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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
STEINER LEISURE LIMITED
(Exact name of Registrant as Specified in its Charter)
COMMISSION FILE NUMBER: 0-28972
COMMONWEALTH OF THE BAHAMAS 98-0164731
------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
SUITE 104A, SAFFREY SQUARE
NASSAU, THE BAHAMAS NOT APPLICABLE
(Address of principal executive offices) (Zip Code)
(242) 356-0006
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check [X] whether the registrant (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. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING
Common Shares, par value (U.S.) $.01 16,607,131 shares as of
per share August 11, 1999
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STEINER LEISURE LIMITED
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Unaudited Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 1998
and June 30, 1999 .................................................................... 3
Condensed Consolidated Statements of Operations for the Three and Six Months ended
June 30, 1998 and 1999 ............................................................... 4
Condensed Consolidated Statements of Cash Flows for the Six Months ended
June 30, 1998 and 1999 ............................................................... 5
Notes to Condensed Consolidated Financial Statements ................................. 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................................ 9
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders ...................................... 15
ITEM 6. Exhibits and Reports on Form 8-K ......................................................... 15
SIGNATURES ....................................................................................... 16
EXHIBIT INDEX .................................................................................... 17
</TABLE>
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<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,058,000 $ 18,320,000
Marketable securities 21,782,000 17,769,000
Accounts receivable 4,832,000 5,548,000
Inventories 8,002,000 8,318,000
Other current assets 1,142,000 2,115,000
------------ ------------
Total current assets 45,816,000 52,070,000
------------ ------------
PROPERTY AND EQUIPMENT, net 5,840,000 8,109,000
------------ ------------
OTHER ASSETS
Trademarks and product formulations, net 290,000 260,000
License rights, net 740,000 745,000
Other 968,000 1,837,000
------------ ------------
Total other assets 1,998,000 2,842,000
------------ ------------
Total assets $ 53,654,000 $ 63,021,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,641,000 $ 2,672,000
Accrued expenses 6,434,000 6,070,000
Current portion of capital lease obligations 21,000 5,000
Income taxes payable 848,000 1,231,000
------------ ------------
Total current liabilities 9,944,000 9,978,000
------------ ------------
MINORITY INTEREST 19,000 19,000
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred shares, $.01 par value; 10,000,000 shares authorized,
none issued and outstanding -- --
Common shares, $.01 par value; 100,000,000 shares authorized,
16,603,000 shares issued and outstanding at December 31, 1998 and
16,607,000 shares issued and outstanding at June 30, 1999 166,000 166,000
Additional paid-in capital 12,790,000 12,827,000
Accumulated other comprehensive income 440,000 (291,000)
Retained earnings 35,181,000 45,208,000
Treasury shares, at cost, 313,000 shares at December 31, 1998
and at June 30, 1999 (4,886,000) (4,886,000)
------------ ------------
Total shareholders' equity 43,691,000 53,024,000
------------ ------------
Total liabilities and shareholders' equity $ 53,654,000 $ 63,021,000
============ ============
</TABLE>
The accompanying notes to condensed consolidated financial statements are
an integral part of these balance sheets.
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<PAGE> 4
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------- ---------------------------------
1998 1999 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Services $ 14,462,000 $ 17,169,000 $ 28,197,000 $ 34,188,000
Products 9,873,000 12,764,000 19,073,000 25,099,000
------------ ------------ ------------ ------------
Total revenues 24,335,000 29,933,000 47,270,000 59,287,000
------------ ------------ ------------ ------------
COST OF SALES:
Cost of services 11,161,000 13,244,000 21,824,000 26,400,000
Cost of products 6,674,000 8,912,000 12,923,000 17,411,000
------------ ------------ ------------ ------------
Total cost of sales 17,835,000 22,156,000 34,747,000 43,811,000
------------ ------------ ------------ ------------
Gross profit 6,500,000 7,777,000 12,523,000 15,476,000
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Administrative 1,174,000 1,426,000 2,249,000 2,864,000
Salary and payroll taxes 1,234,000 1,406,000 2,462,000 2,808,000
------------ ------------ ------------ ------------
Total operating expenses 2,408,000 2,832,000 4,711,000 5,672,000
------------ ------------ ------------ ------------
Income from operations 4,092,000 4,945,000 7,812,000 9,804,000
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 407,000 432,000 733,000 883,000
Gain on sale of marketable securities 17,000 -- 23,000 11,000
Interest expense (4,000) (1,000) (7,000) (3,000)
------------ ------------ ------------ ------------
Total other income (expense) 420,000 431,000 749,000 891,000
------------ ------------ ------------ ------------
Income before provision for income taxes 4,512,000 5,376,000 8,561,000 10,695,000
PROVISION FOR INCOME TAXES: 268,000 359,000 481,000 667,000
------------ ------------ ------------ ------------
Net income $ 4,244,000 $ 5,017,000 $ 8,080,000 $ 10,028,000
============ ============ ============ ============
EARNINGS PER COMMON SHARE:
Basic $ 0.26 $ 0.31 $ 0.49 $ 0.62
============ ============ ============ ============
Diluted $ 0.25 $ 0.30 $ 0.47 $ 0.60
============ ============ ============ ============
</TABLE>
The accompanying notes to condensed consolidated financial statements are
an integral part of these statements.
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STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------------
1998 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,080,000 $ 10,028,000
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 443,000 1,125,000
Gain on sale of marketable securities (23,000) (11,000)
(Increase) decrease in-
Accounts receivable 270,000 (793,000)
Inventories (727,000) (464,000)
Other current assets (865,000) (168,000)
Other assets (32,000) (1,271,000)
Increase (decrease) in-
Accounts payable 6,000 120,000
Accrued expenses (1,291,000) (476,000)
Income taxes payable 242,000 422,000
Minority interest 15,000 --
------------ ------------
Net cash provided by operating activities 6,118,000 8,512,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (17,643,000) (6,820,000)
Proceeds from maturities of marketable securities 1,675,000 3,500,000
Proceeds from sale of marketable securities 6,913,000 6,280,000
Advances on construction costs (1,000,000) --
Capital expenditures (395,000) (3,092,000)
Acquisition of franchise rights (692,000) --
------------ ------------
Net cash used in investing activities (11,142,000) (132,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (36,000) (16,000)
Net proceeds from stock option exercises 1,696,000 37,000
------------ ------------
Net cash provided by financing activities 1,660,000 21,000
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 25,000 (139,000)
------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (3,339,000) 8,262,000
CASH AND CASH EQUIVALENTS, beginning of period 12,335,000 10,058,000
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 8,996,000 $ 18,320,000
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for-
Interest $ 7,000 $ 3,000
============ ============
Income taxes $ 474,000 $ 249,000
============ ============
</TABLE>
The accompanying notes to condensed consolidated financial statements are
an integral part of these statements.
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<PAGE> 6
STEINER LEISURE LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION OF INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS:
The unaudited condensed consolidated statements of operations for the three and
six months ended June 30, 1998 and 1999 reflect, in the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary to
fairly present the results of operations for the interim periods. The results of
operations for any interim period are not necessarily indicative of results for
the full year.
The year-end balance sheet data was derived from audited financial statements,
but does not include all disclosures required by generally accepted accounting
principles. The unaudited interim condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.
(2) ORGANIZATION:
Steiner Leisure Limited (including its subsidiaries and predecessors, "Steiner
Leisure;" "we," "us" and "our" refer to Steiner Leisure) is the leading
worldwide provider of spa services and skin and hair care products on board
cruise ships. Steiner Leisure, incorporated in The Bahamas, commenced operations
effective November 1995 with the contributions of substantially all of the
assets and certain of the liabilities of the Maritime Division (the "Maritime
Division") of Steiner Group Limited, now known as STGR Limited ("Steiner
Group"), a U.K. company and an affiliate of Steiner Leisure, and all of the
outstanding common stock of Coiffeur Transocean (Overseas), Inc. ("CTO"), a
Florida corporation and a wholly owned subsidiary of Steiner Group. The
contributions of the net assets of the Maritime Division and CTO were recorded
at historical cost in a manner similar to a pooling of interests.
Commencing in February 1999, we began operating the luxury health spa at the
Atlantis Resort on Paradise Island in The Bahamas (the "Atlantis Spa"). In
connection with our operation of the spa, we pay the resort owner the greater of
a minimum monthly rental and an amount based on our revenues at the spa. The
resort then pays us after deducting rental payments or other amounts due to the
resort from us.
In January 1998, we acquired for $675,000 the intellectual property (the "BSC
Rights") relating to the Beautiful Skin Centres, a group of Hong Kong day spas
("BSC"). We have begun to license the BSC concept at three former BSC facilities
in Hong Kong under the name "Elemis Beautiful Skin Centres." We granted the
right to operate these initial Elemis Beautiful Skin Centres to the entity that
sold us the BSC Rights. That entity owns 15% of EBSC International Limited, a
Bahamas subsidiary of Steiner Leisure that licenses rights to operate Elemis
Beautiful Skin Centres ("EBSC").
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) MARKETABLE SECURITIES-
Marketable securities consist of investment grade commercial paper. We account
for marketable securities in accordance with Financial Accounting Standards
Board Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" and, accordingly, all such instruments are classified as "available
for sale" securities which are reported at fair value, with unrealized gains and
losses included in other comprehensive income.
(b) AMORTIZATION-
Other assets include the cost of trademark registrations and product
formulations in connection with our investment in our Elemis Limited subsidiary,
and the intellectual property represented by rights acquired by Steiner Leisure
in connection with its investment in the BSC Rights. Costs relating to such
trademark registrations, product formulations and rights are amortized on the
straight-line method over the estimated lives of those respective costs (ranging
from 15 to 30 years). Amortization of the license rights acquired in connection
with the EBSC investment commenced in April 1998, the month of the effective
date of the first area development agreement entered into by EBSC.
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(c) MINORITY INTEREST-
Minority interest represents the minority shareholders' proportional share of
the net assets of EBSC.
(d) INCOME TAXES-
Steiner Leisure files separate tax returns for its domestic subsidiaries. In
addition, our foreign subsidiaries file income tax returns in their respective
countries of incorporation, where required. Steiner Leisure follows Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes".
SFAS No. 109 utilizes the liability method and deferred taxes are determined
based on the estimated future tax effects of differences between the financial
statement and tax bases of assets and liabilities given the provisions of
enacted tax laws. SFAS No. 109 permits the recognition of deferred tax assets.
Deferred income tax provisions and benefits are based on the changes to the
asset or liability from period to period.
(e) TRANSLATION OF FOREIGN CURRENCIES-
Assets and liabilities of foreign subsidiaries are translated at the rate of
exchange in effect at the balance sheet date; income and expenses are translated
at the average rates of exchange prevailing during the year. The related
translation adjustments are reflected in the accumulated other comprehensive
income section of the consolidated balance sheets. Foreign currency gains and
losses resulting from transactions, including intercompany transactions, are
included in the statements of operations.
(f) EARNINGS PER SHARE-
Basic earnings per share is computed by dividing the net income available to
shareholders by the weighted average number of outstanding common shares. The
calculation of diluted earnings per share is similar to basic earnings per share
except that the denominator includes dilutive common share equivalents such as
share options. The computation of weighted average common and common equivalent
shares used in the calculation of basic and diluted earnings per share is as
follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1998 1999 1998 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average shares outstanding used in
calculating basic earnings per share 16,507,000 16,294,000 16,400,000 16,293,000
Dilutive common share equivalents 590,000 526,000 632,000 530,000
---------- ---------- ---------- ----------
Weighted average common and common
equivalent shares used in calculating diluted
earnings per share 17,097,000 16,820,000 17,032,000 16,823,000
========== ========== ========== ==========
Options and warrants outstanding which are not
included in the calculation of diluted earnings
per share because their impact is antidilutive 195,000 422,000 195,000 422,000
========== ========== ========== ==========
</TABLE>
(g) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS-
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("ACSEC") issued Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." SOP 98-1 establishes criteria for determining which
costs of developing or obtaining internal-use computer software should be
charged to expense and which should be capitalized. Steiner Leisure adopted SOP
98-1 prospectively effective January 1, 1999. The adoption of SOP 98-1 did not
have a material effect on our financial position or results of operations.
In April 1998, the ACSEC issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities." SOP 98-5 establishes standards for the reporting and disclosure of
start-up costs, including organization costs. Steiner Leisure adopted SOP 98-5
effective January 1, 1999. The adoption of SOP 98-5 did not have a material
effect on our financial position or results of operations.
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(4) ACQUISITION:
In August 1999, Steiner Leisure entered into an agreement to acquire the assets
of Florida College of Natural Health, Inc. ("FCNH") for a purchase price of $7.5
million in cash and $1.0 million in Steiner Leisure common shares to be
delivered at closing. FCNH operates four post secondary schools in Florida
offering degree and non-degree programs in massage therapy and skin care and
related courses. The closing of the transaction is subject to the fulfillment of
certain conditions, and the transaction is further subject to a post-closing
condition requiring certain regulatory approval. The closing is anticipated to
take place during August 1999. The transaction will be accounted for under the
purchase method of accounting.
(5) ACCRUED EXPENSES:
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
---------- ----------
(Unaudited)
<S> <C> <C>
Operative commissions $1,387,000 $1,535,000
Guaranteed minimum rentals 2,144,000 1,516,000
Bonuses 910,000 518,000
Staff shipboard accommodations 326,000 369,000
Other 1,667,000 2,132,000
---------- ----------
$6,434,000 $6,070,000
========== ==========
</TABLE>
(6) COMPREHENSIVE INCOME:
Steiner Leisure adopted SFAS No. 130, "Reporting Comprehensive Income,"
effective January 1, 1998. SFAS No. 130 establishes standards for reporting and
disclosure of comprehensive income and its components in financial statements.
The components of Steiner Leisure's comprehensive income are as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------
1998 1999
---------- ------------
<S> <C> <C>
Net income $8,080,000 $ 10,028,000
Unrealized gain (loss) on marketable securities,
net of income taxes 12,000 (458,000)
Foreign currency translation adjustments,
net of income taxes 60,000 (273,000)
---------- ------------
Comprehensive income $8,152,000 $ 9,297,000
========== ============
</TABLE>
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<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Steiner Leisure Limited is the leading worldwide provider of spa
services and skin and hair care products on board cruise ships. Payments to
cruise lines are based on a percentage of our passenger revenues and, in certain
cases, a minimum annual rental or a combination of both. Steiner Leisure also
sells its services and products through land-based channels, including the
luxury health spa at the Atlantis Resort on Paradise Island in The Bahamas.
Steiner Leisure is a Bahamian IBC. The Bahamas does not tax Bahamian
IBCs. We believe that income from our maritime operations will be foreign source
income that will not be subject to United States, United Kingdom or other
taxation. More than 84% of our income for the first six months of 1999 was not
subject to United States or United Kingdom income tax. To the extent that our
income from non-maritime operations increases more rapidly than any increase in
our maritime-related income, the percentage of our income subject to tax would
increase. The income from our United States subsidiaries, Steiner Beauty
Products, Inc. and CT Maritime Services, L.C. are, and the proposed operations
to be conducted with the FCNH assets will generally be, subject to U.S. federal
income tax at regular corporate rates (generally up to 35%) and may be subject
to additional U.S. federal, state and local taxes. Earnings from Steiner
Training and Elemis Limited, our United Kingdom subsidiaries which accounted for
a total of 8.4% of our pre-tax income for the first six months of 1999, will be
subject to U.K. tax rates (generally up to 31%).
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RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain
selected income statement data expressed as a percentage of revenues:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1998 1999 1998 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues:
Services................................. 59.4% 57.4% 59.7% 57.7%
Products................................. 40.6 42.6 40.3 42.3
----- ----- ----- -----
Total revenues ....................... 100.0 100.0 100.0 100.0
----- ----- ----- -----
Cost of sales:
Cost of services......................... 45.9 44.2 46.2 44.5
Cost of products......................... 27.4 29.8 27.3 29.4
----- ----- ----- -----
Total cost of sales................... 73.3 74.0 73.5 73.9
----- ----- ----- -----
Gross profit 26.7 26.0 26.5 26.1
Operating expenses:
Administrative........................... 4.8 4.8 4.8 4.8
Salary and payroll taxes................. 5.1 4.7 5.2 4.7
----- ----- ----- -----
Total operating expenses.............. 9.9 9.5 10.0 9.5
----- ----- ----- -----
Income from operations................ 16.8 16.5 16.5 16.6
Other income................................ 1.7 1.4 1.6 1.5
----- ----- ----- -----
Income before provision for income taxes.... 18.5 17.9 18.1 18.1
Provision for income taxes.................. 1.1 1.2 1.0 1.1
----- ----- ----- -----
Net income.................................. 17.4% 16.7% 17.1% 17.0%
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
REVENUES. Revenues increased approximately 23.0%, or $5.6 million, to
$29.9 million in the second quarter of 1999 from $24.3 million in the second
quarter of 1998. Of this increase, $2.7 million was attributable to increases in
services provided on cruise ships and the commencement of services at the
Atlantis Spa during the first quarter of 1999 and $2.9 million was attributable
to increases in sales of products. The increase in revenues for the second
quarter of 1999 compared to the second quarter of 1998 was primarily
attributable to an increase of three in the average number of ships in service
with enhanced large spa facilities. The Company had 881 shipboard staff members
in service on average in the second quarter of 1999 compared to 830 shipboard
staff members in service on average in the second quarter of 1998. Revenues per
staff per day increased by 15.2% in the second quarter of 1999 compared to the
second quarter of 1998.
COST OF SERVICES. Cost of services as a percentage of services revenue
decreased to 77.1% in the second quarter of 1999 from 77.2% in the second
quarter of 1998. This decrease was due to increases in productivity of onboard
staff during the second quarter of 1999 compared to the second quarter of 1998,
increased revenues on ships where we are subject to minimum annual rental
payments and a decrease in rent allocable to services on cruise ships covered by
an agreement which was renewed in 1998 and became effective in the first quarter
of 1999.
COST OF PRODUCTS. Cost of products as a percentage of products revenue
increased to 69.8% in the second quarter of 1999 from 67.6% in the second
quarter of 1998. This increase was due to increases in rent allocable to
products sales on cruise ships covered by an agreement which was renewed in 1998
and became effective in the first quarter of 1999, and discounts offered on
"Elemis" products, other than the recently formulated product lines. This
increase was partially offset by increases in productivity of onboard staff.
OPERATING EXPENSES. Operating expenses as a percentage of revenues
decreased to 9.5% in the second quarter of 1999 from 9.9% in the second quarter
of 1998 as a result of the increase in aggregate revenues generated from the
additional ships in service with enhanced large spa facilities during the second
quarter of 1999 compared to the comparable period in 1998.
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<PAGE> 11
PROVISION FOR INCOME TAXES. The provision for income taxes increased to
an overall effective rate of 6.7% for the second quarter of 1999 from an overall
effective rate of 5.9% for the second quarter of 1998 primarily due to an
increase in the income earned in jurisdictions that tax our income increasing at
a greater rate than the income earned in jurisdictions that do not tax our
income.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
REVENUES. Revenues increased approximately 25.4%, or $12.0 million, to
$59.3 million for the six months ended June 30, 1999 from $47.3 million for the
six months ended June 30, 1998. Of this increase, $6.0 million was attributable
to increases in services provided on cruise ships and the commencement of
services at the Atlantis Spa during the first quarter of 1999 and $6.0 million
was attributable to increases in sales of products. The increase in revenues for
the first half of 1999 compared to the same period in the prior year was
primarily attributable to an increase of six in the average number of ships in
service with enhanced large spa facilities, and an increase of four in the
average of non-spa ships in service for the same period. The Company had 885
shipboard staff members in service on average during the six months ended June
30, 1999 compared to 814 shipboard staff members in service on average during
the six months ended June 30, 1998. Revenues per staff per day increased by
14.2% in the first half of 1999 compared to the comparable period of 1998.
COST OF SERVICES. Cost of services as a percentage of services revenue
decreased to 77.2% in the first six months of 1999 from 77.4% for the first six
months of 1998. This decrease was due to an increase in productivity of onboard
staff during the first half of 1999 compared to the same period in prior year,
increased revenues on ships where we are subject to minimum annual rental
payments, and a decrease in rent allocable to services on cruise ships covered
by an agreement which was renewed in 1998 and became effective in the first
quarter of 1999.
COST OF PRODUCTS. Cost of products as a percentage of products revenue
increased to 69.4% in the first six months of 1999 from 67.8% for the first six
months of 1998. This increase was primarily due to increases in rent allocable
to products sales on cruise ships covered by an agreement which was renewed in
1998 and became effective in the first quarter of 1999, and discounts offered on
"Elemis" products, other than the recently formulated product lines. This
increase was partially offset by increases in productivity of onboard staff.
OPERATING EXPENSES. Operating expenses as a percentage of revenues
decreased to 9.6% for the first six months of 1999 from 10.0% for the first six
months of 1998 as a result of the increase in aggregate revenues generated from
the additional ships in service with enhanced large spa facilities during the
first six months of 1999 compared to the comparable period in 1998.
PROVISION FOR INCOME TAXES. The provision for income taxes increased to
an overall effective rate of 6.2% for the first six months of 1999 from an
overall effective rate of 5.6% for the first six months of 1998 due to an
increase in the income earned in jurisdictions that tax our income increasing at
a greater rate than the income earned in jurisdictions that do not tax our
income.
SEASONALITY
Although certain cruise lines have experienced moderate seasonality, we
believe that the introduction of cruise ships into service throughout a year has
mitigated the effect of seasonality on our results of operations. In addition,
decreased passenger loads during slower months for the cruise industry has not
had a significant impact on our revenues. However, due to our dependence on the
cruise industry, revenues may in the future be affected by seasonality.
LIQUIDITY AND CAPITAL RESOURCES
Steiner Leisure's business is operated with cash generated from
operations.
Cash flow from operating activities during the first six months of 1999
was $8.5 million compared to $6.1 million in the first six months of 1998. This
increase is primarily due to the increase in our net income. In connection with
the construction of the Atlantis Spa, we spent $2.5 million this year through
July 1999 and $3.1 million in 1998. These $5.6 million of capital expenditures
will be amortized over the fifteen-year term of our arrangement with the owner
of the Atlantis Resort. Steiner Leisure had working capital of approximately
$42.1 million at June 30, 1999 compared to $35.9 million at December 31, 1998.
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In August 1999, Steiner Leisure entered into an agreement to purchase
the assets of FCNH for $7.5 million dollars in cash and $1.0 million in Steiner
Leisure common shares. The closing of this transaction is anticipated to take
place during August 1999. The cash portion of the purchase price is being funded
from our working capital.
We believe that cash generated from operations is sufficient to satisfy
the cash required to operate our business. Any significant acquisition may
require outside financing.
INFLATION
Steiner Leisure does not believe that inflation has had a material
adverse effect on revenues or results of operations. However, public demand for
leisure activities, including cruises, is influenced by general economic
conditions, including inflation. Periods of economic recession or high
inflation, particularly in North America where a number of cruise passengers
reside, could have a material adverse effect on the cruise industry upon which
we are dependent.
YEAR 2000 COMPLIANCE
The term "Year 2000 issue" is a general term used to describe the
various problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery as the year 2000 is
approached and reached. These problems generally arise from the fact that most
of the world's computer hardware and software have historically used only two
digits to identify the year in a date, often meaning that the computer will fail
to distinguish dates in the "2000s" from dates in the "1900s." These problems
may also arise from other sources as well, such as the use of special codes and
conventions in software that make use of the date field.
We have developed a plan to assess the overall impact to Steiner
Leisure with respect to the Year 2000 issue. Part of our plan is to identify
areas of risk and to develop means to mitigate these risks. This includes
assessing the Year 2000 compliance of our cruise line customers and our major
third party suppliers.
In order for us to make an assessment of the Year 2000 risks that may
have a material adverse effect on our results of operations, we have conducted a
survey of our cruise line customers and major third party suppliers of services
and products. With respect to our cruise line customers, as of August 10, 1999,
a number of those surveyed have refused to respond for liability reasons, while
others have failed to respond without providing any reason therefor. The 16
cruise lines that responded expect to be Year 2000 compliant before January 1,
2000. We are actively pursuing responses from the remaining 11 cruise lines that
have not responded.
With respect to our major third party suppliers, as of August 10, 1999,
we obtained 30 responses or statements published through the Internet indicating
that they expect to be Year 2000 compliant prior to January 1, 2000. We are
actively pursuing responses for the remaining 23 major third party suppliers
that have not responded. In the absence of adequate responses, or other formal
communications from either our cruise line customers or our major third party
suppliers, we are attempting to make our own assessment as to their readiness.
We believe that our biggest risks related to the Year 2000 issue are
associated with potential concerns with cruise line customers and major third
party suppliers. The most reasonably likely source of Year 2000 risk with
respect to our cruise line customers would be the disruption of transportation
channels that deliver passengers to cruise ships. The disruption of
transportation channels could also impede our ability to deliver our products to
intended points of sale or the ability of our staff to report to the ships to
which they are assigned.
We do not believe that there are contingency plans that we can effect
that can mitigate the risk of cruise line passengers being unable to reach
cruise ships as a result of any transportation disruption. We are in the process
of developing a contingency plan that would allow us to have available product
inventories sufficient for distribution to our intended points of sale in the
event a transportation disruption impairs our ability to obtain delivery of our
products. In addition, we intend to develop a schedule of deployment of our
shipboard staff to minimize the effect of any transportation disruption that
could occur around January 1, 2000. These contingency plans are subject to
uncertainties. We cannot guarantee that any estimate of the level, impact or
duration of Year 2000 non-compliance by our customers or suppliers will be
accurate, or that our contingency plans will be sufficient to mitigate these
risks.
In the event that any of our cruise line customers or major third party
suppliers do not successfully achieve Year 2000 compliance for their own
operations in a timely manner, our business or operations could be adversely
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<PAGE> 13
affected. The magnitude of any adverse effect cannot be quantified at this time
because of variables such as the type and importance of cruise line customers or
major third party suppliers that have not responded, the unknown level and
duration of noncompliance by these customers and suppliers (and their customers
and suppliers), the possible effect on our operations and our ability to respond
to any non-compliance.
Costs related to our actions to become Year 2000 compliant are funded
through cash from operating activities. We estimate that total costs related to
becoming Year 2000 compliant will be approximately $150,000, and approximately
$100,000 of this amount will be capitalized. Through June 30, 1999, we have
expended approximately $120,000 in connection with the Year 2000 issue. We
believe that the costs related to updating or replacing existing computer
systems in order to become Year 2000 compliant will not be material. We believe
that our systems will be Year 2000 compliant by the end of September 1999.
However, in view of the uncertainties relating to the Year 2000 compliant status
of our customers and suppliers, we cannot guarantee that our cost of dealing
with the Year 2000 issue will be consistent with the foregoing estimates or that
the Year 2000 issue will not materially adversely affect Steiner Leisure's
future operations.
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<PAGE> 14
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
From time to time, including herein, Steiner Leisure may publish
"forward-looking" statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. The words "may," "will," "intend," "expect," "proposed,"
"anticipate," "believe," "estimate" and similar expressions are intended to
identify such forward-looking statements. Because such statements include risks
and uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause actual
results to differ materially from those expressed or implied by such
forward-looking statements include, but are not limited to, the following: our
dependence on cruise line concession agreements of specified terms and that are
terminable by cruise lines with limited or no advance notice under certain
circumstances; our dependence on the cruise industry and our being subject to
the risks of that industry; our obligation to make certain minimum payments to
certain cruise lines irrespective of the revenues received by us from
passengers; our dependence on a limited number of cruise companies and on a
single product manufacturer; our dependence for success on our ability to
recruit and retain qualified personnel; changes in the non-U.S. tax status of
our principal subsidiary; changing competitive conditions; changes in laws and
government regulations applicable to us and the cruise industry; our limited
experience in franchise, school and other land-based operations; product
liability or other claims against us by customers of our products or services;
and our failure, or the failure of a cruise line customer or supplier, to
correct a material Year 2000 problem. The risks to which we are subject are more
fully described under "Certain Factors That May Affect Future Operating Results"
in our Annual Report on Form 10-K for the fiscal year ended December 31, 1998,
filed with the Securities and Exchange Commission.
