<PAGE>
As filed with the Securities and Exchange Commission on April 24, 1998
Registration No. 333-
===============================================================================
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: [_]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
============================================================================================================
Title of Shares to be Registered Proposed Maximum Aggregate Offering Price Amount of Registration Fee
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value $8,395,603 $2,477.00
============================================================================================================
</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
APRIL 24, 1998
PROSPECTUS
168,316 SHARES
SYLVAN LEARNING SYSTEMS, INC.
COMMON STOCK
___________
The shares of Common Stock of Sylvan Learning Systems, Inc. (the "Company")
covered by this Prospectus are outstanding shares which may be offered and sold
from time to time by the stockholders named herein. See "Selling Stockholders."
The Company 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 April 23, 1998 the last sale price for the Common Stock as reported
on the Nasdaq Stock Market was $51.25 per share.
The Selling Stockholders may from time to time 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. See
"Plan of Distribution." 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.
___________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
___________
The date of this Prospectus is , 1998.
[Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any jurisdiction in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of any such
jurisdiction.]
<PAGE>
AVAILABLE INFORMATION
The Company 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 the Company 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 the
Company is quoted on the Nasdaq National Market. Reports, proxy statements and
other information concerning the Company 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 the Company
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 the Company with the Commission (File No.
0-22844) pursuant to the 1934 Act are incorporated herein by reference: (i) the
Company's Annual Report on Form 10-K for the year ended December 31, 1997; (ii)
the description of Common Stock contained in Item 4 of the Company's
Registration Statement on Form 8-A, filed with the Commission under the 1934
Act; and (iii) all other documents filed by the Company 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.
The Company 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.
-2-
<PAGE>
THE COMPANY
Sylvan Learning Systems, Inc. (the "Company" or "Sylvan") is a leading
provider of educational services to families, schools and industry. The Company
provides lifelong educational services through three lines of business: the
Sylvan Prometric division delivers computer-based testing for academic
admissions and professional certification programs, and include the operations
of Wall Street Institute, a European-based franchisor and operator of learning
centers for English language instruction that will also administer certain
computer-based testing programs throughout Europe and Latin America; the Sylvan
Learning Centers division provides personalized instructional services to
students of all ages and skill levels and the Sylvan Contract Educational
Services division provides educational services and professional development
through contracts with school systems and other organizations. Sylvan's
services are delivered through its network of more than 3,000 educational and
testing centers around the globe. In 1997, total system-wide revenues were
approximately $395.5 million, composed of $193.6 million from core educational
services ($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), $135.3 million from testing services and $66.6
million from contract educational services.
Core Educational Services. The Company's Core Educational Services
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
December 31, 1997, there were a total of 670 Learning Centers in 49 states, five
Canadian provinces, Hong Kong, South Korea and Guam operated by the Company or
its franchisees. As of that date, Sylvan owned and operated 48 Learning
Centers, and 460 franchisees operated 622 Sylvan Learning Centers.
Sylvan Prometric Testing Services. The Company conducts its testing
business through 1,981 testing centers, 1,125 of which are located in North
America and the remainder of which are located in 103 foreign countries. The
Company enters into contracts directly with the testing organization, under
which Sylvan receives a fee based upon the number of tests given. The Company
has entered into a separate agreement with each franchisee that operates a
testing center, whereby the franchisee receives a fee per test that decreases as
the volume of the tests delivered increases. Principal customers for the
Company's testing services are Educational Testing Services ("ETS") and, in the
IT industry, Microsoft Corp. and Novell, Inc. IT customers sponsor 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. The Company is
the exclusive commercial provider of computer-based tests administered by ETS.
This exclusivity provision does not apply to the SAT, PSAT and Achievement Tests
that are sponsored by the College Board. The Company also provides testing
services for organizations responsible for licensing broker-dealers, pilots,
aviation mechanics, computer professionals and medical laboratory technicians.
The Company, in December 1996, purchased Wall Street Institute International,
B.V. and its commonly controlled affiliates (collectively "WSI"), a European-
based franchisor and operator of learning centers where English is taught
through a combination of computer-based and live instruction. WSI has more than
200 company-owned and franchised centers in operation throughout Europe and
Latin America. Effective December 1, 1997, the Company purchased Block Testing
Services L.P., Block State Testing Services L.P. and National Assessment
Institute, Inc., (collectively "NAI/Block"), commonly-controlled companies
engaged in the business of designing, marketing, selling, distributing and
administering paper and pencil test for the licensing of individuals.
Contract Educational Services; PACE; Sylvan-at-Work; Caliber Learning
Network, Inc. Sylvan provides educational services under federal and various
state funding programs to students in public and non-public schools. In March
1995, the Company acquired the PACE Group ("Pace"), a provider of educational
and training services to large corporations throughout the United States.
Services offered by PACE include racial and gender workplace diversity training
and skills improvement programs such as writing, advanced reading, listening and
public speaking. This acquisition complements the Sylvan-At-Work program and
extends the core educational services the Company offers to adults in the
corporate workplace.
The Company's principal executive offices are located at 1000 Lancaster
Street, Baltimore, Maryland 21202, and its telephone number is (410) 843-8000.
-3-
<PAGE>
USE OF PROCEEDS
All of the proceeds from the sale of the shares of the Company's Common
Stock offered hereby will be received by the Selling Stockholders. The Company
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 the Company's Common Stock by the person listed therein (the
"Selling Stockholders") 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 the Company'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
------------------------------ Be Sold In -------------------------------
Name and Address of Number Percent Offering Number Percent
Beneficial Owner
- --------------------------------------- -------------- ------------ -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Pace LLC 227,504 * 55,169 172,335 *
28535 Orchard Lake Road
Suite 400
Farmington Hills, MI 48334-2918
Blanche Stastny 15,339 * 15,339 - -
903 Hawthorne Road
Kemah, TX 77565
William Van Dobson 8,010 * 8,010 - -
5475 Maple Street
Houston, TX 77096
Marie Jeanette Dobson 8,336 * 8,336 - -
5475 Maple Street
Houston, TX 77096
Donna D. Findlay 10,526 * 10,526 - -
7 Shorelake Drive
Kingwood, TX 77339
A. Gordon Findlay, Jr. 6,316 * 6,316 - -
7 Shorelake Drive
Kingwood, TX 77339
Dana F. Matzel 4,211 * 4,211 - -
7 Shorelake Drive
Kingwood, TX 77339
Paschal Gagliardo 20,409 * 20,409 - -
1215 Breezy Bend
Katy, TX 77494
SLC National Advertising Fund, Inc. 149,059 * 40,000 109,059 *
1000 Lancaster Street
Baltimore, MD 21202
</TABLE>
_____________
* Less than 1%.
Pursuant to an Agreement and Plan of Merger between the Company and Pace
Newco, Inc. and an Agreement and Plan of Merger between the Company and Staff
Training, Incorporated, the Company acquired all of the outstanding stock of
Pace Newco, Inc. and Staff Training, Incorporated, the corporations comprising
The Pace Group. As initial consideration
-4-
<PAGE>
for the acquisition, the Company issued to Pace's principal owners, Messrs.
Steven Rottinghaus, James McKinnon, W. Haynes Kelly, Tony Wood and Floyd
Campbell (collectively the "Principals"), 331,439 shares of the Company's Common
Stock which were registered under the Securities Act of 1933, as amended.
Additionally, the Company agreed to pay the Principals and the other Pace
stockholders an aggregate amount equal to 6.5 times the 1997 earnings before
interest and taxes of the Sylvan/Pace Subsidiaries ("EBIT") in cash and shares
of the Company's Common Stock (the "Final Payment"). The shares of Common Stock
issued pursuant to this Registration Statement represent a portion of the Final
Payment. In connection with the Pace acquisition, the Principals and other
employees of the Pace/Sylvan Subsidiaries were granted options to acquire an
aggregate of 49,578 shares of the Company's Common Stock pursuant to the
Company's 1993 Employee Stock Option Plan (the "Plan"). In addition, the Company
agreed to grant to the Principals and certain employees of the Sylvan/Pace
Subsidiaries Plan options to acquire (i) an aggregate of 25,000 shares of the
Company's Common Stock on April 25, 1996 and (ii) an aggregate of 25,000 shares
of the Company's Common Stock on April 25, 1997. A non-employee stockholder of
Pace was also granted an option to acquire 422 shares of the Company's Common
Stock under substantially identical terms as the Plan options granted. Mr.
Rottinghaus serves as the President of the Sylvan/Pace Subsidiaries, and each of
Messrs. Haynes, McKinnon, Wood and Campbell serve as Vice President of the
Eastern, Northern, Southern and Western Region of the Sylvan/Pace Subsidiaries,
respectively.
Pursuant to an Agreement and Plan of Reorganization dated March 31, 1998
between the Company and Blanche Stastny, Sylvan purchased all of the assets of
two Sylvan Learning Centers for 15,339 shares of the Company's Common Stock.
Pursuant to an Agreement and Plan of Reorganization dated March 31, 1998
among the Company, Creation Wallcoverings, Inc., William Van Dobson and Marie
Jeanette Dobson, Sylvan purchased all of the issued and outstanding capital
stock of Creation Wallcoverings, Inc. for 16,346 shares of the Company's Common
Stock.
Pursuant to an Agreement and Plan of Reorganization dated March 31, 1998
among the Company, 7 Shorelake Enterprises, Inc., A. Gordon Findlay, Jr., Donna
D. Findlay and Dana Findlay Matzel, Sylvan purchased all of the issued and
outstanding capital stock of 7 Shorelake Enterprises, Inc. for 21,053 shares of
the Company's Common Stock.
Pursuant to an Agreement and Plan of Reorganization dated March 30, 1998
among the Company, Learning Centers of West Houston, Inc. and Paschal Gagliardo,
Sylvan purchased all of the issued and outstanding capital stock of Learning
Centers of West Houston, Inc. for 20,409 shares of the Company's Common Stock.
Ms. Stastny, Mr. Dobson, Ms. Dobson, Mr. Findlay, Ms. Matzel and
Mr. Gagliardo are currently employed by Sylvan.
-5-
<PAGE>
PLAN OF DISTRIBUTION
The Company'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 directly or through broker-dealers or underwriters who may act
solely as agents, or who may acquire the Shares a 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. The Company 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. The Company has agreed to bear the cost of
preparing the Registration Statement of which this 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 the
Company by Piper & Marbury L.L.P., Baltimore, Maryland.
EXPERTS
The consolidated financial statements of Sylvan Learning Systems, Inc. at
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997, incorporated by reference in this Prospectus and Registration
Statement, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon incorporated herein by reference which, as to the
years 1996 and 1995, are based in part on the reports of Deloitte & Touche LLP,
independent auditors. Such consolidated financial statements have been
incorporated herein by reference in reliance upon such reports given upon the
authority of such firms as experts in accounting and auditing.
-6-
<PAGE>
====================================== =======================================
No person has been authorized by
the Company to give any information or
to make any representations other than 168,316 SHARES
those contained in this Prospectus in
connection with the offer contained in
this Prospectus, and if given or made,
such information or representations SYLVAN LEARNING
may not be relied upon as having been SYSTEMS, INC.
authorized by the Company. This
Prospectus does not constitute an
offer to sell or a solicitation of an COMMON STOCK
offer to buy any of the securities in
any jurisdiction in which such offer
or solicitation is not authorized, or
in 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 PROSPECTUS
solicitation. Neither the delivery of
this Prospectus nor any sale made
hereunder shall create an implication
that there has been no change in the
affairs of the Company since the date
hereof.
_____________________________
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION.......... 2
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCEA...... 2
THE COMPANY.................... 3
USE OF PROCEEDS................ 4
SELLING STOCKHOLDERS........... 4
PLAN OF DISTRIBUTION........... 6
LEGAL MATTERS.................. 6
EXPERTS........................ 6
, 1998
====================================== ========================================
<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. The Company 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.
Filing Fee-Securities and Exchange Commission.. $ 2,477.00
Nasdaq National Market Listing Fees............ 3,366.54
Fees and Expenses of Counsel................... 6,000.00
Miscellaneous Expenses......................... 1,156.68
----------
TOTAL......................................... $13,000.00
==========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company'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 the Company shall have any liability
to the Company 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. The Company's
Charter and By-laws provide that the Company 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 the Company 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 the Company will indemnify its
directors and officers and may indemnify employees or agents of the Company 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 the Company. In addition, the Company'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 the
Company 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.
II-1
<PAGE>
ITEM 16. EXHIBITS.
Exhibit No. Description
----------- -----------
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 Agreement and Plan of Merger with Pace Newco, Inc.***
4.3 Agreement and Plan of Merger with Staff Training,
Incorporated***
4.4 Agreement and Plan of Reorganization with 7 Shorelake
Enterprises, Inc., A. Gordon Findlay, Jr., Donna D.
Findlay and Dana Findlay Matzel, dated March 31, 1998
4.5 Agreement and Plan of Reorganization with Learning
Centers of West Houston, Inc. and Paschal Gagliardo,
dated March 30, 1998
4.6 Agreement and Plan of Reorganization with Creation
Wallcoverings, Inc., William Van Dobson and Marie
Jeanette Dobson, dated March 31, 1998
4.7 Agreement and Plan of Reorganization with Blanche
Stastny, dated March 31, 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 Piper & Marbury L.L.P.
(contained in Exhibit 5.1)
24.1 Powers of Attorney (included on signature page)
______________
* Incorporated by reference from the Registrant's Registration Statement on
Form S-1 (No. 33-69558)
** Incorporated by reference from the Company's Annual Report on Form 10-K
for the Year ended December 31, 1996.
*** Incorporated by reference from the Company's Current Report on Form 8-K
dated May 5, 1995 relating to the acquisition of the Pace assets.
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
II-2
<PAGE>
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 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.
II-3
<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 24th day of April, 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 April 24, 1998
R. Christopher Hoehn-Saric (Principal Executive Officer)
/s/ Douglas L. Becker Co-Chief Executive Officer April 24, 1998
- ------------------------- President, Secretary and Director
Douglas L. Becker
/s/ B. Lee McGee Chief Financial Officer (Principal April 24, 1998
- ------------------- Financial and Accounting Officer)
B. Lee McGee
/s/ Donald V. Berlanti Director April 24, 1998
- -------------------------
Donald V. Berlanti
Director April 24, 1998
- ---------------------
R. William Pollock
Director April 24, 1998
_____________________
J. Phillip Samper
/s/ Nancy A. Cole Director April 24, 1998
- ---------------------
Nancy A. Cole
Director April 24, 1998
- ---------------------
James H. McGuire
/s/ Rick Inatome Director April 24, 1998
- ---------------------
Rick Inatome
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit No. Description Numbered Page
- ----------- ----------- -------------
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 Agreement and Plan of Merger with Pace
Newco, Inc.***
4.3 Agreement and Plan of Merger with Staff
Training, Incorporated***
4.4 Agreement and Plan of Reorganization with
7 Shorelake Enterprises, Inc., A. Gordon
Findlay, Jr., Donna D. Findlay and Dana
Findlay Matzel, dated March 31, 1998
4.5 Agreement and Plan of Reorganization with
Learning Centers of West Houston, Inc. and
Paschal Gagliardo, dated March 30, 1998
4.6 Agreement and Plan of Reorganization with
Creation Wallcoverings, Inc., William Van
Dobson and Marie Jeanette Dobson, dated
March 31, 1998
4.7 Agreement and Plan of Reorganization with
Blanche Stastny, dated March 31, 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 Piper & Marbury L.L.P.
(contained in Exhibit 5.1)
24.1 Powers of Attorney (included on signature page)
___________________
* Incorporated by reference from the Registrant's Registration Statement on
Form S-1 (No. 33-69558)
** Incorporated by reference from the Company's Annual Report on Form 10-K for
the Year ended December 31, 1996.
*** Incorporated by reference from the Company's Current Report on Form 8-K
dated May 5, 1995 relating to the acquisition of the Pace assets.
1
<PAGE>
Exhibit 4.4
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement"), effective as of
February 28, 1998 but dated this 31st day of March, 1998, by and among SYLVAN
LEARNING SYSTEMS, INC., a Maryland corporation (the "Purchaser"), 7 Shorelake
Enterprises, Inc., a Texas corporation (the "Company"), and A. Gordon Findlay,
Jr., Donna D. Findlay and Dana Findlay Matzel , the sole stockholders of the
Company (the "Stockholder," whether one or more).
W I T N E S S E T H:
- - - - - - - - - -
The Stockholder owns all the issued and outstanding capital stock of the
Company. The Purchaser and the Stockholder wish to enter into an agreement for
the acquisition of the Company by the Purchaser through a merger of the Company
into the Purchaser in a transaction qualifying as a tax-free reorganization
under Section 368(a)(1)(A) of the Code (the "Merger"). The parties agree and
acknowledge that for accounting purposes, the Merger is to be treated as a
pooling-of-interests. The Purchaser, the Company and the Stockholder wish to
enter into a definitive agreement setting forth the terms and conditions of the
Merger.
Accordingly, in consideration of the foregoing and of the covenants,
agreements, representations and warranties hereinafter contained, the Purchaser,
the Company and the Stockholder hereby agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby
represents and warrants to the Company and the Stockholder as follows:
1.1 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 delivered to the Company, 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.
1.2 Financial Statements. The Purchaser has delivered to the Company
--------------------
copies of the Purchaser's audited consolidated financial statements for the
fiscal years ended December 31, 1996 and 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 Company copies of its Quarterly Report on Form 10-Q for the
third quarter ended September 30, 1997, 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. The reports to the Securities and Exchange
Commission delivered to the Company and the Stockholders do not contain any
misstatements of material facts or omit any statements necessary to make the
statements contained therein not correct.
1.3 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
1
<PAGE>
or modification of, or be in conflict with, the Purchaser's Charter or By-Laws,
or, any terms of any contract, instrument 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.
1.4 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.
1.5 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. Upon the satisfaction of all conditions contained herein and the
filing of Articles of Merger with the Maryland State Department of Assessments
and Taxation and the Texas Secretary of State, this Agreement will result in
the valid, legally binding and enforceable statutory merger of the Company and
the Purchaser.
1.6 Validity of Common Stock. The shares of Purchaser's Common Stock
------------------------
to be issued and delivered by the Purchaser in connection with the Merger have
been duly authorized for issuance and will, when issued and delivered as
provided in this Agreement, be duly and validly issued, fully paid and non-
assessable.
1.7 Tax-Free Reorganization. The Purchaser is not aware of any
-----------------------
events or conditions relating to the Purchaser which would preclude the Company
or the Stockholder from treating the Merger as a tax-free reorganization under
Section 368(a)(1)(A) of the Code.
1.8 Registration Statement on Form S-3. As of the date hereof, the
----------------------------------
Purchaser is aware of no events, actions or conditions which would prevent the
Purchaser from being able to comply with the provisions of Section 11.1(a) of
this Agreement, and will use its best efforts to continue to be eligible to
comply with the provisions of Section 11.1(a).
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDER.
The Company and the Stockholder hereby jointly and severally represent and
warrant to the Purchaser as follows:
2.1 Authorized and Issued Shares. The Company's entire authorized
----------------------------
capital stock consists of 10,000 shares of Common Stock, $1.00 par value per
share (the "Company Common Stock"), of which 2,500 shares are issued and
outstanding. No shares of Company Common Stock are held in the Company's
treasury and no shares are reserved for issuance. All outstanding shares of
Company Common Stock have been duly authorized and are validly issued and are
fully paid and non-assessable and are owned by the Stockholder. The Company is
not a party to or bound by any options, calls, contracts, preemptive rights or
commitments of any character relating to any issued or unissued capital stock,
or any other equity security issued or to be issued by the Company.
2.2 Organization. The Company is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Texas, and
has the corporate power and authority to carry on its business as it is now
being conducted and to own or hold under lease the properties or assets it now
owns or
2
<PAGE>
holds under lease and to perform the actions contemplated hereby. Complete and
accurate copies of the current Charter, By-Laws, minute books and stock transfer
books of the Company have been provided to the Purchaser, and such copies are
complete and correct and in full force and effect. The Company does not own or
have any direct or indirect interest in any other corporation, firm,
partnership, joint venture enterprise or other business entity.
2.3 Transactions with Affiliates. Except as set forth in Section 2.3
----------------------------
of the disclosure schedule delivered to the Purchaser pursuant to this Agreement
(the "Disclosure Schedule") or in the Company Financial Statements (as
hereinafter defined), the Company is not a party to any contract, agreement or
other arrangement with any current or former officer, director or stockholder or
any affiliate of any such persons. Each transaction required to be listed on
the Disclosure Schedule is on terms no less favorable than terms available from
unrelated parties.
