EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
BY AND AMONG
EDUCATION MANAGEMENT CORPORATION,
RUSSELL E. PALMER,
BRADLEY C. PALMER,
THE STEPHEN R. PALMER LIVING TRUST,
THE RUSSELL E. PALMER III LIVING TRUST,
THE KAREN KORFMANN LIVING TRUST,
MICHAEL MASIN,
CONNIE WALTER,
TECHNOLOGY LEADERS L.P.,
TECHNOLOGY LEADERS FIRST CORP.,
J. WILLIAM BROOKS,
GERARD FRANCOIS,
DANNY FINUF,
THE COMPANIES SIGNATORY HERETO
AND
SELLERS' REPRESENTATIVE
as of June 24, 2003
STOCK PURCHASE AGREEMENT
as of June 24, 2003
The parties to this Stock Purchase Agreement (this "Agreement") are Russell
E. Palmer ("RPalmer"), Bradley C. Palmer ("BPalmer"), Stephen R. Palmer Living
Trust ("SPalmer Trust"), Russell E. Palmer III Living Trust ("RPalmer III
Trust"), Karen Korfmann Living Trust ("Korfmann Trust"), Michael Masin
("Masin"), Connie Walter, ("Walter" and, together with RPalmer, BPalmer, SPalmer
Trust, RPalmer III Trust, Korfmann Trust and Masin, the "Equity Sellers");
Technology Leaders L.P., a Delaware limited partnership ("Tech Leaders"),
Technology Leaders First Corp., a British Virgin Islands corporation ("TL First
Corp" and, together with Tech Leaders, the "Warrant Sellers"); J. William Brooks
("Brooks"), Gerard Francois ("Francois"), Danny Finuf ("Finuf" and, together
with Brooks and Francois, the "Option Sellers" and, together with the Warrant
Sellers and the Equity Sellers, the "Sellers"); American Education Centers,
Inc., a Delaware corporation ("AEC"), Brown Mackie Education Corporation, a
Delaware corporation ("Brown Mackie"), Commonwealth Business College Education
Corporation, a Delaware corporation ("Commonwealth"), Asher School of Business
Education Corporation, a Delaware corporation ("Asher"), Stautzenberger College
Education Corporation, a Delaware corporation ("Stautzenberger"), and Michiana
College Education Corporation, a Delaware corporation ("Michiana" and, together
with AEC, Brown Mackie, Commonwealth, Asher and Stautzenberger, the "Parent
Companies"); Russell E. Palmer, in his capacity as the Sellers' representative
(the "Sellers' Representative"); and Education Management Corporation, a
Pennsylvania corporation ("Buyer").
A. The Equity Sellers are the owners of all of the issued and outstanding
common stock of each of the Parent Companies. Southern Ohio College, LLC, a
Delaware limited liability company ("Southern Ohio LLC" and, together with the
Parent Companies, the "Companies") is a wholly owned subsidiary of the Parent
Companies. The Companies own and operate the schools set forth on Exhibit A
hereto (collectively, the "Schools"). The Equity Sellers desire to sell and
Buyer desires to purchase all of the issued and outstanding common stock of each
of the Parent Companies.
B. The Warrant Sellers are the owners of the warrants and debentures issued
by AEC, Brown Mackie, Commonwealth, Asher, Stautzenberger and Michiana set forth
in Section 1 of the Disclosure Letter (the "TL Warrants and Debentures"). Prior
to the Closing, each Parent Company shall issue promissory notes in exchange for
the TL Warrants and Debentures issued by such Parent Company in the form
attached as Exhibit B hereto.
C. The Option Sellers are the owners of the options issued by AEC, Brown
Mackie, Commonwealth, Asher, Stautzenberger and Michiana set forth in Section 1
of the Disclosure Letter (the "Options"). Prior to the Closing, each Parent
Company shall issue promissory notes in exchange for the Options issued by such
Parent Company in the form attached as Exhibit B hereto.
D. RPalmer is the owner of restricted stock issued by each of the Parent
Companies (the "Restricted Stock"), as specifically identified in Section 1 of
the Disclosure Letter. Prior to the Closing, each Parent Company shall issue
promissory notes in exchange for the Restricted Stock issued by such Parent
Company in the form attached as Exhibit B hereto.
E. Pursuant to a letter agreement dated June 11, 2003 (the "Brooks Letter
Agreement") among Brooks and the Parent Companies, Brooks is entitled to the
greater of the amount of share value to which he is entitled under his option
agreement or five percent (5%) of the Aggregate Purchase Price (as defined
herein). Prior to the Closing, each Parent Company shall issue promissory notes
in an amount equal to the option elected by Brooks in the form attached as
Exhibit B hereto.
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
THE TRANSACTION
1.1. Sale and Purchase of Sellers' Interests in the Parent Companies; Note
Exchange .
(a) Purchased Interests. At the Closing referred to in Section 1.4,
upon the terms and subject to the conditions of this Agreement, the Equity
Sellers shall sell to Buyer and Buyer shall purchase from the Equity Sellers:
(i) 521.21301 shares of Class A common stock and 443.42487 shares of Class B
common stock representing all of the issued and outstanding equity securities of
AEC (the "AEC Purchased Shares"), (ii) 331.17685 shares of Class A common stock
and 365 shares of Class B common stock representing all of the issued and
outstanding equity securities of Brown Mackie (the "Brown Mackie Purchased
Shares"), (iii) 331.17685 shares of Class A common stock and 365 shares of Class
B common stock representing all of the issued and outstanding equity securities
of Commonwealth (the "Commonwealth Purchased Shares"), (iv) 331.17685 shares of
Class A common stock and 365 shares of Class B common stock representing all of
the issued and outstanding equity securities of Asher (the "Asher Purchased
Shares"), (v) 331.17685 shares of Class A common stock and 365 shares of Class B
common stock representing all of the issued and outstanding equity securities of
Stautzenberger (the "Stautzenberger Purchased Shares") and (vi) 331.17685 shares
of Class A common stock and 365 shares of Class B common stock representing all
of the issued and outstanding equity securities of Michiana (the "Michiana
Purchased Shares", and together with the AEC Purchased Shares, the Brown Mackie
Purchased Shares, the Commonwealth Purchased Shares, the Asher Purchased Shares,
and the Stautzenberger Purchased Shares, collectively, the "Purchased
Interests") for an aggregate purchase price in the amount of One Hundred and Ten
Million Dollars ($110,000,000) (the "Aggregate Purchase Price") less the Seller
Debt (such difference being, the "Equity Purchase Price"), subject to the
Purchase Price Adjustment set forth in Section 1.3. For purposes hereof, (A)
"Seller Debt" shall be an amount equal to the aggregate principal amount of the
Seller Notes (as defined below) outstanding at the Closing, and (B) the holders
of Seller Debt shall be referred to as the "Note Sellers".
(b) Warrant Notes. Prior to the Closing, each Warrant Seller shall
deliver its respective TL Warrants and Debentures to the respective Parent
Company in exchange for a promissory note in the form attached hereto as Exhibit
B (each such note, a "Warrant Note"). The aggregate principal amount of each
such Warrant Note shall equal the amount set forth for the respective Warrant
Seller in Section 1.1(b) of the Disclosure Letter. At least twenty (20) days
before issuing the Warrant Notes, the Parent Companies shall deliver to Buyer a
calculation of the amount of Tax required to be withheld with respect to the
issuance of and/or payment
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under each Warrant Note (the "Preliminary Warrant Withholding Tax Amounts").
Buyer shall provide comments on the Preliminary Warrant Withholding Tax Amounts
within ten (10) days after delivery by the Parent Companies and the Preliminary
Warrant Withholding Tax Amounts shall be adjusted to reflect any changes
reasonably requested by Buyer (the "Final Warrant Withholding Tax Amounts").
Payments made pursuant to the Warrant Notes by a Parent Company shall be net of
the relevant Final Warrant Withholding Tax Amounts.
(c) Option Notes. Prior to the Closing, each Option Seller (other than
Brooks) shall deliver his respective Options to the respective Parent Company in
exchange for a promissory note in the form attached hereto as Exhibit B (each
such note, an "Option Note"). The aggregate principal amount of each such Option
Note shall equal the amount set forth for the respective Option Seller (other
than Brooks) in Section 1.1(c) of the Disclosure Letter. At least twenty (20)
days before issuing the Option Notes, the Parent Companies shall deliver to
Buyer a calculation of the amount of Tax required to be withheld with respect to
the issuance of and/or payment under each Option Note (the "Preliminary Option
Withholding Tax Amounts"). Buyer shall provide comments on the Preliminary
Option Withholding Tax Amounts within ten (10) days after delivery by the Parent
Companies and the Preliminary Option Withholding Tax Amounts shall be adjusted
to reflect any changes reasonably requested by Buyer (the "Final Option
Withholding Tax Amounts"). Payments made pursuant to the Option Notes by a
Parent Company shall be net of the relevant Final Option Withholding Tax
Amounts.
(d) RPalmer Restricted Stock Notes. Prior to the Closing, RPalmer
shall deliver his Restricted Stock to the respective Parent Company in exchange
for a promissory note in the form attached hereto as Exhibit B (each such note,
a "RPalmer Restricted Stock Note"). The aggregate principal amount of each such
Restricted Stock Note shall equal the amount set forth for RPalmer in Section
1.1(d) of the Disclosure Letter. At least twenty (20) business days before
issuing the Restricted Stock Note, the Parent Companies shall deliver to Buyer a
calculation of the amount of Tax required to be withheld with respect to the
issuance of and/or payment under the Restricted Stock Note (the "Preliminary
RPalmer Restricted Stock Withholding Tax Amounts"). Buyer shall provide comments
on the Preliminary RPalmer Restricted Stock Withholding Tax Amounts within ten
(10) days after delivery by the Parent Companies and the Preliminary RPalmer
Restricted Stock Withholding Tax Amounts shall be adjusted to reflect any
changes requested by Buyer (the amount so determined, the "Final RPalmer
Restricted Stock Withholding Tax Amounts"). Payments made pursuant to the
Restricted Stock Note by a Parent Company shall be net of the relevant Final
RPalmer Restricted Stock Withholding Tax Amounts.
(e) Brooks Notes. Prior to the Closing, Brooks shall, in accordance
with the Brooks Letter Agreement, receive a promissory note in the form attached
hereto as Exhibit B (each such note, a "Brooks Note" and, together with the
Warrant Notes, the Option Notes and the RPalmer Restricted Stock Notes, the
"Seller Notes"). The aggregate principal amount of each such Brooks Note shall
equal the amount set forth for Brooks in Section 1.1(e) of the Disclosure
Letter. At least twenty (20) days before issuing the Brooks Notes, the Parent
Companies shall deliver to Buyer a calculation of the amount of Tax required to
be withheld with respect to the issuance of and/or payment under the Brooks
Notes (the "Preliminary Brooks Withholding Tax Amounts"). Buyer shall provide
comments on the Preliminary Brooks Withholding Tax Amounts within ten (10) days
after delivery by the Parent Companies and the Preliminary Brooks Withholding
Tax Amounts shall be adjusted to reflect any changes requested by Buyer (the
amount so determined, the "Final Brooks Withholding Tax Amounts" and, together
with the Final Warrant Withholding Tax Amounts, Final Option Withholding Tax
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Amounts and the Final RPalmer Restricted Stock Withholding Amounts, the "Final
Withholding Tax Amounts"). Payments made pursuant to the Brooks Note by a Parent
Company shall be net of the relevant Final Brooks Withholding Tax Amounts.
1.2. Payment of Aggregate Purchase Price. Subject to adjustment in
accordance with Section 1.3, the Aggregate Purchase Price shall be paid as
follows:
(a) Equity Purchase Price. The Equity Purchase Price shall be paid by
Buyer at the Closing, as follows:
(i) Buyer will execute and deliver to the Sellers'
Representative, on behalf of the Equity Sellers, a short term note (the
"Short-Term Note") dated the Closing Date, in a principal amount equal to (A)
Ninety-Nine Million Dollars ($99,000,000), (B) increased by the Reimbursement
Amount (as defined in Section 5.11(h) hereof), and (C) reduced by Thirty Million
Ninety Thousand Eight Hundred Three Dollars and Fifty Eight Cents
($30,090,803.58) (ninety percent (90%) of the aggregate principal amount of the
Seller Debt). The Short-Term Note shall be payable in full on the second
business day after the Closing Date and otherwise in the form of Exhibit C
attached hereto and shall be accompanied by an irrevocable standby letter of
credit satisfying the requirements for such letters of credit under Section 453
of the Code and the Treasury Regulations thereunder that is in the amount of the
Short-Term Note, issued by the Issuing Bank (as defined below) for the benefit
of the Sellers' Representative, payable on sight if the Short-Term Note is not
paid when due and otherwise in a form reasonably satisfactory to the Sellers'
Representative.
(ii) Buyer will execute and deliver to the Sellers'
Representative, on behalf of all of the Equity Sellers, a note (the "Equity
Sellers Note") in the form attached hereto as Exhibit D, in a principal amount
equal to the difference between (A) Eleven Million Dollars ($11,000,000) and (B)
Three Million Three Hundred Forty Three Thousand Four Hundred Twenty Two Dollars
and Sixty Two Cents ($3,343,422.62) (ten percent (10%) of the aggregate
principal amount of the Seller Debt). The Equity Sellers Note shall be payable
on the first anniversary of the Closing Date, subject to certain obligations of
the Sellers hereunder, and shall be accompanied by an irrevocable standby letter
of credit as more fully described in Section 1.5 hereto.
(b) Payment of Seller Debt. The payment of the Seller Debt shall be
funded at the Closing as follows:
(i) Buyer will pay Thirty Million Ninety Thousand Eight Hundred
Three Dollars and Fifty Eight Cents ($30,090,803.58) in cash by wire transfer to
the Parent Companies in the amounts set forth in Section 1.2(b) of the
Disclosure Letter, which shall equal ninety percent (90%) of the aggregate
principal amount of the Seller Debt; and
(ii) Immediately after receipt of the funds set forth in Section
1.2(b)(i), the Parent Companies shall deposit such funds into an escrow account
(the "Note Escrow Account") subject to an escrow agreement in the form attached
hereto as Exhibit E (the "Note Escrow Agreement") for payment of the Seller Debt
and Final Withholding Tax Amounts (as applicable); and
(iii) Immediately after the Closing, and pursuant to the terms of
the Seller Notes:
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(1) the Parent Companies shall direct that funds deposited
in the Note Escrow Account in an amount equal to the difference between (x)
Thirty Million Ninety Thousand Eight Hundred Three Dollars and Fifty Eight Cents
($30,090,803.58), which is an amount equal to ninety percent (90%) of the
aggregate principal amount of the Seller Debt minus (y) the Final Withholding
Tax Amounts, be released to the holders of such debt;
(2) the Parent Companies shall direct that funds deposited
in the Note Escrow Account in an amount equal to the Final Withholding Tax
Amounts be paid, on behalf of Brooks and the Option Sellers, to the Internal
Revenue Service and such other governmental authorities as appropriate; and
(3) each of the Parent Companies will execute and deliver to
the Sellers' Representative, on behalf of the Note Sellers, notes (each a "Note
Sellers Note" and together with the Equity Sellers Note, the "Indemnification
Notes"), in an aggregate principal amount equal to Three Million Three Hundred
Forty Three Thousand Four Hundred Twenty Two Dollars and Sixty Two Cents
($3,343,422.62), which is ten percent (10%) of the aggregate principal amount of
the Seller Debt of the Parent Companies, payable on the first anniversary of the
Closing Date, subject to certain obligations of the Sellers hereunder, and
otherwise in the form of Exhibit D attached hereto and accompanied by an
irrevocable standby letter of credit as more fully described in Section 1.5
hereto.
1.3. Purchase Price Adjustment. The Aggregate Purchase Price will be
subject to adjustment (hereinafter referred to as the "Purchase Price
Adjustment") in accordance with the following provisions of this Section 1.3,
which adjustment will be determined as follows:
(a) It is the expectation of the parties hereto that the aggregate
current assets of the Companies (on a combined basis) (excluding any deferred
initial direct costs, including marketing costs) ("Current Assets") shall be
equal to or exceed the aggregate liabilities of the Companies (on a combined
basis) (excluding (i) deferred rent, except to the extent such deferred rent
exceeds $125,000, (ii) mortgage and asset based indebtedness, except to the
extent such indebtedness exceeds $3,500,000, (iii) the Seller Debt, and (iv) the
Corporate Withholding Taxes) ("Liabilities"), as shown on the individual balance
sheets of each of the Companies (collectively, the "Closing Balance Sheets"), as
of the Closing Date. The difference, if any, between Current Assets and
Liabilities is referred to herein as "Net Current Assets". The determinations
made in this Section 1.3 shall be made on an accrual basis in accordance with
United States generally accepted accounting principles ("GAAP") using the same
accounting methods, policies, practices and procedures with consistent
classification, judgments and estimation methodology as were used by each
Company in preparing their Balance Sheets to the extent such accounting methods,
policies, practices and procedures are in accordance with GAAP. The Closing
Balance Sheets shall be prepared by Sellers' Representative and delivered to
Buyer within seventy-five (75) days after the Closing.
(b) During the thirty (30) day period following the Buyer's receipt of
the Closing Balance Sheets, the Buyer and its independent accountants shall at
the Buyer's expense be permitted to review, and the Sellers' Representative
shall make available to the Buyer, the supporting schedules, analyses, working
papers and other documentation of the Sellers' Representative relating to the
Closing Balance Sheets and to ask questions, receive answers and request such
other data and information from each of them as shall be reasonable under the
circumstances. The Closing Balance Sheets shall become final and binding upon
the parties on the business day following the thirtieth (30th) day following
delivery thereof, unless the Buyer
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gives written notice of its disagreement with the Closing Balance Sheets (such
notice, a "Notice of Disagreement") to the Sellers' Representative prior to such
date. Any Notice of Disagreement shall specify in reasonable detail the nature
of any disagreement so asserted, and the Buyer shall make available all
supporting schedules, analyses, working papers and other documentation. The
Buyer shall be deemed to have agreed with all items and amounts included in the
calculation of Net Current Assets delivered pursuant to Section 1.3(a) except
such items that are specifically disputed in the Notice of Disagreement.
During the fifteen (15) day period following the delivery of a Notice of
Disagreement that complies with the preceding paragraph or such longer period as
the Sellers' Representative and the Buyer shall mutually agree, the Sellers'
Representative and the Buyer shall seek in good faith to resolve in writing any
differences that they may have with respect to the matters specified in the
Notice of Disagreement, and in the event the Sellers' Representative and the
Buyer are able to reach such resolution then the Net Current Assets, so agreed
by them in writing shall be deemed to be final. If, at the end of such fifteen
(15) day period (or such longer period as mutually agreed between the Sellers'
Representative and the Buyer), the Sellers' Representative and the Buyer have
not so resolved such differences, the Sellers' Representative and the Buyer
shall submit the dispute for resolution to Pricewaterhouse Coopers LLP (the
"Arbiter"), for review and resolution of any and all matters which remain in
dispute and which were properly included in the Notice of Disagreement in
accordance with this Section 1.3. The Sellers' Representative and the Buyer
shall use reasonable efforts to cause the Arbiter to render a decision resolving
the matters in dispute within thirty (30) days following the submission of such
matters to the Arbiter, or such longer period as the Sellers' Representative and
the Buyer shall mutually agree. The Sellers' Representative and the Buyer agree
that the determination of the Arbiter shall be final and binding upon the
parties and that judgment may be entered upon the determination of the Arbiter
in any court having jurisdiction over the party against which such determination
is to be enforced; provided, that the scope of the disputes to be resolved by
the Arbiter is limited to only such items included in the Closing Balance Sheets
that the Buyer has properly disputed in the Notice of Disagreement. The Arbiter
shall determine, based solely on presentations by the Buyer and the Sellers'
Representative and their respective representatives, and not by independent
review, only those issues in dispute specifically set forth in the Notice of
Disagreement and shall prepare the Final Closing Balance Sheets (as defined in
Section 1.3(c)) and render a written report as to the dispute and the resulting
calculation of Net Current Assets which shall be conclusive and binding upon the
parties. In resolving any disputed item, the Arbiter: (i) shall be bound by the
principles set forth in this Section 1.3, (ii) shall limit its review to matters
specifically set forth in the Notice of Disagreement and (iii) shall not assign
a value to any item greater than the greatest value for such item claimed by
either party or less than the smallest value for such item claimed by either
party. The fees, costs, and expenses of the Arbiter (x) shall be borne by the
Buyer in the proportion that the aggregate dollar amount of such disputed items
so submitted that are unsuccessfully disputed by the Buyer (as finally
determined by the Arbiter) bears to the aggregate dollar amount of such items so
submitted and (y) shall be borne by the Sellers in the proportion that the
aggregate dollar amount of such disputed items so submitted that are
successfully disputed by the Buyer (as finally determined by the Arbiter) bears
to the aggregate dollar amount of such items so submitted. Whether any dispute
is resolved by agreement among the parties or by the Arbiter, changes to the
Closing Balance Sheets shall be made hereunder only for items as to which the
Buyer has taken exception in the Notice of Disagreement. The fees and expenses
of the Sellers' Representative incurred in connection with the preparation of
the Closing Balance Sheets and review of any Notice of Disagreement shall be
borne by the Sellers, and the fees and expenses of the Buyer's independent
accountants incurred in connection with their review of the Closing Balance
Sheets shall be borne by the Buyer.
