EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
CAREER EDUCATION CORPORATION, AS PURCHASER,
AND
▇▇▇▇▇▇ ▇. ▇▇▇▇▇ AND THE ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ TRUST
DATED OCTOBER 9, 1997, AS SELLER
DATED: NOVEMBER 25, 1998
TABLE OF CONTENTS
Page
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1. Certain Definitions......................................................................... 1
2. Sale and Transfer of Shares; Assets and Liabilities of the Company at Closing............... 1
2.1. Purchaser and Sale of Shares...................................................... 1
2.2. Purchase Price; Payment........................................................... 1
2.3. Company Assets and Liabilities; Purchase Price Adjustment......................... 2
2.4. Closing........................................................................... 5
2.5. Participation of Company Employees in Purchaser's 401(k) Plan..................... 5
2.6. Termination of Company Plans...................................................... 6
2.7. Assignment of Life Insurance Policy............................................... 7
2.8. Excluded Assets................................................................... 7
2.9. Withdrawal of Funds in Excess of Cash Minimum and Threshold Amount Requirements... 7
3. Closing Deliveries.......................................................................... 7
3.1. Deliveries to Purchaser........................................................... 7
3.2. Deliveries to Seller.............................................................. 8
3.3. Post-Closing Covenants............................................................ 9
4. Representations and Warranties of Seller.................................................... 10
4.1. Organization and Good Standing of the Company..................................... 10
4.2. Ownership of the Company and the School........................................... 11
4.3. Capacity; Authorization; Binding Effect, Etc...................................... 11
4.4. No Conflicts, Etc................................................................. 11
4.5. Subsidiaries; Investments......................................................... 12
4.6. Capitalization.................................................................... 12
4.7. Book and Records.................................................................. 12
4.8. Compliance with Laws; Licenses and Permits........................................ 13
4.9. Recruitment; Admissions Procedures; Attendance; Reports........................... 14
4.10. Cohort Default Rate.............................................................. 15
4.11. Real Property Assets; Other Assets............................................... 15
4.12. Material Miscellaneous Contracts................................................. 16
4.13. Tradenames; Confidential Information............................................. 17
4.14. Financial Statements; Indebtedness and Other Liabilities......................... 17
4.15. Receivables...................................................................... 18
4.16. Inventories...................................................................... 19
4.17. Bank Accounts.................................................................... 19
4.18. Litigation, Etc.................................................................. 19
4.19. Insurance........................................................................ 19
4.20. Environmental Matters............................................................ 20
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4.21. Employee Benefit Plans........................................................... 20
4.22. Employment Matters............................................................... 26
4.23. Labor Relations; Compliance...................................................... 27
4.24. Tax Matters...................................................................... 27
4.25. Brokerage........................................................................ 28
4.26. Affiliate Transactions........................................................... 28
4.27. Absence of Certain Changes....................................................... 28
4.28. Solvency......................................................................... 29
4.29. Year 2000 Compliance............................................................. 29
4.30. Accrediting Body Approvals....................................................... 30
4.31. Delivery of Documents............................................................ 30
4.32. Disclosure....................................................................... 30
5. Representations and Warranties of Purchaser................................................. 30
5.1. Organization and Corporate Power.................................................. 30
5.2. Capacity; Authorization, Binding Effect, Etc...................................... 31
5.3. No Conflicts, Etc................................................................. 31
5.4. Litigation........................................................................ 31
5.5. Brokerage......................................................................... 32
5.6. Accrediting Body Approvals........................................................ 32
5.7. Disclosure........................................................................ 32
5.8. Securities Laws................................................................... 32
6. Noncompetition and Nonsolicitation; Confidential Information; Exclusive Dealing............. 32
6.1. Noncompetition Agreement.......................................................... 32
6.2. Non-Solicitation Agreement........................................................ 33
6.3. Maintenance of Confidential Information by Seller................................. 33
6.4. Scope of Restriction.............................................................. 33
6.5. Injunctive Relief................................................................. 34
6.6. Termination Upon Recission or Event of Default under Note......................... 34
6.7. Cooperation Pending Closing....................................................... 34
6.8. Exclusive Dealing................................................................. 35
7. Conditions to Purchaser's Obligations....................................................... 35
7.1. Consent and Estoppel Certificate.................................................. 35
7.2. [Intentionally Omitted.].......................................................... 35
7.3. Truth of Representations and Warranties........................................... 35
7.4. Performance of Agreements......................................................... 35
7.5. No Material Adverse Change........................................................ 35
7.6. Litigation........................................................................ 36
7.7. Confirmation by the Illinois State Board of Higher Education...................... 36
7.8. [Intentionally omitted];.......................................................... 36
7.9. Proceedings....................................................................... 36
7.10. Profit Sharing Plan.............................................................. 36
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8. Conditions to Seller's Obligations.......................................................... 36
8.1. Truth of Representations and Warranties........................................... 36
8.2. Performance of Agreements......................................................... 37
8.3. Litigation........................................................................ 37
8.4. Proceedings....................................................................... 37
8.5. Consent and Estoppel Certificate.................................................. 37
8.6. Confirmation by the Illinois State Board of Higher Education...................... 37
9. Indemnification; Remedies................................................................... 37
9.1. Survival; Right To Indemnification Not Affected By Knowledge...................... 37
9.2. Indemnification and Payment of Indemnifiable Losses by Seller..................... 38
9.3. Indemnification and Payment of Indemnifiable Losses by Purchaser.................. 38
9.4. Limitations on Indemnification.................................................... 39
9.5. Procedures........................................................................ 39
9.6. Prevailing Party to be Awarded Legal Fees......................................... 40
9.7. Offset............................................................................ 40
10. Rescission of Transactions................................................................. 41
11. Miscellaneous.............................................................................. 41
11.1. Expenses......................................................................... 41
11.2. Exclusive Remedies............................................................... 42
11.3. Successors and Assigns........................................................... 42
11.4. Severability..................................................................... 42
11.5. Counterparts..................................................................... 42
11.6. Descriptive Headings; Interpretation............................................. 42
11.7. Governing Laws................................................................... 43
11.8. Consent to Jurisdiction and Service of Process................................... 43
11.9. Waiver of Jury Trial............................................................. 43
11.10. Notices......................................................................... 44
11.11. Publicity....................................................................... 45
11.12. Maintenance of Confidential Information by Purchaser............................ 45
11.13. Internal Revenue Code Section 338............................................... 46
11.14. Entire Agreement................................................................ 46
11.15. Amendment....................................................................... 46
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made as of
November 25, 1998, by and between Career Education Corporation, a Delaware
corporation ("PURCHASER"), and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and the ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ Trust
dated October 9, 1997 (the "TRUST" and, collectively with ▇▇. ▇▇▇▇▇, "SELLER").
All obligations of Seller pursuant to this Agreement are joint and several.
BACKGROUND
Seller is the sole record and beneficial owner of one-hundred percent
(100%) of the issued and outstanding shares (the "SHARES") of capital stock of
the ▇▇▇▇▇▇▇▇▇▇ Institute of Interior Design, Inc., an Illinois corporation (the
"COMPANY"). The Company is engaged in the operation of a private, post-secondary
vocational school commonly known as the ▇▇▇▇▇▇▇▇▇▇ Institute of Interior Design
(the "SCHOOL"), which provides degree and diploma granting educational programs
in interior design and related fields. The sole campus of the School is located
in Chicago, Illinois. Purchaser, through various subsidiaries, owns and operates
private, post-secondary vocational schools throughout the United States and
Canada. Seller desires to sell, and Purchaser desires to purchase, the Shares,
for the consideration and on the terms set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements set forth herein, the parties hereto agree
as follows:
1. CERTAIN DEFINITIONS.
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Except as otherwise indicated, capitalized terms used herein are
defined in Appendix A attached hereto.
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2. SALE AND TRANSFER OF SHARES; ASSETS AND LIABILITIES OF THE
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COMPANY AT CLOSING.
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2.1. PURCHASER AND SALE OF SHARES.
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Subject to the terms and conditions of this Agreement, Seller hereby
agrees to cause the Trust to sell, transfer, assign, convey and deliver the
Shares, free and clear of all Encumbrances, to Purchaser, and Purchaser hereby
agrees to purchase, acquire and accept the Shares from the Trust, at the
Closing.
2.2. PURCHASE PRICE; PAYMENT.
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In full consideration of the sale of the Shares by Seller to
Purchaser, and the other agreements of Seller and Purchaser hereunder, and
subject to adjustment at and following the Closing in accordance with Section
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2.2(a) and Section 2.3, the purchase price (the "PURCHASE PRICE") for the Shares
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is $2,900,000, which shall be payable as follows:
(a) $2,000,000 (the "CLOSING PAYMENT"), plus an amount (the
"ADDITIONAL CLOSING PAYMENT") equal to an estimate of the excess, if any,
of the amount of cash included in the Assets over the amount necessary to
satisfy the requirements of Section 2.3 with respect to the Threshold
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Amount and the Cash Minimum (assuming no Additional Closing Payment), as
agreed to jointly by Purchaser and Seller based upon review of the
Estimated Closing Balance Sheet. Notwithstanding the foregoing, in no event
shall the Additional Closing Payment payable on the Closing Date exceed
$350,000; provided, that in no event shall the $350,000 limit on the
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Additional Closing Payment payable on the Closing Date be deemed to limit
the amount of additional payments, if any, due to Seller pursuant to
Section 2.3(a). The Closing Payment and the Additional Closing Payment
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shall be delivered to the Trust, for the account of Seller, by wire
transfer of immediately available funds at the Closing in accordance with
the wire instructions set forth on Schedule 2.2(a) attached hereto. The
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Purchase Price shall be deemed increased by the amount of the Additional
Closing Payment, if any.
(b) $775,000, which amount shall be evidenced by, and payable in
accordance with, Purchaser's note (the "NOTE") in substantially the form of
Exhibit A attached hereto. The Note shall bear interest at seven percent
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(7%) per annum and shall be due and payable in accordance with the terms
thereof. The Purchase Price shall be subject to adjustment, and Purchaser's
obligation to make payments in respect of the Note shall be subject to
offset, in accordance with Section 2.3. Purchaser's obligation to make
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payments in respect of the Note shall also be subject to offset in
accordance with Section 9.7.
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(c) $125,000, which amount shall be deposited into an escrow (the
"ESCROW") established to secure certain indemnification obligations of
Seller hereunder arising out of Pre-Closing Financial Aid Irregularities,
if any, pursuant to and subject to the terms of an escrow agreement (the
"ESCROW AGREEMENT"), in substantially the form of Exhibit G attached
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hereto, and which amount shall be disbursed in accordance with the terms of
the Escrow Agreement.
2.3. COMPANY ASSETS AND LIABILITIES; PURCHASE PRICE ADJUSTMENT.
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(a) Seller agrees that, at and as of Closing, the assets of the
Company (the "ASSETS"), shall include an aggregate amount of Current Assets
(the "THRESHOLD AMOUNT") sufficient to meet all generally applicable
financial requirements and ratios of the DOE, applicable state regulators
and any applicable Accrediting Bodies with respect to the School as of the
Closing Date. Without limitation of the foregoing, Current Assets included
in the Threshold Amount shall include an amount of cash, cash equivalents
and current accounts receivable, such that the ratio of (i) such Current
Assets minus the Additional Closing Payment, if any, to (ii) current
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liabilities of the School, as determined in accordance with 34 C.F.R.
668.15(b)(7) (1997)
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(subject to the adjustment described herein to reflect any Additional
Closing Payment) shall be equal or greater than 1.0:1. Seller also agrees
that at Closing, the Assets shall include an aggregate amount of cash (the
"CASH MINIMUM") equal to or greater than (x) the pre-collected tuition,
fees and deposits constituting deferred tuition revenue, including without
limitation deposits made for future enrollment and deposits of National
Direct Student Loan matching funds (collectively, the "PREPAID TUITION") of
the Company and other Student Deposits as of the Closing Date, plus (y) the
Additional Closing Payment, if any. Such amounts shall be determined and
such requirements and ratios calculated based upon the Final Balance Sheet
and in accordance with the sample calculation set forth on Schedule 2.3(a).
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If the Final Balance Sheet reflects a shortfall in the amount of Current
Assets beneath the amount of Current Assets required to meet the Threshold
Amount or cash required to meet the Cash Minimum as of the Closing Date,
then the Purchase Price shall be reduced dollar for dollar by an amount
equal to the greater of the shortfall, if any, below the Threshold Amount
or the shortfall, if any, below the Cash Minimum, and the amount of such
greater shortfall shall be offset against payments due from Purchaser
pursuant to the Note. In the event such shortfall is greater than the
amount of Purchaser's obligations pursuant to the Note available for
offset, Seller shall promptly pay to Purchaser the difference between the
total amount of such shortfall and the amount available for offset against
the Note. If the Final Balance Sheet reflects an excess in the actual
amount of Current Assets over the amount of Current Assets required to meet
the Threshold Amount and an excess in the actual amount of cash over the
amount of cash required to meet the Cash Minimum as of the Closing Date,
then the Purchase Price shall be increased dollar for dollar by an amount
equal to the lesser of the excess above the Threshold Amount and the excess
above the Cash Minimum, and Purchaser shall promptly pay to Seller the
amount of such adjustment to the Purchase Price.
(b) Seller agrees that as of Closing, the Company's liabilities and
obligations shall consist of the following, and only the following,
liabilities and obligations (the "PERMITTED LIABILITIES"): (i) obligations
in respect of Prepaid Tuition and Student Deposits in the amounts reflected
on the Final Balance Sheet, (ii) obligations under the Leases and the other
capital and operating leases and other agreements reflected on the
Schedules to this Agreement; provided that such leases and agreements were
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entered into in the ordinary course of the Company's business and that the
Company is not in default thereunder, (iii) all then current accounts
payable to third party vendors who are not Affiliates representing
operating expenses or purchases incurred or made in the ordinary course of
the Company's business, on customary terms and at levels consistent with
the Company's then current volume of business and prior experience, but in
no event more than thirty (30) days past due, in the amounts reflected in
the Final Balance Sheet, (iv) accrued expenses (including without
limitation accruals for Taxes) in the amounts reflected on the Final
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Balance Sheet, and (v) liabilities shown on the Company's audited balance
sheet and related statements of income and changes in financial position of
the Company as at and for the fiscal year ended July 31, 1998, to the
extent and in the amounts reflected on the Final Balance Sheet.
Notwithstanding anything to the contrary contained herein, the Permitted
Liabilities shall not include any of the following (the "EXCLUDED
LIABILITIES"): (i) any debt, obligation or liability of the Company or the
School, or any claim against any of the foregoing, of any kind, whether
known or unknown, contingent, absolute or otherwise, including, without
limitation, any liability for Taxes (other than Taxes in the amounts
reflected on the Final Balance Sheet, Taxes constituting sales taxes in
connection with accounts payable included in Permitted Liabilities and
Taxes relating to the period after Closing in connection with other
Permitted Liabilities), (ii) any contingent or otherwise indeterminate
obligations or liabilities of the Company relating to the conduct of the
Company's business prior to Closing (provided, that Excluded Liabilities
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shall not include contingent liability for refunds to student(s) who
withdraw from the School after the Closing to the extent Prepaid Tuition in
respect of any such student is included among the Assets), (iii) financial
aid irregularities relating to operation of the School, including, without
limitation any audit review disallowances, improperly disbursed student
financial assistance program funds or similar determinations or actions
that occurred, or relate to activities or actions occurring, prior to the
Closing Date ("PRE-CLOSING FINANCIAL AID IRREGULARITIES") or the costs of
responding to any audits, program reviews or other investigations which
disclose Pre-Closing Financial Aid Irregularities, whether such audit or
investigation is in progress as of the Closing Date or commences after the
Closing Date, (provided, that notwithstanding the foregoing, Purchaser
shall bear the costs of responding to any such audit, program review or
other investigation (but not the expense of Pre-Closing Financial Aid
Irregularities identified pursuant thereto) unless such audit, program
review or other investigation results in amounts due from the Company in
respect of Pre-Closing Financial Aid Irregularities in excess of $25,000),
(iv) pending or threatened litigation affecting the Company or the School,
(v) Company Plans which are terminated upon or prior to Closing in
accordance with Section 2.6, and (vi) any other obligation or liability of
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the Company or the School not expressly permitted hereunder. Seller and/or
Seller's designated representative shall be given the opportunity to
participate, at Seller's sole cost and expense, in any audit, program
review or other investigation pursuant to which Seller may incur
liabilities pursuant to clause (iii) of the immediately preceding sentence.
