EXHIBIT 4.4
-----------
================================================================================
STOCK PURCHASE AGREEMENT
between
THE STOCKHOLDER
and
SYLVAN LEARNING SYSTEMS, INC.
dated as of
August 31, 1998
================================================================================
TABLE OF CONTENTS
Page
----
ARTICLE I
Purchase and Sale of Stock
--------------------------
Section 1.1. Stock to Be Exchanged 1
Section 1.2. Share Transfer 1
Section 1.3. Deliveries by Buyer and Stockholder 1
Section 1.4. Purchase Price Adjustment 2
Section 1.5. Time and Place of Closing 2
ARTICLE II
Representations and
-------------------
Warranties of the Stockholder
-----------------------------
Section 2.1. Incorporation; Authorization; Etc. 3
Section 2.2. Capitalization; Structure; No Investments 4
Section 2.3. Ownership of Shares 5
Section 2.4. Financial Statements 5
Section 2.5. Title to Properties; Encumbrances 5
Section 2.6. Litigation; Orders 6
Section 2.7. Intellectual Property 6
Section 2.8. Licenses, Approvals, Other Authorizations,
Consents, Reports, Etc. 7
Section 2.9. Labor Matters 7
Section 2.10. Compliance with Laws 7
Section 2.11. Material Contracts 7
Section 2.12. No Undisclosed Liabilities 9
Section 2.13. Taxes 10
Section 2.14. Employee Benefit Plans 11
Section 2.15. No Material Adverse Change 12
Section 2.16. Brokers, Finders, Etc. 12
Section 2.17. Schedules 12
Section 2.18. No Implied Representation 12
Section 2.19. Construction of Certain Provisions 13
Section 2.20. Environmental Laws and Regulations 13
Section 2.21. Bank Accounts, Etc. 13
Section 2.22. Insurance 13
Section 2.23. Recent Operations 13
Section 2.24. Investment Intent 14
Section 2.25. No Agreements Regarding the Buyer Shares 14
Section 2.26. Foreign Corrupt Practices Act 15
Section 2.27 No Pending Transactions 15
Section 2.28 Reorganization 15
ARTICLE III
Representations and Warranties of Buyer
---------------------------------------
Section 3.1. Incorporation; Authorization; Etc. 16
Section 3.2. Capitalization; Structure 17
Section 3.3. Title to Buyer Shares 17
Section 3.4. Reports and Financial Statements 17
Section 3.5. Litigation; Orders 18
Section 3.6. Compliance with Laws 18
Section 3.7. No Undisclosed Liabilities 18
Section 3.8. No Material Adverse Change 19
Section 3.9. Brokers, Finders, Etc. 19
Section 3.10. Schedules 19
Section 3.11. Investment Intent 19
Section 3.12. Accounting Matters 20
Section 3.13. Reorganization 20
ARTICLE IV
Covenants of Seller and Buyer
-----------------------------
Section 4.1. Investigation of Business; Access to
Properties and Records; Records Retention 20
Section 4.2. Registration Rights 21
Section 4.3. Further Assurances 23
Section 4.4. Conduct of Business of the Company 23
Section 4.5. Conduct of Business of Buyer 25
Section 4.6. Pooling 25
Section 4.7. Allocation of Buyer Shares 25
Section 4.8. Preparation and Filing of Returns 25
Section 4.9. Amended Returns 26
Section 4.10. Public Announcements 26
Section 4.11. Insurance 26
Section 4.12. No Solicitation 26
Section 4.13 Notification of Certain Matters 27
Section 4.14 Closing Balance Sheet 27
ARTICLE V
Conditions
----------
Section 5.1. Mutual Conditions 27
Section 5.2. Conditions to Obligations of the
Stockholder and the Company 27
Section 5.3. Conditions to Obligations of Buyer 28
ARTICLE VI
Indemnification and Escrow
--------------------------
Section 6.1. Indemnification by the Stockholder 29
Section 6.2. Indemnification by the Buyer 30
Section 6.3. Indemnification Procedure 30
Section 6.4. Limitations on Indemnity 32
Section 6.5. General Escrow of Certain Buyer Shares 32
Section 6.6. Indemnification Sole Remedy 33
ARTICLE VII
Miscellaneous
-------------
Section 7.1. Counterparts 33
Section 7.2. Amendment and Modification 33
Section 7.3. Governing Law and Jurisdiction 33
Section 7.4. Entire Agreement 33
Section 7.5. Agreement for the Parties' Benefit Only 33
Section 7.6. Survival of Representations, Warranties
and Covenants 34
Section 7.7. Expenses 34
Section 7.8. Specific Performance 34
Section 7.9. Notices 34
Section 7.10. Successors and Assigns 35
Section 7.11. Interpretation; Absence of Presumption 36
Section 7.12. Extension; Waiver 36
Section 7.13. Validity 36
SCHEDULES
---------
Schedule 1.1 Outstanding Shares
Schedule 1.3 Form of Notarial Deed of Transfer
Schedule 2.1(a)(1) Company Subsidiaries
Schedule 2.1(a)(2) 20% Owned Entities
Schedule 2.1(e) Conflicts
Schedule 2.1(f) Consents
Schedule 2.2(a)(1) Options
Schedule 2.2(a)(2) Stockholder Register
Schedule 2.6 Litigation
Schedule 2.7 Intellectual Property
Schedule 2.9 Labor Matters
Schedule 2.10 Compliance
Schedule 2.11 Non-Competition Agreements
Schedule 2.13 Taxes
Schedule 2.14(a) Benefit Plans
Schedule 2.14(e) Severance and Other Payments
Schedule 2.16 Company Brokers and Finders
Schedule 2.22 Insurance
Schedule 2.23 Recent Operations
Schedule 2.24 Transactions with Affiliates
Schedule 3.1(e) Consents
Schedule 3.2(a) Options
Schedule 3.7 Intellectual Property
Schedule 3.11 Non-Competition Agreements
Schedule 3.14 Buyer Plans
Schedule 3.16 Buyer Brokers and Finders
Schedule 3.20 Recent Operations
Schedule 4.6(a) Company Affiliate Letter
Schedule 4.6(b) Buyer Affiliate Letter
Schedule 7.9 Notice to Stockholder
EXHIBITS
--------
Exhibit A Form of Employment and Non-Competition Agreement
INDEX OF DEFINED TERMS
Term Section
---- -------
"Action" Section 2.6
"Acquisition Transaction" Section 4.12
"Agreement" Preamble
"Audited Buyer Financial Statements" Section 3.4(b)
"Basket" Section 6.4
"Business Condition" Section 2.1(a)
"Buyer" Preamble
"Buyer Common Stock" Section 3.2(a)
"Buyer Disclosure Schedules" Article III Preamble
"Buyer SEC Reports" Section 3.4(a)
"Buyer Shares" Recitals
"Closing" Section 1.5
"Closing Date" Section 1.5
"Closing Date Market Value" Section 1.3(c)
"Code" Recitals
"Company" Preamble
"Company Audited Financial Statements" Section 2.4(a)
"Company Benefit Plans" Section 2.14(a)
"Company Disclosure Schedules" Article II Preamble
"Company Employees" Section 2.14(a)
"Company Financial Statements" Section 2.4(a)
"Company Permitted Liens" Section 2.5
"Company Qualified Plan" Section 2.14(c)
"Company Unaudited Financial Statements" Section 2.4(a)
"Company's Securities" Section 2.2(a)
"Determination Date" Section 6.3(c)
"Environmental Laws" Section 2.20
"Exchange Act" Section 3.4(a)
"General Escrow Agreement" Section 6.5(a)
"General Escrow Share" Section 6.5(a)
"Governmental Authority" Section 2.6
"Indemnitee" Section 6.3(a)
"Indemnitor" Section 6.3(a)
"Indemnitor Notice" Section 6.3(b)
"Intellectual Property" Section 2.7(a)
"Law" Section 2.1(d)
"Licenses" Section 2.8
"Liens" Section 2.2(b)
"Loss" Section 6.1
"Notice of Claim" Section 6.3(a)
"Order" Section 2.1(d)
"Other Parties" Section 4.12
"Projections" Section 2.4(c)
"Purchase Price" Section 1.3(a)
"Registration Statement" Section 4.2(a)
"Returns" Section 2.13(d)
"Respective Representatives" Section 4.1(a)
"SEC" Recitals
"Securities Act" Section 3.4(a)
"Shares" Recitals
"Special Escrow Agreement" Section 6.6(a)
"Special Escrow Shares" Section 6.6(a)
"Stock Exchange" Recitals
"Stockholder" Preamble
"Subsidiary" Section 2.1(a)
"Taxes" Section 2.13
"Third-Party Claims" Section 6.3(d)
"Unaffiliated Firm" Section 6.3(d)
THIS PURCHASE AGREEMENT (this "Agreement"), dated as of August 15, 1998,
---------
is by and between SYLVAN LEARNING SYSTEMS, INC., a Maryland corporation (the
"Buyer"), and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, (the "Stockholder,").