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(c) Upon final determination of the aggregate Net Current Assets of
the Companies as of the close of business on the Closing Date, the Aggregate
Purchase Price shall be adjusted as follows: (i) the Aggregate Purchase Price
shall be decreased dollar for dollar by the amount, if any, by which Current
Assets reflected on the Final Closing Balance Sheets are less than Liabilities
reflected on the Final Closing Balance Sheets and (ii) the Aggregate Purchase
Price shall be increased dollar for dollar by the amount, if any, by which
Current Assets reflected on the Final Closing Balance Sheets are greater than
Liabilities reflected on the Final Closing Balance Sheets. For purposes hereof,
the "Final Closing Balance Sheets" means (x) the Closing Balance Sheets if no
Notice of Disagreement with respect thereto is duly and timely delivered
pursuant to Section 1.3(b) or (y) if such a Notice of Disagreement is so
delivered, the Closing Balance Sheets as agreed by the Sellers' Representative
and Buyer pursuant to Section 1.3(b) or (z) if such Notice of Disagreement is so
delivered and in the absence of such agreement, the Final Closing Balance Sheets
as prepared by the Arbiter pursuant to Section 1.3(b).
(d) The net adjustment to the Aggregate Purchase Price pursuant to
Section 1.3(c) above, whether positive or negative, is the "Final Adjustment
Amount." Within ten (10) days after the Closing Balance Sheets become final and
binding upon the parties (i) if the net effect pursuant to this Section 1.3 is
an increase in the Aggregate Purchase Price, the Buyer shall deliver to the
Sellers cash equal to the Final Adjustment Amount plus the Adjustment Interest
and (ii) if the net effect pursuant hereto is a decrease in the Purchase Price,
the Sellers shall, pro rata in accordance with such Seller's Indemnity
Percentage (as disclosed on Section 1.3(d) of the Disclosure Letter), deliver to
an account designated in writing by the Buyer, by wire transfer in immediately
available funds, an amount equal to the Final Adjustment Amount plus the
Adjustment Interest. For purposes hereof, "Adjustment Interest" shall mean
interest on the Final Adjustment Amount calculated from the Closing Date to the
date of actual payment at a rate equal to the then current prime rate (as
published by the Wall Street Journal, East Coast Edition or any successor
publication thereto, on the Closing Date).
1.4. Closing. The closing of the sale and purchase of the Purchased
Interests (the "Closing") shall take place on September 2, 2003 (the "Closing
Date") at the offices of Dechert LLP, 4000 Bell Atlantic Tower, 1717 Arch
Street, Philadelphia, Pennsylvania, or at such other place and time as the
parties may agree upon in writing.
1.5. Indemnification Notes; Note Escrow Account.
(a) Issuance of Indemnification Notes.
(i) At the Closing, Buyer shall issue the Equity Sellers Note and
the Parent Companies shall issue the Note Sellers Notes, each accompanied by an
irrevocable standby letter of credit (such letters of credit as contemplated by
this Section 1.5(a)(i) being the "Irrevocable Standby Letters of Credit") in a
cash amount equal to the face amount of the Indemnification Notes satisfying the
requirements for such letters of credit under Section 453 of the Code and the
Treasury Regulations thereunder that are in the amount of the Equity Sellers
Note and the Note Sellers Notes, respectively, issued for the benefit of the
Sellers' Representative by a bank selected by the Sellers' Representative and
reasonably satisfactory to Buyer (the "Issuing Bank"), payable on the first
anniversary of the Closing Date upon presentation of a certificate of Buyer
stating that there are no outstanding obligations of Sellers under this
Agreement, if the Equity Sellers Note or the Note Sellers Notes (as the case may
be) are not paid when due, except to the extent of the amount that such
Indemnification Note is
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subject to a pending claim for indemnification pursuant to Article VIII hereof.
In furtherance of the foregoing, the Irrevocable Letter of Credit shall remain
in effect until the later of (A) the date on which the face amount of the
Irrevocable Letter of Credit is fully drawn upon by the Sellers' Representative
or (B) the date on which all pending claims made against the Indemnification
Notes have been resolved. The portion of the Equity Sellers Note or a Note
Sellers Note (as the case may be) to which each Seller is entitled shall be in
proportion to the percentages set forth opposite such Seller's name on Schedule
1 to such note (with respect to each Seller, its "Note Percentage"). The Sellers
shall be entitled to the rights and remedies with respect to the Indemnification
Notes as described in each such note; subject at all times to the terms and
conditions of this Agreement, including Article VIII hereof.
(ii) Claim Procedures. Buyer shall be entitled to reduce the
principal amount of the Indemnification Notes and the face amount of the
Irrevocable Standby Letter of Credit in accordance with the terms of the
Indemnification Notes.
(iii) Payment of Letter of Credit Fees. The fees charged by the
bank issuing the Irrevocable Standby Letters of Credit shall be paid in an
amount up to Five Thousand Dollars ($5,000) by Buyer and thereafter by the
Sellers pro rata in accordance with such Seller's Indemnity Percentage on the
Closing Date.
(b) Deposit of Note Escrow Funds into the Note Escrow Account.
Immediately after the Closing, the Parent Companies shall deposit the Note
Escrow Funds pursuant to the terms of the Note Escrow Agreement, which shall be
entered into by and among the Parent Companies, the Sellers' Representative and
the escrow agent named therein, the identity of which escrow agent will be
reasonably acceptable to the Parent Companies and the Sellers' Representative
(the "Note Escrow Agent").
1.6. Receipt of PPPA. Upon the Closing and in accordance with the terms of
this Agreement, Buyer and the Companies shall use their best efforts to submit
all required documentation and information in order to obtain from the United
States Department of Education (the "Department of Education") a final executed
provisional program participation agreement (a "PPPA") for each of the Schools,
and the Sellers shall reasonably cooperate with Buyer and the Companies in
securing the PPPAs and shall be entitled to participate in the approval process.
In the event that (a) Buyer or a Buyer affiliate does not receive one or more of
the PPPAs within nine (9) months after the Closing, or (b) the Department of
Education notifies a School in writing after the Closing of its determination
that it will not issue a PPPA to the School, and such failure to receive a PPPA
is solely and exclusively due to either (i) any liability of the Sellers or the
Companies for noncompliance with Title IV of the HEA arising prior to the
Closing, or (ii) a breach by Sellers or the Companies of one or more of the
representations and warranties of Sellers or the Parent Companies contained in
Articles II and III, and Sellers have been given a reasonable opportunity to
cure such breach, which opportunity to cure shall not extend beyond (A) the date
ninety (90) days from the date the Sellers' Representative receives notice of
such breach from Buyer (the "Notice Date") in the event that a valid Temporary
Provisional Program Participation Agreement (each, a "Temporary PPPA") remains
in full force and effect for such School, or (B) the date sixty (60) days from
the Notice Date in the event that no Temporary PPPA is then in effect for such
School (the "Cure Period"), each Seller shall return to Buyer that portion of
the Aggregate Purchase Price received by such Seller that is attributable to the
School(s) or School location(s), and the principal amount of the Indemnification
Notes and the Irrevocable Standby Letters of Credit shall be reduced in
accordance with their terms without any further action of the Sellers in the
amount attributable to
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the School(s) or School(s) location(s), each in the amount specified on Exhibit
F attached hereto, for which the denial or non-issuance of a PPPA is at issue,
plus Losses payable by Sellers that have not already been paid in connection
with the applicable breach of such representations and warranties; provided,
however, that in no event shall the total amounts to be returned by the Sellers
exceed the sum of Fifteen Million Dollars ($15,000,000) of the Aggregate
Purchase Price plus the amount of the then outstanding principal amount of the
Indemnification Notes; provided, further, that Buyer shall be entitled to Losses
incurred by Buyer as a result of Buyer's failure to receive a Temporary PPPA
during and prior to the expiration or waiver of the Cure Period and subject to
Buyer providing Sellers with an itemized list of all such Losses; and provided,
further, that, any and all amounts delivered to Buyer in connection with this
Section 1.6 shall reduce the amount of Losses otherwise payable by Sellers in
connection with the applicable breach of such representations and warranties. In
addition to the foregoing, the Sellers, at their sole discretion, upon written
notice to Buyer, may waive the Cure Period at any time during such Cure Period.
In the event that, within twelve (12) months of the expiration or waiver of the
Cure Period, the Buyer or a Buyer affiliate obtains authorization for federal
student financial aid participation by or for any School or any location of a
School for which the Sellers have returned funds pursuant to the foregoing
sentence, including participation as an additional location of another
institution, Buyer shall promptly notify the Sellers and shall pay to the
Sellers, within ten (10) days of the issuance of such authorization, the funds
that the Sellers returned to the Buyer for that School, subject to any pending
claims for Losses (which funds in respect of pending claims for Losses shall
become a portion of the principal of the Indemnification Notes) and less the
amount of any actual losses sustained by Buyer as the direct result of the delay
in issuance of a PPPA for such School. Buyer shall provide to the Sellers'
Representative an itemized list of all such losses and expenses to be deducted.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE PARENT COMPANIES
As an inducement to Buyer to enter into this Agreement and consummate the
transactions contemplated hereby, except as set forth in the disclosure letter
delivered by the Sellers and the Parent Companies on the date hereof, as may be
amended or supplemented from time to time in accordance with this Agreement (the
"Disclosure Letter"), each of the Parent Companies hereby represents and
warrants to Buyer as follows:
2.1. Organization; Qualification. Each of AEC, Brown Mackie, Commonwealth,
Asher, Stautzenberger and Michiana is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. Southern Ohio LLC is a limited liability company duly formed,
validly existing and in good standing under the laws of its jurisdiction of
formation. Each of AEC, Brown Mackie, Commonwealth, Asher, Stautzenberger,
Michiana, and Southern Ohio LLC has the corporate or limited liability company
power and authority, as applicable, to operate, own and lease its properties,
and carry on its business as now conducted. Each of AEC, Brown Mackie,
Commonwealth, Asher, Stautzenberger, Michiana, and Southern Ohio LLC is duly
qualified and in good standing as a foreign corporation or limited liability
company, as applicable, and is duly authorized to transact business in each
jurisdiction where the character of the properties owned or leased by it or the
nature of the activities conducted by it make such qualification and good
standing necessary, except where the failure to be so qualified, individually or
in the aggregate, would not have a Material Adverse Effect. For purposes hereof,
"Material Adverse Effect" or "Material Adverse Change" means any
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material adverse effect or change upon the business, assets, prospects,
financial condition or results of operations of any of the Companies or the
Schools, taken individually or as a whole, or any material adverse effect or
change that impairs the ability of the Sellers or the Companies to consummate
the transactions contemplated by this Agreement other than with respect to any
adverse changes which relate to or result from (i) public or industry knowledge
relating to the transactions contemplated under this Agreement (including any
action or inaction by such person's employees, customers or vendors), or (ii)
general economic or political conditions or other conditions affecting the
industry in which the Companies compete, or (iii) changes in laws or regulations
applicable to the Companies after the date hereof.
2.2. Authorization and Enforceability. Each of the Parent Companies has the
full power and authority to enter into and perform this Agreement in accordance
with its terms, and the execution, delivery and performance of this Agreement by
each of the Parent Companies has been duly authorized by all necessary corporate
action of each of the Parent Companies. This Agreement has been duly executed
and delivered by each Parent Company, and, assuming the due authorization,
execution and delivery by the other parties hereto, constitutes, and each other
agreement to which the Parent Companies are party and which is executed at the
Closing pursuant to this Agreement when executed and delivered by the Parent
Companies shall constitute, the legal, valid and binding obligations of the
Parent Companies, enforceable against each of them in accordance with its terms,
except as such enforcement may be limited by bankruptcy, insolvency and other
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles.
2.3. No Violation of Laws or Agreements. None of the execution and delivery
of this Agreement, the consummation of the transactions contemplated hereby or
the compliance with or fulfillment of the terms, conditions and provisions
hereof or thereof by the Companies will (a) contravene any provision of the
certificate of incorporation or bylaws or operating agreement or certificate of
formation, as applicable, of the Companies, (b) conflict with, result in a
breach of or constitute a default or an event of default (or an event that
might, with the passage of time or the giving of notice or both, constitute a
default) under any of the terms of or result in the termination or loss of any
right (or give others the right to cause such a termination or loss) under, any
license, indenture, mortgage or any other contract, agreement or instrument to
which any of the Companies are a party or by which any of the Companies or any
of their respective assets may be bound or affected, with the exception of or
subject to receipt of the consents set forth in Section 2.3(b) of the Disclosure
Letter, (c) violate any law or violate any judgment or order of any governmental
body to which the Companies are subject, (d) result in the creation or
imposition of any mortgages, claims, pledges, liens, charges, security
interests, limitations, restrictions or other encumbrances (collectively, the
"Encumbrances") upon any of the assets of the Companies or give to others any
interests or rights therein, or (e) result in the maturation or acceleration of
any liability or obligation of any of the Companies (or give others the right to
cause such a maturation or acceleration).
2.4. Ownership of Schools. The Schools are owned and operated by the
Companies directly, and no other individual, corporation, partnership, joint
venture, trust, unincorporated association or government or any agency or
political subdivisions ("Person") has any ownership interest in the Schools. No
other Person has any right, option, subscription or other arrangement to
purchase or otherwise acquire any ownership interest in the Schools or the
Companies.
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2.5. Shares; Capitalization.
(a) AEC. The authorized capital stock of AEC consists solely of (i)
1,000 shares of Class A common stock, $.01 par value per share, of which
605.9742 shares are issued and outstanding and 178.78699 shares are held in its
treasury and (ii) 1,000 shares of Class B common stock, $.01 par value per
share, of which 443.42487 shares are issued and outstanding and 256.57513 shares
are held in its treasury. The AEC Purchased Shares constitute all of the issued
and outstanding capital stock of AEC.
(b) Brown Mackie. The authorized capital stock of Brown Mackie
consists solely of (i) 1,000 shares of Class A common stock, $.01 par value per
share, of which 394.80089 shares are issued and outstanding and 168.82315 shares
are held in its treasury and (ii) 1,000 shares of Class B common stock, $.01 par
value per share, of which 365 shares are issued and outstanding and 135 shares
are held in its treasury. The Brown Mackie Purchased Shares constitute all of
the issued and outstanding capital stock of Brown Mackie.
(c) Commonwealth. The authorized capital stock of Commonwealth
consists solely of (i) 1,000 shares of Class A common stock, $.01 par value per
share, of which 394.80089 shares are issued and outstanding and 168.82315 shares
are held in its treasury and (ii) 1,000 shares of Class B common stock, $.01 par
value per share, of which 365 shares are issued and outstanding and 135 shares
are held in its treasury. The Commonwealth Purchased Shares constitute all of
the issued and outstanding capital stock of Commonwealth.
(d) Stautzenberger. The authorized capital stock of Stautzenberger
consists solely of (i) 1,000 shares of Class A common stock, $.01 par value per
share, of which 394.80089 shares are issued and outstanding and 168.82315 shares
are held in its treasury and (ii) 1,000 shares of Class B common stock, $.01 par
value per share, of which 365 shares are issued and outstanding and 135 shares
are held in its treasury. The Stautzenberger Purchased Shares constitute all of
the issued and outstanding capital stock of Stautzenberger.
(e) Asher. The authorized capital stock of Asher consists solely of
(i) 1,000 shares of Class A common stock, $.01 par value per share, of which
394.80089 shares are issued and outstanding and 168.82315 shares are held in its
treasury and (ii) 1,000 shares of Class B common stock, $.01 par value per
share, of which 365 shares are issued and outstanding and 135 shares are held in
its treasury. The Asher Purchased Shares constitute all of the issued and
outstanding capital stock of Asher.
(f) Michiana. The authorized capital stock of Michiana consists solely
of (i) 1,000 shares of Class A common stock, $.01 par value per share, of which
394.80089 shares are issued and outstanding and 168.82315 shares are held in its
treasury and (ii) 1,000 shares of Class B common stock, $.01 par value per
share, of which 365 shares are issued and outstanding and 135 shares are held in
its treasury. The Michiana Purchased Shares constitute all of the issued and
outstanding capital stock of Michiana.
(g) Southern Ohio LLC. The membership interests in Southern Ohio LLC
consist solely of those interests owned by AEC, Brown Mackie, Commonwealth,
Stautzenberger, Asher and Michiana and are owned of record, legally and
beneficially by such Parent Companies.
(h) Purchased Interests. Except as set forth in Section 2.5(h) of the
Disclosure Letter, there are no outstanding subscriptions, options, warrants,
preemptive rights, exercise
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rights, exchange rights, appreciation, phantom stock or other rights to acquire
from the Companies any of the Purchased Interests or any other shares of capital
stock or membership interests, as applicable, of the Companies. The Purchased
Interests are validly issued, fully paid and nonassessable. The Purchased
Interests were issued in compliance with all applicable federal and state
securities laws and regulations.
2.6. Financial Statements. Included in Section 2.6 of the Disclosure Letter
are the following financial statements (the "Financial Statements"):
(i) the audited balance sheets for each of AEC, Brown Mackie,
Commonwealth, Asher, Stautzenberger and Michiana for the fiscal years ended
December 31, 2001 and 2002, along with income statements and statements of cash
flows for the years then ended;
(ii) the audited balance sheets for Southern Ohio LLC for the
fiscal year ended December 31, 2002, along with income statements and statements
of cash flows for the year then ended; and
(iii) unaudited combined and combining statements of income,
retained earnings and cash flows of the Companies for the four-months ended
April 30, 2003 and combined and combining balance sheets of the Companies as at
such date.
The Financial Statements have been prepared in accordance with the
books of account and records of each of the Companies, except with respect to
such modifications required by GAAP. The Financial Statements have been prepared
in accordance with GAAP on a consistent basis throughout the indicated periods,
and fairly present, in all material respects, the financial position of each of
the Companies and the results of operations and cash flows of each of the
Companies at the dates and for the relevant periods indicated except for, in the
case of the unaudited statements, (A) normal recurring audit adjustments and (B)
the absence of footnotes. Except as otherwise set forth in Section 1.3, all
references in this Agreement to "Balance Sheets" shall mean collectively, each
of the Companies' balance sheets dated April 30, 2003 (collectively, the
"Companies' Balance Sheets") and "Balance Sheet Date" shall mean April 30, 2003.
As of the Closing, all books and records described in this Section 2.6 will be
in the possession of the Companies.
2.7. Liabilities in Connection with Share Repurchases. Except as disclosed
in Section 2.7 of the Disclosure Letter, none of the Companies has any liability
or obligation of any nature whatsoever with respect to the repurchase of the
shares of capital stock or membership interests, as applicable, held by any
shareholder or former shareholder or member or former member, as applicable, of
any of the Companies.
2.8. Undisclosed Liabilities. None of the Companies has any debts,
obligations or liabilities, absolute, fixed, contingent or otherwise, of any
nature whatsoever, whether due or to become due (including unasserted claims),
whether incurred directly or by any predecessor thereto, and whether arising out
of any act, omission, transaction, circumstance, sale of goods or services,
state of facts or other condition that occurred or existed on or before the
Balance Sheet Date, whether or not then known, due or payable, except: (a) those
reflected or reserved against on the Companies' Balance Sheets in the amounts
shown thereon, (b) those disclosed in Section 2.8(b) of the Disclosure Letter,
(c) those of the same nature as those set forth on the Companies' Balance Sheets
that have arisen in the ordinary course of business of the Companies after the
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Balance Sheet Date through the date hereof, all of which have been consistent in
amount and character with past practice and experience, and none of which,
individually or in the aggregate, has or will be reasonably likely to have a
Material Adverse Effect. Without limiting the generality of the foregoing, as of
the Closing, the Companies shall each be free of any non-current liabilities
(except (i) deferred rent in an amount not to exceed $125,000, and (ii) mortgage
and asset based indebtedness in an amount equal to $3,500,000, each as more
particularly set forth in Section 2.8 of the Disclosure Letter).
2.9. Condition of Assets; Business; Personal Property.
(a) The Companies are engaged in the operation of the Schools and no
other business. Except as disclosed in Section 2.9(a) of the Disclosure Letter,
the furniture, machinery, equipment, tools, and other tangible personal property
owned by the Companies or used in connection with the operation of the Schools,
including those items reflected on the Balance Sheets (collectively, the "Owned
Personal Property"), (i) are in good operating condition and repair, and (ii)
are suitable for the purposes for which they are used in the business, including
the operation of the Schools.
(b) The Companies have good, marketable and exclusive title to (i) the
Owned Personal Property, (ii) the leased personal property of the Companies (the
"Leased Personal Property") and (iii) the licensed intellectual property of the
Companies (the "Licensed IP" and, together with the Owned Personal Property and
the Leased Personal Property, the "Personal Property"), as applicable, except
for such Personal Property identified in Section 2.9(b) of the Disclosure Letter
and except for such Personal Property disposed of in the ordinary course of
business since the Balance Sheet Date. The Companies have no Personal Property
that is subject to any Encumbrance or impairment other than Permitted
Encumbrances (as defined in Section 2.10(b).
