Document:

SECURITIES PURCHASE AGREEMENT

 

  

       
This securities purchase agreement (this “Agreement”) is dated the date stated on the signature page and is between PHOENIX INTERESTS, INC., a Nevada corporation (the “Company”), and the undersigned (the “Buyer”).

       
The parties agree as follows:

              1.       AGREEMENT TO PURCHASE.

              (a)       Purchase.  The Buyer hereby purchases from the Company the number of shares of the Company’s Series D preferred stock, par value $0.001 per share (the “Series D Preferred Stock”), stated on the signature page of this Agreement (those shares, the “Preferred Shares”) and the number of shares of common stock, par value $0.001 per share (the “Common Stock”), stated on the signature page of this Agreement (those shares, the “Common Shares”).  Each Preferred Share will be purchased and sold together with 1,000 Common Shares, and the Preferred Shares and the Common Shares will be separate securities at the time of issuance. The Company has authorized the sale of the Preferred Shares and the Common Shares. The Preferred Shares and Common Shares are collectively referred to as the “Securities.”

              (b)       Purchase Price. The purchase price of one Preferred Share is $94.50 and the purchase price of 1,000 Common Shares is $5.50. The aggregate purchase price for the Preferred Shares and the Common Shares is stated on the signature page of this Agreement, and the Buyer shall pay the Company the purchase price for the Preferred Shares and the Common Shares by wiring on the date of this Agreement immediately available funds as directed by the Company.

              2.       BUYER REPRESENTATIONS AND RELATED UNDERTAKINGS.

              (a)       The Buyer is purchasing the Securities for its own account for investment only and not with a view towards the public sale or distribution thereof and not with a view to or for sale in connection with any distribution thereof.

              (b)       The Buyer (i) is an “accredited investor“ as that term is defined in Rule 501 of the General Rules and Regulations under the Securities Act of 1933, as amended (the “1933 Act”), by reason of Rule 501(a)(3), (ii) is experienced in making investments of the kind described in this Agreement and the related documents, (iii) is able, by reason of the business and financial experience of its officers (if an entity) and professional advisors (who are not affiliated with or compensated in any way by the Company or any of its affiliates or selling agents), to protect its own interests in connection with the transactions described in this Agreement, and the related documents, and (iv) is able to afford the entire loss of its investment in the Preferred Shares.

              (c)       The Buyer shall only sell or offer to sell the Preferred Shares pursuant to an effective registration under the 1933 Act or under an exemption from registration.

              (d)       The Buyer understands that the Preferred Shares are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that in order to determine the availability of those exemptions and the eligibility of the Buyer to acquire the Preferred Shares Company is relying upon the truth and accuracy of, and the Buyer’s compliance with, the representations, warranties, agreements, acknowledgements and understandings of the Buyer set forth herein and in the completed “Confidential Prospective Purchaser Questionnaire” that the Buyer has submitted to the Company.

              (e)       The Buyer and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities that the Buyer has requested. The Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company and have received complete and satisfactory answers to any such inquiries. Without limiting the generality of the foregoing, the Buyer has also been provided with a copy of the following Company filings (the “SEC Documents”): (1) the Quarterly Reports on Form 10-QSB for the three fiscal quarters ended September 30, 2004, (2) the Annual Report on Form 10-KSB for the fiscal year ended December 31, 2003, and (3) the Regulation E offering circular filed with the SEC on November 26, 2004 (the “Offering Circular”).

              (f)       The Buyer understands that its investment in the Securities involves a high degree of risk.

              (g)       The Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities.

              (h)       This Agreement has been duly and validly authorized, executed and delivered on behalf of the Buyer and is a valid and binding agreement of the Buyer enforceable in accordance with its terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium and other similar laws affecting the enforcement of creditors’ rights generally.

              3.       COMPANY REPRESENTATIONS, ETC.

              The Company represents to the Buyer as follows:

              (a)       Certificate of Designations.  The certificate of designations of the Series D Preferred Stock in the form attached as Exhibit A has been duly authorized by all necessary corporate action and filed in the State of Nevada.

              (b)       Concerning the Common Stock.  There are no preemptive rights of any stockholder of the Company, as such, to acquire shares of Common Stock.

              (c)       Reporting Company Status.  The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada that has elected to be regulated as a business development company as defined in Section 2(a)(48) of the Investment Company Act of 1940, as amended (the “1940 Act”) and it has the requisite corporate power to own its properties and to carry on its business as now being conducted. The Company qualified to make such an election at the time it was made and the Company has complied in all material respects with the provisions of the 1940 Act applicable to it and will continue to do so as long as any Preferred Shares are outstanding. The Company is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction where the nature of the business conducted or property owned by it makes such qualification necessary other than those jurisdictions in which the failure to so qualify would not have a material adverse effect on the business, operations, properties, or condition (financial or otherwise) of the Company. The Company has registered its Common Stock under section 12 of the Securities Exchange Act of 1934, as amended (the “1934 Act”), and the Common Stock is listed and traded on the NASDAQ/OTC Bulletin Board.

              (d)       Authorized Shares.  The Preferred Shares, the Common Shares, and the shares of Common Stock issuable on conversion of the Preferred Shares (those shares, the “Conversion Shares”) have been duly authorized and, when issued to Buyer, will be duly and validly issued, fully paid and non-assessable and will not subject the holder thereof to personal liability by reason of being such holder.

