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EXHIBIT 10.12
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement"), dated as of the 31st day of March,
1995, is made and entered into on the terms and conditions hereinafter set
forth, by and between EDUCATIONAL MEDICAL, INC., a Delaware corporation, ANDON
COLLEGES, INC. d/b/a Andon College, DBS ACQUISITION CORP. d/b/a Dominion
Business School, MARIC LEARNING SYSTEMS d/b/a Maric College of Medical Careers,
MTSX ACQUISITION CORP. d/b/a Modern Technology School of X-Ray, PALO VISTA
COLLEGE OF NURSING AND ALLIED HEALTH SCIENCES, INC. d/b/a Maric College of
Medical Careers, CALIFORNIA ACADEMY OF MERCHANDISING, ART AND DESIGN d/b/a
California Academy of Fashion Merchandising, Art and Design, ICM ACQUISITION
CORP. d/b/a ICM School of Business, XXXXXXX ACQUISITION CORP. d/b/a Xxxxxxx
College of Business, OIOPT ACQUISITION CORP. d/b/a Ohio Institute of
Photography and Technology, SCOTTSDALE EDUCATIONAL CENTER FOR ALLIED HEALTH
CAREERS, INC. d/b/a Long Medical Institute, and DEST EDUCATION CORPORATION
d/b/a Andon College (individually, a "Borrower" and collectively the
"Borrowers"), and SIRROM CAPITAL CORPORATION, a Tennessee corporation
("Lender").
RECITALS:
WHEREAS, Borrowers have requested that Lender make available to
Borrowers a term loan in the original principal amount of Two Million Two
Hundred Thousand and No/100ths Dollars ($2,200,000.00) (the "Loan") on the
terms and conditions hereinafter set forth, and for the purpose(s) hereinafter
set forth; and
WHEREAS, in order to induce Lender to make the Loan to Borrowers,
Borrowers have made certain representations to Lender; and
WHEREAS, Lender, in reliance upon the representations and inducements
of Borrowers, has agreed to make the Loan upon the terms and conditions
hereinafter set forth.
AGREEMENT:
NOW, THEREFORE, in consideration of the agreement of Lender to make
the Loan, the mutual covenants and agreements hereinafter set forth, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrowers and Lender hereby agree as follows:
ARTICLE 1
THE LOAN
1.1 Evidence of Loan Indebtedness and Repayment. Subject to the
terms and conditions hereof, the Lender shall make the Loan to Borrowers by wire
transfer in immediately
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available funds. The Loan shall be evidenced by a Secured Promissory Note in
the original principal amount of Two Million Two Hundred Thousand and No/100ths
Dollars ($2,200,000.00), substantially in the form of Exhibit A attached hereto
and incorporated herein by this reference (the "Note"), dated as of the date
hereof, executed by each Borrower, in favor of Lender. The Loan shall be
payable in accordance with the terms of the Note. The Note, this Agreement and
any other instruments and documents executed by Borrowers, now or hereafter
evidencing, securing or in any way related to the indebtedness evidenced by the
Note are herein individually referred to as a "Loan Document" and collectively
referred to as the "Loan Documents."
1.2 Processing Fee. Borrowers shall pay Lender a processing fee
of Forty Four Thousand Dollars ($44,000.00) on the date the Loan is funded.
1.3 Partial Prepayment. Borrowers may prepay the indebtedness
evidenced by the Note in whole or in part at any time and from time to time.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 Borrowers' Representations. Each Borrower hereby represents
and warrants to Lender as follows:
(a) Corporate Status. Each Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the State of
its incorporation; and has the corporate power to own and operate its
properties, to carry on its business as now conducted and to enter into and to
perform its obligations under this Agreement and the other Loan Documents to
which it is a party. Each Borrower is duly qualified to do business and in
good standing in each state in which a failure to be so qualified would have a
material adverse effect on each Borrower's financial position or its ability to
conduct its business in the manner now conducted.
(b) Subsidiaries. Except as set forth on Schedule 2.1(b),
no Borrower owns, directly or indirectly, any capital stock or other equity
interest, or with respect to which such Borrower, alone or in combination with
others, is in a control position. Each Borrower, other than EMI, is a wholly
owned subsidiary of EMI or another Borrower and the outstanding capital stock
of each such Borrower is validly issued, fully paid and nonassessable and EMI
has good and valid title to the equity interests in each of them free and clear
of all liens, claims, charges, restrictions, security interests, equities,
proxies, pledges or encumbrances of any kind, except as indicated on Schedule
2.1(b).
(c) Authorization. Each Borrower has full legal right,
power and authority to conduct its business and affairs. Each Borrower has
full legal right, power and authority to enter into and perform its obligations
hereunder, without the consent or approval of any other person, firm,
governmental agency or other legal entity. The execution and delivery of this
Agreement, the borrowing hereunder, the execution and delivery of each Loan
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Document to which each Borrower is a party, and the performance by such
Borrower of its obligations thereunder are within the corporate powers of such
Borrower and have been duly authorized by all necessary corporate action
properly taken, have received all necessary governmental approvals, if any were
required, and do not and will not contravene or conflict with any provision of
law, any applicable judgment, ordinance, regulation or order of any court or
governmental agency, the charter or bylaws of such Borrower, or any agreement
binding upon such Borrower or its properties. The officer(s) executing this
Agreement, the Note and all of the other Loan Documents to which such Borrower
is a party are duly authorized to act on behalf of such Borrower.
(d) Validity and Binding Effect. This Agreement and the
other Loan Documents are the legal, valid and binding obligations of the each
Borrower, enforceable in accordance with their respective terms, subject to
limitations imposed by bankruptcy, insolvency, moratorium or other similar laws
affecting the rights of creditors generally or the application of general
equitable principles.
(e) Capitalization. The authorized capital stock of EMI
consists solely of 3,500,000 shares of common stock, $.01 par value per share
("Common Stock"), of which _____________________ shares (the "Common Shares")
are issued and outstanding and 1,100,000 shares of Cumulative Convertible
Preferred Stock (the "Preferred Shares"), __________ shares of which are issued
and outstanding (collectively the Shares and Preferred Shares are called the
"Shares"). All of the Shares are duly authorized, validly issued and
outstanding and fully paid and nonassessable and free of preemptive rights.
Except for the Shares, there are no shares of capital stock or other securities
of EMI issued or outstanding. There are no outstanding options, warrants or
rights to purchase or acquire from EMI any securities of EMI, and there are no
contracts, commitments, agreements, understandings, arrangements or
restrictions as to which EMI is a party or by which it is bound relating to any
shares of capital stock of EMI (including the Shares), whether or not
outstanding except as provided for in Schedule 2.1(e).
(f) Trademarks, Patents, Etc. Schedule 2.1(f) is an
accurate and complete list of all patents, trademarks, tradenames, trademark
registrations, service names, service marks, copyrights, licenses, formulas and
applications therefor owned by Borrowers or used or required by Borrowers in
the operation of Borrowers' businesses, title to each of which is, except as
set forth in Schedule 2.1(f) hereto, held by Borrowers free and clear of all
adverse claims, liens, security agreements, restrictions or other encumbrances.
There is no infringement action, lawsuit, claim or complaint which asserts that
Borrowers's operations violate or infringe the rights or the trade names,
trademarks, trademark registration, service name, service xxxx or copyright of
others with respect to any apparatus or method of Borrowers or any adversely
held trademark, trade name, trademark registration, service name, service xxxx
or copyright, and Borrowers is not in any way making use of any confidential
information or trade secrets of any person except with the consent of such
person.
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(g) No Conflicts. Consummation of the transactions hereby
contemplated and the performance of the obligations of Borrowers under and by
virtue of the Loan Documents will not result in any breach of, or constitute a
default under, any mortgage, security deed or agreement, deed of trust, lease,
bank loan or credit agreement, corporate charter or bylaws, agreement or
certificate of limited partnership, partnership agreement, license, franchise
or any other instrument or agreement to which any Borrower is a party or by
which any Borrower or its respective properties may be bound or affected or to
which such Borrower has not obtained an effective waiver.
(h) Litigation. Except as set forth in Schedule 2.1(h),
there are no actions, suits or proceedings pending, or, to the knowledge of
Borrowers threatened, against or affecting Borrowers or involving the validity
or enforceability of any of the Loan Documents at law or in equity, or before
any governmental or administrative agency; and to Borrowers' knowledge, no
Borrower is in default with respect to any order, writ, injunction, decree or
demand of any court or any governmental authority.
(i) Financial Statements. The consolidated financial
statements of Borrowers dated December 31, 1994, which are attached hereto as
Schedule 2.1(i)(A), are true and correct in all material respects have been
prepared on the basis of accounting principles consistently applied, and fairly
present the financial condition of the Borrowers as of the date(s) thereof. No
material adverse change has occurred in the financial condition of Borrowers
since the date(s) thereof, and no additional borrowings have been made by
Borrowers since the date(s) thereof other than as set forth on Schedule
2.1(i)(B).
(j) Other Agreements; No Defaults. Except as set forth in
Schedule 2.1(j), Borrowers are not a party to any indenture, loan or credit
agreement, lease or other agreement or instrument, or subject to any charter or
corporate restriction, that could have a material adverse effect on the
business, properties, assets, operations or conditions, financial or otherwise,
of the Borrowers when taken as a whole, or the ability of the Borrowers to
carry out their obligations under the Loan Documents to which they are a party.
No Borrower is in default in any respect in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
agreement or instrument material to the Borrowers' business when taken as a
whole to which it is a party, including but not limited to this Agreement and
the other Loan Documents, and no other default or event has occurred and is
continuing that with notice or the passage of time or both would constitute a
default or event of default under any of same.
(k) Compliance With Law. Borrowers have obtained all
necessary licenses, permits and approvals and authorizations necessary or
required in order to conduct their business and affairs as heretofore conducted
and as hereafter intended to be conducted. To Borrowers' knowledge, each
Borrower is in compliance with all laws, regulations, decrees and orders
applicable to it (including but not limited to laws, regulations, decrees and
orders relating to environmental, occupational and health standards and
controls, antitrust, monopoly, restraint of trade or unfair competition), to
the extent that noncompliance, in the aggregate, cannot reasonably be expected
to have a material adverse
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effect on its respective business, operations, property or financial condition
and will not materially adversely affect Borrowers' ability to perform its
obligations under the Loan Documents.
(l) Debt. Schedule 2.1(l) is a complete and correct list
of all credit agreements, indentures, purchase agreements, promissory notes and
other evidences of indebtedness, guaranties, capital leases and other
instruments, agreements and arrangements presently in effect providing for or
relating to extensions of credit (including agreements and arrangements for the
issuance of letters of credit or for acceptance financing) in respect of which
the Borrowers or any of the properties thereof is in any manner directly or
contingently obligated; and the maximum principal or face amounts of the credit
in question that are outstanding and that can be outstanding are correctly
stated, and all liens of any nature given or agreed to be given as security
therefore are correctly described or indicated in such Schedule other than
leases and similar arrangements for incidental office equipment which in the
aggregate do not exceed $600,000.
(m) Taxes. Each Borrower has filed or caused to be filed
all tax returns that to its knowledge are required to be filed (except for
returns that have been appropriately extended), and has paid, or will pay when
due, all taxes shown to be due and payable on said returns and all other taxes,
impositions, assessments, fees or other charges imposed on them by any
governmental authority, agency or instrumentality, prior to any delinquency
with respect thereto (other than taxes, impositions, assessments, fees and
charges currently being contested in good faith by appropriate proceedings, for
which appropriate amounts have been reserved). No tax liens have been filed
against Borrowers or any of the property thereof.
(n) Small Business Concern. The information set forth in
the Small Business Administration Forms 480, 652 and Part A of Form 1031
regarding Borrowers upon delivery, pursuant to Section 4.1 hereof, will be
accurate and complete.
(o) Certain Transactions. Except as set forth on
Schedule 2.1(o) hereto, no Borrower is indebted, directly or indirectly, to any
of its officers or directors or to their respective spouses or children, in any
amount whatsoever; none of said officers or directors or any members of their
immediate families, are indebted to Borrowers or have any direct or indirect
ownership interest in any firm or corporation with which Borrower has a
business relationship, or any firm or corporation which competes with any
Borrower, except that officers and/or directors of Borrowers may own no more
than 4.9% of outstanding stock of publicly traded companies which may compete
with Borrowers. No officer or director or any member of their immediate
families, is, directly or indirectly, interested in any material contract with
Borrowers. Except as set forth on Schedule 2.1(o), no Borrower is a guarantor
or indemnitor of any indebtedness of any other person, firm or corporation.