(c) Each of the Companies owns all assets that are necessary or
appropriate for use in connection with the operation of its business, including
the operation of the Schools, except for the Leased Personal Property and the
Licensed IP described in Section 2.9(c) of the Disclosure Letter, which is
leased or licensed by the Companies set forth on Section 2.9(c) of the
Disclosure Letter. None of the Companies has received written notice that the
use of the Leased Personal Property or Licensed IP violates any covenants,
conditions, or restrictions that encumber such property, or that any such
property is subject to any restriction for which any permit or authorization is
necessary to the current use thereof. To the knowledge of the Companies, there
are no rights, leases, licenses, concessions or other agreements granting to any
person other than Buyer the right of use of any portion of the Leased Personal
Property other than rights, leases, licenses, concessions or agreements that are
disclosed in Section 2.9(c) of the Disclosure Letter.
2.10. Real Property.
(a) Section 2.10(a) of the Disclosure Letter contains a list of all
(i) real property owned by the Companies, including all owned land, buildings,
structures, classrooms, other educational sites, fixtures, other improvements
and appurtenances (the "Owned Real Property") and (ii) real property leased by
the Companies, including all leased land, buildings, structures, classrooms,
other educational sites, fixtures, other improvements and appurtenances (the
"Leased Real Property") and, together with the Owned Real Property, the "Real
Property").
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(b) The Companies have good, marketable and exclusive title to (i) the
Owned Real Property, and (ii) the leasehold interests in the Leased Real
Property, free and clear of all Encumbrances or impairments other than Permitted
Encumbrances. Except as disclosed in Section 2.10(b) of the Disclosure Letter,
the Companies have the exclusive right to occupy, sell, lease or sublease all of
the Real Property or any portion thereof. There are no rights, leases, licenses,
concessions or other agreements granting to any person other than Buyer the
right of use or occupancy of any portion of the Real Property other than rights,
leases, licenses, concessions or agreements that are disclosed in Section
2.10(b) of the Disclosure Letter. For purposes hereof, "Permitted Encumbrances"
means (A) Encumbrances for current Taxes or assessments or other governmental
charges or levies which are not yet due and payable, or are being contested in
good faith by appropriate proceedings and which are set forth in Section 2.10(b)
of the Disclosure Letter; (B) minor imperfections of title, conditions,
easements and reservations of rights, including easements or reservations of, or
rights of others for, rights of way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, encroachments, covenants and
restrictions, if any, none of which, individually or in the aggregate,
materially detract from the value of the affected Real Property or impair the
use of such Real Property or the conduct of the business thereon as it is
currently being used and conducted and as it has been used and conducted
consistent with past practice; (C) statutory Encumbrances of landlords and
Encumbrances of carriers, warehousemen, mechanics, materialmen and other similar
Persons imposed by applicable laws incurred in the ordinary course of business
for sums not yet delinquent or being contested in good faith; provided that any
such Encumbrances currently being contested are listed in Section 2.10(b) of the
Disclosure Letter; and (D) Encumbrances listed in Section 2.10(b) of the
Disclosure Letter, none of which, individually or in the aggregate, materially
detract from the value of the affected Real Property or impair the use of such
Real Property or the conduct of the business thereon as it is currently being
used and conducted and as it has been used and conducted consistent with past
practice.
(c) All leases for Leased Real Property used by the Companies in
connection with the operation of the Schools (i) are valid and in full force and
effect, and (ii) are enforceable in accordance with their terms. No lease for
Leased Real Property or any right, liability or obligation under any such lease
has been assigned or subleased by the Companies in whole or in part. Neither the
Companies nor, to the knowledge of the Companies, the respective landlords are
in default under any such lease, and no event, act or omission has occurred
which would result in a default by any of the Companies or the respective
landlords under any such lease, except for those defaults disclosed in Section
2.10(c) of the Disclosure Letter.
(d) (i) All buildings, structures, classrooms, other educational
sites, fixtures and other improvements, situated on the Real Property are
supplied with utilities and other services necessary for the operation of the
Schools located thereon (including gas, electricity, water, telephone, sanitary
and storm sewers and vehicular access through existing driveways to public
roads), (ii) the land of the Owned Real Property does not serve any adjoining
property for any purpose inconsistent in any material respect with the use of
the Owned Real Property, and, to the knowledge of the Companies, none of the
Real Property is located within any flood plain or is otherwise subject to any
similar type restriction requiring any permits or licenses, which are necessary
to the use of such Real Property, where such permits or licenses have not been
obtained and such failure to obtain such permit or license would have a Material
Adverse Effect, (iii) except as disclosed in Section 2.10(d) of the Disclosure
Letter, no Person is in possession of the Owned Real Property, and (iv) all
buildings, structures, classrooms, other educational sites, fixtures and other
improvements, situated on the Real Property have no known material structural
defects or material air quality or mold conditions.
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(e) Except as set forth in Section 2.10(e) of the Disclosure Letter,
the buildings, structures, classrooms, other educational sites, fixtures and
other improvements situated on the Real Property (i) have all agreements,
easements or other rights which are reasonably necessary to permit their lawful
use and operation in all material respects, or which are reasonably necessary to
permit lawful egress and ingress to and from any of the foregoing in all
material respects, and such agreements, easements or other rights remain in full
force and effect, and (ii) have received all approvals of governmental
authorities (including certificates of occupancy, permits and licenses) required
in connection with the operation thereof and have been operated and maintained
in accordance with all applicable legal requirements and are not in material
violation of any applicable zoning, building code, subdivision, health, fire, or
safety ordinances, regulations, laws, orders or covenants, conditions or
restrictions that encumber the Real Property. None of the Companies has received
written notice that the use or occupancy of the Real Property violates any
covenants, conditions or restrictions that encumber such property or that any
such property is subject to any restriction for which any permit or
authorization is necessary to the current use thereof.
2.11. No Pending Litigation or Proceedings.
(a) Except as disclosed in Section 2.11(a) of the Disclosure Letter,
there are no actions, suits, claims, proceedings, internal investigations or, to
the knowledge of the Companies, third-party investigations of any nature or kind
whatsoever ("Litigation") pending or, to the knowledge of the Companies,
threatened against or affecting the Companies, the Schools, any of the
Companies' material assets, the Purchased Interests or the transactions
contemplated by this Agreement, at law or in equity, including any Litigation by
or before the Department of Education or any other applicable accrediting
agency, guarantee agency or any federal, state or local governmental body. None
of the Companies have been party to any other Litigation since January 1, 2002.
(b) There are presently no outstanding judgments, decrees or orders of
any accrediting agency, guarantee agency or federal, state or local governmental
body against or affecting the Companies, the Schools, any of the Purchased
Interests or the Companies' material assets or the transactions contemplated by
this Agreement.
(c) Except as disclosed in Section 2.11(c) of the Disclosure Letter,
none of the Companies has commenced or has any pending Litigation against any
third party.
2.12. Contracts; Compliance. Each of the contracts to which any of the
Companies is a party is presently in effect and there has been no breach by any
of the Companies and, to the knowledge of the Companies, no breach by any other
party to any of those agreements or any of the provisions of any of those
agreements, except as set forth in Section 2.12 of the Disclosure Letter and
except for such breaches which, individually or in the aggregate, do not have a
Material Adverse Effect. Section 2.12 of the Disclosure Letter sets forth, as of
the date hereof, a complete list of: (a) all notes and agreements relating to
any indebtedness of any of the Companies for borrowed money; (b) all leases or
other rental agreements relating to any of the Companies under which such
Company is either lessor or lessee; (c) all employment agreements for employees
of each of the Companies; and (d) all other agreements, commitments and
understandings (written or oral) to which any of the Companies are a party or by
which they are bound which (i) require payment by such Company of more than
Fifty Thousand Dollars ($50,000), (ii) cannot be terminated on less than sixty
(60) days notice without liability, or (iii) require the consent of a third
party for assignment to Buyer (such contracts being the
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"Contracts"). True and complete copies of all of the Contracts have been made
available to Buyer.
2.13. Labor. The employees of each of the Companies are not represented by
any union or other collective bargaining group with respect to their employment
with the Companies. None of the Companies is a party to any collective
bargaining or other labor agreement with respect to its employees. None of the
Companies is a party to, involved in, or, to the Companies' knowledge,
threatened by, any labor dispute or unfair labor practice charge. Each of the
Companies has complied in all material respects with all legal requirements
relating to employment, equal employment opportunity, nondiscrimination,
immigration, wages, hours, benefits, collective bargaining, the payment of
social security and similar taxes, and occupational safety and health, or any
other applicable employment legislation. There have not been (i) any
proceedings, complaints, claims or charges outstanding or, to the Companies'
knowledge, threatened, nor are there any orders, decisions, directions or
convictions currently registered or outstanding, against or affecting any of the
Companies relating to the alleged violation of any legal requirement pertaining
to labor relations or employment matters, including any charge or complaint
filed by an employee or union with the National Labor Relations Board, the Equal
Employment Opportunity Commission, or any comparable governmental authority, or
any organizational activity, or other labor or employment dispute against or
affecting any of the Companies, or (ii) any application for certification of a
collective bargaining agent.
2.14. Transactions with Related Parties. Except as set forth in Section
2.14 of the Disclosure Letter, since January 1, 2002, no current director,
officer or member of the Companies or any Seller or any Seller's spouse or
children or any officer or director of any Seller, or any other entity in which
any Seller is a shareholder, partner, member, owner, principal, officer or
director is presently, or during the twelve month period ending on the date
hereof has been, a party to any transactions with the Companies, except for any
transactions no less favorable to the Companies than on an arms-length basis.
2.15. Curriculum.
(a) The term "Curriculum," as used in this Agreement, means the
curriculum used in the educational programs of the Schools in the form of
computer programs, slide shows, texts, films, videos or any other form or media,
including the following items: (1) course objectives, (2) lesson plans, (3)
exams, (4) class materials (including interactive or computer-aided materials),
(5) faculty notes, (6) course handouts, (7) diagrams, (8) syllabi, (9) sample
externship and placement materials, (10) clinical checklists, (11) course and
faculty evaluation materials, (12) policy and procedure manuals, and (13) other
related materials. The Curriculum shall also include, without limitation, (i)
all copyrights, copyright applications, copyright registrations and trade
secrets relating to the above-listed items and (ii) all periodic updates or
revisions to the Curriculum as developed.
(b) Except as disclosed in Section 2.15(b) of the Disclosure Letter,
the Companies own outright, and have good and marketable title or other rights
to, the Curriculum used in the Schools free and clear of all Encumbrances. No
employee or affiliate of any Company or any other Person owns or has any
interest, directly or indirectly, in any material part of the Curriculum. The
Companies do not use any part of the Curriculum by consent of any other Person
and are not required to and do not make any payments to others with respect
thereto. To the knowledge of the Companies, no component of the Curriculum
infringes or violates any copyright, patent, trade secret, trademark, service
mark, registration or other
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proprietary right of any other Person and the Companies' past and current use of
any part of the Curriculum does not infringe upon or violate any such right.
2.16. Intellectual Property. Section 2.16 of the Disclosure Letter sets
forth a complete list of all of the registered trademarks, trademark
registrations, applications for trademark registration, registered trade names,
patents and registered copyrights owned by each of the Companies all of which
are owned by the Companies free and clear of any Encumbrances. To the knowledge
of the Companies, none of the Companies, in any material respect, is infringing
any patent, copyright or trademark of any third party or otherwise violating, in
any material respect, the intellectual property rights of any third party nor
has any claim been made or, to the knowledge of the Companies, threatened
against any of the Companies alleging any such violation. To the knowledge of
the Companies, there has been no violation by others of any right of any Company
in any trademark or copyright. None of the Companies is a party to or bound by
any license or other agreement requiring the payment by it of any royalty or
similar payment in connection with its operations, except for commercially
available software.
2.17. No Changes. Except as disclosed in Section 2.17 of the Disclosure
Letter, since the Balance Sheet Date, the Companies have conducted their
businesses and operated the Schools only in the ordinary course. Without
limiting the generality of the foregoing sentence, since the Balance Sheet Date,
except as disclosed in Section 2.17 of the Disclosure Letter, there has not been
any: (a) Material Adverse Change; (b) damage or destruction to any of the
material properties of the Schools or the Companies in excess of Fifty Thousand
Dollars ($50,000); (c) strike or other collective bargaining activity at the
Schools or the Companies; (d) creation of any Encumbrances on any of the
properties of the Schools or the Companies; (e) except in connection with the
issuance of the Seller Notes, declaration or payment of any dividend or other
payment or distribution or redemption of any shares of equity securities or
membership interests, as applicable, in the Companies; (f) increases in the
salaries or bonuses of any employee of any of the Schools or the Companies
(except normal annual merit increases and bonuses made in the ordinary course of
business); (g) except as set forth on the Companies' capital expenditure plan
provided to the Buyer, a copy of which is attached hereto as Exhibit G (the
"Capital Plan"), capital expenditures or other asset acquisition or expenditure
in excess of Fifty Thousand Dollars ($50,000) individually or Two Hundred
Thousand Dollars ($200,000) in the aggregate; (h) material change in any Company
Plan (as defined in Section 2.18); (i) disposition of any asset, except (A)
assets disposed of in the ordinary course of business or (B) assets disposed of
for less than Fifty Thousand Dollars ($50,000) individually or Two Hundred
Thousand Dollars ($200,000) in the aggregate; (j) payment, prepayment or
discharge of any material liability other than in the ordinary course of
business; (k) adverse change or threat thereof to any relations or contracts
with, or any loss of, any material suppliers of the Schools or the Companies;
(l) write-offs or write-downs of any assets of the Schools or the Companies in
excess of Five Thousand Dollars ($5,000) in the aggregate; (m) change in the
board of directors or management of the Companies or the Schools; (n) creation
or termination of any material Contract, material right or liability of any of
the Schools or the Companies not in the ordinary course of business; or (o)
agreement or commitment to do any of the foregoing.
2.18. Employee Benefits.
(a) Benefit Plans. Section 2.18(a) of the Disclosure Letter sets forth
and identifies a complete and correct list of all Benefit Plans (as hereinafter
defined) maintained or sponsored by the Companies or with respect to which the
Companies could reasonably be expected to have liability or to have any
obligation to contribute, for or with respect to any of the
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current or former employees of the Companies or their beneficiaries, whether or
not funded and whether or not terminated (hereinafter individually referred to
as a "Company Plan" and collectively referred to as the "Company Plans"). As
used in this Agreement, the term "Benefit Plans" shall mean all written and
unwritten "employee benefit plans" within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and any
other written and unwritten profit sharing, pension, savings, deferred
compensation, fringe benefit; insurance, medical, medical reimbursement; life;
disability; accident; post-retirement health or welfare benefit, stock option,
stock purchase, sick pay, vacation, employment, severance, termination or other
plan, agreement, contract, policy, trust fund or arrangement.
(b) Compliance. Each of the Company Plans and, to the Companies'
knowledge, all related trusts, insurance contracts and funds, have been created,
maintained, funded and administered in compliance in all material respects with
all applicable laws and in compliance in all material respects with the plan
document, trust agreement, insurance policy or other writing creating the same
or applicable thereto. Other than routine claims for benefits submitted by
participants or beneficiaries, there is no litigation, legal action,
investigation, claim, or proceeding pending or threatened against any Company
Plan or against or affecting any fiduciary thereof or the assets of any trust
or, to the Companies' knowledge, insurance contract thereunder, at law or in
equity, by or before any court or governmental department, agency or
instrumentality, and, to the knowledge of the Companies, there is no basis for
any such action, suit, investigation or proceeding. There are presently no
outstanding judgments, decrees or orders of any court or any governmental or
administrative agency against or affecting the Company Plans, any fiduciaries
thereof or the assets of any trust or, to the Companies' knowledge, insurance
contract thereunder other than qualified domestic relations or medical support
orders.
(c) Qualified Plans. Section 2.18(c) of the Disclosure Letter
discloses each Company Plan that purports to be a qualified plan under Section
401(a) of the Code and exempt from United States federal income tax under
Section 501(a) of the Code (a "Qualified Plan"). With respect to each Qualified
Plan, a determination letter (or opinion or notification letter, if applicable)
has been received from the IRS that such plan is qualified under Section 401(a)
of the Code and exempt from federal income tax under Section 501(a) of the Code.
No Qualified Plan has been amended since the date of the most recent such letter
in any manner that could reasonably be expected to adversely affect such Plan's
qualified status. No member of the Company Group, nor, to the Companies'
knowledge, any fiduciary of any Qualified Plan nor any agent of any of the
foregoing, has done anything that could reasonably be expected to adversely
affect the qualified status of a Qualified Plan or the qualified status of any
related trust. No partial termination (as defined under Section 411(d)(3) of the
Code) of any Qualified Plan has occurred.
(d) No Title IV Plans. No Company Plan is or, at any time for which
any relevant statute of limitations remains open, has been either (i) a defined
benefit plan within the meaning of Section 3(35) of ERISA, or (ii) a
multiemployer plan within the meaning of Section 3(37) or Section 4001(a)(3) of
ERISA (a "Multiemployer Plan").
(e) No Withdrawal or Other Title IV Liabilities. None of the Companies
nor any other employer that, together with any of the Companies would be
considered a single employer under Sections 414(b), (c), (m) or (o) of the Code
(the "Company Group") has withdrawn from any Multiemployer Plan or incurred any
withdrawal liability to or under any
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Multiemployer Plan. None of the Companies nor any member of the Company Group
has incurred or, to the knowledge of the Companies, is reasonably likely to
incur any other liability under Title IV of ERISA that could reasonably be
expected to result in a Material Adverse Effect.
(f) No Foreign Plans. No Company Plan covers any employees of any
member of the Company Group in any foreign country or territory.
(g) No Acceleration of Liabilities. Neither the execution of this
Agreement nor the consummation of the transactions contemplated hereunder will
(i) result in an increase in the amount of compensation or benefits or the
acceleration of the vesting or timing of payment of any compensation or benefits
payable to or in respect of any Participant; (ii) result in or satisfy a
condition to the payment of compensation that would, in combination with any
other payment, result in an "excess parachute payment" within the meaning of
Section 280G(b) of the Code; or (iii) constitute or involve a prohibited
transaction as defined under ERISA or the Code, or a breach of fiduciary duty
under Title I of ERISA.
(h) Prohibited Transactions; Fiduciary Duties; Post-Retirement
Benefits. No prohibited transaction (within the meaning of Section 406 of ERISA
and Section 4975 of the Code) with respect to any Company Plan exists or has
occurred that could subject any of the Companies to any liability or Tax under
Part 5 of Title I of ERISA or Section 4975 of the Code that could result in a
Material Adverse Effect. No breach of fiduciary duty under Title I of ERISA has
occurred with respect to any Company Plan that could reasonably be expected to
result in a Material Adverse Effect. With the exception of the requirements of
Section 4980B of the Code, no post-retirement benefits are provided under any
Company Plan that is a welfare benefit plan as described in ERISA Section 3(1).
(i) Copies of Certain Documents. For each Company Plan, to the extent
applicable to each such Company Plan, true and complete copies of the following
have been delivered to Buyer: (A) the documents embodying the Company Plans,
including, but not limited to, the plan documents, all amendments thereto and
the related trust or funding agreements, and, in the case of any unwritten
Company Plans, written descriptions thereof; (B) annual reports including
without limitation Forms 5500 and all schedules thereto for the last three (3)
years; (C) financial statements for the last three (3) years; (D) actuarial
valuations, if applicable, for the last three (3) years; and (E) each
communication to employees regarding changes or amendments to the Company Plans
not yet made to such Company Plan. The Company has also furnished to Buyer a
copy of the current summary plan description and each summary of material
modification prepared in the last three (3) years for each Company Plan, and all
employee manuals, handbooks, policy statements and other written materials given
to employees relating to any Company Plans. To the Companies' knowledge, no oral
or written representations or commitments inconsistent with such written
materials have been made to any employee of the Companies by any employee or
agent of the Companies.
2.19. Tax Matters.
(a) Except as set forth in Section 2.19(a) of the Disclosure Letter,
each of the Companies has (i) timely filed all Tax Returns required to be filed
by the Companies; and (ii) paid in full all material Taxes that it was required
to pay (whether or not shown on any Tax Return), and any interest or penalties
with respect thereto. All such Tax Returns are correct and complete in all
material respects. Except as set forth in Section 2.19(a) of the Disclosure
Letter,
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none of the Companies is currently the beneficiary of any extension of time
within which to file any Tax Return. No claim, or notice of a claim, has ever
been made by an authority in a jurisdiction where any of the Companies does not
file Tax Returns that any of such entities is or may be subject to taxation by
that jurisdiction. There are no liens for Taxes (other than Taxes not yet due
and payable) upon any of the assets of the Companies. For purposes of this
Agreement, the term "Tax" means any federal, state, local or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
Section 59A), customs, duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated or other tax of any kind, whatever, including any interest,
penalty, or addition thereto, whether disputed or not and including any
obligations to indemnify or otherwise assume or succeed to the Tax liability of
any other entity or person. For purposes of this Agreement, the term "Tax
Return" means any return, declaration, report, claim for refund, or information
return or statement relating to Taxes, including any schedule or attachment
thereto, and including any amendment thereof.
