<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE REGISTRATION NO. 333-
COMMISSION ON NOVEMBER __, 1998
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________________________
SYLVAN LEARNING SYSTEMS, INC.
(Exact Name Of Registrant As Specified in its charter)
MARYLAND 52-1492296
(State Of Incorporation) (I.R.S. Employer Identification No.)
1000 LANCASTER STREET
BALTIMORE, MARYLAND 21202
(410) 843-8000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DOUGLAS L. BECKER
PRESIDENT, CO-CHIEF EXECUTIVE OFFICER AND SECRETARY
SYLVAN LEARNING SYSTEMS, INC.
1000 LANCASTER STREET
BALTIMORE, MARYLAND 21202
(410) 843-8000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
Copies of all communications, including all communications sent to the agent for
service, should be sent to:
RICHARD C. TILGHMAN, JR., ESQUIRE
PIPER & MARBURY L.L.P.
36 SOUTH CHARLES STREET
BALTIMORE, MARYLAND 21201
(410) 539-2530
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please
check the following box: [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to rule 434,
please check the following box: [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================================================================================================
<S> <C> <C>
TITLE OF SHARES TO BE REGISTERED PROPOSED MAXIMUM AGGREGATE OFFERING PRICE AMOUNT OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------
COMMON STOCK, $.01 PAR VALUE $17,617,998 $4,898
============================================================================================================
</TABLE>
(1) CALCULATED IN ACCORDANCE WITH RULE 457(O) OF THE SECURITIES ACT OF 1933, AS
AMENDED.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
SUBJECT TO COMPLETION
NOVEMBER 23, 1998
PROSPECTUS
614,135 SHARES
SYLVAN LEARNING SYSTEMS, INC.
COMMON STOCK
___________
The shares of common stock of Sylvan Learning Systems, Inc. covered by this
Prospectus are outstanding shares which may be offered and sold by the
stockholders named herein. Sylvan will not receive any proceeds from the sale
of the shares by the selling stockholders.
The common stock is quoted on the Nasdaq National Market under the symbol
"SLVN." On November 20, 1998, the last sale price for the common stock as
reported on the Nasdaq Stock Market was $28.00 per share.
The selling stockholders may sell shares of the common stock offered hereby
in transactions on the Nasdaq Stock Market, in privately-negotiated transactions
or otherwise, in each case at negotiated prices. The brokers or dealers through
or to whom the shares of common stock covered hereby may be sold may be deemed
"underwriters" within the meaning of the Securities Act of 1933, in which event
all brokerage commissions or discounts and other compensation received by such
brokers or dealers may be deemed underwriting compensation.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is , 1998.
[The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is prohibited.]
<PAGE>
AVAILABLE INFORMATION
Sylvan is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and in accordance therewith
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Reports, proxy statements and other
information filed by Sylvan with the Commission, including the reports and other
information incorporated by reference into this Prospectus, can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 and at its regional offices located
at 7 World Trade Center, 13th Floor, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material can also be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at rates
prescribed by the Commission or from the Commission's Internet web site at
http:\\www.sec.gov. The common stock of Sylvan is quoted on the Nasdaq National
Market. Reports, proxy statements and other information concerning Sylvan can
be inspected at the offices of the Nasdaq Stock Market, 1735 K Street,
Washington, D.C. 20006. This Prospectus does not contain all the information
set forth in the Registration Statement of which this Prospectus is a part and
exhibits relating thereto which Sylvan has filed with the Commission. Copies of
the information and exhibits are on file at the offices of the Commission and
may be obtained, upon payment of the fees prescribed by the Commission, may be
examined without charge at the offices of the Commission or through the
Commission's Internet web site.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Sylvan with the Commission
(File No. 0-22844) pursuant to the 1934 Act are incorporated herein by
reference:
(i) Annual Report on Form 10-K for the year ended December 31, 1997, as
amended by its Annual Report on Form 10-K/A;
(ii) Quarterly Reports on Form 10-Q for the quarters ended March 31,
1998, June 30, 1998 and September 30, 1998;
(iii) Current Report on Form 8-K dated July 29, 1998, relating to the
restatement of Sylvan's consolidated financial statements for each of the three
years in the period ended December 31, 1997 and for the quarters ended March 31,
1998 and 1997 to give retroactive effect to Sylvan's merger with Aspect
International Language Schools, B.V. and subsidiaries ("Aspect");
(iv) Current Report on Form 8-K dated March 11, 1998, relating to the
restatement of Sylvan's selected financial data schedule to give effect to
Sylvan's adoption of Statement of Financial Accounting Standards No. 128,
Earnings Per Share as of December 31, 1997;
(v) the description of common stock contained in Item 4 of Sylvan's
Registration Statement on Form 8-A, filed with the Commission under the 1934
Act; and
(vi) all other documents filed by Sylvan pursuant to Sections 13(a),
13(c), 14 or 15(d) of the 1934 Act subsequent to the date of filing of the
Registration Statement of which this Prospectus is a part and prior to the
termination of the offering made hereby.
Sylvan will provide without charge to each person to whom a copy of this
Prospectus is delivered, upon the request of any such person, a copy of any or
all of the documents which have been incorporated herein by reference, other
than exhibits to such documents (unless such exhibits are specifically
incorporated by reference into such documents). Requests for such documents
should be directed to Sylvan Learning Systems, Inc., 1000 Lancaster Street,
Baltimore, Maryland 21202, Attention: Chief Financial Officer, telephone:
(410) 843-8000.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
<PAGE>
THE COMPANY
Sylvan is the leading provider of educational services to families, schools
and industry. Sylvan provides lifelong educational services through three
divisions: Sylvan Learning Centers, Sylvan Prometric and Sylvan Contract
Educational Services. Sylvan Learning Centers provides personalized
instructional services to kindergarten through 12th grade students of various
skill levels. Sylvan Prometric provides computer-based testing for academic
admissions and professional and licensing certification programs. This division
includes Wall Street Institute and Aspect. Wall Street is a European-based
franchisor and operator of learning centers for English language instruction
that also administers certain computer-based testing programs throughout Europe
and Latin America. Aspect is a leading provider of international educational
programs, primarily English as a Second Language for students worldwide. Sylvan
Contract Educational Services provides educational services and professional
development through contracts with school systems and other organizations. This
division includes the operations of Canter and Associates, Inc. and Canter
Educational Products, Inc., a leading provider of materials and training
programs for educators. Sylvan delivers its services through approximately
3,000 educational and testing centers around the globe. In 1997, system-wide
revenues were approximately $448.0 million, composed of $193.6 million from
Sylvan Learning Centers ($162.4 million from franchised Learning Centers and
$31.2 million from Company-owned Learning Centers, product sales, franchise
sales fees and other franchise service revenues), $187.8 million from Sylvan
Prometric and $66.6 million from Sylvan Contract Educational Services. In
addition, Wall Street's franchise system generated approximately $85.0 million
of revenues in 1997.
Sylvan Learning Centers. This division provides supplemental instruction
in reading, mathematics and reading readiness, featuring an extensive series of
standardized diagnostic tests, individualized instruction, a student
motivational system and continued involvement from both parents and the child's
regular school teacher. As of September 30, 1998, Sylvan or its franchisees
operated 710 Learning Centers. These centers are in 49 states, six Canadian
provinces, South Korea and Guam. As of that date, Sylvan owned and operated 63
Learning Centers, and more than 450 franchisees operated 647 Sylvan Learning
Centers.
Sylvan Prometric. As of September 30, 1998, Sylvan's testing business was
operated through more than 2,000 testing centers, approximately 1,100 of which
are located in the United States and Canada and the remainder of which are
located in more than 100 foreign countries. Sylvan Prometric's principal
customers are Educational Testing Services ("ETS") and, in the Information
Technology ("IT") industry, Microsoft Corp. and Novell, Inc. Sylvan provides
certification testing for its IT customers that have worldwide certification
programs for various professionals, such as network administrators and
engineers, service technicians and instructors, application specialists and
developers, and system administrators, operators and engineers. Sylvan has been
designated the exclusive commercial provider of computer-based tests
administered by ETS (excluding the SAT/PSAT and Achievement Test). As of
September 30, 1998, Sylvan operated 174 permanent and 88 temporary sites in more
than 100 countries to facilitate delivery of international testing for ETS.
Sylvan also provides testing services to organizations that license beginning
teachers, physicians, registered and practical nurses, pilots and aviation
mechanics and for organizations in many other fields, including computer
professionals, medical laboratory technicians and military candidates. Through
Sylvan's December 1996 acquisition of Wall Street Institute and its May 1998
acquisition of Aspect, Sylvan provides live and computer-based English
instruction in the U.S., Canada, Europe, Latin America and Australia.
Sylvan Contract Educational Services. As of September 30, 1998, Sylvan
provided educational services under federal and various state funding programs
to students in 152 public and 700 non-public schools. Sylvan provides remedial
educational services to public and non-public school systems. Sylvan expanded
these services through its May 1997 acquisition of I-R, Inc. and Independent
Child Study Teams, Inc. Sylvan's January 1998 acquisition of Canter, which
specializes in teacher training products and services, enhances Sylvan's teacher
development services for public and non-public school contracts and capitalizes
on the growing market for teacher training. Sylvan also provides educational
and training services to large corporations throughout the United States,
including racial and gender workplace diversity training and skills improvement
programs such as writing, advanced reading, listening and public speaking,
through its wholly-owned subsidiary, The PACE Group and Sylvan's Sylvan-At-Work
program.
Sylvan's principal executive offices are located at 1000 Lancaster Street,
Baltimore, Maryland 21202, and its telephone number is (410) 843-8000.
-2-
<PAGE>
USE OF PROCEEDS
All of the proceeds from the sale of the shares of Sylvan's common stock
offered hereby will be received by the selling stockholders. Sylvan will
receive none of the proceeds from the sale of the shares of common stock offered
hereby.
SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of Sylvan's common stock by the person listed therein prior to this
offering, the maximum number of shares of common stock to be sold by the selling
stockholders hereby, and the beneficial ownership of Sylvan's common stock by
the selling stockholders after this offering, assuming that all shares of common
stock offered hereby are sold.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Offering Shares To Owned After Offering
Name and Address of ------------------------------ Be Sold In -------------------------------
Beneficial Owner Number Percent Offering Number Percent
- ------------------------------------------ -------------- ------------ -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
The Chauncey Group International, Ltd./1/ 277,056 * 277,056 -0- *
664 Rosedale Road
Princeton, New Jersey 08540
Insurance Testing Corporation/2/ 258,246 * 258,246 -0- *
664 Rosedale Road
Princeton, New Jersey 08540
Barbara S. Stipek/3/ 61,867 * 61,867 -0- *
5017 S.W. Orchard Lane
Portland, Oregon 97219
Congress & Co., as Escrow Agent/3/ 16,966 * 16,966 -0- *
Two International Place, 5th Floor
Boston, Massachusetts 02110
</TABLE>
_____________
* Less than 1%.
1. Pursuant to the Stock Purchase Agreement between The Chauncey Group
International, Ltd. ("Chauncey") and Sylvan dated September 9, 1998, Sylvan
acquired 52,632 shares of Chauncey's convertible preferred stock in exchange
for 277,056 shares of Sylvan common stock.
2. Pursuant to the Asset Purchase Agreement by and between Sylvan and Insurance
Testing Corporation ("ITC") dated August 1, 1998, Sylvan acquired certain of
ITC's assets in exchange for 258,246 shares of Sylvan common stock.
3. Pursuant to the Stock Purchase Agreement by and among Barabara S. Stipek (the
"Stockholder") and Sylvan dated August 15, 1998 (the "Stock Purchase
Agreement"), Sylvan acquired all of the issued and outstanding capital stock
of Pacific Language Associates, Inc. in exchange for 78,833 shares of
Sylvan's common stock, 16,966 shares (the "Escrow Shares") of which were
placed in two escrow accounts. Each escrow account stands as security for
claims made by Sylvan against the Stockholder in respect of the
representations, warranties and covenants made by the Stockholder in the
Agreement. The Escrow Shares may be released to the Stockholder at specified
times under the terms of the escrow agreements. There can be no assurance,
however, that any of the Escrow Shares will be released to the Stockholder.
-3-
<PAGE>
PLAN OF DISTRIBUTION
Sylvan's common stock is quoted on the Nasdaq National Market under the
symbol "SLVN." The Shares may be sold from time to time by the selling
stockholders (or their pledgees, donees, transferees or other successors in
interest) directly or through broker-dealers or underwriters who may act solely
as agents, or who may acquire the Shares as principals. In connection with any
sales of the Shares hereunder, the selling stockholders and any broker-dealers
participating such sales may be deemed to be "underwriters" within the meaning
of the Securities Act. The distribution of the Shares hereunder by the selling
stockholders may be effected in one or more transactions that may take place on
the Nasdaq National Market or otherwise, including block trades or ordinary
brokers' transactions, or through privately negotiated transactions, through an
underwritten public offering, or through a combination of any such methods of
sale, at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Usual and customary or
specially negotiated brokerage fees or commissions may be paid by the selling
stockholders in connection with such sales. From time to time, the selling
stockholders may engage in short sales, short sales against the box, puts and
calls and other transactions in securities of Sylvan or derivatives thereof, and
may sell and deliver the Shares in connection therewith or in settlement of
securities loans. From time to time, the selling stockholders may pledge their
Shares pursuant to the margin provisions of their customer agreements with their
respective brokers. Upon a default by the selling stockholders, the broker may
offer and sell the pledged shares from time to time. Sylvan will not bear any
commissions or discounts paid or allowed by the selling stockholders to
underwriters, dealers, brokers or agents.
To the extent required, the specific shares of common stock to be sold,
purchase price, public offering price, the names of any such agent, dealer or
underwriter and any applicable commission or discount with respect to a
particular offering may be set forth in an accompanying Prospectus Supplement.
Sylvan has agreed to bear the cost of preparing the Registration Statement of
which Prospectus is a part and all filing fees and legal and accounting expenses
in connection with registration of the shares of common stock offered by the
selling stockholders hereby under federal and state securities laws.
LEGAL MATTERS
The legality of the shares offered hereby has been passed upon for Sylvan
by Piper & Marbury L.L.P., Baltimore, Maryland.
EXPERTS
The consolidated financial statements of Sylvan at December 31, 1997 and
1996, and for each of the three years in the period ended December 31, 1997
appearing in the Current Report on Form 8-K dated July 29, 1998 of Sylvan have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report included therein and incorporated herein by reference, which, as to the
years 1996 and 1995, is based in part on the reports of Deloitte & Touche LLP,
independent auditors, and as to the years 1997, 1996 and 1995, is based in part
on the reports of Smith, Lange & Phillips, LLP and Deloitte & Touche,
independent auditors. Such consolidated financial statements are incorporated
herein by reference in reliance upon such reports given upon the authority of
such firms as experts in accounting and auditing.
-4-
<PAGE>
<TABLE>
<S> <C>
============================================= =============================================
No person has been authorized by Sylvan
to give any information or to make any
representations other than those contained
in this Prospectus in connection with the
offer contained in this Prospectus, and if 614,135 SHARES
given or made, such information or
representations may not be relied upon as
having been authorized by Sylvan. This
Prospectus does not constitute an offer SYLVAN LEARNING
to sell or a solicitation of an offer SYSTEMS, INC.
to buy any of the securities in any
jurisdiction in which such offer or
solicitation is not authorized, or in COMMON STOCK
which the person making such offer or
solicitation is not qualified to do
so, or to any person to whom it is
unlawful to make such offer or
solicitation. Neither the delivery of PROSPECTUS
this Prospectus nor any sale made hereunder
shall create an implication that there
has been no change in the affairs of Sylvan
since the date hereof.
</TABLE>
_____________________________
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C> <C>
AVAILABLE INFORMATION............. 1
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE......... 1
THE COMPANY....................... 2
USE OF PROCEEDS................... 3
SELLING STOCKHOLDERS.............. 3
PLAN OF DISTRIBUTION.............. 4
LEGAL MATTERS..................... 4
EXPERTS........................... 4
, 1998
============================================= ================================================
</TABLE>
<PAGE>
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with this
Registration Statement. Sylvan will pay all expenses of the offering. All of
such expenses are estimates, other than the filing fees payable to the
Securities and Exchange Commission.
<TABLE>
<CAPTION>
<S> <C>
Filing Fee-Securities and Exchange Commission.............................................. $ 4,898.00
Nasdaq National Market Listing Fees........................................................ 12,282.70
Fees and Expenses of Counsel............................................................... 6,000.00
Miscellaneous Expenses..................................................................... 5,000.00
----------
TOTAL...................................................................................... $28,180.70
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sylvan's Charter provides that, to the fullest extent that limitations on
the liability of directors and officers are permitted by the Maryland General
Corporation Law, no director or officer of Sylvan shall have any liability to
Sylvan or its stockholders for monetary damages. The Maryland General
Corporation Law provides that a corporation's charter may include a provision
which restricts or limits the liability of its directors or officers to the
corporation or its stockholders for money damages except: (1) to the extent that
it is provided that the person actually received an improper benefit or profit
in money, property or services, for the amount of the benefit or profit in
money, property or services actually received, or (2) to the extent that a
judgment or other final adjudication adverse to the person is entered in a
proceeding based on a finding in the proceeding that the person's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. Sylvan's Charter
and By-laws provide that Sylvan shall indemnify and advance expenses to its
currently acting and its former directors to the fullest extent permitted by the
Maryland General Corporation Law and that Sylvan shall indemnify and advance
expenses to its officers to the same extent as its directors and to such further
extent as is consistent with law.
The Charter and By-laws provides that Sylvan will indemnify its directors
and officers and may indemnify employees or agents of Sylvan to the fullest
extent permitted by law against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with
Sylvan. In addition, Sylvan's Charter provides that its directors and officers
will not be liable to stockholders for money damages, except in limited
instances. However, nothing in the Charter or By-laws of Sylvan protects or
indemnifies a director, officer, employee or agent against any liability to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office. To the extent that a director has been successful in defense of any
proceeding, the Maryland General Corporation Law provides that he shall be
indemnified against reasonable expenses incurred in connection therewith.
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1 Articles of Amendment and Restatement of the Charter*
3.2 Amended and Restated By-Laws dated September 27, 1996**
4.1 Specimen Stock Certificate*
4.2 Stock Purchase Agreement between The Chauncey Group International, Ltd. and Sylvan dated
September 9, 1998
4.3 Asset Purchase Agreement by and between Sylvan and Insurance Testing Corporation dated
August 1, 1998
4.4 Stock Purchase Agreement by and among Barabara S. Stipek and Sylvan dated August 15, 1998
5.1 Opinion of Piper & Marbury L.L.P.
23.1 Consent of Ernst & Young LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Deloitte & Touche
23.4 Consent of Smith, Lange & Phillips, LLP
23.5 Consent of Piper & Marbury L.L.P. (contained in Exhibit 5.1)
24.1 Powers of Attorney (included on signature page)
______________
</TABLE>
* Incorporated by reference from the Registrant's Registration Statement on
Form S-1 (No. 33-69558)
** Incorporated by reference from Sylvan's Annual Report on Form 10-K for the
Year ended December 31, 1996.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange of
1934) that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suite or proceeding) is asserted by
such director, officer or controlling
<PAGE>
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(d) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective
amendment by those paragraphs in contained in periodic reports filed by the
registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") that are incorporated by reference
in the registration statement.
(2) That for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement or Amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in Baltimore, Maryland, on this 23rd day of November, 1998.
SYLVAN LEARNING SYSTEMS, INC.
By /s/ R. Christopher Hoehn-Saric
-------------------------------------------
R. Christopher Hoehn-Saric, Chairman of the
Board and Co-Chief Executive Officer
Know all men by these presents, that each person whose signature appears
below constitutes and appoints R. Christopher Hoehn-Saric and Douglas L. Becker
(with full power to each of them to act alone) as his true and lawful attorney-
in-fact and agent, with full power of substitution, for him and in his name,
place and stead in any and all capacities to sign any or all amendments or post-
effective amendments to this Registration Statement, including post-effective
amendments filed pursuant to Rule 462(b) of the Securities Act of 1933, as
amended, and to file the same with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, to sign any
and all applications, registration statements, notices or other document
necessary or advisable to comply with the applicable state securities laws, and
to file the same, together with all other documents in connection therewith,
with the appropriate state securities authorities, granting unto said attorneys-
in-fact and agents or any of them, or their or his substitute or substitutes,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, thereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
---------- ----- ----
<S> <C> <C>
/s/ R. Christopher Hoehn-Saric Co-Chief Executive Officer and Chairman of the
______________________________ Board of Directors (Principal Executive Officer) November 23, 1998
R. Christopher Hoehn-Saric
/s/ Douglas L. Becker
__________________________ Co-Chief Executive Officer November 23, 1998
Douglas L. Becker President, Secretary and Director
/s/ B. Lee McGee
__________________________ Chief Financial Officer (Principal November 23, 1998
B. Lee McGee Financial and Accounting Officer)
/s/ Donald V. Berlanti
__________________________ Director November 23, 1998
Donald V. Berlanti
__________________________ Director November __, 1998
R. William Pollock
__________________________ Director November __, 1998
J. Phillip Samper
/s/ Nancy A. Cole
__________________________ Director November 23, 1998
Nancy A. Cole
/s/ James H. McGuire
__________________________ Director November 23, 1998
James H. McGuire
/s/ Rick Inatome
__________________________ Director November 23, 1998
Rick Inatome
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit No. Description Numbered Page
----------- ----------- -------------
<S> <C> <C>
3.1 Articles of Amendment and Restatement*
3.2 Amended and Restated By-Laws dated September 27, 1996**
4.1 Specimen Stock Certificate*
4.2 Stock Purchase Agreement between The Chauncey Group
International, Ltd. and Sylvan dated September 9, 1998
4.3 Asset Purchase Agreement by and between Sylvan and Insurance
Testing Corporation dated August 1, 1998
4.4 Stock Purchase Agreement by and among Barabara S. Stipek and
Sylvan dated August 15, 1998
5.1 Opinion of Piper & Marbury L.L.P.
23.1 Consent of Ernst & Young LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Deloitte & Touche
23.4 Consent of Smith, Lange & Phillips, LLP
23.5 Consent of Piper & Marbury L.L.P. (contained in Exhibit 5.1)
24.1 Powers of Attorney (included on signature page)
___________________
</TABLE>
* Incorporated by reference from the Registrant's Registration Statement on
Form S-1 (No. 33-69558)
** Incorporated by reference from Sylvan's Annual Report on Form 10-K for the
Year ended December 31, 1996.
<PAGE>
EXHIBIT 4.2
-----------
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") dated as of
September 9, 1998, is made between The Chauncey Group International, Ltd., a
Delaware corporation ("Chauncey") and Sylvan Learning Systems, Inc., a Maryland
corporation ("Sylvan").
RECITALS
WHEREAS, Sylvan wishes to subscribe for certain convertible preferred
stock of Chauncey in exchange for, at Sylvan's option, either Eight Million
Dollars ($8,000,000) or its equivalent in shares of common stock of Sylvan, and
Chauncey is willing to issue and sell to Sylvan such preferred stock on the
terms described herein.
NOW THEREFORE, in consideration of the premises, and other good and
valuable consideration the adequacy of which is expressly acknowledged, the
parties hereby agree as follows:
ARTICLE I
---------
DEFINITIONS
-----------
1.1 Defined Terms. The following terms shall have the meanings set
-------------
forth herein:
"affiliate of", or a Person "affiliated" with, a specified Person, is a Person
that directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the Person specified.
"Asset Purchase Agreement" shall mean that certain asset purchase
agreement entered into by and between ITC and Sylvan, on even date herewith.
"Business Day" shall mean any day other than a (i) Saturday, (ii)
Sunday, or (iii) any day on which commercial banking institutions in New York,
New York are authorized or obligated to close, provided, however, that if four
-------- -------
(4) consecutive days are not Business Days, the next day shall be deemed a
Business Day whether or not banks located in New York, New York are authorized
or obligated to close.
"Chauncey Common Stock" shall mean the common stock, par value $1.00
per share, of Chauncey.
"Closing Date" shall mean the date when Closing actually occurs.
"Exchange Act" shall mean the Securities and Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"ITC" shall mean Insurance Testing Corporation, a Minnesota
Corporation.
"Lien" shall mean any mortgage, security interest, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
otherwise), charge, preference, priority or other security agreement, option,
warrant, attachment, right of first refusal, preemptive, conversion, put, call
or other claim or right, restriction on transfer (other than restrictions
imposed by federal and state securities laws), or preferential arrangement of
any kind or nature whatsoever (including any restriction on the transfer of any
assets, any conditional sale or other title retention agreement, any financing
lease involving substantially the same economic effect as any of the foregoing
and the filing of any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction).
<PAGE>
"Limited Liability Company Agreement" shall mean that certain limited
liability company agreement between ITC and NAI/BLOCK, entered into on even date
herewith.
"NAI/Block" shall mean Block Testing Services Inc., a Maryland
corporation ("Block") and National Assessment Institute, Inc., a Florida
corporation and wholly owned subsidiary of Block.
"Person" shall mean any natural person, sole proprietorship,
corporation, general partnership, limited partnership, limited liability
company, union, association, court, agency, agreement, tribunal,
instrumentality, commission, arbitrator, board, bureau, or other entity or
authority.