(c) As soon as possible following the Closing, and in any event not
later than sixty (60) days after the Closing Date, Purchaser shall cause
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, L.L.P. to complete an audit consistent with GAAP of the
Estimated Closing Balance Sheet of the Company and the School delivered by
Seller pursuant to Section 3.1(h). Purchaser shall deliver to Seller a copy
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of such audited balance sheet, along with a calculation of the Threshold
Amount, the Cash Minimum, and the shortfall or excess, if any, in either or
both of the
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foregoing, within such sixty (60) day period. Upon request, Purchaser shall
also use its commercially reasonable efforts to provide Seller or Seller's
designated representative access to, or copies of, the work papers of
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, L.L.P. related to performance of such audit. Such audited
balance sheet shall be deemed to have been accepted by, and be binding
upon, Seller if Seller fails to deliver written objections to Purchaser
with ten (10) business days after the receipt of such audited balance sheet
and shall be deemed to be the "FINAL BALANCE SHEET." If Seller objects to
such audited balance sheet and such objections are not resolved to Seller's
satisfaction within twenty-one (21) days after delivery of such written
objections, then a nationally recognized certified public accounting firm
not otherwise engaged by either Seller or Purchaser or their Affiliates and
mutually selected by Seller and Purchaser (the "INDEPENDENT AUDITOR"),
shall review such audited balance sheet and all related work papers. Such
review shall be completed by the Independent Auditor within ten (10)
business days following its engagement. The determinations of the
Independent Auditor shall then be incorporated into the audited balance
sheet, and such revised balance sheet shall be deemed to be the "FINAL
BALANCE SHEET", which shall be final and binding upon all parties. The
costs of the engagement of the Independent Auditor shall be borne by
Seller, unless the results of the Independent Auditor's determination
result in an adjustment in Seller's favor of at least $25,000, in which
event the costs of the engagement of the Independent Auditor shall be borne
by Purchaser.
Notwithstanding anything contained in this Agreement or the Note to
the contrary, in the event (i) that payment in respect of the Deferred Payment
is due pursuant to this Agreement and the Note subject only to final
determination of the Final Balance Sheet pursuant to this Section 2.3 and (ii)
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the Final Balance Sheet is in dispute, then Purchaser shall pay to Seller that
portion of the Deferred Payment which is not in dispute; provided, in certain
circumstances Purchaser shall be entitled to withhold additional amounts in
accordance with Section 9.7.
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2.4. CLOSING.
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The closing of the purchase and sale of the Shares and the
consummation of the other actions contemplated by this Agreement to occur in
connection therewith at the closing (the "CLOSING"), shall take place at the
offices of Purchaser's counsel, Goldberg, Kohn, Bell, Black, ▇▇▇▇▇▇▇▇▇▇ &
Moritz, Ltd., ▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, on
January 4, 1999, or such earlier date or location to which the parties hereto
shall mutually agree in writing. In the event the Closing has not occurred on
or prior to January 15, 1999, this Agreement shall terminate and neither
Purchaser or Seller shall have any further obligation to the other pursuant
hereto.
2.5. PARTICIPATION OF COMPANY EMPLOYEES IN PURCHASER'S 401(K) PLAN.
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Purchaser hereby agrees, and Seller hereby acknowledges, that
following the Closing (and subject to the requirements of applicable law),
employees of the Company may commence participation in the Career Education
Corporation 401(k) Plan in accordance with
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the terms and conditions thereof or at such earlier time as may be specifically
authorized by resolution of the Board of Directors of Purchaser.
2.6. TERMINATION OF COMPANY PLANS.
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Seller hereby agrees to take all necessary and appropriate action,
including but not limited to that which may reasonably be requested by
Purchaser, to cause the Company to terminate the ▇▇▇▇▇▇▇▇▇▇ Institute of
Interior Design, Inc. Profit Sharing Plan and Trust (the "PROFIT SHARING PLAN")
effective as of the Closing. Seller shall cause the Company and Trustees of the
Profit Sharing Plan to take the following specific action and deliver evidence
thereof to Purchaser at the Closing:
(a) Resolutions of the Company's Board of Directors: (i) amending and
terminating the Profit Sharing Plan effective no later than the Closing,
under Section 12.2 thereof; (ii) causing all accounts of participants under
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the Profit Sharing Plan to become fully vested as of the Closing; (iii)
directing that all accrued but unpaid contributions be paid by the Company
to the Trustees of the Profit Sharing Plan and Trust and causing payment of
such amounts to be reflected in the Estimated Closing Balance Sheet and
Final Balance Sheet; (iv) directing that any and all loans owed to the
Profit Sharing Plan be collected or deemed taxable distributions as of the
Closing; (v) directing that Seller, as a trustee of the Profit Sharing
Plan, shall personally undertake to obtain from the IRS a determination of
the tax qualified and tax-exempt status of the Profit Sharing Plan and
Trust upon termination; and (vi) directing the Trustees of the Profit
Sharing Plan and Trust to distribute all assets of the Profit Sharing Plan
to participants and beneficiaries upon receipt of such favorable
determination from the IRS in accordance with Section 12.3 of the Profit
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Sharing Plan.
(b) Agreement by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ as Trustee of the Profit Sharing Plan
and Trust to (i) the actions of the Company and Seller as set forth in
Section 2.6(a) above, (ii) provide a final accounting to the Company of all
Plan assets and distributions as required under Section 10.6(h) of the
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Profit Sharing Plan, and (iii) release any and all claims for payment of
fees or expenses and for indemnification by such Trustees against the
Company.
(c) Seller hereby agrees to diligently undertake at Seller's
individual expense the termination of the Profit Sharing Plan, including
without limitation (i) preparing and filing an application for
determination described at Section 2.6(a)(v) within sixty (60) days of
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Closing; (ii) preparing and filing annual returns and summary annual
reports for the Profit Sharing Plan for 1997, 1998 and any future periods,
each in a timely manner, and (iii) providing to Purchaser copies of all
correspondence with the IRS and other persons reflecting Seller's efforts
or compliance with the foregoing.
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2.7. ASSIGNMENT OF LIFE INSURANCE POLICY.
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(a) Prior to Closing Seller will cause the Company to assign to
Seller that certain $500,000 life insurance policy covering ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
issued by TransAmerica Life (Policy No. 92068122).
2.8. EXCLUDED ASSETS.
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Notwithstanding any provision of this Agreement to the contrary
(including without limitation Section 2.3(a)), the Assets shall not include the
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personal assets of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ maintained in ▇▇. ▇▇▇▇▇' office at the Leased
Facility (e.g., antiques, oriental rugs, artwork, etc.). Furthermore, in no
event shall such items be included among the Company's Assets for the purpose of
determination of the Final Balance Sheet or otherwise.
2.9. WITHDRAWAL OF FUNDS IN EXCESS OF CASH MINIMUM AND THRESHOLD
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AMOUNT REQUIREMENTS.
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Seller may cause the Company to make distributions of funds prior to
the Closing; provided, that any such distributions are not reasonably
anticipated by Seller (i) to materially impair Seller's ability to cause the
Company to comply with the requirements of this Agreement with respect to the
Cash Minimum and Threshold Amount or (ii) to cause a breach of any
representation, warranty, covenant or agreement of Seller pursuant to this
Agreement.
3. CLOSING DELIVERIES.
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3.1. DELIVERIES TO PURCHASER.
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Seller agrees to deliver to Purchaser, at or before the Closing, each
of the following, each of which constitutes a condition to Purchaser's
obligation to consummate the purchase of the Shares:
(a) Certificates for Shares. Certificates representing the Shares,
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duly endorsed (or accompanied by duly executed stock powers), for transfer
to Purchaser;
(b) Release from Seller. A release in substantially the form of
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Exhibit B, executed by Seller (the "SELLER'S RELEASE");
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(c) Employment Agreement. An employment agreement in substantially
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the form of Exhibit C, executed by ▇▇. ▇▇▇▇▇ and the Company, and
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guaranteed by Purchaser (the "EMPLOYMENT AGREEMENT");
(d) Certificate of Seller. A certificate, signed by ▇▇▇▇▇▇ ▇.
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Marks in his individual capacity and as trustee of the Trust, certifying
the authority of himself and the Trust to consummate the transactions
contemplated hereby;
(e) Legal Opinion. A legal opinion of Seller's counsel, Aronberg,
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Goldgehn, ▇▇▇▇▇ and ▇▇▇▇▇▇▇, in substantially the form of Exhibit D
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attached hereto, addressed to Purchaser;
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(f) Consents. Evidence satisfactory to Purchaser's counsel that each
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consent of third parties listed in Schedule 3.1(f) attached hereto, which
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are required by Purchaser to be obtained by Seller prior to the Closing,
has been obtained and remains in full force and effect;
(g) Escrow Agreement. The Escrow Agreement, executed by Seller and
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the escrow agent thereunder;
(h) Closing Financial Information. An estimated balance sheet of the
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Company as of the Closing Date (the "ESTIMATED CLOSING BALANCE SHEET"),
accompanied by schedules in reasonable detail showing cash balances in all
bank accounts of Seller and all outstanding accounts payable, and a
certificate executed by Seller certifying that Current Assets equal to or
greater than the Threshold Amount, and cash equal to or greater than the
Cash Minimum, are included in the Assets, and that the Company has no
liabilities other than Permitted Liabilities;
(i) [INTENTIONALLY OMITTED];
(j) Resignations. A resignation of Seller and all other directors
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and officers of the Company from their respective positions as directors
and officers of the Company;
(k) [INTENTIONALLY OMITTED.]
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(l) Bank Accounts. A list of all operating and other bank accounts
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of the Company;
(m) Closing Certificate. A certificate executed by Seller
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satisfying the requirements of Sections 7.3, 7.4 and 7.5 hereof; and
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(n) Other Documents. Such other documents relating to the
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transactions contemplated by this Agreement as Purchaser or its counsel may
reasonably request, including, without limitation, documents specified as
Seller's closing deliveries on the Closing Checklist in the form of Exhibit
E attached hereto.
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3.2. DELIVERIES TO SELLER.
--------------------
Purchaser agrees to deliver to Seller, at or before the Closing, each
of the following, each of which constitutes a condition to Seller's obligations
to consummate the sale of the Shares:
(a) Closing Payment. The Closing Payment required by Section 2.2(a)
--------------- --------------
by wire transfer of immediately available funds;
(b) Note. The Note, executed by Purchaser;
----
-8-
(c) Employment Agreement. The Employment Agreement, executed by
--------------------
Purchaser;
(d) Secretary's Certificate for Purchaser. A certificate, signed
-------------------------------------
by the secretary or an assistant secretary of Purchaser, certifying the
articles of incorporation and bylaws of Purchaser, appropriate authorizing
resolutions of Purchaser's Board of Directors, the incumbency of
Purchaser's officers executing this Agreement and the documents delivered
in connection with the Closing, and the good standing of Purchaser in its
state of incorporation and the State of Illinois;
(e) Legal Opinion. A legal opinion of special counsel for Purchaser,
-------------
Goldberg, Kohn, Bell, Black, ▇▇▇▇▇▇▇▇▇▇ & Moritz, Ltd., in substantially
the form of Exhibit F attached hereto, addressed to Seller;
---------
(f) Closing Certificate. A certificate executed by Purchaser
-------------------
satisfying the requirements of Sections 8.1 and 8.2 hereof;
------------ ---
(g) Escrow Agreement. The Escrow Agreement, executed by Purchaser
----------------
and the escrow agent thereunder; and
(h) Other Documents. Such other documents relating to the
---------------
transactions contemplated by this Agreement as Seller or Seller's counsel
may reasonably request, including, without limitation, documents specified
as Purchaser's closing deliveries on the Closing Checklist in the form of
Exhibit E attached hereto;
---------
3.3. POST-CLOSING COVENANTS.
----------------------
(a) Further Assurances. On or after the Closing Date, and without
------------------
further consideration, Purchaser and Seller shall, from time to time at the
request of any other party hereto, execute and deliver to such other party
further documents and instruments evidencing the consummation of the
transactions contemplated by this Agreement as either party may reasonably
require including, without limitation, instruments of conveyance,
assignment and transfer of the Shares, and documents necessary to
effectuate the payment of the Note or other amounts due Seller hereunder.
(b) Access and Maintenance of Records. From and after the Closing
---------------------------------
Date, Purchaser shall afford to Seller, their counsel, accountants and
other authorized representatives reasonable access to the Company's books
and records related to periods prior to the Closing Date during normal
business hours and upon reasonable notice from Seller to Purchaser, as
reasonably required by Seller in connection with (i) performance by Seller
of any of Seller's obligations (whether directly or by virtue of their
indemnification obligations) pursuant to this Agreement, (ii) any claim,
action, litigation, program review, audit or other proceeding involving
Seller and (iii) Seller's preparation of Seller's tax returns. Subject to
Section 6.3 hereof, Seller, at Seller's expense, may make copies of any
-----------
-9-
such records as may be necessary or appropriate for Seller's use in
connection with the foregoing. From and after the Closing Date, Purchaser
shall afford to DOE, other applicable Accrediting Bodies and Governmental
Authorities access to the Company's books and records as required by
applicable Legal Requirements. Purchaser shall preserve and protect all
books and records, including without limitation all documents, papers,
computer programs and records pertaining in any manner to the
administration by the Company of federal student financial assistance
programs pursuant to Title IV with respect to the School, for at least the
period of time specified under applicable Legal Requirements.
(c) Administration of Company Prior to Receipt of DOE Approval
----------------------------------------------------------
Notice. From and after the Closing Date and until receipt of a DOE
------
Approval Notice and payoff of the Note, Purchaser, at Purchaser's sole cost
and expense, shall administer and operate the Company in material
compliance with all Legal Requirements and Accrediting Body requirements,
and in accordance with all Licenses, Permits and Accreditations issued by
or entered into with any Governmental Authority or any Accrediting Body
regulating or otherwise relating to the administration and operation of the
Company or the School. Pending receipt of a DOE Approval Notice, Purchaser
shall regularly consult with Seller regarding the operations of the School.
Subject to the terms and provisions of this Agreement, Purchaser shall use
its commercially reasonable efforts in order to obtain any and all
approvals from the DOE, any other Accrediting Body and any other
Governmental Authority that may be necessary or appropriate to vest in
Purchaser the right and authority to administer and operate the School, and
Purchaser and Seller shall cooperate in order to obtain such approvals. In
connection with the foregoing, Purchaser hereby covenants to notify Seller
promptly upon receipt of a DOE Approval Notice.
(d) Seller's Use of Title of President and ▇▇▇▇ Emeritus of the
-----------------------------------------------------------
School. From and after the Closing, Seller may use the title "President and
------
▇▇▇▇ Emeritus" of the School; provided that the privilege of use of such
--------
title shall not confer any authority to bind the Company or the School in
any way and shall be subject to the requirement that Seller may not use
such title in any manner which has a material adverse effect on the
business or reputation of the Company or the School.
4. REPRESENTATIONS AND WARRANTIES OF SELLER.
----------------------------------------
As a material inducement to Purchaser to enter into this Agreement and
to purchase the Shares, Seller hereby represents and warrants that:
4.1. ORGANIZATION AND GOOD STANDING OF THE COMPANY.
---------------------------------------------
The Company is a corporation, duly organized, validly existing and in
good standing under the laws of the State of Illinois. The nature of the
Company's operations do not
-10-
require it to qualify in any state outside of Illinois, except where failure to
so qualify would not have a material adverse effect on the Company's business or
operations. The Company has all requisite power and authority to own and operate
its properties and assets, to carry on its business as now conducted, and to
consummate the transactions contemplated hereby. The Company is not, and for the
past five (5) years has not been, engaged in any business other than the
operation of the School, and activities directly related thereto. The copies of
the Company's articles of incorporation and bylaws which have been furnished by
Seller to Purchaser reflect all amendments made thereto at any time prior to the
date of this Agreement and are true, correct and complete.