----- -----------
WHEREAS, Buyer desires to purchase from the Stockholder, and the
Stockholder desires to sell to Buyer, upon the terms and subject to the
conditions set forth herein (the "Stock Exchange"), the shares of PACIFIC
--------------
LANGUAGE ASSOCIATES, INC. dba INTENSIVE ENGLISH INSTITUTE, an Oregon corporation
(the "Company") numbered 19, 21, and 23 (the "Shares"), which Shares constitute
------
all of the issued and outstanding equity interests in the Company in exchange
for a number of shares of Common Stock, $.01 par value, of Buyer, having an
aggregate Closing Date Market Value (as defined herein) equal to 2,500,000.00
("Buyer Shares").
------------
WHEREAS, for United States federal income tax purposes it is intended
that the Stock Exchange shall qualify as a "reorganization" under the provisions
of Section 368(a)(1)(B) of the United States Internal Revenue Code of 1986, as
amended (the "Code").
----
WHEREAS, the Stock Purchase is intended to qualify as a pooling of
interests under applicable U.S. generally accepted accounting principles ("U.S.
----
GAAP") and U.S. Securities and Exchange Commission ("SEC") rules and
---- ---
regulations.
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants, agreements and conditions
hereinafter set forth, and intending to be legally bound hereby, the parties
hereto agree as follows:
ARTICLE I
---------
PURCHASE AND SALE OF STOCK
--------------------------
Section 1.1. Stock to Be Exchanged. Upon the terms and subject to the
---------------------
conditions contained herein, at the Closing (as defined below), the Stockholder
shall sell and transfer to Buyer, and Buyer shall purchase and accept from the
Stockholder, the Shares.
Section 1.2. Share Transfer. At the Closing (as defined below), in
--------------
order to effect the transfer of Shares, the Stockholder will endorse the shares
to the Buyer.
Section 1.3. Deliveries by Buyer and Stockholder.
-----------------------------------
(a) Upon the terms and subject to the conditions contained herein,
(including Section 1.3(b) below regarding Escrow Shares) in consideration of,
and in full payment for and solely in respect of, the Stock Exchange, Buyer
shall deliver or cause to be delivered to the Stockholder certificates
representing a number of Buyer Shares equal to $2,500,000.00 divided by the
Closing Date Market Value of the Buyer Shares, (the "Purchase Price"), free and
--------------
clear of all Liens (as defined herein).
(b) Upon receipt of the Buyer Shares, at the Closing, the Stockholder
shall deliver to the Escrow Agent (as herein defined): (i) certificates
representing a number of Buyer Shares having an aggregate Closing Date Market
Value equal to $ 250,000.00 in respect of the General Escrow (as defined herein)
duly endorsed for transfer, to be held by the Escrow Agent in accordance with
the terms of the General Escrow Agreement and (ii) certificates representing a
number of Buyer Shares having an aggregate Closing Date Market Value equal to
$175,000.00 in respect of the Special Escrow (as defined herein) duly endorsed
for transfer, to be held by the Escrow Agent in accordance with the terms of the
Special Escrow Agreement.
(c) For purposes of this Agreement, the "Closing Date Market Value" of
-------------------------
the Buyer Shares shall mean the average of the closing bid prices per share of
the Buyer Common Stock during the period of the fifteen (15) most recent trading
days ending on the day prior to the date of Closing.
Section 1.4. Purchase Price Adjustments.
--------------------------
(a) For purposes of this Paragraph 1.4, "Working Capital" shall equal
(i) the aggregate amount of current assets, less (ii) the aggregate amount of
----
current liabilities. The term "current liabilities" shall not include (A) the
notes payable by the Company to Stockholder and to ▇▇▇ ▇▇▇▇▇▇ described in
Section 5.2(e) of this Agreement; (B) the liability of the Company to Centennial
Bank for the letter of credit issued to World Learning described in Section
5.3(d) of this Agreement whether evidenced by note or the letter of credit; or
(C) any payments made by the Company at or before Closing with respect to either
of the preceding. A pro forma calculation of the Working Capital of the Company
based on the Company's July 31, 1998 interim financial statement is attached to
this Agreement as Exhibit 1.4(a).
(b) Within sixty (60) days after the Closing Date (the date of such
delivery being the "Adjustment Date"), Buyer shall deliver to the Stockholder a
statement of the Working Capital of the Company setting forth the Working
Capital of the Company as of the Closing Date (the "Company Closing Date Working
Capital"). The Statement shall have been prepared by Buyer in a manner
consistent with the Company's past practice, except to the extent such past
practice is not in accordance with U.S. GAAP. Any disputes with respect to
Buyer's calculation of the Company Closing Date Working Capital shall be
resolved by the Unaffiliated Firm (defined below) in the manner provided in
Section 6.3 below.
(c) Stockholder shall pay to Buyer any negative balance shown by the
Company Closing Date Working Capital.
(d) Buyer shall pay the outstanding balance of the notes payable by
the Company to Stockholder and to ▇▇▇▇▇▇ ▇▇▇▇▇▇ described in section 5.2(e) of
this Agreement and reduce the Purchase Price by such amounts.
(e) Buyer shall pay the outstanding balance of the note payable to
Centennial Bank datedOctober 14,1997, and reduce the Purchase Price by such
amount.
(f) Buyer shall redeem the irrevocable letter of credit held by World
Learning, Inc. and issued by Centennial Bank in the amount of $200,000 and
reduce the Purchase Price by such amount.
Section 1.5. Time and Place of Closing. The closing of the transactions
-------------------------
contemplated by this Agreement (the "Closing") shall be held at the offices of
-------
Sylvan Learning Systems, Inc. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ or such
other place as the parties may agree on the date (the "Closing Date") set by
------------
Buyer (with at least one business day notice to the Stockholder), which date
shall be within five business days following the date upon which all conditions
set forth in Article V have been satisfied or waived, however in no event later
than September 30, 1998.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDER
-------------------
The Stockholder hereby represents and warrants to the Buyer that the
statements contained in this Article II are true and correct, except as set
forth in the schedules delivered by the Stockholder on or before the date of
this Agreement (the "Stockholder Disclosure Schedules"). The Stockholder
--------------------------------
Disclosure Schedules shall be arranged in sections corresponding to the numbered
and lettered sections contained in this Agreement. The disclosure in any
section shall be deemed to constitute disclosure for all sections in this
Agreement.