              (e)       Securities Purchase Agreement.  This Agreement and the transactions contemplated hereby have been duly and validly authorized by the Company, this Agreement has been duly executed and delivered by the Company, and this Agreement when executed and delivered by the Company will be a valid and binding agreement of the Company enforceable in accordance with it terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium, and other similar laws affecting the enforcement of creditors’ rights generally.

              (f)       Non-contravention.  The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated by this Agreement do not and will not conflict with or result in a breach by the Company of any of the provisions of, or constitute a default under, (i) the articles of incorporation or by-laws of the Company, (ii) any indenture, mortgage, deed of trust, or other material agreement or instrument to which the Company is a party or by which it or any of its properties or assets are bound, (iii) to its knowledge, any existing applicable law, rule, or regulation or any applicable decree, judgment, or (iv) to its knowledge, order of any court, United States federal or state regulatory body, administrative agency, or other governmental body having jurisdiction over the Company or any of its properties or assets, except any conflict, breach or default that would not have a material adverse effect on the transactions contemplated herein. The Company is not in violation of any material laws, governmental orders, rules, regulations or ordinances to which its property, real, personal, mixed, tangible or intangible, or its businesses related to such properties, are subject.

              (g)       Approvals.  No authorization, approval or consent of any court, governmental body, regulatory agency, self-regulatory organization, or stock exchange or market is required to be obtained by the Company for the issuance and sale of the Securities to the Buyer as contemplated by this Agreement, except such authorizations, approvals and consents that have been obtained.

              (h)       SEC Documents, Financial Statements.  The Common Stock is registered under to Section 12(g) of the 1934 Act and the Company has filed on a timely basis all reports, schedules, forms, statements and other documents required to be filed by it with the SEC under the reporting requirements of the 1934 Act and 1940 Act, including material filed under section 13(a) or 15(d), in addition to any registration statements and amendments thereto heretofore filed by the Company with the SEC under the 1933 Act. The Company has not provided to the Buyer any information that, according to applicable law, rule or regulation, should have been disclosed publicly by the Company but has not been so disclosed, other than with respect to the transactions contemplated by this Agreement. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1933 Act, the 1934 Act or the 1940 Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder and other federal, state and local laws, rules and regulations applicable to the SEC Documents, and none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC or other applicable rules and regulations with respect thereto. Those financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). The Company was eligible to file the Form 1-E Notification and related Offering Circular and the filings comply in all material respects with the requirements for filing such forms.

              (i)       Absence of Certain Changes.  Since December 31, 2003, there has been no material adverse change and no material adverse development in the business, properties, operations, financial condition, or results of operations of the Company, including without limitation any action or proceeding by a governmental agency in which the Company is named as a respondent.

              (j)       Advisory Fees; Certain Use of Proceeds.  Out of gross proceeds received by the Company on sales of shares of Series D Preferred Stock and Common Stock in the offering of which sale of the Securities forms a part, the Company has an obligation to pay to Essex & York, Inc. a commission equal to 9% of those gross proceeds and an obligation to pay to CJR Capital, Inc. a $50,000 fee with respect to legal and due diligence expenses and advisory services rendered to the Company. In addition, among other uses, the Company will be allocating $30,000 out of the proceeds to pay for consulting fees in 2005 and will be using $120,000 of the proceeds to pay interest on debt owed to Pinnacle Investment Partners, L.P. In addition, the Company may exchange shares of Preferred Stock for outstanding debt owed to Pinnacle.

              (k)       Full Disclosure.  There is no fact known to the Company (other than general economic conditions known to the public generally) or as disclosed in the documents referred to in Section 2(g), that has not been disclosed in writing to the Buyer that (i) would reasonably be expected to have a material adverse effect on the business or financial condition of the Company or (ii) would reasonably be expected to materially and adversely affect the ability of the Company to perform its obligations pursuant to this Agreement.

              4.       CERTAIN COVENANTS AND ACKNOWLEDGMENTS.

              (a)       Filings. The Company shall make all necessary filings in connection with the sale of the Preferred Shares and the Common Shares to the Buyer under any United States laws and regulations, or by any domestic securities exchange or trading market, and to provide a copy thereof to the Buyer promptly after such filing.

              (b)       Reporting Status. So long as the Buyer beneficially owns any Preferred Shares, the Company shall file all reports required to be filed with the SEC under section 13 or 15(d) of the 1934 Act, and the Company shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would permit such termination, and will take all necessary action to comply with the rules and regulations applicable to business development companies.

              (c)       Regulation E.  The Company shall take all action to necessary issue the Common Shares and the Conversion Shares under the exemption from registration afforded by Regulation E promulgated under the 1933 Act, and upon such issuance, the Common Shares and Conversion Shares will be able to be sold by Buyer without registration under the 1933 Act.

              (d)       Restriction on Capital Raising. The Company shall not raise capital before April 15, 2005, without the prior written consent of holders of a majority of the outstanding shares of the Series D Preferred Stock, which may not unreasonably be withheld, conditioned, or delayed.