(b) Except as set forth in Section 2.19(b) of the Disclosure Letter,
none of the Companies is a party to any claim, dispute, pending action or
proceeding, nor is any such claim, dispute, action or proceeding threatened in
writing by any governmental authority, for the assessment or collection of any
Taxes, and no claim for the assessment or collection of any Taxes has been
asserted in writing against any of the Companies which has not been settled with
all amounts due having been paid. None of the Companies has knowledge that any
governmental authority will propose or assess any additional Taxes with respect
to any of the Companies.
(c) Each of the Companies has withheld and paid proper and accurate
amounts of Taxes from its employees, independent contractors, creditors,
stockholders and other third parties, in compliance in all material respects
with all withholding and similar provisions of any and all applicable federal,
foreign, state, and local laws, statutes, codes, ordinances, rules and
regulations.
(d) Section 2.19(d) of the Disclosure Letter contains a list of all
federal, state, local and foreign income Tax Returns filed with respect to each
of the Companies for taxable periods ended on or after December 31, 1998,
indicates those Tax Returns that have been audited, and indicates those Tax
Returns that currently are the subject of audit. The Companies have made
available to Buyer correct and complete copies of all federal, state, local and
foreign income Tax Returns of each of the Companies, examination reports
relating to the Companies, and statements of deficiencies assessed against or
agreed to by each of the Companies all since December 31, 1998. Except as set
forth in Section 2.19(d) of the Disclosure Letter, since December 31, 1999, the
Companies have not received in writing from any foreign, federal, state or local
taxing authority any (i) notice indicating an intent to open an audit or other
review (except with respect to completed or ongoing audits), (ii) request for
information related to Tax matters (except with respect to completed or ongoing
audits), or (iii) notice of deficiency or proposed adjustment for any amount of
Tax proposed, asserted, or assessed by any taxing authority against any of the
Companies.
(e) Except as set forth in Section 2.19(e) of the Disclosure Letter,
the Companies have not waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax assessment or deficiency.
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(f) The Companies have not filed consents under Code Section 341(f)
concerning collapsible corporations. None of the Companies is a party to any
agreement, contract, arrangement, or plan that has resulted or would result,
separately or in the aggregate, in the payment of (i) any "excess parachute
payment" within the meaning of Code Section 280G (or any corresponding provision
of state, local or foreign Tax law), or (ii) any amount that will not be fully
deductible as a result of Code Section 162(m) (or any corresponding provision of
state, local or foreign Tax law). The Companies have not been United States real
property holding corporations within the meaning of Code Section 897(c)(2)
during the applicable period specified in Code Section 897(c)(1)(A)(ii). None of
the Companies is a party to or bound by any Tax allocation or sharing agreement.
None of the Companies (i) has been a member of an affiliated group filing a
consolidated federal income Tax Return, or (ii) has any liability for Taxes of
any entity or person under Treasury Regulations Section 1.1502-6 (or any similar
provision of state, local or foreign law), as a transferee or successor, by
contract or otherwise.
(g) None of the Companies will be required to include any item of
income in, or exclude any item of deduction from, taxable income for any taxable
period (or portion thereof) ending after the Closing Date as a result of any:
(A) change in method of accounting for a taxable period ending on or prior to
the Closing Date, (B) "closing agreement" as described in Code Section 7121 (or
any corresponding or similar provision of state, local or foreign Tax law); (C)
intercompany transactions or any excess loss account described in Treasury
Regulations under Code Section 1502 (or any corresponding provision of state,
local or foreign Tax law); (D) installment sale or open transaction disposition
made on or prior to the Closing Date; or (E) prepaid amount received on or prior
to the Closing Date.
(h) AEC, Brown Mackie, Commonwealth, Asher, Stautzenberger and
Michiana (and any predecessor of such entities) have been validly electing S
corporations (as defined in Code Section 1361(a)(1)) at all times during their
respective existences.
(i) None of AEC, Brown Mackie, Commonwealth, Asher, Stautzenberger and
Michiana will be liable for any Tax under Code Section 1374 in connection with
the deemed sale of their assets caused by the Section 338(h)(10) Election.
(j) The representations and warranties in this Section 2.19 hereof are
the sole and exclusive representations and warranties given by the Companies
relating to Taxes, Tax Returns, or other Tax matters.
2.20. Insurance. Section 2.20 of the Disclosure Letter sets forth all of
the current insurance policies with respect to which any Company is the owner,
insured or beneficiary, including a list of all policies or binders of property
and casualty, general and vehicular liability, fidelity and fiduciary liability,
umbrella, workers' compensation, key-man life and other similar insurance, and
all binders for insurance to be purchased on or before the Closing Date in order
to replace policies expiring prior to the Closing Date. To the knowledge of the
Companies, the Companies will not have any liability after the Closing Date for
retrospective or retroactive premium adjustments, or insurance deductibles
arising from the operation of the Schools or otherwise in connection with the
operation of the business of the Companies prior to the Closing Date. Except as
set forth in Section 2.20 of the Disclosure Letter, all insurance policies
covering general liability maintained by or for the benefit of the Companies are
"occurrence" policies and not "claims made" policies. Neither the execution,
delivery and performance of this Agreement, nor the consummation of the
transactions contemplated hereby, will result in the loss to the Companies of
any of the insurance policies listed in Section 2.20 of the Disclosure Letter,
or
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have a Material Adverse Effect on the rights of the Companies with respect to
liabilities arising in connection with the operations of the Companies prior to
the Closing Date. Within two (2) years prior to the date hereof, the Companies
have not been denied insurance, or been offered insurance only at a commercially
prohibitive premium.
2.21. Environmental Matters. Except as set forth in Section 2.21 of the
Disclosure Letter:
(a) The Companies and the Schools are and have been in compliance with
applicable federal, state or local laws, rules, regulations, ordinances and
directives relating to the protection of the environment as existing at the
Closing Date ("Environmental Laws"), except where such failure to comply would
not have a Material Adverse Effect.
(b) None of the Companies or the Schools has received any written
notices or claims alleging that the Companies or the Schools are in violation of
any Environmental Laws.
(c) To the knowledge of the Companies, none of the Companies or any of
the Schools has transported, arranged for transportation, stored, treated,
disposed or arranged for disposal of, any material defined as a hazardous
substance or waste under Environmental Laws ("Hazardous Substance") at or to any
location other than a site lawfully permitted to receive such Hazardous
Substance for such purposes. For purposes of this Agreement, the term "Hazardous
Substance" shall include petroleum and petroleum-based substances.
(d) None of the Companies or any of the Schools has received any
written communication, including any request for information, notice of claim,
demand, order, PRP notice, or other notification, from any governmental
authority or third party that it is or may be potentially responsible with
respect to any material investigation, abatement or cleanup of any threatened or
actual release, spill, leak, discharge, disposal or dumping (a "Release") of any
Hazardous Substance.
(e) There is no pending or, to the knowledge of the Companies,
contemplated claim or action against any of the Companies or the Schools under
Environmental Laws alleging that the Companies or any of the Schools has
adversely impacted the Real Property or any other property in proximity to the
Real Property.
(f) None of the Companies or any of the Schools has entered into any
agreement with any person or governmental agency obligating it to perform
material remediation under any Environmental Law.
(g) Except for small quantities of Hazardous Substances used in
connection with the operations of the Companies or the Schools (including
cleaning and maintenance supplies), none of the Real Property is used to treat,
store or dispose of Hazardous Substances in violation of Environmental Laws or
in a manner which requires a permit or other approval of a governmental
authority under Environmental Laws.
(h) To the knowledge of the Companies, no Hazardous Substance has been
disposed, deposited, or Released into, on or at the Real Property which will
require material investigative or remedial action by any of the Companies.
(i) To the knowledge of the Companies, no polychlorinated biphenyls
("PCBs") or friable or damaged asbestos-containing materials ("ACMs") are
present at any of
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the Real Property, nor were PCBs or ACMs removed from or remediated at the Real
Property, except in compliance with Environmental Laws.
(j) To the knowledge of the Companies, there are no underground
storage tanks containing Hazardous Substances located at the Real Property and
no such underground storage tanks have been closed or removed at the Real
Property, except in compliance with Environmental Laws.
(k) The representations and warranties in this Section 2.21 are the
sole and exclusive representations and warranties given by the Companies
relating to Environmental Laws or environmental matters.
2.22. Finder's Fees. None of the Sellers, the Companies nor any of the
officers, directors, members, managers, agents or employees of either of the
foregoing has employed any finder or investment banker or incurred any liability
for any commissions or broker's or finder's fees in connection with the
transactions contemplated herein.
2.23. Compliance with Law; Education Agency Compliance.
(a) Since July 1, 1999 (the "Compliance Date"), except as set forth in
Section 2.23(a) of the Disclosure Letter, the Schools have been operated in
conformity in all material respects with all applicable federal, state and local
laws and regulations, including those laws and regulations pertaining to
immigration and non-U.S. citizens. Except as set forth in Section 2.23(a) of the
Disclosure Letter, the Companies and each of the Schools currently maintain and,
since the Compliance Date, have maintained without interruption all licenses,
permits, approvals, clearances, consents, certificates and other evidences of
approval or authority of Sellers, the Companies or the Schools which are
necessary or appropriate to the conduct of the business of the Companies or any
of the Schools to the full extent as now conducted (collectively, the
"Educational Approvals") issued by any person, entity or organization, whether
governmental, government chartered, private, or quasi-private, that engages in
granting or withholding Educational Approvals for such Schools, regulates
post-secondary schools, their agents, or employees in accordance with standards
relating to the performance, operation, financial condition, or academic
standards of such schools, or the provision of financial assistance by and to
such schools ("Education Agencies"). Section 2.23(a) of the Disclosure Letter
contains a complete listing of all Educational Approvals currently in effect for
each of the Schools to the extent that such Educational Approvals (i) are
required for Title IV participation or (ii) constitute programmatic
accreditations issued by an accrediting agency for the purpose of accrediting
specific educational programs offered at the Schools. Each of the Companies and
each of the Schools are and, since the Compliance Date, have been in compliance
in all material respects with the terms and conditions of all such Educational
Approvals, and have timely notified and obtained all required approvals from,
all applicable Education Agencies or each substantive change in the Companies or
the Schools since the Compliance Date, including any changes in ownership or
control. Except as reflected in Section 2.23(a) of the Disclosure Letter, there
are no proceedings pending to revoke, suspend, limit, condition, restrict or
withdraw any Educational Approval, and there are, to the knowledge of the
Companies, no facts, circumstances or omissions concerning the Companies or the
Schools that would be reasonably likely to result in such a proceeding. Except
as disclosed in Section 2.23(a) of the Disclosure Letter, since the Compliance
Date, neither any of the Companies, nor any of the Schools has received written
or, to the knowledge of the Companies, oral notice that any of the Companies or
any of the Schools is or was in violation of any of the terms or conditions of
any Educational Approval or alleging
-23-
the failure to hold or obtain any Educational Approval. Except as disclosed in
Section 2.23(a) of the Disclosure Letter, since the Compliance Date, neither any
of the Companies, nor any of the Schools has received written or, to the
knowledge of the Companies, oral notice that any of the Educational Approvals
will not be renewed and, to the knowledge of the Companies, there are no facts,
circumstances or omissions concerning the Companies or the Schools that would be
reasonably likely to result in a non-renewal. In addition, and without limiting
the foregoing:
(1) Each of the Companies, and each of the Schools possess, and since
the Compliance Date, have possessed, all requisite Educational Approvals for
each educational program the Schools have offered and for each campus, location,
or facility where the Schools have offered all or any portion of an educational
program.
(2) Each of the Companies, and each of the Schools possess, and since
the Compliance Date, have possessed, all requisite Educational Approvals to
operate each such School in each jurisdiction in which such School is located or
conducts any operations, including providing educational services, student
marketing or recruiting, and all requisite approvals from such jurisdictions for
the educational programs currently offered.
(3) Each of the Schools is fully or provisionally certified by the
Department of Education to participate in the student financial aid programs
(the "Title IV Programs") administered by the Department of Education under
Title IV of the Higher Education Act of 1965, as amended ("HEA"), and are each a
party to, and, except as disclosed in Section 2.23(a)(3) of the Disclosure
Letter, in compliance in all material respects with, a valid and effective
Program Participation Agreement with the Department of Education that is in full
force and effect. Except as set forth in Section 2.23(a)(3) of the Disclosure
Letter, neither the Companies, nor any of the Schools is subject to, nor, to the
knowledge of the Companies, has either been threatened with, any fine,
limitation, suspension or termination proceeding, or subject to any other action
or proceeding by the Department of Education that could reasonably be expected
to result in the suspension, limitation, conditioning, or termination of
certification or eligibility, or a liability or fine.
(4) Except as disclosed in Section 2.23(a)(4) of the Disclosure
Letter, the Companies and the Schools are, and since the Compliance Date, have
been, in compliance in all material respects with all applicable rules,
regulations and requirements pertaining to the Schools' participation in the
Title IV Programs. Without limiting the foregoing:
(i) Since the Compliance Date, each education program offered by
the Schools was and is an eligible program in accordance with all applicable
rules, regulations and requirements, including the requirements of 34 C.F.R.
668.8.
(ii) Since the Compliance Date, each School is and has been duly
qualified as, and is and has been in full compliance with, the Department of
Education definition of "proprietary institution of higher education."
(iii) For each fiscal year ending on or after the Compliance
Date, each of the Schools has complied with the limitation on the receipt of
Title IV Program funding under the "90/10 Rule" codified at 34 C.F.R.
600.5(a)(8), (d) (as amended by Section 101(a) of Public Law No. 105-244 (Higher
Education Amendments of 1998)).
(iv) For each fiscal year ending on or after the Compliance Date,
each of the Schools and each of the Companies has satisfied the standards of
financial responsibility
-24-
in accordance with 34 C.F.R. 668.15 and 34 C.F.R. 668.171-175, as applicable.
Except as disclosed in Section 2.23(a)(4)(iv) of the Disclosure Letter, since
the Compliance Date, none of the Companies nor any School has lacked financial
responsibility or has been required by notice or law to post a letter of credit
or other form of surety for any reason.
(v) Since the Compliance Date, except as disclosed in Section
2.23(a)(4)(v) of the Disclosure Letter, neither the Companies nor any of the
Schools have been subject to the reimbursement or cash monitoring payment method
as described at 34 C.F.R. 668.162 or any predecessor regulation.
(vi) Since the Compliance Date, each of the Schools and each of
the Companies has timely filed with the Department of Education all required
compliance audits and audited financial statements, including those required by
34 C.F.R. 668.23 or any predecessor regulation.
(vii) Since the Compliance Date, except as disclosed in Section
2.23(a)(4)(vii) of the Disclosure Letter, each School has calculated and paid
refunds and calculated dates of withdrawal and leaves of absence in accordance
in all material respects with all applicable rules, regulations and
requirements, including the requirements of 34 C.F.R. 668.22, 34 C.F.R. 682.605
and any predecessor regulations.
(viii) Since the Compliance Date, except as disclosed in Section
2.23(a)(4)(viii) of the Disclosure Letter, each School has disbursed and
processed Title IV Program funds in accordance in all material respects with all
applicable rules, regulations and requirements, including without limitation the
requirements of 34 C.F.R. 668.164, 34 C.F.R. 682.604 and any predecessor
regulations.
(ix) Since the Compliance Date, except as disclosed in Section
2.23(a)(4)(ix) of the Disclosure Letter, the Schools have properly determined
students' eligibility to obtain Title IV Program funds for which they are
eligible prior to disbursing, and has disbursed, all Title IV Program funds in
accordance in all material respects with all applicable rules, regulations and
requirements, including the requirements of 34 C.F.R. 682.201, 34 C.F.R. 668,
Subpart C, and any predecessor regulations.
(x) Since the Compliance Date, each School has at all times
complied with the limitations in 34 C.F.R. 600.7 on the number of courses that
each School may offer by correspondence or telecommunications and the number of
students who may enroll in such courses.
(5) Section 2.23(a)(5) of the Disclosure Letter contains a list of all
Department of Education program reviews or surveys, final audit determinations,
Department of Education Office of Inspector General audits and investigations,
and Department of Justice investigations conducted at each of the Schools since
the Compliance Date. No program review or survey, audit determination,
Department of Education Office of Inspector General audit or investigation, or
Department of Justice investigation remains pending or unresolved except as
disclosed in Section 2.23(a)(5) of the Disclosure Letter.
(6) Except as disclosed in Section 2.23(a)(6) of the Disclosure
Letter, none of the Schools is on probation, monitoring or warning status with
any Education Agency, including any accrediting body or any state regulatory
agency or guaranty agency, nor since the Compliance Date has any School been
subject to any adverse action by any Education Agency
-25-
(including being directed to show cause why accreditation or other Educational
Approval should not be revoked, withdrawn, conditioned, suspended or limited) to
revoke, withdraw, deny, suspend, condition or limit accreditation.
(7) Since the Compliance Date, except as disclosed on Section
2.23(a)(7) of the Disclosure Letter, the Companies, and the Schools have
complied with all stipulations, conditions and other requirements imposed by any
accrediting body, state regulatory agency or other Education Agency at the time
of, or since, the last issuance of the Educational Approval, including but not
limited to the timely filing of all required reports and responses.
(8) Each of the Companies, and each of the Schools do not, and since
the Compliance Date, has not, provided, or contracted with any entity that
provides, any commission, bonus or other incentive payment based directly or
indirectly on success in securing enrollments or awarding financial aid to any
persons or entities engaged in any student recruiting or admissions activities
or in making decisions regarding the awarding of student financial aid.
(9) Since the Compliance Date, except as disclosed in Section
2.23(a)(9) of the Disclosure Letter, all student financial aid grants and loans,
disbursements and record keeping relating thereto have been completed in
compliance in all material respects with all federal and state requirements, and
there are no material deficiencies in respect thereto. Except as disclosed in
Section 2.23(a)(9) of the Disclosure Letter, students have been funded in all
material respects in a timely manner with respect to the date for which they
were eligible for funding and for the amounts they were eligible to receive, and
such students' records conform in form and substance in all material respects to
all relevant regulatory requirements.
(10) Neither any of the Companies, nor any of the Schools, nor any
person or entity that exercises substantial control over any of the Schools or
any of the Companies (as the term "substantial control" is defined in 34 C.F.R.
668.174(c)(3)), or member of such person's family (as the term "family" is
defined in 34 C.F.R. 668.174(c)(4)), alone or together, (i) exercises or
exercised substantial control over another school 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 Program requirement or (ii) owes a liability for a Title IV
Program violation.
(11) Neither any of the Companies, nor any of the Schools, nor any
person or entity that exercises substantial control over any of the Schools or
any of the Companies, or member of such person's family, has filed for relief in
bankruptcy or had entered against it an order for relief in bankruptcy.
(12) Neither any of the Companies, nor any of the Schools, nor any of
their employees has pled guilty to, pled nolo contendere to, or been found
guilty of, a crime involving the acquisition, use or expenditure of funds under
the Title IV Programs or been judicially determined to have committed fraud
involving funds under the Title IV Programs.
(13) Neither any of the Companies nor any of the Schools has employed
in a capacity involving administration of funds under the Title IV Programs or
the receipt of funds under those programs, any individual who has been convicted
of, or has pled nolo contendere or guilty to, a crime involving the acquisition,
use or expenditure of federal, state or local government funds, or has been
administratively or judicially determined to have committed fraud or any other
material violation of law involving federal, state or local government funds.
-26-
(14) Except as disclosed in Section 2.23(a)(14) of the Disclosure
Letter, none of the Companies, or any of the Schools contracts with a
third-party servicer (as such term is defined in 34 C.F.R. 668.2) to provide any
services in connection with the processing or administration of the Schools'
administration of the Title IV Programs.
(15) Neither any of the Companies, nor any of the Schools provides, or
since the Compliance Date, has provided, any educational instruction on behalf
of any other institution or organization of any sort. No other institution or
organization of any sort provides, or since the Compliance Date, has provided,
any educational instruction on behalf of the Schools.
(16) True and complete copies of all policy manuals and other
statements of procedures or instruction relating to recruitment of students,
including procedures for assisting in the application by prospective students
for direct or indirect state or federal financial assistance; admissions
procedures, including any descriptions of procedures for ensuring compliance
with state or federal or other appropriate standards or tests of eligibility;
procedures for encouraging and verifying attendance, minimum required attendance
policies, and other relevant criteria relating to course completion and
certification (collectively referred to as the "Policy Guidelines") have been
made available to Buyer. Since the Compliance Date, the Companies' operations
have been conducted in all material respects in accordance with the Policy
Guidelines.
(17) Since the Compliance Date, complete and accurate books and
records for all present and past students attending the Schools have been
maintained in accordance in all material respects with all applicable federal
and state laws and regulations, and are true and correct in all material
respects.