Section 2.1. Incorporation; Authorization; Etc.
----------------------------------
(a) The Company is an Oregon corporation duly organized and validly
existing under the laws of the State of Oregon. The Company (1) has all
requisite power and authority to own all of its properties and assets and to
carry on its business as it is now being conducted, and (2) is in good standing,
and is duly licensed, authorized or qualified to transact business in each
jurisdiction in which the ownership or lease of real property or the conduct of
its business requires it to be so qualified except where the failure to be in
good standing or to be duly licensed, authorized or qualified to transact
business, would not reasonably be expected to, individually or in the aggregate,
have a material adverse effect on the business, assets, results of operations,
or financial condition (collectively, the "Business Condition") of the Company.
------------------
As used in the Agreement, "Subsidiary" with respect to the Company, shall mean
----------
each corporation, partnership, limited liability company or other legal entity
set forth on Stockholder Disclosure Schedule 2.1(a)(1) and, with respect to
Buyer, shall mean a corporation, partnership, limited liability company or other
legal entity more than 50% of the voting power of whose outstanding voting
securities or equity interests are, directly or indirectly, owned by Buyer.
Stockholder Disclosure Schedule 2.1(a)(1) lists all entities in which the
Company owns, directly or indirectly, more than 50% of the voting power of an
entity's voting securities or equity interests. The Company has heretofore
delivered or made available to Buyer complete and correct copies of its '
organizational documents as in effect on the date hereof. Stockholder Disclosure
Schedule 2.1(a)(2) lists all other entities, if any, in which the Company holds
less than a 50% equity interest.
(b) The Stockholder has full power, capacity and authority to execute and
deliver this Agreement and to perform her obligations under this Agreement. This
Agreement has been duly executed and delivered by and is the legal, valid and
binding obligation of the Stockholder and, assuming the due execution and
delivery thereof by Buyer, is enforceable against the Stockholder in accordance
with its terms.
(c) Except as set forth in Stockholder Disclosure Schedule 2.1(c), the
execution and delivery of this Agreement by the Company and the Stockholder
and the consummation by the Stockholder of the transactions contemplated by
this Agreement will not (1) violate any provision of the articles of
incorporation or by-laws or similar organizational instrument of the Company,
(2) result in a violation of any provision of, or constitute a default (with or
without notice or lapse of time) under, or give rise to a right of termination,
cancellation or acceleration of (or entitle any party to accelerate whether
after the giving of notice or lapse of time or both) any obligation under, or
result in the imposition of any lien upon or the creation of a security interest
in any of the Shares or any of the Company's assets or properties pursuant to,
any note, bond, debt instrument, mortgage, indenture, lien, lease, agreement or
other instrument, or any judgment, injunction, order or decree to which the
Company or the Stockholder is a party or by which either of them is bound,
(3) violate or conflict with any United States (federal, state or local) or
foreign (federal, provincial or local) law, statute, ordinance, rule or
regulation ("Law") or any order, writ, injunction, judgment, award,
---
stipulation or decree rendered by any Governmental Authority (as defined
herein) ("Order") applicable to the Company, or its material properties or
-----
assets or the Stockholder, or (4) trigger the rights of the Company under any
shareholder rights plan or similar arrangement, except in
the case of clauses (2) and (3), for any such violations, defaults, rights or
restrictions that would not (A) have a material adverse effect on the Business
Condition of the Company, (B) an adverse effect on the value of the Shares or
(C) an adverse effect on the ability of Stockholder to consummate the Stock
Exchange.
(d) No consent, approval, order or authorization of, or registration,
declaration or filing with (1) any Governmental Authority or (2) any individual,
corporation or other entity is required by or with respect to the Company or the
Stockholder in connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby, except for those set
forth in Stockholder Disclosure Schedule 2.1 (d) and such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not be reasonably likely, individually or in the aggregate, to have
a material adverse effect on the Business Condition of the Company.
Section 2.2. Capitalization; Structure; No Investments.
-----------------------------------------
(a) The entire authorized capital stock of the Company is 1,000 shares of
no par value Common Stock, of which 150 shares are issued and outstanding and
all are owned by the Stockholder. Except as disclosed in Stockholder Disclosure
Schedule 2.2(a)(1), all of the issued and outstanding Shares have been duly and
validly issued and are fully paid and nonassessable, free of preemptive rights
and are owned by the Stockholder. There are outstanding (1) no other shares of
capital stock or other voting securities of the Company, (2) no securities of
the Company convertible into or exchangeable for shares of capital stock or
voting securities of the Company, (3) no options, warrants or other rights to
acquire from the Company (including any rights issued or issuable under a
shareholders rights plan or similar arrangement), and no obligations of the
Company to issue, any capital stock, voting securities or securities convertible
into or exchangeable for capital stock or voting securities of the Company,
(4) no equity equivalents, interests in the ownership or earnings of the Company
(including stock appreciation or phantom stock rights) or other similar rights
(with the securities listed in clauses (1) through (4) referred to collectively
as the "Company's Securities"), and (5) no outstanding obligations of the
--------------------
Company to repurchase, redeem or otherwise acquire any Company Securities or to
make any investment (by loan, capital contribution or otherwise) in any other
entity. Except as set forth in Stockholder Disclosure Schedule 2.2(a)(1), no
decision has been taken by the Stockholder to distribute profits or reserves or
to repay capital, which still has to be executed, and no distribution will be
made after the date hereof that will prevent accounting for the Stock Exchange
as a pooling of interests. The Stockholder's Register, a copy of which is
attached hereto as Stockholder Disclosure Schedule 2.2(a)(2), is true, accurate
and complete. No depositary receipts have been issued against the Shares.
(b) The Company has no Subsidiaries nor any equity investment of any kind
in any corporation, partnership, limited liability company, joint venture or
other legal entity.
Section 2.3. Ownership of Shares. Except as disclosed in Stockholder
-------------------
Disclosure Schedule 2.3, the Stockholder has good and valid title to the Shares
free and clear of anyliens, claims, charges, security interests, options or
other legal or equitable encumbrances of any kind ("Liens"). No person or
entity has any power or right, whether or not shared with any other person or
entity, to dispose of or direct the disposition of any Shares or vote or direct
the voting of any such Shares. Upon consummation of the Stock Exchange as
contemplated by this Agreement, Buyer will acquire good and valid title to such
Shares, free and clear of any Liens.
Section 2.4. Financial Statements.
--------------------
(a) The Company has previously delivered to the Buyer true, correct and
complete copies of its balance sheet and income statement as of June 30, 1998
and the Company has delivered to the Buyer true, correct and complete copies of
its unaudited balance sheets as of September 30, 1996 and 1997, and the related
unaudited profit and loss statement for the fiscal years ended September 30,
1996 and 1997 (collectively, the "Company Unaudited Financial Statements").
--------------------------------------
The Company Unaudited
Financial Statements, and the Closing Balance Sheet (as defined in and delivered
pursuant to Section 4.13 hereof) shall be collectively referred to herein
as the "Company Financial Statements."
----------------------------
(b) Except as disclosed in Stockholder Disclosure Schedule 2.4(b), the
Company Financial Statements were prepared in accordance with U.S. GAAP andthe
Company Financial Statements present fairly the financial position of the
Company, as of their respective dates, for the periods presented therein, all in
conformity with GAAP applied on a consistent basis throughout the periods
involved.
