EXHIBIT 2.7
ASSET PURCHASE
AGREEMENT
This Asset Purchase Agreement, dated
as of June 17, 2004 (this “Agreement” ), is
entered into by and among Florida Metropolitan University, Inc., a
Florida corporation ( “Buyer” ), A.M.I., Inc., a
Tennessee corporation ( “Seller” ), and Lamar
Williams ( “Owner” ).
BACKGROUND
A. Owner is the sole stockholder of
Seller, which owns, operates and administers that certain
proprietary, post-secondary, motorcycle, marine and watercraft
technical training school known as AMI International Training
Center, located at 3042 West International Speedway Boulevard,
Daytona Beach, Florida 32124 (the “School”
).
B. Buyer desires to buy, through the
payment of cash and the assumption of certain liabilities of
Seller, and Seller desires to sell, substantially all assets and
property owned by Seller and used in the business of the School,
upon the terms and conditions hereinafter set forth.
AGREEMENT
In consideration of the mutual
covenants contained in this Agreement and intending to be legally
bound hereby, the parties hereto agree as follows:
Article I. SALE AND PURCHASE OF
ASSETS
Section 1.01 Purchased Assets to be
Transferred. Subject to the terms and conditions of this
Agreement, Seller hereby agrees to sell, assign, convey, transfer
and deliver to Buyer at the Closing (as defined herein), and Buyer
hereby agrees to purchase from Seller, all of the Seller’s
right, title and interest in, to and under all of the business,
properties, assets, goodwill, rights and claims and property owned
by Seller and used in the business of the Schools of the types set
forth below (the “Purchased Assets” ), free and
clear of all mortgages, pledges, liens, claims, restrictions,
encumbrances and security interests of any kind or nature except as
described on Schedule 5.08(b) (such mortgages, pledges,
liens, etc., as described on Schedule 5.08(b) , the
“Permitted Exceptions” ), and except for the
Excluded Assets (as defined in 1.02 hereof):
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(a)
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Accounts
Receivable. All of
Seller’s accounts receivable, notes receivable and other
receivables (and causes of action related to any of the foregoing)
( “Accounts Receivable” );
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(b)
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Inventory. All of Seller’s inventory, including
without limitation, textbooks, course materials and
supplies;
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(c)
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Property,
Plant and Equipment. All
of Seller’s computer hardware, printers, other data
processing equipment, other machinery and equipment, furniture,
fixtures, leasehold improvements, furnishings, classroom equipment,
tools and other tangible personal property used at the
School;
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(d)
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Records. All of Seller’s records related to or used
in connection with the operation of the School or pertaining to the
Purchased Assets, including, without limitation, all student
records, ledgers, financial statements and records, operating data,
correspondence, employment records, placement records, marketing
materials, information and data, mailing lists and copies of all
documents and other information and data filed by Seller with any
state, federal or local government authority or any guaranty or
accrediting agency, whether on computer disk, in paper form or
otherwise;
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(e)
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Contracts
and Leases. All of the
rights of Seller under contracts, purchase orders and leases
applicable to the School to which Seller is a party entered into in
the course of Seller’s business (the “Contracts and
Leases”), including, without limitation, those identified as
Material Contracts in Schedule 5.09 ;
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(f)
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Intellectual
Property. All rights of
Seller with respect to patents, trademarks, service marks, logos,
licenses and copyrights (whether or not registered) and all
applications and registrations therefor, owned or licensed by
Seller, and all rights of Seller with respect to computer programs
and software, including those described in Schedule 5.10
;
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(g)
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Warranty
Rights. All rights of
Seller relating to or arising out of express or implied warranties,
representations or guarantees from suppliers with respect to any of
the Purchased Assets, and all causes of action arising
therefrom;
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(h)
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Prepaid
Expenses and Refundable Deposits. All of Seller’s prepaid security, vendor,
utility and other deposits and expenses;
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(i)
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Permits. To the extent transferable, Seller’s
licenses, permits, certifications, approvals and other governmental
and regulatory authorizations required under all laws, rules and
regulations applicable to or affecting the School, including those
described in Schedule 5.05(a) ;
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(j)
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Goodwill and
Other Intangibles. All of
the goodwill and going concern value of the School and all other
intangibles used in connection with the School;
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(k)
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Curriculum
Materials. All rights of
Seller with respect to Curriculum (as defined in Section 5.08(e))
used in connection with the educational programs of the School,
whether proprietary or licensed from third parties (including all
periodic updates to the curriculum as developed or used by Seller
or any such third parties);
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(l)
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Real
Property . All right,
title and interest of Seller in and to that certain real property
located in the County of Volusia, State of Florida, more commonly
known as 3042 West International Speedway Boulevard, Daytona Beach,
Florida and more particularly described on Schedule 1.01(k)
attached hereto (the “ Real Property ”), which
will be transferred to Buyer upon the terms and conditions set
forth in that certain Purchase and Sale Agreement and Joint Escrow
Instructions, dated of even date herewith, by and between Buyer and
Seller (the “ Real Property Purchase Agreement
”); and
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(m)
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Other
Assets. All other assets
and property of any kind, wherever located, which is owned, leased
or licensed by Seller and used in the business of the School (other
than the Excluded Assets), including, without limitation,
promotional and marketing materials.