              (e)       Compass Debenture. If it issues as of the date of this Agreement shares of Series D Preferred Stock and Common Stock for an aggregate purchase price of not less than $465,000, (1) the Company shall reserve from those proceeds not less than $100,000 for purposes of repaying that amount of the principal and interest outstanding on the debenture dated November 18, 2003, issued by the Company to Compass Capital Group, Inc. and (2) thereafter, the Company shall not issue under the exemption from registration afforded by Regulation E promulgated under the 1933 Act any shares of Common Stock that it issues on conversion of principal or interest outstanding on that debenture.

              5.       GOVERNING LAW: MISCELLANEOUS.  This Agreement is governed by the laws of the State of New York. A facsimile transmission of this signed Agreement is legal and binding on all parties. This Agreement may be signed in one or more counterparts, each of which will be deemed an original. The headings of this Agreement are for convenience of reference and do not form part of, or affect the interpretation of, this Agreement. If any provision of this Agreement is invalid or unenforceable in any jurisdiction, that invalidity or unenforceability will not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction. This Agreement may be amended only by an instrument in writing signed by the party against whom any amendment is sought to be enforced. This Agreement, and the related agreements referred to herein, contain the entire agreement of the parties with respect to the subject matter hereto, superceding all prior agreements, understandings or discussions.

              6.       NOTICES.  Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be deemed effectively given, (i) on the date delivered, (a) by personal delivery, or (b) if advance copy is given by fax, (ii) seven business days after deposit in the United States Postal Service by regular or certified mail, or (iii) three business days mailing by international express courier, with postage and fees prepaid, addressed to each of the other parties thereunto entitled at the following address (with respect to the Company) or the address on the signature page hereto (with respect to the Buyer), or at such other addresses as a party may designate by ten days advance written notice to each of the other parties hereto.

	 	 	COMPANY:	PHOENIX INTERESTS, INC.
One River Point Plaza, No. 706
Jeffersonville, IN 47131
Telephone: 502-584-4434
Facsimile: 812-282-2152
	
	 

	 	 	with a copy to:	Lehman & Eilen LLP
50 Charles Lindbergh Boulevard
Suite 505
Uniondale, NY 11553
Attention: Hank Gracin, Esq.
Telephone: 516-222-0888
Facsimile: 516-222-0948
	
	 

              7.       SUCCESSORS AND ASSIGNS.
This Agreement is binding upon and inures to the benefit of the parties and their respective successors and permitted assigns.

              The Company and Buyer are signing this Agreement on the date stated below.

       
Date: ________________________, 2004

	PHOENIX INTERESTS, INC.	 	THE BUYER
	 	 	 
	 	 	__________________________
	 	 	Name
	 	 	 
	By: __________________	 	__________________________
	 	 	 
	      James D. Tilton, Jr., President	 	__________________________
	 	 	Signature
	 	 	 
	 	 	Address: ___________________
          
	 	 	                  ___________________
          
	 	 	                  ___________________
          
	 	 	Number of Preferred Shares Purchased:
	 	 	 
	 	 	__________________________
	 	 	 
	 	 	 
	 	 	Number of Common Shares Purchased:
	 	 	 
	 	 	__________________________
	 	 	 
	 	 	 
	 	 	Aggregate Purchase Price
	 	 	 
	 	 	$ ________________________EX-10.1

REVISED CLASS ACTION SETTLEMENT AND GENERAL RELEASE AGREEMENT

This Class Action Settlement and General Release Agreement (“Settlement Agreement”) is entered into
by and among Plaintiffs REGINALD EVANS and RACHEL TEMPLEMAN, individually, and as Class
Representatives for settlement purposes (“Plaintiffs”), and NEW HORIZONS (“NEW HORIZONS” includes
NEW HORIZONS WORLDWIDE, INC., NEW HORIZONS COMPUTER LEARNING CENTERS, INC., NEW HORIZONS COMPUTER
LEARNING CENTER OF SANTA ANA, INC., NEW HORIZONS COMPUTER LEARNING CENTER OF SACRAMENTO, INC., and
all affiliated entities, but such term does not include franchisees of any such entity)
(collectively, the “Parties”). This Settlement Agreement is entered into with reference to the
following facts:

RECITALS

I. In July 2002, Plaintiffs filed an action against NEW HORIZONS in the Superior Court of the State
of California, in and for the County of Orange, Case No. 02CC00211 (the “Litigation”). The
Litigation was filed on behalf of all California-based salaried instructors employed by NEW
HORIZONS, including, but not limited to, instructors with the title of “Instructor Candidate,”
“Instructor,” “Senior Instructor,” “Executive Instructor,” “Principal Instructor,” and/or
“Certified Training Instructor,” who worked overtime for NEW HORIZONS within four (4) years from
the filing of the Complaint, up to and including the time of trial for this matter. Plaintiffs
contend that they were improperly classified as “exempt” employees, that they were entitled to be
paid as non-exempt, hourly employees, including overtime for more than forty (40) hours in a week,
and/or, at certain times during the class period, eight (8) hours in a day, and that they were not
provided requisite meal and rest breaks. Plaintiffs sought damages, restitution, penalties, costs,
attorneys’ fees, and other monetary compensation.