Section 2.5. Title to Properties; Encumbrances. Except for properties
---------------------------------
disposed of in the ordinary course of business consistent with past practice or
as provided in Stockholder Disclosure Schedule 2.5, the Company has good and
marketable title to, or holds by valid and existing lease or license, free and
clear of all Liens, each piece of real and personal property currently used by
it, and reasonably necessary to enable it to carry on its business as presently
conducted except for such Liens as (a) are reflected or reserved against in the
Company Financial Statements, or (b) would not, individually or in the
aggregate, have a material adverse effect on the Business Condition of the
Company (the Liens described on Stockholder Disclosure Schedule 2.5 and clauses
(a) and (b) above, "Company Permitted Liens"). Stockholder Disclosure Schedule
-----------------------
2.5 sets forth all real property owned and all real property leased by the
Company with the name, address, terms of material leases and annual payment
obligations (whether mortgage or rent) for each. The Stockholder has received
no written notice of any violation of any zoning, use or other similar laws with
respect to any material property used in the operation of the Company's
businesses.
Section 2.6. Litigation; Orders. Except as set forth in Stockholder
------------------
Disclosure Schedule 2.6, there is no action, suit, arbitration, inquiry,
proceeding or investigation ("Action") by or before any court or tribunal in any
------
jurisdiction or any federal, state, municipal, domestic, foreign or other
administrative agency, department, commission, board, bureau or other
governmental or regulatory authority or instrumentality (each a "Governmental
------------
Authority") pending nor, to the knowledge of the Stockholder after due and
---------
reasonable inquiry, is any Action threatened against or involving the
Stockholder or the Company, or affecting any properties or assets of any of the
Stockholder or the Company which, in any such case, could reasonably be expected
to (a) prevent or materially delay the ability of the Stockholder or the Company
to consummate the transactions contemplated hereby, or (b) individually or in
the aggregate, have a material adverse effect on the Business Condition of the
Company. Neither the Stockholder nor the Company is subject to any Order which
could reasonably be expected to prevent or materially delay the ability of the
Stockholder or the Company to consummate the transactions contemplated hereby
or, individually or in the aggregate, have a material adverse effect on the
Business Condition of the Company.
Section 2.7. Intellectual Property.
---------------------
(a) The Company owns, or has a valid license to use, all of the patents,
trademarks, trade names, service marks, registered copyrights or applications
("Intellectual Property") which are currently used by it, and are reasonably
---------------------
necessary to enable it to carry on, its businesses as presently conducted,
except for such Intellectual Property as would not individually or in the
aggregate have a material adverse effect on the Business Condition of the
Company. Stockholder Disclosure Schedule 2.7 lists (1) all material Intellectual
Property, including jurisdictions in which each such material Intellectual
Property right has been issued or registered, and (2) all material licenses,
sublicenses and other agreements where the Company has taken or given a right to
use such Intellectual Property right from or to a third party. To the
Stockholder's knowledge, all registered Intellectual Property held by the
Company is valid and subsisting.
(b) Except as set forth in Stockholder Disclosure Schedule 2.7(b), no
claims which would, individually or in the aggregate, have a material adverse
effect on the Business Condition of the Company have been asserted by any person
(1) challenging the ownership, validity or effectiveness of any Intellectual
Property owned, used, filed by or licensed to or by the Company as of the date
hereof, (2) to
the effect that the sale of any product or the provision of any service as now
sold or provided by the Company infringes on any Intellectual Property of a
third party, or (3) against the use by the Company of any Intellectual Property.
(c) Except as disclosed in Stockholder Disclosure Schedule 2.7(c), the
operations of the Company on and after January 1, 2000, without limitation to
date, shall in no way be different than the operations prior to that date with
respect to the equipment, systems and software of the Company, and the Company
will be able to process, store, record and present data containing dates in the
Year 2000 and thereafter, without limitation to date in the same manner as data
containing dates prior to the Year 2000.
Section 2.8. Licenses, Approvals, Other Authorizations, Consents, Reports,
-------------------------------------------------------------
Etc.
----
(a) Except as disclosed in Stockholder Disclosure Schedule 2.8(a), the
Company has all governmental licenses, permits, franchises, approvals and other
authorizations of any Governmental Authority (the "Licenses") necessary to own,
--------
lease and operate its properties and enable it to carry on its businesses as
presently conducted except for those Licenses, the lack of which would not have
a material adverse effect on the Business Condition of the Company. All such
Licenses are in full force and effect except where the failure to be in full
force and effect would not, individually or in the aggregate, have a material
adverse effect on the Business Condition of the Company. As of the date hereof,
to the Stockholder's knowledge after reasonable inquiry, no proceeding is
pending seeking the revocation or limitation of any such License that would,
individually or in the aggregate, have a material adverse effect on the Business
Condition of the Company.
(b) Stockholder Disclosure Schedule 2.8(b) lists all consents, approvals,
registrations, filings, applications, notices, orders, authorizations,
qualifications and waivers required to be made, filed, given or obtained by any
of the Company or the Stockholder with, to or from any persons or Governmental
Authorities in connection with the consummation of the Stock Exchange, except
for those (1) that become applicable solely as a result of the specific
regulatory status of Buyer or its affiliates, or (2) the failure to make, file,
give or obtain which would not, individually or in the aggregate, either have a
material adverse effect on the Business Condition of the Company or prevent the
consummation of the Stock Exchange.
Section 2.9. Labor Matters. Except as set forth in Stockholder Disclosure
-------------
Schedule 2.9, as of the date hereof, Company is not involved in or, to the
Stockholder's knowledge after reasonable inquiry, threatened with any labor
dispute, arbitration, lawsuit or administrative proceeding relating to labor
matters involving the employees of the Company (excluding routine workers'
compensation claims) that would reasonably be expected, individually or in the
aggregate, to have a material adverse effect on the Business Condition of the
Company.
Section 2.10. Compliance with Laws. Except as set forth in Stockholder
--------------------
Disclosure Schedule 2.10, to the Stockholder's knowledge after reasonable
inquiry, the conduct of the business of each of the Company substantially
complies with all applicable Laws and all Orders applicable thereto, except for
violations or failures so to comply, if any, that would not reasonably be
expected, individually or in the aggregate, to have a material adverse effect on
the Business Condition of the Company.
Section 2.11. Material Contracts.
------------------
(a) Stockholder Disclosure Schedule 2.11(a) identifies each of the
following material agreements, contracts, documents and other items (whether
written or oral) as to which the Company is a party or otherwise is bound (and
all such contracts, or samples or summaries thereof, have been made available
to Buyer) as of the date of the execution of this Agreement: (i) all contracts
between the Company and third parties relating to the provision of foreign
exchange student programs and solicitation of students for such instruction and
programs other than contracts with individual students ("Exchange Contracts")
(ii) all documents relating to indebtedness for money borrowed, including
guarantees; (iii) all agreements or plans relating to employment, compensation
of or benefits for officers, employees or consultants of the Company, including
without limitation, any collective bargaining arrangements; (iv) all contracts
for the purchase of materials, supplies, services, merchandise or equipment
involving consideration of more than $5,000 annually or involving purchases in
excess of normal operating requirements; (v) any contract, agreement, or
instrument not entered into in the ordinary course of the business of the
Company; (vi) any contract containing material restrictions on the operations of
the Company or any restrictions on its ability to compete in any geographic
region or in any line of business; (vii) any lease of real property and all
personal property leases calling for annual lease payments in excess of $10,000;
and (viii) all licenses and accreditations received in connection with
instruction and foreign exchange student programs conducted by the Company. The
contracts and agreements identified in Stockholder Disclosure Schedule 2.11(a),
including each of the Exchange Contracts, are collectively referred to herein as
the "Contracts."