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(p) Statements Not False or Misleading. No
representation or warranty given as of the date hereof by Borrowers contained
in this Agreement or any schedule attached hereto or any statement in any
document, certificate or other instrument furnished or to be furnished to
Lender pursuant hereto, taken as a whole, contains or will (as of the time so
furnished) contain any untrue statement of a material fact, or omits or will
(as of the time so furnished) omit to state any material fact which is
necessary in order to make the statements contained therein not misleading.
(q) Margin Regulations. No Borrower is engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock. No proceeds received pursuant to this Agreement will be used to
purchase or carry any equity security of a class which is registered pursuant
to Section 12 of the Securities Exchange Act of 1934, as amended.
(r) Significant Contracts. Schedule 2.1(r) is a complete
and correct list of all contracts, agreements and other documents pursuant to
which Borrowers receive revenue in excess of $25,000 per year. Each such
contract, agreement and other document is in full force and effect as of the
date hereof and Borrowers know of no reason why such contracts, agreements and
other documents would not remain in full force and effect pursuant to the terms
thereof.
(s) Environment. Each Borrower to the best of its
knowledge has duly complied with, and its business, operations, assets,
equipment, property, leaseholds or other facilities are in compliance with, the
provisions of all federal, state and local environmental, health, and safety
laws, codes and ordinances, and all rules and regulations promulgated
thereunder except for incidental incidences of non-compliance of which
Borrowers are unaware. Each Borrower has been issued and will maintain all
required federal, state and local permits, licenses, certificates and approvals
relating to (1) air emissions; (2) discharges to surface water or groundwater;
(3) noise emissions; (4) solid or liquid waste disposal; (5) the use,
generation, storage, transportation or disposal of toxic or hazardous
substances or wastes (which shall include any and all such materials listed in
any federal, state or local law, code or ordinance and all rules and
regulations promulgated thereunder as hazardous or potentially hazardous); or
(6) other environmental, health or safety matters. No Borrower has received
notice of, or knows of facts which might constitute any violations of any
federal, state or local environmental, health or safety laws, codes or
ordinances, and any rules or regulations promulgated thereunder with respect to
its businesses, operations, assets, equipment, property, leaseholds, or other
facilities. Except in accordance with all applicable laws, codes and
ordinances and rules and regulations promulgated thereunder, or a valid
governmental permit, license, certificate or approval, there has been no
emission, spill, release or discharge into or upon (1) the air; (2) soils, or
any improvements located thereon; (3) surface water or groundwater; or (4) the
sewer, septic system or waste treatment, storage or disposal system servicing
the premises, of any toxic or hazardous substances or wastes at or from the
premises. There has been no complaint, order, directive, claim, citation or
notice to any Borrower by any governmental authority or any person or entity
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with respect to (1) air emissions; (2) spills, releases or discharges to soils
or improvements located thereon, surface water, groundwater or the sewer,
septic system or waste treatment, storage or disposal systems servicing the
premises; (3) noise emissions; (4) solid or liquid waste disposal; (5) the use,
generation, storage, transportation or disposal of toxic or hazardous
substances or waste; or (6) other environmental, health or safety matters
affecting any Borrower or its business, operations, assets, equipment,
property, leaseholds or other facilities. No Borrower has any indebtedness,
obligation or liability (absolute or contingent, matured or not matured), with
respect to the storage, treatment, cleanup or disposal of any solid wastes,
hazardous wastes or other toxic or hazardous substances (including without
limitation any such indebtedness, obligation, or liability with respect to any
current regulation, law or statute regarding such storage, treatment, cleanup
or disposal).
ARTICLE 3
COVENANTS AND AGREEMENTS
Borrowers covenant and agree, jointly and severally, that during the
term of this Agreement:
3.1 Payment of Obligations. Borrowers shall pay the indebtedness
evidenced by the Note according to the terms thereof, and shall timely pay or
perform, as the case may be, any other obligations of Borrowers to Lender,
direct or contingent, however evidenced or denominated, and however and
whenever incurred, including but not limited to indebtedness incurred pursuant
to any present or future commitment of Lender to Borrowers, together with
interest thereon, and any extensions, modifications, consolidations and/or
renewals thereof and any notes given in payment thereof.
3.2 Financial Statements and Reports. EMI shall furnish to Lender
(i) as soon as practicable and in any event within ninety (90) days after the
end of each fiscal year of EMI, a consolidated audited balance sheet of EMI as
of the close of such fiscal year, a consolidated audited statement of earnings
and retained earnings of EMI as of the close of such fiscal year and a
consolidated audited statement of cash flows for EMI for such fiscal year,
prepared in accordance with generally accepted accounting principles
consistently applied and accompanied by an unqualified audit report prepared by
an independent certified public accountant acceptable to Lender showing the
financial condition of Borrowers at the close of such year and the results of
their consolidated operations during such year and accompanied by a certificate
of the President of EMI, stating that to the best of the knowledge of such
officer, Borrowers have fulfilled each covenant, term and condition of this
Agreement and the other Loan Documents during the preceding fiscal year and
that no Event of Default has occurred and is continuing (or if an Event of
Default has occurred and is continuing, specifying the nature of same, the
period of existence of same and the action Borrowers proposes to take in
connection therewith), (ii) within twenty (20) days of the end of each calendar
month, a status report indicating the consolidated financial performance of EMI
during such month and the financial position of EMI as of the end of such
month, (iii) within forty-five (45) days of the end of each quarter, a
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consolidated balance sheet of Borrowers as of the close of such quarter and a
consolidated statement of earnings and retained earnings of Borrowers as of the
close of such quarter, all in reasonable detail, and prepared substantially in
accordance with generally accepted accounting principles consistently applied
(except for the absence of footnotes and subject to year-end adjustments), and
(iv) with reasonable promptness, such other financial data as Lender may
reasonably request.
3.3 Maintenance of Books and Records; Inspection. Borrowers shall
maintain their consolidated and consolidating books, accounts and records in
accordance with generally accepted accounting principles consistently applied,
and permit Lender, its officers and employees and any professionals designated
by Lender in writing, at Lender's expense, to visit and inspect any of its
properties, corporate books and financial records, and to discuss its accounts,
affairs and finances with Borrowers or the principal officers of Borrowers
during reasonable business hours, all at such times as Lender may reasonably
request; provided that no such inspection shall materially interfere with the
conduct of Borrowers's business.
3.4 Insurance. Without limiting any of the requirements of any of
the other Loan Documents, Borrowers shall maintain, in amounts customary for
entities engaged in comparable business activities, (i) to the extent required
by applicable law, worker's compensation insurance (or maintain a legally
sufficient amount of self insurance against worker's compensation liabilities,
with adequate reserves, under a plan approved by Lender, such approval not to
be unreasonably withheld or delayed), and (ii) fire and "all risk" casualty
insurance on its properties against such hazards and in at least such amounts
as are customary in Borrowers' business. Borrowers will make reasonable
efforts to obtain and maintain public liability insurance in an amount, and at
a cost, deemed reasonable to EMI's Board of Directors. At the request of
Lender, Borrowers will deliver forthwith a certificate specifying the details
of such insurance in effect.
3.5 Taxes and Assessments. Borrowers shall (i) file all tax
returns and appropriate schedules thereto that are required to be filed under
applicable law, prior to the date of delinquency, (ii) pay and discharge all
taxes, assessments and governmental charges or levies imposed upon Borrowers
upon their income and profits or upon any properties belonging to them, prior
to the date on which penalties attach thereto, and (iii) pay all taxes,
assessments and governmental charges or levies that, if unpaid, might become a
lien or charge upon any of their properties; provided, however, that Borrowers
in good faith may contest any such tax, assessment, governmental charge or
levy described in the foregoing clauses (ii) and (iii) so long as appropriate
reserves are maintained with respect thereto.
3.6 Corporate Existence. Each Borrower shall maintain its
corporate existence and good standing in the state of its incorporation, and
its qualification and good standing as a foreign corporation in each
jurisdiction in which such qualification is necessary pursuant to applicable
law.
3.7 Compliance with Law and Other Agreements. Except where the
failure to do so would not materially adversely affect Borrowers' operations
when taken as a whole or their ability to fulfill their obligations under the
Loan Documents, Borrowers shall maintain their
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business operations and property owned or used in connection therewith in
compliance with (i) all applicable federal, state and local laws, regulations
and ordinances governing such business operations and the use and ownership of
such property, in each case to the extent material to the conduct of the
Borrowers' business and (ii) all agreements, licenses, franchises, indentures
and mortgages to which each Borrower is a party or by which each Borrower or
any of its properties is bound. Without limiting the foregoing, Borrowers
shall pay all of their indebtedness promptly in accordance with the terms
thereof.
3.8 Notice of Default. EMI shall give written notice to Lender of
the occurrence of any default, event of default or Event of Default under this
Agreement or any other Loan Document promptly upon the occurrence thereof.
3.9 Notice of Litigation. EMI shall give notice, in writing, to
Lender of (i) any actions, suits or proceedings wherein the amount at issue is
in excess of Twenty-Five Thousand and No/100ths Dollars ($25,000.00) instituted
by any persons whomsoever against any Borrower or affecting any of the assets
of any Borrower, and (ii) any dispute, not resolved within sixty (60) days of
the commencement thereof, between any Borrower on the one hand and any
governmental regulatory body on the other hand, which dispute might materially
interfere with the normal operations of any Borrower.
3.10 Conduct of Business. Borrowers will continue to engage in a
business of the same general type and manner as conducted by them on the date
of this Agreement.
3.11 ERISA Plan. If any Borrower has in effect, or hereafter
institutes, a pension plan that is subject to the requirements of Title IV of
the Employee Retirement Income Security Act of 1974, Pub. L. No. 93-406,
September 2, 1974, 88 Stat. 829, 29 U.S.C.A. Section 1001 et seq. (1975), as
amended from time to time ("ERISA"), then the following warranty and covenants
shall be applicable during such period as any such plan (the "Plan") shall be
in effect: (i) each Borrower hereby warrants that no fact that might constitute
grounds for the involuntary termination of the Plan, or for the appointment by
the appropriate United States District Court of a trustee to administer the
Plan, exists at the time of execution of this Agreement, (ii) each Borrower
hereby covenants that throughout the existence of the Plan, each Borrower's
contributions under the Plan will meet the minimum funding standards required
by ERISA and each Borrower will not institute a distress termination of the
Plan, and (iii) each Borrower covenants that it will send to Lender a copy of
any notice of a reportable event (as defined in ERISA) required by ERISA to be
filed with the Labor Department or the Pension Benefit Guaranty Corporation, at
the time that such notice is so filed.
3.12 Dividends, Stock Rights, etc. Except as set forth on Schedule
3.12, Borrowers shall not declare or pay any dividend of any kind (other than
stock dividends payable to all holders of any class of capital stock), in cash
or in property, on any class of the capital stock of Borrowers, or purchase,
redeem, retire or otherwise acquire for value any shares of such stock, nor
make any distribution of any kind in cash or property in respect thereof
(except for the redemption of stock from employees upon termination of
employment that in the aggregate amount does not exceed $25,000), nor make any
return of capital of shareholders, nor make any
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payments in cash or property in respect of any stock options, stock bonus or
similar plan (except as required or permitted hereunder), nor grant any
preemptive rights with respect to the capital stock of Borrowers, without the
prior written consent of Lender.
3.13 Guaranties; Loans; Payment of Debt. Except as set forth on
Schedule 3.13, Borrowers shall not, without Lender's prior express written
consent, guarantee nor be liable in any manner, whether directly or indirectly,
or become contingently liable after the date of this Agreement in connection
with the obligations or indebtedness of any person or entity whatsoever, except
for the endorsement of negotiable instruments payable to Borrower for deposit
or collection in the ordinary course of business. Except as set forth on
Schedule 3.13, Borrowers shall not, without Lender's prior express written
consent, which shall not be unreasonably withheld, (i) make any loan, advance
or extension of credit to any person other than in the normal course of its
business or (ii) make any payment on any indebtedness that is subordinate by
its terms to the indebtedness owed to Lender; provided, however, that Borrower
may make quarterly payments of $100,000 of principal and accrued interest with
respect to the 13% Senior Subordinated Notes listed on Schedule 2.1(l) hereto
until such notes are fully amortized.