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<PAGE> 15
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company (the "Annual
Meeting") was held on June 18, 1999. At the Annual Meeting, the
following matters were considered and voted upon:
Leonard I. Fluxman, Michele Steiner Warshaw and Steven J.
Preston were elected as directors based on the results of the vote
indicated below, and the terms of office of the following directors
continued after the Annual Meeting: Clive E. Warshaw, Charles D.
Finkelstein and Jonathan D. Mariner. The votes cast with respect to the
election of Messrs. Fluxman and Preston, and Ms. Warshaw were as
follows: 14,847,187 shares were voted for each of the nominees and
6,822 shares were withheld from the votes for each of the nominees.
A proposal to amend Steiner Leisure's Amended and Restated
Memorandum of Association to increase the number of common shares from
20,000,000 to 100,000,000 was approved based on the following vote:
10,042,110 votes "for", 4,210,833 votes "against" and 13,344
abstentions.
A proposal to amend Steiner Leisure's Amended and Restated
1996 Share Option and Incentive Plan to increase the number of common
shares available for grant thereunder from 1,620,000 to 3,500,000 was
approved based on the following vote: 9,011,198 votes "for", 4,559,768
"against" and 23,721 abstentions.
A proposal to ratify the appointment of Arthur Andersen LLP as
independent auditors for the Company for the fiscal year ended December
31, 1999 was approved based on the following vote: 14,846,794 votes
"for", 2,025 votes "against" and 5,190 abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
3.1 Amended and Restated Memorandum of Association of Steiner
Leisure Limited
10.7 Amended and Restated Non-Employee Directors' Share Option Plan
10.19 Asset Purchase Agreement, dated August 3, 1999 among FCNH,
Inc., Steiner Leisure Limited, Florida College of Natural
Health Inc., The Natural Health Shoppe, Inc., Neal R. Heller,
Elizabeth S. Heller, Daniel Stubbs II, Arthur Keiser and
Belinda Keiser
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 1999.
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<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 13, 1999
STEINER LEISURE LIMITED
(Registrant)
/s/ Clive E. Warshaw
-------------------------------------------------
Clive E. Warshaw
Chairman of the Board and Chief Executive Officer
/s/ Leonard I. Fluxman
-------------------------------------------------
Leonard I. Fluxman
President and Chief Operating Officer
/s/ Carl S. St. Philip, Jr.
-------------------------------------------------
Carl S. St. Philip, Jr.
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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<PAGE> 17
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 Amended and Restated Memorandum of Association of Steiner
Leisure Limited
10.7 Amended and Restated Non-Employee Directors' Share Option Plan
10.19 Asset Purchase Agreement, dated August 3, 1999 among FCNH,
Inc., Steiner Leisure Limited, Florida College of Natural
Health Inc., The Natural Health Shoppe, Inc., Neal R. Heller,
Elizabeth S. Heller, Daniel Stubbs II, Arthur Keiser and
Belinda Keiser.
27 Financial Data Schedule
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<PAGE> 1
EXHIBIT 3.1
COMMONWEALTH OF THE BAHAMAS
New Providence
ADOPTED AS OF June 18, 1999
AMENDED AND RESTATED
MEMORANDUM OF ASSOCIATION
OF
STEINER LEISURE LIMITED
Harry B. Sands & Company
Counsel and Attorneys-at-Law
Chambers
Nassau, Bahamas
<PAGE> 2
The International Business Companies Act
Company Limited by Shares
AMENDED AND RESTATED
MEMORANDUM OF ASSOCIATION
OF
STEINER LEISURE LIMITED
1. The name of the Company is STEINER LEISURE LIMITED.
2. The registered office of the Company will be situated in the
Chambers of Messrs. Harry B. Sands & Company, Fifty Shirley Street, Nassau,
Bahamas.
3. The registered agent of the Company will be Harry B. Sands &
Company, Fifty Shirley Street, Nassau, Bahamas.
4. The object or purpose for which the Company is established is to
engage in any act or activity that is not prohibited under any law for the time
being in force in the Commonwealth of The Bahamas.
5.
(1) The Company may not:
(a) carry on business with persons resident in
the Commonwealth of The Bahamas;
(b) own an interest in real property situated in
the Commonwealth of the Bahamas, other than
a lease referred to in paragraph (e) of
subclause (2) of this clause;
(c) carry on banking or trust business as
defined by the Banks and Trust Companies
Regulation Act;
(d) carry on business as an insurance or a
reinsurance company; or
(e) carry on the business of providing the
registered office for companies.
(2) For the purposes of paragraph (a) subclass (l) of
this clause, the Company shall not be treated as carrying on business with
persons resident in the Commonwealth of The Bahamas by reason only that:
(a) it makes or maintains deposits with a person
carrying on business within the Commonwealth
of The Bahamas;
(b) it makes or maintains professional contact
with counsel and attorneys, accountants,
bookkeepers, trust companies, management
companies, investment advisers or other
similar persons carrying on business within
the Commonwealth of The Bahamas;
(c) it prepares or maintains books and records
within the Commonwealth of The Bahamas;
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<PAGE> 3
(d) it holds, within the Commonwealth of The
Bahamas, meetings of its directors or
members;
(e) it holds a lease of property for use as an
office from which to communicate with
members or where books and records of the
company are prepared or maintained;
(f) it holds shares, debt obligations or other
securities in a company incorporated under
this Act or under the Companies Act;
(g) shares, debt obligations or other securities
in the company are owned by any person
resident in the Commonwealth of The Bahamas
or by any company incorporated under this
Act or under the Companies Act; or
(h) it conducts any of its operations with a
person without knowing or having reasonable
cause to believe that such person is a
person resident in The Bahamas.
6. The liability of the members is limited by shares.
7. Shares in the Company shall be issued in the currency of the United
States of America.
8. The authorized capital of the Company is One Million One Hundred
Thousand Dollars ($1,100,000) and is made up of One Hundred and Ten Million
(110,000,000) shares of which of which One Hundred Million (100,000,000) are
Common Shares, par value $0.01 per share (the "Common Shares"), and Ten Million
(10,000,000) are Preferred Shares, par value $.01 per share (the "Preferred
Shares").
9. The following is a statement fixing certain of the designations and
the powers, voting rights, preferences and relative, participating, optional and
other rights of the Common Shares and the Preferred Shares, and the
qualifications, limitations or restrictions thereof, and of the authority with
respect thereto expressly granted to the Board of Directors of the Company to
fix any such provisions not fixed by this Amended and Restated Memorandum of
Association or the Amended and Restated Articles of Association of the Company:
(1) The Board of Directors is hereby expressly vested with the
authority to adopt a resolution or resolutions providing for the issue of
authorized but unissued Preferred Shares, which shares may be issued from time
to time, in one or more series and in such amounts as may be determined by the
Board of Directors in such resolution or resolutions. The powers, voting rights,
designations, preferences and relative, participating, optional or other special
rights, if any, of each series of Preferred Shares and the qualifications,
limitations or restrictions, if any, of such preferences and/or rights
(collectively, the "Series Terms"), shall be such as are stated and expressed in
the resolution or resolutions providing for the issue of such series of
Preferred Shares (the "Series Terms Resolution") adopted by the Board of
Directors. The powers of the Board of Directors with respect to the Series Terms
of a particular series (any of which powers may, by resolution of the Board of
Directors, be specifically delegated to one or more of its committees, except as
prohibited by law) shall include, but not be limited to, determination of the
following:
(a) The number of shares constituting that
series and the distinctive designation of
that series;
(b) The dividend rate on the shares of that
series, whether such dividends, if any,
shall be cumulative, and, if so, the date or
dates from which dividends payable on such
shares shall accumulate, and the relative
rights of priority, if any, of payment of
dividends on shares of that series;
(c) Whether that series shall have voting
rights, in addition to any voting rights
provided by law, and, if so, the terms of
such voting rights;
(d) Whether that series shall have conversion
privileges with respect to shares of any
other class or classes of shares or of any
other series of any class of shares, and, if
so, the terms and conditions of such
conversion upon the occurrence of such
events as the Board of Directors shall
determine;
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<PAGE> 4
(e) Whether the shares of that series shall be
redeemable, and, if so, the terms and
conditions of such redemption, including
their relative rights of priority, if any,
of redemption, the date or dates upon or
after which they shall be redeemable,
provisions regarding redemption notices, and
the amount per share payable in case of
redemption, which amount may vary under
different conditions and at different
redemption dates;
(f) Whether that series shall have a sinking
fund for the redemption or purchase of
shares of that series by the Company, and,
if so, the terms and amount of such sinking
fund;
(g) The rights of the shares of that series in
the event of voluntary or involuntary
liquidation, dissolution, or winding up of
the Company, and the relative rights of
priority, if any, of payment of shares of
that series;
(h) The conditions or restrictions upon the
creation of indebtedness of the Company or
upon the issuance of additional Preferred
Shares or other capital shares ranking on a
parity therewith, or prior thereto, with
respect to dividends or distribution of
assets upon liquidation;
(i) The conditions or restrictions with respect
to the issuance of, payment of dividends
upon, or the making of other distributions
to, or the acquisition or redemption of,
shares ranking junior to the Preferred
Shares or to any series thereof with respect
to dividends or distribution of assets upon
liquidation;
(j) Any other designations, preferences, powers
and rights and any qualifications,
limitations or restrictions thereon as may
be fixed by resolution or resolutions of the
Board of Directors under the International
Business Companies Act, 1989 of the
Commonwealth of the Bahamas; and
(k) Any of the Series Terms, including voting
rights, of any series may be made dependent
upon facts ascertainable outside this
Amended and Restated Memorandum of
Association and the Series Terms Resolution,
provided that the manner in which such facts
shall operate upon such Series Terms is
clearly and expressly set forth in this
Amended and Restated Memorandum of
Association or in the Series Terms
Resolution.
(2) Subject to the rights of the holders of any series of
Preferred Shares set forth in any Series Terms Resolution, the Board of
Directors may, in its discretion, out of funds legally available for the payment
of dividends and at such times and in such manner as determined by the Board of
Directors, declare and pay dividends on the Common Shares of the Company.
(3) In the event of any liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary, after payment or provision for
the payment of the debts and other liabilities of the Company and the payment or
setting aside for payment of any preferential amount due to the holders of any
series of Preferred Shares, the holders of Common Shares, subject to the rights
of the holders of any class of shares or series ranking on a parity with the
Common Shares as to the payments or distributions in such event, shall be
entitled to receive ratably any and all assets of the Company remaining to be
paid or distributed.
(4) The holders of the Common Shares shall be entitled at all
meetings of shareholders to one vote for each such share held by them.
(5) Holders of Common Shares shall have no cumulative voting
rights and no preemptive rights.
(6) Unless otherwise provided in a Series Terms Resolution
with respect to a particular series of Preferred Shares, all Preferred Shares
redeemed or acquired by the Company (as a result of conversion or otherwise)
shall be retired and restored to the status of authorized but unissued shares.
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<PAGE> 5
(7) Unless otherwise provided with respect to a particular
series of Preferred Shares in a Series Terms Resolution, no holder of capital
shares of the Company shall have any preemptive or other right, except as such
rights are expressly provided by contract, to purchase or subscribe for or
receive any shares of any class, or series thereof of the Company, whether now
or hereafter authorized, or any warrants, options, bonds, debentures or other
securities convertible into, exchange able for or carrying any right to purchase
any shares of any class, or series thereof of the Company.
10. Shares in the Company shall only be issued as registered shares.
11. Only an individual may serve as a director of the Company.
12. Directors shall not be entitled to appoint alternate directors.
13. Any amendment to this Memorandum of Association must be approved by
the affirmative vote of a majority of the votes of shareholders entitled to vote
thereon, except that the directors may amend this Memorandum to
(a) divide the shares, including issued shares
of a class or series into a larger number of
shares of the same class or series; or
(b) the shares, including issued shares, of a
class or series into a smaller number of
shares of the same class or series,
provided, however, that where shares are
divided or combined under (a) or (b) of this
paragraph 13, the aggregate par value of the
new shares must be equal to the aggregate
par value of the original shares.
ADOPTED: June 18, 1999
-------------------------------
Date
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<PAGE> 1
EXHIBIT 10.7
AMENDED AND RESTATED
STEINER LEISURE LIMITED
NON-EMPLOYEE DIRECTORS' SHARE
OPTION PLAN
JUNE 18, 1999
<PAGE> 2
STEINER LEISURE LIMITED
NON-EMPLOYEE DIRECTORS' SHARE OPTION PLAN
1. INTRODUCTION.
This plan shall be known as the "Steiner Leisure Limited Non-Employee
Directors' Share Option Plan" (this "Plan"). This Plan sets forth the terms of
grants of options (each, an "Option") to purchase the common shares (the
"Shares") of Steiner Leisure Limited (the "Company") to Non-Employee Directors
(as defined below) of the Company. The purpose of this Plan is to advance the
interests of Company and its shareholders by promoting an identity of interest
between the Company's non-employee directors and its shareholders, providing
non-employee directors with a proprietary stake in the Company's success and
strengthening the Company's ability to attract and retain qualified non-employee
directors by affording such persons an opportunity to share in the future
success of the Company.
2. DEFINITIONS.
(a) ACT means the Securities Act of 1933, as amended.
(b) BOARD means the Board of Directors of the Company.
(c) COMPANY means Steiner Leisure Limited.
(d) DATE OF GRANT means the date as of which an Option is granted to
a Non-Employee Director pursuant to Section 5 of this Plan.
(e) EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended.
(f) FAIR MARKET VALUE means, on the date in question, or if the
prices described in clauses (i) and (ii), below, are not available on such date,
on the latest date preceding the date in question on which such prices are
available, (i) the closing sales price per share of the Shares underlying an
Option on the Nasdaq Stock Market (NASDAQ") or, if the Shares are not then
traded on Nasdaq, on any national securities exchange, or (ii) if the Shares are
not then traded on Nasdaq or such exchange, and are then traded on an
over-the-counter market, the average of the closing bid and asked prices for the
Shares in such over-the-counter market or (iii) if the Shares are then not
listed on Nasdaq or such exchange, or traded in an over-the-counter market, such
value as the Board may determine.
(g) NON-EMPLOYEE DIRECTOR means a member of the Board of Directors
of the Company who is not an employee of the Company or any subsidiary (as
defined under Rule 12b-2 under the Exchange Act) of the Company on a date in
question.
(h) OPTIONS means the options to purchase Shares granted pursuant to
this Plan.
(i) PLAN means this Steiner Leisure Limited Directors' Share Option
Plan.
(j) SHARES means the common shares of the Company, par value (U.S.)
$.01 per share.
3. ADMINISTRATION.
This Plan shall be administered by the Board or a committee of the
Board so designated by the Board to administer this Plan. Where the context so
requires, references to the Board herein shall refer to any such committee.
Subject to the provisions of this Plan, the Board shall be authorized to
interpret this Plan, to establish, amend and rescind any rules and regulations
relating to this Plan and to make all other determinations necessary or
advisable for the administration of this Plan; provided, however, that the Board
shall have no discretion with respect to the selection of directors to receive
Options, the number of Shares to be received upon exercise of Options or the
timing of grants of Options, all of which shall be determined in accordance with
the provisions of this Plan. Notwithstanding the foregoing, the Board may amend
this Plan pursuant to Section 8, below. The determinations of the Board in the
administration of this Plan, as described herein, shall be final and conclusive.
The Chairman of the Board and the Chief Operating Officer of the Company, and
either of them, shall be authorized to implement this
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<PAGE> 3
Plan in accordance with its terms and to take such actions of a ministerial
nature as shall be necessary to effectuate the intent and purposes thereof.
Except as otherwise provided herein, the validity, construction and effect of
this Plan and any rules and regulations relating to this Plan shall be
determined in accordance with the laws of the Commonwealth of the Bahamas
subject to any applicable requirements under United States federal or state
securities laws.
4. ELIGIBILITY; OPTION AGREEMENT.
Only Non-Employee Directors shall be eligible to receive Options under
this Plan. Options shall be evidenced by written option agreements in such form
as the Board shall approve.
5. GRANTS OF OPTIONS.
Options shall be granted to Non-Employee Directors, subject to Section
5(o), below, and the limitation on the number of Shares that may be issued under
this Plan as described in Section 6, below, as follows:
(a) GRANTS TO INITIAL DIRECTORS. Each of the initial four
Non-Employee Directors (the "Initial Directors") shall be granted, on the
effective date of the appointment or election of such Initial Director (the
"Initial Effective Date") without the need for further action by the Board,
Options to purchase that number of Shares equal to 2,813 multiplied by a
fraction, the numerator of which is the number of days from the Initial
Effective Date until the scheduled date of the then next annual meeting of
Shareholders of the Company ("Annual Meeting") (or, if such date has not yet
been scheduled, a date approximating the date of the next Annual Meeting as
determined in good faith by the Board), and the denominator of which is 365.
(b) ANNUAL GRANTS. On the date of each Annual Meeting during the
term of this Plan (an "Annual Meeting Date") each individual elected or
re-elected as a Non-Employee Director at such meeting or continuing as a
Non-Employee Director shall be granted, without the need for further action by
the Board, an Option to purchase 2,813 Shares. In addition, any Non-Employee
Director who serves as Chairman of each of the Audit Committee and Compensation
Committee of the Board shall be granted on each Annual Meeting Date an option to
purchase an additional 750 Shares.
(c) OTHER GRANTS. Any new Non-Employee Director who is appointed by
the Board to fill a vacancy on the Board, or who is otherwise appointed or
elected to the Board otherwise than at an Annual Meeting shall be granted, on
the effective date of such appointment or election (the "Effective Date"),
without the need for further action by the Board, an Option to purchase that
number of Shares equal to 2,813 multiplied by a fraction, the numerator of which
is the number of days from the Effective Date until the scheduled date of the
then next Annual meeting (or, if such date has not yet been scheduled, the
anniversary date of the then immediately preceding Annual Meeting or, in the
absence of such date, a date approximating the date of the next Annual Meeting
as determined in good faith by the Board), and the denominator of which is 365.
(d) EXERCISE PRICE. The exercise price of each Option shall be the
Fair Market Value of the Shares on the Date of Grant.
(e) DURATION OF OPTIONS. Except as otherwise provided herein, the
latest date on which an Option may be exercised (the "Final Exercise Date")
shall be the date which is ten years from the Date of Grant.
(f) EXERCISE OF OPTIONS. Except as otherwise provided herein, an
Option shall become exercisable one year after the Date of Grant. An Option may
be exercised by giving written notice to the Secretary of the Company specifying
the number of Shares to be purchased, accompanied by the full purchase price for
the Shares to be purchased. An Option may not be exercised for a fraction of a
Share.
(g) PAYMENT FOR SHARES. Shares purchased pursuant to the exercise of
an Option granted under this Plan shall be paid for as follows: (i) in cash or
by certified check, bank draft or money order payable to the order of the
Company, (ii) through the delivery of Shares having a Fair Market Value on the
last business day preceding the date of exercise equal to the purchase price,
provided that, in the case of Shares acquired directly from the Company, such
Shares have been held for at least six months, or (iii) by a combination of cash
and Shares, as provided in clauses (i) and (ii), above.
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<PAGE> 4
(h) WITHHOLDING TAXES. Prior to issuance of the Shares upon exercise
of an Option, the Option holder shall pay or make adequate provision for any
applicable United States federal or state, or other tax withholding obligations
of the Company. Where approved by the Board in its sole discretion, the Option
holder may provide for the payment of withholding taxes upon exercise of the
Option by requesting that the Company retain Shares with a Fair Market Value
equal to the amount of taxes required to be withheld. In such case, the Company
shall issue the net number of Shares to the Option holder by deducting the
Shares retained from the Shares with respect to which the Option was exercised.
The Fair Market Value of the Shares to be withheld shall be determined on the
date that the amount of tax to be withheld is to be determined. All elections by
Option holders to have Shares withheld for this purpose shall be made in writing
in form acceptable to the Board.
(i) DELIVERY OF SHARE CERTIFICATES. Until the issuance (as evidenced
by the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the certificate evidencing the Shares
underlying an Option, an Option holder shall not have any rights as a
shareholder of the Company. A certificate for the number of Shares purchased
pursuant to the exercise of an Option shall be issued as soon as practicable
after exercise of the Option. However, the Company shall not be obligated to
deliver a certificate evidencing Shares issuable under an Option (i) until, in
the opinion of the Company's counsel, all applicable Bahamas and United States
federal and state laws and regulations have been complied with and any
applicable taxes have been paid, (ii) if the Shares are at the time traded on
Nasdaq or any national securities exchange, until the Shares represented by the
certificate to be delivered have been listed or are authorized to be listed on
Nasdaq or such exchange, and (iii) until all other legal matters in connection
with the issuance and delivery of such certificate have been approved by the
Company's counsel. If the sale of Shares has not been registered under the Act,
the Company may require, as a condition to exercise of the Option, such
representations or agreements as counsel for the Company may consider
appropriate to avoid violation of the Act and may require that the certificate
evidencing such Shares bear an appropriate legend restricting transfer. The
inability of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is deemed by the Company's counsel to be necessary
to the lawful issuance and sale of any Shares hereunder, shall relieve the
Company of any liability in respect of the failure to issue or sell such Shares.
(j) ASSIGNMENT OR TRANSFER. Except as set forth in this Section
5(j), no Option may be transferred other than by will or by the laws of descent
and distribution, and during a Non-Employee Director's lifetime an Option may be
exercised only by the Non-Employee Director to whom it was granted. An Option
may be transferred to a (i) Non-Employee Director's spouse, children or
grandchildren (referred to herein as "Family Members"), (ii) a trust or trusts
for the exclusive benefit of Family Members or (iii) a partnership in which
Family Members are the only partners. Any transfer pursuant to this Section 5
(j) shall be subject to the following: (i) there shall be no consideration for
such transfer, (ii) there may be no subsequent transfers without the approval of
the Board and (iii) all transfers shall be made so that no liability under
Section 16(b) of the Exchange Act arises as a result of such transfer. Following
any transfer, an Option shall continue to be subject to the same terms and
conditions as were applicable to the Non-Employee Director immediately prior to
transfer, with the transferee being deemed to be the Non-Employee Director for
such purposes, except that the events of death and termination of service
described in Sections 5(k) and 5(l), below, shall continue to apply with respect
to the Non-Employee Director.
(k) DEATH. Upon the death of a Non-Employee Director, all Options
held by such Non-Employee Director that are not then exercisable shall
immediately become exercisable. All Options held by such Non-Employee Director
immediately prior to death may be exercised by his or her executor or
administrator, or by the person or persons to whom the Option is transferred by
will or the applicable laws of descent and distribution, at any time within the
three years following the date of death (but not later than the Final Exercise
Date); provided, however, that the Company shall be under no obligation to
deliver a certificate representing Shares that may be issued pursuant to such
exercise until the Company is satisfied as to the authority of the person or
persons exercising the Option.
(l) OTHER TERMINATION OF STATUS OF NON-EMPLOYEE DIRECTOR. If a
Non-Employee Director ceases to be a member of the Board for any reason other
than death, all Options held by such Non-Employee Director that are not then
exercisable shall terminate three years following the date they first become
exercisable. Options that are exercisable on the date of such termination shall
continue to be exercisable for a period of three years following the date of
termination (or until the Final Exercise Date, if earlier). Notwithstanding the
foregoing, all Options held by a Non-Employee Director shall terminate
immediately upon the termination of such Non-Employee Director's membership on
the Board if such termination was based on the misconduct of such Non-
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<PAGE> 5
Employee Director. After completion of the aforesaid three-year periods, such
Options shall terminate to the extent not previously exercised, expired or
terminated.
(m) CHANGE IN CONTROL. In the event of a Change in Control (as
defined below) of the Company, any Options outstanding as of the date of such
Change in Control is determined to have occurred that are not yet exercisable on
such date shall become fully exercisable. For purposes of this Section 5(m) a
"Change in Control" means the happening of any of the following:
(i) any transaction as a result of which a change in
control of the Company would be required to be
reported in response to Item 1(a) of the Current
Report on Form 8-K as in effect on the date hereof,
pursuant to Sections 13 or 15(d) of the Exchange Act,
whether or not the Company is then subject to such
reporting requirement, otherwise than through an
arrangement or arrangements consummated with the
prior approval of the Board;
(ii) any "person" or "group" within the meaning of
Sections 13(d) and 14(d)(2) of the Exchange Act (a)
becomes the "beneficial owner," as defined in Rule
13d-3 under the Exchange Act, of more than 20% of the
then outstanding voting securities of the Company,
otherwise than through a transaction or transactions
arranged by, or consummated with the prior approval
of, the Board or (b) acquires by proxy or otherwise
the right to vote for the election of directors, for
any merger or consolidation of the Company or for any
other matter or question, more than 20% of the then
outstanding voting securities of the Company,
otherwise than through an arrangement or arrangements
consummated with the prior approval of the Board;
(iii) during any period of 24 consecutive months (not
including any period prior to the adoption of this
Plan), Present Directors and/or New Directors cease
for any reason to constitute a majority of the Board.
For purposes of the preceding sentence, "Present
Directors" shall mean individuals who, at the
beginning of such consecutive 24 month period, were
members of the Board and "New Directors" shall mean
any director whose election by the Board or whose
nomination for election by the Company's shareholders
was approved by a vote of at least two-thirds of the
Directors then still in office who were Present
Directors or New Directors; or
(iv) any "person" or "group" within the meaning of
Sections 13(d) and 14(d)(2) of the Exchange Act that
is the "beneficial owner" as defined in Rule 13d-3
under the Exchange Act of 20% or more of the then
outstanding voting securities of the Company
commences soliciting proxies.
(n) RULE 16b-3. Options granted hereunder are required to comply
with the applicable provisions of Rule 16b-3 under the Exchange Act and the
award thereof shall contain such additional conditions or restrictions as may be
required thereunder to qualify to the maximum extent for the exemption from
Section 16(b) of the Exchange Act available pursuant to Rule 16b-3.
(o) TERMINATION OF GRANTS. Notwithstanding the foregoing, the grants
of Options described in this Section 5 shall be terminated effective with the
1999 Annual Meeting as a result of the commencement of the payment of cash
compensation to the Non-Employee Directors and such grants shall remain
terminated until the Board determines to reinstate the granting of Options
hereunder. The pertinent terms of this Plan shall continue with respect to
Options granted prior to the 1999 Annual Meeting.
6. SHARES AUTHORIZED.
(a) Subject to adjustment as provided below, the aggregate number of
Shares that may be issued pursuant to Options granted under this Plan is
185,625. Such Shares may be authorized, but unissued Shares, or may be Shares
reacquired by the Company and held in treasury. If any Option granted under this
Plan terminates without being exercised in full, the number of Shares as to
which such Option was not exercised shall be available for future grants within
the limits set forth in this Section 6(a).
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<PAGE> 6
(b) Subject to any required action by the shareholders of the
Company in the event of any reorganization, recapitalization, share split, share
dividend, combination of shares, issuance of rights or any other change in the
capital or corporate structure of the Company, the number of Shares covered by
each outstanding Option and the number of Shares available for issuance under
this Plan, but as to which Options have not been granted or which have been
returned to the Plan upon cancellation or expiration of an Option, as well as
the exercise price per Share under outstanding Options, shall be adjusted
equitably to reflect the occurrence of such event; provided, however, that no
adjustments shall be made except as shall be necessary to preserve, rather than
enlarge or reduce the value of awards under this Plan. Any such adjustment shall
be made by the Board.
7. EFFECT AND DISCONTINUANCE.
Neither adoption of this Plan nor the grant of Options to a
Non-Employee Director hereunder shall confer upon any person any right to
continued status as a director of the Company or affect in any way the right of
the Company to terminate a director at any time. The Board may at any time
discontinue granting Options under this Plan.
8. EFFECTIVE DATE; TERMINATION AND AMENDMENT OF PLAN.
(a) The effective date of this Plan shall be the date of its
adoption by the Board of Directors and shareholders of the Company as indicated
on the cover page of this Plan. The final award under this Plan shall be made on
the date of the Annual Meeting in 2006, but the pertinent terms of this Plan
shall continue thereafter while previously awarded Options remain outstanding.