(b) Except as set forth in Section 2.11(b) of the Stockholder Disclosure
Schedule:
(i) Neither the execution, delivery and performance of this Agreement
nor the consummation of the transactions contemplated hereby will conflict in
any material respect with or result in a material breach of, or give rise to a
right of termination of, or accelerate the performance required by, any terms of
any Contract, or constitute a default in any material respect thereunder.
(ii) The Company is not under any liability or obligation to refund
any material amount previously paid to the Company for services provided by the
Company under the Contracts, and the Company has paid or has made adequate
provision to pay when due all accounts payable, payroll, payroll taxes and other
amounts due on account of the Contracts;
(iii) The Company has not entered into any of the Contracts other than
in compliance with all applicable laws, rules and regulations; and the terms of
payment and/or compensation for each of the Contracts complies with all
applicable laws, rules and regulations relating to competitive bidding; each of
the Contracts not obtained through competitive bidding was secured in an arms'
length transaction.
(iv) Each of the Contracts is valid and existing and in full force and
effect, true and complete copies of each Contract have been heretofore provided
to the Buyer; the Company has, in all material respects, performed all
obligations required to be performed by it under, and is not in material default
in any respect underany of the Contracts; and the Company has not received
notice of non-compliance or alleged non-compliance with any of the Contracts; to
the knowledge of the Stockholder, each other party to any Contract has, in all
material respects, performed all obligations required to be performed by it
under, and is not in material default in any respect under, any of the
Contracts;
(v) The Stockholder has no knowledge of any current intention on the
part of any of the parties to the Contracts to cancel the same or not to renew
the same with the Company at the end of the current term thereof;
(vi) The Company is (a) duly licensed in the appropriate jurisdiction
to provide language instruction at all sites where the Company currently
provides language instruction and (b) accredited by an accrediting body that is
recognized by, and satisfactory to both the regulating agency or institution in
the jurisdiction where the language instruction is provided and the agency or
institution that regulates or administers the distribution of visas in the
country where the language instruction is provided;
(vii) The Company has received ACCET approval for all schools
operated by the Company and the Stockholder after reasonable inquiry, is not
aware of any threatened termination of such ACCET approval or any set of facts
which may negatively affect ACCET approval.
(viii) The Company has not received any claim of material overpayment or
alleged material overpayment by any other party to any of the Contracts, and
except as described in Stockholder Disclosure Schedule 2.11(b), there have been
no audits or other reviews of the costs, billing methods or performance of the
Company under any of the Contracts, and no such audits or other reviews are in
progress or, to the knowledge of the Stockholder, contemplated; and
(ix) Except as set forth in Stockholder Disclosure Schedule 2.11(b),
no consent, approval or authorization of, notice to or declaration, filing or
registration with, any third party is required in connection with the Stock
Exchange or the execution, delivery and performance of this Agreement and the
Closing Documents and the consummation of the transactions contemplated hereby
and thereby.
Section 2.12. No Undisclosed Liabilities. Except as reflected, reserved
--------------------------
against or otherwise disclosed in the Company Financial Statements (including
the notes thereto), the Company has no liabilities or obligations of a character
(including without limitation any liability resulting from failure to comply
with any laws or foreign, federal, state or local tax liabilities due or to
become due whether incurred in respect or measured by income for any period
prior to close of business on such dates or arising out of transactions entered
into or any state of facts existing prior thereto) that would be required to be
reflected in a balance sheet prepared in accordance with U.S. GAAP except
liabilities and obligations which (a) were incurred after September 30, 1997 in
the ordinary course of business in nature and amount consistent with past
practice, (b) would not, individually or in the aggregate, have a material
adverse effect on the Business Condition of the Company, or (c) are specifically
contemplated by this Agreement.
Section 2.13. Taxes.
-----
(a) The Company has in all material respects accurately prepared and
timely filed (or will, prior to Closing have prepared and filed) all material
federal, state, local and foreign Returns (defined below), estimates,
information statements and reports required to be filed at or before the Closing
Date relating to any and all Taxes concerning or attributable to the Company or
any of its operations or assets, and such material Returns are true and correct
in all material respects and have been completed in all material respects in
accordance with applicable law. Copies of all material Returns of the Company
for the past three years have been or will be provided or made available by the
Company to the Buyer. In particular, and without in any manner limiting the
foregoing, none of the Returns of the Company that relate to pre-Closing periods
contains any position which, individually or in the aggregate, is or would be
subject to material penalties under Section 6662 of the Code (or any
corresponding provision of state, local or foreign Tax Law).
(b) Except as set forth in Stockholder Disclosure Schedule 2.13, as of
the date hereof, the Company: (1) has paid all Taxes it was required to pay (and
as of the Closing Date will have paid all Taxes it is required to pay prior to
the Closing Date), (2) have withheld with respect to its employees all Taxes
(and as of the Closing Date will have withheld all such Taxes it is required to
withhold prior to the Closing Date), and (3) have collected all Taxes on account
of sales by the Company or the use of any of its products (and as of the Closing
Date will have collected all such Taxes it is required to collect prior to the
Closing Date) in each case where such payment, withholding or collection is
required, except, in each instance, where any failure to make such payment,
withholding or collection would not be reasonably likely, individually or in the
aggregate, to have a material adverse effect on the Business Condition of the
Company.
(c) There is no Tax deficiency outstanding, proposed or assessed against
the Company that is not reflected as a liability in the Company Financial
Statements which would reasonably be likely, individually or in the aggregate,
to have a material adverse effect on the Business Condition of the Company, nor
has the Company executed any waiver of any statute of limitations on or
extending the period for the assessment or collection of any material Tax.
(d) As used in this Agreement, "Returns" shall mean returns, reports and
forms required to be filed with any domestic or foreign Taxing Authority
(defined below).
"Taxes" shall mean (1) all taxes (whether federal, state, local or
-----
foreign) based upon or measured by income and any other tax whatsoever,
including gross receipts, profits, sales, use, occupation, value added,
ad valorem, transfer, franchise, withholding, payroll, recapture, employment,
----------
excise, or property taxes, together with all interest, penalties and additions
imposed with respect thereto and (2) any obligations under any agreements or
arrangements with respect to any Taxes described in clause (1) above including
liability for Taxes of a predecessor entity.
"Taxing Authority" shall mean any Governmental Authority having
----------------
jurisdiction over the assessment, determination, collection, or other imposition
of Tax.
Section 2.14. Employee Benefit Plans.
----------------------
(a) Stockholder Disclosure Schedule 2.14(a) lists all material
compensation and benefit plans, contracts and arrangements in effect as of the
date hereof including, without limitation, all bonus, incentive or deferred
compensation, severance pay, pension, profit sharing, savings and thrift and
medical and life insurance plans in which any current or former employees of the
Company ("Company Employees") participate (collectively, "Company Benefit
----------------- ---------------
Plans").
-----
(b) All Company Benefit Plans in which Company Employees participate and
which are "employee benefit plans," as defined in Section 3(3) of ERISA, in all
material respects are in compliance with and have been administered in
compliance with all applicable requirements of law, including but not limited to
the Code and ERISA, and all contributions required to be made to each such plan
under the terms of such plan, ERISA or the Code for all periods of time prior to
the date hereof and the Closing Date have been or will be, as the case may be,
made or accrued, except for such noncompliance or failures to contribute which
would not, individually or in the aggregate, have a material adverse effect on
the Business Condition of the Company. With respect to the Company Benefit
Plans, individually and in the aggregate, there are no funded benefit
obligations for which contributions have not been made or properly accrued and
there are no unfunded benefit obligations which have not been accounted for by
reserves, or otherwise properly, in the Company Financial Statements.
