EXHIBIT 2.3
STOCK PURCHASE AGREEMENT
by and among
IAMD ACQUISITION I, LTD., AS PURCHASER,
and
XXXX XXXXX, XX., XXXXXX XXXXX, XXXXXXX XXXXXXXX,
XXXXXXX XXX XXXXX XXXX, XXXXXX X. XXXX,
XXXXXXX X. XXXXX AND XXXXX XXXXXX,
AS SELLERS
Dated: June 30, 1997
TABLE OF CONTENTS
Page
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1. Certain Definitions............................................................................. 1
2. Sale And Transfer Of Shares; Assets and Liabilities Of the Company At Closing................... 9
2.1. Purchaser and Sale of Shares.......................................................... 9
2.2. Purchase Price; Payment............................................................... 9
2.3. Company Assets and Liabilities; Purchase Price Adjustment............................. 10
2.4. Earnout............................................................................... 12
2.5. Closing............................................................................... 14
2.6. Funding of School Operations Pending DOE Approval..................................... 14
2.7. Participation of Employees in CEC Plans............................................... 14
2.8. Actions to be Taken with Respect to Company Plans..................................... 14
3. Closing Deliveries.............................................................................. 15
3.1. Deliveries to Purchaser............................................................... 15
3.2. Closing Deliveries to Sellers......................................................... 17
3.3. Post-Closing Covenants................................................................ 18
4. Representations and Warranties of Sellers....................................................... 20
4.1. Organization and Good Standing of the Company and its Subsidiaries;
Accreditation....................................................................... 20
4.2. Ownership of the Company, the Subsidiaries and the Schools............................ 21
4.3. Capacity; Authorization; Binding Effect, Etc.......................................... 21
4.4. No Conflicts, Etc..................................................................... 22
4.5. Investments........................................................................... 23
4.6. Capitalization........................................................................ 23
4.7. Book and Records...................................................................... 24
4.8. Compliance with Laws; Licenses and Permits............................................ 25
4.9. Recruitment; Admissions Procedures; Attendance; Financial Aid; Reports................ 26
4.10. Cohort Default Rate.................................................................. 27
4.11. Title to the Assets.................................................................. 27
4.12. Material Miscellaneous Contracts..................................................... 29
4.13. Tradenames; Confidential Information................................................. 29
4.14. Financial Statements................................................................. 30
4.15. Receivables.......................................................................... 31
4.16. Inventories.......................................................................... 32
4.17. Bank Accounts........................................................................ 32
4.18. Litigation, Etc...................................................................... 32
4.19. Insurance............................................................................ 33
4.20. Environmental Matters................................................................ 34
4.21. Employee Benefit Plans............................................................... 34
4.22. Employment Matters................................................................... 36
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4.23. Labor Relations; Compliance..........................................................38
4.24. Tax Matters..........................................................................39
4.25. Brokerage............................................................................40
4.26. Affiliate Transactions...............................................................40
4.27. Absence of Certain Changes...........................................................41
4.28. Indebtedness.........................................................................42
4.29. Conduct of Business Since Interim Balance Sheet Date.................................42
4.30. Approvals............................................................................42
4.31. Delivery of Documents................................................................42
4.32. Disclosure...........................................................................42
5. Representations and Warranties of Purchaser.....................................................43
5.1. Organization and Corporate Power......................................................43
5.2. Capacity; Authorization, Binding Effect, Etc..........................................43
5.3. No Conflicts, Etc.....................................................................43
5.4. Litigation............................................................................44
5.5. Brokerage.............................................................................44
5.6. Title IV Program Liabilities..........................................................44
5.7. Approvals.............................................................................44
5.8. Disclosure............................................................................44
5.9. Purchaser's Knowledge; Resources of Purchaser.........................................45
5.10. Maintenance of Insurance.............................................................45
6. Additional Covenants of the Parties.............................................................45
6.1. Confidential Information..............................................................45
6.2. Additional Covenants of Sellers Pending Closing.......................................47
6.3. Employees.............................................................................48
6.4. Exclusive Dealing.....................................................................48
6.5. Additional Covenants of Purchaser Pending Closing.....................................48
6.6. Initial Public Offering...............................................................48
7. Conditions to Purchaser's Obligations...........................................................48
7.1. Due Diligence Review..................................................................49
7.2. Audited Financial Statements, Acid Test Ratio and Cohort Default Rates................49
7.3. Financing.............................................................................49
7.4. Truth of Representations and Warranties...............................................49
7.5. Performance of Agreements.............................................................50
7.6. No Material Adverse Change............................................................50
7.7. Litigation............................................................................50
7.8. Accrediting Bodies Approval...........................................................50
7.9. Proceedings...........................................................................51
7.10. Financial Aid Compliance Audit.......................................................51
7.11. [Intentionally Omitted]..............................................................51
7.12. Consents and Approvals...............................................................51
7.13. Environmental Assessment.............................................................51
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7.14. Acquisition of The International Academy of Merchandising and Design
(Canada), Ltd.......................................................................51
8. Conditions to Sellers' Obligations...............................................................52
8.1. Truth of Representations and Warranties................................................52
8.2. Performance of Agreements..............................................................52
8.3. Litigation.............................................................................52
8.4. Proceedings............................................................................52
8.5. Acquisition of The International Academy of Merchandising and Design
(Canada), Ltd........................................................................53
9. Indemnification; Remedies........................................................................53
9.1. Survival; Right to Indemnification Not Affected By Knowledge...........................53
9.2. Indemnification and Payment of Damages by Sellers......................................53
9.3. Indemnification and Payment of Damages by Purchaser....................................55
9.4. Limitations on Amount..................................................................55
9.5. Liability of Individual Sellers; Breaches by Individual Sellers........................56
9.6. Further Limitations on Remedies........................................................56
9.7. Procedures.............................................................................57
9.8. Prevailing Party to be Awarded Legal Fees..............................................58
9.9. Offset.................................................................................58
10. Recission of Transactions.........................................................................59
10.1. Right to Recission....................................................................59
10.2. Reasonable Efforts....................................................................60
11. Miscellaneous.....................................................................................61
11.1. Termination...........................................................................61
11.2. Expenses..............................................................................62
11.3. Successors and Assigns................................................................62
11.4. Severability..........................................................................62
11.5. Counterparts..........................................................................62
11.6. Descriptive Headings; Interpretation..................................................62
11.7. Governing Laws........................................................................63
11.8. Consent to Jurisdiction and Service of Process........................................63
11.9. Waiver of Jury Trial..................................................................63
11.10. Notices..............................................................................64
11.11. Entire Agreement; Release............................................................65
11.12. Waiver...............................................................................65
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of June
30, 1997, by and between IAMD Acquisition I, Ltd., a Delaware corporation
("Purchaser"), and Xxxx Xxxxx, Xx. ("X. Xxxxx"), Xxxxxx Xxxxx ("X. Xxxxx"),
Xxxxxxx Xxxxxxxx ("Xxxxxxxx"), Xxxxxxx Xxx Xxxxx Xxxx ("X. Xxxx"), Xxxxxx X.
Xxxx ("X. Xxxx"), Xxxxxxx X. Xxxxx ("Xxxxx") and Xxxxx Xxxxxx ("Xxxxxx"). X.
Xxxxx, M. Stein, Rutstein, X. Xxxx, X. Xxxx, Xxxxx and Xxxxxx are referred
herein collectively as "Sellers." Except as otherwise indicated, capitalized
terms used herein are defined in Section 1.
BACKGROUND
Sellers are the sole record and beneficial owners of one-hundred
percent (100%) of the issued and outstanding shares (the "Shares") of capital
stock of IAMD, Limited, an Illinois corporation (the "Company"). The Company,
through its wholly-owned subsidiaries International Academy of Merchandising and
Design, Ltd., an Illinois corporation ("IAMD-Chicago"), and International
Academy of Merchandising and Design, Inc., a Florida corporation ("IAMD-Tampa"),
owns and operates private-post secondary schools in Chicago, Illinois and Tampa,
Florida which provide degree and certificate granting programs in commercial
design and merchandising (collectively, the "Schools"). In connection with the
operation of the Schools, the Company also owns and operates student bookstores
(the "Bookstores") on each School campus through its wholly-owned subsidiary,
Academy Bookstore, Inc., an Illinois corporation ("IAMD-Bookstore"). IAMD-
Chicago, IAMD-Tampa and IAMD-Bookstore are sometimes referred to collectively as
the "Subsidiaries." Purchaser is a wholly-owned subsidiary of Career Education
Corporation, a Delaware corporation ("CEC"), which owns and operates private,
post-secondary schools throughout the United States. Sellers desire to sell,
and Purchaser desires to purchase, the Shares, for the consideration and on the
terms set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements set forth herein, the parties hereto agree
as follows:
1. Certain Definitions.
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For the purposes of this Agreement, the following terms have the
meanings set forth below:
"Accrediting Bodies" means the Accrediting Council for Independent
Colleges and Schools and the Foundation for Interior Design Education
Research ("FIDER").
"Accreditation" means any license, permit, registration, authorization
or similar approval granted by any Accrediting Body.
"Adjusted Balance Sheet" shall have the meaning ascribed to such term
in Section 2.3(b).
"Advertising Budget" shall have the meaning ascribed to such term in
Section 2.4(d).
"Affiliate" means, with respect to any Person, any individual related
by blood or marriage to such Person or any Person controlling, controlled
by or under common control with such Person.
"Audit Report" shall have the meaning ascribed to such term in Section
2.3(b).
"Best of Purchaser's knowledge" means the collective actual knowledge
of the executive officers of Purchaser and CEC holding offices of vice-
president or higher, following due inquiry of appropriate officers,
employees and consultants of Purchaser and CEC.
"Best of Sellers' knowledge" means the collective actual knowledge of
Sellers and the executive officers of the Company and each Subsidiary
holding offices of vice-president or higher, following due inquiry of
appropriate officers, employees and consultants of each such entity,
including without limitation, in the case of the Schools, the director, the
admissions director and the financial aid director of each of them.
"Bookstores" shall have the meaning ascribed to such term in the
background section of this Agreement.
"Canada Acquisition" shall have the meaning ascribed to such term in
Section 7.14.
"CEC" shall have the meaning ascribed to such term in the background
section to this Agreement.
"Closing" shall have the meaning ascribed to such term in Section 2.5.
"Closing Balance Sheet" shall have the meaning ascribed to such term
in Section 3.1(i).
"Closing Date" shall mean the date of the Closing.
"Closing Payment" shall have the meaning ascribed to such term in
Section 2.2(a).
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"Code" means the Internal Revenue Code of 1986, as amended, or any
successor law, and regulations issued by the IRS pursuant to that Code or
any successor code.
"Company" shall have the meaning ascribed to such term in the
background section of this Agreement.
"Compliance Reports" shall have the meaning ascribed to such term in
Section 4.9.
"Confidential Information" shall have the meaning ascribed to such
term in Section 6.1.
"Curricula" means copyrighted and proprietary uncopyrighted materials
used in any courses offered at either of the Schools.
"Damages" shall have the meaning ascribed to such term in Section 9.2.
"Deferred Payment" shall have the meaning ascribed to such term in
Section 2.2(b).
"Deferred Payment Date" shall have the meaning ascribed to such term
in Section 2.2(b).
"Deferred Payment Letter of Credit" shall have the meaning ascribed to
such term in Section 2.2.
"Deficiency" shall have the meaning ascribed to such term in Section
2.3(a).
"Designated Liabilities" shall have the meaning ascribed to such term
in Section 4.11(d).
"DOE" means the United States Department of Education and any
successor agency administering student financial assistance under Title IV.
"DOE Approval Notice" means a fully-executed Provisional Program
Participation Agreement issued and executed by DOE.
"Earnout Amount" shall have the meaning ascribed to such term in
Section 2.4(a).
"Earnout Calculation" shall have the meaning ascribed to such term in
Section 2.4(b).
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"Earnout Period" shall have the meaning ascribed to such term in
Section 2.4(a).
"Employee Benefit Plan" means any (a) qualified or nonqualified
Employee Pension Benefit Plan (including any Multiemployer Plan), (b)
Employee Welfare Benefit Plan, or (c) fringe benefit plan, policy, program,
and arrangement, whether or not subject to ERISA and whether or not funded,
and includes, but is not limited to, plans described in Section 3(3) of
ERISA.
"Employee Pension Benefit Plan" means any employee pension benefit
plan as described in Section 3(2) of ERISA, that is subject to Title IV of
ERISA, that is subject to Title IV of ERISA, including a Multiemployer
Plan.
"Employee Welfare Benefit Plan" means any employee welfare plan as
described in Section 3(1) of ERISA.
"Encumbrance" means any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest,
right of first refusal, or restriction of any kind, including any
restriction on use, voting, transfer, receipt of income, or exercise of any
other attribute of ownership, but in the case of leased property does not
include the rights of Lessor thereof under the lease therefor.
"Enforceable in accordance with its terms" or similar language shall
be deemed to mean enforceable 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).
"Environmental Law" means any Legal Requirement pertaining to any
Hazardous Substance or otherwise pertaining to the environment or
protection of any natural resources, including, without limitation, air,
soil or water.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor law, and regulations and rules issued pursuant to
that Act or any successor law.
"Excess" shall have the meaning ascribed to such term in Section
2.3(a).
"401(k) Plan" shall have the meaning ascribed to such term in Section
2.8.
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"Facility" means any real property now or previously owned, leased or
operated by the Company or any Subsidiary, including without limitation the
Leased Facilities.
"Final Balance Sheet" means the balance sheet which under Section
2.3(b) is deemed to be the "Final Balance Sheet."
"Financial Statements" means (i) the audited balance sheets and the
related statements of income and changes in financial position of the
Company as at and for the fiscal years ended June 30, 1994, 1995 and 1996,
and (iii) the unaudited consolidated balance sheet and the related
statement of income for the Company (the "Interim Financial Statements")
(a) prepared by the Company's accountants as at and for the six (6) month
period ended December 31, 1996 and (b) prepared by Seller as at and for the
ten (10) month period ended April 30, 1997 (the "Interim Balance Sheet
Date").
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, and statements and
pronouncements of the Financial Accounting Standards Board and the Emerging
Issues Task Force (or any successor authority) that are applicable as of
the date of determination, all as consistently applied in the preparation
of the Financial Statements.
"Governmental Body" means any (a) federal, state, local, municipal,
foreign, or other government; (b) governmental or quasi-governmental
authority of any nature (including any governmental agency, branch, bureau,
department, official, or entity and any court or other tribunal); and (c)
body exercising, or entitled to exercise, any administrative, executive,
judicial, legislative, police, regulatory, or taxing authority or power of
any nature.
"Guaranty" shall have the meaning ascribed to such term in Section
2.2.
"Hazardous Substance" shall include any substances included within the
definitions of "hazardous substances," "hazardous materials," "toxic
substances," "waste" or similar terms in any applicable federal, state or
local statute, ordinance, rule or regulation relating to environmental
protection, remediation or liability, including clean air, clean water,
waste disposal and hazardous substance transportation or disposal,
including, without limitation, petroleum, asbestos, polychlorinated
biphenyls, flammable explosives and radioactive materials.
"IAMD-Bookstore" shall have the meaning ascribed to such term in the
background section of this Agreement.
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"IAMD-Chicago" shall have the meaning ascribed to such term in the
background section of this Agreement.
"IAMD-Tampa" shall have the meaning ascribed to such term in the
background section of this Agreement.
"Indemnification Threshold" shall have the meaning ascribed to such
term in Section 9.6.
"Independent Auditor" shall have the meaning ascribed to such term in
Section 2.3(b).
"Initial Public Offering" means an initial underwritten public
offering and sale for cash by CEC of its common stock pursuant to a "firm
commitment" underwriting agreement and a registration statement declared
effective by the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "Securities Act"); provided, that the term
Initial Public Offering shall not include the registration of an offer and
sale of the common stock of CEC (i) to the employees of CEC or its
subsidiaries or other persons providing services to CEC or its subsidiaries
pursuant to any Plan registered on Form S-8 or a successor form, or (ii)
relating to a merger, acquisition or other transaction of the type
described in Rule 145 of the Securities Act or any successor rule
registered on Form S-4 or a successor form.
"Intellectual Property" means the patents, trademarks, logos,
tradenames (including, without limitation, the Company's name, each
Subsidiary's name, each School's name and the Bookstores' name),
servicemarks, copyrights, know-how, logos and trade secrets owned by the
Company or any Subsidiary, or used in connection with the operation of the
Schools or the Bookstores.
"Investment" as applied to any Person means (i) any direct or indirect
ownership by such Person of any notes, obligations, instruments, stock,
securities or other ownership interest of any other Person, and (ii) any
capital contribution by such Person to any other Person.
"IRS" means the United States Internal Revenue Service or any
successor agency, and, to the extent relevant, the United States Department
of the Treasury.
"Leases" shall have the meaning ascribed to such term in Section
4.11(b).
"Leased Facilities" shall have the meaning ascribed to such term in
Section 4.11(b).
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"Legal Requirement" means any foreign, federal, state, local,
municipal or other constitution, law, statute, regulation, rule, ordinance,
order, administrative order, principle of common law, or treaty to which
Sellers, the Company, any Subsidiary or Purchaser are subject, as
applicable.
"Licenses and Permits" shall have the meaning ascribed to such term in
Section 4.8.
"Material Miscellaneous Contracts" shall have the meaning ascribed to
such term in Section 4.12.
"Multiemployer Plan" means any Multiemployer Plan, as defined in
Sections 3(37) and 4001(A)(3) of ERISA.
"Net Worth" shall have the meaning ascribed to such term in Section
2.3(a).
"Noncompetition Agreements" shall have the meaning ascribed to such
term in Section 3.1(c).
"Noncompetition Payments" shall have the meaning ascribed to such term
in Section 3.1(c).
"Note Letters of Credit" shall have the meaning ascribed the such term
in Section 2.2(c).
"PBGC" means the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Permitted Encumbrances" shall have the meaning ascribed to such term
in Section 4.11(d).
"Person" means any individual, general or limited partnership,
corporation (including any non-profit corporation), limited liability
company, joint stock company, joint venture, trust, association,
unincorporated organization, labor union, Governmental Body, the
Accrediting Bodies or other similar entity.
"Plans" shall have the meaning ascribed to such term in Section 4.21.
"Policy Guidelines" shall have the meaning ascribed to such term in
Section 4.9.
"Pre-Closing Financial Aid Irregularities" shall have the meaning
ascribed to such term in Section 9.2(d).
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"Proceeding" means any action, claim, arbitration, audit, hearing,
investigation, inquiry, litigation, suit (whether civil, criminal,
administrative, investigative, or informal) or other proceeding commenced,
brought, conducted, or heard by or before, or otherwise involving, any
Governmental Body or arbitrator.
"Purchase Price" shall have the meaning ascribed to such term in
Section 2.2.
"Purchaser" shall have the meaning ascribed to such term in the
preamble to this Agreement.
"Purchaser's Accountant" shall have the meaning ascribed to such term
in Section 2.3(b).
"Reportable Event" means any event described in Section 4043 of ERISA,
as amended, whether or not waived.
"Revenues" shall have the meaning ascribed to such term in Section
2.4(a).
"Schools" shall have the meaning ascribed to such term in the
background section to this Agreement.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"Sellers" shall have the meaning ascribed to such term in the preamble
to this Agreement.
"Seller Notes" shall have the meaning ascribed to such term in Section
2.2(c).