4.2. OWNERSHIP OF THE COMPANY AND THE SCHOOL.
---------------------------------------
The Company is owned and operated by Seller directly , and no other
Person has any ownership interest in the Company. The Assets and the School are
owned directly by the Company, and no other Person has any direct or indirect
ownership interest in either of them. No other Person has any right, option,
warrant, subscription or other arrangement to purchase shares of capital stock
of the Company or to otherwise acquire any other equity interest in the Company,
or to acquire the Assets or the School. Neither Seller nor any other Person is
a party to any agreement or proxy with respect to the voting or restricting the
transfer of shares of the capital stock of the Company.
4.3. CAPACITY; AUTHORIZATION; BINDING EFFECT, ETC.
--------------------------------------------
Seller has the unrestricted and absolute power, legal capacity and
authority to execute, deliver and perform this Agreement and each other document
being executed in connection herewith to which it is a party. This Agreement
has been, and each other document to be executed by Seller in connection
herewith, upon consummation of the Closing, will have been, duly executed and
delivered by Seller and (assuming the due authorization, execution and delivery
hereof and thereof by Purchaser and any other parties thereto), this Agreement
is, and each such other document or agreement will be, a valid and binding
obligation of Seller, enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally, and subject, as
to enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
4.4. NO CONFLICTS, ETC.
-----------------
Except as set forth in Schedule 4.4, the execution, delivery and
------------
performance of this Agreement and each other document being executed by Seller
in connection herewith, and the consummation of the transactions contemplated
hereby and thereby, do not and will not: (a) contravene, conflict with, or
result in a violation of (i) any provision of the articles of incorporation or
bylaws of the Company, or (ii) any resolution adopted by the board of directors
or the stockholders of the Company; (b) contravene, conflict with or violate any
Legal Requirement applicable to the Company, the School or the Assets, or to
Seller; (c) except as contemplated by clause (e) below, with or without the
giving of notice or the passage of time, or both, conflict with or result in the
breach or termination, of, or default under, any provision of the articles of
incorporation or bylaws of the Company, or any material instrument, license,
-11-
permit, authorization, agreement or commitment to which the Company, the School,
the Assets or Seller are a party or by which any of their assets, including
without limitation the Assets, or properties are bound; (d) constitute a
violation of any order, judgment or decree to which the Company or Seller is a
party or by which any of their assets or properties is bound; (e) other than as
contemplated by Schedules 3.1(f) or 4.4, require any approval of, filing or
---------------- ---
registration with, or consent from any Governmental Authority or Accrediting
Body that is required to be obtained or made by the Company, the School or
Seller; or (f) cause Purchaser or the Company to become subject to, or liable
for the payment of, any Taxes outside of the ordinary course of business
relating to periods prior to the Closing Date, or transfer taxes under state or
local Illinois law attributable to purchase of the Shares by Purchaser. Except
as set forth on Schedules 3.1(f) or 4.4, none of the Company, the School or
------------------- ---
Seller is or will be required to give any notice or obtain any consent, approval
or other authorization from any Person in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereunder.
4.5. SUBSIDIARIES; INVESTMENTS.
-------------------------
The Company has no Subsidiaries and has never had any Subsidiaries.
The Company does not maintain and has not during the five (5) years prior to the
date hereof maintained any Investment in any Person.
4.6. CAPITALIZATION.
--------------
The authorized equity securities of the Company consist of five
thousand (5,000) shares of common stock, par value $1.00 per share, of which
five hundred (500) shares are issued and outstanding and constitute the Shares.
The Trust is the record owner and holder of the Shares and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ is
the sole beneficial owner of the Shares, free and clear of all Encumbrances
other than Encumbrances disclosed on Schedule 4.6. Except as set forth in
------------
Schedule 4.6, no legend or other reference to any purported Encumbrance appears
------------
upon any certificate representing equity securities of the Company. All of the
outstanding equity securities of the Company have been duly authorized and
validly issued and are fully paid and nonassessable. There are no agreements,
commitments (including without limitation any options, warrants, rights or
similar arrangements) or Plans relating to the issuance, sale, or transfer of
any equity securities or other securities of the Company or providing for cash
payments based upon the value of any equity securities of the Company. None of
the outstanding equity securities or other securities of the Company was issued
in violation of the Securities Act or any other Legal Requirement. The Company
neither owns, nor has any agreement or commitment to acquire, any equity
securities or other securities of any Person, or any direct or indirect equity
or ownership interest in any other business.
4.7. BOOK AND RECORDS.
----------------
Except as set forth on Schedule 4.7:
-------------
(a) The minute books, stock record books, and other records of the
Company, all of which have been made available to Purchaser, are complete
and correct and have been maintained in accordance with sound business
-12-
practices, except where failure to so maintain such books and records would
not have a material adverse effect upon the Company.
(b) The Company has maintained all of its accounting books and
records in accordance with applicable Legal Requirements and GAAP, except
where failure to so maintain such books and records would not have a
material adverse effect upon the Company, and such books and records are
true, correct and complete in all material respects.
(c) At the Closing, all books and records described in this Section
-------
4.7 will be in the possession of the Company.
---
4.8. COMPLIANCE WITH LAWS; LICENSES AND PERMITS.
------------------------------------------
(a) None of the Company, the School or Seller is in violation of any
Legal Requirement which violation might reasonably be expected to have a
material adverse effect upon the financial condition, operating results,
Accreditation or business of the Company or the School, and none of the
Company, the School or Seller has received notice of any such violation.
The Company and the School have filed all reports and returns required to
be filed by them on or prior to the date hereof with Governmental
Authorities and Accrediting Bodies.
(b) As of the Closing, the Company shall have all licenses,
Accreditations, certificates, permits, consents, authorizations, and other
governmental or regulatory approvals (the "LICENSES AND PERMITS") necessary
to conduct the business and operations of the Company and the School as
presently being conducted, except where the failure to maintain any such
Licenses and Permits would not have a material adverse effect on the
operations or financial condition of the Company or the School. Schedule
--------
4.8(b) attached hereto is a true, correct and complete list of all Licenses
------
and Permits of the Company and the School. No application made by the
Company or the School for any License or Permit during the last five (5)
years has been denied. The Licenses and Permits are in full force and
effect, and no proceedings for the suspension or cancellation of any of
them is pending or, to the Best of Seller's Knowledge, threatened. Seller
has delivered to Purchaser copies of all such Licenses and Permits. None of
the Company, the School, or Seller, has received notice that any of the
Licenses and Permits will not be renewed and to the Best of Seller's
Knowledge, there is no basis for nonrenewal.
(c) As of the date hereof, the School does not have more than eighty-
five percent (85%) of its revenues pursuant to Title IV Programs or derived
from Title IV funds as determined in accordance with 34 C.F.R. (S)
600.5(d), and at no time during the past five (5) years have more than
eighty-five percent (85%) of the revenues of the School been pursuant to
Title IV programs or derived from Title IV funds.
-13-
(d) The School has all Accreditations from Accrediting Bodies
required to conduct the business of the School as presently conducted, is
accredited by and is certified by the DOE as an eligible institution under
Title IV and is a party to, and in compliance with, a valid program
participation agreement with the DOE with respect to the operations of the
School. Without limitation of the foregoing, as of the Closing Date the
Company shall have all Accreditations required to be issued by the Illinois
State Board of Higher Education necessary to operate the School as
presently operated in accordance with applicable Legal Requirements. None
of Company, the School, or Seller, has received any notice, not previously
resolved, with respect to any alleged violation of the rules or regulations
of the DOE or other Governmental Authority, or any applicable Accrediting
Body in respect of the School, including sales and marketing activities, or
the terms of any program participation agreement to which it is or was a
party. If any such notices have been received and not resolved, Seller has
disclosed their receipt and disposition to Purchaser in writing prior to
the execution of this Agreement. Seller is not aware of any investigation
or review of the Company's and the School's student financial aid programs
or any review of Accreditation of the School by any Governmental Authority
or Accrediting Body.
4.9. RECRUITMENT; ADMISSIONS PROCEDURES; ATTENDANCE; REPORTS.
-------------------------------------------------------
(a) Schedule 4.9 attached hereto is a complete list of all policy
------------
manuals and other statements of procedures or instruction relating to (a)
recruitment of students for the School, including procedures for assisting
in the application by prospective students for direct or indirect state or
federal financial assistance; (b) admissions procedures, including any
descriptions of procedures for insuring compliance with federal, state or
Accrediting Body requirements applicable to such procedures; and (c)
procedures for encouraging and verifying attendance, minimum required
attendance policies, and other relevant criteria relating to course
performance requirements and completion (collectively, the "POLICY
GUIDELINES"). Seller has delivered to Purchaser true, correct and complete
copies of all Policy Guidelines.
(b) The operations of the Company and the School have, in all
material respects, been conducted in accordance with the Policy Guidelines
and all relevant standards imposed by applicable Accrediting Bodies, and
other agencies administering state or federal governmental financial
assistance programs in which the Company or the School participates, and
other applicable Legal Requirements.
(c) The Company has submitted all reports, audits, and other
information, whether periodic in nature or pursuant to specific requests,
for the Company and the School to all agencies or other entities with which
such filings are required relating to its compliance with (i) applicable
Accreditation standards, (ii) Legal Requirements governing programs
pursuant to which the School or its students receive student financial
assistance funding, and (iii) all
-14-
articulation agreements between the School and degree granting colleges and
universities in effect as of the date hereof, except where failure to
submit such reports, audits and other information would not have a material
adverse effect on the business or operations of the Company or the School.
(d) Except as disclosed in the Financial Statements, all student
financial aid grants and loans, disbursements and record keeping relating
thereto have been completed in compliance with all federal and state
requirements, and there are no material deficiencies in respect thereto. To
the Best of Seller's Knowledge and except as previously disclosed in prior
audits or compliance reviews by DOE or any Accrediting Body, no student at
the School has been funded prior to the date for which such student was
eligible for such funding or in any amount other than an amount such
student was eligible to receive, and such student records conform in form
and substance to all relevant regulatory requirements.
4.10. COHORT DEFAULT RATE.
-------------------
Schedule 4.10 attached hereto sets forth the published and draft
-------------
cohort default rate for the School, calculated by the DOE and issued to the
School pursuant to 30 C.F.R. (S) 668.17 or a predecessor regulation, for the
federal fiscal years September 30, 1994 through and including September 30,
1996. To the Best of Seller's Knowledge, such schedule is materially accurate
in all respects. As of the date of this Agreement, none of the Company, the
School or Seller has received any notice as to the calculation or issuance of a
published or draft cohort default rate for the School for the year ended
September 30, 1997.
4.11. REAL PROPERTY ASSETS; OTHER ASSETS.
----------------------------------
(a) The Company does not presently own, nor has it ever owned any
real property.
(b) The only real property leased or otherwise used, operated or
occupied by the Company or the School is the School's leased facility (the
"LEASED FACILITY") located at ▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇.
The leases covering the Leased Facility (collectively the "LEASES"), which
Leases are described on Schedule 4.11(b), are valid and in full force and
----------------
effect, and are enforceable by the Company in all material respects in
accordance with their terms.
(c) All of the Company's School Operations are conducted at the
Leased Facility, and all of the tangible Assets and records relating to
intangible Assets, and all such tangible Assets and records relating to
intangible Assets are or as of the Closing will be delivered to Purchaser
or located at the Leased Facility. The Company is not under any contractual
or other legal obligation and has not entered into any commitment to make
capital improvements or alterations to the Leased Facility. The Company
and, to the Best of Seller's Knowledge, the landlord under the Leases, are
not in default under the Leases
-15-
and, to the Best of Seller's Knowledge, no event, act or omission has
occurred which (with or without notice, the passage of time or the
happening or occurrence of any other event) would result in a default
thereunder. The Company enjoys peaceful and undisturbed possession under
the Leases, and to the Best of Seller's Knowledge the Leased Facility is
not subject to any zoning, ordinance or other restrictions which would
prohibit the use and enjoyment of the Leased Facility in the manner in
which the Leased Facility is currently used. Seller has no knowledge of any
condemnation proceedings relating to the Leased Facility. To the Best of
Seller's Knowledge, the Leased Facility, and the use thereof by the Company
and the School, are in compliance in all material respects with all Legal
Requirements, including without limitation, the Americans with Disabilities
Act.
(d) Except for the leased or licensed Assets (and the agreements
pursuant to which such Assets are leased or licensed) set forth on Schedule
--------
4.11(d) attached hereto, the Company owns outright, and has good and
-------
marketable title to, all of its assets and properties, free and clear of
Encumbrances, other than Permitted Liabilities and liens for current taxes
not yet due and payable. All leases for tangible personal property used by
the Company are valid and in full force and effect and enforceable in all
material respects in accordance with their terms. Except as expressly
indicated on Schedule 4.11(d) attached hereto, no such lease is a capital
----------------
lease. Neither the Company nor, to the Best of Seller's Knowledge, any of
the other parties thereto, is in default under any such lease or license,
and no event, act or omission has occurred which (with or without notice,
the passage of time or the happening or occurrence of any other event)
would result in a default thereunder.
(e) The tangible Assets which are owned or leased by the Company are
listed on Schedule 4.11(e) attached hereto, and, to the Best of Seller's
----------------
Knowledge, are in good operating condition, order and repair, useable in
the ordinary course of business consistent with past practice, subject to
ordinary wear and tear, and are sufficient and adequate for all current
operations.
(f) Other than the Leased Facility, the Company does not operate, nor
during the past five (5) years has it owned, leased or operated, any
Facility.
(g) The Curricula constitutes all of the Curricula currently used in
courses currently offered by the Company at the School.
(h) To the Best of Seller's Knowledge, the use of the Intellectual
Property does not violate or infringe upon the rights of any other Person.
4.12. MATERIAL MISCELLANEOUS CONTRACTS.
--------------------------------
Schedule 4.12 attached hereto sets forth a true, complete and correct
-------------
list of all material contracts, agreements, and commitments relating to the
operations of the Company and the School (hereinafter collectively referred to
as the "MATERIAL MISCELLANEOUS
-16-
CONTRACTS") other than (a) the Leases, (b) leases and licenses listed on
Schedule 4.11(d) attached hereto, and (c) Plans listed on Schedule 4.21 attached
---------------- -------------
hereto. True, complete and correct copies of all Material Miscellaneous
Contracts, together with all amendments thereto, have heretofore been delivered
or otherwise made available to Purchaser. The Material Miscellaneous Contracts
constitute legal, valid and binding obligations of the Company and to the Best
of Seller's Knowledge, the other parties thereto, and, to the Best of Seller's
Knowledge are in full force and effect. The Company is not in material default
or, to the Best of Seller's Knowledge, alleged to be in material default on any
term of any such Material Miscellaneous Contract, and no event, act or omission
has occurred which (with or without notice, the passage of time or the happening
or occurrence of any event) would result in a default thereunder. Except as
noted on Schedule 3.1(f) attached hereto, the consummation of the transactions
---------------
contemplated by this Agreement does not require the consent or approval of any
party to any Material Miscellaneous Contract.
4.13. TRADENAMES; CONFIDENTIAL INFORMATION.
------------------------------------
(a) All tradenames, trademarks or service marks used or useful in
connection with the operations of the Company and the School, and all
forms, derivatives and graphic presentations thereof, including forms of
the tradenames "▇▇▇▇▇▇▇▇▇▇ Institute" and "▇▇▇▇▇▇▇▇▇▇ Institute of Interior
Design" and related trademarks and servicemarks (collectively, the
"TRADENAMES"), having material value to the operations of the Company or
the School are set forth on Schedule 4.13 attached hereto. To the Best of
-------------
Seller's Knowledge, the use of the Tradenames by the Company does not
violate or infringe upon any other Person's tradename, trademark, or
servicemark. No trademarks, tradenames or service marks of the Company are
registered. The Company has not licensed any other Person to use any
Tradename. None of the Company, the School or Seller, has been sued or, to
the Best of Seller's Knowledge, threatened with suit for infringement,
violation or breach with respect to any Tradename, and to the Best of
Seller's Knowledge, no basis exists for any such suit. None of the Company,
the School or Seller is on notice of any infringement, violation or breach
of the Tradename by any other Person.