(c) With respect to any Company Benefit Plan which is intended to qualify
under Section 401(a) of the Code ("Company Qualified Plan"), a favorable
----------------------
determination letter as to the qualification under Section 401(a) of the Code
has been issued, or the remedial amendment period for such determination has not
expired. To the best knowledge of the Stockholder, no "disqualified person" (as
defined in Section 4975 of the Code) has engaged in any "prohibited transaction"
(as such term is defined in Section 4975 of the Code), which could subject any
Company Qualified Plan (or its related trust), or the Company to any tax or
penalty imposed under Section 4975 of the Code. The value of the assets in each
of the Company Qualified Plans which is a defined benefit plan exceeds the
present value of accrued benefits of all participants in such Plan when such
benefits are valued on a termination basis using Pension Benefit Guaranty
Corporation interest and other assumptions.
(d) The Company is not required to contribute to, or has been required to
contribute to, any "multiemployer plan," as such term is defined in Section
4001(a)(3) of ERISA.
(e) Except as otherwise set forth in Stockholder Disclosure Schedule
2.14(e) hereto, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (1) result in any
payment (including, without limitation, severance, unemployment compensation,
golden parachute or otherwise) becoming due to any Employee under any Company
Benefit Plan or otherwise, (2) increase any benefits otherwise payable by the
Company under any Company Benefit Plan or (3) result in the acceleration of the
time of payment or vesting of any such
benefits to any material extent, which, individually or in the aggregate, would
have a material adverse effect on the Business Condition of the Company.
Section 2.15. No Material Adverse Change. Except as set forth in Stockholder
--------------------------
Disclosure Schedule 2.15, since September 30, 1997, there has not been any
event, occurrence or circumstance that has had, individually or in the
aggregate, a material adverse effect on the Business Condition of the Company,
or any event, occurrence or circumstance that would, or would reasonably be
expected, individually or in the aggregate, to have a material adverse effect on
the Business Condition of the Company or a material adverse effect on the
ability of any of the Stockholder to consummate the transactions contemplated
hereby.
Section 2.16. Brokers, Finders, Etc. Except as set forth on Stockholder
----------------------
Disclosure Schedule 2.16, neither the Company, nor the Stockholder has employed,
or is subject to any claim of, any broker, finder, or similar consultant or
intermediary in connection with the transactions contemplated by this Agreement
which might be entitled to a fee or commission from the Company upon the
consummation of the transactions contemplated hereby. All of the fees,
commissions and expenses of the persons set forth on Stockholder Disclosure
Schedule 2.16 shall be solely for the account of, and borne by, the Company.
Stockholder Disclosure Schedule 2.16 sets forth an approximate current estimate
of such fees and expenses.
Section 2.17. Schedules. Disclosure of any fact or item in any Shareholder
---------
Disclosure Schedule hereto referenced by a particular paragraph or Section in
this Agreement shall, should the existence of the fact or item or its contents
be clearly relevant to any other paragraph or Section, be deemed to be disclosed
with respect to that other paragraph or Section whether or not an explicit
cross-reference appears, unless the context indicates otherwise.
Section 2.18. No Implied Representation. Notwithstanding anything contained
-------------------------
in this Article II or any other provision of this Agreement, it is the explicit
intent of each party hereto that the STOCKHOLDER IS MAKING NO REPRESENTATION OR
WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, BEYOND THOSE EXPRESSLY GIVEN IN THIS
AGREEMENT, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OR REPRESENTATION
AS TO CONDITION, MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR
PURPOSE AS TO ANY OF THE PROPERTIES OR ASSETS OF THE COMPANY AND ITS
SUBSIDIARIES AND IT IS UNDERSTOOD THAT BUYER TAKES SUCH BUSINESSES, PROPERTIES
AND ASSETS ON AN "AS IS" AND "WHERE IS" BASIS EXCEPT AS SET FORTH IN THIS
AGREEMENT AND SCHEDULES HERETO. It is understood that any cost estimates,
projections or other projections or predictions or any other information
concerning the contained in or referred to in other materials that have been or
may hereafter be provided to Buyer or any of its affiliates, agents or
representatives are not and shall not be deemed to be representations or
warranties of the Stockholder or the Company.
Section 2.19. Construction of Certain Provisions. It is understood and
----------------------------------
agreed that neither the specification of any dollar amount in the
representations and warranties contained in this Agreement nor the inclusion of
any specific item in the Stockholder Disclosure Schedules hereto is intended to
imply that such amounts or higher or lower amounts, or the items so included or
other items, are or are not material, and neither party shall use the fact of
the setting of such amounts or the fact of the inclusion of any such item in the
Schedules hereto in any dispute or controversy between the parties as to whether
any obligation, item or matter is or is not material for purposes of this
Agreement.
Section 2.20. Environmental Laws and Regulations. The Company is in material
----------------------------------
compliance with all applicable Laws in effect as of the date of this Agreement
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, ground water, land
surface or subsurface strata) (collectively, "Environmental Laws"), which
------------------
compliance includes, but is not limited to the possession by the Company of all
material permits and other governmental authorizations required under applicable
Environmental Laws, and material compliance with
the terms and conditions thereof and the Company has not received written notice
of, or is not the subject of, any Action, demand or notice by any person or
entity alleging liability under or non-compliance with any Environmental Law (an
"Environmental Claim"), and the Stockholder has no reason to believe any of the
-------------------
foregoing is being contemplated nor has the Stockholder seen on any of the real
property owned or leased by the Company hazardous materials or contaminants, as
defined in the Environmental Law, except as are present in material compliance
with Environmental Laws, and there are no circumstances that are reasonably
likely to prevent or interfere with such compliance in the future or give rise
to an Environmental Claim in the future.
Section 2.21. Bank Accounts, Etc. Stockholder Disclosure Schedule 2.21 sets
-------------------
forth a list of all bank accounts, safe deposit boxes and lock boxes of the
Company including, with respect to each such account and lock box,
identification of all authorized signatories.
Section 2.22. Insurance. Stockholder Disclosure Schedule 2.22 sets forth a
---------
list of all material general liability, product liability, fire, casualty, motor
vehicle and other insurance or bonding maintained by or on behalf of the
Company, any of its employees as of the date hereof. All requirements and
provisions of all such policies are being substantially complied with. No
notice of cancellation has been given to or received by the Company with respect
to any such insurance policy. To the knowledge of the Stockholder, no such
policies are or will become subject to an assessment due to any retroactive rate
or audit adjustments or coinsurance arrangements.
Section 2.23. Recent Operations. Since September 30, 1997, (a) the Company
-----------------
has operated its business substantially as it was operated immediately prior to
such date in the ordinary course of business; (b) the Company and the
Stockholder has used its commercially reasonable efforts to preserve intact the
business relationships of the Company (c) there have been no material bonuses
paid to or material increases in the compensation of officers or employees of
the Company, except as set forth in Stockholder Disclosure Schedule 2.23; and
(d) except as set forth in Section 2.23 of the Stockholder Disclosure Schedule,
the Company has not declared or paid any dividend or made any other distribution
with respect to its capital stock..
Section 2.24. Investment Intent.
-----------------
(a) It is understood that as of the Closing the Buyer Shares will not
have been registered under the Securities Act or any state securities laws, and
that such shares will be delivered without registration in reliance upon an
exemption from the registration requirements of the Securities Act and
applicable state securities laws. The Stockholder represents that she is
acquiring the Buyer Shares hereunder only for her own account for investment and
not with any intention of making, or with a view to, or for sale in connection
with, any distribution thereof within the meaning of the Securities Act until
such shares first are registered under the Securities Act as required by Section
4.2 of this Agreement.
