K12 Inc. School Leasing Corporation American School Supply Corporation 2300 Corporate Park Drive Herndon, Virginia 20171
Exhibit 10.19
K12 Inc.
School Leasing Corporation
American School Supply Corporation
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School Leasing Corporation
American School Supply Corporation
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October 5, 2007
PNC Bank, National Association
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Re: Amendment No. 1 to Revolving Credit Agreement
Ladies and Gentlemen:
We refer to the Revolving Credit Agreement dated December 21, 2006, (as from time to time amended
and in effect called the “Credit Agreement”), by and among K12 Inc., School Leasing Corporation,
American School Supply Corporation and PNC Bank, National Association.
All of the words and expressions used in this letter of agreement which are not defined herein, but
which are defined in the Credit Agreement shall have the same respective meanings in this letter of
agreement as the meanings specified in the Credit Agreement.
Accordingly, in consideration of these premises, the promises, mutual covenants and agreements
contained in this letter of agreement, and fully intending to be legally bound by this letter of
agreement, we hereby agree with you as follows:
1. Amendments to Credit Agreement. Effective on the date hereof, the Credit
Agreement is hereby amended in each of the following respects:
1.1 Amended and Restated Definitions. The definitions of the following terms in Section 1.1
of the Credit Agreement are hereby amended and restated in their entirety and shall hereafter
provide as follows:
“Accumulated Cash” means, at any measurement date, the total of (a) (1) with respect to the
December 31, 2006 measurement date, $8,638,000 and (2) with respect to all other measurement dates,
Accumulated Cash at the end of the Fiscal Quarter preceding the measurement date plus (b) EBITDA
for the Fiscal Quarter ended on the measurement date plus (c) the net cash proceeds, after
deducting all related underwriting discounts, commissions and offering expenses, to Parent during
the Fiscal Quarter ending on the measurement date from the issuance of Capital Stock of Parent
other than Redeemable Capital Stock minus (d) the sum of (1) 1.2 times Fixed Charges for the Fiscal
Quarter ended on the measurement date and (2) Product Development Expenditures for the Fiscal
Quarter ended on the measurement date and (3) Permitted Acquisition Cash Purchase Price for the
Fiscal Quarter ended on the measurement date and (4) all investments,
loans and advances made by Parent or any of its Subsidiaries during
the Fiscal Quarter ended on the measurement date in or to any Person
other than (x) a Borrower
PNC Bank, National Association
October 5, 2007
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or Guarantor or (y) a school(s) or school district(s) to the extent permitted by Section
6.14(b). Solely for purposes of determining Accumulated Cash, EBITDA for the Fiscal Quarter ended
June 30, 2007 shall be increased by $3,000,000 (which amount shall remain in Accumulated Cash for
all calculations made thereafter), and EBITDA for the Fiscal Quarter ended September 30, 2007 shall
be reduced by $3,000,000 (which amount shall remain in Accumulated Cash for all calculations made
thereafter).
“Commitment” means, as to the Lender, the obligation to make Revolving Loans and to issue
Letters of Credit for the account of Borrowers hereunder in an aggregate principal or face amount
at any one time outstanding not to exceed $20,000,000, as the same may be reduced or modified at
any time or from time to time pursuant to the terms hereof.
“Net Worth” means, at any time the same is to be determined, the total shareholders equity
(including capital and accumulated surplus or deficit) plus the carrying value (to the extent not
reflected as shareholders equity) of Parent’s preferred stock outstanding on the date of this
Agreement, in each case that would appear on the balance sheet of Parent and its Subsidiaries
determined on a consolidated basis in accordance with GAAP.