3.14 Debt. Without the express prior written consent of Lender,
Borrowers shall not create, incur, assume or suffer to exist indebtedness of
any description whatsoever, excluding (i) the indebtedness evidenced by the
Note, (ii) the endorsement of negotiable instruments payable to Borrowers for
deposit or collection in the ordinary course of business, (iii) debts incurred
in the ordinary course of business (each of which, individually, does not
exceed $25,000), and (iv) the indebtedness listed on Schedule 2.1(l) hereto.
Notwithstanding the foregoing, Borrowers may establish up to a $3,000,000
credit facility (which amount shall include amounts outstanding to Bank South
as listed on Schedule 2.1(l)) without Lender's prior consent provided that it
receives Lender's prior written consent to any draw under such facility.
3.15 No Liens. Borrowers shall not create, incur, assume or suffer
to exist any lien, security interest, security title, mortgage, deed of trust
or other encumbrance upon or with respect to any of its properties, now owned
or hereafter acquired, except:
(a) liens in favor of Lender;
(b) liens for taxes or assessments or other governmental
charges or levies if not yet due and payable;
(c) liens in connection with the leasing of equipment in
favor of the Lessor of such equipment;
(d) liens described on Schedule 2.1(l) hereto.
3.16 Mergers, Consolidations, Acquisitions and Sales. Without the
prior written consent of Lender, Borrowers shall not (a) be a party to any
merger, consolidation or corporate reorganization, nor (b) sell, transfer,
convey, grant a security interest in or lease all or any substantial
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part of its assets, nor (c) create any subsidiaries nor convey any of their
assets to any subsidiary unless such subsidiary is wholly owned by EMI and
becomes a party to this Agreement.
3.17 Transactions With Affiliates. Borrowers shall not enter into
any transaction, including, without limitation, the purchase, sale or exchange
of property or the rendering of any service, with any affiliate, except in the
ordinary course of and pursuant to the reasonable requirements of EMI's
business when taken as a whole and upon fair and reasonable terms no less
favorable to Borrower than Borrower would obtain in a comparable arm's length
transaction with a person not an affiliate. For the purposes of this Section
3.17, "affiliate" shall mean a person, corporation, partnership or other entity
controlling, controlled by or under common control with EMI.
3.18 Environment. Borrowers shall be and remain in compliance with
the provisions of all federal, state and local environmental, health, and
safety laws, codes and ordinances, and all rules and regulations issued
thereunder except for incidental incidences of noncompliance not material to
the Borrowers' business when considered as a whole; notify Lender immediately
of any notice of a hazardous discharge or environmental complaint received from
any governmental agency or any other party; notify Lender immediately of any
hazardous discharge from or affecting its premises; immediately contain and
remove the same, in compliance with all applicable laws; promptly pay any fine
or penalty assessed in connection therewith; permit Lender to inspect the
premises, to conduct tests thereon, and to inspect all books, correspondence,
and records pertaining thereto; and at Lender's request, and at Borrowers'
expense, provide a report of a qualified environmental engineer, satisfactory
in scope, form, and content to Lender, and such other and further assurances
reasonably satisfactory to Lender that the condition has been corrected.
ARTICLE 4
CONDITIONS TO CLOSING
4.1 Closing of the Loan. The obligation of Lender to fund the
Loan on the date hereof (the "Closing Date") is subject to the fulfillment, on
or prior to the Closing Date, of each of the following conditions:
(a) Borrowers shall have performed and complied in all
material respects with all of the covenants, agreements, obligations
and conditions required by this Agreement.
(b) Lender shall have received an opinion of the
Borrowers' counsel, Xxxxxxxx Xxxxxx Xxxxxxxx and Xxxx, dated the
Closing Date, in form and substance satisfactory to Lender's counsel,
Bass, Xxxxx & Xxxx.
(c) Borrowers shall have delivered to Lender a Note
executed by Borrower, substantially in the form of Exhibit A attached
hereto and incorporated herein by this reference.
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(d) Borrowers shall have delivered to Lender a Stock
Purchase Warrant executed by EMI, substantially in the form of Exhibit
B attached hereto and incorporated herein by this reference.
(e) Borrowers shall have delivered to Lender a Security
Agreement executed by Borrower and related UCC-1 Financing Statements
executed by Borrowers, each of which is substantially in the form of
Exhibit C attached hereto and incorporated herein by this reference.
(f) EMI shall have delivered to Lender the Small Business
Administration Forms 480, 652 and 1031 (Part A) completed by EMI.
(g) EMI shall have delivered to Lender the Small Business
Administration Economic Impact Assessment completed by EMI, a form of
which is attached hereto as Exhibit D and incorporated herein by this
reference.
(h) EMI shall have delivered to Lender a Pledge Agreement
executed by EMI and one executed by Andon Colleges, Inc. and related
stock certificates endorsed in blank or Consent to Pledge Agreement to
Hold as Agent for Second Lien or, each of which is substantially in
the form of Exhibit E attached hereto and incorporated herein by this
reference.
(i) Lender shall have received copies of the corporate
charter and other publicly filed organizational documents of
Borrowers, certified by the Secretary of State or other appropriate
public official in the jurisdiction in which Borrower is incorporated.
(j) Lender shall have received certified (as of the date
of this Agreement) copies of all corporate action taken by Borrowers,
including resolutions of their Board of Directors, authorizing the
execution, delivery and performance of the Loan Documents.
(k) Lender shall have received a certificate as to the
legal existence and good standing of each Borrower, issued by the
Secretary of State or other appropriate public official in the
jurisdiction in which each Borrower is incorporated.
(l) Lender shall have received certificates of the
Secretaries of State or other appropriate public officials as to
Borrowers' qualification to do business and good standing in each
jurisdiction in which a failure to be so qualified would have a
material adverse effect on their financial position or its ability to
conduct its business in the manner now conducted and as hereafter
intended to be conducted.
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ARTICLE 5
DEFAULT AND REMEDIES
5.1 Events of Default. The occurrence of any of the following shall
constitute an Event of Default hereunder:
(a) Default in the payment of the principal of or
interest on the indebtedness evidenced by the Note in accordance with
the terms of the Note, which default is not cured within ten (10) days;
(b) Any misrepresentation by Borrowers as to any matter
hereunder or under any of the other Loan Documents which is material
to Borrowers' consolidated business, or delivery by Borrowers of any
schedule, statement, resolution, report, certificate, notice or
writing to Lender that is untrue in any respect material to the
Borrowers' consolidated business on the date as of which the facts set
forth therein are stated or certified;
(c) Failure of Borrowers to perform any of its
obligations, covenants or agreements under this Agreement, the Note or
any of the other Loan Documents;
(d) Any Borrower (i) shall generally not pay or shall be
unable to pay its debts as such debts become due; or (ii) shall make
an assignment for the benefit of creditors or petition or apply to any
tribunal for the appointment of a custodian, receiver or trustee for
it or a substantial part of its assets; or (iii) shall commence any
proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect; or (iv) shall have
had any such petition or application filed or any such proceeding
commenced against it in which an order for relief is entered or an
adjudication or appointment is made; or (v) shall indicate, by any act
or intentional and purposeful omission, its consent to, approval of or
acquiescence in any such petition, application, proceeding or order
for relief or the appointment of a custodian, receiver or trustee for
it or a substantial part of its assets; or (vi) shall suffer any such
custodianship, receivership or trusteeship to continue undischarged
for a period of sixty (60) days or more;
(e) Any Borrower shall be liquidated, dissolved,
partitioned or terminated, or the charter thereof shall expire or be
revoked;
(f) A default or event of default shall occur under any
of the other Loan Documents and, if subject to a cure right, such
default or event of default shall not be cured within the applicable
cure period;
(g) Borrowers shall default in the timely payment or
performance of any obligation now or hereafter owed to Lender in
connection with any other indebtedness of Borrowers now or hereafter
owed to Lender;
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(h) Any Borrower shall have defaulted and continue to be
in default beyond any applicable cure period in the timely payment or
performance of any other indebtedness or obligation, which in the
aggregate exceeds Twenty-Five Thousand and No/100ths Dollars
($25,000.00) or materially adversely affects Borrower's financial
condition; or
(i) A significant change in the executive staff or
management of EMI shall occur.
With respect to any Event of Default described above that is capable
of being cured and that does not already provide its own cure procedure (a
"Curable Default"), the occurrence of such Curable Default shall not constitute
an Event of Default hereunder if such Curable Default is fully cured and/or
corrected within thirty (30) days (ten (10) days, if such Curable Default may
be cured by payment of a sum of money) of notice thereof to EMI given in
accordance with the provisions hereof; provided, however, that this provision
shall not require notice to EMI and an opportunity to cure any Curable Default
of which any Borrower have had actual knowledge for the requisite number of
days set forth.
5.2 Acceleration of Maturity; Remedies. Upon the occurrence of
any Event of Default described in subsection 5.1(d), the indebtedness evidenced
by the Note as well as any and all other indebtedness of Borrowers to Lender
shall be immediately due and payable in full; and upon the occurrence of any
other Event of Default described above, Lender at any time thereafter may at
its option accelerate the maturity of the indebtedness evidenced by the Note as
well as any and all other indebtedness of Borrowers to Lender; all without
notice of any kind. Upon the occurrence of any such Event of Default and the
acceleration of the maturity of the indebtedness evidenced by the Note:
(a) Lender shall be immediately entitled to exercise any
and all rights and remedies possessed by Lender pursuant to the terms
of the Note and all of the other Loan Documents; and
(b) Lender shall have any and all other rights and
remedies that Lender may now or hereafter possess at law, in equity or
by statute.
5.3 Remedies Cumulative; No Waiver. No right, power or remedy
conferred upon or reserved to Lender by this Agreement or any of the other Loan
Documents is intended to be exclusive of any other right, power or remedy, but
each and every such right, power and remedy shall be cumulative and concurrent
and shall be in addition to any other right, power and remedy given hereunder,
under any of the other Loan Documents or now or hereafter existing at law, in
equity or by statute. No delay or omission by Lender to exercise any right,
power or remedy accruing upon the occurrence of any Event of Default shall
exhaust or impair any such right, power or remedy or shall be construed to be a
waiver of any such Event of Default or an acquiescence therein, and every
right, power and remedy given by this Agreement and the other Loan Documents to
Lender may be exercised from time to time and as often as may be deemed
expedient by Lender.
5.4 Proceeds of Remedies. Any or all proceeds resulting from the
exercise of any or all of the foregoing remedies shall be applied as set forth
in the Loan Document(s) providing the remedy
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15
or remedies exercised; if none is specified, or if the remedy is provided by
this Agreement, then as follows:
First, to the costs and expenses, including reasonable
attorney's fees, incurred by Lender in connection with the
exercise of its remedies;
Second, to the expenses of curing the default that has
occurred, in the event that Lender elects, in its sole
discretion, to cure the default that has occurred;
Third, to the payment of the obligations of Borrowers
under the Loan Documents (the "Obligations"), including but
not limited to the payment of the principal of and interest on
the indebtedness evidenced by the Note, in such order of
priority as Lender shall determine in its sole discretion; and
Fourth, the remainder, if any, to Borrowers or to any
other person lawfully thereunto entitled.
ARTICLE 6
TERMINATION
6.1 Termination of this Agreement. This Agreement shall
remain in full force and effect until the later of (i) the Maturity Date (as
defined in the Note), or (ii) the payment by Borrowers of all amounts owed to
Lender, at which time Lender shall cancel the Note and deliver it to Borrowers;
provided, however, that if at any time Borrowers have satisfied all obligations
to Lender, Borrower may terminate this Agreement by providing written notice to
Lender.
ARTICLE 7
MISCELLANEOUS
7.1 Performance By Lender. If Borrowers shall default in
the payment, performance or observance of any covenant, term or condition of
this Agreement, which default is not cured within the applicable cure period,
then Lender may, at its option, pay, perform or observe the same, and all
payments made or costs or expenses incurred by Lender in connection therewith
(including but not limited to reasonable attorney's fees), with interest
thereon at the highest default rate provided in the Note (if none, then at the
maximum rate from time to time allowed by applicable law), shall be immediately
repaid to Lender by Borrowers and shall constitute a part of the Obligations.