(b) In connection with the foregoing, the Stockholder hereby represents
and warrants that:
(1) she has reviewed, discussed and evaluated the information made
available by Buyer and has had the opportunity to ask questions of, and receive
answers from, executive officers of Buyer concerning the terms and conditions of
this Agreement and to obtain any additional information which she considered
necessary to verify the accuracy of the information delivered by Buyer in
connection with this Agreement;
(2) she understands that she must bear the economic risks of the
investment in Sylvan Common Stock to be made hereunder for an indefinite period
of time because such stock has not been registered under the Securities Act and,
therefore, may not be sold until such stock subsequently is registered under the
Securities Act or an exemption from registration is available; and
(3) she has sufficient knowledge and experience in financial and
business matters to enable her to be capable of evaluating the merits and the
risks of the Stock Exchange.
(c) It is understood and agreed that, to implement the requirements of
the Securities Act and state securities laws and evidence the restrictions upon
transfer contained in this Agreement, Sylvan will cause a legend to be
conspicuously noted on the certificates representing the Sylvan Common Stock
deliverable hereunder, and that Sylvan will issue stop transfer instructions to
its transfer agent, to the effect that such stock has not been registered under
the Securities Act and that no transfer may take place except pursuant to an
effective registration statement or after delivery of any opinion of counsel
reasonably satisfactory to Sylvan to the effect that registration thereof for
the purpose of transfer is not required under the Securities Act.
Section 2.25. No Agreements Regarding the Buyer Shares. The Stockholder has
----------------------------------------
not taken or has not agreed to take any action that would prevent the Stock
Exchange from qualifying for pooling of interests accounting treatment under
U.S. GAAP and applicable SEC rules and regulations. The Stockholder is not
aware of any agreement, plan or other circumstance relating to the Stockholder
that would prevent the Stock Exchange from so qualifying and the Stockholder has
no reason to believe that the Stock Exchange will not qualify as a pooling of
interests for accounting purposes. Without limiting the generality of the
foregoing sentence, since September 30, 1997 (i) the Company has not had any
treasury stock transactions and none are planned during the period between the
date hereof and the Closing Date, (ii) the Company has not adopted any new or
amended any existing stock option or stock purchase plans, (iii) the Company has
not disposed of any assets other than in the ordinary course of business, and
(iv) the Stockholder has not entered into any agreement that would restrict
voting rights with respect to the Buyer Shares to be issued pursuant to this
Agreement. The Stockholder represents and warrants that she has not entered into
any agreement or understanding with anyone for the transfer of the Buyer Shares
in a transaction that would prevent Buyer from accounting for the Stock Exchange
as a pooling of interests.
Section 2.26. Foreign Corrupt Practices Act. To Stockholder's knowledge,
-----------------------------
neither the Company nor any director, officer, agent, employee, consultant, or
any other person associated with or acting on behalf of any of them, has engaged
or is engaged in any course of conduct, or is a party to any agreement or
involved in any transaction, which has or would give rise to a violation of the
Foreign Corrupt Practices Act of 1977 or any other United States statute or
regulation governing the conduct of business abroad by corporations having U.S.
operations and their subsidiaries.
Section 2.27. No Pending Transactions. Except for the transactions
-----------------------
contemplated by this Agreement or as disclosed in Stockholder Disclosure
Schedule 2.27, the Company is not a party to or bound by or the subject of any
agreement, undertaking, commitment, negotiation or discussion with another party
with respect to any Acquisition Transaction (as defined below). For purposes of
this Section, the term "Acquisition Transaction" means any (i) acquisition of
all or any material portion of the assets of, or any equity interest in, any
corporation, partnership, joint venture, company, organization or other entity,
(ii) sale of all or any material portion of the assets of, or equity interest in
the Company or (iii) any merger, consolidation, business combination (or other
similar transaction) involving the Company.
Section 2.28. Reorganization. The Stockholder has not and, as of the
--------------
Closing Date will not have, taken any action or failed to take any action which
action or failure would result in the failure of the Stock Exchange to qualify
as a reorganization within the meaning of Section 368(a)(1)(B) of the Code. The
Stockholder has no knowledge of any fact or circumstance that is reasonably
likely to prevent the Stock Exchange from qualifying as a reorganization within
the meaning of Section 368(a)(1)(B) of the Code.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer hereby represents and warrants to the Stockholder that the
statements contained in this Article III are true and correct except as
disclosed in the Buyer SEC Reports (as defined in Section 3.4) or as set forth
in the schedules delivered by the Buyer to the Stockholder on or before the date
of this Agreement (the "Buyer Disclosure Schedules"). The Buyer Disclosure
--------------------------
Schedules shall be arranged in sections corresponding to the numbered and
lettered sections contained in this Agreement. The disclosure in any section of
the Buyer Disclosure Schedules shall be deemed to constitute disclosure for all
sections in this Agreement.
Section 3.1. Incorporation; Authorization; Etc.
----------------------------------
(a) Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maryland. Buyer (1) has all requisite
power and authority to own all of its properties and assets and to carry on its
business as it is now being conducted, and (2) is in good standing, and is duly
licensed, authorized or qualified to transact business in each jurisdiction in
which the ownership or lease of real property or the conduct of its business
requires it to be so qualified except where the failure to be in good standing
or to be duly licensed, authorized or qualified to transact business, would not
reasonably be expected to, individually or in the aggregate, have a material
adverse effect on the Business Condition of Buyer and its Subsidiaries, taken as
a whole. Buyer has heretofore delivered or made available to the Stockholder
complete and correct copies of its certificate of incorporation and by-laws as
in effect on the date hereof.
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by the Board of Directors of Buyer, and no additional proceedings (corporate or
otherwise) on the part of Buyer or its Stockholder are necessary to authorize
the execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby. This Agreement has been duly executed
and delivered by, and, assuming the due execution and delivery thereof by the
Company and the Stockholder, constitutes the legal, valid and binding obligation
of, Buyer and is enforceable against Buyer in accordance with its terms.
(c) The execution and delivery of this Agreement by Buyer and the
consummation by Buyer of the transactions contemplated by this Agreement will
not (1) violate any provision of the certificate of incorporation or by-laws or
similar organizational instrument of Buyer or any of its material Subsidiaries,
(2) result in a violation of any provision of, or constitute a default (with or
without notice or lapse of time) under, or give rise to a right of termination,
cancellation or acceleration of (or entitle any party to accelerate whether
after the giving of notice or lapse of time or both) any obligation under, or
result in the imposition of any Liens upon or the creation of a security
interest in any of Buyer's or its Subsidiaries' assets or properties pursuant
to, any note, bond, debt instrument, mortgage, indenture, lien, lease, agreement
or other instrument, or any judgment, injunction, order or decree to which Buyer
is a party or by which any of them is bound, or (3) violate or conflict with any
Law or Order applicable to Buyer , except, in the case of clauses (2) and (3),
for any such violations, defaults, rights or restrictions that would not,
individually or in the aggregate, (A) have a material adverse effect on the
Business Condition of Buyer and its Subsidiaries, taken as a whole, (B) an
adverse effect on the value of the Buyer Shares or (C) on adverse effect on the
ability of Buyer to consummate the Stock Exchange.
(d) No consent, approval, order or authorization of, or registration,
declaration or filing with (1) any Governmental Authority or (2) any individual,
corporation or other entity (including any holder of Buyer's securities) is
required by or with respect to Buyer in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for
(A) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under federal securities laws
(including an order of effectiveness with respect to the Registration
Statement), applicable state "blue sky" laws, and the securities laws of any
foreign country, and (B) such other consents, authorizations, filings, approvals
and registrations which, if not obtained or made, would not be reasonably likely
to have (i) a material adverse effect on the Business Condition of Buyer and its
Subsidiaries, taken as a whole or (ii) an adverse effect on the value of the
Buyer Shares.