1.2 Amendment and Restatement of Section 6.11(d). Section 6.11(d) of the Credit Agreement is
hereby amended and restated in its entirety and shall hereafter provide as follows:
(d) Purchase Money Indebtedness. Purchase money Indebtedness (excluding Capitalized Lease
Obligations) of Parent and its Subsidiaries in an amount not to exceed $2,000,000 in the aggregate
at any one time outstanding;
1.3 Amendment and Restatement of Section 6.11(e). Section 6.11(e) of the Credit Agreement is
hereby amended and restated in its entirety and shall hereafter provide as follows:
(e) Capitalized Lease Obligations. Capitalized Lease Obligations of Parent and its
Subsidiaries in an amount not to exceed the amounts set forth below at the times set forth below
in the aggregate at any one time outstanding:
| Period | Limitation | |||
From the Closing Date through June 30, 2007 |
$ | 6,500,000 | ||
From July 1, 2007 through June 30, 2008 |
$ | 15,000,000 | ||
From July 1, 2008 through the Termination Date |
$ | 17,500,000 | ||
PNC Bank, National Association
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2. Consents and Waivers.
2.1 Subsidiary Formation. The Lender hereby consents pursuant to Section 6.18 of the Credit
Agreement to Parent’s formation of the following Subsidiaries (the “Foreign Subsidiaries”):
K12 International Holdings B.V. (to be a
direct Subsidiary of Offshore Knowledge
Ventures, Inc.)
direct Subsidiary of Offshore Knowledge
Ventures, Inc.)
K12 Middle East FZ LLC
The Lender further waives the requirements that the Foreign Subsidiaries become Guarantors and
that the Foreign Subsidiaries grant the Lender a security interest in their assets pursuant to
Sections 4.1, 4.2 and 4.3 of the Credit Agreement.
2.2 Joint Venture Formation. The Lender waives to the extent set forth in this letter of
agreement the prohibition set forth in Section 6.14 of the Credit Agreement against entering into
any joint ventures and hereby consents to Parent’s formation through Offshore Knowledge Ventures,
Inc. and K12 International Holdings B.V. of a United Arab Emirates (“UAE”) joint venture to be
known as “K12 Middle East FZ LLC” (the “UAE JV”).
2.3 Investments in Foreign Subsidiaries and UAE JV. The Lender waives to the extent set
forth in this letter of agreement the prohibition set forth in Section 6.14 of the Credit Agreement
against investments in the Foreign Subsidiaries and the UAE JV and hereby consents to Parent’s
investment through Offshore Knowledge Ventures, Inc. and K12 International Holdings B.V. in the
Foreign Subsidiaries and the UAE JV of amounts as follows:
(a) $1,000,000 of total investments in the UAE JV whether in the form of investments, loans,
advances or otherwise;
(b) From the date of this letter of agreement through June 30, 2008, $2,500,000 of total
investments in TW in excess of those permitted as part of a Permitted Acquisition whether in the
form of investments, loans, advances or otherwise; and
(c) From July 1, 2008 through June 30, 2009, additional (beyond the amount described above in
this Section 2.3) total investments in TW of $3,500,000 in excess of those permitted as part of a
Permitted Acquisition whether in the form of investments, loans, advances or otherwise.
None of the amounts described in this Section 2.3 shall be counted towards the $500,000 amount
set forth in Section 6.14(i) of the Credit Agreement,
PNC Bank, National Association
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2.4 License to the Foreign Subsidiaries and UAEJV. The Lender waives to the extent set forth
in this letter of agreement the prohibition set forth in Section 6.13(c) of the Credit Agreement
against the disposition of assets to a Foreign Subsidiary and hereby consents to Parent’s and the
Subsidiaries grant of non-exclusive, non transferable and non-sublicenseable licenses of Parent’s
and the Subsidiaries’ educational programs to the Foreign Subsidiaries and the UAE JV to the extent
necessary for the Foreign Subsidiaries and the UAE JV to execute their respective business plans.
2.5 Power-Glide Guarantee. The Lender waives to the extent set forth in this letter of
agreement the prohibition set forth in Section 6.11 of the Credit Agreement with respect to the
guarantee of mortgage debt having an outstanding principal amount of $340,000.00 (the “Guaranteed
Amount”) by a Subsidiary, Power-Glide Language Courses, Inc., a Utah corporation, for the benefit
of Zions First National Bank (the “Mortgage Guarantee”), and hereby consents to such Mortgage
Guarantee; provided, however, that for so long as such Mortgage Guarantee remains effective, the
availability under the Commitment shall be blocked and reduced by the Guaranteed Amount. Borrower
shall provide Lender with evidence of the termination of the Mortgage Guarantee at which point the
block and reduction of the Commitment will be terminated.