(b) To the Best of Seller's Knowledge, the Company has the right to
use, free and clear of any claims or rights of any third party, all trade
secrets, customer lists, know-how, Curricula and any other Intellectual
Property required for or used in the operations of the School. To the Best
of Seller's Knowledge, the Company is not in any way making any unlawful or
wrongful use of any Tradename, trade secret, customer list, know-how,
Curricula or any other Intellectual Property of any third party including,
without limitation any former employer of any present or past employee of
the Company.
4.14. FINANCIAL STATEMENTS; INDEBTEDNESS AND OTHER LIABILITIES.
--------------------------------------------------------
Seller has previously furnished the Financial Statements to Purchaser.
The balance sheets included in the Financial Statements present fairly the
assets and liabilities of the Company as of the respective dates thereof, and
the related statements of operations present
-17-
fairly the results of operations of the Company for the respective periods
covered thereby. The Financial Statements have been prepared in accordance with
GAAP, are correct and complete in all material respects and fairly present the
financial position of the Company as of the dates of such Financial Statements,
and the results of operations and changes in financial position for the periods
covered by such Financial Statements. The Company has maintained its financial
books and records in accordance with applicable Legal Requirements and with
GAAP, and such books and records are, and during the periods covered by the
Financial Statements were, correct and complete in all material respects, fairly
reflecting the income, expenses, assets and liabilities of the Company. Except
as set forth in Schedule 4.14 attached hereto, the Company is not required to
-------------
provide any letters of credit, guaranty or other financial security arrangements
in connection with any Licenses, Permits or Accreditations maintained by the
Company or the School. As of the date hereof, neither the Company nor the
School has any material indebtedness, liabilities or obligations of any nature,
whether absolute, accrued, contingent or otherwise, other than:
(a) those set forth or reserved against in the balance
sheets included in the Financial Statements for the fiscal years
then ended or disclosed in the footnotes to such Financial
Statements, to the extent set forth, reserved against or in the
case of footnote items, disclosed;
(b) those incurred since July 31, 1998 in the ordinary
course of business and consistent in nature with past practice;
and
(c) those not required to be disclosed in financial
statements or notes thereto prepared in accordance with GAAP.
There are no long-term fixed or contractual liabilities relating to the
operation of the Company or the School, as presently operated by the Company,
the annual expenses of which are not reflected in the Financial Statements where
required by GAAP or which are not otherwise disclosed or set forth in this
Agreement or the schedules hereto. Other than obligations in respect of Prepaid
Tuition and Student Deposits, neither the Company nor the School has any
obligations in respect of refundable deposits.
4.15. RECEIVABLES.
-----------
The accounts receivable (including, without limitation, student
accounts receivables) of the Company and the School, except to the extent of the
allowance for cancellations and doubtful accounts set forth in the Financial
Statements, are bona fide receivables, arose out of arms' length transactions in
the normal and usual practices of the Company, are recorded correctly on the
applicable books and records of the Company and the School, and, to the Best of
Seller's Knowledge, are collectable in full in the ordinary course of business,
subject in the case of certain receivables to reserves established for such
receivables in the Financial Statements. For purposes of the immediately
preceding sentence, "accounts receivable" shall not include any accounts
receivable of the Company which are more than sixty (60) days past invoice date,
except to the extent any such accounts receivable are included as assets in the
Final Closing Balance Sheet. To the Best of Seller's Knowledge, such
receivables are not subject to any defense, counterclaim or setoff or trade
discounts or credits
-18-
not reflected in the Financial Statements (other than tuition refund policies
administered in accordance with all applicable Legal Requirements and the
applicable Policy Guidelines), and Seller has no knowledge of any facts or
circumstances which would cause any of such receivables to have to be written
down or written off in amounts which in the aggregate would be in excess of
reserves established for such receivables in the Financial Statements.
4.16. INVENTORIES.
-----------
The only inventories maintained by the Company and the School consist
of supplies used in the ordinary course of business of the School and are
reflected on the Financial Statements as "inventories." Such supplies are
reflected at cost, are usable in the ordinary and regular course of business,
are in all material respects fit and sufficient for the purpose for which they
were purchased and, at the date of this Agreement, are in customary amounts
appropriate to the Company's operation of the School. All excess or obsolete
items have been written off.
4.17. BANK ACCOUNTS.
-------------
Schedule 4.17 attached hereto sets forth a true, complete and correct
-------------
list of the names of all banks and other financial institutions in which the
Company or the School has an account or safe deposit box, which list includes a
description of such accounts, the account numbers and the names of all
individuals authorized to draw thereon or have access thereto.
4.18. LITIGATION, ETC.
- ----------------
There are no Proceedings, pending or, to the Best of Seller's
Knowledge, threatened against or affecting the Company, the School or Seller
(including without limitation Seller's interest in the Shares), at law or in
equity, or before or by any Governmental Authority or Accrediting Body
(including without limitation any investigations or inquiries as to the
qualification to hold or receive any Accreditation or any of the Licenses and
Permits) which could have a material adverse effect on the transactions
contemplated by this Agreement or the Company's, the School's or Seller's
ability to consummate such transactions. To the Best of Seller's Knowledge,
there is no basis for any of the foregoing.
4.19. INSURANCE.
---------
Schedule 4.19 attached hereto sets forth all insurance coverages
-------------
maintained by the Company presently or during the past five (5) years on the
Leased Facility, and the Assets and the operations of the Company and the
School, including a list of all policies or binders of property and casualty,
general and vehicular liability, fidelity and fiduciary liability, umbrella,
workers' compensation, key-man life and other similar insurance, and all binders
for insurance to be purchased on or before Closing in order to replace policies
expiring prior to the Closing. Copies of such policies have been made available
or previously delivered to Purchaser. Such policies and binders are in full
force and effect, and there is no material breach or default with respect to any
provision contained in any such policy or binder, and all premiums, to the
extent due and payable, have been paid or the liability therefor properly
accrued. Seller believes the insurance coverage maintained by the Company is
sufficient and is customary for operation of a private, post secondary
vocational school of similar size, engaged in similar lines of business.
-19-
Except for amounts deductible and self-insured retainers under such policies of
insurance, the Company has not been, prior to the date hereof, subject to
liability as a self-insurer for the Company or the School. There are no claims
pending or, to the Best of Seller's Knowledge, threatened under any of said
policies pertaining to the Company or the School or disputes with underwriters
regarding coverage under such policies pertaining to the Company or the School.
Except as set forth on Schedule 4.19, neither the execution, delivery and
-------------
performance of this Agreement, nor the consummation of the transactions
contemplated hereby, will result in the loss to the Company or the School of any
of the insurance policies listed, or impair the rights of the Company or the
School with respect to liabilities arising, in connection with the operations of
the Company or the School prior to the Closing. Within five (5) years prior to
the date hereof, neither the Company nor the School has been denied insurance,
or been offered insurance only at a commercially prohibitive premium.
4.20. ENVIRONMENTAL MATTERS.
---------------------
Neither the Company nor, to the Best of Seller's Knowledge, the Leased
Facility, is in violation of any Environmental Law, or subject to any pending or
threatened Proceeding relating to an alleged violation of, or non-compliance
with, any Environmental Law. Neither the Company nor the School has generated,
transported, stored, treated or disposed of nor has either of them allowed or
arranged for any third persons to generate, transport, store, treat or dispose
of, any Hazardous Substance to or at: (a) any location other than a site
lawfully permitted to receive such Hazardous Substance for such purposes or (b)
any location designated for remedial action pursuant to federal, state or local
statute and relating to the environment or waste disposal; nor, to the Best of
Seller's Knowledge, has the Company or the School performed, arranged for or
allowed by any method or procedure such transportation or disposal in
contravention of any Legal Requirements; except where such violation would not
have a material adverse affect on the business or operations of the Company or
the School. Except as set forth in Schedule 4.20 attached hereto, none of the
-------------
Company, the School or Seller has received notification of, nor is it aware, of,
any past or present failure by the Company or the School to comply with any
Environmental Law, including without limitation the requirements of any Licenses
or Permits issued pursuant to any Environmental Law. None of the Company, the
School or Seller has received any notice of any violations of the Occupational
Safety and Health Act, as amended, or any similar state or local Legal
Requirement, relating to the Company or the School which has not been resolved
without material liability to the Company or the School.
4.21. EMPLOYEE BENEFIT PLANS.
----------------------
(a) Schedule 4.21(a)
----------------
(i) contains a complete and accurate list of all Company Plans
and Company Other Benefit Obligations, including all Qualified Plans.
The Company does not maintain, nor has it maintained, any Plan not
disclosed on Schedule 4.21(a) which constitutes, (A) a defined benefit
----------------
Pension Plan, (B) a Qualified Plan, (C) VEBA, (D) a Title IV Plan, or
(E) a Multi-Employer Plans .
-20-
(ii) contains a complete and accurate list of (A) all ERISA
Affiliates of the Company, and (B) all Plans of which any such ERISA
Affiliate is or was a Plan Sponsor, in which any such ERISA Affiliate
participates or has participated, or to which any such ERISA Affiliate
contributes or has contributed.
(iii) sets forth a calculation of the liability of the Company
for post-retirement benefits other than pensions, made in accordance
with Financial Accounting Statement 106 of the Financial Accounting
Standards Board, regardless of whether the Company is required by this
Statement to disclose such information.
(iv) sets forth the financial cost of all obligations owed
under the Company's Profit Sharing Plan.
(b) Seller has delivered to Purchaser prior to the date hereof:
(i) all documents that set forth the terms of each Company
Plan or Company Other Benefit Obligation and of any related trust,
including (A) all plan descriptions and summary plan descriptions of
Company Plans for which Seller or the Company are required to prepare,
file, and distribute plan descriptions and summary plan descriptions,
and (B) all summaries and descriptions furnished to participants and
beneficiaries regarding Company Plans and Company Other Benefit
Obligations for which a plan description or summary plan description
is not required;
(ii) all personnel or employment manuals and policies;
(iii) a written description of any Company Plan or Company
Other Benefit Obligation that is not otherwise in writing;
(iv) all registration statements filed with respect to any
Company Plan;
(v) all insurance policies purchased by or to provide
benefits under any Company Plan;
(vi) all contracts with third party administrators,
actuaries, investment managers, consultants, and other independent
contractors that relate to any Company Plan or Company Other Benefit
Obligation;
(vii) all actuarial and investment reports submitted within
the three (3) years preceding the date of this Agreement by third
party administrators, actuaries, investment managers, consultants, or
other independent contractors with respect to each Company Plan and
Company Other Benefit Obligation;
-21-
(viii) forms of all notifications given to employees of their
rights under ERISA (S) 601 et seq. and IRC (S) 4980B;
(ix) the Form 5500 filed in each of the most recent three
(3) plan years with respect to each Company Plan, including all
schedules thereto and the opinions of independent accountants;
(x) all notices concerning penalties or excise taxes that
were given by the Company or any ERISA Affiliate of the Company or any
Company Plan to the IRS, the PBGC, the United States Department of
Labor, or any participant or beneficiary, pursuant to statute, within
the three (3) years preceding the date of this Agreement, including
notices that are expressly mentioned elsewhere in this Section 4.21;
------------
and
(xi) all notices that were given by the IRS, the PBGC, or
the Department of Labor to the Company, any ERISA Affiliate of the
Company, with respect to any Company Plan within three (3) years
preceding the date of this Agreement.
(c) Except as set forth in Schedule 4.21(c):
----------------
(i) The Company has performed all of its obligations under
all Company Plans and Company Other Benefit Obligations except where
any failure to so perform would not have a material adverse effect on
the Company or Purchaser. The Company has made appropriate entries in
its financial records and statements for all obligations and
liabilities under such Plans that have accrued but are not due.
(ii) No statement, either written or oral, has been made by
the Company to any Person with regard to any Plan or Other Benefit
Obligation that was not in accordance with the Plan or Other Benefit
Obligation and that could have a material adverse economic consequence
to the Company or to Purchaser.
(iii) The Company, with respect to all Company Plans and
Company Other Benefit Obligations, is, and each Company Plan and
Company Other Benefit Obligation, complies with ERISA, the IRC, and
other applicable Legal Requirements (including the provisions of such
Legal Requirements expressly mentioned in this Section 4.21) except
------------
where failure to so comply would not have a material adverse effect on
the Company or Purchaser. To the extent that the Profit Sharing Plan
has not yet been amended to comply with all applicable legislation,
all necessary or appropriate amendments shall be made prior to or in
connection with termination of the Profit Sharing Plan pursuant to
Section 2.6 so that failure to make any such amendment previously
-----------
will not have a material adverse effect on the Company or Purchaser
after the Closing.
-22-
(A) No transaction prohibited by ERISA (S) 406 and no
"prohibited transaction" under IRC (S) 4975(c) has occurred with
respect to any Company Plan.
(B) The Company does not have any liability to the IRS with
respect to any Plan, including any liability imposed by Chapter
43 of the IRC.
(C) The Company does not have any liability to the PBGC
with respect to any Plan or any liability under ERISA (S) 502 or
(S) 4071.
(D) All filings required by ERISA and the IRC as to each
Plan have been timely filed, and all notices and disclosures to
participants required by either ERISA or the IRC have been timely
provided.
(E) All contributions and payments made or accrued with
respect to all Company Plans, Company Other Benefit Obligations,
and Company VEBAs are deductible under IRC (S) 162 or (S) 404. No
amount, or any asset of any Company Plan, is subject to tax as
unrelated business taxable income.
(iv) Each Company Plan other than the Profit Sharing Plan can
be terminated on thirty (30) days prior notice, without payment of any
additional contribution or amount, without the vesting or acceleration
of any benefits promised by such Plan, and without further liability
to the Company (except for payment of benefits accrued but not yet
payable through the date of such termination).
(v) Except as described in this Agreement and the agreements
and other documents described herein (including without limitation the
schedules hereto), there has been no establishment or amendment of any
Company Plan or Company Other Benefit Obligation.
(vi) To the best of Sellers' knowledge, no event has occurred
or circumstance exists that could result in a material increase in
premium costs of Company Plans and Company Other Benefit Obligations
that are insured, or a material increase in benefit costs of such
Plans and Other Benefit Obligations that are self-insured.
(vii) Other than claims for benefits submitted by participants
or beneficiaries, no claim against, or legal proceeding involving, any
Company Plan, Company Other Benefit Obligation, or Company VEBA is
pending or, to the Best of Seller's Knowledge, is threatened.
-23-
(viii) Except as disclosed on Schedule 4.21(a), no Company Plan
----------------
is a stock bonus, pension, or profit-sharing plan within the meaning
of IRC (S) 401(a).
(ix) Each Qualified Plan of the Company is qualified in form
and operation under IRC (S) 401(a); each trust for each such Plan is
exempt from federal income tax under IRC (S) 501(a). No event has
occurred or circumstance exists that would disqualify any such Plan,
cause the Company to lose tax deductions for contributions made or
accrued and to be made to such Plan, or cause any such trust to lose
its tax exempt status. No fees or expenses are accrued or payable to
any trustee or custodian of any Plan or related trust. There are no
pending claims and there is no basis for any future claim for
indemnification by the Company of any trustee of any Qualified Plan.
Each Company VEBA is exempt from federal income tax.
(x) The Company and each ERISA Affiliate of the Company has
met the minimum funding standard, and has made all contributions
required, under ERISA (S) 302 and IRC (S) 412.
(xi) No Company Plan is subject to Title IV of ERISA.
(xii) The Company has paid all amounts due to the PBGC pursuant
to ERISA (S) 4007.