"Prime Rate" shall mean the prime rate as reported in the "Money
Rates" column of The Wall Street Journal, or, if such prime rate is not so
published, the "prime" or "base" rate quoted by the Chase Manhattan Bank, or any
other international bank chosen by Chauncey if The Chase Manhattan Bank is no
longer in existence.
"Qualified Public Offering" shall mean an underwritten public offering
of the Chauncey Common Stock, registered under the Securities Act, in which the
aggregate net proceeds to Chauncey shall be at least Fifteen Million Dollars
($15,000,000).
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Shareholder" shall mean any holder of Shares.
"Shares" shall mean any and all issued and outstanding shares of
capital stock of Chauncey, including, without limitation, the Chauncey Common
Stock and the Preferred Stock.
"Sylvan Common Stock" shall mean the common stock of Sylvan, par value
$.01 per share.
"Sylvan Shares" shall mean a number of shares of Sylvan Common Stock
with an aggregate value of Eight Million Dollars ($8,000,000) as of the day of
the Closing.
"Transfer" as a noun, any voluntary or involuntary sale, assignment,
transfer, pledge, hypothecation, exchange or other disposition of the Preferred
Interest (as defined below) by any means whatsoever, whether by operation of law
or otherwise; and as a verb, any action or actions taken by or on behalf of
Sylvan which result in such sale, assignment, transfer, pledge, hypothecation,
exchange or other disposition of the Preferred Interest (as defined below).
In addition, the following terms are defined elsewhere in this
Agreement:
<TABLE>
<CAPTION>
<S> <C>
Agreement Introductory Paragraph
Chauncey Introductory Paragraph
Sylvan Introductory Paragraph
Preferred Stock 2.1
Effective Time 2.3
Post Closing Period 2.6
Closing 3.1
Sylvan Put Notice 4.1
Chauncey Financial Statements 5.1(f)
Preferred Interest 8.1
Claims 9.2
Indemnity Obligation 9.3
Indemnifying Party 9.3
Indemnified Party 9.3
</TABLE>
<PAGE>
Annex A
- -------
Agreed Value Annex A
Liquidation Preference Annex A
Preferential Dividend Annex A
1.2 Accounting Terms. Accounting terms used herein and not otherwise
----------------
defined herein shall be construed in accordance with generally accepted
accounting definitions and principles consistently applied.
1.3 Singular and Plural. Words used herein in the singular,
-------------------
where the context so permits, shall be deemed to include the plural and vice
versa. The definitions of words in the singular herein shall apply to such
words when used in the plural where the context so permits and vice versa.
ARTICLE II
----------
PURCHASE AND SALE
-----------------
2.1 Description of the Preferred Stock. The preferred stock shall
----------------------------------
consist of Fifty Two Thousand Six Hundred and Thirty Two (52,632) shares of
convertible preferred stock of Chauncey, bearing the rights and characteristics
set forth in Section B of Annex A hereto (the "Preferred Stock"), representing,
as of the date of this Agreement, and assuming the repurchase of Chauncey stock
currently owned by certain Chauncey shareholders, one hundred percent (100%) of
the total issued and outstanding Preferred Stock of Chauncey on a fully diluted
basis and five percent (5%) of the total issued and outstanding capital stock of
Chauncey on a fully diluted basis.
2.2 Subscription and Sale. Pursuant to the terms and subject to the
---------------------
conditions hereof, on the Closing Date, but effective as of the Effective Time,
Chauncey shall offer for subscription and issue to Sylvan the Preferred Stock
for the Purchase Price (as defined below) and Sylvan shall subscribe and pay for
such Preferred Stock in accordance with Section 2.4.
2.3 Effective Time. The subscription of the Preferred Stock shall be
--------------
effective as of the date Sylvan delivers the Purchase Price to Chauncey (the
"Effective Time").
2.4 Purchase Price. The Purchase Price for the Preferred Stock shall
--------------
be, at Sylvan's option, either Eight Million Dollars ($8,000,000) or the Sylvan
Shares (the "Purchase Price").
2.5 Payment of Purchase Price. At the Closing Sylvan shall either
-------------------------
(i) deliver to Chauncey the amount set forth in Section 2.4, by wire transfer or
other delivery of immediately available funds to the credit of such account as
Chauncey shall designate, or (ii) offer for subscription and issue to Chauncey
the Sylvan Shares.
2.6 Guaranteed Value of Sylvan Shares.
---------------------------------
(a) Post-Closing Period. For one hundred twenty (120) days
-------------------
following the Closing Date (the "Post Closing Period"), upon (i) sale by
Chauncey of any Sylvan Shares received under Section 2.5 and (ii) written notice
from Chauncey to Sylvan at the conclusion of the earlier of (x) the sale of all
Sylvan Shares received under this Agreement or (y) the expiration of the Post
Closing Period, setting forth the total sale price for the Sylvan Shares sold,
such Sylvan Shares shall be subject to subsections (b) and (c).
(b) Guaranteed Value. Subject to the adjustment in subsection
----------------
(c), (i) if the sale price for all the shares of Sylvan Common Stock sold net of
all costs to Chauncey of such sale is less than Eight Million Dollars
($8,000,000) then Sylvan promptly shall pay to Chauncey an amount equal to such
difference and (ii) if the sale
<PAGE>
price for all the shares of Sylvan Common Stock sold net of all costs to
Chauncey of such sale is greater than Eight Million Dollars ($8,000,000),
Chauncey promptly shall pay to Sylvan an amount equal to such difference.
(c) Adjustment For and Repurchase of Unsold Sylvan Shares. If
-----------------------------------------------------
all Sylvan Shares have not been sold by Chauncey within the Post Closing Period,
then the calculations in subsection (b) shall be done based on the actual sales
price for the number of shares of Sylvan Shares actually sold compared to Eight
Million Dollars ($8,000,000) adjusted to reflect the percentage of Sylvan Shares
actually sold; provided, however, that if Chauncey's failure to sell any or all
-------- -------
of the Sylvan Shares by the date of the expiration of the Post Closing Period is
the result of any event or restriction not caused by Chauncey, Sylvan shall
repurchase such remaining shares as are held by Chauncey for a repurchase price
equal to Eight Million Dollars ($8,000,000) minus the net proceeds received by
Chauncey with respect to sales made prior to the expiration of the Post Closing
Period; provided, further, that at anytime within the Post Closing Period, upon
-------- -------
written notice by Sylvan, Chauncey shall sell to Sylvan any remaining shares as
are held by Chauncey for a repurchase price equal to Eight Million Dollars
($8,000,000) minus the net proceeds received by Chauncey with respect to sales
made prior to the date of such notice.
ARTICLE III
-----------
THE CLOSING
-----------
3.1 Date of Closing. Subject to the conditions stated in this
---------------
Agreement, the consummation of the transactions contemplated hereby (the
"Closing") shall occur at the Effective Time, or such other date as is mutually
satisfactory to the parties hereto.
3.2 Place of Closing. The Closing shall be held at such place as the
----------------
parties hereto may agree in writing.
3.3 Conditions to Chauncey's Closing. The obligations of Chauncey
--------------------------------
hereunder are subject to the following conditions, each of which must be
satisfied or waived by Chauncey prior to the Closing:
(a) Delivery of Purchase Price. At the Closing, Chauncey shall
--------------------------
have the Eight Million ($18,000) or a cerifticate presenting the Sylvan Shares,
with all necessary transfer taxes paid or other revenue stamps affixed thereto.
(b) Other Deliveries. Sylvan shall have delivered such documents,
----------------
certificates and/or instructions as may be reasonably necessary or advisable to
carry out Sylvan's obligations under, and to fulfill the purpose of, this
Agreement .
(c) Representations and Warranties True. Chauncey shall be
-----------------------------------
satisfied that all representations and warranties of Sylvan contained in this
Agreement are true in all material respects at and as of the Closing as if such
representations and warranties were made at and as of the Closing, and that
Sylvan shall have performed and satisfied all material agreements in all
material respects as required by this Agreement to be performed and satisfied by
Sylvan at or prior to the Closing.
(d) Other Agreements. Each of the Limited Liability Company
----------------
Agreement, the Asset Purchase Agreement and the Collaboration Agreement shall
have been executed and delivered by each party thereto, and each such document
shall be in full force and effect as of the Closing.
3.4 Conditions to Sylvan's Closing. The obligations of Sylvan
------------------------------
hereunder are subject to the following conditions, each of which must be
satisfied or waived by Sylvan prior to the Closing:
(a) Resolutions. Prior to or at the Closing, Sylvan shall have
-----------
received resolutions of the Board of Directors and/or Shareholders of Chauncey,
as required by law and Chauncey's Articles of Incorporation and By-laws,
authorizing and approving the transactions contemplated by this Agreement,
certified by
<PAGE>
the respective Secretary or Assistant Secretary of Chauncey, together with
certified copies of Chauncey's Articles of Incorporation and By-laws and a good-
standing certificate with respect to Chauncey from the State of Delaware.
(b) Stock Certificates. At the Closing, Chauncey shall deliver to
------------------
Sylvan a certificate representing the Preferred Stock, with all necessary
transfer taxes paid or other revenue stamps affixed thereto.
(c) Opinion of Counsel. Prior to or at the Closing, Sylvan shall have
------------------
received an opinion of Wilmer, Cutler & Pickering in form and substance
reasonably acceptable to Sylvan.
(d) Other Deliveries. Chauncey shall have delivered such additional
----------------
instruments, as may be reasonably necessary or advisable to carry out Chauncey's
obligations under, and to fulfill the purpose of, this Agreement and any other
document, certificate or other instructions delivered pursuant hereto.
(e) Representations and Warranties True. Sylvan shall be satisfied
-----------------------------------
that all representations and warranties of Chauncey contained in this Agreement
shall be true in all material respects as at and as of the Closing as if such
representations and warranties were made at and as of the Closing, and that
Chauncey has performed and satisfied all material agreements in all material
respects as required by this Agreement to be performed and satisfied by Chauncey
at or prior to the Closing.
(f) Other Agreements. Each of the Limited Liability Company
----------------
Agreement, the Asset Purchase Agreement and the Collaboration Agreement shall
have been executed and delivered by each party thereto, and each such document
shall be in full force and effect as of the Closing.
ARTICLE IV
----------
PUT RIGHTS AND EFFECT OF QUALIFIED PUBLIC OFFERING
--------------------------------------------------
4.1 Put Rights of Preferred Stock Holder. At the written request of
------------------------------------
Sylvan made (i) on or after the tenth (10th) anniversary of the date hereof or
(ii) upon the termination of the Limited Liability Company Agreement (the
"Sylvan Put Notice") Chauncey shall purchase all but not less than all of the
Preferred Stock.
4.2 Purchase Price. The value of the Preferred Stock, in the
--------------
aggregate, to be purchased by Chauncey pursuant to Section 4.1 above shall be
equal to (i) Eight Million Dollars ($8,000,000), plus (ii) interest at a 6%
annual rate compounded annually from the Closing Date until the earlier of (x)
the date of the Sylvan Put Notice, or (y) the tenth anniversary of the date
hereof, plus (iii) interest at the Prime Rate from the date the Sylvan Put
Notice was received by Chauncey until payment.
4.3 Effect of Qualified Public Offering In the event of a
-----------------------------------
Qualified Public Offering, (i) any rights and obligations with respect to the
repurchase of Preferred Stock provided for above shall terminate and be of no
further effect; provided, however, no such termination shall occur if Chauncey
-------- -------
has received the Sylvan Put Notice prior to Chauncey sending Sylvan notice of a
proposed registration with respect to such Qualified Public Offering and (ii)
all outstanding shares of Preferred Stock shall convert automatically into
shares of Chauncey Common Stock as set forth in Section B.5 of Annex A.
ARTICLE V
---------
PIGGYBACK REGISTRATION RIGHTS
-----------------------------
5.1 Piggyback Registration Rights. If at any time Chauncey
-----------------------------
decides to make a Qualified Public Offering, other than an initial public
offering, and proposes to file a registration statement for the public sale of
any shares of Chauncey Common Stock, Chauncey shall, not later than thirty (30)
days prior to the initial filing of the registration statement, deliver notice
of its intent to file such registration statement to Sylvan,
<PAGE>
setting forth the minimum and maximum proposed offering price, commissions, and
discounts in connection with the offering, and other relevant information.
Within twenty (20) days after receipt of notice of Chauncey's intent to file a
registration statement, Sylvan shall be entitled to request the inclusion in
such registration statement of any or all of Chauncey Common Stock owned by
Sylvan ("Sylvan Registrable Securities"). Chauncey will use commercially
reasonable efforts to cause the Sylvan Registrable Securities to be included in
the offering covered by such registration statement; provided, however, that if
-------- -------
the Qualified Public Offering involves an underwriting, the right of Sylvan to
have the Sylvan Registrable Securities included in the Qualified Public Offering
under this Article 5 shall be conditioned on Sylvan's participation in the
underwriting and the inclusion of the Sylvan Registrable Securities in the
underwriting to the extent provided in this Article 5. In this case, Sylvan
shall, together with Chauncey, enter into an underwriting agreement in customary
form with the underwriter or underwriters selected by Chauncey. Notwithstanding
any other provisions of this Article 5, if the underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, or in the event that the offering is not being underwritten,
Chauncey determines in good faith that marketing factors require a limitation on
the number of shares to be offered, the number of shares to be offered in the
Qualified Public Offering shall not exceed such limitation and if the total
number of the shares proposed to be registered by Chauncey and the Sylvan
Registrable Securities requested to be included as provided above exceeds such
limitation, Chauncey shall be entitled to include in the offering the full
amount of shares to be sold on its behalf and Sylvan shall be entitled to sell
up to the remaining balance of the limitation in proportion, as nearly as
practicable, to the respective amounts of Sylvan Registrable Shares at the time
of the Qualified Public Offering.
5.2 Expenses . All expenses incurred by Chauncey in connection
--------
with any registration of the Sylvan Registrable Securities effected under
Section 5.1 hereof, including, without limitation, all registration or filing
fees, fees and expenses of complying with state securities and blue sky laws,
printing expenses, fees and expenses of Chauncey's counsel and accountants shall
be paid by Chauncey; provided, however, that all underwriting discounts and
-----------------
selling commissions applicable to the Sylvan Registrable Securities and any fees
and expenses of counsel and accountants for Sylvan, shall be borne by Sylvan.
ARTICLE VI
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
6.1 Representations and Warranties of Chauncey. Chauncey represents
------------------------------------------
and warrants as of the date hereof and as of the Closing Date as follows:
(a) Organization. Chauncey is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Delaware,
and is duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
respective businesses in the places and in the manner as now conducted.
(b) Capital Stock. The authorized capital stock of Chauncey
-------------
consists of 1,900,000 shares of common stock, which are outstanding as of the
date of this Agreement and 100,000 shares of Preferred Stock. Chauncey has no
other Shares or capital stock of any class or other equity securities or equity
equivalents authorized, issued or outstanding. Chauncey has reserved a
sufficient number of authorized Shares for issuance for conversion of the
Preferred Stock. All of the Shares of Preferred Stock to be issued to Sylvan in
accordance herewith will be offered, issued, sold and delivered by Chauncey in
compliance with all applicable state and federal laws concerning the issuance of
securities and none of such shares was or will be issued in violation of the
preemptive rights of any Shareholder.
(c) Transfer of the Preferred Stock. Upon the consummation of
-------------------------------
the transactions contemplated hereby, Sylvan will acquire title to the Preferred
Stock, free and clear of any and all Liens. The Preferred Stock has been, or
will be prior to the Closing, duly authorized and, when issued and delivered to
Sylvan as provided in this Agreement, will be validly issued, fully paid, and
nonassessable, and the issuance of such shares will not be subject to any
agreement or restriction of any kind and will not violate or contravene the
terms of any
<PAGE>
contract, agreement, note, bond, mortgage, indenture, deed or trust, license,
franchise, permit, lease, plan, instrument, or other document binding on
Chauncey.
(d) No Conflict. The execution, delivery and performance of this
-----------
Agreement, the consummation of the transactions contemplated herein and the
fulfillment of the terms hereof will not:
(i) conflict with, or result in a breach or violation of the
Chauncey Articles of Incorporation and By-laws;
(ii) subject to compliance with any agreements between Chauncey
and its lenders, conflict with in any material respect, or result in a default
(or would constitute a default but for a requirement of notice or lapse of time
or both) under any material document, agreement or other instrument to which
Chauncey is a party, or result in the creation or imposition of any lien, charge
or encumbrance on any of Chauncey's properties pursuant to (x) any law or
regulation to which Chauncey or any of its property is subject, or (y) any
judgment, order, or decree to which Chauncey is bound or any of its property is
subject;
(iii) result in termination or any impairment of any material
permit, license, franchise, contractual right or other authorization of
Chauncey; or
(iv) violate any law, order, judgment, rule, regulation, decree
or ordinance to which Chauncey is subject, or by which Chauncey is bound.
(e) Authorization. The representative of Chauncey executing this
-------------
Agreement has all requisite corporate power and authority to enter into and bind
Chauncey to the terms of this Agreement. Chauncey has the full legal right,
power, and corporate authority to enter into this Agreement and the transactions
contemplated hereby. The execution and delivery of this Agreement by Chauncey
and the performance by Chauncey of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of Chauncey, and this
Agreement has been duly and validly authorized by all necessary corporate
action. This Agreement is a legal, valid and binding obligation of Chauncey
enforceable in accordance with its terms.
(f) Financial Statements. Schedule 6.1(f) includes five
--------------------
complete and correct copies of (i) Chauncey's audited balance sheet, statement
of operations and statement of cash flow as of June 30, 1997 (collectively the
"Audited Financial Statements") and (ii) Chauncey's quarterly unaudited balance
sheet, statement of operations and statement of cash flow as of March 31, 1998
certified by the Chief Financial Officer of Chauncey (the "Unaudited Financial
Statements" and, collectively with the Audited Financial Statements, the
"Chauncey Financial Statements" ). Except as noted on the auditor's report, or
the Chief Financial Officer's certificate, as the case may be, accompanying the
Chauncey Financial Statements, such Chauncey Financial Statements have been
prepared in accordance with GAAP consistently applied and there has been no
materia adverse change in the financial condition of Chauncey since the date of
the Chauncey Financial Statements.
(g) Compliance with Law. Chauncey is not in violation of any
-------------------
order, injunction, judgment, ruling, law, or regulation of any court or
governmental authority applicable to the property or business of Chauncey, which
violation or violations in the aggregate would have a material adverse effect on
Chauncey. The licenses, permits and other governmental authorizations held by
Chauncey are valid and sufficient for the conduct of Chauncey's businesses as
currently conducted, except where the failure to hold such licenses, permits,
and other governmental authorizations would not have a material adverse effect.
(h) Fees. Chauncey has incurred no liability, contingent or
----
otherwise, for brokers' or finders' fees relating to the transactions
contemplated by this Agreement for which Sylvan shall have any responsibility
whatsoever.
<PAGE>
6.2 Representations and Warranties of Sylvan. Sylvan represents and
----------------------------------------
warrants to Chauncey as of the date hereof and as of the Closing Date as
follows:
(a) Organization. Sylvan is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Maryland,
and is duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
respective businesses in the places and in the manner as now conducted.
(b) Capitalization of Sylvan. The authorized capital stock of
------------------------
Sylvan consists of 90,000,000 shares of $.01 par value common stock (as
previously defined "Sylvan Common Stock") of which 31,195,090 shares of Sylvan
Common Stock were issued and outstanding on April 8, 1998. All such issued
shares of Sylvan Common Stock are, and when issued to Chauncey in accordance
with this Agreement will be, duly and validly issued, fully paid and non-
assessable. None of the outstanding shares of Sylvan Common Stock were, and non
of the shares of Sylvan Common Stock to be issued to Chauncey in accordance with
this Agreement will be, issued in violation of any preemptive rights.
(c) SEC Reports.
-----------
(i) Sylvan has heretofore delivered to Chauncey copies of
Sylvan's (w) Annual Report on Form 10-K for the year ended December 31, 1997 as
filed with the Securities and Exchange Commission, (x) proxy statements relating
to Sylvan's annual meeting of stockholders held in 1997, (y) Annual Report for
Stockholders for 1997, and (z) all other reports or registration statements
filed by Sylvan with the Securities and Exchange Commission since December 31,
1997. There has been no material adverse change from the information set forth
in any SEC Document (as defined below) filed on or after the date hereof and or
prior to the Closing Date.
(ii) Sylvan has filed and will file with the Securities and
Exchange Commission, all forms, reports, schedules, statements, exhibits and
other documents (collectively the "SEC Documents") required to be filed on or
before the date hereof or the Closing Date, respectively, by Sylvan under the
Securities Act or the Exchange Act. At the time of the filings the SEC Documents
filed by Sylvan (x) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, and (y) complied in all
material respects with the applicable requirements of the Securities Act and the
Exchange Act, as the case may be. No SEC Document filed on or after the date
hereof and on or prior to the Closing Date will contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements made therein not misleading. Sylvan
shall deliver to Chauncey a copy of any SEC document within five (5) days of the
date of filing of such SEC document with the Securities Exchange Commission.
(e) No Conflict. Sylvan has all requisite power and authority to
-----------
carry on its business as presently conducted, to enter into this Agreement, to
purchase the Preferred Stock on the terms described in this Agreement and to
perform its other obligations under this Agreement. The consummation of the
transactions contemplated by this Agreement will not violate, or be in conflict
with, any material provision of the By-laws of Sylvan or any agreement or
instrument to which Sylvan is a party or by which it is bound, noncompliance
with which would have a material adverse effect upon Chauncey or upon Sylvan's
acquisition or ownership of the Preferred Stock or upon any of the transactions
contemplated by this Agreement, or, to the knowledge of Sylvan, any judgment,
decree, order, statute, rule or regulation applicable to Sylvan (subject to
required approvals of federal, state or other governmental agencies).
(f) Authorization. The representative of Sylvan executing this
-------------
Agreement has all requisite corporate power and authority to enter into and bind
Sylvan to the terms of this Agreement. Sylvan has the full legal right, power,
and corporate authority to enter into this Agreement and the transactions
contemplated hereby. The execution and delivery of this Agreement by Sylvan and
the performance by Sylvan of the transactions
<PAGE>
contemplated herein have been duly and validly authorized by the Board of
Directors of Sylvan, and this Agreement has been duly and validly authorized by
all necessary corporate action. This Agreement is a legal, valid and binding
obligation of Sylvan enforceable in accordance with its terms.
(g) Investment Intent. Sylvan acknowledges that the Preferred
-----------------
Stock has not been registered under the Securities Act of 1933, as amended, or
applicable state securities laws and that the certificates representing such
Shares will bear a legend to such effect. Sylvan is acquiring the Preferred
Stock hereunder for investment purposes only and not with a view to, or for
resale in connection with, the distribution thereof and with no intention of
distributing or selling any thereof except in compliance with federal or state
securities laws, and will make no sale or other transfer of the Preferred Stock
except in compliance with federal or state securities laws.
(h) Fees. Sylvan has incurred no liability, contingent or
----
otherwise,for brokers' or finders' fees relating to the transactions
contemplated by this Agreement for which Chauncey shall have any responsibility
whatsoever.
ARTICLE VII
-----------
OBLIGATIONS AFTER CLOSING
-------------------------
7.1 Use of Proceeds. The Purchase Price shall be used by Chauncey to
---------------
redeem Shares owned by certain shareholders of Chauncey and for working capital
and other general business purposes of Chauncey.
7.2 Transfer Taxes. [Chauncey] shall pay all transfer, documentary,
--------------
sales, use, registration, excise or similar taxes in connection with the
transactions contemplated by this Agreement, provided, however, that if Sylvan
exercises the option to pay for the Preferred Stock in Sylvan Shares, Sylvan
shall pay all transfer, documentary, sales, use, registration, excise or similar
taxes in connection with the transactions involving the Sylvan Shares.
7.3 Financial Information. Chauncey shall prepare financial
---------------------
statements in accordance with generally accepted accounting principles
consistently applied as of each March 31, June 30, September 30, and December 31
for the periods then ended. Quarterly statements shall contain consolidated
financial statements including a balance sheet, statement of income, and
statements of the source and application of cash flow for the period then ended.
Annual statements prepared as of each June 30 and for the year period then ended
shall be audited and accompanied by an opinion from an independent certified
public accountant. Copies of the financial statements required by this
subsection shall be furnished to Chauncey within 45 days after the end of each
fiscal period except for the annual statements, copies of which shall be
furnished within 90 days after the end of the fiscal period to which they
relate.
7.4 Further Assurances. After the Closing, Chauncey and Sylvan shall
------------------
each execute, acknowledge and deliver or cause to be executed, acknowledged and
delivered such instruments and take such other action as may be necessary or
advisable to assure to each other the rights, titles, interests, estates, and
privileges intended to be assigned, delivered, or reserved to such party and to
consummate the transactions and to carry out their obligations under this
Agreement and under any document, certificate, or other instrument delivered
pursuant hereto.