(18) Sellers and each of the Companies have made available to Buyer
true, correct and complete copies of all documentation referenced in Section
2.23 of the Disclosure Letter. In addition, Section 2.23(a)(18) of the
Disclosure Letter lists all written notices (excluding general correspondence
routinely received from the Department of Education or any Educational Agency by
Schools participating in Title IV Programs or approve by such Education Agency)
received from the Department of Education, any accrediting agency, any state
licensing agency, any guaranty agency, the Office of Inspector General of the
Department of Education or the Department of Justice to the extent that such
notice or notification is not listed elsewhere in the Disclosure Letter and to
the extent that such notice or notification (1) (a) other than with respect to
Southern Ohio LLC, was sent or received on or after July 1, 1998, or (b) with
respect to Southern Ohio LLC, was sent or received on or after June 13, 2002, or
is known to the Sellers or the Companies and was sent or received on or after
July 1, 1998, and (2) contains (A) any notice that any Educational Approval is
or was not in full force and effect; (B) any written notice or report of a
program review, investigation, survey or Office of Inspector General audit,
investigation or survey alleging that any Company or School has violated or is
violating any legal requirement or any Educational Agency requirement, or that
any Company or School has failed to maintain and retain in full force and effect
any and all Educational Approvals, or, to the extent that a written report has
not been issued to the Company or the School in connection with such program
review, audit, survey, or investigation, giving notice that a program review,
audit, survey or investigation will be conducted; (C) any notice of an intent to
limit, suspend, terminate, revoke, cancel, not renew, condition or place on show
cause any Educational Approval; (D) any notice of an intent or threatened intent
to condition the provision of Title IV program funds to any Company or School or
the posting of a letter of credit or other surety in favor of the Department of
Education; (E) any notice of an intent to provisionally certify the eligibility
of any School to participate in the Title IV Programs; or (F) notice of the
placement or removal of any
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School on or from the reimbursement or cash monitoring method of payment under
the Title IV Programs. Notwithstanding anything to the contrary contained in
this Section 2.23(a)(18), neither Sellers nor any of the Companies make any
representation, warranty, or covenant, or undertake any obligation, with respect
to any notice or notification within the scope of any of subparagraphs (A)
through (F) of Section 2.23(a)(18) and sent or received prior to the Compliance
Date.
(b) Notwithstanding anything to the contrary contained in this Section
2.23, in the event of a dispute between the Sellers and Buyer regarding the
actual timing of any fact or circumstance occurring during the period from
January 1, 1999 to December 31, 1999 and giving rise to a breach of any
representation and warranty contained in this Section 2.23, the Sellers shall
not be liable for any such breach unless Buyer establishes based upon clear and
convincing evidence that the fact or circumstance causing such representation or
warranty to be untrue occurred during the period from July 1, 1999 to December
31, 1999; provided, however, that this Section 2.23(b) shall only apply to those
representations or warranties contained in this Section 2.23 that relate to the
Compliance Date.
(c) None of the Schools has accepted any foreign students since
February 15, 2003. A list of all foreign students currently enrolled at each of
the Schools is set forth in Section 2.23(c) of the Disclosure Letter, and each
such student's enrollment will end prior to August 1, 2003 to the extent
required by applicable law.
2.24. Compliance with Laws. The Companies and each of the Schools are in
compliance in all material respects with all applicable laws (including any
statute, rule, regulation, code, plan, injunction, judgment, order, decree,
ordinance, writ, ruling, or charge) of any federal, state, local and foreign
governments (and all agencies thereof).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
As an inducement to Buyer to enter into this Agreement and consummate the
transactions contemplated hereby, except as set forth in the Disclosure Letter,
each of the Sellers hereby, severally (and not jointly) and in each case in
respect of himself, herself or itself only, represents and warrants to Buyer as
follows:
3.1. Existence. Each such Seller that is an entity is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization and has all requisite power and authority to operate, own or lease
its properties and assets as now owned or leased and to carry on its business as
and where now being conducted. If such Seller is a trust, such Seller has been
duly created and is validly existing under the laws of the jurisdiction of its
creation.
3.2. Ownership.
(a) Each such Equity Seller owns, of record, legally, beneficially and
exclusively, all of the Purchased Interests set forth opposite such Seller's
name in Section 3.2(a) of the Disclosure Letter attached hereto, in each case,
free and clear of all Encumbrances. Except as set forth in Section 3.2(a) of the
Disclosure Letter, there are no shareholder, voting trust, or other agreements
or understandings to which such Equity Seller is a party or to which it is bound
relating to the voting of any of the Purchased Interests and each such Equity
Seller
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holds the exclusive right and power to vote their Purchased Interests. There are
no outstanding subscriptions, options, warrants, preemptive rights, exercise
rights, exchange rights, appreciation, phantom stock or other rights to acquire
from such Equity Seller any of the Purchased Interests or any other shares of
capital stock or membership interests, as applicable, of the Companies. Upon
delivery of the Purchased Interests under this Agreement, Buyer will acquire
good and valid legal and exclusive title to the Purchased Interests, free and
clear of any Encumbrances except for such Encumbrances created by the Buyer.
(b) As of the date hereof, each such Note Seller holds the TL Warrants
and Debentures, Options and Restricted Stock set forth opposite such Note
Seller's name in Section 3.2(b) of the Disclosure Letter, in each case, free and
clear of all Encumbrances.
3.3. Authority. Such Seller has all requisite power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate, limited partnership or trust action, as the case may be, on the part
of each such Seller that is a corporation, limited partnership or trust, and no
further action is required on the part of such Seller to authorize the Agreement
and the transactions contemplated hereby. This Agreement has been duly executed
and delivered by such Seller, and assuming the due authorization, execution and
delivery by the other parties hereto, constitutes, and each other agreement to
which such Seller is a party and which is executed at the Closing pursuant to
this Agreement when executed and delivered by such Seller shall constitute, the
legal, valid and binding obligations of such Seller, enforceable against such
Seller in accordance with its terms, except as may be limited by bankruptcy,
insolvency and other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles.
3.4. No Pending Litigation or Proceedings.
(a) Except as disclosed in Section 3.4(a) of the Disclosure Letter,
there is no Litigation pending or, to the knowledge of such Seller, threatened
against or affecting such Seller with respect to such Seller's Purchased
Interests, the TL Warrants and Debentures, the Options or the Restricted Stock,
at law or in equity, including any Litigation by or before the Department of
Education or any other applicable accrediting agency, guarantee agency or any
federal, state or local governmental body.
(b) There are presently no outstanding judgments, decrees or orders of
any accrediting agency, guarantee agency or federal, state or local governmental
body against or affecting such Seller with respect to such Seller's Purchased
Interests, TL Warrants and Debentures, Options or Restricted Stock.
(c) Except as disclosed in Section 3.4(c) of the Disclosure Letter, no
such Seller has commenced or has any pending Litigation against any third party
with respect to such Seller's Purchased Interests, TL Warrants and Debentures,
Options or Restricted Stock.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
As an inducement to Sellers to enter into this Agreement and consummate the
transactions contemplated hereby, Buyer represents and warrants to Sellers as
follows:
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4.1. Organization; Corporate Power and Authority; Authorization. Buyer is a
corporation duly organized, validly existing and subsisting under the laws of
the Commonwealth of Pennsylvania. Buyer has full legal right, power and
authority to make, execute, deliver and perform this Agreement. The execution,
delivery and performance of this Agreement by Buyer have been duly authorized by
all necessary action on the part of Buyer. This Agreement has been duly executed
and delivered by Buyer, and, assuming the due authorization, execution and
delivery by the other parties hereto, constitutes, and each other agreement to
which Buyer is a party and which is executed at the Closing pursuant to this
Agreement when executed and delivered by Buyer shall constitute, the legal,
valid and binding obligations of Buyer, enforceable against Buyer in accordance
with its terms, except as such enforcement may be limited by bankruptcy,
insolvency and other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles.
4.2. No Violation of Laws or Agreements. None of the execution and delivery
of this Agreement, the consummation of the transactions contemplated hereby or
the compliance with or fulfillment of the terms, conditions and provisions
hereof or thereof by Buyer will: (a) contravene any provision of the charter or
bylaws of Buyer, (b) conflict with, or result in a breach of, or constitute a
default or an event of default (or an event that might, with the passage of time
or the giving of notice or both, constitute a default) under any of the terms,
conditions or provisions of any license, franchise, indenture, mortgage, loan or
credit agreement or any other agreement or instrument to which Buyer is a party
or by which its assets may be bound or affected, or (c) violate any law or
violate any judgment or order of any governmental body to which Buyer is
subject.
4.3. Absence of Proceedings; Finder's Fee. No action or proceeding has been
instituted against Buyer before any court or other governmental body by any
person seeking to restrain or prohibit the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby. Buyer has
not made any arrangement or taken any other action that might cause Sellers to
become liable for a finder's fee or commission as a result of the transactions
contemplated hereunder.
4.4. Consents. Except as required under the HSR Act (as hereinafter
defined) or as otherwise contemplated by this Agreement, no consent, approval or
authorization of, or registration or filing with, any person, including any
governmental authority or other regulatory agency, is required to be obtained or
made by Buyer in connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby.
4.5. Compliance with Educational Laws. To the knowledge of Buyer, neither
the Buyer nor any of its affiliates or employees have been nor are the subject
of any actions, suits proceedings, investigations, audits, program reviews or
claims that would reasonably be expected to prevent or delay the approval of the
change in ownership of any Company or School by the Department of Education or
by any Education Agency in connection with any Educational Approval required for
issuance of a PPPA or a Temporary PPPA. To the knowledge of Buyer, there are no
circumstances involving the Buyer or its affiliates that would prevent or delay
the approval of the change in ownership of any Company or School by the
Department of Education or by any Education Agency in connection with any
Educational Approval required for issuance of a PPPA or a Temporary PPPA as
contemplated by this Agreement.
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ARTICLE V
CERTAIN COVENANTS
5.1. Conduct of Business Pending Closing. From and after the date hereof
through and including the Closing Date, unless Buyer shall otherwise consent in
writing, the Companies shall, and, as applicable, the Sellers shall cause the
Companies to, continue to conduct the operations and administer the affairs of
the Companies and the Schools as follows:
(a) Ordinary Course; Compliance. Except as disclosed in Section 5.1(a)
of the Disclosure Letter or as contemplated by this Agreement, each of the
Companies shall conduct its operations and business, and administer its affairs,
only in the ordinary course and consistent with past practice. The Companies
shall take reasonable actions to maintain the property, equipment and other
assets of the Companies, in substantially the same condition as such assets
existed on the date of this Agreement and consistent with past practice and,
subject to available resources, to comply in a timely fashion with the
provisions of all their agreements and commitments. The Companies shall use
their reasonable efforts to keep their respective business organizations intact,
maintain all licenses and accreditation, keep available the services of their
present employees and preserve the goodwill of their employees, students,
suppliers, and others having relations with them. The Companies shall maintain
in full force and effect the policies of insurance listed in Section 2.20 of the
Disclosure Letter, subject only to variations required by the ordinary
operations of the Companies or else shall obtain or cause to be obtained, prior
to the lapse of any such policy, substantially similar coverage with insurers of
recognized standing. Without limiting the generality of the foregoing, the
Companies shall maintain current levels of advertising and other student
recruitment efforts and student enrollment standards, to maintain the Schools'
curricula and academic programs, and shall comply with regulatory and
accreditation requirements.
(b) Transactions. Except as contemplated by this Agreement, Sellers
shall not: (i) permit the Companies to amend their charter documents or bylaws
or operating agreement or certificate of formation, as applicable; (ii) permit
any of the Companies to 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, the terms of which are reasonable and consistent with past
practice; (iii) permit any of the Companies to enter into any employment or
consulting contract or arrangement that is not terminable at will and without
penalty or continuing obligation; (iv) permit any of the Companies to fail to
pay any taxes or any other liability or charge of the Companies when due (other
than charges contested in good faith by appropriate proceedings); (v) permit the
Companies to make, change or revoke any tax election or make any agreement or
settlement with any taxing authority; or (vi) permit any of the Companies to
declare or pay any dividend or make any other distribution in respect of the
equity securities or membership interests, as applicable, in the Companies.
Buyer acknowledges that the Companies may enter into compensation arrangements
with members of management and Tech Leaders prior to Closing; provided, however,
that any such compensation arrangements will not have an adverse impact on any
of the Companies after the Closing Date.
(c) Certain Specific Commitments. Prior to the Closing, Sellers shall
not, nor shall they permit the Companies to, (i) except as provided in the
Capital Plan provided to Buyer, make any capital expenditures, in the aggregate,
in excess of Fifty Thousand Dollars ($50,000) outside the ordinary course of
business of the Schools (unless such expenditure is identified in the current
business plan of the Schools) without the prior written consent of Buyer, or
(ii) cause
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the Schools or the Companies to incur additional debt through the Closing Date
(other than debt incurred and paid or settled prior to the Closing and letters
of credit issued by any of the Companies to the Department of Education) without
the prior written consent of Buyer.
(d) Dividends and Transfers. Notwithstanding anything else in this
Section 5.1 to the contrary, during the period prior to the Closing, each of the
Companies may dividend or otherwise transfer any available cash, cash
equivalents and marketable securities of the Companies to Sellers; provided,
that any such dividend or payment would not cause the Net Current Assets of the
Companies to be less than zero at any time on or before the Closing Date. In
addition to the foregoing, each Parent Company shall, prior to the Closing,
issue Seller Notes in accordance with this Agreement.
(e) Access, Information and Documents. The Sellers shall give to Buyer
and to Buyer's employees and representatives (including accountants, actuaries,
attorneys, environmental consultants and engineers), upon authorization by the
Sellers' Representative, reasonable access during normal business hours to all
of the properties, books, tax returns, contracts, commitments, records
(including financial aid, accreditation, regulatory compliance and Educational
Approval records), officers, personnel and accountants (including independent
public accountants) of the Companies and the Schools and shall furnish to Buyer
all such documents and copies of documents and all information with respect to
the properties, liabilities and affairs of the Companies and the Schools as
Buyer may reasonably request. Without limiting the foregoing, to the extent
Buyer wishes to conduct Phase I environmental site assessments of the Real
Property, the Sellers shall give Buyer's environmental consultant access to
conduct such Phase I environmental site assessments of the Real Property,
provided Buyer uses an environmental consultant reasonably satisfactory to the
Sellers' Representative, consultant agrees to allow the Sellers to rely on the
reports to the same extent as Buyer may rely, and the Sellers' Representative
reasonably approves of the scope and format of the Phase I. Buyer may not
perform any environmental investigations beyond that which is described in the
preceding sentence without the advance written approval of the Sellers'
Representative.
(f) Amendment of Schedules. At any time prior to two (2) business days
before the Closing Date, the Sellers and the Parent Companies may supplement or
amend the Disclosure Letter with respect to any matter arising after the date
hereof that, if existing or occurring at or prior to the date of this Agreement,
would have been required to be set forth or described in the Disclosure Letter
or would have been necessary to make any information in any representation or
warranty of the Parent Companies or the Sellers contained in this Agreement
complete or correct as of the Closing Date. For purposes of determining the
conditions precedent set forth in Section 6.1(a), no such amendment or
supplement shall be given any effect whatsoever; for all other purposes,
including Section 8.2, each such amendment or supplement shall be given effect.
5.2. Regulatory and Other Approvals
(a) The Sellers 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 Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations thereunder (the "HSR Act"), (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, and (iii) to the
extent
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mutually agreed among Buyer and the Sellers' Representative, request early
termination of the applicable waiting period.
(b) Promptly after the execution of this Agreement, Buyer and Sellers
shall cooperate to (i) file pre-acquisition review applications with the
Department of Education with respect to each of the Schools owned by the
Companies and (ii) seek any and all required approvals of all state and regional
educational regulatory authorities and accrediting agencies which are necessary
for the consummation of the transactions contemplated hereby. In addition:
(i) Buyer shall, and the Sellers shall use all commercially
reasonable efforts to assist Buyer to, file, not later than June 24, 2003, a
pre-acquisition review application for each School with the Department of
Education in order to obtain letters from the Department of Education stating
that, for each School upon notice of the completion of the sale contemplated
hereby, the Department of Education will issue to the School a Temporary PPPA to
continue the School's participation in the Title IV Programs following the
Closing, provided, that such letters shall not include any condition that would
reasonably be expected to have a material adverse effect on the issuance of any
Temporary PPPA ("Pre-acquisition Review Letters").
(ii) The parties will cause their representatives to 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 agency or governmental authority or other
third party with respect to any consent, the Temporary PPPAs or the PPPAs,
including any difficulties or delays experienced in obtaining any consent, and
of any conditions proposed, considered, or requested in connection with any
consent, the Temporary PPPAs or the PPPAs.
(iii) The Sellers will cooperate fully with Buyer in its efforts
to obtain any consents, the Temporary PPPAs and the PPPAs. Buyer shall use
commercially reasonable efforts to timely file all applications and other
documents (including applications and other documents filed prior to the
Closing) necessary to obtain any consent, the Temporary PPPAs or the PPPAs,
including the filings described in 34 C.F.R. (S) 600.20(g)(1), (g)(2) and
(h)(3); provided that any and all submissions required to obtain or maintain the
Temporary PPPAs and PPPAs shall be made timely in accordance with Department of
Education requirements.
(iv) Buyer will allow the Sellers' and the Companies' agents and
representatives to participate in any meetings or telephone calls with any state
education regulatory body, accrediting agency or governmental authority to
discuss the status of any consent, the Temporary PPPAs or the PPPAs; provided,
however, that the Sellers, the Companies and their 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 agency or
governmental authority.
(v) The Sellers will use all commercially reasonable efforts to
cause each Company to ensure that its appropriate officers and employees shall
be available to attend, as any governmental authority may reasonably request,
any scheduled hearings or meetings in connection with obtaining any consent, any
Temporary PPPA or any PPPA.
(c) Buyer and Sellers 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
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as promptly as commercially reasonable after the date of this Agreement. The
obligations of Buyer and Sellers under this Section 5.2 with respect to the HSR
Act shall not require Buyer or Sellers 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 Sellers or any affiliate of either.
5.3. Costs and Expenses. Buyer and Sellers 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. Notwithstanding the foregoing, (a) the Buyer shall
pay the HSR filing fees, and (b) the Sellers (collectively, on a several basis)
and the Buyer shall each pay one-half (1/2) of any sales tax or any Transfer
Taxes applicable to the transactions contemplated hereby. "Transfer Taxes"
means, other than sales tax, all transfer, documenting, stamp or registration
Taxes applicable to the purchase of the Purchased Interests contemplated hereby.
5.4. Fulfillment of Agreements. Each party to this Agreement shall use
commercially reasonable efforts to cause all of the conditions to the
obligations of the others under Article VI 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 others 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 would prevent the satisfaction of any of
the conditions set forth in Article VI.
5.5. Publicity; Disclosure. Prior to the issuance of any press release or
the making of any other public announcements by Buyer or any of the Sellers,
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 Companies and Buyer), each of
Buyer and the Sellers' Representative (on behalf of the Sellers) shall provide
not less than two (2) business days prior notice and consult with the other
party with respect to such press release or public announcement, and shall not
issue any such press release or make any such public announcement prior to such
consultation and written consent of such other party, except as required by law
or regulation. Notwithstanding the foregoing, Buyer and the Companies may make
any necessary and appropriate disclosure of the terms of this Agreement to such
government authorities and any other accrediting agencies or other third parties
whose consent or approval may be required prior to the Closing.
The terms of that certain Confidentiality Agreement, dated as of February
12, 2003, attached hereto as Exhibit H, are hereby incorporated herein by
reference and shall remain in effect until the Closing.
5.6. Further Assurances. From time to time, as and when requested by any
party hereto, the other parties, without further consideration, shall take or
cause to be taken such actions and execute, acknowledge and deliver, or cause to
be executed, acknowledged and delivered, all such documents and instruments and
shall take, or cause to be taken, all such further or other actions as such
other party may reasonably deem necessary or desirable to consummate the
transactions contemplated hereby.
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5.7. Educational Approvals. Sellers shall provide such additional
assistance and cooperation to Buyer as Buyer shall reasonably request in
connection with the transfer of any Educational Approval, accreditation,
authorization or approval to Buyer hereunder.
5.8. No Control. Between the date of this Agreement and the Closing Date,
Buyer shall not, directly or indirectly, control, supervise or direct, or
attempt to control, supervise or direct, the operations of the Companies, but
such operations shall be the sole responsibility and, subject to Section 5.1, in
the complete discretion of the Companies.
5.9. Exclusivity. Until the earlier of the Closing Date or such date as
this Agreement is terminated, Sellers will not, directly or indirectly,
communicate with any party other than Buyer or any of the Sellers' attorneys,
accountants, representatives or other advisors, concerning the sale or other
disposition of the Purchased Interests or any material portion of the assets of
the Companies by merger, consolidation, operation of law or otherwise.
5.10. Consent; Assignment of Agreements. Sellers shall use their
commercially reasonable efforts prior to, and if necessary after, the Closing,
to obtain at the earliest practicable date any consent to the transactions
contemplated hereby required by any agreement which requires consent to
assignment, without any conditions adverse to Buyer.