2.4 Financial Statements. The Company has provided to the Purchaser
--------------------
the unaudited financial statements for the fiscal years of the Company ended on
January 31, 1997, and January 31, 1998, which January 31, 1998 financial
statement shall be restated on an accrual basis and audited as soon as
practicable after the execution of this Agreement (collectively, the "Company
Financial Statements"). As of the Closing Date, the Company Financial
Statements will be complete and correct, prepared on a consistent basis
throughout the periods covered thereby and will present fairly and accurately
the financial position and results of operations of the Company as of and for
the periods indicated. There are no material liabilities or obligations of the
Company, whether contingent or absolute, as of the dates of such statements,
including liability for taxes of any type, which in accordance with GAAP
consistently applied should have been shown or provided for in the Company
Financial Statements and are not so shown or provided for. Since January 31,
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 Company except as shown on
Schedule 2.4 of Disclosure Schedule. The Company's accounts receivable arose,
and all accounts receivable that will be outstanding as of the Closing Date
shall have arisen, from bona fide transactions in the ordinary course of
---- ----
business and will be collectible by the Company in full, less applicable
reserves shown in the Company Financial Statements, in the ordinary course of
business within ninety days of the Closing Date, and there are no offsets or
claims related to such accounts receivable.
2.5 Taxes. The Company and the Stockholder have properly prepared
-----
and filed all federal, state and other tax returns required to be filed in
connection with the operations of the Company. True and complete copies of all
federal and state income tax returns for the Company and the Stockholder for
each of the years ended January 31, 1997 through January 31, 1998 have been
delivered or made available to the Purchaser on or prior to the date hereof and
copies of other returns will be made available upon request. Except as set
forth on Section 2.5 of the Disclosure Schedule or in the Company Financial
Statements, neither the Company nor the Stockholder has any liability for any
federal, state, county, local or other taxes whatsoever that arose or otherwise
was incurred on or before the date of the balance sheet for Fiscal Year Ending
January 31, 1998 included in the Company Financial Statements. No proposed
taxes, additions to tax, interest or penalties have been asserted or are pending
against the Company or the Stockholder with respect to periods ending on or
before Closing, and no such matters are under discussion with the applicable
authorities. There are no agreements, waivers, or other arrangements providing
for extensions of time with respect to the assessment or collection of any
unpaid tax against the Company or the Stockholder. The Company and the
Stockholder have withheld or otherwise collected all taxes or amounts it or he
was required to withhold or collect under any applicable federal, state or local
law, including, without limitation, any amounts required to be withheld or
collected with respect to employee state and federal income tax withholding,
social security, unemployment compensation, sales or use taxes or workmen's
compensation, and all such amounts have been timely remitted to the proper
authorities.
3
<PAGE>
2.6 Agreements. Section 2.6 of the Disclosure Schedule identifies
----------
each of the following 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 summaries thereof, have been made available to the
Purchaser): (i) all documents relating to indebtedness for money borrowed or
collateral therefor, including guarantees; (ii) all agreements or plans relating
to employment, compensation of or benefits for officers or employees of the
Company; (iii) all contracts for the purchase of materials, supplies, services,
merchandise or equipment involving consideration of more than $2,000 or
involving purchases in excess of normal operating requirements; (iv) any
contract, agreement, or instrument not entered into in the ordinary course of
the business of the Company on a basis consistent with past practice; (v) any
contract containing restrictions on the Company's operations or its ability to
compete in any geographic region or in any line of business; (vi) any lease of
real property and all personal property leases calling for annual lease payments
in excess of $2,000; and (vii) each and every other contract which is material
to the financial condition, earnings, operation or business of the Company.
Each of the contracts and agreements so listed (collectively, the "Contracts")
is a valid and existing contract or agreement in full force and effect and there
exists no default by the Company thereunder. None of the Contracts will be
violated or breached and no default or right of termination or modification
shall arise thereunder as a result of the consummation of the transactions
contemplated by this Agreement.
2.7 Property. Section 2.7 of the Disclosure Schedule sets forth a
--------
schedule (the "Property Schedule") of (i) all real property owned or leased by
the Company (the "Real Property"), (ii) all individual items of tangible
personal property and assets (other than inventory) of the Company 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 of the Company. Except as set
forth in the Property Schedule, the Company 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. The machinery and equipment of the Company are, in all material
respects, in good operating condition and repair, ordinary wear and tear
excepted. To the Company's knowledge, the Company 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.
2.8 Legal Proceedings, Etc. Except as set forth in Section 2.8 of
-----------------------
the Disclosure Schedule, there are no legal, administrative, arbitration, or
other proceedings or governmental investigations pending or, to the best of the
Company's and the Stockholder's knowledge, threatened against the Company, the
Stockholder or the respective properties or assets of the Company and the
Stockholder.
2.9 Compliance; Licenses. The Company 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. Section 2.9 of the Disclosure Schedule contains a
true and complete list of all material licenses, permits, approvals, franchises
and other authorizations as are necessary in order to enable the Company to own
and conduct its business.
2.10 Bank Accounts, etc. Section 2.10 of the Disclosure Schedule
------------------
sets forth a true and complete 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.
2.11 Insurance. Section 2.11 of the Disclosure Schedule sets forth a
---------
summary of all general liability, product liability, fire, casualty, motor
vehicle and other insurance currently maintained by or on behalf of the Company.
All requirements and provisions thereof are being complied with. True and
correct copies of all insurance policies relating to such coverage have been
provided by the Company to the Purchaser. No notice of cancellation has been
given to or received by the Company with respect to any of its insurance
4
<PAGE>
policies, and no such policies are subject to any retroactive rate or audit
adjustments or coinsurance arrangements.
2.12 Employee Plans. Except as set forth in Section 2.12 of the
--------------
Disclosure Schedule, the Company 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, former employee,
retired employee, or beneficiary of any of these, of the Company is entitled to
participate. The plans, programs, contracts, understandings and arrangements
listed on the Disclosure Schedule pursuant to this Section 2.12 are hereinafter
referred to as the "Employee Plans." The Company has supplied the Purchaser
with 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.
2.13 Recent Operations; Employee Matters. Since January 31, 1998,
-----------------------------------
(i) the Company has operated its business substantially as it was operated
immediately prior to said date and only in the ordinary course, and the Company
and the Stockholder have used their best efforts to preserve intact the
Company's business relationships, (ii) there have been no bonuses paid to or
increases in the compensation of officers or employees, except as set forth in
Section 2.13(ii) of the Disclosure Schedule, and (iii) except as set forth in
Section 2.13(iii) of the Disclosure Schedule, the Company has not declared or
paid any dividend or made any other distribution with respect to its capital
stock.
2.14 Stockholder Distributions. No dividends or distributions were
-------------------------
declared and/or paid to the Stockholder (whether in cash or other assets) after
January 31, 1998 through the date hereof (the "1998 Period").
2.15 Environmental Matters. To the best of Company's knowledge, no
---------------------
storage tanks, underground or otherwise, are now located on any properties
occupied by the Company, the Company has complied in all material respects with
all environmental laws relating to its operations or properties occupied by it
and there are no asbestos containing materials located on properties occupied by
the Company. The Company 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 by the Company.
2.16 Disclosure. The Company and the Stockholder have disclosed to
----------
the Purchaser all facts material to the assets, business, operations, financial
condition and prospects of the Company. All agreements, schedules, exhibits,
documents, certificates, reports or statements furnished or to be furnished to
the Purchaser by or on behalf of the Company 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.
2.17 No Conflict With Other Documents. 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 Company's Articles of Incorporation or By-Laws,
any terms of any contract, instrument or other agreement to which the Company 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 Company 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
5
<PAGE>
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 Company.
2.18 Brokers and Advisors. The Company 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.
2.19 Authority. The execution, delivery and performance of this
---------
Agreement by the Company have been duly authorized by the sole Director and the
Stockholder, and this Agreement is a valid and legally binding and enforceable
obligation of the Company. Upon the satisfaction of all conditions contained
herein and the filing of the Articles of Merger with the Maryland State
Department of Assessments and Taxation and the Texas Secretary of State, this
Agreement will, to the Stockholder's best knowledge, result in the valid,
legally binding and enforceable statutory merger of the Company and the
Purchaser.
3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The Stockholder
hereby represents and warrants to the Purchaser as follows:
3.1 Ownership of Company Common Stock. Such Stockholder has good and
---------------------------------
marketable title to the number of issued and outstanding shares of Company
Common Stock set forth opposite his or her name on Section 3.1 of the Disclosure
Schedule, free and clear of any pledges, liens, restrictions, claims or
encumbrances of any kind. Such Stockholder is not a party to or bound by any
options, calls, contracts, or commitments of any character relating to any
issued or unissued stock or any other equity security issued or to be issued by
the Company.
3.2 No Conflicts. Neither the execution and delivery of this
------------
Agreement nor the carrying out of the transactions contemplated hereby, will
result in any breach of or constitute a default (or with notice or lapse of time
or both would become a default), or give to others any rights, under the terms
of any contract, instrument or other agreement to which such Stockholder is a
party or is otherwise bound, or any judgment, decree or order applicable to such
Stockholder.
3.3 Binding Effect. This Agreement is a valid and legally binding
--------------
and enforceable obligation of the Stockholder, subject to applicable bankruptcy,
moratorium and other laws affecting the rights of creditors generally.
3.4 Litigation. There is no litigation, proceeding or governmental
----------
investigation pending as to which Stockholder has been served with process or
summons, or to the best of Stockholder's knowledge, threatened or in prospect
against or relating to such Stockholder or the shares of Company Common Stock
owned by him or her or the transactions contemplated by this Agreement.
3.5 Brokers and Advisors. Such Stockholder 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.
3.6 Investment Intent. It is understood that the shares of Purchaser
-----------------
Common Stock to be delivered to the Owner pursuant to this Agreement are not
being registered, for purposes of the transactions hereunder, under the
Securities Act of 1933, as amended (the "Securities Act") or any state
securities laws, and the shares are being delivered without registration in
reliance upon an exemption from the registration requirements of the Securities
Act or any state securities laws. The Owner is acquiring the Purchaser Common
Stock hereunder only for his own account and not with any intention of making,
or with a view to, or for sale in
6
<PAGE>
connection with, any distribution thereof within the meaning of the Securities
Act unless such shares first are registered under the Securities Act.
In connection with the foregoing, each of the Stockholder hereby
represents and warrants that:
(a) such Stockholder has reviewed, discussed and evaluated the
information delivered under Section 1.2 and has had the opportunity to ask
questions of, and receive answers from, executive officers of the Purchaser
concerning the terms and conditions of this Agreement and to obtain any
additional information which such Stockholder considered necessary to verify the
accuracy of the information delivered under Section 1.2;
(b) such Stockholder understands that he or she must bear the
economic risks of the investment in Purchaser 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
(c) such Stockholder has sufficient knowledge and experience in
financial and business matters to enable such Stockholder to be capable of
evaluating the merits and the risks of the exchange of the Company Common Stock
for the Purchaser Common Stock contemplated by this Agreement and such
Stockholder's prospective investment in the Purchaser.
3.7 Legends. 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, the Purchaser will cause
a legend to be conspicuously noted on the certificates representing the
Purchaser Common Stock deliverable hereunder, and that the Purchaser 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 as permitted by Section 11 of this Agreement and after delivery of
an opinion of Purchaser's counsel to the effect that registration thereof for
the purpose of transfer is not required under the Securities Act or that the
stock proposed to be transferred has been effectively registered for that
purpose under the Securities Act.
3.8 No Agreements with Respect to Purchaser Common Stock. Except for
----------------------------------------------------
this Agreement, Stockholder has not entered into any agreement or understanding
with anyone for the sale, at Stockholder's option or otherwise, of any of the
Purchaser Common Stock to be delivered hereunder to Stockholder at the Closing.
4. COVENANTS OF THE PURCHASER. The Purchaser covenants to the Company and
the Stockholder that, except as otherwise consented to in writing by the Company
after the date of this Agreement:
4.1 Stock Reservation. Between the date hereof and the Closing Date,
-----------------
the Purchaser will keep available and reserve a sufficient number of shares of
Purchaser Common Stock for issuance and delivery to the Stockholder as
contemplated in this Agreement.
4.2 Cause Conditions to be Satisfied. The Purchaser will use its
--------------------------------
best efforts to cause all of the conditions described in Sections 8 of this
Agreement to be satisfied (to the extent such matters reasonably are within its
control).
4.3 Registration Statement on Form S-3. The Purchaser will use its
----------------------------------
best efforts to meet the requirements for eligibility set forth in paragraph A.
of the General Instructions to Form S-3, as promulgated by the U.S. Securities
and Exchange Commission in fulfilling its obligations under Section 11 hereof.
7
<PAGE>
4.4 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.
4.5 Tax-Free Reorganization. The Purchaser recognizes that the
-----------------------
Company and the Stockholder desire to treat the Merger as a tax-free
reorganization under Section 368(a)(1)(A) of the Code and will use its best
efforts to cooperate with the Company and the Stockholder in this regard. The
Purchaser will take no actions which would disqualify the transaction from being
treated as a pooling of interests under applicable accounting rules and the
Code.
5. COVENANTS OF THE COMPANY AND THE STOCKHOLDER. The Company and the
Stockholder jointly and severally covenant to the Purchaser that, except as
otherwise consented to in writing by the Purchaser after the date of this
Agreement:
5.1 Conduct of Business. After the date hereof and through the date
-------------------
of the Closing, with respect to the Company (a) its business will be conducted
only in the ordinary course; (b) it will terminate each of its Employee Plans
and will not enter into, adopt or amend any employee benefit plan, agreement or
arrangement, enter into or amend any employment contracts, or increase the
salaries or compensation of its officers or employees, other than ordinary
increases in salaries in accordance with past practices; (c) it shall pay in
full all liabilities outstanding on the date hereof except for (i) those
balances owed to the holders of the Company's notes and other liabilities as
shown in Section 5.1(c) of the Disclosure Schedule, and (ii) accrued employee
compensation, leave and benefits and the taxes thereon as shown in Section 5.1
(c) of the Disclosure Schedule; and (d) it shall not incur any additional
liability for borrowed money, or encumber any of its assets; (e) all outstanding
loans payable by the Company to the Stockholder or receivable by the Company
from the Stockholder or any employee shall be repaid in full by the appropriate
party; (f) its current assets at all times will exceed all of its liabilities;
(g) except as shown in Sec 5.1(g) of the Disclosure Schedule, all trade
payables and liabilities and obligations payable in installments shall be
current; (h) it will use its best efforts to preserve its business organization
intact, to keep available the service of its officers and employees and to
preserve the goodwill of suppliers, customers and others doing business with it;
(i) it will not enter into any agreement for the purchase, sale or other
disposition, or purchase, sell or dispose of, any equipment, supplies,
inventory, investments or other assets (other than sales of inventory and
purchases of materials and supplies in the ordinary course of business and in
accordance with past practices); (j) it will not compromise or write off any
material account receivable other than by collection of the full recorded amount
thereof; (k) no change shall be made in its Charter or By-Laws; (l) no change
shall be made in the number of shares or terms of its authorized, issued or
outstanding capital stock, nor shall it enter into or grant any options, calls,
contracts or commitments of any character relating to any issued or unissued
capital stock; (m) no dividend or other distribution or payment shall be
declared or paid in respect of its capital stock; and (n) no bonus or additional
compensation in excess of normal salary shall be paid to or declared for the
benefit of any Stockholder.
5.2 Consents. The Company and the Stockholder agree to take all
--------
necessary corporate or other action and to use their best efforts to obtain all
consents and approvals required for consummation of the transactions
contemplated by this Agreement.
5.3 Audited Financial Statements. The Stockholder will cause the
----------------------------
Company to deliver to Purchaser the Company's audited financial statements for
the year ended January 31, 1998 as soon as practicable after the execution of
this Agreement. Said statements shall be prepared to reflect the business
operations of the Company on an accrual basis in accordance with GAAP.
8
<PAGE>
5.4 Cause Conditions to Be Satisfied. The Company and the
--------------------------------
Stockholder will use their best efforts to cause all of the conditions described
in Sections 7 and 8 of this Agreement to be satisfied (to the extent such
matters reasonably are within their control).
5.5 Tax-Free Reorganization. The Company and the Stockholder
-----------------------
recognize that the Purchaser desires to treat the Merger as a tax-free
reorganization under Section 368(a)(1)(A) of the Code and will use best efforts
to cooperate with the Purchaser in this regard. The Company and the Stockholder
will take no actions which would disqualify the transaction from being treated
as a pooling of interests under applicable accounting rules and the Code.
6. MERGER OF PURCHASER AND THE COMPANY. Subject to the terms and
conditions of this Agreement, the Purchaser and the Company agree to effect the
following transactions at the Closing:
6.1 Conditions. The Purchaser and the Company will deliver to the
----------
other appropriate evidence of the satisfaction of the conditions to their
respective obligations hereunder.
6.2 Merger. At the Closing, the Company will be merged with and into
------
the Purchaser pursuant to the provisions and with the effect provided in the
general corporation laws of the States of Maryland and Texas. The parties shall
prepare and execute appropriate merger documents under the corporate laws of
Maryland and Texas, containing the terms provided in this Agreement, including a
Certificate and Articles of Merger which shall be filed with the Maryland State
Department of Assessments and Taxation and with the Texas Secretary of State on
the Effective Closing Date, or immediately thereafter. The Purchaser shall be
the surviving corporation in the Merger.
6.3 Conversion Amount; Conversion of the Company Shares. As a result
---------------------------------------------------
of the Merger and without any action by the holders thereof, all of the shares
of Company Common Stock issued and outstanding immediately prior to the Merger
and all rights in respect thereof, shall be converted into that number shares of
Purchaser Common Stock having a market value of $973,925 (the "Conversion
Amount"). As a result of such conversion, the Stockholder will receive the
number of shares of Purchaser Common Stock to be issued pursuant to the Merger,
rounded to the nearest whole share. In order to effect such conversion, (i)
the Stockholder will deliver to the Purchaser at the Closing certificates in due
and proper form representing the shares of Company Common Stock owned by such
Stockholder, duly endorsed or accompanied by duly executed stock powers, with
signatures guaranteed by a commercial bank or a member of the National
Association of Securities Dealers, Inc., and (ii) the Purchaser shall deliver to
the Stockholder a certificate, in due and proper form, representing the number
of shares of Purchaser Common Stock to which such Stockholder is entitled. Each
share of Purchaser Common Stock issued pursuant to the Merger shall be fully
paid and non-assessable. For purposes of the foregoing, the market value of the
Purchaser Common Stock shall equal the average of the closing prices reported in
the Wall Street Journal for each of the fifteen (15) trading days ended and
including Friday, March 27, 1998.
6.4. Closing. The closing (the "Closing") of the transactions
-------
contemplated by this Agreement shall take place at the offices of the Company,
in Houston, Texas, beginning at 1:00 p.m. on March 31, 1998, or at such other
time and place as may be agreed upon in writing by the Purchaser and the
Stockholder (the "Closing Date"). The closing shall be effective as of the
close of business on March 31, 1998 (the "Effective Closing Date").
7. 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:
9
<PAGE>
7.1 Approvals of Governmental Authorities. 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.
7.2 No Adverse Proceedings or Events. No suit, action or other
--------------------------------
proceeding against the Company or the Purchaser, or their respective officers or
directors, or either of the Stockholder, 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.
7.3 Consents and Actions; Contracts. All requisite consents of any
-------------------------------
third parties and other actions which the Company has covenanted to use its best
efforts to obtain and take under Section 5.2 hereof shall have been obtained and
completed. All material contracts and agreements of the Company, including,
without limitation, all contracts and agreements listed on Section 2.6 of the
Disclosure Schedule, shall be in full force and effect and shall not be affected
by the consummation of the transactions contemplated hereby.
7.4 Other Evidence. The Purchaser shall have received from the
--------------
Company and the Stockholder such further certificates and documents evidencing
due action in accordance with this Agreement, including certified copies of
proceedings of the Board of Directors and stockholders of the Company, as the
Purchaser reasonably shall request.
7.5 Employment Agreement. The Purchaser and A. Gordon Findlay, Jr.
--------------------
shall have entered into an Employment Agreement in substantially the form of
Exhibit A attached hereto.
7.6 Current Financial Statements and Projections. The Stockholder
--------------------------------------------
shall have provided, or caused the Company to have provided to Purchaser the
audited financial statements of the Company for fiscal year ended January 31,
1998, showing an EBIT of at least $180,000 for such year, as well as a
projection of revenues and expenses for calendar year 1998, which projection
reflects net income of at least $200,000 for such year. Such audited financial
statements shall be prepared on an accrual basis, in accordance with GAAP.
"EBIT" means the Company's net revenues minus all of its expense items including
any extraordinary and non-recurring items and depreciation and amortization, but
excluding interest and taxes. For the 1998 projection, EBIT shall be calculated
in the same manner as "profits subject to bonus" under paragraph 2.02 of the
Employment Agreement attached hereto as Exhibit A.
7.7 Purchase of Other Houston Centers. The obligation of Purchaser
---------------------------------
to close and deliver to Stockholder the Purchaser Common Stock is conditioned on
Purchaser closing on the purchase of at least seven (7) of the following nine
(9) Sylvan Learning Centers #311, 314, 315, 316, 323, 326, 327, 347 and 351 on
or before March 31, 1998, and prior to the closing of this transaction. At the
present time, Purchaser has non-binding letters of agreement to purchase all of
said centers by March 31, 1998.
7.8 Resignation of Officers and Directors. Each and every officer
-------------------------------------
and director of the Company shall have resigned from any and all positions with
the Company as director, officer or employee effective as of immediately prior
to the Effective Closing Date.