7.5 Sale of Sylvan Shares. Chauncey may sell or transfer the Sylvan
---------------------
Shares at any time in accordance with applicable securities laws, provided,
--------
however, that Chauncey shall use commercially reasonable efforts to make any
- -------
such sale or transfer in a manner which will not materially depress the public
trading price of the Sylvan Common Stock, and provided, further, that if
-------- -------
Chauncey sells or transfers in excess of 50,000 shares of Sylvan Common Stock in
any single transaction then Chauncey shall engage Alex, Brown & Sons
Incorporated or another nationally recognized broker or investment banking firm
to make such sale or transfer.
<PAGE>
7.6 Registration Rights. Sylvan shall (i) file with the Securities
-------------------
and Exchange Commission a registration statement pursuant to the Securities Act
of 1933, as amended with respect to the Sylvan Common Stock and (ii) cause such
registration statement to be declared effective, within five (5) days after
Closing.
7.7 Issuance of Shares by Chauncey. If, at any time, Chauncey issues
------------------------------
additional shares of common stock at a price of less than One Hundred and Fifty
Two Dollars ($152) per share (a "Dilutive Offering"), Chauncey shall issue, and
offer for subscription to Sylvan, shares of common stock of Chauncey (i) at a
price equal to the price shares were sold in the Dilutive Offering and (ii) in
the amount needed by Sylvan to preserve its equity percentage in Chauncey
immediately prior to such Dilutive Offering.
ARTICLE VIII
------------
RESTRICTIONS ON TRANSFER
------------------------
8.1 Restrictions on Transfer. Except as may be expressly provided in
------------------------
this Article VII, Sylvan may not Transfer all or any part of the Preferred Stock
or the Put Rights established herein (collectively, the "Preferred Interest")
without the prior written consent (which may be withheld for any reason) of
Chauncey. A Transfer of the whole or any portion of Sylvan's Preferred Interest
in violation of the provisions of this Article VII shall be null and void ab
initio and shall be of no effect.
8.2 Permitted Transfers.
-------------------
(a) The restrictions on Transfers under Section 8.1 shall not
apply to (i) any Transfer (for any consideration or no consideration) by Sylvan
of all or any part of its Preferred Interest to any 100% Affiliate of Sylvan.
(b) Upon any permitted Transfer of Sylvan's Preferred Interest
pursuant to Section 8.1, the transferor and transferee shall file with Chauncey
an executed or authenticated copy of the written instrument of assignment or
transfer.
ARTICLE IX
----------
INDEMNIFICATION
---------------
9.1 Indemnification by Sylvan. From and after the Closing Date,
-------------------------
Sylvan shall defend, indemnify and save and hold harmless Chauncey, its
directors, officers, employees and agents against all losses, damages, claims,
demands, suits, costs, expenses, liabilities and sanctions of every kind and
character, including without limitation reasonable attorneys' fees, court costs
and costs of investigation (collectively, the "Claims") (a) arising out of or
resulting from any breach of any representation, warranty, covenant or agreement
of Sylvan under this Agreement (including the Schedule and the Annex hereto or
thereto); or (b) that relate to Claims by third parties with respect to any
violation by Sylvan of any federal or state securities laws in connection with
the transactions contemplated by this Agreement.
9.2 Indemnification by Chauncey. From and after the Closing Date,
---------------------------
Chauncey shall defend, indemnify and save and hold harmless Sylvan, its
directors, officers, employees and agents against all Claims (a) arising out of
or resulting from any breach of any representation, warranty, covenant or
agreement of Chauncey under this Agreement (including the Schedule and the Annex
hereto or thereto); or (b) that relate to Claims by third parties with respect
to any violation by Chauncey of any federal or state securities laws in
connection with the transactions contemplated by this Agreement.
9.3 Procedures. The parties hereto agree promptly to notify the
----------
other party of the making of any demand, the assertion of any Claim, or the
commencement of any suit, action or proceeding by any third party
<PAGE>
for which indemnity may be sought under this Agreement (an "Indemnity
Obligation") prior to expending or committing to expend funds for which
indemnity may be sought. The party from whom indemnification is sought (the
"Indemnifying Party") shall have the right, but not the obligation, to assume
the defense or settlement of any Indemnity Obligation of which the party seeking
indemnification (the "Indemnified Party") gives notice; provided, however, that
if the Indemnifying Party does not elect to assume such defense or settlement,
the Indemnified Party shall have the right, but not the obligation, to assume
such defense or settlement but shall not thereby waive any right to indemnity
therefor by the Indemnifying Party pursuant to this Agreement, and the
Indemnifying Party shall at all times have the right, at its option and expense,
to participate fully therein. Each party shall have reasonable access to the
books, records and personnel in the possession or control of the other party
which are pertinent to the defense or settlement of any Indemnity Obligation.
The parties shall cooperate in the defense or settlement of any Indemnity
Obligation, but the party electing to assume such defense or settlement shall
have full authority to determine all action to be taken with respect thereto and
the terms of the settlement; provided, however, that without the consent of the
Indemnified Party, no settlement shall be entered into that does not include as
an unconditional term thereof the giving by the Person asserting such Claims of
an unconditional release of the Indemnified Party from all personal liability
with respect to such Claim. The Indemnified Party may join the Indemnifying
Party in any suit, action or proceeding to which any such right of indemnity
created by this Agreement would or might apply, for the purpose of enforcing any
such right.
ARTICLE X
---------
MISCELLANEOUS
-------------
10.1 Survival. The representations, warranties, covenants, agreements
--------
and indemnities set forth in this Agreement shall survive the Closing; provided,
however, that any Claim or demand for breach of a representation or warranty
under Section 9.1 or 9.2(a) and any Claim or demand under Section 9.2(b) must be
asserted in writing on or before the one (1) year anniversary date of the
Closing Date, after which date such indemnities shall expire except to the
extent this Agreement expressly provides that any such provision shall survive
for a longer period. If the Closing occurs, all conditions of Closing shall be
deemed to have been satisfied or waived, and, after the Closing, neither party
shall have any liability whatsoever to the other arising out of, resulting from
or attributable to any such conditions of Closing, regardless of whether such
conditions of Closing were, in fact, satisfied or waived.
10.2 Annex and Schedule. The Annex and the Schedule referred to in
------------------
this Agreement are hereby incorporated in this Agreement by reference and
constitute a part of this Agreement. Each party to this Agreement and its
counsel has received a copy of the Annex and the Schedule prior to and as of the
execution of this Agreement.
10.3 Expenses. Each Party hereto shall pay its own expenses,
--------
including legal fees, incurred by such party in the negotiation, documentation
and closing of the transactions contemplated hereby.
10.4 Notices. All notices and communications required or permitted
-------
under this Agreement shall be in writing and any communication or delivery
hereunder shall be deemed to have been duly made when personally delivered to
the individual indicated below, or if sent by Telecopier or mailed, when
received by the party charged with such notice and addressed as follows:
If to Sylvan:
------------
Sylvan Learning Systems, Inc.
1000 Lancaster Street
Baltimore, Maryland 21202
Attn: Robert W. Zentz
General Counsel
Facsimile No.: (410) 843-8059
<PAGE>
If to Chauncey:
--------------
Chauncey Group International, Ltd. to:
664 Rosedale
Princeton, New Jersey 08540
Attn: Michael Mitrano
Chief Financial Officer
Facsimile No.: (609) 720-6521
Copies of all notices (other than reports or other routine
communications), which shall not constitute notice hereunder, shall be delivered
to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037
Attn: Russell J. Bruemmer
Facsimile No.: (202) 663-6363
Any party may, by written notice so delivered to the other parties,
change the address or individual to which delivery shall thereafter be made.
10.5 Amendments. Except for waivers specifically provided herein,
----------
this Agreement may not be amended nor any rights hereunder waived except by an
instrument in writing signed by the party to be charged with such amendment or
waiver and delivered by such party to the party claiming the benefit of such
amendment or waiver.
10.6 Limitation of Remedies. In no event shall either party to this
----------------------
Agreement be entitled to recover special or consequential damages from the other
party as a result of a breach of this Agreement by such other party, including,
without limitation, special damages in the nature of lost or future profits.
10.7 Counterparts. This Agreement may be executed by Sylvan and
------------
Chauncey in any number of counterparts, no one of which need be executed by all
parties hereto, but all of which together shall constitute one and the same
instrument.
10.8 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF DELAWARE, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE.
10.9 Entire Agreement. This Agreement (including the Annex and the
----------------
Schedule hereto and all other agreements executed in connection herewith)
constitutes the entire understanding among the parties with respect to the
subject matter hereof, superseding all negotiations, prior discussions,
agreements and understandings relating to such subject matter.
10.10 Parties in Interest. This Agreement shall be binding upon, and
-------------------
shall inure to the benefit of, the parties hereto and, except as otherwise
prohibited, their respective heirs, devisees, executors, administrators,
successors and assigns; and except as provided in this Article VII, which is
also intended to benefit and be enforceable by the Indemnified Parties, nothing
contained in this Agreement, express or implied, is intended to confer upon any
other Person any benefits, rights or remedies.
<PAGE>
10.11 Nonwaiver. No course of dealing or any delay or failure to
---------
exercise any right, power or remedy hereunder on the part of Sylvan shall
operate as a waiver of or otherwise prejudice Sylvan's rights, powers or
remedies.
10.12 Drafting. Each Party acknowledges that its legal counsel
--------
participated in the preparation of this Agreement. The Parties therefore
stipulate that the rule of construction that ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of this
Agreement to favor any Party against the other.
<PAGE>
IN WITNESS WHEREOF, the parties hereto each has caused this Agreement
to be executed by its duly authorized officer all as of the day and year first
set forth above.
SYLVAN LEARNING SYSTEMS, INC.
By:
---------------------------------
Name:
Its:
THE CHAUNCEY GROUP INTERNATIONAL, LTD.
By:
---------------------------------
Name:
Its:
<PAGE>
EXHIBIT 4.3
-----------
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT (this "Agreement"), dated and effective as of
August 1, 1998, by and between SYLVAN LEARNING SYSTEMS, INC., a Maryland
corporation (the "Purchaser"), and INSURANCE TESTING CORPORATION, a Minnesota
Corporation. ("The Seller").
W I T N E S S E T H:
- - - - - - - - - -
Seller is the sole operator of a network of computerized testing centers,
the "Cogent Testing Network." The Purchaser and the Seller wish to enter into
an agreement for the acquisition of the certain assets by the Purchaser. The
Purchaser and the Seller wish to enter into a definitive agreement setting
forth the terms and conditions of the acquisition of certain Seller's fixed
assets related to the Cogent Testing Network. Purchaser and Seller agree that
Purchaser is acquiring assets under this Agreement solely as a result of the
simultaneous execution of the Limited Liability Company Agreement dated
September 14, 1998 which requires Purchaser to provide a network of computerized
testing centers.
Accordingly, in consideration of the foregoing and of the covenants,
agreements, representations and warranties hereinafter contained, the Purchaser
and the Seller hereby agree as follows:
1. DEFINITIONS:
1.1 Defined Terms. The following terms shall have the meanings set
--------------
forth herein:
"Agreement" shall mean this Asset Purchase Agreement.
"Closing Date" and "Closing" defined in Section 7.4
"Customer Contracts" mean all Seller contracts with customers
which utilize the Cogent Testing Network for the delivery of
services.
"Claims" means written notification pursuant to Section 10.2 by
either party to the other party of an event requiring indemnification
under Article X.
"Damages" means the amount demanded from an Indemnifying Party as
a result of a Claim.
"Employee Plans" defined in Section 4.6.
"Financial Statements" defined in Section 4.1
"Indemnifying Party" means the party against whom a Claim is made
under Article X.
"Intellectual Property" defined in Section 4.3 (iii).
"Joint Venture" means the Limited Liability Company Agreement
entered into between Seller and NAI-Block, Inc. dated ____________.
"Leases" means leases for all real property and all personal
property in excess of $2,000 used in the Cogent Testing Network.
<PAGE>
"Purchased Assets" defined in Section 4.8
"Purchaser" shall mean Sylvan Learning Systems, Inc.
"Purchase Price" defined in Section 2.
--------------------------------------
"Real Property" defined in Section 4.3(i).
"Seller" shall mean Insurance Testing Corporation
"Supply Contracts" means all contracts to which Seller is a party
under which services or materials are supplied to the Cogent Testing
Network in excess of $2,000 on an annual basis.
"Sylvan Common Stock" defined in Section 3.6.
"Taxes" means all income, sales, use, property, excise,
employment or any other tax payable to a government entity for any
activity of the Cogent Testing Network prior to Closing.
2. PURCHASE OF PURCHASED ASSETS. The Seller shall sell the Purchased
Assets to the Purchaser and the Purchaser shall purchase the Purchased Assets
from the Seller at a price determined based on book value (book value of the
assets less any accrued liabilities related to the Assets) plus four million
five hundred thousand dollars ($4,500,000) (the "Purchase Price"). The
Purchased Assets shall be transferred to the Purchaser pursuant to the terms and
conditions of this Agreement, free and clear of all liens except those assumed
by Purchaser. At the Closing, the Seller will deliver to the Purchaser a Bill
of Sale and Assignment and any other appropriate documents of transfer so that
the Purchaser will obtain all of Seller's right, title and interest in and to
each of the Purchased Assets.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby
represents and warrants to the Seller as follows:
3.1 Organization and Standing. The Purchaser is a corporation duly
-------------------------
organized, validly existing and in good standing under the laws of the State of
Maryland and has the corporate power to carry on its business as it is now being
conducted and to own or hold under lease the properties and assets it now owns
or holds under lease. Copies of the Charter and By-Laws of the Purchaser have
been made available to the Seller, and such copies are complete and correct and
in full force and effect on the date of this Agreement. The Purchaser has at
all times in the past operated and used its assets in material compliance with,
and currently is not in violation of, and has obtained all material licenses and
permits required by, any law, rule or regulation.
3.2 Financial Statements. The Purchaser has delivered to the Seller
--------------------
copies of the Purchaser's audited consolidated financial statements for the
fiscal year ended December 31, 1997. These financial statements are true and
complete in all material respects, have been prepared in accordance with
generally accepted accounting principles ("GAAP") consistently followed
throughout the periods covered by such statements (except as may be stated in
the explanatory notes to such statements), and present fairly the consolidated
financial position and results of operations of the Purchaser at the dates of
such statements and for the periods covered thereby. The Purchaser also has
delivered to the Seller a copy of its Quarterly Report on Form 10-Q for the
first quarter ended March 30, 1998, and all other reports or documents required
to be filed with the Securities and Exchange Commission pursuant to Sections
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), after the filing of such Quarterly Report on Form 10-Q and prior to the
date of this Agreement.
3.3 No Conflict With Other Documents. Neither the execution and
--------------------------------
delivery of this Agreement nor the carrying out of the transactions contemplated
hereby will result in any violation, termination or modification of, or be in
conflict with, the Purchaser's Charter or By-Laws, or, any terms of any
contract, instrument
<PAGE>
or other agreement to which the Purchaser is a party or by which it or any of
its properties is bound or affected, or any law, rule, regulation, license,
permit, judgment, decree or order applicable to the Purchaser or by which any of
its properties or assets are bound or affected, or result in any breach of or
constitute a default (or with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation, or result in the creation of any lien, charge or
encumbrance upon any of its properties or assets, except where such event or
occurrence would not, singly or in the aggregate, have a material adverse on the
Purchaser.
3.4 Brokers and Advisors. The Purchaser has taken no action which
--------------------
would give rise to a valid claim against any party hereto for a brokerage
commission, finder's fee, counseling or advisory fee, or like payment.
3.5 Authority. The execution, delivery and performance of this
---------
Agreement by the Purchaser have been duly authorized by its Board of Directors,
and this Agreement is a valid, legally binding and enforceable obligation of the
Purchaser.
3.6 Capitalization of Parent. The authorized capital stock of
------------------------
Purchaser consists of 90,000,000 shares of $0.01 par value common stock (as
previously defined, the "Sylvan Common Stock") of which 31,195,090 shares of
Sylvan Common Stock were issued and outstanding on April 8, 1998. All such
issued shares of the Sylvan Common Stock are, and when issued to the Seller in
accordance with this Agreement will be, duly and validly issued, fully paid and
non-assessable. None of the outstanding shares of the Sylvan Common Stock were,
and non of the Sylvan Common Stock to be issued to the Seller in accordance with
this Agreement will be, issued in violation of any preemptive rights.
3.7 SEC Reports.
-----------
(a) Purchaser has heretofore delivered to the Seller copies of
Purchaser's (i) Annual Report on Form 10-K for the year ended December 31,
1997 as filed with the SEC, (ii) the proxy statements relating to
Purchaser's annual meeting of stockholders held in 1997, (iii) Annual
Report for Stockholders for 1997, and (iv) all other reports or
registration statements filed by Purchaser with the SEC since December 31,
1997.
(b) Purchaser has filed and will file with the SEC all forms,
reports, schedules, statements, exhibits and other documents (collectively,
the "SEC Documents") required to be filed on or before the date hereof or
the Closing Date, respectively, by it under the 1933 Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"). At the time of filings,
the SEC Documents filed by Purchaser (i) did not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein not
misleading, and (ii) complied in all material respects with the applicable
requirements of the 1933 Act and the 1934 Act, as the case may be. No SEC
Document filed on or after the date hereof and on or prior to the Closing
Date will contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to make
the statements made therein not misleading. There have been no material
adverse changes for any SEC Document filed on or after the date hereof
and/or prior to the Closing Date.
3.8 Cause Conditions to Be Satisfied. The Seller will use best
--------------------------------
efforts to cause all of the conditions described in Section 6 of this Agreement
to be satisfied (to the extent such matters reasonably are within their
control).
4. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller hereby
represents and warrants to the Purchaser as follows:
<PAGE>
4.1 Financial Statements. The Seller has provided to the Purchaser
--------------------
audited financial statements of Seller for the fiscal year ended December 30,
1996 and unaudited pro forma financial statements (including all assumptions
used in such statements) for business conducted by the Cogent Testing Network
for the fiscal years ended June 30, 1997 and June 30, 1998. (collectively, the "
Financial Statements"). The Financial Statements are complete and correct, have
been prepared on a consistent basis throughout the periods covered thereby and
present fairly and accurately the financial position and results of operations
of the business as of and for the periods indicated (including detailed expense
information). Since June 30, 1998, there has been no material adverse change in
the condition (financial or otherwise), assets, liabilities, earnings, net
worth, financial position, business, operations, properties or prospects of the
Business except as shown on Schedule 2.1 of the Disclosure Schedule.
4.2 Contracts and Leases. Schedule 4.2 contains an accurate list of
--------------------
all Supply Contracts and Leases as of the Closing Date.
(a) The Sellers have complied with all of its commitments and
obligations and are not in default under any of the Supply Contracts or
Leases except for any such default that would not, individually or in the
aggregate, have a material adverse effect on the Cogent Testing Network,
and no notice of default has been received with respect to any thereof.
(b) Each Supply Contract and Lease is valid and binding on the
Sellers and is in full force and effect and is not subject to any default
thereunder by any party obligated to the Sellers pursuant thereto, except
for any such default that would not, individually or in the aggregate, have
a material adverse effect on the Cogent Testing Network.
4.3 Property. Section 4.3 of the Disclosure Schedule sets forth the
--------
following property, except in the State of California, that is related to the
conduct of the Cogent Testing Network (i) real property owned or leased by
location including expiration dates and terms on all leases (the "Real
Property"), (ii) all individual items of tangible personal property and assets
(other than inventory) having a fair market value in excess of $2,000, and (iii)
all patents, trademarks, trade names, service marks, trade secrets, copyrights,
franchise rights or applications therefor which are held, used, prepared in
connection with or otherwise related to the conduct of the Business
("Intellectual Property"). Except as set forth in the Disclosure Schedule, the
Seller has good and marketable title to all of such property and assets owned by
it, free of any pledge, mortgage, lien, lease, security agreement, encumbrance,
charge or claim of any nature whatsoever. To the Seller's knowledge, the Cogent
Testing Network is not infringing on any patent, trademark, trade name, service
mark, trade secret or copyright of another entity and has received no notice or
claim of any such infringement.
4.4 Legal Proceedings, Etc. Except as set forth in Section 4.4 of
-----------------------
the Disclosure Schedule, there are no legal, administrative, arbitration, or
other proceedings or governmental investigations pending or, to the best of the
Seller's knowledge, threatened against Cogent Testing Network, the Seller or the
respective properties or assets of Cogent Testing Network and the Seller.
4.5 Employee Plans. Except as set forth in Section 4.5 of the
--------------
Disclosure Schedule, the Seller does not maintain, sponsor or contribute to any
plans in effect for pension, profit-sharing, deferred compensation, severance
pay, bonuses, stock options, stock purchases, or any other retirement or
deferred benefit, or for any health, accident or other welfare plan, or any
other employee or retired employee benefits or incentive plan, program,
contract, understanding or arrangement in which any employee, or beneficiary of
any employee, of the Cogent Testing Network is entitled to participate. The
plans, programs, contracts, understandings and arrangements listed on the
Disclosure Schedule pursuant to this Section 4.6 are hereinafter referred to as
the "Employee Plans." The Seller has made available to the Purchaser complete
and accurate copies of each such Employee Plan. Each Employee Plan has been
operated according to its terms in compliance with all applicable laws.
<PAGE>
4.6 Recent Operations; Employee Matters. Since January 1, 1998,
-----------------------------------
there have been no bonuses paid to or increases in the compensation of Seller or
the Seller's employees who operate the Cogent Testing Network, except as set
forth in Section 4.6 of the Disclosure Schedule.
4.7 Environmental Matters. To the best of the Seller's knowledge, no
---------------------
storage tanks, underground or otherwise, are now located on any properties
occupied under the Leases the Seller has complied in all material respects with
all environmental laws relating to its properties occupied under the Leases and
there are no asbestos containing materials located on properties occupied under
the Leases. The Seller has not received any notice, demand, suit or information
request pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") or any comparable state law, nor does it have knowledge
of any other party's receipt of same relating to any properties occupied under
the Leases.
4.8 The Purchased Assets. Except in the State of California, the
--------------------
Purchased Assets as listed in Section 4.8 of the Disclosure Schedule include all
of the assets that the Seller currently uses to perform its Customer Contacts
and that are necessary to enable Purchaser to continue to Cogent Testing Network
the Business in substantially the same manner as the Seller currently conducts
the Cogent Testing Network. Except as set forth in Section 4.8 of the
Disclosure Schedule, Seller has good and marketable title to all of the
Purchased Assets, free of any lien. The tangible assets included among the
Purchased Assets are in good operating condition and repair, ordinary wear and
tear excepted.
4.9 Disclosure. All agreements, schedules, exhibits, documents,
----------
certificates, reports or statements furnished or to be furnished to the
Purchaser by or on behalf of the Seller in connection with this Agreement or the
transactions contemplated hereby are true, complete and accurate in all material
respects, and no such items contain any untrue statement of a material fact or
omit a material fact necessary in order to make the statements contained herein
and therein not misleading.
4.10 No Conflict With Other Documents. Except as set forth in
--------------------------------
Schedule 4.10 neither the execution and delivery of this Agreement, nor the
carrying out of any of the transactions contemplated hereby, will result in any
violation, termination or modification of, or be in conflict with the terms of
any contract, instrument or other agreement to which the Seller is a party or by
which it or any of its properties is bound or affected, or any law, rule,
regulation, license, permit, judgment, decree or order applicable to the Seller
or by which any of its properties or assets are bound or affected, or result in
any breach of or constitute a default (or with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation, or result in the creation of any lien,
charge or encumbrance upon any of its properties or assets, except where such
event or occurrence would not, singly or in the aggregate, have a material
adverse effect on the Cogent Testing Network .
Notwithstanding anything to the contrary in this Section 4.10, Seller
hereby states and Purchaser acknowledges that the Seller's Customer Contracts
have been made available to Purchaser and that the Seller makes no
representation as to the assignability of the Customer Contracts or as to any
conflict between such Customer Contracts and this Agreement.
4.11 Brokers and Advisors. The Seller has taken no action which
--------------------
would give rise to a valid claim against any party hereto for a brokerage
commission, finder's fee, counseling or advisory fee, or like payment.
5. COVENANTS OF THE PURCHASER. The Purchaser covenants to the Seller
that, except as otherwise consented to in writing by the Seller after the date
of this Agreement:
5.1 Cause Conditions to be Satisfied. The Purchaser will use its
--------------------------------
best efforts to cause all of the conditions described in Section 7 of this
Agreement to be satisfied (to the extent such matters reasonably are within its
control).
<PAGE>
5.2 Consents. The Purchaser agrees to take all necessary corporate
--------
or other action and to use best efforts to obtain all consents and approvals
required for consummation of the transactions contemplated by this Agreement.
5.3 Guaranteed Value of Sylvan Shares.
---------------------------------
(a) Post-Closing Period. For one hundred twenty (120) days
-------------------
following the Closing Date (the "Post Closing Period"), upon (i) sale
by Seller of any Sylvan Common Stock received under Section 2 and
(ii) written notice from Seller to Purchaser at the conclusion of the
earlier of (x) the sale of all Sylvan Common Stock received under this
Agreement or (y) the expiration of the Post Closing Period, setting
forth the total sale price for the Sylvan Common Stock sold, such
Sylvan Common Stock shall be subject to subsections (b) and (c).