(xiii) Neither the Company nor any ERISA Affiliate of the
Company has ceased operations at any Facility or has withdrawn from
any Title IV Plan in a manner that would subject any entity or Seller
to liability under ERISA (S) 4062(e), (S) 4063, or (S) 4064.
(xiv) Neither the Company nor any ERISA Affiliate of the
Company has filed a notice of intent to terminate any Plan subject to
Title IV of ERISA or has adopted any amendment to treat a Title IV
Plan as terminated. The PBGC has not instituted proceedings to treat
any Company Plan as terminated. No event has occurred or circumstance
exists that may constitute grounds under ERISA (S) 4042 for the
termination of, or the appointment of a trustee to administer, any
Company Plan.
(xv) No amendment has been made, or is reasonably expected to
be made, to any Plan that has required or could require the provision
of security under ERISA (S) 307 or IRC (S) 401(a)(29).
(xvi) No accumulated funding deficiency, whether or not waived,
exists with respect to any Company Plan; no event has occurred or
circumstance exists that may result in an accumulated funding
deficiency as of the last day of the current plan year of any such
Plan.
-24-
(xvii) Any accountants' report for a Pension Plan of the
Company and each ERISA Affiliate of the Company fairly presents the
financial condition and the results of operations of each such Plan in
accordance with GAAP.
(xviii) Since the last valuation date for each Pension Plan of
the Company and each ERISA Affiliate of the Company, no event has
occurred or circumstance exists that would increase the amount of
benefits under any such Plan or that would cause the excess of Plan
assets over benefit liabilities (as defined in ERISA (S) 4001) to
decrease, or the amount by which benefit liabilities exceed assets to
increase.
(xix) No reportable event (as defined in ERISA (S) 4043 and in
regulations issued thereunder) has occurred.
(xx) To the Best of Seller's Knowledge, there are no facts or
circumstances that may give rise to any liability of any of Seller,
the Company, or Purchaser to the PBGC under Title IV of ERISA with
respect to a Pension Plan of the Company or an ERISA Affiliate of the
Company.
(xxi) Neither the Company nor any ERISA Affiliate of the
Company has ever established, maintained, or contributed to or
otherwise participated in, or had an obligation to maintain,
contribute to, or otherwise participate in, any Multi-Employer Plan.
(xxii) Except to the extent required under ERISA (S) 601 et
seq. and IRC (S) 4980B, the Company does not provide health or welfare
benefits for any retired or former employee nor is it obligated to
provide health or welfare benefits to any active employee following
such employee's retirement or other termination of service.
(xxiii) The Company has the right to modify and terminate
benefits to retirees (other than pensions) with respect to both
retired and active employees, except for benefits accrued as of the
date of such modifications or termination.
(xxiv) Seller and the Company has complied with the provisions
of ERISA (S) 601 et seq. and IRC (S) 4980B, except where failure to so
comply would not have a material adverse effect on the Company or
Purchaser.
(xxv) No payment that is currently owed or may become due to
any director, officer, employee, or agent of the Company will be non-
deductible to the Company or subject to tax under IRC (S) 280G or (S)
4999; nor will the Company be required to "gross up" or otherwise
compensate any such person because of the imposition of any excise tax
on a payment to such person.
-25-
(xxvi) The sale of the Shares to Purchaser will not in and of
itself result in the payment, vesting, or acceleration of any benefit.
(d) Upon consummation of the transactions contemplated by this
Agreement, neither Purchaser nor the Company shall have any obligation to
pay or provide severance or bonus payments, consulting or non-competition
payments, continuation of health or life insurance benefits or any other
payments or benefits of any kind with respect to any former stockholder,
director or employee of the Company other than (i) as set forth in this
Agreement and the Employment Agreement, (ii) with respect to Persons
employed by the Company as of the Closing Date or (iii) as set forth in
Schedule 4.21(d), which lists all former employees of the Company who were
----------------
receiving or entitled to receive severance payments or continuation of
health benefits as of the Closing Date.
4.22. EMPLOYMENT MATTERS.
------------------
(a) Schedule 4.22 attached hereto contains a list of all employees
-------------
of the Company and all material consultants and other Persons (including,
without limitation, sales representatives), other than attorneys and
accountants, who are employed or providing services in connection with the
operation of the Company including: name; length of service; job title;
rate of base salary, bonuses and other incentive compensation; and
identifying all contracts, agreements, commitments and arrangements,
written or oral, with such employees or consultants. True, correct and
complete copies of all agreements between the Company and such employees,
consultants and other Persons, and all amendments thereto have been
provided to Purchaser. The Company has performed all of its obligations
under such agreements and is not in default or violation and, to the Best
of Seller's Knowledge, the other parties thereto are not in default or
violation, thereunder. Sales and admissions representatives, and other
recruiters, (if any), for the Company, whether employed directly by or
otherwise engaged by the Company, are retained in accordance with all
applicable Legal Requirements, including without limitation applicable
requirements for registration and licensure, if any. No such sales or
admissions representative or other recruiter or employee of the Company
receives commissions, bonuses or other contingency payments based, directly
or indirectly, on the enrollment of students or the awarding of Title IV
Program funds. The Company has no obligation to pay bonuses or other
incentive compensation to any employee except as disclosed on Schedule
--------
4.22.
----
(b) No employee or director of the Company is a party to, or is
otherwise bound by, any agreement or arrangement, including any
confidentiality, noncompetition, or proprietary rights agreement, that in
any way adversely affects or will affect (i) the performance of his or her
duties as an employee or director of the Company, or (ii) the ability of
the Company to conduct its business. To the Best of Seller's Knowledge, no
employee of the
-26-
Company listed on Schedule 4.22 intends to terminate his or her employment
-------------
with the Company.
(c) The Company has no "leased employees" for purposes of IRC (S)
414(n).
4.23. LABOR RELATIONS; COMPLIANCE.
---------------------------
The Company has complied in all respects with all Legal Requirements
relating to employment, equal employment opportunity, nondiscrimination,
immigration, wages, hours, benefits, collective bargaining, the payment of
social security and similar Taxes, and occupational safety and health, except
where the failure to comply would not have a material adverse effect upon the
Company. The Company has not been nor is it a party to any collective
bargaining or other labor contract or agreement, written or oral, with employees
as a group. There has not been, there is not presently pending or existing, and
to the Best of Seller's Knowledge, there is not threatened, (a) any strike,
slowdown, picketing, work stoppage, or employee grievance process, (b) any
Proceeding against or affecting the Company relating to the alleged violation of
any Legal Requirement pertaining to labor relations or employment matters,
including any charge or complaint filed by an employee or union with the
National Labor Relations Board, the Equal Employment Opportunity Commission, or
any comparable Governmental Authority, or any organizational activity, or other
labor or employment dispute against or affecting the Company, or (c) any
application for certification of a collective bargaining agent.
4.24. TAX MATTERS.
-----------
(a) Except as disclosed on Schedule 4.24,
-------------
(i) The Company has filed or caused to be filed on or before
the due dates therefor or within applicable extension periods all
returns for Taxes that are or were required to be filed by the
Company, either separately or as a member of a group of corporations,
pursuant to applicable Legal Requirements.
(ii) Seller has delivered or made available to Purchaser copies
of all such tax returns of the Company, filed since January 1, 1995.
(iii) The Company has paid, or made provision for the payment of,
all Taxes that have or may have become due from the Company pursuant
to such returns for Taxes or otherwise, or pursuant to any assessment
received by Seller or the Company.
(b) The United States federal and state income tax returns of the
Company have not been audited by the IRS. Except as described in Schedule
--------
4.24, neither the Company nor Seller has given or been requested to give
-----
waivers or extensions (or is or would be subject to a waiver or extension
given by any other Person) of any statute of limitations relating to the
payment of Taxes of the Company or for which the Company may be liable.
Neither
-27-
the Company nor Seller is, nor to the Best of Seller's Knowledge is either
expected to become a party to, any pending or threatened action or
proceeding, assessment or collection of Taxes.
(c) The charges, accruals, and reserves with respect to Taxes on the
Financial Statements are adequate (determined in accordance with GAAP) and
are at least equal to the Company's liability for Taxes. There exists no
proposed tax assessment against the Company except as disclosed in the
Financial Statements or in Schedule 4.24. No consent to the application of
-------------
Section of the IRC has been filed with respect to any property or assets
held, acquired, or to be acquired by the Company. All Taxes that the
Company is or was required by Legal Requirements to withhold or collect
have been duly withheld or collected and, to the extent required, have been
paid to the proper Governmental Authority or other Person.
(d) All tax returns filed by (or that include on a consolidated
basis) the Company are true, correct, and complete in all material
respects. There is no tax sharing agreement that will require any payment
by the Company after the date of this Agreement. The Company is not, nor
has it ever been, an "S" corporation.
4.25. BROKERAGE.
---------
Neither Seller nor the Company has retained any broker or finder, and
neither will be obligated to pay any brokers' or finders' fee, in connection
with the negotiation or consummation of the transactions contemplated by this
Agreement.
4.26. AFFILIATE TRANSACTIONS.
----------------------
Except as set forth in Schedule 4.26 attached hereto or as
-------------
specifically contemplated hereby, no Affiliate of the Company is a party to any
agreement, contract, commitment or transaction with the Company or the School,
or has any material interest in any material property used in connection with
the operations of the Company or the School.
4.27. ABSENCE OF CERTAIN CHANGES.
--------------------------
From July 31, 1998 through the date of this Agreement, the Company has
conducted its operations only according to its ordinary and usual course of
business, and the Company has used its best efforts to preserve intact the
Company's and the School's business organization, keep the services of its
employees and maintain satisfactory relationships with Governmental Authorities,
Accrediting Bodies, suppliers, agents, students and others having business
relationships with the Company and the School. From July 31, 1998 until the
date hereof there has not been, occurred or arisen:
(a) any sale, lease, transfer, abandonment or other disposition of
any right, title or interest in or to any of the properties or assets of
the Company or the School (tangible or intangible), except in the ordinary
course of business;
-28-
(b) (i) any dividends or other payments of distributions by the
Company to Seller in its capacity as the shareholder of the Company, (ii)
any approval or action to put into effect any increase in any compensation
or benefits payable to any employee, director, agent or officer of the
Company or the School, or any payment, grant or accrual to or for the
benefit of any such employee, director, agent or officer of any bonus,
service award, percentage compensation or other benefit, except for annual
pay increases and bonuses for employees in accordance with the Company's
historical practices (such bonuses not exceeding $10,000 in the aggregate),
a bonus paid to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ by the Company as reflected on the
Financial Statements for the fiscal year ended July 31, 1998 and a
contribution to the Company's Profit Sharing Plan for 1997 in the amount of
$147,000 (provided, that such bonuses and contributions are not reasonably
--------
anticipated to materially impair the Company's ability to satisfy the
requirements of Section 2.3 with respect to the Threshold Amount and the
-----------
Cash Minimum), (iii) any adoption or amendment of any Plans, or any
severance agreement or employment contract to which any such employee,
director, agent or officer is a party or (iv) any entering into of any
employment, deferred compensation or other agreements with respect to
bonuses, service awards, percentage compensation or other benefits with any
such employee, director, agent or officer;
(c) any damage, destruction or loss, whether or not covered by
insurance, materially adverse to the assets, business, or operations of the
Company or the School;
(d) distributions permitted by Section 2.9; or
-----------
(e) any agreement, whether in writing or otherwise, to take any
action described in this Section 4.27.
------------
4.28. SOLVENCY.
--------
As of the Closing Date and after giving effect to the consummation of
the transactions contemplated to occur as of the Closing Date, the Company: (a)
owns assets the fair saleable value (on a going concern basis) of which are (i)
greater than the total amount of liabilities (including contingent liabilities)
of the Company, and (ii) greater than the amount that will be required to pay
the probable liabilities of the Company's existing debts as they become absolute
and matured considering all financing alternatives and potential asset sales
reasonably available to the Company; (b) has capital that is not unreasonably
small in relation to its business as presently conducted or any contemplated or
undertaken transaction; and (c) has not incurred debts beyond its ability to pay
such debts as they become due.
4.29. YEAR 2000 COMPLIANCE.
--------------------
To the Best of Seller's Knowledge, the computer, computer application
and central processing unit errors (including with respect to date-sensitive
functions) anticipated to occur in connection with the advent of the calendar
years 1999 and 2000 will not result in a
-29-
material adverse change in the Company's business condition (financial or
otherwise), operations, properties or prospects, or ability to pay its
liabilities.
4.30. ACCREDITING BODY APPROVALS.
--------------------------
Subject to satisfaction of the condition to Closing set forth in
Section 7.7, there exists no fact or circumstance attributable to Seller, the
-----------
Company or the School that would cause DOE, any other Governmental Authority or
Accrediting Body whose authorization, consent or similar approval is a
requirement for the consummation of the transactions contemplated by this
Agreement to refuse to deliver such authorization, consent or similar approval.
4.31. DELIVERY OF DOCUMENTS.
---------------------
True, correct and complete copies of the Leases and all Material
Miscellaneous Contracts, Plans, Policy Guidelines and other documents,
instruments, agreements and records of the Company and the School described on
schedules to this Agreement or relating to the assets, liabilities and the
operations of the Company, the representations and warranties of Seller
contained in this Agreement or the operation of the School, have been delivered
or made available to Purchaser.
4.32. DISCLOSURE.
----------
Neither this Agreement, nor any of the schedules, exhibits,
attachments, written statements, documents, certificates or other items prepared
or supplied to Purchaser in writing by or on behalf of Seller with respect to
the transactions contemplated hereby, contain any untrue statement of a material
fact or omit a material fact necessary to make such statements not misleading in
light of the circumstances in which such statements were made. There is no fact
which Seller has not disclosed to Purchaser in writing of which any of its
officers, directors or executive employees is aware which has had or may
reasonably be anticipated to have a material adverse effect upon the existing or
expected business, condition (financial or otherwise), operating results,
Assets, properties, employee relations, reputation or business prospects of the
Company.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
-------------------------------------------
As a material inducement to Seller to enter into this Agreement and to
sell the Shares, Purchaser hereby represents and warrants that:
5.1. ORGANIZATION AND CORPORATE POWER.
--------------------------------
Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Purchaser is qualified to
do business as a foreign corporation in each jurisdiction in which the nature of
its operations requires, or as of the Closing will require, it to so qualify,
except where failure to so qualify would not have a material adverse effect on
its business or operations. Purchaser has all requisite corporate power and
authority to own and operate its properties and assets, to carry on its business
as now conducted, and to consummate the transactions contemplated hereby. The
copies of
-30-
Purchaser's articles of incorporation and by-laws which have been furnished by
Purchaser to Seller reflect all amendments made thereto at any time prior to the
date of this Agreement and are true, correct and complete.
5.2. CAPACITY; AUTHORIZATION, BINDING EFFECT, ETC.
---------------------------------------------
Purchaser has the unrestricted and absolute power, legal capacity and
authority to execute, deliver and perform this Agreement and each other document
being executed by it in connection herewith to which it is a party. This
Agreement has been, and each such other document and agreement to be executed in
connection herewith upon consummation of the Closing, will have been, duly
executed and delivered by Purchaser and (assuming the due authorization,
execution and delivery hereof and thereof by Seller and any other parties
thereto), this Agreement is, and each such other document or agreement will be,
a valid and binding obligation of Purchaser, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws effecting creditors' rights and
remedies generally, and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity).
5.3. NO CONFLICTS, ETC.
------------------
Except as set forth in Schedule 5.3, the execution, delivery and
------------
performance by Purchaser of this Agreement, and each other document being
executed by Purchaser, in connection herewith, and the consummation of the
transactions contemplated hereby and thereby do not and will not (a) contravene,
conflict with, or result in violation of (i) any provision of the articles of
incorporation or bylaws of Purchaser, or (ii) any resolution adopted by the
board of directors or stockholders of Purchaser, (b) contravene, violate or
conflict with any Legal Requirement applicable to Purchaser, (c) with or without
the giving of notice, the passage of time, or both, conflict with, or result in
the breach or termination of, or default under, any provisions of any material
instrument, license, permit, authorization, agreement or commitment to which
Purchaser is a party or by which its assets are bound, (d) constitute a
violation of any order, judgment or decree to which Purchaser is a party or by
which any of its assets or properties are bound, or (e) require any approval of,
or filing or registration with, any Governmental Authority or Accrediting Body
that is required to be obtained or made by Purchaser, other than approvals,
filings and registrations which have been previously obtained or made, or which
are required and will be obtained or made in the ordinary course of Purchaser's
business and operations.