(b) The Board may terminate or amend this Plan as it shall deem
advisable or to conform to any change in any law or regulation applicable
thereto; provided, however, that the Board may not make any amendment that would
reduce any award previously made under this Plan.
9. GENERAL PROVISIONS.
(a) Nothing in this Plan is intended to be a substitute for, or
shall preclude or limit the establishment or continuation of, any other plan,
practice or arrangement for the payment of compensation or benefits to
Non-Employee Directors that the Company now has or may hereafter put into
effect.
(b) Options awarded hereunder and Shares underlying such Options
shall be held by the Non-Employee Director for such period of time required so
as to avoid liability under Section 16(b) of the Exchange Act.
(c) Headings are given to sections of this Plan solely as a
convenience to facilitate reference and are not intended to affect the meaning
of any provision hereof. The references herein to any statute, regulation or
other provision of law shall be construed to refer to any amendment or successor
to such provisions.
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EXHIBIT 10.19
ASSET PURCHASE AGREEMENT
DATED
AUGUST 3, 1999
BY AND AMONG
FCNH, INC.,
STEINER LEISURE LIMITED,
FLORIDA COLLEGE OF
NATURAL HEALTH, INC.
THE NATURAL HEALTH SHOPPE, INC.
NEAL R. HELLER,
ELIZABETH S. HELLER,
DANIEL STUBBS II,
ARTHUR KEISER
AND
BELINDA KEISER
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
ARTICLE I - PURCHASE AND SALE OF ASSETS; CLOSING, ETC ............................... 1
1.1 Purchase and Sale .......................................................... 1
1.2 Excluded Assets ............................................................ 3
1.3 Assumed Liabilities ........................................................ 3
1.4 Excluded Liabilities ....................................................... 4
1.5 Purchase Price ............................................................. 5
1.6 Contingent Consideration ................................................... 5
1.7 Allocation of Purchase Price ............................................... 7
1.8 Replacement of Lease Deposit ............................................... 8
1.9 Other Closing Deliveries ................................................... 8
1.10 Closing .................................................................... 8
1.11 Unwinding Contingency ...................................................... 8
ARTICLE II - REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE SHAREHOLDERS......... 10
2.1 Power of the Shareholders .................................................. 10
2.2 No Conflicts or Litigation ................................................. 10
2.3 Consents ................................................................... 10
2.4 No Brokers ................................................................. 11
2.5 Preemptive and Other Rights ................................................ 11
2.6 Control of Related Businesses .............................................. 11
2.7 Securities Matters ......................................................... 11
ARTICLE III - REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COMPANY ............. 12
3.1 Organization ............................................................... 12
3.2 Qualification .............................................................. 12
3.3 Charter Documents and Records; No Violation ................................ 12
3.4 No Defaults ................................................................ 12
3.5 Company Subsidiaries; etc .................................................. 12
3.6 Capital Stock of the Company and the Company Subsidiaries .................. 13
3.7 Transactions in Capital Stock .............................................. 13
3.8 Predecessor Status; etc .................................................... 13
3.9 Related Party Agreements ................................................... 13
3.10 Litigation, etc ............................................................ 13
3.11 Disclosure ................................................................. 14
3.12 Compliance With Laws ....................................................... 14
3.13 Certain Environmental Matters .............................................. 14
3.14 Liabilities and Obligations ................................................ 15
3.15 Receivables ................................................................ 15
3.16 Real Properties ............................................................ 15
3.17 Other Tangible Assets ...................................................... 17
3.18 Proprietary Rights ......................................................... 17
3.19 Relations With Governments, etc ............................................ 17
3.20 Commitments ................................................................ 17
3.21 Inventories ................................................................ 18
3.22 Insurance .................................................................. 19
3.23 Employee Matters ........................................................... 19
3.24 Welfare Plans and Compliance with ERISA .................................... 21
3.25 Taxes ...................................................................... 22
3.26 Government Contracts ....................................................... 23
3.27 Absence of Changes ......................................................... 23
3.28 Bank Relationships; Powers of Attorney ..................................... 24
3.29 Accreditations ............................................................. 24
3.30 No Conflicts or Litigation ................................................. 25
3.31 Consents ................................................................... 25
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3.32 [Intentionally Omitted] ................................................... 25
3.33 [Intentionally Omitted] ................................................... 25
3.34 Regulatory Financial Matters .............................................. 25
3.35 Liens ..................................................................... 25
3.36 Default Rates ............................................................. 25
3.37 Financials Statements ..................................................... 25
3.38 Authorization; Enforceability; Absence of Conflicts: Required Consents .... 26
3.39 Securities Matters ........................................................ 26
3.40 Cash on Hand; Stockholders' Equity ........................................ 27
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF BUYER AND SLL ....................... 27
4.1 Organization; Power ....................................................... 27
4.2 Authorization; Enforceability; Absence of Conflicts: Required Consents .... 27
4.3 No Conflicts or Litigation ................................................ 28
4.4 Consents .................................................................. 28
4.5 SLL Shares ................................................................ 28
4.6 SEC Reports and Filings ................................................... 28
ARTICLE V - COVENANTS EXTENDING TO THE CLOSING ..................................... 29
5.1 Access and Cooperation; Due Diligence ..................................... 29
5.2 Conduct of Business Pending the Closing ................................... 29
5.3 Prohibited Activities ..................................................... 30
5.4 No Shop ................................................................... 31
5.5 Notice to Bargaining Agents ............................................... 32
5.6 Notification of Certain Matters ........................................... 32
5.7 Supplemental Information .................................................. 32
5.8 HSR Act Matters ........................................................... 32
5.9 Debt Repayment ............................................................ 33
5.10 Tax Returns ............................................................... 33
5.11 Best Efforts .............................................................. 33
5.12 Department of Commerce .................................................... 33
5.13 Lease Deposit Replacement ................................................. 33
5.14 Preserve Accuracy of Representations and Warranties ....................... 33
ARTICLE VI - CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTIES .................... 34
6.1 Conditions to the Obligations of the Buyer Parties ........................ 34
6.2 Conditions to Obligations of Sellers ...................................... 36
ARTICLE VII - COVENANTS FOLLOWING THE CLOSING ...................................... 38
7.1 Stockholders' Equity Determination ........................................ 38
7.2 Preparation and Filing of Tax Returns ..................................... 39
7.3 Undertakings Regarding SLL Shares ......................................... 39
7.4 Registration of SLL Shares ................................................ 39
7.5 Purchase Price Adjustment ................................................. 40
7.6 Cash on Hand .............................................................. 40
7.7 Control Over Purchased Assets ............................................. 40
7.8 Governmental Approvals .................................................... 40
ARTICLE VIII - INDEMNIFICATION; SETOFF ............................................. 40
8.1 Survival of Representations and Warranties ................................ 40
8.2 Indemnification of SLL Indemnified Parties ................................ 41
8.3 Indemnification of Seller Indemnified Parties ............................. 41
8.4 Conditions of Indemnification ............................................. 42
8.5 Remedies Not Exclusive .................................................... 44
8.6 Limitations on Indemnification ............................................ 44
8.7 Set-Off ................................................................... 44
ARTICLE IX - LIMITATIONS ON COMPETITION ............................................ 44
9.1 Prohibited Activities ..................................................... 44
9.2 Damages ................................................................... 45
</TABLE>
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9.3 Reasonable Restraint ..................................... 45
9.4 Independent Covenant ..................................... 45
9.5 Materiality .............................................. 45
ARTICLE X - DEFINITIONS AND DEFINITIONAL PROVISIONS ............... 46
10.1 Defined Terms ............................................ 46
10.2 Other Defined Terms ...................................... 57
10.3 Other Definitional Provisions ............................ 57
ARTICLE XI - CONFIDENTIALITY ...................................... 58
11.1 Treatment of Confidential Information .................... 58
ARTICLE XII - TERMINATION AND EXPENSES......... ................... 58
12.1 Termination of This Agreement ............................ 58
12.2 Expenses ................................................. 59
12.3 Liabilities in Event Of Termination ...................... 59
ARTICLE XIII - MISCELLANEOUS ...................................... 60
13.1 Public Announcements ..................................... 60
13.2 Notices .................................................. 60
13.3 Governing Law; Forum; Etc ................................ 61
13.4 Binding Effect; Assignment; Third Party Beneficiaries .... 62
13.5 Entire Agreement ......................................... 62
13.6 Further Assurances ....................................... 62
13.7 Amendments ............................................... 62
13.8 Waivers .................................................. 62
13.9 Headings; Counterparts ................................... 62
13.10 Severability ............................................. 63
13.11 Rights and Remedies ...................................... 63
13.12 Disclosure ............................................... 63
</TABLE>
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, dated as of August 3, 1999 (this
"AGREEMENT"), is made by and among FCNH, Inc., a Florida corporation ("BUYER"),
Steiner Leisure Limited, a Bahamas international business company ("SLL" and,
collectively with Buyer, the "BUYER PARTIES"), Florida College of Natural
Health, Inc. (the "COMPANY"), The Natural Health Shoppe, Inc., a Florida
corporation (the "COMPANY SUBSIDIARY"), Neal R. Heller ("NHELLER"), Elizabeth S.
Heller ("EHeller" and, collectively, with NHeller, the "HELLERS"), Daniel Stubbs
II ("STUBBS") and Arthur Keiser and Belinda Keiser (collectively, the "KEISERS"
and, with Stubbs, the "COVENANTING SHAREHOLDERS," and with the Hellers and
Stubbs, individually, a "SHAREHOLDER" and, collectively, the "SHAREHOLDERS").
The Company and the Company Subsidiary are sometimes referred to herein,
individually, as a "SELLER" and, collectively, as the "SELLERS." For purposes of
this Agreement, "Sellers" means each of the Sellers and/or, as the context
permits, either of the Sellers. Each of the foregoing parties is referred to
sometimes herein, individually, as a "PARTY" and, collectively, as the
"PARTIES." Definitions of capitalized terms are set forth in Article 10, below.
WHEREAS, the Company, is engaged in the business of providing certain
educational services and products, including through its wholly-owned
subsidiary, the Company Subsidiary;
WHEREAS, the Shareholders collectively own all of the issued and
outstanding stock of the Company (the "COMPANY STOCK") and, therefore, will
benefit from the transactions described herein and, therefore, are willing to
undertake the obligations thereon described herein; and
WHEREAS, SLL and Buyer, an indirect wholly-owned Subsidiary of SLL,
desire to purchase from the Company and the Company Subsidiary, and the Company
Subsidiary desires to sell to SLL and Buyer, on a going concern basis,
substantially all of the assets, properties and business of the Company and the
Company Subsidiary pursuant to the terms set forth herein.
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants and agreements herein contained, and intending to be legally bound
hereby, the Parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS; CLOSING, ETC.
1.1 PURCHASE AND SALE. On the terms and subject to the conditions set
forth herein, on the Closing Date, the Sellers shall sell, transfer, assign,
convey and deliver to SLL and Buyer, on a going concern basis, all of the
rights, title and interest of the Sellers in and to all of the tangible and
intangible assets and properties of every kind and description owned by the
Sellers or in which either of the Sellers has an interest as of the Closing
Date, wherever located (the "PURCHASED ASSETS "). SCHEDULE 1.1 identifies (i)
all of the machinery, equipment, vehicles, furniture and other personal property
owned by the Sellers or used by the Sellers in the operation of their businesses
having a fair market value of one hundred dollars ($100.00) or more, identifying
which such assets are owned by each of the Sellers and (ii) which of the
Purchased Assets are being acquired by SLL (the "SLL PURCHASED ASSETS") and
which of the Purchased Assets are being acquired by Buyer. Notwithstanding the
foregoing, SLL may assign on or before the Closing Date its rights (but not its
obligations) to acquire the Purchased Assets in accordance with this Agreement
to Steiner U.S. Holdings, Inc., a direct, wholly-owned U.S. subsidiary of SLL,
which, in turn, may re-assign such rights to its wholly-owned U.S. subsidiary
which may re-assign such rights to Buyer. In the event of such assignments, the
Sellers shall transfer the Purchased Assets which would otherwise be acquired by
SLL or its wholly-owned U.S. subsidiaries directly to Buyer. Notwithstanding any
such assignments, SLL and any of such Subsidiaries which are assignees pursuant
to this Section 1.1 shall continue to have the right (but not the obligation) to
enforce their rights against the Sellers and the Shareholders under this
Agreement on behalf of, and for the benefit of Buyer.
(a) All of the assets reflected on the balance sheet contained in
the June 1999 Financials, except those disposed of or converted into cash after
June 30, 1999, in the ordinary course of business consistent with past practice;
(b) All cash on hand and in bank accounts, cash equivalents,
drafts, accounts, notes, trade and accounts receivable which will include (i)
cash in the amount of thirty thousand dollars ($30,000.00) for working capital
and (ii) cash in the amount of thirty thousand dollars ($30,000) for
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<PAGE> 6
use in remediating problems related to year 2000 matters, less an amount equal
to the amount expended by the Company in connection with compliance by the
Company with the condition set forth in Section 5.1(m), below, up to eight
thousand dollars ($8,000).
(c) All inventories, including, raw materials, supplies,
work-in-process, finished goods, goods on consignment and other materials
included in the inventories of the Sellers (the "INVENTORIES");
(d) All of the rights under the Governmental Approvals then held
by the Sellers which by their respective terms may be assigned by the Sellers.
(e) All machinery, equipment, vehicles, furniture, fixtures,
office equipment and other personal property owned or used by the Sellers or
connected with their businesses, including all of the personal property listed
or referred to in SCHEDULE 3.17(C).
(f) All trademarks, trade names, servicemarks, brands and
copyrights (and all goodwill associated therewith), registered or unregistered,
and the applications for registration thereof and the foreign and domestic
patents, patent rights and applications therefor and any licenses relating to
any of the foregoing;
(g) The agreements and commitments listed or described in SCHEDULE
3.20;
(h) All lists of students, suppliers and other vendors,
correspondence and other document files; processes; computer software; manuals
or business procedures; inventions; improvements, trade secrets, technical
knowledge, know how and other proprietary or confidential information used in or
relating to the businesses of the Sellers including related procedures, files
and manuals and all source and object codes and documentation related thereto;
(i) All of the Sellers' rights, claims, rights of offset or causes
of action against third parties, including, without limitation, those (i)
arising under warranties from vendors and others in connection with the assets,
properties and business to be sold hereunder or (ii) relating to any of the
Assumed Liabilities;
(j) All books and records (including all data and other
information stored on discs, tapes or other media) of the Sellers relating to
any of their assets, properties, business and operations;
(k) Each of the Sellers' interest in and to all telephone, telex
and telephone facsimile numbers and telephone and other directory listings
utilized in connection with its business; and
(l) All other tangible and intangible property, assets and rights
of every kind or nature owned by the Sellers or used by the Sellers in the
operation of its business, whether or not specifically referred to in this
Agreement and whether or not reflected on the books of the Sellers as an asset.
At Closing, all of the Purchased Assets shall be transferred by the
Sellers to Buyer free and clear of any and all Liens except for those Liens
identified on SCHEDULE 1.1, and shall be transferred subject only to the
liabilities to be specifically assumed by Buyer pursuant to Section 1.3, below.
1.2 EXCLUDED ASSETS. Notwithstanding the provisions of Section 1.1,
above, the Purchased Assets shall not include the following (herein referred to
as the "EXCLUDED ASSETS"):
(a) All corporate minute books and stock transfer books and the
corporate seal of the Sellers; and
(b) the account receivable due from NHeller as of the Closing Date
with respect to monthly payments made by the Company on behalf of the Hellers to
Pointe Bank.
1.3 ASSUMED LIABILITIES. On the Closing Date, Buyer shall deliver to
the Sellers an assumption agreement in form mutually acceptable to Buyer and the
Sellers, pursuant to which Buyer shall assume and agree to discharge the
following obligations and liabilities of the Sellers in accordance with their
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<PAGE> 7
respective terms and subject to the respective conditions thereof (the
"ASSUMPTION AGREEMENT"):
(a) All accounts payable not more than thirty (30) days old as of
the Closing Date;
(b) All liabilities and obligations existing under agreements and
commitments (i) listed under Schedule 3.20(c), with the exception of Items 1 and
2 and (ii) incurred in the ordinary course of business from the date hereof
through the Closing Date; and
(c) All liabilities and obligations existing pursuant to (i)
leases currently existing with respect to the Real Property on which the
facilities listed on schedule 1.6(d) are located and (ii) personal property
leases set forth on SCHEDULE 3.17(A).
The foregoing liabilities and obligations to be assumed by Buyer
hereunder (excluding any Excluded Liabilities) are referred to herein as the
"ASSUMED LIABILITIES."
1.4 EXCLUDED LIABILITIES. Buyer shall not assume or be obligated to
pay, perform or otherwise discharge any liability or obligation of the Sellers,
direct or indirect, known or unknown, absolute or contingent, whether or not
relating to or arising from the Purchased Assets or any rights transferred by
the Sellers to Buyer pursuant to the provisions hereof, not expressly assumed by
Buyer pursuant to the Assumption Agreement (all such liabilities or obligations
not being assumed being herein called the "EXCLUDED LIABILITIES") and, among
others, the following shall be Excluded Liabilities for the purposes of this
Agreement:
(a) Any liabilities of the Sellers in respect of Taxes of the
Sellers or any of its Subsidiaries, or the Shareholders;
(b) Any liabilities in respect of Taxes applicable to the
Purchased Assets for all periods or activities of the Sellers ending on or
before the Closing Date, regardless of when assessed and including any interest
or penalties thereon;
(c) Any intercompany payables and other liabilities or obligations
of the Sellers to any of their Affiliates or any of the Shareholders or their
Affiliates;
(d) Any costs and expenses incurred by the Sellers or any of the
Shareholders incident to the negotiation and preparation of this Agreement and
their performance and compliance with the agreements and conditions contained
herein;
(e) Any liabilities or obligations in respect of any Excluded
Assets;
(f) All liabilities and obligations related to, associated with or
arising out of (i) the occupancy, operation, use or control any real property
used in the operation of the businesses of the Sellers on or prior to the
Closing Date; or (ii) the operation of the businesses of the Sellers on or prior
to the Closing Date, in each case incurred under or imposed by any Environmental
Laws;
(g) All liabilities and obligations arising from or in connection
with any tortious conduct or purported tortious conduct of the Sellers or any
representative of the Sellers or any agreement or arrangement or purported
agreement or arrangement entered into by or on behalf of the Sellers other than
in the ordinary course of the Sellers' businesses;
(h) All liabilities and obligations under any ERISA Employee
Benefit Plan or any Employment Agreement; or
(i) Any liabilities or obligations of the Sellers which arise or
are asserted or incurred by reason of events, acts or transactions occurring, or
the operation of their respective businesses, on or prior to the Closing Date
other than trade payables or other liabilities of the Sellers incurred in the
ordinary course of the Sellers' business that are not more than thirty (30) days
old as of the Closing Date.
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1.5 PURCHASE PRICE. As consideration for its purchase of the Purchased
Assets, Parties shall make the following deliveries at the Closing:
(a) Buyer shall deliver to the Sellers, subject to allocation
between the Sellers as of the Closing Date, the sum of one million six hundred
sixty thousand dollars (U.S. $1,660,000.00) via wire transfer of funds;
(b) [INTENTIONALLY OMITTED]
(c) Buyer shall deliver to the escrow agent agreed to by the
Sellers and the Buyer Parties (the "ESCROW AGENT"), to be held pending receipt
of the Required Governmental Approvals pursuant to the terms of an escrow
agreement substantially in the form attached hereto as EXHIBIT 1.5(C) (the
"ESCROW AGREEMENT"), an aggregate of five million eight hundred thousand dollars
(U.S. $5,800,000.00) via wire transfer of funds, five million three hundred
thousand dollars ($5,300,000.00) of which would be released upon the receipt of
the Required Governmental Approvals and Five Hundred Thousand Dollars (US
$500,000) of which would be held through the date that is six (6) months after
the Closing Date to provide funds to be used to be paid as indemnification to
the Buyer Parties as provided in Section 8.2, below; and
(d) SLL shall deliver to the Escrow Agent to be held pending
receipt of the Required Governmental Approvals pursuant to the terms of the
Escrow Agreement the number of common shares of SLL (the "SLL SHARES") equal to
one million dollars (U.S. $1,000,000) divided by a number equal to the average
closing bid price per share for the common shares of SLL as determined in
writing by ING Baring Furman Selz LLC during a period consisting of the third
Nasdaq National Market trading day prior to the Closing Date and the ten (10)
consecutive trading days prior to such day. If the number of SLL Shares
determined as aforesaid includes a fractional share, that share shall be rounded
up to the next highest full share.
(e) Buyer shall deliver to the Covenanting Shareholders a total of
forty thousand dollars (U.S. $40,000) in consideration of the covenants of the
Covenanting Shareholders set forth in Section 9.1, below, to be delivered as
follows: to each of the Keisers, fifteen thousand dollars (U.S. $15,000), and to
Stubbs, ten thousand dollars (U.S. $10,000).
1.6 CONTINGENT CONSIDERATION. As additional consideration for the
Company Stock, and subject to the indicated conditions, the Company shall be
entitled to receive the following amounts:
(a) If the earnings before interest, taxes, depreciation and
amortization ("EBITDA") of the Company Business for the period from August 16,
1999 through December 31, 1999, as derived from the audited financial statements
of Buyer for calendar year 1999, equals or exceeds five hundred thousand dollars
(U.S. $500,000) (the A1999 THRESHOLD AMOUNT"), then Buyer shall pay to the
Company an amount equal to ten dollars (U.S. $10.00) multiplied by each dollar,
up to $100,000, that the EBITDA exceeds the 1999 Threshold Amount.
Notwithstanding the foregoing, if the Closing Date is changed to other than
August 16, 1999, the 1999 Threshold Amount shall be reduced or increased, as the
case may be, on a pro rata basis to reflect the longer or shorter time period
created by such change in the Closing Date. Any payment to be made pursuant to
this Section 1.3(a) shall be made within thirty (30) days after the filing by
SLL with the SEC (the "FILING") of SLL's Annual Report on Form 10-K (the " FORM
10-K") for calendar year 1999.
(b) If the EBITDA of the Company Business for calendar year 2000,
as derived from audited financial statements of the Buyer for calendar year
2000, equals: (i) one million dollars (U.S. $1,000,000) (the "BASE AMOUNT"),
then Buyer shall pay to the Company the sum of two hundred fifty thousand
dollars (U.S. $250,000); or (ii) one million two hundred seventy-five thousand
dollars (U.S. $1,275,000) (the "TOP AMOUNT"), then Buyer shall pay to the
Company the sum of seventy hundred fifty thousand dollars ($750,000). If the
EBITDA of the Company Business for calendar year 2000 is greater than the Base
Amount, but less than the Top Amount (such amount between those two amounts
being referred to herein as the "DIFFERENCE"), then Buyer shall pay to the
Company the sum of two hundred fifty thousand dollars (U.S. $250,000) plus an
amount equal to the product of (i) the percentage of two hundred seventy-five
thousand dollars (U.S. $275,000) represented by the Difference multiplied by
(ii) five hundred thousand dollars (U.S. $500,000). Any payments to be made
pursuant to this Section 1.6(b) shall be made within thirty (30) days after the
Filing of the Form 10-K for calendar year 2000.
(c) If the EBITDA for the Company Business for calendar year 2001,
as derived from the audited financial statements of the Buyer for calendar year
2001, equals or exceeds (i) one million four hundred thousand ($1,400,000) (the
"SECOND BASE AMOUNT"), then Buyer shall pay to the Company the sum of two
hundred fifty thousand dollars ($250,000); or (ii) one million six hundred
eighty-three thousand dollars ($1,683,000) (the "SECOND TOP AMOUNT"), then Buyer
shall pay to the Company the sum of seven hundred fifty thousand dollars
($750,000). If the EBITDA of the Company Business for calendar year 2001 is
greater than the Second Base Amount, but less than the Second Top Amount (such
amount between those two amounts being referred to herein as the "SECOND
DIFFERENCE"), then Buyer shall pay to the Company the sum of two hundred fifty
thousand dollars
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<PAGE> 9
(U.S. $250,000) plus an amount equal to the product of (i) the
percentage of the two hundred sixty three thousand dollars (U.S. $263,000)
represented by the Second Difference multiplied by (ii) five hundred thousand
dollars (U.S. $500,000). Any payments to be made pursuant to this Section 1.6(c)
shall be made within thirty (30) days after the Filing of the Form 10-K for
calendar year 2001.
(d) For purposes of this Section 1.6, "COMPANY BUSINESS" shall
mean revenues from the four schools and bookstores operated by the Sellers
immediately prior to the Closing and which are identified on SCHEDULE 1.6(d).
(e) The determinations of EBIDTA for the periods described in
Sections 1.6(a), 1.6(b) and 1.6(c), above, respectively, shall be as agreed to
by Arthur Andersen and an accounting firm selected by the Sellers (the "SELLERS'
ACCOUNTANTS")within twenty (20) days after Arthur Andersen has issued its report
with respect to the audited financial statements in question (the "REPORT
DATE"). If within such 20-day period, Arthur Andersen and the Sellers'
Accountants cannot agree with respect to the EBIDTA for the period in question,
then Arthur Andersen shall, within ten (10) days after the end of such 20-day
period, select an accounting firm reasonably acceptable to the Sellers'
Accountants (the "OTHER ACCOUNTANTS") which shall be required, within thirty
(30) days after its selection, to make a determination as to the EBIDTA for the
period in question, which determination shall be binding on the Parties.
Notwithstanding the foregoing, if the Sellers shall not have designated the
Sellers' Accountants within ten (10) days after the Report Date, or, if the
Other Accountants shall not have made a determination as to the EBIDTA for the
period in question, then the EBIDTA for the period in question shall be as set
forth in the applicable audited financial statements. With respect to the
services to be performed as described in this Section 1.6(e), the fees for the
Sellers' Accountants and the Other Accountants shall be the sole responsibility
of the Sellers. The fees of Arthur Andersen shall be the sole responsibility of
Buyer.
(f) In computing EBITDA for purpose of this Section 1.6, (i) there
shall be no deduction for, or allocation of, general corporate overhead expense
of SLL or any other costs, expenses or deductions attributable to SLL or any
subsidiaries of SLL, including Buyer, other than the applicable deduction for,
or allocation of corporate overhead expense and other costs, expenses or
deductions allocable to the Company Business and (ii) no change after the
Closing Date by Buyer or SLL in any accounting policies applicable to the
Company Business on the date of each of the Financial Statements shall be deemed
applicable to the determinations of EBITDA for purposes of this Section 1.6.
(g) SLL agrees to guaranty the payment when due of all amounts
that may become due to the Sellers from Buyer under Section 1.6(a), 1.6(b) and
1.6(c), above.
1.7 ALLOCATION OF PURCHASE PRICE. Within 30 days after completion of
the August Financials, Buyer shall deliver to the Sellers a schedule (the
"ALLOCATION SCHEDULE") allocating the Cash Consideration (including, for the
purpose of this Section 1.7, any other consideration paid to the Sellers and the
Covenanting Shareholders, including Assumed Liabilities), among the Purchased
Assets and the covenant not to compete granted pursuant to Section 9.1. The
parties agree that the allocation of the Cash Consideration to the Purchased
Assets being sold by the Company Subsidiary shall not exceed the book value of
such assets as reflected in the books and records of the Company Subsidiary. The
Allocation Schedule shall be reasonable and shall be prepared in accordance with
Section 1060 of the Code and the regulations thereunder. The Sellers agree that
promptly after receiving the Allocation Schedule, it shall sign the Allocation
Schedule and return an executed copy thereof to Buyer. Buyer and the Sellers
each agree to file Internal Revenue Service Form 8594, and all Returns, in
accordance with the Allocation Schedule. Buyer, on the one hand, and the
Sellers, on the other hand, agree to provide the other promptly with any other
information required to complete Form 8594. The allocation of the Cash
Consideration and any other consideration paid to the Sellers and the
Covenanting Shareholders hereunder shall in no event limit the liability of the
Sellers and the Shareholders with respect to damages, liabilities or expenses
incurred by the Buyer Parties or the other SLL Indemnified Parties with respect
to any breach of any representations, warranties, covenants or agreements made
by the Sellers or the Shareholders hereunder.