5.11. Tax Matters.
(a) Sellers severally (and not jointly) shall indemnify each of the
Companies, Buyer and any affiliate of Buyer and hold them harmless from and
against any loss, claim, liability expense, or other damage attributable to (i)
all Taxes (or the non-payment thereof) of the Companies for all taxable periods
ending on or before the Closing Date and the portion of the taxable period
through the end of the Closing Date for any taxable period that includes (but
does not end on) the Closing Date ("Pre-Closing Tax Period"), (ii) all Taxes of
any member of an affiliated, consolidated, combined or unitary group of which
the Companies (or any predecessor of any of the foregoing) is or was a member on
or prior to the Closing Date, including pursuant to Treasury Regulations Section
1.1502-6 or any analogous or similar state, local, or foreign law or regulation,
and (iii) any and all Taxes of any person (other than the Companies) imposed on
any Company as a transferee or successor, by contract or pursuant to any law,
rule, or regulation, which Taxes relate to an event or transaction occurring
before the Closing; provided, however, that Sellers shall be liable only to the
extent that all such Taxes described in this Section 5.11(a) exceed the amount,
if any, reserved for such Taxes (excluding any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) on the
Final Closing Balance Sheets that is taken into account in determining Net
Current Assets. Sellers shall reimburse Buyer for any Taxes of the Companies
which are the responsibility of Sellers pursuant to this Section 5.11(a) within
fifteen (15) business days after payment of such Taxes by Buyer or the
Companies.
(b) In the case of any taxable period that includes (but does not end
on) the Closing Date (a "Straddle Period"), the amount of any Taxes based on or
measured by income or receipts of the Companies for the Pre-Closing Tax Period
shall be determined based on an interim closing of the books as of the close of
business on the Closing Date (and for such purpose, the Taxable period of any
partnership or other pass-through entity in which any of the Companies hold a
beneficial interest shall be deemed to terminate at such time) and the amount of
other Taxes of the Companies for a Straddle Period which relate to the
Pre-Closing Tax Period shall be deemed to be the amount of such Tax for the
entire Straddle Period multiplied by a
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fraction the numerator of which is the number of days in the Taxable period
ending on the Closing Date and the denominator of which is the total number of
days in the Straddle Period.
(c) Buyer shall prepare or cause to be prepared and file or cause to
be filed all Tax Returns of the Companies for any Straddle Period. Buyer shall
provide a copy of each such Straddle Period Tax Return to the Sellers'
Representative for his review and comment not later than thirty (30) days prior
to the deadline for filing each such Tax Return, and shall make all changes to
each such Tax Return reasonably requested by the Sellers' Representative;
provided, that Sellers' Representative provides such comments to Buyer at least
ten (10) days prior to the deadline for filing such Tax Return. The Sellers'
Representative shall prepare or cause to be prepared and file or cause to be
filed (i) all income Tax Returns of the Companies and (ii) Forms W-2 and 1099
that are required to be issued to the Option Sellers and RPalmer, in each case,
for all periods that end on or before the Closing Date. For the avoidance of
doubt, the parties agree that the Companies shall claim compensation expense
deductions on account of the compensation income to the Option Sellers and
RPalmer attributable to the issuance of the Option Notes and the Restricted
Stock Notes, respectively, in the final S corporation return for each Parent
Company, and such Seller shall include such amounts in the appropriate Forms W-2
and 1099; provided, however, that the amount of aggregate compensation expense
deduction claimed by the Companies and included on the appropriate Forms W-2 and
1099 shall not exceed the aggregate amount of compensation agreed to by the
parties with respect to RPalmer and the Option Sellers for purposes of
determining the Final Withholding Tax Amounts. Sellers shall provide a copy of
each such Tax Return or Tax filing to Buyer for its review not later than thirty
(30) days prior to the deadline for filing each such Tax Return or Tax filing,
and Sellers' Representative shall make all changes to each such Tax Return
reasonably requested by Buyer; provided, that Buyer provides such comments to
Sellers' Representative at least ten (10) days prior to the deadline for filing
such Tax Return or Tax filing. After the Sellers' Representative has made any
changes reasonably requested by Buyer, Buyer shall cause appropriate officers of
the Companies to sign all such Tax Returns or Tax filings promptly upon the
request of the Sellers. To the extent required or permitted by applicable law,
each Seller shall include any income, gain, loss, deduction or other tax items
for such periods on his, her or its Tax Return in a manner consistent with the
Schedule K-1's furnished by the Companies for such periods.
(d) (i) Notwithstanding the provisions of Section 8.4 hereof, if,
after the Closing Date, any Buyer Indemnitee receives any notice, letter,
correspondence, claim or decree relating to Taxes from any taxing authority
("Tax Notice") and, upon receipt of such Tax Notice, believes it has suffered or
potentially could suffer any Losses relating to Taxes, Buyer shall, and shall
cause the Companies to, promptly deliver such Tax Notice to the Sellers'
Representative; provided, however, that the failure of Buyer to provide the Tax
Notice to the Sellers' Representative shall not affect the indemnification
rights of Buyer, the Companies or any affiliate of Buyer pursuant to Section
5.11(a) and Article VIII hereof, except to the extent that Sellers are
prejudiced by Buyer's failure to deliver such Tax Notice. Notwithstanding the
provisions of Section 8.9 and except with respect to potential Losses resulting
from the invalidity of the Section 338(h)(10) Election described in Section
8.2(b) hereof, the Sellers' Representative shall have the right to handle,
defend, conduct and control any Tax audit or other proceeding involving the
Companies that relates to such Tax Notice (except to the extent that such Tax
Notice, Tax audit or other proceeding relates to a period other than a
Pre-Closing Tax Period, and except to the extent that Sellers would have no
indemnification obligations pursuant to Section 5.11(a) or Article VIII hereof),
but Buyer shall have the right to participate in such Tax audit or proceeding at
its own expense. The Sellers' Representative shall also have the right to
compromise or settle any such Tax audit or other proceeding that it has the
authority to control
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pursuant to the preceding sentence subject to Buyer's consent, which consent
shall not be unreasonably withheld. If the Sellers' Representative fails within
a reasonable time after notice to defend any such Tax Notice or the resulting
audit or proceeding as provided herein, Sellers shall be bound by the results
obtained by Buyer in connection therewith. Sellers shall pay to Buyer, pro rata
in accordance with such Sellers' Indemnity Percentages, the amount of any Losses
incurred by Buyer within fifteen (15) days after a Final Determination of such
Losses. For purposes of this Agreement, a "Final Determination" shall have the
meaning given to the term "determination" by Code Section 1313 and the Treasury
Regulations thereunder with respect to United States federal Tax matters; and
with respect to foreign, state and local Tax matters Final Determination shall
mean any final settlement with a relevant Taxing authority that does not provide
a right to appeal or any final decision by a court with respect to which no
timely appeal is pending and as to which the time for filing such appeal has
expired. For the avoidance of doubt, a Final Determination with respect to
United States federal Tax matters shall include any formal or informal
settlement entered with the Internal Revenue Service with respect to which the
taxpayer has no right to appeal.
(ii) Notwithstanding the provisions of Section 5.11(d)(i) hereof,
if, after the Closing Date, any Buyer Indemnitee receives any Tax Notice and,
upon receipt of such Tax Notice, believes it has suffered or potentially could
suffer any Losses resulting from the invalidity of the Section 338(h)(10)
Election described in Section 8.2(b) hereof, Buyer shall, and shall cause the
Companies to, promptly deliver such Tax Notice to the Seller's Representative;
provided, however, that the failure of Buyer to provide the Tax Notice to
Seller's Representative shall not affect the indemnification rights of Buyer,
the Companies or any affiliate of Buyer pursuant to Section 5.11(a) and Article
VIII hereof, except to the extent that Sellers are prejudiced by Buyer's failure
to deliver such Tax Notice. Notwithstanding the provisions of Section 8.9, Buyer
shall have the right to handle, defend, conduct and control any Tax audit or
other proceeding involving the Companies that relates to a Tax Notice described
in this Section 5.11(d)(ii), but Sellers shall have the right to participate in
any such Tax audit or proceeding at their own expense. Buyer also shall have the
right to compromise and settle any such Tax audit or proceeding that it has
authority to control pursuant to this Section 5.11(d)(ii), subject to Sellers'
consent, which shall not be unreasonably withheld. Sellers shall pay to Buyer,
pro rata in accordance with such Sellers' Indemnity Percentages, the amount of
any Losses incurred by Buyer within fifteen (15) days after a Final
Determination of such Losses.
(e) Buyer and Sellers shall cooperate fully, as and to the extent
reasonably requested by the other party, in connection with the filing of Tax
Returns pursuant to this Section 5.11 and any audit, litigation or other
proceeding with respect to Taxes. Such cooperation shall include the retention
and (upon the other party's request) the provision of records and information
which are reasonably relevant to any such audit, litigation or other proceeding
and making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder.
Companies and Sellers agree (A) to retain all books and records with respect to
Tax matters pertinent to the Companies relating to any taxable period beginning
before the Closing Date until the expiration of the statute of limitations (and,
to the extent notified by Buyer or Sellers, any extensions thereof) of the
respective taxable periods, and to abide by all record retention agreements
entered into with any taxing authority, and (B) to give the other party
reasonable written notice prior to transferring, destroying or discarding any
such books and records and, if the other party so requests, the Companies or
Sellers, as the case may be, shall allow the other party to take possession of
such books and records. Buyer and Sellers further agree, upon request, to use
their best efforts to obtain any certificate or other document from any
governmental authority or any other person as may be
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necessary to mitigate, reduce or eliminate any Tax that could be imposed
(including with respect to the transactions contemplated hereby).
(f) All Tax sharing agreements and similar arrangements with respect
to or involving any of the Companies shall be terminated as of the Closing Date
and, after the Closing Date, the Companies shall not be bound thereby or have
any liability thereunder.
(g) Sellers and the Companies shall not revoke any Company's election
to be taxed as an S corporation within the meaning of Code Sections 1361 and
1362. Except for the sale of the Purchased Interests described in Article I
hereto, the Sellers and the Companies shall not take any action that would
result in the termination of any Company's status as a validly electing S
corporation within the meaning of Code Sections 1361 and 1362.
(h) (i) At Buyer's option, the Equity Sellers shall join with Buyer in
making an election under Code Section 338(h)(10) (and any corresponding election
under state, local and foreign tax law) with respect to the purchase and sale of
the Purchased Interests hereunder (collectively, a "Section 338(h)(10)
Election") and shall cooperate fully with Buyer in securing the Section
338(h)(10) Election. The Equity Sellers shall each include any income, gain,
loss, deduction or other tax item resulting from the Section 338(h)(10) Election
on his, her or its Tax Return to the extent required by applicable law and in
accordance with an allocation of the Aggregate Purchase Price to be mutually
agreed upon by the parties consistent with the Allocation Schedule. Buyer shall
reimburse the Equity Sellers for certain incremental costs associated with the
Section 338(h)(10) Election in an aggregate amount equal to the difference
between: (A) $2,250,000 and (B) the amount of any Tax required to be paid by the
Companies on behalf of the Equity Sellers with respect to the sale of Purchased
Interests and Section 338(h)(10) Elections (such Taxes, the "Corporate
Withholding Taxes," to be determined in a manner consistent with the methodology
and assumptions used by the parties to determine the amount in Section
5.11(h)(i)(A) hereof) (the "Reimbursement Amount"). Buyer shall pay the
Reimbursement Amount to the Equity Sellers in the manner described in Section
1.2(a)(i) hereof and shall cause the Companies to pay the Corporate Withholding
Taxes to the relevant governmental authorities.
(ii) In the event that the Sellers' Representative reasonably
determines that that the Equity Sellers are required to file their Tax Returns
(including, for this purpose, any corporate Tax Returns reflecting any Corporate
Withholding Taxes) in a manner that would increase the Taxes attributable to a
Section 338(h)(10) Election over the amount of Taxes reflected in the
Reimbursement Amount (for this purpose, determined without subtraction of the
Corporate Withholding Taxes) and any Additional Reimbursement Amounts with
respect to such Taxes, then the Sellers' Representative shall so notify Buyer
not later than thirty (30) days prior to the deadline to file any such Tax
Return (not including any extensions thereof); provided, however, that the
increase in the relevant Equity Sellers' Taxes must relate either to (i) the
treatment of the sale of Purchased Interests as an "installment sale" (as that
term is defined in Code Section 453) for state income tax purposes or (ii) the
credit by Pennsylvania of Taxes paid to another state (such additional Taxes
shall be referred to herein as the "Additional Taxes"). Buyer shall have ten
days from receipt of Sellers' Representative's notice to comment. If Sellers'
Representative reasonably disagrees with Buyer's comments, or if Buyer does not
provide comments within the applicable ten-day period, Buyer shall, not later
than ten (10) days prior to the deadline for filing the relevant Seller Tax
Return: (A) provide a Tax opinion issued by a law firm or accounting firm
reasonably acceptable to Sellers' Representative, in form and substance
satisfactory to Sellers' Representative, that provides the requisite standard of
support
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for the disputed legal positions in the relevant jurisdiction that would enable
the Equity Seller to file its return based on such legal positions and avoid the
assessment of penalties; or (B) pay to the Sellers' Representative, on a fully
grossed-up basis, an amount equal to the lesser of: (i) the Additional Taxes
incurred by the Equity Seller and (ii) the Additional Reimbursement Amount (as
defined herein). The Additional Reimbursement Amount shall be an amount equal to
the difference between: (i) $1,250,000 and (ii) any payments previously made by
Buyer to the Sellers Representative for Additional Taxes pursuant to this
Section 5.11(h)(ii) or 5.11(h)(iii) hereof.
(iii) If, after the Closing Date, any Equity Seller receives any
Tax Notice and, upon receipt of such Tax Notice, believes it has incurred or
could incur any Additional Taxes, the Equity Seller shall promptly deliver such
Tax Notice to Buyer provided, however, that the failure of an Equity Seller to
provide the Tax Notice to Buyer shall not affect the indemnification rights of
such Equity Seller, pursuant to this Section 5.11(h), except to the extent that
Buyer is prejudiced by such Equity Seller's failure to deliver such Tax Notice.
Notwithstanding any other provision of this Agreement, the Equity Sellers shall
have the right to handle, defend, conduct and control any Tax audit or other
proceeding that relates to the Additional Taxes, provided that Buyer shall have
the right to participate in any such Tax audit or proceeding at its own expense.
The Equity Sellers also shall have the right to compromise and settle any such
Tax audit or proceeding that they have authority to control pursuant to this
Section 5.11(h)(iii), subject to Buyer's consent, which shall not be
unreasonably withheld. If a Final Determination is made that an Equity Seller
owes Additional Taxes, Buyer shall pay to the Sellers' Representative an amount
equal to the lesser of (i) the Additional Taxes assessed against such Equity
Seller and (ii) the Additional Reimbursement Amount.
(iv) Notwithstanding any other provision of this Agreement,
Equity Sellers shall not be entitled to any indemnification with respect to
Taxes and any other costs relating to the Section 338(h)(10) Election except as
provided in this Section 5.11. Buyer shall not be required to pay the Equity
Sellers under this Section 5.11(h) an aggregate amount in excess of the sum of
(A) the Reimbursement Amount and (B) $1,250,000. Equity Sellers agree that
Buyer's obligation to pay an Additional Reimbursement Amount shall be satisfied
completely upon Buyer's delivery of that Additional Reimbursement Amount to
Sellers' Representative and Equity Sellers shall have no further claim or rights
against Buyer and shall hold Buyer harmless with respect to that Additional
Reimbursement Amount.
(i) The Equity Purchase Price and the principal amount of the Seller
Notes shall be allocated among the Purchased Interests with respect to each of
the Parent Companies as shown on the Allocation Schedule attached as Exhibit I
hereto. The "Aggregate Deemed Sale Price" for each Parent Company (as described
in Treasury Regulation Section 1.338-4) shall be allocated for income tax
purposes, among the assets of the Parent Companies as shown on the Allocation
Schedule attached hereto. The Sellers and the Buyer agree to cooperate in the
preparation and filing of all Forms 8023 (and any comparable state or local
forms) with respect to the sale of the Companies. The Sellers and the Buyer
agree to prepare and file all Tax Returns in a manner consistent with the
Allocation Schedule, and shall take no position and shall not cause their
Affiliates to take any position inconsistent with the Allocation for Tax
purposes, except to the extent required to do so by applicable law or
regulations.
5.12. Release of Liens. On or before the Closing Date, the Companies shall
cause the liens listed in Section 2.10 of the Disclosure Letter and set forth on
a letter to be delivered to the Sellers' Representative not later than July 1,
2003 to be released to the extent such liens do not
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secure obligations properly included on the Final Closing Balance Sheets as
contemplated by Section 1.3 hereof.
5.13. International Students. The Companies covenant that none of the
Schools shall have any foreign students enrolled on or after August 1, 2003 to
the extent required by applicable law, and that each School shall properly
notify each of its foreign students with respect to the expiration of any visa
and any applicable requirement that such student leave the country. Subject to
the limitations contained in Article VIII of this Agreement, the Sellers shall
indemnify Buyer with respect to any claim brought by a foreign student arising
from termination of such student's enrollment with any School or any
non-compliance by the Companies with any immigration laws prior to Closing.
5.14. Additional Matter. Subject to the limitations contained in Article
VIII of this Agreement, the Sellers shall indemnify Buyer with respect to any
claim arising out of the matters referenced in item 54 in Section 2.23(a) of the
Disclosure Letter.
ARTICLE VI
CONDITIONS PRECEDENT TO CLOSING
6.1. Conditions Precedent to the Obligations of Buyer. The obligations of
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 Buyer at Buyer's sole option and which conditions are set
out herein for the exclusive benefit of Buyer):
(a) Updating of Representations and Warranties; Covenants. Each of the
representations and warranties of the Companies and the Sellers under this
Agreement shall be true and correct in all material respects as of the date of
this Agreement and shall be true and correct in all material respects at and as
of the Closing Date, as though made on and as of the Closing Date; provided that
(i) those representations and warranties that address matters only as of a
particular date shall be true and correct as of that date and (ii) those
representations and warranties given as of the Closing Date that contain any
materiality, Material Adverse Effect or Material Adverse Change qualifications
shall be true and correct in all respects. Sellers shall have performed and
complied in all material respects with all obligations, covenants and conditions
required by this Agreement to be performed or complied with by them prior to or
on the Closing Date; provided, that for purposes of determining satisfaction of
the conditions set forth in this Section 6.1(a), all Material Adverse Effect and
Material Adverse Change qualifiers used in any representations or warranties of
the Companies or the Sellers shall be substituted with the following definition:
Material Adverse Effect or Material Adverse Change means any material adverse
effect or material adverse change upon the business, assets, prospects,
financial condition or results of operations of any of the Companies or the
Schools, taken as a whole, or any material adverse change that impairs the
ability of the Sellers or the Companies to consummate the transactions
contemplated by this Agreement other than with respect to any adverse changes
which relate to or result from (i) public or industry knowledge relating to the
transactions contemplated under this Agreement (including any action or inaction
by such person's employees, customers or vendors), or (ii) general economic or
political conditions or other conditions affecting the industry in which the
Companies compete, or (iii) changes in laws or regulations applicable to the
Companies after the date hereof.
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(b) Educational Agency Approvals. All Educational Approvals listed in
Section 6.1(b) of the Disclosure Letter shall have been issued. In addition,
Pre-acquisition Review Letters shall have been received by Buyer for each of the
Schools that is presently party to a Program Participation Agreement with the
Department of Education.
(c) Clearances. The expiration of all applicable waiting periods in
connection with the HSR Act shall have occurred.
(d) Consents and Other Approvals. Sellers and the Companies shall have
duly received, without any condition adverse to Buyer, all of the consents and
other approvals specified in Section 6.1(d) of the Disclosure Letter.
(e) Litigation. No statute, regulation, injunction or order of any
court of competent jurisdiction, administrative agency or other governmental
body shall be in effect as of the Closing which restrains or prohibits this
Agreement or any of the transactions contemplated hereby or that would limit or
adversely affect Buyer's ownership of the Purchased Interests or control of the
Companies. There shall not have been threatened, nor shall there be pending, any
Litigation by or before any governmental body challenging the lawfulness of or
seeking to prevent or delay any aspect of these transactions or seeking monetary
or other relief by reason of the consummation of any of such transactions.
(f) Closing Certificates. Sellers shall have executed and delivered,
or caused the Companies to execute or deliver, a certificate, dated on the
Closing Date, certifying to the fulfillment of the conditions set forth in
clauses (a) through (d) of this Section 6.1.
(g) No Material Adverse Change. There shall be no material adverse
change, from and after the date hereof through the Closing Date, upon the
business, assets, prospects, financial condition or results of operations of any
of the Companies or the Schools, taken as a whole, or any material adverse
change that impairs the ability of the Sellers or the Companies to consummate
the transactions contemplated by this Agreement other than with respect to any
adverse changes which relate to or result from (i) public or industry knowledge
relating to the transactions contemplated under this Agreement (including any
action or inaction by such person's employees, customers or vendors), or (ii)
general economic or political conditions or other conditions affecting the
industry in which the Companies compete, or (iii) changes in laws or regulations
applicable to the Companies after the date hereof.
