-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IXPitu3Yk8VZ5/k5YYfSe+Kbx9+CYPmk6hGYjk78H52YhHw/OSAplWbjV7NWendM t8ViTTK4/54uWRKv/arqqQ== 0001047469-99-037010.txt : 19991227 0001047469-99-037010.hdr.sgml : 19991227 ACCESSION NUMBER: 0001047469-99-037010 CONFORMED SUBMISSION TYPE: 10KSB40 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990928 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALIFORNIA CULINARY ACADEMY INC CENTRAL INDEX KEY: 0000858915 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EDUCATIONAL SERVICES [8200] IRS NUMBER: 943042862 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10KSB40 SEC ACT: SEC FILE NUMBER: 000-21932 FILM NUMBER: 99718367 BUSINESS ADDRESS: STREET 1: 625 POLK ST CITY: SAN FRANCISCO STATE: CA ZIP: 94102 BUSINESS PHONE: 4157713536 MAIL ADDRESS: STREET 1: 625 POLK ST CITY: SAN FRANCISCO STATE: CA ZIP: 94102 10KSB40 1 10-KSB405 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-KSB (Mark One) /X/ Annual report under section 13 or 15(d) of the Securities and Exchange Act of 1934 For the fiscal year ended June 30, 1999 / / Transition report pursuant to section 13 or 15(d) of the Securities and Exchange Act of 1934 For the transition period from to
COMMISSION FILE NUMBER: 0-21932 CALIFORNIA CULINARY ACADEMY, INC. (Name of small business issuer in its charter) ------------------------ CALIFORNIA 94-3042862 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 625 POLK STREET SAN FRANCISCO, CA 94102 (Address of principal executive offices) (Zip code)
Issuer's Telephone Number: (415) 292-8280 ------------------------ Securities registered under Section 12(b) of the Act: None Securities registered under Section 12(g) of the Act: Common Stock, no par value (Title of class) ------------------------ Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / /. Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. /X/ Revenues for the most recent fiscal year were: $17,974,000. The aggregate market value of the voting stock held by non-affiliates computed by reference to the closing sale price on September 10, 1999 was $13,261,331. The number of shares outstanding of the issuer's Common Stock as of September 10, 1999, was 3,815,431. Documents incorporated by reference: None Transitional Small Business Disclosure Format. Yes / / No /X/. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This Annual Report on Form 10-KSB contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Academy's actual results may differ materially from the results projected in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in "ITEM 1--Description of Business", including the section therein entitled "Risk Factors," and in "ITEM 6--Management's Discussion and Analysis of Financial Condition and Results of Operations". PART I ITEM 1. DESCRIPTION OF BUSINESS. The California Culinary Academy, Inc., ("Academy") is one of the largest publicly held, for-profit professional culinary arts training schools in the United States (based on the number of students enrolled in its programs), offering a variety of programs to culinary arts professionals, serious amateurs and other members of the public who may be interested in specific culinary subjects. The Academy operates at three locations: the main campus located in San Francisco, California and at extension campuses in Salinas and San Diego, California. In conjunction with its education activities, the Academy operates two public restaurants and a small retail shop at its San Francisco campus, serving a clientele that consists of students, staff and the general public. The Academy has been in operation since 1977, offering its core programs, consisting of the Associate of Occupational Studies Culinary Arts Degree Program ("AOS Degree"), the Baking & Pastry Arts Certificate Program ("B&P Certificate"), weekend continuing education programs for professionals, and other courses or workshops for interested non-professional students. In October 1996, the Academy introduced a new concept in culinary education when it opened its College of Food at its extension campus in Salinas. A second College of Food was opened in San Diego, California in February 1998. The strategy of the College of Food is to increase the students' basic knowledge of kitchen skills, sanitation and supervisory skills, as well as offering specialized courses in baking and pastry. The College of Food concept is designed to attract students who wish to enter the culinary field, food service workers who need specialized training or individuals who simply want to expand their culinary knowledge. As of September 1, 1999, the Academy has graduated approximately 5,600 students from its professional programs. In addition, thousands of individuals have attended one or more of its continuing education classes. For the year ended June 30, 1999, the Academy averaged approximately 617 full-time students in its AOS Degree and B&P Certificate programs. These programs are designed to accommodate up to 25 students in each of approximately 25 enrollment periods per year for the AOS Degree program and 25 in each of the seven enrollment periods for the B&P Certificate program. The Colleges of Food, each of which can accommodate up to approximately 150 students with new enrollments occurring approximately every three to four weeks, averaged 174 students during the year ended June 30, 1999. Because the curriculum at the Academy focuses on practical skills and techniques that the Academy believes are critical to success in the food industry, the Academy has historically enjoyed a high job placement rate among its graduates. The predecessor to the Academy was incorporated in June 1977, as a Pennsylvania corporation. In October 1986, the Academy was incorporated in the State of California under the name CCA Acquisition Corporation and was the surviving corporation in a merger with the Pennsylvania corporation. Upon completion of the merger, CCA Acquisition Corporation changed its name to California Culinary Academy, Inc. 2 EDUCATION PROGRAMS The Academy's professional programs are designed to prepare students for entry-level professional positions or for individual advancement to supervisory positions in food service operation. The primary educational offerings of the Academy are the AOS Degree and B&P Certificate programs. The Academy has also applied for certification of its Basic Professional Culinary Skills Program at the College of Food. Completed coursework from the College of Food's Basic Professional Culinary Skills Program is transferable into the Academy's AOS Degree program. In addition to its degree and certificate programs, the Academy also offers a large variety of non-degree programs for professionals and other students. All professional programs emphasize "hands on" practical experience. Full-time classes at the main campus in San Francisco are offered in two seven-hour shifts, from 7 AM to 10 PM, Monday through Friday. At the Colleges of Food, classes are offered in a choice of four hour shifts, from 9 AM to 1 PM or from 6 PM to 10 PM for part-time students. Part-time students typically have full or part-time jobs and the choice of classes accommodates their employment schedules. Continuing education courses are offered on weekends at the Academy's main campus. AOS PROGRAM The Culinary Arts Program provides an intensive 16-month course of study leading to an Associate of Occupational Studies ("AOS") Degree in Culinary Arts. The program is divided into two academic terms. Enrollment periods begin every two weeks, which provide students with flexible scheduling options and most efficiently utilize the services of the Academy's chef instructors and the Academy's facilities. The curriculum of the AOS Degree program, which integrates classical and modern culinary techniques with strong kitchen management skills, is designed to prepare students for professional entry into the food service industry. Courses include Food Science and Technology, Food History and Anthropology, Baking and Pastry, Skill Development, Garde Manger, Hospitality Management, Production Kitchens, Wine Appreciation and other related subjects. In these courses students learn how to prepare breads, pastries, desserts, appetizers, soups, sauces, vegetables, salads, sandwiches, hors d'oeuvres, cold buffets, and entrees. They also learn to identify, fabricate and portion meats, poultry and fish. The professional kitchen management courses include such topics as sanitation, hygiene, safety procedures, cost control, human resource management and styles of table service. Integral to the coursework is experience operating the Academy's two restaurants and participating in an externship (see "Restaurants, Retail and Media"). In connection with the Academy's restaurant operations, students rotate through kitchen stations in order to gain proficiency in various skills needed to perform at professional standards in a commercial kitchen, and serve the general public clientele in both sit-down and buffet-style settings. The AOS Degree program provides a sequential course of study culminating in a three-month off-site externship where students gain actual experience working under a highly qualified professional chef. As of September 10, 1999, tuition and fees for the AOS Degree program totaled approximately $31,755 for the full 16-month course of study. This fee includes textbooks, uniforms, knife kits, the cost of food used in the classrooms and one meal per day, in addition to the cost of course instruction. Tuition is payable in installments during the two academic terms. Financial assistance is available to eligible students (see "Government Financial Aid Programs and Regulation"). BAKING & PASTRY CERTIFICATE PROGRAM The B&P Certificate program is designed for those students interested in professional baking. The program provides 30 weeks of comprehensive study, with an emphasis on the hands-on application of fundamental techniques and ingredients. The program is divided into four modules: (i) breads and 3 doughs; (ii) cakes; (iii) service pastry and desserts; and (iv) chocolate, confectionery and showpieces. In addition, the curriculum includes professional development courses on safety and sanitation, nutrition and human resource management. Although not included as a required part of the curriculum, externships are available. Enrollment periods begin approximately every seven weeks and each session can accommodate up to 25 students. As of September 10, 1999, tuition and fees for the B&P Certificate program total approximately $14,228 for the full 30-week course of study. This fee includes textbooks, uniforms, knife kits, cost of food, one meal per day and supplies. Deferred payment plans and financial assistance are available to eligible students (see "Government Financial Aid Programs and Regulations") BASIC PROFESSIONAL CULINARY SKILLS PROGRAM The California Bureau for Private Postsecondary and Vocational Education ("BPPVE") has certified the Academy's 12-credit course of study offered at the College of Food. The College of Food Basic Skills Program requires completion of 352 hours of study for 12 credits as follows: 32 hours of Safety and Sanitation; 128 hours of Kitchen Skills; 64 hours of Basic Baking skills; 64 hours of Garde Manger; 32 hours in Breakfast Cookery; and 32 hours of Current topics in Mid-Scale Dining. Credits from the College of Food Basic Skills Program can be applied toward earning an AOS Degree or a B&P Certificate through the Academy's core programs at the main campus. As of September 10, 1999, tuition and fees for the Certificate of Basic Professional Culinary Skills Program totaled approximately $5,156. NON-DEGREE OR CERTIFICATE PROGRAMS In addition to its educational programs leading to the AOS Degree in Culinary Arts, the B&P Certificate, and the College of Food Certificate of Basic Professional Culinary Skills, the Academy offers non-degree continuing education courses for professionals and serious amateurs, as well as other courses of interest to anyone who likes to cook. The professional non-degree continuing education programs address traditional kitchen skills with emphasis on palate development, cooking techniques, and sauces. The courses generally are offered on consecutive weekends, and cover a variety of subjects. Currently the Academy offers a series of eight-week culinary courses and a fourteen-week baking and pastry series. Fees for the non-degree professional programs range from $500 to $1,900. Completed course work can be applied toward earning an AOS Degree or B&P Certificate. EDUCATIONAL SERVICES JOB PLACEMENT FOR PROFESSIONAL PROGRAM STUDENTS AND GRADUATES. The Academy's Career Services staff assists currently enrolled students and graduates in obtaining positions in the food industry in a number of ways. The Career Services Office houses reference material containing current job openings that include entry level through advanced positions throughout the United States and foreign countries. For students and graduates who are unable to access the current job openings on campus, these job openings are also recorded on the Job Hotline, a telephone announcement that is updated weekly. Twice per year during the Academy's Spring and Fall Recruitment Weekend, the Career Services staff coordinates a Career Fair featuring representatives from all areas of the food industry seeking to hire students and graduates of the Academy. The Career Services staff also coordinates interview schedules for companies recruiting students and graduates directly from the Academy during the Recruitment Weekend. In addition, individual counseling sessions, resume assistance and other career development materials are available through the Career Services Office. While the Academy does not guarantee 4 employment specific positions upon graduation, it believes its name, reputation, and high job placement rate are factors that attract students to its professional programs. Students interested in part-time or full-time jobs while they are enrolled at the Academy can contact the Career Services Office. The Academy provides students with names of prospective employers seeking catering staff or other part-time and full-time assistance. Additionally, the Academy itself offers part-time employment. For example, the Academy's Food and Beverage Department hires students to assist with special functions and events, such as private parties and corporate events held in the Academy's restaurants. The Academy also offers federal work-study opportunities. ALUMNI RELATIONS. California Culinary Academy alumni relations and career services personnel are available to refer graduates to other alumni, answer questions, and provide programs, activities and professional opportunities. RECRUITMENT AND ADMISSIONS. Students are recruited both domestically and internationally. Statistics compiled show that as of June 30, 1999, approximately 66% of the full-time students enrolled in the Academy's AOS Degree or B&P Certificate programs are from California. The Academy's admissions staff reviews applications for admission to the professional programs. In considering an applicant for admission to the AOS Degree or B&P Certificate programs, the admissions staff first determines whether an applicant meets certain minimum prerequisites, including: (i) demonstrated motivation towards a career in the culinary arts; (ii) graduation from high school with at least a 2.0 grade point average or passage of an approved high school equivalency examination; (iii) a passing score on a general math admissions test; and (iv) for those whose native language is other than English, passage of the TOEFL test of English as a Foreign Language with a score of at least 550 out of a total of 665. Experience in the food industry is viewed favorably by the admissions staff but is not considered a prerequisite for admission to any of the Academy's programs. Applicants to the Academy's College of Food programs are not required either to have a high school diploma or to have passed an approved high school equivalency examination, or pass an entrance examination. The Academy has evaluation agreements with 18 regional junior colleges allowing certain courses to be transferred to the Academy for credit. The Academy believes this arrangement enables it to recruit more effectively from junior colleges. The Academy believes that an important recruiting tool is its media exposure. A 13-part series, COOKING AT THE ACADEMY, was developed and written by the Academy and produced by the San Francisco public television station KQED. This series has been shown in its entirety since 1991 through the Public Broadcasting System to over 250 major media markets in the United States. In the spring of 1995, a new 26-episode series of COOKING AT THE ACADEMY began airing on public television stations throughout the country. Additionally, the Academy has been featured in a syndicated radio talk show, FOOD FOR THOUGHT, airing in the Monterey Bay area on KCSO radio, as well as DINING AROUND WITH GENE BURNS on KGO radio in San Francisco. The Academy believes that such widespread exposure has enhanced the Academy's name recognition, reputation and new student recruitment efforts (see "Restaurants Retail and Media"). During the fiscal year, the Academy entered into an agreement with WYES TV in New Orleans, Louisiana for the production and distribution of a new 26 part series "The Academy's Global Cuisine" which WYES TV plans to distribute in early 2000. Under the Agreement with WYES TV, the Academy will publish a cookbook based on the series. On-site admissions representatives, who are full-time salaried employees, are responsible for recruiting students at the Academy. These admissions representatives consult with prospective students who are referred by alumni, respond to the Academy's advertising or are otherwise motivated to contact the school. EDUCATIONAL PROGRAM DEVELOPMENT. The Academy's ability to attract new students and place graduating students depends to a significant extent on its ability to offer educational and training 5 programs that provide students with skills sought after in the food industry. Given the continual changes in professional cooking and professional baking, the Academy believes it is critical that the most current methods are taught. The Academy's Educational Program Committee (consisting of members of the Academy's faculty, administration, and focus groups from the food industry), attempts to respond quickly to both the culinary and business needs of the food industry. Recent enhancements to the AOS Degree curriculum address profiling the culinary arts program toward the global cuisine of today's industry. Course work in areas such as Foods of the Americas, Asian Cuisine and a computer software course in food industry applications respond directly to existing and current demands facing the Academy's students upon their graduation. EDUCATION-OPERATIONS DEPARTMENT. The Education-Operations Department is responsible for the quality and delivery of the educational process, including direct responsibility for curriculum content and sequencing, chef instructor training and development, and teaching and evaluation methods. The Vice President of Academic Affairs is assisted by chef managers who oversee each educational area, Basic Skills, Culinary Production, Baking and Pastry and Related Subjects in the AOS Degree or B&P Certificate programs and develop, monitor and update the educational programs offered at the Academy. STUDENT RETENTION. The Academy continually focuses significant efforts on maintaining high retention rates for its students. For the fiscal year ended June 30, 1999, approximately 87% of the students successfully completed the AOS Degree program on schedule. Based on past experience, it is estimated that an additional 5% will graduate at a later date. However, as is the case at most institutions of higher education, some of the Academy's students end their studies early for personal, financial or academic reasons. The Academy faculty maintains weekly office hours to provide academic assistance and to advise students. The Academy faculty and administration are also available to provide support and referrals to students experiencing personal difficulties. RESTAURANTS, RETAIL AND MEDIA RESTAURANTS. The Academy operates two public restaurants at its San Francisco campus: the Careme Room, a fine dining restaurant with seating for approximately 325 diners, and the mid-scale Grill, with seating for approximately 125 diners. The restaurants are open to the public seven days per week for lunch and dinner, excluding school holidays. The restaurants are staffed by students under faculty supervision and serve as an important teaching environment since they provide "hands-on" experience in restaurant food preparation, service and management. In addition, the restaurants provide an additional source of revenue (see "Management's Discussion and Analysis of Financial Condition and Results of Operations"). As part of the AOS Degree program, the Academy's students are instructed in dining room service styles, as well as professional cooking and food and beverage management. RETAIL. The Academy operates a small retail shop at its San Francisco campus. The retail shop, which services students, staff and the public, is open five days per week, offering beverages, cookbooks, videotapes, kitchenware and selected clothing. MEDIA. The Academy developed and wrote the 13-part television series, COOKING AT THE ACADEMY, produced in 1991 by San Francisco public television station KQED, which features cooking instruction on specific topics by the Academy's chef instructors or former chef instructors. Over 135,000 copies of the accompanying cookbook, COOKING AT THE ACADEMY, have been distributed under various distribution agreements. In addition, a series entitled CALIFORNIA CULINARY ACADEMY COOKBOOKS, which includes 30 titles, has sold over two million copies since 1985. 6 In 1995, 26 new episodes of COOKING AT THE ACADEMY began airing on public television stations throughout the country. Over 85,000 copies of the accompanying cookbook, FESTIVE FAVORITES, have been distributed under various distribution agreements. In 1997, the Academy hosted a radio talk show, FOOD FOR THOUGHT, airing in the Monterey Bay area on KSCO radio, as well as DINING AROUND WITH GENE BURNS on KGO radio in San Francisco. In 1998, the Academy entered into a contract with WYES TV in New Orleans, Louisiana for the production and distribution of a new 26-part series, "The Academy's Global Cuisine," which WYES TV plans to distribute in early 2000. As part of the agreement, the Academy will publish a cookbook based on the series. The Academy maintains a home page on the Internet at "www.baychef.com" as a promotion and marketing tool to attract new students. The Academy's website provides information on the Academy's educational programs and personnel, program costs and admissions procedures and forms, and allows interested parties to communicate with the Academy via e-mail and to order selected merchandise from the Academy's retail store. ACCREDITATION OF THE ACADEMY AND ITS PROFESSIONAL PROGRAMS Accreditation is a process for evaluating educational institutions and their professional programs. Such evaluation process recognizes the quality of educational program offerings and entitles the schools to the confidence of the educational community, federal and state government agencies and the public at large. In the United States, this accreditation is given primarily through non-government, voluntary, institutional or professional associations. Those groups establish criteria for accreditation, arrange site visits and evaluate institutions and professional programs that desire accredited status, publicly designating those that meet their criteria. Accredited schools are subject to periodic review by accrediting bodies to ensure that the schools maintain the level of program performance, content, teaching and administrative quality required by the accrediting body. The Academy's postsecondary educational programs are recognized by the U.S. Department of Education ("DOE") and by the California Bureau for Private, Post-Secondary and Vocational Education ("BPPVE"). The Academy is accredited by the American Culinary Federation Educational Institute Accrediting Commission ("ACFEI") and by the Accrediting Commission for Career Schools and Colleges of Technology ("ACCSCT"). The Colleges of Food are not accredited, nor are the programs offered by the Colleges of Food. The Academy is approved by BPPVE to grant to students who successfully complete the full-time Culinary Arts Degree program, an AOS Degree in Culinary Arts, and a Certificate in Baking and Pastry Arts for those students completing the full-time B&P Certificate program. Approval from BPPVE is renewed periodically in accordance with the provisions of the California Education Code. The Academy has been granted certification for the Basic Professional Culinary Skills program in the Colleges of Food from BPPVE. The Academy's courses of instruction for the AOS Degree and B&P Certificate programs are approved for veterans training by the Federal Department of Veterans Affairs under the GI Bill of Rights and the Veterans Education Assistance Programs ("VEAP") and for foreign students under the rules and regulations of the Immigration and Naturalization Service ("INS"). GOVERNMENT FINANCIAL AID PROGRAMS AND REGULATION The Academy's students finance their education, in whole or in part, through individual resources, with approximately 75% of students receiving some form of financial aid assistance. Approximately 7 42% of the Academy's fiscal 1999 educational program revenues were derived from federal and/or state government-sponsored financial aid. On the basis of financial information provided by the student and/or the student's family, the Academy develops an assistance package for students who are eligible for financial aid. To maintain financial assistance eligibility, students must demonstrate satisfactory academic progress. Extensive and complex regulations govern all of the government grant and loan programs in which the Academy and its students participate. These programs are required to be administered in accordance with the standard of care and diligence of a fiduciary and are subject to annual audits. The Academy's Director of Financial Aid and one Financial Aid Counselor are certified by the State of California. Two other Financial Aid Counselors are currently taking the necessary steps to become certified. Any regulatory violations could be the basis for suspension, limitation, or termination proceedings. No suspension, limitation, or termination proceedings have ever been instituted against the Academy. In July 1999, the Academy was re-certified by the DOE, and as such, is eligible to continue to participate in the federal financial aid programs under Title IV of the Higher Education Act ("HEA") through June 30, 2003. The Colleges of Food, however, are not certified to participate in Title IV Programs and students who attend the Colleges of Food do not receive federal financial aid funds. An institution is required to meet certain specified financial standards in order to participate in Title IV financial aid programs administered by the DOE. Failure of an institution to adhere to those standards may result in the DOE requiring that institution to post a letter or credit or other surety to ensure that the institution is able to fulfill its educational commitments to its students and pay required refunds upon withdrawal. The DOE could also place an institution on provisional certification and subject it to additional monitoring and reporting requirements. The Academy devotes significant time and effort in order to properly and satisfactorily administer the financial aid programs in accordance with applicable government regulations and responsibilities. The Academy has established an internal review committee charged with ongoing compliance reviews to identify problems, to take expeditious corrective action, and to implement any and all mandated changes in regulations affecting these programs on a timely basis. In addition, the Academy has developed job descriptions that the Academy believes comply with Federal Work Study ("FWS") employment at for-profit postsecondary institutions, has adopted internal written procedures to ensure compliance with the Title IV restrictions, and has established and maintained general ledger control accounts and related subsidiary accounts to assist in the accurate and timely reporting of information to the DOE and other interested parties. The following is a list of government financial aid programs in which the Academy's students participate: Federal PELL Grant Federal Supplemental Educational Opportunity Grant ("SEOG") Federal Stafford Loan Program (subsidized) Federal Stafford Loan Program (unsubsidized) Federal Perkins Direct Student Loan Programs ("Perkins") Federal Parent Loans for Undergraduate Students ("PLUS") Federal Work Study ("FWS") California State Grants A, B, and C The Academy is also approved to train veterans and, therefore, students may be eligible to receive benefits from the Veterans Administration. The Academy's continued eligibility to participate in the Title IV student financial aid loan programs is dependent, in part, on maintaining an acceptable "cohort" default rate. The cohort default 8 rate is defined as the default rate of all federal financial aid loan programs, other than the Perkins program. The Perkins program default rate is calculated separately and is the smallest of the Academy's federally funded financial aid loan programs. Any institution that has a cohort default rate of 25% or greater for three consecutive years will not be eligible to participate in certain Title IV student financial aid programs for approximately three years. The Academy's cohort default rates for the three most recent fiscal years for which such data is available are as follows:
FISCAL YEAR: COHORT DEFAULT RATE: - ----------------------------------------------------- ----------------------- 1995................................................. 13% 1996................................................. 9.3% 1997................................................. 8.6%
Approximately 42% of educational program revenues during fiscal year 1999 were provided by federal and/or state government-sponsored financial aid programs, a substantial portion of which were derived from various student loan programs. Participating students make loan application to one of several federally-approved financial institutions. The ability of private financial institutions to originate loans to the Academy's students is critical to the Academy's business. Grants represent funds made available to eligible students by the government, which do not have to be repaid. The Academy is eligible to participate in federal PELL Grant and SEOG programs. Both are federal programs for undergraduates at post-secondary schools in the United States who have demonstrated sufficient financial need. All government-subsidized financial assistance programs for students are subject to political and budgetary considerations outside the control of the Academy. No assurance can be given that governmental programs currently providing financial assistance and subsidies to students attending the Academy's education programs will remain available at present levels. A reduction or curtailment of funding levels, or other unanticipated changes in federal assistance program participation requirements, would result in lower enrollments and adversely impact the Academy's business. (See "Risks Factors"). The Academy has spent no money in the last two fiscal years on research and development activities. Additionally, costs and effects of the Academy's compliance with federal, state and local environmental laws have been negligible. RISK FACTORS The following factors, and the other information contained herein, should be considered carefully in evaluating the Academy and its business. DEFAULTS ON OBLIGATIONS; LACK OF ADEQUATE CAPITAL RESOURCES. The Academy is in default on its San Francisco City tax payments and on its obligations to various third parties, including those in connection with the New Orleans project and certain other business development initiatives. The amount necessary to cure the defaults is approximately $750,000 as of September 24, 1999. The Academy does not possess the funds necessary to cover such defaults. To raise funds, the Academy intends to sell its New Orleans real estate. The sale of the property is expected to result in cash proceeds of approximately $1.2 million, although there is no assurance that the property will be sold or what the proceeds will be. However without the sale of the New Orleans property, the Academy does not possess the additional funds necessary to cure all of its defaults. In addition, the Academy does not believe that its cash shortfall will be solved in the short term by cash flows from Operations and it currently does not have access to sufficient credit or other financing. In the event that the proposed merger with CECO is not completed in the near term, the Academy may require 9 sufficient debt or equity financing to meet its obligations. There can be no assurance that such financing will be available and, if available, that the terms thereof will not be highly disadvantageous to current shareholders. If sufficient financing is not available, it is possible that the Academy would be required to seek protection from creditors under bankruptcy laws. In the event of bankruptcy, the Academy's assets will first be available to pay its debts and other contractual obligations. Holders of Common stock would only receive the assets remaining, if any, after payment of all such obligations. RISK OF FAILURE TO COMPLETE PROPOSED MERGER. In August 1999, the Academy announced that it was in discussions with Career Education Corporation ("CECO") regarding a proposed merger in which CECO would pay $6.50 for each outstanding share of the Academy's Common Stock. The Academy further announced that it had entered into an agreement with CECO not to solicit or negotiate a business combination transaction with third parties during a period that has since been extended to October 1, 1999. The merger discussions were prompted by certain large shareholders of the Academy whose opposition to the Academy's planned private placement of convertibles debentures, the proceeds of which were to be used to develop a new campus in New Orleans, Louisiana. The Academy's financial condition has deteriorated since May 1999. In addition to the termination of the convertible debenture sale, the pending merger discussions resulted in the Academy's inability to complete a planned sale/ leaseback of the property it purchased to develop the New Orleans campus. The Academy's current financial condition is further discussed above under "Defaults on Obligations; Lack of Adequate Capital Resources" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." There can be no assurance that the Academy will be able to reach a definitive agreement with CECO concerning a merger or as to the terms of such a merger. Further, if a definitive agreement is reached there can be no assurance that the conditions to such merger will be satisfied. If the proposed merger is not completed, the Academy's current financial condition presents significant risks for investors in the Academy's common stock. RECENT OPERATING RESULTS The Academy has reported a net loss of ($771,000) and ($869,000) for the fiscal years ended June 30, 1998 and 1999, respectively. There can be no assurance that the Academy will operate profitably in future periods. Future operating results will depend on numerous factors, including, among others, the Academy's ability to continue to meet the requirements for participation government student loan programs (see "Regulations" below) and, if applicable, its ability to successfully develop and operate any new schools or programs. Based on the financial condition of the school as of June 30, 1999, the Academy may not meet the financial responsibility requirements of the DOE. The DOE regulations require an institution like the Academy to achieve a minimum score based on ratios measuring its primary reserves, equity and net income. These regulations also require institutions to have sufficient cash reserves to make required refunds, to meet repayment obligations to the DOE, and to not be in violation of any loan agreement at the end of its fiscal year. Failure to meet these requirements may subject the Academy to additional monitoring by and reporting to the DOE, procedures affecting the disbursement of federal student financial assistance to its students, and possibly the posting of a letter of credit in favor of the DOE. If the Academy's financial condition were to fail to improve sufficiently in subsequent fiscal years, the Academy's participation in the Title IV student financial assistance programs could be jeopardized which would have a material adverse effect on the Academy. 10 REGULATIONS The Academy is subject to extensive regulations by state and federal governmental agencies and accrediting agencies. At the federal level, HEA and the regulations promulgated thereunder by the DOE set forth numerous standards that schools must satisfy in order to participate in the federal student financial aid programs under Title IV of the HEA ("Title IV Programs"). For the year ended June 30, 1999, the Academy derived approximately 42% of its revenue from Title IV Programs. Significant factors relating to Title IV Programs that could adversely affect the Academy include the following: - The 90/15 Rule of the Higher Education Act ("HEA"): this rule states that any institution that derives more than 90% of its revenue from Title IV Programs in one year will be ineligible to participate in Title IV the following year. In fiscal year 1999, 42% of Academy revenues were derived from Title IV Programs. - Default Rates: in order to remain eligible for Title IV participation an institution must not exceed a set limit on student loan default rates. If an institution exceeds a default rate of 25% for three consecutive years or 40% in one year, it will lose its eligibility to participate the following year. The Academy's current student loan default rate is 8.6%. - Financial Standard: The HEA prescribes specific standards of financial responsibility that a proprietary institution must satisfy in order to participate in Title IV Programs. The standards apply three different ratios: an equity ratio, a primary reserve ratio and a new income ratio, which are weighted and added together to produce a composite score. The ratio methodology of these standards takes into account an institution's total financial resources and determines a combined score of the measures of those resources along a common scale (from negative 1.0 to positive 3.0). It allows a relative strength in one measure to mitigate a relative weakness in another measure. If an institution achieves a composite score of at least 1.5, it is financially responsible without further oversight. If an institution achieves a composite score from 1.0 to 1.4 it is in the "zone" and is subject to additional monitoring, but may continue to participate as a financially responsible institution, for up to three years. These regulations also require institutions to have sufficient cash reserves to make required refunds, to meet repayment obligations to the Department, and not to be in violation of any loan agreement at the end of its fiscal year. - Change of Control: The DOE, most accrediting commissions, and most state education authorities that regulate the Academy have laws, regulations, and/or standards pertaining to a change in ownership/change in control of educational institutions, but these regulations do not uniformly define what constitutes a change control. The DOE regulations do describe certain transactions that constitute a change in control, including the transfer of a controlling interest in voting stock or the filing of an S-K. Once an institution is deemed to have experienced a change of control, it immediately becomes ineligible to participate in Title IV Programs and must apply for readmission into the Title IV Programs; however, if an institution timely files a materially complete application, it may avoid a cut-off in the funds it derives from the Title IV Programs. The financial position of the Academy as of June 30, 1999, may result in the institution not achieving a composite score of less than 1.0 and meeting the DOE's financial responsibility standards. If the Academy fails to meet these standards it may be (i) required to post a letter or credit with the DOE, (ii) subjected to additional monitoring and reporting, (iii) subjected to procedures affecting the disbursement of federal financial assistance to its students, and (iv) placed on provisional certification. Failure to improve its fiscal position in subsequent fiscal years could jeopardize the Academy's continued participation in the Title IV student financial assistance programs. 11 COMPETITION The Academy is one of the largest professional chef training schools in the United States, based on enrollment statistics in the 1999 SHAW GUIDE. However, the market for professional training of chefs is fragmented and regionally oriented. According to the American Culinary Federation Educational Institute, there are approximately 500 postsecondary culinary programs offered worldwide. These programs range from simple food programs offered by vocational training schools to fully accredited four-year programs. As of June 30, 1999, admissions statistics show that approximately 66% of the Academy's students reside in California. However, the Academy believes that it competes in the professional chef training market with, among others, two not-for-profit institutions: the Culinary Institute of America, whose main campus is in Hyde Park, New York, and Johnson & Wales University in Providence, Rhode Island, which has campuses in Maryland, Colorado and Florida. The Academy believes that both of these institutions have secured significant financial and equipment contributions to build new facilities and expand their classrooms. The Academy's business will be affected by its ability to compete effectively with the Culinary Institute of America and Johnson & Wales, as well as other competitors currently operating in, or which may subsequently enter, the professional chef training market. The Academy believes that competition in the professional chef training market is based primarily on the quality of an educational institution's faculty and educational services, the job placement of graduates and the quality of the academic facilities. The Academy believes that there is no assurance, that the Academy will be able to continue to compete favorably on these criteria. RISKS ASSOCIATED WITH EXPANSION PLANS The Academy planned to develop a core campus similar in scope to its San Francisco facility in an approximately 153,000 square foot, building complex in New Orleans, Louisiana which was acquired in December 1998. Through June 30, 1999, the Academy spent approximately $1,036,000 for architectural and engineering services, permits, construction and other costs associated with the development of the campus. In June 1999, the project was placed on hold pending the outcome of discussions, initiated by three of Academy's shareholders who hold slightly more than 50% of the Academy's stock, with two publicly held companies which had previously expressed an interest in buying the Academy. If no sale takes place, the Academy intends, subject to the availablity of sufficient financing, to proceed with the development of the New Orleans campus and several other College of Food facilities in other major cities in the United States. The successful development of the planned facilities will also require careful management of various risks associated with such projects, including construction delay, cost estimation errors or overruns, equipment or materials delays or shortages and other factors, many of which are beyond the Academy's control. There can be no assurance that the Academy will not encounter unforeseen difficulties as it attempts to establish these new facilities. The Academy will need to accomplish a number of objectives in order to complete successfully the development of these new facilities including raising capital to cover the costs of architects, engineers, contractors and equipment, hiring competent staff and recruiting students. In addition, the establishment of these new facilities will result in substantial new fixed and operating expenses, including expenses associated with additional real estate, additional personnel, and depreciation. If the Academy is unable to attract a sufficient number of students to the facilities to offset these new expenses, operating results could be materially adversely affected in future periods. Furthermore, the development of these new facilities could place a significant strain on the Academy's management resources and could result in the diversion of management attention from the day-to-day operation of the Academy's business. If the Academy is successful in increasing its volume 12 of business, it will need to continue to implement and improve its operational, financial and management information systems, procedures, and controls on a timely basis. PROPRIETARY RIGHTS The long-standing use by the Academy of the "California Culinary Academy" trade name gives rise to common law protections. In addition, various state and federal registrations protect some uses of the name and the logos in which the name has been used. FACULTY AND EMPLOYEES The Academy employed 172 persons at September 10, 1999, of whom 27 were part-time. Those employees included the President/CEO, Chief Financial Officer, Chief Operating Officer, Vice President of Marketing, Vice President of Academic Affairs, 131 members of the administrative and operational staff and 36 chef instructors and adjunct faculty. ITEM 2. DESCRIPTION OF PROPERTY. The Academy leases approximately 74,000 square feet of space at 625 Polk Street in San Francisco, California, a historic building. Effective September 15, 1999, the monthly rental obligation is approximately $102,000, with a declining payment schedule over time. The Academy is also responsible for its pro rata share of all leasehold expenses, including insurance, taxes, utilities and maintenance, which were approximately $11,000 per month during fiscal year 1999. The lease term extends until March 31, 2013, with three five-year renewal options thereafter. Academic facilities at the main campus at 625 Polk Street consist of lecture classrooms and 14 kitchens for practical training, including four baking and pastry kitchens, a confiserie, two garde manger kitchens, a seafood butchery, a meat butchery, three professional production kitchens, a demonstration kitchen and a skill development lab. Table service classroom facilities include two full service, student-run public restaurants which seat more than 700 customers for lunch and dinner seven days a week. Other facilities include a retail shop for the sale of culinary art supplies and student-prepared food products from the garde manger, pastry shop, bakery and confiserie. The Academy also has a library and offices for administration, admissions, financial aid, educational services, faculty and consumer education. In February 1994, the Academy entered into a two-year lease that provided for four one year option periods for approximately 1,500 square feet at 700 Polk Street in San Francisco, which it uses for certain of its educational programs. Rental payments on this location are approximately $2,700 per month. The lease expired in February 1998 and the Academy is currently renting the space on a month- to- month basis. In July 1996, the Academy entered into a five-year lease for approximately 4,000 square feet in the city of Salinas, California for use as a culinary arts training center, the prototype College of Food. The monthly rent for the facility is the greater of approximately $3,900 or 8% of gross sales, plus a share of common area and exterior maintenance charges that approximate $1,000 per month. In August 1997, the Academy entered into a master lease of a 68-room hotel in San Francisco, approximately one block from the main campus, to provide student housing. The monthly rental obligation is approximately $29,000. The Academy is also responsible for payment of its pro rata share of insurance and real property taxes, which were approximately $2,600 per month during fiscal year 1999. The lease term extends until August 31, 2012, with three five-year renewal options thereafter. In October 1997, the Academy purchased for approximately $1,900,000 an 80-room hotel in San Francisco, across the street from its main campus, which it intends to use for student housing. In June 1998, the Academy sold the hotel for $2,220,000 and entered into a lease for the property. The 13 base monthly rent under the lease is $450 per room. In addition, the Academy is responsible for payment of its pro rata share of insurance, real property taxes and maintenance, which is estimated to be $2,000 per month. On July 1, 1998, the Academy entered into a lease for a 5,000 square foot building in La Mesa, California for its second College of Food campus. The monthly rental obligation is approximately $4,000. The Academy is also responsible for payment of its pro rata share of insurance, real property taxes and common area maintenance. The Academy estimates such payments will be approximately $1,000 per month. The lease term extends until June 30, 2003 and the lease provides for three renewal options of five years each. The Academy has developed the building into a College of Food campus which has recently opened. In January 1999, the Academy entered into a lease for a 5,050 square foot space in a building complex in Garden Grove, California. The lease term extends until May 2010 and the lease provides for two extension options of five years each. The Academy plans to develop the space into a College of Food campus expected to be opened in June 1999. The monthly rental obligation is approximately $5,050. The Academy is also responsible for payment of its pro-rata share of insurance, real property taxes and common area maintenance which is approximately $2,000 monthly. In December 1998, the Academy purchased a six- building, 153,000 square foot complex in New Orleans, Louisiana. Over the next two years, depending on the outcome of the potential merger with CECO, the Academy plans to develop the buildings into a core campus similar in size and scope to its San Francisco campus. (See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Proposed Sale of the Academy.") Any new core campus would be subject to the same risks and competitive pressures described herein. (See "Risk Factors--Risks Associated with Expansion Plans"). The New Orleans complex is currently subject to a mortgage interest held by First Bank and Trust Company in the principal amount of $2,158,600 due December 30, 2003, and liens on the property held by Eskew Architects and Centex Landis Construction in the aggregate amount of $415,860. To provide funding for a portion of the approximately $18 million development budget for the campus, the Academy plans to sell the land and buildings and lease them back under a long term lease agreement. Management estimates that the annual lease payments for the New Orleans campus would be approximately $1,350,000. Through September, the Academy has incurred cost of approximately $1,036,00 in design, construction, carrying costs for the property and building permits. The Academy's management estimates that the combined capacity of the existing core campus in San Francisco is and the planned campus in New Orleans will be approximately 2,400 students. The capacity of the three existing and one planned College of Food campuses is 500 students. INVESTMENT POLICIES. The Academy holds all of its cash in money market funds, and does not currently intend to invest in real estate or real estate interests, real estate mortgages, or securities of or interests in persons primarily engaged in real estate activities. Any such investments would require the approval of the Academy's Board of Directors. ITEM 3. LEGAL PROCEEDINGS. The Academy is subject to routine claims and litigation arising out of the normal conduct of its business. While the outcomes cannot be predicted with certainty, the Academy believes that the resolution of such matters will not have a material effect on the Academy's financial condition or results of operations. 14 The Academy has filed a lawsuit in the Federal District Court in San Francisco against Theodore G. Crocker, its former Chief Executive Officer and Chairman of the Board and current holder of greater than five percent of the common stock of the Academy, to rescind the sale of 112,000 shares of the Academy's Common Stock in connection with the exercise of certain options by Mr. Crocker and to collect damages on an unpaid promissory note in the principal amount of $465,192.20 plus interest owed by Mr. Crocker to the Academy in connection with the purchase of such shares. The Academy believes that the resolution of this litigation will not have a material effect on the Academy's financial condition or results of operations. On or about September 23, 1999, Mr. Crocker filed an answer to the Company's complaint, in which he denied liability and asserted various defenses to payment of the promissory note. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Annual Meeting of Shareholders was held in two sessions. The originally scheduled meeting was held on June 28, 1999. At this meeting, the shareholders voted on the ratification of Deloitte & Touche LLP as the Academy's auditors and the proposed change in the Academy's By-laws to authorize a minimum of six and a maximum of nine directors. The June 28, 1999 meeting was adjourned and later reconvened on August 11, 1999 at which time the proposal for a private placement of convertible notes was voted on. No vote was taken on the proposed slate of directors. The number of votes for, withheld and against, as well as the number of abstentions and broker non-votes as to each matter approved at the two sessions of the Annual Meeting of Stockholders were as follows:
BROKER MATTER FOR WITHHELD AGAINST ABSTAIN NON-VOTES - ------------------------------------- ---------- ------------- ---------- --------- --------------- Election of Directors:............... (Vote Not Taken) -- -- Private Placement of Convertible Notes:............................. 258,937 -- 1,450,258 2,120 -- Amendment to By-Laws:................ 1,385,258 -- -- -- -- Ratification of independent auditors:.......................... 960,836 -- 74,200 350,222 --
PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Academy's Common Stock is traded in the NASDAQ National Market under the symbol "COOK." The following table set forth the high and low closing sale prices for the Common Stock as reported on the NASDAQ National Market for the periods indicated.
