any other documents reasonably necessary to effectuate the
transactions contemplated hereby.
ARTICLE IV
TERMINATION
4.1 Termination. This Agreement may be terminated only as follows
and in each case only by written notice:
(1) At any time by mutual written consent of Seller and Buyer;
(2) Prior to the Closing, by Buyer if Seller or the Owners shall
be in breach of any covenant, undertaking, representation or warranty
contained herein, which breach either (a) materially misrepresents the
business, operations or financial condition of the Seller as of the date
hereof, (b) causes a material adverse change in the business, operations or
financial condition of the Schools or (b) prohibits the satisfaction of a
condition to the Closing;
(3) Prior to the Closing, by Buyer if the DOE, the California
Bureau for Private Postsecondary and Vocational Education ("BPPVE"), the
State of California or any of its agencies, any applicable regulatory body,
any guaranty agency or any accreditation agency (including, but not limited
to the Accrediting Commission of Career Schools and Colleges of Technology
(hereinafter, "ACCSCT") determines that the Seller or the Schools, or any
of their respective programs, will not be certified as eligible to receive
funds administered under Title IV of the Higher Education Act of 1965, as
amended (hereinafter, "Title IV");
(4) Prior to the Closing, by Buyer, at its sole and absolute
discretion, if, based on the DOE pre-review of the application for
certification and provisional extension of certification, Buyer determines
that the Schools will be unable to obtain certification by the DOE
subsequent to the Closing Date at any time, in a timely matter, or without
being subject to material adverse conditions; or
(5) If the Closing has not occurred before the ninetieth (90th)
day after the date hereof, by Seller or Buyer, by notice to all other
parties, at any time thereafter and before the Closing.
4.2 Effect of Termination. In the event of termination of this
Agreement by either Buyer or Seller in accordance with the applicable provisions
above, this Agreement shall forthwith terminate upon notice thereof duly given
in accordance with the provisions hereof, and there shall be no liability of any
nature on the part of either Buyer or Seller (or their respective officers or
directors) to the other, except for liabilities arising from a breach of this
Agreement prior to such termination; provided, however, that Seller's and
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Owners' obligations under the last sentence of Section 5.20 shall survive the
termination of this Agreement; and provided further, however, that if this
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Agreement is terminated prior to the Closing, the parties obligations under
their previously executed Confidentiality and Non-Disclosure Agreement shall
survive.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SELLER AND OWNERS
As a material inducement to Buyer to enter into this Agreement, to
purchase the Purchased Assets and to assume the Assumed Liabilities, Seller and
Owners, jointly and severally, hereby represent and warrant (a) as of the date
hereof and (b) as of the Closing Date, that:
5.1 Organization and Corporate Power. Seller is a corporation, duly
organized, validly existing and in good standing under the laws of the State of
California, the jurisdiction in which it is incorporated. Seller has all
requisite power and authority to own and operate its properties, to carry on its
business as now conducted, to enter into this Agreement and to consummate the
transactions contemplated hereunder. Seller is duly qualified to do business in
each jurisdiction in which the failure to be so qualified would have an adverse
effect on the operation of the Schools. True and correct copies of Seller's
articles of incorporation and bylaws have been furnished to Buyer and reflect
all amendments made thereto at any time prior to the date of this Agreement and
the Closing Date.
5.2 Capacity; Authorization; Binding Effect. Seller has the power,
legal capacity and authority to execute, deliver and perform this Agreement and
each other document being executed in connection herewith to which it is a
party. Seller has the power, legal capacity and authority to transfer, convey
and deliver the Purchased Assets, free and clear of all liens, claims,
encumbrances, options, rights and restrictions, except as otherwise disclosed in
Schedule 5.8(b). All corporate and other proceedings required to be taken by or
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on the part of Seller, including all action required to be taken by the
directors or stockholders of Seller, to authorize Seller to enter into and carry
out this Agreement and the related documents contemplated herein, have been duly
and properly taken. This Agreement has been, and each of the related documents
will be at Closing, duly executed and delivered by Seller and constitute, or
will when delivered constitute, the valid and binding obligations of Seller,
enforceable against Seller, in accordance with their respective terms, subject
to applicable bankruptcy, insolvency, reorganization, moratorium and similar
laws affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
5.3 Ownership of Schools. The Schools are owned and operated by
Seller directly, and no other Person has any ownership interest in the Schools.
No other Person has any right, option, subscription or other arrangement to
purchase or otherwise acquire any interest in the Schools. For purposes of this
Agreement, the term "Person" shall include any individual, corporation,
partnership, joint venture, trust, unincorporated association or government or
any agency or political subdivisions thereof.
5.4 No Conflicts. The execution, delivery and performance of this
Agreement and each other document being executed by Seller in connection
herewith, and the consummation by Seller of the transactions contemplated hereby
and thereby will not: (a) violate any provisions of law applicable to Seller;
(b) with or without the giving of notice or the passage of time, or both,
conflict with or result in the breach of any provision of the articles of
incorporation or bylaws of Seller, or any instrument, license, agreement or
commitment to which Seller is a party or by which any of its assets or
properties is bound, including the Assumed Contracts (as defined in Section 5.9
hereof); (c) constitute a violation of any order, judgment or decree to which
Seller is a party or by which any of its assets or properties is bound; or (d)
require any approval of, or filing or registration with, any governmental entity
or regulatory authority other than those set forth or described on Schedule 5.4
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or Schedule 6.3 attached hereto.
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5.5 Compliance with Laws; Licenses and Permits. Except as disclosed
in Schedule 5.5, Seller is not in violation of any law, regulation or
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requirement of any governmental authority and Seller has not received notice of
any such violation. Seller currently maintains all licenses, accreditations,
certificates, permits, consents, authorizations and other governmental or
regulatory approvals (the "Licenses and Permits") necessary for Seller to
conduct the business and operations of the Schools as presently being conducted,
including, without limitation, all requisite approvals for the educational and
training programs currently offered from the Schools' institutional accrediting
agency and the state in which the Schools operate. Each program offered by the
Schools is an eligible program in compliance with the requirements of 34 C.F.R.
(S) 668.8. Seller has duly filed all reports and returns required to be filed by
it with respect to the Schools with governmental authorities and accrediting
bodies and complied with all stipulations, conditions or other requirements that
they have imposed. The Licenses and Permits for the Schools are in full force
and effect, and no proceedings for the suspension or cancellation of any of them
is pending or threatened. No application made by Seller for any Licenses and
Permits during the last five years has been denied. Schedule 5.5(a) attached
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hereto is a true, correct and complete list of all Licenses and Permits held by
Seller with respect to the Schools and the governmental authority or accrediting
body granting such Licenses and Permits. Seller has delivered to Buyer true and
correct copies of all such Licenses and Permits. Seller has received no notice
that any of the Licenses and Permits will not be renewed and, to Seller's
knowledge, there is no basis for nonrenewal. The Schools are accredited as set
forth on Schedule 5.5(b) attached hereto, are certified by the DOE as an
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eligible institution under Title IV and are parties to, and in compliance with,
valid program participation agreements with the DOE with respect to the Schools'
respective operations, and are authorized by the state in which they are located
to operate for-profit postsecondary educational institutions. Seller has not
received any notice, not previously complied with, in respect of any alleged
violation of the rules or regulations of the DOE, any state licensing body, or
any applicable accrediting body in respect of the Schools, including sales and
marketing activities, or the terms of any program participation agreement to
which it is or was a party. If any such notices have been received and complied
with, Seller has disclosed in writing their receipt and disposition to Buyer
prior to the execution of this Agreement. Other than as set forth on Schedule
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5.5(c) attached hereto, Seller is not aware of any investigation or review of
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Seller's student financial aid programs or any review of any School's state
license accreditation by any Person.
5.6 Recruitment; Admissions Procedures; Attendance; Reports.
Schedule 5.6(a) attached hereto is a complete list of all policy manuals and
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other statements of procedures or instruction relating to recruitment of
students for the Schools, including (a) procedures for assisting in the
application by prospective students for direct or indirect state or federal
financial assistance; (b) admissions procedures, including any descriptions of
procedures for insuring compliance with state or federal or other appropriate
standards or tests of eligibility; and (c) procedures for encouraging and
verifying attendance, minimum required attendance policies, and other relevant
criteria relating to course completion and certification (collectively, the
"Policy Guidelines"). Schedule 5.6(b) attached hereto sets forth a list of the
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Policy Guidelines with respect to those students continuing in the Schools after
the Closing Date (the "Disclosed Guidelines"). Seller has delivered to Buyer
true, correct and complete copies of all Policy Guidelines, Disclosed Guidelines
and all documents and other information disseminated to students or prospective
students. Seller's operations with respect to the Schools have been conducted in
accordance with the Policy Guidelines and all relevant standards imposed by
applicable accrediting bodies, agencies administering state or federal
governmental programs in which Seller participates, and other applicable laws or
regulations. Seller has submitted all reports, audits, and other information,
whether periodic in nature or pursuant to specific requests, including, without
limitation, all annual compliance audits and audited financial statements, for
the Schools to all agencies or other entities with which such filings are
required relating to its compliance with (i) applicable accreditation standards
governing its activities and (ii) laws or regulations governing programs
pursuant
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to which Seller or its students receive funding. Complete and accurate records
for all present and past students attending the Schools have been maintained
consistent with the operations of a school business. All forms and records with
respect to the Schools have been prepared, completed, maintained and filed in
accordance with all applicable federal and state laws and regulations, and are
true and correct. All financial aid grants and loans, disbursements and record
keeping relating thereto have been completed in compliance with all federal and
state requirements, and there are no deficiencies in respect thereto. The
Schools and Seller have complied with the legal requirements that no student at
the Schools be funded prior to the date for which such student was eligible for
funding. Seller covenants and agrees that it shall reimburse Buyer for and
indemnify Buyer against any fines, penalties, expenses, costs and other losses
Buyer may incur as a result of any pre-eligibility funding prior to the Closing
Date. The records of each student at the Schools conform in form and substance
to all relevant regulatory requirements.