(b) Guaranteed Value. Subject to the adjustment in subsection
----------------
(c), (i) if the sale price for all the shares of Sylvan Common Stock
sold net of all costs to Seller of such sale is less than the Purchase
Price then Purchaser promptly shall pay to Seller an amount equal to
such difference and (ii) if the sale price for all the shares of
Sylvan Common Stock sold net of all costs Seller of such sale is
greater the Purchase Price, Seller promptly shall pay to Purchaser an
amount equal to such difference.
5.4 Prohibition on Closing Testing Centers. For each of the testing
--------------------------------------
centers listed on Schedule 2.2, Purchaser shall not close or discontinue
operations without the written consent of Seller, which shall not be
unreasonably withheld if Purchaser establishes to Seller's satisfaction that
closure will not have an adverse effect on the Joint Venture or Seller's
performance of its Customer Contracts. Purchaser shall not reduce substantially
the number of employees currently employed at the testing centers listed on
Schedule 2.2 without the written consent of Seller which shall not be
unreasonably withheld if Purchaser establishes to Seller's satisfaction that
such terminations will not have an adverse effect on the Joint Venture or
Seller's performance of its Customer Contracts.
6. COVENANTS OF THE SELLER. The Seller covenants to the Purchaser that,
except as otherwise consented to in writing by the Purchaser after the date of
this Agreement:
6.1 Conduct of Cogent Testing Network. Through the date of the
---------------------------------
Closing, with respect to the Cogent Testing Network or the Cogent Testing
Network employee (as the case may be), the Seller (a) has not entered into,
adopted or amended any employee benefit plan, agreement or arrangement, or
entered into or amended any employment contracts, or increased the salaries or
compensation of its employees, in the business (b) shall pay in full all accrued
employee compensation, leave and benefits and the taxes thereon as shown in
Section 6.1 (c) of the Disclosure Schedule; and (c) it shall not have encumbered
any of its assets; and (d) it has not entered into any agreement for the sale or
other disposition, sold or disposed of, any of the Purchased Assets .
6.2 Consents. The Seller agrees to take all necessary action and to
--------
use best efforts to obtain all consents and approvals required for consummation
of the transactions contemplated by this Agreement.
6.3 Sale of Sylvan Shares. The Seller may sell or transfer the
---------------------
shares of Sylvan Common Stock at any time in accordance with applicable
securities laws; provided, however, that the Seller shall use commercially
-------- -------
reasonable efforts to make any such sale or transfer in a manner which will not
materially depress the public trading price of the Sylvan Common Stock; and
provided, further, that if the Seller sells or transfers in excess of 50,000
- -------- -------
shares of Sylvan Common Stock in any single transaction then the Seller shall
engage Alex. Brown & Sons Incorporated or another nationally recognized broker
or investment banking firm to make such sale or transfer.
7. CLOSING. Subject to the terms and conditions of this Agreement, the
Purchaser and the Seller agree to effect the following transactions at the
Closing:
<PAGE>
7.1 Conditions. The Purchaser and the Seller will deliver to the
----------
other appropriate evidence of the satisfaction of the conditions to their
respective obligations hereunder. Each of the Limited Liability Company
Agreement, the Collaboration Agreement and the Stock Purchase Agreement shall
have been executed and delivered by each party thereto, and each such document
shall be in full force and effect as of the Closing.
7.2 Consideration for the Purchased Assets. The Purchaser, at the
--------------------------------------
Purchaser's sole discretion, will deliver to the Seller by wire transfer or
cashier's check to the credit of such account as Seller shall designate the
Purchase Price of $____(the "Purchase Price") or shares of $0.01 par value
Sylvan Common Stock, with the number shares to be transferred by Purchaser
determined by dividing (x) the Purchase Price by (y) the average closing price
of the Sylvan Common Stock as quoted on NASDAQ for the fifteen (15) trading days
prior to the Closing; provided that, for purposes of calculating the average
stock price during such fifteen (15) day period, the single highest and single
lowest closing stock prices shall be disregarded. Nothing herein shall be
construed as requiring Purchaser to transfer any fractional shares; and,
Purchaser at its sole election shall have the right to pay to the Seller cash
payments in lieu of any fractional shares.
7.3 Registration Rights. Purchaser shall (i) file with the United
-------------------
States Securities and Exchange Commission (the "SEC") a registration statement
pursuant to the Securities Act of 1933, as amended (the "1933 Act") with respect
to the Sylvan Common Stock and (ii) cause such registration statement to be
declared effective, within five (5) days after Closing.
7.4 Closing. The closing (the "Closing") of the transactions
-------
contemplated by this Agreement shall take place at the offices of the
Purchaser, in Baltimore, Maryland, beginning at 1:00 p.m. on ,
or at such other time and place as may be agreed upon in writing by the
Purchaser and the Seller (the "Closing Date"). The closing shall be effective
as of the close of business on (the "Effective Closing Date").
8. CONDITIONS TO THE PURCHASER'S OBLIGATIONS. Unless waived by the
Purchaser in writing in its sole discretion, all obligations of the Purchaser
under this Agreement are subject to the fulfillment, prior to or at the Closing,
of each of the following conditions:
8.1 Approvals of Governmental Authorities. Except for approvals
-------------------------------------
related to Customer Contracts all governmental approvals necessary or advisable
in the reasonable opinion of the Purchaser's counsel to consummate the
transactions contemplated by this Agreement shall have been received and shall
not contain any provision which, in the reasonable judgment of the Purchaser, is
unduly burdensome.
8.2 No Adverse Proceedings or Events. Except as set forth in
--------------------------------
Schedule 8.2, no suit, action or other proceeding against the Seller or the
Purchaser, or their respective officers or directors, shall be threatened or
pending before any court or governmental agency in which it will be, or it is,
sought to restrain or prohibit any of the transactions contemplated by this
Agreement or to obtain damages or other relief in connection with this Agreement
or the transactions contemplated hereby.
8.3 Consents and Actions; Contracts. All actions which the Seller
-------------------------------
has covenanted to use its best efforts to obtain and take under Section 6.2
hereof shall have been obtained and completed.
The Sellers have obtained, or will use their best efforts to obtain prior
to the Closing Date, all necessary consents, waivers and approvals of parties to
any Supply Contracts or Leases that are required in connection with any of the
transactions contemplated hereby, or are required by any governmental agency or
other third party.
All contracts and agreements listed on Section 4.2 of the Disclosure
Schedule, shall be in full force and effect and shall not be affected by the
consummation of the transactions contemplated hereby.
<PAGE>
8.4 Intellectual Property Rights Retained by Seller. For the
------------------------------------------------
Intellectual Property used in the conduct of the Cogent Testing Network set
forth on Schedule 4.3, the Seller shall have entered into an agreement with the
Purchaser providing for a non-exclusive, non-transferable license of such
Intellectual Property to enable the Purchase to operate the Cogent Testing
Network.
8.5 Sublease Agreement. Except in the State of California, for each
------------------
of the Leases used in the conduct of the Cogent Testing Network set forth on
Schedule 4.2, the Seller shall have entered into a sublease agreement with the
Purchaser to enable the Purchaser to operate the Cogent Testing Network.
9. CONDITIONS TO THE SELLER'S OBLIGATIONS. Unless waived by the Seller,
all obligations of the Seller under this Agreement are subject to the
fulfillment, prior to or at the Closing, of each of the following conditions:
9.1 No Adverse Proceedings or Events. No suit, action or other
--------------------------------
proceeding against the Seller or the Purchaser, or their respective officers or
directors, shall be threatened or pending before any court or governmental
agency in which it will be, or it is, sought to restrain or prohibit or to
obtain damages or other relief in connection with this Agreement or the
transactions contemplated hereby.
9.2 Consents and Actions. All requisite consents of any third
--------------------
parties and other actions which the Purchaser has covenanted to use its best
efforts to obtain and take under Section 4.4 of this Agreement shall have been
obtained and completed.
9.3 Other Evidence. The Seller shall have received from the
--------------
Purchaser such further certificates and documents evidencing due action in
accordance with this Agreement, including certified copies of proceedings of the
Board of Directors of the Purchaser, as the Seller reasonably shall request.
9.4 Purchased Assets Related to Seller's Customer Contracts. The
-------------------------------------------------------
Seller shall have entered into an agreement with the Purchaser, on terms
satisfactory to the Seller, for the Seller's use of the Purchased Assets related
to the Seller's performance of any of its Customer Contracts The term of such
agreement shall be the later of the termination of existing Customer Contracts
or one year from the date of the termination of the Joint Venture.
10. INDEMNIFICATION.
10.1 Indemnification by the Seller. The Seller hereby covenants and
-----------------------------
agrees to indemnify and hold harmless the Purchaser and its respective
successors and assigns, at all times from and after the date of Effective
Closing Date against and in respect of the following:
(i) any liability, expense, damage or loss resulting from any
misrepresentation, breach of representation or warranty or breach or non-
fulfillment of any agreement or covenant on the part of the Seller under
this Agreement, or from any inaccuracy or misrepresentation in or omission
from any certificate or other instrument or document furnished or to be
furnished by the Seller hereunder;
(ii) all claims, actions, suits, proceedsings, demands,
assessments, judgments, costs, reasonable attorneys' fees and expenses of
any nature incident to any of the matters indemnified against pursuant to
this Section 10.1, including, without limitation, all such costs and
expenses incurred in the defense thereof or in the enforcement of any
rights of the Purchaser hereunder.
10.2 Notice and Defense. The Purchaser shall notify the Seller of
------------------
any asserted liability, damage, loss or expense claimed to give rise to
indemnification hereunder and the Seller shall have an initial right to defend,
compromise and settle such matter provided that the Purchaser is fully protected
from any liability, loss damage, cost or expense in connection therewith.
Within ten (10) days of receipt of such notice, Seller shall respond in writing
as to whether Seller will engage counsel at Seller's expense to defend the
claim. If Seller does
<PAGE>
not respond, or affirmatively declines to defend the claim or disputes its
obligation to indemnify, the Purchaser shall then have, at its election, the
right to compromise or defend any such matter at the Seller's sole cost and
expense through counsel chosen by the Purchaser and reasonably acceptable to the
Seller; provided, however, that any such compromise or defense shall be
conducted in a manner which is reasonable and the Seller shall in all events
have a right to veto any such compromise or defense which might increase the
potential liability of, or create a new liability for, the Seller (other than
under Section 10.1). Each party agrees in all cases to cooperate with the
defending party and its or his counsel in the compromise of or defending of any
such liabilities or claims. In addition, the non-defending party shall at all
times be entitled to monitor such defense through the appointment, at its or his
own cost and expense, of advisory counsel of its own choosing. As to any claim
paid by the Purchaser for which the Seller has indemnity liability under this
Section 10, and which the Seller does not reimburse Purchaser within five (5)
days following demand for reimbursement by Purchaser.
10.3 Indemnification by the Purchaser. From and after the Closing Date,
--------------------------------
the Purchaser hereby covenants and agrees to indemnify and hold harmless the
Seller against and in respect of the following:
(i) any liability, loss, damage or expense resulting from any
misrepresentation, breach of warranty or non-fulfillment of any agreement
or covenant on the part of Purchaser under this Agreement, or from any
misrepresentation in or omission from any certificate or other instrument
or document furnished or to be furnished by the Purchaser hereunder; and
(ii) all claims, actions, suits, proceedings, demands, assessments,
judgments, costs, reasonable attorneys' fees and expenses of any nature
incident to any of the matters indemnified against pursuant to this Section
10.3, including without limitation, all such costs and expenses incurred in
the defense thereof or in the enforcement of any rights of the Seller
hereunder.
The Seller shall notify the Purchaser of any asserted liability, damage,
loss or expense claimed to give rise to indemnification hereunder and thereafter
the Purchaser shall have the right to defend, compromise and settle such matter
provided that the Seller is fully protected from any cost or expense in
connection therewith.
10.4 Notice and Defense. The Seller shall notify the Purchaser of
------------------
any asserted liability, damage, loss or expense claimed to give rise to
indemnification hereunder and the Purchaser shall have an initial right to
defend, compromise and settle such matter provided that the Seller is fully
protected from any liability, loss damage, cost or expense in connection
therewith. Within ten (10) days of receipt of such notice, Purchaser shall
respond in writing as to whether Purchaser will engage counsel at Purchaser's
expense to defend the claim. If Purchaser does not respond, or affirmatively
declines to defend the claim or disputes its obligation to indemnify, the
Seller shall then have, at its election, the right to compromise or defend any
such matter at the Purchaser's sole cost and expense through counsel chosen by
the Seller and reasonably acceptable to the Purchaser; provided, however, that
any such compromise or defense shall be conducted in a manner which is
reasonable and the Purchaser shall in all events have a right to veto any such
compromise or defense which might increase the potential liability of, or create
a new liability for, the Purchaser (other than under Section 10.3). Each party
agrees in all cases to cooperate with the defending party and its or his counsel
in the compromise of or defending of any such liabilities or claims. In
addition, the non-defending party shall at all times be entitled to monitor such
defense through the appointment, at its or his own cost and expense, of advisory
counsel of its own choosing. As to any claim paid by the Seller for which the
Purchaser has indemnity liability under this Section 10, and which the Purchaser
does not reimburse Seller within five (5) days following demand for
reimbursement by Seller.
10.5 Limitation and Indemnification. No Claim shall be made against
------------------------------
the Indemnifying Party for Damages unless the aggregate amount of all such
Damages exceeds $25,000.00. Except for matters relating to Taxes and Sylvan
Common Stock, an Indemnifying Party's aggregate liability in respect of
indemnification Claims pursuant to Section 10.1 or 10.3 of this Agreement shall
not exceed $4,500,000.00.
<PAGE>
11. SURVIVAL; LIMITATIONS. The representations, warranties and agreements
made by the parties in this Agreement and in any other certificates and
documents delivered in connection herewith, including the indemnification
obligations of the Seller and Purchaser set forth in Section 10 hereof, shall
survive the Closing under this Agreement regardless of any investigation made by
the party making claim hereunder, except that, subject to the provisions of the
next sentence, neither the Purchaser, on the one hand, nor the Seller, on the
other, shall have any liability with respect to any matter if notice of a claim
has not been provided on or prior to , 1999. Notwithstanding the foregoing,
(i) any indemnification obligations of the Seller relating to federal, state or
local tax matters or environmental matters of any sort shall continue in full
force and effect without limitation until expiration of the statute of
limitations applicable to such tax or environmental matters, (ii) any claims,
actions or suits the Purchaser, on the one hand, or the Seller, on the other
hand, may have which arises from any fraud or willful misconduct on the part of
the Seller, or any representative of Seller, on the one hand, and the Purchaser
or any representative of it, on the other hand, shall continue in full force and
effect without limitation until expiration of the statute of limitations
applicable thereto.
12. CONFIDENTIALITY. After the date hereof, except in the performance of
its Customer Contracts, the Seller will hold in confidence and not reveal to any
third parties any knowledge or information of a confidential nature with respect
to the business, products, know-how and methods of operation of the Cogent
Testing Network , and will not disclose, publish or make use of the same,
provided, however, that the foregoing shall not be applicable to any disclosure
or use of confidential information or knowledge that can be demonstrated to have
(i) been publicly known prior to the date of this Agreement, (ii) become well
known by publication or otherwise not due to the unauthorized act or omission on
the part of the Seller, or (iii) been supplied to the Seller by a third party
without violation of the rights of the Purchaser or any other party. The
parties agree that the remedy at law for any breach by the Seller of this
Section 11 shall be inadequate and that the aggrieved party shall be entitled
to injunctive relief in addition to any other remedy.
13. EXPENSES. Each party to this Agreement shall pay all of its expenses
relating hereto, including legal and accounting fees and disbursements of its
counsel, accountants and financial advisors, whether or not the transactions
hereunder are consummated.
14. NOTICES. Except as otherwise provided herein, all notices, requests,
demands and other communications under or in connection with this Agreement
shall be in writing, and, (a) if to the Purchaser, shall be addressed to:
Robert W. Zentz, General Counsel
Sylvan Learning Systems, Inc.
1000 Lancaster Street
Baltimore, Maryland 21202
<PAGE>
with a copy to:
Richard C. Tilghman, Jr., Esquire
Piper & Marbury
36 South Charles Street
Baltimore, Maryland 21201
(b) if to the Seller, shall be addressed to:
664 Rosedale Road
Princeton, New Jersey 08540
Attention: Michael Mitrano
Chief Financial Officer
Fax: (609) 720-6521with a copy to:
Wilmer, Cutler, and Pickering
2445 M. Street, N.W.
Washington, D.C. 20037
Attention: Russell J. Bruemmer, Esq.
Fax: (202) 663-6363
All such notices, requests, demands or communications shall be mailed
postage prepaid, certified mail, return receipt requested, or by overnight
delivery or delivered personally, and shall be sufficient and effective when
delivered to or received at the address so specified. Any party may change the
address at which it is to receive notice by like written notice to the other.
15. ENTIRE AGREEMENT. This Agreement (including the exhibits hereto and
the lists, schedules and documents delivered pursuant hereto, which are a part
hereof) is intended by the parties to and does constitute the entire agreement
of the parties with respect to the transactions contemplated by this Agreement.
This Agreement supersedes any and all prior understandings, written or oral,
between the parties, and this Agreement may be amended, modified, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of the amendment, modification, waiver, discharge or
termination is sought.
16. GENERAL. The paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. This Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns, but nothing herein, express or implied, is
intended to or shall confer any rights, remedies or benefits upon any person
other than the parties hereto. This Agreement may not be assigned by any party
hereto. This Agreement shall be construed in accordance with and governed by
the laws of the State of Maryland.
<PAGE>
IN WITNESS WHEREOF, the Purchaser and the Seller have caused this Agreement
to be duly executed and their respective seals to be hereunto affixed as of the
date first above written.
WITNESS: Sylvan Learning Systems, Inc.
By:
---------------------- ------------------------------
Name:
----------------------------
Title:
---------------------------
WITNESS: Insurance Testing Corporation
By:
---------------------- ------------------------------
Name:
----------------------------
Title:
---------------------------
<PAGE>
EXHIBIT 4.4
-----------
================================================================================
STOCK PURCHASE AGREEMENT
between
THE STOCKHOLDER
and
SYLVAN LEARNING SYSTEMS, INC.
dated as of
August 31, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
Purchase and Sale of Stock
--------------------------
<S> <C> <C>
Section 1.1. Stock to Be Exchanged 1
Section 1.2. Share Transfer 1
Section 1.3. Deliveries by Buyer and Stockholder 1
Section 1.4. Purchase Price Adjustment 2
Section 1.5. Time and Place of Closing 2
<CAPTION>
ARTICLE II
Representations and
-------------------
Warranties of the Stockholder
-----------------------------
<S> <C> <C>
Section 2.1. Incorporation; Authorization; Etc. 3
Section 2.2. Capitalization; Structure; No Investments 4
Section 2.3. Ownership of Shares 5
Section 2.4. Financial Statements 5
Section 2.5. Title to Properties; Encumbrances 5
Section 2.6. Litigation; Orders 6
Section 2.7. Intellectual Property 6
Section 2.8. Licenses, Approvals, Other Authorizations,
Consents, Reports, Etc. 7
Section 2.9. Labor Matters 7
Section 2.10. Compliance with Laws 7
Section 2.11. Material Contracts 7
Section 2.12. No Undisclosed Liabilities 9
Section 2.13. Taxes 10
Section 2.14. Employee Benefit Plans 11
Section 2.15. No Material Adverse Change 12
Section 2.16. Brokers, Finders, Etc. 12
Section 2.17. Schedules 12
Section 2.18. No Implied Representation 12
Section 2.19. Construction of Certain Provisions 13
Section 2.20. Environmental Laws and Regulations 13
Section 2.21. Bank Accounts, Etc. 13
Section 2.22. Insurance 13
Section 2.23. Recent Operations 13
Section 2.24. Investment Intent 14
Section 2.25. No Agreements Regarding the Buyer Shares 14
Section 2.26. Foreign Corrupt Practices Act 15
Section 2.27 No Pending Transactions 15
Section 2.28 Reorganization 15
</TABLE>
<PAGE>
ARTICLE III
Representations and Warranties of Buyer
---------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Section 3.1. Incorporation; Authorization; Etc. 16
Section 3.2. Capitalization; Structure 17
Section 3.3. Title to Buyer Shares 17
Section 3.4. Reports and Financial Statements 17
Section 3.5. Litigation; Orders 18
Section 3.6. Compliance with Laws 18
Section 3.7. No Undisclosed Liabilities 18
Section 3.8. No Material Adverse Change 19
Section 3.9. Brokers, Finders, Etc. 19
Section 3.10. Schedules 19
Section 3.11. Investment Intent 19
Section 3.12. Accounting Matters 20
Section 3.13. Reorganization 20
<CAPTION>
ARTICLE IV
Covenants of Seller and Buyer
-----------------------------
<S> <C> <C>
Section 4.1. Investigation of Business; Access to
Properties and Records; Records Retention 20
Section 4.2. Registration Rights 21
Section 4.3. Further Assurances 23
Section 4.4. Conduct of Business of the Company 23
Section 4.5. Conduct of Business of Buyer 25
Section 4.6. Pooling 25
Section 4.7. Allocation of Buyer Shares 25
Section 4.8. Preparation and Filing of Returns 25
Section 4.9. Amended Returns 26
Section 4.10. Public Announcements 26
Section 4.11. Insurance 26
Section 4.12. No Solicitation 26
Section 4.13 Notification of Certain Matters 27
Section 4.14 Closing Balance Sheet 27
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE V
Conditions
----------
<S> <C> <C>
Section 5.1. Mutual Conditions 27
Section 5.2. Conditions to Obligations of the
Stockholder and the Company 27
Section 5.3. Conditions to Obligations of Buyer 28
<CAPTION>
ARTICLE VI
Indemnification and Escrow
--------------------------
<S> <C> <C>
Section 6.1. Indemnification by the Stockholder 29
Section 6.2. Indemnification by the Buyer 30
Section 6.3. Indemnification Procedure 30
Section 6.4. Limitations on Indemnity 32
Section 6.5. General Escrow of Certain Buyer Shares 32
Section 6.6. Indemnification Sole Remedy 33
<CAPTION>
ARTICLE VII
Miscellaneous
-------------
<S> <C> <C>
Section 7.1. Counterparts 33
Section 7.2. Amendment and Modification 33
Section 7.3. Governing Law and Jurisdiction 33
Section 7.4. Entire Agreement 33
Section 7.5. Agreement for the Parties' Benefit Only 33
Section 7.6. Survival of Representations, Warranties
and Covenants 34
Section 7.7. Expenses 34
Section 7.8. Specific Performance 34
Section 7.9. Notices 34
Section 7.10. Successors and Assigns 35
Section 7.11. Interpretation; Absence of Presumption 36
Section 7.12. Extension; Waiver 36
Section 7.13. Validity 36
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULES
---------
<S> <C>
Schedule 1.1 Outstanding Shares
Schedule 1.3 Form of Notarial Deed of Transfer
Schedule 2.1(a)(1) Company Subsidiaries
Schedule 2.1(a)(2) 20% Owned Entities
Schedule 2.1(e) Conflicts
Schedule 2.1(f) Consents
Schedule 2.2(a)(1) Options
Schedule 2.2(a)(2) Stockholder Register
Schedule 2.6 Litigation
Schedule 2.7 Intellectual Property
Schedule 2.9 Labor Matters
Schedule 2.10 Compliance
Schedule 2.11 Non-Competition Agreements
Schedule 2.13 Taxes
Schedule 2.14(a) Benefit Plans
Schedule 2.14(e) Severance and Other Payments
Schedule 2.16 Company Brokers and Finders
Schedule 2.22 Insurance
Schedule 2.23 Recent Operations
Schedule 2.24 Transactions with Affiliates
Schedule 3.1(e) Consents
Schedule 3.2(a) Options
Schedule 3.7 Intellectual Property
Schedule 3.11 Non-Competition Agreements
Schedule 3.14 Buyer Plans
Schedule 3.16 Buyer Brokers and Finders
Schedule 3.20 Recent Operations
Schedule 4.6(a) Company Affiliate Letter
Schedule 4.6(b) Buyer Affiliate Letter
Schedule 7.9 Notice to Stockholder
</TABLE>
EXHIBITS
--------
Exhibit A Form of Employment and Non-Competition Agreement
<PAGE>
<TABLE>
<CAPTION>
INDEX OF DEFINED TERMS
Term Section
- ---- -------
<S> <C>
"Action" Section 2.6
"Acquisition Transaction" Section 4.12
"Agreement" Preamble
"Audited Buyer Financial Statements" Section 3.4(b)
"Basket" Section 6.4
"Business Condition" Section 2.1(a)
"Buyer" Preamble
"Buyer Common Stock" Section 3.2(a)
"Buyer Disclosure Schedules" Article III Preamble
"Buyer SEC Reports" Section 3.4(a)
"Buyer Shares" Recitals
"Closing" Section 1.5
"Closing Date" Section 1.5
"Closing Date Market Value" Section 1.3(c)
"Code" Recitals
"Company" Preamble
"Company Audited Financial Statements" Section 2.4(a)
"Company Benefit Plans" Section 2.14(a)
"Company Disclosure Schedules" Article II Preamble
"Company Employees" Section 2.14(a)
"Company Financial Statements" Section 2.4(a)
"Company Permitted Liens" Section 2.5
"Company Qualified Plan" Section 2.14(c)
"Company Unaudited Financial Statements" Section 2.4(a)
"Company's Securities" Section 2.2(a)
"Determination Date" Section 6.3(c)
"Environmental Laws" Section 2.20
"Exchange Act" Section 3.4(a)
"General Escrow Agreement" Section 6.5(a)
"General Escrow Share" Section 6.5(a)
"Governmental Authority" Section 2.6
"Indemnitee" Section 6.3(a)
"Indemnitor" Section 6.3(a)
"Indemnitor Notice" Section 6.3(b)
"Intellectual Property" Section 2.7(a)
"Law" Section 2.1(d)
"Licenses" Section 2.8
"Liens" Section 2.2(b)
"Loss" Section 6.1
"Notice of Claim" Section 6.3(a)
"Order" Section 2.1(d)
"Other Parties" Section 4.12
"Projections" Section 2.4(c)
"Purchase Price" Section 1.3(a)
"Registration Statement" Section 4.2(a)
"Returns" Section 2.13(d)
"Respective Representatives" Section 4.1(a)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
"SEC" Recitals
"Securities Act" Section 3.4(a)
"Shares" Recitals
"Special Escrow Agreement" Section 6.6(a)
"Special Escrow Shares" Section 6.6(a)
"Stock Exchange" Recitals
"Stockholder" Preamble
"Subsidiary" Section 2.1(a)
"Taxes" Section 2.13
"Third-Party Claims" Section 6.3(d)
"Unaffiliated Firm" Section 6.3(d)
</TABLE>
<PAGE>
THIS PURCHASE AGREEMENT (this "Agreement"), dated as of August 15, 1998,
---------
is by and between SYLVAN LEARNING SYSTEMS, INC., a Maryland corporation (the
"Buyer"), and BARBARA S. STIPEK, (the "Stockholder,").