8. CONDITIONS TO THE COMPANY'S AND THE STOCKHOLDER'S OBLIGATIONS. Unless
waived by the Company and the Stockholder, all obligations of the Company and
the Stockholder under this Agreement are subject to the fulfillment, prior to or
at the Closing, of each of the following conditions:
10
<PAGE>
8.1 No Adverse Proceedings or Events. No suit, action or other
--------------------------------
proceeding against the Company or the Purchaser, or their respective officers or
directors, or the Stockholder, 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.
8.2 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.
8.3 Other Evidence. The Company and the Stockholder 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 Company and the
Stockholder reasonably shall request.
9. INDEMNIFICATION.
9.1. Indemnification by the Stockholder. The Stockholder 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 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 Company or the Stockholder 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 Company or the Stockholder hereunder;
(ii) any liabilities or obligations of the Company or the
Stockholder for federal, state or local income tax or, to the extent not
accrued or reflected in the Financial Statements, any personal property,
FICA, withholding, excise, unemployment, sales or franchise taxes arising
from operations of the Company prior to the Effective Closing Date except
as shown in Schedule 5.1(c) and 5.1(g) of the Disclosure Schedule.
(iii) 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 9.1, including, without limitation, all such costs and
expenses incurred in the defense thereof or in the enforcement of any
rights of the Purchaser hereunder.
9.2. Notice and Defense. The Purchaser shall promptly notify the
------------------
Stockholder of any asserted liability, damage, loss or expense claimed to give
rise to indemnification hereunder and the Stockholder 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,
Stockholder shall respond in writing as to whether Stockholder will engage
counsel at Stockholder's expense to defend the claim. If Stockholder does 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 Stockholder's sole cost and
expense through counsel chosen by the Purchaser and reasonably acceptable to the
Stockholder; provided, however, that any such compromise or defense shall be
conducted in a manner which is reasonable and the Stockholder 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 Stockholder
(other than under Section 9.1). Each party agrees in all cases to cooperate
with the defending party
11
<PAGE>
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 Stockholder has indemnity liability under this Section
9, and which the Stockholder does not reimburse Purchaser within five (5) days
following demand for reimbursement by Purchaser, Purchaser may, in addition to
any other remedies, (if such Stockholder is then an employee of Purchaser)
offset the amount of the Stockholder's liability on the claim paid against any
compensation payable to the Stockholder. The Stockholder may tender shares of
the Purchaser's Common Stock to Purchaser as a manner of paying an indemnity
liability, receiving credit for the market value thereof, market value being
calculated using the average of the closing prices reported in the Wall Street
Journal for each of the fifteen (15) trading days ending on the day before
delivery of the shares.
9.3. Indemnification by the Purchaser. From and after the Closing
--------------------------------
Date, the Purchaser hereby covenants and agrees to indemnify and hold harmless
the Stockholder 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) any claims, actions, suits, or proceedings based upon or
arising out of the operation of the assets or business herein conveyed from and
after the date of Closing; and
(iii) all claims, actions, suits, proceedings, demands,
assessments, judgements, costs, reasonable attorneys' fees and expenses of any
nature incident to any of the matters indemnified against pursuant to this
Section 9.3, including without limitation, all such costs and expenses incurred
in the defense thereof or in the enforcement of any rights of the Stockholder
hereunder.
The Stockholder 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 Stockholder is fully protected from any cost or
expense in connection therewith.
10. SURVIVAL; LIMITATIONS.
10.1 Survival. 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 Stockholder and Purchaser set forth in Section 9 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 Stockholder, 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 March 31, 2000. Notwithstanding the
foregoing, (i) any indemnification obligations of the Stockholder relating to
federal, state or local tax matters shall continue in full force and effect
without limitation until expiration of the statute of limitations applicable to
such tax or environmental matters, (ii) the representation and warranty
contained in Sections 2.1, 2.2 or 3.1 and any indemnification obligations of the
Stockholder in connection therewith shall continue in full force and effect
without any limitation, (iii) any claims, actions or suits the Purchaser, on the
one hand, or the Company or the Stockholder, on the other hand, may have which
arises from any fraud or willful misconduct on the part of the Stockholder or
the Company, or any representative
12
<PAGE>
of either, 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.
10.2 Limitations. No indemnified party shall be entitled to
-----------
indemnification hereunder until such time as a single loss or an aggregate of
several losses equals Eighteen Thousand Dollars ($18,000), at which time such
indemnified party shall be entitled to indemnification for all losses sustained,
incurred, paid or required to be paid by such indemnified party in excess of the
$18,000; and in no event shall any party to this Agreement be entitled to
indemnification for a single loss or an aggregate of several losses which
exceeds $973,925.
11. REGISTRATION RIGHTS.
11.1 Registration Procedures and Expenses. So long as the
------------------------------------
Stockholder has not initiated the termination of his employment with the
Purchaser pursuant to Section 4.01 of the Employment Agreement between the
Stockholder and the Purchaser dated as of the date hereof, Purchaser shall:
(a) as soon as practicable after the closing date but in no
event later than ninety (90) days after the closing date, prepare and file with
the Securities and Exchange Commission (the "Commission") a registration
statement on Form S-3 which meets the requirements of Rule 415 promulgated under
the Securities Act (a "Shelf Registration Statement") covering the sale by the
Stockholder from time to time of one half of the shares of the Purchaser Common
Stock received by the Stockholder in the Merger, and as soon as practicable
after the first anniversary of the closing date, but in no event later than
ninety (90) days after the first anniversary of the closing date, a Shelf
Registration Statement covering the sale by the Stockholder from time to time of
the remaining shares of Purchaser Common Stock. The foregoing notwithstanding,
Purchaser shall have no obligation to file a Shelf Registration Statement or to
maintain the effectiveness of any previously filed Shelf Registration Statement
if the sale of the Purchaser Common Stock pursuant to exemption from
registration under Rule 144 is available to the Stockholder. Further, the
Purchaser may extend its obligation to file a registration statement if the
Purchaser advises the Stockholder that there is a pending, but unannounced
transaction or development which Purchaser determines is not then appropriate
for disclosure, and that registration of the Purchaser Common Stock would
require such disclosure.
(b) use its best efforts, subject to receipt of necessary
information from the Stockholder, to cause each of the Shelf Registration
Statements to become effective;
(c) prepare and file with the Commission such amendments and
supplements to the Shelf Registration Statements and the prospectus used in
connection therewith as may be necessary to keep the Shelf Registration
Statements effective until the earlier of the date on which the Purchaser Common
Stock registered by such Shelf Registration Statement has been sold, or one year
from the date of the initial filing thereof;
(d) during the period referred to in (c) above, prepare and
promptly file with the Commission, and promptly notify the Stockholder of the
filing of, such amendment or supplement to each such Shelf Registration
Statement and the prospectus as may be necessary to correct any statements or
omissions if, at any time when a prospectus relating to the Purchaser Common
Stock is required to be delivered under the Securities Act, any event has
occurred the result of which is that any such prospectus then in effect would
include or incorporate an untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein not misleading in
light of the circumstances in which they were made;
(e) advise the Stockholder, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance of any stop order by the
Commission suspending the effectiveness of any of such Shelf Registration
Statements or the initiation or threatening of any proceeding for that purpose
and
13
<PAGE>
promptly use its diligent best efforts to prevent the issuance of any stop order
and to obtain its withdrawal if such stop order should be issued;
(f) furnish to the Stockholder with respect to the Purchaser
Common Stock registered under any of the Shelf Registration Statements such
number of copies of prospectuses and preliminary prospectuses in conformity with
the requirements of the Securities Act and such other documents as the
Stockholder may reasonably request (but in no event more than 100 copies), in
order to facilitate the public sale or other disposition of all or any of the
registered Purchaser Common Stock by the Stockholder; provided, however, that
-------- -------
the obligation of Purchaser to deliver copies of prospectuses or preliminary
prospectuses to the Stockholder shall be subject to the receipt by Purchaser of
reasonable assurances from the Stockholder that the Stockholder will comply with
the applicable provisions of the Securities Act and of such other securities or
blue sky laws as may be applicable in connection with any use of such
prospectuses or preliminary prospectuses;
(g) file documents required of Purchaser for normal blue sky
clearance in states reasonably specified in writing by the Stockholder,
provided, however, that Purchaser shall not be required to qualify to do
business or consent to service of process in any jurisdiction in which it is not
now so qualified or has not so consented; and
(h) bear all expenses in connection with the procedures in
paragraphs (a) through (g) of this Section 11.1 and the registration of the
Purchaser Common Stock pursuant to each of the Shelf Registration Statements,
other than fees and expenses, if any, of counsel or other advisers to the
Stockholder.
11.2 Engagement of Underwriters. The parties hereto agree that the
--------------------------
Purchaser shall have no obligation to (i) conduct, arrange or coordinate any
distribution or sales activities on behalf of the Stockholder with respect to
the Purchaser Common Stock other than as set forth in Section 11.1 above or (ii)
retain any underwriter(s) in connection with the registration and/or
distribution of the Purchaser Common Stock pursuant to this Section 11. The
Stockholder agrees that any underwriter(s) or counsel engaged in connection with
the registration or distribution of the Purchaser Common Stock required to be
registered pursuant to this Section 11 will be retained by and at the sole
expense of the Stockholder and agrees further that any discounts or commissions
payable to such underwriter(s) shall also be an expense solely of the
Stockholder. In the event the Stockholder engages one or more underwriters
pursuant to this Section 11.2, the Stockholder shall enter into an underwriting
agreement with the managing or lead managing underwriter in the form customarily
used by such underwriter with such changes thereto as the parties thereto shall
agree; and, further, shall provide to such underwriter any documents or other
information as is necessary, in the underwriter's reasonable opinion, to
facilitate the effectiveness of the Shelf Registration Statement and the
completion of the distribution of the Purchaser Common Stock so registered.
11.3 Indemnification with respect to Shelf Registration Statements.
-------------------------------------------------------------
Purchaser hereby agrees to indemnify the Stockholder against liability arising
out of or based upon any untrue statement or alleged untrue statement of
material fact in any of the Shelf Registration Statements filed by Purchaser
pursuant hereto, or the omission or alleged omission to state or incorporate by
reference in such Shelf Registration Statements any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading, other than any such statement included or incorporated by reference
in, or omitted from, such Shelf Registration Statements by Purchaser in reliance
upon and in conformity with written information furnished to Purchaser
specifically for use therein by or on behalf of the Stockholder. The
Stockholder hereby agrees to indemnify Purchaser against liability arising out
of or based upon any untrue statement or alleged untrue statement of a material
fact included or incorporated by reference in the Shelf Registration Statements
or the omission or alleged omission to state or incorporate by reference therein
any material fact required to be stated therein or necessary in order to make
the statements therein not misleading, if such statement or omission was made by
14
<PAGE>
Purchaser in reliance upon and in conformity with written information furnished
to Purchaser for use or incorporation by reference in such Shelf Registration
Statements.
12. CONFIDENTIALITY. After the date hereof, the Stockholder 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 Company, 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 Stockholder, or (iii) been
supplied to the Stockholder by a third party without violation of the rights of
the Company or the Purchaser or any other party. The parties agree that the
remedy at law for any breach by the Stockholder of this Section 12 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. If said transactions are consummated, it is
expressly understood that the Stockholder will bear, and will not cause the
Company to pay, any legal fees or other expenses incurred by Company in
connection with the transactions contemplated by this agreement, as well as the
cost of furnishing the audited and reviewed Company Financial Statements
referred to in Section 2.4; provided, however, that in the event of any
litigation between the parties hereto relating to or arising from this
Agreement, the prevailing party in such litigation shall be entitled to payment
by the non-prevailing party of all reasonable attorney's fees and costs.
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:
O. Steven Jones General Counsel
Sylvan Learning Systems, Inc.
1000 Lancaster Street
Baltimore, Maryland 21202
with a copy to:
Richard C. Tilghman, Jr., Esquire
Piper & Marbury
36 South Charles Street
Baltimore, Maryland 21201
(b) if to the Company or the Stockholder, shall be addressed to:
A. Gordon Findlay, Jr.
7 Shorelake Drive
Kingwood, Texas 77339
with a copy to:
Rupert Barkoff, Esq.
Kilpatrick Stockton, LLP
1100 Peachtree Street, Suite 2800
15
<PAGE>
Atlanta, Georgia 30309
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.
16
<PAGE>
IN WITNESS WHEREOF, the Purchaser, the Company and the Stockholder
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: O. Steven Jones, Vice President
WITNESS: 7 SHORELAKE ENTERPRISES, INC.
__________________________ By:
Name: A. Gordon Findlay, Jr., President
WITNESS: STOCKHOLDERS:
__________________________
A. Gordon Findlay, Jr.
WITNESS:
__________________________
Dana Findlay Matzel
WITNESS:
__________________________
Donna D. Findlay, by her agent and
Attorney-in-fact, A. Gordon Findlay, Jr.
17
<PAGE>
Exhibit 4.5
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement"), effective as of
March 31, 1998 but dated this 30th day of March, 1998, by and among SYLVAN
LEARNING SYSTEMS, INC., a Maryland corporation (the "Purchaser"), Learning
Centers of West Houston, Inc., which has elected to be treated as an S
Corporation pursuant to Subchapter S of the Internal Revenue Code of 1986, as
amended (the "Code") and Paschal Gagliardo, the sole stockholder of the Company
(the "Stockholder," whether one or more).
WITNESSETH:
The Stockholder owns all the issued and outstanding capital stock of the
Company. The Purchaser and the Stockholder wish to enter into an agreement for
the acquisition of the Company by the Purchaser through a merger of the Company
into the Purchaser in a transaction qualifying as a tax-free reorganization
under Section 368(a)(l)(A) of the Code (the "Merger"). The parties agree and
acknowledge that for accounting purposes, the Merger is to be treated as a
purchase. The Purchaser, the Company and the Stockholder wish to enter into a
definitive agreement setting forth the terms and conditions of the Merger
Accordingly, in consideration of the foregoing and of the covenants,
agreements, representations and warranties hereinafter contained, the Purchaser,
the Company and the Stockholder hereby agree as follows:
1. REPRESENTATIONS AND WARRANTIESS OF THE PURCHASER. The Purchaser
hereby represents and warrants to the Company and the Stockholder as follows:
1.1 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 delivered to the Company, and such copies are complete and correct and in
fulfill 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
12 Financial Statements. The Purchaser has delivered to the Company
--------------------
copies of the Purchaser's audited consolidated financial statements for the
fiscal years ended December 31, 1996 and 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 Company copies of its Annual Report on Form 10-Q for the third
quarter year ended September 30, 1997, 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 Quarter]y Report on Form 10-Q and
prior to the date of this Agreement.
1
<PAGE>
1.3 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 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.
1.4 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.
1.5 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. Upon the satisfaction of all conditions contained herein and the
filing of Articles of Merger with the Maryland State Department of Assessments
and Taxation and the Texas Secretary of State, this Agreement will result in the
valid, legally binding and enforceable statutory merger of the Company and the
Purchaser.
1.6 Validity of Common Stock. The shares of Purchaser's Common Stock to be
----------- ------------
issued and delivered by the Purchaser in connection with the Merger have been
duly authorized for issuance and will, when issued and delivered as provided in
this Agreement, be duly and validly issued, fully paid and non-assessable.
1.7 Tax-Free Reorganization. The Purchaser is not aware of any events or
-----------------------
conditions relating to the Purchaser which would preclude the Company or the
Stockholder from treating the Merger as a tax-free reorganization under the
Code.
1.8 Registration Statement on Form S-3. As of the date hereof, the
----------------------------------
Purchaser is aware of no events, actions or conditions which would prevent the
Purchaser from being able to comply with the provisions of Section 11.1(a) of
this Agreement, and will use its best efforts to continue to be eligible to
comply with the provisions of Section 11.1(a).
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SOLE
STOCKHOLDER. The Company and the sole Stockholder hereby jointly and severally
represent and warrant to the Purchaser as follows:
2.1 Authorized and Issued Shares. The Company's entire authorized capital
----------------------------
stock consists of 1,000,000 shares of Common Stock, $1.00 par value per share
(the "Company Common Stock"), of which 1,000 shares are issued and outstanding.
No shares of Company Common Stock are held in the Company's treasury and no
shares are reserved for issuance. All outstanding shares of Company Common
Stock have
2
<PAGE>
been duly authorized and are validly issued and are fully paid and non-
assessable and are owned by the Stockholder. The Company is not a party to or
bound by any options, calls, contracts, preemptive rights or commitments of any
character relating to any issued or unissued capital stock, or any other equity
security issued or to be issued by the Company.
2.2 Organization. The Company is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Texas, and has the
corporate power and authority to carry on its business as it is now being
conducted and to own or hold under lease the properties or assets it now owns or
holds under lease and to perform the actions contemplated hereby. Complete and
accurate copies of the current Charter, By-Laws, minute books and stock transfer
books of the Company have been provided to the Purchaser, and such copies are
complete and correct and in hill force and effect. The Company does not own or
have any direct or indirect interest in any other corporation, firm,
partnership, joint venture enterprise or other business entity. The Company has
duly and effectively elected to be treated as an S Corporation under and is
presently operating in accordance with the provisions of Subchapter S of the
Code.
2.3 Transactions with Affiliates. Except as set forth in Section 2.3 of
----------------------------
the disclosure schedule delivered to the Purchaser pursuant to this Agreement
(the "Disclosure Schedule/" /) or in the Company Financial Statements (as
hereinafter defined), the Company is not a party to any contract, agreement or
other arrangement with any current or former officer, director or stockholder or
any affiliate of any such persons. Each transaction required to be listed on the
Disclosure Schedule is on terms no less favorable than terms available from
unrelated parties.
2.4 Financial Statements. The Company has provided to the Purchaser the
--------------------
unaudited financial statements for the fiscal years of the Company ended on
December 31, 1996, and December 31, 1997, which 1997 statement shall be restated
on an accrual basis and audited as soon as practicable after the execution of
this Agreement (collectively, the "Company Financial Statements"). The Company
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 Company as of
and for the periods indicated. There are no material liabilities or obligations
of the Company, whether contingent or absolute, as of the dates of such
statements, including liability for taxes of any type, which in accordance with
GAAP consistently applied should have been shown or provided for in the Company
Financial Statements and are not so shown or provided for. Since December 31,
1997, 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 Company except as shown on
Schedule 2.4 of Disclosure Schedule. The Company's accounts receivable arose,
and all accounts receivable that will be outstanding as of the Closing Date
shall have arisen, from bona fide transactions in the ordinary course of
---------
business and will be collectible by the Company in full, less applicable
reserves shown in the Company Financial Statements, in the ordinary course of
business within ninety days of the Closing Date, and there are no offsets or
claims related to such accounts receivable.
2.5 Taxes. The Company and the Stockholder have properly prepared and
-----
filed all federal, state and other tax returns required to be filed in
connection with the operations of the Company. True and complete copies of all
federal and state income tax returns for the Company for each of the years ended
December 31, 1994 through December 31, 1997 have been delivered or made
available to the Purchaser on
3
<PAGE>
or prior to the date hereof and copies of other returns will be made available
upon request. Except as set forth on Section 2.5 of the Disclosure Schedule or
in the Company Financial Statements, neither the Company nor the Stockholder has
any liability for any federal, state, county, local or other taxes whatsoever
that arose or otherwise was incurred on or before the date of the balance sheet
for 1997 included in the Company Financial Statements. No proposed taxes,
additions to tax, interest or penalties have been asserted or are pending
against the Company or the Stockholder with respect to periods ending on or
before Closing, and no such matters are under discussion with the applicable
authorities. There are no agreements, waivers, or other arrangements providing
for extensions of time with respect to the assessment or collection of any
unpaid tax against the Company or the Stockholder. The Company and the
Stockholder have withheld or otherwise collected all taxes or amounts it or he
was required to withhold or collect under any applicable federal, state or local
law, including, without limitation, any amounts required to be withheld or
collected with respect to employee state and federal income tax withholding,
social security, unemployment compensation, sales or use taxes or workmen's
compensation, and all such amounts have been timely remitted to the proper
authorities.
2.6 Agreements. Section 2.6 of the Disclosure Schedule identifies
----------
each of the following 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 summaries thereof, have been made available to the
Purchaser). (i) all documents relating to indebtedness for money borrowed or
collateral therefor, including guarantees; (ii) all agreements or plans relating
to employment, compensation of or benefits for officers or employees of the
Company; (iii) all contracts for the purchase of materials, supplies, services,
merchandise or equipment involving consideration of more than $2,000 or
involving purchases in excess of normal operating requirements; (iv) any
contract, agreement, or instrument not entered into in the ordinary course of
the business of the Company on a basis consistent with past practice; (v) any
contract containing restrictions on the Company's operations or its ability to
compete in any geographic region or in any line of business; (vi) any lease of
real property and all personal property leases calling for annual lease payments
in excess of $2,000; and (vii) each and every other contract which is material
to the financial condition, earnings, operation or business of the Company. Each
of the contracts and agreements so listed (collectively, the "Contracts") is a
valid and existing contract or agreement in full force and effect and there
exists no default by the Company thereunder. None of the Contracts will be
violated or breached and no default or right of termination or modification
shall arise thereunder as a result of the consummation of the transactions
contemplated by this Agreement.
