EXHIBIT 2.1
STOCK PURCHASE AND SALE AGREEMENT
BY AND AMONG
WYO-TECH ACQUISITION CORP.,
ALLIED CAPITAL CORPORATION,
▇▇▇▇▇ ▇▇▇▇▇▇,
AND
CORINTHIAN COLLEGES, INC.
April 10, 2002
TABLE OF CONTENTS
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Page
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ARTICLE I DEFINITIONS; PURCHASE AND SALE ............................................. 1
Section 1.1 Definitions ......................................................... 1
Section 1.2 Stock Purchase and Sale ............................................. 8
Section 1.3 Purchase Price Determination ........................................ 8
Section 1.4 Delivery of Stock; Payment .......................................... 10
Section 1.5 Closing ............................................................. 10
Section 1.6 Payment of Purchase Price ........................................... 10
Section 1.7 Buyer Contribution to the Capital of the Company .................... 11
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SELLERS ............................. 11
Section 2.1 Ownership of Stock .................................................. 11
Section 2.2 Authority of Sellers ................................................ 11
Section 2.3 No Violation ........................................................ 11
Section 2.4 Consents and Approvals .............................................. 12
Section 2.5 Brokers', Finders' Fees, etc. ....................................... 12
Section 2.6 Receipt of Commitment Letters ....................................... 12
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY ............................ 12
Section 3.1 Corporate Organization; Authorization ............................... 12
Section 3.2 No Violation ........................................................ 13
Section 3.3 Consents and Approvals of Governmental Authorities .................. 13
Section 3.4 Capitalization ...................................................... 13
Section 3.5 Subsidiaries and Affiliates ......................................... 14
Section 3.6 Financial Statements ................................................ 14
Section 3.7 Absence of Certain Changes .......................................... 14
Section 3.8 Title to Properties; Encumbrances ................................... 16
Section 3.9 Patents, Trademarks, Trade Names .................................... 16
Section 3.10 Material Contracts .................................................. 17
Section 3.11 Litigation; Compliance with Laws .................................... 19
Section 3.12 Taxes ............................................................... 19
Section 3.13 Benefit Plans ....................................................... 20
Section 3.14 Employment Matters .................................................. 21
Section 3.15 Environmental Matters ............................................... 22
Section 3.16 Brokers, Finders' Fees, etc ......................................... 23
Section 3.17 Affiliate Transactions .............................................. 23
Section 3.18 Insurance ........................................................... 23
Section 3.19 Bank Accounts ....................................................... 23
Section 3.20 Compliance with Title IV Programs ................................... 23
Section 3.21 Approval and Accreditation .......................................... 25
Section 3.22 Recruitment; Admissions Procedures; Attendance; Reports ............. 26
Section 3.23 Accrediting Body and Governmental Approvals ......................... 27
Section 3.24 Condition and Sufficiency of Assets ................................. 27
Section 3.25 Accounts Receivable ................................................. 27
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Section 3.26 Books of Account and Reports; Internal Controls;
Absence of Certain Payments ........................................... 27
ARTICLES IV REPRESENTATIONS AND WARRANTIES OF THE BUYER .................................... 28
Section 4.1 Corporate Organization ................................................ 28
Section 4.2 Authorization ......................................................... 28
Section 4.3 No Violation .......................................................... 28
Section 4.4 Consents and Approvals of Governmental Authorities .................... 29
Section 4.5 Sophisticated Investor ................................................ 29
Section 4.6 Broker's, Finder's Fees, etc .......................................... 29
Section 4.7 Litigation ............................................................ 29
Section 4.8 Capital Adequacy ...................................................... 29
Section 4.9 Compliance with Education Laws ........................................ 30
Section 4.10 Reliance on Representations and Warranties ............................ 30
Section 4.11 Prior ED Approvals Secured to Buyer ................................... 30
ARTICLE V. CONDUCT OF BUSINESS PENDING CLOSING .............................................. 30
ARTICLE VI ADDITIONAL AGREEMENTS ........................................................... 33
Section 6.1 Reasonable Access. .................................................... 33
Section 6.2 Confidentiality ....................................................... 33
Section 6.4. Notification .......................................................... 34
Section 6.5. Interim Financial Statements and Other Information .................... 34
Section 6.6 Amendment of Charter Documents ........................................ 35
Section 6.7 Employee Matters ...................................................... 35
Section 6.8 Books and Records ..................................................... 35
Section 6.9 Tax Matters ........................................................... 35
Section 6.10 Transfer Taxes ........................................................ 37
Section 6.11. Mutual Reasonable Best Efforts. ....................................... 37
Section 6.12 Further Assurances .................................................... 38
Section 6.13 Resignation of Officers and Directors ................................. 38
Section 6.14 Non-Solicitation of Employees ......................................... 38
Section 6.15 No Solicitation of Competing Proposals; Notice of Inquiry ............. 38
Section 6.16 ED Covenants of the Buyer ............................................. 39
Section 6.17 Buyer Responsibility for Opening Balance Sheet Compliance ............. 39
Section 6.18 Termination of Information Technology Program ......................... 40
ARTICLE VII CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS ................................... 40
Section 7.1 Representations and Warranties ........................................ 40
Section 7.2 Performance ........................................................... 41
Section 7.3 No Material Adverse Change ............................................ 41
Section 7.4 HSR Filing ............................................................ 41
Section 7.5 No Injunction ......................................................... 41
Section 7.6 No Legislation ........................................................ 41
Section 7.7 Corporate Authorization ............................................... 41
Section 7.8 Waiver of Options ..................................................... 41
Section 7.9 Regulatory Approvals .................................................. 41
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Section 7.10 Opinion of Counsel to Sellers ............................................... 42
Section 7.11. Releases .................................................................... 42
Section 7.12 Payoff Letters .............................................................. 42
Section 7.13 Termination of Agreements ................................................... 42
Section 7.14 Redemption of Preferred Stock ............................................... 42
Section 7.15 Payment of Option Waiver Payment Amounts .................................... 42
Section 7.16 Resignation Letters ......................................................... 42
Section 7.17 Waiver of Conditions ........................................................ 42
ARTICLE VIII CONDITIONS PRECEDENT TO THE COMPANY'S AND THE SELLERS' OBLIGATIONS .................... 43
Section 8.1 Representations and Warranties .............................................. 43
Section 8.2 Performance ................................................................. 43
Section 8.3 HSR Filing .................................................................. 43
Section 8.4 No Injunction ............................................................... 43
Section 8.5 No Legislation .............................................................. 43
Section 8.6 Opinion of Counsel to Buyer ................................................. 43
Section 8.7 Corporate Authorization ..................................................... 43
Section 8.8 Payment of Indebtedness ..................................................... 44
Section 8.9 Redemption of Preferred Stock ............................................... 44
Section 8.10 Payment of Option Waiver Payment Amounts .................................... 44
Section 8.11 Waiver of Conditions ........................................................ 44
ARTICLE IX INDEMNIFICATION ......................................................................... 44
Section 9.1 Indemnification of the Sellers .............................................. 44
Section 9.2 Indemnification of the Buyer ................................................ 44
Section 9.3 Tax Matters ................................................................. 45
Section 9.4 Additional Indemnity Provisions ............................................. 56
Section 9.5 Option to Repurchase the Stock in Certain Indemnification Circumstances ..... 59
Section 9.5 Defense of Third Party Claims and Extension of Statute of Limitations ....... 50
Section 9.6 Disclosure Generally ........................................................ 50
Section 9.7 Disclaimer of Implied Warranties ............................................ 50
ARTICLE X. TERMINATION AND ABANDONMENT .............................................................. 51
Section 10.1 Methods of Termination ...................................................... 51
Section 10.2 Procedure Upon Termination .................................................. 51
Section 10.3 Expense Reimbursement ....................................................... 52
ARTICLE XI MISCELLANEOUS PROVISIONS ................................................................ 52
Section 11.1 Amendment and Modification .................................................. 52
Section 11.2 Waiver of Compliance ........................................................ 52
Section 11.3 Representations and Warranties, etc. ........................................ 52
Section 11.4 Notices ..................................................................... 53
Section 11.5 Binding Nature; Assignment .................................................. 54
Section 11.6 Entire Agreement ............................................................ 54
Section 11.7 Expenses .................................................................... 54
Section 11.8 Press Releases and Announcements ............................................ 54
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Section 11.9 Governing Law ............................................................... 54
Section 11.10 Severability ................................................................ 55
Section 11.11 Jurisdiction; Service of Process ............................................ 55
Section 11.12 Headings .................................................................... 55
Section 11.13 Legal Representation ........................................................ 55
Section 11.14 No Third Party Beneficiaries ................................................ 55
Section 11.15 Specific Performance ........................................................ 56
Section 11.16 Sellers' Representative ..................................................... 56
Section 11.17 Counterparts ................................................................ 57
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STOCK PURCHASE AND SALE AGREEMENT
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THIS STOCK PURCHASE AND SALE AGREEMENT (the "Agreement") is made and
entered into as of the 10th day of April, 2002, by and among Wyo-Tech
Acquisition Corp., a Delaware corporation (the "Company"), Allied Capital
Corporation, a Maryland corporation ("Allied") and ▇▇▇▇▇ ▇▇▇▇▇▇ ("▇▇▇▇▇▇" and
together with Allied the "Sellers"; and each individually a "Seller") and
Corinthian Colleges, Inc., a Delaware corporation (the "Buyer").
RECITALS
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A. The Sellers are the owners of all of the issued and outstanding shares
of common stock of the Company (the "Stock"); and
B. On the terms and subject to the conditions contained herein, the Sellers
desire to sell and the Buyer desires to purchase all of the Sellers' right,
title and interest in and to the Stock.
NOW THEREFORE, in consideration of the premises and of the mutual
representations, warranties and covenants which are to be made and performed by
the respective parties, it is agreed as follows:
ARTICLE I
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DEFINITIONS; PURCHASE AND SALE
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Section 1.1 Definitions. The following terms when used in this Agreement
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have the meanings set forth below:
(a) "Accreditation" means any accreditation, License, permit,
certification, approval, and other governmental, regulatory and ACCSCT
authorization required under all laws, rules, regulations and standards
applicable to or affecting the Company or the Subsidiary, exclusive of all
licenses, permits certifications, approvals and authorizations required under
any environmental law, rule, regulation or standard.
(b) "Accrediting Body" means any state, governmental department and/or
agency or any non-governmental or quasi-governmental body that provides
Accreditation, including but not limited to ED, ACCSCT, the Wyoming Department
of Education and the Pennsylvania Board of Private Licensed Schools.
(c) "ACCSCT" means the Accrediting Commission of Career Schools and
Colleges of Technology.
(d) "Acid Test Ratio" means the ratio determined as of the Closing Date in
accordance with the Principles and Procedures and as set forth on the Final
Closing Statements.
(e) "Acid Test Ratio Adjustment" means the number (positive or negative)
calculated on the basis of the Acid Test Ratio, as determined in accordance with
Section 1.3(b) as follows:
(i) if the Acid Test Ratio is greater than 1.0 to 1.0, then the Acid
Test Ratio Adjustment is a positive number equal to the amount by which clause
(i) of Item 2 of the Principles and Procedures exceeds clause (ii) of Item 2 of
the Principles and Procedures; and
(ii) if the Acid Test Ratio is less than 1.0 to 1.0, then the Acid
Test Ratio Adjustment is a negative number equal to the amount by which clause
(ii) of Item 2 of the Principles and Procedures exceeds clause (i) of Item 2 of
Principles and Procedures.
(f) "Affiliate" means any Person now or hereafter controlling, controlled
by or under common control with another Person.
(g) "Arbitrator" has the meaning set forth in Section 1.3.
(h) "Benefit Plans" has the meaning set forth in Section 3.13(a).
(i) "Budgeted Capital Expenditures" means the budgeted amount of capital
expenditures for the Company and the Subsidiary for the period from January 1,
2002 through June 30, 2002, as set forth on Schedule 1.1(i) or as otherwise
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agreed to in writing by the parties, provided that, subject to the prior written
consent of the Buyer's Contact, such consent may be withheld in the Buyer's sole
discretion, the Sellers shall be permitted to make reasonable changes to
Schedule 1.1(i) to reflect deviations, economies, efficiencies and the other
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prudent cost savings achieved by the Company and the Subsidiary in the
completion of capital projects (provided further, however, that such deviations,
economies, efficiencies and other prudent cost savings do not have the effect of
delaying the timing of any budgeted capital expenditures beyond the Closing Date
or reducing the aggregate amount of the budgeted expenditures set forth on
Schedule 1.1(i)).
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(j) "Buyer's Accountants" means ▇▇▇▇▇▇ & Associates, as certified public
accountants for the Buyer.
(k) "Buyer's Contact" has the meaning set forth in Section 6.1.
(l) "Claim Certificate" has the meaning set forth in Section 9.3(h).
(m) "Closing" has the meaning set forth in Section 1.5.
(n) "Closing Adjustment" means the following:
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(i) in the event that the Acid Test Ratio Adjustment and the
Tangible Net Equity Adjustment are both positive numbers, then the Closing
Adjustment shall mean a positive number equal to the lesser of (A) the Acid Test
Ratio Adjustment and (B) the Tangible Net Equity Adjustment;
(ii) in the event that either the Acid Test Ratio Adjustment or
the Tangible Net Equity Adjustment, but not both, is a negative number, then the
Closing Adjustment shall mean a negative number equal to the amount of the Acid
Test Ratio Adjustment or the Tangible Net Equity Adjustment, whichever is
negative; and
(iii) in the event that both the Acid Test Ratio Adjustment and
the Tangible Net Equity Adjustment are negative numbers, then the Closing
Adjustment shall mean a negative number equal to the greater of (Y) the Acid
Test Ratio Adjustment and (Z) the Tangible Net Equity Adjustment.
(o) "Closing Certificate" means the certificate delivered by the Chief
Financial Officer of the Company pursuant to Section 1.6(b).
(p) "Closing Date" has the meaning set forth in Section 1.5.
(q) "Closing Report" has the meaning set forth in Section 1.3(b).
(r) "Closing Statements" has the meaning set forth in Section 1.3(b).
(s) "Code" means the Internal Revenue Code of 1986, as amended.
(t) "Commitment Letters" has the meaning set forth in Section 4.8.
(u) "Confidentiality Agreement" means the Confidentiality Agreement, dated
November 16, 2001, between the Subsidiary and Buyer.
(v) "Contracts" has the meaning set forth in Section 3.10.
(w) "Curriculum" means the curriculum used in the educational programs of
the Company's and the Subsidiary's schools in the form of computer programs,
slide shows, texts, films, videos or any other form or media, including, without
limitation, the following items: (1) course objectives, (2) lesson plans, (3)
exams, (4) class materials (including any interactive or computer-aided
materials), (5) faculty notes, (6) course handouts, (7) diagrams, (8) syllabi,
(9) sample externship and placement materials, (10) clinical checklists, (11)
course and faculty evaluation materials, (12) policy and procedure manuals, and
(13) other related materials. The Curriculum shall also include, without
limitation, (a) all copyrights, copyright applications, copyright registrations
and trade secrets relating to the above-listed items to the extent owned by the
Company or the Subsidiary and (b) Revisions. The term "Revisions," as used in
this
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Agreement, means all periodic updates or revisions to the Curriculum as
developed or used by the Company or Subsidiary during its period of operation of
its business.
(x) "ED" means the U.S. Department of Education.
(y) "ED Approval Notice" means a Provisional Program Participation
Agreement, both issued and executed by ED, authorizing continued participation
by Wyoming Technical Institute in the Title IV Programs following the Closing.
The parties hereto hereby acknowledge and agree that the temporary provisional
program participation agreement anticipated to be issued on an interim basis
promptly following the Closing does not constitute a Provisional Program
Participation Agreement for purposes of this definition of an ED Approval
Notice.
(z) "ED Denial Notice" means a written notice issued and executed by ED
which denies an ED Approval Notice to the Buyer.
(aa) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
(bb) "Environmental Laws" has the meaning set forth in Section 3.15(a).
(cc) "Estimated Acid Test Ratio" means the estimated Acid Test Ratio of the
Company and the Subsidiary (on a consolidated basis) on the Closing Date as set
forth on the Closing Certificate.
(dd) "Estimated Acid Test Ratio Adjustment" means the amount, if any, of
the estimated Acid Test Ratio Adjustment as determined from the Estimated Acid
Test Ratio.
(ee) "Estimated Closing Adjustment" means the following:
(i) in the event that the Estimated Acid Test Ratio Adjustment
and the Estimated Tangible Net Equity Adjustment are both positive numbers, then
the Estimated Closing Adjustment shall mean a positive number equal to the
lesser of (A) the Estimated Acid Test Ratio Adjustment and (B) the Estimated
Tangible Net Equity Adjustment;
(ii) in the event that either the Estimated Acid Test Ratio
Adjustment or the Estimated Tangible Net Equity Adjustment, but not both, is a
negative number, then the Estimated Closing Adjustment shall mean a negative
number equal to the amount of the Estimated Acid Test Ratio Adjustment or the
Estimated Tangible Net Equity Adjustment, whichever is negative; and
(iii) in the event that both the Estimated Acid Test Ratio
Adjustment and the Estimated Tangible Net Equity Adjustment are negative
numbers, then the Estimated Closing
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Adjustment shall mean a negative number equal to the greater of (Y) the
Estimated Acid Test Ratio Adjustment and (Z) the Estimated Tangible Net Equity
Adjustment.
(ff) "Estimated Purchase Price" has the meaning set forth in Section
1.6(a).
(gg) "Estimated Tangible Net Equity" means the estimated Tangible Net
Equity of the Company and the Subsidiary on the Closing Date as set forth on the
Closing Certificate.
(hh) "Estimated Tangible Net Equity Adjustment" means the amount, if
any, of the estimated Tangible Net Equity Adjustment as determined from the
Estimated Tangible Net Equity.
(ii) "Final Closing Statements" has the meaning set forth in Section
1.3(b)(iv).
(jj) "Financial Assistance" has the meaning set forth in Section
3.20(a).
(kk) "Financial Statements" has the meaning set forth in Section
3.6(a).
(ll) "GAAP" means generally accepted accounting principles of the
United States applied in a manner consistent with past practices of the Company
and the Subsidiary.
(mm) "Group" has the meaning set forth in Section 3.12(a)(ii).
(nn) "Higher Education Act" means the Higher Education Act of 1965, as
amended.
(oo) "HSR Act" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act
of 1976, as amended.
(pp) "IRS" means the United States Internal Revenue Service.
(qq) "Indebtedness" means the sum of (i) the principal amount of any
indebtedness of the Company and the Subsidiary for borrowed money outstanding as
of the Closing, together with all prepayment premiums or penalties and other
amounts becoming due as a result of this transaction and (ii) any unpaid
interest owing on any such indebtedness of the Company and the Subsidiary. The
term "Indebtedness" shall not include any capitalized leases of the Company and
the Subsidiary.
(rr) "Indemnified Party" has the meaning set forth in Section 9.3(l).
(ss) "Indemnifying Party" has the meaning set forth in Section 9.3(l).
(tt) "Intellectual Property Rights" has the meaning set forth in
Section 3.9.
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(uu) "IT Program" has the meaning set forth in Section 6.19.
(vv) "Knowledge" shall mean (i) in the case of the Company, the
knowledge of any of ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇ or
▇▇▇▇▇ ▇▇▇, (ii) in the case of Grenat, the knowledge of Grenat and (iii) in the
case of Buyer, the knowledge of any of the executive officers of Buyer. For
purposes of this Agreement, an individual will be deemed to have "knowledge" of
a particular fact or matter if (A) such individual is actually aware of such
fact or matter, or (B) if such individual in connection with the discharge of
his or her employment responsibilities should reasonably be expected to have
acquired knowledge of a particular fact or matter.
(ww) "License" means any authorization, approval, licensure,
Accreditation or certification applicable to or affecting the Company or the
Subsidiary issued by the federal government or any state, governmental
department and/or agency, or non-governmental or quasi-governmental body,
including but not limited to the Accrediting Commission of Career Schools and
Colleges of Technology, the Wyoming Department of Education and the U.S.