(h) Opinion. Buyer shall have received an opinion of counsel to
Sellers and the Companies in the form attached hereto as Exhibit J.
(i) Note Escrow Agreement. The Sellers' Representative and the Note
Escrow Agent shall have executed and delivered the Note Escrow Agreement.
(j) Financial Status. All related party receivables and intercompany
accounts of each of the Companies shall have been paid or otherwise settled at
or before the Closing (except (i) related party receivables and intercompany
accounts solely among the Companies; provided, that such related party
receivables and intercompany accounts net to zero as of the Closing, and (ii)
such other receivables and accounts approved by Buyer).
(k) Withholding Tax Calculation. Parent Companies shall have delivered
to Buyer the preliminary withholding Tax calculations required by Sections
1.1(b), 1.1(c), 1.1(d) and 1.1(e) hereof and shall have made any amendments to
such calculations requested by Buyer.
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(l) 338(h)(10) Election Forms. The Equity Sellers shall have provided
to Buyer an Internal Revenue Service Form 8023 executed by each of the Equity
Sellers and in a form reasonably satisfactory to Buyer, along with any
equivalent forms required under state, local or foreign Tax law requested by
Buyer and in a form reasonably satisfactory to Buyer.
(m) Allocation Schedule. The Equity Sellers and Buyer shall have
agreed to the Allocation Schedule in accordance with Exhibit I hereof.
6.2. Conditions Precedent to the Obligations of Sellers. The obligations of
Sellers 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 Sellers at their sole option and which
conditions are set out herein for the exclusive benefit of Sellers).
(a) Updating of Representations and Warranties. Each of the
representations and warranties of the Buyer under this Agreement shall be true
and correct in all material respects as of the date of this Agreement and shall
be true and correct in all material respects at and as of the Closing Date, as
though made on and as of the Closing Date; provided that (i) those
representations and warranties that address matters only as of a particular date
shall be true and correct as of that date and (ii) those representations and
warranties given as of the Closing Date that contain any materiality, material
adverse effect or material adverse change qualifications shall be true and
correct in all respects. Buyer shall have performed and complied in all material
respects with all obligations, covenants and conditions required by this
Agreement to be performed or complied with by them prior to or on the Closing
Date.
(b) Clearances. The expiration of all applicable waiting periods in
connection with the HSR Act shall have occurred.
(c) Litigation. No statute, regulation, injunction or order of any
court of competent jurisdiction, administrative agency or other governmental
body shall be in effect as of the Closing which restrains or prohibits this
Agreement or any of the transactions contemplated hereby or that would limit or
adversely affect the purchase and sale of the Purchased Interests, the Seller
Notes, the Indemnification Notes or the Irrevocable Letters of Credit. There
shall not have been threatened, nor shall there be pending, any Litigation by or
before any governmental body challenging the lawfulness of or seeking to prevent
or delay any aspect of these transactions or seeking monetary or other relief by
reason of the consummation of any of such transactions.
(d) Closing Certificate. Buyer shall have furnished to Sellers a
certificate of one of its officers, dated on the Closing Date, certifying to the
fulfillment of the conditions set forth in clauses (a) through (c) of this
Section 6.2.
(e) Note Escrow Agreement. Buyer, the Parent Companies and the Note
Escrow Agent, as applicable, shall have executed and delivered the Note Escrow
Agreement.
(f) Indemnification Notes. The Sellers' Representative shall have
received the Indemnification Notes, duly executed by Buyer, each accompanied by
the Irrevocable Standby Letters of Credit.
(g) Allocation Schedule. The Equity Sellers and Buyer shall have
agreed to the Allocation Schedule in accordance with Exhibit I hereof.
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ARTICLE VII
COVENANT AGAINST COMPETITION AND DISCLOSURE
7.1. Non-Competition by Russell E. Palmer. To accord to Buyer the full
value of its purchase hereunder, RPalmer shall not, during the period from the
Closing Date until the date three (3) years thereafter, directly or indirectly
(a) engage or have a financial interest in (as owner, stockholder, partner or
otherwise) the operation of any business which owns, operates, administers,
supports, manages or establishes any post-secondary proprietary program or
institution offering two (2) year programs resulting in a degree or diploma that
competes with Buyer, the Schools, or any of the Companies within any state of
the United States in which a School operates as of the date hereof, (b) disclose
to anyone, or use in competition with Buyer, the Companies or the Schools any
information with respect to any confidential or secret aspect of the operations
of the Companies or the Schools, (c) solicit, directly or indirectly, interfere
with, or attempt to divert or entice away any person or entity who at any time
is an employee, (d) solicit, directly or indirectly, interfere with, or attempt
to divert or entice away any person or entity who at any time is a student or
prospective student of the Schools for any other business which owns, operates,
administers, supports, manages or establishes any post-secondary proprietary
program or institution offering two (2) year programs resulting in a degree or
diploma that competes with Buyer, the Schools, or any of the Companies within
any state of the United States in which a School operates as of the date hereof,
or (e) contact any current employees or persons who, during the preceding six
(6) months, were employees of the Schools where the purpose of such contact is
to recruit students or prospective students for any other schools. Nothing in
this Section 7.1 shall be construed so as to preclude RPalmer or any of his
affiliates from investing in any public company, provided that RPalmer's or his
affiliates' beneficial ownership of any class of such company's securities does
not exceed five (5%) percent of the outstanding securities of such class.
7.2. Remedies. RPalmer hereby 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 Buyer and the Companies may have, Buyer and the Companies
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.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
8.1. Survival of Representations. The representations and warranties set
forth in Articles II, III and IV are considered to be cumulative, and any
limitation or qualification set forth in any one representation and warranty
therein shall not limit or qualify any other representation and warranty
therein. All representations, warranties and agreements made by any party in
this Agreement or pursuant hereto shall survive until the expiration of the one
(1) year period following the Closing Date (the "Survival Period") and no action
or claim for
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Losses (as hereinafter defined) resulting from any misrepresentation or breach
of any warranty or covenant shall be brought or made after the Survival Period,
except that such time limitation shall not apply to any remedies of the Buyer
Indemnitees with respect to:
(a) claims for misrepresentations and breach of warranties relating to
Sections 2.1, 2.2, 2.4 and 2.5 hereof and Sections 3.1, 3.2 and 3.3 hereof,
which may be asserted without limitation; and
(b) except as provided in Section 8.1(c) hereof with respect to
certain claims for misrepresentations and breach of warranties relating to
Section 2.19(h) hereof, claims for misrepresentations and breach of warranties
relating to Section 2.19 hereof and claims for breach of covenants under Section
5.11 hereof, which may be asserted until the later of: (i) the two (2) year
anniversary of the Closing Date, and (ii) September 16, 2005.
(c) claims for misrepresentations and breach of warranties relating to
Section 2.19(h) hereof that relate to potential Losses with respect to the
invalidity of the Section 338(h)(10) Election, which may be asserted until the
three (3) year anniversary of the date on which Buyer files its federal income
Tax return for its tax year that includes the Closing Date;
(d) claims relating to noncompliance with Title IV of the HEA, which
may be asserted until the three (3) year anniversary of the Closing Date; and
(e) claims for breaches of covenants relating to Sections 1.3, 5.6,
5.10 and 7.1 which may be asserted until the three (3) year anniversary of the
Closing Date; and
(f) claims arising from fraud or knowing misrepresentations with
intent to deceive, which may be asserted without limitation; and
Further, the Survival Period shall not apply to any remedies of the Buyer
Indemnitees or the Sellers for any claims for misrepresentations or breach of
warranties, which have been asserted and which are the subject of a written
notice from Buyer to the Sellers' Representative prior to the expiration of the
Survival Period, which notice specifies in reasonable detail the nature of the
claim.
8.2. Indemnification by the Companies and the Sellers.
(a) Prior to the Closing, the Companies hereby jointly and severally
agree to indemnify, defend, save and hold Buyer and its officers, directors,
employees, agents and affiliates (collectively, the "Buyer Indemnitees"; which
defined term, from and after the Closing Date, shall include the Companies)
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
(excluding, in any event, punitive, consequential and special damages, other
than punitive, consequential and special damages payable to third parties)
(collectively, the "Losses") asserted against, imposed upon, resulting to or
incurred by any 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 any Company or any Seller in this Agreement, or in any
certificate furnished pursuant hereto by the Companies or any Seller and (ii) a
breach or non-fulfillment of any of the covenants or agreements made by any of
the Companies or any Seller in or pursuant to this Agreement. Notwithstanding
anything to the contrary contained in this Agreement, the Sellers shall not be
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responsible for the failure or non-fulfillment of any pre-Closing covenant of
the Companies contained in this Agreement that requires performance prior to
Closing until the Closing has occurred and shall in no event be responsible for
the performance or non-performance of any post-Closing covenant of the Companies
contained in this Agreement.
(b) After the Closing, the Sellers hereby severally (and not jointly)
agree to indemnify, defend, save and hold the Buyer Indemnitees harmless from
and against all Losses asserted against, imposed upon, resulting to or incurred
by any 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 any of the Parent Companies or any Seller in this Agreement,
or in any certificate furnished pursuant hereto by the Companies or any Seller,
including any breach of the representations and warranties in Article II and
Article III of this Agreement, provided, that, for purposes of determining the
first Three Hundred Thirty-Seven Thousand Five Hundred Dollars ($337,500) (the
"Initial Threshold") of Loss arising from or otherwise related to a breach of
any such representations and warranties, all references to material,
materiality, material adverse effect or material adverse change shall be
disregarded, provided that in no event shall such references be disregarded to
the extent Losses exceed the Initial Threshold, and (ii) a breach or
non-fulfillment of any of the covenants or agreements made by any of the
Companies or any Seller in or pursuant to this Agreement. Notwithstanding the
foregoing, nothing in this Agreement shall be interpreted as imposing upon any
individual Seller any obligations of the other Sellers as a group that arise
under this Agreement or pursuant to the transactions contemplated hereby, and in
no event shall any Seller be deemed to be responsible for the representations,
warranties or covenants in this Agreement of any other Seller, but shall only be
responsible for such Seller's own representations, warranties and covenants. For
purposes of this Agreement, Losses with respect to the invalidity of the Section
338(h)(10) Election resulting from any misrepresentation or breach of warranties
relating to Section 2.19(h) hereof shall be: (i) the present value of the
additional Tax basis ("Tax Basis") that would have been available to such Buyer
Indemnitees if the representation and warranty provided by Sellers in Section
2.19(h) hereof had been true and correct; and (ii) the Reimbursement Amount and
any Additional Reimbursement Amounts paid by Buyer to Sellers pursuant to
Section 5.11(h) hereof. For purposes of the preceding sentence, the present
value of Tax Basis shall be determined by multiplying the Tax Basis by the
highest applicable federal corporate tax rate in the year in which notice is
served to Sellers of a potential indemnification claim and discounting the
resulting amount by the current prime rate as published by the Wall Street
Journal, East Coast Edition (or any successor publication thereto) on the date
on which notice is served to the Sellers of a potential indemnification claim
relating to such Tax Basis.
8.3. Indemnification by Buyer. Buyer hereby agrees to indemnify, defend,
save and hold Sellers and, prior to the Closing, the Companies and the
respective heirs, officers, directors, employees, affiliates, members, managers
and agents of each of the foregoing (collectively, the "Seller Indemnitees")
harmless from and against any and all Losses asserted against, imposed upon,
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 Buyer in this Agreement or in any
certificate or document furnished pursuant hereto by Buyer, provided, that, for
purposes of determining the Initial Threshold of Loss arising from or otherwise
related to a breach of any such representations and warranties, all references
to material, materiality, Material Adverse Effect or Material Adverse Change
shall be disregarded, provided that in no event shall such references be
disregarded to the extent Losses exceed the Initial Threshold, or (ii) a breach
or non-fulfillment of any of the covenants or agreements made by Buyer in or
pursuant to this Agreement.
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8.4. Notice of Claims. If any Buyer Indemnitee or Seller Indemnitee (an
"Indemnified Party") believes that it has suffered or incurred any Losses, as
the case may be, 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
Losses, such Indemnified Party shall promptly notify the Indemnifying Parties of
such action or suit. Any such notification must be in writing, must state in
reasonable detail the nature and basis of the claim, action or Loss and a
reference to this Agreement and Section. At the option of the Indemnified Party,
such notice must be either be accompanied by any available information and
documentation supporting and verifying the actual or anticipated claim, action
or Loss that may be subject to indemnification hereunder, or an invitation to
(and granting of access to) review any such information or documentation at the
executive offices of the Indemnified Party. The failure of an Indemnified Party
to give any notice required by this Section 8.4 or Section 8.11 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
Indemnifying Party.
8.5. Limitations of Liability; Acknowledgements.
(a) Deductible.
(i) The Companies and the Sellers shall not be obligated to
provide any such indemnification or reimbursement for Losses unless the
aggregate amount that the Buyer is entitled to recover in respect of all such
claims exceeds Six Hundred Seventy-Five Thousand Dollars ($675,000) (the "Seller
Deductible") and then only for amounts in excess of the Seller Deductible.
(ii) The Buyer shall not be obligated to provide any such
indemnification or reimbursement for Losses unless the aggregate amount that the
Companies (prior to the Closing) and the Sellers are entitled to recover in
respect of all such claims exceeds Six Hundred Seventy-Five Thousand Dollars
($675,000) (the "Buyer Deductible") and then only for amounts in excess of the
Buyer Deductible.
(b) Maximum Amount. In the event the Closing does not occur, the
maximum aggregate obligations of the Companies in respect of Losses shall be
$11,000,000. Except as otherwise set forth in Sections 8.5(c) through (h), the
maximum aggregate obligations of the Sellers in respect of Losses shall not
exceed the principal amount of the Indemnification Notes; provided, that, prior
to the Closing, or in the event that the Closing does not occur, the Sellers
shall have no obligation or liability to the Buyer Indemnitees pursuant to
Section 8.2(b)(i) and (ii). From and after the Closing, the Sellers will be
responsible for any and all Losses (subject to the limitations set forth in
Sections 8.1 and 8.5 hereof) arising from a breach by the Companies of the
representations and warranties of the Companies contained in this Agreement, and
that the Companies will not be responsible for any Losses after the Closing.
(c) Notwithstanding the foregoing, the limitations in Sections 8.5(a)
and (b) shall not apply in respect of claims for misrepresentations and breach
of warranties relating to Sections 2.1, 2.2, 2.4 and 2.5 hereof and Sections
3.1, 3.2 and 3.3 hereof, which may be asserted without limitation as to amount.
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(d) Notwithstanding the foregoing, the limitations in Section 8.5(b)
shall not apply in respect of claims for misrepresentations and breach of
warranties relating to Section 2.21 ("Environmental Claims"). The aggregate
obligation for Losses in respect of misrepresentations and breach of warranties
relating to Section 2.21 shall not exceed $20,000,000 (less the amount of any
and all Losses previously recovered from reductions in, or set offs against the
principal amount of the Indemnification Notes);
(e) Notwithstanding the foregoing, the limitations in Sections 8.5(a)
and (b) shall not apply in respect of claims for misrepresentations and breach
of warranties relating to Sections 2.19 and 5.11. The aggregate obligation for
Losses in respect of misrepresentations and breach of warranties relating to
Section 2.19 hereof (except for Losses with respect to the invalidity of the
Section 338(h)(10) Election resulting from any misrepresentations or breach of
warranties relating to Section 2.19(h), which are subject to the provisions of
Section 8.5(f) hereof) shall not exceed $10,000,000 (less the amount of any and
all Losses previously recovered from reductions in, or set offs against the
principal amount of the Indemnification Notes);
(f) Notwithstanding the foregoing, the limitations in Sections 8.5(a)
and (b) shall not apply in respect of claims for misrepresentations and breach
of warranties relating to Section 2.19(h) hereof to the extent that such claims
relate to Losses with respect to the invalidity of the Section 338(h)(10)
Election. The aggregate obligations for such Losses with respect to the
invalidity of the Section 338(h)(10) Election shall not exceed: (i) for claims
with respect to which Buyer provides notice to Sellers' Representative prior to
expiration of the survival period described in Section 8.1(b) hereof, an amount
equal to the sum of (A) $12,250,000, plus (B) the Reimbursement Amount and any
Additional Reimbursement Amounts, plus (C) $10,000,000 minus amount of any
Losses previously recovered by Buyer Indemnitees in respect of claims for
misrepresentations and breach of warranties relating to Section 2.19 and Section
5.11 hereof; and (ii) for claims with respect to which Buyer provides notice to
Sellers' Representative after the expiration of the survival period described in
Section 8.1(b) hereof, an amount equal to the sum of: (A) $12,250,000, plus (B)
the Reimbursement Amount and any Additional Reimbursement Amounts made by Buyer
pursuant to Section 5.11(h) hereof, minus (C) the amount of any Losses
previously recovered by Buyer Indemnitees pursuant to Sections 8.5(e) and
8.5(f)(i) hereof, to the extent such recovered Losses exceed $10,000,000.
(g) Notwithstanding the foregoing, the limitations in Sections 8.5(b)
shall not apply to claims relating to noncompliance with Title IV of the HEA.
The aggregate obligation for Losses in respect of noncompliance with Title IV of
the HEA, shall not exceed $25,000,000 with respect to any such claims asserted
prior to the first anniversary of the Closing Date (less the amount of any and
all Losses previously recovered from reductions in, or set offs against the
principal amount of the Indemnification Notes), with such maximum allowable
recovery decreasing (x) to $15,000,000 with respect to any such claims first
asserted after the first anniversary of the Closing Date and before the second
anniversary of the Closing Date (less the amount of any and all Losses
previously recovered from reductions in, or set offs against the principal
amount of the Indemnification Notes), and (y) $10,000,000 with respect to any
such claims first asserted after the second anniversary of the Closing Date and
before the third anniversary of the Closing Date (less the amount of any and all
Losses previously recovered from reductions in, or set offs against the
principal amount of the Indemnification Notes);
(h) Notwithstanding anything to the contrary contained herein, the
limitations contained in Sections 8.5(a) and (b) shall not apply to claims
arising from fraud or knowing misrepresentations with intent to deceive, which
may be asserted without limitation as to
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amount. Notwithstanding anything to the contrary contained in this Agreement, no
Seller will have any obligation or liability under this Section 8.5(h) to the
Buyer Indemnitees for Losses in addition to or in excess of that portion of the
Aggregate Purchase Price received by such Seller hereunder; and
(i) Notwithstanding the foregoing, the limitations in Sections 8.5(a)
shall not apply in respect of claims for breach or non-fulfillment of the
covenants contained in Article I hereof.
8.6. Exclusive Remedy; Waivers. Buyer and the Sellers acknowledge and agree
that their sole and exclusive remedy for monetary damages with respect to any
and all claims relating to the subject matter of this Agreement shall be
pursuant to the indemnification provisions set forth in this Article VIII and
Section 5.11. In furtherance of the foregoing, Buyer hereby waives and releases
the Sellers from any and all rights, claims and causes of action, known and
unknown, foreseen or unforeseen, for monetary damages which exist or which may
arise in the future under any Environmental Law, including any common law
relating to environmental matters, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. (S)9601 et seq.),
the Resource Conservation and Recovery Act (42 U.S.C. (S)6901 et seq.) or any
other statutes now or hereafter in effect. Without in any way limiting the
obligations of the Sellers under this Agreement, each Seller hereby expressly
and irrevocably waives any rights of contribution, subrogation, recoupment,
counterclaim, set-off or indemnification that such Seller may have against any
of the Companies.
8.7. Mitigation.
(a) Buyer shall take and cause its affiliates (including the
Companies) to take all reasonable steps to mitigate any Loss upon becoming aware
of any event which would reasonably be expected to, or does, give rise thereto;
provided, however, that nothing contained in this Agreement will require Buyer
or any affiliate of Buyer to take any action, or refrain from taking any action,
which Buyer, in its sole discretion, deems not to be in the best interests of
Buyer, the Companies or the Schools.
(b) The Sellers and, prior to the Closing, the Companies shall take
and cause each of their affiliates to take all reasonable steps to mitigate any
Loss upon becoming aware of any event which would reasonably be expected to, or
does, give rise thereto; provided, however, that nothing contained in this
Agreement will require the Sellers, the Companies or any affiliate of any of the
foregoing to take any action, or refrain from taking any action, which, in its
sole discretion, it deems not to be in its best interests.