----- -----------
WHEREAS, Buyer desires to purchase from the Stockholder, and the
Stockholder desires to sell to Buyer, upon the terms and subject to the
conditions set forth herein (the "Stock Exchange"), the shares of PACIFIC
--------------
LANGUAGE ASSOCIATES, INC. dba INTENSIVE ENGLISH INSTITUTE, an Oregon corporation
(the "Company") numbered 19, 21, and 23 (the "Shares"), which Shares constitute
------
all of the issued and outstanding equity interests in the Company in exchange
for a number of shares of Common Stock, $.01 par value, of Buyer, having an
aggregate Closing Date Market Value (as defined herein) equal to 2,500,000.00
("Buyer Shares").
------------
WHEREAS, for United States federal income tax purposes it is intended
that the Stock Exchange shall qualify as a "reorganization" under the provisions
of Section 368(a)(1)(B) of the United States Internal Revenue Code of 1986, as
amended (the "Code").
----
WHEREAS, the Stock Purchase is intended to qualify as a pooling of
interests under applicable U.S. generally accepted accounting principles ("U.S.
----
GAAP") and U.S. Securities and Exchange Commission ("SEC") rules and
- ---- ---
regulations.
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants, agreements and conditions
hereinafter set forth, and intending to be legally bound hereby, the parties
hereto agree as follows:
ARTICLE I
---------
PURCHASE AND SALE OF STOCK
--------------------------
Section 1.1. Stock to Be Exchanged. Upon the terms and subject to the
---------------------
conditions contained herein, at the Closing (as defined below), the Stockholder
shall sell and transfer to Buyer, and Buyer shall purchase and accept from the
Stockholder, the Shares.
Section 1.2. Share Transfer. At the Closing (as defined below), in
--------------
order to effect the transfer of Shares, the Stockholder will endorse the shares
to the Buyer.
Section 1.3. Deliveries by Buyer and Stockholder.
-----------------------------------
(a) Upon the terms and subject to the conditions contained herein,
(including Section 1.3(b) below regarding Escrow Shares) in consideration of,
and in full payment for and solely in respect of, the Stock Exchange, Buyer
shall deliver or cause to be delivered to the Stockholder certificates
representing a number of Buyer Shares equal to $2,500,000.00 divided by the
Closing Date Market Value of the Buyer Shares, (the "Purchase Price"), free and
--------------
clear of all Liens (as defined herein).
(b) Upon receipt of the Buyer Shares, at the Closing, the Stockholder
shall deliver to the Escrow Agent (as herein defined): (i) certificates
representing a number of Buyer Shares having an aggregate Closing Date Market
Value equal to $ 250,000.00 in respect of the General Escrow (as defined herein)
duly endorsed for transfer, to be held by the Escrow Agent in accordance with
the terms of the General Escrow Agreement and (ii) certificates representing a
number of Buyer Shares having an aggregate Closing Date Market Value equal to
$175,000.00 in respect of the Special Escrow (as defined herein) duly endorsed
for transfer, to be held by the Escrow Agent in accordance with the terms of the
Special Escrow Agreement.
<PAGE>
(c) For purposes of this Agreement, the "Closing Date Market Value" of
-------------------------
the Buyer Shares shall mean the average of the closing bid prices per share of
the Buyer Common Stock during the period of the fifteen (15) most recent trading
days ending on the day prior to the date of Closing.
Section 1.4. Purchase Price Adjustments.
--------------------------
(a) For purposes of this Paragraph 1.4, "Working Capital" shall equal
(i) the aggregate amount of current assets, less (ii) the aggregate amount of
----
current liabilities. The term "current liabilities" shall not include (A) the
notes payable by the Company to Stockholder and to Joe Stipek described in
Section 5.2(e) of this Agreement; (B) the liability of the Company to Centennial
Bank for the letter of credit issued to World Learning described in Section
5.3(d) of this Agreement whether evidenced by note or the letter of credit; or
(C) any payments made by the Company at or before Closing with respect to either
of the preceding. A pro forma calculation of the Working Capital of the Company
based on the Company's July 31, 1998 interim financial statement is attached to
this Agreement as Exhibit 1.4(a).
(b) Within sixty (60) days after the Closing Date (the date of such
delivery being the "Adjustment Date"), Buyer shall deliver to the Stockholder a
statement of the Working Capital of the Company setting forth the Working
Capital of the Company as of the Closing Date (the "Company Closing Date Working
Capital"). The Statement shall have been prepared by Buyer in a manner
consistent with the Company's past practice, except to the extent such past
practice is not in accordance with U.S. GAAP. Any disputes with respect to
Buyer's calculation of the Company Closing Date Working Capital shall be
resolved by the Unaffiliated Firm (defined below) in the manner provided in
Section 6.3 below.
(c) Stockholder shall pay to Buyer any negative balance shown by the
Company Closing Date Working Capital.
(d) Buyer shall pay the outstanding balance of the notes payable by
the Company to Stockholder and to Joseph Stipek described in section 5.2(e) of
this Agreement and reduce the Purchase Price by such amounts.
(e) Buyer shall pay the outstanding balance of the note payable to
Centennial Bank datedOctober 14,1997, and reduce the Purchase Price by such
amount.
(f) Buyer shall redeem the irrevocable letter of credit held by World
Learning, Inc. and issued by Centennial Bank in the amount of $200,000 and
reduce the Purchase Price by such amount.
Section 1.5. Time and Place of Closing. The closing of the transactions
-------------------------
contemplated by this Agreement (the "Closing") shall be held at the offices of
-------
Sylvan Learning Systems, Inc. 1000 Lancaster Street Baltimore, MD 21202 or such
other place as the parties may agree on the date (the "Closing Date") set by
------------
Buyer (with at least one business day notice to the Stockholder), which date
shall be within five business days following the date upon which all conditions
set forth in Article V have been satisfied or waived, however in no event later
than September 30, 1998.
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDER
-------------------
The Stockholder hereby represents and warrants to the Buyer that the
statements contained in this Article II are true and correct, except as set
forth in the schedules delivered by the Stockholder on or before the date of
this Agreement (the "Stockholder Disclosure Schedules"). The Stockholder
--------------------------------
Disclosure Schedules shall be arranged in sections corresponding to the numbered
and lettered sections contained in this Agreement. The disclosure in any
section shall be deemed to constitute disclosure for all sections in this
Agreement.
Section 2.1. Incorporation; Authorization; Etc.
----------------------------------
(a) The Company is an Oregon corporation duly organized and validly
existing under the laws of the State of Oregon. The Company (1) has all
requisite power and authority to own all of its properties and assets and to
carry on its business as it is now being conducted, and (2) is in good standing,
and is duly licensed, authorized or qualified to transact business in each
jurisdiction in which the ownership or lease of real property or the conduct of
its business requires it to be so qualified except where the failure to be in
good standing or to be duly licensed, authorized or qualified to transact
business, would not reasonably be expected to, individually or in the aggregate,
have a material adverse effect on the business, assets, results of operations,
or financial condition (collectively, the "Business Condition") of the Company.
------------------
As used in the Agreement, "Subsidiary" with respect to the Company, shall mean
----------
each corporation, partnership, limited liability company or other legal entity
set forth on Stockholder Disclosure Schedule 2.1(a)(1) and, with respect to
Buyer, shall mean a corporation, partnership, limited liability company or other
legal entity more than 50% of the voting power of whose outstanding voting
securities or equity interests are, directly or indirectly, owned by Buyer.
Stockholder Disclosure Schedule 2.1(a)(1) lists all entities in which the
Company owns, directly or indirectly, more than 50% of the voting power of an
entity's voting securities or equity interests. The Company has heretofore
delivered or made available to Buyer complete and correct copies of its '
organizational documents as in effect on the date hereof. Stockholder Disclosure
Schedule 2.1(a)(2) lists all other entities, if any, in which the Company holds
less than a 50% equity interest.
(b) The Stockholder has full power, capacity and authority to execute and
deliver this Agreement and to perform her obligations under this Agreement. This
Agreement has been duly executed and delivered by and is the legal, valid and
binding obligation of the Stockholder and, assuming the due execution and
delivery thereof by Buyer, is enforceable against the Stockholder in accordance
with its terms.
(c) Except as set forth in Stockholder Disclosure Schedule 2.1(c), the
execution and delivery of this Agreement by the Company and the Stockholder
and the consummation by the Stockholder of the transactions contemplated by
this Agreement will not (1) violate any provision of the articles of
incorporation or by-laws or similar organizational instrument of the Company,
(2) result in a violation of any provision of, or constitute a default (with or
without notice or lapse of time) under, or give rise to a right of termination,
cancellation or acceleration of (or entitle any party to accelerate whether
after the giving of notice or lapse of time or both) any obligation under, or
result in the imposition of any lien upon or the creation of a security interest
in any of the Shares or any of the Company's assets or properties pursuant to,
any note, bond, debt instrument, mortgage, indenture, lien, lease, agreement or
other instrument, or any judgment, injunction, order or decree to which the
Company or the Stockholder is a party or by which either of them is bound,
(3) violate or conflict with any United States (federal, state or local) or
foreign (federal, provincial or local) law, statute, ordinance, rule or
regulation ("Law") or any order, writ, injunction, judgment, award,
---
stipulation or decree rendered by any Governmental Authority (as defined
herein) ("Order") applicable to the Company, or its material properties or
-----
assets or the Stockholder, or (4) trigger the rights of the Company under any
shareholder rights plan or similar arrangement, except in
<PAGE>
the case of clauses (2) and (3), for any such violations, defaults, rights or
restrictions that would not (A) have a material adverse effect on the Business
Condition of the Company, (B) an adverse effect on the value of the Shares or
(C) an adverse effect on the ability of Stockholder to consummate the Stock
Exchange.
(d) No consent, approval, order or authorization of, or registration,
declaration or filing with (1) any Governmental Authority or (2) any individual,
corporation or other entity is required by or with respect to the Company or the
Stockholder in connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby, except for those set
forth in Stockholder Disclosure Schedule 2.1 (d) and such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not be reasonably likely, individually or in the aggregate, to have
a material adverse effect on the Business Condition of the Company.
Section 2.2. Capitalization; Structure; No Investments.
-----------------------------------------
(a) The entire authorized capital stock of the Company is 1,000 shares of
no par value Common Stock, of which 150 shares are issued and outstanding and
all are owned by the Stockholder. Except as disclosed in Stockholder Disclosure
Schedule 2.2(a)(1), all of the issued and outstanding Shares have been duly and
validly issued and are fully paid and nonassessable, free of preemptive rights
and are owned by the Stockholder. There are outstanding (1) no other shares of
capital stock or other voting securities of the Company, (2) no securities of
the Company convertible into or exchangeable for shares of capital stock or
voting securities of the Company, (3) no options, warrants or other rights to
acquire from the Company (including any rights issued or issuable under a
shareholders rights plan or similar arrangement), and no obligations of the
Company to issue, any capital stock, voting securities or securities convertible
into or exchangeable for capital stock or voting securities of the Company,
(4) no equity equivalents, interests in the ownership or earnings of the Company
(including stock appreciation or phantom stock rights) or other similar rights
(with the securities listed in clauses (1) through (4) referred to collectively
as the "Company's Securities"), and (5) no outstanding obligations of the
--------------------
Company to repurchase, redeem or otherwise acquire any Company Securities or to
make any investment (by loan, capital contribution or otherwise) in any other
entity. Except as set forth in Stockholder Disclosure Schedule 2.2(a)(1), no
decision has been taken by the Stockholder to distribute profits or reserves or
to repay capital, which still has to be executed, and no distribution will be
made after the date hereof that will prevent accounting for the Stock Exchange
as a pooling of interests. The Stockholder's Register, a copy of which is
attached hereto as Stockholder Disclosure Schedule 2.2(a)(2), is true, accurate
and complete. No depositary receipts have been issued against the Shares.
(b) The Company has no Subsidiaries nor any equity investment of any kind
in any corporation, partnership, limited liability company, joint venture or
other legal entity.
Section 2.3. Ownership of Shares. Except as disclosed in Stockholder
-------------------
Disclosure Schedule 2.3, the Stockholder has good and valid title to the Shares
free and clear of anyliens, claims, charges, security interests, options or
other legal or equitable encumbrances of any kind ("Liens"). No person or
entity has any power or right, whether or not shared with any other person or
entity, to dispose of or direct the disposition of any Shares or vote or direct
the voting of any such Shares. Upon consummation of the Stock Exchange as
contemplated by this Agreement, Buyer will acquire good and valid title to such
Shares, free and clear of any Liens.
Section 2.4. Financial Statements.
--------------------
(a) The Company has previously delivered to the Buyer true, correct and
complete copies of its balance sheet and income statement as of June 30, 1998
and the Company has delivered to the Buyer true, correct and complete copies of
its unaudited balance sheets as of September 30, 1996 and 1997, and the related
unaudited profit and loss statement for the fiscal years ended September 30,
1996 and 1997 (collectively, the "Company Unaudited Financial Statements").
--------------------------------------
The Company Unaudited
<PAGE>
Financial Statements, and the Closing Balance Sheet (as defined in and delivered
pursuant to Section 4.13 hereof) shall be collectively referred to herein
as the "Company Financial Statements."
----------------------------
(b) Except as disclosed in Stockholder Disclosure Schedule 2.4(b), the
Company Financial Statements were prepared in accordance with U.S. GAAP andthe
Company Financial Statements present fairly the financial position of the
Company, as of their respective dates, for the periods presented therein, all in
conformity with GAAP applied on a consistent basis throughout the periods
involved.
Section 2.5. Title to Properties; Encumbrances. Except for properties
---------------------------------
disposed of in the ordinary course of business consistent with past practice or
as provided in Stockholder Disclosure Schedule 2.5, the Company has good and
marketable title to, or holds by valid and existing lease or license, free and
clear of all Liens, each piece of real and personal property currently used by
it, and reasonably necessary to enable it to carry on its business as presently
conducted except for such Liens as (a) are reflected or reserved against in the
Company Financial Statements, or (b) would not, individually or in the
aggregate, have a material adverse effect on the Business Condition of the
Company (the Liens described on Stockholder Disclosure Schedule 2.5 and clauses
(a) and (b) above, "Company Permitted Liens"). Stockholder Disclosure Schedule
-----------------------
2.5 sets forth all real property owned and all real property leased by the
Company with the name, address, terms of material leases and annual payment
obligations (whether mortgage or rent) for each. The Stockholder has received
no written notice of any violation of any zoning, use or other similar laws with
respect to any material property used in the operation of the Company's
businesses.
Section 2.6. Litigation; Orders. Except as set forth in Stockholder
------------------
Disclosure Schedule 2.6, there is no action, suit, arbitration, inquiry,
proceeding or investigation ("Action") by or before any court or tribunal in any
------
jurisdiction or any federal, state, municipal, domestic, foreign or other
administrative agency, department, commission, board, bureau or other
governmental or regulatory authority or instrumentality (each a "Governmental
------------
Authority") pending nor, to the knowledge of the Stockholder after due and
- ---------
reasonable inquiry, is any Action threatened against or involving the
Stockholder or the Company, or affecting any properties or assets of any of the
Stockholder or the Company which, in any such case, could reasonably be expected
to (a) prevent or materially delay the ability of the Stockholder or the Company
to consummate the transactions contemplated hereby, or (b) individually or in
the aggregate, have a material adverse effect on the Business Condition of the
Company. Neither the Stockholder nor the Company is subject to any Order which
could reasonably be expected to prevent or materially delay the ability of the
Stockholder or the Company to consummate the transactions contemplated hereby
or, individually or in the aggregate, have a material adverse effect on the
Business Condition of the Company.
Section 2.7. Intellectual Property.
---------------------
(a) The Company owns, or has a valid license to use, all of the patents,
trademarks, trade names, service marks, registered copyrights or applications
("Intellectual Property") which are currently used by it, and are reasonably
---------------------
necessary to enable it to carry on, its businesses as presently conducted,
except for such Intellectual Property as would not individually or in the
aggregate have a material adverse effect on the Business Condition of the
Company. Stockholder Disclosure Schedule 2.7 lists (1) all material Intellectual
Property, including jurisdictions in which each such material Intellectual
Property right has been issued or registered, and (2) all material licenses,
sublicenses and other agreements where the Company has taken or given a right to
use such Intellectual Property right from or to a third party. To the
Stockholder's knowledge, all registered Intellectual Property held by the
Company is valid and subsisting.
(b) Except as set forth in Stockholder Disclosure Schedule 2.7(b), no
claims which would, individually or in the aggregate, have a material adverse
effect on the Business Condition of the Company have been asserted by any person
(1) challenging the ownership, validity or effectiveness of any Intellectual
Property owned, used, filed by or licensed to or by the Company as of the date
hereof, (2) to
<PAGE>
the effect that the sale of any product or the provision of any service as now
sold or provided by the Company infringes on any Intellectual Property of a
third party, or (3) against the use by the Company of any Intellectual Property.
(c) Except as disclosed in Stockholder Disclosure Schedule 2.7(c), the
operations of the Company on and after January 1, 2000, without limitation to
date, shall in no way be different than the operations prior to that date with
respect to the equipment, systems and software of the Company, and the Company
will be able to process, store, record and present data containing dates in the
Year 2000 and thereafter, without limitation to date in the same manner as data
containing dates prior to the Year 2000.
Section 2.8. Licenses, Approvals, Other Authorizations, Consents, Reports,
-------------------------------------------------------------
Etc.
- ----
(a) Except as disclosed in Stockholder Disclosure Schedule 2.8(a), the
Company has all governmental licenses, permits, franchises, approvals and other
authorizations of any Governmental Authority (the "Licenses") necessary to own,
--------
lease and operate its properties and enable it to carry on its businesses as
presently conducted except for those Licenses, the lack of which would not have
a material adverse effect on the Business Condition of the Company. All such
Licenses are in full force and effect except where the failure to be in full
force and effect would not, individually or in the aggregate, have a material
adverse effect on the Business Condition of the Company. As of the date hereof,
to the Stockholder's knowledge after reasonable inquiry, no proceeding is
pending seeking the revocation or limitation of any such License that would,
individually or in the aggregate, have a material adverse effect on the Business
Condition of the Company.
(b) Stockholder Disclosure Schedule 2.8(b) lists all consents, approvals,
registrations, filings, applications, notices, orders, authorizations,
qualifications and waivers required to be made, filed, given or obtained by any
of the Company or the Stockholder with, to or from any persons or Governmental
Authorities in connection with the consummation of the Stock Exchange, except
for those (1) that become applicable solely as a result of the specific
regulatory status of Buyer or its affiliates, or (2) the failure to make, file,
give or obtain which would not, individually or in the aggregate, either have a
material adverse effect on the Business Condition of the Company or prevent the
consummation of the Stock Exchange.
Section 2.9. Labor Matters. Except as set forth in Stockholder Disclosure
-------------
Schedule 2.9, as of the date hereof, Company is not involved in or, to the
Stockholder's knowledge after reasonable inquiry, threatened with any labor
dispute, arbitration, lawsuit or administrative proceeding relating to labor
matters involving the employees of the Company (excluding routine workers'
compensation claims) that would reasonably be expected, individually or in the
aggregate, to have a material adverse effect on the Business Condition of the
Company.
Section 2.10. Compliance with Laws. Except as set forth in Stockholder
--------------------
Disclosure Schedule 2.10, to the Stockholder's knowledge after reasonable
inquiry, the conduct of the business of each of the Company substantially
complies with all applicable Laws and all Orders applicable thereto, except for
violations or failures so to comply, if any, that would not reasonably be
expected, individually or in the aggregate, to have a material adverse effect on
the Business Condition of the Company.
Section 2.11. Material Contracts.
------------------
(a) Stockholder Disclosure Schedule 2.11(a) identifies each of the
following material agreements, contracts, documents and other items (whether
written or oral) as to which the Company is a party or otherwise is bound (and
all such contracts, or samples or summaries thereof, have been made available
to Buyer) as of the date of the execution of this Agreement: (i) all contracts
between the Company and third parties relating to the provision of foreign
exchange student programs and solicitation of students for such instruction and
programs other than contracts with individual students ("Exchange Contracts")
(ii) all documents relating to indebtedness for money borrowed, including
<PAGE>
guarantees; (iii) all agreements or plans relating to employment, compensation
of or benefits for officers, employees or consultants of the Company, including
without limitation, any collective bargaining arrangements; (iv) all contracts
for the purchase of materials, supplies, services, merchandise or equipment
involving consideration of more than $5,000 annually or involving purchases in
excess of normal operating requirements; (v) any contract, agreement, or
instrument not entered into in the ordinary course of the business of the
Company; (vi) any contract containing material restrictions on the operations of
the Company or any restrictions on its ability to compete in any geographic
region or in any line of business; (vii) any lease of real property and all
personal property leases calling for annual lease payments in excess of $10,000;
and (viii) all licenses and accreditations received in connection with
instruction and foreign exchange student programs conducted by the Company. The
contracts and agreements identified in Stockholder Disclosure Schedule 2.11(a),
including each of the Exchange Contracts, are collectively referred to herein as
the "Contracts."
(b) Except as set forth in Section 2.11(b) of the Stockholder Disclosure
Schedule:
(i) Neither the execution, delivery and performance of this Agreement
nor the consummation of the transactions contemplated hereby will conflict in
any material respect with or result in a material breach of, or give rise to a
right of termination of, or accelerate the performance required by, any terms of
any Contract, or constitute a default in any material respect thereunder.
(ii) The Company is not under any liability or obligation to refund
any material amount previously paid to the Company for services provided by the
Company under the Contracts, and the Company has paid or has made adequate
provision to pay when due all accounts payable, payroll, payroll taxes and other
amounts due on account of the Contracts;
(iii) The Company has not entered into any of the Contracts other than
in compliance with all applicable laws, rules and regulations; and the terms of
payment and/or compensation for each of the Contracts complies with all
applicable laws, rules and regulations relating to competitive bidding; each of
the Contracts not obtained through competitive bidding was secured in an arms'
length transaction.
(iv) Each of the Contracts is valid and existing and in full force and
effect, true and complete copies of each Contract have been heretofore provided
to the Buyer; the Company has, in all material respects, performed all
obligations required to be performed by it under, and is not in material default
in any respect underany of the Contracts; and the Company has not received
notice of non-compliance or alleged non-compliance with any of the Contracts; to
the knowledge of the Stockholder, each other party to any Contract has, in all
material respects, performed all obligations required to be performed by it
under, and is not in material default in any respect under, any of the
Contracts;
(v) The Stockholder has no knowledge of any current intention on the
part of any of the parties to the Contracts to cancel the same or not to renew
the same with the Company at the end of the current term thereof;
(vi) The Company is (a) duly licensed in the appropriate jurisdiction
to provide language instruction at all sites where the Company currently
provides language instruction and (b) accredited by an accrediting body that is
recognized by, and satisfactory to both the regulating agency or institution in
the jurisdiction where the language instruction is provided and the agency or
institution that regulates or administers the distribution of visas in the
country where the language instruction is provided;
(vii) The Company has received ACCET approval for all schools
operated by the Company and the Stockholder after reasonable inquiry, is not
aware of any threatened termination of such ACCET approval or any set of facts
which may negatively affect ACCET approval.