"Sellers' Release" shall have the meaning ascribed to such term in
Section 3.1(b).
"Shares" shall have the meaning ascribed to such term in the
background section to this Agreement.
"Show Cause Order" shall have the meaning ascribed to such term in
Section 3.3(b).
"Subsidiaries" shall have the meaning ascribed to such term in the
background section to this Agreement.
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"Taxes" means all taxes, levies or other like assessments, charges or
fees, including, without limitation income, gross receipts, excise, goods
and services, transfer, capital, property (including, without limitation,
any special assessments), sales, license, payroll and franchise or other
taxes, imposed by any Governmental Body on the Company and/or any of its
business activities; and such term shall include any interest, penalties,
fines or additions or other amounts payable in connection with any Taxes.
"Threshold Amount" shall have the meaning ascribed to such term in
Section 2.3(a).
"Title IV" means Subchapter IV of the Higher Education Act of 1965, as
amended, 20 U.S.C.A. (S) 1070a, et seq., and any amendments or successor
statutes thereto.
"Tradenames" shall have the meaning ascribed to such term in Section
4.13(a).
Immediately following the signature pages of this Agreement is an
index of the Exhibits and Schedules attached hereto.
2. Sale and Transfer of Shares; Assets and Liabilities of the Company at
Closing.
2.1. Purchaser and Sale of Shares.
Subject to the terms and conditions of this Agreement, Sellers hereby
agree to sell, transfer, assign, convey and deliver the Shares to Purchaser, and
Purchaser hereby agrees to purchase, acquire and accept the Shares from Sellers,
at the Closing.
2.2. Purchase Price; Payment.
In full consideration of the sale of the Shares by Sellers to
Purchaser, and the other agreements of the parties hereunder, and subject to
adjustment following the Closing in accordance with Section 2.3, and for the
Earnout Amount in accordance with Section 2.4 the aggregate purchase price (the
"Purchase Price") for the Shares is $3,000,000, which shall be payable as
follows:
(a) $100,000 (the "Closing Payment"), which amount shall be delivered
to Sellers in accordance with Schedule 2.2 attached hereto by wire transfer
of immediately available funds at the Closing.
(b) $1,400,000 (the "Deferred Payment"), which amount, subject to
reduction in accordance with Section 2.3, shall be delivered to Sellers in
accordance with Schedule 2.2 attached hereto on the later of (i) twenty-one
(21) days following issuance to Purchaser of a DOE Approval Notice and
resumption of Title IV funding of student financial aid programs for each
of
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the Schools and (ii) completion of the Final Balance Sheet (the "Deferred
Payment Date"). The rights of Sellers to payment of the Deferred Payment
and the Noncompetition Payments directly or pursuant to the Deferred
Payment Letter of Credit shall be subject to Purchaser's offset rights
pursuant to Section 9.9 of this Agreement; and
(c) $1,500,000, which amount shall be evidenced by, and payable in
accordance with, Purchaser's notes made in favor of Sellers (the "Seller
Notes") in substantially the form of Exhibit A attached hereto and in
accordance with Schedule 2.2 attached hereto, which Seller Notes shall bear
interest (before default) at the rate of seven percent (7.0%) per annum
payable quarterly in arrears, and after default at the rate of nine percent
(9.0%) per annum, and subject to acceleration as therein provided, shall be
due and payable in full on the fourth anniversary of the Closing Date. The
Seller Notes shall be delivered simultaneously with the Closing Payment.
The Seller Notes shall be secured by letters of credit in an aggregate
amount equal to the amount of the Seller Notes and four (4) months interest
thereunder issued by LaSalle National Bank (the "Note Letters of Credit")
in substantially the form of Exhibit B attached hereto, which Note Letters
of Credit shall be delivered to Sellers at the Closing. The rights of
Sellers to payment pursuant to the Seller Notes and/or the Note Letters of
Credit shall be subject to Purchaser's offset rights as provided in Section
9.9 (b) of this Agreement.
In addition to the Purchase Price, Purchaser shall pay to Sellers the
Noncompetition Payments in the aggregate amount of $2,000,000, as provided for
in the Noncompetition Agreements, in accordance with Schedule 3.1(c) hereto,
which Noncompetition Payments shall be made, subject to any rights to offset as
provided in Section 9.9, on the Deferred Payment Date in accordance with the
terms and conditions of the Noncompetition Agreements. The Deferred Payment and
the Noncompetition Payments shall be secured by a letter of credit in an
aggregate amount equal to $3,400,000 issued by LaSalle National Bank (the
"Deferred Payment Letter of Credit") for the benefit of Xxxxxxx X. Xxxx, as
Escrow Agent, substantially in the form of Exhibit C hereto, which Deferred
Payment Letter of Credit will be delivered to Xxxxxxx X. Xxxx, as Escrow Agent
at the Closing.
Furthermore, simultaneously with the delivery of the Closing Payment,
Purchaser shall deliver to Sellers a Guaranty (the "Guaranty") from CEC in the
form of Exhibit D attached hereto providing for the guaranty of performance by
Purchaser of its obligations hereunder to make the Deferred Payment and to make
the Noncompetition Payments.
2.3. Company Assets and Liabilities; Purchase Price Adjustment.
(a) Sellers agree that the consolidated net worth of the Company and
the Subsidiaries at and as of Closing as calculated in accordance with
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GAAP (the "Net Worth") shall not be less than ($650,000) (the "Threshold
Amount"). The amount of the Net Worth set forth in the Final Balance Sheet
shall be deemed to be the Net Worth for the purposes of this Section
2.3(a). If the Final Balance Sheet sets forth Net Worth of less than the
Threshold Amount, the amount of that difference shall be the "Deficiency"
and the Deferred Payment (and, as a result thereof, the Purchase Price)
shall be reduced by an amount equal to the Deficiency. If, however, the
Final Balance Sheet sets forth Net Worth of more than the Threshold Amount,
the amount of that difference shall be the "Excess". The Excess, if any,
shall be remitted to Sellers in accordance with Schedule 2.2 hereto subject
to offset as provided in Section 9.9, on the Deferred Payment Date.
(b) Purchaser shall cause Xxxxxx Xxxxxxxx, L.L.P. (the "Purchaser's
Accountant") to complete an audit of the Closing Balance Sheet delivered by
Sellers pursuant to Section 3.1(j), and to deliver to Purchaser the written
report (the "Audit Report") of Purchaser's Accountant with respect to such
audit, as soon as possible following the Closing and in any event not later
than forty-five (45) days after the Closing Date. Such Audit Report shall
state the adjustments, if any, to such Closing Balance Sheet which in the
opinion of Purchaser's Accountant would be necessary to be made so that
with such adjustments such Closing Balance Sheet would accurately set forth
the Net Worth, and, if any such adjustments are so stated, shall contain or
be accompanied by an adjusted consolidated balance sheet (the "Adjusted
Balance Sheet") of the Company and the Subsidiary reflecting such
adjustments. Purchaser shall deliver to Sellers a copy of such Audit
Report together with a copy of the Adjusted Balance Sheet, if any,
forthwith after Purchaser's receipt of same and in any event within such
forty-five (45) day period. Upon Sellers' request, Purchaser shall cause
the Purchaser's Accountant to provide to Sellers or their representative
access to the working papers of Purchaser's Accountant with respect to such
Audit Report, and the Sellers or their representative shall be entitled to
make copies thereof. If there is an Adjusted Balance Sheet, then such
Adjusted Balance Sheet shall be deemed to be the "Final Balance Sheet"
unless the Sellers object in writing to such deeming within fifteen (15)
days after their receipt of the Adjusted Balance Sheet. If there is such
an objection by Sellers and the disputes between the Sellers and the
Purchaser in that regard are not resolved to the satisfaction of the
parties within fifteen (15) days after the date upon which Purchaser
receives such written objection of the Sellers, then another nationally
recognized firm of independent accountants not otherwise engaged by Sellers
or Purchaser (or their respective Affiliates) mutually selected by Sellers
and Purchaser or appointed by a court of competent jurisdiction upon
application therefor (the "Independent Auditor") shall review the Closing
Balance Sheet delivered by Sellers pursuant to Section 3.1(j), the Adjusted
Balance Sheet, the said Audit Report of the Purchaser's Accountants and all
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related working papers of the Purchaser's Accountant, and if requested by
the Sellers to do so shall make such other examinations and investigations
as the Independent Auditor considers to be necessary in order to form an
opinion as to the Net Worth. If requested by the Sellers or the Purchaser,
on written notice to either of them, the Independent Auditor shall consider
submissions by the parties in accordance with rules and procedures
established by the Independent Auditor in that regard. The review of the
Independent Auditor shall be completed as soon as is practicable. If the
Independent Auditor shall be of the view that the Adjusted Balance Sheet
does not correctly set forth the Net Worth, then the Independent Auditor
shall prepare and deliver to the parties a fresh consolidated balance sheet
of the Company and the Subsidiary which in the view of the Independent
Auditor correctly sets forth the Net Worth and such fresh balance sheet
shall thereupon be deemed to be the "Final Balance Sheet." The Final
Balance Sheet howsoever deemed shall be final and binding upon all parties.
The costs of the engagement of the Independent Auditor shall be borne by
the Sellers unless the Independent Auditor's determination results in an
adjustment in Sellers' favor of at least $100,000, in which case the costs
of the engagement of the Independent Auditor shall be borne by Purchaser.
If an Adjusted Balance Sheet is not delivered to Sellers within forty-five
(45) days next following the Closing Date or the Audit Report of the
Purchaser's Accountant is such that no Adjusted Balance Sheet is prepared,
then the Closing Balance Sheet delivered by Sellers pursuant to Section
3.1(j) hereof shall be deemed to be the "Final Balance Sheet."
Subject to the next sentence, on the Deferred Payment Date, the
Purchaser shall pay Sellers that portion of the Deferred Payment and
Noncompetition Payments which is not subject to dispute or offset as provided in
Section 9.9, in accordance with Schedule 2.2.
Notwithstanding anything contained in this Agreement to the contrary,
Purchaser shall not be required to pay any portion of the Deferred Payment or
the Noncompetition Payment which is subject to dispute or offset, as provided in
Section 9.9 until any such dispute or offset right is resolved. Subject to
Section 2.3(b) with respect to the costs of engagement of the Independent
Auditor, each party hereto shall bear its own costs and expenses, including
attorneys' fees, incurred in connection with any dispute under this Section 2.3.
2.4. Earnout
(a) In the event that the Revenues earned by the Company and its
Subsidiaries (as hereinafter defined) for the twelve month period
commencing on July 1, 1997 and ending on June 30, 1998 (the "Earnout
Period") exceed $8,000,000, Sellers shall be entitled to an earnout (the
"Earnout Amount") as set forth on Schedule 2.4(a) attached hereto. In the
event that the Company's Revenues for the Earnout Period are between two
revenue numbers described
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on Schedule 2.4, (a) the Earnout Amount shall be calculated by
interpolating using the two corresponding Earnout Amounts described on
Schedule 2.4(a) on a linear basis. For purposes hereof, "Revenues" shall
mean gross tuition income earned minus tuition adjustments (student
refunds) plus other income (all associated fees) plus consolidated
Bookstore sales less the cost of goods sold by the Bookstores: all as
determined in accordance with GAAP. Increases in tuition rates during the
Earnout Period will count in determining the Revenues for purposes of
calculating the Earnout Amount.
(b) Purchaser shall provide Sellers with a calculation of the
Revenues for the Earnout Period and of the Earnout Amount on or before July
20, 1998 (the "Earnout Calculation"). Purchaser shall pay the Earnout
Amount set forth in the Earnout Calculation to Xxxxxxx Xxxx as Escrow
Agent, within thirty (30) days after delivery of the Earnout Calculations.
If Sellers object in writing to the Earnout Amount within fifteen (15) days
after receipt of the Earnout Calculation and the disputes between the
Sellers and Purchaser in that regard are not resolved to the satisfaction
of the parties within fifteen (15) days after the date upon which Purchaser
receives such written objection of Sellers, then an Independent Auditor
shall review the Earnout Calculation, including the Revenues for the
Earnout Period and all related work papers in order to form an opinion as
to the Revenues for the Earnout Period. The review of the Independent
Auditor shall be completed as soon as practicable. If the Independent
Auditor shall be of the view that the Revenues are not correctly stated in
the Earnout Calculation, the Independent Auditor shall prepare a
calculation of the Revenues which shall be final and binding upon all
parties. The remaining part of the Earnout, if any, shall be paid within
thirty (30) days after receipt by Sellers and Purchaser of the Independent
Auditors calculation of Revenues. The costs of the engagement of the
Independent Auditor shall be borne by the Sellers unless the Independent
Auditor's determination results in an adjustment to the Earnout Amount in
Sellers' favor of at least $100,000, in which case, the costs of the
engagement of the Independent Auditor shall be borne by Purchaser.
(c) Subject to the next sentence, thirty (30) days after delivery of
the Earnout Calculation, the Purchaser shall pay Sellers that portion of
the Earnout Amount which is not subject to dispute or offset (as provided
in Section 9.9), to Xxxxxxx Xxxx as Escrow Agent. Notwithstanding anything
contained in this Agreement to the contrary, Purchaser shall not be
required to pay any portion of the Earnout Amount which is subject to
dispute or offset (as provided in Section 9.9) until any such dispute or
offset right is resolved. Subject to Section 2.4(b) with respect to the
costs of engagement of the Independent Auditor, each party hereto shall
bear its own costs and expenses, including attorneys' fees, incurred in
connection with any dispute under this Section 2.4.
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By execution of the signature page hereto, CEC shall guaranty payment of the
Earnout Amount in accordance with the terms of this Section 2.4. In addition,
CEC will commit to cause the Schools to spend at least ninety-five percent (95%)
of the advertising expenditures included in the budget (the "Advertising
Budget") for the period from July 1, 1997 through June 30, 1998 attached hereto
as Schedule 2.4(d). In addition, during the Earnout Period, the Schools would
not force part-time students to enroll in full-time programs and part-time
enrollments would still be permitted, however, the Schools would begin a gradual
admissions program to encourage new enrollees to enroll on a full-time basis.
Commencing with the June, 1998 start, the Schools would no longer be required to
permit part-time students. In the event of failure of the Schools to spend at
least ninety-five percent (95%) of the Advertising Budget in the aggregate
during the Earnout Period, the Earnout Amount shall be $5,000,000.
2.5. Closing.
The parties hereto shall close the purchase and sale of the Shares and
the consummation of the other actions contemplated by this Agreement to occur in
connection therewith at the closing (the "Closing"), which shall take place at
the offices of Purchaser's counsel, Goldberg, Kohn, Bell, Black, Xxxxxxxxxx &
Xxxxxx, Ltd., 00 Xxxx Xxxxxx Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxx 00000, on
June 30, 1997, or such other date to which the parties hereto shall mutually
agree in writing.
2.6. Funding of School Operations Pending DOE Approval.
From and after the date of the Closing and until the date the DOE
approves resumption of Title IV funding for each of the Schools as operated by
Purchaser pursuant to a DOE Approval Notice, Purchaser shall provide such
working capital to the Company as Purchaser determines to be necessary to enable
each Subsidiary to continue to operate in substantially the same manner and at
substantially the same level of operations as the Company is currently operating
such Subsidiary.
2.7. Participation of Employees in CEC Plans.
Purchaser hereby agrees, and Sellers hereby acknowledge, that
following the Closing (and subject to the requirements of applicable law),
employees of the Company and the Subsidiaries may commence participation in the
Career Education Corporation 401(k) Plan in accordance with the terms and
conditions thereof or at such earlier time as may be specifically authorized by
resolution of the Board of Directors of CEC.
2.8. Actions to be Taken with Respect to Company Plans.
Sellers will take appropriate action to freeze the International
Academy of Merchandising & Design 401(k) Savings Plan (the "401(k) Plan")
effective as of the Closing Date. Sellers will commence taking the steps
necessary to file an application for, and receive, an IRS determination letter
for the 401(k) Plan and will indemnify and hold harmless the Indemnified Persons
for, and will pay to the Indemnified Persons, any and all
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cost, liabilities, penalties, taxes or Damages arising out of, or in connection
with, receipt of the determination letter and/or the operation of the 401(k)
Plan. Sellers hereby agree to indemnify and hold harmless the Indemnified Person
for, and will pay to the Indemnified Persons, any and all cost, liabilities,
penalties, taxes or Damages related to the failure to procure an IRS
determination letter from the effective date of the 401(k) Plan.
3. Closing Deliveries.
3.1. Deliveries to Purchaser.
Sellers agree to deliver to Purchaser, at the Closing, each of the
following, each of which constitutes a condition to Purchaser's obligation to
consummate the purchase of the Shares:
(a) Certificates for Shares. Certificates representing the Shares,
duly endorsed (or accompanied by duly executed stock powers), for transfer
to Purchaser;
(b) Releases from Sellers. A release in substantially the form of
Exhibit E, executed by Sellers (the "Sellers' Release");
(c) Noncompetition Agreements. Noncompetition agreements in
substantially the form of Exhibit F, each executed by one or more of the
Sellers, as applicable (collectively, the "Noncompetition Agreements"),
providing for the payments to Sellers in the aggregate amount of $2,000,000
in accordance with Schedule 3.1(c) attached hereto (the "Noncompetition
Payments"), in consideration for the Sellers' performance of the covenants
and obligations set forth in their respective Noncompetition Agreements,
which Noncompetition Payments shall be paid to Sellers simultaneously with
disbursement of the Deferred Payment pursuant to Section 2.2(b) in
accordance with the terms and conditions of the Noncompetition Agreements;
(d) Escrow Agreement. A fully executed copy of the Escrow Agreement
pursuant to which Xxxxxxx X. Xxxx is appointed as Escrow Agent for the
Deferred Payment Letter of Credit.