Lender in its reasonable discretion shall be the sole judge of the necessity
for any such actions and of the amounts to be paid.
7.2 Successors and Assigns Included in Parties. Whenever
in this Agreement one of the parties hereto is named or referred to, the heirs,
legal representatives, successors, successors-in-title and assigns of such
parties shall be included, and all covenants and agreements contained in this
Agreement by or on behalf of Borrowers or by or on behalf of Lender shall bind
and inure to the
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16
benefit of their respective heirs, legal representatives, successors-in-title
and assigns, whether so expressed or not.
7.3 Costs and Expenses. Borrowers agree to pay all reasonable
costs and expenses incurred by Lender in connection with the making of the
Loan, including but not limited to filing fees, recording taxes and reasonable
attorneys' fees (not to exceed $15,000), promptly upon demand of Lender.
Borrowers further agree to pay all premiums for insurance required to be
maintained by Borrowers pursuant to the terms of the Loan Documents and all of
the out-of-pocket costs and expenses incurred by Lender in connection with the
collection of the Loan, amendment to the Loan Documents, or prepayment of the
Loan, including but not limited to reasonable attorneys' fees, promptly upon
demand of Lender.
7.4 Assignment. The Note, this Agreement and the other Loan
Documents may be endorsed, assigned and/or transferred in whole or in part by
Lender, and any such holder and/or assignee of the same shall succeed to and be
possessed of the rights and powers of Lender under all of the same to the
extent transferred and assigned. Lender may grant participations in all or any
portion of its interest in the indebtedness evidenced by the Note, and in such
event Borrowers shall continue to make payments due under the Loan Documents to
Lender and Lender shall have the sole responsibility of allocating and
forwarding such payments in the appropriate manner and amounts. Borrower,
shall not assign any of their rights nor delegate any of their duties hereunder
or under any of the other Loan Documents without the prior express written
consent of Lender.
7.5 Time of the Essence. Time is of the essence with respect to
each and every covenant, agreement and obligation of Borrowers hereunder and
under all of the other Loan Documents.
7.6 Severability. If any provision(s) of this Agreement or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the
application of such provisions to other persons or circumstances shall not be
affected thereby and shall be enforced to the greatest extent permitted by law.
7.7 Interest and Loan Charges Not to Exceed Maximum Allowed by
Law. Anything in this Agreement, the Note or any of the other Loan Documents
to the contrary notwithstanding, in no event whatsoever, whether by reason of
advancement of proceeds of the Loan, acceleration of the maturity of the unpaid
balance of the Loan or otherwise, shall the interest and loan charges agreed to
be paid to Lender for the use of the money advanced or to be advanced hereunder
exceed the maximum amounts collectible under applicable laws in effect from
time to time. It is understood and agreed by the parties that, if for any
reason whatsoever the interest or loan charges paid or contracted to be paid by
Borrowers in respect of the indebtedness evidenced by the Note shall exceed the
maximum amounts collectible under applicable laws in effect from time to time,
then ipso facto, the obligation to pay such interest and/or loan charges shall
be reduced to the maximum amounts collectible under applicable laws in effect
from time to time, and any amounts collected by Lender that exceed such maximum
amounts shall be applied to the reduction of the principal balance of the
indebtedness evidenced by the Note and/or refunded to Borrowers so that at no
time shall the interest or loan charges paid or payable in respect of the
indebtedness evidenced by the Note exceed the maximum amounts permitted from
time to time by applicable law.
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7.8 Article and Section Headings; Defined Terms. Numbered and
titled article and section headings and defined terms are for convenience only
and shall not be construed as amplifying or limiting any of the provisions of
this Agreement.
7.9 Notices. Any and all notices, elections or demands permitted
or required to be made under this Agreement shall be in writing, signed by the
party giving such notice, election or demand and shall be delivered personally,
telecopied, telexed, or sent by certified mail or overnight via nationally
recognized courier service (such as Federal Express), to the other party at the
address set forth below, or at such other address as may be supplied in writing
and of which receipt has been acknowledged in writing. The date of personal
delivery, telecopy or telex or two (2) business days after the date of mailing
(or the next business day after delivery to such courier service), as the case
may be, shall be the date of such notice, election or demand. For the purposes
of this Agreement:
The Address of Lender is: Sirrom Capital Corporation
Xxxxxxxxx Xxxx Xxxxxx
Xxxxx 0000
000 Xxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxx, XX
with a copy to: Bass, Xxxxx & Xxxx
First Xxxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attention: Xxxxx-Xxxx Xxxxxxxx, Esq.
The Address of Borrowers is: Educational Medical, Inc.
0000 Xxxxx Xxxxxx Xxxxxxx
Xxxxx 000
Xxxxxxx, XX 00000
Attention: Xxxxxxx Xxxxxx
with a copy to: Xxxxxxxx Xxxxxx Xxxxxxxx and Xxxx
000 Xxxxxxxx Xxxxxx
Xxxxx 000
Xxxx Xxxx Xxxxx, XX 00000-0000
Attention: Xxxxxx Xxxxx, Esq.
7.10 Entire Agreement. This Agreement and the other written
agreements between Borrowers and Lender represent the entire agreement between
the parties concerning the subject matter hereof, and all oral discussions and
prior agreements are merged herein; provided, if there is a conflict between
this Agreement and any other document executed contemporaneously herewith with
respect to the Obligations, the provision of this Agreement shall control. The
execution and delivery of this Agreement and the other Loan Documents by the
Borrowers were not based upon any fact or material provided by Lender, nor were
the Borrowers induced or influenced to enter into
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18
this Agreement or the other Loan Documents by any representation, statement,
analysis or promise by Lender.
7.11 Governing Law and Amendments. This Agreement shall be
construed and enforced under the laws of the State of Tennessee applicable to
contracts to be wholly performed in such State. No amendment or modification
hereof shall be effective except in a writing executed by each of the parties
hereto.
7.12 Survival of Representations and Warranties. All
representations and warranties contained herein or made by or furnished on
behalf of the Borrowers in connection herewith shall survive the execution and
delivery of this Agreement and all other Loan Documents.
7.13 Jurisdiction and Venue. Borrowers hereby consent to the
jurisdiction of the courts of the State of Tennessee and the United States
District Court for the Middle District of Tennessee, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action or other proceeding arising out of any of
their obligations arising under this Agreement or any other Loan Documents or
with respect to the transactions contemplated hereby, and expressly waives any
and all objections it may have as to venue in any of such courts.
7.14 Waiver of Trial by Jury. LENDER AND BORROWERS HEREBY WAIVE
TRIAL BY JURY IN ANY ACTION, PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN
CONTRACT OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO
THIS AGREEMENT OR THE LOAN DOCUMENTS.
7.15 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties to this Agreement in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Agreement.
7.16 Construction and Interpretation. Should any provision of this
Agreement require judicial interpretation, the parties hereto agree that the
court interpreting or construing the same shall not apply a presumption that
the terms hereof shall be more strictly construed against one party by reason
of the rule of construction that a document is to be more strictly construed
against the party that itself or through its agent prepared the same, it being
agreed that the Borrowers, Lender and their respective agents have participated
in the preparation hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
or have caused this Agreement to be executed by their duly authorized officers,
as of the day and year first above written.
LENDER:
SIRROM CAPITAL CORPORATION, a Tennessee
corporation
By: /s/ Xxxxxxx Peruone
-------------------------------------
Title: CFO
----------------------------------
BORROWERS:
EDUCATIONAL MEDICAL, INC., a Delaware
corporation, ANDON COLLEGES, INC.
d/b/a Andon College, DBS ACQUISITION
CORP. d/b/a Dominion Business School,
MARIC LEARNING SYSTEMS d/b/a Maric
College of Medical Careers, MTSX
ACQUISITION CORP. d/b/a Modern
Technology School of X-Ray, PALO VISTA
COLLEGE OF NURSING AND ALLIED HEALTH
SCIENCES, INC. d/b/a Maric College of
Medical Careers, CALIFORNIA ACADEMY OF
MERCHANDISING, ART AND DESIGN d/b/a
California Academy of Fashion
Merchandising, Art and Design, ICM
ACQUISITION CORP. d/b/a ICM School of
Business, XXXXXXX ACQUISITION CORP.
d/b/a Xxxxxxx College of Business, OIOPT
ACQUISITION CORP. d/b/a Ohio Institute
of Photography and Technology,
SCOTTSDALE EDUCATIONAL CENTER FOR
ALLIED HEALTH CAREERS, INC. d/b/a Long
Medical Institute, DEST EDUCATION
CORPORATION d/b/a Andon College
By: /s/ Xxxx X. Xxxxxx
-------------------------------------
Title: President
----------------------------------
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SCHEDULE 2.1(A)
FINANCIAL STATEMENTS OF BORROWER
Consolidated Statement of Operations of Educational Medical, Inc. as of
December 31, 1994
Educational Medical, Inc. and Subsidiaries Consolidated Financial Statements
for years ended March 31, 1994 and 1993 with Report of Independent Auditors
COPIES OF EACH OF THE ABOVE-REFERENCED STATEMENTS ARE ATTACHED HERETO AND MADE
A PART HEREOF.
21
EDUCATIONAL MEDICAL, INC.
===================================================================================================================================
3 MONTHS 3 MONTHS 9 MONTHS 9 MONTHS
CONSOLIDATED STATEMENT OF OPERATIONS ENDED 12/31/94 ENDED 12/31/93 ENDED 12/31/94 ENDED 12/31/93
-----------------------------------------------------------------------------------------------------------------------------------
NET REVENUES $ 8,397,106 $ 6,992,174 $ 22,758,523 $ 19,177,234
COSTS AND EXPENSES
Training 2,676,118 2,226,384 7,317,470 5,986,989
Facilities 1,290,481 1,047,944 3,692,302 2,784,726
Selling and Promotion 1,582,617 1,141,617 4,007,818 2,979,661
General and Administrative 2,582,887 2,255,380 7,392,216 6,558,491
===================================================================================================================================
OPERATING INCOME (LOSS) 265,003 320,849 348,717 867,367
===================================================================================================================================
Amortization of Acquired Intangible Assets 417,238 432,072 914,612 1,085,860
Interest Expense 240,355 223,634 737,610 556,709
-----------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE SCHOOL CLOSURE (392,590) (334,857) (1,303,505) (775,202)
School Closure - - - 1,086,493
-----------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES (392,590) (334,857) (1,303,505) (1,861,695)
Income Taxes (Benefit) 22,776 (172,922) 22,776 (628,022)
-----------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (415,366) $ (161,935) $ (1,326,281) $ (1,233,673)
===================================================================================================================================
CONDENSED CONSOLIDATED BALANCE SHEETS 12/31/94 3/31/94
-----------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents $ 1,027,217 $ 2,745,288
Receivables - Net 3,050,007 2,972,275
Other Current Assets 586,558 676,664
-----------------------------------------------------------------------------------------------------------------------------------
Total Current Assets 4,663,782 6,394,227
-----------------------------------------------------------------------------------------------------------------------------------
Land, Buildings, and Equipment - Net 4,092,245 2,830,689
Identifiable Intangibles and Goodwill 8,298,780 9,113,803
Other Assets 102,524 102,524
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 17,157,331 $ 18,441,243
===================================================================================================================================
Current Liabilities $ 4,217,641 $ 3,303,576
Deferred Tuition Income 1,998,302 2,411,298
Long-Term Debt 5,249,768 5,752,354
Other Non-Current Liabilities 507,544 463,652
-----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 11,973,255 11,930,880
-----------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity 5,184,076 6,510,363
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,157,331 $ 18,441,243
===================================================================================================================================
22
[LOGO] EDUCATIONAL MEDICAL, INC.
Revenue for the third quarter ended December 31, 1994 reached $8,397,000, a 20%
increase over the $6,992,000 for the third quarter of last year. Year-to-date
revenue of $22,759,000 is up 9% compared to last year's revenue of $19,177,000.
Revenue benefited from seven acquisitions which produced $7,499,000 in
year-to-date revenue compared to $5,256,000 for a partial period in the prior
year. EMI's existing schools or year-to-date same-school revenue of $15,260,000
was up 10% compared to the prior year to date.