<PAGE>
(viii) The Company has not received any claim of material overpayment or
alleged material overpayment by any other party to any of the Contracts, and
except as described in Stockholder Disclosure Schedule 2.11(b), there have been
no audits or other reviews of the costs, billing methods or performance of the
Company under any of the Contracts, and no such audits or other reviews are in
progress or, to the knowledge of the Stockholder, contemplated; and
(ix) Except as set forth in Stockholder Disclosure Schedule 2.11(b),
no consent, approval or authorization of, notice to or declaration, filing or
registration with, any third party is required in connection with the Stock
Exchange or the execution, delivery and performance of this Agreement and the
Closing Documents and the consummation of the transactions contemplated hereby
and thereby.
Section 2.12. No Undisclosed Liabilities. Except as reflected, reserved
--------------------------
against or otherwise disclosed in the Company Financial Statements (including
the notes thereto), the Company has no liabilities or obligations of a character
(including without limitation any liability resulting from failure to comply
with any laws or foreign, federal, state or local tax liabilities due or to
become due whether incurred in respect or measured by income for any period
prior to close of business on such dates or arising out of transactions entered
into or any state of facts existing prior thereto) that would be required to be
reflected in a balance sheet prepared in accordance with U.S. GAAP except
liabilities and obligations which (a) were incurred after September 30, 1997 in
the ordinary course of business in nature and amount consistent with past
practice, (b) would not, individually or in the aggregate, have a material
adverse effect on the Business Condition of the Company, or (c) are specifically
contemplated by this Agreement.
Section 2.13. Taxes.
-----
(a) The Company has in all material respects accurately prepared and
timely filed (or will, prior to Closing have prepared and filed) all material
federal, state, local and foreign Returns (defined below), estimates,
information statements and reports required to be filed at or before the Closing
Date relating to any and all Taxes concerning or attributable to the Company or
any of its operations or assets, and such material Returns are true and correct
in all material respects and have been completed in all material respects in
accordance with applicable law. Copies of all material Returns of the Company
for the past three years have been or will be provided or made available by the
Company to the Buyer. In particular, and without in any manner limiting the
foregoing, none of the Returns of the Company that relate to pre-Closing periods
contains any position which, individually or in the aggregate, is or would be
subject to material penalties under Section 6662 of the Code (or any
corresponding provision of state, local or foreign Tax Law).
(b) Except as set forth in Stockholder Disclosure Schedule 2.13, as of
the date hereof, the Company: (1) has paid all Taxes it was required to pay (and
as of the Closing Date will have paid all Taxes it is required to pay prior to
the Closing Date), (2) have withheld with respect to its employees all Taxes
(and as of the Closing Date will have withheld all such Taxes it is required to
withhold prior to the Closing Date), and (3) have collected all Taxes on account
of sales by the Company or the use of any of its products (and as of the Closing
Date will have collected all such Taxes it is required to collect prior to the
Closing Date) in each case where such payment, withholding or collection is
required, except, in each instance, where any failure to make such payment,
withholding or collection would not be reasonably likely, individually or in the
aggregate, to have a material adverse effect on the Business Condition of the
Company.
(c) There is no Tax deficiency outstanding, proposed or assessed against
the Company that is not reflected as a liability in the Company Financial
Statements which would reasonably be likely, individually or in the aggregate,
to have a material adverse effect on the Business Condition of the Company, nor
has the Company executed any waiver of any statute of limitations on or
extending the period for the assessment or collection of any material Tax.
<PAGE>
(d) As used in this Agreement, "Returns" shall mean returns, reports and
forms required to be filed with any domestic or foreign Taxing Authority
(defined below).
"Taxes" shall mean (1) all taxes (whether federal, state, local or
-----
foreign) based upon or measured by income and any other tax whatsoever,
including gross receipts, profits, sales, use, occupation, value added,
ad valorem, transfer, franchise, withholding, payroll, recapture, employment,
- ----------
excise, or property taxes, together with all interest, penalties and additions
imposed with respect thereto and (2) any obligations under any agreements or
arrangements with respect to any Taxes described in clause (1) above including
liability for Taxes of a predecessor entity.
"Taxing Authority" shall mean any Governmental Authority having
----------------
jurisdiction over the assessment, determination, collection, or other imposition
of Tax.
Section 2.14. Employee Benefit Plans.
----------------------
(a) Stockholder Disclosure Schedule 2.14(a) lists all material
compensation and benefit plans, contracts and arrangements in effect as of the
date hereof including, without limitation, all bonus, incentive or deferred
compensation, severance pay, pension, profit sharing, savings and thrift and
medical and life insurance plans in which any current or former employees of the
Company ("Company Employees") participate (collectively, "Company Benefit
----------------- ---------------
Plans").
- -----
(b) All Company Benefit Plans in which Company Employees participate and
which are "employee benefit plans," as defined in Section 3(3) of ERISA, in all
material respects are in compliance with and have been administered in
compliance with all applicable requirements of law, including but not limited to
the Code and ERISA, and all contributions required to be made to each such plan
under the terms of such plan, ERISA or the Code for all periods of time prior to
the date hereof and the Closing Date have been or will be, as the case may be,
made or accrued, except for such noncompliance or failures to contribute which
would not, individually or in the aggregate, have a material adverse effect on
the Business Condition of the Company. With respect to the Company Benefit
Plans, individually and in the aggregate, there are no funded benefit
obligations for which contributions have not been made or properly accrued and
there are no unfunded benefit obligations which have not been accounted for by
reserves, or otherwise properly, in the Company Financial Statements.
(c) With respect to any Company Benefit Plan which is intended to qualify
under Section 401(a) of the Code ("Company Qualified Plan"), a favorable
----------------------
determination letter as to the qualification under Section 401(a) of the Code
has been issued, or the remedial amendment period for such determination has not
expired. To the best knowledge of the Stockholder, no "disqualified person" (as
defined in Section 4975 of the Code) has engaged in any "prohibited transaction"
(as such term is defined in Section 4975 of the Code), which could subject any
Company Qualified Plan (or its related trust), or the Company to any tax or
penalty imposed under Section 4975 of the Code. The value of the assets in each
of the Company Qualified Plans which is a defined benefit plan exceeds the
present value of accrued benefits of all participants in such Plan when such
benefits are valued on a termination basis using Pension Benefit Guaranty
Corporation interest and other assumptions.
(d) The Company is not required to contribute to, or has been required to
contribute to, any "multiemployer plan," as such term is defined in Section
4001(a)(3) of ERISA.
(e) Except as otherwise set forth in Stockholder Disclosure Schedule
2.14(e) hereto, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (1) result in any
payment (including, without limitation, severance, unemployment compensation,
golden parachute or otherwise) becoming due to any Employee under any Company
Benefit Plan or otherwise, (2) increase any benefits otherwise payable by the
Company under any Company Benefit Plan or (3) result in the acceleration of the
time of payment or vesting of any such
<PAGE>
benefits to any material extent, which, individually or in the aggregate, would
have a material adverse effect on the Business Condition of the Company.
Section 2.15. No Material Adverse Change. Except as set forth in Stockholder
--------------------------
Disclosure Schedule 2.15, since September 30, 1997, there has not been any
event, occurrence or circumstance that has had, individually or in the
aggregate, a material adverse effect on the Business Condition of the Company,
or any event, occurrence or circumstance that would, or would reasonably be
expected, individually or in the aggregate, to have a material adverse effect on
the Business Condition of the Company or a material adverse effect on the
ability of any of the Stockholder to consummate the transactions contemplated
hereby.
Section 2.16. Brokers, Finders, Etc. Except as set forth on Stockholder
----------------------
Disclosure Schedule 2.16, neither the Company, nor the Stockholder has employed,
or is subject to any claim of, any broker, finder, or similar consultant or
intermediary in connection with the transactions contemplated by this Agreement
which might be entitled to a fee or commission from the Company upon the
consummation of the transactions contemplated hereby. All of the fees,
commissions and expenses of the persons set forth on Stockholder Disclosure
Schedule 2.16 shall be solely for the account of, and borne by, the Company.
Stockholder Disclosure Schedule 2.16 sets forth an approximate current estimate
of such fees and expenses.
Section 2.17. Schedules. Disclosure of any fact or item in any Shareholder
---------
Disclosure Schedule hereto referenced by a particular paragraph or Section in
this Agreement shall, should the existence of the fact or item or its contents
be clearly relevant to any other paragraph or Section, be deemed to be disclosed
with respect to that other paragraph or Section whether or not an explicit
cross-reference appears, unless the context indicates otherwise.
Section 2.18. No Implied Representation. Notwithstanding anything contained
-------------------------
in this Article II or any other provision of this Agreement, it is the explicit
intent of each party hereto that the STOCKHOLDER IS MAKING NO REPRESENTATION OR
WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, BEYOND THOSE EXPRESSLY GIVEN IN THIS
AGREEMENT, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OR REPRESENTATION
AS TO CONDITION, MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR
PURPOSE AS TO ANY OF THE PROPERTIES OR ASSETS OF THE COMPANY AND ITS
SUBSIDIARIES AND IT IS UNDERSTOOD THAT BUYER TAKES SUCH BUSINESSES, PROPERTIES
AND ASSETS ON AN "AS IS" AND "WHERE IS" BASIS EXCEPT AS SET FORTH IN THIS
AGREEMENT AND SCHEDULES HERETO. It is understood that any cost estimates,
projections or other projections or predictions or any other information
concerning the contained in or referred to in other materials that have been or
may hereafter be provided to Buyer or any of its affiliates, agents or
representatives are not and shall not be deemed to be representations or
warranties of the Stockholder or the Company.
Section 2.19. Construction of Certain Provisions. It is understood and
----------------------------------
agreed that neither the specification of any dollar amount in the
representations and warranties contained in this Agreement nor the inclusion of
any specific item in the Stockholder Disclosure Schedules hereto is intended to
imply that such amounts or higher or lower amounts, or the items so included or
other items, are or are not material, and neither party shall use the fact of
the setting of such amounts or the fact of the inclusion of any such item in the
Schedules hereto in any dispute or controversy between the parties as to whether
any obligation, item or matter is or is not material for purposes of this
Agreement.
Section 2.20. Environmental Laws and Regulations. The Company is in material
----------------------------------
compliance with all applicable Laws in effect as of the date of this Agreement
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, ground water, land
surface or subsurface strata) (collectively, "Environmental Laws"), which
------------------
compliance includes, but is not limited to the possession by the Company of all
material permits and other governmental authorizations required under applicable
Environmental Laws, and material compliance with
<PAGE>
the terms and conditions thereof and the Company has not received written notice
of, or is not the subject of, any Action, demand or notice by any person or
entity alleging liability under or non-compliance with any Environmental Law (an
"Environmental Claim"), and the Stockholder has no reason to believe any of the
-------------------
foregoing is being contemplated nor has the Stockholder seen on any of the real
property owned or leased by the Company hazardous materials or contaminants, as
defined in the Environmental Law, except as are present in material compliance
with Environmental Laws, and there are no circumstances that are reasonably
likely to prevent or interfere with such compliance in the future or give rise
to an Environmental Claim in the future.
Section 2.21. Bank Accounts, Etc. Stockholder Disclosure Schedule 2.21 sets
-------------------
forth a list of all bank accounts, safe deposit boxes and lock boxes of the
Company including, with respect to each such account and lock box,
identification of all authorized signatories.
Section 2.22. Insurance. Stockholder Disclosure Schedule 2.22 sets forth a
---------
list of all material general liability, product liability, fire, casualty, motor
vehicle and other insurance or bonding maintained by or on behalf of the
Company, any of its employees as of the date hereof. All requirements and
provisions of all such policies are being substantially complied with. No
notice of cancellation has been given to or received by the Company with respect
to any such insurance policy. To the knowledge of the Stockholder, no such
policies are or will become subject to an assessment due to any retroactive rate
or audit adjustments or coinsurance arrangements.
Section 2.23. Recent Operations. Since September 30, 1997, (a) the Company
-----------------
has operated its business substantially as it was operated immediately prior to
such date in the ordinary course of business; (b) the Company and the
Stockholder has used its commercially reasonable efforts to preserve intact the
business relationships of the Company (c) there have been no material bonuses
paid to or material increases in the compensation of officers or employees of
the Company, except as set forth in Stockholder Disclosure Schedule 2.23; and
(d) except as set forth in Section 2.23 of the Stockholder Disclosure Schedule,
the Company has not declared or paid any dividend or made any other distribution
with respect to its capital stock..
Section 2.24. Investment Intent.
-----------------
(a) It is understood that as of the Closing the Buyer Shares will not
have been registered under the Securities Act or any state securities laws, and
that such shares will be delivered without registration in reliance upon an
exemption from the registration requirements of the Securities Act and
applicable state securities laws. The Stockholder represents that she is
acquiring the Buyer Shares hereunder only for her own account for investment and
not with any intention of making, or with a view to, or for sale in connection
with, any distribution thereof within the meaning of the Securities Act until
such shares first are registered under the Securities Act as required by Section
4.2 of this Agreement.
(b) In connection with the foregoing, the Stockholder hereby represents
and warrants that:
(1) she has reviewed, discussed and evaluated the information made
available by Buyer and has had the opportunity to ask questions of, and receive
answers from, executive officers of Buyer concerning the terms and conditions of
this Agreement and to obtain any additional information which she considered
necessary to verify the accuracy of the information delivered by Buyer in
connection with this Agreement;
(2) she understands that she must bear the economic risks of the
investment in Sylvan Common Stock to be made hereunder for an indefinite period
of time because such stock has not been registered under the Securities Act and,
therefore, may not be sold until such stock subsequently is registered under the
Securities Act or an exemption from registration is available; and
<PAGE>
(3) she has sufficient knowledge and experience in financial and
business matters to enable her to be capable of evaluating the merits and the
risks of the Stock Exchange.
(c) It is understood and agreed that, to implement the requirements of
the Securities Act and state securities laws and evidence the restrictions upon
transfer contained in this Agreement, Sylvan will cause a legend to be
conspicuously noted on the certificates representing the Sylvan Common Stock
deliverable hereunder, and that Sylvan will issue stop transfer instructions to
its transfer agent, to the effect that such stock has not been registered under
the Securities Act and that no transfer may take place except pursuant to an
effective registration statement or after delivery of any opinion of counsel
reasonably satisfactory to Sylvan to the effect that registration thereof for
the purpose of transfer is not required under the Securities Act.
Section 2.25. No Agreements Regarding the Buyer Shares. The Stockholder has
----------------------------------------
not taken or has not agreed to take any action that would prevent the Stock
Exchange from qualifying for pooling of interests accounting treatment under
U.S. GAAP and applicable SEC rules and regulations. The Stockholder is not
aware of any agreement, plan or other circumstance relating to the Stockholder
that would prevent the Stock Exchange from so qualifying and the Stockholder has
no reason to believe that the Stock Exchange will not qualify as a pooling of
interests for accounting purposes. Without limiting the generality of the
foregoing sentence, since September 30, 1997 (i) the Company has not had any
treasury stock transactions and none are planned during the period between the
date hereof and the Closing Date, (ii) the Company has not adopted any new or
amended any existing stock option or stock purchase plans, (iii) the Company has
not disposed of any assets other than in the ordinary course of business, and
(iv) the Stockholder has not entered into any agreement that would restrict
voting rights with respect to the Buyer Shares to be issued pursuant to this
Agreement. The Stockholder represents and warrants that she has not entered into
any agreement or understanding with anyone for the transfer of the Buyer Shares
in a transaction that would prevent Buyer from accounting for the Stock Exchange
as a pooling of interests.
Section 2.26. Foreign Corrupt Practices Act. To Stockholder's knowledge,
-----------------------------
neither the Company nor any director, officer, agent, employee, consultant, or
any other person associated with or acting on behalf of any of them, has engaged
or is engaged in any course of conduct, or is a party to any agreement or
involved in any transaction, which has or would give rise to a violation of the
Foreign Corrupt Practices Act of 1977 or any other United States statute or
regulation governing the conduct of business abroad by corporations having U.S.
operations and their subsidiaries.
Section 2.27. No Pending Transactions. Except for the transactions
-----------------------
contemplated by this Agreement or as disclosed in Stockholder Disclosure
Schedule 2.27, the Company is not a party to or bound by or the subject of any
agreement, undertaking, commitment, negotiation or discussion with another party
with respect to any Acquisition Transaction (as defined below). For purposes of
this Section, the term "Acquisition Transaction" means any (i) acquisition of
all or any material portion of the assets of, or any equity interest in, any
corporation, partnership, joint venture, company, organization or other entity,
(ii) sale of all or any material portion of the assets of, or equity interest in
the Company or (iii) any merger, consolidation, business combination (or other
similar transaction) involving the Company.
Section 2.28. Reorganization. The Stockholder has not and, as of the
--------------
Closing Date will not have, taken any action or failed to take any action which
action or failure would result in the failure of the Stock Exchange to qualify
as a reorganization within the meaning of Section 368(a)(1)(B) of the Code. The
Stockholder has no knowledge of any fact or circumstance that is reasonably
likely to prevent the Stock Exchange from qualifying as a reorganization within
the meaning of Section 368(a)(1)(B) of the Code.
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer hereby represents and warrants to the Stockholder that the
statements contained in this Article III are true and correct except as
disclosed in the Buyer SEC Reports (as defined in Section 3.4) or as set forth
in the schedules delivered by the Buyer to the Stockholder on or before the date
of this Agreement (the "Buyer Disclosure Schedules"). The Buyer Disclosure
--------------------------
Schedules shall be arranged in sections corresponding to the numbered and
lettered sections contained in this Agreement. The disclosure in any section of
the Buyer Disclosure Schedules shall be deemed to constitute disclosure for all
sections in this Agreement.
Section 3.1. Incorporation; Authorization; Etc.
----------------------------------
(a) Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maryland. Buyer (1) has all requisite
power and authority to own all of its properties and assets and to carry on its
business as it is now being conducted, and (2) is in good standing, and is duly
licensed, authorized or qualified to transact business in each jurisdiction in
which the ownership or lease of real property or the conduct of its business
requires it to be so qualified except where the failure to be in good standing
or to be duly licensed, authorized or qualified to transact business, would not
reasonably be expected to, individually or in the aggregate, have a material
adverse effect on the Business Condition of Buyer and its Subsidiaries, taken as
a whole. Buyer has heretofore delivered or made available to the Stockholder
complete and correct copies of its certificate of incorporation and by-laws as
in effect on the date hereof.
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by the Board of Directors of Buyer, and no additional proceedings (corporate or
otherwise) on the part of Buyer or its Stockholder are necessary to authorize
the execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby. This Agreement has been duly executed
and delivered by, and, assuming the due execution and delivery thereof by the
Company and the Stockholder, constitutes the legal, valid and binding obligation
of, Buyer and is enforceable against Buyer in accordance with its terms.
(c) The execution and delivery of this Agreement by Buyer and the
consummation by Buyer of the transactions contemplated by this Agreement will
not (1) violate any provision of the certificate of incorporation or by-laws or
similar organizational instrument of Buyer or any of its material Subsidiaries,
(2) result in a violation of any provision of, or constitute a default (with or
without notice or lapse of time) under, or give rise to a right of termination,
cancellation or acceleration of (or entitle any party to accelerate whether
after the giving of notice or lapse of time or both) any obligation under, or
result in the imposition of any Liens upon or the creation of a security
interest in any of Buyer's or its Subsidiaries' assets or properties pursuant
to, any note, bond, debt instrument, mortgage, indenture, lien, lease, agreement
or other instrument, or any judgment, injunction, order or decree to which Buyer
is a party or by which any of them is bound, or (3) violate or conflict with any
Law or Order applicable to Buyer , except, in the case of clauses (2) and (3),
for any such violations, defaults, rights or restrictions that would not,
individually or in the aggregate, (A) have a material adverse effect on the
Business Condition of Buyer and its Subsidiaries, taken as a whole, (B) an
adverse effect on the value of the Buyer Shares or (C) on adverse effect on the
ability of Buyer to consummate the Stock Exchange.
(d) No consent, approval, order or authorization of, or registration,
declaration or filing with (1) any Governmental Authority or (2) any individual,
corporation or other entity (including any holder of Buyer's securities) is
required by or with respect to Buyer in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for
<PAGE>
(A) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under federal securities laws
(including an order of effectiveness with respect to the Registration
Statement), applicable state "blue sky" laws, and the securities laws of any
foreign country, and (B) such other consents, authorizations, filings, approvals
and registrations which, if not obtained or made, would not be reasonably likely
to have (i) a material adverse effect on the Business Condition of Buyer and its
Subsidiaries, taken as a whole or (ii) an adverse effect on the value of the
Buyer Shares.
Section 3.2. Capitalization; Structure. As of May 22, 1998, Buyer's entire
-------------------------
authorized capital stock consists of 90,000,000 shares, 80,000,000 of which are
classified as Common Stock, $.01 par value ("Buyer Common Stock"), and
------------------
10,000,000 of which are classified as Preferred Stock, par value $.01 per share,
with 900,000 shares designated as Series A Junior Participating Preferred Stock.
As of May 22, 1998, no shares of Preferred Stock are issued or outstanding, and
31,195,090 shares of Buyer Common Stock are outstanding.
Section 3.3. Title to Buyer Shares. Upon consummation of the Stock Exchange,
---------------------
(a) the Buyer Shares issued to the Stockholder will be duly authorized,
validly issued, fully paid, non-assessable and free of preemptive rights and (b)
the Stockholder will acquire good and valid title to the Buyer Shares issued by
Buyer in the Stock Exchange, free and clear of any Liens or restrictions on
transfer (other than as set forth in the Securities Act or the rules and
regulations thereunder and other than as specifically required so that the Stock
Exchange qualifies for pooling of interests accounting treatment).
Section 3.4. Reports and Financial Statements.
--------------------------------
(a) Buyer has filed all reports (including without limitation proxy
statements) required to be filed with the SEC in the period from January 1, 1998
to the date hereof (collectively, the "Buyer SEC Reports"), and has furnished or
-----------------
made available to the Stockholder true and complete copies of all the Buyer SEC
Reports. None of the Buyer SEC Reports, as of their respective dates (as amended
through the date hereof), contained any untrue statement of 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. All of the Buyer SEC Reports, as of their respective dates
(as amended through the date hereof), complied in all material respects with the
requirements of the Securities Act of 1933 (the "Securities Act") and the
--------------
Securities Exchange Act of 1934 (the "Exchange Act") and the applicable rules
------------
and regulations thereunder.
(b) Buyer previously has made available to the Stockholder correct and
complete copies of its audited consolidated financial statements (including
balance sheets, statements of operations and statements of cash flows, and, in
each case, the related footnotes thereto) as of December 31, 1997, accompanied
by the report of Ernst & Young, LLP ("Ernst & Young") in the form contained in
-------------
Buyer's Annual Report to the SEC on Form 10-K for the year ended December 31,
1997 (the "Audited Buyer Financial Statement"). The consolidated balance sheets
---------------------------------
included in the Audited Buyer Financial Statement presents fairly, in all
material respects, the consolidated financial position of Buyer and its
Subsidiaries as of the respective date thereof, and each of the other related
consolidated statements included in such Audited Buyer Financial Statements
presents fairly, in all material respects, the consolidated results of
operations and cash flows of Buyer and its Subsidiaries for the respective
periods in conformity with U.S. GAAP consistently applied during the periods
involved except as otherwise noted therein.
Section 3.5. Litigation; Orders. There is no Action by or before any
------------------
Governmental Authority pending nor, to the knowledge of Buyer after due and
reasonable inquiry, is any Action threatened against or involving Buyer or any
of Buyer's Subsidiaries, or affecting any properties or assets of any of Buyer,
or any of Buyer's Subsidiaries which, in any such case, could reasonably be
expected to (a) prevent or materially delay the ability of Buyer to consummate
the transactions contemplated hereby, or (b) individually or in the aggregate,
have a material adverse effect on the Business Condition of Buyer and its
Subsidiaries, taken as a whole. Buyer is not subject to any Order which could
reasonably be expected to prevent or materially delay the ability of Buyer to
consummate the transactions contemplated hereby or, individually or in the
aggregate, have a material adverse effect on the Business Condition of Buyer and
its Subsidiaries, taken as a whole.
<PAGE>
Section 3.6. Compliance with Laws. To Buyer's knowledge, after due and
--------------------
reasonable inquiry the conduct of the business of each of Buyer and its
Subsidiaries substantially complies with all applicable Laws and all Orders
applicable thereto, except for violations or failures so to comply, if any, that
would not reasonably be expected to have a material adverse effect on the
Business Condition of Buyer and its Subsidiaries, taken as a whole.
Section 3.7. No Undisclosed Liabilities. Except as reflected, reserved
--------------------------
against or otherwise disclosed in the Audited Buyer Financial Statement
(including the notes thereto), neither Buyer nor its Subsidiaries have any
liabilities or obligations of a character that would be required to be reflected
in a balance sheet prepared in accordance with U.S. GAAP except liabilities and
obligations which (a) were incurred after December 31, 1997 in the ordinary
course of business in nature and amount consistent with past practice, (b) would
not have a material adverse effect on the Business Condition of Buyer and its
Subsidiaries, taken as a whole, or (c) are specifically contemplated by this
Agreement.
