SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the registrant [X]
Filed by a party other than the registrant [_]
Check the appropriate box:
[_] Preliminary proxy statement. [_] Confidential, For Use of the
Commission Only
(as permitted by Rule 14a-
6(e)(2))
[X] Definitive proxy statement.
[_] Definitive additional materials.
[_] Soliciting material pursuant to Rule 14a-12.
ARGOSY EDUCATION GROUP, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_]No fee required.
[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X]Fee paid previously with preliminary materials.
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-1(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
[ARGOSY EDUCATION GROUP, INC. LOGO]
MERGER PROPOSAL--YOUR VOTE IS IMPORTANT
Dear stockholder:
You are cordially invited to attend a special meeting of stockholders of
Argosy Education Group, Inc. to be held at 10:00 a.m. local time on Wednesday,
October 31, 2001, at The Northern Trust, 50 South LaSalle Street, 6th Floor
Assembly Room, Chicago, Illinois 60675.
The board of directors of Argosy has unanimously approved an Agreement and
Plan of Merger by and among Argosy, Education Management Corporation and HAC
Inc., a wholly-owned subsidiary of Education Management. The merger agreement
provides for the merger of HAC with and into Argosy, with Argosy becoming a
wholly-owned subsidiary of Education Management. In the merger, you will be
entitled to receive $12.00 in cash, without interest, for each of your shares
of Argosy common stock. At the special meeting, you will be asked to consider
and vote upon the approval of the merger agreement and the merger.
The board of directors has determined that the merger agreement and the
transactions contemplated thereby, including the merger, are advisable and in
the best interests of Argosy and its stockholders. The board of directors
unanimously recommends that you vote in favor of the approval of the merger
agreement and the merger.
The accompanying proxy statement explains the proposed merger and related
transactions and provides specific information concerning the special meeting.
We encourage you to read this information carefully and vote your shares
promptly. You may also obtain additional information about us from documents
that we have filed with the Securities and Exchange Commission.
Your vote is important. Because approval of the merger agreement and the
merger is based on the affirmative vote of at least two-thirds of all shares
outstanding rather than of the number of votes cast, failure to vote your
shares will have the same effect as voting against the merger agreement and the
merger. Before I sold 4.9 million shares of Argosy common stock beneficially
owned by me to Education Management, which represented approximately 75% of
Argosy's outstanding shares of common stock, I voted all 4.9 million shares in
favor of the merger agreement and the merger. I encourage you to also vote your
shares by signing, dating and promptly returning the enclosed proxy card to
ensure that your shares will be voted at the meeting. Instructions regarding
voting by proxy are contained on the proxy card. If you attend the meeting and
prefer to vote in person, you may do so.
On behalf of the board of directors, I thank you for your continuing support
and urge you to vote FOR approval of the merger agreement and the merger.
Sincerely,
/s/ Michael C. Markovitz
Michael C. Markovitz
Chairman of the Board
Neither the Securities and Exchange Commission nor any state securities
regulators have approved or disapproved the merger described in the
accompanying proxy statement, nor have they determined if the proxy
statement is adequate or accurate. Furthermore, the Securities and Exchange
Commission has not determined the fairness or merits of the merger. Any
representation to the contrary is a criminal offense.
The accompanying proxy materials are dated September 27, 2001 and are first
being mailed to our stockholders on or about October 1, 2001.
ARGOSY EDUCATION GROUP, INC.
Two First National Plaza
20 South Clark Street, Suite 2800
Chicago, Illinois 60603
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
Wednesday, October 31, 2001 at 10:00 a.m. local
DATE AND TIME: time.
PLACE: The Northern Trust
50 South LaSalle Street, 6th Floor Assembly
Room
Chicago, Illinois 60675
ITEMS OF BUSINESS: (1) Consider and vote upon a proposal to
approve the Agreement and Plan of Merger dated
July 9, 2001, by and among Argosy Education
Group, Inc., Education Management Corporation
and HAC Inc., and the transactions contemplated
by such merger agreement, including the merger.
The merger agreement provides for, among other
things, the merger of HAC, a wholly-owned
subsidiary of Education Management, with and
into Argosy, with Argosy becoming a wholly-
owned subsidiary of Education Management. The
merger agreement provides that the stockholders
of Argosy will be entitled to receive $12.00 in
cash, without interest, for each share of
Argosy common stock owned by them.
(2) Transact such other business as may
properly come before the special meeting or any
adjournment or postponement thereof.
DISSENTERS' RIGHTS: If you do not vote in favor of the merger
agreement and the merger, you have the right to
dissent and to obtain payment for the fair
value of your shares if the merger is
consummated and you comply with the
requirements set forth in the Illinois Business
Corporation Act related to dissenters' rights
described on pages 42 to 43 of the accompanying
proxy statement.
RECORD DATE: Only stockholders of record at the close of
business on September 17, 2001 are entitled to
notice of and to vote at the special meeting or
any adjournment or postponement thereof.
VOTING BY PROXY: You may vote in person or by proxy. In order to
assure that your vote will be counted, whether
or not you plan to attend the special meeting,
please vote by signing, dating and returning
the enclosed proxy card promptly in the
enclosed prepaid envelope. Instructions
regarding voting by proxy are contained on the
proxy card.
Your vote is important. Because the vote is
based on the number of shares outstanding
rather than the number of votes cast, failure
to vote your shares will have the same effect
as voting against the merger agreement and the
merger.
By Order of the Board of Directors,
/s/ Charles T. Gradowski
Chief Financial Officer
Chicago, Illinois
September 27, 2001
TABLE OF CONTENTS
Page
----
Summary Term Sheet........................................................ 1
About the Special Meeting................................................. 8
Why am I receiving these materials?..................................... 8
What am I being asked to vote upon?..................................... 8
What is the voting recommendation of our board of directors?............ 8
When and where will the special meeting be held?........................ 8
Who may vote and attend the special meeting?............................ 8
What constitutes a quorum at the special meeting?....................... 9
How can I vote shares held in my broker's name?......................... 9
How do I vote?.......................................................... 9
What happens if I do not vote?.......................................... 9
Can I change my vote?................................................... 10
What vote is required to approve the merger agreement and the merger?... 10
Have any stockholders agreed to vote their shares for the proposal to
approve the merger agreement and the merger?........................... 10
What should I do now?................................................... 11
Should I send in my stock certificates now?............................. 11
What rights do I have if I oppose the merger?........................... 11
Are there any other matters that will be considered at this special
meeting?............................................................... 11
How are we soliciting this proxy and who will bear the costs?........... 11
Who can help answer my questions?....................................... 12
The Parties............................................................... 13
The Merger................................................................ 14
Background of the Merger................................................ 14
Recommendation of the Board of Directors; Fairness of the Merger........ 15
Opinion of Financial Advisor............................................ 17
Certain Effects of the Merger........................................... 20
Conduct of the Business of Argosy if the Merger is Not Consummated...... 22
Accounting Treatment.................................................... 22
Financing of the Merger and Stock Purchase.............................. 22
Regulatory Requirements................................................. 22
Conflicts of Interest of Certain Persons in the Merger; Certain
Relationships.......................................................... 23
Material Federal Income Tax Consequences of the Merger.................. 25
Fees and Expenses....................................................... 26
The Stock Purchase Agreement.............................................. 27
Background.............................................................. 27
Purchase of Common Stock................................................ 27
Escrow Release.......................................................... 27
Rescission of Stock Purchase............................................ 27
Agreement to Vote....................................................... 28
Change of Control of our Board of Directors............................. 28
Sale of Certain Businesses.............................................. 29
The Merger Agreement...................................................... 30
Completion of the Merger................................................ 30
Merger Consideration.................................................... 30
The Exchange Fund; Payment for Shares of Argosy Common Stock.............. 30
Transfers of Argosy Common Stock.......................................... 31
Treatment of Options and Warrants......................................... 31
Representations and Warranties............................................ 32
Covenants................................................................. 33
Conditions to the Merger.................................................. 38
Termination............................................................... 40
Termination Fee........................................................... 41
Amendments and Waivers.................................................... 41
Dissenters' Rights.......................................................... 42
Provisions for Unaffiliated Security Holders................................ 44
Market for Argosy Common Stock.............................................. 44
Securities Ownership........................................................ 45
Our Directors and Executive Officers........................................ 46
Our Board of Directors...................................................... 48
Executive Compensation...................................................... 50
Section 16(a) Beneficial Ownership Reporting Compliance..................... 54
Audit Committee Report...................................................... 54
Stock Price Performance Graph............................................... 55
Stockholder Proposals....................................................... 56
Where You Can Find More Information......................................... 56
Additional Information...................................................... 57
Independent Auditors........................................................ 57
Cautionary Statement Regarding Forward-Looking Statements................... 57
Other Business.............................................................. 58
ANNEXES
Annex A Agreement and Plan of Merger
Annex B Stock Purchase Agreement
Annex C Illinois Business Corporation Act--Right to Dissent
Annex D Opinion of JPMorgan H&Q
[ARGOSY EDUCATION GROUP, INC. LOGO]
Two First National Plaza
20 South Clark Street, Suite 2800
Chicago, Illinois 60603
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PROXY STATEMENT
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This proxy statement contains information related to the special meeting of
stockholders of Argosy Education Group, Inc., to be held on Wednesday, October
31, 2001 at 10:00 a.m. local time at The Northern Trust, 50 South LaSalle
Street, 6th Floor Assembly Room, Chicago, Illinois, or at such other time and
place to which the special meeting may be adjourned or postponed. The enclosed
proxy is solicited by our board of directors.
SUMMARY TERM SHEET
The following summary briefly describes the material terms of the merger of
HAC Inc., a wholly-owned subsidiary of Education Management Corporation, with
and into Argosy Education Group, Inc., pursuant to the Agreement and Plan of
Merger attached hereto as Annex A. While this summary describes the material
terms that you should consider when evaluating the merger agreement and the
transactions contemplated by such merger agreement, including the merger, we
encourage you to read the entire proxy statement and the documents attached to
this proxy statement. We have included below section references to direct you
to a more complete description of the topics addressed in this summary.
The Proposed Transaction
. You are being asked to consider and vote upon a proposal to approve the
merger agreement and the merger. The merger agreement provides for HAC, a
wholly-owned subsidiary of Education Management, to be merged with and
into Argosy. As a result of the merger and the stock purchase described
below, Argosy will become a wholly-owned subsidiary of Education
Management.
. Because Education Management required U.S. Department of Education
approval as a condition to the merger, it was necessary in order to
facilitate such approval process for Michael C. Markovitz, our Chairman
of the Board, to agree to sell 4.9 million shares of Argosy common stock
that he beneficially owns to Education Management prior to the merger and
upon the satisfaction of certain conditions. Dr. Markovitz, who has
already voted the 4.9 million shares in favor of the merger agreement and
the merger, will receive the same consideration for his shares that you
will be receiving in connection with the merger. On September 26, 2001,
4.9 million shares of Argosy common stock beneficially owned by Dr.
Markovitz were transferred into escrow, along with the purchase price,
pending the closing of the merger. A change in control of Argosy occurred
as a result of the sale and purchase of the 4.9 million shares.
. If the merger agreement is terminated as described below, Education
Management may still retain Dr. Markovitz's shares and remain the
controlling stockholder of Argosy. All of our current directors, other
than Dr. Markovitz, have agreed to resign in such event and, in
connection therewith, Dr. Markovitz has agreed to appoint to our board
three new directors nominated by Education Management.
. As a result of the merger:
--you will receive cash in exchange for your shares of common stock and
will no longer have any interest in the future earnings or growth of
Argosy;
--Argosy will no longer be a public company; and
--the common stock will no longer be quoted on the Nasdaq National
Market.
Please read "ABOUT THE SPECIAL MEETING" beginning on page 8, "THE MERGER--
Certain Effects of the Merger" beginning on page 20 and "THE STOCK PURCHASE
AGREEMENT" beginning on page 27.
Payment
. If the merger is completed, you will receive $12.00 in cash, without
interest, for each of your shares of common stock, unless you perfect
your dissenters' rights as described below.
Please read "THE MERGER" beginning on page 14 and "THE MERGER AGREEMENT"
beginning on page 30.
Dissenters' Rights
. If you do not vote in favor of the merger agreement and the merger, you
have the right to dissent and obtain payment for the fair value of your
shares, plus any accrued interest, if the merger is consummated and you
comply with the requirements set forth in the Illinois Business
Corporation Act described below.
For a more complete description of your dissenters' rights, please read
"DISSENTERS' RIGHTS" beginning on page 42.
Recommendation to Stockholders
. Based upon the determination of our board of directors that the merger
agreement and the transactions contemplated thereby, including the
merger, are advisable and in the best interests of Argosy and its
stockholders, the board unanimously recommends to the stockholders of
Argosy that they vote in favor of approving the merger agreement and the
merger.
. When you consider the recommendation of our board of directors, you
should be aware that certain directors and executive officers of Argosy
may have interests, described below, that are different from, or in
addition to, their interests as stockholders of Argosy generally. The
board of directors was aware of these interests and considered them,
among other matters, in approving the merger agreement and the merger.
Please read "THE MERGER--Recommendation of the Board of Directors; Fairness
of the Merger" beginning on page 15 and "THE MERGER--Conflicts of Interest
of Certain Persons in the Merger; Certain Relationships" beginning on page
23.
Opinion of Financial Advisor
. In deciding to approve the merger agreement and the merger, the board of
directors received and considered the opinion of its financial advisor,
JPMorgan H&Q, a division of J.P. Morgan Securities Inc., that, as of the
date of such opinion, and based upon and subject to certain matters set
forth in such opinion, the $12.00 per share cash consideration to be
received by the stockholders of Argosy is fair from a financial point of
view to such stockholders.
We urge you to read "THE MERGER--Opinion of the Financial Advisor"
beginning on page 17 and the full text of the opinion attached to this
proxy statement as Annex D.
2
The Special Meeting
. The special meeting will be held on Wednesday, October 31, 2001 at 10:00
a.m. local time at The Northern Trust, 50 South LaSalle Street, 6th Floor
Assembly Room, Chicago, Illinois.
. The merger agreement and the merger must be approved by the affirmative
vote of holders of at least two-thirds of the outstanding shares of
common stock. Pursuant to the terms of the stock purchase agreement
attached hereto as Annex B, Dr. Markovitz, who beneficially owned
approximately 75% of the outstanding shares of our common stock prior to
selling such shares to Education Management, has already voted all such
shares of common stock in favor of the merger agreement and the merger
and has also given an irrevocable proxy to Education Management to vote
such shares.
. You are entitled to vote at the special meeting if you owned shares of
common stock at the close of business on September 17, 2001, the record
date for the special meeting.
. On September 17, 2001, the 4.9 million shares of Argosy Class B common
stock (with 10 votes per share) beneficially owned by Dr. Markovitz were
converted into the same number of shares of Argosy Class A common stock
(with 1 vote per share) in accordance with the terms of our articles of
incorporation. We no longer have any Class B common stock outstanding
and, as of the record date, Dr. Markovitz beneficially held approximately
75% of the outstanding shares of our common stock.
Please read "ABOUT THE SPECIAL MEETING" beginning on page 8 and "THE STOCK
PURCHASE AGREEMENT" beginning on page 27.
Education Management Corporation and HAC Inc.
. Education Management Corporation, a Pennsylvania corporation, is among
the largest providers of proprietary post-secondary education in the
United States, based on student enrollments and revenues. Its schools
offer bachelor's and associate's degree programs and non-degree programs
in the areas of design, media arts, culinary arts and fashion.
. HAC Inc. is a newly-formed Illinois corporation and a wholly-owned
subsidiary of Education Management formed for the sole purpose of
effecting the merger.
Please read "PARTIES" beginning on page 13.
Regulatory Approvals
. The merger agreement requires that the waiting period (and any extension
thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, shall have been terminated or shall have expired, and certain
approvals from regulatory and accrediting bodies, including without
limitation the U.S. Department of Education, educational licensing
agencies in the states where Argosy does business and the agencies who
accredit Argosy's schools, shall have been obtained to the extent
necessary to consummate the merger. On July 27, 2001, the Federal Trade
Commission granted early termination of the waiting period under the HSR
Act and Argosy, with the assistance of Education Management, continues to
work toward obtaining the approvals of the regulatory and accrediting
bodies.
. The consummation of the merger is also conditioned upon receipt of final
approval from the Department of Education, state education licensing
authorities and accrediting agencies of the change in control effected
pursuant to the merger agreement and the stock purchase agreement. Argosy
has received notice in writing from the Department of Education that it
sees no material impediment to a prompt resumption of Title IV funding
pending its final review of Argosy's application and Argosy, together
with Education Management, is working to achieve final approval from the
Department of Education and the state licensing authorities and
accrediting agencies whose approval is required.
. No other government or other regulatory approvals are required as a
prerequisite to the merger other than certain required filings pursuant
to federal securities laws and the filing of the certificate of merger
with the Secretary of State of the State of Illinois.
Please read "THE MERGER--Regulatory Requirements" beginning on page 22.
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Financing
. We estimate that approximately $78.0 million is required for the payment
by Education Management of (1) the consideration for the 4.9 million
shares of common stock purchased from Dr. Markovitz and (2) the merger
consideration for the common stock to be paid to our stockholders,
assuming no stockholders perfect their dissenters' rights under Illinois
law. In addition, we estimate that $1,104,000 will be required to be paid
with respect to the economic value (or spread) on a stock purchase
warrant.
. Education Management has obtained and delivered to Argosy a commitment
letter from National City Bank pursuant to which Education Management
expects to have available to it sufficient funds to consummate the
transactions contemplated by the merger agreement and the stock purchase
agreement, including payment of the merger consideration and all related
costs and expenses.
Please read "THE MERGER--Financing of the Merger and Stock Purchase"
beginning on page 22.
Surrender of Certificates
. Pursuant to the merger agreement, Education Management will deposit with
Mellon Investor Services, or another similar institution, an amount of
cash necessary to pay the aggregate consideration payable to the
stockholders of Argosy in the merger. Promptly after the effective time
of the merger, each stockholder of record will be mailed a letter of
transmittal and detailed instructions specifying the procedures to be
followed in surrendering certificates representing common stock. Share
certificates should not be forwarded until receipt of the letter of
transmittal.
. Upon the proper surrender of your share certificate(s), you will receive
a check representing an amount equal to $12.00 per share of common stock
so surrendered, without interest.
Please read "THE MERGER AGREEMENT--The Exchange Fund; Payment for Shares of
Argosy Common Stock" beginning on page 30.
Conditions to the Merger
The obligations of Argosy, Education Management and HAC to consummate the
merger and the other transactions are subject to the satisfaction or waiver of
the following conditions:
. The expiration of the applicable waiting period under the HSR Act in
connection with the transactions contemplated by the merger agreement and
by the stock purchase agreement.
. All consents, approvals, orders or authorizations of, or registrations,
declarations or filings with, any governmental entity or accrediting body
required by or with respect to Argosy, Education Management or any of
their respective subsidiaries in connection with the execution and
delivery of the merger agreement or the consummation of the merger and
other transactions contemplated thereby and by the stock purchase
agreement shall have been obtained or made except for such consents,
approvals, orders, authorizations, registrations, declarations or filings
the failure of which to be obtained or made could not reasonably be
expected to have, individually or in the aggregate, a material adverse
effect on Argosy or Education Management or materially impair Argosy's,
Education Management's or HAC's ability to consummate the merger.
. The merger agreement, the merger and the transactions contemplated by the
merger agreement shall have received the requisite approval and
authorization of the stockholders in accordance with applicable law and
the articles of incorporation and bylaws of Argosy.
. No law shall have been enacted or promulgated by any governmental entity
which prohibits the consummation of the merger or the transactions
contemplated by the stock purchase agreement and
4
there shall be no order or injunction of a court of competent jurisdiction
in effect precluding consummation of the merger.
. Argosy shall have cleared all SEC comments to this proxy statement, if
any. No proceeding preventing distribution of this proxy statement or any
part thereof shall have been initiated or threatened in writing by the
SEC, and all requests for additional information on the part of the SEC
shall have been complied with to the reasonable satisfaction of Argosy
and Education Management.
. No action, suit or proceeding shall be pending before any governmental
entity which is reasonably likely to result in a judgment, order, decree,
stipulation or injunction that would (1) prevent consummation of any of
the transactions contemplated by the merger agreement or the stock
purchase agreement, (2) cause any of the transactions contemplated by the
merger agreement or the stock purchase agreement to be rescinded
following consummation or (3) affect adversely the right of Education
Management to own, operate or control any material portion of the assets
and operations of the surviving corporation and each of its subsidiaries
following the transactions contemplated in the merger agreement or in the
stock purchase agreement, and no such judgment, order, decree,
stipulation or injunction shall be in effect.
The obligations of Argosy to consummate the merger and the other
transactions are subject to satisfaction or waiver of the following additional
conditions:
. The representations and warranties of Education Management and HAC
contained in the merger agreement shall be true and correct in all
respects as of the closing date with the same effect as though made as
of the closing date except (1) for changes specifically contemplated by
the terms of the merger agreement and (2) where the failure of the
representations and warranties to be true and correct in all respects
could not in the aggregate reasonably be expected to have a material
adverse effect on Education Management.
. Education Management shall have in all material respects performed all
obligations and complied with all covenants required by the merger
agreement to be performed or complied with by it at or prior to the
closing date.
. If the closing under the stock purchase agreement shall have occurred
and not been rescinded, Education Management shall have irrevocably
directed the escrow agent to release the escrowed funds upon
consummation of the merger in accordance with the stock purchase
agreement and the escrow agreement.
. Education Management shall have delivered to Argosy an officers'
certificate certifying the satisfaction of certain closing conditions.
. Argosy shall be reasonably satisfied with all of the actions taken by
Education Management in connection with the proposed transactions and
all certificates, opinions, instruments and other documents required to
effect the proposed transactions shall have been reasonably satisfactory
in form and substance to Argosy and its counsel.
The obligations of Education Management and HAC to consummate the merger and
the other transactions are subject to satisfaction or waiver of the following
additional conditions:
. The representations and warranties of Argosy contained in the merger
agreement shall be true and correct in all respects as of the closing
date with the same effect as though made as of the closing date except
(1) for changes specifically contemplated by the terms of the merger
agreement and (2) where the failure of the representations and
warranties to be true and correct in all respects could not in the
aggregate reasonably be expected to have a material adverse effect on
Argosy.
. Argosy shall have in all material respects performed all obligations and
complied with all covenants required by the merger agreement to be
performed or complied with by it at or prior to the closing date.
5
. Argosy shall have delivered to Education Management an officers'
certificate certifying the satisfaction of certain closing conditions.
. From the date of the merger agreement to the effective time of the
merger, there shall not have been any event or development which results
in a material adverse effect on Argosy.
. Education Management shall have received all written consents,
assignments, waivers, authorizations or other certificates necessary to
provide for the continuation in full force and effect of the material
contracts of Argosy, except where the failure to so obtain could not
reasonably be expected, individually or in the aggregate, to have a
material adverse effect on Argosy.
. Education Management shall have received all written consents,
assignments, waivers, authorizations or other certificates from state
education regulatory bodies and any other applicable governmental
entities to the extent necessary to consummate the merger and the other
transactions contemplated by the merger agreement and by the stock
purchase agreement.
. All conditions precedent to the escrow release set forth in the stock
purchase agreement, including receipt of final Department of Education
approval of the Argosy schools' applications for recertification to
participate in the Title IV programs after closing, shall have been
satisfied or waived by Education Management.
. Argosy shall have, if requested by Education Management, completed the
sale, divestiture, donation or other disposition of the excluded
operations as contemplated by the merger agreement.
. Education Management shall be reasonably satisfied with all of the
actions taken by Argosy in connection with the proposed transactions and
all certificates, opinions, instruments and other documents required to
effect the proposed transactions shall have been reasonably satisfactory
in form and substance to Education Management and its counsel.
Please read "THE MERGER AGREEMENT--Conditions to the Merger" beginning on
page 38.
Effective Time
. The merger will become effective as of the date and time that a
certificate of merger is filed with the Secretary of State of the State
of Illinois, which is expected to occur as soon as practicable after the
Argosy stockholders approve the merger agreement and the merger at the
special meeting and the closing conditions described above are satisfied
or waived.
Please read "THE MERGER AGREEMENT--Completion of the Merger" on page 30.
Termination and Termination Fee
. The merger agreement may be terminated at any time prior to the
effective time of the merger by the mutual agreement of the parties.
. The merger agreement may be terminated by either Argosy or Education
Management upon the occurrence of certain events described on page 40,
including if the merger has not been consummated by January 31, 2002,
subject to a limited exception.
. We may terminate the merger agreement upon the occurrence of events
described on pages 40 to 41, including in the event that our board of
directors determines that an alternative acquisition proposal to acquire
Argosy is more favorable to you than a transaction with Education
Management.
. Education Management may terminate the merger agreement upon the
occurrence of the events described on page 41, including in the event
Argosy's board withdraws or modifies, in a manner adverse to Education
Management, its recommendation that you vote in favor of the merger
agreement.
6
. Upon the occurrence of certain events described on pages 40 to 41,
including a termination relating to any alternative acquisition proposal
as described above, Argosy must pay Education Management a $2.0 million
termination fee.
. The stock purchase agreement does not terminate automatically if the
merger agreement is terminated and, therefore, Education Management may
retain the 4.9 million shares that were previously beneficially owned by
Dr. Markovitz and remain the controlling stockholder of Argosy.
Please read "THE MERGER AGREEMENT--Termination" beginning on page 40 and
"THE MERGER AGREEMENT--Termination Fee" beginning on page 41.
Tax Consequences and Accounting Treatment
. The receipt of cash in the merger by you will be taxable to you for U.S.
federal income tax purposes in the same way as if you sold your shares in
the market for $12.00 per share in cash. Assuming you hold your shares as
a capital asset, you will recognize capital gain or loss on each share as
a result of the merger equal to the difference, if any, between $12.00
per share and your adjusted tax basis in such share.
. You will need to provide a Substitute Form W-9 along with your letter of
transmittal or a tax withholding will be made from your merger
consideration.
. Because of the complexities of the tax laws, you are advised to consult
your own tax advisors concerning the applicable federal, state, local,
foreign and other tax consequences resulting from the merger.
. The merger will be treated as a "purchase" for accounting purposes.
Please read "THE MERGER--Material Federal Income Tax Consequences of the
Merger" beginning on page 25 and "THE MERGER--Accounting Treatment" on page
22.
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Throughout this proxy statement, the term "merger agreement" refers to the
Agreement and Plan of Merger dated July 9, 2001, by and among Argosy, Education
Management and HAC (a copy of which is included at the back of this proxy
statement as Annex A), the term "merger" refers to the merger of HAC, a wholly-
owned subsidiary of Education Management, with and into Argosy, with Argosy
becoming a wholly-owned subsidiary of Education Management, the term "merger
consideration" refers to the $12.00 per share in cash, without interest, to be
received by stockholders of Argosy in the merger and the term "stock purchase
agreement" collectively refers to the Stock Purchase Agreement dated July 9,
2001, by and between Education Management and Michael C. Markovitz (a copy of
which is included at the back of this proxy statement as Annex B) and the
Joinder Agreement dated September 26, 2001, by and between Education
Management, Dr. Markovitz, The MCM Trust and the Michael C. Markovitz Dynastic
Trust (a copy of which was filed as an exhibit to our Current Report on Form 8-
K filed with the SEC on September 27, 2001 and incorporated herein by
reference). For ease of reference, we sometimes refer in this document to
Education Management Corporation as "Education Management," to HAC Inc. as
"HAC," and to Argosy Education Group, Inc. as "Argosy," "we," "us" and "our."
We are also using the term "common stock" to mean the Argosy Class A common
stock, par value $0.01 per share.
7
ABOUT THE SPECIAL MEETING
Q: Why am I receiving these A: This proxy statement is being
materials? furnished to you and the other
stockholders of Argosy in
connection with the solicitation of
proxies on behalf of the board of
directors for use at a special
meeting of stockholders to be held
on October 31, 2001, or at any
adjournment or postponement
thereof. This proxy statement is
first being mailed to our
stockholders on or about October 1,
2001.
Q: What am I being asked to vote A: You are being asked to vote upon a
upon? proposal to approve a merger
agreement and the transactions
contemplated thereby, including the
merger.
Q: What is the voting A: Our board of directors has:
recommendation of our board of
directors?
. unanimously determined that the
merger agreement and the
transactions contemplated
thereby, including the merger,
are fair and in the best
interests of Argosy and its
stockholders;
. unanimously approved and adopted
the form, terms and provisions
of the merger agreement and the
performance by Argosy of its
obligations under the merger
agreement; and
. unanimously recommended to the
stockholders of Argosy that they
authorize and approve the merger
agreement and Argosy's
performance thereunder.
Q: When and where will the A: The special meeting will take place
special meeting be held? at 10:00 a.m. local time on
Wednesday, October 31, 2001 at The
Northern Trust, 50 South LaSalle
Street, 6th Floor Assembly Room,
Chicago, Illinois.
Q: Who may vote and attend the A: All stockholders of record as of
special meeting? the close of business on September
17, 2001, the record date for the
special meeting, are entitled to
receive notice of and to attend and
vote at the special meeting, or any
postponement or adjournment
thereof.
As of the record date, we had
outstanding 6,497,296 shares of
Class A common stock. On September
17, 2001, the 4,900,000 shares of
Class B common stock (with 10 votes
per share) beneficially owned by
Dr. Markovitz, which represented
all of the issued and outstanding
shares of our Class B common stock,
were converted into the same number
of shares of our Class A common
stock (with 1 vote per share) in
accordance with the terms of our
articles of incorporation. We no
longer have any Class B common
stock outstanding.
8
Q: What constitutes a quorum at
the special meeting? A: The presence in person or by proxy
of holders of at least a majority
of the outstanding shares of common
stock entitled to vote at the
special meeting constitutes a
quorum. Proxies received but marked
as abstentions and properly
executed "broker non-votes" will be
included in the calculation of the
number of shares considered to be
present and entitled to vote at the
meeting.
"Broker non-votes" result when
brokers are precluded from
exercising their voting discretion
with respect to the approval of
non-routine matters, such as the
proposal to approve the merger
agreement and the merger. Absent
specific instructions from the
beneficial owner of those shares,
brokers are not empowered to vote
the shares with respect to the
approval of those proposals.
Q: How can I vote shares held in A: If your broker holds your shares in
my broker's name? its name (or in what is commonly
called "street name"), then you
should give your broker
instructions on how to vote.
Otherwise, your shares will not be
voted and you will, in effect, be
voting against the merger agreement
and the merger.
Q: How do I vote? A: You can vote on the merger
agreement and the merger in two
ways:
. by completing, dating and
signing the enclosed proxy card
and returning it in the enclosed
postage-paid envelope; or
. by written ballot at the special
meeting.
Please see your proxy card for
specific instructions on the above
methods of voting.
All shares of common stock
represented at the special meeting
by properly executed proxies
received prior to or at the special
meeting, unless previously revoked,
will be voted at the special
meeting in accordance with the
instructions on the proxies. Unless
contrary instructions are
indicated, proxies will be voted
"FOR" the approval of the merger
agreement and the merger. In
addition, the persons designated on
our proxy card will have the
discretion to vote on such other
matters as may properly come before
the special meeting.
Q: What happens if I do not vote?
A: Because approval of the merger
agreement and the merger is based on
the affirmative vote of at least
two-thirds of all shares of common
stock outstanding rather than the
number of votes cast, failure to
vote your shares using one of the
two
9
ways described above will have the
same effect as voting against the
merger agreement and the merger.
Similarly, abstentions and "broker
non-votes" will have the same effect
as a vote against approval of the
merger and the merger agreement.
Q: Can I change my vote? A: Yes. You may change your vote at any
time before the vote at the special
meeting. For shares held directly in
your name, you may do this by:
. filing with the Chief Financial
Officer of Argosy a notice of
revocation;
. sending in another duly executed
and completed proxy card bearing a
later date; or
. attending the special meeting and
casting your vote in person.
Your last vote is the vote that is
counted. Simply attending the meeting
alone will not revoke your proxy
unless you vote at the meeting. For
shares held in "street name," you may
change your vote only by giving new
voting instructions to your broker or
nominee.
Q: What vote is required to A: The merger agreement and the
approve the merger agreement transactions contemplated thereby,
and the merger? including the merger, must be
approved by the affirmative vote of
the holders of at least two-thirds of
the outstanding shares of common
stock.
Holders of our common stock are
entitled to 1 vote per share. We no
longer have outstanding any shares of
our supervoting Class B common stock.
Q: Have any stockholders agreed A: Yes. Michael C. Markovitz, our
to vote their shares for the Chairman of the Board, has already,
proposal to approve the merger pursuant to the terms of the stock
agreement and the merger? purchase agreement attached hereto as
Annex B, voted 4.9 million shares of
common stock of Argosy beneficially
owned by him on the record date in
favor of the merger agreement and the
merger and also has given an
irrevocable proxy to Education
Management to vote such shares. As of
the record date, Dr. Markovitz
beneficially owned 4,950,418 shares
of our common stock and controlled
approximately 75% of the voting
power.
Dr. Markovitz voted the 4.9 million
shares beneficially owned by him in
favor of the merger and the merger
agreement prior to transferring title
to such shares to Education
Management pursuant to the stock
purchase agreement.
10
Q: What should I do now?
A: Please carefully review this proxy
statement, including the annexes,
and consider how the merger affects
you. Then, vote your shares in one
of the two ways described above so
that your shares may be represented
and voted at the special meeting.
Q: Should I send in my stock A: No. After the merger is completed,
certificates now? you will receive a letter of
transmittal and written instructions
that will tell you how to exchange
your certificates for $12.00 per
share. PLEASE DO NOT SEND IN YOUR
CERTIFICATES NOW OR WITH YOUR PROXY
CARD. Hold your certificates until
you receive further instructions.
Q: What rights do I have if I A: If you wish, you may seek to obtain
oppose the merger? the fair value of your shares of
common stock, but only if you comply
with all of the requirements of
Illinois law relating to dissenters'
rights described on pages 42 to 43
and in Annex C of this proxy
statement.
As explained below, a vote in favor
of the merger agreement and the
merger means that the holder of
those shares will not have the right
to dissent and seek payment of the
fair value of such shares.
Q: Are there any other matters A: We do not know of any other matters
that will be considered at this that are to come before the special
special meeting? meeting. If any other matters are
properly presented at the special
meeting for action, the persons
named in the enclosed proxy card and
acting thereunder generally will
have discretion to vote on such
matters in accordance with their
best judgment. Notwithstanding the
foregoing, the persons named in the
enclosed proxy card will not use
their discretionary authority to use
proxies voting against the merger
agreement and the merger to vote in
favor of adjournment or postponement
of the special meeting.
Q: How are we soliciting this A: We will bear the cost of preparing,
proxy and who will bear the assembling and mailing this proxy
costs? statement, the notice of special
meeting of stockholders and the
enclosed proxy card. We are
requesting that banks, brokers and
other custodians, nominees and
fiduciaries forward copies of the
proxy materials to their principals
and request authority for the
execution of proxies. We may
reimburse such persons for the
expenses they incur in so doing. In
addition to the solicitation of
proxies by mail, our directors,
officers and employees may, without
receiving any
11
additional compensation, solicit
proxies by telephone, telefax,
telegram, other electronic means or
in person.
Q: Who can help answer my A: If you have more questions about the
questions? special meeting or the merger or
would like additional copies of this
proxy statement, you should contact
Charles T. Gradowski, Chief
Financial Officer of Argosy, at Two
First National Plaza, 20 South Clark
Street, Suite 2800, Chicago,
Illinois 60603; telephone (312) 899-
9900.
No person is authorized to give any
information or make any
representation not contained in
this proxy statement, and if given
or made, such information or
representation should not be relied
upon as having been authorized.
12
THE PARTIES
Argosy Education Group, Inc.
Argosy Education Group, Inc., an Illinois corporation incorporated in 1975,
is a leading provider of undergraduate and graduate education, with a primary
focus on doctoral-level academic programs.
Argosy recently announced that it is combining its three largest educational
institutions -- the American Schools of Professional Psychology, the University
of Sarasota and the Medical Institute of Minnesota -- to create a national
university called Argosy University. Argosy University will have 18 campuses
nationwide offering doctoral, master's, bachelor's and associate's degrees in
education, psychology, business and health care. Argosy also owns:
. Western State University College of Law and John Marshall Law School of
Atlanta, Georgia;
. Prime Tech Institute in Toronto, Canada;
. The Ventura Group, a professional services division which offers
licensure preparation courses for the mental health professions and
continuing education for the periodic re-certification of K-12 teachers;
and
. The Connecting Link, a provider of continuing professional education for
K-12 teachers.
The principal executive offices of Argosy are located at Two First National
Plaza, 20 South Clark Street, Suite 2800, Chicago, Illinois 60603; telephone:
(312) 899-9900.
For additional information regarding us and our business, see "WHERE YOU CAN
FIND MORE INFORMATION" and "ADDITIONAL INFORMATION" beginning on pages 56 and
57, respectively.
Education Management Corporation
Education Management Corporation, a Pennsylvania corporation incorporated in
1962, is among the largest providers of proprietary post-secondary education in
the United States, based on student enrollment and revenues. Education
Management's 24 current educational institutions offer bachelor's and
associate's degree programs and non-degree programs in the areas of design,
media arts, culinary arts and fashion.
The common stock of Education Management is quoted on the Nasdaq National
Market under the symbol "EDMC." The principal executive offices of Education
Management are located at 300 Sixth Avenue, Pittsburgh, Pennsylvania 15222;
telephone: (412) 562-0900.
HAC Inc.
HAC Inc. is an Illinois corporation and a wholly-owned subsidiary of
Education Management formed in July 2001 for the purpose of effecting the
merger. HAC has not carried on any activities to date other than those incident
to its formation and the negotiation and execution of the merger agreement.
The principal executive offices of HAC are located at 300 Sixth Avenue,
Pittsburgh, Pennsylvania 15222; telephone: (412) 562-0900.
13
THE MERGER
Background of the Merger
Our board of directors and management regularly consider the strategic
alternatives of Argosy as part of their ongoing efforts to enhance stockholder
value. These alternatives have generally included (1) continuing our pursuit of
organic growth and executing selective acquisitions and (2) entering into a
business combination with a strategic partner to gain access to greater
financial resources and operational capabilities.
From time to time, directors and management of Argosy have had contacts with
parties interested in pursuing a business combination with Argosy. In
particular, in the first half of 2000, Argosy entertained discussions with
several parties who had expressed interest in acquiring the company. These
organizations included both private equity sponsored buyers and other publicly
traded education companies. All of these discussions remained preliminary. In
late 2000 and continuing into early 2001, Argosy entertained discussions with
another private equity sponsored buyer interested in a business combination. In
each case the discussions contemplated an acquisition price less than the
proposed merger consideration per share.
In April 2001, Michael C. Markovitz, our Chairman of the Board, and Robert
B. Knutson, Chairman of the Board of Education Management, held introductory
discussions concerning their respective businesses and the potential of a
business combination. Dr. Markovitz and Mr. Knutson had known each other prior
to that time and had each entertained the notion of a business combination from
time to time, but no serious discussions had been held prior to April 2001.
During April and early May 2001, Dr. Markovitz and Mr. Knutson continued their
discussions, which ultimately resulted in Education Management's May 16, 2001
proposal letter to acquire Argosy for a combination of cash and Education
Management stock equal to $12.00 per share.
During the period from May 16 through May 21, 2001, Dr. Markovitz held a
number of conferences with members of the Argosy board and Argosy's financial
and legal advisors. After reviewing the terms of the proposed acquisition in
comparison to Argosy's prior discussions with other potential acquirors over
the preceding sixteen month period, on May 21, 2001, Argosy executed Education
Management's proposal letter and in connection therewith granted Education
Management a 60-day period of exclusivity in which to conduct due diligence and
negotiate a definitive agreement. In light of Argosy's ongoing discussions with
other interested parties, Education Management insisted on receiving, and
Argosy agreed that, with certain exceptions, in the event a definitive
agreement was not reached by the parties on terms consistent with Education
Management's original proposal and Argosy or Dr. Markovitz pursued an
alternative transaction within six months of any termination of its discussions
with Education Management, Argosy would pay a termination fee. Argosy and
Education Management also executed a confidentiality agreement at that time to
facilitate Education Management's due diligence effort.
On May 24, 2001, members of Argosy's senior management and Argosy's outside
counsel met with members of Education Management's senior management and their
advisors to discuss transaction structure and organize the due diligence
effort. On May 25, 2001, Argosy formally engaged JPMorgan to provide further
financial advice with respect to the proposed Education Management transaction.
Over the next several weeks Education Management and its advisors conducted
due diligence on Argosy, and Argosy and Education Management engaged in
protracted negotiations over the structure and terms of the acquisition. In
particular, the parties agreed that the consideration would be $12.00 cash per
share rather than a combination of cash and stock, and, in order to facilitate
the U.S. Department of Education approval process, the transaction would be
structured as a private purchase of the shares of Class B common stock
beneficially owned by Dr. Markovitz to be followed by a merger in which the
public would receive the same consideration of $12.00 per share as Dr.
Markovitz will receive in the private purchase. Also, Argosy agreed that, upon
Education Management's timely request, it would dispose of John Marshall Law
School, Inc. and/or PrimeTech Canada, Inc., each of which has historically
incurred losses and, as such, presented an obstacle to achieving a
14
more favorable price for the Argosy stockholders in the transaction. In order
to support the Argosy board in obtaining the most favorable price for the
Argosy stockholders in the transaction with Education Management, Dr. Markovitz
agreed that, upon Argosy's request, he would purchase John Marshall and/or
PrimeTech for nominal consideration. Please read "THE STOCK PURCHASE
AGREEMENT--Sale of Certain Businesses" on page 29.
On July 6, 2001, the Argosy board met telephonically to discuss the merger
and the stock purchase, the terms of the merger agreement and the stock
purchase agreement and the proposed consideration per share. Representatives of
JPMorgan and Argosy's legal counsel attended the meeting. At the meeting,
JPMorgan discussed the consideration per share and delivered its opinion to the
Argosy board that the consideration per share is fair from a financial point of
view to the Argosy stockholders. The Argosy board also considered the other key
terms of the merger agreement and stock purchase agreement, including the
termination and non-solicitation provisions. These provisions permit the board
to consider and, if desirable, accept an unsolicited superior proposal in the
event one is presented prior to the earlier of December 31, 2001 and the
closing date. In the event the board seeks to take such action, however,
Education Management could still retain the 4.9 million shares of Argosy common
stock that were previously beneficially owned by Dr. Markovitz. The Argosy
board also gave specific consideration to the termination fee of $2.0 million
contained in the merger agreement. The Argosy board determined that the
termination fee is both reasonable and customary in the market, and such fee
was demanded by Education Management as a condition to executing the merger
agreement. The Argosy board also specifically considered the potential
disposition of John Marshall and/or PrimeTech and the potential sale to Dr.
Markovitz. While the board did not make a final determination as to the
ultimate disposition, pending a request from Education Management, the board
concluded that upon Education Management's request, such disposition would be
pursued and that, if appropriate, the sale to Dr. Markovitz would be in the
best interests of the Argosy stockholders. The Argosy board then approved the
merger agreement, subject to continued negotiation and the approval of
management, and approved the transactions contemplated by the stock purchase
agreement.
Negotiations continued over the next several days between representatives of
Argosy and Education Management. On July 9, 2001, representatives of Argosy and
Education Management finalized the terms of the merger agreement and Dr.
Markovitz executed the merger agreement on Argosy's behalf and executed the
stock purchase agreement in his personal capacity.
Recommendation of the Board of Directors; Fairness of the Merger
At a special telephonic meeting of the board of directors on July 6, 2001,
at which all directors of Argosy were present, the board unanimously concluded
that the terms and provisions of the merger agreement and the merger were fair
to and in the best interests of Argosy and its stockholders and approved the
merger agreement and the stock purchase agreement and recommended that the
stockholders approve the merger agreement and the transactions contemplated
thereby, including the merger.
In reaching its decision to approve and recommend the Education Management
offer of $12.00 per share, the board considered a variety of factors, including
without limitation the following, each of which, individually and in the
aggregate, in the opinion of the board, supported such determination:
. Terms of the Merger Agreement and Stock Purchase Agreement. The board
considered the transaction structure and the financial and other terms of
the merger agreement and the stock purchase agreement.
. Fairness Opinion of JPMorgan. The board considered the detailed financial
analyses and other financial information presented by JPMorgan and its
written opinion delivered to the board to the effect that, as of the date
of its opinion and based upon and subject to certain matters stated
therein, the $12.00 per share cash consideration to be received by Argosy
stockholders in the merger is fair from a financial point of view to such
stockholders. A copy of the opinion of JPMorgan, with a discussion of the
information reviewed, assumptions made and matters considered by
JPMorgan, is attached to this proxy statement as Annex D. You should read
this opinion in its entirety as well as the other information described
under "--Opinion of Financial Advisor" beginning on page 17 below.
15
. Financial Condition. The board analyzed our financial condition, results
of operations, business and prospects and compared them to our recent and
historic stock prices and earnings performances.
. Access to Capital. The board considered Education Management's access to
capital to finance both the proposed merger and stock purchase and the
continued academic excellence of our schools and our continued growth.
. Market Price and Premium. The board considered:
. The fact that the $12.00 per share price offered by Education
Management would represent a premium of approximately 31% over the
closing price of the common stock on July 6, 2001, and approximately
79% over the average closing prices of the common stock during the
period beginning September 1, 2000 and ending July 6, 2001.
. The history of the trading of the common stock on the Nasdaq National
Market since our initial public offering in March 1999 and the premium
represented by the merger consideration to the prices of our common
stock reflected in such history.
. Educational Impact. The board considered the potential reaction of the
U.S. Department of Education to the proposed merger and the impact of the
proposed merger on our students and the communities in which our schools
operate.
. Possible Decline in Market Price of Common Stock. The board considered
the alternatives available to us, and the probability that if we remained
an independent public corporation, the price that could be received by
holders of shares of the common stock in the open market or in another
transaction would be less than the $12.00 per share merger consideration.
. Absence of Superior Acquisition Proposals. The board considered that all
other indications of interest with respect to acquisition proposals had
been at a lesser price per share.
. Availability of Dissenters' Rights. The board considered the fact that
dissenters' rights would be available to the holders of common stock
under Illinois law.
The board also considered the potential drawbacks or risks relating to the
merger, including the following:
. The consummation of the merger will preclude stockholders from
participating in the future growth of Argosy.
. The fact that an all-cash transaction would be taxable to Argosy
stockholders for income tax purposes.
. The fact that consummation of the transactions is subject to approvals of
various regulatory, educational and accrediting bodies.
The foregoing discussion of the information and factors considered by our
board is not intended to be exhaustive but is believed to include all material
factors considered by our board in approving the merger agreement and the
stock purchase agreement and the transactions contemplated thereby, including
the merger. In view of the wide variety of factors considered in connection
with its evaluation of the merger, the board did not find it practicable to,
and did not, quantify or otherwise attempt to assign relative weights to the
specific factors considered in reaching its determination. The determination
to approve the merger and the stock purchase was made after consideration of
all of the factors as a whole. In addition, individual members of the board
may have given different weights to different factors. In considering the
recommendation of the board with respect to the merger agreement and the
merger, stockholders should be aware that the members of the board are equity
and/or option holders in Argosy. The board members believe, however, that
their interests as stockholders in considering the merger agreement and the
merger are substantially the same as the interests of the other stockholders
of Argosy.
16
Opinion of Financial Advisor
Pursuant to an engagement letter dated May 25, 2001, we retained JPMorgan as
our financial advisor in connection with the proposed merger.
At the meeting of the board of directors of Argosy on July 6, 2001, JPMorgan
rendered its oral opinion to the board that, as of such date, the merger
consideration in the proposed merger was fair from a financial point of view to
Argosy's common stockholders. JPMorgan subsequently confirmed its oral opinion
in writing. No limitations were imposed by the board upon JPMorgan with respect
to the investigations made or procedures followed by it in rendering its
opinions.