1.8 REPLACEMENT OF LEASE DEPOSIT. If the Lease Deposit Replacement is
not effected prior to the Closing Date, effective as of the Closing Date, Buyer
shall, if it receives an assignment, on terms reasonably satisfactory to Buyer,
of the certificate of deposit currently used as credit support in connection
with the lease of the
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<PAGE> 10
Company's Pompano Beach facilities (the "CURRENT CD") pay to NHeller the sum of
One Hundred Thousand Dollars ($100,000) via wire transfer of funds.
1.9 OTHER CLOSING DELIVERIES. At the Closing,
(a) The Sellers will deliver to the Buyer Parties the various
certificates, instruments and other documents specified in Section 6.1, below;
(b) The Buyer Parties will deliver to the Sellers the cash
described in Section 1.5(a);
(c) The Buyer Parties will deliver to the Escrow Agent the cash
described in Section 1.5(c);
(d) The Buyer Parties will deliver to the Sellers the various
certificates, instruments and documents referred to in Section 6.2, below; and
(e) SLL will deliver to the Escrow Agent a certificate or
certificates representing the SLL Shares, which certificates shall contain a
legend substantially in the following form:
The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or
the securities laws of any state. Such shares may not be sold
or transferred in the absence of such registration or an
opinion of counsel satisfactory to the issuer that such
registration is not required by said act or applicable state
laws.
1.10 CLOSING. The closing of the transactions contemplated by this
Agreement (the "CLOSING") shall take place at such location as the Parties may
agree at 10:00 a.m. on August 16, 1999 or, if evidence reasonably satisfactory
to the Buyer Parties of the receipt of all waivers with respect to the need for
a greater period of time between the date hereof and the Closing Date has not
been delivered to the Buyer Parties by August 15, 1999, on such other date or
time as the Parties may mutually agree (the "CLOSING DATE").
1.11 UNWINDING CONTINGENCY In the event that the Required Governmental
Approvals have not been procured on or before December 31, 1999, subject to
extension by the Sellers to April 15, 2000 by notice to the Buyer Parties on or
before the Closing Date, then the transactions described herein (the
"TRANSACTIONS") shall be rescinded and Buyer shall re-transfer to the Company
and Company Subsidiary the Purchased Assets and the Company and the Company
Subsidiary shall assume the Assumed Liabilities. For purposes of this Section
1.11, (a) the Purchased Assets include all earnings, income, cash and other
assets similar to the Purchased Assets, and (b) the Assumed Liabilities include
all obligations or liabilities, arising after the Closing Date from the
operation of the business of the Company or the Company Subsidiary after such
Closing Date through and including the date the Purchased Assets are
re-transferred to the Company and Company Subsidiary (the "UNWIND CLOSING
DATE"). In the event of such rescission of the Transactions, all income earned
with respect to the Purchased Assets will be returned to the Sellers. If the
Transactions are rescinded pursuant to this Section 1.11, they shall be
rescinded as of the Closing Date and each of the Buyer Parties, the Sellers and
the Shareholders shall take reasonable actions to place each other from an
economic perspective in the same relative position they would have been in if
the Transactions had never occurred. Notwithstanding the foregoing, in the event
that the Transactions are rescinded, the Sellers shall be entitled to retain an
amount of cash equal to the amount paid by the Sellers on the Closing Date to
repay the Company's loan (the "CURRENT LOAN") from Pointe Bank (the "LOAN
AMOUNT"), which amount will be no greater than one million two hundred thousand
dollars ($1,200,000.00), provided that on the Unwind Closing Date the Company
shall deliver, in forms reasonably satisfactory to the Buyer Parties, (a) a
promissory note payable to Buyer having a principal amount equal to the Loan
Amount and having the same terms as the promissory note issued in connection
with the Current Loan (the "NEW NOTE") and (b) documentation creating (i)
security interests in favor of the Buyer Parties in connection with the New Note
covering all of the Purchased Assets and any other assets that thereafter may be
owned by the Sellers and all of outstanding Capital Stock of the Sellers and
(ii) personal guaranties of the New Note by the Hellers. If the Transactions are
so rescinded, it is the intention of the Parties that the transactions be deemed
never to have occurred for Tax purposes and the parties shall file all Returns
consistent with such intention. Any disputes with respect to the procedures for,
and actions with respect to the unwinding of the Transactions will be subject to
resolution by an individual selected by agreement of the Sellers and the Buyer
Parties prior to the Closing Date (the "UNWIND ARBITER"). Commencing as of the
Unwind Closing Date, each of the Hellers and each of the Sellers, jointly and
severally, shall indemnify and hold harmless the SLL Indemnified Parties from
all of the Assumed Liabilities and any Damage Claims that arise from, are based
on or relate to or are otherwise
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<PAGE> 11
attributable to the conduct after the Unwind Closing Date of the businesses
represented by the Purchased Assets (the "PURCHASED ASSET BUSINESS"). Commencing
as of the Unwind Closing Date, the Buyer Parties, jointly and severally, shall
indemnify and hold harmless each of the Seller Indemnified Parties from any
Damage Claims that arise from, are based on or are otherwise attributable to the
conduct after the Unwind Closing Date of the businesses of SLL and its
Subsidiaries other than the Purchased Assets Business. The indemnification
provided for in this Section 1.11 will be subject to the procedures for
indemnification set forth in Article VIII, other than Section 8.6 thereof.
Notwithstanding the foregoing, in the event that the Required Governmental
Approvals are not received as a result of (a) the failure of the Buyer Parties
to comply with their obligations under Section 7.8, below, or (b) a fact or
circumstance, the existence of which means that an untrue of a material fact or
an omission to state a material fact necessary in order to make the statements
made in the document in question referenced below not misleading was contained
in the Form 10-K for calendar year 1999 or the Quarterly Report on 10-Q of SLL
for the quarter ended June 30, 1999, then, in either of the cases referenced in
clauses (a) and (b) of this sentence, above, no rescission of the transactions
described herein shall take place pursuant to this Section 1.11.
ARTICLE II
REPRESENTATIONS AND WARRANTIES WITH
RESPECT TO THE SHAREHOLDERS
Each of the Shareholders, severally and not jointly, represents and
warrants to the Buyer Parties that all of the representations and warranties in
this Article II with respect to such Shareholders are true, correct and complete
as of the date of this Agreement and will be true and complete as of the Closing
Date.
2.1 POWER OF THE SHAREHOLDERS. Each of the Shareholders has the full
power, legal capacity and authority to execute and deliver this Agreement and
each other Transaction Document to which such Shareholder is a party and to
perform such Shareholder's obligations under this Agreement and under all other
Transaction Documents to which such Shareholder is a party. This Agreement
constitutes, and each such other Transaction Document, when executed and
delivered by such Shareholder, will constitute, the legal, valid and binding
obligation of such Shareholder, enforceable against such Shareholder in
accordance with its terms, except as that enforceability may be (i) limited by
any applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights generally and (ii) subject
to general principles of equity (regardless of whether that enforceability is
considered in a proceeding in equity or at law).
2.2 NO CONFLICTS OR LITIGATION. The execution, delivery and performance
by each of the Shareholders of this Agreement and the other Transaction
Documents to which such Shareholder is a party do not and will not (a) violate
or conflict with any Governmental Requirement, (b) breach or constitute a
default under any agreement or instrument to which such Shareholder is a party
or by which such Shareholder or any of such Shareholder's shares of the Company
Stock is bound, (c) result in the creation or imposition of, or afford any
Person the right to obtain, any Lien upon any of the shares of the Company Stock
owned by such Shareholder (or upon any revenues, income or profits of such
Shareholder therefrom). No Litigation is pending or, to the knowledge of any
Shareholder, threatened to which such Shareholder is or may become a party which
(a) questions or involves the validity or enforceability of any of the
obligations of such Shareholder under any Transaction Document or (b) seeks (or
reasonably may be expected to seek) (i) to prevent or delay the consummation by
such Shareholder of the transactions contemplated by this Agreement to be
consummated by such Shareholder or (ii) damages in connection with any
consummation by such Shareholder of the transactions contemplated by this
Agreement.
2.3 CONSENTS. Except as set forth on SCHEDULE 2.4, no consent,
approval, exemption or authorization is required to be obtained from, no notice
is required to be given to and no filing is required to be made with any Person
(including, without limitation, any Governmental Authority and instrumentality
or court of competent jurisdiction) by such Shareholder (a) in order to
authorize or permit the consummation by such Shareholder of the transactions
contemplated by this Agreement and the other Transaction Documents or (b) under
or pursuant to any Governmental Approval held by or issued to such Shareholder
(including, without limitation, educational, environmental, health, safety and
operating permits and licenses) by reason of this Agreement or any of the other
Transaction Documents or the consummation of the transactions contemplated
hereby or thereby.
2.4 NO BROKERS. None of the Shareholders has, directly or indirectly,
in connection with this Agreement or the transactions contemplated hereby (a)
employed any broker, finder or agent or (b) agreed to pay or incurred any
obligation to pay any broker's or finder's fee, any sales commission or any
similar form of compensation.
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2.5 PREEMPTIVE AND OTHER RIGHTS. None of the Shareholders owns or
otherwise has any statutory or contractual preemptive or other right of any kind
(including any right of first offer or refusal) to acquire any securities of the
Sellers.
2.6 CONTROL OF RELATED BUSINESSES. Except as disclosed in SCHEDULE 2.7,
none of the Shareholders is, alone or with one or more other Persons, the
controlling Affiliate of any Entity, business or trade (other than the Sellers)
that (a) is engaged in any line of business which is the same as or similar to
any line of business in which the Sellers are engaged or (b) except as disclosed
in the notes to the December 1998 Financials, is, or has engaged in any
transaction with the Sellers, except for transactions in the ordinary course of
business of the Sellers.
2.7 SECURITIES MATTERS. The Shareholders acknowledge that after the SLL
Shares are released (if at all) from the escrow described in Section 1.5(d),
above, the Company may distribute the SLL shares to the Shareholders in a
transaction exempt from the registration requirements of the Securities Act.
Each of the Shareholders acknowledges that (a) such Shareholder has (i) received
and reviewed copies of the following SLL documents: Form 10-K for 1998,
Quarterly Report on Form 10-Q for the First Quarter of 1999 and proxy statement
in connection with SLL's 1999 annual meeting of shareholders; (ii) access
through the Internet at the SEC's website to all of SLL's filings with the SEC
since SLL's initial public offering and has reviewed each of these filings as
such Shareholder has deemed appropriate; (iii) such knowledge and experience in
business and financial matters so as to be able to evaluate the merits and risks
of an investment in the SLL Shares and (iv) had the opportunity to ask questions
of the officers of SLL and receive answers thereto with respect to the business
and financial condition of SLL, the transactions contemplated hereby and such
additional matters as such Shareholder has requested, and receive such documents
relating to the foregoing as such Shareholder has reasonably requested in order
to evaluate the merits and risks of an investment in the SLL Shares; and (b) the
SLL Shares have not been, and will not be registered under the Securities Act,
or under any state securities laws, and are being offered and sold in reliance
upon exemptions from registration under applicable federal and state law for
transactions not involving any public offering; (c) such Shareholder, upon any
distribution of any of the SLL Shares to such Shareholder, is acquiring the SLL
Shares for such Shareholder's own account for investment and not with a view to
the resale or distribution thereof; (d) such Shareholder is able to bear the
economic risk of holding the SLL Shares during the period that the SLL Shares
may not be disposed of under applicable securities laws; (e) such Shareholder is
a bona fide resident of the State of Florida; and (f) such Shareholder has an
individual net worth, or joint net worth with such Shareholder's spouse, in
excess of $1,000,000, or had an individual income in excess of $200,000 in each
of the two most recent years or joint income with such Shareholder's spouse in
excess of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level in the current year.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
WITH RESPECT TO THE COMPANY
Each of the Sellers and the Hellers, jointly and severally, represents
and warrants to the Buyer Parties that all of the representations and warranties
in this Article III are true and complete as of the date of this Agreement and
will be true, correct and complete as of the Closing Date.
3.1 ORGANIZATION. SCHEDULE 3.1 sets forth the Organization State of
each of the Sellers. Each of the Sellers (a) is a corporation duly organized,
validly existing and in good standing under the laws of its Organization State,
(b) has all requisite corporate power and authority under those laws and its
Charter Documents to own or lease and to operate its properties and to carry on
its business as now conducted and (c) is duly qualified and in good standing as
a foreign corporation in all jurisdictions in which it owns or leases property
or in which the carrying on of its business as now conducted so requires.
3.2 QUALIFICATION. SCHEDULE 3.2 lists all the jurisdictions in which
the Sellers are authorized or qualified to own or lease and to operate its
properties or to carry on its business as now conducted, and neither of the
Sellers owns, leases or operates any properties, or carries on its business, in
any jurisdiction not listed in SCHEDULE 3.2.
3.3 CHARTER DOCUMENTS AND RECORDS; NO VIOLATION. The Sellers have
caused true, complete and correct copies of the Charter Documents, each as in
effect on the date hereof, and the minute books and similar
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corporate or other Entity records of each of the Sellers to be delivered to
Buyer. No breach or violation of any Charter Document of the Sellers has
occurred.
3.4 NO DEFAULTS. Except as set forth in SCHEDULE 3.4, no condition or
state of facts exists, or, with the giving of notice or the lapse of time or
both, would exist, which (a) entitles any holder of any outstanding
Indebtedness, or any Guaranty not constituting Indebtedness, of the Sellers, or
a representative of that holder, to accelerate the maturity, or require a
mandatory prepayment, of that Indebtedness or Guaranty, or affords that holder
or its representative, or any beneficiary of that Guaranty, the right to require
the Sellers to redeem, purchase or otherwise acquire, reacquire or repay any of
that Indebtedness, or to perform that Guaranty in whole or in part, (b) entitles
any Person to obtain any Lien upon any properties or assets constituting any
part of the business of the Sellers (or upon any revenues, income or profits of
any of the Sellers therefrom) or (c) constitutes a violation or breach of, or a
default under, any Material Agreement of the Sellers by the Sellers.
3.5 COMPANY SUBSIDIARIES; ETC. The only Subsidiary of the Company is
the Company Subsidiary, which is a wholly owned Subsidiary of the Company. No
Lien exists on any outstanding Capital Stock of the Company Subsidiary. The
Company does not own, of record or beneficially, directly or indirectly through
any Person, and does not control, directly or indirectly through any Person or
otherwise, any Capital Stock or any option, warrant or right to acquire Capital
Stock of any Entity other than the Company Subsidiary.
3.6 CAPITAL STOCK OF THE COMPANY AND THE COMPANY SUBSIDIARIES. The only
authorized stock of the Company is the Company's common stock, $.001 par value
per share, and the only shares of such common stock of the Company that have
ever been issued are the shares listed on SCHEDULE 3.6 (the "SCHEDULE 3.6
STOCK"). There are no outstanding (a) securities or instruments convertible into
or exercisable for any of the Capital Stock or other equity interests of the
Sellers or any other Person issued by the Sellers or to which the Sellers are
parties; (b) options, warrants, subscriptions or other rights to acquire Capital
Stock of the Sellers; or (c) commitments, agreements or understandings of any
kind to which either of the Sellers is a party, including employee benefit
arrangements, relating to the issuance or repurchase by the Sellers; of any
Capital Stock or other equity interests of the Sellers, any such securities or
instruments convertible into or exchangeable for Capital Stock of the Sellers,
or any such options, warrants or rights. All the Schedule 3.6 Stock and all of
the Capital Stock of the Company Subsidiary (a) have been duly authorized and
validly issued in accordance with the applicable Governmental Requirements of
their issuer's Organization State and Charter Documents and (b) are fully paid
and nonassessable. Neither of the Sellers has issued or sold any of its
outstanding Capital Stock in breach or violation of (a) any applicable statutory
or contractual preemptive rights, or any other rights of any kind (including any
rights of first offer or refusal), of any Person or (b) the terms of any
options, warrants or rights to acquire its Capital Stock which then were
outstanding. SCHEDULE 3.6 sets forth the ownership of all of the Capital Stock
of each of the Company Subsidiaries. No Person other than the Shareholders (or,
with respect to the Capital Stock of the Company Subsidiary, the Company) has
any right to vote on any matter as to which the holders of Capital Stock of the
Sellers have a right to vote.
3.7 TRANSACTIONS IN CAPITAL STOCK. Except as set forth in SCHEDULE 3.7,
(a) neither of the Sellers has any obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire or reacquire any of its equity securities
or any interests therein or to pay any dividend or make any distribution in
respect thereof; and (b) no transaction has been effected, and no action in
contemplation of the transactions described in this Agreement has been taken,
respecting the equity ownership of the Sellers.
3.8 PREDECESSOR STATUS; ETC. SCHEDULE 3.8 lists all the legal and
assumed names of all of the Predecessors of the Sellers for the past five years,
including the names of any Entities from which the Sellers previously acquired
material assets. SCHEDULE 3.8 provides a summary of how the business conducted
by the Sellers came to be so conducted by the Sellers. Except as disclosed in
SCHEDULE 3.8, neither of the Sellers has been a Subsidiary or division of
another corporation or a part of an acquisition that later was rescinded.
3.9 RELATED PARTY AGREEMENTS. SCHEDULE 3.9 sets forth all Related Party
Agreements in effect on the date hereof.
3.10 LITIGATION, ETC. Except as disclosed in SCHEDULE 3.10(A), no
Litigation is pending or, to the knowledge of either of the Hellers, threatened
to which (a) either of the Sellers is a party or (b) relates to the Sellers and
to which either of the Sellers is or may become a party. SCHEDULE 3.10(B) sets
forth a description of all matters as to which the Sellers have retained outside
counsel, independent auditors, accountants, tax advisors or other outside
consultants since January 1, 1996.
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3.11 DISCLOSURE. As of the date hereof, all Information that has been
made available to SLL by or on behalf of the Sellers prior to the date of this
Agreement, including the Schedules attached hereto, in connection with the
transactions contemplated hereby is, taken together, true and correct in all
material respects and does not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to provide the Buyer Parties
with information that is complete in all material respects as to the business,
assets, prospects, financial condition and results of operations of the Sellers.
3.12 COMPLIANCE WITH LAWS.
(a) GOVERNMENTAL APPROVALS, ETC. Except as disclosed in SCHEDULE
3.12(a)(i): (i) each of the Sellers possesses, or, if required by the applicable
Environmental Laws (including those relating to the maintenance, repair or
servicing of appliances, equipment or other products containing
chlorofluorocarbons or hydrochlorofluorocarbons) and Professional Codes, one or
more of its employees as required by those Environmental Laws and Professional
Codes possesses, all necessary Governmental Approvals required for the conduct
of its business; as presently conducted and (ii) each of the Sellers and such
one or more of their respective employees are in compliance in all material
respects with the terms and conditions of all Governmental Approvals necessary
for the ownership or lease and the operation of such Seller's properties
(including all the facilities and sites it owns or holds under any lease) and
the carrying on of its business as presently conducted. SCHEDULE 3.12(a)(ii)
discloses all the Governmental Approvals so possessed including (i) a brief
explanation as to why such Government Approval is needed and (ii) the date such
Government Approval expires. All the Governmental Approvals so listed are valid
and in full force and effect and, except as disclosed in SCHEDULE 3.12(a)(ii),
neither of the Sellers has received, nor to the knowledge of either of the
Hellers, has any employee of the Sellers received, any notice from any
Governmental Authority of its intention to, nor is there any basis for a
Government Authority to cancel, terminate, suspend or not renew any of those
Governmental Approvals. Except as disclosed in SCHEDULE 3.12(a)(ii), none of the
Governmental Approvals will be cancelled, terminated, suspended or not renewed
as a result of the execution of this Agreement or the other Transaction
Documents or the consummation of the transactions contemplated hereby or
thereby.
(b) COMPLIANCE. Except as disclosed in SCHEDULE 3.12(b): (i)
each of the Sellers and the Predecessors has been and continues to be in
compliance in all material respects with all Governmental Requirements
applicable to it or any of its presently or previously owned or operated
properties (including all the facilities and sites now or previously owned or
held by it under any lease), businesses or operations, including all applicable
Governmental Requirements under ERISA, Environmental Laws and Professional
Codes; and (ii)(A) neither of the Sellers nor any of the Predecessors has
received, nor has any employee of the Sellers received, any notice from any
Governmental Authority which asserts, or raises the possibility of assertion of,
any noncompliance with any of those Governmental Requirements and (B) no
condition or state of facts exists which would provide a valid basis for any
such assertion of non-compliance.
3.13 CERTAIN ENVIRONMENTAL MATTERS. Except as disclosed in SCHEDULE
3.13(a): (a) the Sellers and the Predecessors have complied in all material
respects, and remain in compliance in all material respects, with the provisions
of all Environmental Laws applicable to either of them or any of their
respective presently owned or operated facilities, sites or other properties,
businesses and operations and which relate to the reporting by the Sellers of
all sites presently owned or operated by any of them where Solid Wastes,
Hazardous Wastes or Hazardous Substances have been treated, stored, disposed of
or otherwise handled; (b) no release (as defined in those Environmental Laws)
at, from, in or on any site owned or operated by the Sellers has occurred which,
if all relevant facts were known to the relevant Governmental Authorities,
reasonably could be expected to require remediation to avoid deed record
notices, restrictions, liabilities or other consequences that would not be
applicable if that release had not occurred; (c) neither of the Sellers nor any
of the Predecessors (or any agent or contractor of either) has transported or
arranged for the transportation of any Solid Wastes, Hazardous Wastes or
Hazardous Substances to, or disposed or arranged for the disposition of any
Solid Wastes, Hazardous Wastes or Hazardous Substances at, any off-site location
that could lead to any claim against the Sellers, SLL, Buyer or any other
Subsidiary of SLL, as a potentially responsible party or otherwise, for any
clean-up costs, remedial work, damage to natural resources, personal injury or
property damage, including any claim under CERCLA; and (d) no storage tanks
exist on or under any of the properties owned or operated by the Sellers from
which any Solid Wastes, Hazardous Wastes or Hazardous Substances have been
released into the surrounding environment. SCHEDULE 3.13(b) lists all
environmental investigations, studies, audits, reviews and other analyses
conducted by or on behalf, or which otherwise are in the possession, of the
Sellers respecting any facility, site or other property presently owned or
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<PAGE> 15
operated by the Sellers, copies of (or, if not available, accurate written
summaries) which have been provided to SLL.
3.14 LIABILITIES AND OBLIGATIONS. SCHEDULE 3.14 lists all present
liabilities, of every kind, character and description and whether accrued,
absolute, fixed, contingent or otherwise, of the Sellers which (a) had been
incurred prior to the Current Balance Sheet Date, but are not reflected on the
Current Balance Sheet, or (b) were incurred after the Current Balance Sheet Date
otherwise than in the ordinary course of business. SCHEDULE 3.14 also lists and
describes, for each of the Sellers each of its outstanding secured and unsecured
Guaranties not constituting its Indebtedness and, for each of those Guaranties,
whether any Shareholders or Affiliate of any Shareholder is a Person whose
obligation is covered by that Guaranty, and if that item is secured by any
property or asset of the Sellers, the nature of that security.
3.15 RECEIVABLES. Except as set forth in SCHEDULE 3.15, all of the
accounts and notes or other advances receivable of the Sellers reflected on the
Current Balance Sheet were collected, or are valid and enforceable claims
arising in the ordinary course of business and are collectible, in the
respective amounts so reflected, net of the reserves, if any, reflected in the
Current Balance Sheet.
3.16 REAL PROPERTIES.
(a) Neither of the Sellers owns real property and all real
property used in the business of the Sellers is leased. SCHEDULE 3.16(a) lists
and correctly describes in all material respects all real properties of which
either of the Sellers is the lessee (the "REAL PROPERTY") and, for each of those
properties, sets forth the address thereof and the lease expiration date and any
renewal options relating thereto.
(b) The Company has provided the Buyer Parties with true,
correct and complete copies of all leases under which either of the Sellers is
leasing the properties listed in SCHEDULE 3.16 as being leased and, except as
set forth in SCHEDULE 3.16(b), (i) each of those leases is, to the knowledge of
the Hellers, valid and binding on the lessor party thereto, (ii) no Person other
than the Sellers is in possession of any portion of the Real Property and (iii)
the rental amounts payable under each of such leases are equivalent to the fair
market value of the respective leaseholds of such properties.
(c) The fixed assets of each of the Sellers are affixed only to
one or more of the Real Properties and, except as set forth in SCHEDULE 3.16(c),
are maintained in accordance with reasonable commercial operating practices and
are adequate for the purposes for which they presently are being used or held
for use, ordinary wear and tear excepted.
(d) Except as described on SCHEDULE 3.16(d), there are no (i)
pending or, to the knowledge of either of the Hellers, threatened condemnation
proceedings relating to the Real Property; (ii) pending or, to the knowledge of
either of the Hellers, threatened litigation or administrative actions relating
to the Real Property; or (ii) other matters materially adversely affecting the
current use or occupancy of the Real Property.
(e) All facilities located on the Real Property have received all
approvals of Governmental Authorities (including licenses and permits) (i)
required to be obtained by the Sellers or (ii) to the best knowledge of each of
the Hellers, otherwise required to be obtained in connection with the operation
thereof and have been operated and maintained in accordance with applicable
laws, rules and regulations.
(f) All facilities located on the Real Property are supplied with
utilities and other services necessary for the operation of such facilities,
including gas, electricity, water, telephone, sanitary sewer, and storm sewer,
all of which services are, to the best knowledge of each of the Hellers,
adequate in accordance with all applicable laws, ordinances, rules and
regulations.
(g) A list of all of the service or management contracts,
equipment, labor or material contracts, maintenance or repair contracts or other
agreements (other than the Leases) that are in force and effect and affect the
Real Property or the operation, repair or maintenance thereof is set forth in
SCHEDULE 3.16(g) (the "SERVICE CONTRACTS"). None of the Service Contracts
requires a monthly payment by the Sellers of more than two thousand dollars
($2,000.00). All Service Contracts are in full force and effect in accordance
with their respective terms and no breach of any of the Service Contracts has
occurred which would give any party thereto the right to terminate such Service
Contract or impose on the Sellers any penalty.
(h) No action has been taken, or inaction occurred, and neither of
the Sellers received no notice from any insurance carrier of any defects or
inadequacies in the Real Property or any portion thereof which would adversely
affect the insurability of the Real Property or the cost of insurance covering
any portion of the Real Property.
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<PAGE> 16
3.17 OTHER TANGIBLE ASSETS.
(a) SCHEDULE 3.17(a) discloses all leases, including capital
leases, under which the Sellers are leasing its property, plant and equipment
and other tangible assets other than real properties. Copies of each of those
leases have been provided to SLL. Except as set forth in Schedule 3.17(a), (i)
each of those leases is valid and binding on the lessor party thereto and (ii)
no Person other than the Sellers have any rights of a lessee thereunder.
(b) Except as set forth in SCHEDULE 3.17(b), all the purchased
assets of the Sellers are in good working order and condition, ordinary wear and
tear excepted, and adequate for the purposes for which they presently are being
used or held for use.
(c) The Sellers have good, valid and marketable title to all of
the Purchased Assets, including, without limitation, each item of equipment and
other personal property, tangible and intangible, included as an asset in the
June 1999 Financial Statements (other than inventory disposed of in the ordinary
course of business consistent with past practices since June 30, 1999 to Persons
other than the Sellers or Affiliates of the Sellers) and to each item of
equipment and other personal property, tangible and intangible, acquired since
June 30, 1999, free and clear of any Liens, except as disclosed on SCHEDULE
3.35. All tangible personal property owned by the Sellers or used by the Sellers
in the operation of their business is in good operating condition and in a good
state of maintenance and repair, ordinary wear and tear excepted, and is
adequate for the businesses conducted by the Sellers. Except as identified on
SCHEDULES 3.16 and 3.17(a), there are no properties or assets, tangible or
intangible, owned by any Person other than the Sellers which are used in
connection with the businesses of the Sellers.
