EXHIBIT 10.7
AMENDMENT NO. 1 TO
ASSET PURCHASE AGREEMENT AND ESCROW AGREEMENT
THIS AGREEMENT is made and entered into as of the /y day of February,
1997, by and between Xxxxxxx Xxxxx College, Inc., a Delaware Corporation (f/k/a
Xxxxxxx Acquisition Corporation) ("Buyer"), Xxxxx X. Xxxxx, individually and as
successor-in-interest to SBC Liquidating, Inc. ("SBC") f/k/a Xxxxxxx Xxxxx
College, Inc., a Missouri Corporation ("Seller"), Xxxxxxx Education Group, Inc.
(f/k/a Xxxxxxx Medical Corp.) ("Xxxxxxx") and Midlantic Bank, N.A., a division
of PNC Bank ("Escrow Agent").
W I T N E S S E T H
WHEREAS, Seller, Buyer, Xxxxx X. Xxxxx and Xxxxxxx entered into that
certain Asset Purchase Agreement dated November 28, 1994 (the "Purchase
Agreement") with respect to the purchase and sale of certain assets and the
assumption of certain liabilities of
Seller;
WHEREAS, as required pursuant to the Purchase Agreement, Buyer, SBC and
Escrow Agent entered into an Escrow Agreement, dated December 21, 1994 pursuant
to which the purchase price prescribed by the Purchase Agreement was to be held,
invested and ultimately disbursed by the Escrow Agent (the "Escrow Agent");
WHEREAS, pursuant to the Purchase Agreement, Seller has repurchased
certain accounts receivable from Buyer by delivery of a Promissory Note in the
original principal amount of $195,000.00 (the "Seller's Note"); and
WHEREAS, the parties now desire to amend certain provisions of the
Purchase Agreement and the Escrow Agreement as provided herein.
NOW, THEREFORE, for and in consideration of the mutual covenants set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Recitals. The above recitals are true and correct and are incorporated
herein by this reference.
2. Capitalized Terms. Capitalized terms used but not defined herein have
the same meaning ascribed to said terms in the Purchase Agreement and the Escrow
Agreement.
3. Disbursement of Escrow Fund. The parties hereto acknowledge and agree
that as of the date of this Agreement, the Escrow Fund maintained by the Escrow
Agent pursuant to the Escrow Agreement contains approximately $6,500,000 in the
Missouri Subescrow and 521,512 shares of Xxxxxxx Education Group, Inc. common
stock, no par value per share (the "Shares") in the Granite City Subescrow.
3.1 Upon full execution of this Agreement, Seller and Buyer shall execute
the joint
instruction letter attached as Exhibit "A" which shall serve to authorize and
direct the Escrow Agent promptly to (a) disburse all of the funds held in the
Missouri Subescrow, as follows: (i) to Buyer $643,327, of which $143,327 shall
be deemed disbursed on behalf of Seller in full payment and satisfaction of
Seller's Note, and $500,000 of which to be received, held and disbursed by Buyer
in accordance with the terms of Section 3.2 below, and (ii) the full remaining
balance to Seller; and (b) from the Granite City Subescrow disburse 260,756
Shares to Seller. Upon receipt of said funds by Buyer, Buyer shall deliver to
Seller the Seller's Note appropriately marked paid in full.
3.2 The $500,000 of the Missouri Subescrow remitted to Buyer pursuant
to Section 3.1(a)(i) above shall be utilized by Buyer solely for payment of
liabilities (the "Program Review Liabilities") assessed in connection with those
certain program reviews (Reference Numbers 19952070024, 199520711869) initiated
by the United States Department of Education (the "Department") with respect to
Seller's operation of Xxxxxxx- Xxxxx College prior to the sale of assets to
Buyer under the Purchase Agreement (the "Program Reviews"), for which Buyer and
Seller have jointly retained counsel. Subject to the agreement of the parties
with respect to Seller's participation in the resolution of said reviews, and
after payment of the Program Review Liabilities by Buyer, any balance of the
$500,000 remaining shall be remitted to Seller and any further monies necessary
to pay the Program Review Liabilities shall be promptly paid by Seller to Buyer.