5.7 Cohort Default Rate. Schedule 5.7 attached hereto sets forth the
------------
cohort default rate for the Schools, calculated in the manner prescribed by the
DOE, of all students attending the Schools receiving assistance pursuant to
Title IV programs for the fiscal years 1993 through 1999. Such schedule is
materially correct and accurate in all respects.
5.8 Title to and Condition of the Purchased Assets.
5.8.1 Leased Facilities. The leased facilities described on
Schedule 5.8(a) (the "Facilities") constitute the only real property used in
---------------
connection with the operation of the Schools by Seller.
5.8.2 Laws and Regulations; Records. All of Seller's
operations with respect to the Schools are conducted at the Facilities, and all
of the tangible Purchased Assets and records relating to intangible Purchased
Assets of the Schools are located at the Facilities. Seller is not under any
contractual or other legal obligation, and has not entered into any commitment,
to make capital improvements or alterations to the Facilities. The Facilities
are not subject to any zoning ordinance or other restrictions which would
prohibit the use and enjoyment of the Facilities in the manner in which the
Facilities are currently used and the Facilities are not subject to any
condemnation proceedings. Each Facility and Seller's use thereof is in
compliance with all laws, including, without limitation, the Americans with
Disabilities Act.
5.8.3 Title. Seller owns outright, and has good and marketable
title to, all of the Purchased Assets, free and clear of all liens, claims and
encumbrances, options, rights, and restrictions, other than as set forth on
Schedule 5.8(b). All leases for tangible personal property used by Seller in
---------------
connection with the operation of the Schools are (i) valid and in full force and
effect, (ii) are enforceable in accordance with their terms, and (iii) are
capable of being assigned, and will in fact be assigned to Buyer, upon the
execution and delivery by Buyer and Seller of the Assignment and Assumption
Agreement. Neither Seller nor any of the other parties thereto is in default
under any such lease, and no event, act or omission has occurred which (with or
without notice, the passage of time or the happening or occurrence of any other
event) would result in a default thereunder.
5.8.4 Condition of Purchased Assets. The tangible Purchased
Assets and properties of the Schools which are owned or leased by Seller and
used in connection with the operation of the Schools are in good operating
condition, order and repair, useable in the ordinary course of business
consistent with past practice and are sufficient and adequate for all current
operations. Seller has not received notice of any violation of or default under
any law, ordinance, order, regulation or requirement relating to any of the
Purchased Assets which remains uncured or has not been resolved.
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5.8.5 Title; Condition and Quality of the Curriculum. (a) Seller
owns outright, and has good and marketable title to, the Curriculum of the
Schools, free and clear of all encumbrances, and the execution of this Agreement
will vest good and marketable title to the Curriculum in Buyer, free and clear
of all encumbrances, except for the rights reconveyed by Buyer to Seller
pursuant to the License Agreement executed at Closing. No employee or Affiliate
of Seller or any of the Owners or any other Person owns or has any interest,
directly or indirectly, in any part of the Curriculum. Seller does not use any
part of the Curriculum by consent of any other Person and is not required to and
does not make any payments to others with respect thereto. No component of the
Curriculum infringes or violates any copyright, patent, trade secret, trademark,
service xxxx, registration or other proprietary right of any other Person, and
Seller's and Owner's past and current use of any part of the Curriculum does not
infringe upon or violate any such right. Neither Seller nor any of the Owners
have taken any action, or failed to take any action, to cause any part of the
Curriculum to enter the public domain. The term "Curriculum" or Curricula, as
used in this Agreement, means the curriculum used in the educational programs of
the Schools in the form of computer programs, slide shows, texts, films, videos
or any other form or media, including, without limitation, the following items:
(1) course objectives, (2) lesson plans, (3) exams, (4) class materials
(including interactive or computer-aided materials), (5) faculty notes, (6)
course handouts, (7) diagrams, (8) syllabi, (9) sample externship and placement
materials, (10) clinical checklists, (11) course and faculty evaluation
materials, (12) policy and procedure manuals, and (13) other related materials.
The Curriculum shall also include, without limitation, (a) all copyrights,
copyright applications, copyright registrations and trade secrets relating to
the above-listed items and (b) Revisions. The term "Revisions," as used in this
Agreement, means all periodic updates or revisions to the Curriculum as
developed or used by Seller during its period of operation of the Schools from
the beginning of time through the Closing Date.
5.9 Assumed Contracts. Schedule 5.9 attached hereto lists each
------------
assumed contract of Seller (the "Assumed Contracts") relating to the Schools or
to which any of the Purchased Assets is subject or bound that individually, or
together as a series of related contracts involving the same party or parties,
or the successors to such party or parties: (a) obligates Seller or its
Affiliates to pay an amount of $5,000 or more, (b) has an unexpired term as of
the date of this Agreement in excess of six months, (c) was not made in the
ordinary course of business, or (d) is in any way otherwise material to the
operation of the Schools. Each Assumed Contract is valid and existing. Seller
has duly performed all its obligations under the Assumed Contracts to the extent
that such obligations to perform have accrued. Seller has not received written
notice of any alleged breach or default, and no event which would (with the
passage of time, notice or both) constitute a material breach or default by
Seller or any other party or obligor with respect thereto has occurred. True
and correct copies of the Assumed Contracts, including all amendments and
supplements thereto, have been delivered to Buyer or are attached to Schedule
--------
5.9. Each of the Assumed Contracts is (i) enforceable in accordance with their
---
terms, and (ii) is capable of being assigned to Buyer and will in fact be
assigned to Buyer upon the execution and delivery by Buyer and Seller of the
Assignment and Assumption Agreement. For purposes of this Agreement, the term
"Affiliate" of any Person means any other Person who directly or indirectly
controls, is controlled by, or is under common control with such Person.
5.10 Tradenames; Confidential Information. All tradenames, trademarks
or service marks and all forms, derivatives and graphic presentations thereof
of Seller having any value to the operation of the Schools are set forth or
described on Schedule 5.10 attached hereto (collectively, the "Tradenames").
-------------
Seller has the right to the use of each Tradename as an assumed business name in
the counties in which such Tradename is used, and Schedule 5.10 lists all
-------------
registrations of each Tradename as a trademark, servicemark or assumed name.
Seller has not licensed any other Person to use any Tradename. Seller has not
been sued or threatened with suit for infringement, violation or breach with
respect to any Tradename, and no basis exists for any such suit. Except as
disclosed on Schedule 5.10,
-------------
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Seller is not on notice of any infringement, violation or breach of the
Tradename by any other Person. Seller has the right to use and license, free and
clear of any claims or rights of any third party, all trade secrets, customer
lists, know-how, curricula and any other confidential information required for
or used in the operation of the Schools. Seller is not in any way making any
unlawful or wrongful use of any trade secrets, customer lists, know-how,
curricula or any other confidential information of any third party, including,
without limitation, any former employer of any present or past employee of
Seller in connection with the operation of the Schools.