The full text of the written opinion of JPMorgan, which sets forth the
assumptions made, matters considered and limits on the review undertaken, is
attached as Annex D to this proxy statement and is incorporated herein by
reference. Argosy's stockholders are urged to read the opinion in its entirety.
JPMorgan's written opinion is addressed to the board of directors of Argosy, is
directed only to the consideration to be paid in the merger and does not
constitute a recommendation to any stockholder of Argosy as to how such
stockholder should vote at the special meeting. The summary of the opinion of
JPMorgan set forth in this proxy statement is qualified in its entirety by
reference to the full text of such opinion.
In arriving at its opinions, JPMorgan, among other things:
. reviewed a draft of the merger agreement dated July 5, 2001 and a draft
of the stock purchase agreement dated July 5, 2001;
. reviewed certain publicly available business and financial information
concerning Argosy and the industry in which it operates;
. compared the proposed financial terms of the merger with the publicly
available financial terms of certain transactions involving companies it
deemed relevant and the consideration received for such companies;
. compared the financial and operating performance of Argosy with publicly
available information concerning certain other companies it deemed
relevant and reviewed the current and historical market prices of the
common stock of Argosy and certain publicly traded securities of such
other companies;
. reviewed certain internal financial analyses and forecasts prepared by
the management of Argosy relating to its business;
. visited certain representative facilities of Argosy and performed such
other financial studies and analyses and considered such other
information as it deemed appropriate for the purposes of its opinion; and
. held discussions with certain members of management of Argosy and
Education Management with respect to certain aspects of the merger, and
the past and current business operations of Argosy, the financial
condition and future prospects and operations of Argosy and certain other
matters it believed necessary or appropriate to its inquiry.
JPMorgan relied upon and assumed, without independent verification, the
accuracy and completeness of all information that was publicly available or
that was furnished to it by Argosy or otherwise reviewed by JPMorgan, and
JPMorgan has not assumed any responsibility or liability therefor. JPMorgan has
not conducted any valuation or appraisal of any assets or liabilities, nor have
any valuations or appraisals been provided to JPMorgan. In relying on financial
analyses and forecasts provided to JPMorgan, JPMorgan has assumed that they
have been reasonably prepared based on assumptions reflecting the best
currently available estimates and judgments by management as to the expected
future results of operations and financial condition of Argosy to which such
analyses or forecasts relate. JPMorgan has also assumed that the merger and the
other transactions contemplated by the merger agreement will be consummated as
described in the merger agreement.
17
The projections furnished to JPMorgan for Argosy were prepared by the
management of Argosy. Argosy does not publicly disclose internal management
projections of the type provided to JPMorgan in connection with JPMorgan's
analysis of the merger, and such projections were not prepared with a view
toward public disclosure. These projections were based on numerous variables
and assumptions that are inherently uncertain and may be beyond the control of
management, including, without limitation, factors related to general economic
and competitive conditions and prevailing interest rates. Accordingly, actual
results could vary significantly from those set forth in such projections.
JPMorgan's opinion is based on economic, market and other conditions as in
effect on, and the information made available to JPMorgan as of, the date of
such opinion. Subsequent developments may affect its opinion, and JPMorgan does
not have any obligation to update, revise, or reaffirm its opinion. JPMorgan
expressed no opinion as to the underlying decision by Argosy to engage in the
merger.
In accordance with customary investment banking practice, JPMorgan employed
generally accepted valuation methods in reaching its opinion. The following is
a summary of the material financial analyses utilized by JPMorgan in connection
with providing its opinion.
Public Trading Multiples. Using publicly available information, JPMorgan
compared selected financial data of Argosy with similar data for selected
publicly traded companies engaged in businesses which JPMorgan judged to be
analogous to Argosy. The companies selected by JPMorgan were Apollo Group,
Inc., Career Education Corporation, Corinthian Colleges, Inc., DeVry, Inc., ITT
Educational Services, Inc. and Strayer Education, Inc. For each comparable
company, JPMorgan used estimates of calendar year 2001 results published in
publicly available equity analyst research reports. JPMorgan selected the high
and low values for each multiple, specifically: enterprise value as a multiple
of estimated calendar year 2001 EBITDA; calendar year 2001 price/earnings ratio
and calendar year 2001 price/earnings to growth. JPMorgan excluded the results
of Apollo Group, Inc. from its calculations of the high and low multiples
because, in its judgment, it had determined that such results were not
comparable with the results of Argosy. The equity value of a company is equal
to its enterprise value less net debt. The enterprise value of a company is
equal to its market value, plus net debt. For purposes of this analysis, the
price/earnings to growth of a company was calculated by dividing that company's
price/earnings ratio by its estimated five-year earnings per share growth. The
price/earnings ratio of a company is equal to the stock price divided by
earnings per share. JPMorgan then applied these multiples to calculate the
implied equity value of Argosy using Argosy's calendar year 2001 EBITDA and
calendar year 2001 net income estimates included in publicly available equity
analyst research reports and provided by Argosy's management, and as a multiple
of calendar year 2001 price/earnings to growth using publicly available equity
analyst research estimates and assuming an earnings per share growth of 23%.
JPMorgan assumed that Argosy had net cash of approximately $7.7 million and
there were approximately 6.5 million fully diluted outstanding shares of common
stock. The results of this analysis were as follows:
Equity Value
Multiple per
Range Equity Value Share
----------- ------------- -------------
Low High Low High Low High
----- ----- ------ ------ ------ ------
(in millions)
CY 2001E EBITDA
Argosy Management Estimates........... 15.0x 18.9x $103.7 $128.7 $15.86 $19.68
Published Research Report Estimates... 15.0x 18.9x $ 79.7 $ 98.4 $12.19 $15.05
CY 2001E Net Income
Argosy Management Estimates........... 30.1x 41.2x $ 63.2 $ 86.5 $ 9.67 $13.23
Published Research Report Estimates... 30.1x 41.2x $ 54.2 $ 74.2 $ 8.29 $11.34
CY 2001E Price/Earnings to Growth....... 1.4x 1.9x $ 58.9 $ 80.0 $ 9.02 $12.24
Selected Transaction Analysis. Using publicly available information,
JPMorgan examined selected merger and acquisition transactions in the for-
profit education industry. Specifically, JPMorgan reviewed the following
transactions: New Mountain Capital's investment in Strayer Education, Inc.;
Career Education Corporation's acquisition of EduTrek International, Inc.; The
Washington Post Company's acquisition of Quest
18
Education Corporation; Career Education Corporation's acquisition of the
California Culinary Academy; and Career Education Corporation's acquisition of
the Scottsdale Culinary Institute. JPMorgan calculated the implied enterprise
value of the acquired company in each transaction as a multiple of such
company's last twelve months of revenue, as a multiple of such company's last
twelve months of EBITDA and, in the case of Quest Education Corporation (the
only company for which such information was available), as a multiple of
estimated one-year forward revenue.
JPMorgan then selected the high and low values for each multiple and
calculated the implied equity value of Argosy using Argosy's last twelve months
of revenues, its last twelve months of EBITDA and estimates of calendar year
2001 revenues provided by Argosy management and included in published equity
analyst research reports. JPMorgan excluded the results of New Mountain
Capital's investment in Strayer Education, Inc. from its calculation of high
and low multiples because, in its judgment, it had determined that such
transaction was not comparable with the proposed merger. In each calculation,
JPMorgan assumed that Argosy had net cash of approximately $7.7 million and
approximately 6.5 million fully diluted outstanding shares. The results of this
analysis were as follows:
Equity Equity Value
Multiple Range Value per Share
--------------- ----------- -------------
(in millions)
Low High Low High Low High
LTM Revenues......................... 0.9x 1.7x $50.7 $89.0 $ 7.76 $13.61
LTM EBITDA........................... 7.8x 8.6x $50.6 $55.0 $ 7.74 $ 8.41
CY 2001E Revenues
Argosy Management Estimates........ 1.3x 1.3x $93.5 $93.5 $14.30 $14.30
Published Research Report
Estimates......................... 1.3x 1.3x $92.7 $92.7 $14.18 $14.18
Premiums Paid Analysis. Using publicly available information, JPMorgan
reviewed the following transactions: Career Education Corporation's acquisition
of EduTrek International, Inc.; The Washington Post Company's acquisition of
Quest Education Corporation; and Career Education Corporation's acquisition of
the California Culinary Academy. JPMorgan noted that the premium to the closing
stock price of the acquired company one day prior to announcement of the
transaction ranged from 36.7% to 88.2% and the premium to the average closing
stock price of the acquired company for the twenty trading days prior to
announcement of the transaction ranged from 32.0% to 95.7%.
JPMorgan then calculated the implied equity value of Argosy based upon the
closing price of Argosy common stock on July 5, 2001 and the average closing
price of Argosy for the twenty trading days prior to the announcement of the
merger. A premium range of between 36.7% and 37.7% resulted in an implied
equity value range of between approximately $69.2 million and $69.8 million
based upon the closing price of Argosy's common stock on July 5, 2001 and of
between $64.2 million and $67.3 million based upon the average closing price of
Argosy common stock for the preceding twenty trading days.
Discounted Cash Flow Analysis. JPMorgan conducted a discounted cash flow
analysis for the purpose of determining the fully diluted equity value per
share for Argosy's common stock. JPMorgan calculated the unlevered free cash
flows that Argosy is expected to generate during fiscal years 2002 through 2006
based upon financial projections prepared by management of Argosy through the
fiscal years ended August 31, 2002 and publicly available equity analyst
research reports and financial guidance from the management of Argosy for the
fiscal years ended August 31, 2003 through 2006. JPMorgan also calculated a
range of terminal asset values of Argosy at the end of the 5-year period ending
August 31, 2006 by applying a multiple of EBITDA to enterprise value of 6.0x to
8.0x to Argosy's estimated fiscal year 2006 EBITDA. The unlevered free cash
flows and the range of terminal asset values were then discounted to present
values using a range of discount rates from 12.0% to 16.0%, which were chosen
by JPMorgan based upon an analysis of the weighted average cost of capital of
Argosy and comparable companies. This analysis implied an equity value for
Argosy of between approximately $11.84 and $17.18 per share, assuming 6.5
million fully diluted shares outstanding.
19
The summary set forth above does not purport to be a complete description of
the analyses or data presented by JPMorgan. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. JPMorgan believes that the summary set forth
above and their analyses must be considered as a whole and that selecting
portions thereof, without considering all of its analyses, could create an
incomplete view of the processes underlying its analyses and opinion. JPMorgan
based its analyses on assumptions that it deemed reasonable, including
assumptions concerning general business and economic conditions and industry-
specific factors. The other principal assumptions upon which JPMorgan based its
analyses are set forth above under the description of each such analysis.
JPMorgan's analyses are not necessarily indicative of actual values or actual
future results that might be achieved, which values may be higher or lower than
those indicated. Moreover, JPMorgan's analyses are not and do not purport to be
appraisals or otherwise reflective of the prices at which businesses actually
could be bought or sold.
As a part of its investment banking business, JPMorgan and its affiliates
are continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, investments for passive and control
purposes, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes. JPMorgan was selected to advise Argosy with respect to the
merger on the basis of such experience and its familiarity with Argosy.
For services rendered in connection with the merger, Argosy has agreed to
pay JPMorgan a fee equal to 2.0% of the enterprise value of Argosy at the
closing date or a minimum of $1,500,000. In addition, Argosy has agreed to
reimburse JPMorgan for its expenses incurred in connection with its services,
including the fees and disbursements of counsel, and will indemnify JPMorgan
against certain liabilities, including liabilities arising under the federal
securities laws.
JPMorgan and its affiliates maintain banking and other business
relationships with Argosy and its affiliates, for which JPMorgan receives
customary fees. In the ordinary course of their businesses, JPMorgan and its
affiliates may actively trade the debt and equity securities of Argosy or
Education Management for their own accounts or for the accounts of customers
and, accordingly, they may at any time hold long or short positions in such
securities.
Certain Effects of the Merger
General. If the merger is consummated, Argosy will become a wholly-owned
subsidiary of Education Management and you will no longer have any interest in,
and will not be a stockholder of, Argosy. Therefore, you will not benefit from
any future earnings or growth of Argosy or benefit from any increase in the
value of Argosy, but you will also no longer bear the risk of any decrease in
value of Argosy. Instead, you will have the right to receive upon consummation
of the merger $12.00 for each of your shares of common stock. The benefit to
the holders of common stock of the transactions contemplated by the merger
agreement and the stock purchase agreement is the payment of a premium, in
cash, above the market value for such stock prior to the announcement of the
merger agreement. This cash payment assures that all stockholders will receive
the same amount for their shares.
Non-employee/Non-director Stock Options. At the effective time of the
merger, each outstanding stock option to acquire Argosy common stock held by a
person who is not an employee or director of Argosy or one of its subsidiaries
will be converted into, and each option holder will be entitled to receive upon
surrender of such option for cancellation, (1) in the case of non-employee/non-
director options with an exercise price less than $12.00 per share, cash equal
to the difference between $12.00 and the exercise price of the option,
multiplied by the number of shares subject to the option, less any amounts
required to be withheld or deducted, and (2) with respect to non-employee/non-
director options with an exercise price equal to $12.00 per share or greater,
an amount of cash equal to the cash value of such option as determined by the
Black-Scholes option valuation method, less any amounts required to be withheld
or deducted. As of the date of this proxy statement, there were no outstanding
non-employee/non-director options.
20
Employee and Director Stock Options. At the effective time of the merger,
each outstanding stock option to acquire Argosy common stock held by an
employee or director of Argosy or one of its subsidiaries shall be converted
into an option to acquire, on the same terms and conditions as were applicable
under the existing option, a number of shares of Education Management common
stock, par value $.01 per share. The formula for determining the number of
shares of Education Management common stock into which each outstanding
employee/director stock option will be exercisable is:
. the number of shares of Argosy common stock subject to the existing stock
option, multiplied by
. the product of $12.00 divided by the closing price per share of Education
Management common stock as listed on the Nasdaq National Market on the
last trading day before which the effective time of the merger occurs
(such product rounded to the nearest whole number).
The exercise price per share (rounded to the nearest whole cent) for each
share of Education Management common stock subject to the replacement stock
option will equal:
. the aggregate exercise price for the shares of Argosy common stock which
were purchasable pursuant to the existing stock option, divided by
. the number of full shares of Education Management common stock subject to
such replacement option in accordance with the foregoing.
Each employee or director stock option which is intended to be an "incentive
stock option" will be adjusted in accordance with the requirements of the
Internal Revenue Code or converted into a nonqualified stock option, at the
discretion of the option holder.
If the effective time of the merger had been August 31, 2001, an option held
by an employee or director of Argosy or one of its subsidiaries to purchase 100
shares of Argosy common stock at $5.00 per share would have been converted into
an option to purchase 30 shares of Education Management common stock at $16.66
per share.
Stock Purchase Warrant. At the effective time, the stock purchase warrant
held by Leeds Equity Associates, L.P. will be converted into, and Leeds Equity
will be entitled to receive upon surrender of such warrant for cancellation, an
amount equal to the difference between $12.00 and the exercise price of the
warrant ($6.48 per share), multiplied by the number of shares subject to the
warrant (200,000 shares), less any amounts required to be withheld or deducted.
Jeffrey T. Leeds, a director of Argosy, is a partner in Leeds Equity.
SEC Requirements. As a result of the merger, Argosy will be a privately held
corporation, and there will be no public market for its common stock, which
stock is currently registered under the Securities Exchange Act of 1934. After
the merger, the common stock will no longer be quoted on the Nasdaq National
Market, the registration of the common stock under the Exchange Act will be
terminated, Argosy will be relieved of the obligation to comply with the proxy
rules of Regulation 14A under Section 14 of the Exchange Act and its officers,
directors and beneficial owners of more than 10 percent of the common stock,
subject to certain limitations, will be relieved of the reporting requirements
and "short-swing" trading provisions under Section 16 of the Exchange Act.
Further, Argosy will no longer be subject to the periodic reporting
requirements of the Exchange Act and will cease filing information with the
SEC.
Corporate Matters. The officers and directors of HAC will become the
officers and directors of the surviving corporation immediately after the
merger. The articles of incorporation of Argosy will be the articles of
incorporation of the surviving corporation until amended in accordance with its
terms and Illinois law and the bylaws of Argosy will be the bylaws of the
surviving corporation until amended in accordance with its terms and Illinois
law.
21
Conduct of the Business of Argosy if the Merger is Not Consummated
If the merger is not consummated, we expect to continue to operate our
business substantially as presently operated.
Accounting Treatment
The merger will be accounted for under the purchase method of accounting.
Under this method of accounting, the purchase price will be allocated to assets
acquired and liabilities assumed based on the estimated fair values at the
effective time of the merger (with the excess purchase price after such
allocation being recorded as goodwill).
Financing of the Merger and Stock Purchase
We estimate that approximately $78.0 million is required for the payment by
Education Management of (1) the consideration for the 4.9 million shares of
common stock purchased from Dr. Markovitz and (2) the merger consideration for
the common stock to be paid to our stockholders, assuming no stockholders
perfect their dissenters' rights under Illinois law. In addition, we estimate
that $1,104,000 will be required to be paid with respect to the economic value
(or spread) on a stock purchase warrant.
Education Management has obtained and delivered to Argosy a commitment
letter from National City Bank pursuant to which Education Management expects
to have available to it sufficient funds to consummate the transactions
contemplated by the merger agreement and the stock purchase agreement,
including payment of the merger consideration and all related costs and
expenses.
Regulatory Requirements
Antitrust. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, Argosy and Education Management are prohibited from completing the
merger until:
. notifications are given to the Federal Trade Commission and the Antitrust
Division of the United States Department of Justice;
. information is furnished to the FTC and the Department of Justice; and
. specified waiting period requirements are satisfied or terminated.
On July 20, 2001, in connection with the merger and stock purchase, Argosy
and Education Management each filed a Pre-Merger Notification and Report Form
under the HSR Act with the FTC and the Department of Justice. The FTC granted
early termination of the waiting period under the HSR Act relating to the
merger and the stock purchase on July 27, 2001.
Although the waiting period under the HSR Act has been terminated, at any
time before or after the merger, the Department of Justice or the FTC could,
among other things, seek to enjoin the completion of the merger or stock
purchase or seek the divestiture of substantial assets of Argosy or Education
Management. Private parties and state attorneys general may also bring an
action under the antitrust laws under certain circumstances. There can be no
assurance that a challenge to the merger or stock purchase on antitrust grounds
will not be made or, if such a challenge is made, of the result.
Education Regulation. Under the merger agreement, Argosy must obtain all
approvals and consents from governmental, educational and accrediting entities
to the extent necessary and appropriate to complete the merger. Argosy and
Education Management have obtained the approvals required for Dr. Markovitz's
sale of his stock to EDMC and are currently in the process of attempting to
obtain approvals necessary for completion of the merger from the federal, state
and accrediting entities to which Argosy's schools are subject.
22
The consummation of the merger is conditioned upon receipt of final approval
from the U.S. Department of Education, as well as certain approvals by state
licensing and private accrediting agencies, of the change in control effected
pursuant to the merger agreement and the stock purchase agreement.
Other Requirements. Other than the approvals, filings or notices described
above, certain filings required pursuant to federal securities laws and the
filing of the certificate of merger with the Secretary of State of the State of
Illinois, no other government or regulatory approvals, filings or notices are
required in order to consummate the merger.
Conflicts of Interest of Certain Persons in the Merger; Certain Relationships
You should be aware that the executive officers and directors of Argosy may
have interests in the merger that are different from, or in addition to, their
interests as stockholders of Argosy generally. The Argosy board was aware of
these interests and considered them, among other matters, in approving the
merger agreement and the transactions contemplated thereby, including the
merger.
Common Stock. As of August 31, 2001, the executive officers and directors of
Argosy (other than Dr. Markovitz) beneficially owned an aggregate of 25,702
shares of common stock, which will be treated in the merger in the same manner
as shares of common stock held by other stockholders. On September 26, 2001,
pursuant to the stock purchase agreement, 4.9 million shares of common stock
beneficially owned by Dr. Markovitz as of the record date were sold to
Education Management for $12.00 per share. The remaining 50,418 shares of
common stock beneficially owned by Dr. Markovitz, which were not sold to
Education Management, will be treated in the merger in the same manner as
shares of common stock held by other stockholders.
Stock Options. Pursuant to the terms of the merger agreement, all options
granted under the Argosy Education Group, Inc. 1999 Stock Incentive Plan to
employees and directors will automatically convert at the effective time of the
merger into options to acquire Education Management common stock in accordance
with the formula described under "--Certain Effects of the Merger--Employee and
Director Stock Options" on page 21. As of August 31, 2001, options to purchase
256,000 shares of Argosy common stock (which will automatically convert into
options to purchase Education Management common stock) were held by the
executive officers and directors of Argosy listed on page 46 below.
Stock Purchase Warrant and Certain Fees. Leeds Equity Associates, L.P.
currently holds a stock purchase warrant providing for the purchase of 200,000
shares of our common stock at a purchase price of $6.48 per share and with a
seven year exercise period. Jeffrey Leeds, a director of Argosy, is a partner
in Leeds Equity and has pecuniary interests in such entity. As discussed in
more detail on page 21, Education Management has agreed to pay to Leeds Equity
$1,104,000, which is the economic value (or spread) of such warrant, at the
closing of the merger.
In connection with the issuance of the stock purchase warrant and the
consideration of a potential transaction with Argosy, Leeds Equity incurred
approximately $730,000 in fees and expenses. Although we have agreed to
reimburse such fees and expenses pursuant to a letter agreement with Leeds
Equity, Dr. Markovitz has agreed pursuant to the terms of the stock purchase
agreement to satisfy all obligations of Argosy incident to that letter
agreement and to reimburse us for any payments made by us thereunder.
Employment Agreement with Dr. Markovitz. Education Management has entered
into an employment agreement with Dr. Markovitz, which will be effective only
upon the completion of the merger. The agreement is substantially in the same
form as the employment agreements with other senior executives of Education
Management. The term of the agreement is for a period of three years commencing
on the effective date of the merger, unless earlier terminated in accordance
with the terms of the agreement. The agreement automatically renews for
successive one-year periods unless either party gives notice to the contrary.
23
Under the agreement, Dr. Markovitz will serve as Chairman of Argosy
University and Chairman of the surviving corporation in the merger. He will
also be invited to attend and participate in (but not to vote at) all meetings
of the board of directors of Education Management. The agreement provides for,
among other things:
. an annual base salary equal to $225,000, subject to annual cost of living
increases and discretionary increases by the board, each beginning on
July 1, 2002;
. discretionary bonuses; and
. participation in Education Management's benefit plans, programs and
arrangements on the same basis as other senior executives of Education
Management.
Under the agreement, Dr. Markovitz's employment may be terminated due to
death or disability, by Education Management with or without cause (as defined
therein) or by Dr. Markovitz with or without good reason (as defined therein).
If, prior to a change of control of Education Management, Education Management
terminates Dr. Markovitz's employment without cause or if he should terminate
employment for good reason, he would be entitled to the following benefits:
. lump sum payment of any accrued obligations;
. continued payment of his base salary and average bonus payment for a
period of one year following the date of termination;
. for a one-year period following termination, continuation of welfare
benefits, including medical, dental, vision, life and disability
benefits;
. key executive outplacement services in accordance with similar policies
for other senior executives; and
. unvested stock options would continue to vest during the one-year period
following termination.
If, in anticipation of or within a two-year period following a change of
control of Education Management, Education Management terminates Dr.
Markovitz's employment without cause or if he should terminate employment for
good reason, he would be entitled to the following benefits:
. lump sum payment of any accrued obligations;
. lump sum severance payment equal to two times his base salary and average
bonus payment;
. for a two-year period following termination, continuation of welfare
benefits, including medical, dental, vision, life and disability
benefits;
. key executive outplacement services in accordance with similar polices
for other senior executives;
. all unexercised stock options would immediately vest and become
exercisable; and
. immediate vesting and accelerated distribution of his benefits under the
supplemental executive retirement plan in which Dr. Markovitz may
participate.
The agreement also contains non-competition, non-solicitation and
confidentiality covenants on the part of Dr. Markovitz. The non-solicitation
and non-competition provisions continue for one year following termination of
employment, except that the non-competition covenant will cease to be
applicable in the event Dr. Markovitz's employment is terminated without cause
by Education Management, terminated for good reason by Dr. Markovitz or
terminated in anticipation of or within two years after a change in control. In
addition, the agreement entitles Dr. Markovitz to receive a tax gross-up bonus
to cover, on an after-tax basis, any change in control excise taxes payable by
him as a result of any payments made under the terms of the agreement.
Change in Control Agreements. In June 2001, we entered into change in
control agreements with certain of our officers, including Jim Otten and Chuck
T. Gradowski. Under the terms of the agreement, each such officer is entitled
to receive a lump sum severance payment equal to such officer's annual
compensation (as in effect prior to the applicable change in control) if we:
24
. undergo a change in control prior to the second anniversary of the date
of such agreement;
. the officer makes himself or herself available for continued employment
by our successor in interest;
. the officer or such successor in interest elects not to continue the
officer's employment in connection with such change in control or prior
to the first anniversary of such change in control, the officer's
employment is terminated without cause or the officer resigns for good
reason; and
. the officer executes a general release form.
Although the transactions contemplated by the merger agreement and the stock
purchase agreement will constitute a change in control under each of the
agreements, severance payments will only be paid out to the officers if all of
the above events occur.
Sale of Certain Businesses. We acquired the operating assets of John
Marshall Law School of Atlanta, Georgia and the stock of PrimeTech Canada, Inc.
in March 2001 and November 1998, respectively. Since such times, each company
has incurred operating losses and, therefore, presented an obstacle to us in
achieving a more favorable price for our stockholders in the transaction with
Education Management. In order to obtain the most favorable price in this
transaction, we provided Education Management with the ability to cause Argosy
to dispose of either or both of these companies prior to the effective time of
the merger. To support this effort, Dr. Markovitz has agreed to purchase the
stock of one or both of these companies for a purchase price of $1.00. Dr.
Markovitz, upon our request, will be obligated to purchase such stock without
recourse to Argosy and Argosy will not have to make any representations or
warranties or other undertakings to Dr. Markovitz in connection therewith. The
closing of such sale or sales will only be conditioned on obtaining all
material regulatory approvals necessary in order to transfer control of such
entity or entities to Dr. Markovitz.
As of the date of this proxy statement, Education Management was still
considering whether or not to continue to own and operate PrimeTech following
the closing of the merger and had directed us to dispose of John Marshall.
Indemnification; Directors and Officer Insurance. Please refer to "THE
MERGER AGREEMENT--Covenants--Indemnification and Insurance of Argosy Directors
and Officers" for a discussion of indemnification and insurance rights of our
directors and officers following the merger.
Employee Benefits. Please refer to "THE MERGER AGREEMENT--Covenants--
Employee Matters" for a discussion of the employee benefits to be provided to
our employees, including any executive officers, who remain employed by Argosy
following the merger.
Material Federal Income Tax Consequences of the Merger
General. The following is a summary of the material United States federal
income tax consequences of the merger to Argosy stockholders. This summary is
based upon the provisions of the Internal Revenue Code of 1986, as amended,
applicable current and proposed United States Treasury Regulations, judicial
authority, and administrative rulings and practice. Legislative, judicial or
administrative rules and interpretations are subject to change, possibly on a
retroactive basis, at any time, and, therefore, the following statements and
conclusions could be altered or modified. This summary only applies to shares
of Argosy common stock held as capital assets by a United States person (for
example, a citizen or resident of the United States or a domestic corporation),
and it does not address all aspects of United States federal income taxation
that may be relevant to a particular Argosy stockholder in light of that Argosy
stockholder's personal investment circumstances, or to Argosy stockholders
subject to special treatment under the United States federal income tax laws
(such as life insurance companies, tax-exempt organizations, financial
institutions and dealers in securities), Argosy stockholders who hold shares of
Argosy common stock as part of a hedging, "straddle," conversion or other
integrated transaction, Argosy stockholders who are subject to the alternative
minimum tax provisions of the Internal Revenue Code, Argosy stockholders who
are foreign persons, or Argosy stockholders who acquired
25
their shares of Argosy common stock through the exercise of director or
employee stock options or other compensation arrangements. In addition, the
discussion does not address any aspect of foreign, state or local taxation or
estate and gift taxation that may be applicable to an Argosy stockholder.
Consequences of the Merger to Argosy Stockholders. The receipt of the merger
consideration in the merger will be a taxable transaction for United States
federal income tax purposes (and also may be a taxable transaction under
applicable state, local and other income tax laws). In general, for United
States federal income tax purposes, a holder of Argosy common stock will
recognize gain or loss equal to the difference between such stockholder's
adjusted tax basis in Argosy's common stock converted in the merger, and the
amount of cash received. Gain or loss will be calculated separately for each
block of shares converted in the merger (i.e., shares acquired at the same cost
in a single transaction). The gain or loss will be capital gain or loss, and
will be short-term gain or loss if, at the effective time of the merger, the
shares of Argosy common stock so converted were held for one year or less. If
the shares were held for more than one year, the gain or loss will be long-
term. In the case of stockholders who are individuals, such long-term capital
gain is subject to tax at a maximum United States federal income tax rate of
20%. Capital losses are deductible to the extent of capital gains plus, in the
case of individual tax payers, $3,000 of ordinary income. Capital losses in
excess of this amount may be carried forward to other years, subject to certain
limitations.
Backup Tax Withholding. Under the United States federal income tax backup
withholding rules, unless an exemption applies, Education Management is
generally required to and will withhold 30.5% of all payments to which a Argosy
stockholder or other payee is entitled in the merger prior to December 31,
2001, unless the Argosy stockholder or other payee provides a tax
identification number (social security number in the case of an individual, or
employer identification number in the case of other stockholders), and
certifies under penalties of perjury that that number is correct. Each Argosy
stockholder and, if applicable, each other payee, should complete and sign the
substitute Form W-9 that will be a part of the letter of transmittal to be
returned to the exchange agent (or its agent) in order to provide the
information and certification necessary to avoid backup withholding, unless an
applicable exemption exists and is otherwise proved in a manner satisfactory to
the exchange agent (or their agent). The exemptions provide that certain Argosy
stockholders (such as corporations and certain foreign individuals) are not
subject to these backup withholding requirements. In order for a foreign
individual to qualify as an exempt recipient, however, he or she must submit a
signed statement (such as a Certificate of Foreign Status on Form W-8)
attesting to his or her exempt status. Any amounts withheld will be allowed as
a credit against the holder's United States federal income tax liability for
the taxable year in which the merger occurs.
Individual circumstances may differ. Each holder of Argosy common stock
should consult his or her own tax advisor to determine the applicability of the
rules discussed above and the particular tax effects to such stockholder of the
merger, including the application and effect of state, local and other tax
laws.
Fees and Expenses
Whether or not the merger is consummated and except as otherwise provided in
the merger agreement, all fees and expenses incurred in connection with the
merger will be the responsibility of the party incurring such fees and
expenses, except that Education Management paid the filing fee under the HSR
Act. Estimated fees (other than the SEC filing fee, which is actual) and
expenses to be incurred by Argosy in connection with the merger are as follows:
Financial Advisor Fee and Expenses............................... $1,575,000
SEC Filing Fee................................................... $ 16,964
Legal Fees and Expenses.......................................... $ 300,000
Printing and Mailing Expenses.................................... $ 55,000
Miscellaneous.................................................... $ 3,036
----------
Total........................................................ $1,950,000
==========
These expenses will not reduce the merger consideration to be received by
our stockholders.
26
THE STOCK PURCHASE AGREEMENT
In connection with the execution of the merger agreement on July 9, 2001,
Dr. Markovitz, the beneficial owner of approximately 75% of Argosy's common
stock, and Education Management entered into a stock purchase agreement. The
following summarizes the material terms of such agreement, which is attached
hereto as Annex B and incorporated herein by reference. This summary is
qualified in its entirety by reference to the stock purchase agreement.
Background. The U.S. Department of Education has various regulations
pertaining to a change in ownership resulting in a change of control of an
educational institution that participates in the student financial assistance
programs administered by the U.S. Department of Education under Title IV of the
Higher Education Act of 1965, as amended. When an institution, like Argosy,
undergoes a change in ownership resulting in a change of control, it becomes
ineligible to participate in the Title IV programs and must apply to the
Department of Education for recertification to participate in such programs.
The structure of the transactions contemplated by the stock purchase agreement
and the merger agreement were, in part, a result of Education Management's
desire not to acquire Argosy without certain assurances that the students at
Argosy's schools would continue to have access to the Title IV programs.
Accordingly, Argosy has filed or will file all necessary notifications and
requests for approval with all federal, state and accrediting agencies to the
extent necessary to consummate the transactions and, by having Dr. Markovitz
sell to Education Management before the merger is completed the shares of
Argosy common stock described below, has structured the transactions in a way
to permit final Department of Education approval before final consummation of
the merger.
On July 20, 2001, we received written confirmation from the Department of
Education that (1) it would commence its final review of Argosy's request for
recertification to participate in the Title IV programs upon the sale of Dr.
Markovitz's shares pursuant to the stock purchase agreement, (2) it would
complete its review before the stockholders vote on the transactions and (3)
the subsequent merger of HAC with and into Argosy would not result in another
change in control requiring another Department of Education review. On
September 10 and 17, 2001, we received written confirmation from the Department
of Education that, as a result of its pre-acquisition review of the Argosy
schools' applications for recertification, it sees no material impediment to
the prompt, temporary resumption of the Argosy schools' participation in the
Title IV programs following Dr. Markovitz's sale of his shares pursuant to the
stock purchase agreement. Argosy and Education Management now will work with
the Department of Education to obtain final approval of the Argosy schools'
applications for recertification to continue to participate in the Title IV
programs.
Purchase of Common Stock. On September 26, 2001, Dr. Markovitz deposited
into escrow 4.9 million shares of Argosy common stock beneficially owned by him
and Education Management deposited into escrow the purchase price for such
shares, which is the same per share consideration that you will be receiving in
connection with the merger. At such time, the title to all 4.9 million shares
of Argosy common stock passed to Education Management.
Escrow Release. On the next business day following satisfaction or waiver of
certain conditions, including receipt of final Department of Education approval
of the Argosy schools' applications for recertification to participate in the
Title IV programs after the closing, approvals and agreements of various
regulatory and accrediting bodies and the closing of the merger pursuant to the
merger agreement, the purchase price and shares of common stock held in escrow
will be released to the respective parties.
Rescission of Stock Purchase. If the purchase price and shares have not been
released from escrow for any reason by December 31, 2001, the transactions
contemplated by the stock purchase agreement are automatically rescinded. The
purchase price and shares of common stock will be returned to Education
Management and Dr. Markovitz, respectively. The merger agreement will not,
however, terminate, and subject to final Department of Education approval, it
is expected the merger would still take place.
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Agreement to Vote. Pursuant to and subject to the terms of the stock
purchase agreement:
. Dr. Markovitz has already voted in favor of the merger and the merger
agreement and has agreed, if the stock purchase agreement is rescinded as
described above, to, among other things, appear at any Argosy
stockholders' meeting and vote in favor of the merger and the merger
agreement and against any action or agreement that would impede,
interfere with, delay, postpone or discourage the merger, including any
other acquisition proposal, and has agreed not to take any other action
which could adversely affect the stock purchase agreement or the merger
agreement.
. Education Management has agreed, after the closing under the stock
purchase agreement, to appear at any stockholders' meeting and vote (1)
for Argosy's current directors on the date of the stock purchase
agreement and, except in limited circumstances, any persons nominated by
such directors to fill any vacancies that may be created on the board,
(2) in favor of the merger between Argosy and Education Management and
(3) against any other acquisition proposal. Education Management has also
agreed not to take any other action which could adversely affect the
stock purchase agreement or the merger agreement.
. Each of Dr. Markovitz and Education Management have agreed that in the
event that either party fails to comply with the voting provisions
described above, such failure shall result in an irrevocable appointment
of the other as his or its attorney and proxy, with full power of
substitution and resubstitution, to vote the shares of common stock
transferred under the stock purchase agreement in accordance with the
provisions described above.
Change of Control of our Board of Directors
Under the stock purchase agreement, Education Management required that all
of our current directors, other than Dr. Markovitz, tender their conditional,
irrevocable resignations from our board. Each such resignation cannot be
revoked and will only become effective upon the occurrence of the escrow
release described above. Each of the resigning directors has also agreed that,
to the extent any of them would retain under law any residual rights
inconsistent with his or her irrevocable resignation, such director has waived
such rights, agreed never to exercise such rights and agreed never to claim, as
a complaint or a defense, or otherwise assert that such resignation is not
valid or enforceable.
In the event the escrow release occurs prior to the closing of the merger,
thereby causing the resignations to be effective, Dr. Markovitz has agreed to
appoint three nominees of Education Management to our board. At such point in
time, the directors nominated by Education Management will consist of the
majority of the board. The following are Education Management's director
nominees:
Robert B. Knutson, age 68, has been the Chairman and Chief Executive
Officer of Education Management since 1986 and a director of Education
Management since 1969. He is a graduate of the University of Michigan
(B.A., Economics 1956) and was a fighter pilot with the U.S. Air Force from
1957 to 1962. Mr. Knutson joined Education Management as a director in 1969
and became its President in 1971 and the Chairman, President and Chief
Executive Officer in 1986.
Robert P. Gioella, age 54, has been the President and Chief Operating
Officer of Education Management since March 1999 and was appointed a member
of the Board of Directors of Education Management in June 1999. From 1998
to March 1999, he was the Senior Vice President/Operations of Education
Management, and from 1997 to 1998, he was the Vice President -- New School
Operations of Education Management. From 1993 to 1997, Mr. Gioella was
president of The Art Institute of Philadelphia. He is a graduate of the
University of Steubenville (B.A., Political Science 1970) and Duquesne
University (M.A., Political Science 1976).
Robert T. McDowell, age 47, is Executive Vice President and Chief Financial
Officer of Education Management. From 1994 to September 1999, he was Senior
Vice President and Chief Financial Officer of
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Education Management. He is a graduate of the University of Pittsburgh
(M.B.A., 1978; B.A., Economics 1977). Mr. McDowell joined Education
Management in 1988.
As of the date of this proxy statement, we have made no compensation
arrangements with these director nominees. The information in this section,
along with other information found elsewhere in this proxy statement, is being
disclosed herein pursuant to the requirements of Rule 14f-1 of the Securities
Exchange Act of 1934.
In the event the closing of the merger occurs simultaneous with the escrow
release, then the board of directors of HAC will be the board of directors of
Argosy, as the surviving corporation, following such closing as set forth in
the merger agreement.
Sale of Certain Businesses. We acquired the operating assets of John
Marshall Law School of Atlanta, Georgia and the stock of PrimeTech Canada, Inc.
in March 2001 and November 1998, respectively. Since such times, each company
has incurred operating losses and, therefore, presented an obstacle to us in
achieving the most favorable price for our stockholders in the transaction with
Education Management. In order to obtain the most favorable price in this
transaction, we provided Education Management with the ability to cause Argosy
to dispose of either or both of these companies prior to the effective time of
the merger. To support this effort, Dr. Markovitz has agreed to purchase the
stock of one or both of these companies for a purchase price of $1.00. Dr.
Markovitz, upon our request, will be obligated to purchase such stock without
recourse to Argosy and Argosy will not have to make any representations or
warranties or other undertakings to Dr. Markovitz in connection therewith. The
closing of such sale or sales will only be conditioned on obtaining all
material regulatory approvals necessary in order to transfer control of such
entity or entities to Dr. Markovitz.
As of the date of this proxy statement, Education Management was still
considering whether or not to continue to own and operate PrimeTech following
the closing of the merger and had directed us to dispose of John Marshall.
29
THE MERGER AGREEMENT
The following is a summary of the material provisions of the merger
agreement, a copy of which is attached to this proxy statement as Annex A and
incorporated herein by reference. This summary is qualified in its entirety by
reference to the full text of the merger agreement.
Completion of the Merger
The merger agreement provides that the merger will become effective at such
time as a certificate of merger is duly filed with the Secretary of State of
the State of Illinois or at such later time as is agreed to by the parties and
as is specified in the certificate of merger. If the merger agreement and
merger are approved at the special meeting by the requisite stockholder vote,
it is currently anticipated that the merger will become effective as soon as
practicable after the special meeting, subject to satisfaction or waiver of the
closing conditions in the merger agreement other than stockholder approval;
however, there can be no assurance as to the timing of the consummation of the
merger or that the merger will be consummated.
Merger Consideration
At the effective time of the merger, HAC will be merged with and into
Argosy, the separate corporate existence of HAC will cease and Argosy will
continue as a wholly-owned subsidiary of Education Management. In the merger,
each share of common stock (other than common stock held (1) in the treasury of
Argosy, (2) by dissenting stockholders or (3) by Education Management or HAC)
will, by virtue of the merger and without any action on the part of the holder
thereof, be converted into the right to receive $12.00 per share in cash,
without interest. Each certificate representing shares of Argosy common stock
that have been converted under the terms of the merger agreement will, after
the effective time of the merger, evidence only the right to receive, upon the
surrender of such certificate, an amount of cash per share equal to the merger
consideration.
Each share of common stock held in the treasury of Argosy or owned at the
effective time by Education Management or HAC, including the 4.9 million shares
purchased directly from Dr. Markovitz for $12.00 per share on September 26,
2001, will automatically be canceled and extinguished and no payment will be
made with respect thereto.
Dissenting stockholders who do not vote to approve the merger agreement and
who otherwise comply with the provisions of the Illinois Business Corporation
Act regarding dissenters' rights have the right to demand payment from
Education Management for the fair value of their shares of Argosy common stock
and payment in cash therefor in lieu of the merger consideration. See
"DISSENTERS' RIGHTS" beginning on page 42 below.
The Exchange Fund; Payment for Shares of Argosy Common Stock
Education Management will enter into an agreement with Mellon Investor
Services, or another similar institution selected by Education Management and
reasonably acceptable to Argosy (the "paying agent"), for the purpose of
exchanging the common stock for the merger consideration. Promptly after the
effective time of the merger, Education Management will cause to be deposited
with the paying agent, for the benefit of holders of common stock that is
converted into the merger consideration, an amount in cash equal to the
aggregate merger consideration (the "payment fund").
Promptly after the effective time of the merger, the paying agent will mail
to each record holder of shares of Argosy common stock immediately prior to the
effective time of the merger a letter of transmittal and instructions for
surrendering certificates formerly representing shares of common stock. No
stockholder should surrender any certificates until the stockholder receives
the letter of transmittal and other materials for such
30
surrender. Upon surrender of a certificate for cancellation to the paying
agent, together with a letter of transmittal, duly executed and completed, and
such other customary documents as may be required pursuant to the instructions,
the holder of such certificate will be entitled to receive in exchange therefor
the merger consideration for each share of Argosy common stock formerly
represented by such certificate, without any interest thereon, less any
required withholding of taxes, and the certificate so surrendered will be
canceled. The merger consideration will be delivered by the paying agent as
promptly as practicable following surrender of a certificate and delivery of a
duly executed and completed letter of transmittal and any other required
documents. Cash payments may be made by check unless otherwise required by a
depositary institution in connection with the book-entry delivery of
securities.
If payment of the merger consideration is to be made to a person other than
the person in whose name the certificate surrendered is registered, it will be
a condition of payment that the certificate so surrendered be properly endorsed
(together with signature guarantees on such certificate and any related stock
power) or otherwise be in proper form for transfer and that the paying agent
receives evidence that any applicable transfer or other taxes have been paid or
are not applicable.
You should not send your certificates now and should send them only pursuant
to instructions set forth in the letter of transmittal, which will be mailed to
stockholders promptly after the effective time of the merger. In all cases, the
merger consideration will be paid only in accordance with the procedures set
forth in the merger agreement, this proxy statement and the letter of
transmittal.
Six months following the effective time of the merger, the paying agent may
return to the surviving corporation any portion of the payment fund that
remains undistributed to the holders of Argosy common stock (including the
proceeds of any investments thereof), and any holders of Argosy common stock
who have not theretofore complied with the above-described procedures to
receive payment of the merger consideration may look only to the surviving
corporation for payment.
Transfers of Argosy Common Stock
At the effective time of the merger, the stock transfer books of Argosy will
be closed, and there will be no further registration of transfers of shares of
Argosy common stock thereafter on the records of Argosy. If, after the
effective time of the merger, certificates are presented to the exchange agent
or Argosy, they will be cancelled and exchanged for the merger consideration,
subject to applicable law in the case of dissenting stockholders.
Treatment of Options and Warrants
Non-employee/Non-director Stock Options. At the effective time of the
merger, each outstanding stock option to acquire Argosy common stock held by a
person who is not an employee or director of Argosy or one of its subsidiaries
will be converted into, and each option holder will be entitled to receive upon
surrender of such option for cancellation, (1) in the case of non-employee/non-
director options with an exercise price less than $12.00 per share, cash equal
to the difference between $12.00 and the exercise price of the option,
multiplied by the number of shares subject to the option, less any amounts
required to be withheld or deducted, and (2) with respect to non-employee/non-
director options with an exercise price equal to $12.00 per share or greater,
an amount of cash equal to the cash value of such option as determined by the
Black-Scholes option valuation method, less any amounts required to be withheld
or deducted. As of the date of this proxy statement, there were no outstanding
non-employee/non-director options.
Employee and Director Stock Options. At the effective time of the merger,
each outstanding stock option to acquire Argosy common stock held by an
employee or director of Argosy or one of its subsidiaries shall be converted
into an option to acquire, on the same terms and conditions as were applicable
under the existing option, a number of shares of Education Management common
stock, par value $.01 per share. The formula for determining the number of
shares of Education Management common stock into which each outstanding
employee/director stock option will be exercisable into is:
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. the number of shares of Argosy common stock subject to the existing stock
option, multiplied by
. the product of $12.00 divided by the closing price per share of Education
Management common stock as listed on the Nasdaq National Market on the
last trading day before which the effective time of the merger occurs
(such product rounded to the nearest whole number).
The exercise price per share (rounded to the nearest whole cent) for each
share of Education Management common stock subject to the replacement stock
option will equal:
. the aggregate exercise price for the shares of Argosy common stock which
were purchasable pursuant to the existing stock option, divided by
. the number of full shares of Education Management common stock subject to
such replacement option in accordance with the foregoing.
Each employee or director stock option which is intended to be an "incentive
stock option" will be adjusted in accordance with the requirements of the
Internal Revenue Code or converted into a nonqualified stock option, at the
discretion of the option holder.
If the effective time of the merger had been August 31, 2001, an option held
by an employee or director of Argosy or one of its subsidiaries to purchase 100
shares of Argosy common stock at $5.00 per share would have been converted into
an option to purchase 30 shares of Education Management common stock at $16.66
per share.
Stock Purchase Warrant. At the effective time, the stock purchase warrant
held by Leeds Equity Associates, L.P. shall be converted into, and Leeds Equity
will be entitled to receive upon surrender of such warrant for cancellation, an
amount equal to the difference between $12.00 and the exercise price of the
warrant ($6.48 per share), multiplied by the number of shares subject to the
warrant (200,000 shares), less any amounts required to be withheld or deducted.
Jeffrey T. Leeds, a director of Argosy, is a partner in Leeds Equity.
Representations and Warranties
We have made customary representations and warranties to Education
Management, including representations and warranties relating to:
. our corporate organization and . labor matters;
business;
. our compliance with laws and
. our capitalization; education department rules;
. our authority to enter into, . financial assistance programs;
and the enforceability of, the
merger agreement;
. transactions with affiliates;
. our ability to enter into and . accuracy of information in this
consummate the merger agreement proxy statement;
without violation of, or
conflict with, our
organizational documents,
permits or accrediting body
requirements;
. vote required by our stockholders
in connection with the approval of
the merger agreement;
. approval of the merger agreement
. documents filed by us with the by the board;
SEC and the accuracy of
information contained in those
documents;
. receipt of fairness opinion;
. change of control payments;
. books and records and financial
statements;
. governmental approvals necessary
to enter into the merger agreement
and consummate the merger;
. absence of certain changes in
our business;
. accreditation and state licensure
. our title to assets; and approval;
. our real estate;
32
. our intangible assets; . relationships with related
persons;
. contract matters;
. payment of brokers' and finders'
fees;
. our insurance polices and
claims relating to our
business;
. existence of other proposals to
acquire us;
. litigation matters;
. the non-applicability of certain
takeover laws;
. tax matters;
. matters relating to our . expenses; and
employee benefits;
. the completeness and accuracy of
our representations and
warranties.