3.18 PROPRIETARY RIGHTS. Except as set forth in SCHEDULE 3.18, each of
the Sellers owns, free and clear of all Liens or has the legal right to use all
Proprietary Rights that are necessary to the conduct of their businesses as now
conducted, in each case free, to the knowledge of either of the Hellers, of any
claims or infringements. SCHEDULE 3.18 (a) lists these Proprietary Rights and
(b) indicates those owned by the Sellers and, for those not listed as so owned,
the agreement or other arrangement pursuant to which they are possessed. Except
as set forth in SCHEDULE 3.18, (a) no consent of any Person will be required for
the use of any of these Proprietary Rights by SLL, Buyer or any Affiliate of SLL
or Buyer following the Closing and (b) no governmental registration of any of
the Proprietary Rights has lapsed or expired or been canceled, abandoned,
opposed or the subject of any reexamination request, and neither of the Hellers
is aware of any proposals or threatened action with respect to the foregoing.
3.19 RELATIONS WITH GOVERNMENTS, ETC. Neither of the Sellers nor any of
the Predecessors has made, offered or agreed to offer anything of value to any
governmental official, political party or candidate for government office which
would cause such Seller to be in violation of any Governmental Requirement.
3.20 COMMITMENTS. SCHEDULE 3.20 sets forth a complete list of each of
the following to which either of the Sellers is a party or by which any of its
properties is bound and which presently remains executory in whole or in any
part:
(a) each partnership, joint venture or cost-sharing agreement;
(b) each guaranty or suretyship, indemnification or contribution
agreement or performance bond;
(c) each instrument, agreement or other obligation evidencing or
relating to Indebtedness of either of the Sellers or to money lent or to be lent
to another Person;
(d) each agreement to purchase or sell real or personal property;
(e) each agreement for the acquisition or provision of services,
supplies, equipment, Inventory, fixtures or other property involving more than
$5,000 in the aggregate;
(f) each agreement containing any noncompetition agreement or
covenant;
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<PAGE> 17
(g) forms of all agreements entered into in the ordinary course of
business of the Sellers and with respect to each such form of agreement, the
names of the parties thereto, the dates thereof and any variance from the terms
of the form in question; or
(h) each other agreement or commitment not made in the ordinary
course of business. True, correct and complete copies of all written documents
with respect to the agreements and other commitments described above, and true,
correct and complete written descriptions of all oral agreements and other
commitments described above, have heretofore been delivered or made available to
the Buyer Parties. There are no existing or asserted defaults, events of default
or events, occurrences, acts or omissions that, with the giving of notice or
lapse of time or both, would constitute defaults or events of default under any
of the agreements and other commitments described above by either of the Sellers
or, to the knowledge of either of the Hellers, any other party thereto. No
penalties have been incurred, nor are amendments pending, with respect to the
agreements and other commitments described above. The agreements and commitments
listed above are in full force and effect and are valid and enforceable
obligations of the Sellers, and, to the knowledge of either of the Hellers, the
other parties thereto in accordance with their respective terms, and no
defenses, off-sets or counterclaims have been asserted or, to the knowledge of
the Hellers, may be made by any party thereto (other than by the Sellers), nor
has either of the Sellers, as the case may be, waived any rights thereunder.
3.21 INVENTORIES. Except as set forth in SCHEDULE 3.21, all Inventories
contained in each of the Financial Statements, net of reserves determined in
accordance with GAAP, of each of the Sellers which are classified as such on the
balance sheets included in the Financial Statements are, or will be as of the
date of such balance sheet, as the case may be, to the knowledge of the Hellers,
merchantable and salable or usable in the ordinary course of business of the
Sellers. The Sellers have, and will through the Closing Date continue to have,
adequate quantities and types of Inventories to enable the Sellers to conduct
their businesses consistent with past practices and anticipated operations.
Neither of the Sellers depends on any single vendor for any of its Inventories.
3.22 INSURANCE. SCHEDULE 3.22(a) sets forth a list of all insurance
policies carried by the Sellers (the "INSURANCE POLICIES"). The Insurance
Policies provide coverage for the matters covered thereby in amounts and on
terms that are adequate for the businesses currently conducted by the Sellers.
There have been no material claims by the Sellers under any insurance policies
for the most recently ended three policy years. The Company has provided SLL
with: (a) a complete list of all worker's compensation claims with respect to
the Sellers for the most recently ended three policy years; and (b) true,
complete and correct copies of all Insurance Policies, all of which (i) have
been issued by insurers of recognized responsibility and (ii) currently are, and
will remain without interruption through the Closing Date, in full force and
effect. Except as set forth in SCHEDULE 3.22(b): (a) no insurance carried by the
Sellers has been canceled by the insurer, and neither of the Sellers has been
denied insurance coverage during the past ten years; and (b) neither of the
Sellers or either of the Hellers has received any notice or other communication
from any issuer of any Insurance Policy of any cancellation or termination
thereof or any material increase in any deductibles, retained amounts or the
premiums payable thereunder, and, to the knowledge of either of the Hellers, no
such cancellation, termination or increase in deductibles, retainages or
premiums is threatened.
3.23 EMPLOYEE MATTERS.
(a) EMPLOYEES; COMPENSATION. SCHEDULE 3.23(a) sets forth a
complete list of the names, titles, location of employment and rates of annual
cash compensation, at the Current Balance Sheet Date and at the date hereof (and
the portions thereof attributable to salary or the equivalent, fixed bonuses,
discretionary bonuses and other cash compensation, respectively), of all
employees, nonemployee officers, nonemployee directors and consultants and
independent contractors of each of the Sellers.
(b) EMPLOYMENT AGREEMENTS. SCHEDULE 3.23 (b) lists all Employment
Agreements remaining executory in whole or in part on the date hereof, and the
Company has provided the Buyer Parties with true, complete and correct copies of
all those Employment Agreements. Neither the Sellers is a party to any oral
Employment Agreement other than oral promises with respect to the compensation
reflected in Schedule 3.23(a).
(c) OTHER COMPENSATION PLANS. SCHEDULE 3.23(c)(i) lists all Other
Compensation Plans either remaining executory on the date hereof or to become
effective after the date hereof. The Company has provided the Buyer Parties with
a true, correct and complete copy of each of the Other Compensation Plans that
is in writing and an accurate written description of each of the Other
Compensation Plans that is not written. Except as set forth in
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SCHEDULE 3.23(c)(ii), each of the Other Compensation Plans, including each that
is a Welfare Plan, may be unilaterally amended or terminated by the Sellers
without liability to any of them, except as to benefits accrued thereunder prior
to that amendment or termination.
(d) BENEFIT PLANS. Neither of the Sellers maintains nor has ever
maintained, and has no liability with respect to, any ERISA Pension Benefit Plan
nor any Other Compensation Plan, whether funded or unfunded, sponsored,
maintained or contributed to or required to be contributed to by the Sellers or
by any ERISA Affiliate. Neither of the Sellers is, or at any time during the
six-year period ended on the date hereof was, a member of any ERISA Group that
currently includes, or included when a Seller was a member, among its members
any Person other than the Sellers. No Person is an ERISA Affiliate of the
Sellers (other than the Sellers, if the Sellers comprise an ERISA Group).
Neither of the Sellers, and no ERISA Affiliate of either of them, is, or at any
time was obligated to contribute to a Multiemployer Plan.
(e) EMPLOYEE POLICIES AND PROCEDURES. SCHEDULE 3.23(e) lists all
Employee Policies and Procedures. The Company has provided the Buyer Parties
with copies of all written Employee Policies and Procedures and a written
description of all material unwritten Employee Policies and Procedures.
(f) UNWRITTEN AMENDMENTS. Except as described in SCHEDULE 3.23(f),
no material unwritten amendments have been made, whether by oral communication,
pattern of conduct or otherwise, with respect to any of the Employment
Agreements, Other Compensation Plans or Employee Policies and Procedures.
(g) LABOR COMPLIANCE. Each of the Sellers and the Predecessors
have been, and each of the Sellers is in compliance in all material respects
with all applicable Governmental Requirements respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and neither of the Sellers is liable for any arrears of wages or penalties for
failure to comply with any of the foregoing. Neither of the Sellers and none of
the Predecessors thereof has engaged in any unfair labor practice or
discriminated on the basis of race, color, religion, sex, national origin, age,
disability or handicap in its employment conditions or practices. Except as set
forth in SCHEDULE 3.23(g), there are no (i) unfair labor practice charges or
complaints or racial, color, religious, sex, national origin, age, disability or
handicap discrimination charges or complaints pending or, to the knowledge of
either of the Hellers, threatened against the Sellers before any Governmental
Authority (nor, to the knowledge of either of the Hellers, does any valid basis
therefor exist) or (ii) existing or, to the knowledge of either of the Hellers,
threatened labor strikes, disputes, grievances, controversies or other labor
troubles affecting either of the Sellers (nor, to the knowledge of either of the
Hellers, does any valid basis therefor exist) including any claim or threatened
claim against the Sellers by any employee of the Sellers.
(h) UNIONS. Except as set forth in SCHEDULE 3.23(h), (i) neither
of the Sellers nor any Predecessor, nor any ERISA Affiliate of any thereof has
ever been a party to any agreement with any union, labor organization or
collective bargaining unit, (ii) no employees of the Sellers are represented by
any union, labor organization or collective bargaining unit and (iii) to the
knowledge of either of the Hellers, none of the employees of the Sellers has
threatened to organize or join a union, labor organization or collective
bargaining unit.
(i) CHANGE OF CONTROL BENEFITS. Except as set forth in SCHEDULE
3.23(i), neither of the Sellers is a party to any agreement, or has established
any policy, practice or program, requiring it to make a payment or provide any
other form of compensation or benefit or vesting rights to any person performing
services for the Sellers which would not be payable or provided in the absence
of this Agreement or the consummation of the transactions contemplated by this
Agreement, including any payment under Section 280G of the Code.
(j) RETIREES. Neither of the Sellers has any obligation or
commitment to provide medical, dental or life insurance benefits to or on behalf
of any of its employees who may retire or any of its former employees who have
retired except as may be required pursuant to the continuation of coverage
provisions of Section 4980B of the Code and the applicable parallel provisions
of ERISA.
3.24 WELFARE PLANS AND COMPLIANCE WITH ERISA.
(a) WELFARE PLANS. SCHEDULE 3.24(a) lists each Welfare Plan
maintained by the Sellers or to which the Sellers make contributions. Each
Welfare Plan has been administered in compliance with its terms and with all
applicable laws including, without limitation, ERISA and the Code. All reports,
returns and similar documents required to be filed with any governmental
authority or distributed to any such plan participant have been duly or timely
filed or distributed. True and accurate copies of each Welfare Plan, together
with all current trust
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<PAGE> 19
agreements, any required annual reports on Form 5500, the most recent financial
statements, all current summary plan descriptions and summaries of material
modifications for such plans have been furnished to SLL. All of the Welfare
Plans have been issued by insurers of recognized responsibility and currently
are, and will remain without interruption though the Closing Date, in full force
and effect. With respect to Welfare Plans qualifying as "group health plans"
under Section 4980B of the Code or Sections 607(l) or 609 of ERISA and related
regulations (relating to the benefit continuation rights imposed by "COBRA" or
qualified medical child support orders), the Sellers, all Predecessors and the
Hellers have complied (and at the Closing Date will have complied) in all
material respects with all reporting, disclosure, notice, election and other
benefit continuation and coverage requirements imposed thereunder as and when
applicable to those plans, and neither of the Sellers has incurred (or will
incur) any direct or indirect liability or is (or will be) subject to any loss,
assessment, excise tax penalty, loss of federal income tax deduction or other
sanction, arising on account of or in respect of any direct or indirect failure
by the Sellers or any Shareholder, at any time prior to the Closing Date, to
comply with any such federal or state benefit continuation or coverage
requirement, which is capable of being assessed or asserted before or after the
Closing Date directly or indirectly against the Sellers, any Shareholder, SLL or
any Subsidiary of SLL with respect to any of those group health plans. The
Sellers and the Hellers have complied (and at the Closing Date will have
complied) in all material respects with the Health Insurance Portability and
Accountability Act of 1996. No Welfare Plan is a multi-employer welfare
arrangement as defined in Section 3(40) of ERISA.
(b) NO PROHIBITED TRANSACTIONS, ETC. None of the Shareholders,
ERISA Employee Benefit Plans of the Sellers or the Sellers has engaged in any
Prohibited Transaction.
(c) CLAIMS AND LITIGATION. Except as set forth in SCHEDULE
3.24(c), no Litigation or claims (other than routine claims for benefits) are
pending or, to the knowledge of the Sellers or either of the Hellers, threatened
against, or with respect to, any of the ERISA Employee Benefit Plans of the
Sellers or with respect to any fiduciary, administrator or sponsor thereof (in
their capacities as such), or any party-in-interest thereof.
(d) EXCISE TAXES; DAMAGES AND PENALTIES. No act, omission or
transaction has occurred which would result in the imposition on the Sellers of
(i) breach of fiduciary duty liability damages under Section 409 of ERISA, (ii)
a civil penalty assessed pursuant to subsection (c), (i) or (1) of Section 502
of ERISA or (iii) any excise tax under applicable provisions of the Code with
respect to any ERISA Employee Benefit Plan.
(e) WELFARE TRUSTS. Any trust funding an ERISA Employee Benefit
Plan of the Sellers, which is intended to be exempt from federal income taxation
pursuant to Section 501(c)(9) of the Code, satisfies the requirements of that
section and has received a favorable determination letter from the IRS regarding
that exempt status and has not, since receipt of the most recent favorable
determination letter, been amended or operated in a way that would adversely
affect that exempt status.
3.25 TAXES. Each of the following representations and warranties in
this Section 3.25 is qualified to the extent set forth in SCHEDULE 3.25.
(a) All Returns required to be filed with respect to any Tax for
which the Sellers are liable have been duly and timely filed with the
appropriate Taxing Authority, each Tax shown to be payable on each such Return
has been paid, and each Tax payable by the Sellers has been timely paid and
adequate reserves have been established on the consolidated books of the Sellers
for all Taxes for which either of the Sellers is liable, but the payment of
which is not yet due. The Returns reflect accurately in all respects the Tax
liabilities of the Sellers required to be reflected therein.
(b) No Liens for Taxes exist upon the Purchased Assets except
Liens for Taxes which are not yet due.
(c) Neither of the Sellers is, or ever has been, subject to Tax in
any jurisdiction outside of the State of Florida or the United States.
(d) No audit or Litigation with respect to any Tax for which the
Sellers are asserted to be liable is pending or, to the knowledge of either of
the Hellers, threatened and no basis which the Sellers or any Seller believes to
be valid exists on which any claim for any such Tax can be asserted against the
Sellers.
(e) There are no requests for rulings or determinations in respect
of any Taxes pending between the Sellers and any Taxing Authority.
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(f) No extension of any period during which any Tax may be
assessed or collected and for which the Sellers is or may be liable has been
granted to any Taxing Authority.
(g) All amounts required to be withheld by the Sellers and paid to
governmental agencies for income, social security, unemployment insurance,
sales, excise, use and other Taxes have been collected or withheld and paid to
the proper Taxing Authority. The Sellers have made all deposits required by law
to be made with respect to employees' withholding and other employment Taxes.
(h) No Tax (including any sales or use tax, property tax,
non-recurring intangible tax, documentary stamp tax or other excise tax)
relating in any way to the Shareholders or the Sellers, the actions or inactions
of the Shareholders or the Sellers or the conduct of any business by any of the
Shareholders or the Sellers, including the conduct of business with the
Purchased Assets prior to the Closing Date, will be payable by Buyer or SLL by
virtue of the transactions contemplated by this Agreement.
3.26 GOVERNMENT CONTRACTS. Neither of the Sellers is a party to any
agreement with a governmental authority which is subject to price
redetermination or renegotiation.
3.27 ABSENCE OF CHANGES. Since the Current Balance Sheet Date, except
as set forth in SCHEDULE 3.27, none of the following has occurred with respect
to either of the Sellers:
(a) any circumstance, condition, event or state of facts (either
singly or in the aggregate), which has caused, is causing or will cause a
Material Adverse Effect;
(b) any change in its authorized Capital Stock or in any of its
outstanding Capital Stock or options, warrants or rights to acquire its Capital
Stock;
(c) any Restricted Payment, except any declaration or payment of
dividends by the Company Subsidiary solely to the Company;
(d) any increase in, or any commitment or promise to increase, the
rates of cash compensation to any employee of, or consultant to the Sellers as
of the date hereof, or the amounts or other benefits paid or payable under any
ERISA Pension Benefit Plan or Other Compensation Plan, except for ordinary and
customary bonuses and salary increases for employees (other than the
Shareholders or their family members) at the times and in the amounts consistent
with its past practice;
(e) any work interruptions, labor grievances or claims filed, or
any similar event or condition of any character, that will have a Material
Adverse Effect following the Closing Date;
(f) any distribution, sale or transfer of, or any commitment to
distribute, sell or transfer, any of its assets or properties of any kind which
singly is or in the aggregate are Material to the business of the Sellers, other
than distributions, sales or transfers in the ordinary course of its business
and consistent with its past practices to Persons other than the Shareholders
and their family members and Affiliates;
(g) any cancellation, or agreement to cancel, any Indebtedness,
obligation or other liability owing to it, including any Indebtedness,
obligation or other liability of any Shareholder or any Related Person or
Affiliate thereof, provided that the Sellers may negotiate and adjust bills in
the course of good faith disputes with customers in a manner consistent with
past practice;
(h) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of its assets, property or
rights or requiring consent of any Person to the transfer and assignment of any
such assets, property or rights;
(i) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside of
the ordinary course of its business consistent with its past practices;
(j) any waiver of any of its rights or claims that singly is or in
the aggregate with waivers of other rights or claims are Material to either of
the Sellers;
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(k) any transaction by it outside of the ordinary course of its
business or not consistent with its past practices;
(l) any incurrence by it of any Indebtedness or any Guaranty not
constituting its Indebtedness, or any commitment to incur any Indebtedness or
any such Guaranty;
(m) any investment in the Capital Stock, options, warrants, rights
to acquire the Capital Stock or the Indebtedness of any Person other than
short-term certificates of deposit of a commercial bank or trust company;
(n) any (i) capital expenditure or series of related capital
expenditures totalling, together with other capital expenditures or series of
related capital expenditures of the Sellers in excess of $100,000; or
commitments by the Sellers to make capital expenditures totaling in excess of
$100,000, all of which are described on SCHEDULE 3.27(n); or
(o) any cancellation or termination of a Material Agreement.
3.28 BANK RELATIONSHIPS; POWERS OF ATTORNEY. SCHEDULE 3.28 sets forth:
(a) the name of each financial institution with which the Sellers
have borrowing or investment arrangements, deposit or checking accounts or
safety deposit boxes;
(b) the types of those arrangements and accounts, including, as
applicable, names in which accounts or boxes are held, the account or box
numbers and the name of each Person authorized to draw thereon or have access
thereto; and
(c) the name of each Person holding a general or special power of
attorney from the Sellers and a description of the terms of each such power.
3.29 ACCREDITATIONS. SCHEDULE 3.29 sets forth a list and brief
description of each accreditation from any Governmental Authority, association
or society or other organization (an "ACCREDITATION AUTHORITY") held by the
Sellers (an "ACCREDITATION"). No cancellation, termination, expiration,
suspension or other adverse action with respect to any Accreditation is pending
or, to the knowledge of either of the Hellers, threatened.
3.30 NO CONFLICTS OR LITIGATION. The execution, delivery and
performance in accordance with their respective terms by each of the Sellers of
this Agreement and the other Transaction Documents to which such Seller is a
Party do not and will not breach or constitute a default under any agreement or
instrument to which either of the Sellers is a party or by which any of their
respective properties are bound. No Litigation is pending or, to the knowledge
of either of the Hellers, threatened to which either of the Sellers is or may
become a party which (a) questions or involves the validity or enforceability of
any of the obligations of either of the Sellers under any Transaction Document
or (b) seeks (or reasonably may be expected to seek) (i) to prevent or delay the
consummation by such Seller of the transactions contemplated by this Agreement
to be consummated by such Seller or (ii) damages in connection with any
consummation by either of the Sellers of the transactions contemplated by this
Agreement.
3.31 CONSENTS. Except as set forth in SCHEDULE 3.31, no consent,
approval, exemption or authorization is required to be obtained from, no notice
is required to be given to and no filing is required to be made with any Person
(including, without limitation, any Governmental Authority) by the Sellers (a)
in order to authorize or permit the consummation of the transactions
contemplated by this Agreement and the other Transaction Documents or (b) under
or pursuant to any Governmental Approval held by or issued to the Sellers
(including, without limitation, educational, environmental, health, safety and
operating permits and licenses) by reason of this Agreement or any of the other
Transaction Documents or the consummation of the transactions contemplated
hereby or thereby.
3.32 [INTENTIONALLY OMITTED].
3.33 [INTENTIONALLY OMITTED].
3.34 REGULATORY FINANCIAL MATTERS. Set forth on Schedule 3.34 is a
description of all of the financial requirements applicable to the Sellers
imposed by the DOE, the Florida DOE and all other Governmental
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Authorities (the "REGULATORY FINANCIAL REQUIREMENTS). The Sellers are in
compliance with all of the Regulatory Financial Requirements.
3.35 LIENS. Set forth on SCHEDULE 3.35 is a description of all Liens to
which any property owned by the Sellers is subject.
3.36 DEFAULT RATES. SCHEDULE 3.36 sets forth the rates of defaults in
payments under student loans guaranteed by the United States or any other
agencies thereof made to students of the Sellers for the years 1996 through
1998. SCHEDULE 3.36 also sets forth the requirements of the DOE with respect to
default rates which will cause a school participating in its student loan
guarantee program to cease to become eligible for such participation.
3.37 FINANCIALS STATEMENTS. Each of the Financial Statements (i) has
been, or will be when delivered to the Buyer Parties, as the case may be,
prepared in accordance with the books of account and records of the Company,
which books and records are complete and accurate; (ii) fairly present or, when
delivered to the Buyer Parties, will fairly present, as the case may be, and are
or, will be when delivered to the Buyer Parties, as the case may be, true,
correct and complete statements in all material respects of the Sellers'
financial condition and the results of their operations at the date and for the
period specified in those statements; (iii) have been or will be when delivered
to the Buyer Parties, as the case may be, prepared in accordance with GAAP
consistently applied with prior periods; and (iv) make or, when delivered to the
Buyer Parties, will make, as the case may be, full and adequate provisions for
all liabilities or obligations of the Sellers, whether accrued, absolute,
contingent or otherwise. As of the date of any balance sheet included in the
Financial Statements, neither of the Sellers then had, or will have, as the case
may be, any outstanding Indebtedness to any Person or any liabilities of any
kind (including contingent obligations, tax assessments or unusual forward or
long-term commitments), or any unrealized or anticipated loss which were not
reflected in such balance sheet. Since the Current Balance Sheet Date, no change
has occurred in the business, operations, properties or assets, liabilities,
condition (financial or other) or results of operations of the either of the
Sellers that could reasonably be expected, either alone or together with all
other such changes, to have a Material Adverse Effect.
3.38 AUTHORIZATION; ENFORCEABILITY; ABSENCE OF CONFLICTS: REQUIRED
CONSENTS.
(a) The execution, delivery and performance by each of the Sellers
of this Agreement and each other Transaction Document to which such Seller is a
party, and the effectuation of the transactions contemplated hereby and thereby,
are within its corporate or other power under its Charter Documents and the
applicable Governmental Requirements of its Organization State and have been
duly authorized by all proceedings, including actions permitted to be taken in
lieu of proceedings, required under its Charter Documents and the applicable
Governmental Requirements of its Organization State.
(b) This Agreement has been, and each of the other Transaction
Documents to which either of the Sellers is a party, when executed and delivered
to the other parties thereto, will have been, duly executed and delivered by it
and is, or when so executed and delivered will be, its legal, valid and binding
obligation, enforceable against such Seller in accordance with its terms, except
as that enforceability may be (i) limited by any applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and (ii) subject to general principles of equity
(regardless of whether that enforceability is considered in a proceeding in
equity or at law).
3.39 SECURITIES MATTERS. The Company acknowledges that (a) it has (i)
received and reviewed copies of the following SLL documents: Form 10-K for 1998,
Quarterly Report on Form 10-Q for the First Quarter of 1999 and proxy statement
in connection with SLL's 1999 annual meeting of shareholders; (ii) access
through the Internet at the SEC's website to all of SLL's filings with the SEC
since SLL's initial public offering and has reviewed each of these filings as
such Shareholder has deemed appropriate; and (iii) had the opportunity to ask
questions of the officers of SLL and receive answers thereto with respect to the
business and financial condition of SLL, the transactions contemplated hereby
and such additional matters as the Company has requested, and receive such
documents relating to the foregoing as the Company has reasonably requested in
order to evaluate the merits and risks of an investment in the SLL Shares; and
(b) the SLL Shares have not been, and will not be registered under the
Securities Act, or under any state securities laws, and are being offered and
sold in reliance upon exemptions from registration under applicable federal and
state law for transactions not involving any public offering.
3.40 CASH ON HAND; STOCKHOLDERS' EQUITY. The Cash on Hand, together
with the accounts receivable to be received in the ordinary course of business
of the Company from the students then enrolled with the Company
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during the sixty (60) day period after the Closing Date (the "STUDENT
RECEIVABLES"), is sufficient (a) to cover all of the working capital
requirements of the operations of the businesses conducted by the Sellers as of
the Closing Date for a sixty (60)-day period following the Closing Date (the
"WORKING CAPITAL NEED") and (b) to comply with Regulatory Financial Requirements
concerning the Sellers' ratio of current asset to current liabilities. The total
stockholders' equity of the Company is equal to or greater than seven hundred
thirty-eight thousand eight hundred seventy-six dollars ($738,876) (the
"STOCKHOLDERS' EQUITY AMOUNT").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND SLL
Buyer and SLL, jointly and severally, represent and warrant to the
Sellers that all of the representations and warranties in this Article IV are
true and, correct and complete as of the date of this Agreement, and will be
true and complete on the Closing Date.
4.1 ORGANIZATION; POWER. Each of the Buyer Parties is a corporation
duly organized, validly existing and in good standing under the laws of its
Organization State and has all requisite corporate power and authority under the
laws of that jurisdiction and its Charter Documents to own or lease and to
operate its properties and to carry on its business as now conducted and as
proposed to be conducted.
4.2 AUTHORIZATION; ENFORCEABILITY; ABSENCE OF CONFLICTS: REQUIRED
CONSENTS.
(a) The execution, delivery and performance by each of the Buyer
Parties of this Agreement and each other Transaction Document to which such
Buyer Party is a party, and the effectuation of the transactions contemplated
hereby and thereby, are within its corporate or other power under its Charter
Documents and the applicable Governmental Requirements of its Organization State
and have been duly authorized by all proceedings, including actions permitted to
be taken in lieu of proceedings, required under its Charter Documents and the
applicable Governmental Requirements of its Organization State.
(b) This Agreement has been, and each of the other Transaction
Documents to which either of the Buyer Parties is a party, when executed and
delivered to the other parties thereto, will have been, duly executed and
delivered by it and is, or when so executed and delivered will be, its legal,
valid and binding obligation, enforceable against such Buyer Party in accordance
with its terms, except as that enforceability may be (i) limited by any
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and (ii) subject to
general principles of equity (regardless of whether that enforceability is
considered in a proceeding in equity or at law).
4.3 NO CONFLICTS OR LITIGATION. The execution, delivery and performance
in accordance with their respective terms by each of the Buyer Parties of this
Agreement and the other Transaction Documents to which such Buyer Party is a
party do not and will not (a) violate or conflict with any Governmental
Requirement, (b) breach or constitute a default under any agreement or
instrument to which such Buyer Party is a party or by which such Buyer Party or
its properties is bound, (c) result in the creation or imposition of, or afford
any Person the right to obtain, any Lien upon any of the SLL Shares. No
Litigation is pending or, to the knowledge of either of the Buyer Parties,
threatened to which either of the Buyer Parties is or may become a party which
(a) questions or involves the validity or enforceability of any of the
obligations of the Buyer Parties under any Transaction Document or (b) seeks (or
reasonably may be expected to seek) (i) to prevent or delay the consummation by
the Buyer Parties of the transactions contemplated by this Agreement to be
consummated by the Buyer Parties or (ii) damages in connection with any
consummation by the Buyer Parties of the transactions contemplated by this
Agreement.