II. Counsel for Plaintiffs and the Class have conducted discovery, investigation and research
during the prosecution of the Litigation. The discovery has included, inter alia: (a) interviews of
Class Members; (b) investigation of potential claims to overtime compensation by Class Members; (c)
review and analysis of Interrogatories and the responses thereto by the Parties; (d) a thorough
analysis and evaluation of the facts supporting Plaintiffs’ claims; (e) Depositions of NEW HORIZONS
and of the named Plaintiffs; and (f) the review and analysis of NEW HORIZONS’ financial statements
and results. Counsel for Plaintiff and the Class also have researched thoroughly the applicable law
with respect to Plaintiffs’ claims against NEW HORIZONS and the potential defenses thereto. The
Settlement was reached after discussions among the Parties and arms’ length negotiating sessions in
a mediation conducted by an experienced, neutral mediator.

III. Plaintiffs and their counsel believe that the claims asserted in the Litigation have merit,
and they believe that the terms of the Settlement Agreement adequately reflect the risks, benefits,
and unpredictable outcomes associated with further litigation. In determining to settle the
Litigation pursuant to the terms stated herein, Plaintiffs and their counsel recognize and
acknowledge the expense and length of continued proceedings necessary to prosecute the Litigation
against NEW HORIZONS through trial and through appeals. Plaintiffs and their counsel also have
taken into account the uncertain outcome and the risk of any litigation, especially in complex
actions such as the Litigation, as well as the difficulties and delays inherent in such litigation.
Plaintiffs and their counsel have taken into account the strengths and uncertainties of the claims
asserted in the Litigation, the potential damages that might be recovered at trial for the benefit
of the Class, the possible defenses to the claims asserted and the substantial benefits of the
settlement which provides for substantial monetary compensation to Class Members. Plaintiffs and
their counsel believe that the settlement set forth in this Settlement Agreement confers
substantial benefits upon the Settlement Class and each of the Class Members, and have, therefore,
determined that the Settlement set forth in this Settlement Agreement is fair, reasonable and
adequate and in the best interests of Plaintiffs and the Settlement Class.

IV. NEW HORIZONS in the Litigation has denied and continues to deny the claims and contentions
alleged by Plaintiff in the Litigation. NEW HORIZONS expressly denies and continues to deny all
charges of wrongdoing and liability against it arising out of any of the conduct, statements, acts
or omissions alleged, or that could have been alleged, in the Litigation. NEW HORIZONS also has
denied and continues to deny, inter alia, the allegations that Plaintiffs or any member of the
Settlement Class were harmed by any of the conduct alleged or that could have been alleged in the
Litigation. NEW HORIZONS, however, has concluded that it is desirable that the Litigation be
settled in the manner and upon the terms and conditions set forth herein in order to avoid the
further expense, inconvenience, and distraction of litigation, and to dispose of the burden of
protracted litigation. NEW HORIZONS also has taken into account the uncertainty and risks inherent
in any litigation, especially in complex cases like this Litigation. NEW HORIZONS has, therefore,
determined that it is desirable and beneficial that the Litigation be settled in the manner and
upon the terms and conditions set forth herein.

In consideration of the mutual promises and recitals contained herein, and other good and valuable
consideration, the sufficiency of which is hereby acknowledged, without admitting any liability and
solely to avoid the effort and expense of continued litigation, IT IS HEREBY STIPULATED AND AGREED
among the undersigned, subject to approval of the Court pursuant to the California Code of
Civil Procedure, that the Litigation is settled and all Released Claims (defined below) shall
be finally and fully compromised, settled and released, and the Litigation shall be dismissed with
prejudice, upon and subject to the following terms and conditions:

DEFINITIONS

In addition to the terms defined elsewhere in this Settlement Agreement, the following terms have
the following meaning wherever and whenever used in this Settlement Agreement:

	 	a)	 	“Claimant” means any Class Member who submits a claim to receive payment in
connection with the terms of this Settlement;

	 	b)	 	“Class Member(s)” means all members of the Settlement Class, as defined below,
including Plaintiffs, except persons who file valid and timely requests for exclusion
from the Settlement Class;

	 	c)	 	“Class Period” means the period from July 29, 1998 through December 31, 2002,
inclusive;

d) “Court” means the Superior Court of the State of California, County of Orange;

	 	e)	 	“Effective Date” means the date on which the Court’s Order and Final Judgment,
substantially in the form of Exhibit “B” to the Settlement Agreement (the “Final
Judgment”), becomes final, which will be deemed to occur upon the last to occur of the
following: (1) if no objection is filed to the Settlement, or if an objection is filed
to the Settlement and no appeal or review of the Final Judgment is sought, the
sixty-first (61st) day after entry of the Final Judgment (or, if the date for taking an
appeal has not expired (including because of an extension), the day after expiration of
the time for taking an appeal); or (2) if an appeal or review of the Final Judgment is
sought, the day after such Final Judgment is affirmed or the appeal or review is
dismissed or denied and such Final Judgment is no longer subject to further judicial
review;

	 	f)	 	“Fee Petition” means the application by counsel for Plaintiffs for an award of
attorneys’ fees and the reimbursement of their expenses;

	 	g)	 	“Notice” means the Notice of Pendency of Class Action, Proposed Settlement
Agreement and Hearing for Court Approval, substantially in the form annexed hereto as
Exhibit “A-1”;

	 	h)	 	“Notice Expenses” means all reasonable costs and expenses incurred in
connection with the preparation, printing, and electronic or other mailing of the
Notice, and all other costs to identify and notify Class Members;

	 	i)	 	“Preliminary Approval Order” means the Order Granting Preliminary Approval of
Class Action Settlement, substantially in the form attached hereto as Exhibit “2”;