. environmental matters;
Education Management and HAC have also made customary representations and
warranties to us, including representations and warranties relating to:
. the corporate organization and
business of Education . payment of brokers' and finders'
Management and HAC; fees;
. each of Education Management's . accreditation and state licensure
and HAC's authority to enter and approval;
into, and the enforceability
of, the merger agreement;
. the completeness and accuracy of
the representations and warranties
of Education Management and HAC;
. each of Education Management's
and HAC's ability to enter into
and consummate the merger
agreement without violation of,
or conflict with, their
respective organizational
documents;
. sufficient funds to pay the merger
consideration; and
. accuracy of information supplied
to us for this proxy statement.
. the operations of HAC;
None of the representations and warranties contained in the merger agreement
survive the completion of the merger or the termination of the merger
agreement.
Covenants
Argosy and Education Management have agreed to certain covenants in the
merger agreement. A description of the material covenants follows:
Conduct of Business.
We have agreed that until the termination of the merger agreement or the
completion of the merger, we will, and will cause our subsidiaries to:
. carry on the businesses in the usual, regular and ordinary course in
substantially the same manner as conducted before the date of the merger
agreement;
. timely pay debts and taxes;
. collect receivables in the same manner and on the same terms as before
the date of the merger agreement;
. timely pay or perform other material obligations; and
33
. use all commercially reasonable efforts consistent with past practice and
policies to preserve intact the present business organizations, keep
available the services of their present officers and employees and
preserve their relationships with those having business dealings with us
or our subsidiaries to the end that our and our subsidiaries goodwill and
ongoing businesses be unimpaired at the effective time of the merger.
We have also agreed, with certain exceptions, that we will not prior to the
termination of the merger or the completion of the merger do any of the
following without the prior written consent of Education Management:
. except as required by our benefit plans, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice
options granted under our benefit plans or authorize cash payments in
exchange for any options granted under any of such plans;
. amend any charter documents or bylaws;
. enter into any contract or commitment the performance of which may extend
beyond the closing date, except those made in the ordinary course of
business;
. knowingly take any action or omit to take any action that will cause a
material breach or termination of any contract (other than termination by
fulfillment of the terms thereunder);
. make any material changes to any of the schools existing space or make
any individual capital expenditures having a cost in excess of $50,000;
. enter into any partnership agreements, joint development agreements or
strategic alliance agreements;
. grant any severance or termination pay (1) to any executive officer or
director or (2) to any other employee except payments made in connection
with the termination of employees who are not executive officers in
amounts consistent with our policies and past practices or pursuant to
written agreements in effect, or policies existing, on the date hereof;
. transfer or license to any person or entity or otherwise materially
extend, amend or modify any rights to our material intangible assets;
. commence any litigation other than (1) for the routine collection of
bills, or (2) in such cases where we in good faith determine that failure
to commence suit could result in the material impairment of a valuable
aspect of our business; provided that we consult with Education
Management prior to the filing of such a suit;
. declare or pay any dividends on or make any other distributions (whether
in cash, stock or property) in respect of any of our capital stock, or
split, combine or reclassify any of our capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of
or in substitution for shares of our capital stock;
. redeem, repurchase or otherwise acquire, directly or indirectly,
recapitalize or reclassify any shares of our capital stock;
. issue, deliver or sell or authorize or propose the issuance, delivery or
sale of, any shares of our capital stock of any class or securities
convertible into, or subscriptions, rights, warrants or options to
acquire, or enter into other agreements or commitments of any character
obligating us to issue any such shares or other convertible securities,
other than the issuance of shares of our common stock pursuant to the
exercise of existing stock options outstanding as of the date of the
merger agreement or the warrant with Leeds Equity Associates, L.P.;
. make any material amendment to any material contract;
. sell, lease, license, encumber or otherwise dispose of any properties or
assets which are material, individually or in the aggregate, to our
business, except in the ordinary course of business consistent with past
practice, or liquidate, in whole or in part;
34
. incur any indebtedness for borrowed money (other than ordinary course
trade payables or pursuant to existing credit facilities in the ordinary
course of business) or guarantee any such indebtedness or issue or sell
any debt securities or warrants or rights to acquire our debt securities
or guarantee any debt securities of others;
. adopt or amend any of our benefit plans or materially increase the
salaries or wage rates of our employees generally, other than in the
ordinary course of business, including but not limited to, the adoption
or amendment of any stock purchase or option plan, the entering into of
any employment contract not in the ordinary course of business or the
payment of any special bonus or special remuneration to any director or
employee, other than bonuses reflected on our financial statements;
. revalue any assets, including, without limitation, writing down the value
of inventory, writing off notes or accounts receivable other than in the
ordinary course of business consistent with past practice or waiving any
right of material value except as required by GAAP;
. pay, discharge or satisfy in an amount in excess of $50,000 (in any one
case) or $250,000 (in the aggregate), any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise),
including, without limitation, under any employment contract or with
respect to any bonus or special remuneration, other than the payment,
discharge or satisfaction in the ordinary course of business of
liabilities of the type reflected or reserved against in our balance
sheet dated as of March 31, 2001 included in our financial statements;
. make or change any material election in respect of taxes, adopt or change
in any material respect any accounting method in respect of taxes, file
any amendment to a material return, enter into any closing agreement,
settle any claim or assessment in respect of taxes (except settlements
effected solely through payment of immaterial sums of money), or consent
to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of taxes;
. enter into any material contract other than in the ordinary course of
business;
. materially amend or terminate any of our existing insurance policies;
. make any material changes with respect to the tuition, fees, program
duration or curricula of any of the programs offered by any school,
including, without limitation, implementing any new foreign exchange
student programs except to the extent currently proposed or contemplated;
. hire, fire (other than for cause) or change the responsibilities or work
location of any employee whose annual compensation is greater than
$75,000 and whose employment cannot be terminated by us on thirty days
notice without liability;
. take, or agree in writing or otherwise to take, any of the actions
described above, or any other action which could cause or could be
reasonably likely to cause any of the conditions to the merger, not to be
satisfied;
. materially modify, amend or depart from the planned expenses (costs and
capital expenditures) contemplated by our existing business plan as
disclosed to Education Management, except as required by a business
emergency (which emergency shall be promptly disclosed to Education
Management); or
. fund the operations of, guarantee the indebtedness of, extend credit to,
or otherwise support the operations of John Marshall Law School, Inc. or
Primetech Canada, Inc., except in accordance with our business plan as
delivered to Education Management or as required to terminate such
operations in accordance with the merger agreement.
Indemnification and Insurance for Argosy Directors and Officers.
From and after the date of the merger agreement through and including the
effective time of the merger, neither Education Management nor Argosy will take
any action, nor permit any action to be taken, which
35
would change or amend the provisions of the articles of incorporation or the
bylaws of Argosy currently in effect relating to limitation of liability or
indemnification or eliminate or make any modification in the Argosy's existing
directors' and officers' insurance. Education Management agrees that from and
after the effective time of the merger all rights to indemnification now
existing in favor of individuals who at or prior to the effective time were
directors or officers of Argosy or any of its subsidiaries as set forth in the
articles of incorporation or the bylaws of Argosy or any subsidiary shall
survive the merger with respect to matters existing or occurring at or prior to
the effective time and shall continue in full force and effect following the
effective time.
Argosy shall, and from and after the effective time of the merger, the
surviving corporation shall and Education Management shall cause the surviving
corporation to, indemnify, defend and hold harmless (and advance expenses to)
each person who is now, or has been at any time prior to the date of the merger
agreement or who becomes prior to the effective time, an officer or director of
Argosy or any subsidiary to the same extent such persons are indemnified as of
the date of the merger agreement by Argosy pursuant to any agreements between
such person and Argosy and Argosy's articles of incorporation and bylaws
against all losses, claims, damages, costs, expenses (including reasonable
attorneys' fees and expenses), liabilities or judgments or amounts that are
paid in settlement with the approval of the indemnifying party as a result of
or in connection with any threatened or actual claim, action, suit, proceeding
or investigation based on or arising out of the fact that such person is or was
a director or officer of Argosy or any of its subsidiaries or out of or in
connection with activities in such capacity, whether pertaining to any matter
existing or occurring at or prior to the effective time and whether asserted or
claimed prior to, or at or after, the effective time, including all indemnified
liabilities based on, or arising out of, or pertaining to the merger agreement
or the transactions contemplated thereby.
Argosy shall, and from and after the effective time of the merger, the
surviving corporation shall and Education Management shall cause the surviving
corporation to, cause to be maintained in effect for not less than six years
from the effective time the current policies of the directors' and officers'
liability insurance maintained by Argosy; provided, however, that if the
surviving corporation is required to pay an annual premium in excess of 130% of
the last annual premium of such insurance, the surviving corporation may, but
is not obligated to, substitute therefor policies with substantially the same
coverage amount and terms as the directors' and officers' liability insurance
maintained for the benefit of Education Management's directors and officers.
Employee Matters. For a period of one year after the effective time of the
merger, Education Management has agreed to cause continuing employees of Argosy
to be covered under employee benefit plans that are substantially comparable,
in the aggregate, to the employee benefit plans provided by Education
Management to employees at comparable levels. Education Management will
recognize the service provided to Argosy prior to the effective time as service
for purposes of all employee benefit plans and compensation arrangements
(including 401(k) plans) applicable to employees of Argosy after the merger, to
the extent service is credited under comparable plans and arrangements of
Education Management's other schools. Education Management will also assume and
be solely responsible for any obligations under COBRA associated with
applicable benefits plans of Argosy.
No Solicitation of Acquisition Proposals. The merger agreement provides that
Argosy will not, and will not permit its directors, officers, employees,
investment bankers, attorneys, accountants or other representatives, agents or
affiliates to, directly or indirectly, (1) solicit, initiate or encourage any
proposal that constitutes an acquisition proposal, as defined below, or
proposals that could lead to any acquisition proposal, (2) engage in
negotiations or discussions concerning, or provide any non-public information
to any person or entity in connection with, any acquisition proposal or (3)
agree to, approve, recommend or otherwise endorse or support any acquisition
proposal.
If a third party submits an unsolicited acquisition proposal, and our board
of directors reasonably determines in good faith that such proposal is or
reasonably could result in a superior proposal, as defined below, then
36
. we may (1) furnish information about our business, to the third party
under protection of an appropriate confidentiality agreement containing
customary limitations on the use and disclosure of all non-public written
or oral information furnished to such third party, provided, that we must
contemporaneously furnish to Education Management all such non-public
information furnished to the third party, and (2) negotiate and
participate in discussions and negotiations with such third party; and
. if our board of directors determines that such an acquisition proposal is
a superior proposal, our board of directors may terminate the merger
agreement at any time after the second business day following delivery of
written notice to Education Management advising Education Management that
our board of directors has received a superior proposal, identifying the
third party and specifying the material terms and conditions of such
superior proposal.
We may take the actions set forth in the second bullet point above if, and only
if, an acquisition proposal that was a superior proposal continues to be a
superior proposal in light of any improved proposal submitted by Education
Management, considered in good faith by us prior to the expiration of the two
business day period specified above. We must provide Education Management with
a final written notice at least 24 hours before accepting any superior
proposal.
We will notify Education Management immediately, and in any event within 24
hours, if a bona fide acquisition proposal is made, including any written
material provided by the offeror, the principal terms and conditions of any
such acquisition proposal and the identity of the offeror, or we furnish non-
public information to, or enter into discussions or negotiations with respect
to an acquisition proposal with, any third party.
In addition to our other obligations, we, as promptly as practicable, will
advise Education Management orally and in writing of any request for
information which we reasonably believe could lead to an acquisition proposal
or of any acquisition proposal, and the material terms and conditions of the
request, acquisition proposal or inquiry. We will keep Education Management
informed in all material respects of the status of any request, acquisition
proposal or inquiry. In addition, we will provide Education Management with
prior written notice of any meeting of our board of directors or any committee
thereof at which our board of directors is expected or could be expected to (1)
consider a superior proposal or (2) recommend a superior proposal to its
stockholders, and together with such notice a copy of the definitive
documentation relating to such superior proposal to the extent such
documentation is then available and otherwise provide such definitive
documentation as soon as available.
An "acquisition proposal" is any proposal relating to a possible:
.merger, consolidation or similar transaction involving Argosy or any of
its subsidiaries;
. sale, lease or other disposition, directly or indirectly, by merger,
consolidation, share exchange or otherwise, of any assets of Argosy or
any of its subsidiaries representing, in the aggregate, 20% or more of
the assets of Argosy on a consolidated basis;
. issuance, sale or other disposition of, including by way of merger,
consolidation, share exchange or any similar transaction, securities, or
options, rights or warrants to purchase or securities convertible into,
such securities, representing 20% or more of the votes attached to the
outstanding securities of Argosy;
. transaction with Argosy in which any person shall acquire beneficial
ownership, as such term is defined in Rule 13d-3 under the Exchange Act,
or the right to acquire beneficial ownership, or any "group", as such
term is defined under the Exchange Act, shall have been formed which
beneficially owns or has the right to acquire beneficial ownership of,
20% or more of the outstanding shares of Argosy's common stock;
. liquidation, dissolution, recapitalization or other similar type of
transaction with respect to Argosy; or
. transaction which is similar in form, substance or purpose to any of the
foregoing transactions.
37
A "superior proposal" is an unsolicited written acquisition proposal:
.for consideration consisting of cash and/or securities;
. on terms which our board of directors determines are more favorable to
our stockholders from a financial point of view than the merger with
Education Management and HAC, or other revised proposal submitted by
Education Management; and
.that the third party is reasonably likely to consummate on the terms
proposed.
Regulatory Approvals. Please refer to "THE MERGER--Regulatory Requirements"
for a discussion of regulatory matters in connection with the merger agreement
and the transactions contemplated thereby.
Sale of Certain Businesses. Please refer to "THE MERGER--Conflicts of
Interest of Certain Persons in the Merger; Certain Relationships--Sale of
Certain Businesses" for a discussion of the anticipated disposition of our
interest in John Marshall Law School, Inc. and the potential disposition of our
interest in PrimeTech Canada, Inc.
Additional Covenants. The merger agreement also contains additional
covenants relating to:
. Education Management's access to our properties, facilities and records;
. each party's obligation to use commercially reasonable efforts to take
all action necessary to consummate the transactions contemplated by the
merger agreement; and
. our obligation to notify Education Management of certain matters, such as
a development likely to have a material adverse effect on our business.
Conditions to the Merger
Closing Conditions for Each Party. The obligations of Argosy, Education
Management and HAC to complete the merger are subject to the satisfaction or
waiver of the following conditions:
. The expiration of the applicable waiting period under the HSR Act in
connection with the transactions contemplated by the merger agreement and
by the stock purchase agreement.
. All consents, approvals, orders or authorizations of, or registrations,
declarations or filings with, any governmental entity or accrediting body
required by or with respect to Argosy, Education Management or any of
their respective subsidiaries in connection with the execution and
delivery of the merger agreement or the consummation of the merger and
other transactions contemplated thereby and by the stock purchase
agreement shall have been obtained or made except for such consents,
approvals, orders, authorizations, registrations, declarations or filings
the failure of which to be obtained or made could not reasonably be
expected to have, individually or in the aggregate, a material adverse
effect on Argosy or Education Management or materially impair Argosy's,
Education Management's or HAC's ability to consummate the merger.
. The merger agreement, the merger and the transactions contemplated by the
merger agreement shall have received the requisite approval and
authorization of the stockholders in accordance with applicable law and
the articles of incorporation and bylaws of Argosy.
. No law shall have been enacted or promulgated by any governmental entity
which prohibits the consummation of the merger or the transactions
contemplated by the stock purchase agreement and there shall be no order
or injunction of a court of competent jurisdiction in effect precluding
consummation of the merger.
. Argosy shall have cleared all SEC comments to this proxy statement, if
any. No proceeding preventing distribution of this proxy statement or any
part thereof shall have been initiated or threatened in writing by the
SEC, and all requests for additional information on the part of the SEC
shall have been complied with to the reasonable satisfaction of Argosy
and Education Management.
38
. No action, suit or proceeding shall be pending before any governmental
entity which is reasonably likely to result in a judgment, order, decree,
stipulation or injunction that would (1) prevent consummation of any of
the transactions contemplated by the merger agreement or the stock
purchase agreement, (2) cause any of the transactions contemplated by the
merger agreement or the stock purchase agreement to be rescinded
following consummation or (3) affect adversely the right of Education
Management to own, operate or control any material portion of the assets
and operations of the surviving corporation and each of its subsidiaries
following the transactions contemplated in the merger agreement or in the
stock purchase agreement, and no such judgment, order, decree,
stipulation or injunction shall be in effect.
Additional Closing Conditions for Argosy's Benefit. The obligations of
Argosy to consummate the merger and the other transactions are subject to
satisfaction or waiver of the following additional conditions:
. The representations and warranties of Education Management and HAC
contained in the merger agreement shall be true and correct in all
respects as of the closing date with the same effect as though made as of
the closing date except (1) for changes specifically contemplated by the
terms of the merger agreement and (2) where the failure of the
representations and warranties to be true and correct in all respects
could not in the aggregate reasonably be expected to have a material
adverse effect on Education Management.
. Education Management shall have in all material respects performed all
obligations and complied with all covenants required by the merger
agreement to be performed or complied with by it at or prior to the
closing date.
. If the closing under the stock purchase agreement shall have occurred and
not been rescinded, Education Management shall have irrevocably directed
the escrow agent to release the escrowed funds upon consummation of the
merger in accordance with the stock purchase agreement and the escrow
agreement.
. Education Management shall have delivered to Argosy an officers'
certificate certifying the satisfaction of certain closing conditions.
. Argosy shall be reasonably satisfied with all of the actions taken by
Education Management in connection with the proposed transactions, and
all certificates, opinions, instruments and other documents required to
effect the proposed transactions shall have been reasonably satisfactory
in form and substance to Argosy and its counsel.
Additional Closing Conditions for Education Management's Benefit. The
obligations of Education Management and HAC to complete the merger is subject
to satisfaction or waiver of the following additional conditions:
. The representations and warranties of Argosy contained in the merger
agreement shall be true and correct in all respects as of the closing
date with the same effect as though made as of the closing date except
(1) for changes specifically contemplated by the terms of the merger
agreement and (2) where the failure of the representations and warranties
to be true and correct in all respects could not in the aggregate
reasonably be expected to have a material adverse effect on Argosy.
. Argosy shall have in all material respects performed all obligations and
complied with all covenants required by the merger agreement to be
performed or complied with by it at or prior to the closing date.
. Argosy shall have delivered to Education Management an officers'
certificate certifying the satisfaction of certain closing conditions.
. From the date of the merger agreement to the effective time, there shall
not have been any event or development which results in a material
adverse effect on Argosy.
39
. Education Management shall have received all written consents,
assignments, waivers, authorizations or other certificates necessary to
provide for the continuation in full force and effect of the material
contracts of Argosy, except where the failure to so obtain could not
reasonably be expected, individually or in the aggregate, to have a
material adverse effect on Argosy.
. Education Management shall have received all written consents,
assignments, waivers, authorizations or other certificates from state
education regulatory bodies and any other applicable governmental
entities to the extent necessary to consummate the merger and the other
transactions contemplated by the merger agreement and by the stock
purchase agreement.
. All conditions precedent to the escrow release set forth in stock
purchase agreement, including receipt of final Department of Education
approval of the Argosy schools' applications for recertification to
participate in Title IV programs after closing, shall have been satisfied
or waived by Education Management.
. Argosy shall have, if requested by Education Management, completed the
sale, divestiture, donation or other disposition of the excluded
operations as contemplated by the merger agreement.
. Education Management shall be reasonably satisfied with all of the
actions taken by Argosy in connection with the proposed transactions, and
all certificates, opinions, instruments and other documents required to
effect the proposed transactions shall have been reasonably satisfactory
in form and substance to Education Management and its counsel.
Termination
Argosy and Education Management may mutually agree, at any time prior to the
completion of the merger, to terminate the merger agreement. In addition,
either Argosy or Education Management may terminate the merger agreement if:
(1) the stockholders do not approve the merger;
(2) any governmental entity shall have issued an order, decree or ruling
or taken any other action which permanently restrains, enjoins or
otherwise prohibits consummation of the merger or the transactions set
forth in the stock purchase agreement and such order, decree, ruling
or other action shall be final and non-appealable;
(3) the consummation of the merger or the transactions set forth in the
stock purchase agreement would be illegal; or
(4) the merger shall not have been consummated by January 31, 2002;
provided that the right to terminate the merger agreement shall not be
available to any party whose failure to fulfill any obligation under
the merger agreement has been the cause of, or resulted in, the
failure of the merger to be consummated.
Argosy may terminate the merger agreement:
(5) if Education Management or HAC shall have breached in any material
respect any of their respective representations, warranties, covenants
or other agreements contained in the merger agreement, which breach (A)
cannot be or has not been cured, in all material respects, within 20
business days after the giving of written notice to Education
Management or HAC, as applicable, and (B) will result in the failure to
satisfy a condition to the closing of the merger; or
(6) as a result of its board of directors determining that an alternative
acquisition proposal is more favorable to you than a transaction with
Education Management; provided that such termination shall not be
effective until (A) the fee described below has been paid to Education
Management, and (B) if Education Management waives certain conditions
set forth in of the stock purchase agreement, the board of directors of
Argosy shall have been reconstituted so that a majority of its members
are
40
persons designated by Education Management, and provided further that
Argosy may not terminate the merger agreement under this paragraph
after a recission has occurred under the stock purchase agreement.
Education Management may terminate the merger agreement if:
(7) Argosy shall have breached in any material respect any representation,
warranty, covenant or other agreement contained in the merger
agreement, which breach (A) cannot be or has not been cured, in all
material respects, within 20 business days after the giving of written
notice to Argosy and (B) will result in the failure to satisfy a
condition to the closing of the merger;
(8) the board of directors of Argosy (A) withholds or withdraws its
recommendation of the merger or, (B) modifies its recommendation of the
merger in a manner materially adverse to Education Management;
(9) a tender offer or exchange offer for 20% or more of the outstanding
shares of Argosy common stock shall have been commenced or a
registration statement with respect thereto shall have been filed
(other than by Education Management or an affiliate thereof) and the
board of directors of Argosy shall have (A) recommended that the
stockholders tender their shares in such tender or exchange offer or
(B) publicly announced its intention to take no position with respect
to such tender offer;
(10) Argosy is in material breach of the no solicitation and stockholder
recommendation provisions of the merger agreement;
(11) an alternative acquisition proposal shall have been announced or
otherwise become publicly known and the board of directors of Argosy
shall have (A) failed to recommend against acceptance of such by the
stockholders (including by taking no position, or indicating its
inability to take a position, with respect to the acceptance by the
stockholders of an acquisition proposal involving a tender offer or
exchange offer) or (B) failed to reconfirm its approval and
recommendation of the merger agreement and the transactions
contemplated thereby, in each case within 10 business days thereafter;
or
(12) more than 10% of shares of Argosy common stock are dissenting shares.
If the merger agreement is validly terminated, it will become void and have
no effect, without any liability of any party or its officers or directors to
the other party. However, certain provisions thereof relating to, among other
things, the termination fee described in the next section below will continue
in effect. In addition, the stock purchase agreement does not terminate
automatically if the merger agreement is terminated and, therefore, Education
Management may retain the 4.9 million shares that were previously beneficially
owned by Dr. Markovitz and remain the controlling stockholder of Argosy.
Termination Fee
All costs and expenses incurred in connection with the merger agreement and
related transactions will be paid by the party incurring such costs or
expenses, subject to certain exceptions. Argosy, however, has agreed to pay
Education Management a $2.0 million termination fee if the merger agreement is
terminated for the reasons described in paragraphs 6, 8, 9, 10, or 11 of the
immediately preceding section.
Except as noted above, any termination fee payable by Argosy must be paid
to Education Management concurrent with the termination of the merger
agreement.
Amendments and Waivers
Subject to Illinois law, the parties may mutually agree to amend any
provision of the merger agreement at any time prior to the effective time of
the merger. After Argosy stockholders have approved the merger agreement, the
parties may not amend the merger agreement in a manner that would reduce or
change the kind of consideration stockholders will receive in the merger
without further approval of Argosy stockholders.
41
DISSENTERS' RIGHTS
Illinois law provides that if you hold Argosy common stock and do not wish
to accept the merger consideration, then Sections 11.65 and 11.70 of the
Illinois Business Corporation Act, copies of which are attached as Annex C to
this proxy statement, provide you with an alternative. Under these sections,
you may object to the merger and may demand payment for the fair value of your
shares, plus any accrued interest, as of the merger closing. Set forth below is
a summary of the procedures relating to the exercise of your rights as a
dissenter to the merger.
This summary does not purport to be a complete statement of your dissenters'
rights and is qualified in its entirety by reference to Sections 11.65 and
11.70 of the Illinois Business Corporation Act which are set forth in Annex C
to this proxy statement and to any amendments to such provisions as may be
adopted after the date of this proxy statement. If you wish to exercise your
rights to dissent from the merger you should carefully review Annex C and seek
advice of legal counsel.
Dissenters' Rights Procedures
In order to perfect your Illinois dissenters' rights, you must do the
following:
. Deliver to the office of the Chief Financial Officer of Argosy, Two
First National Plaza, 20 South Clark Street, Suite 2800, Chicago,
Illinois 60603, prior to the taking of the vote of the stockholders upon
the approval of the merger agreement and the merger, a written demand
for payment for your shares if the merger agreement is approved.
. You must not vote your shares in favor of the merger agreement and the
merger.
In perfecting your right to dissent, neither a vote against the merger
agreement nor a proxy directing a vote against the merger agreement will be
deemed to satisfy the requirement that a written demand for payment be
delivered to us prior to the taking of the vote. However, if you have delivered
the written demand before the taking of the vote, you will not be deemed to
have waived your right to dissent either by failing to vote against the merger
agreement or by failing to furnish a proxy directing a vote against the merger
agreement.
Payment of Fair Value
Within 10 days after the completion of the merger or 30 days after delivery
of the written demand for payment, whichever is later, the surviving
corporation will send to each stockholder who has delivered a written demand
for payment the following items:
. a statement setting forth the surviving corporation's opinion as to the
estimated fair value of the shares;
. Argosy's latest balance sheet as of the end of a fiscal year ending not
earlier than 16 months before the delivery of the statement, together
with a statement of income for that year and the latest available
interim financial statements; and
. a commitment to pay for the shares of the dissenting stockholder at the
surviving corporation's estimated fair value upon delivery of the share
certificate or certificates (or other evidence of ownership with respect
to the shares).
"Fair value" means the value of the shares immediately before the completion of
the merger excluding any appreciation or depreciation in anticipation of the
merger, unless exclusion would be inequitable.
The Illinois Business Corporation Act would also permit the surviving
corporation to instruct a dissenting stockholder to sell his or her shares
within 10 days of the surviving corporation's statement to the stockholder.
However, following the merger Argosy's common stock will no longer be quoted on
the Nasdaq National Market or any other public market where Argosy's common
stock may be readily sold and, therefore, the surviving corporation may only
pay a dissenting stockholder the fair value of the shares, with accrued
interest.
42
If you have made a written demand for payment as described above you will
retain all other rights of a stockholder until those rights are canceled or
modified by the completion of the merger. At the completion of the merger, the
surviving corporation will pay to you, if you transmit to the surviving
corporation your stock certificates, the amount the surviving corporation
estimates to be the fair value of the shares, plus accrued interest. Any
payment will be accompanied by a written explanation of how the interest was
calculated. Interest will accrue from the completion of the merger to the date
of payment at the average rate currently paid by the surviving corporation on
its principal bank loans, or, if none, at a rate that is fair and equitable
under all the circumstances.
Dissenting Stockholders' Estimate of Fair Value
If you do not agree with the surviving corporation's estimated fair value or
the amount of interest due, within 30 days after delivery of the surviving
corporation's statement of fair value you must notify the surviving corporation
in writing of your estimate of the fair value of your shares and the amount of
interest due and demand payment of the difference between your estimate of fair
value and interest due and the amount of the surviving corporation's payment.
Appeal to Circuit Court
If, within 60 days after delivery to the surviving corporation of your
notification of estimated fair value, the surviving corporation and you have
not agreed in writing on the fair value of the shares and interest due, the
surviving corporation must either pay you the difference in the estimated fair
values, with interest, or file a petition in the circuit court for the county
in which the surviving corporation has its registered office or principal
office, requesting the court to determine the fair value of the shares and
interest due. If the court determines that the fair value of the shares, plus
interest, exceeds the amount paid by the surviving corporation, you will be
entitled to judgment for the amount of the excess. The court may also allow the
costs of the proceeding, including fees and expenses of counsel and experts, to
be assessed against the surviving corporation or against you based on criteria
set forth in the Illinois Business Corporation Act.
In connection with the merger, the surviving corporation intends to reserve
the right to elect to offer to pay to dissenting shareholders the surviving
corporation's original estimate of the fair value of the shares and to pay any
additional amount agreed upon by the surviving corporation and the dissenting
stockholder or ordered by the court to be paid by the surviving corporation to
the stockholder as provided in the Illinois Business Corporation Act.
Failure to comply strictly with all of the procedures set forth in the
Illinois Business Corporation Act will result in the loss of your dissenters'
rights. Consequently, if you wish to exercise dissenters' rights, you are urged
to consult legal counsel before attempting to exercise such rights.
43
PROVISIONS FOR UNAFFILIATED SECURITY HOLDERS
No provision has been made to grant unaffiliated stockholders of Argosy
access to corporate files of Argosy or any other party to the merger or to
obtain counsel or appraisal services at the expense of Argosy or any other such
party.
MARKET FOR ARGOSY COMMON STOCK
Common Stock Market Price Information
Our common stock is quoted on the Nasdaq National Market under the symbol
"ARGY". The following table shows, for the quarters indicated, the high and low
sale prices per share for our common stock as reported on the Nasdaq National
Market. The initial public offering price of our common stock on March 8, 1999
was $14.00 per share.
Argosy
Common Stock
--------------
High Low
------- ------
1999
Third Quarter (beginning March 8, 1999, the date of our initial
public offering).............................................. $14.375 $6.625
Fourth Quarter................................................. $ 9.000 $6.125
2000
First Quarter.................................................. $ 9.000 $3.531
Second Quarter................................................. $ 6.125 $4.125
Third Quarter.................................................. $ 7.500 $4.813
Fourth Quarter................................................. $ 8.750 $5.188
2001
First Quarter.................................................. $ 7.438 $5.750
Second Quarter................................................. $ 7.500 $4.500
Third Quarter.................................................. $ 7.188 $5.400
Fourth Quarter................................................. $11.700 $5.950
On July 6, 2001, the last full trading day prior to the day on which the
execution of the merger agreement was publicly announced, the closing sale
price for the our common stock on the Nasdaq National Market was $9.19. On
September 26, 2001, the last trading day prior to the date of this proxy
statement, the closing sale price for our common stock on the Nasdaq National
Market was $10.74.
The market price for our common stock is subject to fluctuation and
stockholders are urged to obtain current market sale prices.
Dividend Information
We have never paid any dividends on our common stock and do not intend to
pay such dividends in the foreseeable future. We currently intend to retain any
future earnings to finance our growth and development and therefore do not
anticipate paying any cash dividends in the foreseeable future. Payment of
future dividends, if any, will be at the discretion of the board of directors
after taking into account various factors, including our financial condition,
operating results, current and anticipated cash needs and plans for expansion.
In addition, if we are required to satisfy U.S. Department of Education
financial responsibility standards on a consolidated basis, we may need to
restrict or withhold payment of dividends or refrain from obtaining dividends
or other funds from our subsidiaries in order to meet standards.
44
SECURITIES OWNERSHIP
The following table sets forth certain information as of August 31, 2001
concerning the beneficial ownership of our common stock by:
. each person who is the beneficial owner of more than 5% of our common
stock;
. each of our directors;
. our chief executive officer and other executive officers; and
. our directors and executive officers as a group.
The table gives effect to the conversion of all outstanding shares of our
Class B common stock into our Class A common stock on September 17, 2001.
Shares issuable upon exercise of options and warrants that are exercisable
currently or within 60 days of August 31, 2000 (without regard to any
acceleration thereof in connection with the merger) are deemed to be
outstanding for the purpose of computing the percentage ownership of persons
beneficially owning such options or warrants, but have not been deemed to be
outstanding for the purpose of computing the percentage ownership of any other
person. Unless otherwise indicated, the address of each person or entity listed
below is our principal executive offices.
Number of Shares
------------------------------ Percentage
Under of
Name Owned Options(3) Total Ownership
---- --------- ---------- --------- ----------
Michael C. Markovitz(1)............. 4,950,418 -- 4,950,418 76.0%
Jeffrey T. Leeds(2)................. -- 200,000 200,000 3.0%
Harold J. O'Donnell................. 10,460 68,000 78,460 1.0%
Charles T. Gradowski................ 7,242 64,667 71,909 1.0%
Jim Otten........................... 3,000 37,333 40,333 *
Karen M. Knab....................... -- 15,000 15,000 *
Michael W. Mercer................... -- 12,000 12,000 *
Kalman K. Shiner.................... 5,000 4,000 9,000 *
Leslie M. Simmons................... -- 15,000 15,000 *
All executive officers and directors
as a group (nine persons).......... 4,976,120 416,000 5,392,120 78.0%
--------
* Represents less than 1%
(1) On September 17, 2001, Dr. Markovitz converted all of his 4.9 million
shares of Class B common stock (with 10 votes per share) into shares of
Class A common stock (with 1 vote per share). We no longer have any Class B
common stock outstanding. Includes 4.9 million shares sold to Education
Management on September 26, 2001, pursuant to the terms of the stock
purchase agreement attached hereto as Annex B.
(2) Represents 200,000 shares of our common stock subject to a stock purchase
warrant issued to Leeds Equity Associates, L.P. Mr. Leeds is a partner in
this partnership and may be deemed to beneficially own such shares.
(3) Represents shares which the respective stockholder may acquire pursuant to
options and warrants that are exercisable currently or within 60 days of
August 31, 2001.
45
OUR DIRECTORS AND EXECUTIVE OFFICERS
Information concerning the names, ages, positions with Argosy and business
experience of each of our directors and executive officers as of August 31,
2001, is set forth below:
Name Age Position
---- --- --------
Michael C. Markovitz............... 51 Chairman of the Board
Jim Otten.......................... 52 President and Chief Operating Officer
Charles T. Gradowski............... 52 Chief Financial Officer
Karen M. Knab...................... 53 Director
Jeffrey T. Leeds................... 45 Director
Michael W. Mercer.................. 50 Director
Harold J. O'Donnell................ 71 Director
Kalman K. Shiner................... 59 Director
Leslie M. Simmon................... 71 Director
Michael C. Markovitz, Ph.D. has served as our Chairman of the Board since our
inception. In 1976, Dr. Markovitz co-founded the Illinois School of
Professional Psychology and, during the developmental years of the school, also
served as President. After purchasing the interests of the co-founders of the
Illinois School of Professional Psychology, Dr. Markovitz oversaw the growth of
the original single campus school into the multi-campus American Schools of
Professional Psychology. From 1978 to 1986, Dr. Markovitz was a lecturer in
Management at Northwestern University and is the author of the "BBP Guide to
Human Resource Management" (1982), a textbook regarding personnel management.
Dr. Markovitz received his doctoral degree in psychology from the University of
Chicago and has been an active member of the American Psychological Association
and the National active member of the American Psychological Association and
the National Council of Schools of Professional Psychology.
Jim Otten, Ph.D. has served as our President and Chief Operating Officer since
February 2000. From 1995 to 1999, he served as Regional Vice President at DeVry
Inc. in Chicago, Illinois, overseeing a group of college campuses with a
combined student body of more than 10,000 students. Dr. Otten has served as
President for two degree-granting independent colleges, Brown Institute in
Minneapolis, Minnesota in 1995 and The Katharine Gibbs Schools in Boston,
Massachusetts from 1991 to 1995. He served as Regional Vice President of Bryant
& Stratton Inc. in Buffalo, New York, a degree-granting, independent system of
colleges from 1985 to 1991. Dr. Otten also served as Manager of Business
Development at ITT Education Services (1980 to 1985) as well as an Assistant
Professor at Purdue University from 1976 to 1978. He received his doctoral
degree in psychology from the University of Rochester, MBA in Marketing from
Indiana University, an MA in Political Philosophy from Bowling Green State
University and a BA in philosophy from the University of Cincinnati.
Charles T. Gradowski, C.P.A. has served as our Chief Financial Officer since
1995. Mr. Gradowski served as Controller at Clipper Exxpress, a freight
forwarder, from 1988 to 1995. Mr. Gradowski received his bachelor's degree and
a master's in business administration from the University of Illinois.
Karen M. Knab has been a director of Argosy since 1986. Ms. Knab has been a
member of the Board of Directors of University of Sarasota since 1995. Since
January 1996, Ms. Knab has been the Executive Officer of the law firm of
Sutherland, Asbill and Brennan. From 1993 to 1996, she was the Managing Partner
of the Washington, D.C. office of the Peers Group, a consulting firm.
Jeffrey T. Leeds has been a director of Argosy since September 2000. Mr. Leeds
is co-founder and Principal of Leeds Equity Partners III, L.P. and of Advance
Capital, private equity funds established in 1999 and 1995, respectively. Mr.
Leeds is President of Leeds Group, Inc., a registered broker-dealer that
undertakes transactional work on behalf of Leeds Equity Partners and Advance
Capital, as well as unaffiliated entities. He is a Partner in Leeds Equity
Associates, L.P. with whom we had a contractual relationship for services until
March 31, 2001. From 1986 to 1993, Mr. Leeds specialized in mergers and
acquisitions and corporate finance
46
at the investment banking firm of Lazard Freres & Company. Mr. Leeds, who is
also a lawyer, served as a law clerk to the Honorable William J. Brennan, Jr.,
of the Supreme Court of the United States during the 1985 October term. Mr.
Leeds is currently a member of the Board of Directors of Edison Schools, Inc.,
Elsinore Corporation, ShopforSchool, DataMark, Inc., RealPage, Inc., Ross
University and TransAct Technologies, Inc. He serves as a Trustee of the
Cooper-Hewitt National Design Museum.
Michael W. Mercer, Ph.D. has been a director of Argosy since 1986. Dr. Mercer
is currently in private practice as a psychologist and is the author of several
books on psychology. He is the past President of the Illinois Psychological
Association.
Harold J. O'Donnell, Ph.D. served as our President from 1992 until his
retirement in February 2000 and has been a director since February 1999. From
1976 to 1991, Dr. O'Donnell served in a series of management positions with
Apollo Group, Inc., a for-profit education company, including Director of the
Southern California Program of Institute for Professional Development (1976 to
1979), Executive Vice President of Institute for Professional Development (1979
to 1982), Executive Vice President of University of Phoenix (1979 to 1987) and
Provost of University of Phoenix (1987 to 1992). From 1974 to 1976, Dr.
O'Donnell served as Deputy Manpower Director for the Long Beach Commission on
Economic Opportunity. Dr. O'Donnell has served as an adviser to colleges and
universities in California, Indiana, Illinois and Florida involving
developmental and regional accreditation issues with accrediting bodies such as
NCA, SACS and the Western Association of Schools and Colleges. Dr. O'Donnell
received his doctoral degree in educational administration from the University
of Notre Dame and his master's degree in English literature from Catholic
University of America. He continued his postdoctoral training in programs at
Stanford University, the University of California at Los Angeles and the
University of San Francisco.
Kalman K. Shiner, C.P.A. has been a director of Argosy since June 1998. Mr.
Shiner is currently the Managing Director of the accounting firm of Ostrow
Reisin Berk & Abrams Ltd.
Leslie M. Simmons has been a director of Argosy since 1981. Mr. Simmons has
been a member of the Board of Directors of University of Sarasota since 1995.
Mr. Simmons is Chairman of the Board of Directors of Apollo Steel Corporation,
a manufacturing company.
47
OUR BOARD OF DIRECTORS
There are currently seven directors on our board. The directors are all in
one class with a one-year term of service expiring annually. Our directors were
last elected at our annual meeting of stockholders on January 26, 2001, and,
therefore, we are not soliciting proxies from our stockholders in connection
with their re-election at this time.
The board met six times during fiscal 2001. Each member of the board
attended more than 75% of the aggregate of the total number of meetings of the
board and the committees on which he or she was a member during the portion of
the fiscal year that he or she served as a director or committee member.
Committees of the Board
The board currently has three standing committees: a Compensation Committee,
an Audit Committee and an Investment Committee. A majority of the members of
each of these committees are independent directors.
The Compensation Committee recommends action to the board regarding the
salaries and incentive compensation of our executive officers and administers
our bonus plans and stock plans. The Compensation Committee is currently
comprised of Michael C. Markovitz (Chairman), Karen M. Knab and Leslie M.
Simmons. The Compensation Committee met one time during fiscal 2001.
The Audit Committee makes recommendations to the board regarding the
selection, retention and termination of our independent auditors and reviews
our annual financial statements and our internal controls. Arthur Andersen LLP
currently serves as our independent accountants. The Audit Committee is
currently comprised of Michael C. Markovitz (Chairman), Kalman K. Shiner and
Leslie M. Simmons. The Audit Committee met three times during fiscal 2001.
The Investment Committee makes recommendations to the board regarding the
acquisition of additional schools. The Investment Committee is currently
comprised of Michael C. Markovitz (Chairman), Michael W. Mercer and Kalman K.
Shiner. The Investment Committee met two times during fiscal 2001.
We have no nominating or similar committee. The entire board is responsible
for filling vacancies which occur on the board and for recommending candidates
for election as directors.
Director Compensation
We pay directors $1,000 for attending each board meeting. Under our 1999
Stock Incentive Plan, each director has been granted options to purchase 4,000
shares of common stock at the fair market value thereof on the date of grant.
Additionally, directors of the University of Sarasota, the Medical Institutes
of Minnesota and PrimeTech are compensated in the form of annual grants of
options to purchase 1,000 shares of common stock at the fair market value
thereof on the date of grant. All directors are reimbursed for all travel-
related expenses incurred in connection with their activities as directors.
Certain Relationships and Related Transactions
Consulting Agreement
On September 1, 2000, we entered into a Consulting Agreement with Leeds
Equity Associates, L.P. Jeffrey Leeds, a director of Argosy, is a partner in
Leeds Equity and has a pecuniary interest in such entity. This agreement
encompasses the performance of services requested by us over the six month term
of the agreement. Payment is represented by a stock purchase warrant providing
for the purchase of 200,000 shares of our common stock at a purchase price of
$6.48 per share and with a seven year exercise period. Please refer to "THE
MERGER--Conflict of Interests of Certain Persons in the Merger; Certain
Relationships--Stock Purchase Warrant and Certain Fees" on page 23 for
additional information.
48
Indemnification of Directors and Officers
We have agreed to provide indemnification for our directors and executive
officers beyond the indemnification provided for in our Amended and Restated
Certificate of Incorporation and By-laws.
Other Relationships and Related Transactions
Please refer to "THE MERGER--Conflicts of Interest of Certain Persons in the
Merger; Certain Relationships" beginning on page 23 for additional information.
49
EXECUTIVE COMPENSATION
General
Our executive officers are elected by and serve at the discretion of our
board. The following table sets forth in summary form information concerning
the compensation awarded to Michael C. Markovitz, Jim Otten and Charles T.
Gradowski (collectively, the "Named Executives") for all services rendered in
all capacities to us and our subsidiaries for the fiscal year ended August 31,
2001. No other executive officer of Argosy earned more than $100,000 in total
compensation for fiscal 2001.
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards
----------------------------------- ------------
Name and Securities
Principal Other Annual Underlying
Position Year Salary (1) Bonus Compensation (2) Options (#)
--------- ---- ---------- ------- ---------------- ------------
Michael C. Markovitz..... 2001 $200,000 $ -- $ 12,260 --
Chairman 2000 $200,000 $ -- $ 23,500 --
1999 $ 97,179 $ -- $14,888,300(3) --
Jim Otten................ 2001 $200,000 $54,000 $ 7,938 20,000
President 2000 $ 95,641 $ -- $ 3,290 54,000
1999 $ -- $ -- $ -- --
Charles T. Gradowski..... 2001 $142,800 $60,000 $ 1,400 5,000
Chief Financial Officer 2000 $133,334 $50,000 $ 12,300 --
1999 $110,000 $35,000 $ 8,700 63,000
--------
(1) May include amounts earned in a fiscal year but deferred at the Named
Executive's election pursuant to our 401(k) Plan.
(2) Includes matching contributions made by us under our 401(k) Plan.
(3) Dr. Markovitz, as our sole stockholder, received Other Annual Compensation
of $14,214,620 from us in fiscal 1999 in the form of cash distributions out
of our accumulated earnings and profits. In addition, MCM Management Corp.,
an affiliate of Dr. Markovitz, received payments of $667,849 in fiscal 1999
for services performed by Dr. Markovitz. Dr. Markovitz is the sole
shareholder and employee of MCM Management Corp. Prior to our initial
public offering, Dr. Markovitz did not receive any compensation for
services rendered to us, other than through his management fee through MCM
Management Corp. Dr. Markovitz provided us strategic direction and
oversight, daily management oversight, consultation on business
acquisitions and other corporate business matters in addition to services
characteristic of a principal executive officer. Upon completion of our
initial public offering, the relationship with MCM Management Corp. was
terminated, and Dr. Markovitz became an employee of Argosy. Dr. Markovitz
has entered into an employment agreement which provides for an initial
annual base salary of $200,000 plus performance-based compensation, which
is currently intended to be in the form of stock options.
50
Our Option Grants in Last Fiscal Year
The following table shows information regarding stock options granted by us
to the Named Executives during our last fiscal year:
Percent of Potential Realizable
Total Market Value at Assumed
Number of Options Price Annual Rates of Stock
Securities Granted to on Price Appreciation
Underlying Employees in Date for Option Term(2)
Options Fiscal Exercise Price of Expiration ---------------------
Name Granted 2001 (Per Share) Grant Date(1) 5% 10%
---- ---------- ------------ -------------- ------ ---------- ---------- ----------
Michael C. Markovitz.... -- -- -- -- -- -- --
Jim Otten............... 10,000 10.9% $11.70 $11.70 08/31/11 $ 190,581 $ 303,467
10,000 10.9% $ 6.00 $ 6.00 11/09/10 $ 97,734 $ 155,625
Charles T. Gradowski.... 5,000 5.5% $ 6.00 $ 6.00 11/09/10 $ 48,867 $ 77,812
--------
(1) Options may expire earlier pursuant to the terms of the 1999 Stock
Incentive Plan.
(2) Amounts reflect certain assumed rates of appreciation set forth in the
SEC's executive compensation disclosure rules. Actual gains, if any, on
stock option exercises depend on future performance of our stock and
overall market conditions. At an annual rate of appreciation of 5% per year
for the option term, the price of the common stock at the expiration date
would be approximately $19.06 per share with respect to options granted at
$11.70 per share and $9.77 per share with respect to options granted at
$6.00 per share. At an annual rate of appreciation of 10% per year for the
option term, the price of the common stock at the expiration date would be
approximately $30.35 per share with respect to options granted at $11.70
per share and $15.56 per share with respect to options granted at $6.00 per
share.
Our Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
The following table shows information for the Named Executives concerning
stock option exercises during our last fiscal year and options outstanding at
the end of our last fiscal year:
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Number of Options at at Fiscal Year-End
Shares Fiscal Year-End (1)
Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
---- ----------- -------- ---------------------- --------------------
Michael C. Markovitz.... -- -- -- --
Jim Otten............... -- -- 37,333/36,667 $220,252/$152,298
Charles T. Gradowski.... -- -- 64,666/ 3,334 $ 19,004/$ 9,496
--------
(1) Assumes a fair market value of the common stock at August 31, 2001 equal to
$11.70 per share.