Department of Education.
(xx) "Loss" and "Losses" have the meaning set forth in Section
9.3(f).
(yy) "Material Adverse Change" or "Material Adverse Effect" shall
mean any event, change or occurrence which, individually or together with any
other event, change or occurrence, (A) has or would be reasonably likely to have
a material adverse effect or material adverse change on the financial condition
or results of operations of the Company and the Subsidiary taken as a whole or
their business taken as a whole, provided that any such effect resulting from
(i) any events, circumstances, changes or conditions that adversely effect
either the national or regional economy generally or the industry in which the
Company and the Subsidiary operate, except to the extent that such events,
circumstances, changes or conditions affect the Company and/or the Subsidiary in
a way that is materially disproportionate to the effect generally on the
industry in which the Company and the Subsidiary operate, or (ii) the entering
into this Agreement, any actions required to be taken pursuant to this Agreement
or any agreement contemplated herein, shall not be considered when determining
whether a Material Adverse Change or Material Adverse Effect has occurred or (B)
would materially impair the ability of the Company and the Subsidiary to
consummate the transactions contemplated in this Agreement.
(zz) "Option Cancellation Agreements" means, collectively (i) that
certain Option Cancellation Agreement, dated the date hereof, between the
Company, the Sellers and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, an executed copy of which is attached
hereto as Exhibit B, and (ii) that certain Option Cancellation Agreement, dated
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the date hereof, between the Company, the Sellers and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, an
executed copy of which is attached hereto as Exhibit C.
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(aaa) "Option Cancellation Payment Amount" means the aggregate of all
payments required to be made by the Company on the Closing Date under the Option
Cancellation Agreements.
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(bbb) "Options" means all of the issued and outstanding options to
purchase shares of capital stock of the Company.
(ccc) "Person" means an individual, a partnership, a company, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
(ddd) "Pre-Closing Seller Condition" means a failure on the part of
the Sellers, the Company or the Subsidiary prior to the Closing to comply with a
statutory, Accrediting Body or regulatory provision related to the Company's or
the Subsidiary's participation in the Title IV Programs.
(eee) "Preferred Stock" means the outstanding shares of preferred
stock of the Company, par value $0.01 per share.
(fff) Preferred Stock Redemption Amount" means the amount necessary to
redeem all of the shares of Preferred Stock and redeem, pay and/or cancel all
other rights with respect to the Preferred Stock, including, but not limited to,
all rights with respect to dividends.
(ggg) "Principles and Procedures" means the accounting principles and
procedures attached hereto as Appendix 1 to be used to determine the Acid Test
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Ratio and the Tangible Net Equity.
(hhh) "Purchase Price" has the meaning set forth in Section 1.3(a).
(iii) "Securities Act" means the Securities Act of 1933, as amended.
(jjj) "Sellers' Accountants" means the Denver, Colorado and
metropolitan Washington, D.C. offices of Ernst & Young, LLP, as certified public
accountant of the Company, the Subsidiary and Allied Capital Corporation.
(kkk) "Seller's Contact" has the meaning set forth in Section 6.1.
(lll) "Seller's Fraction" means the fraction, the numerator of which
is the number of shares of Stock held by such Seller immediately prior to the
Closing and the denominator of which is the total number of shares of Stock
issued and outstanding immediately prior to the Closing. Each Seller's Fraction
is set forth on Exhibit A.
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(mmm) "Sellers' Representative" has the meaning set forth in Section
11.15.
(nnn) "Stock" has the meaning set forth in Recital A.
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(ooo) "Subsidiary" means MJB Acquisition Corp., d/b/a Wyoming
Technical Institute, a Wyoming corporation.
(ppp) "Tangible Net Equity" means the tangible net equity of the
Company determined as of the Closing Date in accordance with the Principles and
Procedures and as set forth on the Final Closing Statements.
(qqq) "Tangible Net Equity Adjustment" means the number (positive or
negative) calculated on the basis of the Tangible Net Equity, as determined in
accordance with Section 1.3(b), as follows:
(i) if the Tangible Net Equity is more than $1, then the
Tangible Net Equity Adjustment is a positive number equal to the amount by which
the Tangible Net Equity exceeds $1; and
(ii) if the Tangible Net Equity is less than $1, then the
Tangible Net Equity Adjustment is a negative number equal to the amount by which
the Tangible Net Equity is less than $1.
(rrr) "Taxes" has the meaning set forth in Section 3.12(a)(i).
(sss) "Third Party Claim" has the meaning set forth in Section 9.5(a).
(ttt) "Title IV Programs" means the programs of Federal student
financial assistance administered pursuant to Title IV of the Higher Education
Act of 1965, as amended.
Section 1.2 Stock Purchase and Sale. Subject to the terms and
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conditions set forth herein, at the Closing the Sellers will sell and the Buyer
will purchase all of the Sellers' right, title and interest in and to the Stock.
Section 1.3 Purchase Price Determination.
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(a) Purchase Price. The total purchase price to be paid for the Stock
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to the Sellers (the "Purchase Price") shall be equal to (i) Eighty-Five Million
Dollars ($85,000,000) minus (ii) the Indebtedness minus (iii) the Preferred
Stock Redemption Amount minus (iv) the Option Cancellation Payment Amount plus
(v) the Closing Adjustment (if any). The Purchase Price will be distributed
between the Sellers pro rata in accordance with each Seller's Fraction.
(b) Determination of Closing Adjustment. The amount of the Closing
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Adjustment shall be determined in the following manner:
(i) Closing Statements and Closing Report. Promptly after the
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Closing, the Sellers' Representative will prepare statements in accordance with
the Principles and Procedures
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which shall set forth the Closing Adjustment, the Acid Test Ratio, the Acid Test
Ratio Adjustment, the Tangible Net Equity and the Tangible Net Equity Adjustment
and a supporting schedule setting forth the calculation of each such amount (the
"Closing Statements"). Sellers' Accountants, at the Sellers' expense, will
examine and test the Closing Statements of the Company and the Subsidiary in
accordance with generally accepted auditing standards and GAAP (as modified by
the Principles and Procedures) and issue their report as to the results of such
examination and testing (the "Closing Report"). Within sixty (60) days after the
Closing or as soon thereafter as reasonably practicable, the Sellers'
Representative will deliver the Closing Statements and Closing Report to the
Buyer. The Sellers' Representative shall direct Sellers' Accountants to deliver
drafts of the Closing Statements and Closing Report to Buyer's Accountants for
review and analysis at least ten (10) days prior to final issuance of the
Closing Statements and Closing Report and delivery to the Buyer and the Sellers'
Representative as noted above. Buyer's Accountants shall have the opportunity to
review and evaluate all working papers, worksheets and other documents utilized
by the Sellers in the preparation of the Closing Statements and by Sellers'
Accountants in the examination and testing of the Closing Statements.
(ii) Review by Buyer's Accountants and Sellers' Accountants. Buyer's
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Accountants and Sellers' Accountants will attempt to resolve any disputed items
prior to the issuance of the Closing Statements and Closing Report. Failing such
resolution, the Buyer and the Sellers will exchange within thirty (30) days of
receipt of the Closing Statements and Closing Report detailed written
explanations of those items in the Closing Report which remain in dispute. The
amount of the Closing Adjustment not affected by the disputed items will be
deemed to be as set forth in the Closing Statements and Closing Report. Within a
further period of thirty (30) days from the end of the aforementioned review
period, the parties will attempt to resolve in good faith any disputed items.
(iii) Arbitration. Failing resolution pursuant to subparagraph
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1.3(b)(ii) the unresolved disputed items will be referred for final binding
resolution to the Denver, Colorado office of PriceWaterhouseCoopers or to such
other nationally-recognized firm of certified public accountants as the Buyer
and the Sellers' Representative may hereafter jointly select (the "Arbitrator").
The parties each represent and warrant that they have not engaged
PriceWaterhouseCoopers in any material capacity for any matters during the past
five (5) years. If the Arbitrator determines that the resolution of a given
disputed item requires an interpretation of law, then the Arbitrator may request
a law firm of national standing chosen by it to render a legal opinion as to
such matter. The Arbitrator shall be requested with respect to all references to
it to render its decision within thirty (30) days of a reference or as soon as
practicable thereafter, and shall send copies of such decision to the Buyer and
the Sellers' Representative. The amount of the Closing Adjustment affected by
such unresolved disputed items (if any) will be as determined by the Arbitrator.
The costs of such Arbitrator's review (including reasonable attorneys fees of
counsel providing a legal opinion to the Arbitrator, if any) shall be borne by
the substantially prevailing party (which shall be the party whose proposal on
the disputed items referred to for such binding arbitration was closest, in the
aggregate for all disputed items, to the Arbitrator's final resolution of such
disputed items).
9
(iv) The final resolution of the matters described in this Section 1.3
as finally agreed by the parties or as determined by the Arbitrator, as the case
may be, shall constitute the "Final Closing Statements."
Section 1.4 Delivery of Stock; Payment. At the Closing and after the Buyer
--------------------------
has made the contribution to the capital of the Company described in Section 1.7
(i) each Seller shall deliver to the Buyer one or more stock certificates
representing in the aggregate the number of shares of Stock set forth opposite
the name of such Seller on Exhibit A duly endorsed in blank for transfer or
---------
accompanied by duly executed stock powers in proper form, with signatures
guaranteed by a commercial bank or by a member firm of the New York Stock
Exchange and (ii) the Buyer shall pay to each Seller such Seller's Fraction of
the Estimated Purchase Price by wire transfer of immediately available funds in
accordance with Section 1.6.
Section 1.5 Closing. The closing of the purchase and sale of the Stock
-------
(the "Closing") shall take place at the offices of ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ &
▇▇▇▇▇▇▇▇ LLP, Washington, DC, or such other place as the Buyer and the Sellers'
Representative shall agree, on the date (the "Closing Date") which is three (3)
business days after the satisfaction or waiver of all conditions set forth in
Articles VII and VIII, provided however, that in no event shall the Closing
occur prior to July 1, 2002.
Section 1.6 Payment of Purchase Price. After the Buyer has made the
-------------------------
contribution to the capital of the Company described in Section 1.7, the Buyer
will pay the Purchase Price as follows:
(a) Estimated Payments. At the Closing, the Buyer shall pay to the Sellers
------------------
(i) Eighty-Five Million Dollars ($85,000,000) minus (ii) the Indebtedness minus
(iii) the Preferred Stock Redemption Amount minus (iv) the Option Cancellation
Payment Amount plus (v) the Estimated Closing Adjustment, if any (the "Estimated
Purchase Price").
(b) Closing Certificate. At the Closing, the Chief Financial Officer of the
-------------------
Company shall deliver to the Buyer the Closing Certificate in the form annexed
hereto as Exhibit D, which shall set forth the Estimated Acid Test Ratio, the
---------
Estimated Tangible Net Equity and the Estimated Closing Adjustment, and shall
attach as a supporting schedule, a schedule setting forth the calculation of
each such amount.
(c) Closing Adjustment. The Closing Adjustment shall be computed in
------------------
accordance with the terms of this Agreement, by the agreement of the parties or
by the Arbitrator, as the case may be, immediately after the final determination
of the Acid Ratio Adjustment and the Tangible Net Equity Adjustment pursuant to
Section 1.3(b) and any difference between the Estimated Closing Adjustment and
the actual Closing Adjustment, which difference shall be set forth on the Final
Closing Statements, shall be paid by the appropriate party to the other party
(or such Persons as the other party directs) within ten (10) business days
thereafter in immediately available funds.
10
(d) Interest Payments. Sums payable pursuant to Section 1.6(c) shall bear
-----------------
interest from the Closing Date to the date of payment at the rate which is equal
to the Prime Rate as published, from time to time, in the Wall Street Journal
-------------------
under "Money Rates," computed on the basis of a 365-day year and paid for the
actual number of days elapsed. Interest calculated in accordance with this
Section 1.6(d) shall be due and payable to the Buyer or the Sellers, as the case
may be, on the date on which the corresponding payment is due.
Section 1.7 Buyer Contribution to the Capital of the Company. At the
------------------------------------------------
commencement of the Closing, the Buyer shall make a contribution to the capital
of the Company in an aggregate amount equal to the sum of (i) the total
Indebtedness outstanding on the Closing Date plus (ii) the Preferred Stock
Redemption Amount plus (iii) the Option Cancellation Payment Amount.
ARTICLE II
----------
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
---------------------------------------------
The Sellers, severally and not jointly, hereby represent and warrant to the
Buyer as follows:
Section 2.1 Ownership of Stock. Such Seller is the owner, beneficially
------------------
and of record, of all of the shares of Stock set forth opposite its name on
Exhibit A hereto free and clear of any pledge, lien, security interest,
---------
encumbrance, claim or equity of any kind, except as set forth on Schedule 2.1.
------------
At Closing, Buyer will acquire good and marketable title to and complete
ownership of the Stock free and clear of any such pledge, lien, security
interest, encumbrance, claim or equity (other than pledges, liens, security
interests, claims or equities created by or attributable to Buyer).
Section 2.2 Authority of Sellers. Each Seller has the full right,
--------------------
capacity and power to enter into this Agreement and to consummate the
transactions contemplated herein. This Agreement has been duly authorized,
executed and delivered by each Seller and constitutes a valid and binding
obligation, enforceable against each such Seller in accordance with its terms,
except (i) as the same may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect relating to creditors'
rights generally and (ii) that the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be brought.
Section 2.3 No Violation. Except as set forth on Schedule 2.3, neither
------------ ------------
the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby by each such Seller will (i) violate, breach or
be in conflict with any provisions of Allied's certificate of incorporation or
bylaws or (ii) with or without the giving of notice or passage of time, or both,
violate, or be in conflict with, or create a lien under or constitute a default
(or give rise to any right of termination, amendment, cancellation or
acceleration) under any of the terms, conditions or provisions of any contract,
indenture, mortgage, lease, license or
11
permit to which such Seller is a party or by which such Seller or any of such
Seller's assets may be bound or (iii) violate any statute or law or any
judgment, decree, order, regulation or rule of any court or governmental or
regulatory authority to which such Seller is subject.
Section 2.4 Consents and Approvals. Except as set forth on Schedule 2.4,
---------------------- ------------
and for compliance with the HSR Act and the Higher Education Act no consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority or third party is required to be made or
obtained by the Sellers in connection with the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby.
Section 2.5 Brokers', Finders' Fees, etc. Except for Banc of America
----------------------------
Securities LLC, the fees and expenses of which shall be paid by the Company on
or before the Closing, the Sellers have not employed any broker, finder,
investment banker or financial advisor as to whom any such Seller may have any
obligation to pay any brokerage or finders' fees, commissions or similar
compensation in connection with the transactions contemplated hereby.
Section 2.6 Receipt of Commitment Letters. The Sellers acknowledge
-----------------------------
receipt of the Commitment Letters.
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND ALLIED
--------------------------------------------------------
The Company and Allied hereby jointly and severally represent and warrant
to the Buyer as follows:
Section 3.1 Corporate Organization; Authorization.
-------------------------------------
(a) The Company and the Subsidiary are duly organized, validly existing and
in good standing under the laws of their respective jurisdictions of
incorporation and have all requisite corporate power and authority to carry on
their respective businesses as now conducted and to own or lease and operate
their respective property and assets. The Company and the Subsidiary are duly
qualified or licensed to do business as foreign companies in good standing in
materially all of the states of the United States and in each foreign
jurisdiction in which the conduct of their respective businesses or the
ownership or leasing of their respective property require such qualification.
Schedule 3.1 correctly lists with respect to the Company and the Subsidiary its
------------
jurisdiction of incorporation, each jurisdiction in which it is qualified to do
business as a foreign corporation and its respective directors and executive
officers. Sellers have delivered to Buyer complete and correct copies of the
respective charters and bylaws of the Company and the Subsidiary as now in
effect.
(b) The Company has full corporate power and authority to enter into this
Agreement and to carry out the transactions contemplated hereby. The Board of
Directors of the Company
12
and the Sellers in their capacity as the sole stockholders of the Company have
taken all action required to authorize the execution and delivery of this
Agreement, the performance of the Company's obligations hereunder and the
consummation of the transactions contemplated hereby. No other corporate
proceedings on the part of the Company or the Subsidiary are necessary to
authorize the execution, delivery and performance by the Company of this
Agreement. This Agreement is a valid and binding agreement of the Company,
enforceable against it in accordance with its terms except (i) as the same may
be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
now or hereafter in effect relating to creditors' rights generally and (ii) that
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
Section 3.2 No Violation. Except as set forth on Schedule 3.2, neither the
------------ ------------
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) violate, breach or be in conflict with
any provisions of the charter or bylaws of the Company or the Subsidiary, (ii)
with or without the giving of notice or the passage of time, or both, violate,
or be in conflict with, or constitute a default (or give rise to any right of
termination, amendment, cancellation or acceleration) under any of the terms,
conditions or provisions of any contract, indenture, mortgage, lease, license or
permit to which the Company or the Subsidiary is a party or by which any of
their respective assets may be bound, (iii) require the consent of any party to
any agreement or commitment to which the Company or the Subsidiary is a party,
or by which the Company or the Subsidiary or either of their respective assets
is bound, (iv) result in the creation or imposition of any security interest,
lien, or other encumbrance upon any material property or assets of the Company
or the Subsidiary, or (v) except for compliance with the HSR Act, violate any
statute or law or any judgment, decree, order, regulation or rule of any court
or governmental or regulatory authority to which the Company or the Subsidiary
is subject.
Section 3.3 Consents and Approvals of Governmental Authorities. Except as
--------------------------------------------------
set forth on Schedule 3.3 and except for compliance with the HSR Act, no
------------
consent, approval or authorization of, or declaration, filing or registration
with, any governmental or regulatory authority is required to be made or
obtained by the Company or the Subsidiary in connection with the execution,
delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby.
Section 3.4 Capitalization. Schedule 3.4 sets forth the authorized, issued
-------------- ------------
and outstanding shares of capital stock of each of the Company and the
Subsidiary as of the date hereof. All issued and outstanding shares of capital
stock of the Company are validly issued, fully paid and nonassessable. All
outstanding shares of capital stock of the Subsidiary are owned by the Company
free and clear of any liens, charges, encumbrances, claims and options. All
outstanding shares of capital stock of the Subsidiary are validly issued, fully
paid and nonassessable. Except for the Options as set forth on Exhibit A and as
---------
set forth on Schedule 3.4, there are no other issued and outstanding shares of
------------
capital stock of the Company or the Subsidiary, or securities convertible into
or exchangeable or exercisable for shares of capital stock, outstanding, and
there are no outstanding options, warrants, rights, contracts, commitments,
understandings or arrangements by which the Company or the Subsidiary is
13
bound to issue, transfer, repurchase, redeem or otherwise acquire or retire any
shares of capital stock or other securities of the Company or the Subsidiary.
Section 3.5 Subsidiaries and Affiliates. Except as set forth on Schedule
--------------------------- --------
3.4 or Schedule 3.5, neither the Company nor the Subsidiary owns any capital
--- ------------
stock or other equity securities of any other corporation and has no other type
of interest (whether ownership or other) in any other corporation, partnership,
joint venture or other business organization or entity. Except as set forth on
Schedule 3.5, the interests of the Company or the Subsidiary in any Person as
------------
set forth on Schedule 3.4 or Schedule 3.5 are owned by the Company or the
------------ ------------
Subsidiary free and clear of all liens, options, claims or encumbrances
(including without limitation, rights of first refusal or similar rights) with
respect to the ownership thereof. Neither the Company nor the Subsidiary is
subject to any obligation or requirement to provide funds for, or to make any
investment (in the form of a loan, capital contribution or otherwise) to or in,
any Person, except as set forth on Schedule 3.5.
------------
Section 3.6 Financial Statements.