The company had operating income for the third quarter of $265,000 compared to
$321,000 for the prior year. The decline was primarily a result of an increase
in overhead, as school contribution increased by $106,000. Year-to-date
operating income of $349,000 continued to lag the prior-year amount of $867,000
due to the decline incurred in the first quarter, a result of the seasonality
and underperformance of our seven new acquisitions. Full-year results of the
acquired operations are expected to positively impact our results of operations.
Year-to-date same-school operating income is up 17% compared to the prior year
to date.
Our new acquisitions have changed the seasonality of our business whereby new
student starts occur principally in the fall and winter, as is the case for
traditional colleges and universities. We look forward to the final quarter of
our fiscal year which is, by a substantial amount, our most profitable quarter.
/s/ Xxxx X. Xxxxxx
Xxxx X. Xxxxxx
Chairman & President
/s/ Xxxxx Xxxxxx
Educational Medical, Inc., headquartered in Atlanta, Georgia, operates fourteen
schools offering training in medical, business, photography, and fashion
curricula.
Maric College of Medical Careers Modern Technology School of X-ray
Vista, California North Hollywood, California
Maric College of Medical Careers Dominion Business School
San Diego, California Roanoke, Virginia
Maric College of Medical Careers Dominion Business School
San Marcos, California Harrisonburg, Virginia
Long Medical Institute Dominion Business School
Phoenix, Arizona Staunton, Virginia
Andon College ICM School of Business
Stockton, California Pittsburgh, Pennsylvania
Andon College Ohio Institute of Photography
Modesto, California & Technology
Dayton, Ohio
Xxxxxx College
Atlanta, Georgia California Academy of Merchandising,
Art, & Design
Sacramento, California
Educational Medical, Inc. strives to provide each student with the knowledge and
practical job skills necessary for successful employment, and to facilitate
their development as competent self-directed individuals.
23
Educational Medical, Inc.
and Subsidiaries
Consolidated Financial Statements
Years ended March 31, 1994 and 1993
with Report of Independent Auditors
24
Educational Medical, Inc. and Subsidiaries
Consolidated Financial Statements
Years ended March 31, 1994 and 1993
CONTENTS
Report of Independent Auditors .......................................... 1
Consolidated Financial Statements
Consolidated Balance Sheets ............................................. 2
Consolidated Statements of Operations ................................... 4
Consolidated Statements of Shareholders' Equity ......................... 5
Consolidated Statements of Cash Flows ................................... 6
Notes to Consolidated Financial Statements .............................. 7
25
[ERNST & YOUNG LETTERHEAD]
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Educational Medical, Inc.
We have audited the accompanying consolidated balance sheets of Educational
Medical, Inc. and subsidiaries as of March 31, 1994 and 1993 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended March 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Educational
Medical, Inc. and subsidiaries at March 31, 1994 and 1993, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1994, in conformity with the generally accepted
accounting principles.
/s/ ERNST & YOUNG
June 14, 1994
26
Educational Medical, Inc. and Subsidiaries
Consolidated Balance Sheets
MARCH 31
1994 1993
------------------------------
ASSETS (Note 2)
Current assets:
Cash and cash equivalents $ 2,745,288 $ 6,533,006
Accounts receivable:
Trade, less allowance for doubtful accounts of
$780,000 and $875,000, respectively 2,292,275 1,614,438
Income taxes refundable 680,000 --
Prepaid expenses 676,664 458,875
Deferred income taxes (Note 7) -- 177,548
------------------------------
Total current assets 6,394,227 8,783,867
Property and equipment, net (Note 5) 2,830,689 1,146,364
Other assets:
Deferred debt issuance costs, net of accumulated
amortization of $173,000 and $97,000,
respectively 166,506 180,378
Covenants not to compete, net of accumulated
amortization of $312,000 and $50,000,
respectively 1,564,724 1,199,996
Goodwill and other intangible assets, net of
accumulated amortization of $4,155,000 and
$4,045,000, respectively 7,382,573 4,968,889
Other assets 102,524 20,237
------------------------------
Total assets $18,441,243 $16,299,731
==============================
2
27
MARCH 31
1994 1993
----------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 80,236 $ 116,092
Refunds payable -- 57,204
Accrued expenses 1,673,906 856,272
Income taxes payable 292,476
Deferred tuition income 2,411,298 1,600,866
Current portion of long-term debt 1,549,434 1,023,078
-----------------------------
Total current liabilities 5,714,874 3,945,988
Long-term debt (Note 2) 5,752,354 4,119,118
Other liabilities 463,652 163,077
Shareholders' equity (Notes 2 and 3):
Convertible preferred stock, $.01 par value -
authorized 1,100,000 shares; issued and
outstanding 1,023,049 and 1,023,031 shares at
March 31, 1994 and 1993, respectively 10,230 10,230
Additional paid-in capital on preferred stock 5,502,862 5,502,777
Common stock, $.01 par value - authorized
3,500,000 shares; issued and outstanding
1,006,096 shares and 1,006,088 shares at
March 31, 1994 and 1993, respectively 10,061 10,061
Additional paid-in capital on common stock 1,236,040 1,236,005
Stock purchase warrants 1,724,400 1,441,124
Accumulated deficit (1,938,230) (93,649)
Less treasury stock, at cost (17,499 common
shares) (35,000) (35,000)
-----------------------------
Total shareholders' equity 6,510,363 8,071,548
-----------------------------
Total liabilities and shareholders' equity $18,441,243 $16,299,731
=============================
See accompanying notes.
3
28
Educational Medical, Inc. and Subsidiaries
Consolidated Statements of Operations
YEAR ENDED MARCH 31
1994 1993 1992
-------------------------------------------
Net revenues $ 26,475,125 $ 19,112,640 $ 13,256,200
School operating costs:
Training 8,242,944 5,231,394 3,335,935
Facilities 4,073,460 2,365,090 1,288,436
5elling and promotional 4,059,217 2,592,726 1,764,440
Administrative 6,567,893 3,811,930 2,861,379
-------------------------------------------
22,943,514 14,001,140 9,250,190
-------------------------------------------
School contribution 3,531,611 5,111,500 4,006,010
General and administrative expenses 2,071,123 1,688,297 1,623,379
-------------------------------------------
1,460,488 3,423,203 2,382,631
Loss on closure of school (Note 10) 1,125,518 -- --
Consulting fees 33,331 -- 4,167
Amortization of goodwill and intangibles 1,235,362 1,071,737 820,915
Interest expense (net of interest income of
$150,000 in 1994, $207,000 in 1993 and
$163,000 in 1992) 797,548 574,093 388,503
-------------------------------------------
(Loss) income before income taxes and
extraordinary credit (1,731,271) 1,777,373 1,169,046
(Benefit) provision for income taxes (Note 7) (169,966) 748,891 519,448
-------------------------------------------
(Loss) income before extraordinary credit (1,561,305) 1,028,482 649,598
Extraordinary credit - utilization of net
operating loss carryforward (Note 7) -- -- 435,000
-------------------------------------------
Net (loss) income $ (1,561,305) $ 1,028,482 $ 1,084,598
===========================================
See accompanying notes.
4
29
Educational Medical, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
ADDITIONAL
CUMULATIVE CONVERTIBLE PAID-IN
PREFERRED STOCK CAPITAL ON
SHARES AMOUNT PREFERRED STOCK
----------------------------------------
Balance at March 31, 1991 1,020,000 $ 10,200 $ 6,721,050
Repurchase and retirement of
common stock - - -
Issuance of common stock - - -
Issuance of stock purchase warrants - - -
Accretion of value of stock purchase
warrants - - -
Conversion of $1,232,498 of accrued
preferred dividends to common
stock - - (1,232,498)
Purchase of common stock for
treasury - - -
Net income - - -
----------------------------------------
Balance at March 31, 1992 1,020,000 10,200 5,488,552
Accretion of value of stock purchase
warrants - - -
Conversion of stock purchase
warrants 3,031 30 14,225
Net income - - -
----------------------------------------
Balance at March 31, 1993 1,023,031 10,230 5,502,777
Accretion of value of stock purchase
warrants - - -
Conversion of stock purchase
warrants 18 - 85
Net loss - - -
----------------------------------------
Balance at March 31, 1994 1,023,049 $ 10,230 $ 5,502,862
========================================
See accompanying notes.
5
30
ADDITIONAL
COMMON STOCK PAID-IN STOCK RETAINED
----------------------------- CAPITAL ON PURCHASE EARNINGS
SHARES AMOUNT COMMON STOCK WARRANTS (DEFICIT)
--------------------------------------------------------------------------------
Balance at March 31, 1991 731,261 $ 7,313 $ 49 $ -- $ (1,815,605)
Repurchase and retirement of
common stock (78,973) (790) -- -- --
Issuance of common stock 106,041 1,060 -- -- --
Issuance of stock purchase warrants -- -- -- 1,050,000 --
Accretion of value of stock purchase
warrants -- -- -- 154,556 (154,556)
Conversion of $1,232,498 of accrued
preferred dividends to common
stock 246,500 2,465 1,230,033 -- --
Purchase of common stock for
treasury -- -- -- -- --
Net income -- -- -- -- 1,084,598
--------------------------------------------------------------------------------
Balance at March 31, 1992 1,004,829 10,048 1,230,082 1,204,556 (885,563)
Accretion of value of stock purchase
warrants -- -- -- 236,568 (236,568)
Conversion of stock purchase
warrants 1,259 13 5,923 -- --
Net income -- -- -- -- 1,028,482
--------------------------------------------------------------------------------
Balance at March 31, 1993 1,006,088 10,061 1,236,005 1,441,124 (93,649)
Accretion of value of stock purchase
warrants -- -- -- 283,276 (283,276)
Conversion of stock purchase
warrants 8 -- 35 -- --
Net loss -- -- -- -- (1,561,305)
--------------------------------------------------------------------------------
Balance at March 31, 1994 1,006,096 $10,061 $1,236,040 $ 1,724,400 $ (1,938,230)
================================================================================
31
SCHEDULE 2.1(b)
EDUCATIONAL MEDICAL, INC.,
A DELAWARE CORPORATION XXXXXX ACQUISITION CORP. MERGED INTO
DOI - 03/11/88 EDUCATIONAL MEDICAL, INC. ON 06/11/92
EIN - 00-0000000 D/B/A XXXXXX COLLEGE
-------------------------- -------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
*
DBS ACQUISITION CORP.,
A VIRGINIA CORPORATION
F/K/A A-DBS ACQ. CORP.