4.4 CONSENTS. Except as disclosed in the Schedules relating to Article
III, above, no consent, approval, exemption or authorization is required to be
obtained from, no notice is required to be given to and no filing is required to
be made with any third party (including, without limitation, any Governmental
Authority) by a Buyer Party (a) in order to authorize or permit the consummation
by the Buyer Parties of the transactions contemplated by this Agreement and the
other Transaction Documents or (b) under or pursuant to any Governmental
Approvals held by or issued to a Buyer Party (including, without limitation,
educational, environmental, health, safety and operating permits and licenses)
by reason of this Agreement or any of the other Transactional Documents or the
consummation of the transactions contemplated hereby or thereby.
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4.5 SLL SHARES. The SLL Shares, when issued to the Sellers as provided
herein, will be duly issued, fully paid and non-assessable.
4.6 SEC REPORTS AND FILINGS. Since November 13, 1996, SLL has filed
with the SEC all material forms, statements, reports and other documents
(including all exhibits, amendments and supplements thereto) required to be
filed by SLL under the Exchange Act (the "EXCHANGE ACT DOCUMENTS"), all of which
complied in all material respects with the applicable requirements of the
Exchange Act. As of their respective dates, none of the Exchange Act Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
ARTICLE V
COVENANTS EXTENDING TO THE CLOSING
5.1 ACCESS AND COOPERATION; DUE DILIGENCE.
(a) From the date hereof and until the Closing, the Sellers will
(i) afford to the Representatives of the Buyer Parties, at reasonable times,
reasonable access to the key employees, sites, properties, books and records of
each of the Sellers, (ii) provide the Buyer Parties with such additional
financial and operating data and other information relating to the business and
properties of each of the Company and the Company Subsidiaries as the Buyer
Parties may from time to time reasonably request and (iii) cooperate with the
Buyer Parties and their Representatives in the preparation of any documents or
other material that may be required in connection with any Transaction Document.
Each of the Sellers and the Shareholders will treat, and will cause the Company
to treat all Confidential Information obtained by them in connection with the
negotiation and performance of this Agreement as confidential in accordance with
the provisions of Section 11.1, below.
(b) Each of the Sellers and the Shareholders will use its best
efforts to secure, as soon as practicable after the date hereof, all approvals
or consents of third Persons as may be necessary to consummate the transactions
contemplated hereby.
(c) If this Agreement is terminated pursuant to Article XII,
below, the Buyer Parties promptly will return all written Confidential
Information of the Company they then possess to the Buyer Parties.
5.2 CONDUCT OF BUSINESS PENDING THE CLOSING. From the date hereof and
until the Closing Date, each of the Sellers will:
(a) carry on its businesses in substantially the same manner as it
has heretofore and not introduce any material new method of management,
operation or accounting;
(b) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present, ordinary
wear and tear excepted;
(c) perform all its obligations under all material written and
oral agreements relating to or affecting its business, assets or rights,
including the timely payment of all amounts due to suppliers and other vendors;
(d) maintain in full force and effect without interruption (or
replace with equivalent insurance) all its present insurance policies;
(e) use reasonable commercial efforts to (i) maintain and preserve
its business organization intact, (ii) retain the services of its present
employees and (iii) maintain its relationships with all Governmental
Authorities, including, but not limited to the DOE, the Florida DOE,
Accreditation Authorities, suppliers, customers and others having business
relations with it;
(f) comply with all applicable Governmental Requirements and
provide notice of any governmental inquiry, notice or investigation; and
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(g) except as required or expressly permitted by this Agreement,
maintain the instruments and agreements governing its outstanding Indebtedness
and leases on their present terms and not incur new or amended Indebtedness or
enter into new or amended lease instruments or agreements without the prior
written consent of SLL.
5.3 PROHIBITED ACTIVITIES. From the date hereof and until the Closing
Date, without the prior written consent of SLL or unless as required or
expressly permitted by this Agreement, neither of the Sellers will, and, with
respect to Section 5.3(o), below, none of the Shareholders will:
(a) make any change in its Charter Documents;
(b) issue any of its Capital Stock or issue or otherwise create
any options, warrants or rights to acquire any of its Capital Stock;
(c) make any Restricted Payment other than the payment of a
dividend required for the Sellers to pay taxes resulting from the Company's
election to be taxed under Subchapter AS" of the Code, which payment shall be
disclosed in writing to SLL prior to being made, together with back-up
explaining the basis of the amount thereof;
(d) make any investments (other than short-term certificates of
deposit of a commercial bank or trust company) in the Capital Stock (or options,
warrants or rights to acquire the Capital Stock) or Indebtedness of any Person;
(e) enter into any agreement or commitment or incur, or agree to
incur any liability or make any capital expenditures otherwise than in the
ordinary course of its business and consistent with its past practice;
(f) increase or commit or promise to increase the cash
compensation payable or to become payable to any of its officers, directors,
stockholders, employees or agents, consultants or independent contractors or
make any discretionary bonus or management fee payment to any such Person;
(g) create, assume or permit to be created or imposed any Liens
upon any of its assets or properties, whether now owned or hereafter acquired
other than purchase money security interests for equipment used in the ordinary
course of business consistent with prior practice and with respect to which
equipment the monthly expenditures do not exceed one thousand dollars
($1,000.00).
(h) (i) adopt, establish, amend or terminate any of its ERISA
Employee Benefit Plans, or any Other Compensation Plans or Employee Policies and
Procedures or (ii) take any discretionary action, or omit to take any
contractually required action, if that action or omission could either (A)
deplete the assets of any of its ERISA Employee Benefit Plans or any Other
Compensation Plan or (B) increase the liabilities or obligations under any such
plan;
(i) sell, assign, lease or otherwise transfer or dispose of any of
its owned or leased property or equipment otherwise than in the ordinary course
of its business and consistent with its past practice;
(j) negotiate for the acquisition of any business or the start-up
of any new business;
(k) merge, consolidate or effect a share exchange with, or agree
to merge, consolidate or effect a share exchange with any other Entity;
(l) waive any of its material rights or claims, provided that it
may negotiate and adjust bills in the course of good faith disputes with
customers in a manner consistent with past practice;
(m) commit a breach of, or amend or terminate any Material
Agreement to which it is a party including, but not limited to, the terms of any
payable or receivable and any agreement with an investor or supplier;
(n) enter into any other transaction that is not in the ordinary
course of its business and consistent with its past practice or that is
prohibited hereby; or
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(o) make or revoke any Tax election respecting the Company or any
Company Subsidiary, or take any action which result, or could result, in a
termination of the Company's status as a "Subchapter S" corporation within the
meaning of Section 1361 of the Code or the status of any Company Subsidiary as a
qualified Subchapter S subsidiary for purposes of Section 1361(b)(5) of the
Code.
5.4 NO SHOP. None of the Sellers or the Shareholders shall solicit or
encourage, directly or indirectly, any inquiries or the making or implementation
of any proposal or offer (including any proposal or offer to any of the Sellers)
with respect to a merger, acquisition, consolidation or similar transaction
involving, or any purchase of all or any significant portion of the assets or
any equity securities of, the Sellers, or engage in any activities, discussions
or negotiations concerning, or provide any Confidential Information respecting,
the Sellers or SLL or any of SLL's Subsidiaries to, or have any discussions with
any Person relating to such an offer or proposal or otherwise facilitate any
effort or attempt to make or implement such an offer or proposal. Each of the
Sellers and the Shareholders shall: (a) immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any Persons
conducted heretofore with respect to any of the foregoing, and each will take
the steps necessary to inform the Persons referred to in the first sentence of
this Section 5.4 of the obligations undertaken in this Section 5.4; and (b)
notify SLL immediately if any such inquiries or proposals are received by, any
such information is requested from or any such discussions or negotiations are
sought to be initiated or continued with the Sellers or the Shareholders.
5.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Sellers
will cause the Company to (a) satisfy any requirement for notice of the
transactions contemplated by this Agreement under applicable collective
bargaining agreements, if any, and (b) provide the Buyer Parties with proof that
any required notice has been sent.
5.6 NOTIFICATION OF CERTAIN MATTERS. The Sellers and the Shareholders
shall give prompt notice to SLL of (a) the existence or occurrence of each
condition or state of facts which will or reasonably could be expected to cause
any representation or warranty of any of the Sellers and the Shareholders
contained herein to be untrue or incorrect in any material respect at or prior
to the Closing Date and (b) any material failure of any Seller or Shareholder to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by such Seller or Shareholder hereunder. The Buyer Parties shall
give prompt notice to the Company of (a) the existence or occurrence of each
condition or state of facts which will, or reasonably could be expected to cause
any representation or warranty of a Buyer Party contained herein to be untrue or
inaccurate at or prior to the Closing Date and (b) any material failure of a
Buyer Party to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder. The delivery of any notice pursuant
to this Section 5.6 shall not be deemed to (a) modify the representations or
warranties herein of the Party delivering that notice, or any other Party, (b)
modify the conditions set forth or referred to in Article VI or (c) limit or
otherwise affect the remedies available hereunder to the Party receiving that
notice.
5.7 SUPPLEMENTAL INFORMATION. Each of the Sellers and the Shareholders
agrees that, with respect to the representations and warranties of such Party
contained in this Agreement, such Party will have the continuing obligation
until the Closing Date to provide the Buyer Parties promptly with such
additional supplemental information (collectively, the "SUPPLEMENTAL
INFORMATION"), in the form of (a) amendments to then existing Schedules or (b)
additional Schedules as would be necessary, in the light of the circumstances,
conditions, events and states of facts then known to such Seller or Shareholder
to make each of those representations and warranties true and correct as of the
Closing Date. Supplemental Information provided to the Buyer Parties shall not
be deemed to eliminate any liability of the Sellers or the Shareholders in
connection with any representation and/or warranty which is not true and
correct, except that no liability to the Sellers or the Shareholders shall arise
from any representation or warranty to the extent the misrepresentation or
omission that formed the basis for such liability is cured by Supplemental
Information received by the Buyer Parties at least three (3) business days prior
to the Closing Date and the Closing occurs.
5.8 HSR ACT MATTERS. If SLL shall determine that filings pursuant to
and under the HSR Act are necessary or appropriate in connection with the
effectuation of the transactions contemplated hereby, and advises the Company in
writing of that determination, the Hellers shall cause the Company promptly to
compile and file (or will cause its "ultimate parent entity" (as determined for
purposes of the HSR Act) to file) under the HSR Act such information respecting
it as the HSR Act requires of an Entity to be acquired, and the expiration or
termination of the applicable waiting period and any extension thereof under the
HSR Act shall be deemed a condition precedent set forth in Section 6.1.
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5.9 DEBT REPAYMENT. The Hellers shall cause the Company to repay all of
the Indebtedness of the Sellers other than the Indebtedness described on
SCHEDULE 5.9.
5.10 TAX RETURNS. The Hellers will prepare, or cause to be prepared and
filed, Returns of the Sellers. The Sellers will be responsible for the costs of
preparing and filing such Returns. Buyer will provide Sellers with reasonable
access to the books and records of Sellers included in the Purchased Assets to
assist Sellers in connection with the preparation of such Returns.
5.11 BEST EFFORTS. Subject to the terms and conditions of this
Agreement, each of the Parties shall use its best efforts in good faith to take
or cause to be taken as promptly as practicable all reasonable actions that are
within its control to cause to be fulfilled those actions upon which the
conditions precedent to the other Party's obligations to consummate the
transactions contemplated by this Agreement are dependent. Each of Buyer, the
Sellers and the Hellers shall use its best efforts to obtain all consents,
approvals, exemptions, authorizations and shall give all of the notices
described in SCHEDULE 3.31 required in connection with the consummation of the
transactions contemplated by this Agreement, including all approvals from all
Accreditation Authorities, the DOE, the Florida DOE (including with respect to
all student loan programs with respect to which the Sellers participate as of
the date hereof and on the Closing Date) and all other Governmental Authorities
required for the conduct by Buyer with the Purchased Assets after the Closing of
all of the businesses now conducted by the Sellers (the "REQUIRED GOVERNMENTAL
APPROVALS").
5.12 DEPARTMENT OF COMMERCE. The Hellers and the Sellers shall cause to
be prepared for filing the documentation required by the Department of Commerce
as a result of the transactions contemplated hereby (the "DOC FORMS").
5.13 LEASE DEPOSIT REPLACEMENT. The Hellers, the Sellers and the Buyer
Parties shall use their best efforts to cause the Current CD to be replaced by a
guaranty from SLL.
5.14 PRESERVE ACCURACY OF REPRESENTATIONS AND WARRANTIES. Each of the
Parties hereto shall refrain from taking any action which would render any
representation or warranty contained in this Agreement inaccurate as of the
Closing Date, Each Party shall promptly notify the other Parties of any action,
suit or proceeding that shall be instituted or threatened against such Party to
restrain, prohibit or otherwise challenge the legality of any transaction
contemplated by this Agreement. The Sellers and the Shareholders shall promptly
notify the Buyer of any lawsuit, claim, proceeding or investigation that may be
threatened, brought, asserted or commenced against Sellers which would have been
listed in any Schedule hereto if such lawsuit, claim, proceeding or
investigation had arisen prior to the date hereof.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTIES
6.1 CONDITIONS TO THE OBLIGATIONS OF THE BUYER PARTIES. The obligation
of the Buyer Parties to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment, prior to or at Closing, of each
of the following conditions (any or all of which may be waived by the Buyer
Parties in their discretion):
(a) Each of the of the representations and warranties set forth in
Articles II and Article III, above, respectively, shall be true and correct as
of the Closing Date;
(b) The Sellers and the Shareholders shall have performed and
complied with all covenants, obligations and undertakings required by this
Agreement to be performed and complied with by the Sellers and the Shareholders
at or prior to the Closing;
(c) There shall be no Litigation that seeks to restrain, enjoin or
otherwise prevent consummation of the transactions contemplated by this
Agreement or the other Transaction Documents, and no judgment, order or decree
shall have been rendered that has the effect of enjoining the consummation of
the transactions contemplated hereby or thereby;
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(d) NHeller and EHeller shall have executed employment agreements
in the forms of Exhibits 6.1(d)(i) and 6.1(d)(ii), respectively, and each of
Melissa Wade, Kristi Mollis, Nadine Forbes and Joseph Siska shall have executed
one-year employment agreements with Buyer in forms, reasonably satisfactory to
Buyer.
(e) Each of the Sellers and the Shareholders shall have executed
and delivered to the Buyer Parties a certificate in a form reasonably
satisfactory to counsel to the Buyer Parties certifying as to (i) the accuracy
of the representations and warranties in Article II (from the Shareholders) and
Article III (from the Sellers and the Hellers), above; (ii) the fulfillment of
the conditions specified in this Section 6.1 and (iii) incumbency, signatures
and other matters customary for transactions of this nature;
(f) The Sellers shall have delivered to the Buyer Parties an
opinion of counsel in form reasonably satisfactory to counsel for the Buyer
Parties with respect to the matters indicated in SCHEDULE 6.1(f);
(g) The Sellers shall have procured and delivered to the Buyer
Parties consents and approvals from all Persons from whom consents are required
for the consummation of the transactions contemplated by this Agreement and the
other Transaction Documents other than the Required Governmental Approvals;
(h) Each Seller shall complete, execute and deliver to the Buyer
Parties a certificate in a form reasonably acceptable to the Buyer Parties, to
the effect that no withholding is required under Section 1445 of the Code;
(i) The Sellers shall have delivered to the Buyer Parties a
certificate, dated within ten (10) days prior to the Closing Date, duly issued
by the appropriate Governmental Authorities (i) in their Organization State and
in each other jurisdiction where they are qualified to do business showing them
to be in good standing and authorized to do business in its Organization State
and those other jurisdictions and (ii) in their Organization State certifying
their articles of incorporation
(j) The Sellers shall have delivered to Buyer such (i) bills of
sale, assignments and other instruments of transfer or conveyance (including
certificates of title origin (or like documents) with respect to any vehicles or
other equipment included in the Purchased Assets for which a certificate of
title or origin is required in order to transfer title) as Buyer may reasonably
request or as may be otherwise necessary to evidence and effect the sale,
assignment, transfer, conveyance and delivery of the Purchased Assets to Buyer;
(k) As of the Closing Date, the Company will have cash on hand in
an amount not less than thirty thousand dollars ($30,000) (the "CASH ON HAND").
(l) The Sellers shall have delivered to the Buyer Parties evidence
reasonably satisfactory to the Buyer Parties that all of the Indebtedness of the
Company and the Company Subsidiaries, other than the Indebtedness described on
SCHEDULE 5.9, have been terminated with no further liability to the Sellers
after the Closing Date;
(m) The Company's "class" software shall have been re-implemented
to the reasonable satisfaction of Buyer to track accounts receivable and
deferred revenues for all facilities operated by the Sellers;
(n) The Sellers shall have delivered to the Buyer Parties in forms
reasonably satisfactory to the Buyer Parties, (i) estoppel letters or similar
documents executed by the lessors under the leases listed on Schedule 3.16(a)
(the "LEASES") and (ii) documents confirming the assignment of the Leases, the
equipment leases listed on Schedule 3.17(a), the Service Contracts, and to Buyer
effective as of the Closing Date.
(o) The Sellers shall have delivered to the Buyer Parties the July
1999 Financials, which shall (i) reflect no material adverse changes to the
financial condition of the Company and the Company Subsidiaries on a
consolidated basis from the June 1999 Financials and (ii) reflect the fact that
the Company is in compliance with all financial requirements of all Governmental
Authorities that regulate the business of the Company, including, but not
limited to the DOE. All of the (i) accounts receivable reflected in the July
1999 Financials shall reflect amounts due from students enrolled with the
Company at July 31, 1999, (ii) all of the accounts payable reflected in the July
1999 Financials shall reflect payables in compliance with the terms of the
respective payees thereof and which are not older than thirty (30) days and
(iii) all of the inventories reflected in the July 1999 Financials shall be
shown at the then current value thereof;
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(p) All of the facilities operated by the Sellers shall be in full
operation;
(q) The Sellers shall have delivered to the Buyer Parties properly
completed and executed DOC Forms in form reasonably acceptable to the Buyer
Parties.
(r) The Sellers shall have provided wire transfer instructions
with respect to the cash to be paid at the Closing to the Sellers;
(s) The Escrow Agreement shall have been executed and delivered by
all of the parties thereto;
(t) The Buyer Parties shall have received evidence reasonably
satisfactory to the Buyer Parties that all of the Liens, other than those
identified on SCHEDULE 1.1, covering any of the Purchased Assets shall have been
terminated;
(u) The Sellers shall have delivered to the Buyer Parties copies
of (i) the resolutions of the respective Boards of Directors and shareholders of
the Sellers authorizing the execution and performance of this Agreement and the
transactions contemplated hereby and (ii) the bylaws, of the Sellers, in each
case certified by the secretary or an assistant secretary of the respective
Seller;
(v) The Sellers shall have delivered to the Buyer Parties
documentation reasonably satisfactory to the Buyer Parties supporting the
representation and warranty set forth in clause (a) of Section 3.40 other than
the Stockholders' Equity Amount;
(w) the Unwind Arbiter shall have been appointed pursuant to
Section 1.11, above,
(x) The Sellers shall have delivered to the Buyer Parties a list
of the students enrolled with the Company as of the Closing Date;
(y) The Sellers will provide to the Buyers the text of Schedule
3.34 in form reasonably satisfactory to the Buyer Parties; and
(z) The Sellers and Buyer Parties shall have agreed on a breakdown
of which of the Purchased Assets will be purchased by each of the Buyer Parties.
6.2 CONDITIONS TO OBLIGATIONS OF SELLERS. The obligation of the Sellers
and the Shareholders to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment, prior to or at the Closing, of
each of the following conditions (any or all of which may be waived by Sellers
and the Shareholders in their sole discretion):
(a) Each of the representations and warranties of the Buyer
Parties set forth in Article IV, above, hereof shall be true and correct as of
the Closing;
(b) The Buyer Parties shall have performed and complied with all
covenants, obligations and undertakings required by this Agreement to be
performed and complied with by the Buyer Parties prior to or at the Closing;
(c) No Litigation that seeks to restrain, enjoin or otherwise
prevent consummation of the transactions contemplated by this Agreement or other
Transaction Documents, and no judgment, order or decree shall have been rendered
that has the effect of enjoining the consummation of the transactions
contemplated hereby or thereby;
(d) The Buyer Parties shall have delivered to the Sellers and the
Escrow Agent (i) certificates representing the SLL Shares and (ii) the Cash
Consideration in the respective amounts indicated in Section 1.5, above;
(e) An appropriate officer of each of the Buyer Parties shall have
executed and delivered a certificate in a form reasonably satisfactory to Buyer
certifying as to (i) the accuracy of the representations and
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warranties in Article IV above; (ii) the fulfillment of the conditions specified
in this Section 6.2, and (iii) incumbency signatures and other matters customary
for transactions of this nature;
(f) The Buyer Parties shall have delivered an opinion in form
reasonably satisfactory to counsel to the Sellers to the effect of the
representation set forth in Sections 4.1, 4.2 and 4.5, above.
(g) The Buyer shall have executed and delivered employment
agreements in the forms of Exhibits 6.1(d)(i) and 6.1(d)(ii), respectively;
(h) The Buyer Parties shall have executed and delivered to the
Sellers the Assumption Agreement;
(i) the Escrow Agreement shall have been executed and delivered by
all of the parties thereto;
(j) The Buyer Parties shall have delivered to the Sellers copies
of (i) the resolutions of the respective Boards of Directors of the Buyer
Parties authorizing the execution and performance of this Agreement and the
transactions contemplated hereby and (ii) the articles of association and
bylaws, respectively, of the Buyer Parties, in each case certified by the
secretary or an assistant secretary of the respective Buyer Party; and
(k) The Unwind Arbiter shall have been appointed pursuant to
Section 1.11, above.
ARTICLE VII
COVENANTS FOLLOWING THE CLOSING
7.1 STOCKHOLDERS' EQUITY DETERMINATION.
(a) Within twenty (20) days after the Closing Date, the Sellers,
shall cause the August Sellers' Accountants to prepare and deliver to SLL (a) a
consolidated income statement of the Sellers for the period from January 1, 1999
through the Closing Date and a consolidated balance sheet of the Company and the
Company Subsidiaries as of the Closing Date (the "AUGUST 1999 FINANCIALS") and
(b) all work papers and schedules related to the August 1999 Financials
including schedules of accounts receivable, accounts payable, deferred revenues,
property and equipment and inventories. All of the (a) accounts receivable
reflected in the August 1999 Financials shall reflect amounts due from students
enrolled with the Company at August 16, 1999, (b) accounts payable reflected in
the August 1999 Financials shall reflect payables in compliance with the terms
of the respective payees thereof and which are not older than thirty (30) days
and (c) inventories reflected in the August 1999 Financials shall be shown at
the then current value thereof. After being delivered to SLL, the August 1999
Financials shall be audited by Arthur Andersen LLP at the expense of the Buyer
Parties. The consolidated stockholders' equity of the Sellers as determined
pursuant to the procedure described in SECTION 7.1(b), below, is referred to
herein as the "CLOSING STOCKHOLDERS' EQUITY." If the Closing Stockholders'
Equity is less than the Stockholders' Equity Amount, the Hellers, jointly and
severally, forthwith shall be required to pay to Buyer in cash an amount equal
to the difference between the Closing Stockholders' Equity and the Stockholders'
Equity Amount.
(b) The determination of the Closing Stockholders' Equity
shall be as agreed to by Arthur Andersen and an accounting firm selected by the
Sellers (the "AUGUST SELLERS' ACCOUNTANTS") within twenty (20) days after Arthur
Andersen has issued its report with respect to the August 1999 Financials (the
"AUGUST REPORT DATE"). If within such 20-day period, Arthur Andersen and the
August Sellers' Accountants cannot agree with respect to the Closing
Stockholders' Equity, then Arthur Andersen shall be required, within (ten) 10
days after the end of such 20-day period, to select an accounting firm
reasonably acceptable to the Sellers' Accountants (the "AUGUST OTHER
ACCOUNTANTS") which shall, within thirty (30) days after its selection, make a
determination as to the Closing Stockholders' Equity, which determination shall
be binding on the Parties. Notwithstanding the foregoing, if the Sellers shall
not have designated the August Sellers' Accountants within ten (10) days after
the August Report Date or if the August Other Accountants shall not have made a
determination as to the Closing Stockholders' Equity, then the Closing
Stockholders' Equity shall be as determined by Arthur Andersen. With respect to
the services to be performed as described in this SECTION 7.2(b), the fees for
the Sellers' Accountants and the August Other Accountants shall be the sole
responsibility of the Sellers and the fees of Arthur Andersen shall be the sole
responsibility of Buyer. In computing Closing Stockholders' Equity for purpose
of this Section 7.1(b), no change
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after the Closing Date by Buyer or SLL in any accounting policies applicable to
the Company Business on the date of each of the Financial Statements shall be
deemed applicable to such computation.
7.2 PREPARATION AND FILING OF TAX RETURNS. The Sellers and the Hellers
shall take all actions necessary to cause the Company to have no liability for
Tax for any period through the Closing Date.
7.3 UNDERTAKINGS REGARDING SLL SHARES. Each Seller and each Shareholder
covenants that such Seller will not offer or sell or solicit an offer to buy any
of the SLL Shares issued to such Seller hereunder: (a) for a period of one
hundred eighty (180) days after the date hereof (the A180 DAY PERIOD") and (b)
after the 180 Day Period, other than pursuant to an effective registration
statement under the Securities Act and, where applicable, in compliance with
Rule 145 under the Securities Act or after the receipt by SLL of an opinion of
counsel reasonably acceptable to SLL to the effect that such registration
statement and compliance are not required.
7.4 REGISTRATION OF SLL SHARES. SLL shall prepare and file with the SEC
and shall use its best efforts have declared effective under the Securities Act,
on or before the last day of the 180 Day Period, a registration statement under
the Securities Act with respect to the SLL Shares (the "REGISTRATION STATEMENT")
on the terms described in this Section 7.4.
(a) SLL will use its reasonable efforts to have the Registration
Statement become effective and cause the SLL Shares to be registered for resale
under the Securities Act and registered, qualified or exempted under the state
securities laws of such jurisdictions as any Shareholder reasonably requests;
provided, however, that SLL shall not be required to qualify to do business in
any state or to consent to be subject to general service of process in any state
where it is not otherwise required to be so qualified or subject.
(b) SLL shall pay all expenses incurred in connection with the
registration, qualification and/or, as the case may be, exemption of the SLL
Shares, including any SEC and state securities law registration and filing fees,
printing expenses, fees and disbursements of SLL's counsel and accountants,
transfer agents' and registrars' fees, fees and disbursements of experts used by
SLL in connection with such registration, qualification and/or exemption, and
expenses incidental to any amendment or supplement to the Registration
Statement. SLL shall not, however, be liable for any sales, broker's or
underwriting commissions or discounts incurred in connection with any sale of
any of the SLL Shares.
(c) SLL shall maintain the effectiveness of the Registration
Statement until the earlier of the date on which the last of the SLL Shares are
sold pursuant to the Registration Statement and the date that is ninety (90)days
from the effective date of the Registration Statement.
(d) The Sellers and the Shareholders shall (i) furnish SLL such
information regarding the Sellers and the Shareholders as SLL may reasonably
request or as required by applicable law in connection with any registration,
qualification or compliance referred to in this Section 7.4 and (ii) take such
other actions in connection with the preparation and/or, as the case may be,
effectiveness of the Registration Statement as SLL may reasonably request.
(e) Notwithstanding anything to the contrary in this Section
7.4, (i) SLL shall be entitled to delay for a period of up to one hundred twenty
days (120) any such filing of the Registration Statement if the Board of
Directors of SLL determines that such filing would impede, delay, or interfere
with any significant financing, acquisition, or other transaction involving SLL,
or require disclosure of material information which SLL has a reasonable
business purpose for preserving as confidential and (ii) as a condition to SLL's
obligations under this Section 7.4, SLL shall have received from the
Shareholders (A) an investment representation letter with respect to each
Shareholder's acquisition of SLL Shares and (B) an opinion of counsel in form
reasonably acceptable to SLL to the effect that the Shareholders have received
the SLL Shares in a transaction exempt from the registration requirements of the
Securities Act.