	 	j)	 	“Released Claims” means and includes any and all claims or causes of action
arising out of or related to the Litigation, including Unknown Claims, that have been
or could have been asserted under the laws of any jurisdiction, whether at law or in
equity, by Plaintiffs or Class Members, or any of them, whether in an individual or
representative capacity, against any Released Party based upon the facts, transactions,
events, or occurrences which were alleged by Plaintiffs in the Litigation (including,
but not limited to, claims which relate to the nonpayment of hours worked and the
failure to provide lunch and rest periods under any federal, state or local law, the
failure to pay penalties under the California Labor Code and any other claims
whatsoever alleged in this case, including without limitation all claims for
restitution and other equitable relief, liquidated damages, punitive damages, waiting
time penalties, penalties of any nature whatsoever, other compensation or benefits,
attorneys’ fees and costs, whether known or unknown, from July 29, 1998 up to and
including December 31, 2002, arising from employment by Defendant within California.);

	 	k)	 	“Released Persons” or “Released Party” means NEW HORIZONS (defined above), its
subsidiaries, affiliates, predecessors, and successors, their present and former
directors, officers, employees, and their respective representatives, heirs, executors,
personal representatives, administrators and assigns;

	 	l)	 	“Settlement” means the full and final compromise, settlement and dismissal with
prejudice of the Litigation and all claims that have been or could have been asserted
therein, on and subject to the terms and conditions of this Settlement Agreement;

	 	m)	 	“Settlement Class” means all persons who were employed by NEW HORIZONS in
California as Instructors (including, but not limited to, Instructor Candidates,
Instructors, Senior Instructors, Executive Instructors, Principal Instructors, and/or
Certified Technical Instructors) during the class period of July 29, 1998
through December 31, 2002, excluding those persons who timely and validly request
exclusion from the Settlement Class pursuant to the Notice;

	 	n)	 	“Settlement Class Member” or “Member of the Settlement Class” mean a person who
falls within the definition of the Settlement Class;

	 	•	 	) “Settlement Hearing” means the hearing to be held by the Court to consider the
fairness, reasonableness, and adequacy of the Settlement;

	 	p)	 	“Unknown Claims” with respect to releases by Plaintiff and the Settlement Class
Members, means any Released Claims which Plaintiff or any Settlement Class Member does
not know or suspect to exist in his, her or its favor at the time of the release of the
Released Persons which, if known by him, her or it, might have affected his, her or its
settlement with and release of the Released Persons, or might have affected his, her or
its decision not to object to the Settlement. With respect to any and all Released
Claims, including Unknown Claims, the Parties stipulate and agree that, upon the
Effective Date, Plaintiff and each of the Settlement Class Members shall be deemed to
and, by operation of the Judgment, shall waive and relinquish, the provisions, rights,
and benefits of §1542 of the California Civil Code, which provides:

“A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor.”

Upon the Effective Date, Plaintiffs and each of the Settlement Class Members shall be deemed to,
and by operation of the Judgment shall, waive any and all provisions, rights and benefits conferred
by any law of any state or territory of the United States, and any principle of common law, or
international or foreign rights law which is similar, comparable or equivalent to §1542 of the
California Civil Code. Plaintiff and the Settlement Class Members may, hereafter, discover
facts in addition to or different from those which the Settlement Class Member now knows or
believes to be true with respect to the subject matter of the Released Claims, but hereby
stipulates and agrees that Plaintiffs and each Settlement Class Member shall be deemed to, and
operation of the Judgment shall release any and all Released Claims, including Unknown Claims,
known or unknown, suspected or unsuspected, which now exist, or heretofore have existed upon any
theory of law or equity now existing or coming into existence in the future including, but not
limited to, conduct which is negligent, intentional, with or without malice, or a breach of any
duty, law or rule.

SETTLEMENT TERMS

I. The above Recitals and Definitions are incorporated into and made a part of this Settlement
Agreement.

II. CERTIFICATION OF CLASS: NEW HORIZONS stipulates to have the Litigation certified as a class
action for settlement purposes only. If for any reason the settlement is not approved, is voided,
or otherwise is not carried out, this stipulation will have no affect, and NEW HORIZONS reserves
each and all of its rights to oppose any attempts by Plaintiffs to certify a class. Pursuant to
such caveats and reservation of rights, the Parties stipulate to certification of the Litigation as
a class action pursuant to §382 of the Code of Civil Procedure, with Plaintiffs REGINALD
EVANS and RACHEL TEMPLEMAN to serve as Class Representatives on behalf of the following class (the
“Class”):

All persons who were employed by NEW HORIZONS in California as Instructors during
the Class Period of July 29, 1998 through December 31, 2002.

III. ALL-INCLUSIVE PAYMENT: NEW HORIZONS will pay an all-inclusive amount of one million seven
hundred thousand dollars ($1,700,000.00) with no residual to the Defendant in full and final
settlement of the Litigation. All fees, costs, and expenses (including but not limited to
Plaintiffs’ attorneys fees; Notice Expenses; costs associated with soliciting, processing, and
administering claims; and costs associated with processing requests for exclusion) shall be paid
for by Plaintiffs and/or from NEW HORIZONS’s all-inclusive payment in the above amount. Other than
its payment of $1,700,000.00, NEW HORIZONS shall not be required to pay any fees, costs, expenses,
or settlement amounts arising from or that are in any way associated with the Litigation or this
Settlement Agreement (other than its own attorneys’ fees). Such amount will be payable by NEW
HORIZONS within ten (10) days after the last of the following to occur: (a) The Settlement is fully
and finally approved by the Court; (b) the time to appeal the Court’s approval of the Settlement
has elapsed with no appeal filed; (c) any and all appeals have been resolved in favor of approval
of the Settlement; (d) the time to submit claims has elapsed; (e) a final determination as to the
validity of each claim submitted has been made; and (f) the appropriate amount to be distributed to
each valid Claimant has been determined.