Our Stock Plans
1999 Stock Incentive Plan. The Argosy Education Group Inc. 1999 Stock
Incentive Plan provides for the issuance of the following types of incentive
awards: stock options, stock appreciation rights, restricted stock, performance
grants and other types of awards that the Compensation Committee deems
consistent with the purposes of the 1999 Stock Plan. The 1999 Stock Plan is
administered by the Compensation Committee. Certain employees, directors,
officers, advisors and consultants of Argosy are eligible to participate in the
1999 Stock Plan. The Compensation Committee is authorized under the 1999 Stock
Plan to select the participants and determine the terms and conditions of the
awards under the 1999 Stock Plan. An aggregate of 750,000 shares of our common
stock have been reserved for issuance under the 1999 Stock Plan.
51
Options granted under the 1999 Stock Plan may be either incentive stock
options ("ISOs") or such other forms of non-qualified stock options ("NQOs") as
the Compensation Committee may determine. ISOs are intended to qualify as
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code. The exercise price of (1) an ISO granted to an individual who
owns shares possessing more than 10% of the total combined voting power of all
classes of our stock will be at least 110% of the fair market value of a share
of Class A Common Stock on the date of grant and (2) an ISO granted to an
individual other than a 10% owner and an NQO will be at least 100% of the fair
market value of a share of common stock on the date of grant.
Options granted under the 1999 Stock Plan may be subject to time vesting and
certain other restrictions at the sole discretion of the Compensation
Committee. Subject to certain exceptions, the right to exercise an option
generally will terminate at the earlier of (1) the first date on which the
initial grantee of such option is not employed by us for any reason other than
termination without cause, death or permanent disability or (2) the expiration
date of the option. If the holder of an option dies or suffers a permanent
disability while still employed by us, the right to exercise all unexpired
installments of such option shall be accelerated and shall vest as of the
latest of the date of such death, the date of such permanent disability and the
date of the discovery of such permanent disability, and such option shall be
exercisable, subject to certain exceptions, for 180 days after such date. If
the holder of an option is terminated without cause, to the extent the option
has vested, such option will be exercisable for 30 days after such date.
All outstanding awards under the 1999 Stock Plan will terminate immediately
prior to consummation of a liquidation or dissolution of Argosy, unless
otherwise provided by the board. In the event of the sale of all or
substantially all of our assets or our merger with another corporation, all
restrictions on any outstanding awards will terminate and participants will be
entitled to the full benefit of their awards immediately prior to the closing
date of such sale or merger, unless otherwise provided by the board.
The board generally will have the power and authority to amend the 1999
Stock Plan at any time without approval of our stockholders, subject to
applicable federal securities and tax laws limitations (including regulations
of the Nasdaq National Market).
Stock Purchase Plan. The Argosy Education Group, Inc. Stock Purchase Plan is
intended to give employees a convenient means of purchasing shares of common
stock through payroll deductions. The Stock Purchase Plan is intended to
provide an incentive to participate by permitting purchases at a discounted
price. We believe that ownership of stock by employees will foster greater
employee interest in our success, growth and development.
Subject to certain restrictions, each employee of Argosy who is a U.S.
resident or a U.S. citizen temporarily on location at a facility outside of the
United States will be eligible to participate in the Stock Purchase Plan if he
or she has been employed by us for more than one year. Participation will be
discretionary for eligible employees. We have reserved 375,000 shares of common
stock for issuance in connection with the Stock Purchase Plan. Employees may
elect to participate and purchase stock on a quarterly basis. Each
participating employee contributes to the Stock Purchase Plan by choosing a
payroll deduction in any specified amount, with a specified minimum deduction
per payroll period. A participating employee may increase or decrease the
amount of such employee's payroll deduction, including a change to a zero
deduction, as of the beginning of any month. Elected contributions will be
credited to participants' accounts at the end of each calendar quarter.
We use each participating employee's contributions to purchase shares for
the employee's share account as promptly as practicable after each calendar
quarter. The cost per share will be 90% of the lowest closing price of the
common stock on the Nasdaq National Market during the quarter. The number of
shares purchased on each employee's behalf and deposited in his/her share
account will be based on the amount accumulated in such participant's cash
account and the purchase price for shares with respect to any calendar quarter.
Shares purchased under the Stock Purchase Plan will carry full rights to
receive dividends declared from time to time.
52
A participating employee will have full ownership of all shares in such
employee's share account and may withdraw them for sale or otherwise by written
request to the Compensation Committee following the close of each calendar
quarter. Subject to applicable federal securities and tax laws, the board will
have the right to amend or to terminate the Stock Purchase Plan. Amendments to
the Stock Purchase Plan will not affect a participating employee's right to the
benefit of the contributions made by such employee prior to the date of any
such amendment. In the event the Stock Purchase Plan is terminated, the
Compensation Committee will be required to distribute all shares held in each
participating employee's share account plus an amount of cash equal to the
balance in each participating employee's cash account.
401(k) Plan. We have a tax-qualified employee savings and retirement plan
covering all of our full-time employees. Pursuant to the 401(k) Plan, employees
may elect to reduce their current compensation up to the statutorily prescribed
annual limit ($10,500 in 2001) and have the amount of such reduction
contributed to the 401(k) Plan. The 401(k) Plan provides for contributions to
the 401(k) Plan by us on behalf of all participants. We contribute an amount
equal to 6% of an eligible employee's annual earnings on a discretionary basis.
The 401(k) Plan is intended to qualify under Section 401 of the Internal
Revenue Code so that contributions by employees or by us to the 401(k) Plan,
and income earned on plan contributions, are not taxable to employees until
withdrawn, and so that contributions by us will be deductible by us when made.
The trustees under the 401(k) Plan, at the direction of each participant,
invest such participant's assets in the 401(k) Plan in selected investment
options.
Our Compensation Committee Report on Executive Compensation
The following report does not constitute soliciting material and should not
be deemed filed or incorporated by reference into any other filing of Argosy
under the Securities Act of 1933 or the Securities Exchange Act of 1934, except
to the extent we specifically incorporate this report by reference therein.
The following report has been submitted by the Compensation Committee of the
Board of Directors:
The Compensation Committee is responsible (1) for reviewing the
recommendations of our Chief Executive Officer on compensation levels of all
other officers of Argosy and (2) adopting and changing our compensation
policies and practices and reporting its recommendations to the full board. In
addition, the Compensation Committee is responsible for the administration of
our stock plans. In reviewing our compensation programs, the Compensation
Committee intends to adhere to a compensation philosophy that (1) attracts and
retains qualified executives who will add to our long-term success, (2)
contributes to the achievement of operational and strategic objectives, and (3)
is commensurate with each executive's performance, level of responsibility and
overall contribution to our success. In making its recommendations to the full
board concerning adjustments to compensation levels, the Compensation Committee
intends to consider our financial condition and operational performance during
the prior year. The Compensation Committee expects our executive compensation
program to consist of three principal components: (1) base salary; (2) annual
bonus; and (3) long-term equity incentives. The Compensation Committee has set
forth below a discussion as to how such compensation was determined.
Base Salary. The base salary for fiscal 2001 for each of the executive
officers was determined based on the expected level of responsibility of each
and competitive market conditions.
Annual Bonus. Each of our executive officers were and are eligible to earn a
bonus based upon their performance during the applicable period and our
performance generally.
Long-Term Equity Incentives. Under the 1999 Stock Incentive Plan, the
Compensation Committee is granted broad authority to award equity-based
compensation arrangements to any eligible employee, director, officer, advisor
or consultant of Argosy.
53
The foregoing report has been approved by all members of the Compensation
Committee.
Michael C. Markovitz (Chairman)
Karen M. Knab
Leslie M. Simmons
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors,
executive officers and greater-than-10% stockholders to file reports with the
SEC regarding changes in their beneficial ownership of our common stock and to
provide us with copies of the reports. Based on our review of these reports and
of certifications furnished to us, we believe that all of these reporting
persons complied with their filing requirements for fiscal 2001.
AUDIT COMMITTEE REPORT
The following report does not constitute soliciting material and should not
be deemed filed or incorporated by reference into any other filing of Argosy
under the Securities Act of 1933 or the Securities Exchange Act of 1934, except
to the extent we specifically incorporate this report by reference therein.
The Audit Committee is responsible for providing independent, objective
oversight of our accounting functions and internal controls. The Audit
Committee includes two independent directors, as defined by the rules of the
National Association of Securities Dealers, and operates under a written
charter approved by the board.
Management is responsible for our internal controls and financial reporting
processes. The independent accountants are responsible for performing an
independent audit of our consolidated financial statements in accordance with
generally accepted auditing standards and to issue a report thereon. The Audit
Committee's responsibility is to monitor and oversee all of these processes.
In connection with these responsibilities, the Audit Committee will meet
with management and our independent accountants, Arthur Andersen LLP, to review
and discuss the August 31, 2001 financial statements. The Audit Committee will
also discuss with Arthur Andersen LLP the matters required to be discussed by
Statement on Auditing Standards No. 61 (Communication with Audit Committees).
The Audit Committee will also review written disclosures and a letter from
Arthur Andersen LLP required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees) and will discuss with Arthur
Andersen LLP matters relating to its independence.
Audit Committee
Michael C. Markovitz (Chairman)
Kalman K. Shiner
Leslie M. Simmons
54
STOCK PRICE PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return of our
common stock, the Nasdaq Stock Market Index and an index of peer companies
selected by us, from March 9, 1999 (the date of our initial public offering)
through August 31, 2001 (the end of our fiscal year). The graph assumes that
the value of the investment in our common stock at its initial public offering
price of $14.00 per share and each index was $100.00 on March 9, 1999. The
companies in the peer group, all of which are education companies, are weighted
according to their market capitalization as of the end of each period for which
a return is indicated. Included in the peer group are Apollo Group Inc., ITT
Educational Services, Inc., DeVry, Inc., Education Management Corporation and
Strayer Education, Inc.
[PERFORMANCE GRAPH]
Nasdaq Stock
Argosy Market Index Peer Group
------- ------------ ----------
03/09/99................................. $100.00 $100.00 $100.00
08/31/99................................. $ 53.57 $118.83 $ 65.01
08/31/00................................. $ 49.11 $186.10 $112.75
08/31/01................................. $ 83.56 $ 81.10 $145.24
55
STOCKHOLDERS PROPOSALS
As a result of the pending merger, we do not currently intend to hold an
annual meeting of stockholders in 2002. We of course are holding a special
meeting as contemplated by this proxy statement. If the merger is approved at
the special meeting and is consummated, we will no longer have any public
stockholders and there will be no public participation in any future meetings
of stockholders. However, if the merger is not approved at the special meeting
or is not consummated, our stockholders will continue to be entitled to attend
and participate in stockholder meetings and we anticipate that a 2002 annual
meeting of stockholders would be held sometime in January 2002. Any Argosy
stockholder intending to submit a proposal for inclusion in our proxy statement
and form of proxy relating to the 2002 annual meeting of stockholders, in the
event that such meeting is held, must submit their proposals in accordance with
the requirements of Rule 14a-8 promulgated under the Exchange Act. For any
proposal that is not submitted for inclusion in our proxy statement for our
2002 annual meeting, but is instead sought to be presented directly at the
annual meeting, stockholders must comply with the notice requirements and
procedures outlined in our bylaws. We have filed our bylaws with, and a copy of
our bylaws can be obtained from, the SEC.
WHERE YOU CAN FIND MORE INFORMATION
The SEC allows us to "incorporate by reference" information into this proxy
statement, which means that we can disclose important information about us and
our financial condition by referring you to another document filed separately
with the SEC. This proxy statement incorporates by reference our:
. Annual Report on Form 10-K/A (including the financial statements and the
discussions regarding our results of operations and liquidity and
capital resources therein) for the fiscal year ended August 31, 2000;
. Quarterly Report on Form 10-Q for the quarter ended November 30, 2000;
. Quarterly Report on Form 10-Q for the quarter ended February 28, 2001;
. Quarterly Report on Form 10-Q for the quarter ended May 31, 2001;
. Current Report on Form 8-K filed on March 15, 2001;
. Current Report on Form 8-K/A filed on May 14, 2001; and
. Current Report on Form 8-K filed on September 27, 2001.
We also incorporate by reference the information contained in all other
documents we file with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this proxy statement and before the
special meeting. The information contained in any such document will be
considered part of this proxy statement from the date the document is filed and
will supplement or amend the information contained in this proxy statement.
Any statement contained in a document incorporated or deemed to be
incorporated by reference in this proxy statement will be deemed to be modified
or superseded for purposes of this proxy statement to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference in this proxy statement
modifies or supersedes that statement. Any statement so modified or superseded
will not be deemed, except as so modified or superseded, to constitute a part
of this proxy statement.
We undertake to provide by first class mail, without charge and within one
business day after receipt of any request, to any person to whom a copy of this
proxy statement has been delivered, a copy of our Form 10-K or a copy of any or
all of the other documents referred to above that have been incorporated by
reference in this proxy statement, other than exhibits to the Form 10-K or such
other documents (unless such exhibits are
56
specifically incorporated by reference therein). We will furnish any exhibit
upon the payment of a specified reasonable fee, which fee will be limited to
our reasonable expenses in furnishing such exhibit. Requests for such copies
should be directed to Argosy Education Group, Inc., Two First National Plaza,
20 South Clark Street, Suite 2800, Chicago, Illinois 60603; telephone number
(312) 889-9900; Attention: Charles T. Gradowski, Chief Financial Officer.
ADDITIONAL INFORMATION
We are currently subject to the information requirements of the Exchange Act
and in accordance therewith file periodic reports, proxy statements and other
information with the SEC relating to our business, financial statements and
other matters. You may read and copy (at prescribed rates) any such reports,
proxy statements and other information at the following locations of the SEC:
450 Fifth Street, N.W. 500 West Madison Street 7 World Trade Center
Washington, D.C. 20549 Suite 1400 Suite 1300
Chicago, Illinois 60661 New York, New York 10048
For further information concerning the SEC's public reference rooms, you may
call the SEC at 1-800-SEC-0330. Some of this information may also be accessed
on the World Wide Web through the SEC's Internet address at http://www.sec.gov.
INDEPENDENT AUDITORS
Our financial statements as of August 31, 2000, incorporated by reference in
this proxy statement, have been audited by Arthur Andersen LLP, independent
auditors, as stated in their report incorporated by reference from our Annual
Report on Form 10-K/A for the year ended August 31, 2000. It is expected that
representatives of Arthur Andersen LLP will be present at the special meeting,
both to respond to appropriate questions of stockholders of Argosy and to make
a statement if they so desire.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement contains or incorporates by reference certain forward-
looking statements and information relating to Argosy that are based on the
beliefs of management as well as assumptions made by and information currently
available to Argosy. When used in this document or in material incorporated by
reference into this document, the words "anticipate," "believe," "estimate,"
"expect," "plan," "predict," "intend" and similar expressions, as they relate
to Argosy or its management are intended to identify forward-looking
statements. Such statements reflect the current view of Argosy with respect to
future events and are subject to certain risks, uncertainties and assumptions.
Many factors could cause the actual results, performance or achievements of
Argosy to be materially different from any future results, performance or
achievements that may be expressed or implied by such forward-looking
statements, including, among others,
. risks inherent in operating private for-profit post-secondary education
institutions;
. general economic and business conditions;
. charges and costs related to acquisitions;
. our ability to:
-- successfully integrate our acquired institutions and continue our
acquisition strategy;
--implement our operating and growth strategy;
57
--attract and retain students at our institutions;
--meet regulatory and accrediting agency requirements;
--compete with enhanced competition and new competition in the education
industry;
--attract and retain key employees and faculty; and
. other factors discussed elsewhere in our other filings with the SEC,
including our Annual Report on Form 10-K/A for the fiscal year ended
August 31, 2000.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described herein as anticipated, believed, estimated, expected, planned
or intended. Argosy does not intend, or assume any obligation, to update these
forward-looking statements after the date of this proxy statement or to reflect
the occurrence of unanticipated events. The information contained in this proxy
statement speaks only as of the date indicated on the cover of this proxy
statement unless the information indicates that another date applies.
OTHER BUSINESS
The board of directors does not know of any other matters to be presented
for action at the special meeting. If any other business should properly come
before the special meeting, the persons named in the enclosed proxy card intend
to vote thereon in accordance with their best judgment on the matter.
By Order of the Board of Directors,
/s/ Charles T. Gradowski
Chief Financial Officer
Chicago, Illinois
September 27, 2001
58
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
EDUCATION MANAGEMENT CORPORATION
HAC INC.
and
ARGOSY EDUCATION GROUP, INC.
DATED AS OF JULY 9, 2001
TABLE OF CONTENTS
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ARTICLE 1 Definitions .................................................... A-1
ARTICLE 2 The Merger ..................................................... A-6
2.1 The Merger....................................................... A-6
2.2 Effective Time; Filing of Certificate of Merger ................. A-6
2.3 Name; Certificate of Incorporation............................... A-6
2.4 Bylaws .......................................................... A-6
2.5 Directors and Officers .......................................... A-6
2.6 Additional Actions .............................................. A-6
2.7 Time and Place of Closing ....................................... A-7
ARTICLE 3 Conversion of Securities ....................................... A-7
3.1 Effect on Capital Stock ......................................... A-7
3.2 Dissenters' Rights .............................................. A-7
3.3 Surrender of Certificates ....................................... A-8
3.4 Treatment of Options and Warrants ............................... A-9
3.5 No Further Ownership Rights in Company Common Stock ............. A-10
3.6 Lost, Stolen or Destroyed Certificates .......................... A-10
3.7 Taking of Necessary Action; Further Action ...................... A-10
ARTICLE 4 Representations and Warranties of the Company .................. A-10
4.1 Organization; Business .......................................... A-10
4.2 Capitalization .................................................. A-11
4.3 Authorization; Enforceability ................................... A-11
4.4 No Violation or Conflict ........................................ A-12
4.5 SEC Reports ..................................................... A-12
4.6 Books and Records; Company Financial Statements ................. A-12
4.7 Absence of Certain Changes ...................................... A-13
4.8 Title to Assets ................................................. A-14
4.9 Real Estate ..................................................... A-14
4.10 Intangible Assets ............................................... A-15
4.11 Contract Matters ................................................ A-16
4.12 Insurance ....................................................... A-17
4.13 Litigation ...................................................... A-17
4.14 Taxes ........................................................... A-17
4.15 Employee Benefits ............................................... A-19
4.16 Environmental Protection ........................................ A-20
4.17 Labor Matters ................................................... A-20
4.18 Compliance with Law; Education Department Compliance............. A-20
4.19 Financial Assistance Programs.................................... A-23
4.20 Transactions with Affiliates..................................... A-23
4.21 Proxy Statement.................................................. A-23
4.22 Vote Required.................................................... A-24
4.23 Board Approval................................................... A-24
4.24 Fairness Opinion................................................. A-24
4.25 Change of Control Payments....................................... A-24
4.26 Governmental Approvals........................................... A-24
4.27 Accreditation and State Licensure Approval....................... A-24
4.28 Relationships with Related Persons............................... A-24
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4.29 Brokers' and Finders' Fees................................. A-25
4.30 No Pending Acquisitions.................................... A-25
4.31 Takeover Laws.............................................. A-25
4.32 Expenses................................................... A-25
4.33 Disclosure................................................. A-25
ARTICLE 5 Representations and Warranties of Parent and Merger Sub... A-25
5.1 Organization; Business..................................... A-25
5.2 Authorization; Enforceability.............................. A-26
5.3 No Violation or Conflict................................... A-26
5.4 Operations of Merger Sub................................... A-26
5.5 Brokers' and Finders' Fees................................. A-26
5.6 Accreditation and State Licensure/Approval................. A-26
5.7 Disclosure................................................. A-26
5.8 Sufficient Funds........................................... A-26
5.9 Information Supplied....................................... A-26
ARTICLE 6 Covenants and Agreements.................................. A-27
6.1 Conduct of Business by the Company......................... A-27
6.2 Access..................................................... A-29
6.3 Fulfillment of Agreements.................................. A-29
6.4 Proxy Statement............................................ A-29
6.5 Company Stockholders' Meeting.............................. A-30
6.6 Additional Reports......................................... A-30
6.7 Regulatory and Other Approvals............................. A-30
6.8 No Solicitation............................................ A-32
6.9 Public Announcements....................................... A-33
6.10 Expenses................................................... A-33
6.11 Certain Benefit Plans...................................... A-34
6.12 Indemnification............................................ A-34
6.13 Takeover Law............................................... A-35
6.14 Notification of Certain Matters............................ A-35
6.15 Real Estate Deliveries..................................... A-35
6.16 Permits.................................................... A-36
6.17 Consent.................................................... A-36
6.18 Other Action............................................... A-36
6.19 Reasonable Efforts......................................... A-36
6.20 No Rights Triggered........................................ A-36
6.21 Stockholder Litigation..................................... A-36
6.22 Operational Matters........................................ A-36
6.23 Excluded Assets............................................ A-36
6.24 Financial Information...................................... A-37
ARTICLE 7 Conditions to the Merger.................................. A-37
7.1 Conditions to each Party's Obligation to Effect the
Merger..................................................... A-37
7.2 Conditions to the Company's Obligation to Effect the
Merger..................................................... A-38
7.3 Conditions to Parent's and Merger Sub's Obligation to
Effect the Merger.......................................... A-39
ARTICLE 8 Termination, Waiver and Amendment......................... A-40
8.1 Termination................................................ A-40
8.2 Effect of Termination...................................... A-41
8.3 Termination Fee............................................ A-41
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ARTICLE 9 Miscellaneous................................................... A-41
9.1 No Survival of Representations and Warranties.................... A-41
9.2 Entire Agreement................................................. A-41
9.3 Amendment........................................................ A-42
9.4 Extension; Waiver................................................ A-42
9.5 Governing Law.................................................... A-42
9.6 Assignment; Binding Effect....................................... A-42
9.7 Notices.......................................................... A-42
9.8 Counterparts..................................................... A-43
9.9 Interpretation................................................... A-43
9.10 Specific Performance............................................. A-43
9.11 No Reliance...................................................... A-43
9.12 Exhibits and Disclosure Letters.................................. A-43
9.13 No Third Party Beneficiary....................................... A-43
9.14 Severability..................................................... A-44
9.15 Other Remedies................................................... A-44
9.16 Rules of Construction............................................ A-44
ANNEXES
Annex A Certain Regulatory Approvals
EXHIBITS
Exhibit 1-A Company Officers
Exhibit 1-B Parent Officers
Exhibit 1-C Form of Employment Agreement
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger, dated as of July 9, 2001 (the
"Agreement"), is among Education Management Corporation, a Pennsylvania
corporation (the "Parent"), HAC Inc., an Illinois corporation and a wholly-
owned subsidiary of Parent ("Merger Sub") and Argosy Education Group, Inc., an
Illinois corporation (the "Company").
Witnesseth
Whereas, the Boards of Directors of Parent, Merger Sub and the Company have
approved and deem it advisable and in the best interests of their respective
stockholders to consummate the merger of Merger Sub with and into the Company
(the "Merger") upon the terms and subject to the conditions set forth herein;
and
Whereas, Parent, Merger Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also prescribe various conditions to the Merger;
In consideration of the mutual covenants, representations, warranties and
agreements contained herein, and intending to be legally bound hereby, Parent,
Merger Sub and the Company agree as follows:
ARTICLE 1
Definitions
When used in this Agreement, and in addition to the other terms defined
herein, the following terms shall have the meanings specified:
"Accrediting Body" shall mean any entity or organization, whether private
or quasi-private, whether foreign or domestic, which engages in the granting
or withholding of accreditation of private post secondary schools in
accordance with standards and requirements relating to the performance,
operations, financial condition and/or academic standards of such schools.
"Acquisition Proposal" shall have the meaning set forth in Section 6.8(a).
"Affiliate" shall mean, in relation to any party hereto, any entity
directly or indirectly controlling, controlled by or under common control with
such party and shall include a party's executive officers, directors and the
members of the Family of such persons.
"Antitrust Laws" shall have the meaning set forth in Section 7.1(a).
"Balance Sheet Date" shall mean the May 31, 2001 balance sheet of the
Company provided to Parent.
"Bankruptcy Exception" shall have the meaning set forth in Section 4.3.
"Certificates" shall have the meaning set forth in Section 3.3(c).
"Closing" shall have the meaning set forth in Section 2.7.
"Closing Date" shall have the meaning set forth in Section 2.7.
"COBRA" shall have the meaning set forth in Section 4.15(e).
"Code" shall have the meaning set forth in Section 4.14(e).
"Company Benefit Plan" shall have the meaning set forth in Section 4.15(c).
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"Company Class A Common Stock" shall mean shares of Class A common stock,
$.01 par value per share, of the Company.
"Company Class B Common Stock" shall mean shares of Class B common stock,
$.01 par value per share, of the Company.
"Company Common Stock" shall mean the Company Class A Common Stock and the
Company Class B Common Stock.
"Company Disclosure Letter" shall have the meaning set forth in Article 4.
"Company Employees" shall have the meaning set forth in Section 6.11.
"Company Financial Statements" shall mean the audited Consolidated Balance
Sheets, Consolidated Statement of Operations, Consolidated Statement of Cash
Flows and Consolidated Statement of Stockholders' Equity of the Company, and
the related notes thereto, for the most recent two (2) fiscal years, and the
unaudited interim consolidated financial statements of the Company for the nine
(9) month period ended and at May 31, 2001.
"Company SEC Documents" shall have the meaning set forth in Section 4.5.
"Company Stockholders' Meeting" shall have the meaning set forth in Section
4.21.
"Company Stock Option" shall have the meaning set forth in Section 4.2.
"Constituent Corporations" shall mean the Company and Merger Sub.
"Dissenting Shares" shall mean shares of Company Common Stock which (a)
dissent from the Merger in accordance with the provisions of Section 5/11.65 of
IBCA and (b) are held by Stockholders who have properly exercised and perfected
appraisal rights under Section 5/11.70 of IBCA.
"DOE" shall mean the United States Department of Education.
"Education Departments" shall have the meaning set forth in 4.18(a).
"Effective Time" shall have the meaning set forth in Section 2.2.
"Environmental Laws" shall mean any federal, state, local or foreign
statute, Law, rule, ordinance, code, policy, rule of common law and regulations
relating to pollution or protection of human health (including those parts of
OSHA relating to Hazardous Materials) or the environment (including, without
limitation, ambient air, surface water, ground water, land surface or
subsurface strata), including, without limitation, Laws and regulations
relating to Environmental Releases or threatened Environmental Releases of
Hazardous Materials, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials, as in effect from time to time.
"Environmental Release" shall mean any release, spill, emission, leaking,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the atmosphere, soil, surface water or groundwater.
"Equipment" shall mean all machinery, equipment, boilers, furniture,
fixtures, motor vehicles, furnishings, parts, tools, office equipment,
computers and other items of tangible personal property owned or used by the
relevant Person.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
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"ERISA Affiliate" shall have the meaning set forth in Section 4.15(c).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"Existing Insurance Policies" shall mean all of the insurance policies
currently in effect and owned by the relevant Person.
"Existing Options" shall mean any of the following relating to any capital
stock or other equity interest of the relevant Person: (a) options or warrants
(whether vested or not) to purchase from such Person or other rights,
agreements, arrangements or commitments of any character to which such relevant
Person is a party relating to the issued or unissued capital stock or other
equity or phantom equity interests of such relevant Person to grant, issue or
sell any shares of the capital stock or other equity or phantom equity
interests of such relevant Person, by sale, lease, license or otherwise; (b)
rights convertible or exchangeable into or rights to subscribe for or purchase
from such Person any shares of the capital stock or other equity or phantom
equity interests of such relevant Person; (c) contracts to which such relevant
Person is a party with respect to any right to purchase, put or call for any
shares of the capital stock or other equity or phantom equity interests of such
relevant Person; or (d) stock appreciation rights, limited stock appreciation
rights, performance shares or restricted stock of such relevant Person to which
such Person is a party or by which such Person is bound.
"Existing Permits" shall mean those permits, licenses, accreditations,
certificates, approvals, qualifications, authorizations, and registrations
required by Law which the relevant Person has or holds.
"Family" shall have the meaning set forth in Section 4.28.
"GAAP" shall mean United States generally accepted accounting principles
consistently applied.
"Governmental Entity" shall mean any federal, state, local or foreign court,
arbitral tribunal, administrative agency or commission or other governmental or
regulatory authority or administrative agency or commission.
"Hazardous Materials" shall mean: (a) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, and transformers or other equipment that
contain dielectric fluid containing polychlorinated biphenyls above regulated
levels and radon gas; and (b) any chemicals, materials or substances which are
now defined as or included in the definition of "hazardous substances,"
"hazardous wastes," "hazardous materials," "extremely hazardous wastes,"
"restricted hazardous wastes," "toxic substances," "toxic pollutants," or words
of similar import, under any Environmental Law; and (c) any other chemical,
material, substance or waste, exposure to which is prohibited, limited or
regulated by any governmental authority.
"HIPAA" shall have the meaning set forth in Section 4.15(e).
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations thereunder.
"IBCA" shall mean the Illinois Business Corporation Act of 1983, as amended.
"Incentive Plan" shall have the meaning set forth in Section 4.2(a).
"Indemnified Liabilities" shall have the meaning set forth in Section
6.12(b).
"Indemnified Party(ies)" shall have the meaning set forth in Section
6.12(b).
"Intangible Assets" shall mean (a) any invention (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all United States and foreign patents, patent applications,
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and patent disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof; (b)
all trade names, trade dress, logos, slogans, corporate names, trademarks, and
service marks and all registration applications, registrations and renewals in
connection therewith, and all goodwill associated therewith; (c) all
copyrightable works and copyrights and all registration applications,
registrations, and renewals in connection therewith and all derivations and
combinations thereof; (d) proprietary software (including data and related
documentation); (e) all trade secrets and confidential business information
(including ideas, research and development, know-how, formulas, compositions,
manufacturing and production processes and techniques, technical data, designs,
drawings, specifications, customer and supplier lists, pricing and cost
information, and business and marketing plans and proposals); (f) all
curricula, course materials, instructional video tapes, tape recordings and
visual aids; and (g) all copies and tangible embodiments of the foregoing (in
whatever form or medium).
"Knowledge" shall mean the actual knowledge after reasonable inquiry of the
officers listed in Exhibit 1-A with respect to the Company and the officers
listed on Exhibit 1-B with respect to Parent.
"Law" shall mean any foreign, federal, state or local governmental law,
rule, regulation or requirement, including any rules, regulations and orders
promulgated thereunder and any orders, decrees, consents or judgments of any
governmental regulatory agencies and courts having the force of law, other than
any Environmental Laws.
"Leases" shall have the meaning set forth in Section 4.9(b).
"Leeds Warrant" shall have the meaning set forth in Section 4.2(a).
"Lien" shall mean, with respect to any asset (real, personal or mixed): (a)
any mortgage, pledge, lien, easement, lease, title defect or imperfection or
any other form of security interest, whether imposed by Law or by contract; and
(b) the interest of a vendor or lessor under any conditional sale agreement,
financing lease or other title retention agreement relating to such asset.
"Litigation" shall have the meaning set forth in Section 4.13.
"Material Adverse Effect" means any effect, change, event, circumstance or
condition which when considered with all other effects, changes, events,
circumstances or conditions has materially and adversely affected or could
reasonably be expected to materially and adversely affect the results of
operations, financial condition, assets, liabilities or business of Parent or
the Company, in each case including its respective Subsidiaries together with
it taken as a whole, as the case may be.
"Material Contract" shall have the meaning set forth in Section 4.11(a).
"Merger Consideration" shall have the meaning set forth in Section 3.1(b).
"Notice of Superior Proposal" shall have the meaning set forth in Section
6.8(b).
"Owned Real Estate" shall have the meaning set forth in Section 4.9(a).
"Party" shall mean each of Parent, Merger Sub and the Company.
"Paying Agent" shall have the meaning set forth in Section 3.3(a).
"Payment Fund" shall have the meaning set forth in Section 3.3(b).
"Permits" shall have the meaning set forth in Section 4.18(a).
"Permitted Liens" shall have the meaning set forth in Section 4.8.
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"Person" shall mean a natural person, corporation, limited liability
company, association, joint stock company, trust, partnership or any other
legal entity.
"PPPAs" shall have the meaning set forth in Section 6.7(b)(1).
"Policy Guidelines" shall have the meaning set forth in Section 4.18(g).
"Proxy Statement" shall have the meaning set forth in Section 4.21.
"Related Persons" shall have the meaning set forth in Section 4.28.
"Rental Real Estate" shall have the meaning set forth in Section 4.9(b).
"Returns" shall have the meaning set forth in Section 4.14(a).
"School" shall mean any school regulated as such by the DOE or other
Governmental Entity or Accrediting Body and owned or operated by the Company or
any of its Subsidiaries.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"Seller" shall mean Michael C. Markovitz, Ph.D.
"SPA Closing" shall have the meaning set forth in Section 4.2(b).
"Stock Purchase Agreement" shall mean that certain Stock Purchase Agreement,
dated the date hereof, by and between Parent and Seller.
"Stockholders" shall mean all Persons owning any shares of Company Common
Stock.
"Student Financial Assistance Programs" shall mean those programs created by
the Higher Education Act of 1965, as amended, and administered by the United
States Department of Education, as well as any state student assistance
programs or other government-sponsored student assistance programs.
"Subsidiary" shall mean any entity, a majority of the outstanding equity of
which (or any class or classes, however designated, having ordinary voting
power for the election of members of the board of directors of such entity)
shall at the time be owned by the relevant Person directly or through one or
more corporations which are themselves Subsidiaries.
"Substantial Control" shall have the meaning set forth in Section 4.18(k).
"Superior Proposal" shall have the meaning set forth in Section 6.8(b).
"Surviving Corporation" shall have the meaning set forth in Section 2.1.
"Takeover Laws" shall have the meaning set forth in Section 4.31.
"Tax" or "Taxes" shall mean any and all federal, state, local and foreign,
taxes, assessments and other governmental charges, duties, impositions and
liabilities relating to taxes, including taxes 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 including any liability for taxes of a
predecessor entity.
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"Tax Agreement" shall mean any agreement to which any Party or any
Subsidiary of any Party is a party under which such Party or such Subsidiary
could reasonably be expected to be liable to another Person under such
agreement in respect of Taxes payable by such other Person to any taxing
authority or other Person.
"Third Party" shall have the meaning set forth in Section 6.8(b).
"Title IV" shall mean Subchapter IV of the Higher Education Act of 1965, as
amended, 20 U.S.C.A. (s)1070 et seq. and any amendments or successor statutes
thereto.
"Title IV Program" shall mean any program of student financial assistance
administered pursuant to Title IV.
ARTICLE 2
The Merger
2.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement and in accordance with the IBCA, at the Effective Time, Merger
Sub shall be merged with and into the Company, the separate corporate existence
of Merger Sub shall cease and the Company shall (a) be the surviving
corporation in the Merger (in such capacity, the "Surviving Corporation"), (b)
succeed to and assume all the rights and obligations of Merger Sub in
accordance with the IBCA and (c) continue its corporate existence under the
laws of the State of Illinois. The Merger shall be pursuant to the provisions
of, and shall be with the effect provided in the IBCA. In accordance with the
IBCA, all of the rights, privileges, property, powers and franchises of the
Company and Merger Sub shall vest in the Surviving Corporation, and all of the
debts, liabilities and duties of the Company and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
2.2 Effective Time; Filing of Certificate of Merger. As soon as practicable
after the Closing, the parties hereto shall cause the Merger to be consummated
by filing a properly executed Certificate of Merger or other appropriate
documents with the Secretary of State of the State of Illinois in accordance
with the provisions of IBCA. The Merger shall become effective at the time of
such filing of the Certificate of Merger with the Secretary of State of the
State of Illinois or at such later date or time as Merger Sub and the Company
shall agree and specify in the Certificate of Merger (the "Effective Time").
2.3 Name; Certificate of Incorporation. The Name of the Surviving
Corporation will be the Company's Name. At the Effective Time, the Certificate
of Incorporation of the Surviving Corporation shall be the Certificate of
Incorporation of the Company as in effect immediately prior to the Effective
Time, until thereafter amended in accordance with its terms and the IBCA.
2.4 Bylaws. At the Effective Time, the Bylaws of the Surviving Corporation
shall be the Bylaws of Merger Sub as in effect immediately prior to the
Effective Time, until thereafter amended in accordance with their terms and
IBCA.
2.5 Directors and Officers. At the Effective Time, the directors and the
officers of Merger Sub immediately prior to the Effective Time shall be the
initial directors and officers of the Surviving Corporation. Each director and
officer of the Surviving Corporation shall hold office in accordance with the
Articles of Incorporation and Bylaws of the Surviving Corporation until his or
her death, resignation or removal or a successor is duly elected or appointed
and qualified.
2.6 Additional Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that consistent with the
terms of this Agreement any further assignments or assurances in law or any
other acts are necessary or desirable (a) to vest, perfect or confirm, of
record or otherwise, in the Surviving Corporation, title to and possession of
any property or right of either Constituent Corporation acquired or to be
acquired by reason of, or as a result of, the Merger, or (b) otherwise to carry
out the purposes of this Agreement, then, subject to the terms and conditions
of this Agreement, each such Constituent
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Corporation and its officers and directors shall be deemed to have granted to
the Surviving Corporation an irrevocable power of attorney to execute and
deliver all such deeds, assignments and assurances in law and to do all acts
necessary or proper to vest, perfect or confirm title to and possession of such
property or rights in the Surviving Corporation and otherwise to carry out the
purposes of this Agreement; and the officers and directors of the Surviving
Corporation are fully authorized in the name of either Constituent Corporation
to take any and all such action.
2.7 Time and Place of Closing. The closing of the Merger (the "Closing")
shall take place (a) at the offices of Kirkpatrick & Lockhart LLP, Henry W.
Oliver Building, 535 Smithfield Street, Pittsburgh, PA 15222 on the second
(2nd) business day following the satisfaction or waiver of all conditions set
forth herein to the obligations of the Parties to consummate the transactions
contemplated hereby (other than actions to be taken at the Closing itself) or
(b) at such other place, at such other time or on such other date as the
parties may mutually agree (the date of the Closing is hereinafter sometimes
referred to as the "Closing Date").
ARTICLE 3
Conversion of Securities
3.1 Effect on Capital Stock. At the Effective Time, by virtue of the Merger
and without any action on the part of the Merger Sub, the Merger shall occur
with the effects on the Company Common Stock as set forth herein.
(a) Conversion of Merger Sub Stock. Each issued and outstanding share of
common stock, par value $0.01 per share, of Merger Sub immediately prior to the
Effective Time shall be converted into one validly issued, fully paid and non-
assessable share of Class A common stock, $.01 par value per share, of the
Surviving Corporation, and the Surviving Corporation shall be a wholly-owned
subsidiary of Parent. Each stock certificate of Merger Sub evidencing ownership
of any such shares of common stock of Merger Sub shall, following the Merger,
evidence ownership of the same number of shares of Class A common stock of the
Surviving Corporation.
(b) Conversion Of Company Common Stock. Each share of the Company Common
Stock issued and outstanding immediately prior to the Effective Time (other
than any shares of Company Common Stock to be canceled pursuant to Section
3.1(c)) will be converted into the right to receive $12.00 in cash, without
interest (the "Merger Consideration"), upon surrender of the certificate or
certificates which immediately prior to the Effective Time represented such
Company Common Stock. All shares of Company Common Stock, when converted, shall
no longer be outstanding and shall automatically be canceled and retired and
each holder of a certificate representing any such shares shall cease to have
any rights with respect thereto, except the right to receive such Merger
Consideration.
(c) Cancellation Of Parent-Owned Stock. Each share of Company Common Stock
owned immediately prior to the Effective Time by the Company, Merger Sub,
Parent, or any direct or indirect subsidiary of Parent or the Company,
including without limitation, any shares of Company Common Stock held as
treasury stock of the Company or any direct or indirect subsidiary of the
Company, shall, by virtue of the Merger and without any action on the part of
the holder thereof, be canceled and extinguished without any action on the part
of the holder thereof.
3.2 Dissenters' Rights.
Subject to the applicable provisions of the IBCA and notwithstanding Section
3.1 of this Agreement, shares of Company Common Stock outstanding immediately
prior to the Effective Time and held by a holder who has not voted in favor of
the Merger or consented thereto in writing and who has demanded appraisal for
such shares of Company Common Stock in accordance with Illinois Law shall not
be converted into a right to receive the Merger Consideration, unless such
holder fails to perfect or withdraws or otherwise loses his, her or
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its right to appraisal. If, after the Effective Time, such holder fails to
perfect or withdraws or loses his right to appraisal, such shares of the
Company Common Stock shall be treated as if they had been converted as of the
Effective Time into a right to receive the Merger Consideration. The Company
shall give Parent prompt written notice of any demands received by the Company
for appraisal of shares of Company Common Stock, and Parent shall have the
right to participate in all negotiations and proceedings with respect to such
demands. The Company shall not, except with the prior written consent of
Parent, make any payment with respect to, or settle or offer to settle, any
such demands.
3.3 Surrender of Certificates.
(a) Paying Agent. Mellon Investor Services or another similar institution
selected by Parent and reasonably acceptable to the Company, shall act as the
paying agent (the "Paying Agent") in the Merger.
(b) Parent To Provide Merger Consideration. Promptly after the Effective
Time, Parent shall deposit immediately available funds with the Paying Agent in
a separate fund established for the benefit of the holders of shares of Company
Common Stock at the Effective Time for payment of the Merger Consideration in
accordance with this Article 3 through the Paying Agent (the "Payment Fund").
The Paying Agent shall, pursuant to irrevocable instruction, pay the Merger
Consideration out of the Payment Fund.
(c) Payment Procedures. Promptly after the Effective Time, the Paying Agent
shall cause to be mailed to each holder of record as of the Effective Time of a
certificate or certificates (the "Certificates") which immediately prior to the
Effective Time represented outstanding shares of Company Common Stock whose
shares were converted into a right to receive the Merger Consideration pursuant
to Section 3.1, (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Paying Agent and shall be in such
customary form and have such other provisions as Parent may reasonably specify)
and (ii) instructions for use in effecting the surrender of Certificates in
exchange for Merger Consideration. Upon surrender of a Certificate for
cancellation to the Paying Agent, together with such letter of transmittal,
duly completed and validly executed in accordance with the instructions
thereto, the holder of such Certificate shall be entitled to receive in
exchange therefor the Merger Consideration into which the shares represented by
the surrendered Certificate shall have been converted at the Effective Time
pursuant to this Article 3, and the Certificate so surrendered shall forthwith
be canceled. Until so surrendered, each outstanding Certificate will be deemed
from and after the Effective Time, for all corporate purposes, to evidence the
right to receive Merger Consideration. From and after the date which is six (6)
months following the Closing Date, any portion of the Payment Fund that remains
undistributed to the holders of Certificates shall be promptly delivered to
Parent upon demand, and any holder of Certificates who has not theretofore
complied with this Section 3.3 shall thereafter look only to the Surviving
Corporation for delivery of the Merger Consideration, subject in all events to
applicable abandoned property, escheat or similar laws.
(d) Parent and Merger Sub shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any holder or
shares of Company Common Stock such amounts as Parent or Merger Sub is required
to deduct and withhold with respect to the making of such payment under the
Code or any provision of state, local or foreign Tax Law. To the extent that
amounts are so withheld by Parent or Merger Sub, such withheld amounts shall be
created for all purposes of this Agreement as having been paid to the holder of
the shares or Company Common Stock in respect of which such deduction and
withholding was made by Parent or Merger Sub.
(e) In the event this Agreement is terminated without the occurrence of the
Effective Time, Parent shall, or shall cause the Paying Agent to, return
promptly any Company Stock Certificates theretofore submitted or delivered to
the Paying Agent, without charge to the Person who submitted such Company Stock
Certificates.
(f) Transfers Of Ownership. If any portion of the Merger Consideration is to
be paid to a person other than the person in whose name the Certificate
surrendered in exchange therefor is registered, it will be a
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condition of the payment therefor that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have (i) paid to Parent or any agent designated
by it any transfer or other Taxes required by reason of the payment to a Person
other than the registered holder of the Certificate surrendered or (ii)
established to the reasonable satisfaction of Parent or any agent designated by
it that such Tax has been paid or is not payable.
(g) No Liability. Notwithstanding anything to the contrary in this Section
3.3, none of the Paying Agent, the Surviving Corporation or any party hereto
shall be liable to a holder of Company Common Stock or a payee of Merger
Consideration for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
3.4 Treatment of Options and Warrants.
(a) At the Effective Time, each outstanding option (each, a "Company Stock
Option") to purchase shares of Company Common Stock under the Company's 1999
Stock Incentive Plan that is unvested shall become fully vested.
(b) At the Effective Time, each Company Stock Option that is held by a
Person who is not an employee of the Company or a director of the Company or
one of its Subsidiaries (each, a "Nonemployee Option") shall be converted into,
and the holder of each such Nonemployee Option will be entitled to receive upon
surrender of such Nonemployee Option for cancellation, (I) in the case of
Nonemployee Options with an exercise price less than $12.00 per share, cash
equal to (x) the excess, if any, of the Merger Consideration per share over the
exercise price of such Nonemployee Option multiplied by (y) the number of
shares of Company Common Stock covered by such Nonemployee Option and (II) with
respect to Nonemployee Options with an exercise price equal to $12.00 per share
or greater, an amount of cash equal to the cash value of such option as
determined by the Black-Scholes option valuation method using parameters
reasonably agreed between Parent and the Company.
(c) At the Effective Time, each Company Stock Option that is held by a
Person who is an employee of the Company or a director of the Company or one of
its Subsidiaries (each, an "Employee Option") shall be converted into an option
to acquire, on the same terms and conditions as were applicable under such
Employee Option, the number of shares of Parent common stock, par value $.01
per share ("Parent Common Stock") equal to (i) the number of shares of Company
Common Stock subject to the Employee Option, multiplied by (ii) $12.00 / the
closing price per share of Parent Common Stock as listed on the Nasdaq National
Market on the last trading day before which the Effective Time occurs (such
product rounded to the nearest whole number) (a "Replacement Option"), at an
exercise price per share (rounded to the nearest whole cent) equal to (y) the
aggregate exercise price for the shares of Company Common Stock which were
purchasable pursuant to such Employee Option divided by (z) the number of full
shares of Parent Common Stock subject to such Replacement Option in accordance
with the foregoing. Notwithstanding the foregoing, each Employee Option which
is intended to be an "incentive stock option" (as defined in Section 422 of the
Code) shall be adjusted in accordance with the requirements of Section 424 of
the Code or converted into a nonqualified stock option, at the discretion of
the holder hereof. At or prior to the Effective Time, Company shall use its
commercially reasonable efforts to obtain any necessary consents from
optionees, with respect to the Incentive Plan to permit the replacement of the
outstanding Employee Options by Parent pursuant to this Section. At the
Effective Time, Parent shall assume the Incentive Plan; provided, that such
assumption shall be only in respect of the Replacement Options and that Parent
shall have no obligation with respect to any awards under the Incentive Plan
other than the Replacement Options and shall have no obligation to make any
additional grants or awards under the Incentive Plan.
(d) At the Effective Time, the Leeds Warrant will be treated in accordance
with the provisions of the second sentence of Section 2(b) thereof.
(e) At all times after the Effective Time, Parent shall reserve for issuance
such number of shares of Parent Common Stock as necessary so as to permit the
exercise of the Replacement Options in the manner
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contemplated by this Agreement and the instruments pursuant to which the
corresponding Company Stock Options were granted. Parent shall make all filings
required under federal and state securities laws no later than the Effective
Time so as to permit the exercise of such options and the sale of the shares
received by the optionee upon such exercise at and after the Effective Time and
Parent shall continue to make such filings thereafter as may be necessary to
permit the continued exercise of options and subsequent sale of such shares.
