Corinthian Colleges, Inc. and Corinthian Canada Acquisition Inc. - MRRS Decision

Headnote

Mutual Reliance Review System - take-over bid- employment agreement to be entered into between offeror andselling security holders who are also senior officers of offeree-- bonus payments under agreements payable upon achievementof performance targets and in lieu of change of control payments-- agreements negotiated at arm's length and on commerciallyreasonable terms -- arrangements consistent with those betweenofferor and its employees - decision that the employment agreementsare being entered into for reasons other than to increase thevalue of the consideration paid to the selling security holdersfor their shares and that the employment agreements may be enteredinto despite the prohibition against collateral benefits.

Statute Cited

Securities Act R.S.O. 1990, c. S.5, as amended,ss. 97(2) and 104(2)(a).

IN THE MATTER OF

THE SECURITIES LEGISLATIONOF

ONTARIO, BRITISH COLUMBIA,ALBERTA, MANITOBA,

SASKATCHEWAN, QUEBEC, NOVASCOTIA, AND

NEWFOUNDLAND AND LABRADOR

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEWSYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

CORINTHIAN COLLEGES, INC.,

CORINTHIAN CANADA ACQUISITIONINC.

and

CDI EDUCATION CORPORATION

MRRS DECISION DOCUMENT

WHEREAS Corinthian Colleges, Inc. ("Corinthian"),through its wholly owned subsidiary Corinthian Canada AcquisitionInc. (the "Applicant"), has made a take-over bid (the"Offer") to acquire all of the issued and outstandingcommon shares (the "Common Shares") of CDI EducationCorporation (the "Offeree");

AND WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") in eachof the provinces of Ontario, British Columbia, Alberta, Manitoba,Saskatchewan, Quebec, Nova Scotia, and Newfoundland and Labrador(the "Jurisdictions") has received an applicationfrom the Applicant for a decision under the securities legislationof the Jurisdictions (the "Legislation") that theemployment agreements (the "Employment Agreements")which the Applicant has entered into, or may hereafter enterinto, with William Rasberry ("Rasberry"), DesmondSoye ("Soye"), Mark Korol ("Korol"), andthe employee retention bonuses (the "Retention Bonuses")which the Applicant has offered to, or may hereafter offer to,certain employees ("Key Personnel") of the Offereeto encourage such Key Personnel's continued employment withthe Applicant following successful completion of the Offer aremade for reasons other than to increase the value of the considerationpaid to Rasberry, Soye, Korol and the Key Personnel that holdCommon Shares or "in-the-money" options to purchaseCommon Shares (the "Key Personnel Shareholders"),and that the Employment Agreements and Retention Bonuses maybe entered into or paid notwithstanding the requirement containedin the Legislation which prohibits, in the context of a take-overbid, the entering into of any collateral agreement with anyholder of the offeree issuer that has the effect of providingto the holder a consideration of greater value than that offeredto the other holders of the same class of securities ("Prohibitionon Collateral Agreements");

AND WHEREAS under the Mutual RelianceSystem for Relief (the "System"), the Ontario SecuritiesCommission is the principal regulator for this application;

AND WHEREAS, unless otherwise defined,the terms herein have the meaning set out in National Instrument14-101 Definitions or in Quebec Commission Notice 14-101;

AND WHEREAS the Applicant and Corinthianhave represented to the Decision Makers that:

1. Corinthian is a corporation existing underthe laws of Delaware and is not a reporting issuer in anyof the Jurisdictions.

2. The Applicant is a wholly owned subsidiaryof Corinthian and is a corporation existing under the lawsof Ontario. The Applicant is not a reporting issuer in anyof the Jurisdictions.

3. Corinthian has made the Offer indirectlythrough the Applicant. The Offer is for all of the issuedand outstanding Common Shares of the Offeree at $4.33 in cashper Common Share.

4. The Offer was made by way of a take-overbid circular sent to all shareholders of the Offeree (the"Offeree Shareholders") on July 14, 2003. The Offerwill expire at 12:01 a.m. on August 19, 2003, unless extendedor varied.

5. Neither Corinthian nor the Applicant will,as a result of the Offer, become a reporting issuer underthe Legislation.

6. As at June 23, 2003, the Offeree had 9,936,401Common Shares issued and outstanding. The Common Shares arelisted and posted for trading on the Toronto Stock Exchange.