5.4. LITIGATION.
----------
There are no Proceedings pending or, to the Best of Purchaser's
Knowledge, threatened against or affecting Purchaser at law or in equity, or
before or by any Governmental Authority or Accrediting Body which could have a
material adverse effect on the transactions contemplated by this Agreement or
Purchaser's ability to consummate such transactions. To the Best of Purchaser's
Knowledge, there is no basis for the foregoing.
-31-
5.5. BROKERAGE.
---------
Purchaser has not retained any broker or finder in connection with the
negotiation or consummation of the transactions contemplated by this Agreement
to whom Seller may be liable for fees, expenses or other consideration payable
in connection with such transactions.
5.6. ACCREDITING BODY APPROVALS.
--------------------------
There exists no fact or circumstance attributable to Purchaser that
would cause DOE, any other Governmental Authority or the Accrediting Body whose
authorization, consent or similar approval is a requirement for the consummation
of the transactions contemplated by this Agreement to refuse to deliver such
authorization, consent or similar approval.
5.7. DISCLOSURE.
----------
Neither this Agreement, nor any of the schedules, exhibits or
attachments hereto prepared or supplied to Seller in writing by or on behalf of
Purchaser, or any documents, certificates or other written agreements delivered
by or on behalf of Purchaser with respect to the transactions contemplated
hereby, contain any untrue statement of material fact or omit a statement of
material fact necessary to make such statements not misleading in light of the
circumstances in which such statements were made.
5.8. SECURITIES LAWS.
---------------
Purchaser is acquiring the Shares for its own account and not with a
view toward resale. Purchaser acknowledges that the Shares have not been
registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"),
and may not be sold or transferred in the absence of an effective registration
statement or an exemption from registration under the Securities Act.
6. NONCOMPETITION AND NONSOLICITATION; CONFIDENTIAL INFORMATION;
-------------------------------------------------------------
EXCLUSIVE DEALING.
-----------------
6.1. NONCOMPETITION AGREEMENT.
------------------------
Seller agrees that for a period (the "NONCOMPETITION PERIOD")
commencing on the date hereof and ending three (3) years after the Closing Date,
Seller shall not own or engage in, either directly or indirectly, as an officer,
manager, employee, independent contractor, consultant, director, partner, sole
proprietor or equity holder, any business operating post-secondary trade or
vocational schools, whether for profit or not-for-profit, that offers classes,
courses or instruction in interior design or related fields or activities, or
that in any manner competes with the School or other vocational schools owned or
operated by Purchaser through its subsidiaries (the "COMPETITIVE ACTIVITIES").
Seller hereby acknowledges that Purchaser intends to promote the School
throughout the United States and Canada, and that through its subsidiaries,
Purchaser operates schools which compete with the School throughout the United
States and Canada, and that the geographical scope of this noncompetition
agreement is intended to encompass all Competitive Activities engaged in
anywhere in the United States and
-32-
Canada. Notwithstanding the foregoing, nothing herein shall prevent Seller from
owning less than two percent (2%) of the capital stock of a company whose stock
is publicly traded and which is engaged in Competitive Activities.
6.2. NON-SOLICITATION AGREEMENT.
--------------------------
During the Noncompetition Period, Seller shall not, directly or
indirectly, individually or on behalf of any Person solicit, aid or induce (a)
any employee of the Company, Purchaser or their respective Affiliates to leave
Purchaser, the Company or their respective Affiliates in order to accept
employment with or render services for Seller or such Person or (b) any student,
customer, client, vendor, lender, supplier or sales representative of the
Company, Purchaser or their respective Affiliates or similar persons engaged in
business with Purchaser, the Company or their respective Affiliates to
discontinue the relationship or reduce the amount of business done with
Purchaser, the Company or their respective Affiliates.
6.3. MAINTENANCE OF CONFIDENTIAL INFORMATION BY SELLER.
-------------------------------------------------
Seller acknowledges and agrees that Seller is in possession of
Confidential Information (as defined herein) relating to the Company and the
School. For purposes hereof, "CONFIDENTIAL INFORMATION" shall mean all
proprietary or confidential information concerning the business, Curricula,
properties and operations of the Company and the School, including, without
limitation, all student and prospective student lists, supplier lists, know-how,
trade secrets, business and marketing plans, techniques, forecasts, projections,
budgets, unpublished financial statements, price lists, costs, computer
programs, source and object codes, algorithms, data, and other original works of
authorship, along with all information received from third parties and held in
confidence by the Company, the School or Seller (including, without limitation,
personnel files and student records). Seller agrees that Seller will hold the
Confidential Information in the strictest confidence and will not disclose or
make use of (directly or indirectly) the Confidential Information or any portion
thereof to or on behalf of themselves or any third party, except (i) as required
in the performance of Seller's duties and obligations pursuant to the
Employment Agreement or this Agreement, (ii) as required by the order of any
court or similar tribunal or any other Governmental Authority of appropriate
jurisdiction; provided, however, that Seller shall, to the extent practicable,
give Purchaser prior written notice of any such required disclosure and shall
cooperate with Purchaser in obtaining a protective order or such similar
protection as Purchaser may deem appropriate to preserve the confidential nature
of such information. The foregoing obligations to maintain the Confidential
Information shall not apply to any Confidential Information which is or, without
any wrongful action by Seller, becomes generally available to the public. Upon
consummation of the sale of the Shares to Purchaser, Seller shall have delivered
to Purchaser (directly or to the Company) all physical embodiments of material
Confidential Information (regardless of form or medium) in the possession of or
under the control of Seller.
6.4. SCOPE OF RESTRICTION.
--------------------
The parties have attempted to limit the scope of the covenants set
forth in this Section 6 to the extent necessary to provide Purchaser with the
---------
benefit of its purchase of the Shares, the Company and the School from Seller.
The parties recognize, however, that
-33-
reasonable people may differ in making such determination. Consequently, the
parties hereby agree that if the scope and duration of such covenants would, but
for this provision, be deemed by a court of competent authority to be
unreasonable or otherwise unenforceable, such court may modify such covenants to
the extent that such court determines to be necessary in order to grant
enforcement thereof as so modified.
6.5. INJUNCTIVE RELIEF.
-----------------
The parties hereto recognize that Purchaser will suffer irreparable
injury in the event of a breach of the terms of this Section 6 by Seller.
---------
Notwithstanding any provision to the contrary contained herein, including
without limitation the provisions of Section 9, in the event of a breach of the
---------
terms of this Section 6, Purchaser shall be entitled, in addition to any other
---------
remedies and damages available and without proof of monetary or immediate
damage, to a temporary and/or permanent injunction, without bond, to restrain
the violation of this Section 6 by Seller, and any Persons acting for or in
---------
concert with Seller. However, such remedy shall be non-exclusive and in
addition to any other remedies otherwise available to Purchaser.
6.6. TERMINATION UPON RECISSION OR EVENT OF DEFAULT UNDER NOTE.
---------------------------------------------------------
In the event of any recission of the transactions contemplated hereby
pursuant to Section 10, all provisions of this Section 6 shall be of no further
---------- ---------
force or effect. Notwithstanding any provision of this Agreement to the
contrary, during any period in which an Event of Default (as defined in the
Note) has occurred under the Note and such Event of Default remains uncured, the
restrictions on Seller's activities set forth in Section 6.1 shall not apply.
-----------
6.7. COOPERATION PENDING CLOSING.
---------------------------
During the period from the date of this Agreement to the Closing Date,
Seller shall cooperate fully with Purchaser, its officers, employees,
representatives and agents in connection with accomplishing the satisfaction of
all conditions to the Closing and with all other matters relating to the
consummation of the transactions contemplated by this Agreement, including,
without limitation, providing reasonable access to the Leased Facility,
employees, books and records for the School in connection with Purchaser's
performance of its due diligence review of the School, and obtaining necessary
Licenses and Permits from governmental entities and Accrediting Bodies; provided
--------
that Purchaser shall reimburse Seller for expenses incurred by Seller in
obtaining Licenses or Permits at Purchaser's request which are required to be
obtained by the Company or the School solely in connection with Purchaser's
acquisition of the Shares and which would have not been required to be obtained
by the Company or the School in the ordinary course of business. Furthermore,
during the period from the date of this Agreement to the Closing Date, Seller
shall not allow the Company or the School to conduct any business and incur or
assume any liabilities or obligations of any kind or nature relating to the
Company, the School, the Shares, the Assets or this Agreement, except for such
business, liabilities and obligations as may be conducted or incurred in the
ordinary course of business of the Company and the School, or as expressly
permitted or required by the terms of this Agreement, or as to which Purchaser
grants prior written consent. Seller shall promptly notify Purchaser of any
occurrence or event that would or is likely to make untrue any
-34-
representation or warranty of Seller made in Section 4 as of the Closing Date,
---------
or which would or is likely to result in an inability to satisfy any condition
set forth in Sections 7 or 8.
---------- -
6.8. EXCLUSIVE DEALING.
-----------------
During the period from the date of this Agreement to the Closing Date,
Seller shall not, directly or indirectly, encourage, initiate or engage in
discussions or negotiations with, or (except as contemplated by this Agreement)
provide any information to, any Person, other than Purchaser, and Governmental
Authorities, concerning any proposed purchase of the School, the Shares or the
Assets, or any similar transaction involving the School.
7. CONDITIONS TO PURCHASER'S OBLIGATIONS.
-------------------------------------
The obligations of Purchaser to purchase the Shares and to consummate
the transactions contemplated by this Agreement are subject to the satisfaction,
or to the waiver in writing by Purchaser, on or before the Closing Date (or such
other date as may be indicated below, where applicable), of the conditions set
forth below:
7.1. CONSENT AND ESTOPPEL CERTIFICATE.
--------------------------------
A consent and estoppel certificate from the landlord of the Leased
Facility, certifying certain factual matters relating to the Leases, including
without limitation certification that there are no defaults under the Leases and
the amounts of security deposits under the Leases, and consenting to the
transfer of the Shares to the Purchaser, in form and substance reasonably
acceptable to Purchaser and its senior lender, LaSalle National Bank.
7.2. [INTENTIONALLY OMITTED.]
---------------------
7.3. TRUTH OF REPRESENTATIONS AND WARRANTIES.
---------------------------------------
The representations and warranties of Seller contained in this
Agreement and in any certificate delivered by Seller or the Company in
accordance with the terms hereof shall be true and correct in all material
respects on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, and Seller
shall have delivered to Purchaser a certificate, dated the Closing Date, to such
effect.
7.4. PERFORMANCE OF AGREEMENTS.
-------------------------
Each and all of the agreements of Seller to be performed on or before
the Closing Date pursuant to the terms hereof shall have been fully performed in
all material respects, each of the documents, agreements and other items to be
delivered to Purchaser pursuant to Section 3.1 shall have been delivered, and
-----------
Seller shall have delivered to Purchaser a certificate, dated the Closing Date,
to such effect.
7.5. NO MATERIAL ADVERSE CHANGE.
--------------------------
Since the date of this Agreement, there shall have been no material
adverse change in the properties, business, assets, results of operations,
condition (financial or
-35-
otherwise) or business prospects of the Company or the School, and Seller shall
have delivered to Purchaser a certificate, dated the Closing Date to such
effect.
7.6. LITIGATION.
----------
No Proceeding shall have been instituted or threatened by any Person
before a court or other Governmental Authority or Accrediting Body, (i) seeking
to restrain or prohibit any of the transactions contemplated hereby or (ii)
challenging or questioning the right, title or interest of Seller in and to the
Shares to be transferred under this Agreement or the right of Seller to transfer
all of such right, title and interest in and to such Shares to Purchaser.
7.7. CONFIRMATION BY THE ILLINOIS STATE BOARD OF HIGHER EDUCATION.
------------------------------------------------------------
The Illinois State Board of Higher Education shall have issued written
confirmation of the authorization and approval for all programs offered by the
School, which confirmation shall be satisfactory to Purchaser in its reasonable
discretion.
7.8. [INTENTIONALLY OMITTED];
7.9. PROCEEDINGS.
-----------
All proceedings to be taken in connection with the transactions
contemplated by this Agreement and all documents incident thereto shall be
satisfactory in form and substance to Purchaser and its counsel, and Purchaser
shall have received copies of all such documents and other evidence as Purchaser
or its counsel may reasonably request in order to establish the consummation of
such transactions and the taking of all appropriate proceedings in connection
therewith.
7.10. PROFIT SHARING PLAN.
-------------------
Seller shall have caused the Company to initiate the termination of
the Profit Sharing Plan, and provided Purchaser with evidence of such action, in
accordance with Section 2.6.
-----------
8. CONDITIONS TO SELLER'S OBLIGATIONS.
----------------------------------
The obligations of Seller to sell the Shares and to consummate the
transactions contemplated by this Agreement are subject to the satisfaction, or
to the waiver in writing by Seller, on or before the Closing Date, of the
conditions set forth below:
8.1. TRUTH OF REPRESENTATIONS AND WARRANTIES.
---------------------------------------
The representations and warranties of Purchaser contained in this
Agreement and in any certificate delivered by Purchaser in accordance with the
terms hereof shall be true and correct in all material respects on and as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date, and Purchaser shall have delivered to
Seller a certificate, dated the Closing Date, to such effect.
-36-
8.2. PERFORMANCE OF AGREEMENTS.
-------------------------
Each and all of the agreements of Purchaser to be performed on or
before the Closing Date pursuant to the terms hereof shall have been duly
performed in all materials respects, each of the documents, agreements and other
items, to be delivered to Seller pursuant to Section 3.2 shall have been
-----------
delivered, and Purchaser shall have delivered to Seller a certificate, dated the
Closing Date, to such effect.
8.3. LITIGATION.
----------
No Proceeding shall have been instituted or threatened by any Person
before a court or other Governmental Authority or Accrediting Body, (i) seeking
to restrain or prohibit any of the transactions contemplated hereby, or (ii)
unless Purchaser has agreed to waive its right to indemnification with respect
thereto, challenging or questioning the right, title or interest of Seller to
transfer validly all of such right, title and interest in and to the Shares to
be transferred hereunder to Purchaser.
8.4. PROCEEDINGS.
-----------
All proceedings to be taken in connection with the transactions
contemplated by this Agreement and all documents incident thereto shall be
satisfactory in form and substance to Seller and Seller's counsel, and Seller
shall have received copies of all such documents and other evidence as Seller or
Seller's counsel may reasonably request in order to establish the consummation
of such transactions and the taking of all appropriate proceedings in connection
therewith.
8.5. CONSENT AND ESTOPPEL CERTIFICATE.
--------------------------------
A consent and estoppel certificate from the landlord of the Leased
Facility, certifying certain factual matters relating to the Leases, including
without limitation certification that there are no defaults under the Leases and
the amounts of security deposits under the Leases, and consenting to the
transfer of the Shares to the Purchaser, in form and substance reasonably
acceptable to Purchaser and its senior lender, LaSalle National Bank.
8.6. CONFIRMATION BY THE ILLINOIS STATE BOARD OF HIGHER EDUCATION.
------------------------------------------------------------
The Illinois State Board of Higher Education shall have issued written
confirmation of the authorization and approval for all programs offered by the
School, which confirmation shall be satisfactory to Seller in its reasonable
discretion.