5.11 Financial Statements; Indebtedness. Attached hereto as Schedule
--------
5.11(a) are the following financial statements of Seller: (a) audited Balance
-------
Sheets at November 30, 1999, 1998 and 1997 and audited Statements of Operations
and Statements of Cash Flows for the years ended November 30, 1999, 1998 and
1997 (including consolidating schedules containing corresponding Statements of
Assets and Liabilities and Statements of Revenue and Expenses of the Schools in
the form appropriate for filing with the DOE), and (b) an unaudited Balance
Sheet at June 30, 2000 and an unaudited Statement of Operations and Statement of
Cash Flows for the seven months ended June 30, 2000 (collectively, the
"Financial Statements"). The basis of presentation of the Financial Statements
of the Seller and each of the Schools is disclosed on Schedule 5.11(b) attached
----------------
hereto or in the notes thereto. Except as disclosed on Schedule 5.11(b), the
----------------
balance sheets included in the Financial Statements present fairly in accordance
with GAAP the assets and liabilities of Seller and each of the Schools as of the
respective dates thereof, and the related statements of revenue and expenses
present fairly in accordance with GAAP the results of operations of Seller and
each of the Schools for the respective periods covered thereby. The Financial
Statements (i) have been prepared based upon the books and records of Seller in
a manner consistent with Seller's standard internal accounting practices,
consistently applied, and (ii) fairly present the financial position of Seller
as of the dates of such Financial Statements and the results of operations for
the periods covered by such Financial Statements. Except as disclosed on
Schedule 5.11(b), Seller has maintained the books and records of the Seller and
----------------
the Schools in accordance with applicable laws, rules and regulations and with
GAAP and GAGAS, and such books and records are, and during the periods covered
by the Financial Statements were, materially correct and complete, fairly
reflecting the income, expenses, assets and liabilities of the Seller and the
Schools. On the date hereof, Seller does not have any liabilities required to
be set forth in a balance sheet prepared in accordance with GAAP and GAGAS that
were not included in the latest balance sheet included in the Financial
Statements. Except as provided in Schedule 5.11(c), Seller is not required to
----------------
provide any letters of credit, guarantees or other financial security
arrangements in connection with any transactions, approvals or licenses in the
ordinary course of the Schools' business. As of the date hereof, Seller has no
indebtedness, liabilities or obligations of any nature, whether absolute,
accrued, contingent or otherwise, other than:
(1) those set forth or reserved against in the balance sheet of
Seller as of June 30, 2000, to the extent set forth, reserved against or
disclosed;
(2) those incurred since June 30, 2000 in the ordinary course of
business of the Schools and consistent in nature with past practice, and in
an aggregate amount of not more than $20,000; and
(3) those described in the Schedules attached hereto.
Except as set forth in Schedule 5.5(c), there exists no condition relating to
---------------
the Schools, whether absolute, accrued, contingent or otherwise, which could
have a materially adverse effect on the properties, business, Purchased Assets,
results of operations or condition (financial or otherwise) of the Schools or
which would prevent the operations of the Schools from being carried on in the
future in
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substantially the same manner as they are presently being conducted. Except as
set forth on Schedule 5.11(d) attached hereto, there are no long-term fixed or
----------------
contractual liabilities relating to the operation of the Schools which are
required to be assumed by Buyer in order to continue to operate the Schools as
presently operated by Seller, the annual expense of which are not reflected in
the Financial Statements.
5.12 Receivables. The Accounts Receivable, except to the extent of
the allowance for doubtful accounts set forth in the Financial Statements, are
bona fide receivables, arose out of arms' length transactions in the normal and
usual practices of Seller and the Schools, are recorded correctly on the books
and records of Seller and the Schools, and Seller has no reason to believe that
such Accounts Receivables will not be collected in full in the ordinary course
of business within the ordinary time frame for such receivables. Such
receivables are not subject to any defense, counterclaim or setoff or discounts
or credits not reflected in the Financial Statements (other than tuition refund
policies administered in accordance with all applicable legal requirements and
the applicable Policy Guidelines, and as reflected in reserves or allowance for
doubtful accounts shown on the Financial Statements), and (A) no facts or
circumstances exist which would cause any of such Accounts Receivable to have to
be written down or written off, and (B) since the date of Seller's most recent
audited Balance Sheet, seller has not discounted or sold such Accounts
Receivable or any portion thereof (either to the debtor(s) or in connection with
the sale of such receivables to a third party).
5.13 Inventories. The only inventories maintained by Seller in
connection with the operation of the Schools consist of supplies used in the
ordinary course of business of the Schools and are reflected on the Financial
Statements as "inventories." Such supplies are reflected at cost (subject to
the following sentence), are usable in the ordinary and regular course of
business, are fit and sufficient for the purpose for which they were purchased,
and, at the date of this Agreement, are in customary amounts appropriate to
Seller's operations of the Schools. All excess or obsolete items have been
written down to net realizable value or written off.
5.14 Litigation. Except as set forth in Schedule 5.14 attached
-------------
hereto, (i) there are no actions, suits, proceedings, orders, investigations or
claims pending or, to the knowledge of Seller, threatened against or affecting
the Schools or their respective operations at law or in equity, or before or by
any governmental department, commission, board, bureau, agency or
instrumentality or accrediting body pertaining to or affecting Seller or the
Schools, (ii) neither Seller, the Owners, nor the Schools is the subject of any
governmental investigations or inquiries (including inquiries as to the
qualification to hold or receive any of the Licenses and Permits with respect to
the Schools) and (iii) there is no basis for any of the foregoing.
5.15 Insurance. Schedule 5.15 attached hereto sets forth the insurance
-------------
coverages maintained by Seller on the Facilities, the Purchased Assets and the
operations of the Schools, including all policies or binders of fire, extended
coverage, general and vehicular, fidelity and fiduciary liability, workers'
compensation, key-man life and other insurance held by Seller and all binders
for insurance to be purchased on or before Closing, in order to replace policies
expiring prior to the Closing or otherwise. Such policies and binders are in
full force and effect, and there is no breach or default with respect to any
provision contained in any such policy or binder, and all premiums, to the
extent due and payable, have been paid or the liability therefor properly
accrued. There are no claims pending or threatened under any of said policies
pertaining to the Schools or disputes with underwriters regarding coverage under
such policies pertaining to the Schools. Except as set forth on Schedule 5.15,
-------------
neither the execution, delivery and performance of this Agreement, nor the
consummation of the transactions contemplated hereby, will result in the loss to
Seller of any of the insurance policies listed or impair the rights of Seller
with respect to liabilities arising in connection with the operation of the
Schools prior to
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the Closing. Within the five years prior to the date hereof, Seller has not been
denied insurance for the Schools, or been offered insurance for the Schools only
at a commercially prohibitive premium.
5.16 Environmental Matters. In connection with the operations of the
Schools, Seller has not generated, transported, stored, treated or disposed, nor
has Seller allowed or arranged for any third persons to transport, store, treat
or dispose, any hazardous substance to or at: (a) any location other than a
site lawfully permitted to receive such hazardous substance for such purposes;
or (b) any location designated for remedial action pursuant to federal, state or
local statute and relating to the environment or waste disposal; nor has Seller
performed or arranged for or allowed by any method or procedure such
transportation or disposal in contravention of any laws or regulations or in any
other manner which may result in liability for contamination or threat of
contamination of the environment. No generation, use, handling, storage,
treatment, release, threat of release, discharge, spillage or disposal of any
hazardous substance, has occurred or is occurring at the Facilities or any other
facilities or properties owned or operated by Seller in connection with its
operation of the Schools. Seller has not received notification, nor is it aware
of, any past or present failure by Seller to comply with any environmental laws,
regulations, permits, franchises, licenses or orders applicable to the Schools
or its operations. Seller has not received any notification, nor is it aware
of, any past or present failure to comply with any environmental laws,
regulations, permits, franchises, licenses or orders applicable to its
operations of the Schools which may result in judicial, regulatory or other
legal proceedings having a material adverse impact on the operations of the
Schools or result in the imposition of any lien, claim, assessment or other
encumbrance against the Purchased Assets. The Facilities do not contain
asbestos or polychlorinated biphenyls or any underground storage tanks. Seller
acknowledges that Buyer is not assuming any of Seller's liabilities with respect
to the matters addressed in this Section 5.16 and that any liabilities of Seller
related to the matters addressed herein are Excluded Liabilities.
5.17 Employee Benefit Plans. Schedule 5.17 attached hereto sets
-------------
forth a complete accurate and detailed description of all of Seller's employee
welfare and benefit plans ("Plans"). Seller acknowledges that Buyer is assuming
none of the Plans. Seller has never sponsored, administered or contributed to
any employee benefit plan within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1976, as amended ("ERISA"), that is subject to
Title IV of ERISA. There are no accrued liabilities under any Plans, programs
or practices maintained on behalf of the employees of the Schools which are not
provided for on its books or in the Financial Statements or which have not been
fully provided for by contributions to such Plans, programs or practices. As of
the date hereof, Seller does not maintain any employee welfare benefit plans, as
defined in Section 3(1) of ERISA, which provide post-retirement benefits to
former employees of the Schools and to current employees of the Schools after
their termination of employment (including, without limitation, medical and life
insurance benefits), other than as may be required by the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended and interpreted by regulations
thereunder ("COBRA"). Seller shall provide any notices required under COBRA for
events occurring on or prior to the Closing Date and shall provide all benefits
required pursuant to COBRA in connection therewith.
5.18 Employment Matters. Seller and the Schools are in compliance with
all federal, state and local laws, rules and regulations affecting employment
and employment practices with respect to the Schools, including terms and
conditions of employment, employment discrimination and wages and hours, and
Seller is not engaged in any unfair labor practices with respect to employees of
the Schools; there are no complaints against Seller with respect to employees of
the Schools pending before the National Labor Relations Board or any similar
state or local labor agency; there are no labor strikes, slow-downs or stoppages
or other labor troubles pending or threatened with respect to any employees of
the Schools; no labor organization activities have occurred with respect to
employees of the Schools during the past three years; there are no collective
bargaining agreements binding on Seller relating to
-14-
the operation of the Schools; no grievances have been asserted against Seller
with respect to employees of the Schools; and Seller has not experienced any
work stoppage by its employees at the Schools during the last three years.