HIGH LOW --------- --------- FISCAL YEAR ENDED JUNE 30, 1998: Quarter Ended September 30, 1997......................................... $ 8.125 $ 7.750 Quarter Ended December 31, 1997.......................................... $ 8.000 $ 7.500 Quarter Ended March 31, 1998............................................. $ 10.000 $ 7.750 Quarter Ended June 30, 1998.............................................. $ 8.250 $ 7.000 FISCAL YEAR ENDED JUNE 30, 1999: Quarter Ended September 30, 1998......................................... $ 8.000 $ 6.750 Quarter Ended December 31, 1998.......................................... $ 8.500 $ 7.500 Quarter Ended March 31, 1999............................................. $ 8.500 $ 6.875 Quarter Ended June 30, 1999.............................................. $ 7.625 $ 5.625
15 As of August 31, 1999, there were approximately 72 recorded holders of the Academy's Common Stock. The Academy has never paid cash dividends on its Common Stock. At present, the Academy intends to retain any earnings for use in its business and does not anticipate paying cash dividends on its common stock in the foreseeable future. Beginning September 30, 1996, the Academy was required to pay, and did pay, quarterly dividends on its outstanding Series A Preferred Stock at the annual rate of $.4125 per share. An aggregate of $21,688 in cash dividends was paid during the fiscal year ended June 30, 1998. Pursuant to the terms of the Series A Preferred Stock Agreement, the Academy converted the outstanding preferred stock to Common Stock in February 1998. During the past three years, the Academy has not sold any securities without registering such securities under the Securities Act of 1933. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion should be read in conjunction with the financial statements and notes thereto located on pages 20 through 32. The Academy's revenues are derived primarily from culinary arts education as well as restaurant, retail and media operations. Culinary arts education primarily consists of the AOS Degree and B&P Certificate programs, the College of Food Basic Professional Culinary Skills Program, and weekend professional skills program offerings. The AOS Degree program enrolls students on a two-week cycle. The program can accommodate up to 25 students per class. The 30-week B&P Certificate program enrolls classes on a four week cycle, typically ranging in size from 15 to 25 students, with five classes enrolled as of June 30, 1999. The College of Food programs commenced October 14, 1996 at the Academy's prototype facility in Salinas, California. A second College of Food campus was opened on the campus of San Diego State University in San Diego, California in February 1998. The San Diego State University facility was closed and a new larger campus was opened in La Mesa in San Diego County in December 1998. In July 1999 a College of Food facility was opened in San Francisco within a block of the core campus. As of September 10, 1999, approximately 232 students were enrolled in the Basic Professional Culinary Skills program at the College of Food's three locations. The Colleges of Food enroll students every three to four weeks. As of September 10, 1999, the Academy has 102 students enrolled in various weekend professional programs. Consumer education consists of programs oriented to a part-time audience. The course length and content address the interests of food industry professionals, home cooks and individuals who are contemplating a change in their professional careers. These courses include single topic classes and various three or four class series covering current topics and basic skills. Restaurant and retail operations include two restaurants and a private dining room, banquet services and a small on-site retail shop offering beverages, cookbooks, video tapes, kitchen wares and selected clothing. Media operations primarily consist of the marketing of the COOKING AT THE ACADEMY television series and cookbook royalties. Certain expenses such as food costs and costs of goods sold are related to both educational services and retail restaurant operations. Revenues from the Academy's AOS Degree and B&P Certificate programs rely exclusively on enrollments in those programs. Tuition is initially recorded as deferred revenue at the commencement of each enrollment period and recognized as revenue over the length of program as students complete course work required for graduation. The Academy believes that manageable growth is achievable through the addition of strategically located core campuses, such as its main campus in San Francisco, as well as extension campuses, such as the College of Food locations in Salinas and San Diego, California. While management believes that this strategy will enable it to significantly increase revenues by providing additional educational and 16 training resources for the food industry, there can be no assurance that management will be able to successfully implement such a strategy. Except for historical information contained herein, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The forward-looking statements contained herein are based upon current expectations, and actual results may differ materially. Forward-looking statements contained herein involve numerous risks and uncertainties that could cause actual results to differ materially from those projected. Investors are cautioned not to place undue reliance on those forward-looking statements, which reflect management's analysis only as of the date hereof. The Academy undertakes no obligation to publicly release the results of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events (see "Business--Risk Factors"). RESULTS OF OPERATIONS The Academy incurred a net loss of $869,000, or ($0.23) per share for the fiscal year ended June 30, 1999 ("Fiscal 1999"), compared to a loss of $771,000, or $0.22 per share, for the fiscal year ended June 30, 1998 ("Fiscal 1998"). Total revenues increased $931,000, or 5.6%, from $16,732,000 in Fiscal 1998 to $17,974,000 in Fiscal 1999. Total revenues increased $1,393,000, or 9.1%, from $15,339,000 for the fiscal year ended June 30, 1997 ("Fiscal 1997") to $16,732,000 in 1998. Revenues from culinary arts education increased $1,041,000, or 7.8%, from $13,449,000 in 1998 to $14,490,000 in 1999. Revenues from culinary arts education increased $767,000, or 6.1%, from $12,682,000 in 1997 to $13,449,000 in 1998. Total student count in the AOS Degree, B&P Certificate and College of Food programs increased by 31 students, or 4.0%, to 807 students as of June 30, 1999 from 776 students as of June 30, 1998. The increase is primarily attributable to the introduction of the College of Food programs. Student Housing revenue increased by $227,000 or 72.8% from $312,000 in the fiscal year ended June 30, 1998 to $539,000 in the fiscal year ended June 30, 1999. The increase was due to increased occupancy. Fiscal 1998 was the first year that the Academy provided housing services. Restaurant, retail, media and other sales decreased to $2,945,000, or 16.4% of total revenues, in Fiscal 1999, compared to $2,971,000, or 17.8% of total revenues, in Fiscal 1998. Restaurant, retail, media and other sales increased by $314,000 or by 11.8% from 1997 to $2,971,000 or 17.8% of total revenues in Fiscal 1998. Operating expenses were $15,539,000, or 86.5% of total revenues in Fiscal 1999 compared to $14,063,000 or 84.0% of total revenues in Fiscal 1998. The increase was primarily attributable to the write off of the expenses of the private placement that was voted down by the shareholders, pre-opening costs related to the New Orleans project, opening of the College of Food campus in La Mesa, California, the opening of a second student housing building in San Francisco, year end charges to the allowance for doubtful accounts due to the large increase in College of Food receivables and the increase in Sales and Marketing related expenses in the fourth quarter resulting from a reorganization of these two areas of the Academy. Operating expenses were $14,063,000 or 84.0% of revenues for the fiscal year ended June 30, 1998, compared to $11,875,000 or 77.4% of revenues in 1997. Food and beverage expenses were $1,989,000, or 11.1% of total revenues, in Fiscal 1999, compared to $1,810,000, or 10.8% of total revenues, in Fiscal 1998. The increase was primarily attributable to an increase in food and beverage costs. Food and beverage costs were $1,810,000 or 10.8% of revenues for the fiscal year ended June 30, 1998 compared to $1,744,000 or 11.4% of revenues in 1997. 17 In Fiscal 1999, interest income, net of interest expense, was $134,000, or 0.8% of total revenues, compared to interest income, net of interest expense, of $13,000, or 0.1% of total revenues, in 1998. The increase in net interest income was primarily attributable to an increase in cash balances during the first half of the fiscal year. In Fiscal 1998, interest income, net of interest expense, was $13,000 or 0.1% of revenues, compared to interest income, net of expense, of $52,000 or 0.3% of revenues in Fiscal 1997. LIQUIDITY AND CAPITAL RESOURCES Historically, the Academy has financed its long-term growth through the issuance of debt and equity securities in both private and public transactions, borrowings from related parties, lease and debt financing obligations, and cash flow provided by operations. As of June 30, 1999, the Academy's principal source of liquidity included cash and cash equivalents of $854,000 and net accounts receivable of $3,487,000. As of June 30, 1999, the Academy had negative working capital of $3,134,000. Net cash provided by operating activities was $800,000 and $695,000 in 1999 and 1998, respectively. The primary reasons for the decrease in cash balances was the purchase of and development costs for the New Orleans property, tenant improvement costs for the La Mesa College of Food campus, increases in accounts receivable due to the increased enrollment at the two College of Food locations, increased sales and marketing expenses due to a reorganization of the these areas of the Academy and a reduction in the AOS degree program census of approximately 125 students in the fourth quarter due to a change in the length of the program from 18 to 16 months in the first half of the fiscal year 1998. During two months of the fourth quarter of fiscal year 1999, two AOS class groups were graduating while one class was starting. The Academy is in default on its San Francisco City tax payments and on its obligations to various third parties, including those in connection with the New Orleans project and certain other business development initiatives. The amount necessary to cure the defaults is approximately $750,000 as of September 24, 1999. The Academy does not possess the funds necessary to cover such defaults. To raise funds, the Academy intends to sell its New Orleans real estate. The sale of the property is expected to result in cash proceeds of approximately $1.2 million, although there is no assurance that the property will be sold or what the proceeds will be. However, without the sale of the New Orleans property, the Academy does not possess the additional funds necessary to cure all of its defaults. In addition, the Academy does not believe that its cash shortfall will be solved in the short term by cash flows from Operations and it currently does not have access to sufficient credit or other financing. In the event that the proposed merger with CECO is not completed in the near term, the Academy may require sufficient debt or equity financing to meet its obligations. There can be no assurance that such financing will be available and, if available, that the terms thereof will not be highly disadvantageous to current shareholders. If sufficient financing is not available, it is possible that the Academy would be required to seek protection from creditors under bankruptcy laws. In the event of bankruptcy, the Academy's assets will first be available to pay its debts and other contractual obligations. Holders of Common stock would only receive the assets remaining, if any, after payment of all such obligations. PRIVATE PLACEMENT On April 28, 1999, the Academy entered into an agreement to sell $7 million aggregate principal amount of its 10% convertible notes due 2005 and warrants to acquire 250,000 shares of its common stock, through a private offering to institutional buyers. The gross proceeds to the Academy, prior to the exercise of the warrants, would have been $7 million. The offering was expected to close in June 1999, subject to satisfaction of customary conditions, including shareholder approval. The Academy intended to use the net proceeds from the offering 18 together with approximately $10 million in proceeds from a sale and leaseback of the New Orleans property, which was contingent on the funding of the private placement, to pay for the leasehold improvements and equipment for the New Orleans and various College of Food campuses. The private placement was disapproved by the shareholders of the Academy on August 11, 1999. If the proposed purchase of the Academy by Career Education Corporation does not take place, the Academy plans to proceed with another private placement transaction to fund its strategic plan. YEAR 2000 CONSIDERATIONS The Academy has a number of computer and software systems that are critical to the efficient and timely processing of information and business transactions. Most of the Academy's suppliers are also dependent on computerized systems to process information. The Academy has determined that most of its computerized systems are year 2000 compliant and that the few systems that are not compliant can be brought into compliance by the year 2000. The systems that are currently non-compliant would not pose a significant problem to the Academy in either cost or disruption of services if they cannot be made compatible. With the exception of utility companies' who supply electricity, gas, water and telephone service to the Academy's facilities, the Academy estimates that the year 2000 compliance issue will have minimal effect on its ability to obtain the products and services required by the Academy. The Academy is unable to assess the year 2000 issue as it relates to its suppliers of utility services. Disruption of utilities of any kind could have a major but undeterminable effect on the Academy's business and profits. Management believes that a disruption in utilities, and the impact such a disruption would have on its operations, would be similar in degree and magnitude for the Academy as it would be for its competitors. There is no assurance, however, that unforeseen year 2000 problems will not occur that will have a significant negative effect on the Academy's revenues and profits. ITEM 7. FINANCIAL STATEMENTS. The balance sheets of the Academy as of June 30, 1999 and 1998, the related statements of operations, stockholders' equity and cash flows for the years then ended, and notes to the financial statements are located on pages 20 through 32.
FORM 10-KSB PAGE ----------------- Independent Auditors' Report................................................................... 20 Balance Sheets as of June 30, 1999 and 1998.................................................... 21 Statements of Operations for the years ended June 30, 1999 and 1998............................ 22 Statements of Shareholders' Equity for the years Ended June 30, 1999 and 1998.................. 23 Statements of Cash Flows for the years ended June 30, 1999 and 1998............................ 24 Notes to Financial Statements.................................................................. 25 to 32
19 INDEPENDENT AUDITORS' REPORT The Board of Directors California Culinary Academy, Inc. We have audited the accompanying balance sheet of California Culinary Academy, Inc. (a California corporation) as of June 30, 1999 and the related statements of income, stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of California Culinary Academy, Inc. as of June 30, 1998, were audited by other auditors whose report dated September 24, 1998, expressed an unqualified opinion on those statements. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above, present fairly, in all material respects, the financial position of California Culinary Academy, Inc. as of June 30, 1999, and the results of its operations and cash flows for the year then ended, in conformity with generally accepted accounting principles. ROONEY, IDA, NOLT and AHERN Certified Public Accountants Walnut Creek, California September 21, 1999 20 CALIFORNIA CULINARY ACADEMY, INC. BALANCE SHEET JUNE 30, 1999 AND 1998 (DOLLARS IN THOUSANDS)
1999 1998 --------- --------- ASSETS Current Assets Cash and cash equivalents.................................................................. 854 2,533 Accounts receivable, net of allowance of $325 and $419..................................... 3,487 3,660 Inventories................................................................................ 233 227 Prepaid expense and other assets........................................................... 400 191 Deferred tax asset......................................................................... 0 188 --------- --------- Total Current Assets....................................................................... 4,974 6,799 --------- --------- Property and equipment, net.................................................................. 9,186 4,830 Intangible assets, net....................................................................... 165 290 Other assets................................................................................. 982 357 --------- --------- Total Assets................................................................................. 15,307 12,276 --------- --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of notes and lease contracts............................................... 1,000 75 Accounts payable........................................................................... 1,822 593 Accrued liabilities........................................................................ 684 790 Deferred revenue........................................................................... 4,017 4,260 Student prepayments........................................................................ 585 477 --------- --------- Total Current Liabilities.................................................................. 8,108 6,195 --------- --------- Notes payable................................................................................ 2,124 0 Capital lease obligations.................................................................... 0 97 --------- --------- Total Liabilities.......................................................................... 10,232 6,292 --------- --------- Commitments and Contingencies Stockholders' Equity: Common stock, no par value 20,000,000 shares authorized; 1999: 3,815,431 and 1998: 3,795,350 issued and outstanding..................................................................... 11,355 11,351 Note receivable from stockholder............................................................. (533) (489) Deficit...................................................................................... (5,747) (4,878) --------- --------- Total Stockholders' Equity................................................................. 5,075 5,984 --------- --------- Total Liabilities and Stockholders' Equity................................................... 15,307 12,276 --------- --------- --------- ---------
The accompanying notes are an integral part of these financial statements. 21 CALIFORNIA CULINARY ACADEMY, INC. INCOME STATEMENT YEARS ENDED JUNE 30, 1999 AND 1998 (DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
1999 1998 --------- --------- Revenues: Culinary arts education.................................................................... 14,490 13,449 Restaurants and catering................................................................... 2,671 2,726 Student housing............................................................................ 539 312 Retail, media and other.................................................................... 274 245 --------- --------- Total Revenues........................................................................... 17,974 16,732 Cost of Sales Food and beverage.......................................................................... 1,989 1,810 Program supplies........................................................................... 997 926 Scholarships and grants.................................................................... 133 226 Merchandise and other...................................................................... 314 491 --------- --------- 3,433 3,453 --------- --------- Gross Margin............................................................................... 14,541 13,279 Operating expenses Occupancy.................................................................................. 2,455 2,027 Repairs and maintenance.................................................................... 505 477 Telephone, security and other.............................................................. 483 433 Depreciation and amortization.............................................................. 1,216 1,130 Compensation and benefits.................................................................. 7,277 6,742 Outside services........................................................................... 653 827 Advertising and promotion.................................................................. 790 777 Legal and other............................................................................ 1,375 1,519 Provision for doubtful accounts............................................................ 319 131 --------- --------- 15,073 14,063 Other income and (expenses) Preopening costs--New Orleans.............................................................. (218) 0 Abandoned costs of financing............................................................... (248) 0 Interest income............................................................................ 134 13 --------- --------- Income (loss) before provision for income taxes.............................................. (864) (771) Income tax provision......................................................................... 5 0 --------- --------- Net income (loss)............................................................................ (869) (771) --------- --------- --------- --------- Net income (loss) per share: Basic...................................................................................... (0.23) (0.22) Diluted.................................................................................... (0.23) (0.22)
The accompanying notes are an integral part of these financial statements. 22 CALIFORNIA CULINARY ACADEMY, INC. STATEMENT OF STOCKHOLDERS' EQUITY YEARS ENDED JUNE 30, 1999 AND 1998 (DOLLARS IN THOUSANDS)
NOTE PREFERRED STOCK COMMON STOCK RECEIVABLE ----------------- ------------------ FROM SHARES AMOUNTS SHARES AMOUNTS STOCKHOLDER DEFICIT TOTAL -------- ------- --------- ------- ----------- ------- ----- Balances as of June 30, 1997.............................. 254,500 953 3,393,900 9,649 (4,085) 6,517 Exercise of stock options................................. 140,650 749 (489) 260 Preferred stock dividend declared......................... (22) (22) Issuance of preferred stock, Series A................................................ 6,300 Conversion of preferred stock to common stock............................................ (260,800) (953) 260,800 953 Net income (loss)......................................... (771) (771) -------- ------- --------- ------- --- ------- ----- Balances as of June 30, 1998............................ 3,795,350 11,351 (489) (4,878) 5,984 Common stock issued to consummate conversion of preferred stock................................................... 19,081 Interest on note.......................................... (44) (44) Exercise of stock options................................. 1,000 4 4 Net income (loss)......................................... (869) (869) -------- ------- --------- ------- --- ------- ----- Balances as of June 30, 1999............................ 3,815,431 11,355 (533) (5,747) 5,075 -------- ------- --------- ------- --- ------- ----- -------- ------- --------- ------- --- ------- -----
The accompanying notes are an integral part of these financial statements. 23 CALIFORNIA CULINARY ACADEMY, INC. STATEMENT OF CASH FLOWS YEARS ENDED JUNE 30, 1999 AND 1998 (DOLLARS IN THOUSANDS)
1999 1998 --------- --------- Cash Flows From Operating Activities Net income (loss)............................................................................ (869) (771) Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation and amortization.............................................................. 1,207 1,127 Tax provision.............................................................................. 5 0 (Gain) on disposal of property............................................................. 0 (197) Deferred rent.............................................................................. (135) 157 Changes in assets and liabilities: Accounts receivable........................................................................ 173 (813) Prepaid expenses and other assets.......................................................... (455) (148) Inventories................................................................................ (6) 114 Accounts payable........................................................................... 1,229 (87) Accrued and other liabilities.............................................................. (106) 265 Deferred revenues.......................................................................... (243) 1,048 --------- --------- Net cash provided by operating activities.................................................... 800 695 Cash Flows From Investing Activities Proceeds from sale of property and equipment................................................. 336 2,148 Additions to trademarks...................................................................... (12) 0 Acquisition of property and equipment........................................................ (5,758) (2,813) --------- --------- Net cash used by investing activities........................................................ (5,434) (665) Cash Flows From Financing Activities Proceeds from exercise of stock options and warrant.......................................... 4 0 Proceeds from loan agreements................................................................ 3,125 0 Principal payments on term loan agreements................................................... (31) (43) Principal payments on capital lease obligations.............................................. (143) 260 Payment of preferred stock dividends......................................................... 0 (22) --------- --------- Net cash provided by financing activities.................................................... 2,955 195 --------- --------- Net increase (decrease) in cash and cash equivalents....................................... (1,679) 225 Cash and cash equivalents, beginning of period............................................. 2,533 2,308 --------- --------- Cash and cash equivalents, end of period................................................... 854 2,533 --------- --------- --------- ---------