(e) Secretary's Certificates for the Company and each Subsidiary. A
certificate, signed by the secretary or an assistant secretary of the
Company, certifying the articles of incorporation and bylaws of the
Company, appropriate authorizing resolutions of the Company's Board of
Directors, the incumbency of the Company's directors and officers, and the
good standing of the Company in its state of incorporation and the States
of Illinois and Florida, and a certificate for each Subsidiary, signed by
the secretary or an assistant secretary of such Subsidiary, certifying the
articles of incorporation and bylaws of such Subsidiary, the incumbency of
such Subsidiary's directors and officers, and the good standing of such
Subsidiary in the state of its incorporation and each
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other state where the nature of its operations require it to qualify to do
business as a foreign corporation;
(f) Closing Certificate. A certificate executed by Sellers
satisfying the requirements of Sections 7.4, 7.5 and 7.6 hereof;
(g) Legal Opinion. A legal opinion of Seller's counsel, Childress &
Xxxx, Ltd., in substantially the form of Exhibit G attached hereto,
addressed to Purchaser and Purchaser's lender;
(h) Consents. Evidence satisfactory to Purchaser's counsel that each
consent of a third party listed in Schedule 3.1(h) attached hereto, which
consents are required by Purchaser to be obtained by Sellers prior to the
Closing, have been obtained and remain in full force and effect, unless the
obligation to obtain such consent has been specifically waived in writing
by Purchaser;
(i) Payoff Letters. Payoff letters in respect of the Designated
Liabilities, together with appropriately executed UCC termination
statements for all liens in respect thereof;
(j) Closing Financial Information. An estimated consolidated balance
sheet of the Company and the Subsidiaries (the "Closing Balance Sheet")
calculated as of 5:00 p.m. Chicago time on the business day immediately
preceding the Closing Date prepared in the same manner and using the same
procedures as the preliminary closing balance sheet attached hereto as
Schedule 3.1(j) except that the $2,000 foundation asset and the receivables
from shareholders shall be removed from the Closing Balance Sheet,
accompanied by schedules in reasonable detail showing cash balances in all
bank accounts of the Company and each Subsidiary, and all of their
respective outstanding accounts payable, together with a calculation of
estimated Net Worth;
(k) Consent and Estoppel Certificates. Except to the extent waived
in writing by Purchaser, consent and estoppel certificates from the
landlords of the Leased Facilities, certifying certain factual matters
relating to the Leases, including without limitation certification that
there are no defaults under the Leases and the amounts of security deposits
under the Leases, and consenting to the transfer of the Shares to the
Purchaser, in form and substance reasonably acceptable to Purchaser and its
lenders;
(l) Resignations. A resignation by each of the Sellers from their
positions as directors and officers of the Company and, where applicable,
the Subsidiaries, which resignations shall become effective simultaneously
with the Closing, and acknowledgment that their respective employment
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agreements, if any, have been terminated without any further obligation due
from the Company or any Subsidiary or the Purchaser or CEC;
(m) Bank Accounts. A list of all operating and other bank accounts
of the Company and each Subsidiary, together with documentation of the
removal of all directors and officers resigning pursuant to Section 3.1(l)
as signatories for such accounts; and
(n) Other Documents. Such other documents relating to the
transactions contemplated by this Agreement as Purchaser or its counsel may
reasonably request, including, without limitation, to the extent not waived
in writing by Purchaser, documents specified as Sellers' closing deliveries
on the Closing Checklist in the form of Exhibit H attached hereto.
3.2. Closing Deliveries to Sellers.
Purchaser agrees to deliver to Sellers at the Closing, each of the
following, each of which constitutes a condition to Sellers' obligations to
consummate the sale of the Shares:
(a) Closing Payment. The Closing Payment required by Section 2.2(a)
by wire transfer of immediately available funds;
(b) Seller Notes. The Seller Notes, executed by Purchaser;
(c) Guaranty. The Guaranty, executed by CEC;
(d) Noncompetition Agreements. The Noncompetition Agreements,
executed by Purchaser;
(e) Letters of Credit. The Note Letters of Credit and the Deferred
Payment Letter of Credit;
(f) Termination of Sellers' Guarantees. Evidence of the termination
or release of the guarantees of Sellers described on Schedule 3.2(f)
attached hereto, or, to the extent any such termination or release cannot
be obtained prior to Closing despite Purchaser's and CEC's best efforts,
delivery by Purchaser and CEC of an indemnification of the applicable
Seller or Sellers' obligations thereunder, in either case in form and
substance reasonably satisfactory to Sellers;
(g) Secretary's Certificate for Purchaser. A certificate, signed by
the secretary or an assistant secretary of Purchaser, certifying the
articles of incorporation and bylaws of Purchaser, appropriate authorizing
resolutions of Purchaser's Board of Directors, the incumbency of
Purchaser's officers executing this Agreement and the documents delivered
in connection with the
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Closing, and the good standing of Purchaser in its state of incorporation
and the States of Illinois and Florida;
(h) Closing Certificate. A certificate executed by Purchaser
satisfying the requirements of Sections 8.1 and 8.2 hereof;
(i) Legal Opinion. A legal opinion of counsel for Purchaser,
Goldberg, Kohn, Bell, Black, Xxxxxxxxxx & Xxxxxx, Ltd., in substantially
the form of Exhibit I attached hereto, addressed to Sellers; and
(j) Other Documents. Such other documents relating to the
transactions contemplated by this Agreement as Sellers or their counsel may
reasonably request, including, without limitation, documents specified as
Purchaser's closing deliveries on the Closing Checklist.
3.3. Post-Closing Covenants.
(a) Further Assurances. On or after the Closing Date, and without
further consideration, Purchaser and Sellers shall, from time to time at
the request of any other party hereto, execute and deliver to such other
party further documents and instruments evidencing the consummation of the
transactions contemplated by this Agreement as such other party may
reasonably require including, without limitation, instruments of
conveyance, assignment and transfer of the Shares. The party requesting the
execution and delivery of such further documents and instruments shall pay
the reasonable out-of-pocket costs and expenses of all other parties hereto
in connection therewith.
(b) Administration of the Company Prior to Disbursement of the
Deferred Payment; Cooperation of Parties. From and after the Closing Date
and until payment in full of the Deferred Payment and the Noncompetition
Payments, or recission of the transactions contemplated hereby in
accordance with Section 10, Purchaser, at Purchaser's sole cost and
expense, shall administer and operate the Company, the Subsidiaries and the
Schools in material compliance with all Legal Requirements and Accrediting
Bodies requirements, and in accordance with all permits, Accreditations,
authorizations and agreements issued by or entered into with any
Governmental Body or Accrediting Bodies regulating or otherwise relating to
the administration and operation of the Company, the Subsidiaries or the
Schools. Subject to the terms and provisions of this Agreement, Purchaser
shall use its commercially reasonable efforts in order to obtain any and
all approvals from the DOE, the Accrediting Bodies and any other
Governmental Body that may be necessary or appropriate to vest in Purchaser
the right and authority to administer and operate the Schools and the
Bookstores, and Purchaser and Sellers shall cooperate in order to obtain
such approvals. During the period from the date of the Closing
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Date through the date on which Purchaser's right to rescind the
transactions contemplated hereby has expired or otherwise terminated (the
"Rescission Termination Date"), Purchaser shall cause the Company and the
Subsidiaries to conduct their operations only according to the Company's
and Subsidiaries' ordinary course of business, and the Purchaser shall use
its good faith efforts to preserve intact the Company's and the
Subsidiaries' business organization, maintain adequate cash reserves to pay
operating expenses in the ordinary course of business, keep available the
services of the employees and maintain satisfactory relationships with the
Accrediting Bodies, Governmental Bodies, suppliers, agents, students and
others having business relationships with the Company and the Subsidiaries;
provided, however, that the foregoing shall not prohibit Sellers from
causing the Company and its subsidiaries to implement new marketing
strategies not to exceed $300,000, reasonable personnel changes, employment
and occupational safety policies, capital expenditures not to exceed
$250,000, actions necessary to obtain the withdrawal of the show cause
order dated April 25, 1997, issued by the Accrediting Bodies (the "Show
Cause Order") and such other changes as many be reasonably anticipated to
improve the Schools. Purchaser shall promptly notify Sellers of any
material change in the normal course of business of the Company or the
Subsidiaries, and of any Accrediting Bodies or Governmental Body, and of
any investigations or hearings (or communications indicating that the same
may be contemplated) or adjudicatory proceedings involving the Company or
the Subsidiaries, and shall keep Sellers fully informed of such events and
permit Sellers representatives prompt access to all materials prepared in
connection therewith, subject to relevant Legal Requirements.
(c) Access and Maintenance of Records. From and after the Closing
Date, Purchaser shall afford to Sellers, their counsel, accountants and
other authorized representatives reasonable access to each of the
Company's, the Subsidiaries' and the Schools' books and records related to
periods prior to the Closing Date during normal business hours and upon
reasonable notice from Sellers to Purchaser, as reasonably required by
Sellers in connection with (i) performance by Sellers of any of Sellers'
obligations (whether directly or by virtue of their indemnification
obligations) pursuant to this Agreement, (ii) any claim, action,
litigation, program review, audit or other proceeding involving any one or
more of the Sellers (other than any such claim, action, litigation, program
review, audit or proceeding arising under this Agreement or in which
Purchaser and/or the Company and the Subsidiaries, on one hand, and Sellers
or any of their Affiliates, on the other hand, are adverse parties and to
which a privilege would apply) and (iii) Sellers preparation of their tax
returns. Sellers, at Sellers' expense, may make copies of any such records
as may be necessary or appropriate for Sellers' use (subject to Section 6.1
hereof) in connection with the foregoing. From and after the Closing Date,
Purchaser shall afford to DOE, the Accrediting Bodies and other regulatory
authorities access to the Company's and
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each Subsidiary's books and records as required by applicable law or
regulations. For a period of seven (7) years from the Closing Date or until
the expiration of the record retention period under relevant Legal
Requirements or Accrediting Bodies requirements, if longer, Purchaser shall
not destroy or otherwise dispose of any books or records of the Company or
any Subsidiary related to periods prior to the Closing Date.
Notwithstanding the foregoing, Purchaser shall preserve and protect all
books, documents, papers, computer programs and records pertaining in any
manner to the administration by the Company or any Subsidiary of federal
student financial assistance programs pursuant to Title IV with respect to
the Schools for at least the period of time specified under applicable
Legal Requirements.
4. Representations and Warranties of Sellers.
As a material inducement to Purchaser to enter into this Agreement and
to purchase the Shares, Sellers hereby represent and warrant as of the date
hereof (except where another particular date is specified, in which event
Sellers hereby represent as of such date) that:
4.1. Organization and Good Standing of the Company and its
Subsidiaries; Accreditation.
(a) The Company is a corporation, duly organized, validly existing
and in good standing under the laws of the State of Illinois. The Company
is qualified to do business as a foreign corporation and in good standing
in all other states in which the nature of its operations require it so
qualify, except where failure to so qualify would not have a material
adverse effect on its business or operations. IAMD-Chicago is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Illinois. IAMD-Chicago is qualified to do business as a foreign
corporation and is in good standing in all other states in which the nature
of its operations require it to so qualify, except where failure to so
qualify would not have a material adverse effect on its business or
operations. IAMD-Tampa is a corporation duly organized, validly existing
and in good standing under the laws of the State of Florida. IAMD-Tampa is
qualified to do business as a foreign corporation and is in good standing
in all other states in which the nature of its operations require it to so
qualify, except where failure to so qualify would not have a material
adverse effect on its business or operations. IAMD-Bookstore is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Illinois. IAMD-Bookstore is qualified to do business
as a foreign corporation and is in good standing in the State of Florida
and in all other jurisdictions in which the nature of its operations
require it to so qualify, except where failure to so qualify would not have
a material adverse effect on its business or operations. Each of the
Company and the Subsidiaries has all requisite power and authority to own,
lease and operate its properties and
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assets, to carry on its business as now conducted, and to consummate the
transactions contemplated hereby. The Company and the Subsidiaries are not,
and for the past five (5) years have not been, engaged in any business
other than the operation of the Schools and the Bookstores, and activities
directly related thereto. The copies of the Company's and the Subsidiaries'
articles of incorporation and bylaws which have been furnished by Sellers
to Purchaser reflect all amendments made thereto at any time prior to the
date of this Agreement and are correct and complete.
(b) The Accrediting Bodies represent all accrediting bodies under
which the Schools are regulated or are required to be regulated and to the
best of Sellers' knowledge, except for the DOE and state licensing
agencies, there are no other accrediting entities or bodies under which the
Schools are regulated or are required to be regulated.
4.2. Ownership of the Company, the Subsidiaries and the Schools.
----------------------------------------------------------
(a) The Subsidiaries are owned and operated by the Company directly,
and no other Person has any ownership interest in any Subsidiary. The
Schools and the Bookstores are owned directly by the applicable Subsidiary,
and no other Person has any ownership interest in the Schools or the
Bookstores. No Person other than Purchaser has any right, option, warrant,
subscription or other arrangement to purchase shares of capital stock of
the Company (or any of the Subsidiaries) or to otherwise acquire any other
equity interest in the Company (or any of the Subsidiaries) or the Schools
or the Bookstores.
(b) The Shares are is owned by each Seller directly, and no other
Person other than Sellers has any direct or indirect ownership interest in
the Company and except for agreements which will be canceled prior to
closing, no Person, other than Purchaser, has any right, option, warrant,
subscription, or other arrangement to purchase shares of capital stock of
the Company or to otherwise acquire any other equity interest in the
Company.
4.3. Capacity; Authorization; Binding Effect, Etc.
--------------------------------------------
Each Seller hereby represents and warrants that he or she has the
unrestricted and absolute power, legal capacity and authority to execute,
deliver and perform this Agreement and each other document being executed in
connection herewith to which he or she is a party. Such Seller hereby further
represents and warrants that this Agreement has been, and each other document to
be executed by such Seller in connection herewith, as of the Closing, will have
been, duly executed and delivered by such Seller and (assuming the due
authorization, execution and delivery hereof and thereof by Purchaser and any
other parties thereto), this Agreement is, and each such other document or
agreement will be, a
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valid and binding obligation of such Seller, as the case may be, enforceable
against him or her in accordance with its terms.
4.4. No Conflicts, Etc.
-----------------
(a) Except as set forth in Schedule 4.4, the execution, delivery and
performance of this Agreement and each other document being executed by
Sellers or any of them in connection herewith, and the consummation of the
transactions contemplated hereby and thereby, do not and will not: (a)
contravene, conflict with, or result in a violation of (i) any provision of
the articles of incorporation or bylaws of the Company or any of the
Subsidiaries; or (ii) any resolution adopted by the board of directors or
the stockholders of the Company or any of the Subsidiaries; (b) contravene,
conflict with or violate any Legal Requirement applicable to the Company,
any of its Subsidiaries, the Schools, the Bookstores or any of their
respective assets or properties; (c) with or without the giving of notice
or the passage of time, or both, conflict with or result in the breach or
termination, of, or default under, any provision of the articles of
incorporation or bylaws of the Company or any of the Subsidiaries, or any
material instrument, license, permit, authorization, agreement or
commitment to which the Company, any of the Subsidiaries the Schools, or
the Bookstores are a party or by which any of their assets or properties
are bound; (d) constitute a violation of any order, judgment or decree to
which the Company, the Subsidiaries, the Schools, or the Bookstores, are a
party or by which any of their assets or properties is bound; or (e)
require any approval of, filing or registration with, or consent from any
Governmental Body or Accrediting Bodies that is required to be obtained or
made by the Company, the Subsidiaries, the Schools, or the Bookstores; (f)
cause Purchaser, the Company or any Subsidiary to become subject to, or
liable for the payment of, any Taxes outside of the ordinary course of
business relating to periods prior to the Closing Date, or transfer taxes
under any state or local law attributable to the purchase and sale of the
Shares. Except as set forth on Schedule 4.4, none of the Company, any of
its Subsidiaries, the Schools, the Bookstores or any Seller is or will be
required to give any notice or obtain any consent, approval or other
authorization from any Person in connection with the execution and delivery
of this Agreement or the consummation of the transactions contemplated
hereunder.
(b) The execution, delivery and performance of this Agreement and
each other document being executed by each Seller in connection herewith,
and the consummation of the transactions contemplated hereby and thereby,
do not and will not: (a) contravene, conflict with or violate any Legal
Requirement applicable to such Seller; (b) with or without the giving of
notice or the passage of time, or both, conflict with or result in the
breach of termination, of, or default under, or any material instrument,
license, permit, authorization, agreement or commitment to which such
Seller is a party or by
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which any of his or her assets or properties are bound; (c) constitute a
violation of any order, judgment or decree to which such Seller is a party
or by which any of his or her assets or properties is bound; or (d)
required any approval of, filing or registration with, or consent from any
Governmental Body or Accrediting Bodies that is required to be obtained or
made by such Seller. Except as set forth on Schedule 4.4, such Seller is
not or will not be required to give any notice or obtain any consent,
approval or other authorization from any Person in connection with the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereunder by such Seller.
4.5. Investments.
-----------
Except as provided for on Schedule 4.5 hereto, the Company has, and
during the five (5) years prior to the date hereof has had, no Investment, in
any Person other than the Subsidiaries. None of the Subsidiaries has, and
during the five (5) years prior to the date hereof has had, any Investment in
any other Person.
4.6. Capitalization.
--------------
The capitalization of the Company and the Subsidiaries is as follows:
(a) (i) The authorized equity securities of the Company consist of
(aa) Twenty-Seven Thousand Three Hundred (27,300) shares of common stock,
par value $.00 per share, of which Twenty-Thousand Three Hundred and Sixty
(20,360) shares are issued and outstanding to the Sellers as set forth on
Schedule 4.6 and One Thousand Four Hundred and Fifty (1,450) shares of
preferred stock, $1.00 par value per share, designated as callable,
cumulative non-voting preferred shares, of which 1268 shares are issued and
outstanding as set forth in Schedule 4.6. Such issued and outstanding
securities collectively constitute the Shares. (ii) Each Seller at the
moment immediately prior to consummation of the Closing will be, the record
and beneficial owners and holders of the Shares set forth next to such
Seller's name in Schedule 4.6, free and clear of all Encumbrances, other
than those Encumbrances set forth in Schedule 4.6 which Encumbrances shall
be removed prior to or simultaneously with the Closing.
(b) The authorized equity securities of IAMD-Chicago consist of One
Hundred (100) shares of common stock, par value $.00 per share, of which
One Hundred (100) shares are issued and outstanding to the Company. The
Company is, and at the moment immediately prior to consummation of the
Closing will be, the record and beneficial owner and holder of all such
equity securities of IAMD-Chicago, free and clear of all Encumbrances.
(c) The authorized equity securities of IAMD-Tampa consist of One
Hundred (100) shares of common stock, par value $.00 per share, of which
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One Hundred (100) shares are issued and outstanding to the Company. The
Company is, and at the moment immediately prior to consummation of the
Closing will be, the record and beneficial owner and holder of all such
equity securities, free and clear of all Encumbrances.
(d) The authorized equity securities of IAMD-Bookstore consist of Ten
Thousand (10,000) shares of common stock, par value $.00 per share, of
which One Thousand (1,000) shares are issued and outstanding to the
Company. The Company is, and at the moment immediately prior to
consummation of the Closing will be, the record and beneficial owner and
holder of all such equity securities, free and clear of all Encumbrances.
Except as set forth in Schedule 4.6, no legend or other reference to any
purported Encumbrance appears upon any certificate representing equity
securities of the Company or any of its Subsidiaries. All of the outstanding
equity securities of the Company and each of its Subsidiaries have been duly
authorized and validly issued and are fully paid and nonassessable. Except as
set forth in Schedule 4.6, there are no agreements (other than shareholders'
agreements which will be terminated prior to, or in connection with, the
Closing), commitments (including without limitation any options, warrants,
rights or similar arrangements) or Plans relating to the issuance, sale, or
transfer of any equity securities or other securities of the Company or any of
its Subsidiaries or providing for cash payments based upon the value of any
equity securities of the Company or any of its Subsidiaries. None of the
outstanding equity securities or other securities of the Company or any of its
Subsidiaries was issued in violation of the Securities Act or any other Legal
Requirement. None of the Company or any of its Subsidiaries owns, or has any
agreement or commitment to acquire, any equity securities or other securities of
any Person, or any direct or indirect equity or ownership interest in any other
business or Person.
4.7. Book and Records.
----------------
Except as set forth on Schedule 4.7:
(a) The minute books, stock record books, and other records of the
Company and each of its Subsidiaries, all of which are being made available
to Purchaser, are complete and correct and have been maintained in
accordance with sound business practices, including the maintenance of an
adequate system of internal controls, except where failure to so maintain
such books and records would not have a material adverse effect upon the
Company or any of its Subsidiaries.