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Section 1.02 Excluded Assets. The
Excluded Assets shall not be conveyed hereunder. The
“Excluded Assets” means:
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(a)
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Cash. All of Seller’s cash or cash equivalents
on hand at the Closing and Seller’s bank accounts relating
thereto; and
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(b)
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Other
Assets. Such other assets
as are identified on Schedule 1.02(b) attached
hereto.
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Article II.
CONSIDERATION
Section 2.01 Purchase Price. The purchase
price payable to Seller in connection with the transfer to Buyer of
the Purchased Assets shall be (i) the cash consideration referred
to in Section 2.02, plus (ii) the assumption of liabilities of
Seller referred to in Section 2.03 (collectively, the
“Purchase Price” ).
Section 2.02 Cash
Consideration. The cash consideration portion of the Purchase
Price shall be Nine Million Five Hundred Thousand Dollars
($9,5000,000.00), payable as follows:
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(a)
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At the Closing,
Buyer shall pay to Seller, by check or wire transfer, Seven Million
Three Hundred Thousand Dollars ($7,300,000.00) (the
“Closing Payment” );
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(b)
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Upon the later
to occur of (1) receipt from the Department of Education (the
“ DOE ”) of written approval of the change of
control of the School and notice that the School has received final
re-certification of eligibility (collectively, the “ DOE
Approval Notice ”) to receive funds administered under
Title IV of the Higher Education Act of 1965, as amended (“
Title IV ”), and (2) the final determination of the
Post-Closing Purchase Price Adjustment pursuant to Section 2.06
(the date of such payment will hereinafter be referred to as the
“ Second Payment Date ”), One Million One
Hundred Thousand Dollars ($1,100,000), plus or
minus , as the case may be, the amount of the
Post-Closing Purchase Price Adjustment, if any (the “
Second Payment ”), by certified check or wire transfer
to the order of Seller; and
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(c)
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On or prior to
the date which is eighteen (18) calendar months after the Closing
Date (as defined below) (or on such later date as the amount of
Sellers’ indemnification obligations to Buyer have been
definitively determined pursuant to the requirements of Sections
9.12 and 9.14, hereinafter the “ Third Payment Date
”), One Million One Hundred Thousand Dollars ($1,100,000.00),
minus the amount of any of Buyer’s Losses
determined in accordance with Sections 9.12 and 9.14 that remain
unpaid as of such time (the “ Third Payment ”),
by certified check or wire transfer to the order of
Seller.
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Section 2.03 Obligations and Liabilities to
be Assumed. Upon the terms and subject to the conditions
contained herein, at the Closing, Buyer shall, by an instrument of
assumption to be executed and delivered at the Closing
substantially in the form of Exhibit A hereto (the
“Assignment and Assumption Agreement” ), assume
only the following liabilities (the “Assumed
Liabilities” ) of Seller and the School: (i) current
trade accounts payable and accrued expenses, except to the extent
such accounts payable and accrued expenses relate to liabilities of
the types described in clauses (i) through (viii) in Section 2.04
below, (ii) all obligations arising after the Closing Date under
the Contracts and Leases assumed by Buyer, (iii) the School’s
unearned income obligation with respect to students enrolled as of
the Closing, and (iv) mortgage debt on certain real property in an
amount not to exceed $461,753.00, but excluding any past due or
delinquent obligations thereunder, as more particularly described
on Schedule 2.03 (the “Mortgage Debt”). Buyer
and Seller acknowledge and agree that the holder of the Mortgage
Debt may not agree to the assumption thereof by Buyer. If the
holder of the Mortgage Debt does not agree to such assumption,
Buyer shall pay, as a closing delivery, the Mortgage Pay-off Amount
to the holder of the Mortgage Debt as set forth in Article
III.