5.19 Tax Matters. Except as disclosed on Schedule 5.19, Seller and the
-------------
Owners have completed and filed on or before the due dates thereof or within
applicable extension periods all returns for Taxes required to be filed with
respect to the operations of the Schools, and such returns are true and correct.
Seller and/or the Owners, as applicable, have paid all Taxes shown to be due and
payable on such returns to the extent that the same have become due and payable
on or before the Closing. Neither Seller nor any of the Owners is a party to,
nor expected to become a party to, any pending or threatened action or
proceeding, assessment or collection of Taxes by any governmental authority
relating to the operations of the Schools.
5.20 Brokers or Finders. No agent, broker, investment banker or other
firm or person retained by Seller is or will be entitled to any broker's or
finder's fee or any similar commission or fee in connection with any of the
transactions contemplated by this Agreement, except for BCC Capital ("Broker"),
the responsibility for the payment of whose fee shall be solely and exclusively
that of Seller and the Owners. Seller and the Owners, jointly and severally,
agree to defend, indemnify and hold harmless Buyer and its Affiliates from and
against any and all claims arising in connection with its or their discussions
and/or use of the services of Broker or any other finder or broker.
5.21 Absence of Certain Changes. Except as contemplated by this
Agreement or as set forth on Schedule 5.21 attached hereto, since November 30,
-------------
1999, there has not been, occurred or arisen with respect to the Schools:
(1) any sale, lease, transfer, abandonment or other disposition
of any right, title or interest in or to any of the properties or assets of
Seller used in connection with the operations of the Schools (tangible or
intangible), except for any single sale, lease, transfer or abandonment of
any asset or property valued at less than $15,000 which was conducted in
the ordinary course of business;
(2) (i) any approval or action to put into effect any increase in
any compensation or benefits payable to any employee, agent or officer of
Seller employed or providing services in connection with the operation of
the Schools or any payment, grant or accrual to or for the benefit of any
such employee, agent or officer of any bonus, service award, percentage
compensation or other benefit, (ii) any adoption or amendment of any Plans,
or any severance agreement or employment contract to which any such
employee, agent or officer of Seller is a party or (iii) any entering into
of any employment, deferred compensation or other agreements with respect
to bonuses, service awards, percentage compensation or other benefits with
any such employee, agent or officer;
(3) any materially adverse change in the financial condition,
assets, liabilities (absolute, accrued, contingent or otherwise), reserves
or operations of the Schools;
(4) any damage, destruction or loss to the assets, business or
operations of the Schools in excess of $25,000 in the aggregate , whether
or not covered by insurance;
(5) any change in the business policies or practices of the
Schools or a failure to operate the business of the Schools in the ordinary
course with a view to
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(i) preserving such business intact, (ii) retaining the services of the
present officers, employees and agents of Seller employed or providing
services in connection with the operation of the Schools, and (iii)
preserving the business relationships of the Schools with, and the goodwill
of, students, sales representatives, suppliers, accrediting bodies,
governmental authorities and others;
(6) any agreement, whether in writing or otherwise, to take any
action described in this Section 5.21; or
(7) any withdrawal, revocation or denial of accreditation, or
order to show cause why accreditation should not be revoked, or any
revocation, termination or denial of license to operate, or any termination
or suspension of eligibility to participate in the federal student
financial aid programs authorized by Title IV, for the Schools, or any
program offered by the Schools.
5.22 Delivery of Documents. True, correct and complete copies of all
documents, instruments, agreements and records of Seller relating to the
Purchased Assets, the Assumed Liabilities, the representations and warranties of
Seller contained in this Agreement and/or the operation of the Schools have been
delivered to Buyer.
5.23 Program Revenues. For each of Seller's fiscal years ending on
November 30, 1998, 1997 and 1996, none of the Schools have received greater than
eighty-five percent (85%) of such School's respective revenues from programs
authorized by Title IV or other federal student financial aid funds, and for
Seller's fiscal year ending on November 30, 1999, no greater than ninety percent
(90%), of such School's respective revenues from programs authorized by Title IV
or other federal student financial aid funds, and each of the Schools satisfies
the requirements regarding Title IV program funds established by the DOE as set
forth at 34 C.F.R. Section 600.5. The attached Schedule 5.23 contains a
-------------
correct statement of each School's percentage of revenue from such federal
funding sources.
5.24 Accrediting Body and Governmental Approvals. There exist no
facts or circumstances attributable to Seller or the Schools that would cause
the DOE, or any other governmental authority or accrediting body (including
without limitation the BPPVE or ACCSCT) whose authorization, consent or similar
approval is required for the consummation of the transactions contemplated by
this Agreement or the operation of the Schools after the Closing Date, to refuse
to deliver such authorization, consent or similar approval.
5.25 Capitalization and Voting Rights. The authorized capital of the
Seller consists of 25,000 shares of common stock, of which 150 shares are issued
and outstanding. The outstanding shares of common stock are all duly and
validly authorized and issued, fully paid and nonassessable. The Owners own all
of the issued and outstanding shares of common stock of the Seller, free and
clear of any liens or encumbrances or other rights in favor of any third party
as follows: Xx. Xxxxxx X. Xxxxx owns seventy-five (75) shares and Xxx Xxxxx owns
seventy-five (75) shares; There are no outstanding options, warrants, rights
(including conversion or preemptive rights) or agreements, commitments or
letters of intent for the purchase or acquisition from the Seller of any shares
of its capital stock. Neither the Owners nor the Seller is a party or subject
to any agreement or understanding which affects or relates to the voting or
giving of written consents with respect to any security of the Seller.
5.26 Disclosure. Neither this Agreement nor any of the schedules,
exhibits, attachments, documents, certificates or other items prepared or
supplied to Buyer by or on behalf of Seller with respect to the transactions
contemplated hereby contains any untrue statement of a material fact or omits to
state a material fact necessary to make any such other statements not misleading
in light
-16-
of the circumstances in which such statements were made. There is no fact which
Seller has not disclosed to Buyer in writing and of which Seller or any of the
Owners is aware which has had or is reasonably likely to have a material adverse
effect upon the existing or expected financial condition, operating results,
assets, employee relations, accreditation, reputation or business of the
Schools.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
As a material inducement to Seller to enter into this Agreement and to
sell the Purchased Assets, Buyer hereby represents and warrants that:
6.1 Organization and Corporate Power. Buyer is a corporation, duly
organized, validly existing and in good standing under the laws of the State of
Delaware, the jurisdiction in which it is incorporated. Buyer has the corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereunder.
6.2 Capacity; Authorization; Binding Effect. Buyer has the power,
legal capacity and authority to execute, deliver and perform this Agreement and
each other document being executed in connection herewith to which it is a
party. All corporate and other proceedings required to be taken by or on the
part of Buyer to authorize Buyer to enter into and carry out this Agreement and
the related documents contemplated herein, have been duly and properly taken.
This Agreement has been duly executed and delivered by Buyer and constitutes
valid and binding obligations of Buyer, enforceable against Buyer in accordance
with its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally,
and subject, as to enforceability, to general principles of equity (regardless
of whether enforcement is sought in a proceeding at law or in equity).
6.3 No Conflicts. The execution, delivery and performance of this
Agreement and each other document being executed by Buyer in connection
herewith, and the consummation by Buyer of the transactions contemplated hereby
and thereby will not: (a) violate any provisions of law applicable to Buyer;
(b) with or without the giving of notice or the passage of time, or both,
conflict with or result in the breach of any provision of the articles of
incorporation or bylaws of Buyer (as heretofore amended), any instrument,
license, agreement or commitment to which Buyer is a party or by which any of
its assets or properties is bound; (c) constitute a violation of any order,
judgment or decree to which Buyer is a party or by which any of its assets or
properties is bound; or (d) require any approval of, or filing or registration
with, any governmental entity or regulatory authority other than those set forth
or described on Schedule 5.4 attached hereto or Schedule 6.3 attached hereto.
------------ ------------
6.4 Brokers or Finders. Buyer represents that no agent, broker,
investment banker or other firm or person retained by Buyer is entitled to any
broker's or finder's fee or any similar commission or fee in connection with any
of the transactions contemplated by this Agreement.