(b) The minute books of the Company and each of its Subsidiaries
contain accurate and complete records of all meetings held of, and
corporate action taken by, their respective stockholders, boards of
directors, and committees of their respective boards of directors, and no
meeting of any such stockholders, boards of directors, or committees has
been held for which
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minutes have not been prepared and are not contained in such minute books,
except where failure to so prepare and maintain such minutes would not have
a material adverse effect on the Company or any of its Subsidiaries.
(c) The Company and each of its Subsidiaries has maintained all of
its accounting books and records in accordance with applicable Legal
Requirements and GAAP, except where failure to so maintain such books and
records would not have a material adverse effect upon the Company or any of
its Subsidiaries, and such books and records are true, correct and complete
in all material respects.
(d) At the Closing, all books and records described in this Section
4.7 will be in the possession of the Company or one of the Subsidiaries, as
applicable.
4.8. Compliance with Laws; Licenses and Permits.
------------------------------------------
Except as set forth in Schedule 4.8(a) attached hereto, none of the
Company, the Subsidiaries, or the Sellers is in violation of any Legal
Requirement which violation might reasonably be expected to have a material
adverse effect upon the financial condition, operating results, Accreditation or
business of the Company, or any of the Subsidiaries, the Schools, or the
Bookstores, individually or in the aggregate, and none of the Company, the
Subsidiaries, or the Sellers has received notice of any such violation. None of
the Company, the Subsidiaries, or the Sellers has received any notice of any
violations of the Occupational Safety and Health Act, as amended, or any similar
state or local Legal Requirement, relating to the Company, or any of the
Subsidiaries or the Schools. The Company and each of the Subsidiaries currently
maintains all licenses, Accreditations, certificates, permits, consents,
authorizations, and other governmental or regulatory approvals (the "Licenses
and Permits") necessary to conduct the business and operations of the Company
and the Subsidiaries as presently being conducted, except where the failure to
maintain any such Licenses and Permits would not have a material adverse effect
on the operations or financial condition of the Company, or any of the
Subsidiaries. As of the date hereof, no School has more than eighty-five
percent (85%) of its revenues pursuant to Title IV Programs or derived from
Title IV funds as determined in accordance with 34 C.F.R. (S) 600.5(d), and at
no time during the past two (2) years have more than eighty-five percent (85%)
of the revenues of either School, been pursuant to Title IV programs or derived
from Title IV funds. The Company, and each Subsidiary, has duly filed all
reports and returns required to be filed by it with all Governmental Bodies and
the Accrediting Bodies , except where failure to file any such report or return
would not have a material adverse effect on the Company or any of its
Subsidiaries, the Schools or the Bookstores. No application made by the Company
or any of the Subsidiaries for any Licenses and Permits during the last five (5)
years has been denied. Schedule 4.8(b) attached hereto is a true, correct and
complete list of all Licenses and Permits held by the Company and the
Subsidiaries, and the Governmental Body or Accrediting Bodies granting each such
License and Permit. Except as set forth on Schedule 4.8(b), the Licenses and
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Permits are in full force and effect, and no proceedings for the suspension or
cancellation of any of them is pending or, to the best of Sellers' knowledge,
threatened. Sellers have delivered to Purchaser copies of all such Licenses and
Permits. Except as set forth on Schedule 4.8(b), none of the Company, the
Subsidiaries, the Schools, the Bookstores, or any Seller, has received notice
that any of the Licenses and Permits will not be renewed and to the best of
Sellers' knowledge, there is no basis for nonrenewal, except for the financial
basis, as fully described on Schedule 4.8(c) hereto. Each Subsidiary has all
Accreditations from the Accrediting Bodies required to conduct the business of
the School operated by it, as presently conducted, and such School is certified
by the DOE as an eligible institution under Title IV and is a party to, and in
compliance with, a valid, unconditional program participation agreement with the
DOE. Except as set forth in Schedule 4.8(c) attached hereto, none of the
Company, any of the Subsidiaries, or any Seller, has received any notice, not
previously resolved in full without any material liability, with respect to any
alleged violation of the rules or regulations of the DOE the Accrediting Bodies,
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.
Except as set forth on Schedule 4.8(c) attached hereto, Sellers are not aware of
any investigation or review of the Schools' student financial aid programs or
any review of Accreditation of either School by any Governmental Body or
Accrediting Bodies.
4.9. Recruitment; Admissions Procedures; Attendance; Financial Aid;
--------------------------------------------------------------
Reports.
-------
Schedule 4.9(a) attached hereto is a complete list of all current
policy manuals and other statements of procedures or instruction relating to (a)
recruitment of students for the Schools, including 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 federal, state or Accrediting Bodies
requirements applicable to such procedures; (c) procedures for encouraging and
verifying attendance, minimum required attendance policies, and other relevant
criteria relating to course performance requirements and completion; and (d)
compliance with Legal Requirements relating to financial aid programs
(collectively, the "Policy Guidelines"). Sellers have delivered to Purchaser
true, correct and complete copies of all Policy Guidelines. Except as disclosed
on Schedule 4.9(b) attached hereto or in any other schedule to this Agreement,
the operations of the Company and the Subsidiaries have, in all material
respects, been conducted substantially in accordance with the Policy Guidelines
(as then in effect) and all relevant standards imposed by the Accrediting
Bodies, and other agencies administering state or federal governmental financial
assistance programs in which the Company, the Subsidiaries or the Schools
participate, and other applicable Legal Requirements. The Company has submitted
all reports, audits, and other information, whether periodic in nature or
pursuant to specific requests, for the Company, the Subsidiaries and the Schools
("Compliance Reports") to all agencies or other entities with which such filings
are required relating to its compliance with (i) applicable Accreditation
standards, (ii) Legal Requirements governing programs pursuant to which either
of the Schools or its students receive student
-26-
financial assistance funding, and (iii) all articulation agreements between the
Schools and degree granting colleges and universities in effect as of the date
hereof, except where failure to submit such Compliance Reports would not have a
material adverse effect on the business or operations of the Company, or any
Subsidiary. All forms and records of the Company and the Subsidiaries have been
prepared, completed, maintained and filed in all material respects in accordance
with all applicable Legal Requirements, and are true and correct in all material
respects. 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 material deficiencies in respect thereto. To the
best of Sellers' knowledge and except as previously disclosed in prior audits by
DOE, no student at either of the Schools has been funded prior to the date for
which such student was eligible for funding, and such student's records conform
in form and substance to all relevant regulatory requirements.
4.10. Cohort Default Rate.
Schedule 4.10 attached hereto sets forth the published cohort default
rate for each School, calculated in the manner prescribed by the DOE and issued
to such School, of all students attending such School receiving assistance
pursuant to Title IV programs for the fiscal years June 30, 1992 through June
30, 1995. To the best of Sellers' knowledge, such schedule is materially
accurate in all respects. None of the Company, the Subsidiaries, the Schools or
any Seller has received any notice as to the calculation or amount of the cohort
default rates for the Schools for the year ended June 30, 1996.
4.11. Title to the Assets.
(a) The Company does not presently own, nor has it ever owned, any
real property.
(b) Schedule 4.11(b) sets forth a list of the real properties leased
or otherwise used, operated or occupied by the Company or any of its
Subsidiaries (the "Leased Facilities"). The leases covering the Leased
Facilities (the "Leases") are also described on Schedule 4.11(b).
(c) All of the tangible assets and records relating to intangible
assets of the Company and the Subsidiaries, are or as of the Closing will
be delivered to Purchaser or located at the Leased Facilities. Neither the
Company nor any Subsidiary is under any contractual or other legal
obligation or has entered into any commitment to make capital improvements
or alterations to the Leased Facilities. To the best of Sellers' knowledge,
the Leases are in full force and effect and are enforceable in accordance
with their terms. The Company and/or the applicable Subsidiary and, to the
best of Sellers' knowledge, the landlords, are not in default under the
Leases and, to the best of Sellers' knowledge, 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
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thereunder. The Company and/or the applicable Subsidiary enjoys peaceful
and undisturbed possession under the Leases, and to the best of Sellers'
knowledge the Leased Facilities are not subject to any zoning, ordinance or
other restrictions which would prohibit the use and enjoyment of the Leased
Facilities in the manner in which the Leased Facilities are currently used.
Sellers have no knowledge of any condemnation proceedings relating to the
Leased Facilities. To the best of Sellers' knowledge, the Leased
Facilities, and the use thereof by the Company, the Subsidiaries and the
Schools are in compliance in all material respects with all Legal
Requirements, including without limitation, the Americans with Disabilities
Act.
(d) Except for the leased or licensed assets and properties set forth
on Schedule 4.11(d)(i) attached hereto, the Company or one of the
Subsidiaries owns outright, and has good and marketable title to, all of
assets and properties used in connection with the operation of the Schools
and the Bookstores, free and clear of Encumbrances other than Encumbrances
set forth on Schedule 4.11(d)(ii) ("Permitted Encumbrances"), encumbrances
set forth on Schedule 4.11(d)(iii) to be released or terminated prior to or
in connection with the Closing ("Designated Liabilities"), and liens for
current taxes not yet due and payable. All leases for tangible personal
property used by the Company or any Subsidiary in connection with their
operations are valid and in full force and effect and enforceable in all
material respects in accordance with their terms. Except as set forth in
Schedule 4.11(d)(i) attached hereto, no such lease is a capital lease, and
neither the Company nor any Subsidiary, or, to the best of Sellers'
knowledge, any of the other parties thereto, is in default under any such
lease or license, 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.
(e) The tangible assets (other than the Leased facilities) which are
owned or leased by the Company or the Subsidiaries are listed on Schedule
4.11(e) attached hereto, and, to the best of Sellers' knowledge, are in
good operating condition, order and repair, useable in the ordinary course
of business consistent with past practice, subject to ordinary wear and
tear, and are sufficient and adequate for all current operations. None of
the Company, the Subsidiaries or any Seller has received notice of any
violation of or default under any Legal Requirement or requirement relating
to any of such assets which remains uncured or has not been resolved.
(f) Except as set forth on Schedule 4.11(f), other than the Leased
Facilities, the Company does not operate, nor during the past five (5)
years has it owned, leased or operated, any Facility.
(g) The Curricula constitutes all of the Curricula currently used in
courses currently offered at the Schools.
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(h) The Intellectual Property constitutes all the patents,
trademarks, Tradenames, servicemarks, copyrights, know-how and trade
secrets owned by the Company or any Subsidiary, or used in connection with
their operations, and except for leased or licensed assets and properties
set forth on Schedule 4.11(d)(i), constitutes all the patents, trademarks,
logos, tradenames, servicemarks, copyrights, know-how and trade secrets
used by the Company and the Subsidiaries.
4.12. Material Miscellaneous Contracts.
Schedule 4.12 attached hereto sets forth a true, complete and correct
list of all contracts, agreements, and commitments relating to the operations of
the Company or the Subsidiaries (hereinafter collectively referred to as the
"Material Miscellaneous Contracts") (a) requiring aggregate payments after the
date hereof in excess of $5,000 or with a term expiring one (1) year or later
after the date hereof, or (b) including confidentiality, noncompetition,
nonsolicitation option or similar provisions, other than (x) the Leases, (y)
leases and licenses listed on Schedule 4.11(d)(i) attached hereto, and (z) Plans
listed on Schedule 4.21 attached hereto. True, complete and correct copies of
all Material Miscellaneous Contracts, together with all amendments thereto, have
heretofore been delivered or otherwise made available to Purchaser. The Material
Miscellaneous Contracts constitute legal, valid and binding obligations of the
Company, or one of the Subsidiaries, as applicable, and to the best of Sellers'
knowledge, the other parties thereto, and to the best of Sellers' knowledge are
in full force and effect. None of Company or any of the Subsidiaries is in
material default or, to the best of Sellers' knowledge, alleged to be in
material default on any term of any such Material Miscellaneous Contract. Except
as noted on Schedule 4.12 attached hereto, the consummation of the transactions
contemplated by this Agreement does not require the consent or approval of any
party to any Material Miscellaneous Contract.
4.13. Tradenames; Confidential Information.
(a) All tradenames, logos, trademarks or service marks used or
useful in connection with the operations of the Company, or the
Subsidiaries, and all forms, derivatives and graphic presentations thereof,
including forms of the tradename "International Academy of Merchandising
and Design" and related trademarks and servicemarks (collectively, the
"Tradenames"), having material value to the operations of the Company or
the Subsidiaries are set forth on Schedule 4.13(a) attached hereto. To the
best of Sellers' knowledge, the Company and the Subsidiaries have the
exclusive right to the use of each Tradename as an assumed business name in
the states in which such Tradename is used, and Schedule 4.13(a) sets forth
all registrations (including the jurisdictions thereof) of each Tradename
as a trademark, servicemark or assumed name. The Company has not licensed
any other Person to use any Tradename. None of the Company, the
Subsidiaries, or any Seller, has been sued or, to the best of Sellers'
knowledge, threatened with suit for infringement, violation or
-29-
breach with respect to any Tradename, and to the best of Sellers'
knowledge, no basis exists for any such suit. None of the Company, the
Subsidiaries or any Seller is on notice of any infringement, violation or
breach of any Tradename by any other Person.
(b) To the best of Sellers' knowledge, the Company and the
Subsidiaries have the right to use, free and clear of any claims or rights
of any third party, all Intellectual Property (subject in the case of
computer programs to the license agreements in that regard), customer
lists, Curricula and any other proprietary or confidential information
required for or used in the operations of the Subsidiaries. To the best of
Sellers' knowledge, none of the Company, the Subsidiaries, or any Seller is
in any way making any unlawful or wrongful use of any tradename, trade
secret, customer list, know-how, curricula or any other proprietary or
confidential information of any third party including, without limitation,
any former employer of any present or past employee of the Company or any
Subsidiary.
4.14. Financial Statements.
Sellers have previously furnished the Financial Statements to
Purchaser. The balance sheets included in the Financial Statements present
fairly, in accordance with GAAP, the assets and liabilities of the Company and
the Subsidiaries as of the respective dates thereof, and the related statements
of operations present fairly, in accordance with GAAP, the results of operations
of the Company and the Subsidiaries for the respective periods covered thereby.
The Financial Statements have been prepared in accordance with GAAP (except that
the Interim Financial Statements are not accompanied by all footnotes required
by GAAP and are subject to customary year end adjustments), are correct and
complete in all material respects and fairly present the financial position of
the Company and the Subsidiaries as of the dates of such Financial Statements,
and the results of operations and changes in financial position for the periods
covered by such Financial Statements. The Company and the Subsidiaries
maintained their financial books and records in accordance with applicable Legal
Requirements and (except for usual statement date adjustments) in accordance
with GAAP, and such books and records are, and during the periods covered by the
Financial Statements were, correct and complete in all material respects, fairly
reflecting the income, expenses, assets and liabilities of the Company and the
Subsidiaries. On the date of the balance sheet forming a part of the Interim
Financial Statements, the Company and the Subsidiaries had no liabilities which
were required to be set forth in a balance sheet prepared in accordance with
GAAP that were not included in such balance sheet. Except as set forth in
Schedule 4.14 attached hereto, neither the Company nor the Subsidiaries are
required to provide any letters of credit, guarantee or other financial security
arrangements in connection with any transactions approvals or licenses in the
ordinary course of operations of the Company or the Subsidiaries nor is the
Company or any Subsidiary bound by, party to or subject to any agreement,
contract, or commitment providing for the guarantee, indemnification, assumption
or endorsement or any like commitment with respect to the obligations,
liabilities (contingent or otherwise) or
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indebtedness of any Person. As of the date hereof, neither the Company nor any
Subsidiary has any material indebtedness, liabilities or obligations of any
nature, whether absolute, accrued, contingent or otherwise, whether known or
unknown, other than:
(a) those set forth or reserved against in the balance sheets
included in the Financial Statements for the fiscal years then ended or
disclosed in the footnotes to such Financial Statements, to the extent set
forth, reserved against or in the case of footnote items, disclosed;
(b) those set forth or reserved against in the Interim Financial
Statements, or those which would have been disclosed in footnotes to such
Interim Financial Statements, if footnotes had been prepared and which have
been disclosed in writing to Purchaser, to the extent set forth, reserved
against or, in the case of footnote items, disclosed;
(c) except as set forth on Schedule 4.14(c) attached hereto, those
incurred since the Interim Balance Sheet Date in the ordinary course of
business and consistent in nature with past practice, or those which would
have been disclosed in footnotes if footnotes had been prepared and which
have been disclosed to Purchaser in writing, to the extent set forth,
reserved or, in the case of footnote items, disclosed;
(d) those set forth on Schedule 4.14(c); and
(e) those not required to be disclosed in financial statements or
notes thereto prepared in accordance with GAAP.
There are no long-term fixed or contractual liabilities relating to the
operation of the Company or the Subsidiaries, as presently operated by the
Company, the annual expenses of which are not reflected in the Financial
Statements where required by GAAP or which are not otherwise disclosed or set
forth in this Agreement or one or more of the schedules hereto. Other than
obligations in respect of prepaid tuition neither the Company nor any Subsidiary
has any obligations in respect of refundable deposits.
4.15. Receivables.
The accounts receivable (including, without limitation, student
accounts receivables) of the Company and the Subsidiaries, except to the extent
of the allowance for cancellations and doubtful accounts set forth in the Final
Balance Sheet, are bona fide receivables, arose out of arms' length transactions
in the normal and usual practices of the Company or the Subsidiaries, as
applicable, are recorded correctly on the applicable books and records of the
Company and the Subsidiaries, and, to the best of Sellers' knowledge, are
collectable in full in the ordinary course of business, subject in the case of
certain receivables to reserves established for such receivables in the Final
Balance Sheet. To the best of Sellers' knowledge, such receivables are not
subject to any defense, counterclaim or setoff or trade discounts or credits not
reflected in the Final Balance Sheet (other than
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tuition refund policies administered in accordance with all applicable Legal
Requirements and the applicable Policy Guidelines), and Sellers have no
knowledge of any facts or circumstances which would cause any of such
receivables to have to be written down or written off in amounts which in the
aggregate would be in excess of reserves established for such receivables in the
Final Balance Sheet.
4.16. Inventories.
The only inventories maintained by the Company and the Subsidiaries
consist of supplies used in the ordinary course of business (and, in the case of
IAMD-Bookstore, books and school supplies) and are reflected on the Financial
Statements as "inventories." Such supplies will be reflected at cost on the
Final Balance Sheet, are usable in the ordinary and regular course of business,
are in all material respects fit and sufficient for the purpose for which they
were purchased and, at the date of this Agreement, are in customary amounts
appropriate to the Company's operation of the Schools and the Bookstores. All
excess or obsolete items have been written off.
4.17. Bank Accounts.
Schedule 4.17 attached hereto sets forth a true, complete and correct
list of the names of all banks and other financial institutions in which the
Company or any Subsidiary has an account or safe deposit box, which list
includes a description of such accounts, the account numbers and the names of
all individuals authorized to draw thereon or have access thereto.
4.18. Litigation, Etc.
(a) Except as set forth in Schedule 4.18 (a) attached hereto, there
are no (a) judgments, decrees, injunctions, rulings, awards or orders of
any Governmental Body or the Accrediting Bodies against or affecting the
Company, any Subsidiary, the Schools or the Bookstores, and (b)
Proceedings, pending or, to the best of each Sellers' knowledge, threatened
against or affecting the Company, any Subsidiary, the Schools or the
Bookstores, at law or in equity, or before or by any Governmental Body or
Accrediting Bodies; to the best of Sellers' knowledge, none of the Company,
any Subsidiary, the Schools or the Bookstores, are the subject of any
investigations or inquiries by any Governmental Body affecting the Company,
any Subsidiary, the Schools or the Bookstores, (including inquiries as to
the qualification to hold or receive any of the Licenses and Permits); and,
to the best of Sellers' knowledge, there is no basis for any of the
foregoing. There are no other Proceedings pending, or to the best of
Sellers' knowledge, threatened against or affecting the Company, the
Subsidiaries, or their Affiliates generally (including claims with respect
to any Employee Benefit Plans) which if adversely decided would have a
material adverse effect on the Company, the Subsidiaries, the Schools or
the Bookstores, or their assets taken as a whole.