Section 2.04 Excluded Liabilities. Buyer
shall not assume, or otherwise be responsible for, any liabilities
or obligations (whether actual or contingent, matured or unmatured,
liquidated or unliquidated, or known or unknown) (collectively, the
“Excluded Liabilities” ) of Seller, any other
owner or operator of the School prior to the Closing Date, or any
Affiliate of any of the foregoing, other than those liabilities and
obligations which have been specifically assumed by Buyer pursuant
to Section 2.03. The “Excluded Liabilities” shall
include, without limitation, any liabilities or obligations to the
extent that
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they relate to, are connected with, are based
upon or arise out of the following: (i) regulatory liabilities
imposed by the DOE, accrediting agencies and/or the applicable
state regulatory agencies with respect to Seller and/or the School
for periods prior to the Closing Date, (ii) liabilities relating to
employees of Seller and the School for periods prior to the Closing
Date (including, without limitation, salary, bonuses, payroll taxes
payable, accrued vacation liability or other compensation or
benefits), (iii) liabilities with respect to accounts payable
incurred on or before the Closing Date that are set forth on
Schedule 2.04 , (iv) liabilities and costs (including those
incurred post-Closing) associated with or caused by a determination
by the DOE that the Seller and/or School have not demonstrated
compliance with 34 CFR 668.15 (Factors of Financial Responsibility)
and 34 CFR 668.16 (Standards of Administrative Capability) for
dates and periods prior to Closing Date, (v) Tax liabilities of
Seller or the Owner (including, without limitation, sales tax
liabilities in connection with this Agreement), (vi) liabilities
with respect to the claims referenced on Schedule 5.14
hereto, (vii) liabilities associated with any debt of Seller,
except as specifically set forth in subsection (iv) of Section
2.03, (viii) any intercompany payables or debt (whether to any of
the Owner or any Affiliate of Seller or the Owner), and (ix) any
other liability or obligation which has not been specifically
assumed by Buyer pursuant to Section 2.03. For purposes of this
Agreement, the term “ Affiliate ” of any Person
means any other Person who directly or indirectly controls, is
controlled by, or is under common control with such Person and the
term “Person” shall include any individual,
corporation, partnership, joint venture, trust, unincorporated
association or government or any agency or political subdivisions
thereof.
Section 2.05 [INTENTIONALLY OMITTED]
Section 2.06 Post-Closing Purchase Price
Adjustment. Seller agrees that at 12:01 a.m. on the Closing
Date, a computation of the applicable Purchased Assets and the
applicable Assumed Liabilities in the manner set forth below shall
result in the Buyer having acquired “Tangible Net
Equity” (as defined below) of no less than Seven Hundred
Fifty-Eight Thousand Five Hundred Eighty-Five and 00/100 Dollars
($758,585.00) (the “ Net Equity Floor ”), and
“Net Working Capital” (as defined below) of no less
than Two Hundred Thousand and 00/100 Dollars ($200,000.00) (“
Working Capital Floor ”), each calculated in
accordance with GAAP, applied on a basis consistent with the
Buyer’s historical accounting practices. Such amounts shall
be determined and such requirements and ratios calculated based
upon the Closing Balance Sheet described in Section 2.07. If (i)
Tangible Net Equity at 12:01 a.m. on the Closing Date is less than
the Net Equity Floor, and/or (ii) Net Working Capital at 12:01 a.m.
on the Closing Date is less than the Working Capital Floor, then
the Purchase Price shall be reduced, dollar-for-dollar, by a dollar
amount equal to the amount of cash which would be required to bring
both such requirements into compliance (hereinafter, the “
Post-Closing Purchase Price Reduction ”). If (i)
Tangible Net Equity at 12:01 a.m. on the Closing Date exceeds the
Net Equity Floor, and (ii) Net Working Capital at 12:01 a.m. on the
Closing Date exceeds the Working Capital Floor, then the Purchase
Price shall be increased, dollar-for-dollar, by a dollar amount
equal to the lesser of (A) the amount by which the Tangible Net
Equity exceeds the Net Equity Floor, or (B) the amount by which the
Net Working Capital exceeds the Working Capital Floor (hereinafter,
the “ Post-Closing Purchase Price Increase ,”
and referred to herein alternatively with the Post-Closing Purchase
Price Reduction as a “ Post-Closing Purchase Price
Adjustment ”). If the Post-Closing Purchase Price
Reduction results in a decrease in the Purchase Price which is less
than the amount of the Second Payment, then the amount of the
Second Payment to be paid by Buyer to Seller in accordance with
Section 2.02(b) shall be reduced by the amount of the Post-Closing
Purchase Price Reduction. If the Post-Closing Purchase Price
Reduction is greater than the amount of the Second Payment, then
Buyer shall not be required to make the Second Payment to Seller in
accordance with Section 2.02(b), and Seller shall pay to Buyer,
within three (3) business days following the final determination of
the Post-Closing Purchase Price Reduction, by wire transfer of
immediately available funds to the account number designated by
Buyer, the amount by which the Post-Closing Purchase Price
Reduction exceeds the Second Payment. If there is a
Post-
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Closing Purchase Price Increase, then the amount
of the Second Payment to be paid by Buyer to Seller in accordance
with Section 2.02(b) shall be increased by the amount of the
Post-Closing Purchase Price Increase, as set forth therein. For
purposes hereof, “ Tangible Net Equity ” shall
mean the excess of the consolidated tangible Purchased Assets
(including accounts receivable, net of allowance for doubtful
accounts) of the Seller over the consolidated Assumed Liabilities
(including debt for purposes hereof regardless of whether such debt
is paid-off or assumed at the Closing) of the Seller as of the
Closing Date, as adjusted and calculated in accordance with the
procedures established for determining the Closing Balance Sheet in
Section 2.07. For purposes hereof, “ Net Working
Capital ” shall mean the sum of (A) all current Purchased
Assets of the Seller as reflected on the Closing Balance Sheet,
minus the sum of (B) all current Assumed Liabilities (excluding the
current portion of long-term debt for purposes hereof) of the
Seller as reflected on the Closing Balance Sheet.