--------------------
(a) The Company has previously delivered to the Buyer accurate and complete
copies of the audited consolidated balance sheets of the Company at December 31,
1999, December 31, 2000 and December 31, 2001 and the related audited statements
of operations, shareholders' equity and cash flows for the period and years then
ended (the "Financial Statements"). Such Financial Statements present fairly, in
all material respects, the financial position of the Company and the Subsidiary
at the date thereof, and the results of operations, changes in shareholders'
equity and cash flows of the Company and the Subsidiary for the period
indicated, in conformity with GAAP.
(b) The Company and the Subsidiary have no liabilities or obligations of
any nature (whether known or unknown and whether absolute, accrued, contingent
or otherwise) except for (i) liabilities or obligations reflected or reserved
against in the Financial Statements, (ii) current liabilities incurred in the
ordinary course of business consistent with past practices since December 31,
2001, (iii) liabilities under contracts that can be terminated upon thirty (30)
days' or less notice, have an unexpired term of less than one year, or involve
annual commitments of less than $100,000, (iv) liabilities disclosed on Schedule
--------
3.6(b), and (v) liabilities which in the aggregate do not exceed $200,000.
------
Section 3.7 Absence of Certain Changes. Except as set forth on Schedule
-------------------------- --------
3.7, since December 31, 2001, the Company and the Subsidiary have conducted
---
their respective businesses only in the ordinary course and there has not been:
(a) any change or damage, destruction or loss, whether covered by insurance
or not, materially affecting their respective properties or businesses;
(b) any employment or severance agreement or contract entered into with any
director, officer or employee or, except for increases in the ordinary course of
business and in
14
accordance with past practice, any general or uniform increase in the
compensation of directors, officers or employees of the Company or the
Subsidiary (including any such increase pursuant to any bonus, pension,
profit-sharing or other plan or commitment) or any increase in the compensation
payable or to become payable to any individual director, officer or employee of
the Company or the Subsidiary;
(c) any sale, transfer or other disposition of any material assets of the
Company or the Subsidiary in excess of $100,000 (or the entry into any agreement
with respect to any of the foregoing), except in the ordinary course of
business, or any sale, assignment, transfer or other disposition of any of the
Company's or the Subsidiary's material patents, trademarks, trade names,
copyrights, licenses or other intangible assets;
(d) any declaration, setting aside, making or paying of any dividend or
other distribution (whether in cash, stock, personal or real property or other
thing of value) in respect of its capital stock or any direct or indirect
redemption, purchase or other acquisition of any shares of the capital stock of
the Company or the Subsidiary;
(e) any change in the Company's or the Subsidiary's authorized or issued
capital stock;
(f) any amendment to the Company's or the Subsidiary's charter or bylaws;
(g) any entry into, modification or termination of any labor or collective
bargaining agreement or any commitment or creation of any liability to any labor
organization relating to any employees of the Company or the Subsidiary;
(h) except in accordance with their terms, any termination, renewal or
renegotiation of any Contract or default in any material obligation under any
such Contract which remains uncured for more than fifteen (15) days or entry
into any agreement which, if it had been entered into prior to the execution of
this Agreement, would have been a Contract required to be disclosed pursuant to
Section 3.10;
(i) any termination or failure to renew any material insurance coverage;
(j) any termination or failure to renew or preserve any Licenses and
Accreditations;
(k) except in the ordinary course of business, any termination or
suspension of any executive officer or key employee; or
(l) any sale or discount of the Company's or the Subsidiary's accounts
receivable (whether by discount to the debtors or by sale to any third party);
15
(m) any change in the accounting methods, principles or practices used
by the Company or the Subsidiary;
(n) any agreements or commitments to merge or consolidate with or
purchase a substantial equity interest in or a substantial portion of the assets
of, or by any other manner acquire, any business entity or division thereof
which remains in place as of the date hereof; or
(o) any agreements or commitments to take any action described in this
Section 3.7.
Section 3.8 Title to Properties; Encumbrances. Schedule 3.8A hereto
--------------------------------- -------------
lists all real properties and interests therein owned or leased by the Company
or the Subsidiary as of the date hereof, and Schedule 3.8B hereto lists the
-------------
mortgages, pledges, liens or security interests affecting such real properties
and interests therein. Except as set forth in Schedule 3.8A or Schedule 3.8B:
------------- -------------
(a) the Company and the Subsidiary have good and marketable title to
each of their respective real properties listed in Schedule 3.8A and have good
-------------
and marketable title to all tangible personal properties and other assets shown
as owned by the Company or the Subsidiary on their respective books and records
(except for properties and assets acquired under installment purchase contracts
or held pursuant to the leases disclosed in Schedule 3.10 or not required to be
-------------
disclosed in such Schedule), except for such defects of title, if any, as do not
in the aggregate materially interfere with the present use of or materially
impair the value of such properties or assets;
(b) none of the properties or assets of the Company or the Subsidiary
are subject to any mortgage, pledge, lien, security interest, encumbrances or
claim except (i) statutory liens not yet delinquent; (ii) liens or encumbrances
that do not in the aggregate interfere with the present use of or impair the
value of such properties or assets; (iii) mortgages, pledges, liens or security
interests listed in Schedule 3.8B hereto; (iv) liens for taxes not yet
-------------
delinquent; or (v) liens accounted for as capitalized leases; and
(c) with respect to each parcel of real property owned by the Company
or the Subsidiary, except as set forth in Schedule 3.8A, (i) there are no
-------------
leases, subleases, licenses, or other agreements granting to any party or
parties the right of use or occupancy of any portion of the parcel of real
property; (ii) there are no pending and, to the Knowledge of the Company,
threatened, condemnation proceedings affecting such parcel; (iii) there are no
outstanding options or rights of first refusal to purchase the parcel of real
property, or any portion thereof or interest therein; and (iv) there are no
parties (other than the Company or the Subsidiary) in possession of any parcel
of real property.
Section 3.9 Patents, Trademarks, Trade Names. Except as noted thereon,
--------------------------------
Schedule 3.9 lists all patents, trademarks, service marks, trade names, domain
------------
names and copyrights and all registrations and applications for registration for
any of the foregoing owned or used (pursuant to license agreements or otherwise)
in the conduct of the businesses of the Company and the Subsidiary as of the
date hereof. Except as set forth on Schedule 3.9 hereto,
------------
16
the use of such patents, trademarks, service marks, trade names, domain names
and copyrights (collectively, the "Intellectual Property Rights") does not
conflict with or infringe on the rights of any third person. Except as set forth
on Schedule 3.9, the Company and the Subsidiary own or possess a valid license
------------
to use the Intellectual Property Rights as necessary for the present operation
of its business, and the Company has no Knowledge, as of the date hereof, that
(i) any third party has infringed any of the Company's or the Subsidiary's
rights in the Intellectual Property Rights; or (ii) any claim has been made
contesting the validity or enforceability of the Intellectual Property Rights.
Except as set forth on Schedule 3.9, the Company and the Subsidiary have, to
------------
their knowledge, the right to use the Curriculum as presently used, and the
execution, delivery and performance of this Agreement shall have no effect on
the Company's or the Subsidiary's use of the Curriculum. Except as set forth in
Schedule 3.9, no employee or Affiliate of the Sellers, the Company or the
Subsidiary owns or has any interest, directly or indirectly, in any part of the
Curriculum. Neither the Company nor the Subsidiary is required to or makes, and
after the Closing neither of them will be required to make, any payments to
others with respect to the Curriculum. The current and past use of the
Curriculum by the Company and the Subsidiary does not conflict with or infringe
on the rights of any third person. Schedule 3.9 sets forth the Person or Persons
------------
from whom the Curriculum for each of the Company's and the Subsidiary's programs
was purchased or acquired.
Section 3.10 Material Contracts. Schedule 3.10 lists the following
------------------ -------------
agreements, contracts, commitments, licenses, instruments and understandings
(whether or not in writing) to which the Company or the Subsidiary is a party or
is bound (each, a "Contract"):
(a) agreements, contracts and commitments that cannot be terminated
upon 30 days' or less notice without penalty or that have an unexpired term of
one year or more or involve annual commitments in excess of $100,000;
(b) agreements, contracts and commitments with any Seller or any of
their respective Affiliates or any officer, director or employee of Allied or
any officer, director, employee or Affiliate of the Company or the Subsidiary;
(c) agreements, contracts and commitments that constitute an
obligation in respect of a borrowing of money;
(d) agreements, contracts and commitments that constitute a guaranty
or indemnity;
(e) agreements, contracts and commitments providing for the extension
of credit;
(f) agreements, contracts and commitments limiting the ability of the
Company or the Subsidiary to conduct its business, including as to manner or
place;
(g) agreements, contracts and commitments that are commission,
representative, or sales agent agreements, practices or understandings;
17
(h) agreements, contracts and commitments that are collective
bargaining agreements and other agreements to or with any labor union,
employees' association or other employee representative of a group of employees;
(i) agreements, contracts and commitments that are for the employment,
severance or retention or any director, officer, employee, agent, stockholder,
consultant or advisor or any other contract or understanding with any director,
officer, employee, agent, stockholder, consultant or advisor, which does not
provide for termination at will by the Company or the Subsidiary without further
cost or liability to the Company or the Subsidiary as of or at any time after
the date of this Agreement;
(j) agreements, contracts and commitments that are for capital
expenditures in an amount exceeding $100,000 in any individual case or $500,000
in the aggregate;
(k) agreements, contracts and commitments not otherwise set forth on
Schedule 3.13, that are in the nature of a profit sharing, bonus, stock option,
-------------
stock purchase, pension, deferred compensation or retirement, severance,
hospitalization, insurance or other plan or contract providing benefits to any
Person or former director, officer, employee, agent, shareholder, consultant or
advisor or such Persons' dependents, beneficiaries or heirs;
(l) agreements, contracts and commitments that are leases, rental or
occupancy agreements, licenses, installments and conditional sale agreements,
and other agreements affecting the ownership of, leasing of, title to, use of,
or any leasehold or other interest in, any real or personal property (except
personal property leases and installment and conditional sales agreements having
a value per item or aggregate payments of less than $100,000);
(m) agreements, contracts, commitments that are joint venture,
partnership or other similar agreement (however named) involving a sharing of
profits, losses, costs or liabilities; and
(n) agreements, contracts and commitments that are agreements with
current or former employees, consultants, or contractors regarding the
appropriation or the non-disclosure of any of the confidential information.
True, correct and complete copies of all items so listed in Schedule 3.10 have
-------------
been delivered to Buyer. Each of such item listed, or required to be listed, is
a valid and binding obligation of the Company or the Subsidiary (as applicable)
in accordance with its terms and, since December 31, 1998, there have been no
defaults by the Company or the Subsidiary or, to the Knowledge of the Company,
by the other party, or claims of default and, to the Knowledge of the Company,
there are no facts or conditions that have occurred or that are anticipated to
occur which, through the passage of time or the giving of notice, or both, would
constitute a material default by the Company or the Subsidiary or, to the
Knowledge of the Company, by the other party thereunder or would cause the
acceleration of any material obligation of any party thereto or the creation of
any material option, pledge, encumbrance, lien or security interest upon any
asset of the Seller, the Company or any Subsidiary.
18
Section 3.11 Litigation; Compliance with Laws.
--------------------------------
(a) Except as set forth on Schedule 3.11, there is no action,
-------------
proceeding or investigation (whether or not purportedly on behalf of the Seller,
the Company or the Subsidiary) at law or in equity or before any governmental or
regulatory entity pending or, to the Knowledge of the Company, threatened,
against or affecting the Company or the Subsidiary or any of their respective
properties or assets as of the date hereof, and, to the Knowledge of the
Company, there is no basis for any such action, proceeding or investigation.
(b) To the Knowledge of the Company, neither the Company nor the
Subsidiary is in violation of any laws, regulations, ordinances, orders,
judgments and decrees to which any of them, or any of their respective
businesses, properties or operations is subject.
Section 3.12 Taxes.
-----
(a) Definitions. For the purposes of this Agreement, the following
-----------
definitions shall apply:
(i) "Taxes" means any and all federal, state and local taxes,
assessments and other governmental charges, duties, impositions and liabilities,
including without limitation those based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other Person with respect to such amounts and including any liability
for taxes of a predecessor entity.
(ii) "Group" means, individually and collectively, (A) the
Company, (B) the Subsidiary, (C) the Sellers, and (D) any corporation,
partnership or other person as to which the Company is or could be liable for
Taxes incurred by such corporation, partnership or other person either as
transferee, or pursuant to Treasury Regulation ss. 1.1502-6, or pursuant to any
other provision of federal, state, local or foreign law or regulation.
(b) Tax Matters. Except as set forth on Schedule 3.12:
----------- -------------
(i) All federal, state and local Tax returns required to be
filed by or on behalf of the Company or the Subsidiary (or the Group, with
respect to any Taxes for which the Company or the Subsidiary could be liable)
have been accurately prepared, and have been duly and timely filed, and all
Taxes (including Taxes withheld from employees' salaries and all other
withholding Taxes and obligations and deposits required to be made by or with
respect to the Company or the Subsidiary with respect to such withholding Taxes
or otherwise), interest, penalties, assessments and/or deficiencies due with
respect to such Tax returns have been timely paid, or to the extent not due and
payable as of the Closing Date, adequate provision for the payment thereof has
been made on the financial statements or the respective books of account of the
Company and the Subsidiary.
19
(ii) There is no Tax deficiency outstanding or assessed against
the Company or the Subsidiary (or the Group, with respect to any Taxes for which
the Company or the Subsidiary could be liable). Further, neither the Company,
the Subsidiary, nor the Group, with respect to any Taxes for which the Company
or the Subsidiary could be liable, has received any written notice of a proposed
assessment of taxes, or executed any waiver of any statute of limitations on, or
extending the period for, the assessment or collection of any Tax which is still
in effect. No audit or other examination of any return of the Company or the
Subsidiary (or the Group, with respect to any Taxes for which the Company or the
Subsidiary could be liable) is presently in progress, nor has the Company, the
Subsidiary or the Group been notified in writing of any request for such an
audit or other examination. There is not outstanding any power of attorney that
is currently in force with respect to any matter relating to Taxes for which the
Company or the Subsidiary could be liable.
(iii) None of the assets of the Company or the Subsidiary are
treated as "tax-exempt use property" within the meaning of Section 168(h) of the
Code. No member of the Group is a "consenting corporation" under Section 341(f)
of the Code. There is no contract, agreement, plan or arrangement covering any
employee or former employee of the Company or the Subsidiary that, individually
or collectively, could give rise to the payment of any amount that would not be
deductible pursuant to Section 280G or 162 of the Code. Since January 1, 1999,
neither the Company nor the Subsidiary has been a party to a distribution
qualifying for tax-free treatment under Section 355 of the Code.
(iv) Since January 1, 1999, neither the Company nor the
Subsidiary has been a member of an affiliated group of corporations within the
meaning of Section 1504 of the Code, except only with members of the affiliated
group of which the Company or the Subsidiary currently is a member. Neither the
Company nor the Subsidiary has any liability for the Taxes of any Person (other
than members of the affiliated group of which the Company and the Subsidiary are
currently members) under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local or foreign law), as a transferee or successor, by
contract, or otherwise. Further, neither the Company nor the Subsidiary is a
party to a tax sharing or allocation agreement, which agreement has not been
terminated, and neither the Company nor the Subsidiary will have any liability
under any tax sharing or allocation agreement on or after the Closing Date.
(v) There are no liens for Taxes (other than for current Taxes
not yet due and payable) upon the assets of the Company or the Subsidiary.
Section 3.13 Benefit Plans.
-------------
(a) Schedule 3.13 contains an accurate and complete list of all
-------------
Benefit Plans maintained or sponsored by the Company or the Subsidiary,
contributed to by the Company or the Subsidiary, covering any employees of the
Company or the Subsidiary, to which the Company or the Subsidiary is obligated
to contribute or with respect to which the Company or the Subsidiary has any
liability. For purposes of the Agreement, the term "Benefit Plans" shall mean:
(i) employee benefit plans as defined in Section 3(3) of ERISA, (ii) employment
agreements, and (iii) fringe benefit plans, policies, programs and arrangements,
whether or not
20
subject to ERISA, and whether or not funded. Neither the Company, nor the
Subsidiary has any obligations to contribute to any "multi-employer pension
plan," as such term is defined in Section 3(37) of ERISA, or with respect to any
employee benefit plan of the type described in Sections 4063 and 4064 of ERISA
or in Section 413(c) of the Code (and regulations promulgated thereunder).
(b) Neither the Company nor the Subsidiary contributes to or has any
liability with respect to any Benefit Plan which provides health, life
insurance, accident or other "welfare-type" benefits to current or future
retirees or current or future former employees, their spouses or dependents,
other than in accordance with Section 4980B of the Code or applicable state
continuation coverage law.
(c) Each Benefit Plan and all related trusts, insurance contracts and
funds have been maintained, funded and administered in compliance in all
material respects with all reporting and disclosure requirements and applicable
laws and regulations, including but not limited to ERISA and the Code. As of the
date hereof, no actions, suits, claims (other than routine claims for benefits),
taxes, penalties or liens with respect or relating to the Benefit Plans are
pending or, to the Knowledge of the Company, threatened, or have been assessed
or incurred.
(d) Neither the Company nor the Subsidiary maintains or contributes to
any Benefit Plans which are "defined benefit plans" as defined in Section 3(35)
of ERISA.
(e) Except as set forth on Schedule 3.13, each Benefit Plan that is
-------------
intended to be qualified under Section 401(a) of the Code, and each trust (if
any) forming a part thereof, has received a favorable determination letter from
the IRS as to the qualification under the Code of such Benefit Plan and the
tax-exempt status of such related trust, and, to the Knowledge of the Company,
nothing has occurred since the date of such determination through the date
hereof that could adversely affect the qualification of such Benefit Plan or the
tax-exempt status of such related trust.
(f) With respect to each Benefit Plan, the Company has provided the
Buyer with true and complete copies, to the extent applicable, of (i) all
documents pursuant to which the Benefit Plans are maintained, funded and
administered, including all amendments thereto, (ii) the most recent annual
report (Form 5500 series) filed with the IRS (with attachments), (iii) the most
recent financial statements, (iv) the most recent actuarial report, and (v) all
governmental rulings and determinations and opinions (and pending requests for
governmental rulings, determinations and opinions).
Section 3.14 Employment Matters. The Company and the Subsidiary are
------------------
in compliance in all material respects with all federal, state and local laws,
rules and regulations affecting employment and employment practices, including,
but not limited to terms and conditions of employment, employment
discrimination, and wages and hour laws. The Company and the Subsidiary are not
engaged in any unfair labor practices with respect to employees. There are no
charges or complaints against the Company or the Subsidiary pending before the
National Labor Relations Board, any other administrative agency, any court, or
any
21
arbitrator relating to employment matters. There are no labor strikes,
slow-downs or stoppages or other labor troubles pending or threatened with
respect to any employees of the Company or the Subsidiary. Neither the Company
nor the Subsidiary has experienced any work stoppage by any of its/their
employees since January 1, 1999. No labor organization has petitioned the
National Labor Relations Board or any other administrative agency to become the
exclusive bargaining representative for any employees of the Company or the
Subsidiary since January 1, 1999. To the Knowledge of Company and Sellers, no
labor organizing activities have occurred with respect to employees of the
Company or the Subsidiary since January 1, 1999. There are no collective
bargaining agreements binding on the Company or the Subsidiary. Since January 1,
1999, neither the Company nor the Subsidiary has experienced a "Plant Closing"
or "Mass Layoff" as defined in the Worker Adjustment and Retraining Notification
Act.
Section 3.15 Environmental Matters.
---------------------
(a) Except as set forth on Schedule 3.15, the Company and the
-------------
Subsidiary are in compliance and have at all times since January 1, 1998 been in
compliance with all laws, rules, regulations, orders, ordinances, judgments,
decrees and other legal requirements relating to pollution or protection of the
environment (the "Environmental Laws"). To the Knowledge of the Company, the
Company and the Subsidiary have at all times before January 1, 1998 been in
compliance in all material respects with all Environmental Laws.