The accompanying notes are an integral part of these financial statements. 24 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 1999 AND 1998 NOTE 1 THE COMPANY The California Culinary Academy, Inc. (The "Academy") was founded in 1977 to operate a professional school for chef training, emphasizing the fundamental techniques of modern classical cooking and baking. The operations of the Academy include an Associate of Occupational Studies ("AOS") Degree Program in Culinary Arts, a Certificate Program in Baking and Pastry Arts, weekend and short-course professional and vocational cooking classes, and two public restaurants and a retail shop located in San Francisco. The Academy is accredited by the Accrediting Commission of Career Schools and Colleges of Technology of the Career College Association and the American Culinary Federation Educational Institute's Accrediting Commission. The Academy conducts its major programs in San Francisco and offers certain of its subsidiary programs in schools located in Salinas and San Diego. During the year ended June 30, 1999, the Academy also acquired and improved a property in New Orleans with a view to presenting a full schedule of culinary programs and courses in that city. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH AND CASH EQUIVALENTS The Academy considers all highly liquid investments with original maturities of three months or less to be cash equivalents. INVENTORIES Inventories are stated at the lower of cost or market and for the most part comprise food and beverages. Cost is determined using the first-in, first-out (FIFO) method. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from three to ten years. Leasehold improvements are depreciated using the straight-line method over the remaining term of the lease or the useful life of the improvements, whichever is shorter. Property and equipment comprise the following (dollars in thousands):
YEARS ENDED JUNE 30, 1999 1998 - ---------------------------------------------------------- --------- --------- Land...................................................... $ 1,359 $ -0- Kitchen equipment......................................... 1,926 1,859 Furniture, fixtures and equipment......................... 4,507 4,158 Construction-in-progress.................................. 3,057 17 Leasehold improvements.................................... 5,269 4,658 --------- --------- $ 16,118 $ 10,692 Less accumulated depreciation............................. (6,932) (5,862) --------- --------- $ 9,186 $ 4,830 --------- --------- --------- ---------
25 NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JUNE 30, 1999 AND 1998 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INTANGIBLE ASSETS Intangible assets are stated at cost and consist primarily of the excess of the purchase price over net tangible assets acquired in the original purchase of the Academy. Intangible assets comprise the following (dollars in thousands):
YEARS ENDED JUNE 30, 1999 1998 - ---------------------------------------------------------- --------- --------- Favorable lease rights.................................... $ 1,476 $ 1,476 Goodwill.................................................. 249 249 Other..................................................... 17 5 --------- --------- $ 1,742 $ 1,730 Less accumulated amortization............................. (1,577) (1,440) --------- --------- $ 165 $ 290 --------- --------- --------- ---------
Amortization is computed using the straight-line method over the estimated useful lives of the respective assets. The estimated useful lives used in computing amortization are: favorable lease rights--15 years, goodwill--20 years and other--one year. REVENUE RECOGNITION Education revenues primarily comprise fees for the A.O.S. Degree Program in Culinary Arts, a 16-month program, and the 30-week Certificate Program in Baking and Pastry Arts. Tuition is initially recorded at the commencement of each semester or term as deferred revenue and is recognized as earned income over the course of the programs progressively as students complete the credit hours required for graduation. Revenue on restaurant, retail and media sales is recognized at the time services are performed or goods are sold. ACCOUNTING ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. NET INCOME (LOSS) PER SHARE In 1998, the Academy adopted the provisions of Statement of Financial Accounting Standards No. 128 ("SFAS 128"), Earnings per Share. SFAS 128 requires a dual presentation of basic and diluted earnings per share ("EPS"). Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if common stock options were exercised. EPS for all periods presented have been stated to reflect the adoption of SFAS 128. For the years ended June 30, 1998 and 1999, stock options were not included in the diluted EPS share calculation because their effect would have been antidilutive. Set forth below are the losses, dividends and outstanding shares used in computing the basic and diluted EPS for the years ended June 30, 1999 and 1998. Since the conversion of all preferred stock to 26 NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JUNE 30, 1999 AND 1998 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) common was consummated by the beginning of the 1999 fiscal year, the convertible preferred stock no longer affects this computation. 1999 net income (loss).......................................... $(869,000) Dividends on preferred stock.................................. -0- --------- Net income (loss) available to common stockholders............ $(869,000) --------- --------- Number of shares.............................................. 3,815,431 --------- --------- Earnings (loss) per share, both basic and diluted............. $ (0.23) 1998 net income (loss).......................................... $(771,000) Dividends on preferred stock.................................. (22,000) --------- Net income (loss) available to common stockholders............ $(793,000) --------- --------- Number of shares (weighted average)........................... 3,660,207 --------- --------- Earnings (loss) per share, both basic and diluted............. $ (0.22)
CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject the Academy to concentrations of credit risk consist of cash, short-term cash investments such as money market investments, and accounts receivable. The Academy invests substantially all of its excess cash funds in money market accounts through high-quality financial institutions and grants credit to its students. The Academy believes that the credit risks associated with money market investments are minimal due to the high quality of the financial institutions through which investments are made. To reduce credit risk relating to student accounts receivable, the Academy performs regular evaluations of its students' financial condition and assists qualified students in obtaining student financial aid. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: The Academy paid interest during the years ended June 30, 1999 and 1998 of $4 and $96 (dollars in thousands), respectively. Income taxes paid during these two years amounted to $32 in 1999 and $1 in 1998. Non-cash investing and financing activities included the following: The Academy received a promissory note of approximately $489,000 from one of its stockholders, in exchange for the exercise of stock options, for the year ended June 30, 1998. On February 4, 1998, the closing price of the common stock equaled or exceeded $8.00 for 20 consecutive trading days. Pursuant to the automatic conversion provisions of the Series A preferred stock, 23,580 shares of Series A preferred stock, representing all the remaining Series A preferred stock outstanding, were automatically converted to 23,580 shares of common stock. IMPACT OF NEW ACCOUNTING STANDARDS In 1998, the Academy adopted Statement of Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive Income. This Statement requires that all items recognized under the accounting standards as components of comprehensive income be reported in an annual financial statement that is displayed with the same prominence as other annual financial statements. This 27 NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JUNE 30, 1999 AND 1998 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Statement also requires that an entity classify items of other comprehensive income by their nature in an annual financial statement. For example, other comprehensive income may include foreign currency translation adjustments, minimum pension liability adjustments, and unrealized gains and losses on marketable securities classified as available-for-sale. Comprehensive income has not differed from net income for the Academy for its fiscal years ended June 30, 1999 and 1998. STOCK-BASED COMPENSATION The Academy accounted for stock-based awards to employees using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. During the year ended June 30, 1999, the practice of making stock-based awards was discontinued by the Academy. NOTE 3 FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash and cash equivalents, accounts receivable and payable and loans are stated at reasonable estimates of their fair values. Rates currently available to the Academy for debt carrying similar terms are used to estimate the fair value of its debt. NOTE 4 RELATED-PARTY TRANSACTIONS Under a month-to-month consulting agreement with a principal stockholder and chairman of the Board of Directors, fees were paid for investor relations and other services in the amount of $72,000 for the year ended June 30, 1998 and $54,000 during the year ended June 30, 1999. This agreement was terminated during fiscal 1999. In December 1997, the Chairman of the Board of Directors exercised stock options under the Company's 1992 stock option plan. In exchange, he delivered a promissory note for the value of the stock options of $465,000 bearing an interest rate of 9.5% and a due date no later than December 31, 1998. Interest has been accrued on this note, which is now delinquent, in the amount of $68,000 through June 30, 1999. NOTE 5 CAPITAL LEASE OBLIGATIONS The Academy leases computers, photocopiers and other equipment under various capital and operating lease agreements. Certain lease agreements include purchase options and renewal provisions exercisable at the discretion of the Academy. During the year ended June 30, 1999, capital lease obligations were substantially reduced leaving balances at the fiscal year end totaling $29,000, all of which were current. NOTE 6 BANK AND OTHER CURRENT DEBT The Academy entered into a business loan agreement with a bank in May 1999, subsequently amended August 31, 1999, for a loan of $500,000 carrying interest at the Bank's reference rate plus 1%. This loan is secured by the Academy's accounts receivable, chattel paper, contract rights and general intangibles. The loan is repayable in installments beginning in September 1999, with the full principal balance due on January 1, 2000. 28 NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JUNE 30, 1999 AND 1998 NOTE 6 BANK AND OTHER CURRENT DEBT (CONTINUED) The security agreement contains certain covenants with which the Academy must comply. In June, 1999 the Academy contracted with TFC Credit Corporation to obtain an advance of $250,000 against notes serviced by TFC covering tuition receivable from students attending the Salinas and San Diego culinary colleges. The Academy has agreed to repay this advance in full no later than January 31, 2000. NOTE 7 LONG-TERM DEBT In conjunction with acquiring real property for a new culinary academy in New Orleans, the Academy entered into business loan agreements with a bank and executed promissory notes, secured by the New Orleans property and an assignment of leases and rents, due December 28, 1999 and December 30, 2003, as follows:
MONTHLY PAYMENTS OF PRINCIPAL AND INTEREST --------------------------- PRINCIPAL INITIAL COMMENCEMENT DUE DATE DATE OF NOTE AMOUNT INTEREST RATE AMOUNT DATE OF BALANCE - ------------------- --------- ------------- ------- -------------- ---------- 12/28/1998......... $ 166,400 8.75% (Interest only until due) 12/28/99 12/28/1998......... 943,100 8.75% $ 9,496 1/30/2000 12/30/2003 12/28/1998......... 1,215,500 8.75% 12,238 1/30/2000 12/30/2003
The balances outstanding on these loans at June 30, 1999 included the full principal amounts, aggregating $2,325,000. The five-year maturities of principal payable on the long-term notes after June 30, 1999 are as follows:
YEAR ENDING JUNE 30, AMOUNT - ---------------------------------------------------------------- ---------- 2000............................................................ $ 35,364 2001............................................................ 75,384 2002............................................................ 82,353 2003............................................................ 89,969 2004............................................................ 1,875,530 Thereafter...................................................... 0 ---------- Total........................................................... $2,158,600 ---------- ----------
NOTE 8 STOCK OPTION PLANS Plans still in effect at June 30, 1999 include the 1992 Stock Option Plan, the 1997 Directors' Non-Qualified Stock Option Plan and the 1998 Stock Option Plan. The 1992 plan allocated approximately 384,000 shares for grants and the 1998 plan provides for a maximum of 300,000 shares which may be optioned and sold under this plan. The 1992 plan requires that the exercise price not be less than fair market value at the grant date in the case of incentive stock options and not less than 85% of fair market value for nonstatutory options. 29 NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JUNE 30, 1999 AND 1998 NOTE 8 STOCK OPTION PLANS (CONTINUED) Under the 1998 plan, the option price may not be less than 100% of fair market value at the date of grant. These options generally expire within 10 years and will vest on a schedule determined by the Academy's Board of Directors. Under the 1997 Directors' plan, all options to a maximum of $240,000 had been granted as of September 1, 1998 at fair market value. These options vested immediately and expire after 10 years. Transactions affecting the continuity of the options outstanding under all these plans may be summarized as follows:
OUTSTANDING OPTIONS PRICE RANGE ----------------- -------------- (IN THOUSANDS) Balance, June 30, 1997...................................... 802 $4.18 to $8.00 Options granted............................................. 5 $7.50 Options exercised........................................... (141) $4.18 to $7.75 Options canceled............................................ (120) $4.18 to $7.75 --- Balance, June 30, 1998...................................... 546 $4.18 to $8.00 Options granted............................................. 141 $7.25 to $9.19 Options exercised........................................... (1) $4.18 Options canceled............................................ (78) $4.18 to $7.75 --- Balance, June 30, 1999...................................... 608 $4.18 to $9.19 --- --- Exercisable options as of June 30, 1999..................... 510 $4.18 to $9.19 --- ---
Outstanding and exercisable options at June 30, 1999 included the following:
AVERAGE AVERAGE OUTSTANDING REMAINING AVERAGE EXERCISABLE EXERCISE EXERCISE PRICES OPTIONS LIFE OPTION PRICE OPTIONS PRICE - ------------------ ----------- ----------- ------------- ----------- ------------- $4.18 and $5.56 49,630 3.76 years $ 4.46 49,630 $ 4.46 $6.25 to $6.70 289,700 8.13 6.51 289,700 6.51 $7.00 to $7.75 207,250 5.32 7.29 109,582 7.32 $8.00 to $9.19 61,500 1.05 8.02 61,500 8.02 ----------- ----------- $4.18 to $9.19 608,080 510,412 ----------- ----------- ----------- -----------
As discussed in Note 2, the Academy accounted for its stock-based awards using the intrinsic value method in accordance with APB No. 25, Accounting for Stock Issued to Employees, and its related interpretations. Accordingly, no compensation expense has been recognized in the financial statements for employee stock arrangements. NOTE 9 PREFERRED STOCK Convertible preferred stock issued by the Academy in August, 1996 was converted subsequently into common stock, with a final conversion taking place at the close of the 1998 fiscal year. 19,081 of the common shares issued as a result of this conversion were not booked by the Academy until July, 1998. 30 NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JUNE 30, 1999 AND 1998 NOTE 10 INCOME TAXES: The Academy's provision for income taxes comprised the following amounts for the years ended June 30, 1999 and 1998:
JUNE 30, -------------------- 1999 1998 --------- --------- Current...................................................... $ -0- $ -0- Deferred..................................................... 5,000 -0- --------- --------- Totals....................................................... $ 5,000 $ -0- --------- --------- --------- ---------
Deferred tax assets and liabilities result from differences in the timing controlling recognition of certain income and expense items for income tax and financial accounting purposes. Components of the net deferred tax asset include the following deferred tax assets and liabilities:
(IN THOUSANDS OF DOLLARS) JUNE -------------------- 1999 1998 --------- --------- Tax effect of deferred tax assets (liabilities): Accrued vacation........................................... $ 88 $ 54 Allowance for doubtful accounts............................ 162 180 Depreciation and amortization.............................. (116) (142) Net operating loss carryforward............................ 1,331 940 Other...................................................... (260) (204) Valuation allowance........................................ (887) (505) --------- --------- Net deferred tax asset................................... $ 318 $ 323 --------- --------- --------- ---------
At June 30, 1999, the Academy had federal and California net operating loss carryforwards of approximately $3,564,000 and $1,227,000, respectively. The federal loss carryforwards will expire from years 2005 to 2018. California loss carryforwards will expire from 2001 to 2004. The valuation allowance reduces the tax benefit of net future deductions to an amount of income tax benefit estimated to be realizable within the foreseeable future. NOTE 11 401(k) RETIREMENT PLAN Employees become eligible to participate in a defined 401(k) plan as soon as they are hired. The plan permits employee contributions and discretionary employer matching contributions. The plan was amended January 1, 1997 to allow the Academy to make matching contributions in the form of its common stock. The Academy's contributions to this plan for the years ended June 30, 1999 and 1998 were approximately $108,000 and $166,000, respectively. NOTE 12 COMMITMENTS In September 1994, the Academy had agreed with a supplier of cutlery to purchase $1,650,000 in hardware including, knives, tools and other items, over an unlimited term. In return, the supplier 31 NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JUNE 30, 1999 AND 1998 NOTE 12 COMMITMENTS (Continued) underwrote a portion of the production costs of the television cooking presentations: "Cooking at the Academy". By June 30, 1999, this purchase commitment had been satisfied in an amount of approximately $820,000. The Academy has rental commitments under leases of real properties in San Francisco, Salinas, Garden Grove and San Diego. Future minimum payments under long-term operating leases were as follows for the five years ending after June 30, 1999:
YEAR ENDING JUNE 30, AMOUNT - ------------------------------------------------------------ ------------ 2000........................................................ $ 2,223,876 2001........................................................ 1,850,736 2002........................................................ 1,846,866 2003........................................................ 1,804,296 2004........................................................ 1,747,296
Rent expense for the years ended June 30, 1999 and 1998 was $1,993,000 and $1,590,000, respectively. NOTE 13 CONTINGENCIES STUDENT FINANCIAL ASSISTANCE The Academy derives approximately 42% of its education program revenues from students participating in students' financial assistance programs administered by the Department of Education (DOE) and the State of California. To continue taking part in Title IV funding administered by the DOE, The Academy is subject to periodic audit by the DOE to determine the Academy's compliance with funding requirements. While management believes the institution is in compliance, adverse findings by the DOE are possible. The financial consequences of such adverse findings cannot be determined at this time. LITIGATION The Academy is involved in several matters which may require litigation or legal settlement. Its counsel's opinion is that open matters at June 30, 1999 are unlikely to result in any material loss to the Academy. PROPOSED SALE OF REAL PROPERTY It is the intent of the Academy's management to sell its real property in New Orleans within the next fiscal period. It is possible, depending upon the real estate market in New Orleans at the time, that such a sale will result in substantial loss to the Academy. POSSIBLE UNCERTAINTIES The year 2000 Computer Problem creates risk for the Academy from unforeseen problems in its own computer systems and from third parties with whom the Academy deals on financial transactions. Such failures of the Academy's or third parties' computer systems could have a material impact on the Academy's ability to conduct its business. 32 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. The information required by this Item is incorporated herein by reference to the Academy's Current Report of Form 8-K, filed on August 8, 1999. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. The executive officers and directors of the Academy as of September 10, 1999 are as follows:
NAME AGE POSITIONS - ------------------------------------------ ------ --------------------------------------------------------------- David J. Berger........................... 40 Director Ralph Brennan(1).......................... 47 Director James D. Cockman(1)(2).................... 66 Director Bert P. Cutino(2)......................... 59 Director William G. De Mar......................... 52 Director Keith H. Keogh(2)......................... 47 Director and Chief Executive Officer--Acting Chairman Paul H. Prudhomme......................... 57 Director Leenie Ruben.............................. 57 Director David Warnock............................. 41 Director Jerald Chesser............................ 49 Vice President--Academic Affairs Laura Rivera.............................. 37 Vice President--Marketing Thomas A. Spanier......................... 53 Vice President--Development and Chief Operating Officer Charles E. White.......................... 57 Vice President and Chief Financial Officer