Section 2.07 Post-Closing Audit. (A)
Within five (5) business days of the Closing Date, Seller shall
deliver to Buyer true and correct copies of all financial books and
records of Seller necessary for Buyer to prepare a balance sheet of
Seller dated as of the Closing Date. Within twenty (20) business
days after receipt of such books and records from Seller, Buyer
shall prepare, and have audited, a balance sheet dated as of the
Closing Date (the “Closing Balance Sheet” ) on
which shall be shown the purchased current assets and the assumed
current liabilities of the Seller as of the Closing Date, and from
which the Tangible Net Equity and Net Working Capital of Seller can
be calculated.
(B) The Closing Balance Sheet shall be prepared
in accordance with Generally Accepted Accounting Principles (
“GAAP” ), applied on a basis consistent with
Buyer’s past practices, and audited by Almich &
Associates ( “Almich” ) in accordance with
Generally Accepted Government Auditing Standards (
“GAGAS” ). Upon receipt of the Closing Balance
Sheet prepared by Buyer, Seller shall have fifteen (15) business
days in which to review it and either accept it or identify
objections by written notice to Buyer. If, within fifteen (15)
business days following delivery of the Closing Balance Sheet to
Seller, Seller has not given notice to Buyer of objections to the
Closing Balance Sheet (such notice must contain a statement of the
basis of Seller’s objections in reasonable detail), then the
calculations of Tangible Net Equity and Net Working Capital as
shown on the Closing Balance Sheet shall be used in computing the
Post-Closing Purchase Price Adjustment, if any. If exceptions or
objections are noted by Seller, Buyer, Seller and their respective
accountants shall meet to resolve the dispute. If such dispute has
not been resolved within fifteen (15) business days after Seller
gives notice of an objection, then the issues in dispute shall be
submitted to a “Big 4” accounting firm with which
neither Seller nor the Buyer has a prior relationship (the
“Accountants” ) for resolution. If the issues
are submitted to the Accountants for resolution: (i) each party
will furnish to the Accountants such work papers and other
documents and information relating to the disputed issues as the
Accountants may request and are available to such party (or its
accountants), and will be afforded the opportunity to present to
the Accountants any material relating to the determination and to
discuss the determination with the Accountants; (ii) the
determination by the Accountants, as set forth in a notice
delivered to the parties, will be binding and conclusive on the
parties; and (iii) Buyer, on the one hand, and Seller, on the other
hand, will each bear 50% of the fees of the Accountants for such
determination. The amount of Seller’s Tangible Net Equity and
Net Working Capital for all purposes of this Agreement shall be as
determined in accordance with this Section 2.07.
Article III.
CLOSING
Section 3.01 Closing. Consummation of the
purchase and sale of the Purchased Assets contemplated hereby is
referred to herein as the “Closing,” and the
date on which the Closing takes place is referred to herein as the
“Closing Date.” The Closing shall take place, as
soon as practicable following satisfaction or waiver of all
conditions precedent to the parties’ obligations to close, at
the offices of Buyer at 6 Hutton Centre Drive, Suite 400, Santa
Ana, California. Delivery of documents at the Closing may
be
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accomplished by facsimile, to be followed by
delivery of originals by overnight courier of national reputation
on the day after the Closing. The Closing shall be effective at
12:01 a.m. on the Closing Date.
Section 3.02 Deliveries by Seller at
Closing. At the Closing, Seller shall deliver or cause to be
delivered to Buyer the following:
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(a)
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Certified
resolutions of Seller’s Board of Directors and, if required
by applicable law, Seller’s stockholders, authorizing the
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein;
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(b)
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a Duly executed
Bill of Sale substantially in the form of Exhibit B hereto
(the “Bill of Sale” ) and such other instruments
of conveyance as shall, in the opinion of Buyer and its counsel, be
necessary to vest in Buyer title to the Purchased
Assets;
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(c)
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a Duly executed
Assignment and Assumption Agreement;
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(d)
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An
officers’ certificate signed by the President and the Chief
Financial Officer of Seller, or such other officer reasonably
acceptable to Buyer, certifying (i) as to the representations,
warranties and covenants of Seller made herein as provided in
Sections 8.01(a), and 8.01(c), and (ii) as to the absence of a
material adverse change as provided in Section 8.01(b);
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(e)
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A
Non-Competition Agreement substantially in the form attached hereto
as Exhibit C (the “Non-Competition Agreement” ),
executed by Seller and the Owner, pursuant to which (i) Seller and
the Owner shall have agreed to not participate, for a period of
seven (7) years after the Closing Date, in the business of
proprietary, post-secondary technical education in any state from
which the School drew students during the three (3) calendar years
prior to the Closing Date, and (ii) in consideration thereof, Buyer
shall have agreed to pay to Seller, on the Closing Date, One
Million Five Hundred Thousand Dollars ($1,500,000.00) (the “
Non-Compete Payment ”);
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(f)
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Any and all
agreements, deeds, certifications and other documents and all
monies required to be delivered by Seller pursuant to the terms of
the Real Property Purchase Agreement prior to the Close of Escrow
(as defined in the Real Property Purchase Agreement);
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(g)
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Either (A) an
agreement from the holder of the Mortgage Debt consenting to the
assumption thereof by Buyer (the “Mortgage Assumption
Agreement”), or (B) a pay-off letter from the holder of the
Mortgage Debt indicating that upon the payment by Buyer of an
amount not more than that shown in Section 2.03 (the
“Mortgage Pay-off Amount”), the Mortgage Debt shall be
paid off and all obligations with respect thereto satisfied and all
liens on the Real Property released.