(b) Except as set forth on Schedule 3.15, the Company and the
-------------
Subsidiary possess and are in compliance with and have at all times since
January 1, 1998 possessed and been in compliance with, all permits, licenses,
certificates, franchises and other authorizations relating to the Environmental
Laws necessary to conduct their respective businesses, except where such
noncompliance would not have a Material Adverse Effect. To the Knowledge of the
Company, the Company and the Subsidiary have at all times before January 1, 1998
possessed and been in compliance with all permits, licenses, certificates,
franchises and other authorizations relating to the Environmental Laws necessary
to conduct their respective businesses, except where such noncompliance would
not have a Material Adverse Effect.
(c) Except as set forth on Schedule 3.15, the operations of the
-------------
Company and the Subsidiary have not caused any release of hazardous substances
(as defined by the Comprehensive Environmental Response Compensation and
Liability Act, as amended, or hazardous waste, as defined by the Resource
Conservation and Recovery Act, as amended, but also including crude oil or any
fraction thereof) since January 1, 1998 on (i) any real property then owned,
leased or operated by the Company or the Subsidiary and (ii) any other property
with respect to which the Company or the Subsidiary has disposed or arranged for
the disposal of wastes thereon.
(d) Except as set forth on Schedule 3.15, neither the Company nor the
-------------
Subsidiary owns or operates, or, since January 1, 1998, has owned or operated
any underground storage tanks and, to the Company's Knowledge, no tanks are
located or have been located on property now or formerly owned, leased or
operated by the Company or the Subsidiary.
22
(e) Except as set forth on Schedule 3.15, since January 1, 1999, no
hazardous substance has been released upon, and no hazardous condition that
could give rise to material liability of the Company or the Subsidiary exists
at, any property presently owned, leased or operated by the Company or the
Subsidiary and no hazardous substance or hazardous condition presently exists at
any property owned, leased or operated by the Company or the Subsidiary since
January 1, 1998.
The matters set forth on Schedule 3.15 have been satisfactorily
-------------
resolved and no such items will have a Material Adverse Effect. No further
action must be taken or payment made to satisfy the Consent Agreement dated
October 1997 between the Company and the United States Environmental Protection
Agency. The four (4) underground tanks referred to in Schedule 3.15 have all
-------------
been properly removed under federal and state laws and neither the Company nor
the Subsidiary has any further liability with respect thereto.
Section 3.16 Brokers', Finders' Fees, etc. Except for Banc of
----------------------------
America Securities LLC, the fees and expenses of which will be paid by the
Company on or before the Closing, neither the Company nor the Subsidiary has
employed any broker, finder, investment banker or financial advisor as to whom
the Company may have any obligation to pay any brokerage or finders' fees,
commissions or similar compensation in connection with the transactions
contemplated hereby.
Section 3.17 Affiliate Transactions. Except as disclosed on Schedule
---------------------- --------
3.17, neither the Sellers nor any officer or director of the Company or the
----
Subsidiary or any person related by blood or marriage to any such person or any
entity in which any such person owns any beneficial interest, is a party to any
material agreement, contract, commitment or transaction with the Company or the
Subsidiary or which is pertaining to the business of the Company or the
Subsidiary or has any interest in any property, real or personal or mixed,
tangible or intangible, used in or pertaining to the business of the Company or
the Subsidiary.
Section 3.18 Insurance. Schedule 3.18 sets forth a list of all
--------- -------------
policies of fire, liability, product liability and workmen's compensation
insurance held by or on behalf of the Company and the Subsidiary. All premiums
due and payable thereon have been paid, and, as of the date hereof, neither the
Company nor the Subsidiary has received any notice of cancellation or
non-renewal of any such policy.
Section 3.19 Bank Accounts. Schedule 3.19 sets forth (i) a true and
------------- -------------
complete list of each bank, deposit, lock-box or cash collection, management or
other account, of the Company and the Subsidiary, including the title and number
of the account, the financial or other institution at which such account is
located and the names of all Persons authorized to draw thereon or have access
thereto and (ii) the names of each Person holding powers of attorney or agency
authority from the Company or the Subsidiary.
Section 3.20 Compliance with Title IV Programs
---------------------------------
23
(a) Except as set forth on Schedule 3.20(a), since January 1, 1999,
----------------
the Company and the Subsidiary have been and are in compliance in all material
respects with any and all applicable laws and regulations relating to any forms
of student financial assistance, grants or loans ("Financial Assistance"),
including, without limitation, the financial responsibility and administrative
capability requirements, as defined by ACCSCT and by ED at 34 C.F.R. (S)(S)
668.14, 668.16, and 668, Subpart L, and all statutory and regulatory provisions
related to the Company's and the Subsidiary's participation in the Title IV
Programs. Except as set forth on Schedule 3.20(a), to the Knowledge of the
----------------
Company, since January 1, 1998, the Company and the Subsidiary have been and are
in compliance in all material respects with any and all applicable laws and
regulations relating to any forms of Financial Assistance, including, without
limitation, the financial responsibility and administrative capability
requirements, as defined by ACCSCT and by ED at 34 C.F.R. (S)(S) 668.14, 668.16,
and 668, Subpart L (or the predecessor to such regulatory sections in effect at
the applicable time), and all statutory and regulatory provisions related to the
Company's and the Subsidiary's participation in the Title IV Programs.
(b) For each of the Company's fiscal years ending on December 31,
1999, 2000 and 2001, the Company and the Subsidiary have not received greater
than ninety percent (90%) of their revenues on a cash basis from programs
authorized by Title IV or other federal student financial aid funds, and the
Company and the Subsidiary satisfy the requirements regarding Title IV program
funds established by ED as set forth at 34 C.F.R. (S) 600.5. Schedule 3.20(b)
----------------
contains a correct statement of the percentage of revenue from such federal
funding sources for each of such fiscal years. To the Knowledge of the Company,
for each of the Company's fiscal years ending on December 31, 1997 and 1998, the
Company and Subsidiary have not received greater than eighty-five percent (85%)
of their revenues from programs authorized by Title IV or other federal student
financial aid funds, and the Company and the Subsidiary satisfy the requirements
regarding Title IV program funds established by ED as set forth at 34 C.F.R.
(S)600.5. Schedule 3.20(b) contains a correct statement of the percentage of
revenue from such federal funding sources for each of such fiscal years.
(c) Schedule 3.20(c) lists each program pursuant to which Financial
----------------
Assistance is provided to or on behalf of the Subsidiary's students. The
Subsidiary has final, official cohort default rates, as published by ED, of
9.5%, 7.2% and 5.0% on Federal ▇▇▇▇▇▇▇▇ Loan Program loans, for the fiscal years
1997, 1998 and 1999, respectively, and a draft cohort default rate issued by ED
of four and nine tenths percent (4.9%) for fiscal year 2000. The Subsidiary has
official cohort default rates, as reported to ED, of 8.7%, 6.3% and 7.9% on
Federal ▇▇▇▇▇▇▇ Loan Program loans for the award years ended June 30, 1998,
1999, and 2000, respectively.
(d) Neither the Company nor any person or entity that exercises
substantial control over the Subsidiary (as the term "substantial control" is
defined in 34 C.F.R. (S0 668.174(c)(3)), or member of such person's family (as
the term "family" is defined in 34 C.F.R. (S) 668.174(c)(4)), alone or together,
(i) exercises or exercised substantial control over another institution or
third-party servicer (as that term is defined in 34 C.F.R. (S) 668.2) that owes
a liability for a violation of a Title IV Program requirement or (ii) owes a
liability for a Title IV Program violation.
24
(e) Neither the Company nor any affiliate of the Company that has the
power, by contract or ownership interest, to direct or cause the direction of
management of policies of the Subsidiary has filed for relief in bankruptcy or
had entered against it an order for relief in bankruptcy.
(f) Since January 1, 1999, neither the Sellers, the Company, the
Subsidiary nor any of their respective chief executive officers has pled guilty
to, pled nolo contendre to, or been found guilty of, a crime involving the
acquisition, use or expenditure of funds under the Title IV Programs or been
judicially determined to have committed fraud involving funds under the Title IV
Programs.
(g) Since January 1, 1999, neither the Company nor the Subsidiary has
knowingly employed in a capacity involving administration of funds under the
Title IV Programs or the receipt of funds under those programs, any individual
who has been convicted of, or has pled nolo contendre or guilty to, a crime
involving the acquisition, use or expenditure of federal, state or local
government funds, or has been administratively or judicially determined to have
committed fraud or any other material violation of law involving federal, state
or local government funds.
(h) Since January 1, 1999, neither the Company nor the Subsidiary has
knowingly contracted with an institution or third-party servicer that has been
terminated under section 487 of the Higher Education Act for a reason involving
the acquisition, use, or expenditure of federal, state or local government
funds, or that has been administratively or judicially determined to have
committed fraud or any other material violation of law involving federal, state
or local government funds.
(i) Since January 1, 1999, neither the Company nor the Subsidiary has
contracted with or employed any individual, agency, or organization that has
been, or whose officers or employees have been convicted of, or pled nolo
contendre or guilty to, a crime involving the acquisition, use or expenditure of
federal, state or local government funds, or administratively or judicially
determined to have committed fraud or any other material violation of law
involving federal, state or local government funds.
Section 3.21 Approval and Accreditation.
--------------------------
(a) Schedule 3.21(a) lists each License and Accreditation presently
----------------
held by the Company and the Subsidiary and also lists each state, governmental
department and/or agency, or non-governmental or quasi-governmental body,
including any Accrediting Body granting such License or Accreditation with
respect to any of the Subsidiary's educational programs, including, without
limitation, ACCSCT, the Wyoming Department of Education, the Pennsylvania Board
of Private Licensed Schools and ED. The Company has delivered to Buyer true and
complete copies of all such Licenses and Accreditations. Except as set forth on
Schedule 3.21(a), the Company and the Subsidiary have received all necessary
----------------
Accreditations and Licenses for their existing operations and receipt of
Financial Assistance, including, but not limited to, all requisite
25
approvals for the educational and training programs currently offered from their
Accrediting Bodies and the states in which they operate.
(b) Except as set forth on Schedule 3.21(b), the Licenses and
----------------
Accreditations set forth on Schedule 3.21(a) are in full force and effect, and
----------------
no proceeding for the suspension, limitation, revocation, termination or
cancellation of any of them is pending or, to the Knowledge of the Company,
threatened. Since January 1, 1999, neither the Company nor the Subsidiary has
received any notice that any of the Licenses or Accreditations set forth on
Schedule 3.21(a) will not be renewed. No application made by the Company or the
----------------
Subsidiary for any License and Accreditation during the past three years has
been denied.
(c) The Subsidiary is accredited by ACCSCT and is certified by ED as
eligible institution of higher education pursuant to Title IV of the Higher
Education Act and each, if necessary, is a party to a program participation
agreement with ED. Except as set forth on Schedule 3.21(c), since January 1,
----------------
1999 neither the Company nor the Subsidiary has received any written notice of
any alleged violation of any law, regulation, or legally binding requirement
related to the Title IV Programs, or of any standard of any applicable
Accrediting Body, or of any law, regulation or legally binding requirement
related to maintaining and retaining in full force and effect any and all
Accreditations and Licenses necessary for the Subsidiary's existing operations
and receipt of Financial Assistance.
(d) Except as set forth on Schedule 3.21(d), since January 1, 1999
----------------
neither the Company nor the Subsidiary has received any notice of (i) any
investigation, review, or audit of the operation of the Subsidiary's Financial
Assistance programs or (ii) any review of the Accreditations or Licenses by any
state or governmental department and/or agency or any non-governmental or
quasi-governmental body, including, without limitation, ACCSCT, the Wyoming
Department of Education, ED, any guaranty agency or any Accrediting Body.
Section 3.22 Recruitment; Admissions Procedures; Attendance; Reports.
-------------------------------------------------------
Schedule 3.22 contains a complete list of all current internal written
-------------
procedures or instructions relating to recruitment of students for the
Subsidiary, including, without limitation, (a) procedures for assisting in the
application by prospective students for direct or indirect state or federal
financial assistance; (b) admissions procedures, including any descriptions of
procedures for insuring compliance with state or federal or other appropriate
standards or tests or eligibility; and (c) procedures for encouraging and
verifying attendance, minimum required attendance policies, and other relevant
criteria relating to course completion and certification (collectively, the
"Policy Guidelines"). Schedule 3.22 sets forth a complete list of the Policy
-------------
Guidelines with respect to those students continuing in Subsidiary programs
after the Closing Date (the "Disclosed Guidelines"). The Company has delivered
to Buyer true, correct and complete copies of all Policy Guidelines, Disclosed
Guidelines and all documents and other information disseminated to students or
prospective students. Since January 1, 1999, the Company's and the Subsidiary's
operations have been conducted in accordance, in all material respects, with the
applicable Policy Guidelines and all relevant standards imposed by applicable
Accrediting Bodies, agencies administering state or federal governmental
programs in which the Company participates, and other applicable laws or
regulations.
26
Section 3.23 Accrediting Body and Governmental Approvals. To the
-------------------------------------------
Knowledge of the Company, there exist no facts or circumstances attributable to
the Company or the Subsidiary that would reasonably be expected to cause ED, or
any other governmental or regulatory authority or Accrediting Body whose
authorization, consent or similar approval is required for the consummation of
the transactions contemplated by this Agreement or the operation of the Company
and the Subsidiary after the Closing Date, to refuse to deliver such
authorization, consent or similar approval. To the Knowledge of the Company,
neither the Company nor the Subsidiary or their respective Affiliates or
employees have been nor are the subject of any actions, suits, proceedings,
investigations, audits, program reviews or claims that would reasonably be
expected to prevent or delay the approval of the change in ownership of the
Company by any Accrediting Body that is required to approve the change or issue
a License or Accreditation to the Buyer or the Company as a result of the
change.
Section 3.24 Condition and Sufficiency of Assets. Except as set forth
-----------------------------------
in Schedule 3.24, the buildings, plants, structures, and equipment of the
-------------
Company and the Subsidiary are structurally sound, are in good operating
condition and repair, ordinary wear and tear excepted, and are adequate for the
uses to which they are being put. Such building, plants, structures, and
equipment are sufficient for the continued conduct of the Company's and the
Subsidiary's respective businesses after the Closing in substantially the same
manner as conducted prior to the Closing.
Section 3.25 Accounts Receivable. All accounts receivable of the
-------------------
Subsidiary, whether reflected on the Financial Statements, or to be reflected on
the Closing Report, represent services actually rendered in the ordinary course
of business or valid claims as to which full performance has been rendered
(except that tuition and housing fees for the student's entire program are
recorded as accounts receivable with a corresponding liability for deferred
tuition and housing at the time of enrollment and tuition and housing revenue
are recognized ratably over the number of months in the program), and the
reserves against the accounts receivable for returns and bad debts are
commercially reasonable and have been calculated in a manner consistent with
past practice. Except to the extent reserved against the accounts receivable in
the appropriate Financial Statement, no counterclaims or offsetting claims with
respect to the accounts receivable have been formally asserted. Since December
31, 2001, neither the Company nor the Subsidiary has discounted or sold any of
their respective accounts receivable or any portion thereof (either to the
debtor(s) or in connection with the sale of such receivables to a third party).
Section 3.26 Books of Account and Reports; Internal Controls; Absence
--------------------------------------------------------
of Certain Payments.
-------------------
(a) Books of Account and Reports. The Company's books of account
----------------------------
reflect all of its and the Subsidiary's items of income and expense, and
substantially all of its and the Subsidiary's assets, liabilities and accruals.
(b) Internal Controls. The Company maintains a system of internal
-----------------
accounting controls sufficient to provide reasonable assurances that:
27
(i) transactions are generally executed in accordance with
management's general or specific authorization;
(ii) transactions are generally recorded as necessary (1) to
permit preparation of financial statements in conformity with GAAP or any other
criteria applicable to such statements, and (2) to maintain accountability for
assets;
(iii) access to assets is permitted only in accordance with
management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(c) Absence of Certain Payments. Since January 1, 1999, neither the
---------------------------
Company nor the Subsidiary, nor any director, officer, agent, employee or other
Person associated with or acting on behalf of any of them, has used any
corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity,
or made any direct or indirect unlawful payments to government officials or
employees from corporate funds, or established or maintained any unlawful or
unrecorded funds.
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES OF THE BUYER
-------------------------------------------
The Buyer hereby represents and warrants to the Company and the
Sellers as follows:
Section 4.1 Corporate Organization. The Buyer is a corporation duly
----------------------
organized, validly existing and in good standing under the laws of Delaware.
Section 4.2 Authorization. The Buyer has full corporate power and
-------------
authority to enter into this Agreement and to carry out the transactions
contemplated hereby. The Board of Directors of the Buyer has taken all action
required to authorize the execution and delivery of this Agreement, the
performance of the Buyer's obligations hereunder and the consummation of the
transactions contemplated hereby. No other corporate proceedings on the part of
the Buyer are necessary to authorize the execution, delivery and performance by
the Buyer of this Agreement. This Agreement is a valid and binding agreement of
the Buyer, enforceable against it in accordance with its terms except (a) as the
same may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws now or hereafter in effect relating to creditors' rights generally
and (b) that the remedy of specific performance and injunctive and other forms
of equitable relief may be subject to equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought.
Section 4.3 No Violation. Except as set forth on Schedule 4.3,
------------ ------------
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated
28
hereby will violate any provisions of the charter or bylaws of the Buyer, or
violate, or be in conflict with, or allow the termination of, or constitute a
default under, or cause the acceleration of the maturity of, or create a lien
under, any material debt or obligation pursuant to any material agreement or
commitment to which the Buyer is a party or by which the Buyer is bound, or,
except for compliance with the HSR Act to the Knowledge of the Buyer, violate
any statute or law or any judgment, decree, order, regulation or rule of any
court or governmental authority to which the Buyer is subject.
Section 4.4 Consents and Approvals of Governmental Authorities. Except
--------------------------------------------------
as set forth in Schedule 4.4 and for compliance with the HSR Act, no consent,
------------
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority is required to be made or obtained by the
Buyer in connection with the execution, delivery and performance of this
Agreement or the transactions contemplated hereby.
Section 4.5 Sophisticated Investor. The Buyer is a sophisticated
----------------------
investor, represented by independent legal counsel with experience in the
acquisition and valuation of ongoing businesses. The Buyer is acquiring the
Stock for investment purposes only, and not with a view to, or for, any public
resale or other distribution thereof. The Buyer acknowledges that the Stock has
not been registered under the Securities Act or any state securities laws and
that the Stock may not be sold, transferred, offered for sale, pledged,
hypothecated or otherwise disposed of unless such transfer, sale, assignment,
pledge, hypothecation or other disposition is pursuant to the terms of an
effective registration statement under the Securities Act and is registered
under any applicable state or foreign securities laws or pursuant to an
exemption from registration under the Securities Act and any applicable state or
foreign securities laws.
Section 4.6 Brokers', Finders' Fees, etc. The Buyer has not employed
----------------------------
any broker, finder, investment banker or financial advisor as to whom the Buyer
may have any obligation to pay any brokerage or finders' fees, commissions or
similar compensation in connection with the transactions contemplated hereby.
Section 4.7 Litigation. There is no action, proceeding or
----------
investigation pending or to the knowledge of the Buyer, threatened against the
Buyer, which, if adversely determined, would adversely affect the Buyer's
performance under this Agreement or the consummation of the transactions
contemplated hereby.
Section 4.8 Capital Adequacy.
----------------
The Buyer has either (i) sufficient cash and available credit
facilities, or (ii) sufficient available cash and commitment letters for loans
subject to the conditions described therein (true and correct copies of which,
together with all amendments or additions thereto (excluding any fee letters),
have been provided to the Sellers (the "Commitment Letters")) in either case in
an aggregate amount, based on the amounts referenced in such commitment letters,
sufficient to pay all of the consideration payable to the Seller as required by
this Agreement, and to make all other necessary payments in connection with the
purchase of the Stock and to pay all related fees and expenses of the Buyer. The
Buyer shall promptly deliver to the Sellers any amendments and
29
additions (excluding any fee letters) to the Commitment Letters between the date
of this Agreement and the Closing Date.