- ------------------------ (1) Member of the Compensation Committee (2) Member of the Audit Committee The bylaws of the Academy provide for a board of between six and nine members. The board is currently fixed at nine members. All directors hold office until the next annual meeting of shareholders or until their successors have been duly elected and qualified. Officers serve at the discretion of the Board of Directors. There are no family relationships between any of the Academy's directors and executive officers. Mr. Berger was appointed to the Board of Directors in June 1999. Since 1995, he was a member of the law firm of Wilson Sonsini Goodrich & Rosati, a Professional Corporation, where he specializes in mergers and acquisitions. He is 40 years old. Mr. Brennan was nominated to the Board of Directors in May 1998. A member of the Brennan restaurant family in New Orleans, he is the co-owner of Mr. B's Bistro and owner of Bacco and Ralph Brennan's Red Fish Grill in New Orleans' French Quarter. He is 47 years old. Mr. Cockman has served as a member of the Board of Directors since January 1997. He currently serves as the Chairman and Chief Executive Officer of American Culinary Equipment, Inc., Greenville, South Carolina, a manufacturer and marketer of professional stainless steel kitchen equipment to the foodservice industry. Mr. Cockman serves on the boards of Ryans Family Steak House, Greenville, South Carolina and Clayton Homes, Inc., Knoxville, Tennessee. He is 66 years old. Mr. Cutino was nominated to the Board of Directors in May 1998. From October 1968 to the present, Cutino has been Executive Chef/Owner of the Sardine Factory Restaurant in Monterey, 33 California. Mr. Cutino has served as a member of the Board of Advisors to the California Culinary Academy from 1994-1998. He is 59 years old. Mr. De Mar was appointed to the Board of Directors in July 1999. Mr. De Mar is a former Chief Operating Officer, and Corporate Secretary, and was a member of the Board of Directors of the Academy from 1987 to 1997. Over the past five years, he has been involved with Antelope Development, LLC and Avis Car Rental. Mr. De Mar is 51 years old. Mr. Keogh joined the Academy as Executive Vice President and Chief Operating Officer in June 1995. In April 1996, he was appointed as President and Chief Operating Officer of the Academy, and in May, 1998, he was appointed as Chief Executive Officer of the Academy and joined the Board of Directors. Concurrently, he resigned his position as Chief Operating Officer. From 1971 until joining the Academy, Mr. Keogh had been employed at Walt Disney World, Orlando, Florida, and held various positions, including Executive Chef, Research and Development--Theme Parks. Mr. Keogh was the Manager of the Culinary Team USA (the US Culinary Olympic Team) from 1988 to 1996 and past president of the World Association of Cooks Societies and the American Culinary Federation. He is 46 years old. Chef Prudhomme has served as a member of the Board of Directors since June 1997. For more than five years, Chef Paul Prudhomme has been the proprietor of the K-Paul's Louisiana Kitchen, located in the French Quarter of New Orleans, Louisiana. Chef Prudhomme also has developed and, for more than five years, has been distributing a line of natural herbs and spices, "Chef Prudhomme's Magic Seasoning Blends." Chef Prudhomme is also the author of several cookbooks. He is 57 years old. Ms. Rubin was nominated to the Board of Directors in May 1998. In 1982, she founded Marketing Spectrum, a marketing and research firm. As President of Marketing Spectrum, she has conducted business with an extensive range of clients in the food service industry, including such major brand name companies as Kraft, General Mills and Olive Garden. He is 57 years old. Mr. Warnock was appointed to the Board of Directors in June 1999. Mr. Warnock is a founding partner of Cahill, Warnock & Company LLC, which is the general partner of Strategic Associates, L.P., and is a general partner of Cahill, Warnock Strategic Partners Fund, L.P, the purchasers in the proposed transaction described beginning on page 9 of this Proxy Statement. Prior to founding Cahill, Warnock & Company, Mr. Warnock was employed from 1983 to 1995 at T. Rowe Price Associates, Inc. He was founder and President of T. Rowe Price Strategic Partners and T. Rowe Price Strategic Partners II, private equity partnerships with committed capital of over $72 million. He also served as an Executive Vice President of the T. Rowe Price New Horizons Fund. He is on the board of directors of several portfolio companies including Environmental Safeguards, Inc., Concord Career Colleges, Touchstone Applied Science, and Childrens Comprehensive Services, and of several charitable organizations. David received a BA from the University of Delaware, an MS (in finance) from the University of Wisconsin and is a CFA. Mr. Warnock was elected to the Board of Directors in May 1999. Mr. Warnock is 41 years old. Mr. Chesser joined the Academy in July 1999 as Vice President of Academic Affairs. Prior to joining the Academy, Dr. Chesser was Dean/Professor at the Chef John Folse Culinary Institute at Nicholls State University in Louisiana. Dr. Chesser has a Bachelors and Masters in History from Oklahoma State University and his Ed.D In Educational Leadership from the University of Central Florida and is a certified Executive Chef and Culinary Educator. He is 49 years old. Ms. Rivera joined the Academy in March 1999 as Vice President of Marketing. From July 1994 to July 1998, Ms. Rivera was Director of Marketing and Publicity of the Feature Animation Division of The Disney Academy. Ms. Rivera holds a B.A. and a Masters degree from University of Wisconsin and an M.B.A in Marketing from Harvard Business School. She is 37 years old. 34 Mr. Spanier joined the Academy in May 1998 as Vice President-Development and Chief Operating Officer. From February 1998 to May 1998, he consulted with the Academy as interim CFO. From August 1994 until May 1998, he was an independent business consultant, providing interim management services as well as consulting services to a range of high technology and marketing companies. From April 1993 to August 1994, Mr. Spanier was Executive Vice President and Chief Operations Officer of the Academy. Mr. Spanier holds a B.S. degree in Business (Managerial Economics) from the University of California, Berkeley and an M.B.A. from Harvard Business School. He is 53 years old. Mr. White joined the Academy in May 1998 as Vice President and Chief Financial Officer. Mr. White has provided consulting and turn-around management services to a range of companies in the restaurant, real estate development and hospitality industries. From 1996 until 1998, he was Chief Operating Officer of Stars Restaurants. From June 1993 to June 1995, he was General Manager and Chief Executive Officer of Lummi Casino, and since 1986, he has been President and Chief Executive Officer of Pea Soup Andersen's. Mr. White is a CPA and Certified Hotel Administrator. He holds a BS degree in Accounting from San Diego State University, an MBA from Southland University and a LLB degree from La Salle Extension University. He is 57 years old. During the fiscal year ended June 30, 1999, the Board of Directors held sixteen meetings. No member of the Board attended fewer than 75% of the meetings in the last fiscal year. COMMITTEES OF THE BOARD The Academy's Board of Directors has established a Compensation Committee and an Audit Committee. Each Committee has at least two outside directors. The Compensation Committee establishes salaries, incentives and other forms of compensation for directors, officers and other employees of the Academy. The Audit Committee oversees actions taken by the Academy's independent auditors and reviews the Academy's internal financial controls. The Compensation and Audit Committees each held one meeting during the fiscal year ended June 30, 1999. A Venture Committee was formed in July of 1999 to explore potential merger opportunities. The Board has delegated certain advisory authority to each committee, but the decision making and management responsibilities of the Academy remain with the full Board. No committee member attended fewer than 75% of the meetings of the committees of which he was a member in the last fiscal year. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE The Academy's executive officers and directors are required under the Securities Exchange Act of 1934 to file with the Securities and Exchange Commission reports of ownership and changes in ownership in their holdings of the Academy's Common Stock. Based on an examination of these reports and on written representations provided to the Academy, all such reports required to be filed for the fiscal year ended June 30, 1999 have been timely filed. INDEMNIFICATION OF DIRECTORS AND OFFICERS As permitted by the General Corporation Law of California (the "Corporations Code"), the Academy's Articles of Incorporation eliminate, to the fullest extent permitted under California law, the personal liability of a director to the Academy for monetary damages in an action brought by or in the right of the Academy for breach of a director's duties to the Academy and its shareholders. Under current California law, liability is not eliminated for (i) acts or omissions that involve intentional misconduct or a knowing and culpable violation of law; (ii) acts or omissions that a director believed to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director; (iii) any transaction from which a director derived an improper personal benefit; (iv) acts or omissions that show a reckless disregard for the director's duty to the 35 corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of serious injury to the corporation or its shareholders; (v) acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's duty to the corporation or its shareholders; (vi) contracts or other transactions between corporations and directors putting interrelated directors in violation of Section 310 of the Corporations Code, and (vii) distributions, loans or guarantees made in violation of Section 316 of the Corporations Code. In addition, the Academy's Articles of Incorporation and bylaws provide for indemnification, to the fullest extent permitted under the Corporations Code, of directors, officers and agents of the Academy and persons who serve at the request of the Academy as a director, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise. The Academy has also entered into indemnification agreements with its directors and executive officers, as permitted under the bylaws. The indemnification agreements provide that the directors and executive officers will be indemnified to the fullest extent permitted by applicable law against all expenses (including attorneys' fees), judgements, fines and amounts reasonably paid or incurred by them for settlement in any threatened, pending or completed action, suit or proceeding, including any derivative actions, on account of their services as a director or executive officer of the Academy or of any subsidiary of the Academy or of any other company or enterprise in which they are serving at the request of the Academy. No indemnification will be provided under the indemnification agreements, however, to any director or executive officer in certain limited circumstances, including on account of knowingly fraudulent, deliberately dishonest or willful misconduct. To the extent the provisions of the indemnification agreements exceed the indemnification permitted by applicable law, such provisions may be unenforceable or may be limited to the extent they are found by a court of competent jurisdiction to be contrary to public policy. In addition, in the opinion of the Securities and Exchange Commission, indemnification for liabilities arising under the Securities Act of 1933, as amended, is against public policy and, therefore, unenforceable. Accordingly, these indemnification provisions may not limit the liability of directors and executive officers under such act. ITEM 10. EXECUTIVE COMPENSATION. The following table sets forth certain information regarding compensation paid by the Academy for services rendered during each of the Academy's last two completed fiscal years for the Academy's Chief Executive Officer and all other executive officers whose total annual salary and bonus exceeded $100,000 for the fiscal year ended June 30, 1999 (the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION ALL OTHER SALARY AWARDS COMPENSATION NAME AND PRINCIPAL POSITION YEAR ($$) OPTIONS/SAR'S # ($$) - -------------------------------------------------------------- --------- --------- ----------------- ------------- Keith H. Keogh................................................ 1999 195,000 6,585(1) President and Chief Executive Officer 1998 195,000 10,522(2) Thomas A. Spanier............................................. 1999 150,000 865(3) Vice President Development & COO 1998 17,308 865(3) Charles E. White.............................................. 1999 150,000 Vice President & CFO 1998 17,885
- ------------------------ (1) Includes $772 in payments on life insurance policies and $5,863 in employer contributions to the 401(k) Plan. 36 (2) Includes $772 in payment on life insurance policies and $9,238 in employer contributions to the 401(k) Plan. (3) Employers contribution to 401(k) Plan. Directors who are employees of the Academy are not separately compensated for their services as directors or as members of committees of the Board of Directors. For the period July 1, 1998 to May 6, 1999 of fiscal year 1999, directors who were not employees of the Academy and who resided in Northern California received $750 per month as a monthly retainer for serving on the Board. For the same period, directors who were not employees of the Academy and who resided outside of Northern California received $1,000 per month as an annual retainer for serving on the Board. On May 7, 1999, the Board of Directors changed the non-employee Board member and committee member compensation from May 7, 1999, all non-employee Board members received $1,000 per month as a monthly retainer, plus $500 for each Board meeting attended in person and $250 for each telephonic Board and committee meeting attended and reimbursement of reasonable travel expenses that are directly related to the Board service. Other than the 401(k) Plan described below, the Academy has no retirement, pension or profit sharing program for the benefit of its directors, officers or other employees, but the Board of Directors may recommend one or more such programs for adoption in the future. STOCK OPTIONS The Academy's 1992 Stock Option Plan ("1992 Plan"), 1998 Stock Option Plan ("1998 Plan"), 1997 Directors Non-Qualified Stock Option Plan ("Directors Plan") (collectively, the "Option Plans") permit the granting of incentive stock options ("ISO's"), or non-qualified stock options ("NSO's") at the discretion of the Board or a committee designated by the Board to administer the Plan (the "Administrator"). Subject to the terms of the Option Plans, the Administrator determines the terms and conditions of options granted under the Option Plans, including the exercise price and option term. The Option Plans provide that the Administrator must establish an exercise price for ISO's that is not less than the fair market value per share at the date of grant. The exercise price of NSO's may not be less than 85% of the fair market value per share on the date of grant. Each ISO must expire within ten years of the date of grant. However, if ISO's are granted to persons owning more than 10% of the voting stock of the Academy, the Option Plans provide that the exercise price must be not less than 110% of the fair market value per share at the date of grant and that the term of the option may not exceed five years. No ISO may be granted to an employee who when aggregated with all other ISO's granted to such employee by the Academy or any parent, subsidiary or affiliate (as defined by the Option Plans) would result in the vesting of shares having an aggregate fair market value (determined for each share as of the date of grant of the ISO covering such share) in excess of $100,000 in any calendar year. No such limit applies to the grant of NSO's. As of April 1994, the number of shares authorized for issuance under the 1992 Plan was 450,000 shares. In March 1996, the Board of Directors voted to increase the number of shares reserved for issuance under the 1992 Plan by 100,000 shares. Such increase was approved by an affirmative vote of the shareholders at the annual shareholders meeting in March 1996. Unless sooner terminated by the Board of Directors, the 1992 Plan terminates in December 2002. The 1998 Plan was approved by a vote of the shareholders at the annual shareholders meeting in July 1998. Under the 1998 Plan, 300,000 Options are authorized for issuance. Unless sooner terminated by the Board of Directors, the 1998 Plan terminates in July 2008. The 1998 Plan replaced the 1997 Stock Option Plan, which was adopted by the Board in June 1997, but was never implemented or submitted to a shareholder vote. 37 The Directors Plan was ratified by a vote of the shareholders at the annual shareholders meeting in July 1998. Under the Directors Plan, 240,000 options are authorized. As of September 1, 1998, all the authorized options had been granted. In the event of a merger in which the Academy is not the surviving corporation or upon the sale of substantially all of the assets of the Academy, all outstanding options under each of the Academy's Plans shall, notwithstanding any contrary terms of the grant, accelerate and become exercisable in full prior to the consummation of such merger at such times and on such conditions as the Administrator shall determine, unless the successor corporation assumes the outstanding options or substitutes substantially equivalent options. Shares subject to options granted under each of the Plans that have lapsed or terminated are returned to the Plan. The following table sets forth information regarding the grant of stock options during the fiscal year ended June 30, 1999 by the executive officers named in the Summary Compensation Table: OPTION/SAR GRANTS IN LAST FISCAL YEAR
NUMBER OF SECURITIES UNDERLYING % OF TOTAL OPTIONS/SARS OPTIONS/SARS GRANTED TO EMPLOYEES IN EXERCISE OR BASE NAME GRANTED(#) FISCAL YEAR PRICE($/SH) EXPIRATION DATE - ---------------------------------------- ------------- --------------------------- ----------------- --------------- Thomas A. Spanier....................... 50,000 37% $ 7.25 June, 2004 Charles E. White........................ 50,000 37% $ 7.25 June, 2004
The following table sets forth information regarding exercises of stock options during the fiscal year ended June 30, 1999 by the executive officers named in the Summary Compensation Table: AGGREGATED OPTION/SAR EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUE
SHARES NUMBER OF UNEXERCISED VALUE OF IN-THE-MONEY ACQUIRED OPTIONS/SAR'S OPTIONS/SAR'S ON VALUE AT FISCAL YEAR END AT FISCAL YEAR END NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE - ------------------------- --------------- ------------- -------------------------------- -------------------------------- Keith H. Keogh........... 0 $ 0 60,000 0 $0(1) 0 120,000 0 $6,000(2) 0
- ------------------------ (1) Calculated as the difference between the fair market value of the Common Stock at June 30, 1999 of $6.750 and the option exercise price of $8.00 per share. (2) Calculated as the difference between the fair market value of the Common Stock at June 30, 1999 of $6.750 and the option exercise price of $6.70 per share. 401(k) RETIREMENT PLAN The Academy maintains an employee benefit plan qualified under Section 401(k) of the Internal Revenue Code (the "401(k) Plan"). Employees become eligible to participate in the 401(k) Plan after six months of continuous full time employment, assuming other eligibility requirements are also satisfied. Under the 401(k) Plan, there is no fixed dollar amount of retirement benefits, and actual benefits received by employees will depend on the amount of each employee's account balance at the time of retirement. The account balance will reflect annual allocations, the period of time an employee participates in the 401(k) Plan and the success of the 401(k) Plan in investing and reinvesting the assets of the trust fund. A participant's vested benefit is distributed upon death, disability or termination of 38 employment, however, terminated employees may elect to keep vested benefits in the plan if such vested benefits are greater than an amount stipulated in the Plan. The Plan is not insured by the Pension Benefit Guaranty Corporation. The 401(k) Plan includes an arrangement under which employees may elect to have the Academy contribute a portion of their compensation to the 401(k) Plan. The Plan does not allow an employee to make direct contributions to the trust fund. Such contributions are elective deferrals, and the amount may not exceed certain dollar limitations established by the Internal Revenue Service. The Academy has the option of matching employee contributions to the 401(k) Plan with cash or Academy Common Stock. ITEM 11. SECURITY OWNERSHIP OR CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth information as of September 10, 1999, with respect to the beneficial ownership of Common Stock by each shareholder owning 5% or more of the Academy's Common Stock, by each director, the Named Executive Officers, and by all executive officers and directors as a group. ITEM 11 Security Ownership of Certain Benefical Ownership Management. SHARES BENEFICIALLY OWNED(1)
DIRECTORS AND 5% SHAREHOLDERS NUMBER PERCENT - ---------------------------------------- ---------- ------- Theodore G. Crocker .................... 1,457,861(2)(3) 38.2% 625 Polk Street San Francisco, CA 94102 James D. Cockman ....................... 40,500(4) 1.1 625 Polk Street San Francisco, CA 94102 Paul H. Prudhomme ...................... 40,000(5) 1.0 625 Polk Street San Francisco, CA 94102 Keith Keogh ............................ 187,590(6) 4.9% 625 Polk Street San Francisco, CA 94102 Bert Cutino ............................ 500 * 625 Polk Street San Francisco, CA 94102 William De Mar ......................... 1,457,861(7)(8) 38.2 625 Polk Street San Francisco, CA 94102 Charles E. White ....................... 1500 * 625 Polk Street San Francisco, CA 94102 Thomas Spanier ......................... 200 * 625 Polk Street San Francisco, CA 94102
39
DIRECTORS AND 5% SHAREHOLDERS NUMBER PERCENT - ---------------------------------------- ---------- ------- Ralph Brennan .......................... 1,000 * 625 Polk Street San Francisco, CA 94102 All Executive Officers and Directors as 1,729,151 45.3% a Group (12 persons)..................
- ------------------------ * Indicates less than 1%. (1) Beneficial ownership of shares by directors, officers and 5% or more shareholders includes both outstanding Common Stock and shares issuable upon exercise of warrants or options that are currently exercisable or will be exercisable within 60 days after the date of the table. Except as indicated in the footnotes to this table and pursuant to applicable community property laws the persons named in the table have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them. (2) Includes 190,935 shares of common stock owned by William De Mar, with whom Mr. Crocker has formed a group for the purpose of acquiring, holding, or disposing of securities of the Academy. (3) Includes 40,000 shares of Common Stock issuable upon exercise of currently exercisable options. (4) Includes 40,000 shares of Common Stock issuable upon exercise of currently exercisable options. (5) Includes 40,000 shares of Common Stock issuable upon exercise of currently exercisable options. (6) Includes 180,000 shares of Common Stock issuable upon exercise of currently exercisable options. (7) Includes 1,266,926 shares of common stock owned by Theodore Crocker, with whom Mr. De Mar has formed a group for the purpose of acquiring, holding, or disposing of securities of the Academy. (8) Includes 40,000 shares of common stock issuable upon exercise of currently exercisable options. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. In July 1992, and from time to time prior to August 1, 1991, Mr. Crocker, along with Robert J. Marani and William G. DeMar, then members of the Board of Directors, and all principal shareholders, made unsecured loans to the Academy. These loans were evidenced by promissory notes and subsequently repaid. The loans carried interest at then prevailing interest rates and called for warrants to be issued that entitled the holders thereof to purchase an aggregate of 82 shares of the Academy's then Series A Preferred Stock. Warrants issued in conjunction with these loans were converted, concurrently with the completion of the Initial Public Offering in July 1993, into warrants to purchase 97,990 shares of Common Stock at an exercise price of $4.18 per share. During 1994, the original expiration date of the warrants was extended for an additional two years to August 31, 1996. On August 31, 1996, such warrants were exercised. In January 1995, the Academy entered into a month-to-month consulting agreement whereby Mr. Crocker provided investor relations and other strategic services in return for a fixed monthly payment for office rent and costs. The agreement provided for fees not to exceed $6,000 per month. The Academy paid $72,000 in fees in both the years ended June 30, 1998 and 1997 to Mr. Crocker. The agreement was terminated in February 1999. Mr. Crocker was paid fees of $54,000 in the fiscal year ended June 30, 1999. In January 1996, the Academy entered into an agreement with Bailey & Company Inc. to serve as the selling agents for the placement of up to $5,000,000 in Convertible Subordinated Notes ("Notes"). Bruce Bailey, the Chairman and President of Bailey & Company, Inc. was a member of the Academy's 40 Board of Directors. The agent was entitled to receive a commission of 7% of the gross proceeds of the sale, a non-accountable expense allowance of 3% and warrants to purchase 10% of the number of shares sold in the offering. In April 1996, the Academy issued $1,4000,000 of Notes and the selling agent received the warrants and $189,000 in commissions and fees. During the year ended June 30, 1998, the Academy paid Grover T. Wickersham, P.C. approximately $28,000 for legal services and approximately $39,000 in additional billing for services rendered by Grover T. Wickersham, P.C. during the fiscal year ended June 30, 1998 will be paid in fiscal year 1999. Grover T. Wickersham, the principal member of such firm, was a member of the Academy's Board of Directors. In July 1996, the Academy entered into a five-year lease for approximately a 3,800 square foot facility in Salinas, California. The lessor is a partnership controlled by Mr. Crocker and Robert J. Marani, a shareholder and then member of the Academy's Board of Directors. Independent members of the Board of Directors have approved the lease. Management believes that these lease terms are no less favorable than those which it may have negotiated with an independent landlord. The new facility is an extension campus, which opened in October 1996. The monthly rent for the facility is the greater of approximately $3,900 or 8% of gross sales, plus a share of common area and exterior maintenance charges that approximate $1,000 per month. The Academy paid a lease acquisition fee of $150,000 upon execution of the lease agreement. 41 ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits:
SEQUENTIAL EXHIBIT NUMBER - ------------- 3.2(1) Bylaws, as currently in effect 4.1(1) Specimen of Common Stock Certificate 4.2(2) Form of Representative's Warrant 10.1(1) 1992 Stock Option Plan, form of Incentive Stock Option Agreement, form of Nonqualified Stock Option Agreement 10.2(1) Form of Indemnification Agreement with Directors and Officers of the Registrant and Schedule of Indemnities 10.5(1) U.S. Department of Education Program Letter of Agreement dated March 1993 10.6(1) Form of Enrollment Agreement 10.18(5) Consulting Agreement between Registrant and Theodore G. Crocker dated January 1, 1994 10.21(5) Agreement between Registrant and Trident Trading Company, Inc. (Wusthof/Trident) dated August 5, 1994 10.25(7) Lease Agreement between Registrant and Toshiba America Information Systems, Inc. dated November 2, 1995 10.25(8) Amended Financing Agreement between Registrant and Wells Fargo Bank dated February 1, 1996 10.26(8) Agreement between Registrant and Simon & Schuster, Inc. dated February 22, 1996 10.29(10) Lease for premises at Natividad Plaza, Salinas, CA 10.30(10) Agreement between Registrant and Noel-Levitz, Inc. dated July 1, 1996 [Employment Agreements?] 10.33 Executive Employment Agreement between Registrant and Keith H. Keogh, Dated May 31, 1995 10.34 Executive Employment Agreement between Registrant and Jerald W. Chesser dated July 1, 1999 with addendum dated June 1, 1999 10.35 Executive Employment Agreement between Registrant and Laura Rivera dated March 15, 1999 with addendum dated June 1, 1999 10.36 Executive Employment Agreement between Registrant and Thomas Spanier dated May 1, 1998 with addendum dated June 1, 1999 10.37 Executive Employment Agreement between Registrant and Charles E. White dated May 1, 1998 with addendum dated June 1, 1999 21.0 Academy has no Subsidiaries 23.1 Independent Auditor's Consent 27.0 Financial Data Schedule
- ------------------------ (1) Previously filed as an exhibit to the original filing of the Registration Statement on Form SB-2 (file No. 33-62720-LA) filed May 14, 1993 42 (2) Previously filed as an exhibit to Amendment No. 1 of the Registration Statement filed June 7, 1993 (3) Previously filed as an exhibit to Form 10-KSB/A for the fiscal year ended August 31, 1994 (4) Previously filed as an exhibit to Form 10-QSB for the quarter ended May 31, 1994 (5) Previously filed as an exhibit to Form 10-QSB for the fiscal year ended June 30, 1994 (6) Previously filed as an exhibit to Form 10-QSB for the fiscal year ended June 30, 1995 (7) Previously filed as an exhibit to Form 10-QSB for the quarter ended December 31, 1995 (8) Previously filed as an exhibit to Form 10-QSB for the quarter ended March 31, 1996 (9) Previously filed as an exhibit to Form 10-QSB for the quarter ended June 30, 1996 (10) Previously filed as an exhibit to Form 10-QSB for the quarter ended September 30, 1996 (b) Reports on Form 8-K. The Academy filed reports on Form 8-K on April 30, 1999, June 11, 1999 and August 8, 1999 in fiscal year ended June 30, 1999, the contents of which are incorporated herein by reference. 43 SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized; Dated: September 28, 1999 CALIFORNIA CULINARY ACADEMY, INC. By: /s/ KEITH KEOGH ----------------------------------------- Keith Keogh CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrants in the capacities and on the dates indicated below.