(f) The Company shall take all actions reasonably necessary to ensure that
the Company's Employee Stock Discount Purchase Plan shall be suspended
effective November 30, 2001 and shall be terminated effective as of the first
opportunity following the Effective Time.
3.5 No Further Ownership Rights in Company Common Stock. All Merger
Consideration paid upon the surrender for exchange of shares of Company Common
Stock in accordance with the terms hereof shall be deemed to have been paid in
full satisfaction of all rights pertaining to such shares of Company Capital
Stock, and there shall be no further registration of transfers on the records
of the Surviving Corporation of shares of Company Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Article 3.
3.6 Lost, Stolen or Destroyed Certificates. In the event any Certificates
shall have been lost, stolen or destroyed, the Paying Agent shall pay in
exchange for such lost, stolen or destroyed certificates, upon the making of an
affidavit of that fact by the holder thereof, the Merger Consideration payable
in exchange for such lost, stolen or destroyed Certificates; provided, however,
that Parent may, in its discretion and as a condition precedent to the payment
thereof, require the owner of such lost, stolen or destroyed Certificates to
deliver a customary bond in such sum as it may reasonably direct as indemnity
against any claim that may be made against Parent, the Surviving Corporation or
the Paying Agent with respect to the Certificate alleged to have been lost,
stolen or destroyed.
3.7 Taking of Necessary Action; Further Action. If at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purpose of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Surviving Corporation are fully authorized in the name of and on behalf of the
Company and Merger Sub to take, and will take, all such lawful and necessary
action, so long as such action is consistent with this Agreement.
ARTICLE 4
Representations and Warranties of the Company
The Company represents and warrants to Parent and Merger Sub on the date of
this Agreement, subject only to the exceptions disclosed in writing in the
disclosure letter dated as of the date hereof delivered to Parent by the
Company pursuant to, and as an integral part of, this Agreement (the "Company
Disclosure Letter"), which specifically identifies the Section and subsection
numbers hereof to which the disclosures pertain, as follows:
4.1 Organization; Business. The Company and each of its Subsidiaries is a
corporation or limited liability company duly and validly organized and
existing under the Laws of the jurisdiction of its incorporation or formation
and is qualified to do business as a foreign corporation or company and in good
standing in the jurisdictions where the ownership or leasing of property or the
conduct of its business requires qualification as a foreign corporation or
company except where the failure to so qualify could not reasonably be expected
to have a Material Adverse Effect on the Company. The Company and each of its
Subsidiaries has the corporate power and authority to operate, own and lease
its properties and carry on its business as now conducted except where the
failure to have such corporate power and authority could not reasonably be
expected to have a Material Adverse Effect on the Company. The Company has
delivered or made available to Parent true and
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complete copies of the charters, bylaws and articles of incorporation, each
amended to the date hereof, of the Company and each of its Subsidiaries.
4.2 Capitalization.
(a) Capital Stock. The aggregate number of shares of capital stock which the
Company has authority to issue is 45,000,000 consisting of 30,000,000 shares of
Company Class A Common Stock, of which 2,065,705 shares are issued, 1,583,705
shares are outstanding and 482,000 shares are held in treasury as of the date
hereof, 10,000,000 shares of Company Class B Common Stock, of which 4,900,000
shares are issued and outstanding as of the date hereof and 5,000,000 shares of
preferred stock, par value $.01 per share, of which no shares are issued and
outstanding as of the date hereof and there will be no such shares outstanding
at the Effective Time. As of the date hereof, the Company had reserved up to
750,000 shares of Company Class A Common Stock for issuance under the 1999
Stock Incentive Plan (the "Incentive Plan"), under which options are
outstanding for 447,050 shares of Company Class A Common Stock (the "Company
Stock Options") and the Company had reserved 200,000 shares of Company Class A
Common Stock for issuance to Leeds Equity Associates, L.P. (the "Leeds
Warrant"). The Company is not party to or bound by any obligation to accelerate
the vesting of any Existing Option. The Company is not party to or bound by any
agreements to register any of its securities, except in connection with the
Leeds Warrant.
(b) Conversion of Class B Common Stock. Upon the closing of the
transactions contemplated by Section 2.3 of the Stock Purchase Agreement (the
"SPA Closing"), the 4,900,000 shares of Company Class B Common Stock owned by
Seller shall be converted into 4,900,000 shares of Company Class A Common
Stock. Upon the SPA Closing, there shall be no shares of Company Class B Common
Stock issued and outstanding.
(c) Issuance; Ownership. All of the outstanding capital stock of the Company
is duly authorized, validly issued, fully paid and nonassessable and was not
issued in violation of any preemptive rights. Section 4.2(c) of the Company
Disclosure Letter contains a true and complete list of the Company's
Subsidiaries and the capitalization and current ownership of each such
Subsidiary. Other than the Subsidiaries, the Company does not, directly or
indirectly, own any equity or other ownership interest in, or any interest
convertible into or exercisable or exchangeable for any interest in, any
Person. All shares of Company Class A Common Stock subject to issuance pursuant
to the Incentive Plan, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, shall be duly authorized,
validly issued, fully paid and nonassessable. Section 4.2(c) of the Company
Disclosure Letter includes a list for each outstanding Company Stock Option as
of the date hereof, of the following: (i) the name of the holder of such
option, (ii) the number of shares subject to such option and (iii) the exercise
price of such option. Except for the Company Stock Options and the Leeds
Warrant, there are no options, warrants, convertible or exchangeable securities
or other rights to subscribe for or purchase, or other contracts with respect
to, any capital stock of the Company or any Subsidiary and there are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Company or any Subsidiary.
To the Knowledge of the Company, there are no voting trusts, proxies, or other
agreements or understandings with respect to the voting of the capital stock of
the Company.
(d) Voting Debt. As of the date of this Agreement, (i) no bonds, debentures,
notes or other indebtedness of the Company having the right to vote are issued
or outstanding and (ii) there are no outstanding contractual obligations of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire
any shares of capital stock of the Company or any of its Subsidiaries.
(e) Listings. The Company Class A Common Stock is traded on the Nasdaq
National Market. No other securities of the Company are listed or quoted for
trading on any United States domestic or foreign securities exchange.
4.3 Authorization; Enforceability. The execution, delivery and performance
by the Company of this Agreement are within the corporate power and authority
of the Company and have been duly authorized by the
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Board of Directors of the Company. Except for (i) the approval of Stockholders
as required by Law and the Company's Articles of Incorporation, and as
described in Section 4.22 hereof and (ii) the filing of the Certificate of
Merger and other appropriate documents as required by the IBCA and as described
in Section 2.2 hereof, no other corporate proceeding or action on the part of
the Company is necessary to authorize the consummation by the Company of the
Merger and the other transactions contemplated hereby. This Agreement is, and
the other documents and instruments required by this Agreement to be executed
and delivered by the Company will be, when executed and delivered by the
Company, the valid and binding obligations of the Company, enforceable against
the Company in accordance with their respective terms, except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar Laws generally affecting the rights of
creditors (the "Bankruptcy Exception") and subject to general equity principles
and an implied covenant of good faith and fair dealing.
4.4 No Violation or Conflict. Subject to the receipt of the clearance or
expiration or termination of the waiting period described in Section 7.1(a) and
the approvals described in Section 7.1(b), the execution and delivery of this
Agreement by the Company and all documents and instruments required by this
Agreement to be executed and delivered by the Company do not, and the
consummation of the Merger and the other transactions contemplated hereby and
by the Stock Purchase Agreement and the Company's compliance with the
provisions hereof will not, (i) result in any violation of any provision of the
Articles of Incorporation or Bylaws of the Company or the charter or bylaws of
any of its Subsidiaries, (ii) result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or the loss of a
material benefit under, any contract of the Company or any of its Subsidiaries,
or result in the creation of any Lien upon any of the properties or assets of
the Company or its Subsidiaries, (iii) violate any Existing Permits of the
Company or any of its Subsidiaries or the Schools or any Law applicable to the
Company or any of its Subsidiaries or the Schools or their properties or
assets, or (iv) violate any standard or requirement of any Accrediting Body of
the Schools, other than, in the case of clauses (ii), (iii) and (iv), any such
violations, defaults, rights, losses or Liens that, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect
on the Company, or could not reasonably be expected to affect adversely the
ability of the Company to consummate the Merger and the other transactions
contemplated by this Agreement.
4.5 SEC Reports. The Company has filed with the SEC all forms, reports,
schedules, statements and other documents required to be filed by it since
March 12, 1999, under the Exchange Act or the Securities Act (as such documents
have been amended since the time of their filing, collectively, the "Company
SEC Documents"). As of their respective dates or, if amended, as of the date of
the last such amendment, the Company SEC Documents, including, without
limitation, any financial statements or schedules included therein, (i) did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading and (ii) complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may be, at
such time of filing. There are no amendments or modifications to agreements,
documents or other instruments which previously had been filed by the Company
with the SEC pursuant to the Securities Act or the Exchange Act or any other
agreements, documents or other instruments, which have not yet been filed with
the SEC but which are or will be required to be filed by the Company.
4.6 Books and Records; Company Financial Statements.
(a) Audited Company Financial Statements. The Company Financial Statements
which are audited comply in all material respects with the applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except as may be indicated
therein or in the notes thereto). The Company Financial Statements fairly
present in all material respects the consolidated financial position of the
Company and each of its Subsidiaries as of the date set forth on each of such
Company Financial Statements
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and the consolidated results of operations and cash flows of the Company and
each of its Subsidiaries for the periods indicated on each of the Company
Financial Statements.
(b) Unaudited Company Financial Statements. Those consolidated financial
statements which are unaudited and contained in the Company SEC Documents
fairly present in all material respects the consolidated financial position of
the Company and its Subsidiaries as of the date set forth on each of such
consolidated financial statements and the consolidated results of operations
and cash flows of the Company and each of its Subsidiaries for the periods
indicated on each of such consolidated financial statements in accordance with
GAAP applied on a consistent basis during the periods involved except that such
unaudited consolidated financial statements do not contain footnote disclosure
of the type associated with audited financial statements.
(c) Accounting Records. The accounting books and records of the Company and
each of its Subsidiaries: (i) are current in a manner consistent with past
practice; and (ii) have properly recorded therein all the properties, assets
and liabilities of the Company and each of its Subsidiaries (except where the
failure to so record would not violate GAAP as consistently applied by the
Company and its Subsidiaries).
(d) Liabilities. Except (i) for normal or ordinary recurring liabilities
incurred in the ordinary course of business consistent with past practice, (ii)
for transaction expenses incurred in connection with this Agreement, or (iii)
as are reflected in the Company's SEC Documents or the Company Disclosure
Letter, since August 31, 2000, the Company has not incurred any liabilities
that either (A) would be required to be reflected or reserved against in a
balance sheet of the Company prepared in accordance with GAAP as applied in
preparing the August 31, 2000 balance sheet included in the Company Financial
Statements, or (B) could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company.
4.7 Absence of Certain Changes. Since August 31, 2000, the Company and each
of its Subsidiaries have conducted their business in a manner consistent with
past practice and there has not been any:
(a) Material Adverse Effect experienced by the Company or any of its
Subsidiaries;
(b) material transactions by the Company or any of its Subsidiaries
outside the ordinary course of business, except for the transactions
contemplated by this Agreement;
(c) declaration or payment of any dividend or any distribution in
respect of the capital stock of the Company or any of its Subsidiaries
(other than dividends paid by a Subsidiary solely to the Company or to
another Subsidiary that was at the time of such payment 100% owned by the
Company) or any direct or indirect redemption, purchase or other
acquisition of any such stock by the Company or any of its Subsidiaries;
(d) payments or distributions, other than normal salaries, to any
Stockholders, or any transactions not in the ordinary course of business
with any such person;
(e) sale, lease, transfer or assignment of material assets, tangible or
intangible, of the Company or any of its Subsidiaries other than for a fair
consideration in the ordinary course of business and other than the
disposition of obsolete or unusable property;
(f) capital expenditure (or series of related capital expenditures) by
the Company or any of its Subsidiaries involving more than $50,000 (unless
such expenditure is identified in the current business plan of the Company
or any of its Subsidiaries provided to Parent);
(g) material damage, destruction, or loss (whether or not covered by
insurance) from fire or other casualty to the tangible property of the
Company or any of its Subsidiaries;
(h) material increase in the base salary of any officer or employee of
the Company or any of its Subsidiaries, or adoption, amendment,
modification or termination of any bonus, profit-sharing, incentive,
severance, or other similar plan for the benefit of any of directors,
officers or employees of the Company or any of its Subsidiaries;
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(i) change by the Company or any of its Subsidiaries in accounting
methods, principles or practices other than as required by GAAP or
reflected in the Company SEC Reports;
(j) material revaluation by the Company or any of its Subsidiaries of
any of their assets, including, without limitation, writing down the value
of deferred tax assets or writing off notes or accounts receivable required
by GAAP or reflected in the Company SEC Reports;
(k) labor dispute or charge of unfair labor practice or any activity or
proceeding by a labor union or representative thereof to organize any
employee of the Company or any of its Subsidiaries or any campaign being
conducted to solicit authorization from employees to be represented by such
labor union, except such as could not reasonably be expected to have a
Material Adverse Effect on the Company;
(l) action or event that would have required the consent of Parent
pursuant to Section 6.1 had such action or event occurred after the date of
this Agreement; or
(m) any binding commitment relating to any of the foregoing entered into
by the Company or any of its Subsidiaries.
4.8 Title to Assets. Each of the Company and its Subsidiaries has valid
title to its tangible assets necessary for the conduct of its business, free
and clear of any and all Liens, except (i) as reflected on the Company balance
sheet dated May 31, 2001 included in the Company Financial Statements, (ii)
Liens for Taxes not yet due and payable and (iii) Liens and encumbrances set
forth in Section 4.8 of the Company Disclosure Letter (collectively, "Permitted
Liens") except such as could not reasonably be expected to have a Material
Adverse Effect on the Company.
4.9 Real Estate. (a) Owned Real Estate. Section 4.9(a) of the Company
Disclosure Letter lists all real property that is owned by the Company or any
of its Subsidiaries in connection with their business (the "Owned Real Estate")
and evidence of such ownership shall have been delivered or made available to
the Parent. Except as otherwise specifically set forth in Section 4.9(a) of the
Company Disclosure Letter, (i) the Company has received no written, or to the
Company's Knowledge, oral notice that any building, improvements and other
property on the Owned Real Estate (A) has not received any approval of any
governmental authority (including certificates of occupancy, permits and
licenses) required in connection with the operation thereof, (B) has not been
operated and maintained in accordance with all applicable legal requirements or
(C) is in violation of any applicable zoning, building code or subdivision
ordinance, regulations, order or law or restrictions or covenants of record;
(ii) all buildings, improvements and other property thereon are supplied with
utilities and other services necessary for the operation of the Owned Real
Estate (including gas, electricity, water, telephone, sanitary and storm sewers
and access to public roads); (iii) there are no other leases, subleases,
licenses, concessions, or other agreements to which the Company or any of its
Subsidiaries is a party, whether written or oral, granting to any Person the
right of use or occupancy of any portion of the Owned Real Estate; and (iv) no
Person (other than the Company or any of its Subsidiaries) shares in the
ownership of the Owned Real Estate.
Except as set forth in the Company Disclosure Letter, the Company has good
and valid title to all of the Owned Real Estate, free and clear of any liens,
claims, charges or other encumbrances.
No written, or to the Company's Knowledge, oral claim of ownership, right of
adverse possession or other claim of ownership or possession by any third party
has been made or, to the Company's Knowledge, threatened with respect to the
Owned Real Property.
(b) Rental Real Estate. Section 4.9(b) of the Company Disclosure Letter
lists all real property that is leased to, used or occupied by the Company or
any of its Subsidiaries in connection with their business but not owned by the
Company or any of its Subsidiaries (the "Rental Real Estate") and the leases,
subleases and agreements pertaining to such Rental Real Estate (the "Leases"),
correct and complete copies of which have been delivered or made available to
the Parent. Except as otherwise specifically set forth in Section 4.9(b) of the
Company Disclosure Letter, (i) assuming that the Leases have been duly and
validly executed and delivered
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by or on behalf of the respective other party thereto, which party has the
power to enter into and perform its obligations thereunder, the Leases are
legal, valid, binding, enforceable and in full force and effect, subject to the
Bankruptcy Exception; (ii) the Company has received no written, or to the
Company's Knowledge, oral notice that any building, improvements and other
property on the Rental Real Estate (A) has not received any approval of any
governmental authority (including certificates of occupancy, permits and
licenses) required in connection with the operation thereof, (B) has not been
operated and maintained in accordance with all applicable legal requirements or
(C) is in violation of any applicable zoning, building code or subdivision
ordinance, regulations, order or law or restrictions or covenants of record;
(iii) all buildings, improvements and other property thereon are supplied with
utilities and other services necessary for the operation of the Rental Real
Estate (including gas, electricity, water, telephone, sanitary and storm sewers
and access to public roads); and (iv) there are no other leases, subleases,
licenses, concessions, or other agreements to which the Company or any of its
Subsidiaries is a party, whether written or oral, granting to any Person the
right of use or occupancy of any portion of the Rental Real Estate; and (v) no
Person (other than the Company or any of its Subsidiaries) is in possession of
the Rental Real Estate.
There are no written, or to the Company's Knowledge, oral notices or other
claims of material default which have been asserted against the Company by any
lessor and there exists no termination event or material condition or material
uncured default on the part of the Company or the lessor under any Lease, and,
to the Company's Knowledge, no event has occurred and no condition exists
which, with the giving of notice or the lapse of time, or both, would
constitute such a termination event or material default.
(c) Improvements. The buildings, structures and improvements situated on the
Rental Real Estate and Owned Real Estate and appurtenances thereto, occupied or
used by the Company or any of its Subsidiaries are in good condition (subject
to normal wear and tear), and are adequate to conduct the business as presently
conducted. The Company and, to the Knowledge of the Company, the owners of the
Rental Real Estate or, if applicable, property managers of the Owned Real
Estate, has no knowledge, and has received no written, or to the Company's
Knowledge, oral notice of any condemnation, requisition or taking of the Rental
Real Estate and Owned Real Estate that could adversely affect the Company or
any of its Subsidiaries. To the Company's Knowledge, there are no public
improvements pending or threatened which may result in material special
assessments against or otherwise materially affect the Rental Real Estate and
Owned Real Estate.
(d) Zoning. To the Company's Knowledge, the Rental Real Estate and Owned
Real Estate is in material compliance with, includes all rights necessary to
assure compliance with, and all buildings, structures, other improvements and
fixtures on such Rental Real Estate or Owned Real Estate and the operations of
the Company or any of its Subsidiaries in or about any Rental Real Estate or
Owned Real Estate therein conducted conforms in all material respects to all
applicable health, fire, safety, and zoning and building rules. The Company or
any of its Subsidiaries have all easements and related rights necessary or
appropriate to conduct their operations as they are currently being conducted.
(e) Use. To the Company's Knowledge, there are no facts or conditions
affecting the Rental Real Estate or the Owned Real Estate which would interfere
in any material respect with the use, occupancy or operation thereof as
currently used, occupied and operated by the Company.
4.10 Intangible Assets.
Except as set forth in Section 4.10 of the Company Disclosure Letter:
(a) there are no claims, demands or proceedings instituted, pending
against the Company or any of its Subsidiaries or, to the Knowledge of the
Company, threatened by any Person contesting or challenging the right of
the Company or any of its Subsidiaries to use any of their Intangible
Assets and no Person is infringing or otherwise violating the Intangible
Assets of the Company or any of its Subsidiaries except such as could not
reasonably be expected to have a Material Adverse Effect;
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(b) each trademark registration, service mark registration, copyright
registration and patent which is owned by the Company or any of its
Subsidiaries has been maintained in good standing and, with respect to
those licensed to the Company or any of its Subsidiaries has to the
Knowledge of the Company been maintained in good standing except such as
could not reasonably be expected to have a Material Adverse Effect;
(c) there are no Intangible Assets owned by a Person which, to the
Company's Knowledge, the Company or any of its Subsidiaries are using
without license to do so except such as could not reasonably be expected to
have a Material Adverse Effect;
(d) the Company and each of its Subsidiaries own or possess adequate
licenses or other rights to use all Intangible Assets necessary to conduct
its business as now conducted;
(e) neither the Company nor any of its Subsidiaries has received any
written, or to the Company's Knowledge, oral notice claiming that it has
infringed or otherwise violated any Intangible Assets of any third parties;
and
(f) to the Company's Knowledge, the consummation of the Merger and the
other transactions contemplated by this Agreement will not impair the
validity, enforceability, ownership or right of the Company or any of its
Subsidiaries to use its Intangible Assets.
4.11 Contract Matters.
(a) Agreements, Contracts and Commitments. Except as set forth in the
Exhibits to the Company SEC Documents filed prior to the date of this
Agreement, as of the date of this Agreement, neither the Company nor any of its
Subsidiaries is a party to, nor are their assets bound by, any Material
Contract. For purposes of this Agreement, "Material Contract" means:
(i) any collective bargaining agreement;
(ii) any employment or consulting agreement, contract or binding
commitment providing for compensation or payments in excess of $75,000 in
any year not terminable by the Company or any of its Subsidiaries on thirty
(30) days notice without liability, except to the extent general principles
of wrongful termination or other employment law may limit the Company's or
Subsidiary's ability to terminate employees at will;
(iii) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan, or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of
which will be accelerated or the right to benefits will be created, by the
occurrence of the Merger or any of the transactions contemplated by this
Agreement;
(iv) any agreement of indemnification or guaranty not entered into in
the ordinary course of business with any party providing for
indemnification which would reasonably be expected to exceed $50,000 and
any agreement of indemnification or guaranty between the Company or any of
its Subsidiaries and any of their officers or directors, irrespective of
the amount of such agreement or guaranty;
(v) any agreement, contract or binding commitment containing any
covenant directly or indirectly limiting the freedom of the Company or any
of its Subsidiaries to engage in any line of business, compete with any
person, or sell any product, or which, following the consummation of the
Merger, would so limit Parent or the Surviving Corporation;
(vi) any agreement, contract or binding commitment relating to the
disposition or acquisition of material assets not in the ordinary course of
business or any ownership interest in any corporation, partnership, joint
venture or other business enterprise;
(vii) any mortgage, indenture, loan or credit agreement, security
agreement or other agreement or instrument relating to the borrowing of
money or extension of credit (other than extensions of credit in the
ordinary course of business from vendors);
A-16
(viii) any Leases;
(ix) any other agreement, contract or binding commitment which involves
payment by the Company or any of its Subsidiaries of $100,000 or more in
any twelve (12) month period or $500,000 in the aggregate and which is not
terminable on 30 days notice;
(x) any agreements to register the Company's securities; or
(xi) any other agreement, contract or binding commitment which is
material to the Company or the operation of its business or which is
outside the ordinary course of business.
The numerical thresholds set forth in this Section 4.11(a) shall not be deemed
in any respects to define materiality for other purposes of this Agreement. The
Company has provided or made available to Parent true and complete copies of
all Material Contracts as amended to date.
(b) Performance of Contracts. Each of the Material Contracts of the Company
or any of its Subsidiaries is in full force and effect and constitutes the
legal and binding obligation of the Company or any of its Subsidiaries,
assuming the Material Contracts are the legal and binding obligations of the
other parties thereto and subject to the Bankruptcy Exception, principles of
equity and good faith dealing. There are no existing breaches or defaults by
the Company or any of its Subsidiaries under any such Material Contract the
effect of which could reasonably be expected to constitute a Material Adverse
Effect on the Company, and no event has occurred which, with the passage of
time or the giving of notice or both, could reasonably be expected to
constitute such a breach or default.
4.12 Insurance. Section 4.12 of the Company Disclosure Letter lists all of
the Existing Insurance Policies of the Company and its Subsidiaries and all
outstanding claims against such Existing Insurance Policies. All such Existing
Insurance Policies are currently in effect, and neither the Company nor any of
its Subsidiaries has received notice of cancellation or termination of, or
material premium increase with respect to, any such Existing Insurance Policy
in effect on the date hereof or within the past three years. The Company and
its Subsidiaries maintain in full force and effect insurance on their assets
and their business and operations against loss or damage, risks, hazards, and
liabilities of any kind on and in the amounts customarily insured against by
corporations engaged in the same or similar businesses. Within five (5) years
prior to the date hereof, the Company and each of its Subsidiaries have not
been denied insurance, or been offered insurance only at a commercially
prohibitive premium.
4.13 Litigation. Except as set forth in Section 4.13 of the Company
Disclosure Letter:
(a) there are no actions, suits, claims, litigation, or proceedings pending
or, to the Knowledge of the Company, threatened against the Company or its
Subsidiaries that could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company;
(b) there are no such actions, suits or proceedings pending or, to the
Knowledge of the Company, threatened, against the Company or its Subsidiaries
which question the legality or validity of the Merger and the other
transactions contemplated by this Agreement or the Stock Purchase Agreement;
(c) there are no outstanding orders, judgments, injunctions, awards or
decrees of any Governmental Entity or Accrediting Body against the Company, its
Subsidiaries or Schools that could reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect on the Company; and
(d) the Company and each of its Subsidiaries have not commenced litigation
against any third party.
4.14 Taxes.
(a) The Company and each of its Subsidiaries has timely filed all federal,
state, local and foreign returns, information statements and reports relating
to Taxes ("Returns") required by applicable Tax Law to be filed by the Company
and any of its Subsidiaries (taking into account any extensions) and such
Returns are complete
A-17
and correct in all material respects, except for any such failures to file that
could not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company. All Taxes owed by the Company or any of
its Subsidiaries to a taxing authority, or for which the Company or any of its
Subsidiaries is liable, whether to a taxing authority or to other Persons or
entities under a Tax Agreement have been paid and, as of the Effective Time,
will have been paid, except for any such failures to pay that could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company. The Company has made accruals for Taxes on the
Company Financial Statements which are adequate to cover any Tax liability of
the Company and any of its Subsidiaries, including any deferred tax liability,
determined in accordance with GAAP through the date of the Company Financial
Statements. To the Knowledge of the Company, no issue has been raised in any
prior tax audit of the Company or any of its Subsidiaries which, by application
of the same or similar principles, could reasonably be expected, upon a future
tax audit of the Company or any of its Subsidiaries to result in a proposed
deficiency for any period and which deficiency could reasonably be expected to
have a Material Adverse Effect on the Company.
(b) Except to the extent that any such failure to withhold could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company, the Company and any of its Subsidiaries have
withheld and paid with respect to its employees all foreign, federal and state
income taxes, FICA and other Taxes required to be withheld and paid.
(c) There is no Tax deficiency outstanding, proposed or assessed against the
Company or any of its Subsidiaries, except any such deficiency that, if paid,
could not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company. Neither the Company nor any of its
Subsidiaries executed or requested any waiver of any statute of limitations on
or extending the period for the assessment or collection of any foreign,
federal or state Tax.
(d) To the Knowledge of the Company, no foreign, federal or state Tax audit
or other examination of the Company or any of its Subsidiaries is presently in
progress, nor has the Company or any of its Subsidiaries been notified in
writing of any request for such foreign, federal or state Tax audit or other
examination which could not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company.
(e) Neither the Company nor any of its Subsidiaries has filed any consent
agreement under Section 341(f) of the Internal Revenue Code of 1986, as amended
(the "Code") or agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the
Code) owned by the Company.
(f) Neither the Company nor any of its Subsidiaries is a party to (i) any
agreement with a party other than the Company or any of its Subsidiaries
providing for the allocation or payment of Tax liabilities or payment for Tax
benefits with respect to a consolidated, combined or unitary Return which
Return includes or included the Company or any Subsidiary or (ii) any Tax
Agreement other than any Tax Agreement described in clause (iii).
(g) Except for the group of which the Company and each of its Subsidiaries
are now presently members, neither the Company nor any of its Subsidiaries have
ever been a member of an affiliated group of corporations within the meaning of
Section 1504 of the Code.
(h) Neither the Company nor any of its Subsidiaries have agreed to make nor
are they required to make any adjustment under Section 481(a) of the Code by
reason of a change in accounting method or otherwise which have not yet been
taken into account.
(i) The Company or any of its Subsidiaries are not, and have not during the
applicable period specified in Section 897(c)(1)(A)(ii) been, a "United States
Real Property Holding Corporation" within the meaning of Section 897(c)(2) of
the Code.
A-18
(j) The Company or any of its Subsidiaries have not made any payments, are
not obligated to make any payments and are not parties to any agreement that
could obligate them to make any payments, that will not be deductible under
Section 280G or Section 162(m) of the Code or similar foreign law applicable to
the operation of the Company's or any of its Subsidiaries business.
4.15 Employee Benefits.
(a) Section 4.15(a) of the Company Disclosure Letter contains a list of each
Company Benefit Plan (as hereinafter defined). With respect to each Company
Benefit Plan, the Company has delivered or made available to Parent prior to
the date hereof, a true and correct copy of (i) such Company Benefit Plan and
all amendments thereto, (ii) each trust agreement, insurance contract or
administration agreement relating to such Company Benefit Plan, (iii) the most
recent summary plan description for each Company Benefit Plan for which a
summary plan description is required, (iv) the most recent annual report (Form
5500), if any, filed with the IRS, (v) the most recent determination letter, if
any, issued by the IRS with respect to any Company Benefit Plan intended to be
qualified under section 401(a) of the Code, (vi) any request for a
determination currently pending before the IRS, (vii) any stock option
agreement entered into by the Company with any other Person, and (viii) all
correspondence with the IRS, the Department of Labor or the Pension Benefit
Guaranty Corporation relating to any outstanding controversy. Each Company
Benefit Plan complies with ERISA, the Code and all other applicable statutes
and governmental rules and regulations, except as could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
on the Company. At no time has the Company or any of its ERISA Affiliates (as
hereinafter defined) been required to contribute to, or otherwise had any
liability with respect to, a plan subject to Title IV of ERISA or a
"multiemployer plan" (as defined in Section 4001(a)(3) of ERISA). All IRS Forms
5500 with respect to the Company Benefit Plans have been (and for 2000 and
2001, will be) timely filed.
(b) There are no actions, suits or claims pending or, to the Knowledge of
the Company, threatened (other than routine claims for benefits) with respect
to any Company Benefit Plan. No prohibited transactions described in Section
406 of ERISA or Section 4975 of the Code or breach of fiduciary duty described
in Title I of ERISA has occurred which could reasonably be expected to result
in material liability to the Company or any of its Subsidiaries. All Company
Benefit Plans that are intended to be qualified under Section 401(a) of the
Code have been determined by the IRS to be so qualified, and there is no reason
why to the Knowledge of the Company any Company Benefit Plan is not so
qualified in operation. Neither the Company nor any of its ERISA Affiliates has
any liability or obligation under any welfare plan to provide life insurance or
medical benefits after termination of employment to any employee or dependent
other than as required by Part 6 of Title I of ERISA, as disclosed in the
Company Disclosure Letter.
(c) As used herein, (i) "Company Benefit Plan" means a "pension plan" (as
defined in Section 3(2) of ERISA), a "welfare plan" (as defined in Section 3(1)
of ERISA), or any bonus, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
vacation, severance, death benefit, insurance or other plan, arrangement or
understanding, in each case established, maintained or contributed to by the
Company, any of its Subsidiaries or any of its ERISA Affiliates or as to which
the Company, any of its Subsidiaries or any of its ERISA Affiliates or
otherwise may have any liability (whether written or oral) and (ii) with
respect to any person, "ERISA Affiliate" means any trade or business (whether
or not incorporated) which is or within the last six years was under common
control or would be or have been considered a single employer with such person
pursuant to Section 414(b), (c), (m) or (o) of the Code and the regulations
promulgated thereunder or pursuant to Section 4001(b) of ERISA and the
regulations thereunder.
(d) Section 4.15(d) of the Company Disclosure Letter contains a list of all
(i) severance and employment agreements with officers and employees of the
Company and any of its Subsidiaries and each ERISA Affiliate, (ii) severance
plans, programs and policies of the Company and any of its Subsidiaries with or
relating to its employees and (iii) plans, programs, agreements and other
arrangements of the Company and any of its Subsidiaries with or relating to its
employees which contain change of control or similar provisions. The Company
has delivered or made available to Parent a true and complete copy of each of
the foregoing.
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(e) The Company has complied with all of its obligations under the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and the Health
Insurance Portability and Accountability Act of 1996 ("HIPAA"), and will not
incur any liability in connection with benefit continuation rights under COBRA
with respect to its employees or former employees or any other employees except
such as could not reasonably be expected to have a Material Adverse Effect. No
Plan is funded through a "welfare benefit fund" as described in Section 419(e)
of the Code.
4.16 Environmental Protection. Except as could not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect on the
Company, the Company and each of its Subsidiaries: (i) are in compliance with
all applicable Environmental Laws; (ii) have not received any written, or to
the Company's Knowledge, oral notice from a Governmental Entity or third party
that alleges that the Schools, Company, any of its Subsidiaries or any current
or former Affiliate of the Company is not in compliance with applicable
Environmental Laws; (iii) have not owned or operated, any property (including,
without limitation the Schools) that is contaminated with any Hazardous
Material which may be expected to require remediation under any Environmental
Law; (iv) are not subject to liability for any off-site disposal or
contamination; and (v) are not subject to any other circumstances in connection
with any Environmental Law that could reasonably be expected to result in any
claims, liabilities, costs or restrictions on the business or the ownership,
use or transfer of any property.
4.17 Labor Matters.
(a) Employment Claims. There are no pending or, to the Knowledge of the
Company, threatened material claims against the Company or any of its
Subsidiaries (whether under Law, under any employee agreement or otherwise) by
any present or former employee of the Company or any of its Subsidiaries on
account of or for: (i) overtime pay, other than overtime pay for the current
payroll period; (ii) wages or salaries, other than wages or salaries for the
current payroll period; or (iii) vacations, sick leave, time off or pay in lieu
of vacation or time off, other than vacation, sick leave or time off (or pay in
lieu thereof) earned in the period immediately preceding the date of this
Agreement or incurred in the ordinary course of business and appearing as a
liability on the most recent Company Financial Statements.
(b) Labor Disputes. (i) There are no material pending and unresolved claims
by any Person against the Company or any of its Subsidiaries arising out of any
statute, ordinance or regulation relating to unfair labor practices,
discrimination, employees or employee practices or occupational or safety and
health standards; (ii) there is no pending, nor has the Company or any of its
Subsidiaries experienced any, material labor dispute, strike or organized work
stoppage; and (iii) to the Knowledge of the Company, there is no threatened
labor dispute, strike organized or work stoppage against the Company or any of
its Subsidiaries.
(c) Union Matters. (i) None of the employees of the Company or any of its
Subsidiaries are represented by any labor union; (ii) neither the Company nor
any of its Subsidiaries is a party to any collective bargaining agreement;
(iii) to the Knowledge of the Company, no union organizing activities are in
process or have been proposed or threatened involving any employees of the
Company or any of its Subsidiaries; and (iv) no petitions have been filed or,
to the Knowledge of the Company, have been threatened or proposed to be filed,
for union organization or representation of employees of the Company or any of
its Subsidiaries not presently organized.
4.18 Compliance with Law; Education Department Compliance.
(a) Permits; Compliance with Law. All licenses, permits, clearances,
consents, certificates and other evidences of authority of the Company or any
of its Subsidiaries which are necessary to the conduct of the business of the
Company and the Schools ("Permits") are in full force and effect and the
Company or any of its Subsidiaries are not in violation of any Permit other
than violations that could not reasonably be expected to not have a Material
Adverse Effect. Each School is duly licensed by all applicable federal, state
and local authorities having jurisdiction over the operation of each of the
Schools (collectively, the "Education
A-20
Departments"). The Company and each of its Subsidiaries have operated the
Schools in conformity in all material respects with all applicable federal,
state and local laws and regulations, including but not limited to those laws
and regulations pertaining to: (i) federal or state financial aid programs, and
(ii) immigration and non-United States citizens. There has been no actual
violation of any such laws or regulations by the Company or any of its
Subsidiaries or the Schools which could constitute a crime. All returns,
reports and statements required to be filed by the Company or any of its
Subsidiaries with the Education Departments relating to the Schools have been
filed and complied with and are true, complete and correct in all material
respects as filed. Without limiting the generality of the foregoing, (i) the
Company and each of its Subsidiaries are in compliance in all material respects
with requirements and regulations of the Department of Education governing an
institution's eligibility and participation in and administration of the Title
IV, HEA and any other student financial assistance programs, (ii) the Company
and each of its Subsidiaries have been in compliance in all material respects
with Department of Education requirements and regulations, (iii) there has been
no failure to comply which would have an impact on the Schools' eligibility for
Title IV aid or affect the eligibility or amount of eligibility of Title IV aid
programs for any educational program offered by the Schools and (iv) there has
been no violation by the Company of (A) the Department of Education factors of
financial responsibility (34 C.F.R. (S)(S) 668.15, 668.171 and 668.172) or (B)
the institutional administrative standards set forth in 34 C.F.R. (S) 668.16.
Neither the Company nor any of its Subsidiaries have any knowledge of any
pending or threatened program review or survey or any audit outside of the
ordinary course of business with respect to any federal or state student
financial aid program.
(b) Cohort Default Rate. The Company has provided or made available to the
Parent true and correct copies of the Schools' Official Cohort Default Rate
("OCDR"), as issued by the Department of Education, for the fiscal years 1995
through 1998, and each Schools Pre-Publication Cohort Default Rate, as issued
by the Department of Education for fiscal year 1999, when available.
(c) Compliance with Definition of Proprietary Institution of Higher
Education. The Schools are duly qualified as and in compliance with the
Department of Education definition of "proprietary institution of higher
education."
(d) Institutional Refunds. Except as set forth in Section 4.18(d) of the
Company Disclosure Letter, (i) the Company and each of its Subsidiaries are in
compliance in all material respects with state, accrediting commission and
Department of Education requirements and regulations relating to (A) fair and
equitable refund policy, and (B) the calculation and timely repayment of
federal and nonfederal funds and (ii) any and all refunds required thereunder
have been timely paid by the Schools and the Company or any of its
Subsidiaries, except such as would not have a Material Adverse Effect on the
Company.
(e) Accreditation and Licensing. Except as set forth in Section 4.18 (e) of
the Company Disclosure Letter, the Schools are duly accredited by, and in good
standing with, their respective applicable Accrediting Bodies and are licensed
to operate by the states in which they operate; and, in each case, the Schools
have not received written notice of, and have no knowledge of, any facts or
circumstances which would materially interfere with or jeopardize such license
or accreditation.
(f) Title IV Program Funds. From September 1, 2000 to the date hereof, and
for each of the years ended August 31, 1999 and August 31, 2000, each School
has not derived more than ninety percent (90%) of its revenues from Title IV
funds as determined in accordance with 34 C.F.R. (S) 600.5(d), and for each of
the preceding three fiscal years the School has not derived more than eighty-
five percent (85%) of its revenues from Title IV funds.
(g) Recruitment; Admissions Procedures; Attendance; Reports. The Company has
delivered or made available to Parent copies of all policy manuals and other
statements of procedures or instruction relating to (i) recruitment of students
for the Schools, including procedures for assisting in the application by
prospective students for direct or indirect state or federal financial
assistance; (ii) admissions procedures, including any descriptions of
procedures for ensuring compliance with federal, state or accrediting body
requirements
A-21
applicable to such procedures; and (iii) procedures for encouraging and
verifying attendance, minimum required attendance policies, and other relevant
criteria relating to course performance requirements and completion
(collectively, the "Policy Guidelines").
(h) Policy Guidelines. The operations of the Company or any of its
Subsidiaries and the Schools have been conducted in accordance with the Policy
Guidelines and all relevant standards imposed by applicable accrediting bodies,
and other agencies administering state or federal governmental financial
assistance programs in which the Company or any of its Subsidiaries or the
Schools participates, and other applicable legal requirements, except for which
could not reasonably result in a Material Adverse Effect on the Company, any of
its Subsidiaries or the Schools.
(i) Reports and Audits. The Company and each of its Subsidiaries have
submitted all reports, audits, and other information, whether periodic in
nature or pursuant to specific requests, for the Company, any of its
Subsidiaries and the Schools to all agencies or other entities with which such
filings are required relating to its compliance with (i) applicable
accreditation standards, (ii) legal requirements governing programs pursuant to
which each of the Schools or their students receive student financial
assistance funding, and (iii) all articulation agreements between the Schools
and degree granting colleges and universities in effect as of the date hereof,
except where failure to submit such reports, audits and other information would
not have a Material Adverse Effect on the Company, any of its Subsidiaries or
the Schools.
(j) Financial Aid Disbursements. Except as set forth in Section 4.18(j) of
the Company Disclosure Letter, all student financial aid grants and loans,
disbursements and record keeping relating thereto have been completed in all
material respects in compliance with all federal and state requirements, and
there are no material deficiencies in respect thereto; and no students at the
Schools have been funded prior to the date for which such student was eligible
for such funding or in any amount other than an amount such student was
eligible to receive, and such student records conform in form and substance to
all relevant regulatory requirements, except for such as would not have a
Material Adverse Effect on the Company.
(k) Status of Investors and Borrowers.
(1) To the Company's Knowledge, since July 1, 1994, neither the Company,
or any person or entity that exercises Substantial Control over the
Company, any of its Subsidiaries or the Schools (the term "Substantial
Control" being defined in 34 C.F.R. 668.15(f)(2), or member of such
person's family (as the term "family" is defined in 34 C.F.R.
668.15(f)(3)), 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. 668.2) that owes a liability for a violation of a
Title IV, HEA program requirement, or (ii) owes a liability for a Title IV,
HEA program violation.
(2) To the Company's Knowledge, since July 1, 1994, neither the Company,
or any person or entity that exercises Substantial Control over the
Company, any of its Subsidiaries or the Schools have filed for relief in
bankruptcy or has had entered against it an order for relief in bankruptcy.
(3) To the Company's Knowledge, neither the Company or any person or
entity that exercises Substantial Control over the Company, any of its
Subsidiaries or the Schools have pled guilty to, has pled nolo contendre to
or has been found guilty of, a crime involving the acquisition, use or
expenditure of funds under the Title IV Programs or has been judicially
determined to have committed fraud involving funds under the Title IV
Programs.
(4) To the Company's Knowledge, since July 1, 1994, neither the Company,
any of its Subsidiaries or Schools have employed, any individual or entity
in a capacity that involves the administration or receipt of funds under
the Title IV programs, or contracted with any institution or third-party
servicer, which has been terminated under the Title IV programs for a
reason involving the acquisition, use, or expenditure of federal, state or
local government funds, or 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
A-22
been administratively or judicially determined to have committed fraud or
any other material violation of law involving federal, state, or local
government funds.
(l) Delivery of Documents. The Company has delivered or made available to
Parent true and complete copies of all correspondence (excluding general
correspondence routinely sent to or received from the DOE, state education
regulatory bodies or any Accrediting Body) received from or sent by or on
behalf of the Company, any of its Subsidiaries or any School to the DOE, state
education regulatory bodies or any Accrediting Body to the extent such
correspondence (i) was sent or received within the past five (5) years or
relates to any issue which remains pending, and (ii) relates to (A) any notice
that any accreditation or license is not in full force and effect or that an
event has occurred which constitutes or, with the giving of notice or the
passage of time or both, could reasonably be expected to constitute a breach or
violation thereunder; (B) any written notice that the Company, any of its
Subsidiaries or any School have violated or are violating any legal
requirement, regulation, rule, standard or requirement related to the Title IV
Programs, or any standard or requirement of any applicable Accrediting Body, or
any legal requirement, regulation, rule, standard or requirement related to the
maintaining and retaining in full force and effect any accreditations; (C) any
audits, program reviews, investigations or site visits conducted by the DOE,
any Accrediting Body, any guaranty agency, any other Governmental Entity or any
independent auditor reviewing compliance by the Company, any of its
Subsidiaries or any School with the statutory, regulatory or other requirements
of the Title IV Programs; (D) any written notice of an intent to limit,
suspend, terminate, revoke, cancel, not renew or condition the accreditation of
the Company, any of its Subsidiaries or any School; (E) any written notice of
an intent or threatened intent to condition the provision of Title IV Program
funds to the Company, any of its Subsidiaries or any School or the continued
operation of any of the Schools on the posting of a letter of credit or other
surety in favor of the DOE or any state education regulatory body; (F) any
written notice of an intent to provisionally certify the eligibility of any
Schools to participate in the Title IV Programs; and (G) the placement or
removal of any Schools on or from the reimbursement or cash monitoring method
of payment under Title IV Programs.
4.19 Financial Assistance Programs. Section 4.19 of the Company Disclosure
Letter lists each Student Financial Assistance Program. Each agreement between
the Company, any of its Subsidiaries or any School and the DOE, any state
agency or any guaranty agency relating to Financial Assistance is in full force
and effect, is a valid and binding and enforceable obligation by or against the
Company and the other party or parties thereto subject to the Bankruptcy
Exception, equitable principles and good faith dealing and no event has
occurred which constitutes or, with the giving of notice or the passage of time
or both could constitute, a default or breach thereunder except such as could
not reasonably be expected to have a Material Adverse Effect on the Company.
The Company has delivered or made available to the Parent true and complete
copies of each contract or agreement listed.
4.20 Transactions with Affiliates. Neither the Company nor any of its
Subsidiaries is (or has, since March 12, 1999, been) a party to any material
transactions with an Affiliate and neither the Company nor any of its
Subsidiaries has any existing commitments to engage in any transaction with an
Affiliate in the future.
4.21 Proxy Statement. The proxy statement to be sent to the Stockholders in
connection with the meeting of the Stockholders to consider the Merger (the
"Company Stockholders' Meeting") (such proxy statement as amended or
supplemented is referred to herein as the "Proxy Statement") shall not, on the
date the Proxy Statement is first mailed to the Stockholders, at the time of
the Company Stockholders' Meeting and at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not false or misleading. The
Proxy Statement will comply in all material respects with the provisions of the
Exchange Act and the rules and regulations thereunder. If at any time prior to
the Effective Time any event relating to the Company or any of its affiliates,
officers or directors should be discovered by the Company which should be set
forth in a supplement to the Proxy Statement, the Company shall promptly
supplement the Proxy Statement and send such supplement to the Stockholders and
Parent.
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Notwithstanding the foregoing, the Company makes no representation or warranty
with respect to any information supplied by Parent or Merger Sub in writing
specifically for inclusion in the Proxy Statement.
4.22 Vote Required. Assuming the SPA Closing has occurred, the affirmative
vote of the holders of not less than two-thirds of the outstanding shares of
the Company Class A Common Stock entitled to vote with respect to the Merger is
the only vote of the holders of any class or series of the Company's capital
stock necessary to approve the Merger and this Agreement.
4.23 Board Approval. The Board of Directors of the Company has, on or prior
to the date hereof, unanimously approved this Agreement, the Merger and the
other transactions contemplated hereby and has determined to recommend to the
Stockholders that they approve the Merger.
4.24 Fairness Opinion. The Board of Directors of the Company has received a
written opinion from J.P. Morgan, dated no later than the date hereof, to the
effect that the Merger Consideration is (as of the date of such letter and
subject to the matters stated therein) fair to the Stockholders from a
financial point of view and has delivered to Parent a copy of such opinion.
4.25 Change of Control Payments. Except as set forth in the Company
Disclosure Letter, neither the execution and delivery of this Agreement nor the
consummation of the Merger and other transactions contemplated hereby will (a)
result in any payment (including, without limitation, severance, unemployment
compensation, golden parachute, bonus or otherwise) becoming due to any
director, officer or employee of the Company or any of its Subsidiaries from
the Company or any of its Subsidiaries, under any Company Benefit Plan or
otherwise, (b) materially increase any benefits otherwise payable under any
Company Benefit Plan, (c) result in the acceleration of the time of payment or
vesting of any such benefits, (d) create a right to receive payments upon a
subsequent termination of employment, (e) result in the acceleration of the
time of payment of any of the Company's accounts payable or (f) result in a
"change in control" under, require the consent from or the giving of notice to
a third party pursuant to, or accelerate the rights under, any contract to
which the Company or any of its Subsidiaries is a party.