Section 4.9 Compliance with Education Laws. The Buyer is financially
------------------------------
responsible and administratively capable in all material respects, as defined by
ACCSCT and by ED at 34 C.F.R.(▇▇.▇▇.) 668.14, 668.16 and 668, Subpart L. To the
Knowledge of the Buyer, neither the Buyer nor any of its Affiliates or employees
have been nor are the subject of any actions, suits, proceedings,
investigations, audits, program reviews or claims that would reasonably be
expected to prevent or delay the approval of the change in ownership of the
Company by any Accrediting Body that is required to approve the change or issue
a License or Accreditation to the Buyer or the Company as a result of the
change. To the Knowledge of the Buyer, there are no circumstances involving the
Buyer or any of its Affiliates or employees that would cause any Accrediting
Body that is required to approve the change in ownership of the Company to deny
or delay approval of the change or to refuse or delay the issuance of a License
or Accreditation to the Buyer or the Company as a result of the change.
Section 4.10 Reliance on Representations and Warranties. Buyer is not
------------------------------------------
relying on any representations and warranties other than those set forth in
Articles II and III in determining to consummate the transactions contemplated
by this Agreement.
Section 4.11 Prior ED Approvals Secured by the Buyer. Schedule 4.11
--------------------------------------- -------------
sets forth the following information with respect to each of the three (3) most
recent acquisitions by the Buyer of educational institutions participating in
the Title IV programs for which the ED approval process is complete: (a) name of
institution acquired; (b) number of weeks that transpired between the date of
the acquisition and the issuance of a non-temporary Provisional Program
Participation Agreement for that institution; and (c) a description of
conditions or denials, if any, imposed by ED in connection with any of those
acquisitions or any ED approvals.
ARTICLE V
---------
CONDUCT OF BUSINESS PENDING CLOSING
Section 5.1 From and after the date of this Agreement until the
Closing Date, Sellers agree to cause the activities and operations of the
Company and the Subsidiary to be conducted in the ordinary course of business in
substantially the same manner as presently conducted except for activities,
operations, commitments and expenditures of the Company and the Subsidiary
relating to (i) the Budgeted Capital Expenditures (which expenditures shall only
be made in amounts and for the categories as specifically set forth on Schedule
1.1(i)), subject to deviations that occur in the ordinary course in undertaking
capital projects and subject also to economies, efficiencies and other prudent
cost savings achieved by the Company and the Subsidiary (provided further,
however, that such deviations, economies, efficiencies and other prudent cost
savings do not have the effect of delaying the timing of any budgeted capital
expenditures beyond the Closing Date or reducing the aggregate amount of the
budgeted expenditures set forth on Schedule 1.1(i)), (ii) the opening of the
----------------
Blairsville, Pennsylvania campus, (iii) enrollment of students at the
Blairsville campus and (iv) accelerating the timing of
30
making payments relating to Budgeted Capital Expenditures, and will not and will
not permit the Company or the Subsidiary to take any of the following actions
without the prior written consent of Buyer (which consent shall not be
unreasonably withheld, conditioned or delayed):
(a) Transfer, issue, sell, redeem or dispose of, or agree to do
so, any debt obligations or capital stock or other securities of the Company or
the Subsidiary or grant options, warrants, calls or other rights to purchase or
otherwise acquire capital stock of the Company or the Subsidiary;
(b) Effect any recapitalization, reclassification, stock split or
like change in the capital stock of the Company or the Subsidiary;
(c) Propose to amend or amend the certificate of incorporation or
bylaws or similar documents of the Company or the Subsidiary;
(d) Acquire, by merging or consolidating with, or by purchasing a
substantial equity interest in or a substantial portion of the assets of, or by
any other manner, any business entity or division thereof;
(e) Permit the Company or the Subsidiary to borrow monies for any
reason or draw down on any line of credit or debt obligation, or become the
guarantor, surety, endorser or otherwise liable for any liability (contingent or
otherwise) of any other person or entity (except as the endorser of checks in
the ordinary course of business);
(f) Acquire any material assets or sell, assign, pledge,
transfer, convey, lease or otherwise dispose of any of the assets of the Company
or the Subsidiary (except, in each case, for fair consideration in the ordinary
course of business consistent with past practice and in amounts not in excess of
$100,000 in the aggregate and except for the disposition in the ordinary course
of business of obsolete, nonfunctioning or damaged items of personal property);
(g) Except for the Budgeted Capital Expenditures, incur any
capital expenditures or enter into any commitment for capital expenditures in
excess of $100,000 in the aggregate;
(h) Enter into, modify or terminate any labor or collective
bargaining agreement or, through negotiation or otherwise, make any commitment
or incur any liability to any labor organization relating to any employees of
the Company or the Subsidiary;
(i) Except in accordance with their terms, terminate any
Contract, renew for a period of more than one year or renegotiate (if such
renegotiation would result in a material increase in the obligations of the
Company or Subsidiary under such Contract) or default on and fail to cure such
default within fifteen (15) days any material obligation under any Contract;
(j) Except for contracts, commitments or understandings for the
Budgeted Capital Expenditures, enter into any transaction (or series of related
transactions) or make or enter into
31
any contract, commitment or understanding (or series of related contracts,
commitments or understandings) which calls for payments by the Company or the
Subsidiary in an aggregate amount in excess of $250,000;
(k) Authorize, propose, enter into or agree to enter into any
acquisition of securities, any disposition of securities or any release or
relinquishment of any material contract rights not in the ordinary course of
business;
(l) Terminate or fail to renew any existing material insurance
coverage;
(m) Terminate or fail to renew or preserve any material permits,
licenses or approvals;
(n) Make any loan, or enter into any commitment to make any loan,
or other extension of credit to or for the benefit of any Affiliate of the
Seller, the Company or the Subsidiary;
(o) Except as set forth on Schedule 5.1(o), grant any general or
---------------
uniform increase in the rates of pay or benefits to officers, directors or
employees (or a class thereof) or any material increase in salary or benefits of
any individual officer, director, employee or agent or pay any bonus to any
person or entity, or enter into any employment or severance agreement with any
officer, director or employee, in each case, except as required under any
existing Contract disclosed on Schedule 3.10;
-------------
(p) Except in the ordinary course of business, dispose of or
permit to lapse any rights to use any material intangible rights or dispose of
any intangible rights not a matter of public knowledge;
(q) Compromise or otherwise settle any material claims of the
Company or the Subsidiary, or adjust any assertion or claim of a material
deficiency in taxes of the Company or the Subsidiary (or interest thereon or
penalties in connection therewith), in any case, before furnishing a copy to
Buyer and affording Buyer an opportunity to consult with respect thereto; or
make any material tax election or change any method or period of accounting
principles or practices of the Company or the Subsidiary;
(r) Engage in any sale or discount of the Company's or the
Subsidiary's accounts receivable (whether by discount to the debtors or by sale
to any third party);
(s) Take any action that would cause Buyer to be unable to obtain
good and marketable title to the Stock at the Closing (including pledging any of
such Stock as security for obligations of Sellers or the Company);
(t) Amend or waive any provision in either of the Option
Cancellation Agreements; or
32
(u) Agree to make any commitment to take any action prohibited by
this Section 5.1.
ARTICLE VI
----------
ADDITIONAL AGREEMENTS
---------------------
Section 6.1 Reasonable Access. From and after the date of this
-----------------
Agreement until the Closing Date, the Company and the Sellers will permit
representatives of the Buyer to have access at all reasonable times to the
books, accounts, records, properties, operations and facilities of every kind of
the Sellers (which relate to the Company or the Subsidiary), the Company and the
Subsidiary, and will furnish the Buyer with such financial and operating data
concerning the Sellers, the Company and the Subsidiary as the Buyer shall from
time to time reasonably request. The Buyer shall have reasonable access to
discuss the relevant affairs and operations of the Company and the Subsidiary
with the employees of the Sellers, the Company and the Subsidiary at appropriate
times. Any investigation by the Buyer shall not affect the representations and
warranties made herein by the Sellers or the Company nor any rights or remedies
of the Buyer with respect to the breach thereof. ▇▇▇▇▇▇ ▇▇▇▇, on behalf of the
Buyer (the "Buyer's Contact"), or his designee, and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, on behalf
of the Sellers (the "Sellers' Contact"), or his designee, shall serve as the
primary contacts with respect to the Buyer's access pursuant to this Section
6.1. From the date hereof to the Closing, the Buyer shall not be permitted to
have any access pursuant to this Section 6.1 without the Sellers' Contact's
prior consent, such consent not to be unreasonably withheld or delayed. The
Sellers' agree to cause the Sellers' Contact to be reasonably available to
communicate with the Buyer's Contact.
Section 6.2 Confidentiality. All information supplied to the
---------------
Buyer by the Sellers (or their respective officers, directors, employees, agents
or representatives (collectively, "Representatives") or to the Sellers by the
Buyer or its Representatives in connection with the negotiation, execution and
performance of this Agreement and the transactions contemplated hereby (the
"Confidential Information") shall be maintained in strict confidence by such
receiving party and its Representatives for a period of three (3) years after
the date hereof and in the event this Agreement is terminated, all written
materials relating thereto shall be returned to the party supplying such
information or, at the written request of the supplying party, destroyed by the
receiving party, in which case, such receiving party shall deliver an officer's
certificate to the supplying party certifying as to such return or destruction.
In such event, the receiving party and its Representatives shall make no
disclosure or use of the other party's Confidential Information whatsoever. The
provisions of this Section 6.2 shall not apply to information that (a) was
generally available to the public other than as a result of the disclosure by
such party in violation of this Agreement, (b) was in the receiving party's
possession prior to being supplied by the supplying party, provided that the
source of such information was not, to the receiving party's knowledge,
prohibited from disclosing the information by a legal, contractual or fiduciary
obligation, (c) becomes known to the receiving party through disclosure by
sources other than the disclosing party, provided that the source of such
information was not, to the receiving party's knowledge, prohibited from
disclosing the information by a legal, contractual or fiduciary obligation, (d)
is independently developed by the receiving party without reference to or
reliance upon the Confidential Information or (e) is required by law or by the
order of any court or government agency, or in any litigation or similar
proceeding to be disclosed; provided, that a
33
receiving party shall, prior to making such legally required or compelled
disclosure, notify the other party in order to permit the other party to seek at
the other party's expense an appropriate protective order. The Buyer's
obligation under this Section 6.2 to maintain the confidentiality of information
pertaining solely to the Company or the Subsidiary provided by the Sellers or
the Sellers' Representatives to the Buyer shall expire at the Closing.
Section 6.3 [Intentionally Omitted]
-----------------------
Section 6.4 Notification.
------------
(a) From the date hereof until the Closing Date, the Company and
Sellers shall, promptly, but in any event within ten (10) business days of their
discovery thereof, disclose to the Buyer in writing if any of such Sellers or
the Company (i) becomes aware of any fact, event or condition that causes any of
the representations and warranties contained in Articles II or III to fail to be
true or correct in all material respects, (ii) becomes aware of the occurrence
after the date of this Agreement of any fact, event or condition that would
cause any of the representations and warranties contained in Articles II or III
to fail to be true or correct in all material respects, (iii) becomes aware of
the occurrence of any fact, event or condition which will probably have a
Material Adverse Effect, (iv) becomes aware of the breach by the Company or the
Sellers of any of their respective obligations under this Agreement, or (v)
becomes aware of the occurrence of any fact, event or condition that will
probably make the satisfaction of the conditions in Article VII impossible.
(b) From the date hereof until the Closing Date, the Buyer shall
promptly, but in any event within ten (10) business days of its discovery
thereof, disclose to the Sellers in writing if the Buyer (i) becomes aware of
any fact, event or condition that causes any of the representations and
warranties contained in Article IV to fail to be true or correct in all material
respects, (ii) becomes aware of the occurrence after the date of this Agreement
of any fact, event or condition that would cause any of the representations and
warranties contained in Article IV to fail to be true or correct in all material
respects, (iii) becomes aware of the breach by the Buyer of any of its
obligations under this Agreement, or (iv) becomes aware of the occurrence of any
fact, event or condition that will probably make the satisfaction of the
conditions in Article VIII impossible.
Section 6.5 Interim Financial Statements and Other Information.
--------------------------------------------------
From the date hereof to the Closing Date, the Company shall furnish to the Buyer
within ten (10) business days after they become available, copies of all (i)
reports, renewals, filings, certificates, statements and other documents filed
with any governmental or regulatory agency or authority; (ii) notices or
communications from any governmental or regulatory agency or authority, (iii)
notice of any planned or threatened labor dispute, organization efforts, strike
or collective work stoppage affecting the employees of the Company or the
Subsidiary, and (iv) quarterly unaudited balance sheets, statements of
operations and cash flow for the Company and the Subsidiary on a consolidated
basis and monthly unaudited balance sheets and statements of operations. Each of
the financial statements delivered pursuant to this Section 6.5 shall be
prepared in accordance with GAAP, subject to year-end adjustments and any other
adjustments described therein and the absence of footnotes thereto. Each of the
financial statements delivered pursuant to this Section
34
6.5 shall be accompanied by a certificate of the Chief Financial Officer or
Controller of the Company to the effect that such financial statements present
fairly the financial position and results of operations and cash flows of the
Company for the periods covered.
Section 6.6 Amendment of Charter Documents. For a period of six (6)
------------------------------
years after the Closing Date, the Buyer shall not amend the corporate charter or
bylaws of the Company or the Subsidiary, and the Buyer shall cause the Company
and the Subsidiary not to amend their respective corporate charters or bylaws,
if the effect of doing so would be to reduce or narrow the scope of the
Company's or the Subsidiary's obligations to indemnify its officers and
directors who served in such capacities prior to the Closing Date or to reduce
or narrow the scope of any exculpatory provision in favor of any such person.
The Buyer acknowledges that the intent of this provision is to give such Persons
the benefits of indemnity and exculpation to the full extent permitted by
applicable law.
Section 6.7 Employee Matters. The Buyer agrees that it will continue
----------------
to employ for a period of at least two (2) months from the Closing Date at least
ninety percent (90%) of the Subsidiary's employees on terms and conditions that
are no less-favorable in the aggregate to the terms and conditions on which such
employees were employed by the Subsidiary prior to the Closing Date. Effective
as of the Closing Date, or as soon thereafter as reasonably practicable by the
Buyer, each of the Subsidiary's employees shall be eligible to participate in
the various Benefit Plans maintained by or on behalf of Buyer including any
retirement, health, disability, dental and life insurance plans, subject to the
terms and conditions of each applicable plan. With respect to such Benefit
Plans, the Buyer shall, so long as the Buyer's Benefit Plans permit such actions
(i) waive any waiting period for such employees and their dependents, and (ii)
waive any pre-existing condition exclusion or limitation for such employees and
their dependents and (iii) credit such employees period of service with the
Subsidiary for the purpose of determining eligibility and vesting (but not for
the purpose of determining accruals of benefits) under Benefit Plans maintained
by or on behalf of the Buyer.
Section 6.8 Books and Records. The Buyer will preserve all books and
-----------------
records of the Company and the Subsidiary received from the Sellers, or held by
the Company or the Subsidiary immediately after the Closing in accordance with
the same procedures that Buyer uses for its books and records, and provide the
Sellers or their agents reasonable access to such books and records, and the
ability to make copies of such books and records at the expense of the Sellers,
for a period of six (6) years following the Closing Date, or until such later
date as preservation of and access to those books and records is no longer
required by any governmental or similar body.
Section 6.9 Tax Matters.
-----------
(a) Returns and Payments. From and after the Closing Date, the Buyer
--------------------
shall, at its own expense, prepare and file, or cause to be prepared and filed,
all Tax returns (including amended Tax returns) of the Company and the
Subsidiary, provided, however, that for any Tax return for a taxable period
beginning on or before the Closing Date, thirty (30) days prior to the due date
for any such Tax return (or thirty (30) days prior to the filing of any amended
Tax return), the Buyer will provide to the Sellers for the Sellers' review and
approval a copy of such Tax
35
return (which shall be prepared by Ernst & Young LLP) together with a
calculation of the amount of the Sellers' share, if any, of the Tax due, as
determined under Section 9.3(c). Upon the Sellers' approval of such Tax return
and Tax calculation, the Sellers will pay to the Buyer the amount, if any, of
Sellers' share of such Tax to the extent such share of Tax is not reflected as a
liability on the Final Closing Statements. For income tax purposes, beginning on
the day after the Closing Date, the Buyer shall report the Buyer, the Company
and the Subsidiary as members of an affiliated group filing consolidated Tax
returns. The Buyer shall not, in connection with the transactions contemplated
by this Agreement, make or cause to be made any actual or deemed election under
Section 338 of the Code or any corresponding provision of state, local or
foreign law.
(b) Audit Matters. The Sellers will have (i) the responsibility for,
-------------
and the right to control, at the Sellers' expense, the audit (and disposition
thereof) of any Tax return of the Company or the Subsidiary relating to a
taxable period ending on or prior to the Closing Date and (ii) the right to
participate in and approve the disposition of the audit of any Tax return of the
Company or the Subsidiary relating to a taxable period beginning on or before
and ending after the Closing Date, which approval shall not be unreasonably
withheld or delayed, if such audit (and disposition thereof) under either clause
(i) or (ii) hereof could give rise to a liability for the payment of Taxes under
Section 9.3, provided however that the Buyer, at the Buyer's expense, will have
the right, directly or through its designated representatives, to review in
advance and comment upon all submissions made in the course of audits of such
Tax returns (including any administrative appeals thereof), and the Buyer will
have the right to approve, which approval shall not be unreasonably withheld or
delayed, any settlement that could affect the Tax liability of the Buyer, the
Company or the Subsidiary in any taxable period to the extent such Tax liability
is not solely the liability of the Sellers under Section 9.3. The Buyer will
have the sole responsibility for, and the right to control, at the Buyer's
expense, the audit of any Tax return other than an audit that could give rise to
a liability of the Sellers for the payment of Taxes under Section 9.3
(c) Cooperation on Tax Matters. The Buyer, the Company, the Subsidiary
--------------------------
and the Sellers shall cooperate fully, as and to the extent reasonably requested
by the other party, in connection with the filing of all Tax returns (including
any amended Tax return or claim for Tax refund) and any audit, litigation, or
other proceeding with respect to Taxes. Such cooperation shall include: (i) the
Buyer's filing, or causing to be filed, any amended Tax return or claim for Tax
refund that the Sellers request to be filed with respect to the Company or the
Subsidiary for any taxable period beginning on or before the Closing Date; and
(ii) the retention and provision of records and information relevant to any such
audit, litigation or other proceeding, and the provision of powers of attorney.
The Buyer and the Sellers further agree to use commercially reasonable efforts
to obtain any certificate or other document from any governmental authority or
any other Person as may be necessary to mitigate, reduce or eliminate any Tax
that could be imposed.
(d) Tax Refunds and Tax Benefits of Option Deduction. Any refunds of
federal, state, local or foreign Taxes of the Company or the Subsidiary
attributable to taxable periods (or portions thereof) ending on or before the
Closing Date and that are not reflected on the Final
36
Closing Statements as an asset shall be for the Sellers' account, and the Buyer
(and any member of an affiliated group of which the Buyer, the Company or the
Subsidiary is a member) shall pay over to the Sellers any such refund within
fifteen (15) days after receipt thereof. For purposes of this Agreement, the
allocation of Tax responsibility between the Buyer and the Sellers with respect
to any taxable period that includes (but does not end on) the Closing Date shall
be determined in accordance with the provisions of Section 9.3, and the term
"refund" shall mean the receipt of cash, an actual reduction in Tax paid and the
use of an overpayment as a credit or other Tax offset by the Buyer, the Company
or the Subsidiary (or any member of an affiliated group of which the Buyer, the
Company or the Subsidiary is a member). The Buyer and the Sellers agree that
taxable income and Taxes of the Company and the Subsidiary for taxable periods
(or portions thereof) ending on or before the Closing Date shall be calculated
by taking into account all payments attributable to the cancellation of the
Options in accordance with the Option Cancellation Agreements and that all Tax
benefits of the cancellation of the Options in accordance with the Option
Cancellation Agreements shall be for the Sellers' account, but only to the
extent such Tax benefits relate to taxable periods (or portions thereof) ending
on or before the Closing Date.