ARTICLE VII
COVENANTS
7.1 Covenants of Seller and Owners Prior to the Closing. Seller
covenants and agrees with Buyer that, from and after the date hereof and until
the earlier of the Closing Date or the termination of this Agreement pursuant to
Article IV hereof, Seller (i) shall fulfill or satisfy, or cause to be fulfilled
or satisfied, all of the conditions precedent to Seller's and Buyer's
obligations to consummate and complete the sale provided herein and to take all
other steps and do all other things required to consummate this Agreement in
accordance with its terms, (ii) shall not interfere with the
-17-
performance by Buyer of its obligations under this Agreement, (iii) shall not
fail to pay any Taxes, assessments, governmental charges or levies imposed upon
it or its income, profits or assets or otherwise required to be paid by it, (iv)
shall not make any capital expenditure in excess of $15,000 without Buyer's
prior written consent, (v) shall not engage in any sale or discount of its
Accounts Receivable (whether by discount to the debtors or by sale to any third
party), (vi) shall promptly notify Buyer (A) of any notice from any governmental
or regulatory agency or authority, (B) of any fact or circumstance which would
make any representation or warranty set forth herein untrue or inaccurate as of
the Closing Date, or (C) any planned or threatened labor dispute, organization
efforts, strike or collective work stoppage affecting the employees of Seller
and (vii) shall not take any action that would cause Buyer to be unable to
obtain good and marketable title to the Purchased Assets to be transferred to
Buyer at the Closing (including pledging any of such assets as security for
obligations of Owners or Seller). Until the termination of this Agreement,
Seller and the Owners will not directly or indirectly solicit, respond to or
negotiate with or release any information relative to the Seller or the Schools
to any potential buyer other than Buyer, except in connection with a transaction
related to the "Edutown" assets identified on Schedule 1.2.2.
--------------
7.2 Covenants of Buyer Prior to the Closing. Buyer covenants and
agrees with Seller that from and after the date hereof and until the earlier of
the Closing Date or the termination of this Agreement pursuant to Article IV
hereof, Buyer (i) shall use its best efforts to fulfill or satisfy, or to cause
to be fulfilled or satisfied, all of the conditions precedent to Seller's and
Buyer's obligations to consummate and complete the sale provided herein and to
take all other steps and do all other things reasonably required to consummate
this Agreement in accordance with its terms (including, without limitation,
providing to Seller's landlords all financial and other information reasonably
requested by such landlords to effectuate the assignment of Seller's facility
leases), and (ii) shall not interfere with the performance by Seller of its
obligations under this Agreement.
7.3 Closing and Post-Closing Covenants.
7.3.1 Further Assurances. From time to time after the Closing,
(i) Seller and Owners will execute and deliver such instruments of conveyance,
sale or assignment as Buyer may reasonably request, to more effectively vest,
confirm or evidence Buyer's title to or rights in any of the Purchased Assets
and to otherwise carry out the purpose and intent of this Agreement, and (ii)
Buyer will execute and deliver such instruments as Seller may reasonably request
to more effectively assure the assignment to and assumption by Buyer of the
obligations and liabilities of Seller to be assumed by Buyer pursuant to this
Agreement and to otherwise carry out the purpose and intent of this Agreement.
7.3.2 Mutual Cooperation. The parties shall use reasonable
efforts to cooperate fully with each other and with their respective counsel and
accountants in connection with any steps required to be taken to consummate the
transactions contemplated hereby and transition management and ownership of the
Schools from Seller to Buyer. Before and after the Closing, Seller shall use
its best efforts to assist Buyer in obtaining any required accreditation
reasonably necessary for Buyer's operation of the Schools, including furnishing
Buyer such information and assistance as Buyer may request in connection with
its preparation of filings, submissions or accreditation applications to any
governmental agency in connection with the transactions contemplated hereby;
provided, however, that if Buyer requests the assistance of Owners or the
-----------------
Seller's employees in excess of twenty-five (25) hours after the Closing, Buyer
shall pay a reasonable hourly wage to compensate the Owners or Seller's
employees for such efforts.
7.3.3 Access to Employees. From and after the Closing, each of
Buyer and Seller (the "Requested Party") shall afford to the other party (the
"Requesting Party"), its officers,
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counsel, accountants and other authorized representatives reasonable access to
the Requested Party's employees who formerly were or currently are employed by
the Requested Party, without cost to the Requesting Party (other than payment of
out-of-pocket costs not including personnel costs) and as reasonably required by
the Requesting Party in connection with (i) any claim, action, litigation or
other proceeding involving Seller, Buyer or the Schools, and (ii) the
preparation of the Post-Closing Audit. Each party shall use its best efforts to
cause such employees to cooperate with and assist the Requesting Party in its
prosecution or defense of such claims, actions, litigation and other
proceedings, which cooperation shall include, without limitation, preparing and
providing written and oral discovery and attending and testifying at
depositions, hearings, motions and trials, all as necessary in the reasonable
opinion of the Requesting Party or its counsel. Any such access shall take place
only during normal business hours in such a manner as not to interfere
unreasonably with the operation of the business of the other party.
7.3.4 Certification. Seller hereby acknowledges and agrees that
the transactions contemplated hereby are subject to the usual and customary
conditions relating to a change of ownership resulting in a change of control of
a postsecondary educational institution certified as eligible to participate in
the student financial assistance programs authorized under Title IV, including
the following: (1) approval by the BPPVE in the State of California; (2)
approval by all accrediting agencies that accredit the Schools, including but
not limited to ACCSCT; (3) the issuance by the DOE of a temporary Provisional
Program Participation Agreement extending the Schools' certification to
participate in Title IV funding programs immediately following the Closing; and
(4) the issuance of a new Provisional Program Participation Agreement permitting
the Schools to resume participation in Title IV funding under the new ownership.
Prior to and after the Closing, Seller and Buyer shall provide to the DOE and to
all state regulatory agencies and accrediting bodies all information required or
reasonably requested by any of them, and shall use their reasonable efforts to
satisfy all requirements and demands of the DOE or any such agency or body
requisite to obtaining certification of the Schools as eligible to participate
in the Title IV programs after the Closing. Seller and the Owners shall
cooperate with Buyer to ensure that a materially complete application for
recertification and provisional extension of certificate (the "Application") for
the Schools is filed with the DOE no later than ten (10) business days following
the Closing. For purposes of this Agreement, a materially complete Application
consists of a completed application for approval to participate in federal
student financial aid programs and the following: (i) a copy of the Schools'
state licenses or other equivalent document currently authorizing the Schools to
provide a program of postsecondary education in the State of California; (ii)
copies of documentation from the Schools' accrediting agency demonstrating that
the Schools currently are accredited and that the accrediting agency has
approved or accredited all programs offered by the Schools; (iii) audited
financial statements of the Seller's two most recently completed fiscal years
that are prepared in accordance with GAAP published by the Financial Accounting
Standards Board and audited in accordance with GAGAS published by the
Governmental Accounting Standards Board; and (iv) audited financial statements
of the Buyer's two most recently completed fiscal years that are prepared in
accordance with GAAP and audited in accordance with GAGAS, or acceptable
equivalent information. Seller shall further cooperate with Buyer to ensure
that the following are filed with the DOE by the last day of the month following
the month in which the Closing occurred: (i) a balance sheet showing the
financial position of the Seller and Schools, as of the date of the Closing,
that is prepared in accordance with GAAP and audited in accordance with GAGAS;
(ii) approval of the change of ownership from the State of California; (iii)
approval of the change of ownership from the Schools' accrediting agency; and
(iv), if necessary, a default management plan. At Buyer's option, as soon as
practicable after the date of this Agreement, Buyer and Seller shall provide the
DOE with all information necessary to obtain a pre-Closing review of the
Application. If, on the basis of the pre-Closing submission to the DOE, Buyer
determines or is informed that it will not be able to obtain certification of
the Schools subsequent to the Closing at any time, in a timely manner, or
without being
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subject to material adverse conditions, then notwithstanding any other provision
hereof, Buyer may elect to terminate this Agreement pursuant to Section 4.1(4)
of this Agreement. Buyer may withdraw its election if, subsequent to the giving
of notice, Buyer is satisfied that the basis cited in the notice has been
satisfactorily resolved. Buyer's determination, in its sole and absolute
discretion, shall be dispositive.
7.3.5 Satisfaction and Payment of the Excluded Liabilities.
Seller and Owners shall pay and satisfy, or cause to be paid and satisfied, all
debts of Seller incurred prior to the Closing Date relating to the Schools that
constitute the Excluded Liabilities.
7.4 Excise and Property Taxes. Seller shall pay all Taxes arising
out of the transfer of the Purchased Assets; provided, however, that, upon
-----------------
receipt of reasonably satisfactory written evidence that Seller has actually
paid sales tax in connection with the transfer to Buyer of the tangible assets
conveyed hereunder, Buyer shall, within ten (10) business days, by check or wire
transfer of same day funds, pay to Seller an amount equal to one-half (1/2) of
the sales tax so paid. Each of Buyer and Seller shall pay its respective
portion, prorated as of the Closing, of state and local real and personal
property taxes of the business of the Schools.
7.5 Administration in Accordance with Accreditations. From and after
the date of this Agreement through the Closing Date, Seller, at Seller's sole
cost and expense, shall administer and operate the Schools in accordance with
all federal and state laws, statutes, rules and regulations and in accordance
with all permits, accreditations, authorizations and agreements issued by or
entered into with any federal, state or local governmental or quasi-governmental
entity in any way regulating or otherwise relating to the administration and
operation of the Schools. Subject to the terms and provisions of this
Agreement, Buyer and Seller shall work together cooperatively and in good faith
to obtain any and all approvals from the DOE, any state education regulatory
authority and any other governmental or quasi-governmental entity that may be
necessary or appropriate to vest in Buyer at the Closing the right and authority
in all material respects to administer and operate the Schools and to release
Seller from further liability or obligations in connection with the
administration or operation of the Schools.