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(h)
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Any other
documents reasonably requested by Buyer and its counsel to
effectuate the transactions contemplated hereby.
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Section 3.03 Deliveries by Buyer at
Closing. At the Closing, Buyer shall deliver or cause to be
delivered to Seller (or to any third party as directed in writing
by Seller) the following:
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(b)
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Certified
resolutions of the Board of Directors of Buyer authorizing the
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein;
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(c)
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A Duly executed
draft of the Assignment and Assumption Agreement;
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(d)
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A Duly executed
draft of the Non-Competition Agreement;
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(e)
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Any and all
agreements, deeds, certifications and other documents required to
be delivered by Buyer pursuant to the terms of the Real Property
Purchase Agreement prior to the Close of Escrow (as defined in the
Real Property Purchase Agreement);
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(f)
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Either, (A) the
Mortgage Assumption Agreement, or (B) the Mortgage Pay-off Amount
to the holder of the Mortgage Debt;
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(g)
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The Non-Compete
Payment; and
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(h)
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Any other
documents reasonably requested by Seller and its counsel necessary
to effectuate the transactions contemplated hereby.
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Article IV.
TERMINATION
Section 4.01 Termination. This Agreement
may be terminated only as follows and in each case only by written
notice:
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(a)
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At any time by
mutual written consent of Seller and Buyer;
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(b)
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Prior to the
Closing, by Buyer if Seller or the Owner shall be in breach of any
covenant, undertaking, representation or warranty contained herein,
which breach either (a) materially misrepresents the business,
operations or financial condition of the Seller as of the date
hereof, (b) causes a material adverse change in the business,
operations or financial condition of the School or (b) prohibits
the satisfaction of a condition to the Closing;
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(c)
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Prior to the
Closing, by Buyer if the DOE, the State of Florida or any of its
agencies, any applicable regulatory body, any guaranty agency or
any accreditation agency which provides accreditation for the
School (including, but not limited to, the Accrediting Council for
Continuing Education and Training (hereinafter, “
ACCET ”)) determines that the Seller or the School, or
any of their respective programs, will not be certified as eligible
to receive funds administered under Title IV;
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(d)
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Prior to the
Closing, by Buyer, at its sole and absolute discretion, if, based
on the DOE pre-review of the application for certification and
provisional extension of certification, Buyer determines that the
School will be unable to obtain certification by the DOE subsequent
to the Closing Date at any time, in a timely matter, or without
being subject to material adverse conditions;
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(e)
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Prior to the
Closing, by Buyer if Buyer exercises its right not to purchase the
Real Property pursuant to the terms of the Real Property Purchase
Agreement; or
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(f)
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If the Closing
has not occurred on or before October 10, 2004, by Seller or Buyer,
by notice to all other parties, at any time thereafter and before
the Closing.
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Section 4.02 Effect of Termination. In
the event of termination of this Agreement by either Buyer or
Seller in accordance with the applicable provisions above, this
Agreement shall forthwith terminate upon notice thereof duly given
in accordance with the provisions hereof, and there shall be no
liability of
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any nature on the part of either Buyer or Seller
(or their respective officers or directors) to the other, except
for liabilities arising from a breach of this Agreement prior to
such termination; provided, however, that Seller’s and
Owner’s obligations under the last sentence of Section 5.20
shall survive the termination of this Agreement. Upon termination
of this Agreement, Buyer shall return all document (originals or
copies) received from Seller in connection with its investigation
of Seller for purposes of determining whether to enter into this
Agreement. Additionally, upon the written request of Seller
following termination, and contingent upon Seller’s
reimbursement of all of Buyer’s out-of-pocket expenses
related to third party reports regarding the Real Property (e.g.,
title reports, surveys and environmental reports, collectively, the
“Third Party Real Property Reports”), Buyer shall
deliver originals or copies of all such Third Party Real Property
Reports to Seller.