7.5 PURCHASE PRICE ADJUSTMENT. All indemnity payments made by the
Sellers under this Agreement shall be treated as purchase price adjustments for
purposes of all Tax matters.
7.6 CASH ON HAND. If the Cash on Hand, plus the revenues reflected in
the documentation delivered by the Sellers pursuant to Section 6.2(v), above, is
collected within sixty (60) days after the Closing Date and, as determined in
good faith by Buyer, are not sufficient for the Working Capital Need, Hellers
shall, jointly and
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severally, pay to SLL an amount equal to the amount in excess of the Cash on
Hand necessary for the Working Capital Need within ten (10) days after receiving
written notice with respect thereto from Buyer.
7.7 CONTROL OVER PURCHASED ASSETS. Immediately after the Closing, the
Sellers shall take all steps and actions as Buyer may reasonably request or as
may otherwise be necessary to put Buyer in actual possession or control of the
Purchased Assets.
7.8 GOVERNMENTAL APPROVALS. The Buyer Parties, the Hellers and the
Sellers shall use their best efforts to obtain all Required Governmental
Approvals at the earliest possible date. It is expressly understood that SLL may
be required to make additional capital contributions to Buyer, or make certain
financial commitments requested by the DOE or other Governmental Authorities in
order to obtain the Required Governmental Approvals and SLL agrees to adhere to
such requests. The Buyer Parties, the Hellers and the Sellers (a) will respond
promptly, fully and accurately to all inquiries in connection with obtaining
such Required Governmental Approvals and (b) will provide each of the other
parties with copies of all filings and correspondence to and from Governmental
Authorities related to obtaining the Required Governmental Approvals.
ARTICLE VIII
INDEMNIFICATION; SETOFF
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All the provisions of
this Agreement shall survive the Closing indefinitely notwithstanding any
investigation at any time made by or on behalf of any Party or the provision of
any Supplemental Information pursuant to Section 5.7, above, provided that the
representations and warranties set forth in Articles II, III and IV and in any
certificate delivered in connection herewith with respect to any of those
representations and warranties will terminate and expire on the second
anniversary of the Closing Date, except as follows: (a) the representations and
warranties which relate expressly or by necessary implication to Taxes or to
ERISA or other employment or labor matters will survive until the expiration of
the applicable statutes of limitations (including all periods of extension and
tolling), if any; (b) the representations and warranties which relate expressly
or by necessary implication to the environment or Environmental Laws will
survive for a period of five (5) years from the Closing Date; and (c) the
representations and warranties set forth in Sections 2.1 and 2.2 , 3.12, 3.19,
3.29, 3.34 and 3.36 shall survive indefinitely. After a representation and
warranty has terminated and expired, no indemnification may be sought pursuant
to this Article VIII on the basis of that representation and warranty by any
Person who would have been entitled pursuant to this Article VIII to
indemnification on the basis of that representation and warranty prior to its
termination and expiration. Notwithstanding anything in this Agreement to the
contrary, a Party shall have the right to commence Litigation after the
expiration of any of the above-specified time periods with respect to claims as
to which notice was provided to the Party against which such claim is being
asserted prior to the expiration of such time period.
8.2 INDEMNIFICATION OF SLL INDEMNIFIED PARTIES.
(a) In addition to the indemnification set forth in Section 1.11,
above, subject to the applicable provisions of Section 8.1, above, each of the
Sellers and each of the Hellers covenant and agree that such Party, jointly and
severally, will indemnify each SLL Indemnified Party against, and hold each SLL
Indemnified Party harmless from and in respect of, all Damage Claims that arise
from, are based on or relate or otherwise are attributable to (i) any breach of
the representations and warranties of either of the Sellers or either of the
Hellers set forth herein or in certificates delivered in connection herewith or
(ii) any nonfulfillment of any covenant or agreement on the part of either of
the Sellers or the Hellers under this Agreement (each such Damage Claim and each
Damage Claim described in Section 8.2(b), below, being an "SLL INDEMNIFIED
LOSS").
(b) Stubbs and each of the Keisers, severally and not jointly with
any other Person, covenants and agrees that such Seller will indemnify each SLL
Indemnified Party against, and hold each SLL Indemnified Party harmless from and
in respect of, all Damage Claims that arise from, are based on or relate or
otherwise are attributable to (i) any breach of the representations and
warranties of such Shareholder solely as to such Shareholder set forth in
Article II, above, or in certificates delivered in connection herewith by such
Shareholder and relating to those representations and warranties or (ii) any
nonfulfillment of any covenant or agreement on the part of such Shareholder
under this Agreement.
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8.3 INDEMNIFICATION OF SELLER INDEMNIFIED PARTIES. SLL covenants and
agrees that it will indemnify each Seller Indemnified Party against, and hold
each Seller Indemnified Party harmless from and in respect of, all Damage Claims
that arise from, are based on or relate or otherwise are attributable to (a) any
breach by of the representations and warranties of the Buyer Parties set forth
herein or in certificates delivered in connection herewith, if any, delivered to
the Sellers in connection herewith or (b) any nonfulfillment of any covenant or
agreement on the part of a Buyer Party, under this Agreement (each such Damage
Claim being a "Seller Indemnified Loss").
8.4 CONDITIONS OF INDEMNIFICATION.
(a) All claims for indemnification under this Agreement shall be
asserted and resolved as provided in this Section 8.4.
(b) A party claiming indemnification under this Agreement (an
"INDEMNIFIED PARTY") shall promptly (i) notify the party from whom
indemnification is sought (the "INDEMNIFYING PARTY") of any third-party claim or
claims asserted against the Indemnified Party (a "THIRD PARTY CLAIM") that could
give rise to a right of indemnification under this Agreement and (ii) transmit
to the Indemnifying Party a written notice ("CLAIM NOTICE") describing in
reasonable detail the nature of the Third Party Claim, a copy of all papers
served with respect to that claim (if any), an estimate of the amount of damages
attributable to the Third Party Claim to the extent feasible (which estimate
shall not be conclusive of the final amount of that claim) and the basis for the
Indemnified Party's request for indemnification under this Agreement. Except as
set forth in Section 8.1, above, the failure to promptly deliver a Claim Notice
shall not relieve the Indemnifying Party of its obligations to the Indemnified
Party with respect to the related Third Party Claim except to the extent that
the resulting delay is materially prejudicial to the defense of that claim.
Within fifteen (15) days after receipt of any Claim Notice (the "ELECTION
PERIOD"), the Indemnifying Party shall notify the Indemnified Party (i) whether
the Indemnifying Party disputes its potential liability to the Indemnified Party
under this Article VIII with respect to that Third Party Claim and (ii) if the
Indemnifying Party does not dispute its potential liability to the Indemnified
Party with respect to that Third Party Claim, whether the Indemnifying Party
desires, at the sole cost and expense of the Indemnifying Party, to defend the
Indemnified Party against that Third Party Claim.
(c) If the Indemnifying Party does not dispute its potential
liability to the Indemnified Party and notifies the Indemnified Party within the
Election Period that the Indemnifying Party elects to assume the defense of the
Third Party Claim, then the Indemnifying Party shall have the right to defend,
at its sole cost and expense, that Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 8.4(c), and the Indemnified
Party will furnish the Indemnifying Party with all information in its possession
with respect to that Third Party Claim and otherwise cooperate with the
Indemnifying Party in the defense of that Third Party Claim; provided, however,
that the Indemnifying Party shall not enter into any settlement with respect to
any Third Party Claim that purports to limit the activities of, or otherwise
restrict in any way, any Indemnified Party or any Affiliate of any Indemnified
Party without the prior consent of that Indemnified Party (which consent may be
withheld in the sole discretion of that Indemnified Party). The Indemnified
Party is hereby authorized, at the sole cost and expense of the Indemnifying
Party, to file, during the Election Period, any motion, answer or other
pleadings that the Indemnified Party shall deem necessary or appropriate to
protect its interests or those of the Indemnifying Party. The Indemnified Party
may participate in, but not control, any defense or settlement of any Third
Party Claim controlled by the Indemnifying Party pursuant to this Section 8.4(c)
and will bear its own costs and expenses with respect to that participation;
provided, however, that if the named parties to any such action (including any
impleaded parties) include both the Indemnifying Party and the Indemnified
Party, and the Indemnified Party has been advised by counsel that there may be
one or more legal defenses available to it which are different from or
additional to those available to the Indemnifying Party, then the Indemnified
Party may employ separate counsel at the expense of the Indemnifying Party, and,
on its written notification of that employment, the Indemnifying Party shall not
have the right to assume or continue the defense of such action on behalf of the
Indemnified Party.
(d) If the Indemnifying Party (i) within the Election Period (A)
disputes its potential liability to the Indemnified Party under this Article
VIII, (B) elects not to defend the Indemnified Party pursuant to Section 8.4(c),
above, or (C) fails to notify the Indemnified Party that the Indemnifying Party
elects to defend the Indemnified Party pursuant to Section 8.4(c), above, or
(ii) elects to defend the Indemnified Party pursuant to Section 8.4(c), above,
but fails diligently and promptly to prosecute or settle the Third Party Claim,
then the Indemnified Party shall have the right to defend, at the sole cost and
expense of the Indemnifying Party (if the
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Indemnified Party is entitled to indemnification hereunder), the Third Party
Claim by all appropriate proceedings, which proceedings shall be promptly and
vigorously prosecuted by the Indemnified Party to a final conclusion or settled.
The Indemnified Party shall have full control of such defense and proceedings.
Notwithstanding the foregoing, if the Indemnifying Party has delivered a written
notice to the Indemnified Party to the effect that the Indemnifying Party
disputes its potential liability to the Indemnified Party under this Article
VIII and if that dispute is resolved in favor of the Indemnifying Party, the
Indemnifying Party shall not be required to bear the costs and expenses of the
Indemnified Party's defense pursuant to this Section 8.4, or of the Indemnifying
Party's participation therein at the Indemnified Party's request, and the
Indemnified Party shall reimburse the Indemnifying Party in full for all
reasonable costs and expenses of such participation. The Indemnifying Party may
participate in, but not control, any defense or settlement controlled by the
Indemnified Party pursuant to this Section 8.4(d) and the Indemnifying Party
shall bear its own costs and expenses with respect to that participation.
(e) In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the "Indemnity Notice") describing in reasonable detail the nature of
the claim, an estimate of the amount of Damages attributable to that claim to
the extent feasible (which estimate shall not be conclusive of the final amount
of that claim) and the basis of the Indemnified Party's request for
indemnification under this Agreement. If the Indemnifying Party does not notify
the Indemnified Party within fifteen (15) days from its receipt of the Indemnity
Notice that the Indemnifying Party disputes the claim specified by the
Indemnified Party in the Indemnity Notice, that claim shall be deemed a
liability of the Indemnifying Party hereunder. If the Indemnifying Party has
timely disputed that claim, as provided above, that dispute shall be resolved by
proceedings in an appropriate court of competent jurisdiction if the parties do
not reach a settlement of that dispute within thirty (30) days after notice of
that dispute is given (the "INDEMNITY NOTICE PERIOD").
(f) Payments of all amounts owing by an Indemnifying Party
pursuant to this Article VIII relating to a Third Party Claim shall be made
within thirty (30) days after the latest of (i) the settlement of that Third
Party Claim, (ii) the expiration of the period for appeal of a final
adjudication of that Third Party Claim and (iii) the expiration of the period
for appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement in respect of that Third Party Claim.
Payments of all amounts owing by an Indemnifying Party pursuant to Section
8.4(e), above, shall be made within thirty (30) days after the later of the
expiration of (i) the Indemnity Notice Period and (ii) the expiration of the
period for appeal of a final adjudication of the Indemnifying Party's liability
to the Indemnified Party under this Agreement.
8.5 REMEDIES NOT EXCLUSIVE. The remedies provided in this Agreement
shall not be exclusive of any other rights or remedies available to any other
party, either at law or in equity.
8.6 LIMITATIONS ON INDEMNIFICATION. Notwithstanding anything in this
Article VIII to the contrary, except with respect to the representations and
warranties referenced in clause (c) of Section 8.1, above, SLL and Buyer shall
not be entitled to indemnification with respect to any individual claim for
indemnification for breach of any representation or warranty unless the amount
of such claim is at least five thousand dollars ($5,000.00) (each, a "PERMITTED
CLAIM") and shall not be entitled to indemnification for Permitted Claims for
breach of any representation or warranty unless and until the aggregate amount
thereof is at least twenty-five thousand dollars ($25,000.00).
8.7 SET-OFF. The Buyer Parties may set-off against any amounts that any
of the Sellers and the Shareholders are required to pay to an SLL Indemnified
Party pursuant to any settlement or Final Order any amounts owed by SLL or Buyer
to any of the Sellers under this Agreement.
ARTICLE IX
LIMITATIONS ON COMPETITION
9.1 PROHIBITED ACTIVITIES. Each of the Sellers, Stubbs and each of the
Keisers (each a "SECTION 9.1 PARTY"), jointly and severally, agree that such
Section 9.1 Party will not during the period beginning on the date hereof and
ending on the third anniversary of the Closing Date, directly or indirectly, for
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any reason, for his own account or on behalf of, or together with any other
Person:
(a) engage as a director or officer or in any similar managerial
capacity or as an owner, co-owner, financier or other investor of or in any
business selling any products or providing any services in competition with SLL
("SLL" being deemed for purposes of this Article IX to include SLL and its
Affiliates, including the Company after the Closing Date) in any area within a
radius of 100 miles of any facility in which SLL is at that time engaged in
business (such areas being collectively referred to as "TERRITORIES");
(b) call on any natural person who is at that time employed by the
Company or SLL with the purpose or intent of attracting that person from the
employ of SLL;
(c) call on, solicit or perform services for, either directly or
indirectly, any Person that at that time is, or at any time within one year
prior to that time was, a customer of SLL or any prospective customer of SLL
that had or, to the knowledge of such Section 9.1 Party, was about to receive a
business proposal from SLL, within any Territory for the purpose of soliciting
or selling any product or service in competition with SLL in the Territory; or
(d) call on any Entity which has been called on by SLL or any
Affiliate of SLL in connection with a possible acquisition by SLL, with the
knowledge of that Entity's status as such an acquisition candidate, for the
purpose of acquiring that Entity or arranging the acquisition of that Entity by
any Person other than SLL or any affiliate of SLL.
Notwithstanding the foregoing, (a) a Section 9.1 Party may own and hold as a
passive investment up to five percent (5%) of the outstanding Capital Stock of
any Entity if that class of Capital Stock is listed on a national stock exchange
or included in a Nasdaq Stock Market or the OTC Bulletin Board and (b) the
Keisers shall not be deemed to be in violation of this Section 9.1 (i) with
respect to the business described on Schedule 2.7 as conducted on the date
hereof and (ii) as long as neither of the Keisers, directly or indirectly,
offers any instruction in the matters as to which SLL offers instruction within
a radius of fifty (50) miles of any location where SLL offers such instruction.
9.2 DAMAGES. Because of the difficulty of measuring economic losses to
SLL as a result of any breach by a Section 9.1 Party of the covenants in Section
9.1, above, and because of the immediate and irreparable damage that could be
caused to SLL for which it would have no other adequate remedy, each Section 9.1
Party agrees that SLL may enforce the provisions of Section 9.1 by injunctions
and restraining orders against such Section 9.1 Party without the posting of a
bond or other security, if such Section 9.1 Party breaches any of those
provisions.
9.3 REASONABLE RESTRAINT. The Parties agree that Sections 9.1 and 9.2,
above, impose a reasonable restraint on a Section 9.1 Party in light of the
activities and business of the Company and SLL on the date hereof, the current
business plans of SLL and the investment by each Seller in SLL as a result of
the transactions contemplated hereby.
9.4 INDEPENDENT COVENANT. All the covenants in this Article IX are
intended by each Party to, and shall be construed as an agreement independent of
any other provision in this Agreement, and the existence of any claim or cause
of action of any Section 9.1 Party against SLL, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by SLL
of any covenant in this Article IX. It is specifically agreed that the period
specified in Section 9.1 shall be computed in the case of each Section 9.1 Party
by excluding from that computation any time during which that Section 9.1 Party
is in violation of any provision of Section 9.1, above. The covenants contained
in this Article IX shall not be affected by any breach of any other provision
hereof by any party hereto.
9.5 MATERIALITY. The Section 9.1 Parties hereby agree that this Article
IX is a material and substantial part of the transactions contemplated hereby.
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ARTICLE X
DEFINITIONS AND DEFINITIONAL PROVISIONS
10.1 DEFINED TERMS. As used in this Agreement, the following terms have
the meanings assigned to them below:
"ACCREDITATION" has the meaning specified in Section 3.29.
"ACCREDITATION AUTHORITY" has the meaning specified in Section
3.29.
"AGREEMENT" means this Agreement, including all attached
Schedules, Annexes, Addenda and Exhibits, as each of the same may be amended,
modified or supplemented from time to time pursuant to the provisions hereof or
thereof.
"AFFILIATE" means, as to any specified Person, any other Person
that, directly or indirectly through one or more intermediaries or otherwise,
controls, is controlled by or is under common control with the specified Person.
As used in this definition, "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person (whether through ownership of Capital Stock of that Person,
by contract or otherwise).
"ALLOCATION SCHEDULE" has the meaning specified in Section 1.7.
"ARTHUR ANDERSEN" means Arthur Andersen LLP.
"ASSUMED LIABILITIES" has the meaning specified in Section 1.3.
"ASSUMPTION AGREEMENT" has the meaning specified in Section 1.3.
"AUGUST 1999 FINANCIALS" has the meaning specified in Section 7.1.
"AUGUST OTHER ACCOUNTANTS" has the meaning specified in Section
7.1(b).
"AUGUST REPORT DATE" has the meaning specified in Section 7.1(b).
"AUGUST SELLERS' ACCOUNTANTS" has the meaning specified in Section
7.1(b).
"BASE AMOUNT" has the meaning specified in Section 1.3(b).
"BUYER" has the meaning specified in the introduction.
"BUYER PARTIES" has the meaning specified in the introduction.
"CAPITAL STOCK" means, with respect to: (a) any corporation, any
share, or any depositary receipt or other certificate representing any share, of
an equity ownership interest in that corporation; and (b) any other Entity, any
share, membership or other percentage interest, unit of participation or other
equivalent (however designated) of an equity interest in that Entity.
"CASH CONSIDERATION" means the aggregate of the cash to be paid by
Buyer to the Sellers and the Escrow Agent at the Closing as set forth in
Sections 1(a), 1(b) and 1(c). "CASH ON HAND" has the meaning specified in
Section 6.1(k).
"CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980.
"CHARTER DOCUMENTS" means, with respect to any Entity at any time,
in each case as amended, modified and supplemented at that time, the articles,
memorandum or certificate of formation, incorporation, organization or
association (or the equivalent organizational documents) of that Entity, (b) the
bylaws, articles of association or limited liability company agreement or
regulations (or the equivalent governing documents) of that Entity and (c) each
document setting forth the designation, amount and relative tights, limitations
and preferences of any class or series of that Entity's Capital Stock or of any
rights in respect of that Entity's Capital Stock.
"CLAIM NOTICE" has the meaning specified in Section 8.4.
"CLOSING" has the meaning specified in Section 1.10.
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"CLOSING DATE" has the meaning specified in Section 1.10.
"CLOSING STOCKHOLDERS EQUITY" has the meaning specified in Section
7.1.
"CODE" means the Internal Revenue Code of 1986.
"COMPANY" has the meaning specified in the introduction.
"COMPANY BUSINESS" has the meaning specified in Section 1.6(d).
"COMPANY STOCK" has the meaning specified in the second recital.
"COMPANY SUBSIDIARY" has the meaning specified in the
introduction.
"CONFIDENTIAL INFORMATION" means, with respect to any Person, all
trade secrets and other confidential, nonpublic and/or, as the case may be,
proprietary information of that Person, including information derived from
reports, investigations, research, work in progress, codes, marketing and sales
programs, capital expenditure projects, cost summaries, pricing formulae,
contract analyses, financial information, projections, confidential filings with
any Governmental Authority and all other confidential, nonpublic concepts,
methods of doing business, ideas, materials or information prepared or performed
for, by or on behalf of that Person.
"COVENANTING SHAREHOLDERS" has the meaning set forth in the
Introduction.
"CURRENT BALANCE SHEET DATE" means June 30, 1999.
"CURRENT CD" shall have the meaning specified in Section 1.8.
"CURRENT LOAN" has the meaning set forth in Section 1.11.
"DAMAGE" to any specified Person means any cost, damage (including
any consequential, exemplary, punitive or treble damage) or expense (including
reasonable fees and actual disbursements by attorneys, consultants, experts or
other Representatives and Litigation costs) to, any fine of or penalty on or any
liability (including loss of earnings or profits), including any amount incurred
in settlement of a claim, of any other nature of that Person.
"DAMAGE CLAIM" means, as asserted (a) against any specified
Person, any claim, demand or Litigation made or pending against the specified
Person for Damages to any other Person, or (b) by the specified Person, any
claim or demand of the specified Person against any other Person for Damages to
the specified Person.
"DECEMBER 1998 FINANCIALS" is defined under Financials," below.
"DIFFERENCE" has the meaning specified in Section 1.3(b).
"DOC" has the meaning specified in Section 5.14.
"DOE" means the United States Department of Education.
"EBIDTA" has the meaning specified in Section 1.6(a).
"ELECTION PERIOD" has the meaning specified in Section 8.4.
"EMPLOYEE POLICIES AND PROCEDURES" means at any time all employee
manuals and all material policies, procedures and work-related rules that apply
at that time to any employee, nonemployee director or officer of, or any other
natural person performing consulting or other independent contractor services
for, the Sellers.
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"EMPLOYMENT AGREEMENT" means at any time any (a) agreement to
which either of the Sellers is a party which then relates to the direct or
indirect employment or engagement, or arises from the past employment or
engagement, of any natural person by the Sellers, whether as an employee, a
nonemployee officer or director, a consultant or other independent contractor, a
sales representative or a distributor of any kind, including any employee
leasing or service agreement and any noncompetition agreement, and (b) agreement
between the Sellers and any Person which arises from the sale of a business by
that Person to the Sellers and limits that Person's competition with the
Sellers.
"ENTITY" means any sole proprietorship, corporation, partnership
of any kind having a separate legal status, limited liability company, business
trust, unincorporated organization or association, mutual company, joint stock
company or joint venture.
"ENVIRONMENTAL LAWS" means any and all Governmental Requirements
relating to the environment or worker health or safety, including ambient air,
surface water, land surface or subsurface strata, or to emissions, discharges,
releases or threatened releases of pollutants, contaminants, chemicals or
industrial, toxic or hazardous substances or wastes (including Solid Wastes,
Hazardous Wastes or Hazardous Substances) or noxious noise or odor into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, recycling, removal, transport or handling of
pollutants, contaminants, chemicals or industrial, toxic or hazardous substances
or wastes (including petroleum, petroleum distillates, asbestos or
asbestos-containing material, polychlorinated biphenyls, chlorofluorocarbons
(including chlorofluorocarbon-12) or hydrochlorofluorocarbons).
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA AFFILIATE" means, with respect to any specified Person at
any time, any other Person, including an Affiliate of the specified Person, that
is, or at any time within six years of that time was, a member of any ERISA
Group of which the specified Person is or was a member at the same time.
"ERISA EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" as
defined in Section 3(3) of ERISA and includes any ERISA Pension Benefit Plan and
any Welfare Plan.
"ERISA GROUP" means any "group of organizations" within the
meaning of Section 414(b), (c), (m) or (o) of the Code or any "controlled group"
as defined in Section 4001(a)(14) of ERISA.
"ERISA PENSION BENEFIT PLAN" means any "employee pension benefit
plan", as defined in Section 3(2) of ERISA, including any plan that is covered
by Title IV of ERISA or subject to the minimum funding standards under Section
412 of the Code (excluding any Multiemployer Plan).
"ESCROW AGENT" has the meaning specified in Section 1.5(c).
"ESCROW AGREEMENT" has the meaning specified in Section 1.5(c).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended. "EXCHANGE ACT DOCUMENTS" has the meaning specified in Section 4.6.
"EXCLUDED ASSETS" has the meaning specified in Section 1.2.
"EXCLUDED LIABILITIES" has the meaning specified in Section 1.4.
"FILING" has the meaning specified in Section 1.6(a).
"FINAL ORDER" has the meaning specified in Section 4(b) of the
Escrow Agreement.
"FINANCIAL STATEMENTS" means as follows: (a) the following
consolidated financial statements of the Company and the Company Subsidiaries
audited by independent certificated public accountants: (i) a balance sheet as
of December 31, 1998, (ii) statements of operations and retained earnings for
the year ended December 31, 1998, and (iii) a statement of cash flows for the
year ended December 31, 1998 (collectively, the "DECEMBER 1998 FINANCIALS") (b)
the June 1999 Financials, (c) the July 1999 Financials and (c) the August 1999
Financials.
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"FLORIDA DOE" means the Department of Education of the State of
Florida.
"FORM 10-K" has the meaning specified in Section 1.6(a).
"GAAP" means generally accepted accounting principles and
practices in the United States as in effect from time to time, consistently
applied with prior periods.
"GOVERNMENTAL APPROVAL" means at any time any authorization,
consent, approval, permit, franchise, certificate, license, implementing order
or exemption of, or registration or filing with, any Governmental Authority,
including any certification or licensing of a natural person to engage in a
profession or trade or a specific regulated activity, at that time.
"GOVERNMENTAL AUTHORITY" means (a) any national, state, county,
municipal or other government, domestic or foreign, or any agency, board,
bureau, commission, court, department or other instrumentality of any such
government, or (b) any Person having the authority under any applicable
Governmental Requirement to assess and collect Taxes.
"GOVERNMENTAL REQUIREMENT" means at any time (a) any law, statute,
code, ordinance, order, rule, regulation, judgment, decree, injunction, writ,
edict, award, authorization or other requirement of any Governmental Authority
in effect at that time or (b) any obligation included in any certificate,
certification, franchise, permit or license issued by any Governmental Authority
or resulting from binding arbitration, including any requirement under common
law, at that time.
"GUARANTY" means, for any specified Person, any liability,
contingent or otherwise, of that Person guaranteeing or otherwise becoming
liable for any obligation of any other Person (the "primary obligor") in any
manner, whether directly or indirectly, and including any liability of the
specified Person, direct or indirect, (a) to purchase or pay (or advance or
supply funds for the purchase or payment of) that obligation or to purchase (or
to advance or supply funds for the purchase of) any security for the payment of
that obligation, (b) to purchase property, securities or services for the
purpose of assuring the owner of that obligation of its payment or (c) to
maintain working capital, equity capital or other financial statement condition
or liquidity of the primary obligor so as to enable the primary obligor to pay
that obligation; provided, that the term "Guaranty" does not include
endorsements for collection or deposit in the ordinary course of the endorser's
business.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976.
"INDEBTEDNESS" of any Person means, (a) any liability of that
Person (i) for borrowed money or arising out of any extension of credit to or
for the account of that Person (including reimbursement or payment obligations
with respect to surety bonds, letters of credit, banker's acceptances and
similar instruments), for the deferred purchase price of property or services or
arising under conditional sale or other title retention agreements, other than
trade payables arising in the ordinary course of business not more than thirty
(30) days old, (ii) evidenced by notes, bonds, debentures or similar
instruments, (iii) in respect of capital leases or (iv) in respect of interest
rate protection agreements, (b) any liability secured by any Lien upon any
property or assets of that Person (or upon any revenues, income or profits of
that Person therefrom), whether or not that Person has assumed that liability or
otherwise become liable for the payment thereof or (c) any liability of others
of the type described in the preceding clause (a) or (b) in respect of which
that Person has incurred, assumed or acquired a liability by means of a
Guaranty.
"INDEMNIFIED PARTY" has the meaning specified in Section 8.4.
"INDEMNIFYING PARTY" has the meaning specified in Section 8.4.
"INDEMNITY NOTICE PERIOD" has the meaning specified in Section
8.4(e).