7. Rasberry is the President of the Offeree.Rasberry holds or controls 239,515 Common Shares and "in-the-money"options to acquire Common Shares of the Offeree or approximately2.3% of the outstanding Common Shares and "in-the-money"options. Under the Offer, Rasberry will receive $1,037,100as consideration for his Common Shares and "in-the-money"options.

8. Korol is the Chief Financial Officer ofthe Offeree. Korol holds or controls 15,600 Common Sharesand "in-the-money" options to acquire Common Sharesof the Offeree or approximately 0.2% of the outstanding CommonShares and "in-the-money" options. Under the Offer,Korol will receive $67,548 as consideration for his CommonShares and "in-the-money" options.

9. Soye is the Chief Operating Officer ofthe post-secondary school business of the Offeree. Soye directlyholds or controls 165,131 Common Shares and "in-the-money"options to acquire Common Shares of the Offeree or approximately1.6% of the outstanding Common Shares and "in-the-money"options. The Applicant understands that Soye also has an indirectinterest in the Offeree that, added to his direct interest,results in Soye having a total economic interest representingapproximately 2.7% of the outstanding Common Shares. Underthe Offer, Soye will receive $715,017 as consideration forhis Common Shares and "in-the-money" options.

10. The 17 Key Personnel are senior employeesin various areas of the Offeree's business and operations.There are eight Key Personnel Shareholders holding 20,733Common Shares, which together amount to 0.2 % of the issuedand outstanding Common Shares of the Offeree, and thirteenKey Personnel Shareholders holding an aggregate of 195,000"in-the-money" options to acquire Common Sharesrepresenting 1.9% of the outstanding Common Shares. The total"in-the-money" options and Common Shares held bythe Key Personnel Shareholders represent 2.1 % of the outstandingCommon Shares and "in-the-money" options. To theknowledge of the Applicant, three Key Personnel hold neitherCommon Shares nor "in-the-money" options.

11. Rasberry, Korol and Soye and certain ofthe Key Personnel Shareholders have agreed with the Applicantto tender their Common Shares (including Common Shares tobe issued upon exercise of their "in-the-money"options) under the Offer. The aggregate number of Common Sharessubject to lock-up agreements represents 6,901,341 CommonShares or approximately 67% of the outstanding Common Sharesand Common Shares issuable upon the exercise of "in-the-money"options.

12. If the Offer is completed the Applicantintends to make, or has already conditionally made, the followingemployment arrangements:

(a) the Employment Agreements with Rasberry,Korol and Soye; and,

(b) the Retention Bonuses payable to theKey Personnel.

13. The Employment Agreements which have been,or may be, entered into with Rasberry, Korol and Soye areon substantially the same terms as their current arrangementswith the Offeree other than the following material modifications:

(a) Under the Employment Agreements withRasberry and Soye, the Applicant will pay a Retention Bonusof $252,000 to Rasberry, being 100% his proposed salary,and a Retention Bonus of $165,000 to Soye, being 75% ofhis existing salary, in the event that they remain employedby the Applicant for twelve (12) months from the date ofthe close of the Offer. These Agreements also provide forpost-acquisition performance bonuses of up to a maximumof $63,000 and $55,000 respectively (the "Post-AcquisitionPerformance Bonuses") should Rasberry and Soye meetthe individual revenue and profitability targets to be agreedupon with the President and Chief Operating Officer of Corinthian;and

(b) The proposed Employment Agreement withKorol sets out an express termination provision which wouldentitle Korol to 6 months notice of termination and 6 monthssalary upon termination.

14. The purpose of paying Rasberry and SoyeRetention Bonuses and Post-Acquisition Performance Bonusesis to provide them with an incentive to continue their involvementwith the Offeree and improve the Offeree's performance afterthe Offer is completed. The Applicant believes these two individualshave been important to the development of the business ofthe Offeree to date and they are very important to the relationshipbetween the Offeree and many of its principal clients. TheApplicant believes that it is important to the long-term successand growth of the Offeree that both Rasberry and Soye be retainedas employees.

15. In addition, Rasberry has conditionallywaived a twelve month total compensation change of controlpayment which could otherwise provide him with an incentiveto leave the Offeree immediately upon completion of the Offer.Although the Offeree has agreed to pay Rasberry a bonus onthe completion of the Offer of $120,000 (which is one thirdof the value of such change of control payment), the paymentof Rasberry's Retention Bonus (which is equal to two-thirdsof the change of control payment that he has waived) has beendeferred for a year and is contingent upon Rasberry continuingto be employed with the Offeree twelve months following completionof the Offer.