After deduction of costs, fees, and expenses, the entirety of the remaining amount of the
all-inclusive $1,700,000.00 shall be distributed proportionately to Class Members who have
submitted valid and timely Claims, based on the number of calendar workweeks each such Class Member
worked during the Class Period.

IV. SETTLEMENT ASSUMPTIONS AND POSSIBLE CHANGE IN AMOUNT OF PAYMENT: The Parties reached agreement
that the $1,700,000 all-inclusive amount to be paid by NEW HORIZONS is appropriate based in part on
the assumption that the total number of workweeks worked by Class Members from July 29, 1998
through December 31, 2002 was 18,968 weeks. Prior to approval of this Settlement Agreement by the
Court, if the Parties determine that the actual number of workweeks differs by more than five
percent (5%) from the assumed work-weeks of 18,968, then the all-inclusive settlement amount will
be adjusted proportionately (i.e., if the actual workweeks are more than 5% less than the assumed
workweeks, the all-inclusive settlement amount will be decreased accordingly, and vice-versa if the
actual work-weeks are more than 5% greater than the assumed work-weeks). Provided, however, that if
the actual number of work-weeks is more than 5% greater than the assumed work-weeks of 18,968, then
NEW HORIZONS shall have the option of either: (a) paying the adjusted all-inclusive amount; or (b)
voiding this Settlement Agreement in its entirety (in which case the Parties would be returned to
their respective positions that they were in, procedurally and substantively, on August 18, 2004).

V. ALL CLASS MEMBERS BOUND: Except as otherwise provided herein and/or ordered by the Court, all
Class Members, regardless of whether or not they file a timely claim, will be subject to and bound
by the provisions of the Settlement Agreement, the Releases contained herein, and the Final
Judgment.

VI. ATTORNEYS’ FEES: Plaintiffs’ Counsel intends to submit an application or applications to the
Court seeking an award of attorneys’ fees. Any fees awarded shall be payable out of NEW HORIZONS’
all-inclusive payment of $1,700,000.00 and/or by Plaintiffs. Plaintiffs’ Counsel shall not seek any
award of attorneys’ fees that would require NEW HORIZONS to pay any amount over and above the
all-inclusive amount of $1,700,000.00.

VII. RELEASE: Upon the Effective Date, the following shall occur: Plaintiffs and all Class
Members, whether or not they submit a Claim, and their agents, assigns, representatives, heirs,
executors, and trustees, will be deemed by this Settlement to have, and by operation of the Final
Judgment will have, released and forever discharged NEW HORIZONS, its present and former parent
companies, subsidiaries, related or affiliated companies, shareholders, officers, directors,
employees, agents, attorneys, insurers, successors and assigns, and any individual or entity which
could be jointly liable with Defendants or any of them, from any and all claims, debts,
liabilities, demands, obligations, guarantees, costs, expenses, attorneys’ fees, damages, actions
or causes of action for, or which relate to, the nonpayment of hours worked and the failure to
provide lunch and rest periods under any federal, state or local law, the failure to pay penalties
under the California Labor Code and any other claims whatsoever alleged in this case. With respect
to any and all Released Claims, including Unknown Claims, the Parties stipulate and agree that,
upon the Effective Date, Plaintiffs and each of the Settlement Class Members shall be deemed to
and, by operation of the Judgment, shall waive and relinquish, the provisions, rights, and benefits
of §1542 of the California Civil Code, which provides:

“A general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if known
by him must have materially affected his settlement with the debtor.”

VIII. PRELIMINARY APPROVAL: As soon as practicable after this Settlement Agreement has been
executed, the Parties shall submit the Settlement Agreement together with its exhibits to the
Court, and shall submit a proposed Preliminary Approval Order, substantially in the form annexed
hereto as Exhibit “2”, which shall, inter alia:

	 	a)	 	preliminarily approve the Settlement as fair, just, reasonable, adequate and in
the best interests of the Class for purposes of the California Code of Civil
Procedure, subject to a final hearing;

	 	b)	 	schedule a hearing, at the convenience of the Court, to finally determine (1)
the fairness, reasonableness, and adequacy of the Settlement; (2) whether an Order and
Final Judgment approving the Settlement should be entered; and (3) whether the Fee
Petition and individual award to Plaintiffs should be granted;

	 	c)	 	make the express determinations required by the California Code of Civil
Procedure for the maintenance of a class action, certifying the Class, and
approving Plaintiffs as Class Representatives and their counsel as Counsel, all for
settlement purposes only;

	 	d)	 	provide for the dissemination of notice with respect to the Litigation, the
settlement hearing and matters relating thereto and approving the form of the Notice,
and find that such Notice constitutes the best notice practicable under the
circumstances, and constitutes valid, due and sufficient notice to the Class under the
California Code of Civil Procedure, the Constitution of the United States, and
any other applicable law;

	 	e)	 	establish the procedures for opt-outs and fix the deadline for requests for
exclusion from the Class;

	 	f)	 	establish a schedule for the service of objections (if any) to the Settlement,
the filing of briefs in support of the Settlement, attorneys’ fees application, and any
other procedure;

	 	g)	 	stay all proceedings in the Litigation, other than proceedings that are
necessary to carry out the Settlement; and

	 	h)	 	provide that, pending entry of an Order and Final Judgment Plaintiff and all
Class Members, or any of them, are barred from commencing or prosecuting any action or
proceeding in any court or tribunal asserting any claim that is subject to this
Settlement and/or the Release contained herein.