Article V. REPRESENTATIONS AND
WARRANTIES OF SELLER AND OWNER
As a material inducement to Buyer to
enter into this Agreement, to purchase the Purchased Assets and to
assume the Assumed Liabilities, Seller and Owner, jointly and
severally, hereby represent and warrant (a) as of the date hereof
and (b) as of the Closing Date, that:
Section 5.01 Organization and Requisite
Power. Seller is a corporation, duly formed, validly existing
and in good standing under the laws of the State of Tennessee, the
jurisdiction in which it is incorporated. Seller has all requisite
power and authority to own and operate its properties, to carry on
its business as now conducted, to enter into this Agreement and to
consummate the transactions contemplated hereunder. Seller is duly
qualified to do business in each jurisdiction in which the failure
to be so qualified would have an adverse effect on the operation of
the School. True and correct copies of Seller’s articles of
incorporation and bylaws have been furnished to Buyer and reflect
all amendments made thereto at any time prior to the date of this
Agreement and the Closing Date.
Section 5.02 Capacity; Authorization; Binding
Effect. Seller has the power, legal capacity and authority to
execute, deliver and perform this Agreement and each other document
being executed in connection herewith to which it is a party.
Seller has the power, legal capacity and authority to transfer,
convey and deliver the Purchased Assets, free and clear of all
liens, claims, encumbrances, options, rights and restrictions,
except as otherwise disclosed in Schedule 5.08(b) . All
corporate and other proceedings required to be taken by or on the
part of Seller, including all action required to be taken by the
directors, officers or stockholders of Seller, to authorize Seller
to enter into and carry out this Agreement and the related
documents contemplated herein, have been duly and properly taken.
This Agreement has been, and each of the related documents will be
at Closing, duly executed and delivered by Seller and constitute,
or will when delivered constitute, the valid and binding
obligations of Seller, enforceable against Seller, in accordance
with their respective terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting
creditors’ rights and remedies generally, and subject, as to
enforceability, to general principles of equity (regardless of
whether enforcement is sought in a proceeding at law or in
equity).
Section 5.03 Ownership of School. The
School is owned and operated by Seller directly, and no other
Person has any ownership interest in the School. No other Person
has any right, option, subscription or other arrangement to
purchase or otherwise acquire any interest in the
School.
Section 5.04 No Conflicts. The execution,
delivery and performance of this Agreement and each other document
being executed by Seller in connection herewith, and the
consummation by Seller of the transactions contemplated hereby and
thereby will not: (a) violate any provisions of law applicable to
Seller; (b) with or without the giving of notice or the passage of
time, or both, conflict with or result in the breach of any
provision of the articles of formation or operating agreement of
Seller, or any
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instrument, license, agreement or commitment to
which Seller is a party or by which any of its assets or properties
is bound, including the Material Contracts (as defined in Section
5.09 hereof); (c) constitute a violation of any order, judgment or
decree to which Seller is a party or by which any of its assets or
properties is bound; or (d) require any approval of, or filing or
registration with, any governmental entity or regulatory authority
other than those set forth or described on Schedule 5.04 or
Schedule 6.03 attached hereto.
Section 5.05 Compliance with Laws; Licenses
and Permits. Except as disclosed in Schedule 5.05(a) ,
Seller is not in violation of any law, regulation or requirement of
any governmental authority and Seller has not received notice of
any such violation. Seller currently maintains all licenses,
accreditations, certificates, permits, consents, authorizations and
other governmental or regulatory approvals (the “Licenses
and Permits” ) necessary for Seller to conduct the
business and operations of the School as presently being conducted,
including, without limitation, all requisite approvals for the
educational and training programs currently offered from the
Schools’ institutional accrediting agency and the state in
which the Schools operate. Each program offered by the School is an
eligible program in compliance with the requirements of 34 C.F.R.
§ 668.8. Seller has duly filed all reports and returns
required to be filed by it with respect to the School with
governmental authorities and accrediting bodies and complied with
all stipulations, conditions or other requirements that they have
imposed. The Licenses and Permits for the School are in full force
and effect, and no proceedings for the suspension or cancellation
of any of them is pending or threatened. No application made by
Seller for any Licenses and Permits during the last five years has
been denied. Schedule 5.05(b) attached hereto is a true,
correct and complete list of all Licenses and Permits held by
Seller with respect to the School and the governmental authority or
accrediting body granting such Licenses and Permits. Seller has
delivered to Buyer true and correct copies of all such Licenses and
Permits. Seller has received no notice that any of the Licenses and
Permits will not be renewed and, to Seller’s knowledge, there
is no basis for nonrenewal. The School is accredited as set forth
on Schedule 5.05(c) attached hereto, is certified by the DOE
as an eligible institution under Title IV and is party to, and in
compliance with, valid program participation agreements with the
DOE with respect to the School’s operations, and is
authorized by the state in which it is located to operate
for-profit postsecondary educational institutions. Seller has not
received any notice, not previously complied with, in respect of
any alleged violation of the rules or regulations of the DOE, any
state licensing body, or any applicable accrediting body in respect
of the School, including sales and marketing activities, or the
terms of any program participation agreement to which it is or was
a party. If any such notices have been received and complied with,
Seller has disclosed in writing their receipt and disposition to
Buyer prior to the execution of this Agreement. Other than as set
forth on Schedule 5.05(d) attached hereto, Seller is not
aware of any investigation or review of Seller’s student
financial aid programs or any review of the School’s state
license accreditation by any Person.