16. The value to accrue to each of Rasberryand Soye in respect of the Post-Acquisition Performance Bonuseswill only be paid if the Offeree meets certain revenue andprofit targets for the two quarters immediately followingthe completion of the Offer. The Post-Acquisition PerformanceBonuses, therefore, are only payable if there is an enhancementin the performance of the Offeree over and above the performancethat is reasonably expected at the time the targets are established.

17. It is anticipated that the terms of theEmployment Agreements will provide both Rasberry and Soyewith long-term incentives to support and grow the businessof the Offeree and to assist with the transition of the businessto new ownership.

18. The Employment Agreements have been negotiatedwith each of Rasberry and Soye at arm's length and have beenmade on terms and conditions that are commercially reasonable.The salary entitlements for each of Rasberry and Soye aresubstantially similar to the salaries they are entitled tounder their current compensation arrangements with the Offereeand are commensurate with the salary entitlement of employeesof Corinthian with similar levels of responsibility.

19. The purpose of the proposed amendmentto Korol's current employment arrangement is to clarify therights and obligations of the parties on a termination ofemployment. The Applicant has been advised by counsel thatthe proposed termination provision in Korol's Employment Agreementrepresents a termination entitlement that is within the rangewhich Korol would likely be entitled at common law.

20. The Applicant believes that the Key Personnelhave been an integral part of the successful development ofthe Offeree's business and have substantial and valuable experienceand expertise in the private education industry. The Applicantviews the retention of the Key Personnel as important to thesuccess of the Offer, as the Key Personnel have contributedto the development of the Offeree business and have performedsignificant work on its current business products and services.The Retention Bonuses will be paid for the primary purposeof ensuring the Key Personnel's continued participation inthe successful management and development of the Offeree'sbusiness within Corinthian's operations following the consummationof the Offer and will assist with the transition of the businessto new ownership.

21. The Retention Bonuses payable to eachemployee of the Offeree who has been identified as Key Personnelfor this purpose will represent a minority component of theirtotal compensation and are reasonable in light of the servicesto be rendered by each of the Key Personnel following completionof the Offer.

22. Corinthian has provided similar retentionand incentive packages in the comparable acquisitions it hasundertaken to ensure management continuity so as to preserveand grow the value of the acquired business. Corinthian believesthat these performance bonuses and retention bonuses are customaryin the industry. Further, the performance bonuses are consistentwith bonuses made available to similarly situated Corinthianemployees. As this is the first acquisition that Corinthianhas undertaken outside of the United States and as the corporatetraining segment of the Offeree's business represents a substantialexpansion of that business segment for Corinthian, retentionof key senior officers and other key management is very importantto the success of the acquisition.

23. In the context of the Offer, Corinthian'scontrol of the Offeree is assured as it has tender commitmentsfrom Offeree Shareholders holding at least two-thirds of theoutstanding Common Shares (including those to be issued uponexercise of "in-the-money" options), excluding CommonShares held by Rasberry, Soye, Korol and the Key PersonnelShareholders. Therefore, there is no intent by the Applicantto provide any minority Offeree Shareholders with considerationfor his or her Common Shares which is greater than that providedto other Offeree Shareholders.

24. The entering into of the Employment Agreementsand the payment of the Retention Bonuses are made for validbusiness reasons unrelated to Rasberry's, Soye's, Korol'sor the Key Personnel Shareholders' holdings of Common Sharesor options (if any) and not for the purpose of conferringan economic or collateral benefit that the other Offeree Shareholdersdo not enjoy or to increase the value of the considerationto be paid to Rasberry, Soye, Korol or the other Key PersonnelShareholders for their Common Shares tendered under the Offer.

AND WHEREAS under the System, this MRRSDecision Document evidences the decision of each Decision Maker(collectively, the "Decision");

AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation thatprovides the Decision Maker with the jurisdiction to make theDecision has been met;

THE DECISION of the Decision Makers inthe Jurisdictions under the Legislation is that, in connectionwith the Offer, the entering into of the Employment Agreementsand the payment of the Retention Bonuses is being done for reasonsother than to increase the value of the consideration to bepaid to Rasberry, Soye, Korol and the Key Personnel Shareholdersin respect of the Common Shares or "in-the-money"options held by such employees and may be entered into or paidnotwithstanding the Prohibition on Collateral Agreements.

August 15, 2003.