The $500,000 shall accrue interest at the annual rate of interest earned by the
Missouri Subescrow during the month of December, 1996, which interest shall be
paid by Buyer and credited to Seller until the disbursement of the $500,000.
3.3 The remaining 260,756 Shares of the Granite City Subescrow shall
remain in escrow and be disbursed upon the joint written instruction of Seller
and an authorized officer of Buyer as provided in this Section 3.3. Buyer and
Seller acknowledge that on or about January 8, 1997 Buyer received notice from
the Department that the official cohort default rate for the Xxxxxxx Xxxxx
College in Granite City was 41.3% for 1993 (the "1993 Granite City Rate") and
the official cohort default rate for 1994 was 22.0% (the "1994 Granite City
Rate") and that the Department has notified Buyer that unless a timely appeal is
filed, the Department will initiate an action to limit, suspend or terminate (an
"L,S&T Action") Granite City's participation in Title IV student loan programs.
Buyer hereby agrees to use its best efforts to file and prosecute said appeal.
(i) In the event said appeal is finally determined in favor of Buyer and the
1993 Granite City Rate is revised to less than 40%, or, if, prior to the
issuance of the official 1995 cohort default rate for the Granite City campus
(the "1995 Granite City Rate") no L,S&T Action is taken against Xxxxxxx-Xxxxx
College, then Buyer and Seller shall jointly instruct the Escrow Agent to remit
all of the Shares to Seller. (ii) If, after appeal (a) the 1993 Granite City
Rate remains 40% or above; (b) prior to the issuance of the 1995 Granite City
Rate the Department initiates a termination action against Xxxxxxx-Xxxxx College
or initiates a limitation or suspension action to limit or suspend Xxxxxxx-Xxxxx
College's participation in federal Title IV programs for a period of six months
or more; and (c) Buyer uses its best efforts to contest the termination,
suspension or limitation action, as the case may be, but notwithstanding such
efforts, the Department prevails in said termination, suspension or limitation
action, the Buyer and Seller shall jointly instruct the Escrow Agent to remit
all of the Shares to Buyer. (iii) If, after appeal (a) the 1993 Granite City
Rate remains 40% or above; (b) prior to the issuance of the 1995 Granite City
Rate the Department initiates a limitation or suspension action against
Xxxxxxx-Xxxxx College to limit or suspend Xxxxxxx-Xxxxx College's participation
in federal Title IV programs for a period of less than
six months; and (c) Buyer uses its best efforts to contest the limitation or
suspension action, as the case may be, but notwithstanding such efforts, the
Department prevails in said limitation or suspension action, the Buyer and
Seller shall jointly instruct the Escrow Agent to remit to Buyer that number of
Shares equal to the number of months the limitation or suspension remains in
effect times 43,459 and to remit the remaining Shares to Seller.
If as a result of an L,S&T Action, Buyer becomes entitled to
receive some or all of the 260,756 Shares, Buyer acknowledges that such Shares
shall be received by it as liquidated and stipulated damages and its sole remedy
for any breach by Seller of the Purchase Agreement or the Escrow Agreement
relating to the 1993 Granite City Rate.
4. Seller's Indemnification. Except as otherwise specifically provided
herein, this Agreement is not intended to enlarge or to diminish the rights of
the parties pursuant to the Purchase Agreement or the Escrow Agreement,
including specifically the parties' respective rights to indemnification.
5. Unilateral Chance of the 1994 Official Cohort Default Rate; Appeal of
1993 Official Cohort Default Rate.
5.1 Buyer shall prosecute the previously filed appeal of the
1993 official cohort default rate for the Xxxxxxx-Xxxxx Missouri campuses in an
attempt to have such rate reduced below 25%. Notwithstanding the partial or
complete disbursement of the Escrow Fund provided herein, in the event the
Department unilaterally amends the official 1994 cohort default rate for the
Xxxxxxx-Xxxxx Missouri campuses (the "1994 Missouri Rate") to a default rate of
25% or higher, and thereafter, despite Buyer's efforts in prosecuting available
appeals to reduce the amended rates for 1993 and 1994 to less than 25%, the
appeals are adversely determined and the Missouri campuses are, as a result
thereof, declared ineligible for participation in federal Title IV programs,
nothing contained herein shall restrict or limit any party from pursuing or
advocating its rights under the Purchase Agreement or the Escrow Agreement, and
except as may be specifically provided in this Amendment No. 1, no actions taken
pursuant to this Amendment shall be construed to modify, interpret or as
evidence of a party's intent with respect to the language of those agreements.