Section 3.8. No Material Adverse Change. Since the date of the last Buyer
--------------------------
SEC Report, there has not been any event, occurrence or circumstance that has
had a material adverse effect on the Business Condition of Buyer and its
Subsidiaries, taken as a whole, or any event, occurrence or circumstance that
would, or would reasonably be expected to, have a material adverse effect on the
Business Condition of Buyer and its Subsidiaries, taken as a whole, or a
material adverse effect on the ability of Buyer to consummate the transactions
contemplated hereby.
Section 3.9. Brokers, Finders, Etc. Except as set forth on Buyer Disclosure
----------------------
Schedule 3.9, Buyer has not empoyed, nor is Buyer subject to any claim of, any
broker, finder, or similar consultant or intermediary in connection with the
transactions contemplated by this Agreement which might be entitled to a fee or
commission from Buyer upon the consummation of the transactions contemplated
hereby. All of the fees, commissions and expenses of the persons set forth on
Schedule 3.9 shall be solely for the account of, and borne by, Buyer.
Section 3.10. Schedules. Disclosure of any fact or item in any Schedule
---------
hereto referenced by a particular paragraph or Section in this Agreement shall,
should the existence of the fact or item or its contents be clearly relevant to
any other paragraph or Section, be deemed to be disclosed with respect to that
other paragraph or Section whether or not an explicit cross-reference appears
unless the context indicates otherwise.
Section 3.11. Investment Intent. It is understood that the Shares are not
-----------------
registered and are not being registered under the Securities Act or any state
securities laws, and the Shares will be delivered without registration in
reliance upon an exemption from the registration requirements of the Securities
Act and applicable state securities laws. Buyer represents that it is acquiring
the Shares hereunder only for its own account for investment and not with any
intention of making, or with a view to, or for sale in connection with, any
distribution thereof within the meaning of the Securities Act unless such shares
first are registered under the Securities Act.
(b) In connection with the foregoing, Buyer hereby represents and
warrants that:
(1) it has reviewed, discussed and evaluated the information made
available by the Company and has had the opportunity to ask questions of, and
receive answers from, ex ecutive officers of the Company concerning the terms
and conditions of this Agreement and to obtain any additional information which
it considered necessary to verify the accuracy of the information delivered by
the Company in connection with this Agreement;
<PAGE>
(2) it understands that it must bear the economic risks of the
investment in the Shares to be made hereunder for an indefinite period of time
because such stock has not been registered under the Securities Act and,
therefore, may not be sold until such stock subsequently is registered under the
Securities Act or an exemption from registration is available; and
(3) it has sufficient knowledge and experience in financial and
business matters to enable it to be capable of evaluating the merits and the
risks of the Stock Exchange.
Section 3.12. Accounting Matters. Neither Buyer nor any of its affiliates,
------------------
has taken or agreed to take any action that would prevent the Stock Exchange
from qualifying for pooling of interests accounting treatment under U.S. GAAP
and applicable SEC rules and regulations. Buyer is not aware of any agreement,
plan or other circumstance relating to Buyer or its affiliates, that would
prevent the Stock Exchange from qualifying as a pooling of interest and Buyer
has no reason to believe that the Stock Exchange will not qualify as a pooling
of interest for accounting purposes.
Section 3.13. Reorganization. Buyer has not and, as of the Closing Date will
--------------
not have, taken any action or failed to take any action which action or failure
would result in the failure of the Stock Exchange to qualify as a reorganization
within the meaning of Section 368(a)(1)(B) of the Code. Buyer, afte due and
reasonable inquiry, has no knowledge of any fact or circumstance that is
reasonably likely to prevent the Stock Exchange from qualifying as a
reorganization with the meaning of Section 368(a)(1)(B) of the Code.
ARTICLE IV
COVENANTS OF THE COMPANY, THE STOCKHOLDER AND BUYER
---------------------------------------------------
Section 4.1. Investigation of Business; Access to Properties and Records;
------------------------------------------------------------
Records Retention.
- -----------------
(a) Between the date hereof and the Closing Date, each of the Company and
Buyer shall (and shall cause each of its Subsidiaries to) afford to
representatives of the other party ("Respective Representatives") reasonable
--------------------------
access to their respective offices, properties, books and records during normal
business hours in order that such party may have full opportunity to make such
investigations as it desires of the affairs of the other party, and the Company
and Buyer shall, and shall cause their employees and officers to furnish such
data as is reasonably requested by the other party's representatives; provided,
--------
however, that such investigation shall be upon reasonable prior written notice
- -------
and shall not unreasonably disrupt the personnel and operations of the other
party. All requests for access shall be made to such representatives of the
other party as such party shall designate in writing, who shall be solely
responsible for coordinating all such requests and all access permitted
hereunder. It is further understood and agreed that neither party nor its
representatives shall contact any of the employees, customers, suppliers, joint
venture partners, or other associates or affiliates of the other party, , in
connection with the transactions contemplated by this Agreement, whether in
person or by telephone, mail or other means of communication, without the
specific prior authorization of the other party. No information or knowledge
obtained in any investigation pursuant to this Section 4.1(a) shall affect or be
deemed to modify any representation or warranty contained in this Agreement or
any disclosure schedule or the conditions to the obligations of the parties to
consummate the Stock Exchange.
(b) The Stockholder and the Company and Buyer will hold and will cause
their respective employees, agents and representatives to hold in confidence,
unless compelled to disclose by judicial or administrative process or, in the
opinion of its legal counsel, by other requirements of law, all documents and
information concerning the other party and its Subsidiaries furnished to it in
connection with the transactions contemplated by this Agreement, including all
analyses, abstracts and summaries thereof created by the other party, and will
not release or disclose such information to any other person, except its
auditors, attorneys, financial advisors and other consultants and advisors in
connection with this
<PAGE>
Agreement who need to know such information. If the transactions contemplated by
this Agreement are not consummated, such confidence shall be maintained and, if
requested by or on behalf of the furnishing party, the other party will, and
will use all reasonable efforts to cause its auditors, attorneys, financial
advisors and other consultants, agents and representatives to, return to the
furnishing party or destroy all copies of written information so furnished to it
or its agents and representatives.
(c) Buyer agrees (1) to hold all of the books and records of the Company
existing on the Closing Date and not to destroy or dispose of any thereof for a
period of six years from the Closing Date or such longer time as may be required
by law, and thereafter, if it proposes to destroy or dispose of any of such
books and records, to offer first in writing at least sixty days prior to such
proposed destruction or disposition to surrender them to the Stockholder and (2)
at any time and from time to time following the Closing Date to afford the
Stockholder, her accountants and counsel, during normal business hours, upon
reasonable request, full access to such books, records and other data and to the
employees of the Company to the extent that such access may be requested for any
legitimate purpose (including, without limitation, for the purposes of
determining the Tax treatment to the Stockholder of the Stock Exchange) at no
cost to the Stockholder (other than for reasonable out-of-pocket expenses).
Section 4.2. Registration Rights.
-------------------
(a) None of the information supplied by Buyer or the Stockholder,
respectively, for inclusion or incorporation by reference in the registration
statements relating to the registration of Buyer Shares in the Stock Exchange
with the SEC (each a "Registration Statement") will, at the time the
----------------------
Registration Statements become effective, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading. If (i)
Buyer becomes aware of the occurrence of any event with respect to Buyer or its
officers and directors or any other information not supplied by the Stockholder
or (ii) the Stockholder become aware of any facts with respect to the
information supplied by her, which is required to be described in the
Registration Statements (or in any amendment of, or supplement to, the
Registration Statements), Buyer shall notify the Stockholder or the Stockholder
shall notify the Buyer, as the case may be, and Buyer shall promptly prepare an
appropriate amendment or supplement in which such event shall be so described
and such amendment or supplement will comply with all provisions of applicable
law. The Buyer will take such actions as are necessary to ensure that the
Registration Statements will comply in all material respects with the
requirements of the Securities Act (other than with respect to information
supplied by the Stockholder for inclusion therein). Buyer is not aware of any
facts or circumstances which would prevent or delay the filing or the
effectiveness of the Registration Statements as required by Section 4.2(b) of
this Agreement.
(b) As soon as practicable after the date of this Agreement (but not
prior to the Closing, Buyer shall file a Registration Statement with respect to
the Buyer Shares on Form S-3 with the SEC pursuant to Rule 415 registering the
Buyer Shares under the Securities Act. Such filing shall occur not more than 5
days after all requisite financial statements of the Company for 1995, 1996 and
1997, prepared in accordance with U.S. GAAP, are available and all necessary
consents to the use of audit reports relating thereto have been received, which
Buyer shall use its best efforts to obtain as promptly as possible. This
Registration Statement will cover 100% of the Buyer Shares issuable at the
Closing. Buyer shall use its best efforts to prepare any financial statements,
and other information, required for such filing as promptly as practicable after
the date hereof. If Form S-3 or Rule 415 is unavailable, then Buyer shall
register the Buyer Shares with a different form or arrangement that will provide
the same benefits to the Stockholder. Buyer shall use its best efforts to cause
the Registration Statement to become effective as promptly as practicable and
also will take any other action reasonably required to be taken under federal or
state securities laws to maintain the effectiveness of the Registration
Statements until all of the Buyer Shares are sold. Buyer shall take all other
actions reasonably requested by the Stockholder to facilitate sales of the Buyer
Shares. Buyer shall be responsible for the payment of all fees and expenses
relating to the Buyer Shares to be registered, and the Registration Statement in
accordance with this Section.
(c) The parties hereto agree that Buyer shall have no obligation to (1)
conduct, arrange or coordinate any distribution or sales activities on behalf of
the Stockholder with respect to the Buyer Shares other than as set forth in (a)
above or (2) retain any underwriter(s) in connection with the registration
and/or distribution of the Buyer Shares pursuant to this Section 4.2.
(d) The Stockholder, the Company and Buyer will cooperate and promptly
make all registrations, filings and applications, to give all notices and to
obtain all governmental and other consents, transfers, approvals, orders,
qualifications and waivers, necessary or desirable for the consummation of the
Stock Exchange and the other transactions contemplated by this Agreement as
promptly as practicable, or that may thereafter be reasonably necessary or
desirable to effect the transfer or renewal of any accreditations, licenses,
approvals and authorizations of the Company.
Section 4.3. Further Assurances. The Stockholder, the Company and Buyer
------------------
agree that, from time to time, whether at or after the Closing Date, each of
them will execute and deliver such further instruments of conveyance and
transfer and take such other action as may be necessary to carry out the terms
of this Agreement. The parties will take all reasonable actions including,
without limitation, taking of all action reasonably necessary to obtain material
Governmental Entity approvals of, material third party consents to, contesting
any legal proceedings filed to prevent or delay, and executing additional
documents reasonably necessary to consummate the transactions contemplated
hereby as promptly as practicable. The Stockholder, the Company and Buyer
further agree that they will not take any action that will prevent their
performance of this Agreement in accordance with its terms.
Section 4.4. Conduct of Business of the Company. Except as contemplated by
----------------------------------
this Agreement, during the period from the date of this Agreement to the
Closing Date, the Stockholder shall cause the Company to conduct its operations
in the ordinary course of business consistent with past practice, and to use its
commercially reasonable efforts to maintain and preserve its business
organization and its material rights and franchises and to retain the services
of its officers and key employees and maintain relationships with customers,
suppliers and other third parties to the end that its goodwill and ongoing
business shall not be impaired in any material respect at or prior to the
Closing Date. Without limiting the generality of the foregoing, during the
period from the date of this Agreement to the Closing Date, the Stockholder
covenants that, except as otherwise contemplated by this Agreement and the
transactions contemplated hereby, without the prior written consent of Buyer the
Company will not, and the Stockholder agrees not to, and not to cause the
Company to:
(a) amend or propose to amend its articles of incorporation or by-laws or
similar organization instruments;
(b) authorize for issuance, issue, sell, agree to issue or sell or redeem
or otherwise acquire (1) any shares of its capital stock or other equity
interests, or (2) any securities convertible into, or options with respect to,
or warrants to purchase or rights to subscribe for, any shares of its capital
stock or evidences of indebtedness or other debt or equity securities including,
without limitation, any stock appreciation rights;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock,
or redeem or otherwise acquire any of its securities;
(d) except as set forth in Schedule 4.4(d), (1) create, incur or assume
any indebtedness for money borrowed (including obligations in respect of capital
leases) or issue any debt securities; (2) except in the ordinary course of
business, assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any person
other than the Company, if such assumption, guarantee, endorsement or other
liability is in any such case material to the Company other than the endorsement
of checks and instruments received by the Company;
<PAGE>
(3) make any material loans, advances or capital contributions to or investments
in, any person other than the Company; or (4) pledge or otherwise encumber its
equity interests;
(e) except as set forth in Schedule 4.4(e) or in the ordinary course of
business or as required by any Law, (1) increase in any manner the base
compensation of, or enter into or amend any employment, bonus, incentive,
severance, consulting, or other compensation agreement with, any existing
director, officer or key employee; or (2) commit itself to any additional
pension, profit-sharing, deferred compensation, group insurance, severance pay,
retirement or other employee benefit plan, fund or similar arrangement or amend
or commit itself to amend any of such plans, funds or similar arrangements in
existence on the date hereof so as to increase benefits thereunder;
(f) except in the ordinary course of business or as required by any Law
or contractual obligations existing on the date hereof or as provided for in or
contemplated by this Agreement the Company shall not (1) sell, transfer or
otherwise dispose of any assets with a value in excess of $1,000 outside of the
ordinary course of business, (2) create any new Lien, other than a Company
Permitted Lien, on its properties or assets, (3) enter into any joint venture or
partnership, or (4) purchase any assets or securities of any person, except in
the ordinary course of business consistent with past practice;
(g) except as contemplated by this Agreement or as may be required as a
result of a change in Law, change any of the material accounting principles or
practices used by it;
(h) revalue in any material respect any of its material assets,
including, without limitation, materially writing down the value of inventory or
writing-off material notes or material accounts receivable balances other than
in the ordinary course of business;
(i) (1) acquire or agree to acquire (by merger, consolidation,
acquisition of stock or assets or otherwise) any corporation, partnership or
other business organization or division thereof or any equity interest therein;
(2) enter into any contract or agreement other than in the ordinary course of
business consistent with past practice; (3) authorize any new capital
expenditure or expenditures in an amount in excess of $1,000; or (4) enter into
or amend any material contract, agreement, commitment or arrangement providing
for the taking of any action that would be prohibited hereunder;
(j) make any tax election or settle or compromise any income tax
liability (although Buyer's consent shall not be unreasonably withheld);
(k) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business of liabilities reflected or reserved against in the Company
Unaudited Financial Statements (or the notes thereto) or in the ordinary course
of business consistent with past practice;
(l) settle or compromise any pending or threatened Action relating to the
transactions contemplated hereby;
(m) pledge or otherwise encumber shares of its equity interests;
(n) except as set forth in Schedule 4.4(n), mortgage or pledge any of its
assets, tangible or intangible, or create or suffer to exist any Lien thereupon;
(o) enter into any commitment or transaction outside the ordinary course
of business consistent with past practice which would be material to the
Company; or
(p) take or agree to take any action prohibited by this Section 4.4.
<PAGE>
Section 4.5. Conduct of Business of Buyer. Except as contemplated by this
----------------------------
Agreement, during the period from the date of this Agreement to the Closing
Date, Buyer shall, and shall cause its Subsidiaries to, conduct their operations
in the ordinary course of business consistent with past practice, and to use
their commercially reasonable efforts to maintain and preserve their business
organization and their material rights and franchises and to retain the services
of their officers and key employees and maintain relationships with customers,
suppliers and other third parties to the end that their goodwill and ongoing
business shall not be impaired in any material respect at the Closing Date.
Section 4.6. Pooling. Except as set forth in Schedule 4.6, from and after
-------
the date hereof and until the Closing Date, none of Buyer, the Company, or any
of their respective Subsidiaries or other affiliates over which they exercise
control, or the Stockholder shall take any action, or fail to take any action,
that is reasonably likely to jeopardize the treatment of the Stock Exchange as a
pooling of interests for accounting purposes. From the date of this Agreement
until Buyer has caused to be published financial results covering at least 30
days of combined operations of the Company and Buyer, each of Buyer, the Company
and the Stockholder shall take all reasonable actions necessary to cause the
Stock Exchange to be characterized as a pooling of interests for accounting
purposes if such a characterization shall have been jeopardized by action taken
by Buyer, the Company or the Stockholder prior to the Closing Date.
Section 4.7. Allocation of Buyer Shares. Buyer and the Stockholder
--------------------------
acknowledge that all of the Buyer Shares shall be allocated to the Shares, and
that none of such Buyer Shares are allocable to the agreements described in
Section 5.3(d). Buyer covenants that no position inconsistent with such
allocation shall be taken for any purpose (including, without limitation, on any
Return or in any proceeding).
Section 4.8. Preparation and Filing of Returns. (a) Buyer shall cause the
---------------------------------
Company to prepare and file, or cause to be prepared and filed, all Returns
required to be filed after the Closing Date; provided, however, that the
-------- -------
Stockholder shall have the right to review at least three weeks prior to filing
and approve prior to filing, (which approval must not be unreasonably withheld),
all Returns with respect to any taxable period (or portion thereof) that
includes or predates the Closing Date. In connection therewith, the Stockholder
shall assist Buyer in obtaining such information that Buyer reasonably requests
of the Stockholder and that is not otherwise required to be provided hereunder
with respect to the operations, ownership, assets or activities of the Company
and/or its subsidiaries to the extent such information is relevant to any Tax
Return which Buyer has the right and obligation hereunder to file; provided,
--------
however, that such information shall not include the delivery of the
- -------
Stockholder's personal Tax Returns.
(b) With respect to Returns for periods ending prior to Closing or for
which Stockholder is responsible under this Agreement, Buyer shall cause the
Company to assist the Stockholder, without cost to the Stockholder, in obtaining
such information that Stockholder reasonably requests of the Company, to the
extent such information is relevant to any such Tax Return.
Section 4.9. Amended Returns. Neither Buyer nor the Company shall file or
---------------
permit to be filed any amended Return with respect to any taxable period (or
portion thereof) that ends before or includes the Closing Date without first
obtaining the written permission of the Stockholder, such permission must not be
unreasonably withheld. The Company will file such an amended Return and Buyer
shall permit the filing thereof if reasonably requested by the Stockholder and
agreed to by a mutually-selected and jointly engaged Tax advisor of the Company
and the Stockholder. Stockholder is not aware of any facts as of the date
hereof that would necessitate the Company's filing of an amended Return.
Section 4.10. Public Announcements. From the date hereof until the Closing
--------------------
Date, the Stockholder and Buyer will, before issuing, or permitting any agent or
affiliate to issue, any press releases or otherwise making or permitting any
agent or affiliate to make, any public statements with respect to this Agreement
and the transactions contemplated hereby, obtain the consent of the other party,
except in the
<PAGE>
event, and only to the extent, that disclosure is required by law;
provided, that in such instances the disclosing party will consult with the
- --------
other party prior to making such disclosure.
Section 4.11. Insurance. Through the close of business on the Closing Date,
---------
the Stockholder will cause the Company to keep, or cause to be kept, in effect
all material insurance policies presently maintained or suitable replacements
therefor. Buyer shall be responsible for causing the Company to maintain and
obtain insurance from and after the Closing Date.
Section 4.12. No Solicitation. The Company, and its respective affiliates,
---------------
officers, directors, employees, representatives and agents (a) shall immediately
cease any existing discussions or negotiations, if any, with any parties other
than the parties to this Agreement ("Other Parties") with respect to any
-------------
acquisition of all or any portion of the assets of, or any equity interest in
the Company or any business combination with the Company; (b) shall not solicit,
initiate, encourage, or furnish information in response to any inquiries or
proposals that constitute, or could reasonably be expected to lead to, a
proposal or offer by any Other Parties for a merger, consolidation, business
combination, sale of substantial assets, sale of shares of capital stock or
other equity interests involving the Company (including without limitation by
way of a tender offer or similar transactions involving the Company), (any of
the foregoing transactions with any other parties being referred to in this
Agreement as an "Acquisition Transaction"); and (c) shall not engage in
-----------------------
negotiations or discussions concerning, or provide any non-public information to
any Other Parties relating to, any Acquisition Transaction. If the Company or
any of its respective representatives or agents shall nevertheless receive any
indications of interests or proposals with respect to any Acquisition
Transactions, it shall provide a copy of any such written proposal to Buyer
immediately after receipt thereof by the Company, or any of its respective
representatives or agents.
Section 4.13. Notification of Certain Matters. The Stockholder shall give
-------------------------------
prompt written notice to Buyer, and Buyer shall give prompt written notice to
the Stockholder, of (a) the occurrence or nonoccurrence of any event, the
occurrence or nonoccurrence of which would be likely to cause any representation
or warranty contained in this Agreement to be untrue in any material respect at
or prior to the Closing Date, and (b) any material failure of the Company or
Buyer, as the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 4.13shall not cure such
breach or non-compliance or limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
Section 4.14. Closing Balance Sheet. No later than five (5) days prior to
---------------------
the Closing, the Company shall have provided to the Buyer an unaudited balance
sheet of the Company as of July 31, 1998, prepared on a basis consistent with
past practices (the "Closing Balance Sheet.
---------------------
ARTICLE V
CONDITIONS
----------
Section 5.1. Mutual Conditions. The obligations of the parties hereto to
-----------------
consummate the Stock Exchange shall be subject to fulfillment of the following
conditions:
(a) No Order or attachment which prevents the consummation of the Stock
Exchange shall have been issued and remain in effect, and no statute, rule or
regulation shall have been enacted by any Governmental Authority which
prohibits, restrains, enjoins or restricts the consummation of the Stock
Exchange.
(b) All authorizations, approvals, consents and waivers of, or
declarations or filings with, any Governmental Authorities or third parties,
required to permit consummation of the transactions contemplated by this
Agreement and listed in Schedules 2.1(f) or 3.1(e), shall have been filed or
obtained and shall not have been terminated, suspended or withdrawn as of the
Closing Date.
<PAGE>
Section 5.2. Conditions to Obligations of the Stockholder and the Company.
------------------------------------------------------------
The obligations of the Stockholder to consummate the Stock Exchange and the
transactions contemplated hereby shall be subject to the fulfillment of the
following conditions unless waived by the Stockholder:
(a) The representations and warranties of Buyer set forth in Article III
of this Agreement shall be true and correct in all respects as of the date of
this Agreement and as of the Closing Date as though made on and as of the
Closing Date, except (1) to the extent such representations and warranties are
by their express provisions made as of a specified date (which shall be true and
correct in all respects as of such date) and (2) for the effect of transactions
contemplated by this Agreement, except, in each case, where the failure to be
true and correct would not, individually or in the aggregate, reasonably be
expected to interfere with the Stockholder obtaining the benefit of her bargain
hereunder, without regard to materiality qualifications in individual
representations and warranties.
(b) A release of Stockholder and Joseph Stipek from any personal
guarantee for any Company obligation to Centennial Bank.
(c) Buyer shall have performed in all material respects each obligation
and agreement and shall have complied in all material respects with each
covenant to be performed and complied with by it hereunder at or prior to the
Closing Date.
(d) Buyer shall have furnished the Stockholder with a certificate dated
the Closing Date signed on behalf of it by its Chairman, President or any Vice
President to the effect that the conditions set forth in Sections 5.2(a) and (b)
have been satisfied.
(e) Contemporaneously with Closing, the Buyer shall cause the Company to
pay the remaining balance due on the two promissory notes dated September 30,
1997 to payable Joseph A. Stipek and to Stockholder.
(f) Joe Stipek shall have entered into an employment and non-compete
agreement with Buyer substantially in the form attached hereto as Exhibit A (the
"Employment Agreement").
(g) Since the date of the Agreement, there shall not have been any event,
occurrence, development or circumstances that individually or in the aggregate
had, or reasonably would be expected to have, a material adverse effect on the
(i) Business Condition, financial or otherwise, or the earnings, business
affairs or management of the Buyer, whether or not in the ordinary course of
business or (ii) ability of the Buyer to consummate the transactions
contemplated hereby.
Section 5.3. Conditions to Obligations of Buyer. The obligations of Buyer to
----------------------------------
consummate the Stock Exchange and the other transactions contemplated hereby
shall be subject to the fulfillment of the following conditions unless waived by
Buyer:
(a) The representations and warranties of the Stockholder set forth in
Article II of this Agreement shall be true and correct in all respects as of the
date of this Agreement and as of the Closing Date as though made on and as of
the Closing Date except (1) to the extent such representations and warranties
are by her express provisions made as of a specified date (which shall be true
and correct in all respects as of such date) and (2) for the effect of
transactions contemplated by this Agreement except, in each case, where the
failure to be true and correct would not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the Business
Condition of the Company, without regard to materiality qualifications in
individual representations and warranties.
(b) The Stockholder shall have performed in all material respects each
obligation and agreement and shall have complied in all material respects with
each covenant to be performed and complied with by her hereunder at or prior to
the Closing Date.
<PAGE>
(c) The Stockholder shall have furnished Buyer with a certificate dated
the Closing Date to the effect that the conditions set forth in Sections 5.3(a)
and (b) have been satisfied.