"INFORMATION" means written information, including (a) data,
certificates, reports and statements (excluding the Financial Statements) and
(b) summaries of unwritten agreements, arrangements, contracts, plans, policies,
programs or practices or of unwritten amendments or modifications of,
supplements to or waivers under any of the foregoing documents.
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"INSURANCE POLICIES" has the meaning specified in Section 3.22.
"INVENTORIES" has the meaning specified in Section 1.1(c).
"IRS" means the Internal Revenue Service.
"JUNE 1999 FINANCIALS" means the consolidated income statement of
the Company and the Company Subsidiaries for the period from January 1, 1999
through June 30, 1999, and the consolidated balance sheet of the Company and the
Company Subsidiaries as of June 30, 1999. "JULY 1999 FINANCIALS" means the
consolidated income statement of the Company and the Company Subsidiaries for
the period from January 1, 1999 through July 31, 1999, and the consolidated
balance sheet of the Company and the Company Subsidiaries as of July 31, 1999.
"KNOWN" or "KNOWLEDGE" or any similar phrase means that a party is
aware of facts or circumstances or should be aware thereof, after having made
diligent inquiry with respect thereto.
"LEASE DEPOSIT REPLACEMENT" has the meaning specified in Section
5.13.
"LEASES" has the meaning specified in Section 6.1(n).
"LIEN" means, with respect to any property or asset of any Person
(or any revenues, income or profits of that Person therefrom) (in each case
whether the same is consensual or nonconsensual or arises by contract, operation
of law, legal process or otherwise), (a) any mortgage, lien, security interest,
pledge, attachment, levy or other charge or encumbrance of any kind thereupon or
in respect thereof or (b) any other arrangement under which the same is
transferred, sequestered or otherwise identified with the intention of
subjecting the same to, or making the same available for, the payment or
performance of any liability in priority to the payment of the ordinary,
unsecured creditors of that Person, including any "adverse claim" (as defined in
the applicable Uniform Commercial Code) in the case of any Capital Stock. For
purposes of this Agreement a Person shall be deemed to own subject to a Lien any
asset that it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to that asset.
"LITIGATION" means any action, case, proceeding, claim, grievance,
suit or investigation or other proceeding conducted by or pending before any
Governmental Authority or any arbitration proceeding.
"LOAN AMOUNT" has the meaning specified in Section 1.11.
"MATERIAL" means, as applied to any Entity, significant to the
business, operations, property or assets, liabilities, financial condition or
results of operations of that Entity and its Subsidiaries considered as a whole.
"MATERIAL ADVERSE EFFECT" means, with respect to the consequences
of any fact or circumstance (including the occurrence or non-occurrence of any
event) to the Sellers that such fact or circumstance has caused, is causing or
could reasonably be expected to cause, directly, indirectly or consequentially,
singly or in the aggregate with other facts and circumstances, any Damages in
excess of forty thousand dollars ($40,000.00).
"MATERIAL AGREEMENT" of any Entity means any single contract or
agreement calling for the payment or receipt by a party thereto of fifty
thousand dollars ($50,000) or more, or any series of similar agreements
including, but not limited to, in the case of the Company or any Company
Subsidiary, agreements with their students, which in the aggregate call for the
payment or receipt by a party thereto of fifty thousand dollars ($50,000) or
more to which that Entity or any of its Subsidiaries is a party, or by which
that Entity or any of its Subsidiaries is bound or to which any property or
assets of that Entity or any of its Subsidiaries is subject.
"MULTIEMPLOYER PLAN" means a "multiemployer" plan as defined in
Section 4001(a)(3) of ERISA, Section 414 of the Code or Section 3(37) of ERISA.
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"NEW NOTE" has the meaning specified in Section 1.11.
"1999 THRESHOLD AMOUNT" has the meaning specified in Section
1.6(a).
"180 DAY PERIOD" has the meaning specified in Section 7.3.
"ORGANIZATION STATE" means, as applied to (a) any corporation, its
state or other jurisdiction of incorporation, (b) any limited liability company
or limited partnership, the state or other jurisdiction under whose laws it is
organized and existing in that legal form, and (c) any other Entity, the state
or other jurisdiction whose laws govern that Entity's internal affairs.
"OTHER ACCOUNTANTS" has the meaning specified in Section 1.6(e).
"OTHER COMPENSATION PLAN" means any compensation arrangement,
plan, policy, practice or program established, maintained or sponsored by the
Sellers or to which the Sellers contribute, on behalf of any of its employees,
nonemployee directors or officers or other natural persons performing consulting
or other independent contractor services for the Company or any Company
Subsidiary including all such arrangements, plans, policies, practices or
programs providing for severance pay, deferred compensation, incentive, bonus or
performance awards or the actual or phantom ownership of any Capital Stock or
options, warrants or rights to acquire Capital Stock of the Company or any
Company Subsidiary
"PARTY" has the meaning specified in the introduction.
"PERMITTED CLAIM" has the meaning specified in Section 8.6.
"PERSON" means any natural person, Entity, estate, trust, union or
employee organization or Governmental Authority or, for the purpose of the
definition of "ERISA Affiliate," any trade or business.
"PREDECESSORS" means any Person that has owned or used, directly
or indirectly, any of the Purchased Assets or conducted, directly or indirectly,
any of the businesses operated by the Sellers.
"PROFESSIONAL CODES" means any and all Governmental Requirements
relating to the licensing or other regulation of the businesses conducted by the
Sellers as of the Closing relating to any Person who performs, or arranges to
perform, services relating to such businesses.
"PROHIBITED TRANSACTION" means any transaction that is prohibited
under Section 4975 of the Code or Section 406 of ERISA and not exempt under
Section 4975 of the Code or Section 408 of ERISA.
"PROPRIETARY RIGHTS" means (a) patents, applications for patents
and patent rights, (b) in each case, whether registered, unregistered or under
pending registration, trademark rights, trade names, trade name rights,
corporate names, business names, trade styles or dress, service marks and logos
and other trade designations and copyrights and (c), in the case of the Sellers,
all agreements relating to the technology, know-how or processes used in any
business of the Company or any Company Subsidiary.
"PURCHASED ASSETS" has the meaning specified in Section 1.1.
"PURCHASED ASSETS BUSINESS" has the meaning specified in Section
1.11.
"REAL PROPERTY" has the meaning specified in Section 3.16(a).
"REGISTRATION STATEMENT" has the meaning specified in Section 7.4.
"REGULATORY FINANCIAL REQUIREMENTS" has the meaning specified in
Section 3.34.
"RELATED PARTY AGREEMENTS" means any written or oral contract,
arrangement or agreement between the Company or any Company Subsidiary and any
employee holder of Capital Stock, officer, director or Affiliate of the Company
or such Company Subsidiary or any Affiliate thereof or any Related Person of any
of the foregoing.
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"RELATED PERSON" of a Seller means: (i) any family member of
that Seller, (ii) any estate of that Seller or any family member of that Seller,
(iii) the trustee of any trust of which all the beneficiaries are Related
Persons of that Seller and (iv) any Entity the entire equity interest in which
is owned by any one or more of that Seller and Related Persons of that Seller.
"REPORT DATE" has the meaning specified in Section 1.6(e).
"REPRESENTATIVES" means, with respect to any Person, the
directors, officers, employees, Affiliates, accountants (including independent
certified public accountants), advisors, attorneys, consultants or other agents
of that Person, or any other representatives of that Person or of any of those
directors, officers, employees, Affiliates, accountants (including independent
certified public accountants), advisors, attorneys, consultants or other agents.
"REQUIRED GOVERNMENTAL APPROVALS" has the meaning specified in
Section 5.11.
"RCRA" means the Resource Conservation and Recovery Act of 1976.
"RESTRICTED PAYMENT" means, with respect to any Entity at any
time, any of the following effected by that Entity: (a) any declaration or
payment of any dividend or other distribution, direct or indirect, on account of
any Capital Stock of that Entity or any Affiliate of that Entity or (b) any
direct or indirect redemption, retirement, purchase or other acquisition for
value of, or any direct or indirect purchase, payment or sinking fund or similar
deposit for the redemption, retirement, purchase or other acquisition for value
of, or to obtain the surrender of, any then outstanding Capital Stock of that
Entity or any Affiliate of that Entity or any then outstanding warrants, options
or other rights to acquire or subscribe for or purchase unissued or treasury
Capital Stock of that Entity or any Affiliate of that Entity.
"RETURNS" of any Person means the returns, reports or statements
(including any Information returns) any Governmental Authority requires to be
filed by that Person for purposes of any Tax.
"SCHEDULE 3.6 STOCK" has the meaning specified in Section 3.6.
"SECOND BASE AMOUNT" has the meaning specified in Section 1.6(c).
"SECOND DIFFERENCE" has the meaning specified in Section 1.6(c).
"SECOND TOP AMOUNT" has the meaning specified in Section 1.6(c).
"SEC" means the Securities and Exchange Commission.
"SECTION 9.1 PARTY" has the meaning specified in Section 9.1.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLER" has the meaning specified in the introduction.
"SELLER INDEMNIFIED LOSS" has the meaning specified in Section
8.3.
"SELLER INDEMNIFIED PARTY" means (a) each of the Shareholders,
each of the Sellers and each of such Party's Affiliates (other than the Company
or SLL or any of its Affiliates), agents and counsel.
"SELLERS' ACCOUNTANTS" shall have the meaning specified in Section
1.6(e).
"SERVICE CONTRACTS" has the meaning specified in Section 3.16(g).
"SLL INDEMNIFIED LOSS" has the meaning specified in Section 8.2.
"SLL INDEMNIFIED PARTY" means SLL, Buyer and each of their
respective Affiliates and each of the respective officers, directors, employees,
agents and counsel of SLL, Buyer and such Affiliates; provided, however, that no
Person who indemnifies SLL Indemnified Parties in this Agreement will be an SLL
Indemnified Party for purposes of this Agreement.
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"SLL PURCHASED ASSETS" has the meaning set forth in Section 1.1.
"SLL SHARES" has the meaning specified in Section 1.2(c).
"SOLID WASTES, HAZARDOUS WASTES OR HAZARDOUS SUBSTANCES" have the
meanings ascribed to those terms in CERCLA, RCRA or any other Environmental Law
applicable to the business or operations of the Company or any Company
Subsidiary which imparts a broader meaning to any of those terms than does
CERCLA or RCRA.
"STOCKHOLDERS' EQUITY AMOUNT" has the meaning specified in Section
3.40.
"STUDENT RECEIVABLES" has the meaning specified in Section 3.40.
"SUBSIDIARY" of any specified Person at any time means any Entity
a majority of the Capital Stock of which is at that time owned or controlled,
directly or indirectly, by the specified Person.
"SUPPLEMENTAL INFORMATION" has the meaning specified in Section
5.7.
"TAX" or "TAXES" means all net or gross income, gross receipts,
net proceeds, sales, use, ad valorem, value added, franchise, bank shares,
withholding, payroll, employment, excise, property, deed, stamp, alternative or
add-on minimum, environmental or other taxes, assessments, duties, fees, levies
or other governmental charges or assessments of any nature whatever imposed by
any Governmental Requirement, whether disputed or not, together with any
interest, penalties, additions to tax or additional amounts with respect
thereto.
"TAXING AUTHORITY" means any Governmental Authority having or
purporting to exercise jurisdiction with respect to any Tax.
"TERRITORY" has the meaning specified in Section 9.1.
"THIRD PARTY CLAIM" has the meaning specified in Section 8.4.
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"TOP AMOUNT" has the meaning specified in Section 1.3(b).
"TRANSACTION DOCUMENT" means this Agreement and the other written
agreements, documents, instruments and certificates executed pursuant to or in
connection with this Agreement including those specified or referred to in
Article VI to be delivered at or before the Closing, all as amended, modified or
supplemented from time to time.
"TRANSACTIONS" has the meaning specified in Section 1.11.
"UNWIND ARBITER" has the meaning specified in Section 1.11.
"UNWIND CLOSING DATE" has the meaning specified in Section 1.11.
"WELFARE PLAN" means an "employee welfare benefit plan" as defined
in Section 3(l) of ERISA.
"WORKING CAPITAL NEED" has the meaning specified in Section 3.40.
"YEAR 2000 DATE-SENSITIVE SYSTEM/COMPONENT" has the meaning
specified in Section 3.32.
"YEAR 2000 PROBLEMS" has the meaning specified in Section 3.32.
10.2 OTHER DEFINED TERMS. Words and terms used in these Standard
Provisions which are defined elsewhere in this Agreement are used herein as
therein defined.
10.3 OTHER DEFINITIONAL PROVISIONS.
(a) Except as otherwise specified herein, all references herein to
any Governmental Requirement defined or referred to herein, including the Code,
CERCLA, ERISA, the Exchange Act, RCRA and the Securities Act, shall be deemed
references to that Governmental Requirement or any successor Governmental
Requirement, as the same may have been amended or supplemented from time to
time, and any rules or regulations promulgated thereunder.
(b) When used in this Agreement the words "herein," "hereof" and
"hereunder" and words of similar import refer to this Agreement as a whole and
not to any provision of this Agreement, and the words "Article," "Paragraph,"
"Section," "Annex," "Addendum," "Schedule" and "Exhibit" refer to articles,
paragraphs and sections of, and annexes, addenda, schedules and exhibits to,
this Agreement unless otherwise specified.
(c) Whenever the context so requires, the singular number includes
the plural and vice versa, and a reference to one gender includes the other
gender and the neuter.
(d) The word "including" (and, with correlative meaning, the word
"include") means including, without limiting the generality of any description
preceding such word, and the words "shall" and "will" are used interchangeably
and have the same meaning.
ARTICLE XI
CONFIDENTIALITY
11.1 TREATMENT OF CONFIDENTIAL INFORMATION.
(a) Each of the Sellers and the Shareholders, on the one hand, and
the Buyer Parties on the other hand acknowledges that it has or may have had in
the past, currently has and in the future may have access to Confidential
Information of the Buyer Parties and the Sellers, respectively. Each of the
Sellers and the Shareholders
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<PAGE> 45
and each of the Buyer Parties agrees that it will keep confidential all such
Confidential Information furnished to it and, except with the specific prior
written consent of the other Party (meaning, with respect to the Sellers and the
Shareholders, SLL, and with respect to SLL and the Buyer Parties, the Company),
will not disclose such Confidential Information to any Person except
Representatives of such Party, provided that these Representatives (other than
counsel) agree to the confidentiality provisions of this Section 11.1; provided,
however, that Confidential Information shall not include such information as (i)
becomes known to the public generally through no fault of the party receiving
the Confidential Information (ii) is required to be disclosed by law or the
order of any Governmental Authority provided, that prior to disclosing any
information pursuant to this clause (ii), a Party shall, if practicable, give
prior written notice thereof to the other Party and provide the other Party with
the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes is required to be disclosed in connection with the defense
of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by any Party of the provisions of this Section 11.1 with
respect to any Confidential Information, the other Party shall be entitled to an
injunction restraining such Party from disclosing, in whole or in part that
Confidential Information. Nothing herein shall be construed as prohibiting a
Party from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages.
(b) Because of the difficulty of measuring economic losses as a
result of the breach of the covenants in Section 11.1(a), above, and because of
the immediate and irreparable damage that would be caused to a Party as a result
of such breach for which it would have no other adequate remedy, each of the
Parties agrees that a Party may enforce the provisions of Section 11.1(a) by
injunctions and restraining orders against any Party which breaches any of those
provisions.
(c) The obligations of the Parties under this Section 11.1 shall
survive the termination of this Agreement; provided, however that
notwithstanding the foregoing, the rights of the Sellers and the Shareholders
under Section 11.1, above, shall terminate upon the Closing.
ARTICLE XII
TERMINATION AND EXPENSES
12.1 TERMINATION OF THIS AGREEMENT. This Agreement may be terminated at
any time prior to the Closing Date solely:
(a) by the mutual written consent of the Parties;
(b) by SLL if the transactions contemplated by this Agreement to
take place at the Closing shall not have been consummated by the close of
business on the date that is thirty (30) days after the date hereof, unless the
failure of such transactions to be consummated results from the willful failure
of SLL to perform or adhere to any agreement required hereby to be performed or
adhered to by it prior to or on the Closing Date;
(c) by the Sellers and the Shareholders on the one hand, or by the
Buyer Parties, on the other hand, if a material breach or default shall be made
by one of the other Parties in the observance or in the due and timely
performance of any of the covenants, agreements or conditions contained herein;
or
(d) by SLL if, prior to the Closing, one or more of the facilities
operated by the Sellers is not in full operation as a result of a fire or other
casualty or otherwise, and such non-operation is reasonably believed by SLL to
be likely to continue for a period of ten (10) days. Notwithstanding the
foregoing, SLL shall not be entitled to terminate this Agreement in the event
that one of the four bookstores included in the Company Business is not in full
operation as described in the first clause of this Section 12.1(d), provided
that unless Buyer receives prior to the Closing Date confirmation reasonably
satisfactory to Buyer that insurance covering such facility would provide full
compensation for such loss within a reasonable time after the Closing Date, a
reasonable adjustment to the consideration to be paid by the Buyer Parties for
the Purchased Assets is made to reflect such non-operation of such bookstore.
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<PAGE> 46
12.2 EXPENSES. Whether or not the transactions contemplated hereby are
consummated, (a) the Buyer Parties will pay the fees, expenses and disbursements
of the Buyer Parties and its Subsidiaries and their Representatives which are
incurred in connection with the subject matter of this Agreement and any
amendments thereto, including all costs and expenses incurred in the performance
of and compliance with all conditions to be performed by the Buyer Parties under
this Agreement, and (b) the Sellers will pay all sales, use, transfer and other
similar taxes and fees incurred in connection with the transactions contemplated
hereby, including the fees, expenses and disbursements of counsel for the
Sellers incurred in connection with the subject matter of this Agreement. The
Sellers will file all necessary documentation and Returns with respect to all
Taxes and fees they are required by this Section 12.2 to pay. In addition, the
Sellers acknowledge that the Sellers, will pay all Taxes due upon receipt of the
consideration payable to the Sellers pursuant to the transactions contemplated
by this Agreement.
12.3 LIABILITIES IN EVENT OF TERMINATION. If this Agreement is
terminated pursuant to Section 12.1, above, there shall be no liability or
obligation on the part of any Party hereto except (a) as provided in Section
12.2, above, and (b) to the extent that such liability is based on the breach by
that party of any of its representations, warranties or covenants set forth in
this Agreement.
ARTICLE XIII
MISCELLANEOUS
13.1 PUBLIC ANNOUNCEMENTS. Except as may be required by applicable law,
without the prior written consent of the other Parties, none of the Parties will
make, and each Party will direct its representatives not to make, directly or
indirectly, any public announcement or press release regarding the Proposed
Transaction or any of the proposed terms, conditions or other aspects of the
Proposed Transaction. If a Party is required by law to make any such disclosure,
it shall first provide to the other Party the content of the proposed
disclosure, the reasons that such disclosure is required by law, the timing of
such disclosure and the medium in which such disclosure is to be made.
13.2 NOTICES. Any notices, demands or other communication given in
connection herewith shall be in writing and be deemed given (i) when personally
delivered, (ii) sent by facsimile transmission to a number provided in writing
by the addressee and a confirmation of the transmission is received by the
sender or (iii) three (3) days after being deposited for delivery with a
recognized overnight courier, such as FedEx, with directions to deliver within
three (3) days, and addressed or sent, as the case may be, to the address or
facsimile number set forth below or to such other address or facsimile number as
such Party may designate in accordance herewith:
When Buyer or SLL is the intended recipient:
Leonard I. Fluxman
c/o CT Maritime Services, L.C.
1007 North American Way
Fourth Floor
Miami, FL 33132
Telephone: (305) 358-9002
Facsimile: (305) 358-9954
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<PAGE> 47
with a copy to:
Robert C. Boehm, Esq.
Akerman, Senterfitt & Eidson, P.A.
SunTrust International Center
28th Floor
One S.E. 3rd Avenue
Miami, FL 33131-1714
Facsimile: (305) 374-5095
When either of the Sellers or either or both of the Hellers
are the intended recipient:
2001 W. Sample Road
Suite 318
Pompano Beach, FL 33064
Facsimile: (954) 969-9747
When Stubbs is the intended recipient:
5547 N. Military Trail
#2410
Boca Raton, FL 33496
Facsimile: (954) 561-995-7769
When either or both of the Keisers are the intended
recipients:
1500 N.W. 49th Street
Ft. Lauderdale, Florida 33309
Facsimile: (954) 489-2974
with a copy (in the case of any of the Sellers or the
Shareholders) to:
Leonard H. Bloom, Esq.
Broad and Cassel
201 South Biscayne Blvd.
Miami, FL 33131
Facsimile: (305) 995-6428
13.3 GOVERNING LAW; FORUM; ETC.. The validity, interpretation,
performance and enforcement of this Agreement shall be governed by the laws of
the State of Florida (without giving effect to the laws, rules or principles of
the State of Florida regarding conflicts of laws). Each Party agrees that any
proceeding arising out of or relating to this Agreement or the breach or
threatened breach of this Agreement may be commenced and prosecuted in a state
or federal court, as the case may be, in the county of Miami-Dade, State of
Florida. Each Party consents and submits to the non-exclusive personal
jurisdiction of any such court in respect of any such proceeding. Each Party
consents to service of process upon it with respect to any such proceeding by
registered mail, return receipt requested, and by any other means permitted by
applicable laws and rules. Each Party hereby irrevocably waives any objection
that it may now or hereafter have to the laying of venue of any such proceeding
in any such court and any claim that it may now or hereafter have that any such
proceeding in any such court has been brought in an inconvenient forum. In the
event of any litigation between or among any of the Parties with respect to this
Agreement, the prevailing Party or Parties, as the case may be, therein shall be
entitled to receive from the non-prevailing Party or Parties, as the case may
be, therein all of such prevailing Party's or Parties' expenses incurred in
connection with such litigation.
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<PAGE> 48
13.4 BINDING EFFECT; ASSIGNMENT; THIRD PARTY BENEFICIARIES. This
Agreement shall be binding upon the Parties and their respective successors and
permitted assigns and shall inure to the benefit of the Parties and their
respective successors and permitted assigns. No Party shall assign any of its
rights or delegate any of its duties under this Agreement (by operation of law
or otherwise) without the prior written consent of the other Parties. Any
assignment of rights or delegation of duties under this Agreement by a Party
without the prior written consent of the other Parties shall be void. No person
(including, without limitation, any employee of a Party) shall be, or be deemed
to be, a third party beneficiary of this Agreement unless this Agreement
specifically so provides.
13.5 ENTIRE AGREEMENT. This Agreement together with the Exhibits and
Schedules attached hereto and the agreements, certificates and instruments
delivered pursuant hereto constitutes the entire agreement among the Parties
with respect to the subject matter hereof and cancels and supersedes all of the
previous or contemporaneous agreements, representations, warranties and
understandings (whether oral or written) by, between or among the Parties with
respect to the subject matter hereof.
13.6 FURTHER ASSURANCES. At any time and from time to time after the
Closing, each Party shall, at its own cost and expense, execute, deliver and
acknowledge such other documents and take such further actions as may be
reasonably requested by the other Party in order to fully perform such Party's
obligations as contemplated hereby.
13.7 AMENDMENTS. No addition to, and no cancellation, renewal,
extension, modification or amendment of, this Agreement shall be binding upon a
Party unless such addition, cancellation, renewal, extension, modification or
amendment is set forth in a written instrument that states that it adds to,
amends, cancels, renews, extends or modifies this Agreement and is executed and
delivered by each Party.
13.8 WAIVERS. No waiver of any provision of this Agreement shall be
binding upon a Party unless such waiver is expressly set forth in a written
instrument that is executed and delivered by such Party. Such waiver shall be
effective only to the extent specifically set forth in such written instrument.
Neither the exercise (from time to time and at any time) by a Party of, nor the
delay or failure (at any time or for any period of time) to exercise, any right,
power or remedy shall constitute a waiver of the right to exercise, or impair,
limit or restrict the exercise of, such right, power or remedy or any other
right, power or remedy at any time and from time to time thereafter. No waiver
of any right, power or remedy of a Party shall be deemed to be a waiver of any
other right, power or remedy of such Party or shall, except to the extent so
waived, impair, limit or restrict the exercise of such right, power or remedy.
13.9 HEADINGS; COUNTERPARTS. The headings set forth in this Agreement
have been inserted for convenience of reference only, shall not be considered a
part of this Agreement and shall not limit, modify or affect in any way the
meaning or interpretation of this Agreement. This Agreement, and any agreement
delivered pursuant hereto, may be signed in any number of counterparts, each of
which shall be deemed an original and all of which together shall constitute one
and the same instrument.
13.10 SEVERABILITY. If any provision of this Agreement shall be held to
be invalid, unenforceable or illegal, in whole or in part, in any jurisdiction
under any circumstances for any reason, (i) such provision shall be reformed to
the minimum extent necessary to cause such provision to be valid, enforceable
and legal while preserving the intent of the Parties as expressed in, and the
benefits to the Parties provided by, this Agreement or (ii) if such provision
cannot be so reformed, such provision shall be severed from this Agreement and
an equitable adjustment shall be made to this Agreement (including, without
limitation, addition of necessary further provisions to this Agreement) so as to
give effect to the intent as so expressed and the benefits so provided. Such
holding shall not affect or impair the validity, enforceability or legality of
such provision in any other jurisdiction or under any other circumstances.
Neither such holding nor such reformation or severance shall affect or impair
the legality, validity or enforceability of any other provision of this
Agreement.
13.11 RIGHTS AND REMEDIES. All rights, powers and remedies afforded to
a Party under this Agreement, by law or otherwise, shall be cumulative (and not
alternative) and shall not preclude the assertion, or the seeking by a Party of
any other rights or remedies.
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<PAGE> 49
13.12 DISCLOSURE. Information provided in any Schedule hereto in
response to any section hereof shall be deemed to be included on any other
Schedule hereto, where applicable.
[SIGNATURE PAGES BEGIN ON TOP OF THE NEXT PAGE]
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<PAGE> 50
IN WITNESS WHEREOF, the Parties have duly executed and delivered this
Agreement as of the date first above written.
FCNH, INC.
By: /s/ Leonard I. Fluxman
--------------------------------------------
Name: Leonard I. Fluxman,
Title: Chairman of the Board
STEINER LEISURE LIMITED
By: /s/ Leonard I. Fluxman
--------------------------------------------
Name: Leonard I. Fluxman,
Title: President and Chief Operating Officer
FLORIDA COLLEGE OF NATURAL HEALTH, INC.
By: /s/ Neal R. Heller
--------------------------------------------
Name: Neal R. Heller
Title: President
THE NATURAL HEALTH SHOPPE, INC.
By: /s/ Neal R. Heller
--------------------------------------------
Name: Neal R. Heller
Title: President
/s/ Neal R. Heller
------------------------------------------------
Neal R. Heller
/s/ Elizabeth S. Heller
------------------------------------------------
Elizabeth S. Heller
/s/ Daniel Stubbs II
------------------------------------------------
Daniel Stubbs II
/s/ Arthur Keiser
------------------------------------------------
Arthur Keiser
/s/ Belinda Keiser
------------------------------------------------
Belinda Keiser
-50-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) AT, AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 18,320,000
<SECURITIES> 17,769,000
<RECEIVABLES> 5,855,000
<ALLOWANCES> 307,000
<INVENTORY> 8,318,000
<CURRENT-ASSETS> 52,070,000
<PP&E> 12,383,000
<DEPRECIATION> 4,274,000
<TOTAL-ASSETS> 63,021,000
<CURRENT-LIABILITIES> 9,978,000
<BONDS> 0
0
0
<COMMON> 166,000
<OTHER-SE> 52,858,000
<TOTAL-LIABILITY-AND-EQUITY> 63,021,000
<SALES> 25,099,000
<TOTAL-REVENUES> 59,287,000
<CGS> 17,411,000
<TOTAL-COSTS> 49,483,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,000
<INCOME-PRETAX> 10,695,000
<INCOME-TAX> 667,000
<INCOME-CONTINUING> 10,028,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,028,000
<EPS-BASIC> .62
<EPS-DILUTED> .60
</TABLE>