D/B/A DOMINION BUSINESS *
SCHOOL MTSX ACQUISITION
DOI - 04/13/93 CORP., A DELAWARE PALO VISTA COLLEGE OF
ANDON COLLEGES, INC. EIN - 00-0000000 MARIC LEARNING SYSTEMS, CORPORATION NURSING AND ALLIED HEALTH
A CALIFORNIA CORPORATION *ORIGINALLY A DELAWARE A CALIFORNIA CORPORATION D/B/A MODERN SCIENCES, INC., A CALIFORNIA
D/B/A ANDON COLLEGE CORPORATION KNOWN AS D/B/A MARIC COLLEGE OF TECHNOLOGY SCHOOL OF CORPORATION
DOI - 11/28/89 DBS ACQUISITION CORP. MEDICAL CAREERS X-RAY D/B/A MARIC COLLEGE OF
EIN - 00-0000000 WAS FORMED. DOI - 05/06/81 QUALIFIED - CALIFORNIA MEDICAL CAREERS
ON 09/07/94, THE EIN - 96-3633570 DOI - 03/10/93 DOI - 12/01/78
DELAWARE CORPORATION EIN - 00-0000000 EIN - 00-0000000
WAS MERGED INTO THE
VIRGINIA CORPORATION
AND THE VIRGINIA
CORPORATION WAS THE
SUCCESSOR CORPORATION
------------------------ ----------------------- ------------------------ ---------------------- ----------------------------
CALIFORNIA ACADEMY OF ICM ACQUISITION OIOPT ACQUSITION
MERCHANDISING, ART AND DESIGN, CORP., A DELAWARE XXXXXXX ACQUISITION CORP., A DELAWARE SCOTTSDALE EDUCATIONAL
INC., A DELAWARE CORPORATION CORPORATION CORP., A DELAWARE CORPORATION CENTER FOR ALLIED HEALTH
F/K/A CAMAD ACQUISITION CORP. D/B/A ICM SCHOOL CORPORATION D/B/A OHIO CAREERS, INC., AN ARIZONA
D/B/A CALIFORNIA ACADEMY OF OF BUSINESS D/B/A XXXXXXX INSTITUTE OF CORPORATION
FASHION MERCHANDISING, ART AND QUALIFIED - COLLEGE OF BUSINESS PHOTOGRAPHY AND D/B/A LONG MEDICAL
DESIGN PENNSYLVANIA QUALIFIED - GEORGIA TECHNOLOGY INSITUTE
QUALIFIED - CALIFORNIA DOI - 04/27/93 DOI - 11/06/99 QUALIFIED - OHIO DOI - 07/27/79
DOI - 06/14/93 EIN - 00-0000000 EIN - 00-0000000 DOI - 05/21/93 EIN - 00-0000000
EIN - 00-0000000 EIN - 00-0000000
------------------------------ ----------------- ------------------- ---------------- -------------------------
DEBT EDUCATION
CORPORATION,
A CALIFORNIA CORPORATION
D/B/A ANDON COLLEGE
DOI - 10/10/84
EIN - 00-0000000
------------------------
DOI - DATE OF INCORPORATION
EIN - EMPLOYER IDENTIFICATION NUMBER
* - SUBJECT TO PRIOR PLEDGE SEE SCHEDULE 2.1(1)
32
Educational Medical, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
YEAR ENDED MARCH 31
1994 1993 1992
--------------------------------------------------------
OPERATING ACTIVITIES
Net (loss) income $(1,561,305) $ 1,028,482 $ 1,084,598
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Depreciation 649,171 256,769 147,279
Amortization of intangibles and goodwill 1,255,106 1,071,737 816,746
Loss on closure of school 1,125,518 - -
Provision for losses on accounts receivable 1,144,361 878,581 742,305
Deferred income taxes 177,548 (84,548) (92,000)
Accretion of discount on long-term debt 212,445 212,444 146,674
Changes in operating assets and liabilities, net
of assets acquired and liabilities assumed:
Accounts receivable (2,520,951) (1,037,154) (1,187,401)
Prepaid expenses (141,327) (171,378) (27,189)
Other assets (79,332) - (50,188)
Accounts payable, refunds payable, and
accrued expenses 159,038 (120,327) 80,396
Deferred tuition income 202,707 73,075 (268,270)
Income taxes payable (972,476) 116,476 176,000
Other liabilities 255,528 58,421 (31,241)
----------------------------------------------------
Net cash (used in) provided by operating activities (93,969) 2,282,578 1,537,709
INVESTING ACTIVITIES
Purchase of businesses, net of cash acquired (490,650) - (1,045,065)
Purchases of property and equipment, net (678,125) (542,193) (282,507)
Additions to goodwill and intangibles (556,129) (77,384) -
----------------------------------------------------
Net cash used in investing activities (1,724,904) (619,577) (1,327,572)
FINANCING ACTIVITIES
Repurchase of common stock - - (790)
Issuance of common stock 35 5,936 1,060
Issuance of preferred stock 85 14,255 -
Proceeds from notes payable and long-term debt 178,979 - 2,950,000
Principal payments on acquisition notes payable (1,684,228) - -
Principal payments on senior subordinated debt (401,588) - (90,000)
Purchase of treasury stock - - (35,000)
Issuance of stock purchase warrants - - 1,050,000
Increase in deferred financing costs (62,128) - (277,879)
----------------------------------------------------
Net cash (used in) provided by financing activities (1,968,845) 20,191 3,597,391
----------------------------------------------------
(Decrease) increase in cash and cash equivalents (3,787,718) 1,683,192 3,807,528
Cash and cash equivalents at beginning of year 6,533,006 4,849,814 1,042,286
----------------------------------------------------
Cash and cash equivalents at end of year $2,745,288 $6,533,006 $4,849,814
====================================================
See accompanying notes.
6
33
Educational Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 1994
1. ORGANIZATION AND ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Educational Medical, Inc. (the "Company") operates various vocational schools
primarily offering allied health, business, fashion and photography training.
The Company presently operates fourteen schools in the states of California,
Georgia, Virginia, Ohio, Pennsylvania, and Arizona.
Students attending the Company's schools generally finance the cost of their
education through government grants and guaranteed loans. Such financial
assistance generally covers a significant portion of the total cost of the
programs offered by the Company. The U.S. Department of Education has various
requirements for operators of vocational schools including certain financial
covenants. Recently issued government regulations also limit the percentage
of tuition revenue which individual schools can derive from these government
programs; violations could limit a school's ability to obtain governmental
financial assistance at the particular school. Presently the new regulations
are difficult to interpret, modifications have been proposed and the
regulations are being challenged in a lawsuit to be heard in July 1994. If the
regulations and related financial covenants are implemented in their present
form without modification, it is management's belief that the Company and
certain of their schools may be in violation and hence the Company could
experience a materially adverse effect on its future operations.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
CASH EQUIVALENTS
Cash equivalents includes overnight investments in a bank and an investment in
bond mutual funds. These investments are recorded at cost, which approximates
market. The Company considers investments with maturities of three months or
less at the date of purchase to be cash equivalents for purposes of the
statements of cash flows.
7
34
Educational Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
calculated on the straight-line method over the estimated useful lives of the
related assets or the remaining lease term for leasehold improvements, if
shorter.
COVENANTS NOT TO COMPETE
Non-compete agreements obtained from the sellers of certain acquired schools
are being amortized on the straight-line basis over the life of the agreement,
generally from two to fifteen years.
GOODWILL AND OTHER INTANGIBLE ASSETS
In fiscal 1994, the Company changed its estimate of the life of goodwill to 15
years. Previously, goodwill was amortized over 40 years. The effect of the
change was not material.
Other intangible assets, which are similar in character to goodwill (acquired
student contracts, training curriculum, favorable leases assumed, non-compete
contracts, accreditation and acquired tradenames) are being amortized using the
straight-line method over periods ranging generally from two years to ten
years.
DEFERRED TUITION INCOME
Deferred tuition income represents the portion of student tuitions received in
advance of services being performed.
REFUNDS PAYABLE
Refunds payable are refunds due to terminated students. These funds are paid
in accordance with the prescribed policies of the regulatory and accrediting
organizations of the individual school and represent the refund due under the
terms of the enrollment contract based on the student's attendance through the
termination date.
8
35
Educational Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Tuition revenue is recognized monthly on a straight-line basis over the term of
the course of study. Certain fees and charges are fully recognized as revenue
at the time a student begins classes.
NON CASH TRANSACTIONS
As discussed in Note 4, the Company has acquired certain assets and assumed
certain liabilities of various schools. In fiscal year 1994 and 1993, the
Company issued $3,873,000 and $1,483,000, respectively, in notes payable and
long-term debt in conjunction with these acquisitions. During 1994, the
Company also acquired certain equipment under capital lease. Such transactions
have been excluded from the statements of cash flows.
INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement No.
109, "Accounting for Income Taxes." The Company adopted the provisions of the
new standard in its financial statements for the year ended March 31, 1993.
The effect of adopting Statement 109 was immaterial. As permitted by the
Statement, prior year financial statements have not been restated to reflect
the change in accounting method.
Under Statement 109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. Prior to the adoption
of Statement 109, income tax expense was determined using the deferred method.
Deferred tax expense was based on items of income and expense that were
reported in different years in the financial statements and tax returns and
were measured at the tax rate in effect in the year the difference originated.
RECLASSIFICATIONS
Certain reclassifications were made to the 1993 financial statements to conform
with the 1994 presentation.
9
36
Educational Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. LONG-TERM DEBT
Long-term debt is summarized as follows:
March 31
1994 1993
---------------------------
8% to 11% unsecured promissory notes
payable to sellers of various schools
acquired, principal and interest payable
periodically through July 1999 $2,100,000 $1,300,000
Notes payable due for non-competition
agreements, payable periodically through
July 1999 1,242,500 500,000
13% senior subordinated debt, $4,000,000
principal, quarterly interest-only payments
through March 31, 1993, quarterly principal
payments of $100,000 plus interest
beginning June 30, 1993 with final payment
of $2,800,000 on June 30, 1996 3,121,563 3,309,118
6.67% mortgage payable due in monthly
installments of $6,881, secured by land and
building 707,487 -
12% capitalized lease, payable in installments
of $2,390; secured by equipment 130,238 -
Other - 33,078
----------------------------
7,301,788 5,142,196
Less current portion 1,549,434 1,023,078
----------------------------
$5,752,354 $4,119,118
============================
10
37
Educational Medical, Inc. Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. LONG-TERM DEBT (CONTINUED)
Included in promissory notes payable is a 10.91% promissory note payable for
$350,000, due October 31, 1994, secured by all the outstanding corrunon stock
of Xxxxxxx Acquisition Corp., a wholly-owned subsidiary formed solely to
acquire Xxxxxxx College of Business; subject to the occurrence of certain
future events as defined in the note, the unpaid balance is convertible into
Common Stock based on a predetermined formula; no amounts are convertible as of
March 31, 1994.
On July 23, 1991 the Company entered into a Securities Purchase Agreement,
("the Agreement") under which it issued $4,000,000 of 13% Senior Subordinated
Debt Notes ("the Notes") and warrants to purchase a total of 800,000 shares of
common stock to certain outside investors ("the Investors"). Pursuant to this
transaction, $1,050,000 was recorded as debt discount and warrants (see Note
3). The carrying value of the Notes represents the principal at maturity less
the unamortized discount. The discount amount of $1,050,000 attributable to
the notes is being amortized using the straight-line method through the
maturity date of the notes. Amortization of the discount of $212,000, $212,000
and $147,000 were included in interest expense for the years ended March 31,
1994, 1993 and 1992, respectively. The Notes are secured by substantially all
the assets of the Company. Such security is subordinate to all senior debt, as
defined.
Under the terms of the Agreement, the Company must meet certain restrictive
covenants. Under the most restrictive of such covenants, the Company must
maintain specified levels of net worth, total debt to shareholders' equity and
a fixed charge coverage ratio.
The Company is also restricted as to the incurrence of certain other debt and
restricted payments, as defined. In addition, without the approval of a
majority of Investors the Company is restricted as to: the consolidation,
merger or sale of the Company; the issuance of indebtedness subordinate to
senior debt and senior to the Notes; the amendment of its articles of
incorporation or bylaws; the increase in the number of authorized directors;
the redemption or repurchase of outstanding stock (except as in employment
contracts); and the payment of any dividends on Common Stock.
11
38
Educational Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. LONG-TERM DEBT (CONTINUED)
The Company, the Preferred Shareholders, and the Investors have entered into a
Coinvestors Agreement which, among other things, entitles the Investors to
select one representative on the Company's Board of Directors as long as a
certain minimum investment amount is maintained by the Investors.
During the year ended March 31, 1994, the Company entered into a $2,000,000
revolving loan agreement (the "$2,000,000 loan") and a $1,000,000 revolving
loan agreement (the "$1,000,000 loan") with a bank. Borrowings under the
$2,000,000 loan bear interest at the rate of prime plus 1% and under the
$1,000,000 loan at the rate of prime plus 2%. The loans mature on September 1,
1994 and are secured by substantially all assets of the Company. No amounts
were outstanding under these agreements at March 31, 1994.
Aggregate maturities of long-term debt at March 31, 1994 are as follows:
Year ending March 31,
1995 $15,549,434
1996 1,178,513
1997 3,370,475
1998 575,350
1999 558,070
Thereafter 548,383
----------
7,780,225
Less discount on senior subordinated debt 478,437
----------
$7,301,788
==========
Interest paid during the years ended March 31, 1994, 1993 and 1992 was
approximately $733,000, $520,000, and $363,000.
12
39
Educational Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. SHAREHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
Prior to March 31, 1990, the Company issued 1,020,000 shares of Cumulative
Convertible Preferred Stock, $.01 par value. At the option of the holder, each
share of Preferred Stock may be converted into one share of Common Stock at
$6.66 per share, subject to certain antidilution adjustments (1,023,049 shares
at March 31, 1994).
Through July 22, 1991, the shares of Preferred Stock accrued dividends at an
annual rate of 8%. Effective July 23, 1991, pursuant to the Securities
Purchase Agreement dated July 23, 1991 (see Note 4), the terms of the Preferred
Stock were amended to eliminate the cumulative dividends feature and redemption
requirement until an Initial Public Offering of Stock is completed and certain
other requirements are met, and the Company issued 246,500 shares of Common
Stock in full payment of accrued dividends through July 22, 1991 totaling
$1,232,498. Under certain circumstances, the Company is obligated to redeem
for cash all the outstanding Preferred Stock at $6.66 per share.