IX. CONDITIONS OF SETTLEMENT: This Settlement Agreement is subject to all of the following
conditions:

a) The Court has entered the Preliminary Approval Order;

b) The Court enters the Final Judgment; and

c) The Effective Date occurs.

If all of the conditions do not occur, then: (1) all of the Parties will be restored to their
respective positions in the Litigation as of immediately prior to the execution of this Settlement
Agreement; (2) the Parties are to proceed in all respects as if this Settlement Agreement had not
been executed and the related orders and judgment had not been entered, preserving in that event
all of their respective claims and defenses in the Litigation; and (3) all releases given will be
null and void.

In the event that the Settlement Agreement is not approved, or is terminated or canceled, or the
Settlement fails to become effective for any reason, neither NEW HORIZONS nor NEW HORIZONS’ Counsel
shall have any liability for any costs or expenses or the reimbursement of any costs or expenses
relating to the Settlement Agreement.

X. NOTICE AND CLAIM PROCEDURES: In general, the Notice and Claim procedures will work as follows:

	 	a)	 	Direct notice of the proposed settlement, where possible, will be sent by mail
to Class Members at their last known addresses. The Claims Administrator will perform
a National Change of Address (NCOA) search before the original Notice and Claim Forms
are sent to any Class Member;

	 	b)	 	If any Notice is returned as undeliverable and no forwarding address is
provided by the Post Office, RUST Consulting will perform a skip trace in an attempt to
locate the address of any Class Member needed for such Notice;

	 	c)	 	Class Members will be provided a reasonable period in which to elect to be
excluded from the Class and the effects of this Settlement Agreement (“opt-out”);

	 	d)	 	Upon preliminary approval of this Settlement Agreement and all related
documents, Class Members will be sent the Notice and Claim Form, and will be provided a
reasonable period of time in which to either file a Claim Form, opt-out or object; and

	 	e)	 	After the close of the claims submission period, and after all of the
Conditions of Settlement set forth above in section IX have occurred, all settlement
amounts available for distribution to Class Members will be distributed to Claimants
who submitted valid claims during the claims submission period. The amount of
distribution to each Claimant will be proportionate to the number of weeks that the
Claimant was an employee of NEW HORIZONS during the time period of July 29, 1998
through December 31, 2002.

XI. REDUCTION IN SETTLEMENT AMOUNT BASED ON CLASS MEMBER OPT-OUTS: If any Class Members choose to
opt out of the class, then the all-inclusive settlement amount of $1,700,000.00 (or the adjusted
amount, if any, pursuant to paragraph IV above) will be reduced proportionately, based on the total
number of work-weeks represented by all Class Members that choose to opt-out.

XII. MISCELLANEOUS PROVISIONS:

	 	a)	 	The captions herein are used for the purpose of convenience only and are not
meant to have any legal effect;

	 	b)	 	This Settlement Agreement has been prepared as the result of arms’ length
negotiations between Plaintiffs’ Counsel and counsel for NEW HORIZONS. All parties have
contributed substantially and materially to the preparation of this Settlement
Agreement. This Settlement Agreement shall not be construed more strictly against one
Party than another Party;

	 	c)	 	The Parties (1) acknowledge that it is their intent to consummate this
agreement; and (2) agree to cooperate in good faith to the extent reasonably necessary
to effectuate and implement all terms and conditions of the Settlement Agreement and to
exercise their best efforts to accomplish the foregoing terms and conditions of the
Settlement Agreement;

	 	d)	 	The parties intend this Settlement to be a final and complete resolution of all
disputes between them with respect to the Litigation. The settlement compromises claims
which are contested and shall not be deemed an admission by any Settling Party as to
the merits of any claim or defense;

	 	e)	 	The Parties agree that the Settlement and its terms were negotiated in good
faith, and reflect a settlement that was reached voluntarily after consultation with
competent legal counsel;

	 	f)	 	Neither the Settlement Agreement, nor any act performed or document executed
pursuant to or in furtherance of the Settlement Agreement: (1) is or may be deemed to
be or may be used as an admission of, or evidence of, the validity of any Released
Claim, or any wrongdoing or liability of NEW HORIZONS and Released Persons; or (2) is
or may be deemed to be or may be used as an admission of, or evidence of, any fault or
omission of NEW HORIZONS and Released Persons in any civil, criminal or administrative
proceeding in any court, administrative agency or other tribunal. NEW HORIZONS and
Released Persons may file the Stipulation and/or the Judgment in any action that may be
brought against them in order to support a defense or counterclaim based on principles
of res judicata, collateral estoppel, release, good faith settlement, judgment bar or
reduction or any other theory of claim preclusion or issue preclusion or similar
defense or counterclaim;