SIGNATURE TITLE DATE - ------------------------------ -------------------------- ------------------- /s/ KEITH KEOGH - ------------------------------ Chief Executive Officer September 28, 1999 Keith Keogh and Director /s/ CHARLES E. WHITE - ------------------------------ Chief Financial Officer September 28, 1999 Charles E. White /s/ DAVID J. BERGER - ------------------------------ Director September 28, 1999 David J. Berger /s/ RALPH BRENNAN - ------------------------------ Director September 28, 1999 Ralph Brennan /s/ JAMES D. COCKMAN - ------------------------------ Director September 28, 1999 James D. Cockman /s/ BERT CUTINO - ------------------------------ Director September 28, 1999 Bert Cutino /s/ WILLIAM G. DE MAR - ------------------------------ Director September 28, 1999 William G. De Mar
44
SIGNATURE TITLE DATE - ------------------------------ -------------------------- ------------------- /s/ PAUL H. PRUDHOMME - ------------------------------ Director September 28, 1999 Paul H. Prudhomme /s/ LEENIE RUBEN - ------------------------------ Director September 28, 1999 Leenie Ruben /s/ DAVID WARNOCK - ------------------------------ Director September 28, 1999 David Warnock
45 EX-10.33 2 EXHIBIT 10.33 EXHIBIT 10.33 EMPLOYMENT AGREEMENT This updated EMPLOYMENT AGREEMENT ("Agreement") is made and entered into, in duplicate, as of June 1, 1999 (Effective Date), at San Francisco, California, by and between Mr. Keith H. Keogh, the undersigned employee (hereinafter referred to as "Employee"), and California Culinary Academy, Inc., a California corporation (hereinafter referred to as "Company"). Employee entered into an employment agreement ("Initial Agreement") dated May 31, 1995 with Employer to serve as Executive Vice President and COO of Employer; and WHEREAS, Employee was appointed to the position of President and COO of Employer on April 30, 1996, and WHEREAS, Employee's annual compensation was increased to $195,999 on March 15, 1997; and WHEREAS, Employee was appointed to the position of President and CEO of Employer on May 1, 1998; and WHEREAS, the Compensation Committee of the Board of Directors of Employer recognized the need to update and clarify certain terms and conditions of the Initial Agreement; and WHEREAS, the Board of Directors feels that it is in the best interest of Employer for Employee to continue to serve Employer in the capacity of President and CEO and Employee is willing to continue to serve in said capacity; NOW THEREFORE, in consideration of the mutual premises, promises, covenants, and agreements herein contained, Employee and the Company do hereby agree as follows: 1. DUTIES. The Company does hereby employ Employee in the capacity set forth in Item l(a) on Exhibit A, attached hereto and made part hereof. Employee does hereby accept such employment and agrees to perform the duties of such office. Employee's duties will include all of those generally associated with said position, subject to the direction and assignment of the Company's Board of Directors. Employee shall devote substantially all of his time and energies to the foregoing duties. The duties assigned to Employee shall be performed at the place of employment specified in Item l(b) of Exhibit A. 2. TERM OF EMPLOYMENT. (a) Except as provided in Section 2(b) hereof, the initial term of the employment relationship provided for herein shall commence as of the Effective Date of this Agreement and end on the Second Anniversary Date of this Agreement, as specified in Exhibit A, Item 2. This Agreement shall automatically be extended in one (1) year intervals after said Anniversary Date unless, on or before ninety (90) days prior to such Anniversary Date, the Company advises Employee that it wishes not to extend this Agreement. In such an event the Employee shall have entitlement to a sum equal to one year's annual compensation. (b) The occurrence of one or more of the following events shall constitute a "Triggering Event" regarding Employee's Severance Option as provided for in Exhibit A, Item 3(c) Severance Option: (i) Any shareholder or group of shareholders acting in concert, including any "associate" thereof as that term is defined in Rule 14a-l(a) (17 C.F.R. Sec. 240.14a-l(a)), under the Securities Exchange Act of 1934 (the "Exchange Act") or any successor provision or rule under Section 14(a) of the Exchange Act, shall own, in the aggregate, directly or beneficially, greater than twenty percent (20%) of the outstanding Common Stock of the Company; and (ii) Any change in the composition of the board of directors of the Company resulting in a majority of the present directors of the Company not constituting a majority provided, that in making such determination directors who were elected by, or on the recommendation of, such present majority, shall be excluded. (iii) Any reduction in employee's status, duties or reporting arrangements now in place. (c) For purposes of Section 2(b) above: (i) No stock owned by employee shall be taken into account for purpose of making the percentage-of-stock ownership determination required under subsection (b). 3. COMPENSATION. (a) The company shall pay to employee, an annual cash compensation during each term of employee's employment hereunder, the sum set forth in Exhibit A. Item 3(a) ("Annual Cash compensation"). If any term of this Agreement is for less than twelve (12) months, such sum shall be prorated for that period. (b) In addition to Employee's Annual Cash Compensation specified above, Employee shall be entitled to receive the additional compensation, specified in Exhibit A, Item 3(b) ("Additional Compensation"). (c) It is hereby acknowledged that employee has been granted a options to purchase a total of 180,000 shares of common stock of Employer as follows: (i) Option for 80,000 shares on June 14, 1995 at $8.00 per share (ii) Option for 120,000 shares on February 14, 1997 at $7.875 PER SHARE It is further acknowledged that Employee is entitled to an additional option to purchase 12,684 shares of Employer's common stock at a price of $8.00 per share due to increase in the Stock Market Value of Employer from June 19, 1996 and June 18=9, 1997, pursuant to Paragraph 5 of Initial Agreement. (d) Employee shall be entitled to receive such fringe benefits as the Company normally confers upon its employees holding similar or equivalent positions as well as these specific benefits enumerated in Exhibit A, Item 3(c) ("Executive Benefits Summary"). (e) In the event of Employee's death, this Agreement will be terminated and all accrued and unpaid compensation and expenses will be payable to the Estate of the deceased Employee. (f) In addition to any other compensation herein above specified, if at any time during the twelve-month period following the Triggering Event specified in Section 2(b), the Employee's employment with the Company is voluntarily or involuntarily terminated, without cause, Employee shall receive a lump-sum severance payment in an amount equal to twice the Gross Annual Salary amount specified in Item 3(a) of Exhibit A, less any income or employment tax withholdings which the Company is required by law to deduct therefrom. 4. COMPETITION. Employee agrees that until termination of this Employment Agreement, absent the express, prior written authorization of the Company's Board of Directors, Employee shall not, directly or indirectly, engage in any activity competitive with or adverse to the Company's business or welfare, whether alone, as a partner of any partnership or joint venture or as an officer, director, employee or more than ten percent (10%) shareholder of any corporation. 2 5. BUSINESS DISCLOSURE. Employee agrees that during the term of his employment with the Company and thereafter, he will not, without the express, prior written consent of the Company's board of Directors, disclose, other than to an authorized employee, officers or director for the Company, any confidential information of, regarding or relating to the Company. For purposes of the preceding sentence, the phrase "confidential information" shall include, but not be limited to, any information relating to the Company's businesses, customers, trade practices or trade secrets and know-how. Upon the termination of the Employee's employment, for whatever reason, Employee, without the express, prior written consent of the Board of Directors, shall not remove from the premises or possession of the Company, or retain, publish or disseminate, any figures, calculations, letters, customer lists, documents, written instruments or any other material of a confidential nature, whether originals, photocopies or other facsimiles or reproductions thereof, or other confidential information of any type or description in connection with or in any way pertinent to the Company or its affairs. 6. TERMINATION OF CONTRACT PRIOR TO EXPIRATION OF DESIGNATED TERM. (a) Except as provided in Section 6(c) below, this Agreement may be terminated at any time by Employee by giving written notice, in the manner specified in Section 10 of this Agreement, no less than thirty (30) days in advance of the effective date of said termination. (b) This Agreement may be terminated by the Company for cause upon thirty (30) days written notice delivered to Employee. In the event the Company determines that Cause exists, it shall notify Employee that termination has been called for by a majority vote of the Board. Prior to the effectiveness of any such termination, Employee shall be provided an opportunity (along with his counsel) to make a presentation as to why such termination is inappropriate, unless within thirty (30) days after receiving such notice, the Employee shall have cured Cause to the reasonable satisfaction of the Company. For purposes of this Section 6(b), the Company shall have cause to terminate the Employee under any of the following circumstances: (i) Failure on the part of the Employee to exert his best efforts in performing the functions assigned to him by the Company, which failure can reasonable be expected to have a material adverse effect on the Company, provided that the functions assigned to the Employee shall at all times be in keeping with the position for which Employee was hired, as described n Paragraph 1 of this Agreement: (ii) Employee is in breach of any of the terms of Paragraphs 4 and 5 hereof, is guilty of dishonesty or chronic absenteeism or is convicted of a felony or of a misdemeanor involving moral turpitude. (c) After the occurrence of the Triggering Event specified in Section 2(b) of this Agreement, Employee's employment with the Company may be terminated by either party to this Agreement by delivering to the other party written notice of termination at least thirty (30) days prior to the effective date of such termination notice. (d) Termination of this Agreement will not relieve Employee from liability pursuant to Paragraphs 4 and 5 which, by their respective terms, continue beyond the termination of this agreement. 7. DISABILITY. If Employee is unable to perform his services for or on behalf of the Company by reason of any illness or incapacity which persists for more than ninety (90) consecutive days, his compensation shall thereafter be payable to him only for One Hundred and Eight (180) days following the onset of such 3 illness or incapacity. The Employee's full compensation shall be prospectively reinstated upon his return to full employment and the discharge of all his duties. 8. REMEDIES. It is agreed that in the event of any breach, violation, or evasion of the terms of this Employment Agreement, such breach, violation, or evasion will result in immediate and irreparable injury to the Company and will authorize the Company to seek injunctive relief, including, but not limited to, any order of specific performance, as well as all other legal or equitable remedies to which the Company may be entitled. 9. NOTICE. (a) Any notice required to be given pursuant to the provisions of this Agreement shall be given in writing and sent by registered or certified mail, return receipt requested, to the party entitled to receive such notice, at the addresses herein specified or at such other address(es) notice of which has been given to the other party. (b) Any notice required to be given to the Company shall be given to the Company's Corporate Secretary, 625 Polk Street, San Francisco, California, 94192. Any notice required hereunder to be given by the Company shall be given by or at the direction of the Board of Directors of the Company. (c) Any notice required to be given to Employee shall be given at the address or addresses as specified in Item 10 of Exhibit A. 10. ARBITRATION. Any controversy or claim arising out of or relating to this Agreement or the breach thereof may, in the sole discretion of the Company, be settled by arbitration proceedings conducted in the City of San Francisco, California, in accordance with the rules of the American Arbitration Association, and judgement upon the award rendered may be entered and enforced in any court of competent jurisdiction. 12. GOVERNING LAW. This Agreement has been executed in and shall be governed by the laws of the State of California. The Parties consent to personal jurisdiction and venue in San Francisco County, California, to resolve any dispute arising out of or relating to this Agreement or its breach, interpretation, termination or validity. In addition, Company shall reimburse Employee for all reasonable attorney's fees incurred in the enforcement of his rights under this Agreement if Employee shall prevail in such disputes with respect to the Agreement. 13. WAIVER OF BREACH. This waiver by the Company of a breach of any provision of this Agreement by Employee shall not operate or be construed as a waiver of any subsequent breach by Employee. No such waiver shall be valid unless set forth in a writing signed by at least one (1) authorized officer of the Company. 14. ASSIGNMENT. Employee acknowledges that the services to be rendered by him are unique and personal. Accordingly, Employee may not assign any of his rights or delegate any of his duties or obligations under this Agreement. The rights and obligations of the Company under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Company. 4 15. ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties and may not be modified, amended or terminated unless the provisions of such modification, amendment or termination are set forth in writing signed by all of the parties to this Agreement. This Agreement, and any modification, amendment or termination thereof, shall be approved by and executed on behalf or at the direction of the Company's Board of Directors. If any provision of this Agreement shall be declared to be invalid or unenforceable, in whole or part, such invalidity or unenforceability shall not affect the remaining provisions hereof, which shall remain in full force and effect. In addition, the Company shall bear, or reimburse Employee for all reasonable legal fees incurred in connection with entering into or defending this Agreement. IN WITNESS WHEREOF the parties hereto have executed this Agreement on the 17th day of June, 1999. Attest: California Culinary Academy, Inc. By the Board of Directors /s/ [ILLEGIBLE] By: /S/ CHARLES E. WHITE - ------------------------------------------ ------------------------------------------ WITNESS FOR THE BOARD (SEAL) WITNESS EMPLOYEE /s/ [ILLEGIBLE] /s/ KEITH H. KEOGH - ------------------------------------------ ----------------------------------------------
5 EMPLOYMENT AGREEMENT EXHIBIT A EMPLOYEE: KEITH H. KEOGH Item 1(a) TITLE(S): PRESIDENT AND CHIEF EXECUTIVE OFFICER Item 1(b) PLACE OF EMPLOYMENT: 625 POLK STREET, SAN FRANCISCO, CALIFORNIA 94102 Item 2 EFFECTIVE DATE: JUNE 1, 1999 ANNIVERSARY DATE: MAY 31, 2000 Item 3(a) BASE COMPENSATION: GROSS ANNUAL SALARY: ONE HUNDRED NINETY FIVE THOUSAND DOLLARS ($195,000.00) Item 3(b) GROSS MONTHLY SALARY: SIXTEEN THOUSAND, TWO HUNDRED AND FIFTY DOLLARS ($16,250.00) Item 3(c) Executive Benefits Summary Severance Arrangement: In the event of the occurrence of a "Triggering Event" as defined in Section 2(b) of this Agreement, at the Employee's option, the Employee may elect to sever his employment with the Company at any time during the initial twelve (12) months following such a triggering event. In such case, Employee shall have an entitlement to an immediate severance payment equal to two (2) years of his base compensation and all stock options previously granted to Employee shall become fully vested to the Employee. Additional Compensation Employee shall have an opportunity to earn a bonus of ten percent (10%) of his annual base salary when the annual operating plan and profits are achieved. In the event that the operating revenue and the profit plan is exceeded by five to nine percent (5%-9%), a bonus of twenty percent (20%) of base salary will be awarded. In the event that the operating revenue and the profit plan is exceeded by ten percent (10%) or more, thirty percent (30%) of the base salary will be awarded provided that the Board of Directors are satisfied with the Employee's people skills and performance of required duties. Holiday Leave Eight paid holidays per year. Calendar established annually by Company. Medical/Dental Participation in the Company sponsored group medical Insurance plan. Company pays full premium for Employee and family. Group Life Insurance Term Life Coverage of two-time current salary to a maximum of $400,000 Coverage. Full premium paid by Company. Group Disability Participation in Disability Insurance program on same Insurance basis as other executives in the Company. 401(k), Company Tax deferred savings from payroll deductions allowed up Matching Contribution to a maximum set by government and plan limits. Company and Profit Sharing matches Employee contributions in Company common stock at fifty percent (50%) of first five percent (5%) of salary deferred.
Item 4 NOTICE TO EMPLOYEE: Keith H. Keogh --------------------------------------------------------------------------------- 625 Polk Street --------------------------------------------------------------------------------- San Francisco, California 94102 ---------------------------------------------------------------------------------
Employee: California Culinary Academy, Inc. By the Board of Directors /s/ KEITH H. KEOGH /S/ CHARLES E. WHITE, SECRETARY - -------------------------------------------- -------------------------------------------- Keith H. Keogh For the Board
ii EX-10.34 3 EXHIBIT 10.34 EXHIBIT 10.34 EXECUTIVE EMPLOYMENT AGREEMENT This Employment Contract ("Agreement") is entered into as of July 1, 1999 ("Effective Date") by and between the California Culinary Academy, Inc., A California Corporation ("Employer") and JERALD W. CHESSER ("Employee"). RECITALS WHEREAS Employer is doing business as a culinary educational institution and wishes to avail itself of the services of Employee; and WHEREAS Employee has expertise and experience and is willing to perform and provide certain services for Employer, all in accordance with the following terms and conditions; NOW THEREFORE, in consideration of the fore going premises and mutual covenants herein contained, the parties hereto agree as follows: AGREEMENT 1. EMPLOYMENT The Employer hereby agrees to employ the Employee, and the Employee agrees to serve the Employer as a Vice President for the period stated in Paragraph 3 hereof, and upon other terms and conditions as herein provided. 2. POSITION AND RESPONSIBILITIES The Employee shall exert his best efforts and devote all his business time and attention to the affairs of the Employer. The Employee shall serve as a Vice President of Employer and President of the Culinary Academy of New Orleans (CANO), a planned new campus owned by Employer, with overall responsibility and other such duties as may be assigned or amended by the President and/or the Board of Directors of the Employer from time to time. The Employee shall be subject to the restrictions, limitations and guidelines set forth by resolutions of the Board of Directors adopted by the Board. As a Vice President of Employer and President of CANO, the Employee will report directly to the President of Employer or such other executive officer designated by Employer's President. Employee's principal place of employment shall be Employer's Culinary Academy of New Orleans in Louisiana. 3. TERM The term of this Agreement shall be for a five (5) year period, commencing on July 1, 1999 (the "Effective Date") and ending on June 30, 2004 ("Termination Date"), subject to the termination provisions set forth in Paragraph 13 hereafter. 4. DUTIES During the period of his employment hereunder and except for illness, specified vacation periods and reasonable leaves of absence, the Employee shall devote his best efforts and all his business time, attention and skill and efforts to the business and affairs of the Employer and its affiliated companies, as such business and affairs now exist and as they may hereinafter be changed or added to under and pursuant to the general direction of the Board of Directors of the Employer; provided, however, that with the approval of the Board of Directors of the Employer, the Employee may serve, or continue to serve, on the Board of Directors of, or hold any other offices or positions in, companies or 1 organizations which, in such Board's judgement, will not present any conflict of interest with the Company or any of its subsidiaries or affiliates or divisions, or materially effect the performance of Employee's duties pursuant to this Agreement. The Employer shall retain full direction and control of the means and methods by which the Employee performs services for which he is employed hereunder. 5. COMPENSATION During the period of employment under this Agreement, Employer shall pay Employee as compensation for his services during the period July, 1999 throughout June 30, 2000 the sum of $100,000 per year ($8,333.33 per month) and from July 1, 2000 through the termination date the sum of $125,000 per year ($10,416.67 per month) or such higher salary as may be, from time to time, approved by the Board of Directors. 6. BONUS Employee shall have an opportunity to earn a bonus of 10% of his annual base salary when the annual operating plan and profits are achieved. In the event that the operating revenue and the profit plan is exceeded by 5% - 9%, a bonus of 20% of base salary will be awarded. In the event that the operating revenue and the profit plan is exceeded by 10% or more, 30% of the base salary will be awarded provided that the Board of Directors and President are satisfied with executive's people skills and performance of required duties. 7. BENEFITS During the term of this Agreement, the Employee shall be entitled to the following Employer-paid benefits: (A) MEDICAL AND DENTAL COVERAGE. Commencing July 1, 1999 the Employee, his wife and those children who qualify will be eligible to participate in the Employer's current Employee Group Medical and Dental Insurance Programs on the same basis as other executives of the Employer. (B) DISABILITY INSURANCE. Commencing April 1, 1999 the Employee will be eligible to participate in the Employer's current Executive Disability Insurance Program on the same basis as other executives of Employer. (C) LIFE INSURANCE. If the Employee qualifies for coverage, the Employer agrees to purchase and maintain a policy of term life insurance on the Employee in the amount of $15,000, to remain in effect for the duration of the Agreement. (D) HOLIDAYS. Employee shall be entitled to seven fixed holidays and one floating holiday per calendar year. (E) SICK DAYS. Employee shall be entitled to six sick days during each year of employment under the Agreement. Said sick days shall not accrue beyond ten days at any given time. (F) VACATION. The Employee shall be entitled to fifteen paid days of vacation per year of employment. (G) 401K PARTICIPATION. Employee shall also be entitled to participate in Employer's 401K program after six months of continuous employment. 2 8. STOCK OPTIONS On October 1, 1999, The Employer will grant the Employee options to purchase a total of 25,000 shares of Common Stock of the Employer which shall be exercisable in accordance with the following schedule and the following purchase price:
DATE OPTION MAY OPTION OPTION BE EXERCISED NO. OF SHARES PURCHASE PRICE PER SHARE EXPIRATION DATE - ----------- ---------------------- --------------- ---------------------------------- ---------------------- Number 1 March 31, 2000 5,000 Market Price at date of grant September 30, 2004 Number 2 September 30, 2000 5,000 Market Price at date of grant September 30, 2004 Number 3 March 31, 2001 5,000 Market Price at date of grant September 30, 2004 Number 4 September 30, 2001 5,000 Market Price at date of grant September 30, 2004 Number 5 March 31, 2002 5,000 Market Price at date of grant September 30, 2004
Based on satisfactory performance of Employee's duties and responsibilities as outlined in paragraph 4 above, on July 1, 2000, employer will grant Employee options to purchase an addition 25,000 shares of common stock which shall be exercisable in accordance with the following schedule and the following purchase price:
DATE OPTION MAY OPTION OPTION BE EXERCISED NO. OF SHARES PURCHASE PRICE PER SHARE EXPIRATION DATE - ------------- ---------------------- --------------- ---------------------------------- --------------- Number 6 December 31, 2000 5,000 Market Price at date of grant June 30, 2005 Number 7 June 30, 2001 5,000 Market Price at date of grant June 30, 2005 Number 8 December 31, 2001 5,000 Market Price at date of grant June 30, 2005 Number 9 June 30, 2002 5,000 Market Price at date of grant June 30, 2005 Number 10 December 31, 2002 5,000 Market Price at date of grant June 30, 2005