(d) Company shall have obtained written agreement of World Learning, Inc.
to surrender the Centennial Bank irrevocable letter of credit dated October 14,
1997 in exchange for a $200,000.00 payment at Closing or shall have made
arrangements with Centennial Bank with respect thereto that are reasonably
satisfactory to Buyer.
(e) Joseph Stipek shall have entered into the Employment Agreement.
Stockholder shall have entered into a non-compete agreement with Buyer
substantially in the form attached hereto as Exhibit B.
(f) The Stockholder shall have delivered a duly executed resignation
letter to the Company with respect to her position as an employee, officer and
director of the Company. Any persons designated by Buyer prior to Closing, if
any, shall have been appointed to the above-referenced positions.
(g) The Stockholder shall have delivered to the Buyer a compiled balance
sheet as of August 31, 1998, reviewed by the Company's accountant.
(h) Since the date of the Agreement, there shall not have been any event,
occurrence, development or circumstances that individually or in the aggregate
had, or reasonably would be expected to have, a material adverse effect on the
(i) Business Condition, financial or otherwise, or the earnings, business
affairs or management of the Comany, whether or not in the ordinary course of
business or (ii) ability of the Stockholder to consummate the transactions
contemplated hereby.
ARTICLE VI
INDEMNIFICATION AND ESCROW
--------------------------
Section 6.1. Indemnification by the Stockholder. The Stockholder,
----------------------------------
hereby covenants and agrees to indemnify and hold harmless the Buyer and its
respective successors and assigns (subject to the notice, timing and amount
limitations set forth in this Agreement) against and in respect of any
liability, loss, damage, expense or other cost, including without limitation
reasonable attorneys' fees and expenses (a "Loss") resulting from any (a)
----
breach of any representation or warranty, or (b) breach or nonfulfillment of any
agreement or covenant on the part of the Stockholder with respect to matters
occurring before the Closing under this Agreement which survives the Closing.
The indemnity provided in this Section 6.1 shall be satisfied by the
Stockholder to the extent permitted by this Article VI. Notwithstanding any
other provision of this Agreement to the contrary, the term "Loss" shall not
include (a) any loss, liability, claim, damage or diminution in value that
results from claims that were or would have been covered by the Company's
insurance in effect as of the Closing if Buyer causes or permits the Company to
terminate such coverage and fails to obtain adequate tail coverage; (b) any
loss, liability, claim, damage or diminution in value that is proximately caused
by any action of the Company or Buyer following the Closing, or (c) any
consequential, incidental or punitive damages; and the term "Loss" shall mean
the actual dollar amount of each such Loss and shall not be based on any
multiple of such Loss. The remedy provided in this Article VI shall be Buyer's
exclusive remedy with respect to Losses arising out of the matters set forth in
this Section 6.1; provided nothing herein shall relieve any party for liability
for fraud. Buyer grants to the Stockholder and her duly appointed
representative the sole right to negotiate, resolve, settle or contest any claim
for Tax with respect to which the Stockholder may have to indemnify Buyer under
this Article VI; provided, however, that the Stockholder must engage
-------- -------
professional advisors approved by Buyer with respect to the foregoing, such
approval must not be unreasonably withheld. If the Stockholder does not assume
the defense of any such claim for Tax, Buyer may defend the same in such manner
as it may deem appropriate, but not settle or otherwise compromise any such
audit or proceeding at
<PAGE>
the expense of the Stockholder without first obtaining
the written consent of the Stockholder, such consent must not be unreasonably
withheld.
Section 6.2. Indemnification by the Buyer. Buyer hereby covenants and agrees
----------------------------
to indemnify and hold harmless the Stockholder, her successors and assigns
(subject to the notice and timing requirements and survival and amount
limitations provided in this Agreement), against and in respect of any Loss
resulting from any (a) breach of any representation or warranty or (b) breach or
nonfulfillment of any agreement or covenant on the part of Buyer or any
affiliate (including, without limitation, the Company after the Closing) under
this Agreement. Buyer shall satisfy any indemnification obligation hereunder
with Common Stock of Buyer that qualifies as voting stock for purposes of
section 368(a)(1)(B) of the Code and that has a fair market value equal to the
amount of such Loss.
Section 6.3. Indemnification Procedure. The procedure for indemnification of
-------------------------
parties shall be as follows:
(a) If at any time a party is entitled to indemnification hereunder (the
"Indemnitee") or shall become aware of any state of facts that have resulted or
----------
may result in a Loss, the Indemnitee shall promptly give written notice (a
"Notice of Claim") to the party obligated to provide indemnification (the
---------------
"Indemnitor") of the discovery of such potential or actual Loss. The Notice of
----------
Claim shall set forth (A) a description of the nature of the potential or actual
Loss, and (B) the total amount of Loss anticipated (including any costs or
expenses which have been or may be reasonably incurred in connection therewith).
Except for a failure to deliver a Notice of Claim within the applicable survival
period as provided under Section 7.6 (which failure shall constitute a complete
defense) the Indemnitee's failure to give prompt notice shall constitute a
defense (in whole or in part) to any claim by the Indemnitee against the
Indemnitor for indemnification only to the extent that such failure shall have
caused or increased such liability or adversely affected the ability of the
Indemnitor to defend against or reduce its liability.
(b) The Indemnitor shall accept or reject any Loss as to which a Notice
of Claim is sent by the Indemnitee by giving written notice of such acceptance
or rejection (the "Indemnitor Notice") to the Indemnitee and the Unaffiliated
Firm (defined below) within sixty (60) days after the date of receipt of the
Notice of Claim. Failure of the Indemnitor to reject a Loss within 60 days of
receipt of the Notice of Claim shall be conclusive evidence of the Indemnitor's
acceptance of its responsibility to indemnify the Indemnitee against such Loss.
(c) If the Indemnitor elects to reject the claim, the Indemnitor Notice
shall set forth a description of the nature of the basis for the rejection of
such claim.
(d) Should the Indemnitee and the Indemnitor fail to reach a settlement
within ten (10) days of the Indemnitor's Notice that the Indemnitor has rejected
any loss as provided in Section (b) above, the Indemnitee and Indemnitor shall
jointly engage Arthur Anderson LLP or if such firm is unable or unwilling to act
in such capacity, KPMG Peat Marwick LLP (the "Unaffiliated Firm"). The
-----------------
Unaffiliated Firm shall act as the administrator and exclusive arbitrator with
respect to all such claims for indemnity, and all decisions of the Unaffiliated
Firm shall be final and binding on the parties hereto. Each of Buyer and
Stockholder agrees to execute, if requested by the Unaffiliated Firm, a
reasonable engagement letter including customary indemnities. The cost of such
Unaffiliated Firm shall be split evenly between the Stockholder and the Buyer.
Promptly after the engagement of the Unaffiliated Firm, the parties hereto shall
furnish the Unaffiliated Firm with a copy of the Notice of Claim and a copy of
this Agreement and the Schedules and Exhibits attached hereto together with a
statement and/or analysis of each party's position. The Unaffiliated Firm will
have the authority to request in writing such additional written submissions
from either the Indemnitor or the Indemnitee, as it deems appropriate. Neither
party will communicate with the Unaffiliated Firm without providing the other
party a reasonable opportunity to participate in such communication with the
Unaffiliated Firm. The Unaffiliated Firm will have thirty (30) days from the
date of delivery of the Indemnitor Notice to review the documents provided to
it. Upon the expiration of such 30-day period (the "Determination Date") the
------------------
Unaffiliated Firm will simultaneously
<PAGE>
furnish all parties with its determination as to the amount, if any, that the
Indemnitee is entitled to with respect to such claim (except for claims made
against the Indemnitee by any Third Party ("Third-Party Claims") as to which the
------------------
Unaffiliated Firm will determine whether such claim is covered by the provisions
of this Article VI). Each such determination shall be conclusive and binding on
the parties hereto.
(e) If any Notice of Claim relates to any Third-Party Claim, the Notice
of Claim shall state the nature, basis and amount of such claim. In the event
that the Indemnitor accepts the Loss as to which the Notice of Claim is sent or
the Unaffiliated Firm determines that such Loss is covered by this Article VI,
or if a dispute is pending before the Unaffiliated Firm, the Indemnitor shall
have the right, at its election, by written notice given to the Indemnitee, to
assume the defense of the claim as to which such notice has been given with
counsel reasonably acceptable to the Indemnitee. Except as provided in the next
sentence, if the Indemnitor so elects to assume such defense, it shall
diligently and in good faith defend such claim and shall keep the Indemnitee
reasonably informed of the status of such defense, and the Indemnitee shall
cooperate with the Indemnitor in the defense of such claim, provided that in the
case of any settlement providing for remedies other than monetary damages for
which indemnification is provided, the Indemnitee shall have the right to
approve the settlement, which approval shall not be unreasonably withheld or
delayed. If the Indemnitor does not so elect to defend any claim as aforesaid or
shall fail to defend any claim diligently and in good faith (after having so
elected), the Indemnitee may, at the Indemnitor's expense, assume the defense of
such claim and take such other action as it may elect to defend or settle such
claim as it may determine in its reasonable discretion.
Section 6.4. Limitations on Indemnity. Buyer shall make no claim for
indemnity under Section 6.1, and the Stockholder shall make no claim for
indemnity under Section 6.2, until the dollar amount of all Losses shall exceed
$25,000.00 (the "Basket"), in which event the Indemnitor shall be responsible
------
for the aggregate amount of such Losses, including the amount of the Basket,
provided that no party shall be required to make any payments with respect to
individual items where the Losses related thereto are less than $10,000 and such
items shall not be aggregated for purposes of determining the Basket, provided,
further that the Stockholder's obligation and liability for any and all breaches
of the representations and warranties and covenants set forth in this Agreement
shall be limited to the value of the General Escrow Shares (as defined below).
Section 6.5. General Escrow of Certain Buyer Shares.
--------------------------------------
(a) At the Closing the Stockholder, the Buyer and an escrow agent (which
shall be a commercial bank selected by the Buyer and reasonably acceptable to
the Stockholder, shall enter into an escrow agreement (the "General Escrow
Agreement"), the terms of which shall be mutually satisfactory to all of the
parties, pursuant to which a portion of the Buyer Shares to be issued in the
Stock Exchange having an aggregate Market Value equal to $ 250,000.00 (the
"General Escrow Shares"), will be delivered by the Stockholder to the escrow
agent (the "General Escrow"). The General Escrow Agreement shall permit the
Stockholder to receive all dividends and other distributions paid in respect of
the General Escrow Shares and to vote all General Escrow Shares. The General
Escrow Shares will stand as security for any and all claims made hereunder, by
the Buyer against the Stockholder in respect of the representations, warranties
and covenants made by the Company and/or the Stockholder in this Agreement.
(b) Payment to the Buyer of any amounts pursuant to this Article VI shall
be delivered to and released by such escrow agent as and when provided pursuant
to the General Escrow Agreement. The General Escrow Agreement shall provide that
the number of General Escrow Shares released in respect of any General Escrow
claims shall be determined by using the Closing Date Market Value. The General
Escrow Agreement shall also provide that promptly upon the expiration of the
period ending on the earlier of (i) twelve (12) months from the Closing Date, or
(ii) the date of completion of the first post-Closing audit of the Buyer's
consolidated financial statements, the escrow agent shall release from the
General Escrow and deliver to Stockholder all remaining General Escrow Shares,
unless a claim against the General Escrow is pending at such time, in which
event all General Escrow Shares not covered by such claim shall be released to
the Stockholder and the release of such other General Escrow Shares shall occur
promptly after the resolution of such pending claim.
<PAGE>
Section 6.6. Special Escrow of Certain Buyer Shares.
(a) At the Closing the Stockholder, the Buyer and an escrow agent (which
shall be a commercial bank selected by the Buyer and reasonably acceptable to
the Stockholder, shall enter into a second escrow agreement (the "Special Escrow
Agreement") pursuant to which a portion of the Buyer Shares to be issued in the
Stock Exchange having an aggregate Market Value equal to $175,000 (the "Special
Escrow Shares") will be delivered by the Stockholder to the escrow agent (the
"Special Escrow"). The Special Escrow Agreement shall permit the Stockholder to
receive all dividends and other distributions paid in respect of the Special
Escrow Shares and to vote all Special Escrow Shares. The Special Escrow Shares
will stand as security only for any and all claims made hereunder by Buyer
against the Stockholder in respect of any breach of Section 2.11(b)(ii) with
respect to a violation of or noncompliance with the United States Fair Labor
Standards Act, laws regarding the payment of payroll taxes or similar applicable
state laws. The parties mutually agree that the Special Escrow is reasonable.
(b) Payment to Buyer of any amounts pursuant to this Article VIII shall
be delivered to and released by such escrow agent as and when provided pursuant
to the Special Escrow Agreement. The Special Escrow Agreement shall provide that
the number of Special Escrow Shares released in respect of any Special Escrow
claims shall be determined by using the Closing Date Market Value. The Special
Escrow Agreement shall provide that promptly upon the expiration of the period
ending twenty four (24) months from the Closing Date, the escrow agent shall
release from the Special Escrow and deliver to Stockholder, all remaining
Special Escrow Shares, unless a claim against the Special Escrow is pending at
such time, in which event all Special Escrow Shares not covered by such claim
shall be released to the Stockholder and the release of such other Special
Escrow Shares shall occur promptly after the resolution of such pending claim.
If the Escrow Agent has not released the full amount contemplated by the prior
sentence because a matter is still in dispute, then to the extent that the
dispute is resolved in the Stockholder's favor, the escrow agent shall
immediately release the amounts held pending resolution of such dispute.
Section 6.7. Indemnification Sole Remedy. The indemnification contained
---------------------------
in this Article VI shall be deemed to be the exclusive remedy of the Indemnified
Party in connection with or arising from any failure by the Indemnifying Party
to perform any of its covenants or obligations in this Agreement or any breach
by the Indemnifying Party of any representation or warranty contained in this
Agreement; provided the provisions of this Section 6.5 shall in no way restrict
or limit any parties' liability for fraud.
ARTICLE VII
MISCELLANEOUS
-------------
Section 7.1. Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 7.2. Amendment and Modification. This Agreement may be amended,
--------------------------
modified or supplemented only by written agreement of all the parties hereto.
Section 7.3. Governing Law and Jurisdiction. This Agreement shall be
------------------------------
governed by and construed in accordance with the laws of Maryland without
reference to the choice of law principles thereof. The parties hereto agree
that the appropriate and exclusive forum for any disputes between any of the
parties hereto arising out of this Agreement or the transactions contemplated
hereby shall be federal district court in Baltimore, Maryland. The parties
hereto further agree that the parties will not bring suit
<PAGE>
with respect to any disputes arising out of this Agreement or the transactions
contemplated hereby, except as expressly set forth below for the execution or
enforcement of judgment, in any court or jurisdiction other than the above
specified court. The foregoing shall not limit the rights of any party to obtain
execution of judgment in any other jurisdiction. The parties further agree, to
the extent permitted by law, that final and unappealable judgment against any of
them in any action or proceeding contemplated above shall be conclusive and may
be enforced in any other jurisdiction within or outside the United States by
suit on the judgment, a certified or exemplified copy of which shall be
conclusive evidence of the fact and amount of such judgment.
Section 7.4. Entire Agreement. This Agreement and the Schedules hereto
----------------
contain the entire agreement between the parties with respect to the subject
matter hereof and there are no agreements, understandings, representations or
warranties between the parties with respect to the subject matter hereof other
than those set forth or referred to herein or therein.
Section 7.5. Agreement for the Parties' Benefit Only. This Agreement is not
---------------------------------------
intended to confer upon any person not a party hereto any rights or remedies
hereunder, and no person other than the parties hereto is entitled to rely on
any representation, warranty or covenant contained herein.
Section 7.6. Survival of Representations and Warranties. Solely for purposes
------------------------------------------
of the indemnification provisions set forth in Article VI, and subject to the
limitations set forth therein, the representations and warranties set forth in
this Agreement, shall survive the Closing under this Agreement for a period of
the lesser of (i) twelve (12) months from the Closing Date, or (ii) until the
date of completion of the first post-Closing audit of Buyer's consolidated
financial statements; provided that the representations and warranties in
--------
Section 2.7(c) and 2.11(b)(ii) shall survive the Closing for eighteen (18)
months and that the representations and warranties in Section 2.13 shall survive
the Closing until the fifth anniversary of the Closing Date. If prior to the
close of business on the scheduled date for expiration of a particular
representation, warranty or covenant that is the basis for a claim for indemnity
under Article VI, the Stockholder or Buyer shall have been notified of such
claim, then the representation, warranty or covenant that is the basis for such
claim shall continue to survive and shall remain a basis for indemnity, to the
extent of such specific claim only, until such claim is finally resolved or
disposed of. Except as described above, to the extent that the covenants of the
parties contained in this Agreement that contemplate or may involve actions to
be taken (a) solely prior to the Closing shall not survive the Closing, and (b)
after the Closing, they shall survive until such actions shall have been
performed in accordance with their terms. Notwithstanding anything herein to
the contrary and without limiting the survival of any other covenants that may
survive the Closing, all covenants regarding Taxes, Sections 4.2 and 4.7 shall
survive indefinitely.
Section 7.7. Expenses. Except as set forth in Sections 4.8 and 5.3(f) of
--------
this Agreement, all legal and other costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such costs and expenses.
Section 7.8. Specific Performance. The Stockholder and Buyer each
--------------------
acknowledge that, in view of the uniqueness of the Company, the Stockholder and
Buyer would not have an adequate remedy at law for money damages in the event
that this Agreement were not performed in accordance with its terms, and
therefore agree that the Stockholder and Buyer shall be entitled to specific
enforcement of the terms hereof in addition to any other remedy to which any of
the Stockholder or Buyer may be entitled, at law or in equity.
Section 7.9. Notices. All notices hereunder shall be sufficiently given for
-------
all purposes hereunder if in writing and delivered personally or sent by
registered mail or certified mail, postage prepaid, to the appropriate address
as set forth below. Notice to the Stockholder shall be addressed to:
Barbara S. Stipek
5017 S. W. Orchard Lane
<PAGE>
Portland, OR 97219
Fax: (503) 452-8494
with a copy to:
Tonkon Torp, LLP
1600 Pioneer Tower
888 S. W. Fifth Avenue
Portland, OR 97204
Attn: Vicki A. Ballou
Fax: (503) 972-3728
Notice to Buyer shall be addressed to:
Sylvan Learning Systems, Inc.
1000 Lancaster Street
Baltimore, Maryland 21202
Attention: Mr. Robert W. Zentz
Facsimile No: (410) 843-8060
with a copy to:
Piper & Marbury L.L.P.
36 South Charles Street
Baltimore, Maryland 21201
Attention: Richard C. Tilghman, Jr., Esq.
Facsimile No: (410) 539-0489
or at such other address and to the attention of such other person as Buyer
may designate by written notice to the Company and the Stockholder. Any notice
shall be deemed to have been served or given upon receipt.
Section 7.10. Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of the parties hereto and their successors and assigns.
Neither this Agreement nor any of the rights, interests or obligations shall be
assigned by any of the parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other parties and any purported
assignment without such consent shall be null and void; provided, that prior to
--------
the Closing, the Buyer may assign its rights hereunder to a wholly-owned
subsidiary subject to the Stockholder's prior written agreement that she does
not believe that such assignment will adversely impact the treatment of the
Stock Exchange as a reorganization within the meaning of section 368(a)(1)(B) of
the Code or the Tax treatment of the Stock Exchange; and provided, further, that
-------- -------
notwithstanding any such permitted assignment, the Buyer shall remain liable for
all of the Buyer's obligations under this Agreement.
Section 7.11. Interpretation; Absence of Presumption.
--------------------------------------
(a) For the purposes hereof, (1) words in the singular shall be held to
include the plural and vice versa and words of one gender shall be held to
include the other gender as the context requires, (2) the terms "hereof,"
"herein," and "herewith" and words of similar import shall, unless otherwise
stated, be construed to refer to this Agreement as a whole (including all of the
Schedules hereto) and not to any particular provision of this Agreement, and
Article, Section, paragraph, and Schedule references are to the Articles,
Sections, paragraphs, and Schedules to this Agreement unless otherwise
specified, (3) the word "including" and words of similar import when used in
this Agreement shall mean "including, without limitation," unless the context
otherwise requires or unless otherwise specified, (4) the word "or" shall not be
exclusive, and (5) provisions shall apply, when appropriate, to successive
events and transactions.
<PAGE>
(b) This Agreement shall be construed without regard to any presumption
or rule requiring construction or interpretation against the party drafting or
causing any instrument to be drafted.
Section 7.12. Extension; Waiver. At any time prior to the Closing Date, each
-----------------
party hereto may but shall not be required to (a) extend the time for the
performance of any of the obligations or other acts of the other party, (b)
waive any inaccuracies in the representations and warranties of the other party
contained herein or in any document, certificate or writing delivered pursuant
hereto, or (c) waive compliance by the other party with any of the agreements or
conditions contained herein. Any agreement on the part of either party hereto
to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed by the parties hereto, and the failure of any party
hereto to assert any of its rights hereunder shall not constitute a waiver of
such rights absent such instrument in writing.
Section 7.13. Validity. If any provision of this Agreement, or the
--------
application thereof to any person or circumstance, is held invalid or
unenforceable, the remainder of this Agreement, and the application of such
provision to other persons or circumstances, shall not be affected thereby, and
to such end, the provisions of this Agreement are agreed to be severable.
IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of each of
the parties as of the day first above written.
STOCKHOLDER: SYLVAN LEARNING SYSTEMS, INC.
By:
- ------------------------------- ---------------------------------
Barbara S. Stipek
Name:
------------------------------
Title:
------------------------------
<PAGE>
EXHIBIT 5.1
-----------
PIPER & MARBURY
L.L.P.
CHARLES CENTER SOUTH WASHINGTON
36 SOUTH CHARLES STREET NEW YORK
BALTIMORE, MARYLAND 21201-3018 PHILADELPHIA
410-539-2530 EASTON
FAX: 410-539-0489
November 23, 1998
Sylvan Learning Systems, Inc.
1000 Lancaster Street
Baltimore, Maryland 21201
Re: Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have acted as counsel to Sylvan Learning Systems, Inc., a Maryland
corporation (the "Company"), in connection with its Registration Statement on
Form S-3 (the "Registration Statement") filed on the date hereof with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"). The Registration Statement relates to 614,135
shares of the Company's common stock, par value $.01 per share (the "Shares"),
which were previously issued by the Company and are being registered for resale
by the holders thereof.
In this capacity, we have examined the Company's Charter and By-Laws, the
proceedings of the Board of Directors of the Company relating to the issuance of
the Shares and such other documents, instruments and matters of law as we have
deemed necessary to the rendering of this opinion. In such examination, we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, and the conformity with originals of all documents
submitted to us as copies.
Based upon the foregoing, we are of the opinion and advise you that each of
the Shares described in the Registration Statement has been duly authorized and
validly issued and is fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving our consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Act or the Rules and Regulations of the Commission thereunder.
Very truly yours,
/s/ Piper & Marbury L.L.P.
<PAGE>
EXHIBIT 23.1
------------
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
--------------------------------------------------
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333-______) of Sylvan Learning Systems,
Inc. for the registration of 614,135 shares of its common stock and to the
incorporation by reference therein of our report dated July 28, 1998 with
respect to the consolidated financial statements of Sylvan Learning Systems,
Inc. included in its Current Report on Form 8-K dated July 29, 1998, filed with
the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Baltimore, Maryland
November 20, 1998
<PAGE>
EXHIBIT 23.2
------------
CONSENT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS
------------------------------------------------------
We consent to the incorporation by reference in this Registration Statement of
Sylvan Learning Systems, Inc. on Form S-3 of our reports on the financial
statements of Independent Child Study Teams, Inc. and I-R, Inc. dated March 14,
1997, appearing in the Form 8-K of Sylvan Learning Systems, Inc. dated July 29,
1998.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
November 20, 1998
<PAGE>
EXHIBIT 23.3
------------
CONSENT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS
------------------------------------------------------
We consent to the incorporation by reference in this Registration Statement of
Sylvan Learning Systems, Inc. on Form S-3 and the Prospectus, which is part of
this Registration Statement, of our report dated July 27, 1998, with respect to
the consolidated financial statements of Anglo-World Education (UK) Limited and
Subsidiaries included in Sylvan Learning Systems, Inc.'s Current Report on Form
8-K dated July 29, 1998.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ DELOITTE & TOUCHE
Southampton
United Kingdom
November 20, 1998
<PAGE>
EXHIBIT 23.4
------------
CONSENT OF SMITH, LANGE & PHILLIPS LLP, INDEPENDENT AUDITORS
------------------------------------------------------------
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports listed below, with respect to the financial statements of
Aspect, Inc. included in the Registration Statement (Form S-3 No. 333-
___________) and related Prospectus of Sylvan Learning Systems, Inc. for the
registration of 614,135 shares of its common stock.
<TABLE>
<CAPTION>
Fiscal Year Report Dated
- -------------------- -----------------
<S> <C>
September 30, 1995 June 11, 1998
September 30, 1996 December 10, 1996
September 30, 1997 December 7, 1997
</TABLE>
COMPANY NAME: Smith, Lange & Phillips LLP
/s/ Smith, Lange & Phillips LLP
COUNTRY: U.S.A.
DATE: November 20, 1998