Except for the election of directors, the holders of Preferred Stock and Common
Stock shall vote as one class, with each share of Preferred Stock entitled to
one vote for each share of Common Stock issuable upon conversion. The
Preferred Shareholders voting separately as a class may elect three of the five
members of the Board of Directors.
COMMON STOCK
Effective December 15, 1991, certain shares of Common Stock previously
purchased by two officers became subject to a Restricted Stock Purchase
Agreement, as amended December 15, 1991. Under the terms of the amended
Restricted Stock Purchase Agreement, the Company has the rights to repurchase
certain shares of previously issued Common Stock in the event of termination of
employment at the original issue price of $.01 per share. The rights expire
ratably over a scheduled four year vesting period. As of March 31, 1994, a
total of 20,409 shares are subject to this repurchase option.
13
40
Educational Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. SHAREHOLDERS' EQUITY (CONTINUED)
COMMON STOCK (CONTINUED)
The Company has reserved the following shares of Common Stock at March 31,
1994:
Convertible Preferred Stock 1,023,049
Common Stock purchase warrants 948,000
---------
1,971,031
=========
STOCK PURCHASE WARRANTS
As described in Note 2, concurrent with the issuance of the Notes, the
Investors were granted stock purchase warrants allowing the purchase of up to
800,000 shares of Common Stock at $5 per share, for a total amount of
$4,000,000. The $5 exercise price of the warrants is subject to adjustment for
any future issuances of equity or equity related securities at a per share
price less than the exercise price.
The warrants were assigned a value of $1,050,000. The difference between the
$1,050,000 and the exercise price of $4,000,000 is being accreted through the
date of earliest exercise (50% through March 31, 1998 and 50% through March 31,
1999). Accretion of $283,276 and $236,568 was charged to retained earnings
during the year ended March 31, 1994 and 1993, respectively. The warrants
expire June 30, 2001.
At any time after March 31, 1998, but on or before March 31, 1999, the
Investors may "put" to the Company warrants representing 50% of total warrants
then outstanding. At any time after March 31, 1999, the Investors may "put" to
the Company all then outstanding warrants. The Company may "call" the warrants
at the later of 2 years from closing (July 23, 1991) or after the Company's
stock has been publicly traded for six months. The put/call price is $5 per
share.
14
41
Educational Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. SHAREHOLDERS' EQUITY (CONTINUED)
STOCK PURCHASE WARRANTS (CONTINUED)
The Coinvestors Agreement (Note 2) specifies that, upon a change in control of
the Company, all Investors and Preferred Shareholders "put" amounts will be
paid and distributed by the Company as follows:
i) 50% of the Investors' "put" amounts shall be paid and
distributed by the Company to the Investors immediately.
ii) immediately thereafter, all shareholders' "put" amounts shall
be paid and distributed by the Company to the Preferred
Shareholders.
iii) immediately thereafter, the remaining Investors' "put" amounts
shall be paid and distributed by the Company to the Investors.
In the event of a change in control of the Company, the Notes are to be repaid
at par and the related warrants may be "put" to the Company by the Investors at
a price between $1 to $2.50 per Common Share depending on the date of the
change in control. The Preferred Shareholders are to be paid in cash all the
outstanding Preferred Stock at $6.66 per share.
In connection with the Securities Purchase Agreement described in Note 2, a
third party was granted warrants to purchase 16,000 shares of Common Stock
exercisable at $6 per share. These warrants expire July 23, 1996.
The Company has agreed in the event of an Initial Public Offering to issue to a
third party, warrants to purchase 10,000 shares of Common Stock at the offering
price of such shares in an Initial Public Offering. These warrants will expire
5 years from the date of such Initial Public Offering.
15
42
Educational Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. SHAREHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS
In fiscal year 1993 and 1994, the Company issued 102,000 and 20,000 stock
option grants, respectively, to certain management employees, which give the
holders rights to acquire the same number of shares of the Company's common
stock. The options vest incrementally over four years and are exercisable at
$4.00 per share for the 1993 options and $6.67 for the 1994 options. The
options expire on the fifth anniversary of the year in which such options
become vested. As of March 31, 1994, 48,000 options were exercisable.
4. ACQUISITIONS
On March 1, 1993, the Company, through a wholly-owned subsidiary, purchased
certain assets and assumed certain liabilities of Modern Technology School of
X-Ray ("Modern") for $1,550,000. The purchase price consisted of $950,000 of
notes payable to the seller (see Notes 2 and 3), a $500,000 non-compete
covenant payable over five years and $100,000 of cash. The acquisition was
accounted for as a purchase whereby the assets acquired and liabilities assumed
(net tangible assets of $140,000) were recorded at their estimated fair market
values. Approximately $500,000 was assigned to a covenant not to compete and
approximately $910,000 was assigned to goodwill. The results of operations of
Modern have been included in the Company's results of operations since March 1,
1993, the effective date for accounting purposes.
On May 29, 1993, the Company, through a wholly-owned subsidiary, purchased
certain assets and assumed certain liabilities of Dominion Business Schools,
Inc. (DBS) for up to $2,400,000. The purchase price consisted of promissory
notes totaling $1,650,000 to the seller, a $400,000 non-compete covenant
payable over five years and $350,000 of cash. The acquisition was accounted
for as a purchase whereby the assets acquired and the liabilities assumed (net
liabilities assumed of $725,000) were recorded at their estimated fair market
values. Approximately $400,000 was assigned to the covenant not to compete.
The results of operations of DBS have been included in the Company's results of
operations since June 1, 1993, the effective date of the acquisition for
accounting purposes.
16
43
Educational Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. ACQUISITIONS (CONTINUED)
On July 3, 1993, the Company, through a wholly-owned subsidiary, purchased
certain assets and assumed certain liabilities of Computer Management of
Baltimore, Inc. dba ICM School of Business (ICM) for $600,000. The purchase
price consisted of $500,000 of notes payable and a $100,000 non-compete
covenant payable over two years. The acquisition was accounted for as a
purchase whereby the assets acquired and the liabilities assumed (net
liabilities assumed of $481,000) were recorded at their estimated fair market
values. The results of operations of ICM have been included in the Company's
results of operations since July 1, 1993, the effective date of the acquisition
for accounting purposes.
On July 14, 1993, the Company, through a wholly-owned subsidiary, purchased
certain assets and assumed certain liabilities of the Ohio Institute of
Photography and Technology (OIPT) for $1,236,000. The purchase price consisted
of $200,000 of notes payable to the seller, a $325,000 non-compete covenant
payable over five years, the assumption of a $541,000 mortgage, and $170,000 of
cash. The acquisition was accounted for as a purchase whereby the assets
acquired and the liabilities assumed (net tangible assets of $1,127,000) were
recorded at their estimated fair market values. Approximately $62,000, net of
negative goodwill acquired, was assigned to the covenant not to compete. The
results of operations of OIPT have been included in the Company's results of
operations since July 1, 1993, the effective date of the acquisition for
accounting purposes. The Company entered into three year consulting agreements
with the former shareholders of OIPT for a total of $200,000, payable
semiannually. Consulting fees of $33,000 are included in the accompanying 1994
consolidated statement of operations.
On August 5, 1993, the Company, through a wholly-owned subsidiary, purchased
certain assets and assumed certain liabilities of California Academy of
Merchandising, Art & Design (CAMAD) for $50,000. The purchase price consisted
of $25,000 in cash and a $25,000 non-compete covenant payable over two years.
The acquisition was accounted for as a purchase whereby the assets acquired and
the liabilities assumed (net liabilities
17
44
Educational Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. ACQUISITIONS (CONTINUED)
assumed of $46,000) were recorded at their estimated fair market values. The
results of operations of CAMAD have been included in the Company's results of
operations since August 1, 1993, the effective date of the acquisition for
accounting purposes.
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
MARCH 31
1994 1993
---------------------------
Equipment, furniture and fixtures $ 2,384,552 $1,250,969
Leasehold improvements 679,085 477,591
Land 208,100 -
Buildings 787,000 -
---------------------------
4,058,737 1,728,560
Less accumulated depreciation and
amortization (1,228,048) (582,196)
---------------------------
$ 2,830,689 $1,146,364
===========================
6. LEASES
The Company leases its office, classroom and dormitory space under operating
lease agreements expiring through 1998. Rent expense totaled approximately
$2,330,000, $1,249,000, and $613,000 for the years ended March 31, 1994, 1993
and 1992, respectively.
18
45
Educational Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. LEASES (CONTINUED)
Future minimum lease payments under noncancelable operating leases are as
follows for the years ended March 31:
1995 $1,829,502
1996 1,402,287
1997 1,300,038
1998 1,129,202
1999 715,815
Thereafter 3,258,204
----------
$9,635,048
==========
7. INCOME TAXES
The (benefit) provision for income taxes consists of the following:
YEAR ENDED MARCH 31
1994 1993 1992
------------------------------------------
Current:
Federal $ (584,479) $640,591 $483,448
State (166,618) 192,848 129,000
-------------------------------------------
(751,097) 833,439 612,448
Deferred:
Federal 580,868 (66,388) (75,000)
State 263 (18,160) (18,000)
-------------------------------------------
581,131 (84,548) (93,000)
-------------------------------------------
$ (169,966) $748,891 $519,448
===========================================
The deferred tax provision in 1994 results primarily from the change in the
deferred tax asset valuation reserve. Deferred tax benefits result primarily
from the timing of deductions related to the allowance for doubtful accounts
receivable.
19
46
Educational Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. INCOME TAXES (CONTINUED)
The income tax provision for fiscal year 1992 includes a charge in lieu of
federal and state income taxes of $435,000, which represents taxes that would
have been paid in the absence of net operating loss carryforwards from prior
years. The offsetting income tax benefit from the utilization of these
carryforwards has been reported as an extraordinary credit, in accordance with
the deferred method of accounting for income taxes.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities at March 31 are as
follows:
1994 1993
---------------------------
Allowance for doubtful accounts $ 218,996 $ 257,470
Tradenames 379,000 433,000
Prepaid expenses (137,664) (41,615)
Intangibles 178,740 -
Depreciation 49,440 25,186
Deferred rent - 25,928
AMT credit carryforwards 1,929,420 -
Other, net (22,021) 21,742
---------------------------
858,911 721,711
Valuation allowance for deferred
tax assets (858,911) (544,163)
---------------------------
$ - $ 177,548
===========================
The Company paid approximately $383,500 and $650,000 of income taxes in the
years ended March 31, 1994 and 1993 and none in the year ended March 31, 1992.
20
47
Educational Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. EMPLOYEE BENEFIT PLAN
During 1992, the Company adopted a defined contribution plan covering
substantially all employees; the plan is qualified under Section 401(k) of the
Internal Revenue Code. Under the provisions of the plan, eligible
participating employees may elect to contribute up to the maximum amount of tax
deferred contribution allowed by the Internal Revenue Code. The Company
matches 25% of such contributions up to a maximum of 4% of the employees'
compensation. The Company's contributions to the plan were approximately
$45,600, $29,900 and $5,300 for the years ended March 31, 1994, 1993 and 1992
respectively.
9. CONTINGENCIES
The Company is involved in litigation in the normal course of business which in
the opinion of management will not have a material adverse effect on the
Company's financial condition.
10. LOSS ON CLOSURE OF SCHOOL
In September 1993, the Company decided to close its wholly-owned subsidiary,
Xxxxxxx College of Business in Albany, Georgia due to continued operating
losses and the anticipation that such losses would continue. A loss of
$1,125,518 is included as "Loss on Closure of School" in the accompanying 1994
consolidated statement of operations and relates primarily to the write-off of
the related goodwill and losses from September 1993 to September 1994 when the
school will close.
11. FUTURE TUITION INCOME (UNAUDITED)
Future tuition income on active student contracts is as follows as of March 31,
1994:
Deferred tuition income $ 2,456,345
Uncollected future tuition income 12,687,253
-----------
Future tuition income $15,143,598
===========
Based upon prior experience, it is estimated that approximately 60% of the
future tuition income will be ultimately recognized and included in revenues in
fiscal year 1995 when the related services are rendered (see Note 1).