Options granted to Employee shall be subject to the terms of Employer's Stock Option Plans and Standard Stock Option Agreement letter. 9. DISABILITY If, during the term of this Agreement, the Employee becomes disabled or incapacitated hereunder by reason of illness or other physical or mental incapacity and is unable to properly perform Employees responsibilities, the Employer shall continue to pay the Employee his then-current salary for the first three (3) months of such disability, less sums equal to the amount received by the Employee under the Employer's Disability Insurance Policy and/or Program. 10. OBLIGATIONS OF EMPLOYEE DURING AND AFTER EMPLOYMENT (a) The Employee agrees that during the term of his employment under this Agreement, he will engage in no other business activities directly or indirectly which are or may be competitive with or which might place him in a competing position to that of the Employer, or any of its affiliated companies. (b) The Employee realizes that during the course of his employment, the Employee will have produced and/or have access to confidential business plans, information, business opportunity records, notebooks, data formula, inventions, patents, copyrights, concepts, ideas, specifications, trade secrets, customer lists, student lists and secret inventions and processes of the Employer and its affiliated 3 companies. Therefore, during or subsequent to his employment by the Employer, or by an affiliated company, the Employee agrees to hold in confidence and not to directly or indirectly disclose or use or copy or make lists of any such information, except to the extent authorized by the Employer in writing, All records, files, business plans, documents, equipment and the like, or copies thereof, relating to the Employer's business, or the business of an affiliated company, which the Employee shall prepare, or use, or come into contact with, shall remain the sole property of the Employer, or of an affiliated company, and shall not be removed from the Employer's or the affiliated company's premises without the Employer's written consent and shall be promptly returned to the Employer upon termination of employment with the Employer and its affiliated companies. 11. NON COMPETE In the event that Employee terminates his employment under this Agreement, Employee shall not, for a period of six (6) months after working for Employer, work for, in any capacity, direct competitors of Employer. For the purpose of this Agreement direct competitors shall be defined as any organization offering culinary certificate or degree educational programs to the general public. 12. EXPENSES The Employer will reimburse the Employee for all reasonable and necessary expenses incurred by him in carrying out his duties under this Agreement. The Employee shall present to the President from time to time an itemized account of such expenses, along with all appropriate back-up documentation, as will be required by the Employer. 13. TERMINATION (A) TERMINATION FOR CAUSE: During the first two years of the term of this Agreement (July 1, 1999 to June 30, 2001) there can be no termination of the Employee except for "Termination for Cause" as outlined below: Nonwithstanding anything herein to the contrary, the Employer may, without liability, terminate the Employee's employment hereunder for cause at any time upon written notice from the Board of Directors specifying such cause, and thereafter the Employer's obligations hereunder shall cease and terminate; provided, however, that such written notice shall not be delivered until after the Board of Directors shall have given the Employee written notice specifying the conduct alleged to have constituted such cause and the Employee has failed to cure such conduct, if curable, within ten (10) days following receipt of such notice. Grounds for "Termination for Cause" include, but are not limited to, one or more of the following: (1) A willful breach of duty by Employee during the course of his employment; (2) Habitual neglect of duty by the Employee; (3) The Employee's failure to perform and/or meet the objective measurable standards set by the Board of Directors; (4) Action or inaction by the Employee which places the Employer in circumstances of financial peril; (5) Dishonest or illegal conduct of the Employee. (B) TERMINATION WITHOUT CAUSE: After completion of two years of employment hereunder, the Board of Directors may terminate the employment of the Employee upon ninety (90) days written notice without cause by a majority 4 vote, if, in the opinion of the Board of Directors, the Employee has failed to discharge his duties and responsibilities to the satisfaction of the Board. 14. SALE OF COMPANY In the event that Employer is sold to another company the stock options granted to Employee under this Agreement shall immediately become fully vested to Employee. In the event that Employee is not retained by the acquiring company under the terms of this Agreement or other terms acceptable to Employee, Employee shall be entitled to severance pay equal to one (1) year of Employee's most recent Base Compensation. 15. REPRESENTATION AND WARRANTY Employee represents and warrants that Employee is not bound by any covenant or agreement, oral or written, which prohibits Employee from entering into this Agreement and from being Employed by Employer. 16. SEVERABILITY If any one or more of the provisions hereof shall be held to be invalid, illegal or unenforceable, the validity and enforceability of its other provisions shall not be affected thereby. 17. NON-TRANSFER OF RIGHTS AND OBLIGATIONS The Employee's rights and obligations under this Agreement shall not be transferable by assignment or otherwise, nor shall Employee's rights be subject to encumbrance or to the claims of the Employer's creditors. Nothing in this Agreement shall prevent consolidation of the Employer with, or its merger into, any other corporation, or the sale by the Employer of all or substantially all of its assets. 18. NOTICE Any notice required to be given pursuant to the provisions of this Agreement shall be in writing and hand delivered or mailed prepaid as appropriate to Employer's President at the address of Employer's corporate offices or the Employee at the most recent address in Employee's personnel file. 19. ARBITRATION Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in the city of San Francisco, California in accordance with the Rules of the American Arbitration Association, and the judgement upon the award rendered by the arbitration may be entered in any court having jurisdiction thereof. 20. GOVERNING LAW This Agreement shall be governed by and construed according to the laws of the State of California. 21. MODIFICATION This Agreement contains the entire understanding of the parities and may not be amended, supplemented, or discharged except by an instrument in writing signed by the parties hereto. 5 22. BINDING EFFECT This Agreement shall inure to the benefit of and shall be binding upon Employer, its successors; and assigns. IN WITNESS WHEREOF, The parties hereto have executed this Agreement as of the date first above written. Dated: CALIFORNIA CULINARY ACADEMY, INC -------------------------- By /s/ KEITH H. KEOGH ----------------------------------- Keith H. Keogh, President Dated: 4/14/99 By /s/ JERALD W. CHESSER -------------------------- ----------------------------------- Jerald W. Chesser 6 ADDENDUM TO EMPLOYMENT AGREEMENT The purpose of this Addendum entered into as of June 1, 1999 ("Effective Date") is to amend and add provisions to the Employment agreement ("Agreement") dated July 1, 1999 by and between the California Culinary academy, Inc., a California Corporation ("Employer") and JERALD W. CHESSER ("Employee") and when executed will become a part of said Agreement. RECITALS WHEREAS, certain shareholders of Employer have announced that they intend to vote out the existing Board of Directors at the next Shareholders meeting and attempt to sell Employer, and WHEREAS, Employee is concerned that his/her position in the company may not be secure do to the possibility of a change in the composition of the Board of Directors and/or the sale of Employer, and WHEREAS, Such concerns may cause employee to seek employment elsewhere, and WHEREAS, Employees continuing to service to Employer is important to insure a continuity of management and to maintain shareholder value, and NOW THEREFORE, to insure employees continuing service, to free Employee from the concern that a change in the make up of the Employer's Board of Directors will negatively impact employee's status with the Employer and to allow Employee to dedicate his/her full time, attention and energy to Employer's business, the following provision is hereby added to Agreement: 22. CHANGE OF BOARD In the event of a change in the composition of the Employer's Board of Directors ("Existing Board") resulting in a majority of the present directors of Employer not constituting a majority ("Board Change") and Employee elects within 120 days of said majority change to sever his/her employment with Employer or if Employee is terminated by Employer within 120 days of said Board change, Employee shall be entitled to severance pay equal to one (1) year of Employee's most recent base compensation and one year of continuing medical insurance coverage and all stock options previously granted to Employees shall become fully vest to Employee. Not withstanding the above, directors of Employer who were elected by or on recommendation of Existing Board shall be excluded in determining that a change in the majority of existing Board has taken place. IN WITNESS THEREOF, the parties hereto have executed this Addendum as of the date first above written: Date: June 17, 1999 California Culinary Academy, Inc. -------------------------- By: /s/ KEITH KEOGH ----------------------------------- Keith H. Keogh, President Date: June 17, 1999 By: /s/ JERALD W. CHESSER -------------------------- ----------------------------------- Jerald W. Chesser EX-10.35 4 EXHIBIT 10.35 EXHIBIT 10.35 EXECUTIVE EMPLOYMENT AGREEMENT This Employment Contract ("Agreement") is entered into as of March 15, 1999 ("Effective Date") by and between the California Culinary Academy, Inc., A California Corporation ("Employer") and LAURA RIVERA ("Employee"). RECITALS WHEREAS Employer is doing business as a culinary educational institution and wishes to avail itself of the services of Employee, and WHEREAS Employee has expertise and experience and is willing to perform and provide certain services for Employer, all in accordance with the following terms and conditions; NOW THEREFORE, in consideration of the fore going premises and mutual covenants herein contained, the parties hereto agree as follows: AGREEMENT 1. EMPLOYMENT The Employer hereby agrees to employ the Employee, and the Employee agrees to serve the Employer as its Vice President of Marketing for the period stated in Paragraph 3 hereof, and upon other terms and conditions as herein provided. 2. POSITION AND RESPONSIBILITIES The Employee shall exert her best efforts and devote all her business time and attention to the affairs of the Employer. The Employee shall serve as the Vice President of Marketing with overall responsibility for all marketing, advertising, public relations, participation and sponsorship activities and other such duties as may be assigned or amended by the President and/or the Board of Directors of the Employer from time to time. The Employee shall be subject to the restrictions, limitations and guidelines set forth by resolutions of the Board of Directors adopted by the Board. As Vice President of Marketing, the Employee will report directly to the President of Employer. Employee's principal place of employment shall be Employer's corporate offices in San Francisco, California. 3. TERM The term of this Agreement shall be for a five (5) year period, commencing on March 15, 1999 (the "Effective Date") and ending on March 14, 2003 ("Termination Date"), subject to the termination provisions set forth in Paragraph 13 hereafter. 4. DUTIES During the period of her employment hereunder and except for illness, specified vacation periods and reasonable leaves of absence, the Employee shall devote her best efforts and all her business time, attention and skill and efforts to the business and affairs of the Employer and its affiliated companies, as such business and affairs now exist and as they may hereinafter be changed or added to under and pursuant to the general direction of the Board of Directors of the Employer; provided, however, that with the approval of the Board of Directors of the Employer, the Employee may serve, or continue to serve, on the Board of Directors of, or hold any other offices or positions in, companies or organizations which, in such Board's judgement, will not present any conflict of interest with the 1 Company or any of its subsidiaries or affiliates or divisions, or materially effect the performance of Employee's duties pursuant to this Agreement. The Employer shall retain full direction and control of the means and methods by which the Employee performs services for which she is employed hereunder. 5. COMPENSATION During the period of employment under this Agreement, Employer shall pay Employee as compensation for her services during the period March 15, 1999 throughout March 14, 2000 the sum of $100,000 per year ($8,333.33 per month) and from March 15, 2000 through the termination date the sum of $125,000 per year ($10,416.67 per month) or such higher salary as may be, from time to time, approved by the Board of Directors. 6. BONUS Employee shall have an opportunity to earn a bonus of 10% of her annual base salary when the annual operating plan and profits are achieved. In the event that the operating revenue and the profit plan is exceeded by 5% - 9%, a bonus of 20% of base salary will be awarded. In the event that the operating revenue and the profit plan is exceeded by 10% or more, 30% of the base salary will be awarded provided that the Board of Directors and President are satisfied with executive's people skills and performance of required duties. 7. BENEFITS During the term of this Agreement, the Employee shall be entitled to the following Employer-paid benefits: (A) MEDICAL AND DENTAL COVERAGE. Commencing April 1, 1999 the Employee, her husband and those children who qualify, will be eligible to participate in the Employer's current Employee Group Medical and Dental Insurance Programs on the same basis as other executives of the Employer. (B) DISABILITY INSURANCE. Commencing April 1, 1999 the Employee will be eligible to participate in the Employer's Current Executive Disability Insurance Program on the same basis as other executives of Employer. (C) LIFE INSURANCE. If the Employee qualifies for coverage, the Employer agrees to purchase and maintain a policy of term life insurance on the Employee in the amount of $15,000, to remain in effect for the duration of the Agreement. (D) HOLIDAYS. Employee shall be entitled to seven fixed holidays and one floating holiday per calendar year. (E) SICK DAYS. Employee shall be entitled to six sick days during each year of employment under the Agreement. Said sick days shall not accrue beyond ten days at any given time. (F) VACATION. The Employee shall be entitled to fifteen paid days of vacation per year of employment. (G) PARKING ALLOWANCE. The Employer will provide the Employee with a parking allowance of $150 per month. (H) 401K PARTICIPATION. Employee shall also be entitled to participate in Employer's 401K program after six months of continuous employment. 2 8. STOCK OPTIONS On June 15, 1999, The Employer will grant the Employee options to purchase a total of 25,000 shares of Common Stock of the Employer which shall be exercisable in accordance with the following schedule and the following purchase price:
DATE OPTION MAY OPTION OPTION BE EXERCISED NO. OF SHARES PURCHASE PRICE PER SHARE EXPIRATION DATE - ----------- ---------------------- --------------- --------------------------------- --------------- Number 1 December 15, 1999 5,000 Market Price at date of grant June 14, 2004 Number 2 June 15, 2000 5,000 Market Price at date of grant June 14, 2004 Number 3 December 15, 2000 5,000 Market Price at date of grant June 14, 2004 Number 4 June 15, 2001 5,000 Market Price at date of grant June 14, 2004 Number 5 December 15, 2001 5,000 Market Price at date of grant June 14, 2004
Based on satisfactory performance of Employee's duties and responsibilities as outlined in paragraph 4 above, on March 15, 2000, employer will grant Employee options to purchase an addition 25,000 shares of common stock which shall be exercisable in accordance with the following schedule and the following purchase price:
DATE OPTION MAY OPTION OPTION BE EXERCISED NO. OF SHARES PURCHASE PRICE PER SHARE EXPIRATION DATE - ------------- ---------------------- --------------- --------------------------------- ----------------- Number 6 September 15, 2000 5,000 Market Price at date of grant March 14, 2005 Number 7 March 15, 2001 5,000 Market Price at date of grant March 14, 2005 Number 8 September 15, 2001 5,000 Market Price at date of grant March 14, 2005 Number 9 March 15, 2002 5,000 Market Price at date of grant March 14, 2005 Number 10 September 15, 2002 5,000 Market Price at date of grant March 14, 2005
Options granted to Employee shall be subject to the terms of Employer's Stock Option Plans and Standard Stock Option Agreement letter. 9. DISABILITY If, during the term of this Agreement, the Employee becomes disabled or incapacitated hereunder by reason of illness or other physical or mental incapacity and is unable to properly perform Employees responsibilities, the Employer shall continue to pay the Employee her then current salary for the first three (3) months of such disability, less sums equal to the amount received by the Employee under the Employer's Disability Insurance Policy and/or Program. 10. OBLIGATIONS OF EMPLOYEE DURING AND AFTER EMPLOYMENT (a) The Employee agrees that during the term of her employment under this Agreement, she will engage in no other business activities directly or indirectly which are or may be competitive with or which might place her in a competing position to that of the Employer, or any of its affiliated companies. (b) The Employee realizes that during the course of her employment, the Employee will have produced and/or have access to confidential business plans, information, business opportunity records, notebooks, data formula, inventions, patents, copyrights, concepts, ideas, specifications, trade secrets, customer lists, student lists and secret and processes of the Employer and its affiliated companies. Therefore, during or subsequent to her employment by the Employer, or by an affiliated company, the 3 Employee agrees to hold in confidence and not to directly or indirectly disclose or use or copy or make lists of any such information, except to the extent authorized by the Employer in writing. All records, files, business plans, documents, equipment and the like, or copies thereof, relating to the Employer's business, or the business of an affiliated company, which the Employee shall prepare, or use, or come into contact with, shall remain the sole property of the Employer, or of an affiliated company, and shall not be removed from the Employer's or the affiliated company's premises without the Employer's written consent and shall be promptly returned to the Employer upon termination of employment with the Employer and its affiliated companies. 11. NON COMPETE In the event that Employee terminates her employment under this Agreement, Employee shall not, for a period of six (6) months after working for Employer, work for, in any capacity, direct competitors of Employer. For the purpose of this Agreement direct competitors shall be defined as any organization offering culinary certificate or degree educational programs to the general public. 12. EXPENSES The Employer will reimburse the Employee for all reasonable and necessary expenses incurred by her in carrying out her duties under this Agreement. The Employee shall present to the President from time to time an itemized account of such expenses, along with all appropriate back-up documentation, as will be required by the Employer. 13. TERMINATION (A) TERMINATION FOR CAUSE: During the first two years of the term of this Agreement (March 15, 1999 to March 14, 2001) there can be no termination of the Employee except for "Termination for Cause" as outlined below: Notwithstanding anything herein to the contrary, the Employer may, without liability, terminate the Employee's employment hereunder for cause at any time upon written notice from the Board of Directors specifying such cause, and thereafter the Employer's obligations hereunder shall cease and terminate; provided, however, that such written notice shall not be delivered until after the Board of Directors shall have given the Employee written notice specifying the conduct alleged to have constituted such cause and the Employee has failed to cure such conduct, if curable, within ten (10) days following receipt of such notice. Grounds for "Termination for Cause" include, but are not limited to, one or more of the following: (1) A willful breach of duty by Employee during the course of her employment; (2) Habitual neglect of duty by the Employee; (3) The Employee's failure to perform and/or meet the objective measurable standards set by the Board of Directors; (4) Action or inaction by the Employee which places the Employer in circumstances of financial peril; (5) Dishonest or illegal conduct of the Employee. (B) TERMINATION WITHOUT CAUSE: After completion of two years of employment hereunder, the Board of Directors may terminate the employment of the Employee upon ninety (90) days written notice without cause by a majority vote, if, in the opinion of the Board of Directors, the Employee has failed to discharge her duties and responsibilities to the satisfaction of the Board. 4 14. SALE OF COMPANY In the event that Employer is sold to another company the stock options granted to Employee under this Agreement shall immediately become fully vested to Employee. In the event that Employee is not retained by the acquiring company under the terms of this Agreement or other terms acceptable to Employee, Employee shall be entitled to severance pay equal to one (1) year of Employee's most recent Base Compensation. 15. REPRESENTATION AND WARRANTY Employee represents and warrants that Employee is not bound by any covenant or agreement, oral or written, which prohibits Employee from entering into this Agreement and from being Employed by Employer. 16. SEVERABILITY If any one or more of the provisions hereof shall be held to be invalid, illegal or unenforceable, the validity and enforceability of its other provisions shall not be affected thereby. 17. NON-TRANSFER OF RIGHTS AND OBLIGATIONS The Employee's rights and obligations under this Agreement shall not be transferable by assignment or otherwise, nor shall Employee's rights be subject to encumbrance or to the claims of the Employer's creditors. Nothing in this Agreement shall prevent consolidation of the Employer with, or its merger into, any other corporation, or the sale by the Employer of all or substantially all of its assets. 18. NOTICE Any notice required to be given pursuant to the provisions of this Agreement shall be in writing and hand delivered or mailed prepaid as appropriate to Employer's President at the address of Employer's corporate offices or the Employee at the most recent address in Employee's personnel file. 19. ARBITRATION Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in the city of San Francisco, California in accordance with the Rules of the American Arbitration Association, and the judgement upon the award rendered by the arbitration may be entered in any court having jurisdiction thereof. 20. GOVERNING LAW This Agreement shall be governed by and construed according to the laws of the State of California. 21. MODIFICATION This Agreement contains the entire understanding of the parties and may not be amended, supplemented, or discharged except by an instrument in writing signed by the parties hereto. 22. BINDING EFFECT This Agreement shall inure to the benefit of and shall be binding upon Employer, its successors; and assigns. 5 IN WITNESS WHEREOF, The parties hereto have executed this Agreement as of the date first above written. Dated: 3/15/99 CALIFORNIA CULINARY ACADEMY, INC. -------------------------- By /s/ KEITH KEOGH ----------------------------------- Keith Keogh, President Dated: 3/15/99 By /s/ LAURA B. RIVERA -------------------------- ----------------------------------- Laura Rivera 6 ADDENDUM TO EMPLOYMENT AGREEMENT The purpose of this Addendum entered into as of June 1, 1999 ("Effective Date") is to amend and add provisions to the Employment agreement ("Agreement") dated March 15, 1999 by and between the California Culinary academy, Inc., a California Corporation ("Employer") and LAURA RIVERA ("Employee") and when executed will become a part of said Agreement. RECITALS WHEREAS, certain shareholders of Employer have announced that they intend to vote out the existing Board of Directors at the next Shareholders meeting and attempt to sell Employer, and WHEREAS, Employee is concerned that his/her position in the company may not be secure do to the possibility of a change in the composition of the Board of Directors and/or the sale of Employer, and WHEREAS, Such concerns may cause employee to seek employment elsewhere, and WHEREAS, Employees continuing to service to Employer is important to insure a continuity of management and to maintain shareholder value, and NOW THEREFORE, to insure employees continuing service, to free Employee from the concern that a change in the make up of the Employer's Board of Directors will negatively impact employee's status with the Employer and to allow Employee to dedicate his/her full time, attention and energy to Employer's business, the following provision is hereby added to Agreement: 22. CHANGE OF BOARD In the event of a change in the composition of the Employer's Board of Directors ("Existing Board") resulting in a majority of the present directors of Employer not constituting a majority ("Board Change") and Employee elects within 120 days of said majority change to sever his/her employment with Employer or if Employee is terminated by Employer within 120 days of said Board change, Employee shall be entitled to severance pay equal to one (1) year of Employee's most recent base compensation and one year of continuing medical insurance coverage and all stock options previously granted to Employees shall become fully vest to Employee. Not withstanding the above, directors of Employer who were elected by or on recommendation of Existing Board shall be excluded in determining that a change in the majority of existing Board has taken place. IN WITNESS THEREOF, the parties hereto have executed this Addendum as of the date first above written: Date: 6/17/99 California Culinary Academy, Inc. -------------------------- By: /s/ KEITH H. KEOGH ----------------------------------- Keith H. Keogh, President Date: 6/17/99 By: /s/ LAURA RIVERA -------------------------- ----------------------------------- Laura Rivera 7 EX-10.36 5 EXHIBIT 10.36 EXHIBIT 10.36 EXECUTIVE EMPLOYMENT AGREEMENT This Employment Contract ("Agreement") is entered into as of May 1, 1998 ("Effective Date") by and between the California Culinary Academy, Inc., A California Corporation ("Employer") and THOMAS SPANIER ("Employee"). RECITALS WHEREAS Employer is doing business as a culinary educational institution and wishes to avail itself of the services of Employee; and WHEREAS Employee has expertise and experience and is willing to perform and provide certain services for Employer, all in accordance with the following terms and conditions; NOW THEREFORE, in consideration of the fore going premises and mutual covenants herein contained, the parties hereto agree as follows: AGREEMENT 1. EMPLOYMENT The Employer hereby agrees to employ the Employee, and the Employee agrees to serve the Employer as its Vice President of Development and Chief Operating Officer for the period stated in Paragraph 3 hereof, and upon other terms and conditions as herein provided. 2. POSITION AND RESPONSIBILITIES The Employee shall exert his best efforts and devote all his business time and attention to the affairs of the Employer. The Employee shall serve as the Vice President of Development and Chief Operating Officer with overall responsibility for acquisition mergers, media program development, new site selection and development, facilities maintenance and other such duties as may be assigned or amended by the President and/or the Board of Directors of the Employer from time to time. The Employee shall be subject the restrictions, limitations and guidelines set forth by resolutions of the Board of Directors adopted by the Board. As Vice President of Development and Chief Operating Officer, the Employee will report directly to the President of Employer. 3. TERM The term of this Agreement shall be for a five (5) year period, commencing on May 1, 1998 (the "Effective Date") and ending on April 30, 2003 ("Termination Date"), subject to the termination provisions set forth in Paragraph 13 hereafter. 4. DUTIES During the period of his employment hereunder and except for illness, specified vacation periods and reasonable leaves of absence, the Employee shall devote his best efforts and all his business time, attention and skill and efforts to the business and affairs of the Employer and its affiliated companies, as such business and affairs now exist and as they may hereinafter be changed or added to under and pursuant to the general direction of the Board of Directors of the Employer; provided, however, that with the approval of the Board of Directors of the Employer, the Employee may serve, or continue to serve, on the Board of Directors of, or hold any other offices or positions in, companies or organizations which, in such Board's judgement, will not present any conflict of interest with the Company or any of its subsidiaries or affiliates or divisions, or materially effect the performance of Employee's duties pursuant to this Agreement. The Employer shall retain full direction and control of the means and methods by which the Employee performs services for which he is employed hereunder. 5. COMPENSATION During the period of employment under this Agreement, the Employer shall pay the Employee as compensation for his services the sum of $150,000 per year ($12,500 per month)("Base Compensation"), or such higher salary as may be, from time to time, approved by the Board of Directors. 6. BONUS Employee shall have an opportunity to earn a bonus of 10% of his or her annual base salary when the annual operating plan and profits are achieved. In the event that the operating revenue and the profit plan is exceeded by 5% - 9%, a bonus of 20% of base salary will be awarded. In the event that the operating revenue and the profit plan is exceeded by 10% or more, 30% of the base salary will be awarded provided that the Board of Directors and President are satisfied with executive's people skills and performance of required duties. 7. BENEFITS During the term of this Agreement, the Employee shall be entitled to the following Employer-paid benefits: (A) MEDICAL AND DENTAL COVERAGE. Commencing May 1, 1998 the Employee, his wife and those children who qualify will be eligible to participate in the Employer's current Employee Group Medical and Dental Insurance Programs on the same basis as other executives of the Employer. (B) DISABILITY INSURANCE. Commencing May 1, 1998 the Employee will be eligible to participate in the Employer's current Executive Disability Insurance Program on the same basis as other executives of Employer. (C) LIFE INSURANCE. If the Employee qualifies for coverage, the Employer agrees to purchase and maintain a policy of term life insurance on the Employee in the amount of $15,000, to remain in effect for the duration of the Agreement. (D) HOLIDAYS. Employee shall be entitled to seven fixed holidays and one floating holiday per calendar year. (E) SICK DAYS. Employee shall be entitled to six sick days during each year employment under the Agreement. Said sick days shall not accrue beyond ten days at any given time. (F) VACATION. The Employee shall be entitled to fifteen paid days of vacation per year of employment. (G) PARKING ALLOWANCE. The Employer will provide the Employee with a parking allowance of $150 per month. (H) 401K PARTICIPATION. Employee shall also be entitled to immediately participate in Employer's 401K program. 2 8. STOCK OPTIONS The Employer will grant the Employee options to purchase a total of 50,000 shares of Common Stock of the Employer which shall be exercisable in accordance with the following schedule and the following purchase prices:
DATE OPTION MAY NO. OF PURCHASE PRICE OPTION OPTION BE EXERCISED SHARES PER SHARE EXPIRATION DATE - ----------- -------------------- ------------ --------------- --------------- Number 1 November 1, 1998 10,0000 $ 7.25 May 1, 2003 Number 2 May 1, 1999 10,0000 $ 7.25 May 1, 2003 Number 3 November 1, 1999 10,0000 $ 7.25 May 1, 2003 Number 4 May 1, 2000 10,0000 $ 7.25 May 1, 2003 Number 5 November 1, 2000 10,0000 $ 7.25 May 1, 2003
Options granted to Employee shall be subject to the terms of Employer's Stock Option Plans and Standard Stock Option Agreement letter. 9. DISABILITY If, during the term of this Agreement, the Employee becomes disabled or incapacitated hereunder by reason of illness or other physical or mental incapacity and is unable to properly perform Employees responsibilities, the Employer shall continue to pay the Employee his then-current salary for the first three (3) months of such Disability, less sums equal to the amount received by the Employee under the Employer's Disability Insurance Policy and/or Program. 10. OBLIGATIONS OF EMPLOYEE DURING AND AFTER EMPLOYMENT (a) The Employee agrees that during the term of his employment under this Agreement, he will engage in no other business activities directly or indirectly which are or may be competitive with or which might place him in a competing position to that of the Employer, or any of its affiliated companies. (b) The Employee realizes that during the course of his employment, the Employee will have produced and/or have access to confidential business plans, information, business opportunity records, notebooks, data formula, inventions, patents, copyrights, concepts, ideas, specifications, trade secrets, customer lists, student lists and secret inventions and processes of the Employer and its affiliated companies. Therefore, during or subsequent to his employment by the Employer, or by an affiliated company, the Employee agrees to hold in confidence and not to directly or indirectly disclose or use or copy or make lists of any such information, except to the extent authorized by the Employer in writing. All records, files, business plans, documents, equipment and the like, or copies thereof, relating to the Employer's business, or the business of an affiliated company, which the Employee shall prepare, or use, or come into contact with, shall remain the sole property of the Employer, or of an affiliated company, and shall not be removed from the Employer's or the affiliated company's premises without the Employer's written consent and shall be promptly returned to the Employer upon termination of employment with the Employer and its affiliated companies. 11. NON COMPETE In the event that Employee terminates his employment under this Agreement, Employee shall, not, for a period of six (6) months after working for Employer, work for, in any capacity, direct competitors 3 of Employer. For the purpose of this Agreement direct competitors shall be defined as any organization offering culinary certificate or degree educational programs to the general public. 12. EXPENSES The Employer will reimburse the Employee for all reasonable and necessary expenses incurred by him in carrying out his duties under this Agreement. The Employee shall present to the President from time to time an itemized account of such expenses, along with all appropriate back-up documentation, as will be required by the Employer. 13. TERMINATION (A) TERMINATION FOR CAUSE: During the first two years of the term of this Agreement (May 1, 1998 to May 1, 2000) there can be no termination of the Employee except for "Termination for Cause" as outlined below: Notwithstanding anything herein to the contrary, the Employer may, without liability, terminate the Employee's employment hereunder for cause at any time upon written notice from the Board of Directors specifying such cause, and thereafter the Employer's obligations hereunder shall cease and terminate; provided, however, that such written notice shall not be delivered until after the Board of Directors shall have given the Employee written notice specifying the conduct alleged to have constituted such cause and the Employee has failed to cure such conduct, if curable, within ten (10) days following receipt of such notice. Grounds for "Termination for Cause" include, but are not limited to, one or more of the following: (1) A willful breach of duty by Employee during the course of his employment; (2) Habitual neglect of duty by the Employee; (3) The Employee's failure to perform and/or meet the objective measurable standards set by the Board of Directors; (4) Action or inaction by the Employee which places the Employer in circumstances of financial peril; (5) Dishonest or illegal conduct of the Employee. (B) TERMINATION WITHOUT CAUSE: After completion of two years of employment hereunder, the Board of Directors may terminate the employment of the Employee upon ninety (90) days written notice without cause by a majority vote, if, in the opinion of the Board of Directors, the Employee has failed to discharge his duties and responsibilities to the satisfaction of the Board. 14. SALE OF COMPANY In the event that Employer is sold to another company the stock options granted to Employee under this Agreement shall immediately become fully vested to Employee. In the event that Employee is not retained by the acquiring company under the terms of this Agreement or other terms acceptable to Employee, Employee shall be entitled to severance pay equal to one (1) year of Employee's most recent Base Compensation. 4 15. REPRESENTATION AND WARRANTY Employee represents and warrants that Employee is not bound by any covenant or agreement, oral or written, which prohibits Employee from entering into this Agreement and from being Employed by Employer. 16. SEVERABILITY If any one or more of the provisions hereof shall be held to be invalid, illegal or unenforceable, the validity and enforceability of its other provisions shall not be affected thereby. 17. NON-TRANSFER OF RIGHTS AND OBLIGATIONS The Employee's rights and obligations under this Agreement shall not be transferable by assignment or otherwise, nor shall Employee's rights be subject to encumbrance or to the claims of the Employer's creditors. Nothing in this Agreement shall prevent consolidation of the Employer with, or its merger into, any other corporation, or the sale by the Employer of all or substantially all of its assets. 18. NOTICE Any notice required to be given pursuant to the provisions of this Agreement shall be in writing and hand delivered or mailed prepaid as appropriate to Employers President at the address of Employer's corporate offices or the Employee at the most recent address in Employee's personnel file. 19. ARBITRATION Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in the city of San Francisco, California in accordance with the Rules of the American Arbitration Association, and the judgement upon the award rendered by the arbitration may be entered in any court having jurisdiction thereof. 20. GOVERNING LAW This Agreement shall be governed by and construed according to the laws of the State of California. 21. MODIFICATION This Agreement contains the entire understanding of the parities and may not be amended, supplemented, or discharged except by an instrument in writing signed by the parties hereto. 22. BINDING EFFECT This Agreement shall inure to the benefit of and shall be binding upon Employer, its successors, and assigns. 5 IN WITNESS WHEREOF, The parties hereto have executed this Agreement as of the date first above written. Dated: 12-10-98 CALIFORNIA CULINARY ACADEMY -------------------------- By /s/ KEITH KEOGH ----------------------------------------- Keith Keogh, President Dated: 12-10-98 By /s/ THOMAS SPANIER -------------------------- ----------------------------------------- Thomas Spanier
6 ADDENDUM TO EMPLOYMENT AGREEMENT The purpose of this Addendum entered into as of June 1, 1999 ("Effective Date") is to amend and add provisions to the Employment agreement ("Agreement") dated May 1, 1998 by and between the California Culinary academy, Inc., a California Corporation ("Employer") and TOM SPANIER("Employee") and when executed will become a part of said Agreement. RECITALS WHEREAS, certain shareholders of Employer have announced that they intend to vote out the existing Board of Directors at the next Shareholders meeting and attempt to sell Employer, and WHEREAS, Employee is concerned that his/her position in the company may not be secure do to the possibility of a change in the composition of the Board of Directors and/or the sale of Employer, and WHEREAS, Such concerns may cause employee to seek employment elsewhere, and WHEREAS, Employees continuing to service to Employer is important to insure a continuity of management and to maintain shareholder value, and NOW THEREFORE, to insure employees continuing service, to free Employee from the concern that a change in the make up of the Employer's Board of Directors will negatively impact employee's status with the Employer and to allow Employee to dedicate his/her full time, attention and energy to Employer's business, the following provision is hereby added to Agreement: 22. CHANGE OF BOARD In the event of a change in the composition of the Employer's Board of Directors ("Existing Board") resulting in a majority of the present directors of Employer not constituting a majority ("Board Change") and Employee elects within 120 days of said majority change to sever his/her employment with Employer or if Employee is terminated by Employer within 120 days of said Board change, Employee shall be entitled to severance pay equal to one (1) year of Employee's most recent base compensation and one year of continuing medical insurance coverage and all stock options previously granted to Employees shall become fully vest to Employee. Not withstanding the above, directors of Employer who were elected by or on recommendation of Existing Board shall be excluded in determining that a change in the majority of existing Board has taken place. IN WITNESS THEREOF, the parties hereto have executed this Addendum as of the date first above written: Date: 6/17/99 California Culinary Academy, Inc. -------------------------- By: /s/ KEITH H. KEOGH ------------------------------------------- Keith H. Keogh, President Date: 12/10/98 By: /s/ TOM SPANIER -------------------------- ------------------------------------------- Tom Spanier
EX-10.37 6 EXHIBIT 10.37 EXHIBIT 10.37 EXECUTIVE EMPLOYMENT AGREEMENT This Employment Contract ("Agreement") is entered into as of May 1, 1998 ("Effective Date") by and between the California Culinary Academy, Inc., A California Corporation ("Employer") and CHARLES E. WHITE ("Employee"). RECITALS WHEREAS Employer is doing business as a culinary educational institution and wishes to avail itself of the services of Employee; and WHEREAS Employee has expertise and experience and is willing to perform and provide certain services for Employer, all in accordance with the following terms and conditions; NOW THEREFORE, in consideration of the fore going premises and mutual covenants herein contained, the parties hereto agree as follows: AGREEMENT 1. EMPLOYMENT The Employer hereby agrees to employ the Employee, and the Employee agrees to serve the Employer as its Vice President and Chief Financial Officer for the period stated in Paragraph 3 hereof, and upon other terms and conditions as herein provided. 2. POSITION AND RESPONSIBILITIES The Employee shall exert his best efforts and devote all his business time and attention to the affairs of the Employer except as provided in paragraph 4(a) below. The Employee shall serve as the Vice President and Chief Financial Officer with overall responsibility for Finance and Accounting, Legal, Human Resources and Benefit Administration, Contract Negotiations, SEC Reporting, Insurance Programs, Office Management, Business Plan Development and other such duties as may be assigned or amended by the President and/or the Board of Directors of the Employer from time to time. The Employee shall be subject to the restrictions, limitations and guidelines set forth by resolutions of the Board of Directors adopted by the Board. As Vice President and Chief Financial Officer, the Employee will report directly to the President of Employer. 3. TERM The term of this Agreement shall be for a five (5) year period, commencing on May 1, 1998 (the "Effective Date") and ending on April 30, 2003 ("Termination Date"), subject to the termination provisions set forth in Paragraph 13 hereafter. 4. DUTIES During the period of his employment hereunder and except for illness, specified vacation periods and reasonable leaves of absence, the Employee shall devote his best efforts and all his business time, attention and skill and efforts to the business and affairs of the Employer and its affiliated companies, as such business and affairs now exist and as they may hereinafter be changed or added to under and pursuant to the general direction of the Board of Directors of the Employer; provided, however, that with the approval of the Board of Directors of the Employer, the Employee may serve, or continue to serve, on the Board of Directors of, or hold any other offices or positions in, companies or 1 organizations which, in such Board's judgement, will not present any conflict of interest with the Company or any of its subsidiaries or affiliates or divisions, or materially effect the performance of Employee's duties pursuant to this Agreement. The Employer shall retain full direction and control of the means and methods by which the Employee performs services for which he is employed hereunder. (a) The Employer acknowledges that the Employee has been associated with Pea Soup Andersen's, a California Corporation, for the past twelve years. Employee shall be allowed to continue Employee's association with Pea Soup Andersen's as long as Employee's association does not interfere in any way with Employee's duties under this contract and that said involvement does not require employee to be away from Employer's office more than eight days a year. 5. COMPENSATION During the period of employment under this Agreement, the Employer shall pay the Employee as compensation for his services the sum of $150,000 per year ($12,500 per month)("Base Compensation"), or such higher salary as may be, from time to time, approved by the Board of Directors. 6. BONUS Employee shall have an opportunity to earn a bonus of 10% of his or her annual base salary when the annual operating plan and profits are achieved. In the event that the operating revenue and the profit plan is exceeded by 5% - 9%, a bonus of 20% of base salary will be awarded. In the event that the operating revenue and the profit plan is exceeded by 10% or more, 30% of the base salary will be awarded provided that the Board of Directors and President are satisfied with executive's people skills and performance of required duties. 7. BENEFITS During the term of this Agreement, the Employee shall be entitled to the following Employer-paid benefits: (A) MEDICAL AND DENTAL COVERAGE. Commencing May 1, 1998 the Employee, his wife and those children who qualify will be eligible to participate in the Employer's current Employee Group Medical and Dental Insurance Programs on the same basis as other executives of the Employer. (B) DISABILITY INSURANCE. Commencing May 1, 1998 the Employee will be eligible to participate in the Employer's current Executive Disability Insurance Program on the same basis as other executives of Employer. (C) LIFE INSURANCE. If the Employee qualifies for coverage, the Employer agrees to purchase and maintain a policy of term life insurance on the Employee in the amount of $15,000, to remain in effect for the duration of the Agreement. (D) HOLIDAYS. Employee shall be entitled to seven fixed holidays and one floating holiday per calendar year. (E) SICK DAYS. Employee shall be entitled to six sick days during each year employment under the Agreement. Said sick days shall not accrue beyond ten days at any given time. (F) VACATION. The Employee shall be entitled to fifteen paid days of vacation per year of employment. (G) PARKING ALLOWANCE. The Employer will provide the Employee with a parking allowance of $150 per month. 2 (H) 401K PARTICIPATION. Employee shall also be entitled to immediately participate in Employer's 401K program. 8. STOCK OPTIONS The Employer will grant the Employee options to purchase a total of 50,000 shares of Common Stock of the Employer which shall be exercisable in accordance with the following schedule and the following purchase prices:
DATE OPTION MAY NO. OF PURCHASE PRICE OPTION OPTION BE EXERCISED SHARES PER SHARE EXPIRATION DATE - ----------- -------------------- ------------ --------------- --------------- Number 1 November 1, 1998 10,0000 $ 7.25 May 1, 2003 Number 2 May 1, 1999 10,0000 $ 7.25 May 1, 2003 Number 3 November 1, 1999 10,0000 $ 7.25 May 1, 2003 Number 4 May 1, 2000 10,0000 $ 7.25 May 1, 2003 Number 5 November 1, 2000 10,0000 $ 7.25 May 1, 2003
Options granted to Employee shall be subject to the terms of Employer's Stock Option Plans and Standard Stock Option Agreement letter. 9. DISABILITY If, during the term of this Agreement, the Employee becomes disabled or incapacitated hereunder by reason of illness or other physical or mental incapacity and is unable to properly perform Employees responsibilities, the Employer shall continue to pay the Employee his then-current salary for the first three (3) months of such Disability, less sums equal to the amount received by the Employee under the Employer's Disability Insurance Policy and/or Program. 10. OBLIGATIONS OF EMPLOYEE DURING AND AFTER EMPLOYMENT (a) The Employee agrees that during the term of his employment under this Agreement, he will engage in no other business activities directly or indirectly which are or may be competitive with or which might place him in a competing position to that of the Employer, or any of its affiliated companies with the exception of his affiliation with Pea Soup Andersen's as set forth in Paragraph 4(a) above. (b) The Employee realizes that during the course of his employment, the Employee will have produced and/or have access to confidential business plans, information, business opportunity records, notebooks, data formula, inventions, patents, copyrights, concepts, ideas, specifications, trade secrets, customer lists, student lists and secret inventions and processes of the Employer and its affiliated companies. Therefore, during or subsequent to his employment by the Employer, or by an affiliated company, the Employee agrees to hold in confidence and not to directly or indirectly disclose or use or copy or make lists of any such information, except to the extent authorized by the Employer in writing. All records, files, business plans, documents, equipment and the like, or copies thereof, relating to the Employer's business, or the business of an affiliated company, which the Employee shall prepare, or use, or come into contact with, shall remain the sole property of the Employer, or of an affiliated company, and shall not be removed from the Employer's or the affiliated company's premises without the Employer's written consent and shall be promptly returned to the Employer upon termination of employment with the Employer and its affiliated companies. 3 11. NON COMPETE In the event that Employee terminates his employment under this Agreement, Employee shall, not, for a period of six (6) months after working for Employer, work for, in any capacity, direct competitors of Employer. For the purpose of this Agreement direct competitors shall be defined as any organization offering culinary certificate or degree educational programs to the general public. 12. EXPENSES The Employer will reimburse the Employee for all reasonable and necessary expenses incurred by him in carrying out his duties under this Agreement. The Employee shall present to the President from time to time an itemized account of such expenses, along with all appropriate back-up documentation, as will be required by the Employer. 13. TERMINATION (A) TERMINATION FOR CAUSE: During the first two years of the term of this Agreement (May 1, 1998 to May 1, 2000) there can be no termination of the Employee except for "Termination for Cause" as outlined below: Notwithstanding anything herein to the contrary, the Employer may, without liability, terminate the Employee's employment hereunder for cause at any time upon written notice from the Board of Directors specifying such cause, and thereafter the Employer's obligations hereunder shall cease and terminate; provided, however, that such written notice shall not be delivered until after the Board of Directors shall have given the Employee written notice specifying the conduct alleged to have constituted such cause and the Employee has failed to cure such conduct, if curable, within ten (10) days following receipt of such notice. Grounds for "Termination for Cause" include, but are not limited to, one or more of the following: (1) A willful breach of duty by Employee during the course of his employment; (2) Habitual neglect of duty by the Employee; (3) The Employee's failure to perform and/or meet the objective measurable standards set by the Board of Directors; (4) Action or inaction by the Employee which places the Employer in circumstances of financial peril; (5) Dishonest or illegal conduct of the Employee. (B) TERMINATION WITHOUT CAUSE: After completion of two years of employment hereunder, the Board of Directors may terminate the employment of the Employee upon ninety (90) days written notice without cause by a majority vote, if, in the opinion of the Board of Directors, the Employee has failed to discharge his duties and responsibilities to the satisfaction of the Board. 14. SALE OF COMPANY In the event that Employer is sold to another company the stock options granted to Employee under this Agreement shall immediately become fully vested to Employee. In the event that Employee is not retained by the acquiring company under the terms of this Agreement or other terms acceptable to Employee, Employee shall be entitled to severance pay equal to one (1) year of Employee's most recent Base Compensation. 4 15. REPRESENTATION AND WARRANTY Employee represents and warrants that Employee is not bound by any covenant or agreement, oral or written, which prohibits Employee from entering into this Agreement and from being Employed by Employer. 16. SEVERABILITY If any one or more of the provisions hereof shall be held to be invalid, illegal or unenforceable, the validity and enforceability of its other provisions shall not be affected thereby. 17. NON-TRANSFER OF RIGHTS AND OBLIGATIONS The Employee's rights and obligations under this Agreement shall not be transferable by assignment or otherwise, nor shall Employee's rights be subject to encumbrance or to the claims of the Employer's creditors. Nothing in this Agreement shall prevent consolidation of the Employer with, or its merger into, any other corporation, or the sale by the Employer of all or substantially all of its assets. 18. NOTICE Any notice required to be given pursuant to the provisions of this Agreement shall be in writing and hand delivered or mailed prepaid as appropriate to Employers President at the address of Employer's corporate offices or the Employee at the most recent address in Employee's personnel file. 19. ARBITRATION Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in the city of San Francisco, California in accordance with the Rules of the American Arbitration Association, and the judgement upon the award rendered by the arbitration may be entered in any court having jurisdiction thereof. 20. GOVERNING LAW This Agreement shall be governed by and construed according to the laws of the State of California. 21. MODIFICATION This Agreement contains the entire understanding of the parities and may not be amended, supplemented, or discharged except by an instrument in writing signed by the parties hereto. 22. BINDING EFFECT This Agreement shall inure to the benefit of and shall be binding upon Employer, its successors; and assigns. 5 IN WITNESS WHEREOF, The parties hereto have executed this Agreement as of the date first above written. Dated: 12/10/98 CALIFORNIA CULINARY ACADEMY -------------------------- By /s/ KEITH KEOGH ----------------------------------- Keith Keogh, President Dated: 12/10/98 By /s/ CHARLES E. WHITE -------------------------- ----------------------------------- Charles E. White
6 ADDENDUM TO EMPLOYMENT AGREEMENT The purpose of this Addendum entered into as of June 1, 1999 ("Effective Date") is to amend and add provisions to the Employment agreement ("Agreement") dated May 1, 1998 by and between the California Culinary academy, Inc., a California Corporation ("Employer") and CHARLES E. WHITE ("Employee") and when executed will become a part of said Agreement. RECITALS WHEREAS, certain shareholders of Employer have announced that they intend to vote out the existing Board of Directors at the next Shareholders meeting and attempt to sell Employer, and WHEREAS, Employee is concerned that his/her position in the company may not be secure do to the possibility of a change in the composition of the Board of Directors and/or the sale of Employer, and WHEREAS, Such concerns may cause employee to seek employment elsewhere, and WHEREAS, Employees continuing to service to Employer is important to insure a continuity of management and to maintain shareholder value, and NOW THEREFORE, to insure employees continuing service, to free Employee from the concern that a change in the make up of the Employer's Board of Directors will negatively impact employee's status with the Employer and to allow Employee to dedicate his/her full time, attention and energy to Employer's business, the following provision is hereby added to Agreement: 22. CHANGE OF BOARD In the event of a change in the composition of the Employer's Board of Directors ("Existing Board") resulting in a majority of the present directors of Employer not constituting a majority ("Board Change") and Employee elects within 120 days of said majority change to sever his/her employment with Employer or if Employee is terminated by Employer within 120 days of said Board change, Employee shall be entitled to severance pay equal to one (1) year of Employee's most recent base compensation and one year of continuing medical insurance coverage and all stock options previously granted to Employees shall become fully vest to Employee. Notwithstanding the above, directors of Employer who were elected by or on recommendation of Existing Board shall be excluded in determining that a change in the majority of existing Board has taken place. IN WITNESS THEREOF, the parties hereto have executed this Addendum as of the date first above written: Date: 6/17/99 California Culinary Academy, Inc. ------------------- By: /s/ KEITH H. KEOGH ----------------------------------- Keith H. Keogh, President Date: 6/17/99 By: /s/ CHARLES E. WHITE ------------------- ----------------------------------- Charles E. White
7 EX-23.1 7 EXHIBIT 23.1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 33-93266 on Form S-8 and Registration Statement 33-17205 on Form S-3 of our report dated September 24, 1998 appearing in this Annual Report on Form 10-KSB of the California Culinary Academy, Inc. for the year ended June 30, 1998. San Francisco, California September 28, 1998 EX-27 8 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 1999 1,000 12-MOS JUN-30-1999 JUL-01-1998 JUN-30-1999 854 0 3,812 325 233 4,974 16,118 6,932 15,307 8,108 2,124 0 0 11,355 6,276 15,307 17,974 17,974 3,433 15,073 0 0 0 (864) 5 (869) 0 466 0 (869) (0.22) (0.22)
-----END PRIVACY-ENHANCED MESSAGE-----