7.6 Access and Maintenance of Records. From and after the Closing,
each of Buyer and Seller (the "Requested Party") shall afford to the other party
(the "Requesting Party"), its officers, counsel, accountants and other
authorized representatives and regulatory authorities access to its properties,
books and records, including those maintained by its accountants, at any time
and from time to time upon reasonable notice from the Requesting Party, as
reasonably required by the Requesting Party in connection with (i) performance
by the Requesting Party of any of its obligations under the terms and conditions
of this Agreement, including, without limitation, any liability or obligation of
Seller not assumed by Buyer pursuant to this Agreement, (ii) any claim, action,
litigation or other proceeding involving the Requesting Party or the Schools,
(iii) the Requesting Party's preparation of its financial statements and Tax
returns, (iv) any other essential business purpose of the Requesting Party. In
addition, the Requesting Party, at its expense, may make copies of any such
records as may be necessary or appropriate for the Requesting Party's use. Each
party shall maintain all such records in accordance with, and subject to all
restrictions imposed by, all laws, rules and regulations. Any such access shall
take place only during normal business hours in such a manner as not to
interfere unreasonably with the operation of the business of the other party.
7.7 Employment Matters.
Buyer and Seller agree that Buyer has not assumed and shall not assume
any obligations to (or regarding the employment of) any Persons previously or
currently employed by Seller. As of the
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close of business on the day prior to the Closing Date, Seller shall terminate
all of its employees employed at the Schools in accordance with all applicable
laws and, prior to the Closing, shall provide any required notices in a timely
manner in connection therewith. All of Seller's obligations for compensation,
wages, bonuses, severance pay, vacation time, pay in lieu of vacation, sickness
and accident benefits, leaves of absence, and similar employee benefits accrued
as of the Closing shall be paid by Seller as of the day prior to the Closing
Date.
7.7.1 Buyer may, at its option and in its sole and absolute
discretion (and consistent with its standard hiring and employment practices of
hiring employees pursuant to a ninety-day probationary period), offer employment
to any current or former employee of Seller on such terms and conditions as may
be mutually agreed upon by Buyer and such employees; provided however, that the
----------------
group of Persons employed by Seller as of the day prior to the Closing Date to
whom Buyer does not offer employment (on terms reasonably consistent with such
Persons' prior employment with Seller) will not exceed twenty-five (25) Persons.
Seller shall use its best efforts to assist Buyer in hiring any such employees
with respect to whom Buyer elects to offer employment. Seller shall not take
any action, directly or indirectly, to prevent or discourage any such employee
from being employed by Buyer after the Closing Date and shall not solicit,
invite, induce or entice any such employee to remain in the employ of Seller or
otherwise attempt to retain the services of any such employee, except with the
prior written consent of Buyer. Buyer shall use its reasonable best efforts to
provide to Seller, at least twelve (12) business days after the date hereof, a
list of all employees of Seller to whom Buyer has offered, or expects to offer,
employment as of the Closing Date.
7.7.2 Notwithstanding any possible inferences to the contrary,
neither Seller nor Buyer intends for this Section 7.7 to create any rights or
obligations except as between Seller and Buyer, and no past, present or future
employees of Seller or Buyer shall be treated as third-party beneficiaries of
this Section 7.7.
ARTICLE VIII
CONDITIONS TO CLOSING
8.1 Conditions Precedent to Obligations of Buyer. The obligation of
Buyer to complete the purchase of Purchased Assets as provided for herein is
subject to the fulfillment or satisfaction on or before the Closing Date of each
of the conditions set forth below, any of which may be waived by Buyer in
writing.
(1) All representations and warranties of Seller contained in
this Agreement or in any certificate or other document delivered to Buyer
pursuant hereto shall be accurate, complete, true and correct as of the
Closing Date with the same effect as though made at and as of the Closing
Date (except to the extent such representations and warranties speak as of
a particular date), and Buyer shall have received a certificate signed by a
duly authorized officer of Seller to such effect;
(2) There shall have been no material adverse change in the condition
(financial or otherwise), assets, liabilities (absolute, accrued,
contingent or otherwise), prospects, earning power, commercial
relationships, reserves, business or operations of the Seller or any of the
Schools from and after the date of this Agreement;
(3) Seller shall have performed all of the obligations, covenants and
agreements contained in this Agreement to be performed by Seller on or
before the Closing Date, and Buyer shall have received a certificate signed
by a duly authorized officer of Seller to such effect;
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(4) All instruments and documents required on Seller's part to
effectuate and consummate the transactions contemplated hereby as of the
Closing, including those described in Section 3.2, shall be delivered by
Seller and shall be in form and substance reasonably satisfactory to Buyer
and its counsel;
(5) No law or order shall have been enacted, entered, issued,
promulgated or entered by any governmental entity which prohibits or
restricts the transactions contemplated hereby, and there shall not have
been threatened, nor shall there be pending, any action or proceeding by or
before any court or governmental agency or other regulatory or
administrative agency or commission, challenging any of the transactions
contemplated by this Agreement or seeking monetary relief by reason of the
consummation of such transactions;
(6) Seller and Buyer shall have obtained all required regulatory
approvals that are capable of being obtained prior to Closing, including,
but not limited to, all registrations, licenses, permits and approvals
required by any governmental entity or agency or other regulatory body to
operate the Schools in the State of California and all local jurisdictions
contained therein (including, without limitation, the BPPVE);
(7) Buyer shall be reasonably satisfied that, with respect to all
required regulatory approvals that are not capable of being obtained prior
to Closing, Buyer will be able to obtain all such other required regulatory
approvals within a reasonable time period after the Closing Date without
material expense or undue burden;
(8) The Schools shall have received all required accreditation
approvals and shall not have received from any accrediting agency or body
(including, without limitation, ACCSCT) any "show cause" letter or other
notice which would tend to call into question the validity of such
accreditation or the ability of the Schools to maintain such accreditation
in good standing at any time after the Closing Date;
(9) All third party consents required by the transactions
contemplated hereby shall have been obtained (including, without
limitation, all necessary consents of other parties to the Assumed
Contracts);
(10) Buyer shall have received satisfactory evidence that all
liens (other than the Permitted Exceptions) on the Purchased Assets have
been terminated and completely released of record; and
(11) Buyer shall have received from the landlords of the
Facilities executed estoppel certificates and consents to the Lease
Assignments.
8.2 Conditions Precedent to Obligations of Seller. The obligation of
Seller to complete the sale of Purchased Assets as provided for herein are
subject to the fulfillment or satisfaction on or before the Closing Date of each
of the conditions set forth below, any of which may be waived by Seller in
writing.
(1) All representations and warranties of Buyer contained in this
Agreement or in any certificate or other document delivered to Seller
pursuant hereto shall be complete, true and correct in all material
respects as of the Closing Date, and Seller shall have received a
certificate signed by a duly authorized officer of Buyer to such effect;
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(2) Buyer shall have performed all of the obligations, covenants
and agreements contained in this Agreement to be performed by Buyer on or
before the Closing Date, and Seller shall have received a certificate
signed by a duly authorized officer of Buyer to such effect;
(3) All instruments and documents reasonably required on Buyer's
part to effectuate and consummate the transactions contemplated hereby,
including those described in Section 3.3, shall be delivered by Buyer; and
(4) No law or order shall have been enacted, entered, issued,
promulgated or entered by any governmental entity which prohibits or
restricts the transactions contemplated hereby, and there shall not have
been threatened, nor shall there be pending, any action or proceeding by or
before any court or governmental agency or other regulatory or
administrative agency or commission, challenging any of the transactions
contemplated by this Agreement or seeking monetary relief by reason of the
consummation of such transactions.
ARTICLE IX
MISCELLANEOUS
9.1 Binding Effect. All terms and provisions of this Agreement shall
be binding upon and shall inure to the benefit of and be enforceable by the
parties hereto and their respective successors and permitted assigns. Neither
this Agreement, nor the obligations of any party hereunder, shall be assignable
or transferable by any such party without the prior written consent of all
parties hereto, except that Buyer may assign its rights and obligations
hereunder to an Affiliate. No assignment of any right or delegation of any duty
shall relieve the assignor or delegator of any liabilities hereunder, except to
the extent, if any, so provided in a writing signed by the obligee(s).
9.2 Notices. All notices or other communications required or
permitted hereunder shall be in writing and shall be given or made (a) by
personal delivery, (b) by a nationally recognized courier service for overnight
delivery, charges prepaid, or (c) by registered or certified mail, postage
prepaid, return receipt requested, in each case addressed
if to Buyer, at:
Corinthian Schools, Inc.