2.7 Property. Section 2.7 of the Disclosure Schedule sets forth a schedule
--------
(the "Property Schedule") of (i) all real property owned or leased by the
Company (the "Real Property"), (ii) all individual items of tangible personal
property and assets (other than inventory) of the Company 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 of the Company. Except as set forth in the
Property Schedule, the Company 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. The
machinery and equipment of the Company are, in all material respects, in good
operating condition and repair, ordinary wear and tear excepted. To the
Company's knowledge, the Company 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
<PAGE>
2.8 Legal Proceedings Etc. Except as set forth in Section 2.8 of the
---------------------
Disclosure Schedule, there are no legal, administrative, arbitration, or other
proceedings or governmental investigations pending or, to the best of the
Company's and the Stockholder's knowledge, threatened against the Company, the
Stockholder or the respective properties or assets of the Company and the
Stockholder.
2.9 Compliance: Licenses. The Company 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. Section 2.9 of the Disclosure Schedule contains a
true and complete list of all material licenses, permits, approvals, franchises
and other authorizations as are necessary in order to enable the Company to own
and conduct its business.
2.10 Bank Account, etc. Section 2.10 of the Disclosure Schedule sets forth
-----------------
a true and complete 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.
2.11 Insurance. Section 2.11 of the Disclosure Schedule sets forth a
---------
summary of all general liability, product liability, fire, casualty, motor
vehicle and other insurance currently maintained by or on behalf of the Company.
All requirements and provisions thereof are being complied with. True and
correct copies of all insurance policies relating to such coverage have been
provided by the Company to the Purchaser. No notice of cancellation has been
given to or received by the Company with respect to any of its insurance
policies, and no such policies are subject to any retroactive rate or audit
adjustments or coinsurance arrangements.
2.12 Employee Plans. Except as set forth in Section 2.12 of the Disclosure
--------------
Schedule, the Company 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, former employee, retired
employee, or beneficiary of any of these, of the Company is entitled to
participate. The plans, programs, contracts, understandings and arrangements
listed on the Disclosure Schedule pursuant to this Section 2.12 are hereinafter
referred to as the "Employee Plans." The Company has supplied the Purchaser
with 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.
2.13 Recent Operations: Employee Matters. Since December 31, 1997, (i)
-----------------------------------
the Company has operated its business substantially as it was operated
immediately prior to said date and only in the ordinary course, and the Company
and the Stockholder have used their best efforts to preserve intact the
Company's business relationships, (ii) there have been no bonuses paid to or
increases in the compensation of officers or employees, except as set forth in
Section 2. 13(u) of the Disclosure Schedule, and (iii) except as set forth in
Section 2. 13(iii) of the Disclosure Schedule, the Company has not declared or
paid any dividend or made any other distribution with respect to its capital
stock.
5
<PAGE>
2.14 Stockholder Distributions. No dividends or distributions were
-------------------------
declared and/or paid to the Stockholder (whether in cash or other assets) after
December 31, 1997 through the date hereof (the "1998 Period").
2.15 Environmental Matters. To the best of Company's knowledge, no
---------------------
storage tanks, underground or otherwise, are now located on any properties
occupied by the Company, the Company has complied in all material respects with
all environmental laws relating to its operations or properties occupied by it
and there are no asbestos containing materials located on properties occupied by
the Company. The Company 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 by the Company.
2.16 Disclosure. The Company and the Stockholder have disclosed to the
----------
Purchaser all facts material to the assets, business, operations, financial
condition and prospects of the Company. All agreements, schedules, exhibits,
documents, certificates, reports or statements furnished or to be furnished to
the Purchaser by or on behalf of the Company 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.
2.17 No Conflict With Other Documents. 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 Company's Articles of Incorporation or By-Laws, any terms of
any contract, instrument or other agreement to which the Company 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 Company
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 Company.
2.8 Brokers and Advisors. The Company 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.
2.9 Authority. The execution, delivery and performance of this Agreement by
---------
the Company have been duly authorized by the sole Director and the Stockholder,
and this Agreement is a valid and legally binding and enforceable obligation of
the Company. Upon the satisfaction of all conditions contained herein and the
filing of the Articles of Merger with the Maryland State Department of
Assessments and Taxation and the Texas Secretary of State, this Agreement will
result in the valid, legally binding and enforceable statutory merger of the
Company and the Purchaser.
3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The Stockholder
hereby represents and warrants to the Purchaser as follows:
6
<PAGE>
3.1 Ownership of Company Common Stock. Such Stockholder has
------------ --------------------
good and marketable title to the number of issued and outstanding shares of
Company Common Stock set forth opposite his or her name on Section 3.1 of the
Disclosure Schedule, free and clear of any pledges, liens, restrictions, claims
or encumbrances of any kind. Such Stockholder is not a party to or bound by any
options, calls, contracts, or commitments of any character relating to any
issued or unissued stock or any other equity security issued or to be issued by
the Company.
3.2 No Conflicts. Neither the execution and delivery of this Agreement nor
------------
the carrying out of the transactions contemplated hereby, will result in any
breach of or constitute a default (or with notice or lapse of time or both would
become a default), or give to others any rights, under the terms of any
contract, instrument or other agreement to which such Stockholder is a party or
is otherwise bound, or any judgment, decree or order applicable to such
Stockholder.
3.3 Binding Effect. This Agreement is a valid and legally binding and
--------------
enforceable obligation of the Stockholder.
3.4 Litigation. There is no litigation, proceeding or governmental
----------
investigation pending as to which Stockholder has been served with process or
summons, or to the best of Stockholder's knowledge, threatened or in prospect
against or relating to such Stockholder or the shares of Company Common Stock
owned by him or her or the transactions contemplated by this Agreement.
3.5 Brokers and Advisors. Such Stockholder 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.
3.6 Investment Intent. It is understood that the shares of Purchaser
-----------------
Common Stock to be delivered to the Stockholder pursuant to this Agreement are
not being registered, for purposes of the transactions hereunder, under the
Securities Act of 1933, as amended (the "Securities Act") or any state
securities laws, and the shares are being delivered without registration in
reliance upon an exemption from the registration requirements of the Securities
Act or any state securities laws. The Stockholder is acquiring the Purchaser
Common Stock hereunder only for his own account 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.
In connection with the foregoing, each of the Stockholder hereby represents
and warrants that:
(a) such Stockholder has reviewed, discussed and evaluated the information
delivered under Section 1.2 and has had the opportunity to ask questions of, and
receive answers from, executive officers of the Purchaser concerning the terms
and conditions of this Agreement and to obtain any additional information which
such Stockholder considered necessary to verify the accuracy of the information
delivered under Section 1.2,
(b) such Stockholder understands that he or she must bear the economic
risks of the investment in Purchaser Common Stock to be made hereunder for an
indefinite period of time because such
7
<PAGE>
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
(c) such Stockholder has sufficient knowledge and experience in financial
and business matters to enable such Stockholder to be capable of evaluating the
merits and the risks of the exchange of the Company Common Stock for the
Purchaser Common Stock contemplated by this Agreement and such Stockholder's
prospective investment in the Purchaser.
3.7 Legends. 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, the Purchaser will cause
a legend to be conspicuously noted on the certificates representing the
Purchaser Common Stock deliverable hereunder, and that the Purchaser 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 as permitted by Section 11 of this Agreement and after delivery of
an opinion of Purchaser's counsel to the effect that registration thereof for
the purpose of transfer is not required under the Securities Act or that the
stock proposed to be transferred has been effectively registered for that
purpose under the Securities Act.
3 8 No Agreements with Respect to Purchaser Common Stock. Except for
----------------------------------------------------
this Agreement, Stockholder has not entered into any agreement or understanding
with anyone for the sale, at Stockholder's option or otherwise, of any of the
Purchaser Common Stock to be delivered hereunder to Stockholder at the Closing.
4. COVENANTS OF THE PURCHASER. The Purchaser covenants to the Company
and the Stockholder that, except as otherwise consented to in writing by the
Company after the date of this Agreement:
4.1 Stock Reservation. Between the date hereof and the Closing Date, the
-----------------
Purchaser will keep available and reserve a sufficient number of shares of
Purchaser Common Stock for issuance and delivery to the Stockholder as
contemplated in this Agreement.
4.2 Cause Conditions to be Satisfied. The Purchaser will use its best
--------------------------------
efforts to cause all of the conditions described in Sections 8 of this Agreement
to be satisfied (to the extent such matters reasonably are within its control).
4.3 Registration Statement on Form S-3. The Purchaser will use its best
----------------------------------
efforts to meet the requirements for eligibility set forth in paragraph A. of
the General Instructions to Form S-3, as promulgated by the U.S. Securities and
Exchange Commission in fulfilling its obligations under Section 11 hereof
4.4 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.
8
<PAGE>
4.5 Tax-Free Reorganization. The Purchaser recognizes that the Company and
-----------------------
the Stockholder desire to treat the Merger as a tax-free reorganization, and
will use its best efforts to cooperate with the Company and the Stockholder in
this regard.
4.6 Establishment of New Centers. For and so long as Stockholder, Paschal
---------------- -----------
Gagliardo, shall continue his employment with Purchaser and manage the Original
Centers, but not beyond January 1, 2001, Purchaser shall not establish a Sylvan
Learning Center at any location lying within four (4) miles of the intersection
of Interstate 10 and Bunker Hill Road (in west Houston) or within six (6) miles
of the intersection of Interstate 10 and Dominion Road (near Katy), without the
prior written approval of Paschal Gagliardo. This prohibition shall not limit
Purchaser from establishing contract-operated Sylvan Learning Centers in public
or non-public schools or in corporations for Sylvan-At-Work operations, at any
site within such areas.
5. COVENANTS OF THE COMPANY AND THE STOCKHOLDER. The Company and the
Stockholder jointly and severally covenant to the Purchaser that, except as
otherwise consented to in writing by the Purchaser after the date of this
Agreement.
5.1 Conduct of Business. After the date hereof and through the date of the
---------- --------
Closing, with respect to the Company (a) its business will be conducted only in
the ordinary course; (b) it will terminate each of its Employee Plans and will
not enter into, adopt or amend any employee benefit plan, agreement or
arrangement, enter into or amend any employment contracts, or increase the
salaries or compensation of its officers or employees, other than ordinary
increases in salaries in accordance with past practices; (c) it shall pay in
hill all liabilities outstanding on the date hereof except for (i) those
balances owed to the holders of the Company's notes and other liabilities as
shown in Section 5.1(c) of the Disclosure Schedule, and (ii) accrued employee
compensation, leave and benefits and the taxes thereon as shown in Section 5.1
(c) of the Disclosure Schedule; and (d) it shall not incur any additional
liability for borrowed money, or encumber any of its assets; (e) all outstanding
loans payable by the Company to the Stockholder or receivable by the Company
from the Stockholder or any employee shall be repaid in hill by the appropriate
party; (f) its current assets at all times will exceed all of its liabilities;
(g) except as shown in Sec 5.1(g) of the Disclosure Schedule, all trade payables
and liabilities and obligations payable in installments shall be current; (h) it
will use its best efforts to preserve its business organization intact, to keep
available the service of its officers and employees and to preserve the goodwill
of suppliers, customers and others doing business with it; (i) it will not enter
into any agreement for the purchase, sale or other disposition, or purchase,
sell or dispose of, any equipment, supplies, inventory, investments or other
assets (other than sales of inventory and purchases of materials and supplies in
the ordinary course of business and in accordance with past practices); (j) it
will not compromise or write off any material account receivable other than by
collection of the hill recorded amount thereof, (k) no change shall be made in
its Charter or By-Laws; (l) no change shall be made in the number of shares or
terms of its authorized, issued or outstanding capital stock, nor shall it enter
into or grant any options, calls, contracts or commitments of any character
relating to any issued or unissued capital stock; (m) no dividend or other
distribution or payment shall be declared or paid in respect of its capital
stock; and (n) no bonus or additional compensation in excess of normal salary
shall be paid to or declared for the benefit of any Stockholder.
9
<PAGE>
5.2 Consents. The Company and the Stockholder agree to take all
--------
necessary corporate or other action and to use their best efforts to obtain all
consents and approvals required for consummation of the transactions
contemplated by this Agreement.
5.3 Audited Financial Statements. The Stockholder will cause the Company
----------------------------
to deliver to Purchaser the Company's audited financial statements for the year
ended December 3 1, 1997 as soon as practicable after the execution of this
Agreement. Said statements shall be prepared to reflect the business operations
of the Company on an accrual basis in accordance withGAAP.
5.4 Cause Conditions to Be Satisfied. The Company and the Stockholder will
--------------------------------
use their best efforts to cause all of the conditions described in Sections 7
and 8 of this Agreement to be satisfied (to the extent such matters reasonably
are within their control).
5.5 Tax-Free Reorganization. The Company and the Stockholder recognize
-----------------------
that the Purchaser desires to treat the Merger as a tax-free reorganization
under the Code and will use best efforts to cooperate with the Purchaser in this
regard.
5.6 Reviewed Financial Statement. The stockholder, at his sole expense,
----------------------------
shall deliver to the Purchaser the Company's reviewed financial statement for
the three (3) months ended March 31, 1998 as soon as practicable after the
Closing. Said statements shall be prepared to reflect the business operations of
the Company on an accrual basis in accordance with GAAP.
6. MERGER OF PURCHASER AND THE COMPANY. Subject to the terms and
conditions of this Agreement, the Purchaser and the Company agree to effect the
following transactions at the Closing:
6.1 Conditions. The Purchaser and the Company will deliver to the other
----------
appropriate evidence of the satisfaction of the conditions to their respective
obligations hereunder.
6.2 Merger. At the Closing, the Company will be merged with and into the
------
Purchaser pursuant to the provisions and with the effect provided in the general
corporation laws of the States of Maryland and Texas. The parties shall prepare
and execute appropriate merger documents under the corporate laws of Maryland
and Texas, containing the terms provided in this Agreement, including a
Certificate and Articles of Merger which shall be filed with the Maryland State
Department of Assessments and Taxation and with the Texas Secretary of State on
the Effective Closing Date, or immediately thereafter. The Purchaser shall be
the surviving corporation in the Merger.
6.3 Initial Considerarion/Conversion Amount: Conversion of the Company
------------------------------------------------------------------
Shares. As a result of the Merger and without any action by the holders thereof,
- ------
all of the shares of Company Common Stock issued and outstanding immediately
prior to the Merger and all rights in respect thereof, shall be converted into
that number shares of Purchaser Common Stock having a market value of $944,146
(the "Conversion Amount" or "Initial Consideration"). As a result of such
conversion, the Stockholder will receive the number of shares of Purchaser
Common Stock to be issued pursuant to the Merger, rounded to the nearest whole
share. In order to effect such conversion, (i) the Stockholder will deliver to
the Purchaser at the Closing certificates in due and proper form representing
the shares of Company Common Stock owned by
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<PAGE>
such Stockholder, duly endorsed or accompanied by duly executed stock powers,
with signatures guaranteed by a commercial bank or a member of the National
Association of Securities Dealers, Inc., and (ii) the Purchaser shall deliver to
the Stockholder a certificate, in due and proper form, representing the number
of shares of Purchaser Common Stock to which such Stockholder is entitled. Each
share of Purchaser Common Stock issued pursuant to the Merger shall be frilly
paid and non-assessable. For purposes of the foregoing, the market value of the
Purchaser Common Stock shall equal the average of the closing prices reported in
the Wall Street Journal for each of the fifteen (15) trading days ended and
including Friday, March27, 1998.
6.4 Earnout Consideration. In addition to the Initial Consideration to be
----------------------
paid at Closing, the Purchaser shall pay to the Stockholder the amounts set
forth in clauses (a), (b) and (c) below (together, the "Earnout Consideration,"
and, collectively with the Initial Consideration, the "Aggregate Purchase
Price"), subject to the terms and conditions of those clauses.
(a) The Purchaser agrees to pay the Stockholder as additional
consideration for the Company Common Stock that number of shares of the
Purchaser Common Stock having a then Market Value (as defined below) equal to
the result of multiplying the West Houston EBIT(as defined below) for 1998 in
excess of $200,000 by .333 and then by 5, with three-fourths of such shares
being delivered to Stockholder on April 1, 1999, and the remaining one-fourth of
such shares being delivered to Stockholder on April 1, 2001, subject to the
conditions that Stockholder Paschal Gagliardo shall not as of December 31, 1998
(to receive the three-fourths portion) and March 31, 2001 (to receive the one-
fourth portion), respectively, have terminated his employment with Purchaser
"without cause" as of such dates or as of such dates had his employment
terminated "for cause" by Purchaser, as those terms are used in the Employment
Contract attached hereto as Exhibit A.
(b) The Purchaser agrees to pay the Stockholder as additional
consideration for the Company Common Stock that number of shares of the
Purchaser Common Stock having a then Market Value (as defined below) equal to
the result of multiplying the West Houston EBIT (as defined below) for 1999 in
excess of $200,000 by 333 and then by 5, with three-fourths of such shares being
delivered to Stockholder on April 1, 2000 and the remaining one-fourth of such
shares being delivered to Stockholder on April 1, 2001, subject to the
conditions that Stockholder Paschal Gagliardo shall not as of December 31, 1999
(to receive the three-fourths portion) and March 31, 2001 (to receive the one-
fourth portion), respectively, have terminated his employment with Purchaser
"without cause" as of such dates or as of such dates had his employment
terminated "for cause" by Purchaser, as those terms are used in the Employment
Contract attached hereto as Exhibit A.
(c) The Purchaser agrees to pay the Stockholder as additional
consideration for the Company Common Stock that number of shares of the
Purchaser Common Stock having a then Market Value (as defined below) equal to
the result of multiplying the West Houston EBIT (as defined below) for 2000 in
excess of $200,000 by .333 and then by 5, with three-fourths of such shares
being delivered to Stockholder on April 1, 2001, and the remaining one-fourth of
such shares being delivered to Stockholder on April 1, 2001, subject to the
conditions that Stockholder Paschal Gagliardo shall not as of December 31, 2000
(to receive the three-fourths portion) and March 31, 2001 (to receive the
one-fourth portion), respectively, have terminated his employment with Purchaser
"without cause" as of such date, or, as of such dates had his employment
terminated "for cause" by Purchaser, as those terms are used in the Employment
Contract attached hereto as Exhibit A.
11
<PAGE>
(d) For purposes of this Section 6.4, the Market Value of a share of
Purchaser Common Stock shall equal the average of the closing per share sales
prices reported in the Wall Street Journal, for each of the 15 trading days
immediately prior to issuance.
(e) For purposes of this Section 6.4, West Houston EBIT shall mean the
net profits of Purchaser derived from the operation of the existing Sylvan
Learning Centers located at 9575 Katy Freeway, Suite 310, Houston, Texas 77024
and 20501 Katy Freeway, Suite 132, Katy, Texas 77450 (the "Original Centers"),
and no others unless either of the two Centers aforementioned shall be closed
and relocated to another site pursuant to the written approval of Purchaser. The
term "net profits" shall be calculated on an accrual basis center by center for
the Original Centers in accordance with generally accepted accounting principles
consistently applied, and shall mean (whether any given Original Center has, in
fact, a profit or a loss) the yearly revenues attributable to all learning
center operations conducted therein, less the sum of 1) all operating expenses
and local, co-op and hill national advertising costs and charges directly
incurred in operating said Centers, 2) depreciation and amortization charges
against capitalized items in the Original Center, 3) 6% of the yearly revenues
(as an adjustment to reach comparability to franchised center operations), and
4) Employee's salary and bonuses (under Section 2.0) and benefits (under Section
5.0), and Employee's staff; office and travel and entertainment expenses. Items
under this last category will be divided equally only among those Centers (which
may include additional centers to the two Original Centers) subject to
Employee's managerial control from the date they open, which are located in the
------
area of the Territory of Sylvan License Agreement #314 as configured immediately
- ----
prior to the Closing. In calculating net profits, no consideration or effect
shall be given to a) extraordinary and/or non-recurring expenses associated with
the closing of any Original Center(s), b) capitalized expenditures associated
with expansion of Original Centers (these amounts being later reflected in
depreciation and amortization charges, and c) any indirect internal overhead
expense incurred by Employer for accounting, marketing, finance, management,
administration, human resources, and legal functions that benefit the Original
Centers and their operations. The net profit of each of the Original Centers
will be combined to determine the combined net profit, if any.
(f) Purchaser covenants to Stockholder that it will, at all times,
reserve a sufficient number of shares of Purchaser Common Stock to enable it to
pay the Earn-out Consideration in full.
6.5 Closing. The closing (the "Closing") of the transactions contemplated
-------
by this Agreement shall take place at the offices of the Company, in Houston,
Texas, beginning at 4:00 p.m. on March 30, 1998, or at such other time and place
as may be agreed upon in writing by the Purchaser and the Stockholder (the
"Closing Date"). The closing shall be effective as of the close of business on
March 31, 1998 (the "Effective Closing Date").
7. 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:
7.1 Approvals of Governmental Authorities. 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. Transactions contemplated by this
12
<PAGE>
Agreement shall have been received and shall not contain any provision which, in
the reasonable judgment of the Purchaser, is unduly burdensome.