Section 5.06 Recruitment; Admissions
Procedures; Attendance; Reports. Schedule 5.06(a)
attached hereto is a complete list of all policy manuals and other
statements of procedures or instruction relating to recruitment of
students for the School, including (a) procedures for assisting in
the application by prospective students for direct or indirect
state or federal financial assistance; (b) admissions procedures,
including any descriptions of procedures for insuring compliance
with state or federal or other appropriate standards or tests of
eligibility; and (c) procedures for encouraging and verifying
attendance, minimum required attendance policies, and other
relevant criteria relating to course completion and certification
(collectively, the “Policy Guidelines” ). Seller
has delivered to Buyer true, correct and complete copies of all
Policy Guidelines and all documents and other information
disseminated to students or prospective students. Seller’s
operations with respect to the School have been conducted in
accordance with the Policy Guidelines and all relevant standards
imposed by applicable accrediting bodies, agencies administering
state or federal governmental
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programs in which Seller participates, and other
applicable laws or regulations. Seller has submitted all reports,
audits, and other information, whether periodic in nature or
pursuant to specific requests, including, without limitation, all
annual compliance audits and audited financial statements, for the
School to all agencies or other entities with which such filings
are required relating to its compliance with (i) applicable
accreditation standards governing its activities and (ii) laws or
regulations governing programs pursuant to which Seller or its
students receive funding. Complete and accurate records for all
present and past students attending the School have been maintained
consistent with the operations of a school business. All forms and
records with respect to the School have been prepared, completed,
maintained and filed in accordance with all applicable federal and
state laws and regulations, and are true and correct. All financial
aid grants and loans, disbursements and record keeping relating
thereto have been completed in compliance with all federal and
state requirements, and there are no deficiencies in respect
thereto. The School and Seller have complied with the legal
requirements that no student at the School be funded prior to the
date for which such student was eligible for funding. Seller
covenants and agrees that it shall reimburse Buyer for and
indemnify Buyer against any fines, penalties, expenses, costs and
other losses Buyer may incur as a result of any pre-eligibility
funding prior to the Closing Date. The records of each student at
the School conform in form and substance to all relevant regulatory
requirements.
Section 5.07 Cohort Default Rate.
Schedule 5.07 attached hereto sets forth the cohort default
rate for the School, calculated in the manner prescribed by the
DOE, of all students attending the School receiving assistance
pursuant to Title IV programs for the fiscal years 1997 through
2002. Such schedule is correct and accurate in all
respects.
Section 5.08 Title to and Condition of the
Purchased Assets.
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(a)
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Real
Property. The Real
Property constitutes the only real property used in connection with
the operation of the School by Seller.
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(b)
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Laws and
Regulations; Records. All
of Seller’s operations with respect to the School are
conducted at the Real Property, and all of the tangible Purchased
Assets and records relating to intangible Purchased Assets of the
School are located on the Real Property. Seller is not under any
contractual or other legal obligation, and has not entered into any
commitment, to make capital improvements or alterations to the Real
Property. The Real Property is not subject to any zoning ordinance
or other restrictions which would prohibit the use and enjoyment of
the Real Property in the manner in which the Real Property is
currently used and the Real Property is not subject to any
condemnation proceedings. The Real Property and Seller’s use
thereof is in compliance with all laws, including, without
limitation, the Americans with Disabilities Act.
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(c)
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Title. Seller owns outright, and has good and
marketable title to, all of the Purchased Assets, free and clear of
all liens, claims and encumbrances, options, rights, and
restrictions, other than as set forth on Schedule 5.08(c) .
All leases for tangible personal property used by Seller in
connection with the operation of the School are (i) valid and in
full force and effect, (ii) are enforceable in accordance with
their terms, and (iii) are capable of being assigned, and will in
fact be assigned to Buyer, upon the execution and delivery by Buyer
and Seller of the Assignment and Assumption Agreement. Neither
Seller nor any of the other parties thereto is in default under any
such lease, and no event, act or omission has occurred which (with
or without notice, the passage of time or the happening or
occurrence of any other event) would result in a default
thereunder.
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(d)
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Condition of
Purchased Assets. The
tangible Purchased Assets and properties of the Schools which are
owned or leased by Seller and used in connection with the operation
of the School are in good operating condition, order and repair,
useable in the ordinary course of business consistent with past
practice and are sufficient and adequate for all current
operations. Seller has not received notice of any violation of or
default under any law, ordinance, order, regulation or requirement
relating to any of the Purchased Assets which remains uncured or
has not been resolved.
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(e)
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Title;
Condition and Quality of the Curriculum. Seller owns outright, and has good and
marketable title to, the Curriculum of the School, free and clear
of all encumbrances, and the execution of this Agreement will vest
good and marketable title to the Curriculum in Buyer, free and
clear of all encumbrances. No employee or Affiliate of Seller or
the Owner or any other Person owns or has any interest, directly or
indirectly, in any part of the Curriculum. Seller does not use any
part of the Curriculum by consent of any other Person and is not
required to and does not make any payments to others with respect
thereto. No component of the Curriculum infringes or violates any
copyright, patent, trade secret, trademark, service mark,
registration or other proprietary right of any other Person, and
Seller’s and Owner’s past and current use of any part
of the Curriculum does not infringe upon or violate any such right.