0 Xxxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxxxx Xxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxx and Xxxx X. Xxxxxxxxx, Esq.
with each such notice to Buyer, a copy to:
O'Melveny & Xxxxx LLP
000 Xxxxxxx Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxx, Esq.
Facsimile: (000) 000-0000
if to Seller, at:
Educorp, Inc.
c/o Xx. Xxxxxx X. Xxxxx
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0000 Xxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
if to Owners, at:
Xx. Xxxxxx X. Xxxxx
0000 Xxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
Xxx Xxxxx
0000 Xxxxxx Xxxxxx
Xxxxxx, XX 00000
with each such notice to Seller and/or Owners, a copy to:
The Law Offices of Xxxxx Xxx Xxxxxx
00000 Xxxxxxxx Xxxx
Xxxxx 0000
Xxx Xxxxxxx, XX 00000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx Xxx Xxxxxx, Esq.
or at such other place as the party to whom such notice of communication is to
be addressed may have designated to the other parties by notice conforming to
this Section 9.2. Notices shall be deemed effective and received (i) on the
actual receipt in the case of hand delivery, (ii) on the next business day after
deposit in the case of notices by nationally recognized overnight courier
services, or (iii) on the third business day after the date of mailing in the
manner set forth herein. As used herein, notice to a party shall include
concurrent notice to that party's counsel as set forth herein.
9.3 Entire Agreement. This Agreement and the documents referred to
herein and to be delivered pursuant hereto constitute the entire agreement
between the parties pertaining to the subject matter hereof, and supersede all
prior and contemporaneous agreements, understandings, negotiations,
representations, warranties and discussions of the parties, whether oral or
written; and there are no warranties, representations or other agreements
between the parties in connection with the subject matter hereof, except as
specifically set forth herein or therein. No amendment, supplement,
modification, waiver or termination of this Agreement shall be binding unless
executed in writing by the party to be bound thereby. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provision of this Agreement, whether or not similar, nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
9.4 Nature and Survival of Representations. The representations,
warranties, covenants and agreements of Buyer, Seller and Owners contained in
this Agreement, and all statements contained in this Agreement or any Exhibit or
Schedule hereto or any certificate or financial statement delivered pursuant to
this Agreement, shall be deemed to constitute representations, warranties,
covenants and agreements of the respective party delivering the same. All such
representations, warranties, covenants and agreements shall survive the Closing
until August 31, 2002.
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9.5 Risk of Loss or Damage; Insurance. It is understood and agreed
that all right, title and interest in and to the Purchased Assets and all risk
of loss or damage thereto shall not pass from Seller to Buyer unless and until
the Closing occurs whereupon all risk of loss or damage shall pass to Buyer. In
the event of a casualty or condemnation in respect of any of the Purchased
Assets prior to the Closing, Buyer shall have the right, at its sole option, to
elect either (a) to terminate this Agreement or (b) to accept the insurance
proceeds in respect of such casualty or condemnation and proceed to close
otherwise in accordance with the terms and conditions of this Agreement. Seller
agrees to maintain the insurance currently carried with respect to the Purchased
Assets until the Closing Date.
9.6 Waiver. No waiver shall be deemed to have been made by any party
of any of its rights hereunder unless the same shall be in writing and shall be
signed by the waiving party. Such a waiver, if any, shall be a waiver only in
respect to the specific instance involved and shall in no way impair the rights
of the waiving party or the obligations of any other party in any other respect
at any other time.
9.7 Governing Law. This Agreement shall be construed and interpreted
according to the substantive laws of the State of California without giving
effect to the principles of conflicts of law thereof.
9.8 Headings. The headings of the articles and sections of this
Agreement are inserted for convenience only and shall not be deemed to
constitute a part hereof.
9.9 Counterparts. This Agreement may be executed by the parties in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
9.10 Severability. In the event that any one or more terms or
provisions hereof shall be held void or unenforceable by any court or
arbitrator, all remaining terms and provisions hereof shall remain in full force
and effect.
9.11 Time is of the Essence. Seller and Buyer agree that time is of
the essence in connection with the implementation and performance by the parties
of all terms, conditions and obligations of this Agreement.
9.12 Indemnification by Seller and the Owners. Seller and the
Owners, jointly and severally, hereby agree to indemnify, defend and hold
harmless Buyer and its Affiliates and their respective officers, directors,
stockholders, employees, agents, successors and assigns from and against any and
all claims, liabilities, obligations, losses, costs, expenses (including,
without limitation, interest, penalties and attorneys' fees), fines, or damages
of any kind or nature (collectively "Losses", and individually a "Loss"), as a
result of, or based upon or arising out of:
(1) any breach of, or any inaccuracy or misrepresentation in, any
of the representations or warranties made by Seller or Owners in this
Agreement or any other agreement, statement or certificate delivered
pursuant hereto;
(2) any breach of or violation by Seller or Owners of any of the
covenants made by Seller and/or the Owners in this Agreement or any other
agreement, statement or certificate delivered pursuant hereto;
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(3) any claim related to or arising out of Seller's operation of
the Schools prior to the Closing Date that are asserted with respect to any
liabilities that are not Assumed Liabilities;
(4) any of the Excluded Liabilities (and/or Seller's or the
Owners' failure or refusal to discharge any obligation related to the
Excluded Liabilities);
(5) any of the matters disclosed on Schedule 5.14 and Schedule
------------- --------
5.19;
----
(6) any determination by the DOE or any accrediting agency that
the Seller and/or Schools have not demonstrated compliance with 34 CFR
668.15 (Factors of Financial Responsibility) and 34 CFR 668.16 (Standards
of Administrative Capability) for dates and periods prior to Closing Date;
and
(7) any actions, judgments, costs and expenses (including
reasonable attorneys' fees, expert witness fees and all other expenses
incurred in investigating, preparing or defending any litigation or
proceeding, commenced or threatened) incident to any of the foregoing or
the enforcement of this Section 9.12.
Seller and the Owners shall not be liable to Buyer for any Loss under Subsection
9.12(1) unless such individual Loss (any single event or occurrence, or series
of related events or occurrences, that may constitute a breach of one or more
representation and warranty provisions set forth in Article V hereof shall
constitute an individual loss) in each instance exceeds five thousand dollars
($5,000) and until the aggregate amount of Losses resulting to Buyer thereunder
shall equal or exceed one hundred thousand dollars ($100,000.00) (the
"Threshold"); if Buyer's Losses under Section 9.12(1) exceed the Threshold,
Seller and the Owners shall jointly and severally indemnify Buyer for all such
Losses without regard to the Threshold. The limitations set forth in the
preceding sentence shall not apply to Losses of Buyer arising out of (i) fraud,
or (ii) the breach of any representation or warranty contained herein if such
representation or warranty was made with (x) actual knowledge that it contained
an untrue statement of fact or (y) an intention to mislead by omitting to state
a fact necessary to make the other statement of facts contained therein not
misleading.
9.13 Indemnification by Buyer. Buyer hereby agrees to indemnify and
hold harmless Seller and its Affiliates from and against any and all Losses
arising out of or resulting from:
(1) any breach of, or any inaccuracy or misrepresentation in,
any of the representations or warranties made by Buyer in this Agreement or
any other agreement, statement or certificate delivered pursuant hereto;
(2) any breach of or violation by Buyer of any of the covenants
made by Buyer in this Agreement or any other agreement, statement or
certificate delivered pursuant hereto;
(3) all Losses arising out of or resulting from any claim or
arising out of operation of the Schools on or after the Closing Date;
(4) all Losses arising out of or resulting from the Assumed
Liabilities; and
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(5) any actions, judgments, costs and expenses (including
reasonable attorneys' fees, expert witness fees and all other expenses
incurred in investigating, preparing or defending any litigation or
proceeding, commenced or threatened) incident to any of the foregoing or
the enforcement of this Section 9.13.
9.14 Indemnification of Claims; Right to Set-Off. (a) The provisions
of this Section 9.14 shall govern any claim for indemnification of Buyer,
pursuant to Section 9.12, or Seller, pursuant to Section 9.13 (each such party
an "Indemnitee"), against the party agreeing to provide indemnification
hereunder (the "Indemnitor"). The Indemnitee shall promptly give notice
hereunder to the Indemnitor (and in no event more than thirty (30) days), after
obtaining notice of any claim as to which recovery may be sought against the
Indemnitor because of the indemnity in Section 9.12 or 9.13, and the amount, if
reasonably determinable, of such claim for indemnification, or, if not
reasonably determinable, such party's reasonable best estimate of the maximum
amount of such liability at such time. If such indemnity shall arise from the
claim of a third party, the Indemnitee shall consent to the Indemnitor assuming
the defense of any such claim; provided that the Indemnitee shall not be
--------
required to permit the Indemnitor to assume the defense of any third party claim
(x) which, if not first paid, discharged or otherwise complied with, would
result in a material interruption or cessation of the conduct of the business of
the Indemnitee, or (y) if the Indemnitee reasonably concludes that there may be
a conflict of interest between the Indemnitor, on the one hand, and the
Indemnitee, on the other hand, in the conduct of the defense of such action.