7.2 No Adverse Proceedings or Events. No suit, action or other proceeding
--------------------------------
against the Company or the Purchaser, or their respective officers or directors,
or either of the Stockholder, 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.
7.3 Consents and Actions: Contracts. All requisite consents of any third
-------------------------------
parties and other actions which the Company has covenanted to use its best
efforts to obtain and take under Section 5.2 hereof shall have been obtained and
completed. All material contracts and agreements of the Company, including,
without limitation, all contracts and agreements listed on Section 2.6 of the
Disclosure Schedule, shall be in full force and effect and shall not be affected
by the consummation of the transactions contemplated hereby.
7 4 Other Evidence. The Purchaser shall have received from the Company
--------------
and the Stockholder such further certificates and documents evidencing due
action in accordance with this Agreement, including certified copies of
proceedings of the Board of Directors and stockholders of the Company, as the
Purchaser reasonably shall request.
7.5 Emoloyment Agreement. The Purchaser and Paschal Gagliardo shall have
--------------------
entered into an Employment Agreement in substantially the form of Exhibit A
-------
attached hereto.
7.6 Current Financial Statements and Projections. The Stockholder shall
--------------------------------------------
have provided, or caused the Company to have provided to Purchaser the audited
financial statements of the Company for calendar year 1997 showing an EBIT of at
least $200,000 for such year, as well as a projection of revenues and expenses
for calendar year 1998, which projection reflects net income of at least
$240,000 for such year. Such audited financial statements shall be prepared on
an accrual basis, in accordance with GAAP. "EBIT" means the Company's net
revenues minus all of its expense items including any extraordinary and non-
recurring items and depreciation and amortization, but excluding interest and
taxes. For the 1998 projection, EBIT shall be calculated in the same manner as
"profits subject to bonus' under paragraph 2.02 of the Employment Agreement
attached hereto as Exhibit A.
7. 7 Purchase of Other Houston and deliver to Stockholder the Purchaser
-------------------------
Common the purchase of at least seven (7) of the following 315, 316, 323, 326,
327, 347 and 351 on or before Centers. The obligation of Purchaser to close
Stock is conditioned on Purchaser closing on nine (9) Sylvan Learning Centers
#311, 314, April 1, 1998. At the present time, Purchaser has non-binding letters
of agreement to purchase all of said centers by April 1, 1998. If the closing of
purchases on at least seven (7) of the centers listed above does not occur, for
whatever reason, by April 1, 1998, Purchaser reserves the right to cancel
this transaction by telephonic notice to Stockholder not later than 10:00 p.m.
April 1, 1998, in which case the Purchaser Common Stock shall not be delivered
to Stockholder, and Purchaser will promptly return all closing documents
delivered by the Company and Stockholder at the Closing.
13
<PAGE>
7.8 Resignation of Officers and Directors. Each and every officer and
------------ ----------------------
director of the Company shall have resigned from any and all positions with the
Company as director, officer or employee effective as of immediately prior to
the Effective Closing Date.
8. CONDITIONS TO THE COMPANY'S AND THE STOCKHOLDER'S OBLIGATIONS. Unless
waived by the Company and the Stockholder, all obligations of the Company and
the Stockholder under this Agreement are subject to the fulfillment, prior to or
at the Closing, of each of the following conditions:
8.1 No Adverse Proceedings or Events. No suit, action or other proceeding
--------------------------------
against the Company or the Purchaser, or their respective officers or directors,
or the Stockholder, 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.
8.2 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.
8.3 Other Evidence. The Company and the Stockholder 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 Company and the Stockholder
reasonably shall request.
9. INDEMNIFICATION.
9.1. Indemnification bv the Stockholder. The Stockholder hereby
----------------------------------
covenants to indemnify and hold harmless the Purchaser and its respective
successors and assigns from and after the date of Effective Closing Date against
and in respect of the following:
(i) any 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 Company or the Stockholder 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 Company or the
Stockholder hereunder;
(ii) any liabilities or obligations of the Company or the Stockholder
for federal, state or local income tax or, to the extent not accrued or
reflected in the Financial Statements, any personal property, FICA, withholding,
excise, unemployment, sales or franchise taxes arising from
operations of the Company prior to the Effective Closing Date except as shown in
Schedule 5.1(c) and 5.1(g) of the Disclosure Schedule.
(iii) all claims, actions, suits, proceedings, demands, assessments,
judgments, costs, reasonable attorneys' fees and expenses of any nature incident
to any of the matters indemnified
14
<PAGE>
against pursuant to this Section 9.1, including, without limitation, all such
costs and expenses incurred in the defense thereof or in the enforcement of any
rights of the Purchaser hereunder.
9.2. Notice and Defense. The Purchaser shall notify the Stockholder of any
------------------
asserted liability, damage, loss or expense claimed to give rise to
indemnification hereunder and the Stockholder 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, Stockholder shall
respond in writing as to whether Stockholder will engage counsel at
Stockholder's expense to defend the claim. If Stockholder does 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 Stockholder's sole cost and expense
through counsel chosen by the Purchaser and reasonably acceptable to the
Stockholder; provided, however, that any such compromise or defense shall be
conducted in a manner which is reasonable and the Stockholder 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 Stockholder
(other than under Section 9.1). 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 Stockholder has indemnity liability
under this Section 9, and which the Stockholder does not reimburse Purchaser
within five (5) days following demand for reimbursement by Purchaser, Purchaser
may, in addition to any other remedies, (if such Stockholder is then an employee
of Purchaser) offset the amount of the Stockholders liability on the claim paid
against any compensation payable to the Stockholder.
9.3. Indemnification bv the Purchaser. From and after the Closing Date,
--------------------------------
the Purchaser hereby covenants and agrees to indemnify and hold harmless the
Stockholder against and in respect of the following.
(i) any liability, loss, damage or expense resulting from any
misrepresentation on, 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 9.3,
including without limitation, all such costs and expenses incurred in the
defense thereof or in the enforcement of any rights of the Stockholder
hereunder.
The Stockholder 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 Stockholder is fully protected from any cost or
expense in connection therewith. - - -right to defend, compromise and settle
such matter provided that the Stockholder is fully protected from any cost or
expense in connection therewith.
15
<PAGE>
10 SURVIVAL; LIMITATIONS.
10.1 Survival. 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
Stockholder and Purchaser set forth in Section 9 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 Stockholder, 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 March 31, 2000. Notwithstanding the
foregoing, (i) any indemnification obligations of the Stockholder relating to
federal, state or local tax matters or environmental matters of any sort shall
continue in hill force and effect without limitation until expiration of the
statute of limitations applicable to such tax or environmental matters, (ii) the
representation and warranty contained in Sections 2.1, 2.2 or 3.1 and any
indemnification obligations of the Stockholder in connection therewith shall
continue in hill force and effect without any limitation, (iii) any claims,
actions or suits the Purchaser, on the one hand, or the Company or the
Stockholder, on the other hand, may have which arises from any fraud or willful
misconduct on the part of the Stockholder or the Company, or any representative
of either, 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.
10.2 Limitations. No indemnified party shall be entitled to
-----------
indemnification hereunder until such time as a single loss or an aggregate of
several losses equals Ten Thousand Dollars ($10,000), at which time such
indemnified party shall be entitled to indemnification for all losses sustained,
incurred, paid or required to be paid by such indemnified party in excess of the
$10,000; and in no event shall any party to this Agreement be entitled to
indemnification for a single loss or an aggregate of several losses which
exceeds the Aggregate Purchase Price.
11 REGISTRATION RIGHTS.
11.1 Registration Procedures and Expenses. So long as the Stockholder has
------------------------------------
not initiated the termination of his employment with the Purchaser pursuant to
Section 4.01 of the Employment Agreement between the Stockholder and the
Purchaser dated as of the date hereof, Purchaser shall:
(a) as soon as practicable after the closing date but in no event
later than ninety (90) days after the closing date, prepare and file with the
Securities and Exchange Commission (the "Commission") a registration statement
on Form S-3 which meets the requirements of Rule 415 promulgated under the
Securities Act (a "Shelf Registration Statement") covering the sale by the
Stockholder from time to time of one half of the shares of the Purchaser Common
Stock received by the Stockholder in the Merger, and as soon as practicable
after the first anniversary of the closing date, but in no event later than
ninety (90) days after the first anniversary of the closing date, a Shelf
Registration Statement covering the sale by the Stockholder from time to time of
the remaining shares of Purchaser Common Stock. The foregoing notwithstanding,
Purchaser shall have no obligation to file a Shelf Registration Statement or to
maintain the effectiveness of any previously filed Shelf Registration Statement
if the sale of the Purchaser Common Stock pursuant to exemption from
registration under Rule 144 is available to the Stock-holder, Further, the
Purchaser may extend its obligation to file a registration statement if the
Purchaser advises the Stockholder that there is a pending, but unannounced
transaction or
16
<PAGE>
development which Purchaser determines is not then appropriate for disclosure,
and that registration of the Purchaser Common Stock would require such
disclosure.
(b) use its best efforts, subject to receipt of necessary information
from the Stockholder, to cause each of the Shelf Registration Statements to
become effective;
(c) prepare and file with the Commission such amendments and
supplements to the Shelf Registration Statements and the prospectus used in
connection therewith as may be necessary to keep the Shelf Registration
Statements effective until the earlier of the date on which the Purchaser Common
Stock registered by such Shelf Registration Statement has been sold, or one year
from the date of the initial filing thereof,
(d) during the period referred to in (c) above, prepare and promptly
file with the Commission, and promptly notify the Stockholder of the filing of,
such amendment or supplement to each such Shelf Registration Statement and the
prospectus as may be necessary to correct any statements or omissions if, at any
time when a prospectus relating to the Purchaser Common Stock is required to be
delivered under the Securities Act, any event has occurred the result of which
is that any such prospectus then in effect would include or incorporate an
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein not misleading in light of the circumstances in
which they were made;
(e) advise the Stockholder, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the Commission
suspending the effectiveness of any of such Shelf Registration Statements or the
initiation or threatening of any proceeding for that purpose and promptly use
its diligent best efforts to prevent the issuance of any stop order and to
obtain its withdrawal if such stop order should be issued;
(f) furnish to the Stockholder with respect to the Purchaser Common
Stock registered under any of the Shelf Registration Statements such number of
copies of prospectuses and preliminary prospectuses in conformity with the
requirements of the Securities Act and such other documents as the Stockholder
may reasonably request (but in no event more than 100 copies), in order to
facilitate the public sale or other disposition of all or any of the registered
Purchaser Common Stock by the Stockholder; provided, however; that the
--------- -------
obligation of Purchaser to deliver copies of prospectuses or preliminary
prospectuses to the Stockholder shall be subject to the receipt by Purchaser of
reasonable assurances from the Stockholder that the Stockholder will comply with
the applicable provisions of the Securities Act and of such other securities or
blue sky laws as may be applicable in connection with any use of such
prospectuses or preliminary prospectuses;
(g) file documents required of Purchaser for normal blue sky clearance
in states reasonably specified in writing by the Stockholder, provided, however,
that Purchaser shall not be required to qualify to do business or consent to
service of process in any jurisdiction in which it is not now so qualified or
has not so consented; and
(h) bear all expenses in connection with the procedures in paragraphs
(a) through (g) of this Section 11.1 and the registration of the Purchaser
Common Stock pursuant to each of the
17
<PAGE>
Shelf Registration Statements, other than fees and expenses, if any, of counsel
or other advisers to the Stockholder.
11.2 Engagement of Underwriters. The parties hereto agree that the
------------- ------------
Purchaser obligation to (i) conduct, arrange or coordinate any distribution or
sales activities on Stockholder with respect to the Purchaser Common Stock other
than as set forth in Section 11.1 above or (ii) retain any underwriter(s) in
connection with the registration and/or distribution of the Purchaser Common
Stock pursuant to this Section 11. The Stockholder agrees that any
underwriter(s) or counsel engaged in connection with the registration or
distribution of the Purchaser Common Stock required to be registered pursuant to
this Section 11 will be retained by and at the sole expense of the Stockholder
and agrees further that any discounts or commissions payable to such
underwriter(s) shall also be an expense solely of the Stockholder. In the event
the Stockholder engages one or more underwriters pursuant to this Section 11.2,
the Stockholder shall enter into an underwriting agreement with the managing or
lead managing underwriter in the form customarily used by such underwriter with
such changes thereto as the parties thereto shall agree; and, further, shall
provide to such underwriter any documents or other information as is necessary,
in the underwriter's reasonable opinion, to facilitate the effectiveness of the
Shelf Registration Statement and the completion of the distribution of the
Purchaser Common Stock so registered.
11.3 Indemnification with respect to Shelf Registration Statements.
------------------------------------- -----------------------
Purchaser hereby agrees to indemnify the Stockholder against liability arising
out of or based upon any untrue statement or alleged untrue statement of
material fact in any of the Shelf Registration Statements filed by Purchaser
pursuant hereto, or the omission or alleged omission to state or incorporate by
reference in such Shelf Registration Statements any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading, other than any such statement included or incorporated by reference
in, or omitted from, such Shelf Registration Statements by Purchaser in reliance
upon and in conformity with written information furnished to Purchaser
specifically for use therein by or on behalf of the Stockholder. The Stockholder
hereby agrees to indemnify Purchaser against liability arising out of or based
upon any untrue statement or alleged untrue statement of a material fact
included or incorporated by reference in the Shelf Registration Statements or
the omission or alleged omission to state or incorporate by reference therein
any material fact required to be stated therein or necessary in order to make
the statements therein not misleading, if such statement or omission was made by
Purchaser in reliance upon and in conformity with written information furnished
to Purchaser for use or incorporation by reference in such Shelf Registration
Statements.
12. CONFIDENTIALITY. After the date hereof the Stockholder 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 Company, 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 Stockholder, or (iii) been
supplied to the Stockholder by a third party without violation of the rights of
the Company or the Purchaser or any other party. The parties agree that the
remedy at are consummated, it is expressly understood that the Stockholder will
bear, and will not cause the Company to pay, any legal fees or other expenses
incurred by Company in connection with the transactions contemplated by this
agreement, as well as the cost of furnishing the audited and reviewed
18
<PAGE>
Company Financial Statements referred to in Section 2.4; provided, however, that
in the event of any litigation between the parties hereto relating to or arising
from this Agreement, the prevailing party in such litigation shall be entitled
to payment by the non-prevailing party of all reasonable attorney's fees and
costs.
13. 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:
0. Steven Jones, General Counsel
Sylvan Learning Systems, Inc.
1000 Lancaster Street
Baltimore, Maryland 21202
with a copy to:
Richard C. Tilghman, Jr,, Esquire
Piper & Marbury
36 South Charles Street
Baltimore, Maryland 2]20]
(b) if to the Company or the Stockholder, shall be addressed to:
Paschal Gagliardo
1215 Breezy Bend
Katy, Texas 77494
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.
14. 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.
15. 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,
19
<PAGE>
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.
20
<PAGE>
IN WITNESS WHEREOF, the Purchaser, the Company and the Stockholder 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: O. Steven Jones
Title: Vice President
WITNESS: LEARNING CENTERS OF WEST HOUSTON, INC.
__________________________ By: __________________________
Name: Paschal Gagliardo
Title: President
WITNESS: STOCKHOLDER
__________________________ ______________________________
Paschal Gagliardo
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Exhibit 4.6
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement"), effective as of
February 28, 1998 but dated this 31st day of March, 1998, by and among SYLVAN
LEARNING SYSTEMS, INC., a Maryland corporation (the "Purchaser"), Creation
Wallcoverings, Inc., a Texas corporation (the "Company"), and William Van Dobson
and Marie Jeanette Dobson , the sole stockholders of the Company (the
"Stockholder," whether one or more).
W I T N E S S E T H:
- - - - - - - - - -
The Stockholder owns all the issued and outstanding capital stock of the
Company. The Purchaser and the Stockholder wish to enter into an agreement for
the acquisition of the Company by the Purchaser through a merger of the Company
into the Purchaser in a transaction qualifying as a tax-free reorganization
under Section 368(a)(1)(A) of the Code (the "Merger"). The parties agree and
acknowledge that for accounting purposes, the Merger is to be treated as a
pooling-of-interests. The Purchaser, the Company and the Stockholder wish to
enter into a definitive agreement setting forth the terms and conditions of the
Merger.
Accordingly, in consideration of the foregoing and of the covenants,
agreements, representations and warranties hereinafter contained, the Purchaser,
the Company and the Stockholder hereby agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby
represents and warrants to the Company and the Stockholder as follows:
1.1 Organization and Standing. The Purchaser is a corporation duly
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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 delivered to the Company, 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.
1.2 Financial Statements. The Purchaser has delivered to the Company
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copies of the Purchaser's audited consolidated financial statements for the
fiscal year ended December 31, 1996. 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 Company copies of its Quarterly Report on Form 10-Q for the
third quarter ended September 30, 1997, 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. The reports to the Securities and Exchange
Commission delivered to the Company and the Stockholders do not contain any
misstatements of material facts or omit any statements necessary to make the
statements contained therein not correct.
1.3 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
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or modification of, or be in conflict with, the Purchaser's Charter or By-Laws,
or, any terms of any contract, instrument 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.
1.4 Brokers and Advisors. The Purchaser has taken no action which
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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.
1.5 Authority. The execution, delivery and performance of this
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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. Upon the satisfaction of all conditions contained herein and the
filing of Articles of Merger with the Maryland State Department of Assessments
and Taxation and the Texas Secretary of State, this Agreement will result in
the valid, legally binding and enforceable statutory merger of the Company and
the Purchaser.
1.6 Validity of Common Stock. The shares of Purchaser's Common Stock
------------------------
to be issued and delivered by the Purchaser in connection with the Merger have
been duly authorized for issuance and will, when issued and delivered as
provided in this Agreement, be duly and validly issued, fully paid and non-
assessable.
1.7 Tax-Free Reorganization. The Purchaser is not aware of any
-----------------------
events or conditions relating to the Purchaser which would preclude the Company
or the Stockholder from treating the Merger as a tax-free reorganization under
Section 368(a)(1)(A) of the Code.
1.8 Registration Statement on Form S-3. As of the date hereof, the
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Purchaser is aware of no events, actions or conditions which would prevent the
Purchaser from being able to comply with the provisions of Section 11.1(a) of
this Agreement, and will use its best efforts to continue to be eligible to
comply with the provisions of Section 11.1(a).
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDER.
The Company and the Stockholder hereby jointly and severally represent and
warrant to the Purchaser as follows:
2.1 Authorized and Issued Shares. The Company's entire authorized
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capital stock consists of 2,000 shares of Common Stock, $No par value per share
(the "Company Common Stock"), of which 2,000 shares are issued and outstanding.
No shares of Company Common Stock are held in the Company's treasury and no
shares are reserved for issuance. All outstanding shares of Company Common
Stock have been duly authorized and are validly issued and are fully paid and
non-assessable and are owned by the Stockholder. The Company is not a party to
or bound by any options, calls, contracts, preemptive rights or commitments of
any character relating to any issued or unissued capital stock, or any other
equity security issued or to be issued by the Company.
2.2 Organization. The Company is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Texas, and
has the corporate power and authority to carry on its business as it is now
being conducted and to own or hold under lease the properties or assets it now
owns or
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holds under lease and to perform the actions contemplated hereby. Complete and
accurate copies of the current Charter, By-Laws, minute books and stock transfer
books of the Company have been provided to the Purchaser, and such copies are
complete and correct and in full force and effect. The Company does not own or
have any direct or indirect interest in any other corporation, firm,
partnership, joint venture enterprise or other business entity.
2.3 Transactions with Affiliates. Except as set forth in Section 2.3
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of the disclosure schedule delivered to the Purchaser pursuant to this Agreement
(the "Disclosure Schedule") or in the Company Financial Statements (as
hereinafter defined), the Company is not a party to any contract, agreement or
other arrangement with any current or former officer, director or stockholder or
any affiliate of any such persons. Each transaction required to be listed on
the Disclosure Schedule is on terms no less favorable than terms available from
unrelated parties.
2.4 Financial Statements. The Company has provided to the Purchaser
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the unaudited financial statements for the fiscal years of the Company ended on
December 31, 1996, and December 31, 1997, which December 31, 1997 financial
statement shall be restated on an accrual basis and audited as soon as
practicable after the execution of this Agreement (collectively, the "Company
Financial Statements"). As of the Closing Date, the Company Financial
Statements will be complete and correct, prepared on a consistent basis
throughout the periods covered thereby
and will present fairly and accurately the financial position and results
of operations of the Company as of and for the periods indicated. There are no
material liabilities or obligations of the Company, whether contingent or
absolute, as of the dates of such statements, including liability for taxes of
any type, which in accordance with GAAP consistently applied should have been
shown or provided for in the Company Financial Statements and are not so shown
or provided for. Since December 31, 1997, 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 Company except as shown on Schedule 2.4 of Disclosure Schedule. The
Company's accounts receivable arose, and all accounts receivable that will be
outstanding as of the Closing Date shall have arisen, from bona fide
---- ----
transactions in the ordinary course of business and will be collectible by the
Company in full, less applicable reserves shown in the Company Financial
Statements, in the ordinary course of business within ninety days of the Closing
Date, and there are no offsets or claims related to such accounts receivable.