Section 6.10 Transfer Taxes. The Sellers shall be responsible for and
--------------
shall pay all stock transfer Taxes, sales Taxes, documentary stamp Taxes,
recording charges and other similar Taxes, if any, arising in connection with
the transactions contemplated by this Agreement. Each of the parties hereto
shall prepare and file, and shall fully cooperate with each other party with
respect to the preparation and filing of, any Tax returns and other filings
relating to any such Taxes or charges as may be required.
Section 6.11 Mutual Reasonable Best Efforts. Upon the terms and
------------------------------
subject to the conditions herein provided, each of the parties hereto agrees to
use its reasonable best efforts, insofar as such matters are within the control
of the Sellers or the Buyer, as applicable, to take or cause to be taken all
action, to do or cause to be done, and to assist and cooperate with the other
party hereto in doing, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this Agreement,
including, but not limited to, (i) the satisfaction of the conditions precedent
to the obligations of any of the parties hereto, (ii) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the performance of the obligations hereunder,
(iii) the execution and delivery of such instruments and the taking of such
other actions as the other party hereto may reasonably require in order to carry
out the intent of this Agreement, and (iv) in the case of the Buyer, the
obtaining of the funds to pay the Purchase Price and any fees, expenses and
other amounts payable pursuant to this Agreement. For purposes of this
Agreement, "reasonable best efforts" shall not be deemed to require the Buyer to
take actions in connection with the HSR Act under clause (ii) above except in
its sole discretion or to agree to, proffer to, divest or hold separate any
assets or portion of the business of the Buyer, the Company or the Subsidiary or
any of the Buyer's subsidiaries; provided, however, that the Buyer shall use its
reasonable best efforts in making all required filings under the HSR Act
promptly after the date of this Agreement, coordinating the making of such
filings that Sellers are required to make under the HSR Act and responding to
all inquiries and requests for further information from applicable governmental
authorities. The Buyer and the Sellers each agree to make its filing required
under the ▇▇▇ ▇▇▇,
▇▇
together with all required exhibits, schedules and supporting information and a
written request for "early termination" by the Federal Trade Commission, with
the appropriate office of the Federal Trade Commission within ten (10) days of
the date of this Agreement. The Buyer agrees to pay all fees required by the HSR
Act to be paid in connection with such filings within the ten (10) day period
specified in the preceding sentence.
Section 6.12 Further Assurances. From time to time after the Closing,
------------------
Sellers will execute and deliver such instruments of conveyance, sale or
assignment as Buyer may reasonably request, to more effectively vest, confirm or
evidence Buyer's title to or rights in the Stock and to otherwise carry out the
purpose and intent of this Agreement.
Section 6.13 Resignation of Officers and Directors. Sellers shall
-------------------------------------
cause each officer and member of the board of directors of the Company and the
Subsidiary, if so requested by Buyer, to tender his or her resignation from such
position effective as of the Closing Date.
Section 6.14 Non-Solicitation of Employees. For a period of three (3)
-----------------------------
years from and after the Closing Date, neither the Sellers nor any of their
respective Affiliates shall directly or indirectly encourage any employee of the
Company or the Subsidiary to terminate his or her employment with Buyer, the
Company or the Subsidiary or solicit or hire such an individual for employment
outside the Buyer, the Company or the Subsidiary; provided this provision shall
not restrict the Sellers from (i) placing advertisements generally seeking
applications for employment or (ii) from soliciting for employment or hiring any
individual who was previously employed by the Company or the Subsidiary but who
has not been an employee of the Company or the Subsidiary for a period of at
least one year (except that clause (ii) of this Section 6.14 shall not apply to
individuals whose employment was involuntarily terminated by the Company or the
Subsidiary).
Section 6.15 No Solicitation of Competing Proposals; Notice of
-------------------------------------------------
Inquiry.
-------
(a) The Sellers and the Company each agree that it shall immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any proposed
Acquisition Proposal (as defined below) and shall direct any stockholder,
officer, director or employee of, or any investment banker, attorney or other
advisor or representative of, it to cease and terminate such activities,
discussions or negotiations. The Sellers and the Company each further agrees
that it shall not, nor shall it authorize or permit any of its respective
shareholders, officers, directors or employees, or any investment banker,
attorney or other of its advisors or representatives to, (i) solicit or
initiate, or encourage the submission of, any Acquisition Proposal, or,
participate in any discussions or negotiations regarding, or furnish to any
Person any information with respect to, or take any other action to facilitate
any inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any Acquisition Proposal or (ii) enter into any
transaction other than in furtherance of the transactions contemplated by this
Agreement. For purposes of this Agreement, "Acquisition Proposal" means any
proposal (whether or not in writing and whether or not delivered to the
Company's shareholders generally) for a merger, consolidation, purchase of
assets, tender offer or other business combination involving the Company or any
proposal or
38
offer to acquire in any manner, directly or indirectly, an equity interest in,
any voting securities of, or a substantial portion of the assets of the Company,
other than in furtherance of the transactions contemplated by this Agreement.
The Company shall not, directly or indirectly, release any third party from any
confidentiality agreement.
(b) Subject to compliance with its obligations under confidentiality
agreements existing as of the date of this Agreement, (i) each of the Company
and the Sellers shall promptly advise the Buyer orally and in writing of its
receipt (directly or through any of its shareholders, officers, directors,
employees, investment bankers, attorneys or other representatives) of any
written Acquisition Proposal, as well as the material terms and conditions of
such Acquisition Proposal and the identity of the Person making any such
Acquisition Proposal and (ii) the Company and the Sellers shall keep the Buyer
informed of the status and details of any such Acquisition Proposal.
Section 6.16 ED Covenants of the Buyer. The Buyer shall use its
-------------------------
reasonable best efforts to promptly after the Closing obtain an ED Approval
Notice. The Buyer's reasonable best efforts shall include, but shall not
necessarily be limited to the Buyer using its best efforts with respect to (i)
submission to ED no later than forty-five (45) days prior to the Closing of an
application for pre-acquisition review of the pending change in ownership and
control that is materially complete in accordance with the provisions of 34
C.F.R. (S) 600.20(g); (ii) the timely submission to ED of notice of the Closing
and any other materials as may be requested by ED to make the change of
ownership application materially complete in accordance with the requirements of
34 C.F.R. (S) 600.20(g) and sufficient to trigger ED issuance of a temporary
Provisional Program Participation Agreement authorizing Wyoming Technical
Institute to participate in the Title IV Programs on an interim basis pending
issuance of an ED Approval Notice; (iii) the timely submission to ED of the
additional materials required by ED in accordance with the requirements of 34
C.F.R. (S) 600.20(h) and sufficient to extend the term of the temporary
Provisional Program Participation Agreement on a month-to-month basis; and (iv)
providing written notice to the Sellers Representative within two (2) business
days of the Buyer's receipt of any ED Denial Notice or, as applicable, of
written notice to the Buyer that any ED failure or refusal to issue an ED
Approval Notice is based upon a Pre-Closing Seller Condition. The Buyer shall
use its reasonable best efforts to fully cooperate with the Sellers to assist
the Sellers in curing or otherwise addressing the stated basis for any ED Denial
Notice that is based upon a Pre-Closing Seller Condition, or for any ED failure
or refusal to issue an ED Approval Notice that is based upon a Pre-Closing
Seller Condition, by timely sharing all material and relevant information with
the Sellers, affording the Sellers sufficient time (but in any event not less
than ninety (90) days) to negotiate and implement a cure, and cooperating fully
to assist the Sellers to implement any such resolution or cure and to facilitate
issuance of an ED Approval Notice.
Section 6.17 Buyer Responsibility for Opening Balance Sheet
----------------------------------------------
Compliance. Notwithstanding anything herein to the contrary, including without
----------
limitation the representations and warranties in Article III and the
indemnification provisions in Article IX, the Buyer agrees that it shall be
responsible solely for (a) submitting to ED within the timeframe defined in 34
C.F.R. ss. 600.21(h)(2)(iii) a "same day" balance sheet showing the financial
position of the Company and the Subsidiary, as of the Closing Date (after giving
effect to all of the transactions
39
contemplated by this Agreement to be consummated on the Closing Date), that is
prepared in accordance with Generally Accepted Accounting Principles published
by the Financial Accounting Standards Board and audited in accordance with
Generally Accepted Auditing Standards published by the U.S. General Accounting
Office which demonstrates that each of the Company and the Subsidiary meet ED
standards of financial responsibility as set forth in 34 C.F.R. (S)(S)
668.15(b)(7)(i)(A) and 668.15(b)(7)(i)(C); and (b) ensuring that the Company and
the Subsidiary comply with standards of financial responsibility as set forth in
34 C.F.R. (S)(S) 668.15, 668.171 - 175, and any successor regulation on or after
the Closing.
Section 6.18 Shut-Down of Information Technology Program. As soon as
-------------------------------------------
is practicable after the date hereof, the Sellers and the Company will cause the
Subsidiary to shut down its information technology program (the "IT Program").
The parties hereby agree that (i) all IT Program shut-down costs and expenses
incurred by the Company and the Subsidiary prior to the Closing Date shall be
borne by the Sellers and (ii) all IT Program shut-down costs and expenses
incurred by the Company and the Subsidiary from and after the Closing Date shall
be borne by the Buyer. It is further agreed that post-Closing IT Program
shut-down costs and expenses shall include, without limitation, (A) all costs
and expenses associated with or arising out of fulfillment of all obligations to
students enrolled in the IT Program on the date hereof and (B) all severance
payments due and payable in connection with the IT Program shut-down. The
Sellers represent and warrant to the Buyer that there are no more than
thirty-one (31) full or part time students enrolled in the IT Program on the
date hereof. The Sellers covenant that from and after the date hereof they will
not permit any additional full or part time students to be enrolled in the IT
Program.
ARTICLE VII
-----------
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
-------------------------------------------
The obligations of the Buyer under this Agreement shall be subject to
the satisfaction, on or before the Closing, of each of the following conditions:
Section 7.1 Representations and Warranties. The representations and
------------------------------
warranties of the Sellers and the Company contained herein shall be true and
accurate in all respects as of the date of this Agreement and as of the Closing
Date as if made on the Closing Date (disregarding any disclosures made by the
Sellers or the Company pursuant to Section 6.4(a)) except where the failure of
such representations and warranties to be true and accurate (individually or in
the aggregate) as of the Closing Date would not have a Material Adverse Effect;
and the Buyer shall have received at the Closing a certificate, dated the
Closing Date, signed by the president or a vice president of the Sellers and the
president or a vice president of the Company to such effect. For purposes of
this Section 7.1, all references to "material" or "materiality" contained in any
of the Company's or the Seller's representations and warranties shall be
disregarded. No disclosure set forth in Section 6.4(a) shall in any way impact
the Buyer's rights under this Section 7.1.
40
Section 7.2 Performance. The Sellers and the Company shall have
-----------
performed and complied, in all material respects, with all agreements,
obligations and conditions required to be performed or complied with by them on
or prior to the Closing; and the Buyer shall have received at the Closing a
certificate, dated the Closing Date, signed by the president or a vice president
of the Sellers and the president or a vice president of the Company to such
effect.
Section 7.3 No Material Adverse Change. During the period from the
--------------------------
date of this Agreement to the Closing Date there shall not have occurred a
Material Adverse Change.
Section 7.4 HSR Filing. The waiting period under the HSR Act shall
----------
have expired or been terminated.
Section 7.5 No Injunction. There shall not be in effect any
-------------
preliminary or permanent injunction or other order issued by any state or
federal court which prevents the consummation of the transactions contemplated
hereby.
Section 7.6 No Legislation. No action shall have been taken, and no
--------------
statute, rule or regulation shall have been enacted, by any state or federal
government, or other governmental or regulatory agency or authority which would
prevent the consummation of the transactions contemplated hereby.
Section 7.7 Corporate Authorization. All corporate action necessary
-----------------------
to authorize (i) the execution, delivery and performance by the Company and the
Sellers of this Agreement and (ii) the consummation of the transactions
contemplated hereby shall have been obtained by the Company and the Sellers.
Section 7.8 Cancellation of Options. The Sellers shall provide
-----------------------
evidence reasonably satisfactory to the Buyer that each of the Option holders
has, in accordance with the terms of the Option Cancellation Agreements, waived
in the aggregate the number of Options set forth opposite the name of such
Option holder on Exhibit A, which number represents all of the Options held by
---------
each such Option holder.
Section 7.9 Regulatory Approvals. The Buyer shall have received (i)
--------------------
confirmation from the Wyoming Department of Education that any Licenses issued
by the Wyoming Department of Education to the Subsidiary will remain valid under
the ownership of the Buyer after the Closing, provided that this condition shall
lapse if the Buyer fails to submit within sixty (60) days of the date of this
Agreement to the Wyoming Department of Education the surety bond in such amount,
in such form and at such time as required by the Wyoming Department of
Education; and (ii) initial approval by ACCSCT of the transfer of ACCSCT
accreditation of the Subsidiary resulting from the change in ownership of the
Subsidiary to the Buyer, provided that this condition shall lapse if the Buyer
fails to submit on or before June 1, 2002 ACCSCT an application for such
transfer of ACCSCT accreditation and the related application fee.
41
Section 7.10 Opinion of Counsel to Sellers. The Buyer shall have
-----------------------------
received an opinion with respect to the Sellers and the Company of ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, as Sellers' counsel, in form and substance
reasonably satisfactory to the Buyer.
Section 7.11 Releases. The Buyer shall have received releases, in
--------
form and substance satisfactory to it, from each of the Sellers, the holders of
the Options, and the officers and directors of the Company and the Subsidiary,
releasing any and all claims that they may have against the Company or the
Subsidiary.
Section 7.12 Payoff Letters. The Buyer shall have received evidence
--------------
reasonably satisfactory to it that upon payment by the Buyer of the Indebtedness
in accordance with the provisions of Section 1.7, the Indebtedness will be paid
in full and concurrently with such payment all related liens shall be released.
The Sellers agree that upon payment of the Indebtedness as provided herein, the
Company shall have no obligations to the Sellers or any Affiliates of either
Seller with respect to the Indebtedness.
Section 7.13 Termination of Agreements. The Buyer shall have received
-------------------------
evidence reasonably satisfactory to it that effective upon the Closing, (i) the
Management Services Agreement, dated July 1, 2001, between the Company and
Allied, and (ii) the Financial Consulting Agreement, dated July 1, 2001, between
the Company and Allied, shall each have terminated with no further obligations
of the Company or the Subsidiary under either such agreement.
Section 7.14 Redemption of Preferred Stock. The Buyer shall have
-----------------------------
received evidence reasonably satisfactory to it that upon payment by the Buyer
of the Preferred Stock Redemption Amount pursuant to the provisions of Section
1.7 that the Preferred Stock has been redeemed by the Company. The Sellers agree
that upon payment of the Preferred Stock Redemption Amount as provided herein,
the Company shall have no obligations to the Sellers or any Affiliates of either
Seller or any other Person with respect to the Preferred Stock.
Section 7.15 Payment of Option Cancellation Payment Amounts. The
----------------------------------------------
Buyer shall have received evidence reasonably satisfactory to it that upon
payment of the contribution to capital by the Buyer pursuant to the provisions
of Section 1.7, the Option Cancellation Payment Amount shall have been paid by
the Company to or on behalf of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ in accordance
with the terms of their respective Option Cancellation Agreements.
Section 7.16 Resignation Letters. The Buyer shall have received
-------------------
evidence satisfactory to it of the resignations contemplated by Section 6.13.
Section 7.17 Waiver of Conditions. Notwithstanding the failure of any
--------------------
one or more of the foregoing conditions, the Buyer may proceed with the Closing
without satisfaction, in whole or in part, of any one or more of such conditions
and without written waiver.
42
ARTICLE VIII
------------
CONDITIONS PRECEDENT TO THE COMPANY'S
AND THE SELLERS' OBLIGATIONS
----------------------------
The obligations of the Company and the Sellers under this Agreement
shall be subject to the satisfaction, on or before the Closing, of each of the
following conditions:
Section 8.1 Representations and Warranties. The representations and
------------------------------
warranties of the Buyer contained herein shall be true and accurate in all
respects as of the date of this Agreement and as of the Closing Date, as if made
on the Closing Date (disregarding any disclosures made by the Buyer pursuant to
Section 6.4(b)) except where the failure of such representations and warranties
to be true and accurate (individually or in the aggregate) as of the Closing
Date would not have a Material Adverse Effect on the Buyer; and the Company and
the Sellers shall have received at the Closing a certificate, dated the Closing
Date, signed by the president or a vice president of the Buyer to such effect.
Section 8.2 Performance. The Buyer shall have performed and complied
-----------
with, in all material respects, all agreements, obligations and conditions
required by this Agreement to be performed or complied with by it on or prior to
the Closing and the Company and the Sellers shall have received at the Closing a
certificate, dated the Closing Date, signed by the president or a vice president
of the Buyer to such effect.
Section 8.3 HSR Filing. The waiting period under the HSR Act shall
----------
have expired or been terminated.
Section 8.4 No Injunction. There shall not be in effect any
-------------
preliminary or permanent injunction or other order issued by any state or
federal court which prevents the consummation of the transactions contemplated
hereby.
Section 8.5 No Legislation. No action shall have been taken, and no
--------------
statute, rule or regulation shall have been enacted, by any state or federal
government, other governmental or regulatory agency or authority which would
prevent the consummation of the transactions contemplated hereby.
Section 8.6 Opinion of Counsel to Buyer. The Sellers shall have
---------------------------
received an opinion of O'Melveny & ▇▇▇▇▇ LLP, as Buyers' counsel, in form and
substance reasonably acceptable to the Sellers.
Section 8.7 Corporate Authorization. All corporate action, necessary
-----------------------
to authorize (i) the execution, delivery and performance by the Buyer of this
Agreement and (ii) the consummation of the transactions contemplated hereby by
the Buyer shall have been obtained by the Buyer.
43
Section 8.8 Payment of Indebtedness. Allied shall have received
-----------------------
payment in full of all Indebtedness of the Company to it.
Section 8.9 Redemption of Preferred Stock. Allied shall have
-----------------------------
received the Preferred Stock Redemption Amount.
Section 8.10 Payment of Option Cancellation Payment Amounts. The
-----------------------------
Sellers shall have received evidence reasonably satisfactory to it that upon
payment of the contribution to capital by the Buyer pursuant to the provisions
of Section 1.7, the Option Cancellation Payment Amount shall have been paid by
the Company to or on behalf of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ in accordance
with the terms of their respective Option Cancellation Agreements.
Section 8.11 Waiver of Conditions. Notwithstanding the failure of any
--------------------
one or more of the foregoing conditions, the Sellers may proceed with the
Closing without satisfaction, in whole or in part, of any one or more of such
conditions and without written waiver.
ARTICLE IX
----------
INDEMNIFICATION
---------------
Section 9.1 Indemnification of the Sellers. The Buyer shall
------------------------------
indemnify and hold harmless the Sellers (and their respective directors,
officers, employees, agents, Affiliates, successors, and assigns) from and
against any and all Losses arising out of or incurred with respect to (i) any
breach of any or all of the Buyer's representations and warranties in this
Agreement or any certificate delivered at the Closing, (ii) the breach or
nonperformance of any covenant or obligation to be performed by the Buyer
hereunder or under any agreement executed in connection herewith, or (iii) any
matter arising out of (A) the operation of the Company's or the Subsidiary's
business after the Closing and (B) the Buyer's actions or omissions with respect
to the Company or the Subsidiary after the Closing.