	 	g)	 	The Exhibits to the Settlement Agreement are material and integral parts hereof
and are fully incorporated herein by this reference;

	 	h)	 	The Settlement Agreement may be amended or modified only by a written
instrument signed by or on behalf of all the Parties or their respective
successors-in-interest;

	 	i)	 	No provisions of or breach of this Settlement Agreement may be waived except by
a writing executed by all Parties. The waiver by any Party of any breach of this
Settlement Agreement by another Party shall not be deemed a waiver of any other prior
or subsequent breach of this Settlement Agreement;

	 	j)	 	This Settlement Agreement and Exhibits attached hereto constitute the entire
agreement between Plaintiffs and NEW HORIZONS and no representations, warranties or
inducements have been made to any party concerning the Settlement Agreement or its
Exhibits other than the representations, warranties and covenants contained and
memorialized in such documents. Except as otherwise provided herein, each party shall
bear its own costs;

	 	k)	 	Plaintiffs’ Counsel, on behalf of the Class, are authorized by Plaintiffs to
take all appropriate action required or permitted to be taken by the Class pursuant to
the Settlement Agreement to effectuate its terms and also are authorized to enter into
any modifications or amendments to the Settlement Agreement on behalf of the Settlement
Class which they deem appropriate;

	 	l)	 	Each counsel or other Person executing the Settlement Agreement or any of its
Exhibits on behalf of any party hereto hereby warrants that such Person has the
authority to do so;

	 	m)	 	The Settlement Agreement may be executed in one or more counterparts. All
executed counterparts and each of them shall be deemed to be one and the same
instrument. A complete set of original executed counterparts shall be filed with the
Court;

	 	n)	 	The Parties may agree, without further order of the Court, to reasonable
extensions of time to carry out any of the provisions of this Settlement Agreement;

	 	•	 	) The Settlement Agreement shall be binding upon, and inure to the benefit of,
the successors and assigns of the Parties hereto;

	 	p)	 	The Court shall retain jurisdiction with respect to implementation and
enforcement of the terms of the Settlement Agreement, and all Parties hereto submit to
the jurisdiction of the Court for purposes of implementing and enforcing the settlement
embodied in the Settlement Agreement;

	 	q)	 	The Settlement Agreement and the Exhibits shall be considered to have been
negotiated, executed and delivered in the State of California, and the rights and
obligations of the parties to the Settlement Agreement shall be construed and enforced
in accordance with, and governed by, the internal, substantive laws of the State of
California without giving effect to that State’s choice of law principles; and

	 	r)	 	The administration and consummation of the Settlement provided for herein shall
be under the authority of the Court. Any dispute concerning the construction or
implementation of this Settlement Agreement shall be resolved by the Court.

IN WITNESS WHEREOF, this Settlement Agreement has been executed by the parties hereto and by the
undersigned counsel of record for the parties hereto.

	 	 	 	 	 
	DATED: 12/22 , 2004

	 	CLASS REPRESENTATIVE
	 	

	 

	 	

	 	

	 
	 	 	 	 
	
 
	 	 	 	/s/ Reginald Evans
	
 
	 	 
	 	 
	
 
	 	 	 	Reginald Evans
	 
	 	 	 	 
	DATED: 12/12 , 2004

	 	CLASS REPRESENTATIVE
	 	

	 

	 	

	 	

	 
	 	 	 	 
	
 
	 	 	 	/s/ Rachel Templeman
	
 
	 	 
	 	 
	
 
	 	 	 	Rachel Templeman
	 
	 	 	 	 
	DATED: Dec. 12 , 2004	 	LAW OFFICES OF KEVIN T. BARNES

	 
	 	 	 	 
	 

	 	

	 	

	 
	 	 	 	 
	
 
	 	By:
	 	/s/ Kevin T. Barnes
	
 
	 	 	 	 
	
 
	 	 	 	Kevin T. Barnes

Attorneys for Plaintiffs
	 
	 	 	 	 
	DATED: 12/12 , 2004	 	LAW OFFICES OF JOSEPH ANTONELLI

	 
	 	 	 	 
	 

	 	

	 	

	 
	 	 	 	 
	
 
	 	By:
	 	/s/ Joseph Antonelli
	
 
	 	 	 	 
	
 
	 	 	 	Joseph Antonelli

Attorneys for Plaintiffs
	 
	 	 	 	 
	[ADDITIONAL SIGNATURES ON NEXT PAGE]

	 	

	 	

	 
	 	 	 	 

1

	 	 	 	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	DATED: 12/23 , 2004	 	NEW HORIZONS (as defined above)

	 
	 	 	 	 
	 

	 	

	 	

	 
	 	 	 	 
	
 
	 	By:
	 	/s/ Thomas J. Bresnan
	
 
	 	 	 	 
	
 
	 	 	 	Thomas J. Bresnan

President and CEO
	 
	 	 	 	 
	DATED: 12/29 , 2004

	 	CALL, JENSEN & FERRELL
	 	

	 

	 	

	 	

	 
	 	 	 	 
	
 
	 	By:
	 	/s/ Mark L. Eisenhut
	
 
	 	 	 	 

	 	 	 	Mark L. Eisenhut

Attorneys for Defendants

2

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