4.26 Governmental Approvals. No permission, approval, determination, consent
or waiver by, or any declaration, filing or registration with, any Governmental
Entity or Accrediting Body is required by the Company in connection with the
execution and delivery of this Agreement by the Company or the consummation by
the Company of the Merger or the other transactions contemplated by this
Agreement, except for: (a) the approvals or filings in connection with (1) the
HSR Act as described in Section 7.1(a), (2) the Exchange Act including, without
limitation, filing of the Proxy Statement with the SEC, (3) the securities and
blue sky laws of various states, (4) the rules and regulations of the Nasdaq
National Stock Market, (5) the rules and regulations of the DOE and (6) the
rules and regulations of the Governmental Entities and Accrediting Bodies
listed on Annex A to this Agreement; (b) the filing of the Certificate of
Merger as described in this Agreement; and (c) such permissions, approvals,
determinations, consents, waivers, declarations, filings, or registrations
that, if not obtained could reasonably be expected to impair the Company's
ability to consummate the Merger and the other transactions contemplated
hereby.
4.27 Accreditation and State Licensure/Approval. There exists no fact or
circumstance attributable to the Company, any of its Subsidiaries or any of the
Schools which could reasonably be expected to have a material adverse impact on
Parent's ability to obtain any authorization, consent or similar approval from
the DOE or any other Governmental Entity or Accrediting Body whose
authorization, consent or similar approval is contemplated in connection with
this Agreement, including, without limitation, any authorization, consent or
similar approval which must be obtained following the Closing from the DOE or
any states in order to continue the operations of the Schools as presently
conducted.
4.28 Relationships with Related Persons. Except as set forth in Section 4.28
of the Company Disclosure Letter, there are no undischarged contracts,
agreements or other material transactions between the Company or any of its
Subsidiaries, on the one hand, and any director or executive officer of the
Company or
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any of its Subsidiaries or any of their respective Related Persons (as defined
below), on the other hand, and no director or executive officer of the Company
or any of its Subsidiaries or any of their respective Related Persons have any
interest in any of the assets of the Company, other than as a Stockholder or
employee. For purposes hereof, the term "Related Persons" shall mean: (a) each
other member of such individual's Family and (b) any person or entity that is
directly or indirectly controlled by any one or more members of such
individual's Family. For purposes of this definition, the "Family" of an
individual includes (1) such individual, (2) the individual's spouse, siblings,
or ancestors, (3) any lineal descendant of such individual, or their siblings,
or ancestors, or (4) a trust for the benefit of the foregoing.
4.29 Brokers' and Finders' Fees. Except for fees to be paid to J.P. Morgan
pursuant to the agreement referenced in the next sentence, neither the Company
nor any Subsidiary has incurred any brokers', finders' or any similar fee in
connection with the transactions contemplated by this Agreement. The Company
has previously delivered a true and complete copy of the agreement, dated May
25, 2001 with J.P. Morgan to the Parent.
4.30 No Pending Acquisitions. Except for this Agreement and other
transactions contemplated hereby, neither the Company nor any of its
Subsidiaries is a party to or bound by or subject to any agreement, undertaking
or commitment with any person that could result in (i) the sale, merger,
consolidation or recapitalization of the Company or (ii) the sale of
substantially all of the assets of the Company.
4.31 Takeover Laws. The Company has taken all action required to be taken by
it in order to exempt this Agreement and the Merger and the other transactions
contemplated hereby, and the transactions contemplated by the Stock Purchase
Agreement from, and this Agreement and the Stock Purchase Agreement are exempt
from, the requirements of all anti-takeover Laws and regulations of the State
of Illinois (collectively, "Takeover Laws").
4.32 Expenses. The Company has provided Parent with a good faith estimate of
certain fees and expenses (including legal fees and expenses) that have been
incurred and/or are expected to be incurred in connection with the consummation
of the transactions set forth in the Merger Agreement and Stock Purchase
Agreement. The Company will not incur any costs or expenses in connection with
the transactions contemplated hereby or the Stock Purchase Agreement other than
costs and expenses directly related to the transactions contemplated hereby and
reasonably necessary to the accomplishment of such transactions.
4.33 Disclosure. None of the representations or warranties of the Company
contained herein, none of the information contained in the Company Disclosure
Letter referred to in this Article 4, and none of the other information or
documents furnished or to be furnished to the Parent or any of its
representatives by the Company or their representatives pursuant to the terms
of this Agreement, is false or misleading in any material respect or omits to
state a fact herein or therein necessary to make the statements herein or
therein not misleading in any material respect.
ARTICLE 5
Representations and Warranties of Parent and Merger Sub
Parent and Merger Sub represent and warrant to the Company on the date of
this Agreement, subject only to the exceptions disclosed in writing in the
disclosure letter dated as of the date hereof delivered to the Company by
Parent pursuant to, and an integral part of, this Agreement (the "Parent
Disclosure Letter"), which specifically identifies the Section and subsection
numbers hereof to which the disclosures pertain, as follows:
5.1 Organization; Business. Each of Parent and Merger Sub is a corporation
duly and validly organized and existing under the Laws of the jurisdiction of
its incorporation and is qualified to do business as a foreign corporation and
in good standing in the jurisdictions where the ownership or leasing of
property or the conduct
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of its business requires qualification as a foreign corporation by Parent
except where the failure to so qualify could not reasonably be expected to have
a Material Adverse Effect on Parent.
5.2 Authorization; Enforceability. The execution, delivery and performance
by Parent and Merger Sub of this Agreement are within the corporate power and
authority of each of Parent and Merger Sub and, subject to the provisions
hereof, have been duly authorized by the Board of Directors of each of Parent
and Merger Sub. No other corporate proceeding (including a vote of the
stockholders of Parent) or action on the part of Parent and Merger Sub is
necessary to authorize the execution and delivery by Parent and Merger Sub of
this Agreement and the consummation by Parent and Merger Sub of the Merger and
the other transactions contemplated hereby. This Agreement is, and the other
documents and instruments required by this Agreement to be executed and
delivered by Parent and Merger Sub will be, when executed and delivered by
Parent and Merger Sub, the valid and binding obligations of Parent and Merger
Sub, enforceable against Parent and Merger Sub in accordance with their
respective terms, except as the enforcement thereof may be limited by the
Bankruptcy Exception, equitable principles and good faith dealing.
5.3 No Violation or Conflict. Subject to the receipt of the clearance or
expiration or termination of the waiting period described in Section 7.1(a) and
the approvals described in Section 7.1(b), the execution and delivery of this
Agreement by Parent and Merger Sub and all documents and instruments required
by this Agreement to be executed and delivered by Parent or Merger Sub do not,
and the consummation by Parent and Merger Sub of the Merger and the other
transactions contemplated hereby and Parent's and Merger Sub's compliance with
the provisions hereof will not, result in any violation of any provision of the
Certificate of Incorporation or Bylaws of Parent or Merger Sub.
5.4 Operations of Merger Sub. Merger Sub is a direct, wholly-owned
subsidiary of Parent, was formed solely for the purpose of engaging in the
Merger and the other transactions contemplated hereby and by the Stock Purchase
Agreement, has engaged in no other business activities and has conducted its
operations only as contemplated hereby and pursuant to the terms and conditions
of the Stock Purchase Agreement.
5.5 Brokers' and Finders' Fees. Neither Parent nor Merger Sub has incurred
any brokers', finders' or any similar fee in connection with the transactions
contemplated by this Agreement.
5.6 Accreditation and State Licensure/Approval. There exists no fact or
circumstance attributable to Parent or any of its Subsidiaries which could
reasonably be expected to have a material adverse impact on Parent's ability to
obtain any authorization, consent or similar approval from the DOE or any other
Governmental Entity or Accrediting Body whose authorization, consent or similar
approval is contemplated in connection with this Agreement, including, without
limitation, any authorization, consent or similar approval which must be
obtained following the Closing from the DOE or any states in order to continue
the operations of the Schools as presently conducted.
5.7 Disclosure. None of the representations or warranties of the Parent
contained herein, none of the information contained in the Schedules referred
to in this Article 5, and none of the other information or documents furnished
or to be furnished to the Company or any of its representatives by the Parent
or its representatives pursuant to the terms of this Agreement, is false or
misleading in any material respect or omits to state a fact herein or therein
necessary to make the statements herein or therein not misleading in any
material respect.
5.8 Sufficient Funds. Parent has delivered to the Company a true and
complete copy of a commitment letter from National City Bank pursuant to which
Parent expects to have available to it, at the Effective Time, sufficient funds
to consummate the Merger and the other transactions contemplated by this
Agreement, including payment of the Merger Consideration and all related costs
and expenses and such commitment letter is in full force and effect.
5.9 Information Supplied. The information with respect to Parent or Merger
Sub that Parent furnishes to the Company in writing for use in the Proxy
Statement will not contain any untrue statement of a material
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fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they
were made, not misleading. If at any time prior to the Effective Time any event
relating to the Parent or Merger Sub or any of their respective affiliates,
officers or directors should be discovered by Parent or Merger Sub which should
be set forth in a supplement to the Proxy Statement, the Parent shall promptly
notify the Company and send all relevant information to the Company.
ARTICLE 6
Covenants and Agreements
6.1 Conduct of Business by the Company. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms and the Effective Time, the Company agrees,
except to the extent that Parent shall otherwise consent in writing, and to
cause each of its Subsidiaries to, carry on its business in the usual, regular
and ordinary course in substantially the same manner as heretofore conducted,
to pay timely its debts and Taxes, subject to good faith disputes over such
debts or taxes, and on the same payment terms such debts and taxes have
historically been paid, to attempt to collect its receivables in the same
manner and on the same terms such receivables have historically been collected,
to timely pay or perform other material obligations when due, and to use its
commercially reasonable efforts consistent with past practices and policies to
preserve intact the Company's and each of its Subsidiaries present business
organizations, keep available the services of its present officers and
employees and preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with
the Company and each of its Subsidiaries, to the end that the Company's and
each of its Subsidiaries goodwill and ongoing businesses be unimpaired at the
Effective Time (provided that the failure to meet such objectives shall not in
and of itself be deemed a breach of this Section 6.1 if the Company shall have
complied with its obligations hereunder). The Company shall promptly notify
Parent of any material event or occurrence not in the ordinary course of
business of the Company or any of its Subsidiaries. Except as expressly
provided for by this Agreement, the Company shall not, and shall cause each of
its Subsidiaries not to, prior to the Effective Time or earlier termination of
this Agreement pursuant to its terms, without the prior written consent of
Parent:
(a) except as required by the Company Benefit Plans, accelerate, amend
or change the period of exercisability of options or restricted stock, or
reprice options granted under the Company Benefit Plans or authorize cash
payments in exchange for any options granted under any of such plans;
(b) amend any charter documents or bylaws;
(c) enter into any contract or commitment the performance of which may
extend beyond the Closing Date, except those made in the ordinary course of
business;
(d) knowingly take any action or omit to take any action that will cause
a material breach or termination of any contract (other than termination by
fulfillment of the terms thereunder);
(e) (i) make any material changes to any of the Schools existing space
or (ii) make any individual capital expenditures having a cost in excess of
$50,000;
(f) enter into any partnership agreements, joint development agreements
or strategic alliance agreements;
(g) grant any severance or termination pay (i) to any executive officer
or director or (ii) to any other employee except payments made in
connection with the termination of employees who are not executive officers
in amounts consistent with its policies and past practices or pursuant to
written agreements in effect, or policies existing, on the date hereof and
as disclosed in Section 6.1 of the Company Disclosure Letter;
(h) transfer or license to any person or entity or otherwise materially
extend, amend or modify any rights to its material Intangible Assets;
A-27
(i) commence any litigation other than (i) for the routine collection of
bills, or (ii) in such cases where the Company in good faith determines
that failure to commence suit could result in the material impairment of a
valuable aspect of the Company's business; provided that the Company
consults with the Parent prior to the filing of such a suit;
(j) declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital
stock, or split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of the Company;
(k) redeem, repurchase or otherwise acquire, directly or indirectly,
recapitalize or reclassify any shares of its capital stock;
(l) issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock of any class or
securities convertible into, or subscriptions, rights, warrants or options
to acquire, or enter into other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities,
other than the issuance of shares of Company Common Stock pursuant to the
exercise of Existing Stock Options outstanding as of the date of this
Agreement or the Leeds warrant;
(m) make any material amendment to any Material Contract;
(n) sell, lease, license, encumber or otherwise dispose of any
properties or assets which are material, individually or in the aggregate,
to its business, except in the ordinary course of business consistent with
past practice, or liquidate, in whole or in part;
(o) incur any indebtedness for borrowed money (other than ordinary
course trade payables or pursuant to existing credit facilities in the
ordinary course of business) or guarantee any such indebtedness or issue or
sell any debt securities or warrants or rights to acquire debt securities
of the Company or guarantee any debt securities of others;
(p) adopt or amend any Company Benefit Plan or materially increase the
salaries or wage rates of its employees generally, other than in the
ordinary course of business, including but not limited to (but without
limiting the generality of the foregoing), the adoption or amendment of any
stock purchase or option plan, the entering into of any employment contract
not in the ordinary course of business or the payment of any special bonus
or special remuneration to any director or employee, other than bonuses
reflected on the Company Financial Statements;
(q) revalue any assets, including without limitation writing down the
value of inventory, writing off notes or accounts receivable other than in
the ordinary course of business consistent with past practice or waiving
any right of material value except as required by GAAP;
(r) pay, discharge or satisfy in an amount in excess of $50,000 (in any
one case) or $250,000 (in the aggregate), any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), including, without limitation, under any employment contract or
with respect to any bonus or special remuneration, other than the payment,
discharge or satisfaction in the ordinary course of business of liabilities
of the type reflected or reserved against in the Company balance sheet
dated as of March 31, 2001 included in the Company Financial Statements;
(s) make or change any material election in respect of Taxes, adopt or
change in any material respect any accounting method in respect of Taxes,
file any amendment to a material Return, enter into any closing agreement,
settle any claim or assessment in respect of Taxes (except settlements
effected solely through payment of immaterial sums of money), or consent to
any extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(t) enter into any Material Contract other than in the ordinary course
of business;
(u) materially amend or terminate of any its Existing Insurance
Policies;
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(v) make any material changes with respect to the tuition, fees, program
duration or curricula of any of the programs offered by any School,
including, without limitation, implementing any new foreign exchange
student programs except to the extent currently proposed or contemplated;
(w) hire, fire (other than for cause) or change the responsibilities or
work location of any employee whose annual compensation is greater than
$75,000 and whose employment cannot be terminated by it on thirty days
notice without liability;
(x) take, or agree in writing or otherwise to take, any of the actions
described above, or any other action which could cause or could be
reasonably likely to cause any of the conditions to the Merger, not to be
satisfied;
(y) materially modify, amend or depart from the planned expenses (costs
and capital expenditures) contemplated by the Company's existing business
plan as disclosed to Parent, except as required by business emergency
(which emergency shall be promptly disclosed to Parent).
(z) fund the operations of, guarantee the indebtedness of, extend credit
to, or otherwise support the operations of JMLS or PrimeTech except in
accordance with the Company's business plan as delivered to Parent or as
required to terminate its operations in accordance with Section 6.23 of
this Agreement.
6.2 Access. Subject to the existing confidentiality agreement, from and
after the date of this Agreement and until the earlier of the termination of
this Agreement or the Effective Time, upon reasonable request and during normal
business hours, the Company shall afford to Parent and Parent's agents,
accountants, officers, employees, attorneys and other authorized advisers and
representatives reasonable access, during normal business hours, to its
properties, facilities, books, records, financial statements and other
documents and materials relating to its financial condition, assets,
liabilities and business. In addition, during such time period, the Company
shall confer and consult with representatives of Parent to report on
operational matters, financial matters and the general status of ongoing
business operations of the Company. From time to time after the date of this
Agreement and until the earlier of the termination of this Agreement or the
Effective Time the Company shall furnish promptly to Parent a copy of each
report, schedule and other document filed by the Company, or received by the
Company after the date of this Agreement pursuant to the requirements of
federal or state securities Laws promptly after such documents are available.
6.3 Fulfillment of Agreements. Each Party shall use commercially reasonable
efforts to cause all of the conditions to the obligations of the other under
Article 7 to be satisfied on or prior to the Closing and shall use commercially
reasonable efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement. Each Party
shall promptly notify the other of any action, suit, claim, proceeding or
investigation that may be threatened, brought, asserted or commenced after the
date hereof against such party or any facts or circumstances as to which it
obtains knowledge that cause any of the representations and warranties made by
it hereunder to be untrue.
6.4 Proxy Statement. As promptly as practicable after the date of this
Agreement, the Company shall prepare and file with the Securities and Exchange
Commission the Proxy Statement which shall include all information pertaining
to the Company and the transactions contemplated hereby and by the Stock
Purchase Agreement required by the Exchange Act for inclusion or incorporation
by reference in the Proxy Statement, which information will not, at the date
mailed to Stockholders and at the time of the Company Stockholder's Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. If before the Effective Time, any matter should be discovered by
the Company that should be set forth in an amendment or a supplement to the or
Proxy Statement, the Company shall promptly inform Parent and shall prepare and
distribute appropriate amendments or supplements to the Proxy Statement.
Notwithstanding the foregoing, the Company makes no representation or warranty
with respect to any information supplied by Parent or Merger Sub in writing
specifically for inclusion in the Proxy Statement.
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6.5 Company Stockholders' Meeting. As soon as practicable after the Company
receives final clearance (or an indication of no comment) by the Securities and
Exchange Commission with respect to the Proxy Statement, the Company shall,
consistent with its Articles of Incorporation and Bylaws, set a record date for
the Company Stockholders' Meeting and mail an appropriate notice thereof, along
with the Proxy Statement. The Company shall, subject to the applicable
fiduciary duties of its directors, as determined by such directors in good
faith (i) use its best efforts to solicit from the Stockholders proxies in
favor of the adoption or approval, as the case may be, of the Merger, (ii) take
all other action necessary or advisable to secure the vote or consent of
Stockholders, as required by the IBCA to obtain such adoption or approvals, and
(iii) include in the Proxy Statement the recommendations of its Board of
Directors in favor of the Merger.
6.6 Additional Reports. The Company shall furnish to Parent copies of any
Company SEC Documents which it files with the SEC on or after the date hereof,
and the Company represents and warrants that as of the respective dates
thereof, such reports will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statement therein, in light of the circumstances under which they were
made, not misleading. Any unaudited consolidated interim financial statements
included in such reports (including any related notes and schedules) will
fairly present, in all material respects, the financial position of the
Company, as of the dates thereof and the results of operations and changes in
financial position or other information included therein for the periods or as
of the dates then ended, in each case in accordance with past practice and GAAP
consistently applied during the periods involved (except that such unaudited
financial statements will exclude footnote disclosures necessary for a fair
presentation which would make them in compliance with GAAP, and such financial
statements will be subject, where appropriate, to normal year-end adjustments).
6.7 Regulatory and Other Approvals.
(a) The Company and Parent will (i) within a reasonable period of time after
execution of this Agreement take any reasonable actions necessary to file
notifications under the HSR Act and any applicable laws of Canada, (ii) comply
within a reasonable period of time with any binding request for additional
information received from the Federal Trade Commission or Antitrust Division of
the Department of Justice pursuant to the HSR Act or from any other
Governmental Entity pursuant to the other Antitrust Laws, and (iii) request
early termination of the applicable waiting period.
(b) The Company and each of its Subsidiaries will cooperate with Parent to
take all commercially reasonable steps necessary or desirable, and proceed
diligently and in good faith and use all commercially reasonable efforts, as
promptly as practicable to (i) solicit input from Governmental Entities and
Accrediting Bodies regarding the process of obtaining regulatory, Accrediting
Body and DOE approvals, obtain all state education regulatory body, Accrediting
Body and DOE approvals, make all filings with and give all notices to
Governmental Entities and Accrediting Bodies, and obtain all licenses required
of the Company to consummate the Merger and other transactions contemplated
hereby, including without limitation those described in the Company Disclosure
Letter, (ii) provide such other information and communications to such
Governmental Entities and Accrediting Bodies or other persons as Parent or such
Governmental Entities and Accrediting Bodies may request and (iii) obtain all
state education regulatory body, Accrediting Body and DOE approvals, making all
filings with and giving all notices to Governmental Entities and Accrediting
Bodies and obtaining all licenses required of Parent to consummate the Merger
and other transactions contemplated hereby. The Company will provide prompt
notification to Parent when any such state education regulatory body,
Accrediting Body or DOE approval or license referred to in clause (i) above is
obtained, taken, made or given, as applicable, and will promptly advise Parent
of any communications (and promptly provide copies of any such communications
that are in writing or filings) with any Governmental Entity or Accrediting
Body regarding the Merger or any of the transactions contemplated by this
Agreement. In addition:
(1) The Company shall within ten (10) days from the date of this
Agreement file a pre-acquisition application with DOE in order to obtain a
written statement from DOE, to the satisfaction of Parent in its sole
discretion, that the DOE does not see any impediment to issuing a
"Provisional Program Participation
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Agreement" to the Company following the Closing, which agreement will
prevent any interruption of Title IV Program funds from the DOE to the
Company and will not include (A) unusual or burdensome conditions,
including, but not limited to, any requirement to administer Title IV
Program funds on a reimbursement or cash monitoring basis or to post a
letter of credit or other financial security with the DOE in an amount
which is reasonably expected by Parent to materially reduce the economic
benefits that Parent or its Affiliates anticipated to receive in the
Merger, or (B) any requirement that would impose restrictions or
limitations in the activities of Parent or its Affiliates unrelated to the
Company or its Schools (the "PPPAs"); provided, however, that the filing
deadline contained in this Section 6.7(b)(1) shall be contingent on the
Company cooperating fully with Parent to provide all information and
materials necessary for Parent timely to file such pre-acquisition
application.
(2) The Company and Parent will promptly and regularly advise each other
concerning the occurrence and status of any discussions or other
communications, whether oral or written, with any state education
regulating body, Accrediting Body or Governmental Entity or other third
party with respect to any consent or the PPPAs, including any difficulties
or delays experienced in obtaining any consent, and of any conditions
proposed, considered, or requested by any consent or the PPPAs.
(3) Parent will cooperate fully with the Company in its efforts to
obtain any consents and the PPPAs, but Parent will not be required to (i)
make any expenditure or payment of funds or (ii) permit any adverse changes
in, or the imposition of any adverse condition to, any approval, license,
or contract as a condition to obtaining any consent or the PPPAs. Such
cooperation shall include Parent's full cooperation in timely filing
applications and other documents (including applications and other
documents filed prior to the Closing) necessary to obtain any consent or
the PPPAs.
(4) Parent will allow the Company agents and representatives to
participate in any meetings or telephone calls with any state education
regulatory body, Accrediting Body or Governmental Entity to discuss the
status of any consent or the PPPAs; provided, however, that the Company and
its agents will confer in advance with Parent to agree on the issues to be
discussed in such meeting or telephone call and will not introduce any
issues that are not agreed to in advance and will not respond to any
compliance issues first introduced in such meeting or telephone call by the
state education regulatory body, Accrediting Body or Governmental Entity.
(5) The Company will ensure that its appropriate officers and employees
shall be available to attend, as any Governmental Entity may reasonably
request, any scheduled hearings or meetings in connection with obtaining
any consent or the PPPAs.
(c) Subject to the terms and conditions herein provided, the Company and
Parent will take all reasonable steps necessary or desirable, and proceed
diligently and in good faith and use all reasonable efforts to obtain all
approvals required by any contract to consummate the transactions contemplated
hereby.
(d) Each of the Company and Parent shall use their all commercially
reasonable efforts to resolve such objections, if any, as may be asserted by
any United States Governmental Entity with respect to the transactions
contemplated by this Agreement under the Antitrust Laws. In connection
therewith, if any administrative or judicial action or proceeding is instituted
(or threatened to be instituted) challenging any transaction contemplated by
this Agreement as violative of any Antitrust Law, and, if by mutual agreement,
Parent and the Company decide that litigation is in their best interests, each
of Parent and the Company shall cooperate and use all commercially reasonable
efforts to vigorously contest and resist any such action or proceedings and to
have vacated, lifted, reversed, or overturned any decree, judgment, injunction
or other order, whether temporary, preliminary or permanent, that is in effect
and that prohibits, prevents, or restricts consummation of any such
transaction. Each of Parent and the Company shall use all commercially
reasonable efforts to take such action as may be required to cause the
expiration of the notice periods under the HSR Act or any other applicable laws
of Canada with respect to such transactions as promptly as commercially
reasonable after the date of this Agreement. The obligations of Parent and the
Company under this Section 6.7 with respect to the Antitrust Laws shall not
require Parent or the Company to obtain or attempt to obtain any such waiver,
permit,
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consent, approval or authorization if obtaining such waiver, permit, consent,
approval or authorization would require disposition of any assets of Parent or
the Company or any affiliate of either.
6.8 No Solicitation.
(a) From and after the date of this Agreement until the earlier of the
termination of this Agreement or the Effective Time, except in compliance with
this Section 6.8, the Company will not, and will not permit its directors,
officers, employees, investment bankers, attorneys, accountants or other
representatives, agents or Affiliates to, directly or indirectly, (i) solicit,
initiate, or encourage any Acquisition Proposals or any inquiries or proposals
that could reasonably be expected to lead to any Acquisition Proposals, (ii)
engage in discussions with third parties, or negotiations concerning, or
provide any non-public information to any person or entity in connection with,
any Acquisition Proposal or (iii) agree to, approve, recommend or otherwise
endorse or support any Acquisition Proposal. As used herein, the term
"Acquisition Proposal" shall mean any proposal relating to a possible (1)
merger, consolidation or similar transaction involving the Company or any of
its Subsidiaries, (2) sale, lease or other disposition, directly or indirectly,
by merger, consolidation, share exchange or otherwise, of any assets of the
Company or any of its Subsidiaries representing, in the aggregate, 20% or more
of the assets of the Company on a consolidated basis, (3) issuance, sale or
other disposition of (including by way of merger, consolidation, share exchange
or any similar transaction) securities (or options, rights or warrants to
purchase or securities convertible into, such securities) representing 20% or
more of the votes attached to the outstanding securities of the Company, (4)
transaction with the Company in which any person shall acquire beneficial
ownership (as such term is defined in Rule 13d-3 under the Exchange Act), or
the right to acquire beneficial ownership, or any "group" (as such term is
defined under the Exchange Act) shall have been formed which beneficially owns
or has the right to acquire beneficial ownership of, 20% or more of the
outstanding shares of Company Common Stock, (5) liquidation, dissolution,
recapitalization or other similar type of transaction with respect to the
Company, or (6) transaction which is similar in form, substance or purpose to
any of the foregoing transactions; provided, however, that the term
"Acquisition Proposal" shall not include the Merger and the transactions
contemplated hereby. The Company will, and will direct all its directors,
officers, employees, investment bankers, attorneys, accountants and other
representatives, agents and Affiliates to, immediately cease any and all
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing.
(b) Notwithstanding the provisions of Section 6.8(a) above, if a
corporation, limited liability company, limited liability partnership,
partnership, person or other entity or group (a "Third Party") after the date
of this Agreement submits to the Company's Board of Directors an unsolicited,
bona fide, written Acquisition Proposal, and the Company's Board of Directors
reasonably determines in good faith, that such Acquisition Proposal is or
reasonably could result in a Superior Proposal, (1) the Company may (A) furnish
information about its business, to the Third Party under protection of an
appropriate confidentiality agreement containing customary limitations on the
use and disclosure of all non-public written or oral information furnished to
such Third Party, provided the Company must furnish to Parent to the extent not
previously furnished all such non-public information furnished to the Third
Party contemporaneously with the delivery of a Notice of Superior Proposal and
(B) negotiate and participate in discussions and negotiations with such Third
Party and (2) if the Company's Board of Directors determines that such an
Acquisition Proposal is a Superior Proposal (as defined below), the Company's
Board of Directors may (subject to the provisions of this Section 6.8(b) and
Section 8.1(c)(2)) terminate this Agreement (other than Sections 6.1, 6.2, 6.7,
6.13, 6.14, 6.20, 6.21, 6.23, 6.24, and 6.25 hereof, which shall continue to be
operative until such time as the Stock Purchase Agreement shall have been
terminated in accordance with Section 9.1 thereof), in each case at any time
after the second business day following delivery of written notice to Parent (a
"Notice of Superior Proposal") advising Parent that the Company's Board of
Directors has received a Superior Proposal, identifying the Third Party and
specifying the material terms and conditions of such Superior Proposal. The
Company may (subject to the provisions of Section 8.1(c)(2)) terminate this
Agreement (other than the provisions of Article VI specified above) pursuant to
the preceding sentence if, and only if, an Acquisition Proposal that was a
Superior Proposal continues to be a Superior Proposal in light of any improved
proposal submitted by Parent, considered in good faith by the
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Company prior to the expiration of the two business day period specified in the
preceding sentence. The Company shall provide Parent with a final written
notice, at least twenty-four (24) hours, before accepting any Superior
Proposal. For purposes of this Agreement, "Superior Proposal" means any
unsolicited written Acquisition Proposal for consideration consisting of cash
and/or securities, and otherwise on terms which the Company's Board of
Directors determines are more favorable to the Company's stockholders from a
financial point of view than the Merger (or other revised proposal submitted by
Parent as contemplated above), and that the Third Party is reasonably likely to
consummate the Superior Proposal on the terms proposed. Nothing contained
herein shall prohibit the Company from taking, and disclosing to its
stockholders, a position required by Rule 14d-9(e) under the Exchange Act prior
to the second business day following Parent's receipt of a Notice of Superior
Proposal.
(c) The Company will notify Parent immediately, and in any event within
twenty-four (24) hours, if (1) a bona fide Acquisition Proposal is made
(including any written material provided by the offeror, the principal terms
and conditions of any such Acquisition Proposal and the identity of the
offeror) or (2) the Company furnishes non-public information to, or enters into
discussions or negotiations with respect to an Acquisition Proposal with, any
Third Party.
(d) In addition to the obligations of Company set forth in paragraph (a),
(b) and (c) of this Section 6.8, Company, as promptly as practicable, will
advise Parent orally and in writing of any request for information which
Company reasonably believes could lead to an Acquisition Proposal or of any
Acquisition Proposal, and the material terms and conditions of such request,
Acquisition Proposal or inquiry. Company will keep Parent informed in all
material respects of the status of any such request, Acquisition Proposal or
inquiry. In addition to the foregoing, the Company will (1) provide Parent with
prior written notice of any meeting of Company's Board of Directors (or any
committee thereof) at which Company's Board of Directors is expected or could
be expected to consider a Superior Proposal and (2) provide Parent with prior
written notice of a meeting of Company's Board of Directors (or any committee
thereof) at which Company's Board of Directors is expected or could be expected
to recommend a Superior Proposal to its stockholders and together with such
notice a copy of the definitive documentation relating to such Superior
Proposal to the extent such documentation is then available (and otherwise
provide such definitive documentation as soon as available).
(e) It is understood and agreed that, without limitation of the Company's
obligations hereunder, any violation of this Section 6.8 by any director,
officer, Affiliate, investment bank, financial advisor, accountant, attorney or
other advisor or representative of the Company acting on behalf of the Company
shall be deemed to be a breach of this Section 6.8 by the Company. The Company
agrees that, as of the date hereof, it, its Affiliates and their respective
directors, officers, employees, investment bankers, attorneys, accountants and
other representatives and agents, shall immediately cease and cause to be
terminated any existing activities, discussions and negotiations with any Third
Party (other than Parent and its representatives) conducted heretofore with
respect to any Acquisition Proposal.
6.9 Public Announcements. Any public announcement made by or on behalf of
either Parent or the Company prior to the termination of this Agreement
pursuant to Article 8 hereof concerning this Agreement, the transactions
described herein or any other aspect of the dealings heretofore had or
hereafter to be had between the Company and Parent and their respective
Affiliates must first be approved by the other party (any such approval not to
be unreasonably withheld or delayed), subject to either party's obligations
under applicable Law or Stock Market listing requirements or rules (but such
party shall use its reasonable best efforts to consult with the other party as
to all such public announcements).
6.10 Expenses. Except as set forth in this Section 6.10 and Section 8.3, all
fees and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, whether or not the Merger is consummated. Parent will pay any Hart-
Scott-Rodino filing fees required in connection with the transactions
contemplated hereby.
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6.11 Certain Benefit Plans.
(a) Following the Effective Time and until the first anniversary thereof,
Parent shall cause employees of the Company immediately preceding the Effective
Time ("Company Employees") to be covered under employee benefit plans that are
substantially comparable, in the aggregate, to the employee benefit plans
provided by Parent to employees at comparable levels. Parent shall cause
service with the Company to be recognized as service for purposes of all
employee benefit plans and compensation arrangements (including 401(k) plans)
applicable to Company Employees after the Effective Time, to the extent such
service is credited under comparable plans and arrangements of the Parent's
other schools.
(b) Prior to the Effective Time, the Company's Board of Directors shall
adopt a resolution terminating each Company Benefit Plan which constitutes a
qualified defined contribution plan under Section 401(a) of the Code, including
any such plan that contains a cash or deferred arrangement subject to Section
401(k) of the Code, as of a date prior to the Effective Time and vesting each
employee fully in all amounts credited to employees accounts in such plan.
Parent agrees that it shall assume and be solely responsible for any
obligations under COBRA associated with applicable Company Benefit Plans.
6.12 Indemnification.
(a) From and after the date of this Agreement through and including the
Effective Time, neither Parent nor the Company will take any action, nor permit
any action to be taken, which would change or amend the provisions of the
Articles of Incorporation or the Bylaws of the Company in effect on the date
hereof relating to limitation of liability or indemnification inconsistent with
its obligations under Section 6.12(b) hereof or eliminate or make any
modification in the Company's existing directors' and officers' insurance
inconsistent with its obligations under Section 6.12(c) hereof. Parent agrees
that from and after the Effective Time all rights to indemnification now
existing in favor of individuals who at or prior to the Effective Time were
directors or officers of the Company or any of its Subsidiaries as set forth in
the Articles of Incorporation or the Bylaws of the Company or any Subsidiary
shall survive the Merger with respect to matters existing or occurring at or
prior to the Effective Time and shall continue in full force and effect
following the Effective Time.
(b) The Company shall, and from and after the Effective Time, the Surviving
Corporation shall and Parent shall cause the Surviving Corporation to,
indemnify, defend and hold harmless (and advance expenses to) each Person who
is now, or has been at any time prior to the date hereof or who becomes prior
to the Effective Time, an officer or director of the Company or any Subsidiary
(each individually an "Indemnified Party" and, collectively, the "Indemnified
Parties") to the same extent such Persons are indemnified as of the date of
this Agreement by the Company pursuant to any agreements between such person
and the Company and the Company's Articles of Incorporation and Bylaws against
all losses, claims, damages, costs, expenses (including reasonable attorneys'
fees and expenses), liabilities or judgments or amounts that are paid in
settlement with the approval of the Indemnifying Party as a result of or in
connection with any threatened or actual claim, action, suit, proceeding or
investigation based on or arising out of the fact that such person is or was a
director or officer of the Company or any of its Subsidiaries or out of or in
connection with activities in such capacity, whether pertaining to any matter
existing or occurring at or prior to the Effective Time and whether asserted or
claimed prior to, or at or after, the Effective Time ("Indemnified
Liabilities"), including all Indemnified Liabilities based on, or arising out
of, or pertaining to this Agreement or the transactions contemplated hereby.
Without limiting the generality or effect of the foregoing, in the event any
such claim, action, suit, proceeding or investigation is brought against any
Indemnified Parties (whether arising before or after the Effective Time) and
under applicable standards of professional conduct, there is a conflict of
interest on any significant issue between the position of the Company and an
Indemnified Party, the Indemnified Parties may retain counsel, which counsel
shall be reasonably satisfactory to the Company (or the Surviving Corporation
after the Effective Time), and the Company shall (or after the Effective Time,
Parent will cause the Surviving Corporation to) pay all reasonable fees and
expenses of such counsel for the Indemnified Parties promptly as statements
therefor are received, provided, however that (1) Parent or the Surviving
Corporation shall have the right, from and after the Effective Time, to assume
the defense thereof (which right shall not affect the right of the Indemnified
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Parties to be reimbursed for separate counsel as specified in the preceding
sentence), (2) the Company and the Indemnified Parties will cooperate in the
defense of any such matter and (3) neither Parent, the Company nor the
Surviving Corporation shall be liable for any settlement effected without its
prior written consent. Any Indemnified Party wishing to claim indemnification
under this Section 6.12, upon learning of any such claim, action, suit,
proceeding or investigation, shall promptly notify both Parent and the Company
(or, after the Effective Time, the Surviving Corporation) (but the failure to
so notify shall not relieve a party from any liability which it may have under
this Section 6.12 except and only to the extent such failure materially
prejudices such party). The Indemnified Parties as a group may not retain more
than one counsel to represent them with respect to each such matter unless
there is under applicable standards of professional conduct, a conflict of
interest on any significant issue between the positions of any two or more
Indemnified Parties. The Company, Parent and Merger Sub agree that all rights
to indemnification contained in this Section 6.12, shall survive the Merger and
shall continue in full force and effect from and after the Effective Time;
provided, however, that all rights to indemnification in respect of any
Indemnified Liabilities asserted or made within such period shall continue
until the disposition of such Indemnified Liabilities.
(c) The Company shall and, from and after the Effective Time, the Surviving
Corporation shall and Parent shall cause the Surviving Corporation to, cause to
be maintained in effect for not less than six years from the Effective Time the
current policies of the directors' and officers' liability insurance maintained
by the Company; provided, however, that if the Surviving Corporation is
required to pay an annual premium in excess of 130% of the last annual premium
of such insurance, the Surviving Corporation may, but is not obligated to,
substitute therefor policies with substantially the same coverage amount and
terms as the directors' and officers' liability insurance maintained for the
benefit of Parent's directors and officers.
(d) This Section 6.12 shall survive the consummation of the Merger at the
Effective Time, is intended to benefit the Company, the Surviving Corporation
and the Indemnified Parties, shall be binding on all successors and assigns of
Parent and the Surviving Corporation and shall be enforceable by the
Indemnified Parties.
6.13 Takeover Law. Neither the Company, Parent nor Merger Sub shall take any
action that would cause the Merger or the other transactions contemplated by
this Agreement or the Stock Purchase Agreement to be subject to the
requirements of any Takeover Law. If any Takeover Law shall become applicable
to the Merger or the other transactions contemplated by this Agreement or the
Stock Purchase Agreement, each of the Company and Parent and their respective
Boards of Directors shall grant such approvals and take such actions as are
necessary so that the Merger and the other transactions contemplated by this
Agreement and the Stock Purchase Agreement may be consummated as promptly as
practicable on the terms contemplated by this Agreement and the Stock Purchase
Agreement, and otherwise act to eliminate or minimize the effects of such
Takeover Law on the Merger and the other transactions contemplated by this
Agreement and the Stock Purchase Agreement.
6.14 Notification of Certain Matters. Between the date of this Agreement and
the Effective Time, the Company will promptly notify Parent in writing if it
becomes aware of any development, fact or condition that (i) is reasonably
likely, individually or with other existing developments, facts or conditions,
to result in a Material Adverse Effect with respect to it or any of its
Subsidiaries, or (ii) causes or constitutes a breach of any agreement or
covenant under this Agreement applicable to it or of its representations and
warranties as of the date of this Agreement, or if it becomes aware of the
occurrence after the date of this Agreement of any fact or condition that would
cause or constitute a breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition.
6.15 Real Estate Deliveries. To the extent reasonably and timely requested
by Parent, the Company shall use its commercially reasonable efforts to deliver
to Parent at least ten (10) days prior to the Closing, an estoppel consent and
amendment agreement from each of the Company's landlords, joined by the tenant
thereof with respect to each of the Leases. The Company shall use its
commercially reasonable efforts to provide Parent with reasonable assurance
from each of the Company's landlords that Parent shall be able to remain in
possession of the Rental Real Estate in accordance with the terms and
provisions of the Leases and shall be
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able to operate the Company's schools or offices, as the case may be, after the
Closing Date at the locations described in the Leases in the manner in which
such schools or offices are currently conducted.
6.16 Permits. The Company and each of its Subsidiaries shall provide such
additional assistance and cooperation to the Parent as the Parent shall
reasonably request in connection with the transfer of any Permit,
accreditation, authorization or approval to Parent hereunder.
6.17 Consent. The Company and each of its Subsidiaries shall use their best
efforts prior to, and if necessary after, the Closing Date, to obtain at the
earliest practicable date the consent of any third party under any agreement
requiring such consent to the transactions contemplated hereby or in the Stock
Purchase Agreement.
6.18 Other Action. Neither the Company, any of its Subsidiaries nor the
Schools shall take any action that would result in any of the Company's
representations and warranties not being true as of the Closing Date.
6.19 Reasonable Efforts. So long as this Agreement has not been terminated,
the Parties shall: (i) promptly make their respective filings, obtain waivers,
consents, permits and approvals, and thereafter make any other submissions
required under all applicable Laws in order to consummate the Merger and the
other transactions contemplated hereby and (ii) use their respective
commercially reasonable efforts to promptly take, or cause to be taken, all
other actions and do, or cause to be done, all other things necessary, proper
or appropriate to consummate the Merger and the other transactions contemplated
by this Agreement.
6.20 No Rights Triggered. Each of the Company and Parent shall use their
respective commercially reasonable efforts to ensure that the entering into of
this Agreement and the Stock Purchase Agreement and the consummation of the
transactions contemplated hereby and thereby and any other action or
combination of actions, or any other transactions contemplated hereby and
thereby, do not and will not result in the grant of any rights to any Person
under any agreement to which it or any of its Subsidiaries is a party.
6.21 Stockholder Litigation. The Parties shall cooperate and consult with
one another, to the fullest extent possible, in connection with any stockholder
litigation against any of them or any of their respective directors or officers
with respect to the transactions contemplated by this Agreement. In furtherance
of and without in any way limiting the foregoing, each of the Parties shall use
its respective reasonable best efforts to prevail in such litigation so as to
permit the consummation of the transactions contemplated by this Agreement in
the manner contemplated by this Agreement. Notwithstanding the foregoing, the
Company shall not compromise or settle any litigation commenced against it or
its directors or officers relating to this Agreement or the transactions
contemplated hereby (including the Merger) without Parent's prior written
consent, which shall not be unreasonably withheld.
6.22 Operational Matters. After the execution of this Agreement, the Company
and each of its Subsidiaries shall cooperate with the Parent in developing
post-Closing transition policies with respect to management information
systems, marketing, admissions, personnel, outsourcing, operations, regulatory
matters and accounting, including, without limitation, meeting regularly (at
such times as shall be mutually agreed upon by the Company and Parent) with on-
site transition teams of Parent with respect to marketing, management
information systems, regulatory matters and accounting.
6.23 Excluded Assets.
(a) The Company shall, if requested by Buyer at any time on or prior to
November 1, 2001, promptly after receipt of such request, sell, divest, donate
or otherwise dispose of the stock and all associated assets and liabilities of
John Marshall Law School, Inc. ("JMLS") and/or PrimeTech Canada, Inc.
("PrimeTech"), each a wholly owned subsidiary of the Company, (JMLS and
PrimeTech together referred to as the "Excluded Operations," and each an
"Excluded Operation"), and shall use its best efforts to consummate such
disposition within 60 days of receipt of such request even if a higher value
could be realized if additional time were
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available. Parent acknowledges and agrees that such sale, divestiture, donation
or other disposition is being done at its request and the Company makes no
representation, and has no obligation, to achieve full, fair or any value in
such transaction. Parent further acknowledges and agrees that one alternative
available to the Company is to sell the Excluded Operations to Seller or one of
his affiliates for nominal consideration. Parent waives any and all claims
against Seller, his affiliates and agents and representatives in connection
with such sale other than any claims arising out of a breach of the provisions
of Section 5.8 of the Stock Purchase Agreement.
(b) The Company hereby agrees that in connection with the sale of any
Excluded Operation under this Section 6.23, such sale shall be made by the
Company without recourse to the Company, and the Company shall make no
representations or warranties or other undertakings to the purchaser in
connection therewith, and the closing of any sale by the Company shall be
conditioned solely on obtaining all regulatory approvals necessary in order to
transition control of such entity or entities to the purchaser. The Company
shall use its best efforts to promptly apply for and obtain all requisite
regulatory approvals necessary to close the sale of JMLS and/or PrimeTech.
(c) In connection with the purchase of any Excluded Operation, the Company
will enter into an indemnity agreement reasonably satisfactory to Parent
pursuant to which JMLS and PrimeTech will hold the Company harmless from
claims, obligations and liabilities of or relating to such Excluded Operation.
(d) The Company further shall, promptly following any receipt of the request
contemplated hereby, recognize in its accounting records, prior to any such
time as Buyer may reasonably determine that Buyer's and Seller's accounting
results require consolidation, all reserves, costs, fees, and expenses
associated with the sale, divestiture, donation or other disposition of any
Excluded Operation to the extent permissible under GAAP. The Company's
obligation under this Section 6.23(d) are subject to the receipt of reasonable
notice prior to such consolidation.
6.24 Financial Information. From and after the date of this Agreement until
the earlier of the termination of this Agreement or the Effective Time, the
Company shall provide to Buyer, as soon as practicable but in any event within
ten (10) calendar days of the end of the preceding month, such financial
information with respect to such preceding month(s) as may be reasonably
requested by Buyer.
ARTICLE 7
Conditions to the Merger
7.1 Conditions to each Party's Obligation to Effect the Merger. The
respective obligations of each Party to consummate and effect the Merger shall
be subject to the satisfaction prior to or at the Closing as hereinafter
provided of the following conditions, each of which may be waived in whole or
in part by the written agreement of the Parties, to the extent permitted by
Law:
(a) The expiration of all applicable waiting periods in connection with
the transactions contemplated hereby and by the Stock Purchase Agreement
pursuant to the HSR Act, and the receipt of all required approvals from any
Governmental Entity and the expiration of all required waiting periods
pursuant to any material applicable statutes, rules, regulations, orders or
decrees of Canada that are designed to prohibit, restrict or regulate
actions having the purpose or effect of monopolization or restraint of
trade (together with the HSR Act, the "Antitrust Laws"), shall have been
obtained by the Company and Parent.
(b) All consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, any Governmental Entity or
Accrediting Body required by or with respect to the Company, Parent or any
of their respective subsidiaries in connection with the execution and
delivery of this Agreement or the consummation of the Merger and other
transactions contemplated hereby and by the Stock Purchase Agreement shall
have been obtained or made except for such consents, approvals, orders,
authorizations, registrations, declarations or filings the failure of which
to be obtained or made could not reasonably be
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expected to have, individually or in the aggregate, a Material Adverse
Effect on the Company or Parent or materially impair the Company's,
Parent's or Merger Sub's ability to consummate the Merger.
(c) This Agreement, the Merger and the transactions contemplated by this
Agreement shall have received the requisite approval and authorization of
the Stockholders in accordance with applicable Law and the Articles of
Incorporation and Bylaws of the Company.
(d) No Law shall have been enacted or promulgated by any Governmental
Entity which prohibits the consummation of the Merger or the transactions
contemplated by the Stock Purchase Agreement; and there shall be no order
or injunction of a court of competent jurisdiction in effect precluding
consummation of the Merger.
(e) The Company shall have cleared all of the Securities and Exchange
Commission's comments to the Proxy Statement. No proceeding preventing
distribution of the Proxy Statement or any part thereof shall have been
initiated or threatened in writing by the SEC, and all requests for
additional information on the part of the SEC shall have been complied with
to the reasonable satisfaction of the parties hereto.
(f) No action, suit or proceeding shall be pending before any
Governmental Entity which is reasonably likely to result in a judgment,
order, decree, stipulation or injunction would (i) prevent consummation of
any of the transactions contemplated by this Agreement or the Stock
Purchase Agreement, (ii) cause any of the transactions contemplated by this
Agreement or the Stock Purchase Agreement to be rescinded following
consummation or (iii) affect adversely the right of Parent to own, operate
or control any material portion of the assets and operations of the
Surviving Corporation and each of its Subsidiaries following the
transactions contemplated herein or in the Stock Purchase Agreement, and no
such judgment, order, decree, stipulation or injunction shall be in effect.