9. INDEMNIFICATION; REMEDIES.
-------------------------
9.1. SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE.
------------------------------------------------------------
All representations, warranties, covenants, and obligations in this
Agreement, and any other certificate or document delivered pursuant to this
Agreement, will survive the Closing; provided that all representations and
--------
warranties in this Agreement (other than representations and warranties set
forth in Section 4.2, 4.4, 4.18, 4.21 and 4.24) shall expire on
----------- --- ---- ---- ----
-37-
the eighteen (18) month anniversary of the Closing Date. The right to
indemnification, payment of Indemnifiable Losses or other remedy based on such
representations, warranties, covenants, and obligations will not be affected by
any investigation conducted at any time, whether before or after the execution
and delivery of this Agreement or the Closing Date, with respect to the accuracy
or inaccuracy of or compliance with, any such representation, warranty,
covenant, or obligation.
9.2. INDEMNIFICATION AND PAYMENT OF INDEMNIFIABLE LOSSES BY SELLER.
-------------------------------------------------------------
Seller will indemnify and hold harmless Purchaser, the Company, and
each of their respective directors, officers, agents, employees, stockholders,
controlling persons, and Affiliates for, and will pay to Purchaser and such
other Persons the amount of, any actual loss, liability, claim, damage
(including incidental and consequential damages), expense (including costs of
investigation and defense and reasonable attorneys' fees), whether or not
involving a third-party claim (collectively, "INDEMNIFIABLE LOSSES"), arising,
directly or indirectly, from or in connection with:
(a) any breach of any representation or warranty made by Seller in
this Agreement or any other certificate or document delivered by Seller
pursuant to this Agreement;
(b) any breach by Seller of any covenant or obligation of Seller in
this Agreement or any other document delivered by Seller pursuant to this
Agreement;
(c) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such Person with Seller or the Company (or
any Person acting on their behalf) in connection with any of the
transactions contemplated by this Agreement; or
(d) any matter relating to the operation of the Company prior to the
Closing (including, without limitation any Excluded Liabilities) other than
Permitted Liabilities.
9.3. INDEMNIFICATION AND PAYMENT OF INDEMNIFIABLE LOSSES BY
------------------------------------------------------
PURCHASER.
---------
Purchaser will indemnify and hold harmless Seller and Seller's agents
and Affiliates, and will pay to Seller and such other Persons the amount of any
Indemnifiable Losses arising, directly or indirectly, from or in connection
with:
(a) any breach of any representation or warranty made by Purchaser
in this Agreement or in any certificate or document delivered by Purchaser
pursuant to this Agreement;
-38-
(b) any breach by Purchaser of any covenant or obligation of
Purchaser in this Agreement or any other document delivered by Purchaser
pursuant to this Agreement;
(c) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by such Person with Purchaser (or any Person
acting on Purchaser's behalf) in connection with any of the transactions
contemplated by this Agreement; or
(d) any Permitted Liabilities.
9.4. LIMITATIONS ON INDEMNIFICATION.
------------------------------
Notwithstanding anything to the contrary herein no party shall be
obligated to pay the other any amounts for indemnification under Section 9.2 or
-----------
9.3, until the aggregate amount which it would have been obligated to pay but
---
for this Section 9.4 equals $75,000 (exclusive of legal and accounting fees)
-----------
whereupon the indemnifying party shall be obligated to pay all amounts for
indemnification then owing by such indemnifying party, including the amounts
aggregated to reach the $75,000 threshold (and legal and accounting fees
excluded in the calculation thereof); provided, that this Section 9.4 shall not
-------- -----------
apply to Purchaser's obligation in respect of the payment of the Purchase Price
or its obligations described in Sections 9.3(c), or Seller's obligations
---------------
described in Section 6 or Sections 9.2(c).
--------- ---------------
9.5. PROCEDURES.
----------
(a) Any claim under Section 9.2 or Section 9.3 shall be made in a
----------- -----------
written statement signed by the party seeking indemnification which shall
specify in reasonable detail each individual item of Indemnifiable Loss and
the estimated amount thereof, the date such item was claimed or the facts
giving rise to such claim were discovered, the basis for any alleged
liability and the nature of the breach or claim to which each such item is
related .
(b) If the indemnifying party does not pay the amount specified in
any such statement within thirty (30) days after it has been delivered by
the party seeking indemnification, the party seeking indemnification may
enforce its right in accordance with law.
(c) The party seeking indemnification in respect of any third party
claim shall give the indemnifying party prompt notice of any Proceeding
which might give rise to liability of the indemnifying party for
indemnification hereunder; provided, that failure to give the indemnifying
party prompt notice will not relieve such indemnifying party of any
liability to the indemnified party hereunder, except to the extent the
indemnifying party demonstrates that the defense of such action is
prejudiced by the indemnified party's failure to give such notice. If the
indemnifying party contests any third party claim, it will have the option
to defend, at the indemnifying party's expense, any such matter, provided
that the indemnified party shall have the right, at its own cost and
-39-
expense, to participate in the defense of such claim or, if the
indemnifying party elects not to defend the claim, to conduct the defense
on its own behalf. If the indemnifying party conducts the defense of a
claim, neither party will enter into any settlement agreement without the
other party's consent; provided, that the indemnified party shall not
--------
object to any proposed settlement which requires only the payment of money
by the indemnifying party and does not involve any admissions or
stipulations by the indemnified party or any injunctive or similar relief
or any other contractual obligations affecting the indemnified party or its
business and operations. The indemnified party shall cooperate with the
indemnifying party in the defense, compromise or settlement of any claim
for which indemnification is sought. If the indemnifying party elects not
to conduct the defense of such claim, the indemnified party shall be
permitted to settle or compromise any such claim on such terms as it deems
appropriate and such settlement or compromise shall not prejudice its
rights to indemnification hereunder.
(d) Notwithstanding Section 9.5(c), if an indemnified party determines
--------------
in good faith that there is a reasonable probability that a Proceeding may
adversely affect it or its Affiliates other than as a result of monetary
Indemnifiable Losses for which it would be entitled to indemnification
under this Agreement, the indemnified party may, by notice to the
indemnifying party, assume the exclusive right to defend, compromise, or
settle such Proceeding, but the indemnifying party will not be bound by any
determination of a Proceeding so defended or any compromise or settlement
effected without its consent (which may not be unreasonably withheld).
(e) A claim for indemnification for any matter not involving a third-
party claim may be asserted by notice to the party from whom
indemnification is sought.
9.6. PREVAILING PARTY TO BE AWARDED LEGAL FEES.
-----------------------------------------
In the event of any litigation between Seller and Purchaser, whether
at law or in equity, arising out of this Agreement, the party prevailing in such
litigation shall be entitled to receive, upon application to the court, its
reasonable legal fees and expenses incurred in connection therewith.
9.7. OFFSET.
------
Purchaser's obligations pursuant to the Note shall be subject to
offset to the extent of any Indemnifiable Losses alleged by Purchaser in good
faith, and as otherwise set forth in the Note and in this Agreement, including
without limitation Section 2.2(b) and Section 2.3(a) hereof. In the event of
-------------- --------------
offset or dispute under this Agreement or the Note, then Purchaser shall pay to
the Trust, for the account of Seller, that portion of the Deferred Payment which
is not in dispute; provided, that notwithstanding the foregoing, if the amount
--------
in dispute is $25,000 or less, Purchaser may withhold payment of $25,000, and if
the amount in dispute is less than $50,000 but greater than $25,000, Purchaser
may withhold payment of $50,000. In
-40-
the event of any such offset, if Seller provides Purchaser written notice
objecting to such offset setting forth the basis for such objection, and the
amount objected to, then the offset amount objected to by Seller shall be paid
to Seller within one hundred twenty (120) days of Purchaser's receipt of
Seller's objection, unless, within one hundred twenty (120) days of receipt of
Seller's objection, Purchaser initiates a lawsuit seeking to establish
Purchaser's right to offset such amount or Seller withdraws such objection.
Notwithstanding the foregoing, the provisions of the immediately preceding two
(2) sentences shall not apply to any dispute regarding determination of the
Final Closing Balance Sheet pursuant to Section 2.3(c), which dispute shall be
--------------
resolved in accordance with the provisions of Section 2.3(c) and the Note.
--------------
10. RESCISSION OF TRANSACTIONS.
--------------------------
In the event that, based wholly or in material part on any Seller
Inadequacy, the DOE has not issued to Purchaser a DOE Approval Notice permitting
resumption of Title IV funding to the School as operated by Purchaser within six
(6) months after final and binding determination of the Final Balance Sheet or
based wholly or in material part on any Seller Inadequacy, such approval
contains unusual or burdensome conditions which Purchaser reasonably determines
would materially reduce the economic benefits that Purchaser or its Affiliates
anticipated to receive from the consummation of the transactions contemplated by
this Agreement, or would impose burdensome restrictions or limitations on the
activities of Purchaser or its Affiliate unrelated to the School or the Company,
Purchaser shall have the right and option, in its sole discretion, upon notice
delivered no later than thirty (30) days after receipt of notice that such
approval is denied or so conditioned and in any event no later than ten (10)
days after the expiration of the six (6) month period described in the preceding
sentence, to rescind the transactions consummated under this Agreement. Upon
Purchaser's election of rescission hereunder each of the parties hereto shall
take such actions as may reasonably be required to restore the other parties to
their respective positions as they existed prior to Closing. In the event of a
rescission hereunder, among other things and by way of illustration, all amounts
advanced by Purchaser or its Affiliates to fund the operations of the School
after the Closing (whether as debt or equity) shall be reimbursed by Seller and
such reimbursement shall be secured by a first priority lien upon the Shares and
all of the Assets, Purchaser shall tender the Shares to Seller (endorsed in
blank with appropriate warranties of title), and all obligations of Purchaser
pursuant to this Agreement shall be terminated. Purchaser agrees that during
the period from the Closing Date through the date of receipt of a DOE Approval
Notice as described above, Purchaser shall use its reasonable efforts to obtain
such approval. In the event the DOE does not issue a DOE Approval Notice based
on the financial condition or actions of Purchaser and Purchaser nonetheless
elects to rescind the transactions consummated pursuant to this Agreement,
Purchaser shall reimburse the Company for losses, including diminution in value,
that the Company has suffered as a result of the DOE's refusal to issue a DOE
Approval Notice.
11. MISCELLANEOUS.
-------------
11.1. EXPENSES.
--------
Each party hereto shall be liable for the payment of the fees and
expenses incurred by such party or on such party's behalf in connection with the
negotiation and
-41-
execution of this Agreement and the consummation of the transactions
contemplated by this Agreement, including (or termination hereof in accordance
with Section 2.4, 7 or 8 hereof), without limitation, legal,
accounting, financial and tax advice, brokers, finders and other fees, expenses
and commissions. Seller shall pay all transfer, sales and use taxes resulting
from the sale of the Shares to Purchaser.
11.2. EXCLUSIVE REMEDIES.
------------------
Except for violations of Sections 6, any claim for any breach of
----------
representation of warranty arising out of this Agreement shall have as its sole
remedy the indemnification provided in Section 9, unless such breach results
---------
from gross negligence or willful misconduct. Notwithstanding the foregoing,
nothing herein shall preclude any part from seeking any rights or remedies under
any other agreements executed in connection herewith or from seeking injunctive
or other equitable relief as may be reasonable necessary to protect its rights
hereunder, including, without limitation, those rights and remedies specified in
Section 6.5.
-----------
11.3. SUCCESSORS AND ASSIGNS.
----------------------
This Agreement and the rights hereunder shall not be assignable or
transferable without the prior written consent of all the parties hereto.
Except as otherwise expressly provided herein, all covenants and agreements
contained in this Agreement by or on behalf of any of the parties hereto shall
bind and inure to the benefit of the respective successors and assigns of the
parties hereto whether so expressed or not. Notwithstanding the foregoing,
whether or not any express assignment has been made, the provisions of this
Agreement which are for Purchaser's benefit are also for the benefit of, and
enforceable by, any subsequent owner of the Company or the School.
11.4. SEVERABILITY.
------------
Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
11.5. COUNTERPARTS.
------------
This Agreement may be executed simultaneously in two or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together shall constitute one and the
same Agreement.
11.6. DESCRIPTIVE HEADINGS; INTERPRETATION.
------------------------------------
The descriptive headings of this Agreement are inserted for
convenience only and do not constitute a Section of this Agreement.
-42-
11.7. GOVERNING LAWS.
--------------
This Agreement shall be construed and enforced in accordance with, and
all questions concerning the construction, validity, interpretation and
performance of this Agreement shall be governed by, the laws of the State of
Illinois without giving effect to provisions thereof regarding conflict of laws.
11.8. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
----------------------------------------------
EACH PARTY HERETO CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL
COURT LOCATED WITHIN THE COUNTY OF ▇▇▇▇, STATE OF ILLINOIS AND IRREVOCABLY
AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE OTHER RELATED DOCUMENTS SHALL BE LITIGATED EXCLUSIVELY IN SUCH
COURTS. EACH PARTY HERETO ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS AND WAIVES ANY DEFENSE OF FORUM NONCOVENIENS, AND IRREVOCABLY AGREES TO
BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT.
PURCHASER DESIGNATES AND APPOINTS CT CORPORATION SYSTEM AND SELLER DESIGNATES
AND APPOINTS ITS LEGAL COUNSEL, ARONBERG, GOLDGEHN, ▇▇▇▇▇ & GARMISA, LOCATED AT
▇▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, OR SUCH OTHER PERSON AS MAY
HEREINAFTER BE SELECTED BY PURCHASER OR SELLER, AS APPLICABLE, WHO IRREVOCABLY
AGREES IN WRITING TO SO SERVE, AS AGENT TO RECEIVE ON SUCH PARTY'S BEHALF
SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT, SUCH SERVICE
BEING HEREBY ACKNOWLEDGED BY EACH PARTY TO BE EFFECTIVE AND BINDING SERVICE IN
EVERY RESPECT. A COPY OF ANY SUCH PROCESS SO SERVED SHALL BE MAILED BY EITHER
REGISTERED MAIL OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO EACH PARTY AS
PROVIDED HEREIN, EXCEPT THAT UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY
FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS.
IF ANY AGENT APPOINTED BY A PARTY REFUSES TO ACCEPT SERVICE, SUCH PARTY HEREBY
AGREES THAT SERVICE UPON IT BY REGISTERED MAIL, RETURN RECEIPT REQUESTED SHALL
CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
11.9. WAIVER OF JURY TRIAL.
---------------------
EACH PARTY HERETO HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR
ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION AND
THE RELATIONSHIP THAT IS BEING ESTABLISHED. EACH PARTY HERETO ALSO WAIVES ANY
BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE
REQUIRED OF THE OTHER PARTIES. THE SCOPE OF THIS WAIVER
-43-
IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN
ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THESE TRANSACTIONS, INCLUDING
WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS
WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH
HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH
WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY
HERETO FURTHER WARRANTS AND REPRESENTS THAT EACH HAS REVIEWED THIS WAIVER WITH
ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT
OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE TRANSACTIONS
CONTEMPLATED HEREBY. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS
A WRITTEN CONSENT TO A TRIAL BY THE COURT.
11.10. NOTICES.
-------
All notices, demands or other communications to be given or delivered
under or by reason of the provisions of this Agreement shall be in writing and
shall be deemed to have been given (a) when delivered personally or sent by
facsimile to the recipient, or (b) one (1) business day after the date such
communication is sent to the recipient by reputable express, overnight courier
service (charges prepaid), or (c) three (3) business days after the date such
communication is sent to the recipient by certified mail, return receipt
requested. Such notices, demands and other communications shall be sent to the
parties hereto at the addresses indicated below:
If to Purchaser: Career Education Corporation
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to: Katten, Muchin & Zavis
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
-44-
and Goldberg, Kohn, Bell, Black,
▇▇▇▇▇▇▇▇▇▇ & Moritz, Ltd.
▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. Black, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to Seller: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
With copies to: Aronberg, Goldgehn, ▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address or to the attention of such other Person as the
recipient party has specified by prior written notice to the sending party.
11.11. PUBLICITY.
---------
No party hereto shall issue any press release or other public
statement regarding the transactions contemplated by this Agreement without the
prior consent of the other party hereto, except as necessary to comply with any
applicable Legal Requirement; provided, that after the Closing, Purchaser may
--------
issue such press releases or other public statements as Purchaser deems
necessary to comply with applicable Legal Requirements or otherwise desirable or
appropriate.