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(b) Except as set forth in Schedule 4.18(b) attached hereto, there
are no (a) judgments, decrees, injunctions, rulings, awards or orders of
any Governmental Body or Accrediting Bodies against or affecting any Seller
or any such Seller's interest in the Company, and (b) Proceedings, pending
or, to the best of each Seller's knowledge, threatened against or affecting
such Seller's interest in the Company or the Schools or such Seller, at law
or in equity, or before or by any Governmental Body or Accrediting Bodies;
to the best of such Seller's knowledge, such Seller is not the subject of
any investigations or inquiries by any Governmental Body affecting the
Company or the Subsidiary (including inquiries as to the qualification to
hold or receive any of the Licenses and Permits); and, to the best of such
Seller's knowledge, there is no basis for any of the foregoing. There are
no other Proceedings pending, or to the best of Seller's knowledge,
threatened against or affecting such Seller (including claims with respect
to any Employee Benefit Plans) which if adversely decided would have a
material adverse effect on the Company, the Subsidiaries, the Schools or
their assets taken as a whole.
4.19. Insurance.
Schedule 4.19 attached hereto sets forth all insurance coverages now
or previously maintained by the Company and the Subsidiaries on the Leased
Facilities, the assets and the operations of the Company and the Subsidiaries,
including a list of all policies or binders of fire, extended coverage, general
and vehicular, fidelity and fiduciary liability, workers' compensation, key-man
life and other similar insurance, and all binders for insurance to be purchased
on or before Closing in order to replace policies expiring prior to the Closing.
Copies of such policies have been previously delivered to Purchaser. Except as
set forth in Schedule 4.19 attached hereto, such policies and binders are in
full force and effect, and there is no material 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. Except for amounts deductible and self-insured retainers under such
policies of insurance, the Company and the Subsidiaries have not been, prior to
the date hereof, subject to liability as a self-insurer. Except as set forth in
Schedule 4.19 attached hereto, there are no claims pending or threatened under
any of said policies pertaining to the Company or the Subsidiaries or disputes
with underwriters regarding coverage under such policies pertaining to the
Company or the Subsidiaries. Except as set forth on Schedule 4.19, neither the
execution, delivery and performance of this Agreement, nor the consummation of
the transactions contemplated hereby, will result in the loss to the Company or
the Subsidiaries of any of the insurance policies listed, or impair the rights
of the Company or the Subsidiaries with respect to liabilities arising, in
connection with the operations of the Company and Subsidiaries prior to the
Closing. Within five (5) years prior to the date hereof, neither the Company nor
any Subsidiary has been denied insurance, or been offered insurance only at a
commercially prohibitive premium.
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4.20. Environmental Matters.
Except as set forth in Schedule 4.20 attached hereto, none of the
Company or the Subsidiaries have generated, transported, stored, treated or
disposed, nor has either of them allowed or arranged for any third persons to
generate, transport, store, treat or dispose of, 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, to the best of Sellers' knowledge, has the
Company or the Subsidiaries performed, arranged for or allowed by any method or
procedure such transportation or disposal in contravention of any Legal
Requirements or in any other manner which may result in liability for
contamination or threat of contamination of the environment in violation of any
Environmental Law, except where such violation would not have a material adverse
effect on the business or operations of the Company or the Subsidiaries. Except
as set forth in Schedule 4.20, attached hereto, to the best of Sellers'
knowledge, no generation, use, handling, storage, treatment, release, threat of
release, discharge, spillage or disposal of any Hazardous Substance in violation
of any Environmental Law, has occurred or is occurring at the Leased Facilities
or, to the best of Sellers' knowledge, any other Facility previously owned or
operated by the Company or any Subsidiary. Except as set forth in Schedule 4.20
attached hereto, none of the Company, the Subsidiaries, or Sellers has received
notification of, nor is it aware, of, any past or present failure by the Company
or the Subsidiaries, to comply with any Environmental Law, including without
limitation the requirements of any permits, franchises, licenses or orders
issued pursuant to any Environmental Law, applicable to the Company or the
Subsidiaries, or their operations. Except as set forth on Schedule 4.20, none of
the Company, the Subsidiaries or Sellers has received any notification, nor are
any of them aware of, any past or present failure by the Company or the
Subsidiaries to comply in any material respect with any Environmental Law, which
failure may result in judicial, regulatory or other legal proceedings that would
have a material adverse impact on the operations of the Company or the
Subsidiaries or result in the imposition of any Encumbrance against the
Company's or any Subsidiaries' assets. Except as set forth on Schedule 4.20, to
the best of Sellers' knowledge, the Leased Facilities do not contain asbestos or
polychlorinated biphenyls or any underground storage tanks. None of the Company,
the Subsidiaries or Sellers has received notice from any Governmental Body
requiring any removal or other remediation with respect to asbestos or
polychlorinated biphenyls located at the Leased Facilities.
4.21. Employee Benefit Plans.
Schedule 4.21(a) lists all Employee Benefit Plans (the "Plans") that
the Company or any Subsidiary maintains to which the Company or any Subsidiary
contributes or to which the Company or any Subsidiary has an obligation to
contribute with respect to any current or former employee of the Company or any
Subsidiary, or with respect to which the Company or any Subsidiary otherwise is
reasonably expected to have any liability or potential liability (whether or not
such plan has terminated or whether or not such plan is or was maintained for
current or former employees of the Company or any
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Subsidiary or current or former employees of any other member of the controlled
group of the Company or any Subsidiary (within the meaning of Section 414 of the
Code).
(a) Except as disclosed on Schedule 4.21(b), the Company or any
Subsidiary does not contribute to, have any obligation to contribute to or
otherwise have any liability or potential liability with respect to (i) any
Multiemployer Plan, (ii) any Employee Benefit Plan of the type described in
Sections 4063 and 4064 of ERISA or in Section 413(c) of the Code (and
regulations promulgated thereunder) (iii) any voluntary employee
beneficiary as described in Section 501(c)(9) of the Code or (iv) any
employee welfare benefit plan which provides health, accident, or life
insurance benefits to current or future retirees or current or former
employees, their spouses or dependents other than in accordance with
Section 4980(B) of the Code or applicable state continuation coverage law.
(b) To the best of Sellers' knowledge and except as set forth in
Schedule 4.21(b), each Plan and all related trusts, insurance contracts and
funds, comply in form and in operation with all applicable laws and
regulations, including, but not limited to, ERISA and the Code. No person
has engaged in any transaction with respect to any Plan which could subject
the Company or any Subsidiary, any trustee, and any administrator of any
Plan, or any party dealing with any Plan, or Buyer to any tax or penalty
imposed by ERISA or the Code. No actions, suits, claims or demands with
respect to the Plans (other than routine claims for benefits) are pending
or threatened and, except as set forth in Schedule 4.21(b), Sellers have no
knowledge of any facts which could give rise, or be expected to give rise,
to any actions, suits, claims or demands. Except as set forth in Schedule
4.21(b), no Plan that is subject to the funding requirements of Section 412
of the Code or Section 302 of ERISA has incurred any "accumulated funding
deficiency" whether or not waived. Except as set forth in Schedule 4.22(b),
no liability to the PBGC (except for routine payment of premiums) has been,
or is expected to be, incurred with respect to any Plan subject to Title IV
of ERISA, no Reportable Event has occurred with respect to any such Plan
and the PBGC has not commenced or threatened the termination of any Plan.
No lien arising under Section 302(f) of ERISA or Section 412(n) of the Code
has arisen and the Company or any Subsidiary has not been required to post
any security under Section 307 of ERISA or Section 401(a)(29) of the Code,
and Sellers have no knowledge of any facts which could be expected to give
rise to any such lien or security.
(c) Except as provided on Schedule 4.21(b), each Plan, and its
related trust (if any), which is intended to be qualified under Section
401(a) of the Code has received a favorable determination letter from the
IRS as to the qualification under the Code of the Plan and the tax-exempt
status of such related trust, and, to the best of Sellers' knowledge,
nothing has occurred, including, but not limited to, the failure to make
any required amendments,
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that could adversely affect the qualification of the Plan or the tax-exempt
status of such trust.
(d) Neither the Company nor any Subsidiary is or ever has been a
party to any defined benefit plan.
(e) Except as disclosed in Schedule 4.21(b), no Plan requires the
Company or any Subsidiary to pay separation, severance, termination or
other such benefits solely as a result of any transaction contemplated by
this Agreement or solely as a result of a "Change in Control" as such term
is defined in Section 280G of the Code. The Company has complied in all
material respects with the requirements of Section 4980B of the Code and
Part VI of Subtitle B of Title I of ERISA.
(f) With respect to each Plan, all contributions which are due
(including employer contributions and employee salary reduction
contributions) have been paid to such Employee Benefit Plan, and all
contributions for prior plan years which are not yet due, and with respect
to the current plan year for the period ending on the Closing Date, have
been made or accrued, and with respect to the Employee Welfare Benefit
Plans, all premiums or other payments which are due as of the Closing Date
have been paid.
(g) Except as noted on Schedule 4.21(b), with respect to each Plan,
Sellers have provided Buyer with true, complete and correct copies, to the
extent applicable, of: (i) all documents pursuant to which the Plans are
maintained, funded and administered, (including, but not limited to,
applicable trust documents), (ii) the three most recent annual reports (IRS
Form 5500 series) (with attachments), (iii) the three most recent actuarial
reports, (iv) the three most recent financial statements, (v) all
governmental rulings, determinations, and opinions (and pending request for
governmental rulings, determinations, and opinions), if any.
4.22. Employment Matters.
(a) Except as set forth in Schedule 4.22(a) attached hereto, (i) to
the best of Sellers' knowledge, the Company and the Subsidiaries are in
compliance in all material respects with all Legal Requirements relating to
employment and employment practices, including terms and conditions of
employment, employment discrimination and wages and hours, and none of the
Company or the Subsidiaries are engaged in any unfair labor practices with
respect to individuals employed by or providing services to the Company or
the Subsidiaries; (ii) none of the Company, the Subsidiaries or Sellers are
aware of, nor has any of them received any written or other notice of, any
complaints against the Company or the Subsidiaries with respect to
individuals employed by or providing services to the Company or the
Subsidiaries pending
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before the National Labor Relations Board or any similar state or local
labor agency; (iii) there are no labor strikes, slow-downs or stoppages or
other labor troubles pending or, to the best of Sellers' knowledge,
threatened with respect to any individuals employed by or providing
services to the Company or the Subsidiaries; to the best of Sellers'
knowledge no labor organization activities have occurred with respect to
such employees during the past three (3) years; (iv) there are no
collective bargaining agreements binding on the Company or the
Subsidiaries; (v) no grievances have been asserted by any labor
organization against the Company or the Subsidiaries with respect to
individuals employed by or providing services to the Company or the
Subsidiaries; (vi) and none of the Company or the Subsidiaries has
experienced any work stoppage by such employees during the last three (3)
years. Schedule 4.22(a) attached hereto contains a list of all employees of
the Company and the Subsidiaries and all material consultants to the
Company and the Subsidiaries (including, without limitation, sales
representatives and other recruiters), other than attorneys and
accountants, who are employed or providing services in connection with the
operation of the Company or the Subsidiaries including: name; length of
service; job title; rate of base salary, bonuses and other incentive
compensation; and identifying all contracts, agreements, commitments and
arrangements, written or oral, with such employees or consultants. Sales
representatives and other recruiters for the Company and the Subsidiaries,
whether employed directly by or otherwise engaged by the Company or the
Subsidiaries, are licensed or registered in accordance with all applicable
Legal Requirements. No such sales representative or other recruiter
receives commissions, bonuses or other contingency payments based, directly
or indirectly, on the enrollment of students by such individual. True,
correct and complete copies of all agreements between the Company or any
Subsidiary and such employees or consultants and all amendments thereto
have been provided to Purchaser. The Company and the Subsidiaries have
performed all of their obligations under such agreements and are not in
default or violation and, to the best of Sellers' knowledge, the other
parties thereto are not in default or violation, thereunder.
(b) Except as set forth on Schedule 4.22(b), no employee, officer or
director of the Company or any Subsidiary is a party to, or is otherwise
bound by, any agreement or arrangement, including any confidentiality,
noncompetition, or proprietary rights agreement, that in any way adversely
affects or will affect (i) the performance of his duties as an employee,
officer or director of the Company or such Subsidiary, or (ii) the ability
of the Company or any Subsidiary to conduct its business, including without
limitation the operation of the Schools and the Bookstores. To best of
Sellers' knowledge, no employee of the Company listed on Schedule 4.22(b)
intends to terminate his or her employment with the Company.
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(c) Except as set forth on Schedule 4.22(c), there are no retired
employees or directors of the Company or the Subsidiaries, or their
dependents, receiving benefits or scheduled to receive benefits in the
future from the Company or any Subsidiary. Except as set forth on Schedule
4.22(c), none of the Company, the Subsidiaries, or any Seller is party to
any severance or other agreements with employees, former employees or
former owners of the Company.
(d) Schedule 4.22(d) lists all employee manuals and employment
policies of the Company and the Subsidiaries. Except as set forth in
Schedule 4.22(d), the Company or the applicable subsidiary has performed
all its duties and obligations through the date hereof pursuant to such
manuals and policies.
(e) The Company has no "leased employees" for purposes of Section
414(n) of the Code.
4.23. Labor Relations; Compliance
None of the Company, the Subsidiaries or the Schools has been nor is
any of them a party to any collective bargaining or other labor contract.
Except as set forth on Schedule 4.23, there has not been, there is not presently
pending or existing, and to the best of Sellers' knowledge, there is not
threatened, (a) any strike, slowdown, picketing, work stoppage, or employee
grievance process, (b) any Proceeding against or affecting the Company, the
Subsidiaries or the Schools relating to the alleged violation of any Legal
Requirement pertaining to labor relations or employment matters, including any
charge or complaint filed by an employee or union with the National Labor
Relations Board, the Equal Employment Opportunity Commission, the Occupational
Health and Safety Administration, or any comparable state or federal
Governmental Body, organizational activity, or other labor or employment dispute
against or affecting the Company, the Subsidiaries, the Schools or their
premises, or (c) any application for certification of a collective bargaining
agent. To the best of Sellers' knowledge, no event has occurred or circumstance
exists that could provide the basis for any work stoppage or other labor dispute
involving the Company or the Subsidiaries. There is no lockout of any employees
by the Company or the Subsidiaries, and no such action is contemplated. The
Company and the Subsidiaries have complied in all respects with all Legal
Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and
health, and plant closing, except where the failure to comply would not have a
material adverse effect upon the Company, the Subsidiaries or their assets. The
Company and the Subsidiaries are in compliance with the Worker Adjustment and
Retraining Notification Act ("WARN") and any other similar applicable state
and/or local laws regarding employees, and, where applicable, have provided its
employees with such advance notice of termination of employment as required by
WARN, or other applicable state or local laws, except where the failure to
comply or provide notice would not have a material adverse effect upon the
Company, the Subsidiaries or their respective assets.
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Except as set forth on Schedule 4.23, none of the Company or the Subsidiaries is
subject to any award, decision, injunction, judgment, ruling or verdict,
requiring the payment of any compensation, damages, taxes, fines, penalties, or
other amounts, however designated, for failure to comply with any of the
foregoing Legal Requirements.
4.24. Tax Matters.
(a) Except as disclosed on Schedule 4.24(a),
(i) Each of the Company and the Subsidiaries has filed or
caused to be filed in the prescribed manner and on or before the due
dates therefor or within applicable extension periods all Tax Returns
that are or were required to be filed by the Company or the
Subsidiaries, either separately or as a member of a group of
corporations, pursuant to applicable Legal Requirements.
(ii) Sellers have delivered or made available to Purchaser
copies of all such Tax Returns of the Company and the Subsidiaries,
filed since January 1, 1993.
(iii) Each of the Company and the Subsidiaries has paid, or made
provision for the payment of, all Taxes that have or may have become
due from the Company and the Subsidiaries, pursuant to such Tax
Returns or otherwise, or pursuant to any assessment received by the
Company or any Subsidiary, except such Taxes, if any, as are listed in
Schedule 4.24(a) and are being contested in good faith and as to which
adequate reserves (determined in accordance with GAAP) have been
provided in the Final Balance Sheet.
(b) The United States federal and state income tax returns of the
Company and the Subsidiaries have been audited by the IRS, or are closed by
the applicable statute of limitations for all taxable years through the
fiscal year ended June 30, 1992. Schedule 4.24(b) contains a complete and
accurate list of all audits of all such Tax Returns, including a reasonably
detailed description of the nature and outcome of each audit. All
deficiencies proposed as a result of such audits have been paid, reserved
against, settled, or, as described in Schedule 4.24(b), are being contested
in good faith by appropriate proceedings. Schedule 4.24(b) describes all
adjustments to the United States federal income Tax Returns filed by the
Company and the Subsidiaries or any consolidated group of corporations
including the Company for all taxable years since the fiscal year ended
June 30, 1993, and the resulting deficiencies proposed by the IRS. Except
as described in Schedule 4.24(b), none of the Company, any Subsidiary or
any Seller has given or been requested to give waivers or extensions (or is
or would be subject to a waiver or extension given by any other Person) of
any statute of limitations relating to the payment of
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Taxes of the Company and the Subsidiaries or for which the Company or the
Subsidiaries may be liable. Except as set forth and described in Schedule
4.24(b), there is no Proceeding and no assessment, reassessment or request
for information in progress, or, to the best of Sellers knowledge,
threatened, against or affecting any Subsidiary in respect of Taxes nor are
any issues under discussion with any taxing authority relating to any
matters which could result in claims for additional Taxes.
(c) The charges, accruals, and reserves with respect to Taxes on the
Interim Financial Statements are adequate (determined in accordance with
GAAP) and are at least equal to the Company's and the Subsidiaries'
liability for Taxes relating to periods through the date hereof. To the
best of Seller's knowledge, there exists no proposed tax assessment against
the Company or any Subsidiary except as disclosed in the Interim Financial
Statements or in Schedule 4.24(c). No consent to the application of Section
341(f)(2) of the Code has been filed with respect to any property or assets
held, acquired, or to be acquired by the Company or any Subsidiary. All
Taxes that the Company or the Subsidiaries are or were required by Legal
Requirements to withhold or collect have been duly withheld or collected
and, to the extent required, have been paid to the proper Governmental Body
or other Person.
(d) All Tax Returns filed by (or that include on a consolidated
basis) the Company and the Subsidiaries, or any of them, are true, correct,
and complete in all material respects. There is no tax sharing agreement
that will require any payment by the Company or any Subsidiary after the
date of this Agreement. The Company is not, nor since September 1, 1987 has
it been, an "S" corporation.
4.25. Brokerage.
Neither Sellers nor the Company (or any of their Affiliates) has
retained any broker or finder, and neither will be obligated to pay any brokers'
or finders' fee, in connection with the negotiation or consummation of the
transactions contemplated by this Agreement.