2.5 Taxes. The Company and the Stockholder have properly prepared
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and filed all federal, state and other tax returns required to be filed in
connection with the operations of the Company. True and complete copies of all
federal and state income tax returns for the Company and the Stockholder for
each of the years ended January 1, 1997 through December 31, 1997 have been
delivered or made available to the Purchaser on or prior to the date hereof and
copies of other returns will be made available upon request. Except as set
forth on Section 2.5 of the Disclosure Schedule or in the Company Financial
Statements, neither the Company nor the Stockholder has any liability for any
federal, state, county, local or other taxes whatsoever that arose or otherwise
was incurred on or before the date of the balance sheet for Fiscal Year Ending
December 31, 1997 included in the Company Financial Statements. No proposed
taxes, additions to tax, interest or penalties have been asserted or are pending
against the Company or the Stockholder with respect to periods ending on or
before Closing, and no such matters are under discussion with the applicable
authorities. There are no agreements, waivers, or other arrangements providing
for extensions of time with respect to the assessment or collection of any
unpaid tax against the Company or the Stockholder. The Company and the
Stockholder have withheld or otherwise collected all taxes or amounts it or he
was required to withhold or collect under any applicable federal, state or local
law, including, without limitation, any amounts required to be withheld or
collected with respect to employee state and federal income tax withholding,
social security, unemployment compensation, sales or use taxes or workmen's
compensation, and all such amounts have been timely remitted to the proper
authorities.
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2.6 Agreements. Section 2.6 of the Disclosure Schedule identifies
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each of the following 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 summaries thereof, have been made available to the
Purchaser): (i) all documents relating to indebtedness for money borrowed or
collateral therefor, including guarantees; (ii) all agreements or plans relating
to employment, compensation of or benefits for officers or employees of the
Company; (iii) all contracts for the purchase of materials, supplies, services,
merchandise or equipment involving consideration of more than $2,000 or
involving purchases in excess of normal operating requirements; (iv) any
contract, agreement, or instrument not entered into in the ordinary course of
the business of the Company on a basis consistent with past practice; (v) any
contract containing restrictions on the Company's operations or its ability to
compete in any geographic region or in any line of business; (vi) any lease of
real property and all personal property leases calling for annual lease payments
in excess of $2,000; and (vii) each and every other contract which is material
to the financial condition, earnings, operation or business of the Company.
Each of the contracts and agreements so listed (collectively, the "Contracts")
is a valid and existing contract or agreement in full force and effect and there
exists no default by the Company thereunder. None of the Contracts will be
violated or breached and no default or right of termination or modification
shall arise thereunder as a result of the consummation of the transactions
contemplated by this Agreement.
2.7 Property. Section 2.7 of the Disclosure Schedule sets forth a
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schedule (the "Property Schedule") of (i) all real property owned or leased by
the Company (the "Real Property"), (ii) all individual items of tangible
personal property and assets (other than inventory) of the Company 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 of the Company. Except as set
forth in the Property Schedule, the Company 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. The machinery and equipment of the Company are, in all material
respects, in good operating condition and repair, ordinary wear and tear
excepted. To the Company's knowledge, the Company 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.
2.8 Legal Proceedings, Etc. Except as set forth in Section 2.8 of
-----------------------
the Disclosure Schedule, there are no legal, administrative, arbitration, or
other proceedings or governmental investigations pending or, to the best of the
Company's and the Stockholder's knowledge, threatened against the Company, the
Stockholder or the respective properties or assets of the Company and the
Stockholder.
2.9 Compliance; Licenses. The Company 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. Section 2.9 of the Disclosure Schedule contains a
true and complete list of all material licenses, permits, approvals, franchises
and other authorizations as are necessary in order to enable the Company to own
and conduct its business.
2.10 Bank Accounts, etc. Section 2.10 of the Disclosure Schedule
------------------
sets forth a true and complete 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.
2.11 Insurance. Section 2.11 of the Disclosure Schedule sets forth a
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summary of all general liability, product liability, fire, casualty, motor
vehicle and other insurance currently maintained by or on behalf of the Company.
All requirements and provisions thereof are being complied with. True and
correct copies of all insurance policies relating to such coverage have been
provided by the Company to the Purchaser.
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No notice of cancellation has been given to or received by the Company with
respect to any of its insurance policies, and no such policies are subject to
any retroactive rate or audit adjustments or coinsurance arrangements.
2.12 Employee Plans. Except as set forth in Section 2.12 of the
--------------
Disclosure Schedule, the Company 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, former employee,
retired employee, or beneficiary of any of these, of the Company is entitled to
participate. The plans, programs, contracts, understandings and arrangements
listed on the Disclosure Schedule pursuant to this Section 2.12 are hereinafter
referred to as the "Employee Plans." The Company has supplied the Purchaser
with 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.
2.13 Recent Operations; Employee Matters. Since December 31, 1997,
-----------------------------------
(i) the Company has operated its business substantially as it was operated
immediately prior to said date and only in the ordinary course, and the Company
and the Stockholder have used their best efforts to preserve intact the
Company's business relationships, (ii) there have been no bonuses paid to or
increases in the compensation of officers or employees, except as set forth in
Section 2.13(ii) of the Disclosure Schedule, and (iii) except as set forth in
Section 2.13(iii) of the Disclosure Schedule, the Company has not declared or
paid any dividend or made any other distribution with respect to its capital
stock.
2.14 Stockholder Distributions. No dividends or distributions were
-------------------------
declared and/or paid to the Stockholder (whether in cash or other assets) after
December 31, 1997 through the date hereof (the "1998 Period").
2.15 Environmental Matters. To the best of Company's knowledge, no
---------------------
storage tanks, underground or otherwise, are now located on any properties
occupied by the Company, the Company has complied in all material respects with
all environmental laws relating to its operations or properties occupied by it
and there are no asbestos containing materials located on properties occupied by
the Company. The Company 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 by the Company.
2.16 Disclosure. The Company and the Stockholder have disclosed to
----------
the Purchaser all facts material to the assets, business, operations, financial
condition and prospects of the Company. All agreements, schedules, exhibits,
documents, certificates, reports or statements furnished or to be furnished to
the Purchaser by or on behalf of the Company 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.
2.17 No Conflict With Other Documents. 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 Company's Articles of Incorporation or By-Laws,
any terms of any contract, instrument or other agreement to which the Company 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 Company 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
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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 Company.
2.18 Brokers and Advisors. The Company 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.
2.19 Authority. The execution, delivery and performance of this
---------
Agreement by the Company have been duly authorized by the sole Director and the
Stockholder, and this Agreement is a valid and legally binding and enforceable
obligation of the Company. Upon the satisfaction of all conditions contained
herein and the filing of the Articles of Merger with the Maryland State
Department of Assessments and Taxation and the Texas Secretary of State, this
Agreement will, to the Stockholder's best knowledge, result in the valid,
legally binding and enforceable statutory merger of the Company and the
Purchaser.
3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The Stockholder
hereby represents and warrants to the Purchaser as follows:
3.1 Ownership of Company Common Stock. Such Stockholder has good and
---------------------------------
marketable title to the number of issued and outstanding shares of Company
Common Stock set forth opposite his or her name on Section 3.1 of the Disclosure
Schedule, free and clear of any pledges, liens, restrictions, claims or
encumbrances of any kind. Such Stockholder is not a party to or bound by any
options, calls, contracts, or commitments of any character relating to any
issued or unissued stock or any other equity security issued or to be issued by
the Company.
3.2 No Conflicts. Neither the execution and delivery of this
------------
Agreement nor the carrying out of the transactions contemplated hereby, will
result in any breach of or constitute a default (or with notice or lapse of time
or both would become a default), or give to others any rights, under the terms
of any contract, instrument or other agreement to which such Stockholder is a
party or is otherwise bound, or any judgment, decree or order applicable to such
Stockholder.
3.3 Binding Effect. This Agreement is a valid and legally binding
--------------
and enforceable obligation of the Stockholder, subject to applicable bankruptcy,
moratorium and other laws affecting the rights of creditors generally.
3.4 Litigation. There is no litigation, proceeding or governmental
----------
investigation pending as to which Stockholder has been served with process or
summons, or to the best of Stockholder's knowledge, threatened or in prospect
against or relating to such Stockholder or the shares of Company Common Stock
owned by him or her or the transactions contemplated by this Agreement.
3.5 Brokers and Advisors. Such Stockholder 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.
3.6 Investment Intent. It is understood that the shares of Purchaser
-----------------
Common Stock to be delivered to the Owner pursuant to this Agreement are not
being registered, for purposes of the transactions hereunder, under the
Securities Act of 1933, as amended (the "Securities Act") or any state
securities laws, and the shares are being delivered without registration in
reliance upon an exemption from the registration requirements of the Securities
Act or any state securities laws. The Owner is acquiring the Purchaser Common
Stock hereunder only for his own account and not with any intention of making,
or with a view to, or for sale in
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connection with, any distribution thereof within the meaning of the Securities
Act unless such shares first are registered under the Securities Act.
In connection with the foregoing, each of the Stockholder hereby
represents and warrants that:
(a) such Stockholder has reviewed, discussed and evaluated the
information delivered under Section 1.2 and has had the opportunity to ask
questions of, and receive answers from, executive officers of the Purchaser
concerning the terms and conditions of this Agreement and to obtain any
additional information which such Stockholder considered necessary to verify the
accuracy of the information delivered under Section 1.2;
(b) such Stockholder understands that he or she must bear the
economic risks of the investment in Purchaser 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
(c) such Stockholder has sufficient knowledge and experience in
financial and business matters to enable such Stockholder to be capable of
evaluating the merits and the risks of the exchange of the Company Common Stock
for the Purchaser Common Stock contemplated by this Agreement and such
Stockholder's prospective investment in the Purchaser.
3.7 Legends. It is understood and agreed that, to implement the
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requirements of the Securities Act and state securities laws and evidence the
restrictions upon transfer contained in this Agreement, the Purchaser will cause
a legend to be conspicuously noted on the certificates representing the
Purchaser Common Stock deliverable hereunder, and that the Purchaser 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 as permitted by Section 11 of this Agreement and after delivery of
an opinion of Purchaser's counsel to the effect that registration thereof for
the purpose of transfer is not required under the Securities Act or that the
stock proposed to be transferred has been effectively registered for that
purpose under the Securities Act.
3.8 No Agreements with Respect to Purchaser Common Stock. Except for
----------------------------------------------------
this Agreement, Stockholder has not entered into any agreement or understanding
with anyone for the sale, at Stockholder's option or otherwise, of any of the
Purchaser Common Stock to be delivered hereunder to Stockholder at the Closing.
4. COVENANTS OF THE PURCHASER. The Purchaser covenants to the Company and
the Stockholder that, except as otherwise consented to in writing by the Company
after the date of this Agreement:
4.1 Stock Reservation. Between the date hereof and the Closing Date,
-----------------
the Purchaser will keep available and reserve a sufficient number of shares of
Purchaser Common Stock for issuance and delivery to the Stockholder as
contemplated in this Agreement.
4.2 Cause Conditions to be Satisfied. The Purchaser will use its
--------------------------------
best efforts to cause all of the conditions described in Sections 8 of this
Agreement to be satisfied (to the extent such matters reasonably are within its
control).
4.3 Registration Statement on Form S-3. The Purchaser will use its
----------------------------------
best efforts to meet the requirements for eligibility set forth in paragraph A.
of the General Instructions to Form S-3, as promulgated by the U.S. Securities
and Exchange Commission in fulfilling its obligations under Section 11 hereof.
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4.4 Consents. The Purchaser agrees to take all necessary corporate
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or other action and to use best efforts to obtain all consents and approvals
required for consummation of the transactions contemplated by this Agreement.
4.5 Tax-Free Reorganization. The Purchaser recognizes that the
-----------------------
Company and the Stockholder desire to treat the Merger as a tax-free
reorganization under Section 368(a)(1)(A) of the Code and will use its best
efforts to cooperate with the Company and the Stockholder in this regard. The
Purchaser will take no actions which would disqualify the transaction from being
treated as a pooling of interests under applicable accounting rules and the
Code.
5. COVENANTS OF THE COMPANY AND THE STOCKHOLDER. The Company and the
Stockholder jointly and severally covenant to the Purchaser that, except as
otherwise consented to in writing by the Purchaser after the date of this
Agreement:
5.1 Conduct of Business. After the date hereof and through the date
-------------------
of the Closing, with respect to the Company (a) its business will be conducted
only in the ordinary course; (b) it will terminate each of its Employee Plans
and will not enter into, adopt or amend any employee benefit plan, agreement or
arrangement, enter into or amend any employment contracts, or increase the
salaries or compensation of its officers or employees, other than ordinary
increases in salaries in accordance with past practices; (c) it shall pay in
full all liabilities outstanding on the date hereof except for (i) those
balances owed to the holders of the Company's notes and other liabilities as
shown in Section 5.1(c) of the Disclosure Schedule, and (ii) accrued employee
compensation, leave and benefits and the taxes thereon as shown in Section 5.1
(c) of the Disclosure Schedule; and (d) it shall not incur any additional
liability for borrowed money, or encumber any of its assets; (e) all outstanding
loans payable by the Company to the Stockholder or receivable by the Company
from the Stockholder or any employee shall be repaid in full by the appropriate
party; (f) its current assets at all times will exceed all of its liabilities;
(g) except as shown in Sec 5.1(g) of the Disclosure Schedule, all trade
payables and liabilities and obligations payable in installments shall be
current; (h) it will use its best efforts to preserve its business organization
intact, to keep available the service of its officers and employees and to
preserve the goodwill of suppliers, customers and others doing business with it;
(i) it will not enter into any agreement for the purchase, sale or other
disposition, or purchase, sell or dispose of, any equipment, supplies,
inventory, investments or other assets (other than sales of inventory and
purchases of materials and supplies in the ordinary course of business and in
accordance with past practices); (j) it will not compromise or write off any
material account receivable other than by collection of the full recorded amount
thereof; (k) no change shall be made in its Charter or By-Laws; (l) no change
shall be made in the number of shares or terms of its authorized, issued or
outstanding capital stock, nor shall it enter into or grant any options, calls,
contracts or commitments of any character relating to any issued or unissued
capital stock; (m) no dividend or other distribution or payment shall be
declared or paid in respect of its capital stock; and (n) no bonus or additional
compensation in excess of normal salary shall be paid to or declared for the
benefit of any Stockholder.
5.2 Consents. The Company and the Stockholder agree to take all
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necessary corporate or other action and to use their best efforts to obtain all
consents and approvals required for consummation of the transactions
contemplated by this Agreement.
5.3 Audited Financial Statements. The Stockholder will cause the
----------------------------
Company to deliver to Purchaser the Company's audited financial statements for
the year ended January 31, 1998 as soon as practicable after the execution of
this Agreement. Said statements shall be prepared to reflect the business
operations of the Company on an accrual basis in accordance with GAAP.
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5.4 Cause Conditions to Be Satisfied. The Company and the
--------------------------------
Stockholder will use their best efforts to cause all of the conditions described
in Sections 7 and 8 of this Agreement to be satisfied (to the extent such
matters reasonably are within their control).
5.5 Tax-Free Reorganization. The Company and the Stockholder
-----------------------
recognize that the Purchaser desires to treat the Merger as a tax-free
reorganization under Section 368(a)(1)(A) of the Code and will use best efforts
to cooperate with the Purchaser in this regard. The Company and the Stockholder
will take no actions which would disqualify the transaction from being treated
as a pooling of interests under applicable accounting rules and the Code.
6. MERGER OF PURCHASER AND THE COMPANY. Subject to the terms and
conditions of this Agreement, the Purchaser and the Company agree to effect the
following transactions at the Closing:
6.1 Conditions. The Purchaser and the Company will deliver to the
----------
other appropriate evidence of the satisfaction of the conditions to their
respective obligations hereunder.
6.2 Merger. At the Closing, the Company will be merged with and into
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the Purchaser pursuant to the provisions and with the effect provided in the
general corporation laws of the States of Maryland and Texas. The parties shall
prepare and execute appropriate merger documents under the corporate laws of
Maryland and Texas, containing the terms provided in this Agreement, including a
Certificate and Articles of Merger which shall be filed with the Maryland State
Department of Assessments and Taxation and with the Texas Secretary of State on
the Effective Closing Date, or immediately thereafter. The Purchaser shall be
the surviving corporation in the Merger.
6.3 Conversion Amount; Conversion of the Company Shares. As a result
---------------------------------------------------
of the Merger and without any action by the holders thereof, all of the shares
of Company Common Stock issued and outstanding immediately prior to the Merger
and all rights in respect thereof, shall be converted into that number shares of
Purchaser Common Stock having a market value of $756,170 (the "Conversion
Amount"). As a result of such conversion, the Stockholder will receive the
number of shares of Purchaser Common Stock to be issued pursuant to the Merger,
rounded to the nearest whole share. In order to effect such conversion, (i)
the Stockholder will deliver to the Purchaser at the Closing certificates in due
and proper form representing the shares of Company Common Stock owned by such
Stockholder, duly endorsed or accompanied by duly executed stock powers, with
signatures guaranteed by a commercial bank or a member of the National
Association of Securities Dealers, Inc., and (ii) the Purchaser shall deliver to
the Stockholder a certificate, in due and proper form, representing the number
of shares of Purchaser Common Stock to which such Stockholder is entitled. Each
share of Purchaser Common Stock issued pursuant to the Merger shall be fully
paid and non-assessable. For purposes of the foregoing, the market value of the
Purchaser Common Stock shall equal the average of the closing prices reported in
the Wall Street Journal for each of the fifteen (15) trading days ended and
including Friday, March 27, 1998.
6.4. Closing. The closing (the "Closing") of the transactions
-------
contemplated by this Agreement shall take place at the offices of the Company,
in Houston, Texas, beginning at 9:00 p.m. on March 31, 1998, or at such other
time and place as may be agreed upon in writing by the Purchaser and the
Stockholder (the "Closing Date"). The closing shall be effective as of the
close of business on March 31, 1998 (the "Effective Closing Date").
7. 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:
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<PAGE>
7.1 Approvals of Governmental Authorities. 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.
7.2 No Adverse Proceedings or Events. No suit, action or other
--------------------------------
proceeding against the Company or the Purchaser, or their respective officers or
directors, or either of the Stockholder, 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.
7.3 Consents and Actions; Contracts. All requisite consents of any
-------------------------------
third parties and other actions which the Company has covenanted to use its best
efforts to obtain and take under Section 5.2 hereof shall have been obtained and
completed. All material contracts and agreements of the Company, including,
without limitation, all contracts and agreements listed on Section 2.6 of the
Disclosure Schedule, shall be in full force and effect and shall not be affected
by the consummation of the transactions contemplated hereby.
7.4 Other Evidence. The Purchaser shall have received from the
--------------
Company and the Stockholder such further certificates and documents evidencing
due action in accordance with this Agreement, including certified copies of
proceedings of the Board of Directors and stockholders of the Company, as the
Purchaser reasonably shall request.
7.5 Employment Agreement. The Purchaser and William Van Dobson and
--------------------
Marie Jeanette Dobson shall have entered into an Employment Agreement in
substantially the form of Exhibit A attached hereto.
7.6 Current Financial Statements and Projections. The Stockholder
--------------------------------------------
shall have provided, or caused the Company to have provided to Purchaser the
audited financial statements of the Company for fiscal year ended December 31,
1997, showing an EBIT of at least $180,000 for such year, as well as a
projection of revenues and expenses for calendar year 1998, which projection
reflects net income of at least $200,000 for such year. Such audited financial
statements shall be prepared on an accrual basis, in accordance with GAAP.
"EBIT" means the Company's net revenues minus all of its expense items including
any extraordinary and non-recurring items and depreciation and amortization, but
excluding interest and taxes. For the 1998 projection, EBIT shall be calculated
in the same manner as "profits subject to bonus" under paragraph 2.02 of the
Employment Agreement attached hereto as Exhibit A.
7.7 Purchase of Other Houston Centers. The obligation of Purchaser
---------------------------------
to close and deliver to Stockholder the Purchaser Common Stock is conditioned on
Purchaser closing on the purchase of at least seven (7) of the following nine
(9) Sylvan Learning Centers #311, 314, 315, 316, 323, 326, 327, 347 and 351 on
or before March 31, 1998, and prior to the closing of this transaction. At the
present time, Purchaser has non-binding letters of agreement to purchase all of
said centers by March 31, 1998.
7.8 Resignation of Officers and Directors. Each and every officer
-------------------------------------
and director of the Company shall have resigned from any and all positions with
the Company as director, officer or employee effective as of immediately prior
to the Effective Closing Date.
8. CONDITIONS TO THE COMPANY'S AND THE STOCKHOLDER'S OBLIGATIONS. Unless
waived by the Company and the Stockholder, all obligations of the Company and
the Stockholder under this Agreement are subject to the fulfillment, prior to or
at the Closing, of each of the following conditions:
10
<PAGE>
8.1 No Adverse Proceedings or Events. No suit, action or other
--------------------------------
proceeding against the Company or the Purchaser, or their respective officers or
directors, or the Stockholder, 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.