7.2 Conditions to the Company's Obligation to Effect the Merger. The
obligations of the Company to consummate and effect the Merger and the other
transactions contemplated hereby are further subject to the fulfillment of the
following conditions, any of which may be waived in whole or part by the
Company:
(a) The representations and warranties of Parent and Merger Sub
contained herein (which for purposes of this paragraph (a) shall be read as
though none of them contained any Material Adverse Effect or materiality
qualification) shall be true and correct in all respects as of the Closing
Date with the same effect as though made as of the Closing Date (provided
that any representations and warranties made as of a specified date shall
be required only to continue on the Closing Date to be true and correct as
of such specified date) except (1) for changes specifically contemplated by
the terms of this Agreement and (2) where the failure of the
representations and warranties to be true and correct in all respects could
not in the aggregate reasonably be expected to have a Material Adverse
Effect on Parent. No effect will be given to any update or modification of
the Parent Disclosure Letter made or purported to be made.
(b) Parent shall have in all material respects performed all obligations
and complied with all covenants required by this Agreement to be performed
or complied with by it at or prior to the Closing Date.
(c) If the SPA Closing shall have occurred and not been rescinded,
Parent shall have irrevocably directed the Escrow Agent to release the
Escrowed Funds upon consummation of the Merger in accordance with the Stock
Purchase Agreement and the Escrow Agreement.
(d) Parent shall have delivered to the Company a certificate, dated the
Closing Date and signed by its Chief Executive Officer and Chief Financial
Officer, certifying the satisfaction of the conditions set forth in
Sections 7.2(a) and (b) and Section 7.3(e).
All actions to be taken by Parent and Merger Sub in connection with the
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments and other documents required to effect the
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transactions contemplated hereby shall be reasonably satisfactory in form and
substance to the Company and its counsel.
7.3 Conditions to Parent's and Merger Sub's Obligation to Effect the
Merger. The obligations of Parent and Merger Sub to consummate and effect the
Merger and the other transactions contemplated hereby are further subject to
the fulfillment of the following conditions, any of which may be waived in
whole or part by Parent or Merger Sub:
(a) The representations and warranties of the Company contained herein
(which for purposes of this paragraph (a) shall be read as though none of
them contained any Material Adverse Effect or materiality qualification)
shall be true and correct in all respects as of the Closing Date with the
same effect as though made as of the Closing Date (provided that any
representations and warranties made as of a specified date shall be
required only to continue at the Effective Time to be true and correct as
of such specified date) except (1) for changes specifically contemplated by
the terms of this Agreement and (2) where the failure of the
representations and warranties to be true and correct in all respects could
not in the aggregate reasonably be expected to have a Material Adverse
Effect on the Company. No effect will be given to any update or
modification of the Company Disclosure Letter made or purported to be made.
(b) The Company shall have in all material respects performed all
obligations and complied with all covenants required by this Agreement to
be performed or complied with by it at or prior to the Closing Date.
(c) The Company shall have delivered to Parent a certificate, dated the
Closing Date and signed by its Chief Executive Officer and Chief Financial
Officer, certifying the satisfaction of the conditions set forth in
Sections 7.3(a) and (b) and Section 7.2(d).
(d) From the date of this Agreement to the Effective Time, there shall
not have been any event or development which results in a Material Adverse
Effect on the Company.
(e) Parent shall have received all written consents, assignments,
waivers, authorizations or other certificates necessary to provide for the
continuation in full force and effect of the Material Contracts of the
Company set forth on Section 4.4 of the Company Disclosure Letter, except
where the failure to so obtain could not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect on the
Company.
(f) Parent shall have received all written consents, assignments,
waivers, authorizations or other certificates from state education
regulatory bodies and any other applicable Governmental Entities set forth
in Annex A to this Agreement to the extent necessary to consummate the
Merger and the other transactions contemplated hereby and by the Stock
Purchase Agreement.
(g) All conditions precedent to the Escrow Release set forth in Section
2.4(b)(i) of the Stock Purchase Agreement shall have been satisfied or
waived by Parent.
(h) The Company shall have, if requested by Parent, completed the sale,
divestiture, donation or other disposition of the Excluded Operations as
contemplated by Section 6.23 of this Agreement.
(i) All actions to be taken by the Company in connection with the
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments and other documents required to effect the
transactions contemplated hereby shall be reasonably satisfactory in form
and substance to Parent and its counsel.
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ARTICLE 8
Termination, Waiver and Amendment
8.1 Termination. This Agreement may be terminated and the Merger and
transactions contemplated by this Agreement may be abandoned at any time prior
to the Effective Time (whether before or after the approval of this Agreement
by the Stockholders), as follows:
(a) by mutual written consent of the Company and Parent;
(b) by either of Parent or the Company:
(1) if the Stockholders do not approve the Merger by the requisite
vote at the Company Stockholders' Meeting (including any adjournment or
postponement thereof);
(2) if any Governmental Entity shall have issued an order, decree or
ruling or taken any other action (which order, decree, ruling or other
action the parties hereto shall use their reasonable efforts to lift),
which permanently restrains, enjoins or otherwise prohibits
consummation of the Merger or the transactions set forth in the Stock
Purchase Agreement and such order, decree, ruling or other action shall
have become final and non-appealable;
(3) if there shall be any Law enacted, promulgated or issued and
deemed applicable to the Merger or the transactions set forth in the
Stock Purchase Agreement by any Governmental Entity which would make
consummation of the Merger or the transactions set forth in the Stock
Purchase Agreement illegal; or
(4) if the Merger shall not have been consummated by January 31,
2002; provided, however, that the right to terminate this Agreement
under this Section 8.1(b)(4) shall not be available to any party whose
failure, or whose Affiliate's failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in, the failure of
the Effective Time to occur on or before such date.
(c) by the Company:
(1) if Parent or Merger Sub shall have breached in any material
respect any of their respective representations, warranties, covenants
or other agreements contained in this Agreement, which breach (A)
cannot be or has not been cured, in all material respects, within
twenty (20) business days after the giving of written notice to Parent
or Merger Sub, as applicable, and (B) will result in the failure to
satisfy a condition set forth in Section 7.2; or
(2) in accordance with Section 6.8 (provided that in the case of a
termination in accordance with Section 6.8, the provisions of Article 6
specified in Section 6.8 shall survive such termination) provided that
such termination shall not be effective until (x) the fee contemplated
by Section 8.3(a) shall have been paid to Parent, and (y) if Parent
waives the conditions set forth in Section 2.4. of the Stock Purchase
Agreement, the Board of Directors of the Company shall have been
reconstituted so that a majority of its members are persons designated
by Parent, and provided further that the Company may not terminate this
Agreement under this Section 8.1(c)(2) after a recission has occurred
under the Stock Purchase Agreement.
(d) by Parent:
(1) if the Company shall have breached in any material respect any
representation, warranty, covenant or other agreement contained in this
Agreement, which breach (A) cannot be or has not been cured, in all
material respects, within twenty (20) business days after the giving of
written notice to the Company and (B) will result in the failure to
satisfy a condition set forth in Section 7.3; or
(2) the Board of Directors of the Company (A) withholds or withdraws
its recommendation of the Merger or, (B) modifies its recommendation of
the Merger in a manner materially adverse to Parent.
A-40
(3) a tender offer or exchange offer for twenty percent (20%) or
more of the outstanding shares of Company Class A Common Stock or
Company Class B Common Stock shall have been commenced or a
registration statement with respect thereto shall have been filed
(other than by Parent or an affiliate thereof) and the Board of
Directors of Company shall, notwithstanding its obligations hereunder,
have (A) recommended that the Stockholders tender their shares in such
tender or exchange offer or (B) publicly announced its intention to
take no position with respect to such tender offer; or
(4) the Company is in material breach of any of the provisions of
Section 6.8;
(5) a Company Acquisition Proposal shall have been announced or
otherwise become publicly known and the Board of Directors of Company
shall have (A) failed to recommend against acceptance of such by the
Stockholders (including by taking no position, or indicating its
inability to take a position, with respect to the acceptance by the
Stockholders of a Company Acquisition Proposal involving a tender offer
or exchange offer) or (B) failed to reconfirm its approval and
recommendation of this Agreement and the transactions contemplated
hereby, in each case within ten business days thereafter; or
(6) more than 10% of the Company Common Stock are Dissenting Shares.
8.2 Effect of Termination. In the event of termination of this Agreement
pursuant to Section 8.1, this Agreement shall become void and of no further
force and effect (except as specified in Section 6.8), and there shall be no
liability or obligation on the part of Parent, Merger Sub, the Company or their
respective officers or directors under this Agreement except as set forth in
the provisions of Sections 6.8 and 8.3 and Article 9, provided that such
termination shall relieve any party for liability for any breach of this
Agreement prior to such termination.
8.3 Termination Fee.
(a) If this Agreement is terminated pursuant to Section 8.1(c)(2), or
8.1(d)(2), (3), (4) or (5), then, the Company shall pay to Parent, concurrent
with such termination, $2.0 million by wire transfer of immediately available
funds to an account designated by Parent, such $2.0 million being the sole
remedy of the Parent or the Merger Sub in the event of a termination of this
Agreement pursuant to the terms and conditions of Section 8.1(c)(2) or
8.1(d)(2), (3), (4) or (5).
(b) The Company acknowledges that the agreements contained in this Section
8.3 are an integral part of the transactions contemplated by this Agreement,
and that, without these agreements, Parent would not enter into this Agreement.
ARTICLE 9
Miscellaneous
9.1 No Survival of Representations and Warranties. None of the
representations and warranties made in this Agreement shall survive beyond the
Effective Time.
9.2 Entire Agreement. This Agreement, the Company Disclosure Letter, the
Parent Disclosure Letter, and the Confidentiality Agreement, constitute the
entire agreement among the Parties pertaining to the subject matter of this
Agreement, and supersede all prior and contemporaneous agreements,
understandings, negotiations and discussions of the Parties, whether oral or
written, and there are no warranties, representations or other agreements
between the Parties in connection with the subject matter of this Agreement,
except as specifically set forth in this Agreement. Without limiting the
foregoing, the parties acknowledge that this Agreement supersedes the letter
agreement dated May 16, 2001.
A-41
9.3 Amendment. This Agreement may be amended by the Parties hereto at any
time by execution of an instrument in writing signed on behalf of each of the
Parties hereto.
9.4 Extension; Waiver. At any time prior to the Effective Time, any Party
hereto may, unless otherwise noted herein and only to the extent legally
allowed, (i) extend the time for the performance of any of the obligations or
other acts of the other Parties hereto, (ii) waive any inaccuracies in the
representations and warranties made to such Party contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions for the benefit of such Party contained herein. Any
agreement on the part of a Party hereto to any such extension or waiver shall
be valid only if set forth in an instrument in writing signed on behalf of such
Party.
9.5 Governing Law. This Agreement shall be governed and construed in
accordance with the Laws of the State of Illinois. All actions and proceedings
arising out of or relating to this Agreement shall be heard and determined in
the state of Illinois or a federal court sitting in the state of Illinois and
the parties hereto irrevocably submit to the exclusive jurisdiction of such
courts in any such action or proceeding.
9.6 Assignment; Binding Effect. Neither this Agreement, nor any rights,
obligations or interests hereunder, may be assigned by any Party hereto, except
with the prior written consent of the other Parties hereto. Subject to the
preceding sentence, this Agreement shall be binding upon, and shall inure to
the benefit of, the Parties hereto and their respective successors and assigns.
9.7 Notices. All communications or notices required or permitted by this
Agreement shall be in writing and shall be deemed to have been given at the
earlier of the date personally delivered or sent by telephonic facsimile
transmission (with a copy via other means specified herein) or upon receipt if
sent via nationally recognized overnight courier or the United States mail,
certified or registered mail, postage prepaid, return receipt requested, and
addressed as follows, unless and until any of such parties notifies the others
in accordance with this Section 9.7 of a change of address:
If to the Company:
Argosy Education Group, Inc.
20 South Clark Street, Suite 300
Chicago, IL 60603
Telephone: (312) 899-9900
Telecopy: (312) 201-1907
Attention: Michael C. Markovitz, Ph.D.
With a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Telephone: (312) 861-2075
Telecopy: (312) 861-2200
Attention: Gerald T. Nowak
and to:
Michael C. Markovitz, Ph.D.
c/o Argosy Education Group, Inc.
20 South Clark Street, Suite 300
Chicago, IL 60603
Telephone: (312) 899-9900
Telecopy: (312) 201-1907
A-42
If to Parent or Merger Sub:
Education Management Corporation
300 Sixth Avenue
Pittsburgh, PA 15222
Telephone: (412) 562-0900
Telecopy: (412) 562-0934
Attention: John R. McKernan, Jr.
with a copy to:
Kirkpatrick & Lockhart
Henry W. Oliver Building
Pittsburgh, PA 15222-2312
Telephone: (412) 355-6500
Telecopy: (412) 355-6501
Attention: Elliot S. Davis, Esq. and Robert P. Zinn, Esq.
and to:
Kirkpatrick & Lockhart
1251 Avenue of the Americas, 45th Floor
New York, NY 10020
Telephone: (212) 536-4090
Telecopy: (212) 536-3901
Attention: William J. Phillips, Esq.
9.8 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but such counterparts shall together
constitute but one and the same Agreement.
9.9 Interpretation. Unless the context requires otherwise, all words used in
this Agreement in the singular number shall extend to and include the plural,
all words in the plural number shall extend to and include the singular, and
all words in any gender shall extend to and include all genders. The Article
and Section headings in this Agreement are inserted for convenience of
reference only and shall not constitute a part hereof.
9.10 Specific Performance. The Parties agree that the assets and business of
the Company as a going concern constitute unique property and, accordingly,
each Party shall be entitled, at its option and in addition to any other
remedies available as herein provided, to the remedy of specific performance to
effect the Merger as provided in this Agreement.
9.11 No Reliance. Except for the Parties to this Agreement and except as
otherwise provided in Section 6.12: (a) no Person is entitled to rely on any of
the representations, warranties and agreements of the Parties contained in this
Agreement; and (b) the Parties assume no liability to any Person because of any
reliance on the representations, warranties and agreements of the Parties
contained in this Agreement.
9.12 Exhibits and Disclosure Letters. The Exhibits, Company Disclosure
Letter and Parent Disclosure Letter are a part of this Agreement as if fully
set forth herein. All references herein to Sections, subsections, clauses,
Exhibits, Company Disclosure Letter and Parent Disclosure Letter shall be
deemed references to such parts of this Agreement, unless the context shall
otherwise require.
9.13 No Third Party Beneficiary. Except as provided pursuant to Sections
6.11, 6.12 and 8.2 hereof, the terms and provisions of this Agreement are
intended solely for the benefit of the Parties hereto and their respective
successors and assigns and it is not the intention of the Parties to confer
third-party beneficiary rights upon any other Person.
A-43
9.14 Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the Parties hereto. The Parties further
agree to replace such voided or unenforceable provision of this Agreement with
a valid and enforceable provision that will achieve, to the extent possible,
the economic, business and other purposes of such voided or unenforceable
provision.
9.15 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a Party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity
upon such Party, and the exercise by a Party of any one remedy will not
preclude the exercise of any other remedy.
9.16 Rules of Construction. The Parties agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule
of construction providing that ambiguities in an agreement or other document
will be construed against the Party drafting such agreement or document.
[SIGNATURE PAGE FOLLOWS]
A-44
In Witness Whereof, the Parties have caused this Agreement and Plan of
Merger to be duly executed as of the day and year first written above.
Education Management Corporation
/s/ John R. McKernan, Jr.
By: _________________________________
Name: John R. McKernan, Jr.
Title: Vice Chairman
HAC, Inc.
/s/ John R. McKernan, Jr.
By: _________________________________
Name:
Title:
Argosy Education Group, Inc.
/s/ Michael C. Markovitz
By: _________________________________
Name: Michael C. Markovitz, Ph.D.
Title: Chairman of the Board
A-45
ANNEX B
STOCK PURCHASE AGREEMENT
BETWEEN
EDUCATION MANAGEMENT CORPORATION
AND
MICHAEL C. MARKOVITZ
DATED AS OF JULY 9, 2001
STOCK PURCHASE AGREEMENT
Dated as of July 9, 2001
The parties to this Stock Purchase Agreement (this "Agreement") are Michael
C. Markovitz ("Seller"), a stockholder of Argosy Education Group, Inc., an
Illinois corporation (the "Company") and Education Management Corporation, a
Pennsylvania corporation (the "Buyer").
The Company, along with its Subsidiaries, owns and operates the Schools (as
defined below). The Seller is the owner directly or indirectly of 4,900,000
shares of Class B common stock, $.01 par value per share of the Company
("Company Class B Common Stock") (the "Shares"). The Seller desires to sell and
the Buyer desires to purchase all of the Shares. As of the date hereof, Buyer,
HAC Inc. ("HAC"), a wholly owned subsidiary of the Buyer and the Company have
entered into that certain Agreement and Plan of Merger dated July 9, 2001
providing for the merger of HAC with and into the Company (the "Merger
Agreement"). In consideration of the mutual promises, covenants and agreements
contained herein, the parties hereto, intending to be legally bound hereby,
agree as follows:
ARTICLE I.
Definitions
When used in this Agreement, and in addition to the other terms defined
herein, the following terms shall have the meanings specified:
"Accrediting Body" shall mean any entity or organization, whether private or
quasi-private, whether foreign or domestic, which engages in the granting or
withholding of accreditation of private post secondary schools in accordance
with standards and requirements relating to the performance, operations,
financial condition and/or academic standards of such schools.
"Affiliate" shall mean, in relation to any party hereto, any entity directly
or indirectly controlling, controlled by or under common control with such
party and shall include a party's executive officers, directors and with
respect to natural persons shall include such person and his or her spouse,
siblings, or ancestors, any lineal descendants, or their siblings, or
ancestors, or trust for the benefit of the foregoing.
"Antitrust Laws" shall have the meaning set forth in Section 6.1(b).
"Balance Sheet" shall mean the May 31, 2001 balance sheet of the Company
provided to the Buyer.
"Balance Sheet Date" shall mean May 31, 2001.
"Bankruptcy Exception" shall have the meaning set forth in Section 3.2.
"Buyer Damages" shall have the meaning set forth in Section 8.2
"Buyer Indemnitees" shall have the meaning set forth in Section 8.2,
"Closing" shall have the meaning set forth in Section 2.3.
"Closing Date" shall have the meaning set forth in Section 2.3.
"Company Class B Common Stock" shall have the meaning set forth in the
recitals.
"Company Common Stock" shall mean the Company Class A Common Stock, $.01 par
value per share, and the Company Class B Common Stock.
B-1
"Company Financial Statements" shall mean the audited Consolidated Balance
Sheets, Consolidated Statement of Operations, Consolidated Statement of Cash
Flows and Consolidated Statement of Shareholders' Equity of the Company, and
the related notes thereto, for the most recent two (2) fiscal years, and the
unaudited interim consolidated financial statements of the Company for the nine
(9) month period ended and at May 31, 2001.
"DOE" shall mean the United States Department of Education.
"Effective Time" shall mean the time at which the Merger becomes effective,
pursuant to the Merger Agreement.
"Escrow Account" shall have the meaning set forth in Section 2.4(a).
"Escrow Agent" shall have the meaning set forth in Section 2.4(a).
"Escrow Agreement" shall have the meaning set forth in Section 2.4(a).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"GAAP" shall mean United States generally accepted accounting principles
consistently applied.
"Governmental Entity" shall mean any federal, state, local or foreign court,
arbitral tribunal, administrative agency or commission or other governmental or
regulatory authority or administrative agency or commission.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations thereunder.
"Incumbent Directors "shall have the meaning set forth in Section 2.5.
"Indemnified Party" shall have the meaning set forth in Section 8.4.
"Indemnity Threshold" shall have the meaning set forth in Section 8.2.
"Knowledge" shall mean the actual Knowledge after reasonable inquiry of the
Seller.
"Law" shall mean any foreign, federal, state or local governmental law,
rule, regulation or requirement, including any rules, regulations and orders
promulgated thereunder and any orders, decrees, consents or judgments of any
governmental regulatory agencies and courts having the force of law other than
any Environmental Laws.
"Lien" shall mean, with respect to any asset (real, personal or mixed): (a)
any mortgage, pledge, lien, easement, lease, title defect or imperfection or
any other form of security interest, whether imposed by Law or by contract; and
(b) the interest of a vendor or lessor under any conditional sale agreement,
financing lease or other title retention agreement relating to such asset.
"Material Adverse Effect" means any effect, change, event, circumstance or
condition which when considered with all other effects, changes, events,
circumstances or conditions has materially and adversely affected or could
reasonably be expected to materially and adversely affect the results of
operations, financial condition, assets, liabilities or business of the Buyer
or the Company, in each case including its respective Subsidiaries together
with it taken as a whole, as the case may be.
"Merger" shall have the meaning set forth in Section 5.19.
B-2
"Merger Agreement" shall have the meaning set forth in the recitals.
"Other Approvals" shall have the meaning set forth in Section 2.4(b)
"Party" shall mean each of the Seller and the Buyer.
"Person" shall mean a natural person, corporation, limited liability
company, association, joint stock company, trust, partnership or any other
legal entity.
"PPPAs" shall have the meaning set forth in Section 2.4(b).
"Purchase Price" shall have the meaning set forth in Section 2.1.
"School" shall mean any school regulated as such by the DOE, other
Governmental Entity or Accrediting Body and owned or operated by the Company or
any of its Subsidiaries, including the American Schools of Professional
Psychology, Medical Institute of Minnesota, PrimeTech Institute, University of
Sarasota, John Marshall Law School and Western State University College of Law.
"Schools' Accrediting Bodies" shall have the meaning set forth in Section
2.4(b).
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"Seller Damages" shall have the meaning set forth in Section 8.3.
"Seller Indemnitees" shall have the meaning set forth in Section 8.3.
"Shares" shall have the meaning set forth in the recitals.
"Stockholders" shall mean all Persons owning any shares of Company Common
Stock.
"Student Financial Assistance Programs" shall mean those programs created by
the Higher Education Act of 1965, as amended, and administered by the DOE, as
well as any state student assistance programs or other government-sponsored
student assistance programs.
"Subsidiary" shall mean any entity, a majority of the outstanding equity of
which (or any class or classes, however designated, having ordinary voting
power for the election of members of the board of directors of such entity)
shall at the time be owned by the relevant Person directly or through one or
more corporations which are themselves Subsidiaries.
"Tax" or "Taxes" shall mean any and all federal, state, local and foreign
taxes, assessments and other governmental charges, duties, impositions and
liabilities relating to taxes, including taxes 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 including any liability for taxes of a
predecessor entity.
"Title IV" shall mean Subchapter IV of the Higher Education Act of 1965, as
amended, 20 U.S.C.A. (s)1070 et seq. and any amendments or successor statutes
thereto.
"Title IV Program" shall mean any program of student financial assistance
administered pursuant to Title IV.
B-3
ARTICLE II.
The Transaction
2.1 Sale and Purchase of Shares. At the Closing referred to in Section 2.3,
upon the terms and subject to the conditions of this Agreement, the Seller
shall sell to the Buyer and the Buyer shall purchase from the Seller the Shares
for a purchase price of $12.00 per Share (the "Purchase Price").
2.2 Payment of Consideration; Delivery of Shares. At the Closing, the Buyer
shall deliver the Purchase Price to the Escrow Agent (as defined in Section
2.4(a)) at the Closing by either, at Buyer's election, (a) wire transfer of
federal funds or (b) deposit of a letter of credit from a financial institution
reasonably acceptable to Seller and the Seller shall deliver the certificate(s)
for the Shares together with duly executed stock powers executed in blank to
the Escrow Agent. At the Closing, title to the Shares shall pass to Buyer. At
the Closing, Seller shall deliver the Shares free and clear of any Liens,
encumbrances or adverse claims of any nature.
2.3 Closing. The closing of the sale and purchase of the Shares (the
"Closing") shall take place as soon as practicable following the satisfaction
or waiver of all conditions to the obligations of the parties to this Agreement
to consummate the transactions contemplated hereby as set forth in Sections 6.1
and 6.2 (other than conditions with respect to actions to be taken at the
Closing itself) (the "Closing Date") at the offices of Kirkpatrick & Lockhart
LLP, Henry W. Oliver Building, 535 Smithfield Street, Pittsburgh, PA 15222, or
at such other place and time as the parties may agree upon in writing
2.4 Escrow; Department of Education Approval.
(a) Escrow. The parties shall appoint an institution mutually and reasonably
acceptable to Buyer and Seller to act as escrow agent (the "Escrow Agent")
pursuant to an escrow agreement substantially in the form attached hereto as
Exhibit A (the "Escrow Agreement"). The Purchase Price or letter of credit
payable in accordance with Section 2.2 shall be deposited with the Escrow Agent
to be held in an escrow account (the "Escrow Account") subject to the terms and
conditions set forth in this Section 2.4.
(b) Escrow Release. On the next business day following satisfaction (or,
written waiver by Buyer) of the following conditions, the Escrow Agent shall
pay to the Seller the Purchase Price, less the amount of any claims for Buyer
Damages under Section 8.2 (the "Escrow Release"), and any interest earned on
the funds escrowed shall be paid to Buyer:
(i) receipt of (A) a provisional program participation agreement for
each of the Schools from the DOE to allow the Schools to continue to
participate after the Closing under the same conditions as they currently
do in the programs of Title IV and without adversely affecting the
financial aid benefits available to the current students of the Schools and
prospective students of the Schools (collectively, the "PPPAs") and (B) all
final approvals to the extent required to be obtained from the following
relevant Accrediting Bodies: American Bar Association, North Central
Association of Colleges and Schools, American Psychological Association,
Southern Association of Colleges and Schools, Accrediting Bureau of Health
Educational Schools, Western Association of Schools and Colleges, National
Accrediting Agency for Clinical Laboratory Sciences, Committee on
Accreditation for Medical Assistant Education, Joint Review Committee on
Education in Radiologic Technology, American Veterinary Medical
Association, and Commission on Dental Accreditation of the American Dental
Association (the above listed Accrediting Bodies shall be collectively
referred to herein as the "Schools' Accrediting Bodies") in order for the
Schools to continue to operate in the manner in which they currently
operate and have historically operated (or, to the extent such operation is
changed by the restructuring of certain schools into Argosy University, in
a manner consistent with such restructuring) (collectively, the "Other
Approvals"), and
(ii) the closing of the Merger pursuant to, and in accordance with, the
Merger Agreement.
B-4
Each Party hereby agrees to cooperate fully with the other Party in promptly
seeking the PPPAs and the Other Approvals and promptly supplying any
information that may be requested by the DOE and the Schools' Accrediting
Bodies or any other Accrediting Body. Any one or more of the conditions set
forth in clauses (i) or (ii) may be waived in whole or in part by the Buyer in
its sole discretion.
(c) Rescission. If the Escrow Release has not occurred for any reason by
December 31, 2001, the transactions contemplated by this Agreement shall be
automatically rescinded.
(d) Upon rescission, no party shall have any liability to any other party
other than in respect of any prior breach of this Agreement, and the amount
deposited in the Escrow Account, together with interest thereon, shall be
returned to the Buyer immediately and the stock certificate(s) representing the
Purchased Shares shall be returned to the Seller immediately.
(e) Effect of Rescission. In the event of a rescission of the Closing, this
Agreement (other than Sections 2.5 and 2.6 hereof) shall forthwith become void
and there shall be no liability or obligation on the part of Buyer or Seller
hereunder thereafter; provided further, however, that nothing herein shall
relieve any party for liability for any breach hereof prior to such rescission.
2.5 Voting.
(a) Seller hereby agrees that, prior to the Closing Date and after any
rescission under Section 2.4, at any meeting of the Stockholders, however
called, and at every adjournment or postponement thereof, and in any action by
written consent of the Stockholders, he shall (i) appear at the meeting or
otherwise cause the Shares to be counted as present thereat for purposes of
establishing a quorum, (ii) vote the Shares in favor of the Merger and approval
and adoption of the Merger Agreement, and any action required in furtherance
thereof, (iii) vote the Shares against any action or agreement that would
result in a breach in any material respect of any representation, warranty or
covenant of the Company in the Merger Agreement, and (iv) vote the Shares
against any action or agreement (other than the Merger Agreement or the
transactions contemplated thereby) that would impede, interfere with, delay,
postpone or attempt to discourage the Merger, including any other extraordinary
corporate transaction, such as a merger, reorganization or liquidation
involving the Company and a third party or any other proposal of a third party
to acquire the Company. Without limiting the generality of the foregoing,
Seller shall irrevocably vote all of the Shares in favor of the Merger promptly
upon the setting of a record date for the meeting of Stockholders at which the
Merger will be submitted to a vote of Stockholders. Seller's obligation under
this Section 2.5 shall terminate on the termination of the Merger Agreement.
(b) Buyer hereby agrees that, after the Closing Date and until the earlier
of the Effective Time of the Merger or the Escrow Release, at any meeting of
the Stockholders, however called, and at every adjournment or postponement
thereof, and in any action by written consent of the Stockholders, it shall (i)
appear at the meeting or otherwise cause the Shares to be counted as present
thereat for purposes of establishing a quorum, (ii) vote the Shares in favor of
the Company's directors who are the current incumbent directors at the time of
the signing of this Agreement (the "Incumbent Directors") and any persons
nominated by the Incumbent Directors to fill any vacancies that may be created
on the Company's Board of Directors (other than any persons designated by or
affiliated or associated with any person or entity that is proposing to engage
in any acquisition of an interest in, or business or business combination with,
the Company), (iii) vote the Shares against any action or agreement that would
result in a breach in any material respect of any representation, warranty or
covenant of the Company in the Merger Agreement, and (iv) vote the Shares
against any action or agreement (other than the Merger Agreement or the
transactions contemplated thereby) that would impede, interfere with, delay,
postpone or attempt to discourage the Merger, including any other extraordinary
corporate transaction, such as a merger, reorganization or liquidation
involving the Company and a third party or any other proposal of a third party
to acquire the Company.
2.6 Irrevocable Proxy. Each of the parties agrees that, in the event it
shall fail to comply with the provisions of Section 2.5 hereof, such failure
shall result in the irrevocable appointment of the other as its
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attorney and proxy, with full power of substitution and resubstitution, to vote
the Shares at any meeting of Stockholders, however called, or in connection
with any action by written consent by the Stockholders, in each case only as
and to the extent provided in Section 2.5 hereof; provided, however, that,
without limiting the foregoing, in any such vote or other action pursuant to
such proxy, no party shall have the right (and such proxy shall not confer the
right) to vote against the Merger, to vote to reduce the Merger Consideration
(as defined in the Merger Agreement) or otherwise modify or amend the Merger
Agreement to reduce the rights or benefits of the Company or any Stockholders
(including Seller) under this Agreement or the Merger Agreement or to reduce
the obligations of Buyer, HAC or the Company thereunder; and provided, further,
that the proxy granted pursuant to this Section 2.6 shall irrevocably cease and
shall be of no further force or effect upon the earlier of the Escrow Release
or the termination of the Merger Agreement or this Agreement in accordance with
its terms. THIS PROXY AND POWER OF ATTORNEY IS IRREVOCABLE, SUBJECT TO THE
FOREGOING AND SECTION 2.5 HEREOF, AND COUPLED WITH AN INTEREST. Each of the
parties hereby revokes all other proxies and powers of attorney with respect to
the Shares that it may have heretofore appointed or granted, and no subsequent
proxy or power of attorney shall be given or written consent executed (and if
given or executed, shall not be effective) with respect thereto, other than as
contemplated by Section 2.5 hereof.
ARTICLE III.
Representations and Warranties of the Seller
As an inducement to the Buyer to enter into this Agreement and consummate
the transactions contemplated hereby, the Seller represents and warrants to the
Buyer as follows:
3.1. Shares. The Shares are validly issued, fully paid and nonassessable.
All of the Shares are owned of record, legally, beneficially and exclusively by
the Seller, except for the Shares held by the MCM Trust and the MCM Dynastic
Trust (the "Seller Trusts"). Seller has full and sole power to vote and dispose
of the Shares owned by the Seller Trusts. The Seller holds the exclusive right
and power to vote and dispose of the Shares owned by him or the Seller Trusts.
The Shares are free and clear of any and all Liens or other encumbrances. Upon
delivery of certificates representing the Shares under this Agreement, the
Buyer will acquire good and valid legal and exclusive title to the Shares, free
and clear of any Liens or other encumbrances or any adverse claims of any
nature. There are no outstanding subscriptions, options, warrants, preemptive
rights, exercise rights, exchange rights, appreciation, phantom stock or other
rights to acquire from the Seller any of the Shares.
3.2. Authorization; Enforceability. This Agreement constitutes the valid and
binding obligation of the Seller and is, and the other documents and
instruments required by this Agreement to be executed and delivered by the
Seller will be, when executed and delivered by the Seller, enforceable against
the Seller in accordance with their respective terms, except as such
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar Laws generally affecting the rights of
creditors (the "Bankruptcy Exception") and subject to general equity principles
and an implied covenant of good faith and fair dealing.
3.3. No Violation or Conflict. Subject to the receipt of the clearance or
expiration or termination of the waiting period described in Section 6.1(b) and
the approvals described in Section 6.1(c) and on Section 4.4 of the Company
Disclosure Letter to the Merger Agreement, the execution and delivery of this
Agreement by the Seller and all documents and instruments required by this
Agreement to be executed and delivered by the Seller do not, and the
consummation by the Seller of the other transactions contemplated hereby and
the Seller's compliance with the provisions hereof will not, result in any
violation of, or default under any agreement, contract or binding commitment to
which Seller or any Seller Trust is a party to or by which Seller or any Seller
Trust is bound.
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3.4. No Litigation. There are no actions, suits, investigations,
injunctions, orders, decrees, claims or proceedings of any nature or kind
whatsoever, at law or in equity, instituted, or pending against Seller or any
Seller Trust, or to Seller's Knowledge, threatened by any Person or any
outstanding orders, judgments, injunctions, awards or decrees which are
intended to, or might reasonably be expected to, prohibit any of the
transactions contemplated hereby or impair Seller's ability to fulfill his
obligations under this Agreement.
3.5. No Broker or Finder. No broker, finder or other party is entitled to
any fee or other compensation in connection with the sale of Shares
contemplated under this Agreement, other than J.P. Morgan (pursuant to the
letter dated May 25, 2001, a copy of which has been provided to Buyer).
3.6. Tax matters. Seller will furnish Buyer and/or Escrow Agent all taxpayer
information reasonably necessary to determine any withholding obligation that
may be imposed with respect to the payment of the consideration to Seller for
the Purchased Shares under applicable tax law.
3.7. Absence of Company Breach. Seller has no Knowledge of any breach of any
representation and warranty made by the Company in the Merger Agreement.
3.8. Disclosure. None of the representations or warranties of the Seller
contained herein is false or misleading in any material respect or omits to
state a fact necessary to make the statements herein not misleading in any
material respect.
ARTICLE IV.
Representations and Warranties of the Buyer
As an inducement to the Seller to enter into this Agreement and consummate
the transactions contemplated hereby, the Buyer represents and warrants to the
Seller as follows:
4.1. Organization; Business. Buyer is a corporation duly and validly
organized and existing under the Laws of the jurisdiction of its incorporation
and is qualified to do business as a foreign corporation and in good standing
in the jurisdictions where the ownership or leasing of property or the conduct
of its business requires qualification as a foreign corporation by Buyer except
where the failure to so qualify could not reasonably be expected to have a
Material Adverse Effect on Buyer.
4.2. Authorization; Enforceability. The execution, delivery and performance
by Buyer of this Agreement is within the corporate power and authority of Buyer
and, subject to the provisions hereof, has been duly authorized by the Board of
Directors of Buyer. No other corporate proceeding (including a vote of the
stockholders of the Buyer) or action on the part of Buyer is necessary to
authorize the execution and delivery by Buyer of this Agreement and the
consummation by Buyer of the transactions contemplated hereby. This Agreement
is, and the other documents and instruments required by this Agreement to be
executed and delivered by Buyer will be, when executed and delivered by Buyer,
the valid and binding obligations of Buyer, enforceable against Buyer in
accordance with their respective terms, except as the enforcement thereof may
be limited by the Bankruptcy Exception and subject to general equity principles
and an implied covenant of good faith and fair dealing.
4.3. No Violation or Conflict. Subject to the receipt of the clearance or
expiration or termination of the waiting period described in Section 6.1(b) and
the approvals described in Section 6.1(c), the execution and delivery of this
Agreement by Buyer and all documents and instruments required by this Agreement
to be executed and delivered by Buyer does not, and the consummation by Buyer
of the transactions contemplated hereby and Buyer's compliance with the
provisions hereof will not, result in any violation of any provision of the
certificate of incorporation, bylaws or contracts of Buyer except such as could
not reasonably be expected to have a Material Adverse Effect.
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4.4 Sufficient Funds. Buyer has received a commitment letter from National
City Bank pursuant to which Buyer expects to have available to it, at the
Effective Time, sufficient funds to consummate the transactions contemplated by
this Agreement, including payment of the Purchase Price and all related costs
and expenses.
4.5. Investment Intent. Buyer hereby represents that the Purchased Shares it
is acquiring pursuant to this Agreement are being purchased for its own account
for purposes of investment and not with a view to, or for sale in connection
with, any public distribution thereof. In addition, Buyer acknowledges that the
Purchased Shares being purchased pursuant to this Agreement have not been
registered under the Securities Act, and may not be resold without registration
under such Act or unless an exception or exemption therefrom is available.
4.6. Broker's and Finder's Fee. The Buyer has not incurred any brokers',
finders' or any similar fee in connection with the transaction contemplated by
this Agreement.
4.7. Disclosure. None of the representations or warranties of the Buyer
contained herein is false or misleading in any material respect or omits to
state a fact necessary to make the statements herein not misleading in any
material respect.
ARTICLE V.
Covenants and Agreements
5.1. Regulatory and Other Approvals.
(a) The Seller and the Buyer will (i) within a reasonable period of time
after execution of this Agreement take any reasonable actions necessary to file
notifications under the HSR Act and any applicable laws of Canada, (ii) comply
within a reasonable period of time with any binding request for additional
information received from the Federal Trade Commission or Antitrust Division of
the Department of Justice pursuant to the HSR Act or from any other
Governmental Entity pursuant to the other Antitrust Laws, and (iii) request
early termination of the applicable waiting period.
(b) The Seller shall use all commercially reasonable efforts to cause the
Company and each of its Subsidiaries to cooperate with Buyer to take all
commercially reasonable steps necessary or desirable, and proceed diligently
and in good faith and use all commercially reasonable efforts, as promptly as
practicable to (i) solicit input from Governmental Entities and Accrediting
Bodies regarding the process of obtaining regulatory, Accrediting Body and DOE
approvals, obtain all state education regulatory body, Accrediting Body and DOE
approvals, make all filings with and give all notices to Governmental Entities
and Accrediting Bodies, and obtain all licenses required of the Company to
consummate the transactions contemplated hereby, including without limitation
those described in the Company Disclosure Letter to the Merger Agreement, (ii)
provide such other information and communications to such Governmental Entities
and Accrediting Bodies or other persons as Buyer or such Governmental Entities
and Accrediting Bodies may request and (iii) obtain all state education
regulatory body, Accrediting Body and DOE approvals, making all filings with
and giving all notices to Governmental Entities and Accrediting Bodies and
obtaining all licenses required of Buyer to consummate the transactions
contemplated hereby. The Seller will use his commercially reasonable efforts to
cause the Company to provide prompt notification to Buyer when any such state
education regulatory body, Accrediting Body or DOE approval or license referred
to in clause (i) above is obtained, taken, made or given, as applicable, and
will promptly advise Buyer of any communications (and promptly provide copies
of any such communications that are in writing or filings) with any
Governmental Entity or Accrediting Body regarding the transactions contemplated
by this Agreement. In addition:
(i) The Seller shall use all commercially reasonable efforts to cause
the Company, within ten (10) days from the date of this Agreement, to file
a pre-acquisition application with DOE in order to obtain a written
statement from DOE, to the satisfaction of Buyer in its sole discretion,
that the DOE does not see any impediment to issuing the PPPAs to the
Company following the Closing, which agreement will
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prevent any interruption of Title IV Program funds from the DOE to the
Company and will not include (A) unusual or burdensome conditions,
including, but not limited to, any requirement to administer Title IV
Program funds on a reimbursement or cash monitoring basis or to post a
letter of credit or other financial security with the DOE in an amount
which is reasonably expected by Buyer to materially reduce the economic
benefits that Buyer or its Affiliates anticipated to receive in this
transaction, or (B) any requirement that would impose restrictions or
limitations on the activities of Buyer or its Affiliates unrelated to the
Company or its Schools; provided, however, that the filing deadline
contained in this Section 5.1(b)(i) shall be contingent on the Buyer
cooperating fully with the Company to provide all information and materials
necessary for the Company timely to file such pre-acquisition application.
(ii) The Seller and Buyer will cause their representatives to promptly
and regularly advise each other and the Company concerning the occurrence
and status of any discussions or other communications, whether oral or
written, with any state education regulating body, Accrediting Body or
Governmental Entity or other third party with respect to any consent or the
PPPAs, including any difficulties or delays experienced in obtaining any
consent, and of any conditions proposed, considered, or requested by any
consent or the PPPAs.
(iii) Buyer will cooperate fully with the Seller and the Company in
their efforts to obtain any consents and the PPPAs, but Buyer will not be
required to (i) make any expenditure or payment of funds (other than fees
and expenses of Buyer's counsel, if any) or (ii) permit any adverse changes
in, or the imposition of any adverse condition to, any approval, license,
or contract as a condition to obtaining any consent or the PPPAs. Such
cooperation shall include Buyer's full cooperation in timely filing
applications and other documents (including applications and other
documents filed prior to the Closing) necessary to obtain any consent or
the PPPAs.
(iv) Buyer will allow the Seller's and the Company's agents and
representatives to participate in any meetings or telephone calls with any
state education regulatory body, Accrediting Body or Governmental Entity to
discuss the status of any consent or the PPPAs; provided, however, that the
Seller and his agents will confer in advance with Buyer to agree on the
issues to be discussed in such meeting or telephone call and will not
introduce any issues that are not agreed to in advance and will not respond
to any compliance issues first introduced in such meeting or telephone call
by the state education regulatory body, Accrediting Body or Governmental
Entity.
(v) The Seller will use all commercially reasonable efforts to cause the
Company to ensure that its appropriate officers and employees shall be
available to attend, as any Governmental Entity may reasonably request, any
scheduled hearings or meetings in connection with obtaining any consent or
the PPPAs.
(c) Subject to the terms and conditions herein provided, the Seller and
Buyer will take all reasonable steps necessary or desirable, and proceed
diligently and in good faith and use all reasonable efforts to obtain all
approvals required by any contract to consummate the transactions contemplated
hereby.
(d) Each of Buyer and the Seller shall use all commercially reasonable
efforts to resolve such objections, if any, as may be asserted by any United
States Governmental Entity with respect to the transactions contemplated by
this Agreement under the Antitrust Laws. In connection therewith, if any
administrative or judicial action or proceeding is instituted (or threatened to
be instituted) challenging any transaction contemplated by this Agreement as
violative of any Antitrust Law, and, if by mutual agreement, the Buyer and the
Seller decide that litigation is in their best interests, each of the Buyer and
the Seller shall cooperate and use all commercially reasonable efforts to
vigorously contest and resist any such action or proceedings and to have
vacated, lifted, reversed, or overturned any decree, judgment, injunction or
other order, whether temporary, preliminary or permanent, that is in effect and
that prohibits, prevents, or restricts consummation of any such transaction.
Each of Buyer and the Seller shall use all commercially reasonable efforts to
take such action as may be required to cause the expiration of the notice
periods under the HSR Act or any applicable laws of Canada with respect to such
transactions as promptly as commercially reasonable after the date of this
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Agreement. The obligations of Buyer and Seller under this Section 5.1 with
respect to the Antitrust Laws shall not require Buyer or Seller to obtain or
attempt to obtain any such waiver, permit, consent, approval or authorization
if obtaining such waiver, permit, consent, approval or authorization would
require disposition of any assets of Buyer or Seller or any affiliate of
either.
5.2. Publicity. The Buyer shall consult with the Seller before issuing any
press release or otherwise making any public announcements, including any
announcement to employees and current or prospective students, with respect to
this Agreement or the transactions contemplated hereby (except to the
respective directors and officers of the Company and the Buyer), and shall not
issue any such press release or make any such public announcement prior to such
consultation, except as required by Law, including but not limited to
applicable securities laws and Nasdaq National Market listing requirements or
rules. The Seller shall not make any press release or public announcement
regarding this Agreement or the transactions contemplated hereby.
5.3. Costs and Expenses. The Buyer and the Seller shall each pay all their
own costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby, including all accounting, legal and appraisal
fees and settlement charges, except that the Company shall pay Seller's
reasonable costs and expenses associated with the transactions contemplated
hereby. The Seller shall pay all sales or other transfer taxes on the sale of
the Shares and timely pay such amounts to the appropriate authorities. The
Buyer shall pay the Hart-Scott-Rodino filing fee required in connection
herewith.
5.4. Notification of Certain Matters. Between the date of this Agreement and
the Closing Date, the Seller will promptly notify the Buyer in writing if it
becomes aware of any development, fact or condition that (i) is reasonably
likely, individually or with other existing developments, facts or conditions,
to result in a Material Adverse Effect with respect to the Company or any of
its Subsidiaries, or (ii) causes or constitutes a breach of any agreement or
covenant under this Agreement applicable to him or of his representations and
warranties as of the date of this Agreement, or if he becomes aware of the
occurrence after the date of this Agreement of any fact or condition that would
cause or constitute a breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition.
5.5. Stockholder Litigation. The parties shall cooperate and consult with
one another, to the fullest extent possible, in connection with any stockholder
litigation against any of them with respect to the transactions contemplated by
this Agreement. In furtherance of and without in any way limiting the
foregoing, each of the parties shall use its respective commercially reasonable
efforts to prevail in such litigation so as to permit the consummation of the
transactions contemplated by this Agreement in the manner contemplated by this
Agreement. No party shall consent to any settlement or order that would have
the effect of prohibiting the transactions contemplated hereby or by the Merger
Agreement without the consent of the other party.
5.6. Exclusivity. Until the earlier of the Closing Date or such date as this
Agreement is terminated, the Seller will not, and will use all commercially
reasonable efforts to cause the Company to not, directly or indirectly,
communicate with any party other than the Buyer concerning (a) the sale or
other disposition of the Shares and (b) except in his capacity as an executive
officer or director of the Company, in either case acting in accordance with a
decision of the full Board of Directors, any material portion of the equity or
assets of the Company by merger, consolidation, operation of law or otherwise.
5.7. Merger Agreement. Seller shall use all commercially reasonable efforts
to cause the Company to comply with all of its obligations pursuant to, and
satisfy the conditions to closing under, the Merger Agreement.
5.8. Undertaking of Seller--Excluded Assets.
(a) Seller hereby undertakes that if the Company is directed by Buyer to
sell, divest, donate or otherwise dispose of the stock of John Marshall Law
School, Inc. ("JMLS") and/or PrimeTech Canada, Inc. ("PrimeTech") pursuant to
Section 6.23 of the Merger Agreement, Seller will, at the request of the
Company,
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offer to purchase the stock of JMLS and/or PrimeTech, as the case may be, and
all associated assets and liabilities, for a purchase price of $1.00. Seller
hereby agrees that in connection with any purchase of the stock of JMLS and/or
PrimeTech, such purchase shall be made by Seller without recourse to the
Company and the Company shall make no representations or warranties or other
undertakings to the Seller in connection therewith, and the closing of such
purchase by Seller shall be conditioned solely on obtaining all material
regulatory approvals necessary in order to transfer control of such entity or
entities to Seller. Within 15 days of receipt of notice from Buyer, Seller
will, and will cause the Company to, apply for all requisite regulatory
approvals and will use all (and will cause the Company to use all) commercially
reasonable efforts to obtain such approvals, and will close the purchase of
JMLS and/or PrimeTech as promptly as practicable.