4.26. Affiliate Transactions.
Except as set forth in Schedule 4.26 attached hereto or as
specifically contemplated hereby, no Affiliate of any one or more of the Sellers
is a party to any agreement, contract, commitment or transaction with the
Company or the Subsidiaries, or has any material interest in any material
property used in connection with the operations of the Company or the
Subsidiaries.
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4.27. Absence of Certain Changes.
Except as contemplated by this Agreement or as set forth on Schedule
4.27 attached hereto, from the Interim Balance Sheet Date until the date hereof
there has not been, occurred or arisen:
(a) any sale, lease, transfer, abandonment or other disposition of
any right, title or interest in or to any of the properties or assets of
the Company or the Subsidiaries (tangible or intangible), except in the
ordinary course of business;
(b) other than in the ordinary course of the Company's and the
Subsidiaries' operations and consistent with the Company's and the
Subsidiaries' past and present business practices, (i) any approval or
action to put into effect any increase in any compensation or benefits
payable to any employee, director, agent or officer of the Company or any
Subsidiary, or any payment, grant or accrual to or for the benefit of any
such employee, director, 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, director, agent or officer 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, director, agent or officer;
(c) any material adverse change in the financial condition, assets,
liabilities (absolute, accrued, contingent or otherwise), business
prospects, reserves or operations of the Company or the Subsidiaries which
would have a material adverse effect;
(d) any damage, destruction or loss, whether or not covered by
insurance, materially adverse to the assets, business, or operations of the
Company or the Subsidiaries;
(e) any change in any material respect in the business policies or
practices of the Company or the Subsidiaries or a failure of the
Subsidiaries to operate the Schools and the Bookstores in the ordinary
course with a view to preserving such businesses intact, to retaining the
services of the present officers, employees and agents and with a view to
preserving the business relationships of the Company and the Subsidiaries,
including without limitation business relationships of the Schools with,
and the goodwill of, students, sales representatives, suppliers, the
Accrediting Bodies, Governmental Bodies and others; or
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(f) any written agreement, or otherwise binding agreement, to take
any action described in this Section 4.27.
4.28. Indebtedness.
Schedule 4.28 attached hereto contains a true, correct and complete
list of all indebtedness of the Company and the Subsidiaries for borrowed money,
including capitalized leases, and the balances owing thereunder as of the date
hereof.
4.29. Conduct of Business Since Interim Balance Sheet Date.
From the Interim Balance Sheet Date to the date of this Agreement, the
Company and the Subsidiaries have conducted their operations only according to
their ordinary and usual course of business, and the Company and the
Subsidiaries have used their best efforts to preserve intact the Company's and
the Subsidiaries' business organizations, keep the services of its employees and
maintain satisfactory relationships with the Accrediting Bodies, suppliers,
agents, students and others having business relationships with the Company and
the Subsidiaries. Notwithstanding the foregoing, the Company shall be permitted
to redeem shares of its capital stock, make distributions to its stockholders in
respect of such redemptions, distribute to the shareholders or an escrow account
those certain subscription notes receivable reflected in the Financial
Statements and pay other compensation to its stockholders and Affiliates;
provided, that such activities shall not result in the breach of any
representation or warranty of Sellers hereunder.
4.30. Approvals.
To the best of Sellers' knowledge, there exists no fact or
circumstance attributable to Sellers, the Company, the Subsidiaries or the
Schools that would cause DOE, any other Governmental Body or Accrediting Bodies
whose authorization, consent or similar approval is a requirement for the
consummation of the transactions contemplated by this Agreement to refuse to
deliver such authorization, consent or similar approval which have not been
disclosed to Purchaser prior to Closing.
4.31. Delivery of Documents.
True, correct and complete copies of all Leases, Material
Miscellaneous Contracts, Plans, Policy Guidelines and other documents,
instruments, agreements and records of the Company and the Subsidiaries
described on schedules to this Agreement or relating to the assets, liabilities
and the operations of the Company and the Subsidiaries, or the representations
and warranties of Sellers contained in this Agreement, have been delivered or
made available to Purchaser.
4.32. Disclosure.
This Agreement, together with the schedules, exhibits, and attachments
hereto, do not contain any untrue statement of a material fact or omit to state
a material fact
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necessary to make such statements not misleading in light of the circumstances
in which such statements were made.
5. Representations and Warranties of Purchaser.
As a material inducement to Sellers to enter into this Agreement and
to sell the Shares, Purchaser hereby represents and warrants as of the date
hereof that:
5.1. Organization and Corporate Power.
Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Purchaser is qualified to
do business as a foreign corporation in each jurisdiction in which the nature of
its operations requires, or as of the Closing will require, it so qualify,
except where failure to so qualify would not have a material adverse effect on
its business or operations. Purchaser has all requisite corporate power and
authority to own and operate its properties and assets, to carry on its business
as now conducted, and to consummate the transactions contemplated hereby. The
copies of Purchaser's articles of incorporation and by-laws which have been
furnished by Purchaser to Sellers reflect all amendments made thereto at any
time prior to the date of this Agreement and are correct and complete.
5.2. Capacity; Authorization, Binding Effect, Etc.
Purchaser has the unrestricted and absolute power, legal capacity and
authority to execute, deliver and perform this Agreement and each other document
being executed by it in connection herewith to which it is a party. This
Agreement has been, and each such other document and agreement to be executed in
connection herewith, as of the Closing, will have been, duly executed and
delivered by Purchaser and (assuming the due authorization, execution and
delivery hereof and thereof by Sellers and any other parties thereto), this
Agreement is, and each such other document or agreement will be, a valid and
binding obligation of Purchaser, enforceable against it in accordance with its
terms.
5.3. No Conflicts, Etc.
Except as set forth in Schedule 5.3, the execution, delivery and
performance of this Agreement by Purchaser, and each other document being
executed by Purchaser, in connection herewith, and the consummation of the
transactions contemplated hereby and thereby do not and will not (a) contravene,
conflict with, or result in violation of (i) any provision of the articles of
incorporation or bylaws of Purchaser, or (ii) any resolution adopted by the
board of directors or stockholders of Purchaser or CEC, (b) contravene, violate
or conflict with any Legal Requirement applicable to Purchaser or CEC, (c) with
or without the giving of notice, the passage of time, or both, conflict with, or
result in the breach or termination of, or default under, any provisions of any
material instrument, license, permit, authorization, agreement or commitment to
which Purchaser or CEC is a party or by which their assets are bound, (d)
constitute a violation of any order, judgment or decree to which Purchaser or
CEC is a party or by which their assets or properties are
-43-
bound; or (e) except as set forth in Schedule 5.3, require any approval of, or
filing or registration with, any Governmental Body or Accrediting Bodies that is
required to be obtained or made by Purchaser or CEC, other than approvals,
filings and registrations which have been previously obtained or made, or which
are required and will be obtained or made in the ordinary course of Purchaser's
and CEC's business and operations.
5.4. Litigation.
There are no Proceedings pending against or, to the best of
Purchaser's knowledge, threatened against or affecting Purchaser or CEC at law
or in equity, or before or by any Governmental Body or Accrediting Bodies
seeking to enjoin, restrain or delay the consummation of the transactions
contemplated by this Agreement and to the best of Purchaser's knowledge, there
is no basis for the foregoing.
5.5. Brokerage.
Neither Purchaser nor CEC has retained any broker or finder, and
neither will be obligated to pay any brokers' or finders' fee, in connection
with the negotiation or consummation of the transactions contemplated by this
Agreement.
5.6. Title IV Program Liabilities.
Neither Purchaser nor CEC, nor any of their Affiliates who exercises
substantial control over any other private post-secondary school or other
institution subject to Title IV, owes a liability for a violation of a Title IV
program requirement that may reasonably be anticipated to be an impairment to
certification of Purchaser under 34 C.F.R. Section 668.15(c).
5.7. Approvals.
To the best of Purchaser's knowledge, there exists no fact or
circumstances attributable to Purchaser, CEC or its subsidiaries that would
cause DOE, any other Governmental Body or Accrediting Bodies whose
authorization, consent or similar approval is a requirement for the consummation
of the transactions contemplated by this Agreement to refuse to deliver such
authorization, consent or similar approvals.
5.8. Disclosure.
Neither this Agreement, nor any of the schedules, exhibits or
attachments hereto prepared or supplied by Purchaser, or any documents,
certificates or other written agreements delivered by or on behalf of Purchaser
with respect to the transactions contemplated hereby, contain any untrue
statement of material fact or omit a statement of material fact necessary to
make such statements not misleading in light of the circumstances in which such
statements were made.
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5.9. Purchaser's Knowledge; Resources of Purchaser.
To the best of Purchaser's knowledge, there exists no fact or
circumstance that would cause any representation or warranty of Sellers to be
materially incorrect or untrue. Purchaser represents that Purchaser and its
corporate parent, CEC, have adequate resources to complete the transactions
contemplated hereby.
5.10. Maintenance of Insurance.
From and after the Closing Date and until all amounts payable to
Sellers hereunder are paid in full, Purchaser shall maintain such insurance
policies as are adequate and reasonable in the sole discretion of Purchaser, in
both scope and amount, for the Company and the Subsidiaries.
6. Additional Covenants of the Parties.
6.1. Confidential Information.
(a) Each Seller acknowledges and agrees that such Seller is in
possession of Confidential Information (as defined herein) relating to the
Company and the Subsidiaries. For purposes hereof, "Confidential
Information" shall mean all proprietary or confidential information
concerning the business, Intellectual Property, Curricula, and other
properties and operations of the Company and the Subsidiaries, including,
without limitation, all student and prospective student lists, supplier
lists, know-how, trade secrets, business and marketing plans, techniques,
forecasts, projections, budgets, unpublished financial statements, price
lists, costs, computer programs, source and object codes, algorithms, data,
and other original works of authorship, along with all information received
from third parties and held in confidence by the Company, the Subsidiaries
or such Seller (including, without limitation, personnel files and student
records). Each Seller agrees that he or she will hold the Confidential
Information in the strictest confidence and will not disclose or make use
of (directly or indirectly) the Confidential Information or any portion
thereof, except (i) as required in the performance of such Seller's duties
and obligations pursuant to the Noncompetition Agreements, this Agreement
or any employment agreement with the Purchaser, the Company, the
Subsidiaries or any Affiliate of any of them, (ii) as required by the order
of any court or similar tribunal or any other Governmental Body of
appropriate jurisdiction; provided, however, that Sellers shall, to the
extent practicable, give Purchaser prior written notice of any such
required disclosure and shall cooperate with Purchaser in obtaining a
protective order or such similar protection as Purchaser may deem
appropriate to preserve the confidential nature of such information, (iii)
disclosure to professional advisors of the Sellers, provided however such
Sellers must advise the professional advisors of the confidential nature of
such information,
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and (iv) disclosure for use in and/or the purpose of a dispute or in a
Proceeding with the Purchaser or any of the Sellers in connection with the
obligations and transactions hereunder. The foregoing obligations to
maintain the Confidential Information shall not apply to any Confidential
Information which is or, without any wrongful action by Sellers, becomes
generally available to the public. Upon consummation of the sale of the
Shares to Purchaser, each Seller shall have delivered to Purchaser
(directly or to the Company or the Subsidiaries) all physical embodiments
of the Confidential Information (regardless of form or medium) in the
possession of or under the control of such Seller. The parties hereto each
recognize that the other parties hereto will suffer irreparable injury in
the event of a breach of the terms of this Section 6.1 by a Seller.
Notwithstanding any provision to the contrary contained herein, including
without limitation the provisions of Section 9, in the event of a breach of
the terms of this Section 6.1, Purchaser shall be entitled, in addition to
any other remedies and damages available and without proof of monetary or
immediate damage, to a temporary and/or permanent injunction, without bond,
to restrain the violation of this Section 6.1 by any Seller or any Person
acting for or in concert with a Seller. Upon any rescission of the
transactions contemplated hereby pursuant to Section 10, all provisions of
this Section 6.1 shall be of no further force and effect on Sellers with
respect to the Confidential Information.
(b) In the event of recission of the transactions contemplated hereby
pursuant to Section 10, Purchaser agrees that thereafter it shall hold (and
shall cause its Affiliates to hold) the Confidential Information in the
strictest confidence and that it shall not disclose or make use of (or
permit its Affiliates to disclose or make use of) the Confidential
Information or any portion thereof, except (i) as required in the
performance of Purchaser's duties and obligations pursuant to this
Agreement, (ii) as required by the order of any court or similar tribunal
or any other Governmental Body of appropriate jurisdiction; provided,
however, that Purchaser shall, to the extent practicable, give Sellers
prior written notice of any such required disclosure and shall cooperate
with Sellers in obtaining a protective order or such similar protection as
Sellers may deem appropriate to preserve the confidential nature of such
information. The foregoing obligations to maintain the Confidential
Information shall not apply to any Confidential Information which is or,
without any wrongful action by Purchaser, becomes generally available to
the public. The parties hereto each recognize that the other parties hereto
will suffer irreparable injury in the event of a breach of the terms of
this Section 6.1(b) by Purchaser. Notwithstanding any provision to the
contrary contained herein, including without limitation the provisions of
Section 9, in the event of a breach of the terms of this Section 6.1(b),
Sellers shall be entitled, in addition to any other remedies and damages
available and without proof of monetary or immediate damage, to a temporary
and/or permanent injunction, without bond, to restrain the violation of
this
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Section 6.1(b) by Purchaser or any Person acting for or in concert with
Purchaser. Notwithstanding any provision to the contrary contained herein,
this Section 6.2(b) shall apply only in the event of a recission of the
transactions contemplated hereby pursuant to Section 10.
6.2. Additional Covenants of Sellers Pending Closing.
Pending the Closing, Sellers shall cooperate fully with Purchaser, its
officers, employees, representatives and agents in connection with accomplishing
the satisfaction of all conditions to the Closing and with all other matters
relating to the consummation of the transactions contemplated by this Agreement.
Pending the Closing and subject to all the limitations contained in and
provisions of the Family Educational Rights and Privacy Act of 1974, 20 U.S.C.
(S) 1232g, as amended, and any other relevant Legal Requirements, Sellers shall
afford to all representatives of Purchaser reasonable access during normal
business hours to the assets, properties, books, financial statements, work
papers and records of the Company and the Subsidiaries in order that Purchaser
have full opportunity to make investigations thereof. In addition, Sellers
shall, and shall cause the Company and the Subsidiaries to, use good faith
efforts to assist Purchaser in obtaining any required Accreditation from the
Accrediting Bodies reasonably necessary for Purchaser's operation of the
Schools, including furnishing Purchaser such necessary information and
reasonable assistance as Purchaser may request in connection with its
preparation of necessary filings, submissions or applications to the Accrediting
Bodies and any Governmental Bodies in connection with the transactions
contemplated hereby. In addition, Sellers shall use their best efforts to
obtain the consents and approvals set forth in Section 3.1(g). Furthermore,
during the period from the date of this Agreement to the Closing Date, neither
the Company nor the Subsidiaries shall conduct any business or incur or assume
any liabilities or obligations of any kind, except for such business,
liabilities and obligations as may be conducted or incurred in the ordinary
course of business of the Company and the Subsidiaries or as expressly permitted
or required by the terms of this Agreement or as to which Purchaser may consent
in writing. During the period from the date of this Agreement to the Closing
Date, Sellers shall use their good faith efforts to preserve intact the business
organization of the Company and the Subsidiaries, to pay operating expenses in
the ordinary course of business, to keep available the services of their
employees, and to maintain satisfactory relationships between the Company and
the Subsidiaries, and the Accrediting Bodies, Governmental Bodies, suppliers,
agents, students and others having business relationships with the Company or
the Subsidiaries. Sellers shall promptly notify Purchaser of any occurrence or
event that would or is likely to make untrue any representation or warranty of
Sellers made in Section 4 as of the Closing Date, or which would or is likely to
result in an inability to satisfy any condition set forth in Sections 7 or 8.
Notwithstanding the foregoing, the Company shall be permitted to redeem shares
of its capital stock, make distributions to its stockholders in respect of such
redemptions, and pay other compensation to its stockholders and Affiliates;
provided, that such activities shall not result in the breach of any
representation of warranty of Sellers hereunder.
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6.3. Employees.
During the period from the date of this Agreement to the Closing Date,
Sellers shall cause the Company and the Subsidiaries to use their good faith
efforts to retain the services of all senior managerial employees of the Company
and the Subsidiaries. During the period from the date of this Agreement to the
Closing Date, none of the Company, the Subsidiaries or the Sellers shall offer
any employee or sales representative of the Company or the Subsidiaries any
other employment with Sellers, the Company or the Subsidiaries, or any of their
Affiliates, without the prior written consent of Purchaser.
6.4. Exclusive Dealing.
During the period from the date of this Agreement to the earlier of
(a) the Closing Date or (b) the date of termination of this Agreement pursuant
to Section 11.1 hereof, Sellers and their Affiliates shall not and shall not
permit the Company or the Subsidiaries to, directly or indirectly, encourage,
initiate or engage in discussions or negotiations with, or (except as
contemplated by this Agreement) provide any information to, any Person, other
than Purchaser and CEC, concerning any proposed purchase of the Company, the
Subsidiaries or the Schools or the Bookstores, or any similar transaction
involving the Company, the Subsidiaries, the Schools or the Bookstores, or
Sellers' interest in any of them.
6.5. Additional Covenants of Purchaser Pending Closing.
Purchaser covenants and agrees that from and after the date of this
Agreement, and until the earlier of the Closing Date or the termination of this
Agreement pursuant to Section 11.1 hereof, Purchaser (a) shall use its good
faith efforts to fulfill or satisfy, or cause to be fulfilled or satisfied, all
of the conditions precedent to Sellers' obligations to consummate and complete
the transactions contemplated by this Agreement, including without limitation
the sale of the Shares provided herein, and to take all other steps and do all
other things reasonably required to consummate this Agreement in accordance with
its terms; and (b) shall not interfere with the performance by Sellers of their
obligations under this Agreement.
6.6. Initial Public Offering.
In the event that CEC engages in an Initial Public Offering of its
common stock at any time prior to the third anniversary of the Closing Date, CEC
shall use its best efforts (which best efforts shall not, however, include the
expenditure of more than nominal amounts of money by CEC), to reserve up to one
and one-quarter percent (1.25%) of the total shares offered in such Initial
Public Offering for purchase by Sellers.
7. Conditions to Purchaser's Obligations.
The obligations of Purchaser to consummate the transactions
contemplated by this Agreement are subject to the satisfaction, or to the waiver
in writing by Purchaser,
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on or before the Closing Date, or, where applicable, such other date as is set
forth herein, of the conditions set forth below:
7.1. Due Diligence Review.
Purchaser shall have completed and shall be satisfied with the results
of its due diligence review of the Company and the Subsidiaries, including,
without limitation, review of the Company's and the Subsidiaries' assets,
properties, business, financial condition and business prospects, legal and
accounting review of all liabilities and contingencies, Facility visits,
regulatory compliance analysis (including financial aid administration and
cohort default rates), assessment of relations with the Accrediting Bodies and
Governmental Bodies, access to lenders for student loan programs, and completion
of a satisfactory market analysis.
7.2. Audited Financial Statements, Acid Test Ratio and Cohort Default
Rates.