21
48
SCHEDULE 2.1(i)(B)
MATERIAL ADVERSE CHANGES AND ADDITIONAL BORROWINGS
SINCE THE DATE OF FINANCIAL STATEMENTS
SEE EXHIBIT 2.1(h) WITH RESPECT TO EXISTING LITIGATION.
THE COMPANY IS CURRENTLY APPEALING A SUSPENSION OF CERTAIN FEDERAL FUNDING WITH
RESPECT TO ITS CAMPUS IN STOCKTON, CALIFORNIA, BASED ON DEFAULT RATES
PURPORTEDLY IN EXCESS OF 25% FOR LATEST LEAST THREE YEARS. SUSPENSION OF
FUNDING IS TOLLED PENDING THE RESOLUTION OF THESE APPEALS. UNDER CURRENT
REGULATION A SCHOOL MAY APPEAL SUSPENSION BASED ON SERVICING ERRORS OR
INACCURATE DATA. THE APPEAL ALLEGES BOTH FACTORS EXISTED AND, IF TAKEN INTO
ACCOUNT WOULD LOWER THE DEFAULT TO UNDER 25%. IN ADDITION, THE COMPANY HAS
APPEALED UNDER PROVISIONS PROVIDING FOR MITIGATING CIRCUMSTANCE RELIEF BASED
UPON ACCEPTABLE COMPLETION AND PLACEMENT RATES. THE APPEALS FILED ALLEGE THE
COMPLETION AND PLACEMENT RATES WERE WITHIN ACCEPTABLE LEVELS.
49
SCHEDULE 2.1(e)
LIST OF OPTIONS
SEE FOOTNOTE 3 SET FORTH IN THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEARS
ENDED MARCH 31, 1994 AND 1993 WITH REPORT OF INDEPENDENT AUDITORS ATTACHED TO
EXHIBIT 2.1(i)(A)
50
SCHEDULE 2.1(f)
LIST OF TRADEMARKS, PATENTS, TRADENAMES, ETC.
NONE
51
SCHEDULE 2.1(h)
TO LOAN AGREEMENT
EDUCATIONAL MEDICAL, INC.
THREATENED OR PENDING LITIGATION
AS OF MARCH 28, 1995
----------------------------------------------------------------------------------------------------------------------------------
DATE OF
NAME AND DESCRIPTION FILING STATUS
----------------------------------------------------------------------------------------------------------------------------------
Xxxxxxxx Bahinipaty vs. Educational Medical, Inc., March 11, 1994 Voluntary Dismissal filed by
Maric College of Medical Careers, United States Plaintiff on Sept. 8, 1994.
District Court of the Southern District of Sanctions awarded by the Court
California, re: claims of alleged wages due, against Plaintiff in the amount of
defamation and the failure of Maric to meet its $18,896.72 on March 1, 1995.
purported obligations.
----------------------------------------------------------------------------------------------------------------------------------
Xxxxxxx Xxxx, Xxxx Xxxxx, Xxxxxx Tilema, Xxxxxx July 29, 1994 Second Amended Complaint filed
Hay, Xxxxxx Xxxxxxx, Xxxx Xxxx, May Xxxxxx and Don Dec. 13, 1994
Xxxxxx et al vs. Educational Medical, Inc., Maric Class Certification
Learning Systems, Inc., et al, re: class action granted Jan. 20, 1995
claims that Maric and its agents allegedly failed
to meet its obligations and made oral
misrepresentions with respect to orthopaedic
assistant program allegedly violating the Xxxxxx
Xxxxxx School Reform Act and California Consumer
Legal Remedies Act.
----------------------------------------------------------------------------------------------------------------------------------
Xxxxx Xxxxxxxx v. Educational Medical, Inc. re: December 28, Plaintiff has been previously
claims of wrongful termination, violation of 1994 adjudicated a vexatious litigator
public policy, breach of the covenant of good and sanctioned by the California
faith and fair dealing and statutory violations. courts. Motion to dismiss has
been filed by the school.
----------------------------------------------------------------------------------------------------------------------------------
Xxxx Xxxxxxx v. Educational Medical, Inc. re: None filed only Last communication with counsel
claims of wrongful termination. threatened in November 1994. Claimant
may have abandoned claims.
==================================================================================================================================
52
SCHEDULE 2.1(j)
OTHER AGREEMENTS
NONE
53
SCHEDULE 2.1(l)
CREDIT AGREEMENTS, INDENTURES,
PURCHASE AGREEMENTS, PROMISSORY NOTES, ETC.
1. PLEDGE AGREEMENT DATED AS OF JULY 14, 1993 AMONG EDUCATIONAL MEDICAL,
INC., OHIO INSTITUTE OF PHOTOGRAPHY AND TECHNOLOGY, INC. AND OIOPT
ACQUISITION CORP.
2. BUSINESS PURPOSE PROMISSORY NOTE EXECUTED BY OIOPT ACQUISITION CORP.
IN FAVOR OF BANK ONE, DAYTON, N.A. IN THE PRINCIPAL SUM OF $720,000.00
DATED JULY 14, 1993.
3. BUSINESS LOAN AGREEMENT BETWEEN BANK ONE, DAYTON, N.A. AND OIOPT
ACQUISITION CORP.
4. OHIO OPEN END MORTGAGE EXECUTED BY OIOPT ACQUISITION CORP. IN FAVOR OF
BANK ONE, DAYTON, N.A. THIS MORTGAGE SECURED THE $720,000.00
PROMISSORY NOTE REFERENCED ABOVE.
5. FINANCING STATEMENT REFLECTING OIOPT ACQUISITION CORP. AS THE DEBTOR
AND BANK ONE, DAYTON, N.A. AS THE SECURED PARTY FILED WITH THE OHIO
SECRETARY OF STATE'S OFFICE ON JULY 20, 1993, FILE NUMBER
00502307209317001.
6. CONTINUING GUARANTY EXECUTED BY EDUCATIONAL MEDICAL, INC. IN FAVOR OF
BANK ONE, DAYTON, N.A. IN CONJUNCTION WITH THE $720,000.00 LOAN
REFERENCED ABOVE.
7. PURCHASE MONEY PROMISSORY NOTE EXECUTED BY EDUCATIONAL MEDICAL, INC.
AND MTSX ACQUISITION CORP. IN FAVOR OF M.T. X-RAY, INC. IN THE
PRINCIPAL SUM OF $450,000.00 DATED JULY 23, 1993.
8. PLEDGE AGREEMENT DATED JULY 23, 1993 AMONG EDUCATIONAL MEDICAL, INC.,
M.T. X-RAY, INC. AND MTSX ACQUISITION CORP.
54
9. LETTER ADDRESSED TO M.T. SCHOOL OF X-RAY, THE ESTATE OF XX. XXXXXX
XXXXXX AND XX. XXXXXX XXXXXX FROM XXXXXXXX XXXXXX XXXXXXXX AND XXXX
DATED JULY 19, 1994 REGARDING DISCREPANCIES IN THE REPRESENTATION AND
WARRANTIES OF SELLER IN CONJUNCTION WITH THE CONVEYANCE TO MTSX
ACQUISITION CORP.
10. PURCHASE MONEY PROMISSORY NOTE EXECUTED BY DBS ACQUISITION CORP. AND
EDUCATIONAL MEDICAL, INC. IN FAVOR OF BETA SERVICES, INC. IN THE
PRINCIPAL SUM OF $900,000.00 DATED MAY 28, 1993.
11. PLEDGE AGREEMENT DATED AS OF MAY 28, 1993 AMONG EDUCATIONAL MEDICAL,
INC., BETA SERVICES, INC. AND DBS ACQUISITION CORP.
12. AMENDMENT ONE TO PLEDGE AGREEMENT DATED AS OF JULY 23, 1993 TO THE
PLEDGE AGREEMENT AMONG EDUCATIONAL MEDICAL, INC., BETA SERVICES, INC.,
AND DBS ACQUISITION CORP.
13. MASTER EQUIPMENT LEASE AGREEMENT BETWEEN BANK SOUTH LEASING, INC. AND
EDUCATIONAL MEDICAL, INC. DATED JULY 26, 1994.
14. FINANCING STATEMENTS REFLECTING EDUCATIONAL MEDICAL, INC. AS THE
DEBTOR AND BANK SOUTH LEASING, INC. AS THE SECURED PARTY FILED WITH
THE FOLLOWING STATES: OHIO, ARIZONA, VIRGINIA, CALIFORNIA AND
PENNSYLVANIA.
15. EQUIPMENT LEASE AGREEMENT BETWEEN BANK SOUTH LEASING, INC. AND MTSX
ACQUISITION CORP. FOR ULTRASOUND EQUIPMENT DATED DECEMBER 28, 1993.
16. GUARANTY EXECUTED BY EDUCATIONAL MEDICAL, INC. IN FAVOR OF BANK SOUTH
LEASING, INC. IN CONJUNCTION WITH THE EQUIPMENT LEASE FOR THE
ULTRASOUND EQUIPMENT WITH MTSX ACQUISITION CORP.
17. FINANCING STATEMENT REFLECTING MTSX ACQUISITION CORP. AS THE DEBTOR
AND BANK SOUTH LEASING, INC. AS A SECURED PARTY FILED IN CALIFORNIA.
-2-
55
18. 13% SENIOR SUBORDINATED NOTE R-003 IN THE ORIGINAL PRINCIPAL SUM OF
$603,000 EXECUTED BY EDUCATIONAL MEDICAL, INC. IN FAVOR OF FUELSHIP &
COMPANY DATED JULY 23,1991, AS MODIFIED BY ALLONGE DATED MARCH __,
1995.
19. 13% SENIOR SUBORDINATED NOTE R-004 IN THE ORIGINAL PRINCIPAL SUM OF
$497,000 EXECUTED BY EDUCATIONAL MEDICAL, INC. IN FAVOR OF FUELSHIP &
COMPANY DATED JULY 23, 1991, AS MODIFIED BY ALLONGE DATED MARCH __,
1995.
20. 13% SENIOR SUBORDINATED NOTE R-002 IN THE ORIGINAL PRINCIPAL SUM OF
$2,900,000 EXECUTED BY EDUCATIONAL MEDICAL, INC. IN FAVOR OF NAP AND
COMPANY DATED JULY 16, 1991, AS MODIFIED BY ALLONGE DATED MARCH __,
1995.
21. CONSULTING AND NON COMPETITION AGREEMENTS WITH VARIOUS INDIVIDUALS AS
DESCRIBED IN FOOTNOTES 2 AND 4 TO THE CONSOLIDATED FINANCIAL
STATEMENTS FOR YEARS ENDED MARCH 31, 1994 AND 1993 WITH REPORT OF
INDEPENDENT AUDITORS ATTACHED TO SCHEDULE 2.1(i)(A).
-3-
56
SCHEDULE 2.1(o)
INDEBTEDNESS BETWEEN BORROWER AND
OFFICERS OR DIRECTORS OF BORROWER
$75,000 PROMISSORY NOTE DATED SEPTEMBER 20, 1991 EXECUTED BY XXXXX XXXXXX AND
XXXX XXXXXX, HIS WIFE, IN FAVOR OF EDUCATIONAL MEDICAL, INC. SECURED BY A DEED
OF TRUST COVERING REAL PROPERTY LOCATED AT 00000 XXXXXXX XXXXX, XXXX XXXXX,
XXXXXXXXXX AND A DEED TO SECURE DEBT COVERING PROPERTY LOCATED AT 00000
XXXXXXXXXX XXXX, XXXXXXXXXX, XXXXXXX.
THE BORROWER HAS CROSS-GUARANTEED VARIOUS OBLIGATIONS OF ITS SUBSIDIARIES.
57
SCHEDULE 2.1(r)
CONTRACTS, AGREEMENTS AND OTHER DOCUMENTS
PURSUANT TO WHICH BORROWER RECEIVES
REVENUES IN EXCESS OF $25,000
PARTICIPATION AGREEMENTS BETWEEN DEPARTMENT OF EDUCATION AND EACH OF THE
BORROWERS WHICH OPERATE A SCHOOL WITH RESPECT TO FEDERAL FUNDING AND SIMILAR
AGREEMENTS WITH STATES IN WHICH THE BORROWERS' SCHOOLS OPERATE.
58
SCHEDULE 3.12
GUARANTIES, LOANS, ETC.
NONE
59
SCHEDULE 3.13
DIVIDENDS, STOCK, ETC.
NONE