Failure by the Indemnitor to notify the Indemnitee of its election to defend any
such claim or action within 14 days of the date of notice from the Indemnitee
shall be deemed to constitute its consent to the Indemnitee's assumption of such
defense. If the Indemnitor assumes the defense of such claim or litigation
resulting therefrom, the obligations of the Indemnitor hereunder as to such
claim shall include taking all steps necessary in the defense or settlement of
such claim or litigation resulting therefrom including the retention of counsel,
which counsel must be to the Indemnitee's reasonable satisfaction, and holding
the Indemnitee harmless from and against any and all Losses resulting from,
arising out of, or incurred with respect to any settlement approved by the
Indemnitor or any judgment in connection with such claim or litigation resulting
therefrom. The Indemnitor shall not, in the defense of such claim or litigation,
(i) consent to the entry of any judgment (other than a judgment of dismissal on
the merits without costs) except with the written consent of the Indemnitee,
which consent shall not be unreasonably withheld, or (ii) enter into any
settlement (except with the written consent of the Indemnitee, which consent
shall not be unreasonably withheld), unless the Indemnitee is released and held
harmless from and against any and all Losses resulting from, arising out of or
incurred with respect to such judgment or settlement. If the Indemnitor does not
assume the defense of any such claim by a third party or litigation resulting
therefrom, the Indemnitee may defend against such claim or litigation in such
manner as it deems appropriate, and the Indemnitee may settle such claim or
litigation on such terms as it may deem appropriate and the Indemnitor shall
promptly reimburse the Indemnitee for the amount of such settlement and for all
Losses incurred by the Indemnitee in connection with the defense against or
settlement of such claim or litigation.
(b) Upon notice to Seller (which notice shall be as soon as
reasonably practicable after Buyer becomes aware the facts giving rise to a
claim), Buyer is hereby authorized at any time, and from time to time, to set-
off and apply any and all amounts owing by Buyer to Seller, whether under this
Agreement or otherwise, against any and all of the obligations of Seller and/or
Owners to Buyer hereunder, including without limitation Seller's and Owners'
obligations pursuant to Section 9.12 hereunder.
(c) Buyer, Seller, and each of the Owners shall instruct the Escrow
Agent in writing to disburse (i) on or before December 31, 2001, that portion of
the Deferred Payment, if any (together
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with a pro rata share of earnings through the date of such instruction), for
which Buyer has not given prior written notice of a claim for indemnification of
a Loss or Losses pursuant to Section 9.12 and this Section 9.14, and (ii) on the
date of final determination of Seller's and/or the Owners' liability pursuant to
Section 9.15 (or the date of Buyer's, Seller's and the Owners' agreement on the
amount of such liability), the amount of such Loss or Losses (together with a
pro rata share of earnings through the date of such instruction).
Notwithstanding any provision of this Agreement to the contrary, if any of
Buyer, Seller or the Owners fail to give any written instruction required by
this paragraph, the other party or parties shall have the right to petition a
court of competent jurisdiction to compel such written instruction.
9.15 Dispute Resolution and Arbitration.
9.15.1 Negotiation Between Parties. The parties shall attempt
in good faith to resolve any dispute arising out of or relating to this
Agreement promptly by negotiation between executives who have authority to
settle the controversy and who are at a higher level of management (if any) than
the persons with direct responsibility for administration of this Agreement. Any
party may give the other party written notice of any dispute not resolved in the
normal course of business. Within 15 days after delivery of the notice the
receiving party shall submit to the other a written response. The notice and the
response shall include (i) a statement of each party's position and a summary of
arguments supporting that position, and (ii) the name and title of the executive
who represents that party and of any other person who will accompany the
executive. Within 10 days after delivery of the disputing party's notice, the
executives of both parties shall meet at a mutually acceptable time and place,
and thereafter as often as they reasonably deem necessary, to attempt to resolve
the dispute. All reasonable requests for information made by one party to the
other shall be honored. If the matter has not been resolved within 45 days of
the disputing party's notice, or if the parties fail to meet within 10 days,
either party may initiate arbitration of the controversy or claim as provided
hereinafter. All negotiations pursuant to this clause are confidential and shall
be treated as compromise and settlement negotiations for purposes of all
applicable rules of evidence.
9.15.2 Arbitration. Any dispute arising out of or relating to
this Agreement or the breach, termination or the validity hereof, which has not
been resolved by the nonbinding meet and confer provisions provided in Section
9.15.1 within 90 days of the initiation of such procedure, shall be settled by
arbitration in accordance with the then-current Judicial Arbitration and
Mediation Services (JAMS) rules for arbitration of business disputes by a sole
arbitrator who shall be a former superior court or appellate court judge or
justice with significant experience in resolving business disputes. If
available, the arbitrator should have familiarity or experience in Title IV
funding matters. The arbitration shall be governed by the rules of civil
procedure (including the rules of discovery permitted by such rules) in the
jurisdiction in which such arbitration proceeding is initiated, and the parties
intend this procedure to be specifically enforceable in accordance with such
provisions. Judgment upon the award rendered by the arbitrator may be entered by
any court having jurisdiction thereof. The place of arbitration shall be Los
Angeles County, California. The arbitrator may award equitable relief in those
circumstances where monetary damages would be inadequate. The arbitrator shall
be required to follow the applicable law as set forth in the governing law
section of this Agreement.
9.16 Third Party Beneficiaries. This Agreement shall be binding
upon, be enforceable against, and inure to the benefit of the parties and their
respective successors and permitted assigns; otherwise, this Agreement shall
not, and shall not be deemed to, inure to the benefit of or be enforceable by
any third party.
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9.17 Expenses. Each party hereto shall bear its own expenses relating
to the transactions contemplated by this Agreement.
9.18 Representation by Counsel. EACH PARTY HERETO REPRESENTS AND
AGREES WITH EACH OTHER THAT IT HAS BEEN REPRESENTED BY, OR HAD THE OPPORTUNITY
TO BE REPRESENTED BY, INDEPENDENT COUNSEL OF ITS OWN CHOOSING, AND THAT IT HAS
HAD THE FULL RIGHT AND OPPORTUNITY TO CONSULT WITH ITS RESPECTIVE ATTORNEY(S),
THAT TO THE EXTENT, IF ANY, THAT IT DESIRED, IT AVAILED ITSELF OF THIS RIGHT AND
OPPORTUNITY, THAT IT OR ITS AUTHORIZED OFFICERS (AS THE CASE MAY BE) HAVE
CAREFULLY READ AND FULLY UNDERSTAND THIS AGREEMENT IN ITS ENTIRETY AND HAVE HAD
IT FULLY EXPLAINED TO THEM BY SUCH PARTY'S RESPECTIVE COUNSEL, THAT EACH IS
FULLY AWARE OF THE CONTENTS THEREOF AND ITS MEANING, INTENT AND LEGAL EFFECT,
AND THAT IT OR ITS AUTHORIZED OFFICER (AS THE CASE MAY BE) IS COMPETENT TO
EXECUTE THIS AGREEMENT AND HAS EXECUTED THIS AGREEMENT FREE FROM COERCION,
DURESS OR UNDUE INFLUENCE. THIS AGREEMENT IS THE PRODUCT OF NEGOTIATIONS BETWEEN
THE PARTIES HERETO REPRESENTED BY COUNSEL AND ANY RULES OF CONSTRUCTION RELATING
TO INTERPRETATION AGAINST THE DRAFTER OF AN AGREEMENT SHALL NOT APPLY TO THIS
AGREEMENT AND ARE EXPRESSLY WAIVED. THE PROVISIONS OF THIS AGREEMENT SHALL BE
INTERPRETED IN A REASONABLE MANNER TO EFFECT THE INTENTIONS OF THE PARTIES TO
THIS AGREEMENT.
[SIGNATURES ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties hereto have duly executed this Asset
Purchase Agreement as of the date first above written.
"BUYER"
CORINTHIAN SCHOOLS, INC.,
a Delaware corporation
By: /s/ Xxxxx X. Xxxxx
----------------------------
Name: Xxxxx X. Xxxxx
-------------------------
Title: Vice President
-------------------------
"SELLER"
EDUCORP, INC.
a California corporation
By: /s/ Xx. Xxxxxx Xxxxx
----------------------------
Name: Xx. Xxxxxx Xxxxx
-------------------------
Title: CEO
-------------------------
"OWNERS"
/s/ Xx. Xxxxxx X. Xxxxx
-------------------------------
Xx. Xxxxxx X. Xxxxx
/s/ Xxx Xxxxx
-------------------------------
Xxx Xxxxx
S-1 (Asset Purchase Agreement)
ASSET PURCHASE AGREEMENT
Corinthian/Educorp
LIST OF EXHIBITS
----------------
Exhibit Designation Exhibit Contents
------------------- ----------------
A. Form of Escrow Agreement
B. Form of Assignment and Assumption Agreement
C. Form of Xxxx of Sale
D. Form of License Agreement
E. Form of Non-Competition Agreement
A-1 (Asset Purchase Agreement)