(b) Buyer hereby waives any and all claims against Seller, his affiliates
and agents and representatives in connection with such sale, other than any
claims arising out of a breach of the provisions of this Section 5.8.
(c) In connection with the purchase of JMLS and/or PrimeTech, Seller shall
cause JLMS and/or PrimeTech to enter into an indemnity agreement reasonably
satisfactory to Buyer pursuant to which JMLS and PrimeTech will hold the
Company harmless from claims, obligations and liabilities of or relating to it
or its operations.
5.9. Leeds Letter Agreement. Seller hereby agrees and undertakes to satisfy
any and all obligations of the Company incident to that certain letter from the
Company to Leeds Equity Associates, L.P. and its affiliates dated June 7, 2001
(and to reimburse the Company prior to the Closing for any payments made
thereunder).
5.10 No Liens, Etc. Seller shall not dispose of any of the Shares or any
interest herein or grant any power of attorney or proxies with respect thereto.
Seller shall not permit any Liens or other encumbrances or adverse claims of
any nature to exist with respect to any of the Shares.
ARTICLE VI.
Conditions Precedent to Closing
6.1. Conditions Precedent to the Obligations of the Buyer. The obligations
of the Buyer under this Agreement are subject to the fulfillment, prior to the
Closing, of each of the following conditions (any one or more of which may be
waived in whole or in part by the Buyer at the Buyer's sole option and which
conditions are set out herein for the exclusive benefit of the Buyer):
(a) Representations and Warranties; Covenants. Each of the
representations and warranties of the Seller under this Agreement shall be
true and correct as of the date of this Agreement and shall be true and
correct at and as of the Closing Date, with the same force and effect as
though such representations and warranties had been made on, as of and with
reference to the Closing Date. The Seller shall have performed and complied
in all respects with all obligations, covenants and conditions required by
this Agreement to be performed or complied with by him prior to or on the
Closing Date.
(b) Clearances. The expiration of all applicable waiting periods in
connection with the transactions contemplated hereby and by the Merger
Agreement pursuant to the HSR Act, and the receipt of all required
approvals from any Governmental Entity and the expiration of all required
waiting periods pursuant to any material applicable statutes, rules,
regulations, orders or decrees of Canada that are designed to prohibit,
restrict or regulate actions having the purpose or effect of monopolization
or restraint of trade (together with the HSR Act, the "Antitrust Laws"),
shall have been obtained by Buyer, Seller and the Company.
(c) Education Department Approvals. The issuance of the following
Permits, approvals and permissions to the extent required for the continued
operation of each of the Schools in the same manner as currently operated:
(i) final approval by the California Bureau for Private Postsecondary and
Vocational Education, Georgia Nonpublic Post-secondary Education
Commission, Illinois Board of Higher Education,
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Tennessee Higher Education Commission, Arizona State Board for Private
Postsecondary and Vocational Education, Florida State Board of Private
Postsecondary and Vocational Education, Washington Higher Education
Coordinating Board, Minnesota Higher Education Services Office, Virginia
State Council for Higher Education, The Supreme Court of Georgia, Committee
of Bar Examiners of the State Bar of California, and Ontario Ministry of
Education and any successor to such agencies, (ii) receipt of a pre-
acquisition review by the DOE acceptable to the Buyer, including any
required approvals of governmental authorities or Accrediting Bodies in
connection therewith, and (iii) receipt of DOE approval, in connection with
the proposed reorganization of certain of the Company's Schools into Argosy
University.
(d) Consents and Other Approvals. The conditions set forth in Section
7.3(e) and (f) of the Merger Agreement shall have been satisfied.
(e) Litigation. No statute, regulation or order of any governmental body
shall be in effect that prohibits the transactions contemplated by this
Agreement or the Merger Agreement or that would limit or adversely affect
the Buyer's ownership of the Shares or control of the Company. There shall
not have been threatened, nor shall there be pending, any action or
proceeding by or before any governmental body challenging the lawfulness of
or seeking to prevent or delay any aspect of such transactions or seeking
monetary or other relief by reason of the consummation of any of such
transactions.
(f) No Breach of Merger Agreement. The Company shall not be in material
breach of any provision of the Merger Agreement.
(g) Closing Certificate and Documents. The Seller shall have executed
and delivered a certificate dated the Closing Date to Buyer stating that
all representations and warranties of the Seller under this Agreement are
true and correct and that all obligations of Seller set forth in this
Agreement have been complied with.
(h) No Material Adverse Change. From the date of this Agreement to the
Closing Date there shall not have been any event or development which could
reasonably be expected to result in a Material Adverse Effect with respect
to the Company.
(i) Vote of the Seller on Merger. The Company shall have set a record
date for the meeting of Stockholders at which the Merger is to be submitted
to the Stockholders, and Seller shall have voted all of the Shares owned by
him and by the Seller Trusts as of such record date in favor of the Merger
as contemplated by Section 2.5(b).
(j) Board of Directors. Arrangements satisfactory to Buyer shall have
been made to ensure that the Board of Directors of the Company shall be
reconstituted in a manner satisfactory to Buyer promptly following the
Escrow Release.
(k) Ownership of Shares. Buyer shall have received evidence satisfactory
to it that the representations made by Seller in Section 3.1 with respect
to the Seller Trusts and the Shares owned by the Seller Trusts are
accurate, it being understood that if Buyer is not satisfied that this
condition has been met, it may elect to exclude the Shares held by one or
more of the Seller Trusts from the Shares to be purchased at the Closing
hereunder.
6.2. Conditions Precedent to the Obligations of the Seller. The obligations
of the Seller to proceed with the Closing hereunder are subject to the
fulfillment prior to or at the Closing of the following conditions (any one or
more of which may be waived in whole or in part by the Seller at his sole
option and which conditions are set out herein for the exclusive benefit of the
Seller).
(a) Representations and Warranties: Covenants. Each of the representations
and warranties of the Buyer contained in this Agreement shall be true and
correct in all material respects, as of and with reference to the Closing Date,
with the same force and effect as though such representations and warranties
had been made on and as of the Closing Date, and with reference to such date.
The Buyer shall have performed and complied
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with all obligations, covenants and conditions required by this Agreement to be
performed or complied with by it prior to or on the Closing Date.
(b) Litigation. No order of any governmental body shall be in effect that
restrains or prohibits the transactions contemplated hereby.
(c) Clearances. The waiting period pursuant to the HSR Act shall have
expired, and all required clearances from any Governmental Entity pursuant to
any material applicable statutes, rules, regulations, orders or decrees from
Canada that are designed to prohibit, restrict or regulate actions having the
purpose or effect of monopolization or restraint of trade, shall have been
obtained by the Buyer, the Seller and the Company or all applicable waiting
periods thereby required shall have expired or been terminated.
(d) Closing Certificates. The Buyer shall have furnished to the Seller a
certificate of one of its officers, dated on the Closing Date, certifying to
the fulfillment of the conditions set forth in subparagraph (a) of this Section
6.2.
(e) The Buyer shall have executed an Employment Agreement with Seller in the
form attached as Exhibit C to the Merger Agreement and such Employment
Agreement shall not have been terminated by Buyer.
ARTICLE VII.
Covenant Against Competition and Disclosure
7.1. Non-Competition by the Seller. To afford to the Buyer the full value of
its purchase, the Seller, for a period of three (3) years after the Closing
Date, shall not directly or indirectly (a) engage or become interested in (as
owner, stockholder, partner or otherwise) the operation of any business which
owns, operates, administers or establishes any post-secondary proprietary
program or institution that, in the Buyer's reasonable judgment, competes with
the Buyer or any of the Schools, (b) disclose to anyone, or use in competition
with any of the Schools, any information with respect to any confidential or
secret aspect of the operations of any of the Schools, (c) solicit or recruit,
directly or indirectly, call on, accept business from, interfere with, or
attempt to divert or entice away any person who at any time is an employee or
student or a prospective student of any of the Schools, or (d) contact any
current or past representatives of any of the Schools for purposes of
recruiting students for other schools; provided, however, that nothing in this
Section 7.1 shall be deemed to preclude Seller from (i) lecturing or teaching,
whether paid or unpaid and whether for a competitor of the Buyer or otherwise,
(ii) writing or publishing academic materials so long as it is not for a
competitor of the Company or (iii) owning one percent (1%) or less of the stock
of a publicly held corporation whose stock is traded on a national securities
exchange or nationally recognized stock market or three percent (3%) or less of
a private equity fund. It is further acknowledged by the parties that Seller's
ownership of JMLS and/or PrimeTech pursuant to Section 5.8 shall not be
considered to be in violation of this Section 7.1.
7.2. Remedies. The Seller acknowledges that the remedy at law for breach of
the provisions of Section 7.1 will be inadequate and that, in addition to any
other remedy the Buyer and each of the Schools may have, the Buyer and each of
the Schools will be entitled to an injunction restraining any such breach or
threatened breach, without any bond or other security being required.
7.3. Blue-Pencil. If any court construes the covenant in Section 7.1, or any
part thereof, to be unenforceable because of its duration or the area covered
thereby, the court shall have the power to reduce the duration or area to the
extent necessary so that the provision is enforceable, and such provision, as
reduced, shall then be enforceable.
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ARTICLE VIII.
Survival of Representations; Indemnification
8.1. Survival of Representations. All representations, warranties and
agreements made by any party in this Agreement or pursuant hereto, other than
those made in Section 3.7 shall survive the Closing for a period of two (2)
years from the date of Closing, but all claims for damages made by virtue of
such representations, warranties and agreements shall be made under this
Article VIII. Notwithstanding the foregoing, Seller's representations pursuant
to Section 3.1 shall survive the Closing without regard to the time limitation
set forth in the preceding sentence.
8.2 Indemnification by the Seller. The Seller shall indemnify, defend, save
and hold the Buyer and its officers, directors, employees, agents,
representatives and affiliates (collectively, the "Buyer Indemnitees") harmless
from and against all demands, claims, actions or causes of action, assessments,
losses, damages, deficiencies, liabilities, costs and expenses, including
reasonable attorneys' fees, interest, penalties, and all reasonable amounts
paid in investigation, defense or settlement of any of the foregoing
(collectively, "Buyer Damages") asserted against, imposed upon, resulting to or
incurred by any of Buyer Indemnitees, directly or indirectly, in connection
with, or arising out of, or resulting from (i) a breach of any of the
representations and warranties made by the Seller in this Agreement, or in any
certificate or document furnished pursuant hereto by the Seller, (ii) any claim
or other cause of action asserted or brought by an unaffiliated third party
which alleges any state of facts or other circumstances which if meritorious
would result in or constitute a breach or violation of any of the
representations and warranties made by the Seller in this Agreement, or in any
certificate or document furnished pursuant hereto by the Seller, and (iii) a
breach or non-fulfillment of any of the covenants or agreements made by the
Seller in or pursuant to this Agreement.
Seller shall not have any liability for indemnification pursuant to this
Article VIII for breaches of representations, warranties, covenants or
agreements unless and until the aggregate amount of all Buyer Damages incurred
by Buyer Indemnitees exceeds in the aggregate $100,000 (the "Indemnity
Threshold"), at which point Seller shall be liable for all Buyer Damages. The
maximum Buyer Damages Seller shall be responsible for shall be the aggregate
Purchase Price. Notwithstanding anything to the contrary contained herein, the
limitations set forth above shall not apply to claims based on fraud or
intentional misrepresentation.
8.3 Indemnification by the Buyer. The Buyer shall indemnify, defend, save
and hold the Seller and his agents and representatives (collectively, the
"Seller Indemnitees") harmless from and against any and all demands, claims,
actions or causes of action, assessments, losses, damages, deficiencies,
liabilities, costs and expenses, including reasonable attorneys' fees,
interest, penalties, and all reasonable amounts paid in investigation, defense
or settlement of any of the foregoing (collectively, "Seller Damages") asserted
against, imposed upon or resulting to or incurred by any Seller Indemnitees,
directly or indirectly, in connection with, or arising out of, or resulting
from, (i) a breach of any of the representations and warranties made by the
Buyer in this Agreement or in any certificate or document furnished pursuant
hereto by the Buyer, and (ii) a breach of any of the covenants or agreements
made by the Buyer in or pursuant to this Agreement.
8.4 Notice of Claims. If any Buyer Indemnitee or Seller Indemnitee (an
"Indemnified Party") believes that it has suffered or incurred any Buyer
Damages or Seller Damages, as the case may be ("Damages") for which it is
entitled to indemnification under this Article VIII, such Indemnified Party
shall so notify the party or parties from whom indemnification is being claimed
(the "Indemnifying Parties") with reasonable promptness and reasonable
particularity in light of the circumstances then existing. If any action at law
or suit in equity is instituted by or against a third party with respect to
which any Indemnified Party intends to claim any Damages, such Indemnified
Party shall promptly notify the Indemnifying Parties of such action or suit.
The failure of an Indemnified Party to give any notice required by this Section
8.4 shall not affect any of such party's rights under this Article VIII except
and to the extent that such failure is actually prejudicial to the rights or
obligations of the Indemnified Party.
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8.5 Third Party Claims. The Indemnifying Party shall have the right to
conduct and control, through counsel of its choosing and reasonably acceptable
to the Indemnified Parties, any third party claim, action or suit, and the
Indemnifying Party may compromise or settle the same, provided that the
Indemnifying Party shall give the Indemnified Parties advance notice of any
proposed compromise or settlement. The Indemnifying Party shall permit the
Indemnified Parties to participate in the defense of any such action or suit
through counsel chosen by them, provided that the fees and expenses of such
counsel shall be borne by the Indemnified Parties. If the Indemnifying Parties
undertake, conduct and control the conduct and settlement of such action or
suit, (i) the Indemnifying Parties shall not thereby permit to exist any lien,
encumbrance or other adverse charge upon any asset of the Indemnified Party;
(iii) the Indemnifying Parties shall not consent to any settlement that does
not include as an unconditional term thereof the giving of a complete release
from liability with respect to such action or suit to the Indemnified Party;
(iii) the Indemnifying Parties shall permit the Indemnified Party to
participate in (but not control) such conduct or settlement, at the
Indemnified Party's sole expense, through counsel chosen by the Indemnified
Party; and (iv) the Indemnifying Parties shall agree promptly to reimburse the
Indemnified Party for the full amount of any Damages including fees and
expenses of counsel for the Indemnified Party incurred after giving the
foregoing notice to the Indemnifying Parties and prior to the assumption of
the conduct and control of such action or suit by the Indemnifying Parties.
ARTICLE IX.
Miscellaneous
9.1. Termination.
(a) the parties may terminate this Agreement by mutual written consent at
any time prior to the Closing;
(b) the Buyer may terminate this Agreement by giving written notice to the
Seller at any time prior to the Closing if the Closing has not occurred on or
before January 31, 2002, unless failure results primarily from the Buyer
itself breaching any representation, warranty or covenant contained in this
Agreement, or unless an extension is mutually agreeable to the Seller and the
Buyer; and
(c) the Seller may terminate this Agreement by giving written notice to the
Buyer at any time prior to the Closing if the Closing has not occurred on or
before January 31, 2002, unless failure results primarily from the Seller
itself breaching any representation, warranty or covenant contained in this
Agreement, or unless an extension is mutually agreeable to the Seller and the
Buyer.
9.2. Construction. As used herein, unless the context otherwise requires:
references to "Article" or "Section" are to an article or section hereof;
"include", "includes" and "including" are deemed to be followed by "without
limitation" whether or not they are in fact followed by such words or words of
like import; "hereof," "herein," "hereunder" and comparable terms refer to the
entirety of this Agreement and not to any particular article, section or other
subdivision hereof or attachment hereto; references to an agreement or other
instrument or law, statute or regulation are referred to as amended and
supplemented from time to time (and, in the case of a statute or regulation,
to any successor provision) and all regulations, rulings and interpretations
promulgated pursuant thereto; and the headings of the various articles,
sections and other subdivisions hereof are for convenience of reference only
and shall not modify, define or limit any of the terms or provisions hereof.
9.3. Notices. All notices, and other communications given or made pursuant
to this Agreement shall be in writing and shall be deemed to have been duly
given or made the second day after mailing, if sent by registered or certified
mail, return receipt requested, upon delivery, if sent by hand delivery, when
received, if sent by prepaid overnight carrier, with a record of receipt, or
the first day after dispatch, if sent by cable, telegram, facsimile or
telecopy (with a copy simultaneously sent by registered or certified mail,
return receipt requested), to the parties at the following addresses:
B-15
(i) if to the Buyer to:
Education Management Corporation
300 Sixth Avenue
Pittsburgh, PA 15222
Facsimile: (412) 562-0934
Attention: John R. McKernan, Jr.
and
Kirkpatrick & Lockhart LLP
1251 Avenue of the Americas, 45th Floor
New York, NY 10020
Telephone: (212) 536-4090
Facsimile: (212) 536-3901
Attention: William J. Phillips, Esq.
(ii) if to the Seller:
Michael C. Markovitz, Ph.D.
c/o Argosy Education Group, Inc.
20 South Clark Street, Suite 300
Chicago, IL 60603
Telephone: (312) 899-9900
Facsimile: (312) 201-1907
and
Kirkland & Ellis
200 E. Randolph Drive
Chicago, IL 60601
Telephone (312) 861-2000
Facsimile: (312) 861-2200
Attention: Gerald T. Nowak
Any party hereto may change the address to which notice to it, or copies
thereof, shall be addressed, by giving notice thereof to the other parties
hereto in conformity with the foregoing.
9.4. Assignment. This Agreement and all the rights and powers granted hereby
shall bind and inure to the benefit of the parties hereto and their respective
permitted heirs, successors and assigns. This Agreement and the rights,
interests and obligations hereunder may not be assigned by any party hereto,
without the prior written consent of the other parties hereto.
9.5. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois without regard to its
conflict of law doctrines.
9.6. Amendment and Waiver; Cumulative Effect. The parties may by mutual
agreement amend this Agreement in any respect, and any party, as to such party,
may (i) extend the time for the performance of any of the obligations of any
other party, (ii) waive any inaccuracies in representations by any other party,
(iii) waive compliance by any other party with any of the agreements contained
herein and performance of any obligations by such other party, and (iv) waive
the fulfillment of any condition that is precedent to the performance by such
party of any of its obligations under this Agreement. To be effective, any such
amendment or waiver must be in writing and be signed by the party against whom
enforcement of the same is sought. Neither the failure of any party hereto to
exercise any right, power or remedy provided under this Agreement where
otherwise available in respect hereof at law or in equity, or to insist upon
compliance by any other party with its obligations hereunder, nor any custom or
practice of the parties at variance with the terms
B-16
hereof, shall constitute a waiver by such party of its right to exercise any
such right, power or remedy or to demand such compliance. The rights and
remedies of the parties hereto are cumulative and not exclusive of the rights
and remedies that they otherwise might have now or hereafter, at law, in
equity, by statute or otherwise.
9.7. Entire Agreement; No Third Party Beneficiaries. This Agreement and the
Schedules attached hereto set forth all of the promises, covenants, agreements,
conditions and undertakings of the parties hereto with respect to the subject
matter hereof, and supersede all prior and contemporaneous agreements and
understandings, negotiations, inducements or conditions, express or implied,
oral or written. This Agreement is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder, except the provisions
of Sections 8.2 and 8.3 relating to Buyer Indemnitees and Seller Indemnitees
who are intended to benefit from such indemnities.
9.8. Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other terms, conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
9.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall be deemed to be one and the same instrument.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
B-17
In Witness Whereof, the parties have executed or have caused this Agreement
to be executed by their authorized officers as of the date first written above.
Education Management Corporation
/s/ John R. McKernan, Jr.
By: _________________________________
Name:John R. McKernan, Jr.
Title:Vice Chairman
Seller
/s/ Michael C. Markovitz
_____________________________________
Michael C. Markovitz, Ph.D.
B-18
Exhibit A
FORM OF ESCROW AGREEMENT
This Escrow Agreement ("Escrow Agreement") is made and entered into as of
the day of , 2001 by and among Michael C. Markovitz, a stockholder of
Argosy Education Group, Inc. (the "Seller"), Education Management Corporation,
a Pennsylvania corporation (the "Buyer"), and , as Escrow Agent (the
"Escrow Agent").
Witnesseth:
Whereas, Seller and Buyer have concurrently entered into that certain Stock
Purchase Agreement dated as of July 9, 2001, (the "Stock Purchase Agreement"),
pursuant to which Buyer agreed to purchase, and Seller agreed to sell the
Shares;
Whereas, pursuant to the Stock Purchase Agreement, Buyer agreed to deposit
the Purchase Price and Seller agreed to deliver the certificates for the
Purchased Shares into escrow to be distributed in accordance with the terms and
conditions set forth in the Stock Purchase Agreement;
Whereas, Seller and Buyer desire to appoint the Escrow Agent to hold and
disburse the Escrow Fund (as hereinafter defined);
Whereas, unless otherwise defined herein, capitalized terms used in this
Escrow Agreement have the definitions ascribed to them in the Stock Purchase
Agreement.
Now, Therefore, for valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, and intending to be legally bound, the parties
hereto agree as follows:
ARTICLE I.
Appointment of Escrow Agent
Seller and Buyer appoint [ ] as Escrow Agent to receive, hold,
administer and deliver the Escrow Fund in accordance with this Escrow Agreement
and the Escrow Agent accepts such appointment, all subject to the terms and
conditions set forth in this Escrow Agreement.
ARTICLE II.
Deliveries to the Escrow Agent
2.1. Escrow Fund. Simultaneously with the execution of this Escrow
Agreement, the Buyer is depositing with the Escrow Agent, the principal sum of
$ (the "Principal Amount") and Seller is delivering the certificate(s)
representing the Purchased Shares together with duly executed stock powers
executed in blank. The Principal Amount together with any interest thereon and
the Purchased Shares are hereinafter collectively referred to as the "Escrow
Fund." The Escrow Agent shall invest the Escrow Fund in Permitted Investments
(as hereinafter defined) in accordance with joint written instructions of Buyer
and Seller. [Absent written instructions to the contrary, the Escrow Agent
shall invest the Escrow Fund in an Armada Money Market Fund, for which the
Escrow Agent or an affiliate serves as an investment advisor and receives a
fee.] [Agreement to be modified to permit deposit of LC a Buyer's election.]
B-19
ARTICLE III.
Disposition of the Escrow Fund and Documents
3.1. Use of Escrow Fund. The rights of Seller and Buyer to the Escrow Fund
shall be as set forth in the Stock Purchase Agreement. Seller and Buyer
covenant that they will not assign or encumber or attempt to assign or encumber
the Escrow Fund and neither the Escrow Agent nor its successors or assigns
shall be bound by any such assignment, encumbrance, attempted assignment or
attempted encumbrance.
3.2. Request of the Parties. Upon receipt of a joint written request (the
"Request") from Seller and Buyer (the "Instructing Parties") to disburse all or
a portion of the Escrow Fund, the Escrow Agent shall disburse the funds
specified in the Request in accordance with such Request. In the event the
Escrow Agent receives a written objection to the Request the Escrow Agent shall
hold the Escrow Fund pending disbursement pursuant to Section 3.4.
3.3. Notice of Rescission. Unless the Escrow shall have previously released
prior to December 31, 2001 (or the next preceding business day), the Escrow
Agent shall disburse the Principal Amount together with any interest to Buyer
and the Purchased Shares to Seller and the Escrow Agent shall not be governed
by any notice provisions or other objection period mechanisms noted above.
3.4. Court Order or Joint Instructions. The Escrow Agent may deposit the
Escrow Fund with the Clerk of any court of competent jurisdiction upon
commencement of an action in the nature of interpleader or in the course of any
court proceeding. If at any time the Escrow Agent receives a final non-
appealable order of a court of competent jurisdiction or of an arbitrator
selected by the Buyer and the Seller directing delivery of the Escrow Fund, the
Escrow Agent shall comply with the order or instruction. The Escrow Agent shall
comply with joint written instructions signed by Buyer and Seller directing
delivery of the Escrow Fund. Upon any delivery or deposit of the entire Escrow
Fund as provided in this Section 3, the Escrow Agent shall not be governed by
any notice provisions or other objection period mechanisms noted above.
ARTICLE IV.
Delivery of Notices; Statements
4.1. If Seller shall send any certificate, notice, request, demand or other
communication (each a "Certificate") to the Escrow Agent, Seller shall
simultaneously send such Certificate to Buyer by facsimile and certified mail.
If Buyer shall send a Certificate to the Escrow Agent, Buyer shall
simultaneously send such Certificate to Seller by facsimile and certified mail.
4.2. All Certificates hereunder or with respect hereto shall be in writing
and shall be deemed to have been duly given or made (i) upon the third (3rd)
business day after the date of mailing, if delivered by certified mail, postage
prepaid, (ii) upon delivery, if sent by hand delivery, (iii) upon delivery, if
sent by prepaid courier or overnight service (such as Federal Express), with a
record of receipt, or (iv) the next day after the date of dispatch, if sent by
cable, telegram, facsimile or telecopy (with a copy simultaneously sent by
registered or certified mail, postage prepaid, return receipt requested), to
the parties at the following addresses:
(i) if to Seller:
Michael C. Markovitz, Ph.D.
c/o Argosy Education Group, Inc.
200 South Clark Street, Suite 300
Chicago, IL 60603
-------------------------
-------------------------
Telephone: (312) 899-9900
Facsimile: (312) 201-1907
and
B-20
Kirkland & Ellis
200 E. Randolph Drive
Chicago, IL 60601
Telephone: (312) 861-2000
Facsimile: (312) 861-2200
Attention: Gerald T. Nowak
(ii) if to Buyer:
Education Management Corporation
300 Sixth Avenue
Pittsburgh, PA 15222
Attention: Robert T. McDowell
Senior Vice President and Chief Financial Officer
Telephone: (412) 562-0900
Facsimile: (412) 562-0934
and
Frederick W. Steinberg, Esquire
Vice President, General Counsel and Secretary
Education Management Corporation
300 Sixth Avenue
Pittsburgh, PA 15222
Telephone: (412) 562-0900
Facsimile: (412) 562-0934
(iii) if to Escrow Agent, to:
[ ]
Telephone:
Facsimile:
Any party hereto may change the address to which notice to it, or copies
thereof, shall be addressed, by giving notice thereof to the other parties
hereto in conformity with the foregoing.
4.3. The Escrow Agent shall promptly deliver or cause to be delivered to
Seller and Buyer monthly bank statements reflecting the status of, and any
activity in, the account.
ARTICLE V.
Escrow Agent
5.1. Compensation. Buyer shall pay any fees due to the Escrow Agent for the
services to be rendered by the Escrow Agent under this Escrow Agreement
(including indemnification, if any). Buyer agrees to pay Escrow Agent
reasonable compensation for the services to be rendered hereunder and will pay
or reimburse Escrow Agent upon request for all expenses, disbursements and
advances, including attorneys' reasonable fees, incurred or made by it in
connection with carrying out its duties hereunder.
5.2. Resignation. The Escrow Agent may resign at any time after the date
hereof upon giving Seller and Buyer not less than 30 days prior written notice.
In such event, the acting escrow agent shall deliver any
B-21
part of the Escrow Fund then in its possession to a successor escrow agent; the
successor escrow agent shall be such person, firm or corporation as shall be
mutually agreed upon by Seller and Buyer. Such resignation shall not be
effective until a successor agrees to act hereunder; provided, however, that if
no successor is appointed and acting hereunder within 30 days after such notice
is given, the Escrow Agent shall deliver the Escrow Funds into a court of
competent jurisdiction.
ARTICLE VI.
Liabilities and Indemnification of the Escrow Agent
The Escrow Agent shall not be liable for any damages, or have any
obligations other than the duties prescribed herein in carrying out or
executing the purposes and intent of this Escrow Agreement; provided, however,
that nothing herein contained shall relieve the Escrow Agent from liability
arising out of its own willful misconduct or gross negligence. The Escrow
Agent's duties and obligations under this Escrow Agreement shall be entirely
administrative and not discretionary. The Escrow Agent shall not be liable to
any party hereto or to any third party as a result of any action or omission
taken or made by the Escrow Agent in good faith. Buyer shall indemnify the
Escrow Agent, hold the Escrow Agent harmless, and reimburse the Escrow Agent
from, against and for, any and all liabilities, costs, fees and expenses
(including reasonable attorney's fees) the Escrow Agent may suffer or incur by
reason of its execution and performance of this Escrow Agreement. In the event
any legal questions arise concerning the Escrow Agent's duties and obligations
hereunder, the Escrow Agent may consult his counsel and rely without liability
upon written opinions given to it by such counsel.
The Escrow Agent shall be protected in acting upon any written notice,
request, waiver, consent, authorization, or other paper or document which the
Escrow Agent, in good faith, believes to be genuine and what it purports to be.
In the event that there shall be any disagreement between any of the parties
to this Escrow Agreement, or between them or either of any of them and any
other person, resulting in adverse claims or demands being made in connection
with this Escrow Agreement, or in the event that Escrow Agent, in good faith,
shall be in doubt as to what action it should take hereunder, Escrow Agent may,
at its option, refuse to comply with any claims or demands on it or refuse to
take any other action hereunder, so long as such disagreement continues or such
doubt exists; and in any such event, Escrow Agent shall not be or become liable
in any way or to any person for its failure or refusal to act, and Escrow Agent
shall be entitled to continue to so refrain from acting until the dispute is
resolved by the parties involved.
[ ] is acting solely as Escrow Agent and is not a party to, nor has it
reviewed or approved the Stock Purchase Agreement or any other agreement or
matter of background related to this Escrow Agreement, other than the Escrow
Agreement itself, and has assumed, without investigation, the authority of the
individuals executing this Escrow Agreement to be so authorized on behalf of
the party or parties involved. Permitted Investments shall mean and include any
of the following securities:
(a) Direct obligations of the United States of America, unconditionally
guaranteed as to the payment of interest and principal by the United States
of America.
(b) Repurchase agreements or similar arrangements: (i) with financial
institutions, including the Escrow Agent if applicable, having or the
parent company of which shall have a current Standard & Poor's Corporation
or other equivalent rating for any purpose, including outstanding
indebtedness, of at least "A", pursuant to which there shall have been
delivered to the Escrow Agent, or its designee, Permitted Investments of
the type set forth in subsection (a) having at all times a fair market
value of at least 100% of the value of such agreement; or (ii) with
financial institutions, including the Escrow Agent if applicable, not
meeting the rating requirements of (i) above pursuant to which there shall
have been
B-22
delivered to the Escrow Agent or its designee, Permitted Investments of the
type set forth in subsection (a) having at all times a fair market value of
at least 100% of the value of such agreement.
(c) Shares of an open-end, diversified investment company which is
registered under the Investment Company Act of 1940 and which (i) invests
exclusively in Permitted Investments of the types set forth in (a) or (b)
above, (ii) seeks to maintain a constant net asset value per share in
accordance with regulations of the Securities Exchange Commission, and
(iii) has aggregate net assets of not less than $50,000,000.00 on the date
of purchase.
(d) Certificates of Deposit issued by national banks, including the
Escrow Agent, having combined capital and surplus of not less than
$100,000,000.00 and whose deposits are insured by Federal Deposit Insurance
Corporation and having a rating of its unsecured, senior debt obligations
within one of the three highest rating categories by any nationally
recognized rating service.
ARTICLE VII.
Termination
This Escrow Agreement shall be terminated by (a) written mutual consent
signed by all parties, or (b) a final order, decree or judgment of a court of
competent jurisdiction, the time of perfection of any appeal of such order,
decree or judgment having expired. This Escrow Agreement shall automatically
terminate if and when all amounts due under the Stock Purchase Agreement are
paid in full.
ARTICLE VIII.
Other Provisions
8.1. Benefit and Assignment. This Escrow Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors and assigns. In the event that the bank acting as the Escrow Agent
merges or consolidates with another bank or sells or transfers all or
substantially all of its assets or trust business, then the successor or
resulting bank shall be the Escrow Agent hereunder without necessity of further
action or the execution of any document, so long as such successor or resulting
bank meets the requirements of a successor escrow agent hereunder.
8.2. Entire Agreement; Amendment. Except as set forth in the Stock Purchase
Agreement, this Escrow Agreement contains all the terms agreed upon by the
parties with respect to the subject matter hereof. This Escrow Agreement may be
amended only by a written instrument signed by the party against whom
enforcement of any waiver, change, modification, extension or discharge is
sought.
8.3. Headings. The headings of the articles, sections and subsections of
this Escrow Agreement are for ease of reference only and do not evidence the
intentions of the parties.
8.4. Counterparts. This Escrow Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall be deemed to be one and the same instrument.
[Rest of Page Intentionally Left Blank]
B-23
In Witness Whereof, the parties hereto have duly executed this Escrow
Agreement as of the date first above written.
_____________________________________
Michael C. Markovitz, Ph.D.
SSN - -
Education Management Corporation
By: _________________________________
Title:_______________________________
EIN:
[ ]
_____________________________________
Escrow Agent
B-24
ANNEX C
ILLINOIS BUSINESS CORPORATION ACT--RIGHT TO DISSENT
Sec. 11.65. Right to dissent.
(a) A shareholder of a corporation is entitled to dissent from, and obtain
payment for his or her shares in the event of any of the following corporate
actions: (1) consummation of a plan of merger or consolidation or a plan of
share exchange to which the corporation is a party if (i) shareholder
authorization is required for the merger or consolidation or the share exchange
by Section 11.20 or the articles of incorporation or (ii) the corporation is a
subsidiary that is merged with its parent or another subsidiary under Section
11.30; (2) consummation of a sale, lease or exchange of all, or substantially
all, of the property and assets of the corporation other than in the usual and
regular course of business; (3) an amendment of the articles of incorporation
that materially and adversely affects rights in respect of a dissenter's shares
because it: (i) alters or abolishes a preferential right of such shares; (ii)
alters or abolishes a right in respect of redemption, including a provision
respecting a sinking fund for the redemption or repurchase, of such shares;
(iii) in the case of a corporation incorporated prior to January 1, 1982,
limits or eliminates cumulative voting rights with respect to such shares; or
(4) any other corporate action taken pursuant to a shareholder vote if the
articles of incorporation, by-laws, or a resolution of the board of directors
provide that shareholders are entitled to dissent and obtain payment for their
shares in accordance with the procedures set forth in Section 11.70 or as may
be otherwise provided in the articles, by-laws or resolution.
(b) A shareholder entitled to dissent and obtain payment for his or her
shares under this Section may not challenge the corporate action creating his
or her entitlement unless the action is fraudulent with respect to the
shareholder or the corporation or constitutes a breach of a fiduciary duty owed
to the shareholder.
(c) A record owner of shares may assert dissenters' rights as to fewer than
all the shares recorded in such person's name only if such person dissents with
respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
the record owner asserts dissenters' rights. The rights of a partial dissenter
are determined as if the shares as to which dissent is made and the other
shares were recorded in the names of different shareholders. A beneficial owner
of shares who is not the record owner may assert dissenters' rights as to
shares held on such person's behalf only if the beneficial owner submits to the
corporation the record owner's written consent to the dissent before or at the
same time the beneficial owner asserts dissenters' rights. (Source: P.A. 85-
1269.)
Sec. 11.70. Procedure to Dissent.
(a) If the corporate action giving rise to the right to dissent is to be
approved at a meeting of shareholders, the notice of meeting shall inform the
shareholders of their right to dissent and the procedure to dissent. If, prior
to the meeting, the corporation furnishes to the shareholders material
information with respect to the transaction that will objectively enable a
shareholder to vote on the transaction and to determine whether or not to
exercise dissenters' rights, a shareholder may assert dissenters' rights only
if the shareholder delivers to the corporation before the vote is taken a
written demand for payment for his or her shares if the proposed action is
consummated, and the shareholder does not vote in favor of the proposed action.
(b) If the corporate action giving rise to the right to dissent is not to be
approved at a meeting of shareholders, the notice to shareholders describing
the action taken under Section 11.30 or Section 7.10 shall inform the
shareholders of their right to dissent and the procedure to dissent. If, prior
to or concurrently with the notice, the corporation furnishes to the
shareholders material information with respect to the transaction that will
objectively enable a shareholder to determine whether or not to exercise
dissenters' rights, a shareholder may assert dissenter's rights only if he or
she delivers to the corporation within 30 days from the date of mailing the
notice a written demand for payment for his or her shares.
C-1
(c) Within 10 days after the date on which the corporate action giving rise
to the right to dissent is effective or 30 days after the shareholder delivers
to the corporation the written demand for payment, whichever is later, the
corporation shall send each shareholder who has delivered a written demand for
payment a statement setting forth the opinion of the corporation as to the
estimated fair value of the shares, the corporation's latest balance sheet as
of the end of a fiscal year ending not earlier than 16 months before the
delivery of the statement, together with the statement of income for that year
and the latest available interim financial statements, and either a commitment
to pay for the shares of the dissenting shareholder at the estimated fair value
thereof upon transmittal to the corporation of the certificate or certificates,
or other evidence of ownership, with respect to the shares, or instructions to
the dissenting shareholder to sell his or her shares within 10 days after
delivery of the corporation's statement to the shareholder. The corporation may
instruct the shareholder to sell only if there is a public market for the
shares at which the shares may be readily sold. If the shareholder does not
sell within that 10 day period after being so instructed by the corporation,
for purposes of this Section the shareholder shall be deemed to have sold his
or her shares at the average closing price of the shares, if listed on a
national exchange, or the average of the bid and asked price with respect to
the shares quoted by a principal market maker, if not listed on a national
exchange, during that 10 day period.
(d) A shareholder who makes written demand for payment under this Section
retains all other rights of a shareholder until those rights are cancelled or
modified by the consummation of the proposed corporate action. Upon
consummation of that action, the corporation shall pay to each dissenter who
transmits to the corporation the certificate or other evidence of ownership of
the shares the amount the corporation estimates to be the fair value of the
shares, plus accrued interest, accompanied by a written explanation of how the
interest was calculated.
(e) If the shareholder does not agree with the opinion of the corporation as
to the estimated fair value of the shares or the amount of interest due, the
shareholder, within 30 days from the delivery of the corporation's statement of
value, shall notify the corporation in writing of the shareholder's estimated
fair value and amount of interest due and demand payment for the difference
between the shareholder's estimate of fair value and interest due and the
amount of the payment by the corporation or the proceeds of sale by the
shareholder, whichever is applicable because of the procedure for which the
corporation opted pursuant to subsection (c).
(f) If, within 60 days from delivery to the corporation of the shareholder
notification of estimate of fair value of the shares and interest due, the
corporation and the dissenting shareholder have not agreed in writing upon the
fair value of the shares and interest due, the corporation shall either pay the
difference in value demanded by the shareholder, with interest, or file a
petition in the circuit court of the county in which either the registered
office or the principal office of the corporation is located, requesting the
court to determine the fair value of the shares and interest due. The
corporation shall make all dissenters, whether or not residents of this State,
whose demands remain unsettled parties to the proceeding as an Action Against
Their Shares And All Parties Shall Be Served With A Copy Of The Petition.
Nonresidents May Be Served By Registered Or Certified Mail Or By Publication As
Provided By Law. Failure Of The Corporation To Commence An Action Pursuant To
This Section Shall Not Limit Or Affect The Right Of The Dissenting Shareholders
To Otherwise Commence An Action As Permitted By Law.
(g) The jurisdiction of the court in which the proceeding is commenced under
subsection (f) by a corporation is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend decision on
the question of fair value. The appraisers have the power described in the
order appointing them, or in any amendment to it.
(h) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds that the fair value of his or
her shares, plus interest, exceeds the amount paid by the corporation or the
proceeds of sale by the shareholder, whichever amount is applicable.
(i) The court, in a proceeding commenced under subsection (f), shall
determine all costs of the proceeding, including the reasonable compensation
and expenses of the appraisers, if any, appointed by the
C-2
court under subsection (g), but shall exclude the fees and expenses of counsel
and experts for the respective parties. If the fair value of the shares as
determined by the court materially exceeds the amount which the corporation
estimated to be the fair value of the shares or if no estimate was made in
accordance with subsection (c), then all or any part of the costs may be
assessed against the corporation. If the amount which any dissenter estimated
to be the fair value of the shares materially exceeds the fair value of the
shares as determined by the court, then all or any part of the costs may be
assessed against that dissenter. The court may also assess the fees and
expenses of counsel and experts for the respective parties, in amounts the
court finds equitable, as follows:
(1) Against the corporation and in favor of any or all dissenters if the
court finds that the corporation did not substantially comply with the
requirements of subsections (a), (b), (c), (d), or (f).
(2) Against either the corporation or a dissenter and in favor of any
other party if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this Section. If the court finds
that the services of counsel for any dissenter were of substantial benefit
to other dissenters similarly situated and that the fees for those services
should not be assessed against the corporation, the court may award to that
counsel reasonable fees to be paid out of the amounts awarded to the
dissenters who are benefited. Except as otherwise provided in this Section,
the practice, procedure, judgment and costs shall be governed by the Code
of Civil Procedure.
(j) As used in this Section: (1) "Fair value", with respect to a dissenter's
shares, means the value of the shares immediately before the consummation of
the corporate action to which the dissenter objects excluding any appreciation
or depreciation in anticipation of the corporate action, unless exclusion would
be inequitable. (2) "Interest" means interest from the effective date of the
corporate action until the date of payment, at the average rate currently paid
by the corporation on its principal bank loans or, if none, at a rate that is
fair and equitable under all the circumstances. (Source: P.A. 86-1156.)
C-3
ANNEX D
Telephone: 415
371 3000
J.P. Morgan
Securities
Inc.
One Bush
Street
San Francisco,
CA 94104
July 6, 2001
The Board of Directors
Argosy Education Group, Inc.
20 South Clark Street, Suite 300
Chicago, IL 60603
Members of the Board of Directors:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of common stock, par value $.01 per share (the "Company
Common Stock"), of Argosy Education Group, Inc. (the "Company") other than Dr.
Markovitz of the consideration to be received by such holders in the proposed
merger (the "Merger") of the Company with a wholly-owned subsidiary of
Education Management Corporation (the "Merger Partner"). Pursuant to the
Agreement and Plan of Merger, dated as of July 9, 2001 (the "Merger
Agreement"), among the Company, the Merger Partner and Homer Acquisition
Corporation, the Company will become a wholly-owned subsidiary of the Merger
Partner, and each outstanding share of Company Common Stock, other than shares
of Company Common Stock held in treasury or owned by the Merger Partner and its
affiliates, will be converted into the right to receive $12.00 per share in
cash. We understand that Dr. Markovitz has separately agreed to sell the shares
of Company Common Stock held by him to the Merger Partner for a price of $12.00
per share pursuant to the Stock Purchase Agreement, dated as of July 9, 2001,
between such Dr. Markovitz and the Merger Partner (the "Stock Purchase
Agreement").
In arriving at our opinion, we have (i) a draft of the Merger Agreement
dated July 5, 2001 and a draft of the Stock Purchase Agreement dated July 5,
2001; (ii) reviewed certain publicly available business and financial
information concerning the Company and the industries in which it operates;
(iii) compared the proposed financial terms of the Merger with the publicly
available financial terms of certain transactions involving companies we deemed
relevant and the consideration received for such companies; (iv) compared the
financial and operating performance of the Company with publicly available
information concerning certain other companies we deemed relevant and reviewed
the current and historical market prices of the Company Common Stock and
certain publicly traded securities of such other companies; (v) reviewed
certain internal financial analyses and forecasts prepared by the management of
the Company relating to its business; and (vi) visited certain representative
facilities of the Company and performed such other financial studies and
analyses and considered such other information as we deemed appropriate for the
purposes of this opinion.
In addition, we have held discussions with certain members of the management
of the Company and the Merger Partner with respect to certain aspects of the
Merger, and the past and current business operations of the Company, the
financial condition and future prospects and operations of the Company, and
certain other matters we believed necessary or appropriate to our inquiry.
In giving our opinion, we have relied upon and assumed, without independent
verification, the accuracy and completeness of all information that was
publicly available or was furnished to us by the Company or otherwise reviewed
by us, and we have not assumed any responsibility or liability therefor. We
have not conducted any valuation or appraisal of any assets or liabilities, nor
have any such valuations or appraisals been provided to us. In relying on
financial analyses and forecasts provided to us, we have assumed that they have
been reasonably prepared based on assumptions reflecting the best currently
available estimates and judgments by management as to the expected future
results of operations and financial condition of the Company to which
D-1
such analyses or forecasts relate. We have also assumed that the Merger will be
consummated as described in the Merger Agreement. We have relied as to all
legal matters relevant to rendering our opinion upon the advice of counsel.
Our opinion is necessarily based on economic, market and other conditions as
in effect on, and the information made available to us as of, the date hereof.
It should be understood that subsequent developments may affect this opinion
and that we do not have any obligation to update, revise, or reaffirm this
opinion. Our opinion is limited to the fairness, from a financial point of
view, of the consideration to be in the proposed Merger and we express no
opinion as to the underlying decision by the Company to engage in the Merger.
We have acted as financial advisor to the Company with respect to the
proposed Merger and will receive a fee from the Company for our services. We
will also receive an additional fee if the proposed Merger is consummated. As
we have advised you, we and our affiliates, in the ordinary course of business,
have, from time to time, provided, and in the future may continue to provide,
commercial and investment banking services to the Merger Partner. In the
ordinary course of our businesses, we and our affiliates may actively trade the
debt and equity securities of the Company or the Merger Partner for our own
account or for the accounts of customers and, accordingly, we may at any time
hold long or short positions in such securities.
On the basis of and subject to the foregoing, it is our opinion as of the
date hereof that the consideration to be received by the holders of the Company
Common Stock other than Dr. Markovitz in the proposed Merger is fair, from a
financial point of view, to such holders.
This letter is provided to the Board of Directors of the Company in
connection with and for the purposes of its evaluation of the Merger. This
opinion does not constitute a recommendation to any shareholder of the Company
as to how such shareholder should vote with respect to the Merger or any other
matter. This opinion may not be disclosed, referred to, or communicated (in
whole or in part) to any third party for any purpose whatsoever except with our
prior written approval. This opinion may be reproduced in full in any proxy or
information statement mailed to shareholders of the Company but may not
otherwise be disclosed publicly in any manner without our prior written
approval.
Very truly yours,
J.P. MORGAN SECURITIES INC.
J.P. Morgan Securities Inc.
D-2
ARGOSY EDUCATION GROUP, INC.
PROXY
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD OCTOBER 31, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Michael C. Markovitz and Jim
Otten and each or any of them, proxies of the undersigned, with full power of
substitution, to vote all of the shares of Argosy Education Group, Inc., an
Illinois corporation (the "Company"), which the undersigned may be entitled to
vote at the Special Meeting of Stockholders of the Company to be held at The
Northern Trust Company, 50 South LaSalle Street, 6/th/ Floor Assembly Room,
Chicago, Illinois, 60675 on Wednesday, October 31, 2001 at 10:00 a.m. (Central
time) or at any adjournment or postponement thereof, as shown on the voting side
of this card.
--------------------
See Reverse Side
--------------------
Please date, sign and mail your
proxy card back as soon as possible!
Special Meeting of Stockholders
ARGOSY EDUCATION GROUP, INC.
October 31, 2001
[X] Please mark your votes as in this example.
1. To approve the Agreement and Plan of Merger dated July 9, 2001, by and
among Argosy Education Group, Inc., Education Management Corporation and
HAC Inc., and the transactions contemplated by such Agreement and Plan of
Merger, including the merger.
FOR AGAINST ABSTAIN
[_] [_] [_]
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Special Meeting or any adjournment
or postponement thereof.
This proxy, when properly executed, will be voted as specified. If a choice
is not specified, this proxy will be voted "FOR" Proposal 1 and will be voted in
the discretion of the proxies upon such other matters as may properly come
before the Special Meeting.
This proxy should be dated, signed by the stockholder exactly as the
stockholder's name appears hereon and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate.
Please sign exactly as name(s) appear hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
_________________________________________
_________________________________________
Signature(s) Date