8.2 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.
8.3 Other Evidence. The Company and the Stockholder 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 Company and the
Stockholder reasonably shall request.
9. INDEMNIFICATION.
9.1. Indemnification by the Stockholder. The Stockholder 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 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 Company or the Stockholder 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 Company or the Stockholder hereunder;
(ii) any liabilities or obligations of the Company or the
Stockholder for federal, state or local income tax or, to the extent not
accrued or reflected in the Financial Statements, any personal property,
FICA, withholding, excise, unemployment, sales or franchise taxes arising
from operations of the Company prior to the Effective Closing Date except
as shown in Schedule 5.1(c) and 5.1(g) of the Disclosure Schedule.
(iii) 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 9.1, including, without limitation, all such costs and
expenses incurred in the defense thereof or in the enforcement of any
rights of the Purchaser hereunder.
9.2. Notice and Defense. The Purchaser shall promptly notify the
------------------
Stockholder of any asserted liability, damage, loss or expense claimed to give
rise to indemnification hereunder and the Stockholder 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,
Stockholder shall respond in writing as to whether Stockholder will engage
counsel at Stockholder's expense to defend the claim. If Stockholder does 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 Stockholder's sole cost and
expense through counsel chosen by the Purchaser and reasonably acceptable to the
Stockholder; provided, however, that any such compromise or defense shall be
conducted in a manner which is reasonable and the Stockholder 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 Stockholder
(other than under Section 9.1). 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-
11
<PAGE>
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 Stockholder
has indemnity liability under this Section 9, and which the Stockholder does not
reimburse Purchaser within five (5) days following demand for reimbursement by
Purchaser, Purchaser may, in addition to any other remedies, (if such
Stockholder is then an employee of Purchaser) offset the amount of the
Stockholder's liability on the claim paid against any compensation payable to
the Stockholder. The Stockholder may tender shares of the Purchaser's Common
Stock to Purchaser as a manner of paying an indemnity liability, receiving
credit for the market value thereof, market value being calculated using the
average of the closing prices reported in the Wall Street Journal for each of
the fifteen (15) trading days ending on the day before delivery of the shares.
9.3. Indemnification by the Purchaser. From and after the Closing
--------------------------------
Date, the Purchaser hereby covenants and agrees to indemnify and hold harmless
the Stockholder 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) any claims, actions, suits, or proceedings based upon or
arising out of the operation of the assets or business herein conveyed from and
after the date of Closing; and
(iii) all claims, actions, suits, proceedings, demands,
assessments, judgements, costs, reasonable attorneys' fees and expenses of any
nature incident to any of the matters indemnified against pursuant to this
Section 9.3, including without limitation, all such costs and expenses incurred
in the defense thereof or in the enforcement of any rights of the Stockholder
hereunder.
The Stockholder 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 Stockholder is fully protected from any cost or
expense in connection therewith.
10. SURVIVAL; LIMITATIONS.
10.1 Survival. 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 Stockholder and Purchaser set forth in Section 9 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 Stockholder, 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 March 31, 2000. Notwithstanding the
foregoing, (i) any indemnification obligations of the Stockholder relating to
federal, state or local tax matters shall continue in full force and effect
without limitation until expiration of the statute of limitations applicable to
such tax or environmental matters, (ii) the representation and warranty
contained in Sections 2.1, 2.2 or 3.1 and any indemnification obligations of the
Stockholder in connection therewith shall continue in full force and effect
without any limitation, (iii) any claims, actions or suits the Purchaser, on the
one hand, or the Company or the Stockholder, on the other hand, may have which
arises from any fraud or willful misconduct on the part of the Stockholder or
the Company, or any representative of either, 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
<PAGE>
10.2 Limitations. No indemnified party shall be entitled to
-----------
indemnification hereunder until such time as a single loss or an aggregate of
several losses equals Eighteen Thousand Dollars ($18,000), at which time such
indemnified party shall be entitled to indemnification for all losses sustained,
incurred, paid or required to be paid by such indemnified party in excess of the
$18,000; and in no event shall any party to this Agreement be entitled to
indemnification for a single loss or an aggregate of several losses which
exceeds $756,170.
11. REGISTRATION RIGHTS.
11.1 Registration Procedures and Expenses. So long as the
------------------------------------
Stockholder has not initiated the termination of his employment with the
Purchaser pursuant to Section 4.01 of the Employment Agreement between the
Stockholder and the Purchaser dated as of the date hereof, Purchaser shall:
(a) as soon as practicable after the closing date but in no
event later than ninety (90) days after the closing date, prepare and file with
the Securities and Exchange Commission (the "Commission") a registration
statement on Form S-3 which meets the requirements of Rule 415 promulgated under
the Securities Act (a "Shelf Registration Statement") covering the sale by the
Stockholder from time to time of one half of the shares of the Purchaser Common
Stock received by the Stockholder in the Merger, and as soon as practicable
after the first anniversary of the closing date, but in no event later than
ninety (90) days after the first anniversary of the closing date, a Shelf
Registration Statement covering the sale by the Stockholder from time to time of
the remaining shares of Purchaser Common Stock. The foregoing notwithstanding,
Purchaser shall have no obligation to file a Shelf Registration Statement or to
maintain the effectiveness of any previously filed Shelf Registration Statement
if the sale of the Purchaser Common Stock pursuant to exemption from
registration under Rule 144 is available to the Stockholder. Further, the
Purchaser may extend its obligation to file a registration statement if the
Purchaser advises the Stockholder that there is a pending, but unannounced
transaction or development which Purchaser determines is not then appropriate
for disclosure, and that registration of the Purchaser Common Stock would
require such disclosure.
(b) use its best efforts, subject to receipt of necessary
information from the Stockholder, to cause each of the Shelf Registration
Statements to become effective;
(c) prepare and file with the Commission such amendments and
supplements to the Shelf Registration Statements and the prospectus used in
connection therewith as may be necessary to keep the Shelf Registration
Statements effective until the earlier of the date on which the Purchaser Common
Stock registered by such Shelf Registration Statement has been sold, or one year
from the date of the initial filing thereof;
(d) during the period referred to in (c) above, prepare and
promptly file with the Commission, and promptly notify the Stockholder of the
filing of, such amendment or supplement to each such Shelf Registration
Statement and the prospectus as may be necessary to correct any statements or
omissions if, at any time when a prospectus relating to the Purchaser Common
Stock is required to be delivered under the Securities Act, any event has
occurred the result of which is that any such prospectus then in effect would
include or incorporate an untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein not misleading in
light of the circumstances in which they were made;
(e) advise the Stockholder, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance of any stop order by the
Commission suspending the effectiveness of any of such Shelf Registration
Statements or the initiation or threatening of any proceeding for that purpose
and promptly use its diligent best efforts to prevent the issuance of any stop
order and to obtain its withdrawal if such stop order should be issued;
13
<PAGE>
(f) furnish to the Stockholder with respect to the Purchaser
Common Stock registered under any of the Shelf Registration Statements such
number of copies of prospectuses and preliminary prospectuses in conformity with
the requirements of the Securities Act and such other documents as the
Stockholder may reasonably request (but in no event more than 100 copies), in
order to facilitate the public sale or other disposition of all or any of the
registered Purchaser Common Stock by the Stockholder; provided, however, that
-------- -------
the obligation of Purchaser to deliver copies of prospectuses or preliminary
prospectuses to the Stockholder shall be subject to the receipt by Purchaser of
reasonable assurances from the Stockholder that the Stockholder will comply with
the applicable provisions of the Securities Act and of such other securities or
blue sky laws as may be applicable in connection with any use of such
prospectuses or preliminary prospectuses;
(g) file documents required of Purchaser for normal blue sky
clearance in states reasonably specified in writing by the Stockholder,
provided, however, that Purchaser shall not be required to qualify to do
business or consent to service of process in any jurisdiction in which it is not
now so qualified or has not so consented; and
(h) bear all expenses in connection with the procedures in
paragraphs (a) through (g) of this Section 11.1 and the registration of the
Purchaser Common Stock pursuant to each of the Shelf Registration Statements,
other than fees and expenses, if any, of counsel or other advisers to the
Stockholder.
11.2 Engagement of Underwriters. The parties hereto agree that the
--------------------------
Purchaser shall have no obligation to (i) conduct, arrange or coordinate any
distribution or sales activities on behalf of the Stockholder with respect to
the Purchaser Common Stock other than as set forth in Section 11.1 above or (ii)
retain any underwriter(s) in connection with the registration and/or
distribution of the Purchaser Common Stock pursuant to this Section 11. The
Stockholder agrees that any underwriter(s) or counsel engaged in connection with
the registration or distribution of the Purchaser Common Stock required to be
registered pursuant to this Section 11 will be retained by and at the sole
expense of the Stockholder and agrees further that any discounts or commissions
payable to such underwriter(s) shall also be an expense solely of the
Stockholder. In the event the Stockholder engages one or more underwriters
pursuant to this Section 11.2, the Stockholder shall enter into an underwriting
agreement with the managing or lead managing underwriter in the form customarily
used by such underwriter with such changes thereto as the parties thereto shall
agree; and, further, shall provide to such underwriter any documents or other
information as is necessary, in the underwriter's reasonable opinion, to
facilitate the effectiveness of the Shelf Registration Statement and the
completion of the distribution of the Purchaser Common Stock so registered.
11.3 Indemnification with respect to Shelf Registration Statements.
-------------------------------------------------------------
Purchaser hereby agrees to indemnify the Stockholder against liability arising
out of or based upon any untrue statement or alleged untrue statement of
material fact in any of the Shelf Registration Statements filed by Purchaser
pursuant hereto, or the omission or alleged omission to state or incorporate by
reference in such Shelf Registration Statements any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading, other than any such statement included or incorporated by reference
in, or omitted from, such Shelf Registration Statements by Purchaser in reliance
upon and in conformity with written information furnished to Purchaser
specifically for use therein by or on behalf of the Stockholder. The
Stockholder hereby agrees to indemnify Purchaser against liability arising out
of or based upon any untrue statement or alleged untrue statement of a material
fact included or incorporated by reference in the Shelf Registration Statements
or the omission or alleged omission to state or incorporate by reference therein
any material fact required to be stated therein or necessary in order to make
the statements therein not misleading, if such statement or omission was made by
Purchaser in reliance upon and in conformity with written information furnished
to Purchaser for use or incorporation by reference in such Shelf Registration
Statements.
14
<PAGE>
12. CONFIDENTIALITY. After the date hereof, the Stockholder 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 Company, 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 Stockholder, or (iii) been
supplied to the Stockholder by a third party without violation of the rights of
the Company or the Purchaser or any other party. The parties agree that the
remedy at law for any breach by the Stockholder of this Section 12 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. If said transactions are consummated, it is
expressly understood that the Stockholder will bear, and will not cause the
Company to pay, any legal fees or other expenses incurred by Company in
connection with the transactions contemplated by this agreement, as well as the
cost of furnishing the audited and reviewed Company Financial Statements
referred to in Section 2.4; provided, however, that in the event of any
litigation between the parties hereto relating to or arising from this
Agreement, the prevailing party in such litigation shall be entitled to payment
by the non-prevailing party of all reasonable attorney's fees and costs.
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:
O. Steven Jones General Counsel
Sylvan Learning Systems, Inc.
1000 Lancaster Street
Baltimore, Maryland 21202
with a copy to:
Richard C. Tilghman, Jr., Esquire
Piper & Marbury
36 South Charles Street
Baltimore, Maryland 21201
(b) if to the Company or the Stockholder, shall be addressed to:
William Van Dobson
5475 Maple Street
Houston, Texas 77096
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
<PAGE>
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.
16
<PAGE>
IN WITNESS WHEREOF, the Purchaser, the Company and the Stockholder
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:
O. Steven Jones, Vice President
WITNESS: CREATION WALLCOVERINGS, INC.
__________________________ By:
William Van Dobson, President
WITNESS: STOCKHOLDERS:
__________________________
William Van Dobson
__________________________
Marie Jeanette Dobson
17
<PAGE>
Exhibit 4.7
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement"), dated and
effective as of March 31, 1998, by and among SYLVAN LEARNING SYSTEMS, INC., a
Maryland corporation (the "Purchaser"), Blanche Stastny, (the "Owner") a
resident of Galveston County, Texas.
W I T N E S S E T H:
- - - - - - - - - -
Blanche Stastny is the sole owner of two (2) Sylvan Learning Centers
operated as a sole proprietorship (the "Business"). The Purchaser and the Owner
wish to enter into an agreement for the acquisition of the Business by the
Purchaser. The parties agree and acknowledge that for accounting purposes, the
transaction is to be treated as a pooling-of-interests. The Purchaser and the
Owner wish to enter into a definitive agreement setting forth the terms and
conditions of the acquisition of Owner's Business.
Accordingly, in consideration of the foregoing and of the covenants,
agreements, representations and warranties hereinafter contained, the Purchaser
and the Owner hereby agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby
represents and warrants to the Owner as follows:
1.1 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 delivered to the Owner, 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.
1.2 Financial Statements. The Purchaser has delivered to the Owner
--------------------
copies of the Purchaser's audited consolidated financial statements for the
fiscal year ended December 31, 1996. 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 Business copies of its Quarterly Report on Form 10-Q third
quarter ended September 30, 1997, 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.
1.3 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 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,
-1-
<PAGE>
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.
1.4 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.
1.5 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.
1.6 Validity of Common Stock. The shares of Purchaser's Common Stock
------------------------
to be issued and delivered by the Purchaser in connection with the acquisition
of Owner's Business have been duly authorized for issuance and will, when issued
and delivered as provided in this Agreement, be duly and validly issued, fully
paid and non-assessable.
1.7 Registration Statement on Form S-3. As of the date hereof, the
----------------------------------
Purchaser is aware of no events, actions or conditions which would prevent the
Purchaser from being able to comply with the provisions of Section 11.1(a) of
this Agreement, and will use its best efforts to continue to be eligible to
comply with the provisions of Section 11.1(a).
2. REPRESENTATIONS AND WARRANTIES OF THE OWNER. The Owner hereby
represents and warrants to the Purchaser as follows:
2.1 Financial Statements. The Owner has provided to the Purchaser
--------------------
the audited financial statements of the Business for the fiscal year ended on
December 31, 1997, (collectively, the "Business Financial Statements"). The
Business 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. There are no material liabilities or
obligations of the Business, whether contingent or absolute, as of the dates of
such statements, including liability for taxes of any type, which in accordance
with GAAP consistently applied should have been shown or provided for in the
Business Financial Statements and are not so shown or provided for. Since
December 31, 1997, 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. The Business's accounts
receivable arose, and all accounts receivable that will be outstanding as of the
Closing Date shall have arisen, from bona fide transactions in the ordinary
---- ----
course of business and will be collectible by the Business in full, less
applicable reserves shown in the Business Financial Statements, in the ordinary
course of business within ninety days of the Closing Date, and there are no
offsets or claims related to such accounts receivable.
2.2 Taxes. The Owner has properly prepared and filed all federal,
-----
state and other tax returns required to be filed in connection with the
operations of the Business. True and complete copies of Schedule C of Owner's
federal income tax returns for the year ended December 31, 1996 have been
delivered or made available to the Purchaser on or prior to the date hereof and
copies of other returns will be made available upon request. Except as set
forth on Section 2.2 of the Disclosure Schedule or in the Business Financial
Statements, neither the Business nor the Owner has any liability for any
federal, state, county, local or other taxes whatsoever that arose or otherwise
was incurred on or before the date of the balance sheet for 1997 included in the
Business Financial Statements. No proposed taxes, additions to tax, interest or
penalties have been asserted or are pending against the Business or the Owner
with respect to periods ending on or before Closing, and no
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such matters are under discussion with the applicable authorities. There are no
agreements, waivers, or other arrangements providing for extensions of time with
respect to the assessment or collection of any unpaid tax against the Business
or the Owner. The Business and the Owner have withheld or otherwise collected
all taxes or amounts it or he was required to withhold or collect under any
applicable federal, state or local law, including, without limitation, any
amounts required to be withheld or collected with respect to employee state and
federal income tax withholding, social security, unemployment compensation,
sales or use taxes or workmen's compensation, and all such amounts have been
timely remitted to the proper authorities.
2.3 Agreements. Section 2.3 of the Disclosure Schedule identifies
----------
each of the following agreements, contracts, documents and other items (whether
written or oral) as to which the Owner is a party or otherwise is bound (and all
such contracts, or summaries thereof, have been made available to the
Purchaser): (i) all documents relating to indebtedness for money borrowed or
collateral therefor, including guarantees; (ii) all agreements or plans relating
to employment, compensation of or benefits for the Owner and employees of the
Business; (iii) all contracts for the purchase of materials, supplies, services,
merchandise or equipment involving consideration of more than $2,000 or
involving purchases in excess of normal operating requirements; (iv) any
contract, agreement, or instrument not entered into in the ordinary course of
the business of the Business on a basis consistent with past practice; (v) any
contract containing restrictions on the Business's operations or its ability to
compete in any geographic region or in any line of business; (vi) any lease of
real property and all personal property leases calling for annual lease payments
in excess of $2,000; and (vii) each and every other contract which is material
to the financial condition, earnings, operation or business of the Business.
Each of the contracts and agreements so listed (collectively, the "Contracts")
is a valid and existing contract or agreement in full force and effect and there
exists no default by the Business thereunder. None of the Contracts will be
violated or breached and no default or right of termination or modification
shall arise thereunder as a result of the consummation of the transactions
contemplated by this Agreement.
2.4 Property. Section 2.4 of the Disclosure Schedule sets forth a
--------
schedule (the "Property Schedule") of (i) all real property owned or leased by
the Business (the "Real Property"), (ii) all individual items of tangible
personal property and assets (other than inventory) of the Business 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 of the Business. Except as set
forth in the Property Schedule, the Business 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. The machinery and equipment of the Business are, in all material
respects, in good operating condition and repair, ordinary wear and tear
excepted. To the Business's knowledge, the Business 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.
2.5 Legal Proceedings, Etc. Except as set forth in Section 2.5 of
-----------------------
the Disclosure Schedule, there are no legal, administrative, arbitration, or
other proceedings or governmental investigations pending or, to the best of the
Business's and the Owner's knowledge, threatened against the Business, the Owner
or the respective properties or assets of the Business and the Owner.
2.6 Compliance; Licenses. The Business 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. Section 2.6 of the Disclosure Schedule contains a
true and complete list of all material licenses, permits, approvals, franchises
and other authorizations as are necessary in order to enable the Business to own
and conduct its business.
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<PAGE>
2.7 Bank Accounts, etc. Section 2.7 of the Disclosure Schedule sets
------------------
forth a true and complete list of all bank accounts, safe deposit boxes and lock
boxes of the Business including, with respect to each such account and lock box
identification of all authorized signatories.
2.8 Insurance. Section 2.8 of the Disclosure Schedule sets forth a
---------
summary of all general liability, product liability, fire, casualty, motor
vehicle and other insurance currently maintained by or on behalf of the
Business. All requirements and provisions thereof are being complied with.
True and correct copies of all insurance policies relating to such coverage have
been provided by the Owner to the Purchaser. No notice of cancellation has been
given to or received by the Owner with respect to any of its insurance policies,
and no such policies are subject to any retroactive rate or audit adjustments or
coinsurance arrangements.
2.9 Employee Plans. Except as set forth in Section 2.9 of the
--------------
Disclosure Schedule, the Business 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, former employee,
retired employee, or beneficiary of any of these, of the Business is entitled to
participate. The plans, programs, contracts, understandings and arrangements
listed on the Disclosure Schedule pursuant to this Section 2.9 are hereinafter
referred to as the "Employee Plans." The Business has supplied the Purchaser
with 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.
2.10 Recent Operations; Employee Matters. Since December 31, 1997,
-----------------------------------
(i) the Owner has operated the Business substantially as it was operated
immediately prior to said date and only in the ordinary course, and the
Business' Owner has used best efforts to preserve intact the Business's business
relationships, (ii) there have been no bonuses paid to or increases in the
compensation of Owner or the Business' employees, except as set forth in Section
2.10 (ii) of the Disclosure Schedule, and (iii) except as set forth in Section
2.10 (iii) of the Disclosure Schedule, the Business has not declared or paid any
dividend or made any other distribution with respect to its capital stock.
2.11 Environmental Matters. To the best of the Owner's knowledge, no
---------------------
storage tanks, underground or otherwise, are now located on any properties
occupied by the Business, the Business has complied in all material respects
with all environmental laws relating to its operations or properties occupied by
it and there are no asbestos containing materials located on properties occupied
by the Business. The Owner 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 by the Business.
2.12 Disclosure. The Owner has disclosed to the Purchaser all facts
----------
material to the assets, business, operations, financial condition and prospects
of the Business. All agreements, schedules, exhibits, documents, certificates,
reports or statements furnished or to be furnished to the Purchaser by or on
behalf of the Owner 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.
2.13 No Conflict With Other Documents. 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 Owner 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 Owner or by which any of its properties or
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<PAGE>
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 Business.