Purchaser shall have received audited financial statements for the
Company and the Subsidiaries for the years ended June 30, 1994, 1995 and 1996
and evidence that each of the Schools was in compliance with the "Acid Test
Ratio" as applied by the DOE pursuant to 34 C.F.R. (S) 668:15 (1994) as of such
dates, that each of the Schools has a positive tangible net worth in accordance
with the method for calculating such amount employed by DOE pursuant to 34
C.F.R. (S) 668.15 (1994) and that each of the Schools has not had operating
losses for any of such fiscal years. In addition, none of the Company, the
Subsidiaries or the Schools shall have received notification from the DOE at any
time prior to the Closing Date that either School's cohort default rate is equal
to or greater than twenty-five percent (25%).
7.3. Financing.
Purchaser shall have obtained approval for the transactions
contemplated by this Agreement and equity and/or debt financing from its present
financing sources (a) in an amount sufficient to pay the Purchase Price and to
pay the Noncompetition Payments, and (b) upon terms satisfactory to Purchaser,
CEC and CEC's stockholders, and consistent with satisfying financial
requirements of the DOE, applicable state regulators and the Accrediting Bodies.
7.4. Truth of Representations and Warranties.
The representations and warranties of Sellers contained in this
Agreement and in any certificate delivered by Sellers in accordance with the
terms hereof shall be true and correct in all material respects on and as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date (except to the extent such representations
and warranties speak of a particular date and except to the extent that any
failure to satisfy this requirement would not have a material adverse effect on
the business assets, or operations of the Company or any of the Subsidiaries),
and Sellers shall have delivered to Purchaser a certificate, dated the Closing
Date, to such effect.
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7.5. Performance of Agreements.
Each and all of the agreements of Sellers to be performed on or before
the Closing Date pursuant to the terms hereof shall have been fully performed in
all material respects, each of the documents, agreements and other items to be
delivered to Purchaser pursuant to Section 3.1 shall have been delivered, and
Sellers shall have delivered to Purchaser a certificate, dated the Closing Date,
to such effect.
7.6. No Material Adverse Change.
Since the date of this Agreement, there shall have been no material
adverse change in the properties, business, assets, results of operations,
condition (financial or otherwise) or business prospects of the Company or the
Subsidiaries, individually or in aggregate, there shall have been no material
deviation in the Company's or the Subsidiaries working capital position (other
than its cash position) since the Interim Balance Sheet Date, and Sellers shall
have delivered to Purchaser a certificate, dated as of the Closing Date, to such
effect.
7.7. Litigation.
No Legal Requirement shall have been enacted, issued, promulgated or
entered by any Governmental Body and no injunction or order of any court or
other Governmental Body or Accrediting Bodies shall have been entered, in either
case, which prohibits or restricts the transactions contemplated hereby, and no
Proceeding shall have been instituted or threatened by any Person before a court
or other Governmental Body or Accrediting Bodies: (i) seeking to restrain or
prohibit any of the transactions contemplated hereby or (ii) challenging or
questioning the right, title or interest of Sellers in and to the Shares to be
transferred under this Agreement or the right of Sellers to transfer validly all
of such right, title and interest in and to such Shares to Purchaser.
7.8. Accrediting Bodies Approval.
To the extent available prior to Closing, the approvals of any
applicable state regulatory agency with jurisdiction over the Schools and the
Accrediting Bodies for the consummation of the transactions contemplated by this
Agreement with respect to the Schools, including approval for issuance of
licenses to Purchaser to operate the Schools, shall have been received, shall
continue in full force and effect, and shall not contain terms and conditions
which, as a result of facts or circumstances attributable solely to Sellers, or
to the condition of the Company, the Subsidiaries or the Schools prior to
Closing, in Purchaser's reasonable judgment reduce or are reasonably likely to
reduce the economic benefit to Purchaser and its Affiliates that Purchaser
anticipated to receive from the consummation of the transactions contemplated
hereby, or would impose burdensome restrictions or limitations on the activities
of Purchaser or its Affiliates unrelated to the Schools. Obtaining DOE approval
for the resumption of Title IV funding for the Schools as operated by Purchaser
shall not be a condition to Purchaser's obligations to consummate
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the transactions contemplated by this Agreement so long as there is no
indication as of the Closing Date that DOE approval will not or cannot be
obtained.
7.9. Proceedings.
All proceedings to be taken in connection with the transactions
contemplated by this Agreement and all documents incident thereto shall be
reasonably satisfactory, in all material respects, in form and substance to
Purchaser and its counsel, and Purchaser shall have received copies of all such
documents and other evidence as Purchaser or its counsel may reasonably request
in order to establish the consummation of such transactions and the taking of
all appropriate proceedings in connection therewith.
7.10. Financial Aid Compliance Audit.
Sellers shall have delivered to Purchaser a copy of its financial aid
compliance audit report submitted to DOE for the regulatory year ended June 30,
1996, which report shall be satisfactory to Purchaser. Purchaser acknowledges
that it has received a copy of such report and that such report is satisfactory
to Purchaser.
7.11. [Intentionally Omitted]
7.12. Consents and Approvals.
Sellers shall have obtained the consents and approvals set forth in
Section 3.1(h), and such consents and approvals shall remain in full force and
effect.
7.13. Environmental Assessment.
Purchaser shall have received a Phase I environmental site assessment
for each of the Leased Facilities, which assessments shall be satisfactory to
Purchaser. Purchaser acknowledges that it has received such assessments and
that such assessments are satisfactory to Seller.
7.14. Acquisition of The International Academy of Merchandising and
Design (Canada), Ltd.
All conditions to the closing of the acquisition (the "Canada
Acquisition") of The International Academy of Merchandising and Design (Canada),
Ltd. ("IAMD-Canada") by CEC pursuant to that certain Share Purchase Agreement
(the "Canada Purchase Agreement") of event date herewith by and among CEC and
the stockholders of IAMD-Canada, shall have been satisfied or waived, and the
Canada Acquisition shall close simultaneously with the Closing hereunder.
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8. Conditions to Sellers' Obligations.
The obligations of Sellers to consummate the transactions contemplated
by this Agreement are subject to the satisfaction, or to the waiver in writing
by Sellers, on or before the Closing Date, or, where applicable, such other date
as is set forth herein, of the following conditions:
8.1. Truth of Representations and Warranties.
The representations and warranties of Purchaser contained in this
Agreement and in any certificate delivered by Purchaser in accordance with the
terms hereof shall be true and correct in all material respects on and as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date (except to the extent such representations
and warranties speak of a particular date and except to the extent that any
failure to satisfy this requirement would not have a material adverse effect on
the business, assets or operations of Purchaser), and Purchaser shall have
delivered to Sellers a certificate, dated as of the Closing Date, to such
effect.
8.2. Performance of Agreements.
Each and all of the agreements of Purchaser to be performed on or
before the Closing Date pursuant to the terms hereof shall have been fully
performed in all material respects, and each of the documents, agreements and
other items, to be delivered to Sellers pursuant to Section 3.2 shall have been
delivered, and Purchaser shall have delivered to Sellers a certificate, dated
the Closing Date, to such effect.
8.3. Litigation.
No Legal Requirement shall have been enacted, issued, promulgated or
entered by any Governmental Body and no injunction or order of any court or
other Governmental Body or Accrediting Bodies shall have been entered, in either
case, which prohibits or restricts the transactions contemplated hereby, and no
Proceeding shall have been instituted or threatened by any Person before a court
or other Governmental Body or Accrediting Bodies; (i) seeking to restrain or
prohibit any of the transactions contemplated hereby, or (ii) unless Purchaser
has agreed to waive its right to indemnification with respect thereto,
challenging or questioning the right, title or interest of Sellers to transfer
validly all of such right, title and interest in and to the Shares to be
transferred to Purchaser.
8.4. Proceedings.
All proceedings to be taken in connection with the transactions
contemplated by this Agreement and all documents incident thereto shall be
reasonably satisfactory in form and substance, in all material respects, to
Sellers and their counsel, and Sellers shall have received copies of all such
documents and other evidence as they or their counsel may
-52-
reasonably request in order to establish the consummation of such transactions
and the taking of all appropriate proceedings in connection therewith.
8.5. Acquisition of The International Academy of Merchandising and
Design (Canada), Ltd.
All conditions to the closing of the Canada Acquisition shall have
been satisfied or waived, and the Canada Acquisition shall close simultaneously
with the Closing hereunder.
9. Indemnification; Remedies.
9.1. Survival; Right to Indemnification Not Affected By Knowledge.
All representations, warranties, covenants, and obligations in this
Agreement, or in any other certificate or document delivered pursuant to this
Agreement, will survive the Closing as provided herein. Subject to Section 5.9
hereof, the right to indemnification, through the payment of Damages based on a
breach of such representations, warranties, covenants and obligations, will not
be affected by any investigation conducted at any time before or after the
execution of this Agreement or the Closing Date with respect to the accuracy or
inaccuracy of, or compliance with, any such representation, warranty, covenant
or obligation except as provided in this Agreement.
9.2. Indemnification and Payment of Damages by Sellers.
Sellers, will indemnify and hold harmless Purchaser for, and will pay
to the Purchaser the amount of, any actual loss, liability, claim, damage
(excluding any and all punitive, exemplary, or consequential damages), expense
(including costs of investigation and defense and reasonable attorney's fees),
whether or not involving a third-party claim, suffered or incurred by the
Purchaser (including all Damages suffered or incurred by the Company or any
Subsidiary which would not have been suffered or incurred if there had been no
breach of any representation, warrant or covenant made by Sellers under this
Agreement or in any other document delivered by Sellers pursuant to this
Agreement (collectively, "Damages"), arising, directly or indirectly, from or in
connection with:
(a) any breach of any representation or warranty made by Sellers in
this Agreement or in any other document delivered by Sellers pursuant to
this Agreement;
(b) any breach by any Seller of any covenant in or obligation of, any
Seller in this Agreement or any other document delivered by such Seller
pursuant to his Agreement;
(c) any claim by any person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such Person with any Seller or the Company
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or any Subsidiary (or any Person acting on their behalf) in connection with any
of the transactions contemplated by this Agreement; or
(d) (i) any debt, obligation or liability of the Company or any
Subsidiary, or any claim against any of them, of any kind, whether known or
unknown, contingent, absolute or otherwise affecting the Company or any
Subsidiary which resulted from or arose out of the operation of the Company or
the Subsidiaries prior to Closing, to the extent (A) not disclosed in this
Agreement (including any of the Schedules hereto) or reflected or disclosed in
the balance sheets forming a part of the Financial Statements (including without
limitation, any liability for Taxes (other than Taxes not yet due and payable in
the amounts reflected on the Final Closing Balance Sheet, Taxes constituting
sales taxes in connection with accounts payable reflected on the Final Closing
Balance Sheet and Taxes relating to the period after Closing not resulting from
any breach of representation or warranty of Sellers hereunder)); (B) not taken
into account in determining Net Worth (as defined in Section 2.3(a); or (C) not
arising under any non-material contract; (ii) the Designated Liabilities; (iii)
financial aid irregularities relating to operation of the Schools that occurred
or relate to activities or actions occurring prior to the Closing, including
without limitation any liabilities resulting from or arising out of any show
cause order (including the Show Cause Order), any audit review disallowances,
improperly disbursed student financial assistance program funds or similar
determinations ("Pre-Closing Financial Aid Irregularities") or the cost of
responding to any audits, program reviews or other investigations which disclose
material Pre-Closing Financial Aid Irregularities, whether such audit or
investigation is in progress as of the Closing Date or commences after the
Closing or (iv) litigation affecting the Company or any Subsidiary pending or
threatened as of Closing.
(e) notwithstanding anything contained in Section 4.21 or Schedule 4.21(a)
or 4.21(b) any Damages, penalties or taxes arising out of or in connection with
the formation, operations and termination of its Employee Benefit Plans prior to
Closing (including, but not limited to, the termination and operation of the
International Academy of Merchandising & Design, Ltd. Employees' Profit Sharing
Plan, the failure to file IRS Forms 5500 and the distribution of assets from the
International Academy of Merchandising & Design, Ltd. Employees' Profit Sharing
Plan and related to the failure to procure an IRS determination letter from the
effective date of the 401(k) Plan), to the extent not taken into account in
determining Net Worth. Sellers will prepare and file the final IRS Form 5500 for
the International Academy of Merchandising & Design, Ltd. Employees' Profit
Sharing Plan under the Department of Labor's delinquent filers program.
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9.3. Indemnification and Payment of Damages by Purchaser.
Purchaser will indemnify and hold harmless Sellers, and will pay to
Sellers the amount of any Damages arising from or in connection with:
(a) any breach of any representation or warranty made by Purchaser in
this Agreement or in any certificate delivered by Purchaser pursuant to
this Agreement;
(b) any breach by Purchaser of any covenant or obligation of
Purchaser in this Agreement; or
(c) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by such Person with Purchaser or CEC (or any
Person acting on their behalf) in connection with any of the transactions
contemplated by this Agreement.
9.4. Limitations on Amount.
(a) Notwithstanding any provisions of this Agreement to the contrary,
Sellers will have no liability with respect to the matters described in
clause (a), clause (b), or clause (d) of Section 9.2 other than for (i)
Damages up to the aggregate amount of fifty percent (50%) of the total
value of consideration received by Sellers for which claims are made on or
before the eighteen (18) month anniversary of the Closing, and (ii) Damages
up to the aggregate amount of $1,500,000 for which claims are made after
the eighteen (18) month anniversary and on or before the four (4) year
anniversary of the Closing; provided that in no event shall the total
liability of Sellers for indemnification pursuant to clause (a), clause (b)
and clause (d) of Section 9.2 exceed fifty percent (50%) of the total value
of consideration received by Sellers in the aggregate ("Indemnification
Cap") and further provided that in the event that there is an adjustment of
the Purchase Price pursuant to Section 2.3 hereof, the Indemnification Cap
shall be similarly adjusted by an amount equal to fifty percent (50%) of
such adjustment to the Purchase Price but in no event shall such adjustment
to the Indemnification Cap exceed $200,000.
(b) Notwithstanding Section 9.4(a), in the event of (i) any breach of
any Sellers' representations and warranties of which any Seller had actual
knowledge at any time prior to the date on which such representation and
warranty is made; or (ii) any intentional breach by Sellers of any covenant
or obligation, or (iii) any indemnification rights under Section 9.2(e),
Sellers will be liable for all Damages with respect to such breaches or
indemnification rights provided that in no event shall the total liability
of any Seller under this Agreement exceed the total value of consideration
received by such Seller.
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9.5. Liability of Individual Sellers; Breaches by Individual Sellers.
(a) Notwithstanding any provision of this Section 9 to the contrary,
in the event of any breach of the provisions of Sections 4.2(b), 4.3,
4.4(b), 4.6(a)(ii) or 4.18(b) resulting from the acts or capacity of, or
knowledge or belief of, one or more specific Sellers (in their capacity as
shareholders, as opposed to corporate directors, officers, employees or
agents), only the particular Seller or Sellers whose acts or capacity, or
knowledge or belief are the basis for such breach shall be liable pursuant
to Section 9.2 to indemnify Purchaser for Damages resulting therefrom;
provided that in no event shall the total liability of any Seller under
this Agreement exceed the total value of consideration received by such
Seller.
(b) Except as provided in Section 9.5(a), each individual Seller's
liability in respect of any claim for Damages shall be limited to an amount
equal to the product of: (1) a fraction (i) the numerator of which is the
total value of the consideration received by such Seller hereunder and (ii)
the denominator of which is the total consideration paid to all Sellers
hereunder, multiplied by (2) the total amount of such Damages, provided,
however, that the indemnification amount shall not exceed the total value
of the consideration received by such Seller hereunder.
9.6. Further Limitations on Remedies.
(a) Except in connection with the enforcement of their respective
rights pursuant to Section 10 hereof or as otherwise expressly provided
herein, any claim by any party hereto arising out of or relating in anyway
to this Agreement shall have as its sole remedy the indemnification
provided by this Section 9. Notwithstanding the foregoing, nothing herein
shall preclude any party from seeking to exercise or enforce any rights
under any other agreements executed in connection with the transactions
contemplated by this Agreement or injunctive or other equitable relief as
may be necessary or desirable to protect its rights hereunder. Sellers
hereby acknowledge and agree that no waiver or release by the Company or
any Subsidiary, or any of them, executed or issued on or prior to the
Closing shall constitute a waiver, release or limitation in any way of the
provisions of this Section 9.
(b) Except for Damages based upon or arising out of a breach of
representation or warranty subject to Section 9.5(a) hereof, Sellers shall
not be liable for indemnification for Damages until the amount of Damages
exceeds, in the aggregate, the sum of $100,000 (the "Indemnification
Threshold").
(c) All Damages shall be determined net of any tax benefit or
economic benefit to the Purchaser, Company, or any Subsidiary, arising in
respect of or as a result of the matters for which the Damages are claimed;
or
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insurance proceeds derived (or reasonably expected to be derived) by the
party or parties indemnified hereunder in respect thereof.
(d) In the event of a recission of the transactions contemplated
hereby, Purchaser's sole remedy shall be as set forth in Section 10 and
Purchaser shall have no right to indemnity hereunder.
(e) Notwithstanding anything to the contrary contained herein, in no
event shall any party be entitled to recover more than once for the same
matter.
9.7. Procedures.
(a) Any claim under Section 9.2 or Section 9.3 shall be made in a
written statement signed by the party seeking indemnification which shall
specify in reasonable detail each individual item of Damage and the
estimated amount thereof, the date such item was claimed or the facts
giving rise to such claim were discovered, the basis for any alleged
liability and the nature of the breach or claim to which each such item is
related.
(b) If the indemnifying party does not pay the amount specified in
any such statement within thirty (30) days after it has been delivered by
the party seeking indemnification, the party seeking indemnification may
enforce its right in accordance with law.
(c) The party seeking indemnification in respect of any third party
claim shall give the indemnifying party prompt notice of any Proceeding
which might give rise to liability of the indemnifying party for
indemnification hereunder; provided, that failure to give the indemnifying
party prompt notice will not relieve such indemnifying party of any
liability to the indemnified party hereunder, except to the extent the
indemnifying party demonstrates that the defense of such action is
prejudiced by the indemnified party's failure to give such notice. If the
indemnifying party contests any third party claim, it will have the option
to defend, at the indemnifying party's expense, any such matter, provided
that the indemnified party (or in the case of the Company or any
Subsidiary, that entity itself) shall have the right, at its own cost and
expense, to participate in the defense of such claim or, if the
indemnifying party elects not to defend the claim, to conduct the defense
on its own behalf. If the indemnifying party conducts the defense of a
claim, neither party (or in the case of the Company or any Subsidiary, that
entity itself) will enter into any settlement agreement without the other
party's consent; provided, that the indemnified party (or in the case of
the Company or any Subsidiary, that entity itself) shall not object to any
proposed settlement which requires only the payment of money by the
indemnifying party and does not involve any admissions or stipulations by
the indemnified party or any injunctive or similar relief or any other
contractual obligations affecting the indemnified party the Company, any
Subsidiary, the
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Schools, the Bookstores or their respective business and operations. The
indemnified party shall cooperate (and the Purchaser shall cause the
Company or the Subsidiary to cooperate) with the indemnifying party in the
defense, compromise or settlement of any claim for which indemnification is
sought. If the indemnifying party elects not to conduct the defense of such
claim, the indemnified party (or in the case of the Company or any
Subsidiary, that entity itself) shall be permitted to settle or compromise
any such claim on such terms as it deems appropriate and such settlement or
compromise shall not prejudice the rights to indemnification hereunder.