Neither Seller nor the Owner has taken any action, or failed to
take any action, to cause any part of the Curriculum to enter the
public domain. The term “Curriculum,” as used in
this Agreement, means the curriculum used in the educational
programs of the School in the form of computer programs, slide
shows, texts, films, videos or any other form or media, including,
without limitation, the following items: (1) course objectives, (2)
lesson plans, (3) exams, (4) class materials (including interactive
or computer-aided materials), (5) faculty notes, (6) course
handouts, (7) diagrams, (8) syllabi, (9) sample externship and
placement materials, (10) clinical checklists, (11) course and
faculty evaluation materials, (12) policy and procedure manuals,
and (13) other related materials. The Curriculum shall also
include, without limitation, (a) all copyrights, copyright
applications, copyright registrations and trade secrets relating to
the above-listed items and (b) Revisions. The term
“Revisions,” as used in this Agreement, means
all periodic updates or revisions to the Curriculum as developed or
used by Seller during its period of operation of the School from
the beginning of time through the Closing Date.
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Section 5.09 Material Contracts.
Schedule 5.09 attached hereto lists each of Seller’s
Contracts and Leases relating to the School or the operation
thereof or to which any of the Purchased Assets is subject or bound
that individually, or together as a series of related contracts
involving the same party or parties, or the successors to such
party or parties: (a) obligates Seller or its Affiliates to pay an
amount of $5,000 or more, (b) has an unexpired term as of the date
of this Agreement in excess of six months, (c) was not made in the
ordinary course of business, or (d) is in any way otherwise
material to the operation of the School (collectively, the “
Material Contracts ”). Each Material Contract is valid
and existing. Seller has duly performed all its obligations under
the Material Contracts to the extent that such obligations to
perform have accrued. Seller has not received written notice of any
alleged breach or default, and no event which would (with the
passage of time, notice or both) constitute a material breach or
default by Seller or any other party or obligor with respect
thereto has occurred. True and correct copies of the Material
Contracts, including all amendments and supplements thereto, have
been delivered to Buyer or are attached to Schedule 5.09 .
Each of the Material Contracts is (i) enforceable in accordance
with their terms, and (ii) is capable of being assigned to Buyer
and will in fact be assigned to Buyer upon the execution and
delivery by Buyer and Seller of the Assignment and Assumption
Agreement. For purposes of this Agreement, the term
“Affiliate” of any Person means any other Person
who directly or indirectly controls, is controlled by, or is under
common control with such Person.
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Section 5.10 Tradenames; Confidential
Information. All tradenames, trademarks or service marks and
all forms, derivatives and graphic presentations thereof of Seller
having any value to the operation of the School are set forth or
described on Schedule 5.10 attached hereto (collectively,
the “Tradenames” ). Seller has exclusive right
to the use of each Tradename as an assumed business name in the
states in which such Tradename is used, and Schedule 5.10
lists all registrations of each Tradename as a trademark,
servicemark or assumed name. Seller has not licensed any other
Person to use any Tradename. Seller has not been sued or threatened
with suit for infringement, violation or breach with respect to any
Tradename, and no basis exists for any such suit. Except as
disclosed on Schedule 5.10 , Seller is not on notice of any
infringement, violation or breach of the Tradename by any other
Person. Seller has the right to use and license, free and clear of
any claims or rights of any third party, all trade secrets,
customer lists, know-how, curricula and any other confidential
information required for or used in the operation of the School.
Seller is not in any way making any unlawful or wrongful use of any
trade secrets, customer lists, know-how, curricula or any other
confidential information of any third party, including, without
limitation, any former employer of any present or past employee of
Seller in connection with the operation of the School.
Section 5.11 Financial Statements;
Indebtedness. Attached hereto as Schedule 5.11(a) are
the following financial statements of Seller: (a) audited Balance
Sheets at December 31, 2003, 2002 and 2001 and audited Statements
of Operations and Statements of Cash Flows for the years ended
December 31, 2003, 2002 and 2001 (including consolidating schedules
containing corresponding Statements of Assets and Liabilities and
Statements of Revenue and Expenses of the School in the form
appropriate for filing with the DOE) and (b) an unaudited Balance
Sheet at March 31, 2004 and an unaudited Statement of Operations
and Statement of Cash Flows for the three month period ended March
31, 2004 (collectively, the “Financial
Statements” ). The basis of presentation of the Financial
Statements of the Seller and the School is disclosed on Schedule
5.11(b) attached hereto or in the notes thereto. Except as
disclosed on Schedule 5.11(b) , the balance sheets included
in the Financial Statements present fairly in accordance with GAAP
the assets and liabilities of Seller and the School as of the
respective dates
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