8.8. Collateral Sources. The amount of any Loss or Taxes for which
indemnification is provided under this Article VIII or Section 5.11 shall be net
of (i) in the case of Section 8.2, any accruals or reserves established on the
Final Closing Balance Sheets with respect to the matters to which those Losses
relate, (ii) any amounts recovered by the Indemnified Party pursuant to any
indemnification by or indemnification agreement with any third party, (iii) any
insurance proceeds or other cash receipts or sources of reimbursement received
(each of the foregoing named in clauses (i), (ii) and (iii) a "Collateral
Source") and (iv) an amount equal to the Tax benefit, if any, attributable to
such Loss. Sellers hereby acknowledge that it is the belief of Buyer that there
will be no Tax benefit associated with any potential Loss. If the amount to be
netted hereunder from any payment required under Article VIII is determined
after payment by the Indemnifying Party of any amount otherwise required to
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be paid to an Indemnified Party pursuant to this Article VIII, the Indemnified
Party shall repay to the Indemnifying Party, promptly after such determination,
any amount that the Indemnifying Party would not have had to pay pursuant to
this Article VIII had such determination had been made at the time of such
payment. The Indemnified Party shall use its reasonable efforts to seek recovery
from any Collateral Source for any such claim for indemnity before or within a
reasonable amount of time after making any claim for indemnification by the
Indemnifying Party. Any Indemnifying Party may, in its sole discretion, require
any Indemnified Party to grant an assignment of the right of such Indemnified
Party to assert a claim against any Collateral Source. In the event of such
assignment, the Indemnifying Party will pursue such claim at its own expense.
8.9. Procedures Relating to Indemnification.
(a) General Procedures. Except as provided in Section 5.11 with
respect to Tax matters and as contemplated by Section 8.9(b) hereof, the
Indemnified Party shall have the right to conduct and control, through counsel
of its choosing (provided that the fees and expenses of such counsel shall be
borne by the Indemnified Party and shall not constitute a Loss hereunder) and
reasonably acceptable to the Indemnifying Party, the defense of any third party
claim, action or suit; provided that the Indemnified Party shall have certified
in writing that subsection (3) of the Litigation Conditions has been and will
continue to be satisfied. The Indemnified Party shall not be entitled, or shall
lose its right, to contest, defend, litigate and settle the third-party claim if
the Indemnifying Party shall, in the exercise of reasonable judgment and in good
faith, give written notice to the Indemnified Party of the Indemnified Party's
failure to satisfy any of the Litigation Conditions; provided that the
Indemnifying Party shall undertake to conduct and control the defense of such
action or suit and, in the event that the Indemnifying Party assumes defense of
such action or suit as a result of a failure of the Indemnified Party to satisfy
the requirements of subsection (2) of the Litigation Conditions, pay the fees
and expenses of counsel for the Indemnified Party incurred by the Indemnified
Party prior to assumption of the conduct and control of such action or suit by
the Indemnifying Party. For purposes hereof, the term "Litigation Conditions"
means each of the following has occurred and is continuing: (1) the Indemnified
Party agrees in writing to assume the defense of such third party claim within
ten (10) days of the Indemnified Party having given notice of the third-party
claim to the Indemnifying Party; (2) the third party claim is not likely, in the
Indemnifying Party's reasonable judgment to have a material adverse effect on
the reputation or business prospects of any Indemnifying Party; (3) the
Indemnified Party shall not be involved in any other claim, controversy or
dispute with the same third party claimant that is not the subject matter of the
litigation being controlled or another matter to which the Indemnified Party is
subject to indemnification under this Agreement; provided, that this subsection
(3) requirement shall not apply to any claim, controversy or dispute involving
any Education Agency (including the Department of Education); and (4) the
Indemnified Party shall diligently contest the third-party claim. The
Indemnified Party shall give the Indemnifying Party advance notice of any
proposed compromise or settlement and may not compromise or settle such third
party claim without obtaining the prior written consent of the Indemnifying
Party which consent shall not be unreasonably withheld; provided that the
Indemnified Party 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 Indemnifying Party. The Indemnifying
Party shall have the right to participate in, and to be represented by counsel
(at its own expense) in any such contest, defense, litigation or settlement
conducted by the Indemnified Party. In the event that the Indemnified Party does
not elect to conduct and control the defense of such action or suit
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and the Indemnifying Party then elect to undertake, conduct and control the
conduct and settlement of such action or suit: (A) 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; (B) the Indemnifying Party shall
give the Indemnified Party advance notice of any proposed compromise or
settlement and may not compromise or settle such third party claim without
obtaining the prior written consent of the Indemnified Party which consent shall
not be unreasonably withheld; and (C) the Indemnifying Party 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. The Indemnified Party shall have the sole and exclusive
right to settle any third-party claim, on such terms and conditions as it deems
reasonably appropriate, to the extent such third-party claim involves equitable
or other non-monetary relief.
(b) Certain Environmental Claims Procedures and Limitations. With
respect to any Environmental Claim the resolution of which requires
investigation, remediation or other response action ("Remediation") at any Real
Property or at any other location, the Sellers' Representative shall have the
right in its sole discretion to conduct and control the Remediation, and the
Sellers' Representative shall only be responsible to conduct such Remediation
which is required under Environmental Laws as such laws are in effect as of the
Closing Date, and to conduct such Remediation to the least stringent level
required by such Environmental Laws considering the pre-Closing use of the
property, and to do so with contractors of its choosing and utilizing the most
cost-effective method of Remediation. With respect to any Environmental Claims
relating to violations of Environmental Laws, the Sellers' Representative shall
have the right in its sole discretion to defend such claims, and the Sellers
shall be responsible for fines and penalties and Buyer's reasonable attorney's
fees, if the Sellers' Representative elects to have Buyer defend such claim, in
addition to the costs of Remediation (as limited by the preceding sentence) if
such claim requires Remediation. The Sellers shall not be responsible for any
Environmental Claims unless such claim is triggered by a third party (and not
initiated by the Buyer), and with respect to any Environmental Claim that
relates to contamination, unless such contamination is at levels which violate
Environmental Laws as such laws were in effect as of the Closing Date.
8.10. Certain Understandings. Each of the parties is a sophisticated legal
entity or person that was advised by experienced counsel and, to the extent it
deemed necessary, other advisors in connection with this Agreement. Accordingly,
each of the parties hereby acknowledges that (i) no party has relied or will
rely in respect of this Agreement or the transactions contemplated hereby upon
any document or written or oral information previously furnished to or
discovered by it or its representatives, other than this Agreement (including
the Disclosure Letter), (ii) there are no representations or warranties by or on
behalf of any party hereto or any of its respective affiliates or
representatives other than those expressly set forth in this Agreement, and
(iii) the parties' respective rights and obligations with respect to this
Agreement and the events giving rise thereto will be solely as set forth in this
Agreement.
8.11. Access to Information. From and after the Closing Date, the Sellers
and Buyer shall reasonably cooperate with each other so that (subject to any
limitations that are reasonably required to preserve any applicable
attorney-client privilege) each party has reasonable access to the business
records, contracts and other information existing at the Closing Date and
relating in any manner to the Purchased Interests, the operation of the Schools
or the Companies (whether in the possession of the Sellers or Buyer). No files,
books or records existing at the Closing Date and relating in any manner to the
Purchased Interests, the operation of the Schools or the
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Companies shall be destroyed by any party during the two (2) year period after
the Closing Date (which period shall be extended upon the reasonable request of
either party) without giving the other party at least thirty (30) days prior
written notice, during which time such other party shall have the right to
examine and to remove any such files, books and records prior to their
destruction. The access to files, books and records contemplated by this Section
8.11 shall be during normal business hours and upon not less than two (2) days
prior written request, shall be subject to such reasonable limitations as the
party having custody or control thereof may impose to preserve the
confidentiality of information contained therein, and shall not extend to
material subject to a claim of privilege unless expressly waived by the party
entitled to reasonably claim the same.
8.12. RPalmer Guaranty.
(a) Guaranty. In accordance with this guaranty (the "Guaranty"),
RPalmer hereby irrevocably, absolutely and unconditionally, becomes surety for
and guarantees payment to Buyer of Sellers' obligations to pay any and all
Losses hereunder arising out of or resulting from:
(i) claims for misrepresentations and breach of warranties
relating to Sections 2.1, 2.2 , 2.4 and 2.5 and Sections 3.1, 3.2 and 3.3
hereof; and
(ii) claims for misrepresentations and breach of warranties
relating to Section 2.19 and breaches of covenants relating to Section 5.11
hereof; and
(iii) claims relating to noncompliance by the Companies with
Title IV of the HEA; and
(iv) claims for breaches of covenants relating to Sections 1.3,
5.6, 5.10 and 7.1 hereof;
(b) Notwithstanding the foregoing, in no event shall RPalmer's
liability under this Guaranty exceed (i) the lesser of (x) $6,600,000 or (y) the
aggregate amount distributed to the Sellers upon payment of the Indemnification
Notes in accordance with the payment terms of the Indemnification Notes, minus
(ii) the aggregate amount equal to any payments made by any Seller to the Buyer
for Losses (other than payments deemed made by any Seller as a result of the
reduction in the principal amount of the Indemnification Notes or the set off by
Buyer against the principal amount of the Indemnification Notes in accordance
with their terms).
(c) Notwithstanding anything to the contrary, no action or claim under
this Guaranty may be brought or asserted until the date that is the first
anniversary of the Closing Date, and no action or claim under this Guaranty may
be brought or asserted after the date that is the second anniversary of the
Closing Date.
(d) The obligation under this Guaranty is irrevocable, absolute and
continuing until terminated in accordance with the terms set forth in this
Section 8.12. RPalmer's responsibility shall not be discharged, released,
diminished, or impaired in whole or in part by any setoff, counterclaim,
defense, act or occurrence that RPalmer may have against the Sellers as a result
or arising out of this or any other transaction.
(e) The obligations of RPalmer under this Guaranty shall be subject to
all rights and limitations set forth in this Article VIII.
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8.13. Warrant Sellers' Guaranty.
(a) Guaranty. In accordance with this guaranty (the "TL Guaranty"),
Tech Leaders hereby irrevocably, absolutely and unconditionally, becomes surety
for and guarantees payment to Buyer of TL First Corp's obligations to pay any
and all Losses arising under this Agreement.
(b) The obligations under this TL Guaranty are irrevocable, absolute
and continuing until terminated. Tech Leaders' responsibility shall not be
discharged, released, diminished, or impaired in whole or in part by any setoff,
counterclaim, defense, act or occurrence that Tech Leaders may have against TL
First Corp as a result or arising out of this or any other transaction.
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) Buyer may terminate this Agreement by giving written notice to
Sellers at any time prior to the Closing if the Closing has not occurred on or
before October 15, 2003, unless the failure results primarily from Buyer itself
breaching any representation, warranty or covenant contained in this Agreement,
or unless an extension is mutually agreeable to Sellers and Buyer; and
(c) Sellers may terminate this Agreement by giving written notice to
Buyer at any time prior to the Closing if the Closing has not occurred on or
before October 15, 2003, unless the failure results primarily from any Seller or
any Company breaching any representation, warranty or covenant contained in this
Agreement, or unless an extension is mutually agreeable to Sellers and Buyer.
9.2. Construction. As used herein, unless the context otherwise requires:
references to "Article", "Section" or "clause" are to an article, section or
clause 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 herein to
"knowledge" of Sellers or the Companies are limited to the actual knowledge of
such Seller or Sellers or the executive officers of the applicable Company;
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,
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if sent by hand delivery, when received, if sent by prepaid overnight carrier,
with a record of receipt, or the first day after the date of 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:
(a) if to Buyer to:
Education Management Corporation
210 Sixth Avenue
33rd Floor
Pittsburgh, PA 15222-2603
Facsimile: (412) 562-0900
Attn: John R. McKernan, President
and
Frederick W. Steinberg, Esquire
Senior Vice President, General Counsel
and Secretary
Education Management Corporation
210 Sixth Avenue
33rd Floor
Pittsburgh, PA 15222-2603
Facsimile: (412) 562-0900
(b) if to the Sellers' Representative:
Russell E. Palmer
c/o The Palmer Group
Suite 530
3600 Market Street
Philadelphia, PA 19104
Facsimile: (215) 243-2593
with a copy to:
Dechert LLP
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Attn: John D. LaRocca, Esq.
Facsimile: (215) 994-2222
(c) if to the Sellers, to the address set forth opposite such Seller's
name in Section 9.3(c) of the Disclosure Letter
with a copy to:
Dechert LLP
4000 Bell Atlantic Tower
1717 Arch Street
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Philadelphia, PA 19103
Attn: John D. LaRocca, Esq.
Facsimile: (215) 994-2222
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 Commonwealth of Pennsylvania without regard to
its conflict of law doctrines.
9.6. Amendment and Waiver; Cumulative Effect. Upon the agreement of all of
the parties hereto, this Agreement may be amended 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 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. Contingent Agreement; Entire Agreement; No Third Party Beneficiaries.
Notwithstanding anything to the contrary contained herein, this Agreement
(including the recitals hereto) and the Exhibits and Disclosure Letter attached
hereto is binding on the Sellers from and after execution of this Agreement by
Sellers but is not binding on the Buyer unless approved by the Board of
Directors of Buyer on or before June 24, 2003. Unless and until such approval is
obtained, there is no binding obligation of Buyer with respect to the
transactions contemplated hereby, except as otherwise set forth in the
Confidentiality Agreement and the binding provisions of that certain Letter of
Intent, dated April 2, 2003, as amended. This Agreement, (including the recitals
hereto) and the Exhibits and Disclosure Letter 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.
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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 the 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.
9.10. Sellers' Representative.
(a) The Sellers, by virtue of their execution of this Agreement,
hereby irrevocably appoint RPalmer, as their Sellers' Representative for
purposes of this Agreement, the Note Escrow Agreement and the Indemnification
Notes, and consent to the taking by the Sellers' Representative of any and all
actions and the making of any decisions required or permitted to be taken by
them under this Agreement, the Note Escrow Agreement or the Indemnification
Notes (including the exercise of the power (i) to authorize set off by Buyer of
the principal amount of the Indemnification Notes in satisfaction of claims by
Buyer, (ii) to agree to, negotiate, enter into settlements and compromises of
and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, (iii) to resolve any claim made
pursuant to this Agreement, and (iv) take all actions necessary in the judgment
of the Sellers' Representative for the accomplishment of the foregoing),
provided that the Sellers' Representative shall (A) provide periodic notice to
the Sellers regarding the status of the Indemnification Notes and (B) use
reasonable efforts to inform the Sellers regarding any claims resulting in the
reduction of the principal amount of the Indemnification Notes, or any set off
by Buyer against the principal of the Indemnification Notes, in excess of
$100,000. By its execution below, the Sellers' Representative hereby accepts its
appointment as the Sellers' Representative for purposes of this Agreement, the
Note Escrow Agreement and the Indemnification Notes. Buyer shall be entitled to
deal exclusively with the Sellers' Representative on all matters relating to
Section 1.3, 1.5(a), 1.6, 5.1(e), 5.5 and 5.11, Article VIII, the Note Escrow
Agreement and the Indemnification Notes.
(b) The Sellers' Representative shall be authorized to take any action
and to make and deliver any certificate, notice, consent or instrument required
or permitted to be made or delivered under this Agreement, the Note Escrow
Agreement or the Indemnification Notes (an "Instrument") which the Sellers'
Representative determines in his discretion to be necessary, appropriate or
desirable, and, in connection therewith, to hire or retain, at the sole expense
of the Sellers, such counsel, investment bankers, accountants, representatives
and other professional advisors as he determines in his sole and absolute
discretion to be necessary, advisable or appropriate in order to carry out and
perform his rights and obligations hereunder. Any party receiving an Instrument
from the Sellers' Representative shall have the right to rely in good faith upon
such certification, and to act in accordance with the Instrument without
independent investigation.
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(c) If the Sellers' Representative shall die, become disabled or
otherwise be unable to fulfill his responsibilities as agent of the Sellers,
then the Sellers shall, within ten (10) days after such death or disability,
appoint a successor representative by a vote of the beneficial holders of a
majority of the principal amount of the Indemnification Notes. Any such
successor shall become a "Sellers' Representative" for purposes of this
Agreement, the Note Escrow Agreement and the Indemnification Notes. The Sellers'
Representative may be replaced prior to the Closing Date by a vote of the
holders of a majority of the outstanding Purchased Interests or after the
Closing Date by the beneficial holders of a majority of the principal amount of
the Indemnification Notes.
(d) The Sellers hereby forever release and discharge the Sellers'
Representative, legal counsel and accountants for the Sellers' Representative
(collectively, the "Released Party") of and from any and all claims and demands
of every kind and nature, known and unknown, suspected and unsuspected,
disclosed and undisclosed, for damages actual and consequential, past, present
and future, arising out of or in any way connected with the actions of the
Released Party so long as the Released Party is acting within his, her or its
capacity and the mandate of the role of Sellers' Representative as contemplated
by this Agreement, the Note Escrow Agreement and the Indemnification Notes.
(e) To the extent permitted by law, each of the Sellers, pro rata in
accordance with such Seller's Indemnity Percentage, will indemnify and hold
harmless the Released Party against any losses, claims, expense, cause of
action, damages or liabilities (severally, but not jointly) to which the
Released Party may become subject in connection with fulfilling the role of
Sellers' Representative as contemplated by this Agreement, the Note Escrow
Agreement and the Indemnification Notes; and each of the Sellers will reimburse
any person intended to be indemnified pursuant to this section for any legal or
other expenses as reasonably incurred by such person in connection with
investigating or defending any such loss, claim, damage, liability or action.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed or have caused this
Agreement to be executed by their duly authorized officers as of the date first
written above.
WITNESS: EDUCATION MANAGEMENT CORPORATION
/s/ Richard Them By: /s/ John R. McKernan, Jr.
- -------------------------------------- ----------------------------------
Title: President
WITNESS: RUSSELL E. PALMER
/s/ Jeannette A. Drake /s/ Russell E. Palmer
- -------------------------------------- --------------------------------------
Russell E. Palmer
WITNESS: BRADLEY C. PALMER
/s/ Louis M. Marino /s/ Bradley Palmer
- -------------------------------------- --------------------------------------
Bradley C. Palmer
WITNESS: THE STEPHEN R. PALMER LIVING TRUST
/s/ Jeannette A. Drake By: /s/ Russell E. Palmer III
- -------------------------------------- ----------------------------------
Trustee:
WITNESS: THE RUSSELL E. PALMER III LIVING TRUST
/s/ Jeannette A. Drake By: /s/ Russell E. Palmer III
- -------------------------------------- ----------------------------------
Trustee:
WITNESS: THE KAREN KORFMANN LIVING TRUST
/s/ Carol A. Tino By: /s/ Lowell F. Raeder
- -------------------------------------- ----------------------------------
Trustee:
WITNESS: MICHAEL MASIN
/s/ Jeannette A. Drake /s/ Michael Masin
- -------------------------------------- --------------------------------------
Michael Masin
WITNESS: CONNIE WALTER
/s/ Jeannette A. Drake /s/ Connie Walter
- -------------------------------------- --------------------------------------
Connie Walter
WITNESS: TECHNOLOGY LEADERS L.P.
By: Technology Leaders Management L.P.,
its general partner
By: TL Ventures Inc., its general
partner
/s/ Jeannette A. Drake By: /s/ Robert E. Keith, Jr.
- -------------------------------------- ----------------------------------
Name: Robert E. Keith, Jr.
Title: Managing Director
WITNESS: TECHNOLOGY LEADERS FIRST CORP.
/s/ Jeannette A. Drake By: /s/ Robert E. Keith, Jr.
- -------------------------------------- ----------------------------------
Name: Robert E. Keith, Jr.
Title: Managing Director
WITNESS: J. WILLIAM BROOKS
/s/ Jerry Smith /s/ J. William Brooks
- -------------------------------------- --------------------------------------
J. William Brooks
WITNESS: GERARD FRANCOIS
/s/ Jeannette A. Drake /s/ Gerard Francois
- -------------------------------------- --------------------------------------
Gerard Francois
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WITNESS: DANNY FINUF
/s/ Jerry Smith /s/ Danny Finuf
- -------------------------------------- --------------------------------------
Danny Finuf
WITNESS: AMERICAN EDUCATION CENTERS, INC.
/s/ Jerry Smith By: /s/ J. William Brooks
- -------------------------------------- ----------------------------------
Name: President
Title: CEO
WITNESS: BROWN MACKIE EDUCATION CORPORATION
/s/ Jerry Smith By: /s/ J. William Brooks
- -------------------------------------- ----------------------------------
Name: President
Title: CEO
WITNESS: COMMONWEALTH BUSINESS COLLEGE EDUCATION
CORPORATION
/s/ Jerry Smith By: /s/ J. William Brooks
- -------------------------------------- ----------------------------------
Name: President
Title: CEO
WITNESS: ASHER SCHOOL OF BUSINESS EDUCATION
CORPORATION
/s/ Jerry Smith By: /s/ J. William Brooks
- -------------------------------------- ----------------------------------
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Name: President
Title: CEO
WITNESS: STAUTZENBERGER COLLEGE EDUCATION
CORPORATION
/s/ Jerry Smith By: /s/ J. William Brooks
- -------------------------------------- ----------------------------------
Name: President
Title: CEO
WITNESS: MICHIANA COLLEGE EDUCATION CORPORATION
/s/ Jerry Smith By: /s/ J. William Brooks
- -------------------------------------- ----------------------------------
Name: President
Title: CEO
WITNESS: SELLERS' REPRESENTATIVE
/s/ Jerry Smith By: /s/ J. William Brooks
- -------------------------------------- ----------------------------------
Name: President
Title: CEO
/s/ Jeannette A. Drake /s/ Russell E. Palmer
- -------------------------------------- --------------------------------------
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