(d) Notwithstanding Section 9.7(c), if an indemnified party
determines in good faith that there is a reasonable probability that a
Proceeding may adversely affect it or its affiliates other than as a result
of monetary damages for which it would be entitled to indemnification under
this Agreement, the indemnified party may, by notice to the indemnifying
party, assume the exclusive right to defend, compromise, or settle such
Proceeding, but the indemnifying party will not be bound by any
determination of a Proceeding so defended or any compromise or settlement
effected without its consent (which may not be unreasonably withheld).
(e) A claim for indemnification for any matter not involving a third-
party claim may be asserted by notice to the party from whom
indemnification is sought.
9.8. Prevailing Party to be Awarded Legal Fees.
In the event of any litigation, whether at law or in equity, arising
out of this Agreement, the party prevailing in such litigation shall be entitled
to receive, upon application to the court, its reasonable legal fees and
expenses incurred in connection therewith.
9.9. Offset.
(a) Purchaser's obligations pursuant to the Seller Note shall be
subject to the offset rights set forth therein.
(b) Purchaser's obligations to pay the Deferred Payment, the
Noncompetition Payments and the Earnout Amount shall be subject to offset
for alleged Damages according to the following provisions:
(i) Purchaser's allegation of Damages shall be made in good
faith and shall not include any amount reflected in the Final Balance
Sheet or in the first instance of a Claim for Damages be for amounts
which in the aggregate are less than the Indemnification Threshold;
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(ii) Purchaser shall submit a notice of a claim for
indemnification in respect of such Damages to Sellers (or to the
Seller or Sellers from whom it claims indemnification if not
proportionate as to all Sellers). The manner and procedure for making
such claim and the resolution thereof shall be as provided in Sections
9.6 and 9.7 hereof.
(iii) With respect to offsets for alleged Damages against the
Deferred Payment and the Noncompetition Payment only, until the claim
for Damages is resolved by a written agreement of the parties or
final, unappealable judgment issued by a court or similar tribunal of
competent jurisdiction ("Resolution"), Purchaser shall maintain a
letter of credit for the benefit of the Seller or Sellers in respect
of whom the claim was made in an amount equal to the claim of Damages.
Such letter of credit may include the Deferred Payment Letter of
Credit if the then stated date of expiry is extended as hereinafter
provided or a fresh letter of credit. At least thirty (30) days prior
to the stated date of expiry of the Letter of Credit ("Replaced Letter
of Credit") then most recently delivered to Seller or Sellers in
respect of whom the claim exists, Purchaser shall cause there to be
delivered to such Seller or Sellers either (1) a written extension by
the issuer of the Replaced Letter of Credit of the then stated date of
expiry of the Replaced Letter of Credit whereby such then stated date
of expiry is extended by at least six (6) months, or (2) a fresh
Letter of Credit in replacement for the Replaced Letter of Credit,
which fresh Letter of Credit shall be in substantially the form of the
Replaced Letter of Credit, issued by LaSalle National Bank or a bank
of credit worthiness at least equal to LaSalle National Bank and have
a stated date of expiry which is at least six (6) months following the
then stated date of expiry of the Replaced Letter of Credit.
(c) It is understood for the sake of clarity, that the recovery of
damages, whether by offset or otherwise, is subject to the limitations of
Sections 9.4 and 9.5, and that this Section 9.9 is not intended to convey
any rights to recover sums in excess of such limits.
10. Recission of Transactions.
10.1. Right to Recission
In the event that the DOE has not issued to Purchaser a DOE Approval
Notice permitting resumption of Title IV funding to either School as operated
by Purchaser based in whole or in part upon: (i) a Pre-Closing Financial Aid
Irregularity (as Defined in Section 9.2(d)), (ii) the pre-closing financial
condition of either of the Schools,
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any Subsidiary, the Company or the Sellers, or (iii) in the event that the DOE
Approval Notice contains a condition which is not subject to curing, such as in
the case of failure to satisfy the operating loss standard at 34 C.F.R.
(S)668.15(b)(7)(i)(B), or imposes restrictions or limitations on Purchaser which
are reasonably and in good faith determined by the Purchaser to impose unduly
burdensome restrictions or limitations on the activities of Purchaser or its
Affiliates related or unrelated to the Schools ((i), (ii) and (iii)
collectively, the "Conditions"), Purchaser shall have the option, upon written
notice, which notice shall state the Conditions upon which such rescission is
based, delivered no later than ninety-five (95) days after the Closing, to
rescind the transactions otherwise consummated under this Agreement. If
Purchaser does not deliver any such notice on or before the ninety-fifth day
following the date of the Closing, such right of rescission shall terminate.
Purchaser hereby agrees that if the DOE Approval Notice is conditioned upon
Purchaser posting a letter of credit or bond for an amount not to exceed
$1,000,000, during the ninety-five (95) day approval period or during the thirty
(30) day cure period (as discussed below) such condition shall be fulfilled by
Purchaser and shall not be deemed to constitute a basis for rescission.
Upon Purchaser's election of rescission hereunder, each of the parties
hereto shall immediately take such actions as may reasonably be required to
restore the other parties to their respective positions as they existed prior to
Closing. In the event of a rescission hereunder, among other things and by way
of illustration, all amounts advanced by Purchaser or its Affiliates to fund the
operation of the Schools and Subsidiaries after the Closing (whether as debt or
equity) or as payments of consideration for the transaction shall be reimbursed
by Sellers, and all non-competition agreements executed by the parties shall be
deemed void ab initio and all further obligations of Purchaser and Sellers
pursuant to this Agreement shall be terminated.
Furthermore, and notwithstanding any provision to the contrary herein,
in the event Purchaser elects to rescind the transactions consummated under this
Agreement pursuant to this Section 10.1, Sellers shall have thirty (30) days
from the receipt of written notice of such election to cure or otherwise
resolve, at Sellers' sole cost and expense, the Condition or Conditions upon
which Purchaser's election to rescind is based and to cause the issuance of DOE
Approval Notices to the Schools without such Conditions. If Sellers elect to
attempt to cure such Conditions and obtain such issuance during such thirty (30)
day period, Purchaser's election of rescission shall be tolled for such thirty
(30) day period. If at the end of such thirty (30) day period Sellers have been
unable to cure such Conditions and obtain the DOE Approval Notices without such
Conditions, Purchaser shall have fifteen (15) days thereafter to elect to
rescind the transaction, in no event however, shall Sellers have another thirty
(30) day period in which to attempt to cure the Conditions.
10.2. Reasonable Efforts.
Purchaser agrees that during the period from the Closing Date through
the date of receipt of the DOE Approval Notices as described above or through
the date ninety-five (95) days after the Closing Date, Purchaser shall use its
reasonable efforts and in good
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faith will seek to obtain such approval, including without limitation providing
sufficient additional capital to the Company or the provision of letters of
credit as required by the DOE so that based on each School's opening balance
sheet as of the Closing the financial requirements set forth in 34 CFR 668.15
(b)(7)(i)(A) and (C) are satisfied. Except as related to the satisfaction of the
financial requirements of such regulation or as required by Section 2.6 hereof
and the last sentence of the first paragraph of Section 10.1, Purchaser shall
not be obligated to provide additional capital or provide credit support in
order to cure or otherwise satisfy any Condition. Purchaser shall provide
Sellers, upon request, with information concerning the status of the approval
process.
11. Miscellaneous.
11.1. Termination.
This Agreement may be terminated at any time prior to the Closing
Date:
(a) by mutual written consent of the Purchaser and the Sellers;
(b) prior to the Closing by Sellers or Purchaser, if the other party
shall be in breach of any covenant, undertaking, or restriction contained
herein, the breach of which shall have a material adverse effect on the
transactions contemplated by this Agreement taken as a whole, and such
breach has not been cured within ten (10) business days after giving
written notice to the breaching party or parties of such breach; provided,
that if such breach is, in the reasonable judgment of the non-breaching
party, capable of being cured, but cannot reasonably be cured within such
ten (10) business day period, no party shall be permitted to terminate this
Agreement as a result of such breach so long as the breaching party is
diligently pursuing cure of such breach;
(c) by Purchaser or Sellers if the Closing shall not have occurred on
or before June 30, 1997 or if a Legal Requirement shall have been enacted,
issued, promulgated or entered by any Governmental Body or an injunction or
order of a court or other Governmental Body or Accrediting Bodies has been
entered, in either case, which prohibits or restricts the transactions
contemplated hereby or an action or proceeding shall have been instituted
or threatened by any Person or pending before a court or other Governmental
Body or Accrediting Bodies seeking to restrain or prohibit any of the
transactions contemplated hereby;
(d) by the Purchaser if any of the conditions specified in Section 7
have not been met or waived prior to such time as such condition can no
longer be satisfied; or
(e) by the Sellers if any of the conditions specified in Section 8
have not been met or waived prior to such time as such condition can no
longer be satisfied.
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In the event of termination of this Agreement, this Agreement shall forthwith
become null and void except for this Section 11 and Section 9, which sections
shall remain in full force and effect and which shall survive such termination.
11.2. Expenses.
Each party hereto shall be liable for the payment of the fees and
expenses incurred by such party or on such party's behalf in connection with the
negotiation and execution of this Agreement and the consummation of the
transactions contemplated by this Agreement, including, without limitation,
legal, accounting, financial and tax advice, brokers, finders and other fees,
expenses and commissions. Sellers shall pay all transfer, sales and use taxes
resulting from the sale of the Shares to Purchaser.
11.3. Successors and Assigns.
This Agreement and the rights hereunder shall not be assignable or
transferable without the prior written consent of all the parties hereto
provided however, that Purchaser shall be permitted to collaterally assign this
Agreement and all rights hereunder to its lender(s). Except as otherwise
expressly provided herein, all covenants and agreements contained in this
Agreement by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. Notwithstanding the foregoing, the provisions of
this Agreement which are for Purchaser's benefit are also for the benefit of,
and enforceable by, any subsequent owner of the Company, the Subsidiaries or the
Schools, or any of them if, such subsequent owner is an Affiliate of Purchaser
or CEC. Except as otherwise expressly provided herein, there are no third party
beneficiaries of this Agreement.
11.4. Severability.
Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
11.5. Counterparts.
This Agreement may be executed simultaneously in two or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together shall constitute one and the
same Agreement.
11.6. Descriptive Headings; Interpretation.
The descriptive headings of this Agreement are inserted for
convenience only and do not constitute a Section of this Agreement.
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11.7. Governing Laws.
This Agreement shall be construed and enforced in accordance with, and
all questions concerning the construction, validity, interpretation and
performance of this Agreement shall be governed by, the laws of the State of
Illinois without giving effect to provisions thereof regarding conflict of laws.
11.8. Consent to Jurisdiction and Service of Process.
EACH PARTY HERETO CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL
COURT LOCATED WITHIN THE COUNTY OF XXXX, STATE OF ILLINOIS AND IRREVOCABLY
AGREES THAT, UPON THE MOVING PARTY'S ELECTION, ALL ACTIONS OR PROCEEDINGS
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER RELATED DOCUMENTS
SHALL BE LITIGATED IN SUCH COURTS. EACH PARTY HERETO ACCEPTS FOR ITSELF AND IN
CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM
NONCOVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED
THEREBY IN CONNECTION WITH THIS AGREEMENT. A PROCESS MAILED BY REGISTERED MAIL
TO EACH PARTY HEREBY ACKNOWLEDGED BY EACH PARTY TO BE EFFECTIVE AND BINDING
SERVICE IN EVERY RESPECT. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF
PURCHASER TO BRING PROCEEDINGS AGAINST SELLERS, OR ANY OF THEM, IN THE COURTS OF
ANY OTHER JURISDICTION.
11.9. Waiver of Jury Trial.
EACH PARTY HERETO HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR
ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION AND
THE RELATIONSHIP THAT IS BEING ESTABLISHED. EACH PARTY HERETO ALSO WAIVES ANY
BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE
REQUIRED OF THE OTHER PARTIES. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL
ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THESE TRANSACTIONS, INCLUDING WITHOUT
LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS
WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH
HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH
WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED
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FUTURE DEALINGS. EACH PARTY HERETO FURTHER WARRANTS AND REPRESENTS THAT EACH HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER
DOCUMENTS OR AGREEMENTS RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY. IN THE
EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL
BY THE COURT.
11.10. Notices.
All notices, demands or other communications to be given or delivered
under or by reason of the provisions of this Agreement shall be in writing and
shall be deemed to have been given (a) when delivered personally or sent by
facsimile to the recipient, or (b) one (1) business day after the date such
communication is sent to the recipient by reputable express courier service
(charges prepaid). Such notices, demands and other communications shall be sent
to the parties hereto at the addresses indicated below:
If to Purchaser: Career Education Corporation
0000 Xxxx Xxxxxxx Xxxx
Xxxxxxx Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxx X. Xxxxxx, Xxxxxxx Xxxxxxx
Facsimile: (000) 000-0000
With copies to: X'Xxxxxx & Xxxxxx
00 Xxxxx XxXxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
and Goldberg, Kohn, Bell, Black,
Xxxxxxxxxx & Xxxxxx, Ltd.
00 Xxxx Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx X. Black, Esq.
Facsimile: (000) 000-0000
If to Sellers: As set forth on Schedule 11.10 hereto.
or to such other address or to the attention of such other Person as the
recipient party has specified by prior written notice to the sending party.
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11.11. Entire Agreement; Release.
(a) Except as otherwise expressly set forth herein and except for the
Canada Purchase Agreement, this Agreement and the exhibits and schedules
hereto embody the complete agreement and understanding by and among the
parties and their respective Affiliates, and supersede and preempt any
prior understandings, agreements or representations by or among the parties
and their respective Affiliates, written or oral, which may have related to
the subject matter hereof in any way, including, without limitation, that
certain letter agreement dated February 11, 1997 between CEC and IAMD, Ltd.
(as representative for Sellers).
(b) The Sellers and their respective agents, heirs, representatives,
successors and assigns, on the one hand, and the Purchaser and its
affiliates, including CEC, and their respective officers, directors,
stockholders, agents, representatives, successors and assigns, on the other
hand, hereby agree that this Agreement constitutes a settlement of all
disputes among the parties with respect to the subject matter hereof and
hereby release and hold harmless the other from any and all claims,
liabilities, damages, costs and expenses arising out of or pertaining to
any prior understanding, agreement or negotiation related to the subject
matter hereof.
11.12. Waiver.
Notwithstanding anything to the contrary contained herein, no waiver
by any party hereto of any right or remedy hereunder shall be deemed to
constitute a waiver by such party of any other right or remedy hereunder or to
create a course of conduct.
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IN WITNESS WHEREOF, the parties hereby have executed this Agreement on
the date first written above.
SELLERS:
/s/ XXXX XXXXX, XX.
-------------------------------------------
Xxxx Xxxxx, Xx.
/s/ XXXXXX XXXXX
-------------------------------------------
Xxxxxx Xxxxx
/s/ XXXXXXX XXXXXXXX
-------------------------------------------
Xxxxxxx Xxxxxxxx
/s/ XXXXXXX XXX XXXXX KING
-------------------------------------------
Xxxxxxx Xxx Xxxxx Xxxx
/s/ XXXXXX X. XXXX
-------------------------------------------
Xxxxxx X. Xxxx
/s/ XXXXXXX X. XXXXX
-------------------------------------------
Xxxxxxx X. Xxxxx
/s/ XXXXX XXXXXX
-------------------------------------------
Xxxxx Xxxxxx
PURCHASER:
IAMD ACQUISITION I, LTD., a Delaware
corporation
By: /s/ XXXXXXX X. XXXXXXX
---------------------------------------
Its: Senior Vice President
---------------------------------------
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UNDERTAKING
Career Education Corporation hereby executes this Agreement for the
limited purpose of acknowledging and agreeing to be bound by the provisions of
the Agreement directly applicable to Career Education Corporation, including
without limitation Section 6.6 and of guaranteeing the Purchaser's obligations
with respect to the Earnout Amount pursuant to Section 2.4 and of abiding by the
covenants with respect to the Advertising Budget set forth in Schedule 2.4(d).
CAREER EDUCATION CORPORATION
By /s/ XXXXXXX X. XXXXXXX
--------------------------------
Its Senior Vice President
--------------------------------
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LIST OF EXHIBITS AND SCHEDULES
Exhibit A - Form of Seller Note
Exhibit B - Form of Note Letter of Credit
Exhibit C _ Form of Deferred Payments Letter of Credit
Exhibit D - Form of Guaranty
Exhibit E - Form of Sellers' Release
Exhibit F - Form of Noncompetition Agreement
Exhibit G - Form of Sellers' Counsel Opinion
Exhibit H - Form of Closing Checklist
Exhibit I - Form of Purchaser's Counsel Opinion
LIST OF SCHEDULES
Schedule 2.2 - Payment of Purchase Price, Allocations among Sellers
Schedule 2.4(a) Earnout Targets
Schedule 2.4(d) Advertising Budget
Schedule 3.1(c) - Noncompetition Payments, Allocations among Sellers
Schedule 3.1(h) - Seller's Required Consents
Schedule 3.1(j) - Preliminary Closing Balance Sheet
Schedule 3.2(f) - List of Guarantees to be Terminated
Schedule 4.4 - Seller's Conflicts
Schedule 4.5 - Investments
Schedule 4.6 - Capitalization
Schedule 4.7 - Books & Records
Schedule 4.8(a) - Compliance with Laws
Schedule 4.8(b) - License and Permits
Schedule 4.8(c) - Investigations
Schedule 4.9(a) - List of Policy Guideline Documentation
Schedule 4.9(b) - Material Deviations from Policy Guidelines
Schedule 4.10 - Cohort Default Rate
Schedule 4.11(b) - Leased Real Property
Schedule 4.11(d)(i) - Leased and Licensed Assets
Schedule 4.11(d)(ii) - Permitted Encumbrances
Schedule 4.11(d)(iii)- Designated Liabilities
Schedule 4.11(e) - List of Tangible Assets
Schedule 4.11(f) - Other Facilities
Schedule 4.12 - Material Miscellaneous Contracts
Schedule 4.13(a) - Tradenames
Schedule 4.14 - Financial Security Arrangements
Schedule 4.14(c) - Debts Incurred Since Interim Balance Sheet Date
Schedule 4.17 - List of Bank Accounts
Schedule 4.18(a) - Litigation
Schedule 4.18(b) - Judgments
Schedule 4.19 - Insurance
Schedule 4.20 - Environmental Matters
Schedule 4.21(a) - Employee Benefit Plans
Schedule 4.21(b) - Benefit Obligations
Schedule 4.22(a) - List of Employees, Consultants and Other Service Providers;
Compliance with Legal Requirements
Schedule 4.22(b) - Confidentiality, Noncompetition and Proprietary Rights
Agreements
Schedule 4.22(c) - Retired Employees and Directors; Severance Agreements
Schedule 4.22(d) - Employee Manuals and Employment Policies
Schedule 4.23 - Labor Relations; Compliance
Schedule 4.24(a) - Tax Matters
Schedule 4.24(b) - Tax Audits and Filing Extension Requests
Schedule 4.24(c) - Interim Financial Statements
Schedule 4.26 - Affiliate Transactions
Schedule 4.27 - Absence of Certain Changes
Schedule 4.28 - Indebtedness
Schedule 5.3 - Purchaser's Consents and Governmental Approvals
Schedule 11.10 _ Addresses for Notices to Sellers
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