2.14 Brokers and Advisors. The Owner 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.
2.15 Investment Intent. It is understood that the shares of
-----------------
Purchaser Common Stock to be delivered to the Owner pursuant to this Agreement
are not being registered, for purposes of the transactions hereunder, under the
Securities Act of 1933, as amended (the "Securities Act") or any state
securities laws, and the shares are being delivered without registration in
reliance upon an exemption from the registration requirements of the Securities
Act or any state securities laws. The Owner is acquiring the Purchaser Common
Stock hereunder only for his own account 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.
In connection with the foregoing, the Owner hereby represents and
warrants that:
(a) such Owner has reviewed, discussed and evaluated the
information delivered under Section 1.2 and has had the opportunity to ask
questions of, and receive answers from, executive officers of the Purchaser
concerning the terms and conditions of this Agreement and to obtain any
additional information which such Owner considered necessary to verify the
accuracy of the information delivered under Section 1.2;
(b) such Owner understands that he or she must bear the economic
risks of the investment in Purchaser 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
(c) such Owner has sufficient knowledge and experience in
financial and business matters to enable such Owner to be capable of evaluating
the merits and the risks of the exchange of the Business Common Stock for the
Purchaser Common Stock contemplated by this Agreement and such Owner's
prospective investment in the Purchaser.
2.16 Legends. 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, the Purchaser will cause
a legend to be conspicuously noted on the certificates representing the
Purchaser Common Stock deliverable hereunder, and that the Purchaser 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 as permitted by Section 11 of this Agreement and after delivery of
an opinion of Purchaser's counsel to the effect that registration thereof for
the purpose of transfer is not required under the Securities Act or that the
stock proposed to be transferred has been effectively registered for that
purpose under the Securities Act.
2.17 No Agreements with Respect to Purchaser Common Stock. Except
----------------------------------------------------
for this Agreement, Owner has not entered into any agreement or understanding
with anyone for the sale, at Owner's option or otherwise, of any of the
Purchaser Common Stock to be delivered hereunder to Owner at the Closing.
3.0 (Reserved)
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<PAGE>
4. COVENANTS OF THE PURCHASER. The Purchaser covenants to the Owner that,
except as otherwise consented to in writing by the Owner after the date of this
Agreement:
4.1 Stock Reservation. Between the date hereof and the Closing Date,
-----------------
the Purchaser will keep available and reserve a sufficient number of shares of
Purchaser Common Stock for issuance and delivery to the Owner as contemplated in
this Agreement.
4.2 Cause Conditions to be Satisfied. The Purchaser will use its
--------------------------------
best efforts to cause all of the conditions described in Section 8 of this
Agreement to be satisfied (to the extent such matters reasonably are within its
control).
4.3 Registration Statement on Form S-3. The Purchaser will use its
----------------------------------
best efforts to meet the requirements for eligibility set forth in paragraph A.
of the General Instructions to Form S-3, as promulgated by the U.S. Securities
and Exchange Commission in fulfilling its obligations under Section 11 hereof.
4.4 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. COVENANTS OF THE OWNER. The Owner covenants to the Purchaser that,
except as otherwise consented to in writing by the Purchaser after the date of
this Agreement:
5.1 Conduct of Business. After the date hereof and through the date
-------------------
of the Closing, with respect to the Business (a) its business will be conducted
only in the ordinary course; (b) it will terminate each of its Employee Plans
and will not enter into, adopt or amend any employee benefit plan, agreement or
arrangement, enter into or amend any employment contracts, or increase the
salaries or compensation of its officers or employees, other than ordinary
increases in salaries in accordance with past practices; (c) it shall pay in
full all liabilities outstanding on the date hereof except for (i) those
balances owed to the holders of the Business's notes and other liabilities as
shown in Section 5.1(c) of the Disclosure Schedule, and (ii) accrued employee
compensation, leave and benefits and the taxes thereon as shown in Section 5.1
(c) of the Disclosure Schedule; and (d) it shall not incur any additional
liability for borrowed money, or encumber any of its assets; (e) all outstanding
loans payable by the Business to the Owner or receivable by the Business from
the Owner or any employee shall be repaid in full by the appropriate party; (f)
its current assets at all times will exceed all of its liabilities; (g) except
as shown in Sec 5.1(g) of the Disclosure Schedule, all trade payables and
liabilities and obligations payable in installments shall be current; (h) it
will use its best efforts to preserve its business organization intact, to keep
available the service of its officers and employees and to preserve the goodwill
of suppliers, customers and others doing business with it; (i) it will not enter
into any agreement for the purchase, sale or other disposition, or purchase,
sell or dispose of, any equipment, supplies, inventory, investments or other
assets (other than sales of inventory and purchases of materials and supplies in
the ordinary course of business and in accordance with past practices); (j) it
will not compromise or write off any material account receivable other than by
collection of the full recorded amount thereof; and (k) no bonus or additional
compensation in excess of normal salary or draws shall be paid to or declared
for the benefit of any Owner.
5.2 Consents. The Owner agree 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.
5.3 Audited Financial Statements. The Owner will deliver to
----------------------------
Purchaser the Business's audited financial statements for the year ended
December 31, 1997 as soon as practicable after the execution of
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<PAGE>
this Agreement. Said statements shall be prepared to reflect the business
operations of the Business on an accrual basis in accordance with GAAP.
5.4 Cause Conditions to Be Satisfied. The Owner will use best
--------------------------------
efforts to cause all of the conditions described in Sections 7 and 8 of this
Agreement to be satisfied (to the extent such matters reasonably are within
their control).
6. ACQUISITION OF THE BUSINESS BY PURCHASER. Subject to
the terms and conditions of this Agreement, the Purchaser and the Owner agree to
effect the following transactions at the Closing:
6.1 Conditions. The Purchaser and the Owner will deliver to the
----------
other appropriate evidence of the satisfaction of the conditions to their
respective obligations hereunder.
6.2 Consideration for Transfer of Business Assets. At the Closing,
---------------------------------------------
the Owner will deliver to the Purchaser appropriate bills of sale and such other
documents evidencing transfer of the assets of Owner used in conjunction with
the Business, and the Purchaser will deliver to the Owner that number of shares
of Purchaser Common Stock having a market value of $709,593 (the"Purchase
Price"). For purposes of the foregoing, the market value of the Purchaser
Common Stock shall equal the average of the closing prices reported in the Wall
Street Journal for each of the fifteen (15) trading days ended and including
Friday, March 27, 1998.
6.3 Closing. The closing (the "Closing") of the transactions
-------
contemplated by this Agreement shall take place at the offices of the Business,
in Houston, Texas, beginning at 7:00 p.m. on March 31, 1998, or at such other
time and place as may be agreed upon in writing by the Purchaser and the Owner
(the "Closing Date"). The closing shall be effective as of the close of
business on March 31, 1998 (the "Effective Closing Date").
7. 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:
7.1 Approvals of Governmental Authorities. 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.
7.2 No Adverse Proceedings or Events. No suit, action or other
--------------------------------
proceeding against the Owner 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.
7.3 Consents and Actions; Contracts. All requisite consents of any
-------------------------------
third parties and other actions which the Owner has covenanted to use its best
efforts to obtain and take under Section 5.2 hereof shall have been obtained and
completed. All material contracts and agreements of the Business, including,
without limitation, all contracts and agreements listed on Section 2.3 of the
Disclosure Schedule, shall be in full force and effect and shall not be affected
by the consummation of the transactions contemplated hereby.
7.4 Employment Agreement. The Purchaser and Blanche Stastny shall
--------------------
have entered into an Employment Agreement in substantially the form of Exhibit
--------
A attached hereto.
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<PAGE>
7.5 Current Financial Statements and Projections. The Owner shall
--------------------------------------------
have provided to Purchaser the audited financial statements of the Business for
calendar year 1997 showing an EBIT of at least $ 175,000 for such year, as well
as a projection of revenues and expenses for calendar year 1998, which
projection reflects net income of at least $225,000 for such year. Such audited
financial statements shall be prepared on an accrual basis, in accordance with
GAAP. "EBIT" means the Business's net revenues minus all of its expense items
including any extraordinary and non-recurring items and depreciation and
amortization, but excluding interest and taxes. For the 1998 projection, EBIT
shall be calculated in the same manner as "profits subject to bonus" under
paragraph 2.02 of the Employment Agreement attached hereto as Exhibit A.
7.6 Purchase of Other Houston Centers. The obligation of Purchaser
---------------------------------
to close and deliver to Owner the Purchaser Common Stock is conditioned on
Purchaser closing on the purchase of at least seven (7) of the following nine
(9) Sylvan Learning Centers #311, 314, 315, 316, 323, 326, 327, 347 and 351 on
or before March 31, 1998. At the present time, Purchaser has non-binding
letters of agreement to purchase all of said centers by March 31, 1998. If the
closing of purchases on at least seven (7) of the centers listed above does not
occur, for whatever reason, by March 31, 1998, Purchaser reserves the right to
cancel this transaction by telephonic notice to Owner not later than 10:00 p.m.
March 31, 1998, in which case the Purchaser Common Stock shall not be delivered
to Owner, and Purchaser will promptly return all closing documents delivered by
Owner at the Closing.
8. CONDITIONS TO THE OWNER'S BUSINESS'S AND THE OWNER'S OBLIGATIONS.
Unless waived by the Owner, all obligations of the Owner under this Agreement
are subject to the fulfillment, prior to or at the Closing, of each of the
following conditions:
8.1 No Adverse Proceedings or Events. No suit, action or other
--------------------------------
proceeding against the Owner 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.
8.2 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.
8.3 Other Evidence. The Owner 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 Owner reasonably shall request.
9. INDEMNIFICATION.
9.1. Indemnification by the Owner. The Owner 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 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 Business or the Owner 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 Business or the Owner hereunder;
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<PAGE>
(ii) any liabilities or obligations of the Business or the Owner
for federal, state or local income tax or, to the extent not accrued or
reflected in the Financial Statements, any personal property, FICA,
withholding, excise, unemployment, sales or franchise taxes arising from
operations of the Business prior to the Effective Closing Date except as
shown in Schedule 5.1(c) and 5.1(g) of the Disclosure Schedule.
(iii) 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 9.1, including, without limitation, all such costs and
expenses incurred in the defense thereof or in the enforcement of any
rights of the Purchaser hereunder.
9.2. Notice and Defense. The Purchaser shall notify the Owner of any
------------------
asserted liability, damage, loss or expense claimed to give rise to
indemnification hereunder and the Owner 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, Owner shall respond in writing
as to whether Owner will engage counsel at Owner's expense to defend the claim.
If Owner does 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 Owner's sole
cost and expense through counsel chosen by the Purchaser and reasonably
acceptable to the Owner; provided, however, that any such compromise or defense
shall be conducted in a manner which is reasonable and the Owner 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 Owner (other than
under Section 9.1). 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 Owner has indemnity liability under this
Section 9, and which the Owner does not reimburse Purchaser within five (5) days
following demand for reimbursement by Purchaser, Purchaser may, in addition to
any other remedies, (if such Owner is then an employee of Purchaser) offset the
amount of the Owner's liability on the claim paid against any compensation
payable to the Owner.
9.3. Indemnification by the Purchaser. From and after the Closing
--------------------------------
Date, the Purchaser hereby covenants and agrees to indemnify and hold harmless
the Owner 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 9.3, including without limitation, all such costs and expenses incurred
in the defense thereof or in the enforcement of any rights of the Owner
hereunder.
The Owner 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 Owner is fully protected from any cost or expense in
connection therewith.
10. SURVIVAL; LIMITATIONS.
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<PAGE>
10.1 Survival. 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 Owner and Purchaser set forth in Section 9 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 Owner, 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 March 31, 2000. Notwithstanding the foregoing, (i) any
indemnification obligations of the Owner 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) the representation and
warranty contained in Section 2.4 and any indemnification obligations of the
Owner in connection therewith shall continue in full force and effect without
any limitation, (iii) any claims, actions or suits the Purchaser, on the one
hand, or the Business or the Owner, on the other hand, may have which arises
from any fraud or willful misconduct on the part of the Owner, or any
representative of Owner, 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.
10.2 Limitations. No indemnified party shall be entitled to
-----------
indemnification hereunder until such time as a single loss or an aggregate of
several losses equals Ten Thousand Dollars ($10,000), at which time such
indemnified party shall be entitled to indemnification for all losses sustained,
incurred, paid or required to be paid by such indemnified party in excess of the
$10,000; and in no event shall any party to this Agreement be entitled to
indemnification for a single loss or an aggregate of several losses which
exceeds $709,593.
11. REGISTRATION RIGHTS.
11.1 Registration Procedures and Expenses. So long as the Owner has
------------------------------------
not initiated the termination of her employment with the Purchaser pursuant to
Section 4.01 of the Employment Agreement between the Owner and the Purchaser
dated as of the date hereof, Purchaser shall:
(a) as soon as practicable after the closing date but in no
event later than ninety (90) days after the closing date, prepare and file with
the Securities and Exchange Commission (the "Commission") a registration
statement on Form S-3 which meets the requirements of Rule 415 promulgated under
the Securities Act (a "Shelf Registration Statement") covering the sale by the
Owner from time to time of one half of the shares of the Purchaser Common Stock
received by the Owner in the Merger, and as soon as practicable after the first
anniversary of the closing date, but in no event later than ninety (90) days
after the first anniversary of the closing date, a Shelf Registration Statement
covering the sale by the Owner from time to time of the remaining shares of
Purchaser Common Stock. The foregoing notwithstanding, Purchaser shall have no
obligation to file a Shelf Registration Statement or to maintain the
effectiveness of any previously filed Shelf Registration Statement if the sale
of the Purchaser Common Stock pursuant to exemption from registration under Rule
144 is available to the Owner. Further, the Purchaser may extend its obligation
to file a registration statement if the Purchaser advises the Owner that there
is a pending, but unannounced transaction or development which Purchaser
determines is not then appropriate for disclosure, and that registration of the
Purchaser Common Stock would require such disclosure.
(b) use its best efforts, subject to receipt of necessary
information from the Owner, to cause each of the Shelf Registration Statements
to become effective;
(c) prepare and file with the Commission such amendments and
supplements to the Shelf Registration Statements and the prospectus used in
connection therewith as may be necessary to keep the Shelf Registration
Statements effective until the earlier of the date on which the Purchaser Common
Stock
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<PAGE>
registered by such Shelf Registration Statement has been sold, or one year from
the date of the initial filing thereof;
(d) during the period referred to in (c) above, prepare and promptly
file with the Commission, and promptly notify the Owner of the filing of, such
amendment or supplement to each such Shelf Registration Statement and the
prospectus as may be necessary to correct any statements or omissions if, at any
time when a prospectus relating to the Purchaser Common Stock is required to be
delivered under the Securities Act, any event has occurred the result of which
is that any such prospectus then in effect would include or incorporate an
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein not misleading in light of the circumstances in
which they were made;
(e) advise the Owner, promptly after it shall receive notice or obtain
knowledge thereof, of the issuance of any stop order by the Commission
suspending the effectiveness of any of such Shelf Registration Statements or the
initiation or threatening of any proceeding for that purpose and promptly use
its diligent best efforts to prevent the issuance of any stop order and to
obtain its withdrawal if such stop order should be issued;
(f) furnish to the Owner with respect to the Purchaser Common Stock
registered under any of the Shelf Registration Statements such number of copies
of prospectuses and preliminary prospectuses in conformity with the requirements
of the Securities Act and such other documents as the Owner may reasonably
request (but in no event more than 100 copies), in order to facilitate the
public sale or other disposition of all or any of the registered Purchaser
Common Stock by the Owner; provided, however, that the obligation of Purchaser
-------- -------
to deliver copies of prospectuses or preliminary prospectuses to the Owner shall
be subject to the receipt by Purchaser of reasonable assurances from the Owner
that the Owner will comply with the applicable provisions of the Securities Act
and of such other securities or blue sky laws as may be applicable in connection
with any use of such prospectuses or preliminary prospectuses;
(g) file documents required of Purchaser for normal blue sky clearance
in states reasonably specified in writing by the Owner, provided, however, that
Purchaser shall not be required to qualify to do business or consent to service
of process in any jurisdiction in which it is not now so qualified or has not so
consented; and
(h) bear all expenses in connection with the procedures in paragraphs
(a) through (g) of this Section 11.1 and the registration of the Purchaser
Common Stock pursuant to each of the Shelf Registration Statements, other than
fees and expenses, if any, of counsel or other advisers to the Owner.
11.2 Engagement of Underwriters. The parties hereto agree that the
--------------------------
Purchaser shall have no obligation to (i) conduct, arrange or coordinate any
distribution or sales activities on behalf of the Owner with respect to the
Purchaser Common Stock other than as set forth in Section 11.1 above or (ii)
retain any underwriter(s) in connection with the registration and/or
distribution of the Purchaser Common Stock pursuant to this Section 11. The
Owner agrees that any underwriter(s) or counsel engaged in connection with the
registration or distribution of the Purchaser Common Stock required to be
registered pursuant to this Section 11 will be retained by and at the sole
expense of the Owner and agrees further that any discounts or commissions
payable to such underwriter(s) shall also be an expense solely of the Owner. In
the event the Owner engages one or more underwriters pursuant to this Section
11.2, the Owner shall enter into an underwriting agreement with the managing or
lead managing underwriter in the form customarily used by such underwriter with
such changes thereto as the parties thereto shall agree; and, further, shall
provide to such underwriter any documents or other information as is necessary,
in the underwriter's reasonable opinion, to facilitate the effectiveness of the
Shelf Registration Statement and the completion of the distribution of the
Purchaser Common Stock so registered.
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<PAGE>
11.3 Indemnification with respect to Shelf Registration Statements.
-------------------------------------------------------------
Purchaser hereby agrees to indemnify the Owner against liability arising out of
or based upon any untrue statement or alleged untrue statement of material fact
in any of the Shelf Registration Statements filed by Purchaser pursuant hereto,
or the omission or alleged omission to state or incorporate by reference in such
Shelf Registration Statements any material fact required to be stated therein or
necessary in order to make the statements therein not misleading, other than any
such statement included or incorporated by reference in, or omitted from, such
Shelf Registration Statements by Purchaser in reliance upon and in conformity
with written information furnished to Purchaser specifically for use therein by
or on behalf of the Owner. The Owner hereby agrees to indemnify Purchaser
against liability arising out of or based upon any untrue statement or alleged
untrue statement of a material fact included or incorporated by reference in the
Shelf Registration Statements or the omission or alleged omission to state or
incorporate by reference therein any material fact required to be stated therein
or necessary in order to make the statements therein not misleading, if such
statement or omission was made by Purchaser in reliance upon and in conformity
with written information furnished to Purchaser for use or incorporation by
reference in such Shelf Registration Statements.
12. CONFIDENTIALITY. After the date hereof, the Owner 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 Business, 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 Owner, or (iii) been supplied to
the Owner by a third party without violation of the rights of the Business or
the Purchaser or any other party. The parties agree that the remedy at law for
any breach by the Owner of this Section 12 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. If said transactions are consummated, it is
expressly understood that the Owner will bear, and will not cause the Business
to pay, any legal fees or other expenses incurred by Owner or the Business in
connection with the transactions contemplated by this agreement, as well as the
cost of furnishing the audited and reviewed Business Financial Statements
referred to in Section 2.4; provided, however, that in the event of any
litigation between the parties hereto relating to or arising from this
Agreement, the prevailing party in such litigation shall be entitled to payment
by the non-prevailing party of all reasonable attorney's fees and costs.
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:
O. Steven Jones General Counsel
Sylvan Learning Systems, Inc.
1000 Lancaster Street
Baltimore, Maryland 21202
with a copy to:
Richard C. Tilghman, Jr., Esquire
Piper & Marbury
36 South Charles Street
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<PAGE>
Baltimore, Maryland 21201
(b) if to the Owner, shall be addressed to:
Blanche Stastny
903 Hawthorne Road
Kemah, Texas 77565
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.
IN WITNESS WHEREOF, the Purchaser, the Business and the Owner 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: OWNER:
__________________________ __________________________
Blanche Stastny
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<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 LONDON
April 24, 1998
Sylvan Learning Systems, Inc.
1000 Lancaster Street
Baltimore, Maryland 21201
Re: Registration Statement on Form S-3
----------------------------------
Dear Sirs:
We have acted as counsel to Sylvan Learning Systems, Inc., a Maryland
corporation (the "Company"), in connection with the Company's 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 168,316 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-_______) and related Prospectus of
Sylvan Learning Systems, Inc. for the registration of 168,316 shares of its
common stock and to the incorporation by reference therein of our report dated
February 25, 1998, with respect to the consolidated financial statements and
schedule of Sylvan Learning Systems, Inc. included in its Annual Report (Form
10-K) for the year ended December 31, 1997, filed with the Securities and
Exchange Commission.
/s/ ERNST & YOUNG LLP
Baltimore, MD
April 21, 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 dated March 14,
1997, appearing in the Annual Report on Form 10-K of Sylvan Learning Systems,
Inc. for the year ended December 31, 1997 and to reference to us under the
headings "Experts" in the Prospectus, which is part of this Registration
Statement.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
April 23, 1998