Buyer shall not, directly or indirectly, initiate or encourage the Department to
review the 1994 Missouri Rate.
5.2 Notwithstanding the partial or complete disbursement of
the Granite City Subescrow provided herein, in the event the Department
unilaterally amends the 1994 Granite City Rate to a default rate of 25% or
higher, and thereafter, despite Buyer's efforts in prosecuting available appeals
to reduce the amended rate to less than 25%, the appeals are adversely
determined and the Granite City campus is declared ineligible for participation
in federal Title IV programs, nothing contained herein shall restrict or limit
any party from pursuing or advocating its rights under the Purchase Agreement or
the Escrow Agreement. Buyer shall not, directly or indirectly, initiate or
encourage the Department to review the 1994 Granite City Rate.
6. Taxes. Seller acknowledges and agrees that to the extent any portion of
the Escrow Fund disbursed to it under this Amendment (which shall include the
$143,327 disbursed on Seller's behalf directly to Buyer in satisfaction of the
Seller's Note) includes interest earned, Seller shall report all of such
interest to the Internal Revenue Service and
timely pay any income or other taxes due thereon. Buyer represents that it has
not and will not report any interest income from the Escrow Account on its tax
returns unless required to do so by the Internal Revenue Service. Seller agrees
to indemnify Buyer for the amount of any taxes assessed against and paid by
Buyer as a result of the Escrow Fund having been maintained under Buyer's
Federal Employer Identification Number prior to disbursement; provided, however,
that Seller's indemnity under this Section 6 shall survive execution of this
Amendment only for so long as Seller shall have the right to seek a refund of
any tax that may have already been paid by Seller with respect to the same funds
on which Buyer has been taxed and for which indemnification is sought hereunder.
7. Survival: Conflict. All terms and provisions of the Purchase Agreement
and the Escrow Agreement not specifically amended hereby shall remain in full
force and effect in accordance with the terms and provisions thereof. Except as
otherwise provided herein, in the event of any conflict between the terms and
provisions of this Agreement and the respective terms and provisions of either
the Purchase Agreement or the Escrow Agreement, the terms and provisions of this
Agreement shall govern.
8. Lease Agreement. Notwithstanding the terms and provisions of this
Amendment, that certain Lease Agreement, dated December 21, 1994, by and between
Xxxxxxx and Xxxxx Xxxxx, trustee shall remain in full force and effect, in its
entirety, in accordance with the terms and provisions thereof.
9. Headings. The headings in this Agreement are intended solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
10. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute the same agreement.
11. Facsimile Signatures. This Agreement and any document or schedule
required hereby may be signed by facsimile signature which shall be considered
legally binding for all purposes.
12. Interpretation. This Agreement shall be governed by and construed and
enforced in accordance with the laws of New Jersey without regard to conflicts
of laws principles. No provision of this Amendment shall be interpreted for or
against any party solely because that party or that party's representative
drafted such provision.
IN WITNESS WHEREOF, the parties hereto have caused their signatures to
be affixed to this Agreement as of the date first above written.
XXXXXXX XXXXX COLLEGE, INC.
(f/k/a Xxxxxxx Acquisition Corporation)
By: /S/ XXXXX X. XXXXX
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XXXXX X. XXXXX
XXXXX X. XXXXX, individually and as
successor-in-interest to SBC
LIQUIDATING, INC. f/k/a Xxxxxxx Xxxxx
College, Inc.
/S/ XXXXX X. XXXXX
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MIDLANTIC BANK, N.A., a division of PC BANK
/S/ XXXXXXX X. XXXX
=============================================
XXXXXXX X. XXXX, TRUST OFFICER
XXXXXXX EDUCATION GROUP, INC.
(f/k/a Xxxxxxx Medical Corp.)
=============================================
/S/ XXXXX X. XXXXX
XXXXX X. XXXXX, PRESIDENT