3. Representations and Warranties. Borrower hereby represents and warrants to the
Lender as follows:
3.1 Representations in Loan Documents. Each of the representations and warranties made by or
on behalf of Borrower to the Lender in any of the Loan Documents was true and correct when made and
is true and correct on and as of the date of this letter of agreement with the same full force and
effect as if each of such representations and warranties had been made by Borrower on the date
hereof and in this letter of agreement (except to the extent (a) of changes resulting from
transactions contemplated or permitted by the Credit Agreement and (b) that such representations
and warranties related expressly to an earlier date).
3.2 No Events of Default. No Default or Event of Default exists on the date of this letter
of agreement (after giving effect to all of the arrangements and transactions contemplated by this
letter of agreement).
3.3 Binding Effect of Documents. This letter of agreement has been duly executed and
delivered to you by Borrower and is in full force and effect as of the date hereof, and this
agreements and obligations of Borrower contained herein and in Credit Agreement, as amended,
constitute legal, valid and binding obligations of Borrower enforceable against Borrower in
accordance with their respective terms.
4. Provisions of General Application.
4.1 No Other Changes. Except as otherwise expressly provided by this letter of agreement,
all of the terms, conditions and provisions of the Credit Agreement and each of the
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other Loan Documents remain unaltered. The Credit Agreement and this letter of agreement shall be read and
construed as one agreement.
4.2 Governing Law. This letter of agreement and the rights and obligations hereunder of each
of the parties hereto shall be governed by and interpreted and determined in accordance with the
laws of the Commonwealth of Virginia.
4.3 Binding Effect; Assignment. This letter of agreement shall be binding upon and inure to
the benefit of each of the parties hereto and this respective successors in title and assigns.
4.4 Conflict with other Agreements. If any of the terms of this letter of agreement shall
conflict in any respect with any of the terms of any of the Loan Documents, the terms of this
letter of agreement shall be controlling.
4.5 Counterparts. This letter of agreement may be executed in any number of counterparts,
but all of such counterparts shall together constitute but one and the same agreement. In making
proof of this letter of agreement, it shall not be necessary to produce or account for more than
one counterpart thereof signed by each of the parties hereto.
4.6 Conditions Precedent. This letter of agreement shall become and be effective provided
that (a) the form of acceptance at the end of this letter of agreement shall be signed by the
Lender; (b) the Promissory Note, the form of which is annexed hereto as Exhibit A shall be executed
and delivered by Borrower to Lender; (c) Offshore Knowledge Ventures, Inc. shall have pledged 65%
of the outstanding stock of K12 International Holdings B.V. to the Lender pursuant to a Pledge
Agreement in the form of Exhibit B; and (d) Parent shall have paid an amendment fee of $8,333 to
the Lender.
[Signature page follows.]
PNC Bank, National Association
October 5, 2007
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October 5, 2007
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If you are in agreement with all and each and every part of the foregoing, please sign the
form of acceptance on the enclosed counterpart of this letter of agreement and return such
counterpart to the undersigned, whereupon this letter of agreement, as so accepted by you, shall
become a binding agreement among you and each of the undersigned.
| Very truly yours, | ||||||
| K12 Inc. | ||||||
| By: | ||||||
| Title: | ||||||
| School Leasing Corporation | ||||||
| By: | ||||||
| Title: | ||||||
| American School Supply Corporation | ||||||
| By: | ||||||
| Title: | ||||||
The forgoing letter of agreement and each and every part thereof is hereby accepted by the
undersigned, and each of the undersigned hereby agrees to be bound by all of the terms and
provisions of the foregoing letter of agreement.
| PNC Bank, National Association | ||||||
| By: | ||||||
| Title: | ||||||