11.12. MAINTENANCE OF CONFIDENTIAL INFORMATION BY PURCHASER.
----------------------------------------------------
Purchaser agrees that, prior to the Closing and the expiration of all
rights of Purchaser to rescind the transactions contemplated hereby pursuant to
Section 10 hereof, Purchaser shall hold the Confidential Information in the
----------
strictest confidence and will not disclose or make use of (directly or
indirectly) the Confidential Information or any portion thereof to or on behalf
of itself or any third party, except (i) as required in the performance of
Purchaser's duties and obligations pursuant to, or as otherwise contemplated by,
this Agreement, (ii) as necessary or appropriate in connection with operation of
the School in the ordinary course of business, (iii) as required by the order of
any court or similar tribunal or any other Governmental Authority of appropriate
jurisdiction; provided, however, that Purchaser shall, to the extent
practicable, give Seller prior written notice of any such required disclosure
and shall cooperate with Seller in obtaining a protective order or such similar
protection as Seller may deem appropriate to preserve the confidential nature of
such information. In the event of rescission of the transactions contemplated
by this Agreement, Purchaser shall at all times thereafter hold the Confidential
Information in the strictest confidence and will not disclose or make use of
(directly or indirectly) the Confidential Information or any portion
-45-
thereof in accordance with, and subject to the exceptions set forth in, the
immediately preceding sentence. The foregoing obligations to maintain the
Confidential Information shall not apply to any Confidential Information which
is or, without any wrongful action by Purchaser, becomes generally available to
the public.
11.13. INTERNAL REVENUE CODE SECTION 338.
---------------------------------
Purchaser hereby covenants and agrees that it shall not make an
election pursuant to IRC Section 338 with respect to the stock purchase
-----------
transaction contemplated by this Agreement.
11.14. ENTIRE AGREEMENT.
----------------
Except as otherwise expressly set forth herein, this Agreement and the
exhibits and schedules hereto embody the complete agreement and understanding by
and among the parties and their respective Affiliates, and supersede and preempt
any prior understandings, agreements or representations by or among the parties
and their respective Affiliates, written or oral, which may have related to the
subject matter hereof in any way.
11.15. AMENDMENT.
---------
This Agreement cannot be amended or otherwise modified except by a
written instrument signed by all parties hereto.
-46-
IN WITNESS WHEREOF, the parties hereby have executed this Agreement on
the date first written above.
SELLER:
THE ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ TRUST DATED
OCTOBER 9, 1997
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------
Its Trustee
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, an individual
PURCHASER:
CAREER EDUCATION CORPORATION, a
Delaware corporation
By /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
Its Chief Executive Officer
--------------------------------
-47-
LIST OF APPENDICES
Appendix A -- Certain Definitions
LIST OF EXHIBITS
Exhibit A -- Note
Exhibit B -- Seller's Release
Exhibit C -- Employment Agreement
Exhibit D -- Opinion of Seller's Counsel
Exhibit E -- Closing Checklist
Exhibit F -- Opinion of Purchaser's Counsel
Exhibit G -- Escrow Agreement
LIST OF SCHEDULES
Schedule 2.2(a) -- Wire Instructions
Schedule 2.3(a) -- Sample Threshold Amount and Cash Minimum Calculation
Schedule 3.1(f) -- Third Party Consents
Schedule 4.4 -- Seller's Conflicts
Schedule 4.6 -- Encumbrances on the Shares
Schedule 4.7 -- Books and Records Issues
Schedule 4.8(b) -- Licenses and Permits
Schedule 4.9 -- Policy Guidelines
Schedule 4.10 -- Cohort Default Rates
Schedule 4.11(b) -- Real Estate Leases
Schedule 4.11(d) -- Other Leases and Licenses
Schedule 4.11(e) -- Tangible Assets
Schedule 4.12 -- Material Miscellaneous Contracts
Schedule 4.13 -- Tradenames
Schedule 4.14 -- Financial Security Arrangements
Schedule 4.17 -- Bank Accounts and Signatories
Schedule 4.19 -- Insurance
Schedule 4.20 -- Environmental Matters
Schedule 4.21(a) -- Company Plans and Other Benefit Obligations
Schedule 4.21(c) -- Noncompliance with Company Plans and Other Benefit
Obligations
Schedule 4.21(d) -- Former Employees Receiving Payment and Other Benefits
Schedule 4.22 -- Employment Matters
Schedule 4.24 -- Tax Matters
Schedule 4.26 -- Affiliate Transactions
Schedule 5.3 -- Purchaser's Conflicts
APPENDIX A
Certain Definitions
-------------------
"ACCREDITING BODY" means any entity or organization, whether governmental,
government chartered, private or quasi-private, which engages in granting or
withholding Accreditation for private post secondary schools in accordance with
standards relating to the performance, operation, financial condition and/or
academic standards of such schools, including, without limitation, the DOE, the
National Association of Schools of Art and Design, the Illinois State Board of
Education and the Illinois State Board of Higher Education, as applicable.
"ACCREDITATION" means any license, permit, authorization, certification,
accreditation or similar approval granted by any Accrediting Body.
"ADDITIONAL CLOSING PAYMENT" shall have the meaning ascribed to such term
in Section 2.2(a).
--------------
"AFFILIATE" means, with respect to any Person, any individual related by
blood or marriage to such Person or any Person controlling, controlled by or
under common control with such Person.
"ASSETS" shall have the meaning ascribed to such term in Section 2.3(a).
--------------
"BEST OF PURCHASER'S KNOWLEDGE" means the collective actual knowledge of
the executive officers of Purchaser holding offices of vice-president or higher,
following due inquiry of appropriate officers, employees and consultants of
Purchaser.
"BEST OF SELLER'S KNOWLEDGE" means the collective actual knowledge of
Seller and the executive officers of the Company holding offices of vice-
president or higher, following due inquiry of appropriate officers, employees
and consultants of the Company, and the ▇▇▇▇, the admissions director and the
financial aid director of the School.
"CASH MINIMUM" shall have the meaning ascribed to such term in Section
-------
2.3(a).
------
"CLOSING" shall have the meaning ascribed to such term in Section 2.4.
-----------
"CLOSING DATE" shall mean the date of the Closing.
"CLOSING PAYMENT" shall have the meaning ascribed to such term in Section
-------
2.2(a).
------
"COMPANY" shall have the meaning ascribed to such term in the background
section of this Agreement.
"COMPANY OTHER BENEFIT OBLIGATION" means an Other Benefit Obligation owed,
adopted, or followed by the Company.
"COMPANY PLAN" means all Plans of which the Company is or was a Plan
Sponsor, or to which the Company otherwise contributes or has contributed, or in
which the Company otherwise participates or has participated. All references to
Plans are to Company Plans unless the context requires otherwise.
"CONFIDENTIAL INFORMATION" shall have the meaning ascribed to such term in
Section 6.3.
-----------
"CURRENT ASSETS" means cash, cash equivalents and accounts receivable as
set forth in 34 C.F.R. (S) 668.15(b)(7) (1997), as amended.
"CURRICULA" means copyrighted and proprietary uncopyrighted materials used
in any courses offered at the School.
"DOE" means the United States Department of Education and any successor
agency administering student financial assistance under Title IV.
"DOE APPROVAL NOTICE" means a Provisional Program Participation Agreement,
both issued and executed by DOE.
"EMPLOYMENT AGREEMENT" shall have the meaning ascribed to such term in
Section 3.1(c).
--------------
"ENCUMBRANCE" means any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership.
"ENVIRONMENTAL LAW" means any Legal Requirement pertaining to any Hazardous
Substance or otherwise pertaining to the environment or protection of any
natural resources, including, without limitation, air, soil or water.
"ERISA" means the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"ERISA AFFILIATE" means any other Person that, together with the Company,
would be treated as a single employer under IRC (S) 414(b), (c), (m) or (o).
"ESCROW" and "ESCROW AGREEMENT" shall have the respective meanings ascribed
to such terms in Section 2.2(c).
--------------
"ESTIMATED CLOSING BALANCE SHEET" shall have the meaning ascribed to such
term in Section 3.1(h).
--------------
"EXCLUDED LIABILITIES" shall have the meaning ascribed to such term in
Section 2.3(b).
--------------
"FACILITY" shall mean any real property now or previously owned, leased or
operated by Seller, including without limitation the Leased Facility.
"FINAL BALANCE SHEET" shall have the meaning ascribed to such term in
Section 2.3(c).
--------------
"FINANCIAL STATEMENTS" means (a) the audited balance sheets and the related
statements of income and changes in financial position of the Company as at and
for the fiscal years ended July 31, 1995, 1996, 1997, 1998, and (b) balance
sheets and related statements of income and changes in financial position of the
Company prepared by the Company's accountants as at and for the three (3) month
period ended [OCTOBER 31, 1998].
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants, and statements and pronouncements of
the Financial Accounting Standards Board and the Emerging Issues Task Force (or
any successor authority) that are applicable as of the date of determination,
all as consistently applied in the preparation of the Financial Statements.
"GOVERNMENTAL AUTHORITY" means any (a) federal, state, local, municipal,
foreign, or other government; (b) governmental or quasi-governmental authority
of any nature (including any governmental agency, branch, bureau, department,
official, or entity and any court or other tribunal); and (c) body exercising,
or entitled to exercise, any administrative, executive, judicial, legislative,
police, regulatory, or taxing authority or power of any nature.
"HAZARDOUS SUBSTANCE" means any substances included within the definitions
of "hazardous substances," "hazardous materials," "toxic substances," "waste" or
similar terms in any applicable Legal Requirement relating to environmental
protection, remediation or liability, clean air, clean
water, waste disposal and hazardous substance transportation or disposal,
including, without limitation, Legal Requirements relating to petroleum,
asbestos, polychlorinated biphenyls, flammable explosives and radioactive
materials.
"INDEMNIFIABLE LOSSES" shall have the meaning ascribed to such term in
Section 7.2.
-----------
"INDEPENDENT AUDITOR" shall have the meaning ascribed to such term in
Section 2.3(c).
----------------
"INTELLECTUAL PROPERTY" means the patents, trademarks, tradenames
(including, without limitation, the Company's name and the School's name),
servicemarks, copyrights, know-how, Curricula and trade secrets owned by the
Company or used in connection with the operation of the School.
"INVESTMENT" as applied to any Person means (i) any direct or indirect
ownership by such Person of any notes, obligations, instruments, stock,
securities or ownership interest of any other Person, and (ii) any capital
contribution by such Person to any other Person.
"IRC" means the Internal Revenue Code of 1986 or any successor law, and
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"IRS" means the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"LEASES" shall have the meaning ascribed to such term in Section 4.11(b).
---------------
"LEASED FACILITY" shall have the meaning ascribed to such term in Section
-------
4.11(b).
-------
"LEGAL REQUIREMENT" means any foreign, federal, state, local, municipal,
administrative or other constitution, law, statute, regulation, rule, ordinance,
order, administrative order, principle of common law or treaty to which Seller,
the Company or Purchaser are subject, as applicable.
"LICENSES AND PERMITS" shall have the meaning ascribed to such term in
Section 4.8(b).
--------------
"MATERIAL MISCELLANEOUS CONTRACTS" shall have the meaning ascribed to such
term in Section 4.12.
------------
"MULTI-EMPLOYER PLAN" shall have the meaning ascribed to such term in ERISA
(S) 3(37)(A).
"NOTE" shall have the meaning ascribed to such term in Section 2.2(b).
--------------
"OTHER BENEFIT OBLIGATIONS" means all obligations, arrangements, or other
commitments to provide benefits, other than salary, as compensation for services
rendered, to present or former directors or employees other than obligations,
arrangements, and practices that are Plans. Other Benefit Obligations include
consulting agreements under which the compensation paid does not depend upon the
amount of service rendered, sabbatical policies, severance payment policies, and
fringe benefits within the meaning of IRC (S) 132.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"PENSION PLAN" has the meaning ascribed to such term in ERISA (S) 3(2)(A).
"PERSON" means any individual, general or limited partnership, corporation
(including any non-profit corporation), limited liability company, joint stock
company, joint venture, trust, association, unincorporated organization, labor
union, Governmental Authority, Accrediting Body or other similar entity.
"PERMITTED LIABILITIES" shall have the meaning ascribed to such term in
Section 2.3(b).
--------------
"PLANS" means all employee benefit plans, whether qualified or
nonqualified, whether funded or unfunded and whether or not subject to ERISA,
affecting employees of the Company, and all collective bargaining agreements
relating to employee benefits affecting employees of the Company with respect to
which the Company may incur any future or contingent obligations, including,
without limitation, all written or oral plans, agreements, arrangements or
policies relating to deferred compensation, pensions, profit sharing, retirement
income or other benefits, stock purchase and stock option plans, bonus plans,
severance arrangements, health benefits, retiree health benefits, insurance
benefits and all other employee benefits or fringe benefits, including any
employee welfare benefit plans and employee pension benefit plans within the
meaning of Sections 3(1) and 3(2) of ERISA, and including any policies, plans or
arrangements with respect to provisions of or reimbursement of expenses for
automobiles, car telephones, club and association memberships, travel and
expense reimbursements, employee loans and advances, or other similar benefits.
"PLAN SPONSOR" shall have the meaning ascribed to such term in ERISA (S)
3(16)(B).
"POLICY GUIDELINES" shall have the meaning ascribed to such term in Section
-------
4.9(a).
------
"PRE-CLOSING FINANCIAL AID IRREGULARITIES" shall have the meaning ascribed
to such term in Section 2.3(b).
--------------
"PREPAID TUITION" shall have the meaning ascribed to such term in Section
-------
2.3(a).
------
"PROCEEDING" means any action, claim, arbitration, audit, hearing,
investigation, inquiry, litigation, suit (whether civil, criminal,
administrative, investigative, or informal) or other proceeding commenced,
brought, conducted, or heard by or before, or otherwise involving, any
Governmental Authority or arbitrator.
"PROFIT SHARING PLAN" shall have the meaning ascribed to such term in
Section 2.6.
-----------
"PURCHASE PRICE" shall have the meaning ascribed to such term in Section
-------
2.2.
---
"PURCHASER" shall have the meaning ascribed to such term in the preamble to
this Agreement.
"QUALIFIED PLAN" means any Plan that meets or is intended to meet the
requirements of IRC (S) 401(a).
"SCHOOL" shall have the meaning ascribed to such term in the background
section to this Agreement.
"SECURITIES ACT" means the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"SELLER" shall have the meaning ascribed to such term in the preamble to
this Agreement.
"SELLER INADEQUACY" means any Pre-Closing Financial Aid Irregularity or
other Pre-Closing characteristic or condition of the School or the Company.
"SELLER'S RELEASE" shall have the meaning ascribed to such term in Section
-------
3.1(b).
------
"SHARES" shall have the meaning ascribed to such term in the background
section to this Agreement.
"STUDENT DEPOSITS" means any refundable deposits made with the Company by
students.
"TAXES" means all taxes, levies or other like assessments, charges or fees,
including, without limitation income, gross receipts, excise, property
(including, without limitation, any special assessments), sales, license,
payroll and franchise or other taxes imposed by any Governmental Authority on
the Company and/or any of its business activities; and such term shall include
any interest, penalties or additions or other amounts payable in connection with
any Taxes.
"THRESHOLD AMOUNT" shall have the meaning ascribed to such term in Section
-------
2.3(a).
------
"TITLE IV" means Subchapter IV of the Higher Education Act of 1965, as
amended, 20 U.S.C.A. (S) 1070a, et seq., and any amendments or successor
statutes thereto.
"TITLE IV PROGRAM" means any program of student financial assistance
administered pursuant to Title IV.
"TRADENAMES" shall have the meaning ascribed to such term in Section
-------
4.13(a).
-------
"YEAR 2000 PROBLEM" shall have the meaning ascribed to such term in Section
-------
4.29.
----
"VEBA" means a voluntary employees' beneficiary association under IRC (S)
501(c)(9).