Section 9.2 Indemnification of the Buyer. The Sellers, jointly and
----------------------------
severally, shall indemnify and hold harmless the Buyer (and its directors,
officers, employees, agents, Affiliates, successors, and assigns) from and
against any and all Losses arising out of or incurred with respect to (i) any
breach of Sellers' or the Company's representations and warranties in this
Agreement (other than Sections 2.1, 2.2, 2.5, 3.1(b), 3.4 and 3.16), (ii) the
breach or nonperformance of any covenant or obligation to be performed by the
Sellers and the Company hereunder or under any agreement executed in connection
herewith, (iii) any breach of such Seller's or the Company's representations and
warranties in Sections 2.1, 2.2, 2.5, 3.1(b), 3.4 and 3.16 of this Agreement or
(iv) the issuance of an ED Denial Notice that is based upon a Pre-Closing Seller
Condition and such Pre-Closing Seller Condition is the predominant factor stated
in such writing, or the failure by ED to issue an ED Approval Notice for one
hundred eighty (180) days from the date that the Buyer submitted its materials
for an extension of provisional certification as set forth in 34 C.F.R. ss.
600.20(h), where ED has stated in writing that such failure is based
predominately upon a Pre-Closing Seller Condition. Notwithstanding the preceding
sentence, the liability of the Sellers under this Agreement shall be limited as
set forth in the last sentence of Section 9.5 and as follows: the Sellers shall
have no liability under
44
Section 9.2(i) until (A) the aggregate of all Losses arising out of any single
breach or liability exceeds two hundred thousand dollars ($200,000) and (B) the
aggregate of all Losses arising out of all matters set forth in Section 9.2(i)
exceeds one million two hundred and seventy-five thousand dollars ($1,275,000)
and then only to the extent that such Losses exceed three hundred fifty thousand
dollars ($350,000), provided however that Losses arising out of a breach of the
-------- -------
representations and warranties contained in Section 3.15 (collectively
"Environmental Losses") shall not be subject to such one million two hundred and
seventy-five thousand dollar ($1,275,000) limitation. Notwithstanding the first
sentence of this Section 9.2, the aggregate maximum liability of the Sellers
after Closing for all Losses arising under Section 9.2(i) shall not exceed
twelve million five hundred thousand dollars ($12,500,000), provided however
-------- -------
that if the Buyer has after the Closing Date and during the time period
specified in clause (b) of Section 11.3 incurred more than three million dollars
($3,000,000) in Environmental Losses and either (m) the Sellers' Representative
shall have agreed that the Buyer has incurred more than three million dollars
($3,000,000) in Environmental Losses or (n) the Parties shall have received a
final determination pursuant to Section 11.11 of this Agreement and the court
referenced in Section 11.11 shall have finally determined that the Buyer has
incurred more than three million dollars ($3,000,000) in Environmental Losses,
then the maximum aggregate liability of the Sellers for all Losses arising out
of all matters set forth in Section 9.2(i) shall be increased to seventeen
million five hundred thousand dollars ($17,500,000)(it being understood and
agreed that this proviso shall not extend or otherwise modify the periods for
which the parties' respective representations, warranties, covenants and
agreements survive the Closing specified in Section 11.3). Notwithstanding the
first sentence of this Section 9.2, the Sellers shall have no liability under
Section 9.2(iv) until the aggregate of all Losses arising under matters set
forth in Section 9.2(iv) exceeds five hundred thousand dollars ($500,000) and
then only to the extent such Losses exceed five hundred thousand dollars
($500,000) and the maximum aggregate liability of the Sellers for all Losses
arising under Section 9.2(i) as a consequence of Losses arising out of a breach
of the representations and warranties contained in Sections 3.20, 3.21, 3.22 and
3.23 and Losses arising under the matters set forth in Section 9.2(iv) shall not
exceed twenty-five million dollars ($25,000,000). The maximum aggregate
liability of Sellers for all Losses arising out of the matters set forth in
Sections 9.2(i) and (iv) shall not exceed thirty-seven million five hundred
thousand dollars ($37,500,000); provided however that if the application of the
-------- -------
proviso to the third sentence of this Section 9.2 has increased the maximum
aggregate liability of the Sellers for all Losses arising out of all matters set
forth in Section 9.2(i) to seventeen million five hundred thousand dollars
($17,500,000), then (and only then) the maximum liability of the Sellers for all
Losses arising out of the matters set forth in Section 9.2(i) and (iv) shall not
exceed forty-two million five hundred thousand dollars ($42,500,000). The
maximum aggregate liability of the Sellers under this Agreement for Losses other
than those brought pursuant to Sections 9.2(i) or (iv) shall not exceed the
Purchase Price.
Section 9.3 Tax Matters. Allied shall indemnify, defend, and hold
-----------
harmless Buyer, the Company and the Subsidiary against any Loss attributable to
(a) any Tax payable by or on behalf of Sellers, the Company or the Subsidiary
for any taxable period (or portion thereof) ending on or prior to the Closing
Date to the extent such Tax is not reflected as a liability on the Final Closing
Statements, (b) Taxes of any member of a consolidated or combined tax group of
which Sellers, the Company or the Subsidiary is, or was at any time, a member,
for which Company or the Subsidiary is jointly or severally liable as a result
of its inclusion in such group
45
prior to the Closing Date to the extent such Tax is not reflected as a liability
on the Final Closing Statements, and (c) with respect to any Taxes payable by
Buyer with respect to the Company or the Subsidiary, due for periods beginning
before and ending after the Closing Date (whether or not assessed prior to the
Closing Date), a pro-rata share of such Taxes to the extent such Tax is not
reflected as a liability on the Final Closing Statements. For purposes of
calculating Sellers' pro-rata share of Taxes described in Section 9.3(c), the
Closing Date will be treated as the last day of a taxable period, and the
portion of any such Tax that is allocable to the taxable period that is so
deemed to end on the Closing Date will be: (1) in the case of Taxes that are
based upon or related to income or receipts, deemed equal to the amount that
would be payable if the period for which such Tax is assessed ended with the
Closing Date; and (2) in the cases of Taxes other than Taxes based upon or
related to income or receipts, deemed to be the amount of such Taxes for the
entire period multiplied by a fraction the numerator of which is the number of
calendar days in the period ending with the Closing Date and the denominator of
which is the number of calendar days in the entire period; provided however that
-------- -------
taxable income and Taxes of the Company and the Subsidiary for taxable periods
(or portions thereof) ending on or before the Closing Date shall be calculated
for purposes of this Agreement by not taking into account any items, events or
transactions occurring after the Closing.
Section 9.4 Additional Indemnity Provisions. The indemnification
-------------------------------
obligations of the Buyer and the Sellers hereunder shall be subject to the
following terms and conditions:
(a) Except for claims against the Sellers (i) arising under this
Agreement or (ii) relating to financial obligations for sums advanced or loans,
the Buyer shall not assert and shall cause the Company, the Subsidiary and their
Affiliates not to assert any claims against any present or former director or
officer, of the Sellers, for or with respect to any matter relating to the
Company or the Subsidiary prior to Closing.
(b) The liability of Grenat for any indemnity hereunder shall not
exceed the actual amount received by Grenat on account of the Stock, pursuant to
this Agreement Without limiting the foregoing, Grenat shall be liable for any
indemnity under Sections 9.2(i), (ii) and (iii) solely to the extent that any
Losses under Sections 9.2(i), (ii) and (iii) relate to a breach by Grenat.
(c) The indemnification obligations of the Sellers set forth in
Section 9.2 shall not apply, and no claims for indemnification shall be made by
the Buyer, with respect to any Losses or ED demands for surety or other
conditions arising predominantly out of noncompliance by the Buyer, the Company,
or the Subsidiary with any of the following requirements on the Closing Date
(after giving effect to the transactions contemplated by this Agreement to be
consummated on the Closing Date): (i) submission within the timeframe defined in
34 C.F.R. ss. 600.21(h)(2)(iii) of a "same day" balance sheet showing the
financial position of the Company and the Subsidiary, as of the Closing Date,
that is prepared in accordance with GAAP and audited in accordance with
Generally Accepted Auditing Standards published by the U.S. General Accounting
Office which demonstrates that each of the Company and the Subsidiary meet ED
standards of financial responsibility as set forth in 34 C.F.R.
(S)(S)668.15(b)(7)(i)(A) and 668.15(b)(7)(i)(C); or (ii) compliance by the
Company and the Subsidiary with the standards of
46
financial responsibility as set forth in 34 C.F.R. (S)(S) 668.15, 668.171 - 175,
and any successor regulation on or after the Closing.
(d) Except as otherwise provided in Section 9.5, the sole recourse and
exclusive remedy of the Buyer and the Sellers against each other arising out of
this Agreement or any certificate delivered in connection with this Agreement,
or otherwise arising from the Buyer's acquisition of the Stock, shall be to
assert a claim for indemnification under the indemnification provisions of
Sections 9.1, 9.2 and 9.3; provided, however, that the limitations set forth in
Section 9.2 and this Section 9.4 shall not apply to Losses of Buyer arising out
of fraud of the Sellers.
(e) The term "Loss" or "Losses" shall mean any and all liabilities,
judgments, penalties, fines, losses, damages (other than consequential or
incidental damages) and reasonable costs and expenses, including but not limited
to, reasonable attorneys' fees and accounting fees and related disbursements.
The amount of any Loss subject to indemnification hereunder or of any claim
therefor shall be calculated net of any insurance proceeds (net of direct
collection expenses) received or receivable by the Buyer, the Company or the
Subsidiary on account of such Loss. The Buyer and the Company shall seek (and
the Company shall cause the Subsidiary to seek) full recovery under all
insurance policies covering any Loss to the same extent as they would if such
Loss were not subject to indemnification hereunder, and the Buyer and the
Company shall not terminate or cancel (and the Company shall cause the
Subsidiary not to terminate or cancel) any insurance policies in effect for
periods prior to the Closing. In the event that an insurance recovery is made by
the Buyer, the Company, the Subsidiary or any of their Affiliates with respect
to any Loss for which any such Person has been indemnified hereunder, then a
refund equal to the aggregate amount of the recovery (net of all direct
collection expenses) shall be made promptly to the Sellers' Representative (on
behalf of the Sellers) or if the Loss has not yet been determined or paid by
Sellers, the Sellers' indemnification obligation in respect of the Loss shall be
reduced by the aggregate amount of the insurance recovery (net of all direct
collection expenses). The amount of a Loss with respect to which the Indemnified
Party is to be indemnified pursuant to this Article IX initially shall be
determined without regard to any Tax benefit. However, to the extent that the
Indemnified Party recognizes a Tax benefit with respect to any payment for
Losses made hereunder (a "Tax Benefit"), the Indemnified Party shall pay to the
Indemnifying Party the amount of such Tax Benefit (but not in excess of the
indemnification payment or payments actually received from the Indemnifying
Party with respect to such Losses) at such time or times as and to the extent
that the Indemnified Party or any Affiliate of Indemnified Party actually
realizes such Tax Benefit through a refund (as defined in Section 6.9) of Tax,
calculated by computing the amount of Taxes before and after inclusion of any
Tax items attributable to such Losses for which indemnification was made and
treating such Tax items as the last items claimed for any taxable period;
provided that, if any subsequent Tax adjustments are made relating to the
Indemnified Party for any taxable period as a result of or in settlement of any
audit, other administrative proceeding that results in any change in the amount
of any Tax Benefit to the Indemnified Party, appropriate payments will be made
between the Indemnifying Party and the Indemnified Party to properly reflect
such adjustment amount. The Buyer and the Company, on the one hand, and Sellers,
on the other hand, agree to provide the other or its designated representatives
with assistance and such documents and records reasonably requested by them that
are relevant to their ability to determine when an amount is payable to, or
receivable
47
from, the other party pursuant to this Section 9.4(f), including copies of Tax
returns, estimated tax payments, schedules, and related supporting documents.
(f) For the purposes of determining whether there has been a breach or
an inaccuracy in respect of any representation or warranty for the purpose of
indemnification under this Article IX, all claims for Losses arising out of the
same facts or events resulting in such inaccuracy or breach shall be treated as
a single claim.
(g) To the extent that an indemnifying party has discharged any claim
for indemnification hereunder, the indemnifying party shall be subrogated to all
rights of the Company, the Subsidiary or any other indemnified party against any
Person to the extent of the Losses that relate to such claim. Any indemnified
party shall, upon written request by the indemnifying party following the
discharge of such claim, execute an instrument reasonable necessary to evidence
such subrogation rights.
(h) In the event that any party to this Agreement proposes to make any
claim for indemnification pursuant to this Article IX, or would have the right
to make a claim for indemnification but for the minimum or maximum limitations
on indemnification contained in Section 9.2, the party making the claim (or with
such right) shall promptly deliver on or prior to the date upon which the
applicable representations and warranties or covenants expire pursuant to the
terms of this Agreement and within a reasonable time of discovery of the breach
of or nonperformance of any covenant or obligation to be performed under this
Agreement, a certificate signed by the party making the claim or an officer of
the party making the claim (the "Claim Certificate") to the Sellers'
Representative (on behalf of the Sellers) or the Buyer, whichever is applicable,
which Claim Certificate shall (i) state the occurrence giving rise to the claim
and that the Loss or liability has been properly accrued or is anticipated; (ii)
specify the Section of this Agreement under which such claim is made; and (iii)
specify in reasonable detail each individual item of Loss or other claim,
including the amount thereof if reasonably ascertainable, the date such Loss or
liability was incurred, properly accrued or is anticipated, the basis for any
anticipated Loss or liability and the nature of the misrepresentation, breach of
warranty or the claim to which such Loss or liability is related. The party
making the claim shall state only what is required in subsections (i)--(iii)
above and shall not admit or deny the validity of the facts or circumstances out
of which such claim arose.
(i) Any payments made as indemnification under Sections 9.1, 9.2 or
9.3 shall be considered adjustments to the Purchase Price.
(j) Notwithstanding anything to the contrary in this Article IX,
neither the Sellers, the Company, nor the Buyer shall be deemed to have breached
any representation, warranty, or covenant if (i) the Sellers' Representative
shall have notified the Buyer pursuant to Section 6.4(a) or the Buyer shall have
notified the Sellers' Representative pursuant to Section 6.4(b), as the case may
be, in writing, on or prior to the Closing Date, of the breach of, or inaccuracy
in, or of any facts or circumstances constituting or resulting in the breach of,
or inaccuracy in, such representation, warranty or covenant and (ii) the party
or parties receiving such notice have
48
permitted the Closing to occur, in which case such party shall be deemed to have
waived such breach or inaccuracy.
(k) In the event a party claiming indemnification under this Agreement
(the "Indemnified Party") provides a Claim Certificate which estimates the
damages grossly in excess of the damages actually settled, adjudicated or
arbitrated, as the case may be, the party from whom indemnification is sought
(the "Indemnifying Party") may assert its expenses so incurred in a claim
against the Indemnified Party.
(l) In the event the Buyer and/or the Company seek indemnification
with respect to a claim for alleged Losses under this Article IX against either
of the Sellers and if a court of competent jurisdiction determines that the
Buyer and/or the Company are not entitled to indemnification hereunder with
respect to such alleged Losses, the Party asserting one or more claims that are
disputed by the Indemnifying Party shall pay up to four hundred thousand dollars
($400,000) of the reasonable documented legal fees of the Indemnifying Party's
counsel if the Party asserting such claims does not prevail (i.e. receives any
indemnity payment on any claims) in such dispute on any of the claims asserted
by such Party.
(m) For purposes of determining whether a Loss has occurred and its
amount, all references to "material" or "materially" contained in any of the
Company or the Sellers' representations and warranties shall be disregarded.
Section 9.5 Option to Repurchase the Stock in Certain
-----------------------------------------
Indemnification Circumstances. In the event that the Buyer commences an action
-----------------------------
pursuant to Section 11.11 in which it asserts, either individually or among
other claims, a claim for indemnification for Losses in excess of Twelve Million
Five Hundred Thousand Dollars ($12,500,000) for matters arising out of matters
set forth in Section 9.2(iv), then within sixty (60) days of the receipt by
either of the Sellers of service of process of such action Allied may elect by
providing written notice (the "Repurchase Notice") to the Buyer (i) that it
desires to repurchase the Stock (the "Repurchase") for the Purchase Price plus
reasonable documented out-of-pocket expenses incurred by the Buyer in
negotiating and executing this Agreement and (ii) of the anticipated date of the
Closing of the Repurchase (the "Repurchase Closing Date"), which Repurchase
Closing Date shall not be more than sixty (60) days after the date of the
Repurchase Notice. The closing of the Repurchase shall be held at the offices of
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, ▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇ on the Repurchase Closing Date. Between the date of its receipt of the
Repurchase Notice and the Closing Date, the Buyer shall comply with the
covenants specified in Article V and the Buyer and Allied shall work
cooperatively and in good faith to consummate the closing on the Repurchase. The
Buyer shall furnish Allied with a copy of all reasonable out-of-pocket expenses
incurred by the Buyer in negotiating and executing this Agreement and pertinent
supporting materials not less than five (5) days before the Repurchase Closing
Date. On the Repurchase Closing Date, the Buyer shall deliver the stock
certificates representing the Stock in the manner described in Section 1.4 free
and clear of all security interests, liens, claims, indebtedness and charges
whatsoever (other than those created or attributable to the Sellers) against
payment by Allied of the Purchase Price described in this Section 9.5. In the
event Allied provides a Repurchase Notice to the Buyer and thereafter
49
consummates a Repurchase within the time periods specified in this Section 9.5,
the provisions contained in this Section 9.5 shall be the sole recourse and
exclusive remedy of the Buyer and the Sellers against each other arising out of
this Agreement ,any certificate delivered in connection with this Agreement, or
in connection with the transactions contemplated by this Agreement.
Section 9.6 Defense of Third Party Claims and Extension of Statute
------------------------------------------------------
of Limitations.
--------------
(a) The Indemnifying Party shall have the right in its discretion and
at its expense to participate in and control (i) the defense or settlement of
any claim, suit, action or proceeding (including appeals) (a "Third Party
Claim") in respect of such item (or items) by any Person other than the
Indemnified Party, subject to the prior written consent of the Indemnified Party
(which consent shall not be unreasonably withheld or delayed) and (ii) any and
all negotiations with respect thereof, and the Indemnified Party shall not
settle any such Third Party Claim or agree to extend any applicable statute of
limitation without the prior written approval of the Indemnifying Party (which
consent shall not be unreasonably withheld or delayed). The Indemnified Party
will provide the Indemnifying Party with reasonable assistance with respect to
such Third Party Claim, provided that the Indemnifying Party shall promptly
reimburse the Indemnified Party for all of its reasonable out-of-pocket expenses
and reasonable attorneys' fees incurred in connection with such assistance.
(b) Notwithstanding anything to the contrary in this Section 9.6,
should any claim hereunder involve a situation where the Indemnified Party
reasonably anticipates that part of the claim will be borne by it and part of
the claim will be borne by the Indemnifying Party due to the existence of the
limitation amounts in Section 9.2, the parties shall jointly consult and proceed
as to any such claim.
Section 9.7 Disclosure Generally. If and to the extent any
--------------------
information required to be furnished in any Schedule or supplement thereto is
contained in this Agreement, such information shall be deemed to be included in
all Schedules and supplements thereto, provided that the schedule or supplement
must, when cross-applied, reasonably apprise the reader of the nature of the
item disclosed. The inclusion of any information in any Schedule or supplement
thereto shall not be deemed to be an admission or acknowledgement by the Company
or the Sellers, in and of itself, that such information is material to or
outside the ordinary course of the business of the Company.
Section 9.8 Disclaimer of Implied Warranties. It is the explicit
--------------------------------
intent and understanding of each party hereto that no party hereto or any of
such party's Affiliates, representatives or agents is making any representations
or warranty whatsoever, oral or written, express or implied, other than those
set forth in this Agreement, and no party hereto is relying on any statement,
representation or warranty, oral or written, express or implied, made by any
other party hereto or such other party's Affiliates, representatives or agents,
except for the representations and warranties set forth in this Agreement.
EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH IN THIS AGREEMENT, THE PARTIES
EXPRESSLY
50
DISCLAIM ALL OTHER REPRESENTATIONS AND WARRANTIES OF ANY KIND OR NATURE
EXPRESSED OR IMPLIED (INCLUDING ANY FINANCIAL PROJECTIONS OR BUDGETS, INCLUDING
WITHOUT LIMITATION THOSE PROJECTIONS AND BUDGETS CONTAINED IN THE SUBSIDIARY'S
CONFIDENTIAL DESCRIPTIVE MEMORANDUM DATED NOVEMBER 2001 AND PREPARED BY BANC OF
AMERICA SECURITIES).
ARTICLE X
---------
TERMINATION AND ABANDONMENT
---------------------------
Section 10.1 Methods of Termination. This Agreement may be terminated
----------------------
and the transactions herein contemplated may be abandoned at any time prior to
the Closing:
(a) by mutual consent of the Sellers' Representative and the Buyer; or
(b) by the Buyer at any time after July 31, 2002 if any of the
conditions
provided for in Article VII of this Agreement shall not have been satisfied or
waived in writing by the Buyer prior to such date; or
(c) by the Sellers' Representative at any time after July 31, 2002 if
any of the conditions provided for in Article VIII of this Agreement shall not
have been satisfied or waived in writing by the Sellers' Representative prior to
such date; or
(d) by the Buyer or the Sellers' Representative at any time after July
31, 2002 if the Closing shall not have occurred; or
(e) by the Buyer or the Sellers' Representative if there has been a
material violation or breach by the other of its agreements, representations or
warranties contained in this Agreement and the party seeking termination is not
in material violation or breach of its agreements, representations or warranties
contained in this Agreement.
Section 10.2 Procedure Upon Termination. In the event of termination
--------------------------
and abandonment by the Sellers' Representative, or the Buyer, or both, pursuant
to this Article X, written notice thereof shall forthwith be given to the other
parties and this Agreement shall terminate and be abandoned without further
action by the Buyer, the Company or the Sellers. If this Agreement is terminated
as provided herein:
(a) each party will redeliver (or destroy pursuant to Section 6.2) all
documents, work papers and other material of any other party relating to the
transactions contemplated hereby, whether obtained before or after the execution
hereof, to the parties furnishing the same; and
(b) no party hereto shall have any liability or further obligation to
any other party to this Agreement, except as provided in Section 10.3 with
respect to expense reimbursement in the
51
event of certain terminations, Section 6.2 with respect to the confidentiality
obligations of the parties and Section 11.7 with respect to expenses (each of
which shall survive the termination of this Agreement), and except for such
legal and equitable rights and remedies which any party may have by reason of
any breach or violation of this Agreement by any other party.
Section 10.3 Expense Reimbursement.
---------------------
(a) If this Agreement is terminated pursuant to Section 10.1(e) by
Buyer, then the Company (or Sellers, if such payment is not made by the Company
within thirty (30) days of such termination) shall promptly reimburse the Buyer
for up to $500,000 (in the aggregate) of reasonable documented out of pocket
costs and expenses incurred by Buyer in connection with this Agreement and the
transactions contemplated hereby, including, but not limited to costs and
expenses of accountants, attorneys, financial advisors, finders and brokers.
(b) If this Agreement is terminated pursuant to Section 10.1(e) by
Sellers' Representative, then the Buyer shall promptly reimburse the Sellers for
up to $500,000 (in the aggregate) of reasonable documented out of pocket costs
and expenses incurred by the Sellers in connection with this Agreement and the
transactions contemplated hereby, including, but not limited to costs and
expenses of accountants, attorneys, financial advisors, finders and brokers.
ARTICLE XI
----------
MISCELLANEOUS PROVISIONS
------------------------
Section 11.1 Amendment and Modification. This Agreement may be
--------------------------
amended, modified and supplemented only by written agreement of each of the
parties hereto.
Section 11.2 Waiver of Compliance. Any failure of any party to comply
--------------------
with any obligation, covenant, agreement or condition contained herein may be
expressly waived in writing by the party to whom such obligation is owed, but
such waiver or failure to insist upon strict compliance shall not operate as a
waiver of, or estoppel with respect to, any subsequent or other failure.
Section 11.3 Representations and Warranties, etc. The respective
-----------------------------------
representations, warranties, covenants and agreements of the parties contained
herein shall survive the Closing and shall expire and terminate eighteen (18)
months thereafter, except for (a) claims made on or prior to the date eighteen
(18) months from the Closing Date pursuant to Article IX, which claims and the
provisions of Article IX shall survive until the liability is finally
determined, (b) the representation and warranty under Section 3.15, which shall
survive for sixty (60) months from the Closing Date, (c) the representations and
warranties under Sections 3.20, 3.21, 3.22 and 3.23, which shall survive for
thirty (30) months and (d) the representations, warranties, covenants and
agreements of the parties under Sections 2.1, 2.2, 2.5, 3.12, 3.16, 4.7, 6.9,
6.10, 6.11, 6.12, 6.13, 9.1, 9.2, 9.3, 9.4 and 11.12, which representations,
warranties, covenants and agreements shall survive until one hundred twenty
(120) days after the end of the relevant statute
52
of limitations period. After the expiration of the periods specified in the
preceding sentence, no party shall be under any liability whatsoever with
respect to any such representation, warranty, covenant or agreement or any
certificate in respect thereto, except to the extent that a claim has been made
prior to the expiration of the relevant claims period above, in which case both
the claim and the Sellers' obligation to indemnify the Buyer for Losses in
respect of such claim shall survive until the liability is finally determined.
Section 11.4 Notices. All notices, requests, consents and other
-------
communications hereunder shall be deemed given: (i) when delivered if delivered
personally (including by courier); (ii) on the third day after mailing, if
mailed, postage prepaid, by registered or certified mail (return receipt
requested); (iii) on the day after mailing if sent by a nationally recognized
overnight delivery service which maintains records of the time, place, and
recipient of delivery; or (iv) upon receipt of a confirmed transmission, if sent
by telex, telecopy or facsimile transmission, in each case to the parties at the
following addresses or to other such addresses as may be furnished in writing by
one party to the others:
(a) if to the Sellers or the Sellers' Representative to:
c/o Allied Capital Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
(b) if to the Buyer to:
Corinthian Colleges, Inc.
▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇
with a copy to:
O'Melveny & ▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
53
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Section 11.5 Binding Nature; Assignment. This Agreement shall be
--------------------------
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto without prior written consent of the other parties. Nothing
contained herein, express or implied, is intended to confer on any Person other
than the parties hereto or their successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement. Except as
otherwise expressly provided herein, nothing contained herein shall be deemed to
give rise to any personal obligation of any of the directors, officers or
principals of any of the parties hereto, by reason of any breach or violation of
any of the provisions hereof or otherwise.
Section 11.6 Entire Agreement. This Agreement, including the other
----------------
documents referred to herein, embodies the entire agreement and understanding of
the parties hereto in respect of the subject matter contained herein. There are
no restrictions, promises, warranties, covenants or undertakings, other than
those expressly set forth or referred to herein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter, including but not limited to the Confidentiality Agreement.
Section 11.7 Expenses. Except as otherwise expressly provided herein,
--------
each party to this Agreement will pay its own expenses in connection with the
negotiation of this Agreement, the performance of its obligations hereunder, and
the consummation of the transactions contemplated herein; provided that all
sales taxes, transfer and notarial fees and taxes and the like, if any, arising
from the purchase of the Stock shall be paid by the Sellers. Each Seller shall
pay such Seller's Fraction of the aggregate expenses of the Sellers; and Allied
shall deduct Grenat's share of such expenses and any other anticipated
obligations of the Sellers with respect to this Agreement from any amount
otherwise payable to Grenat hereunder.
Section 11.8 Press Releases and Announcements. No press release
--------------------------------
related to this Agreement or the transactions contemplated herein, or other
announcement to the employees, customers, or suppliers of the Company, will be
issued without the joint approval of the Buyer and the Sellers' Representative,
except as otherwise advisable (provided the Party issuing a press release has
first consulted with the other Party and taken into account its reasonable
concerns, if any) or required by applicable law, rule or regulation, including
but not limited to the rules of the New York Stock Exchange or Nasdaq, as
determined in the opinion of such disclosing party's counsel.
Section 11.9 Governing Law. This Agreement and the legal relations
-------------
between the parties hereto shall be governed by and construed in accordance with
the laws of the State of Delaware without giving effect to any law or rule that
would cause the laws of any jurisdiction other than the State of Delaware to be
applied.
54
Section 11.10 Severability. Any provision of this Agreement which is
------------
invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability, without affecting in any way the remaining provisions hereof
in such jurisdiction or rendering that or any other provision of this Agreement
invalid, illegal or unenforceable in any other jurisdiction.
Section 11.11 Jurisdiction; Service of Process. The parties hereto
--------------------------------
consent to personal jurisdiction in Wilmington, Delaware and agree that the
exclusive venue and place of trial for the resolution of any disputes arising in
connection with the interpretation or enforcement of this Agreement shall be in
the United States District Court for the District of Delaware The Parties hereby
consent to process being served in any suit, action or proceeding instituted in
connection with this Agreement by the mailing of a copy thereof by registered or
certified mail, postage prepaid, return receipt requested to the relevant Party
at its address set forth in Section 11.4 of this Agreement. The Parties
irrevocably agree that such service shall be deemed in every respect effective
service of process upon the relevant Party(s) in any such suit, action or
proceeding, and shall, to the fullest extent permitted by law, be taken and held
to be valid personal service upon such Party(s). Nothing in this paragraph shall
affect the right of a Party to serve process in any manner otherwise permitted
by law.
Section 11.12 Headings. The headings contained in this Agreement are
--------
inserted for convenience only and shall not constitute a part hereof.
Section 11.13 Legal Representation. In any dispute or proceeding
--------------------
arising under or in connection with this Agreement including, without
limitation, under Article IX, the Sellers shall have the right, at their
election, to retain the firm of ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP to
represent them in such matter and the Buyer, for itself and for its successors
and assigns, hereby irrevocably waives and consents to any such representation
in any such matter. The Buyer, for itself and its successors and assigns, hereby
irrevocably acknowledges and agrees that all communications between the Sellers
and its counsel, including without limitation ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
LLP, made in connection with the negotiation, preparation, execution, delivery
and closing under, or any dispute or proceeding arising under or in connection
with, this Agreement, or any matter relating to any of the foregoing, are
privileged communications between the Sellers and such counsel. The Sellers, for
themselves and each of their respective successors and assigns, hereby
irrevocably acknowledges and agrees that all communications between the Buyer
and its counsel, including without limitation O'Melveny & ▇▇▇▇▇ LLP and ▇▇▇▇
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, made in connection with the negotiation, preparation,
execution, delivery and closing under, or any dispute or proceeding arising
under or in connection with, this Agreement, or any matter relating to any of
the foregoing, are privileged communications between the Buyer and such counsel.
Section 11.14 No Third Party Beneficiaries. This Agreement is intended
----------------------------
and agreed to be solely for the benefit of the parties hereto, and no third
party shall accrue any benefit, claim or right of any kind whatsoever pursuant
to, under, by or through this Agreement, except as otherwise contemplated by
Section 11.5.
55
Section 11.15 Specific Performance. Each of the parties hereto
--------------------
acknowledges and agrees that the other parties hereto would be irreparably
damaged in the event any of the provisions of this Agreement were not performed
in accordance with their specific terms or were otherwise breached. Accordingly,
each of the parties hereto agrees that, in addition to any other remedy to which
such party may be entitled at law or in equity, they each shall be entitled to
an injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement, the terms and provisions
hereof.
Section 11.16 Sellers' Representative. By the execution and delivery
-----------------------
of this Agreement, each of the Sellers hereby irrevocably constitutes and
appoints Allied as the true and lawful agent and attorney-in-fact (the "Sellers'
Representative") of the Sellers with full power of substitution to act in the
name, place and stead of the Sellers with respect to the transfer of the Stock
owned by the Sellers to the Buyer in accordance with the terms and provisions of
this Agreement, and to act on behalf of the Sellers in any litigation or
arbitration involving this Agreement, do or refrain from doing all such further
acts and things, and execute all such documents as the Sellers' Representative
shall deem necessary or appropriate in connection with the transaction
contemplated by this Agreement, including, without limitation, the power:
(i) to act for the Sellers with regard to matters pertaining to
indemnification referred to in this Agreement, including the power to compromise
any indemnity claim on behalf of the Sellers and to transact matters of
litigation;
(ii) to execute and deliver all ancillary agreements,
certificates and documents that the Sellers' Representative deems necessary or
appropriate in connection with the consummation of the transaction contemplated
by this Agreement;
(iii) to receive funds and give receipts for funds, including in
respect of any adjustments to the Purchase Price;
(iv) to do or refrain from doing any further act or deed on
behalf of the Sellers that the Sellers' Representative deems necessary or
appropriate in its sole discretion relating to the subject matter of this
Agreement as fully and completely as the Sellers could do if personally present;
and
(v) to receive service of process in connection with any claims
under this Agreement.
The appointment of the Sellers' Representative shall be deemed coupled with an
interest and shall be irrevocable, and the Buyer and any other Person may
conclusively and absolutely rely, without inquiry, upon any action of the
Sellers' Representative in all matters referred to herein. All notices required
to be made or delivered by the Buyer to either of the Sellers shall be made to
the Sellers' Representative for the benefit of such Seller and shall discharge
in full all notice requirements of the Buyer to the Sellers with respect
thereto. The Sellers hereby confirm all that the Sellers' Representative shall
do or cause to be done by virtue of its appointment as the Sellers'
Representative of the Sellers. The Sellers' Representative shall act for the
Sellers on all
56
of the matters set forth in this Agreement in the manner the Sellers'
Representative believes to be in the best interest of the Sellers and consistent
with obligations under this Agreement, but the Sellers' Representative shall not
be responsible to the Sellers for any loss or damages the Sellers may suffer by
the performance by the Sellers' Representative of its duties under this
Agreement, other than loss or damage arising from willful violation of the law
by the Sellers' Representative of its duties under this Agreement.
Section 11.17 Counterparts. This Agreement may be executed in one or
------------
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument. Any such counterpart may be
executed by facsimile signature with only verbal confirmation, and when so
executed and delivered shall be deemed an original and such counterpart(s)
together shall constitute only one original.
[The balance of this page intentionally left blank]
57
IN WITNESS WHEREOF, the parties have executed this Stock Purchase and
Sale Agreement as of the date first written above.
WYO-TECH ACQUISITION CORP.
By: ___________________________________
Name:
Title:
ALLIED CAPITAL CORPORATION
By: ___________________________________
Name:
Title:
_______________________________________
▇▇▇▇▇ ▇▇▇▇▇▇
CORINTHIAN COLLEGES, INC.
By: ___________________________________
Name:
Title:
58
Exhibit A
---------
SELLERS
-------
Seller Shares Owned Seller's Fraction
------ ------------ -----------------
Allied Capital Corporation 99 .979616
▇▇▇▇▇ ▇▇▇▇▇▇ 2.06 .020384
OPTIONS HOLDERS
---------------
Option Holder Number of Vested Optioned Shares
------------- --------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 5.9
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 1.416
APPENDIX 1
-----------
PRINCIPLES AND PROCEDURES
-------------------------
1. The Closing Certificate, Closing Statements and Closing Report shall be
prepared in accordance with generally accepted accounting principles of the
United States ("GAAP") applied in a manner consistent with past practices
of the Company and the Subsidiary, except for such departures from GAAP and
consistency in application as are specifically set forth below in this
Appendix 1. For illustrative purposes, attached hereto on Schedule I are
----------
sample calculations as of December 31, 2001 of the Closing Adjustment, the
Acid Test Ratio, the Acid Test Ratio Adjustment, the Tangible Net Equity
and the Tangible Net Equity Adjustment. Capitalized terms used herein but
not defined herein shall have the respective meanings given such terms in
the Agreement.
2. Acid Test Ratio is defined as the ratio obtained by dividing (i) the sum of
the Cash and Cash Equivalents and Accounts Receivable of the Company and
the Subsidiary on the Closing Date plus the Numerator Adjustment (as
defined in Section 3) by (ii) the sum of the total Current Liabilities of
the Company and the Subsidiary on the Closing Date plus the Denominator
Adjustment (as defined in Section 4). The Cash and Cash Equivalents,
Accounts Receivable, Current Liabilities, Numerator Adjustment and
Denominator Adjustment, with respect to (i) the Estimated Closing
Adjustment, shall be as set forth on the Closing Certificate, and (ii) the
Closing Adjustment, shall be as set forth on the Final Closing Statements.
3. The following details the Principles and Procedures of calculating the
items in the numerator of the Acid Test Ratio:
. Cash and Cash Equivalents - As defined by GAAP applied in a manner
consistent with past practices of the Company and the Subsidiary.
. Accounts Receivable - Trade receivables (including student tuition and
housing, Department of Education receivables and student notes),
non-trade receivables if current in nature, payroll and other
non-income tax receivables, all as defined by GAAP applied in a manner
consistent with past practices of the Company and the Subsidiary,
shall be included in the calculation of the Acid Test Ratio. Note that
Accounts Receivable shall be net of the Allowance for Doubtful
Accounts in the calculation of the Acid Test Ratio. Income tax
receivables shall be included in Accounts Receivable only to the
limited extent provided below.
. Allowance for Doubtful Accounts - As defined by GAAP applied in a
manner consistent with past practices of the Company and the
Subsidiary.
. Income Tax Receivables. Federal and state income tax receivables with
respect to the taxable year ended December 31, 2001 shall be included
in Accounts Receivable to the extent such receivables are attributable
to income tax refund claims prepared by Ernst & Young LLP and filed on
or before May 15, 2002, remain unpaid at the Closing, and do not, in
the aggregate, exceed $1,250,000.
. As a departure from GAAP and consistency in application with the past
practices of the Company and the Subsidiary, deferred tax assets shall
be deemed to be zero ($0) as of the Closing Date.
. Numerator Adjustment - Shall be fifty percent (50%) of the Budgeted
Capital Expenditures as set forth on Schedule 1.1(i) of the Agreement
actually spent between January 1, 2002 and the Closing Date plus 100%
of all capital expenditures spent in excess of $3,115,000 during such
time period.
4. The following details the Principles and Procedures of calculating the
items in the denominator of the Acid Test:
. Current Liabilities - As defined by GAAP applied in a manner
consistent with past practices of the Company and the Subsidiary
except as follows:
* Denominator Adjustment - Represents a memo account in an amount
equal to $3,115,000 less all capital expenditures spent or
accrued (pursuant to invoices that have been received by the
Company or the Subsidiary for services rendered or materials
delivered, but for which payment has not yet been made) between
January 1, 2002 and the Closing Date.
* Income Tax Payable. As a departure from GAAP and consistency in
application with the past practices of the Company and the
Subsidiary, income tax payables and deferred tax liabilities
shall be deemed to be zero ($0) as of the Closing Date. Payroll
and other non-income tax liabilities (including, but not limited
to, the employer portion of federal, state and local employment
taxes arising out of payment of the Option Cancellation Payment
Amount) shall be calculated in accordance with GAAP and
consistent with the past practices of the Company and the
Subsidiary (and therefore included in Current Liabilities).
* Indebtedness. Any amount included in Indebtedness shall be
excluded from Current Liabilities.
5. Tangible Net Equity is defined as the excess as of the Closing Date of (i)
the Company's and the Subsidiary's consolidated tangible assets over (ii)
the Company's and the Subsidiary's consolidated liabilities, each as
determined in accordance with GAAP, consistently applied. The Principles
and Procedures to be followed by the Buyer in calculating the Tangible Net
Equity and in the
preparation of the Closing Certificate, Closing Statements and Closing
Report shall include the following:
. Consolidated Tangible Assets - Consolidated tangible assets of the
Company and the Subsidiary shall include all assets of the Company and
the Subsidiary less goodwill (net of accumulated amortization).
. Consolidated Liabilities - Consolidated liabilities of the Company and
the Subsidiary shall include all liabilities of the Company and the
Subsidiary as determined in accordance with GAAP consistently applied,
excluding the Indebtedness and Preferred Stock.