Section 3.2. Capitalization; Structure. As of May 22, 1998, Buyer's entire
-------------------------
authorized capital stock consists of 90,000,000 shares, 80,000,000 of which are
classified as Common Stock, $.01 par value ("Buyer Common Stock"), and
------------------
10,000,000 of which are classified as Preferred Stock, par value $.01 per share,
with 900,000 shares designated as Series A Junior Participating Preferred Stock.
As of May 22, 1998, no shares of Preferred Stock are issued or outstanding, and
31,195,090 shares of Buyer Common Stock are outstanding.
Section 3.3. Title to Buyer Shares. Upon consummation of the Stock Exchange,
---------------------
(a) the Buyer Shares issued to the Stockholder will be duly authorized,
validly issued, fully paid, non-assessable and free of preemptive rights and (b)
the Stockholder will acquire good and valid title to the Buyer Shares issued by
Buyer in the Stock Exchange, free and clear of any Liens or restrictions on
transfer (other than as set forth in the Securities Act or the rules and
regulations thereunder and other than as specifically required so that the Stock
Exchange qualifies for pooling of interests accounting treatment).
Section 3.4. Reports and Financial Statements.
--------------------------------
(a) Buyer has filed all reports (including without limitation proxy
statements) required to be filed with the SEC in the period from January 1, 1998
to the date hereof (collectively, the "Buyer SEC Reports"), and has furnished or
-----------------
made available to the Stockholder true and complete copies of all the Buyer SEC
Reports. None of the Buyer SEC Reports, as of their respective dates (as amended
through the date hereof), contained any untrue statement of material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. All of the Buyer SEC Reports, as of their respective dates
(as amended through the date hereof), complied in all material respects with the
requirements of the Securities Act of 1933 (the "Securities Act") and the
--------------
Securities Exchange Act of 1934 (the "Exchange Act") and the applicable rules
------------
and regulations thereunder.
(b) Buyer previously has made available to the Stockholder correct and
complete copies of its audited consolidated financial statements (including
balance sheets, statements of operations and statements of cash flows, and, in
each case, the related footnotes thereto) as of December 31, 1997, accompanied
by the report of Ernst & Young, LLP ("Ernst & Young") in the form contained in
-------------
Buyer's Annual Report to the SEC on Form 10-K for the year ended December 31,
1997 (the "Audited Buyer Financial Statement"). The consolidated balance sheets
---------------------------------
included in the Audited Buyer Financial Statement presents fairly, in all
material respects, the consolidated financial position of Buyer and its
Subsidiaries as of the respective date thereof, and each of the other related
consolidated statements included in such Audited Buyer Financial Statements
presents fairly, in all material respects, the consolidated results of
operations and cash flows of Buyer and its Subsidiaries for the respective
periods in conformity with U.S. GAAP consistently applied during the periods
involved except as otherwise noted therein.
Section 3.5. Litigation; Orders. There is no Action by or before any
------------------
Governmental Authority pending nor, to the knowledge of Buyer after due and
reasonable inquiry, is any Action threatened against or involving Buyer or any
of Buyer's Subsidiaries, or affecting any properties or assets of any of Buyer,
or any of Buyer's Subsidiaries which, in any such case, could reasonably be
expected to (a) prevent or materially delay the ability of Buyer to consummate
the transactions contemplated hereby, or (b) individually or in the aggregate,
have a material adverse effect on the Business Condition of Buyer and its
Subsidiaries, taken as a whole. Buyer is not subject to any Order which could
reasonably be expected to prevent or materially delay the ability of Buyer to
consummate the transactions contemplated hereby or, individually or in the
aggregate, have a material adverse effect on the Business Condition of Buyer and
its Subsidiaries, taken as a whole.
Section 3.6. Compliance with Laws. To Buyer's knowledge, after due and
--------------------
reasonable inquiry the conduct of the business of each of Buyer and its
Subsidiaries substantially complies with all applicable Laws and all Orders
applicable thereto, except for violations or failures so to comply, if any, that
would not reasonably be expected to have a material adverse effect on the
Business Condition of Buyer and its Subsidiaries, taken as a whole.
Section 3.7. No Undisclosed Liabilities. Except as reflected, reserved
--------------------------
against or otherwise disclosed in the Audited Buyer Financial Statement
(including the notes thereto), neither Buyer nor its Subsidiaries have any
liabilities or obligations of a character that would be required to be reflected
in a balance sheet prepared in accordance with U.S. GAAP except liabilities and
obligations which (a) were incurred after December 31, 1997 in the ordinary
course of business in nature and amount consistent with past practice, (b) would
not have a material adverse effect on the Business Condition of Buyer and its
Subsidiaries, taken as a whole, or (c) are specifically contemplated by this
Agreement.
Section 3.8. No Material Adverse Change. Since the date of the last Buyer
--------------------------
SEC Report, there has not been any event, occurrence or circumstance that has
had a material adverse effect on the Business Condition of Buyer and its
Subsidiaries, taken as a whole, or any event, occurrence or circumstance that
would, or would reasonably be expected to, have a material adverse effect on the
Business Condition of Buyer and its Subsidiaries, taken as a whole, or a
material adverse effect on the ability of Buyer to consummate the transactions
contemplated hereby.
Section 3.9. Brokers, Finders, Etc. Except as set forth on Buyer Disclosure
----------------------
Schedule 3.9, Buyer has not empoyed, nor is Buyer subject to any claim of, any
broker, finder, or similar consultant or intermediary in connection with the
transactions contemplated by this Agreement which might be entitled to a fee or
commission from Buyer upon the consummation of the transactions contemplated
hereby. All of the fees, commissions and expenses of the persons set forth on
Schedule 3.9 shall be solely for the account of, and borne by, Buyer.
Section 3.10. Schedules. Disclosure of any fact or item in any Schedule
---------
hereto referenced by a particular paragraph or Section in this Agreement shall,
should the existence of the fact or item or its contents be clearly relevant to
any other paragraph or Section, be deemed to be disclosed with respect to that
other paragraph or Section whether or not an explicit cross-reference appears
unless the context indicates otherwise.
Section 3.11. Investment Intent. It is understood that the Shares are not
-----------------
registered and are not being registered under the Securities Act or any state
securities laws, and the Shares will be delivered without registration in
reliance upon an exemption from the registration requirements of the Securities
Act and applicable state securities laws. Buyer represents that it is acquiring
the Shares hereunder only for its own account for investment and not with any
intention of making, or with a view to, or for sale in connection with, any
distribution thereof within the meaning of the Securities Act unless such shares
first are registered under the Securities Act.
(b) In connection with the foregoing, Buyer hereby represents and
warrants that:
(1) it has reviewed, discussed and evaluated the information made
available by the Company and has had the opportunity to ask questions of, and
receive answers from, ex ecutive officers of the Company concerning the terms
and conditions of this Agreement and to obtain any additional information which
it considered necessary to verify the accuracy of the information delivered by
the Company in connection with this Agreement;
(2) it understands that it must bear the economic risks of the
investment in the Shares to be made hereunder for an indefinite period of time
because such stock has not been registered under the Securities Act and,
therefore, may not be sold until such stock subsequently is registered under the
Securities Act or an exemption from registration is available; and
(3) it has sufficient knowledge and experience in financial and
business matters to enable it to be capable of evaluating the merits and the
risks of the Stock Exchange.
Section 3.12. Accounting Matters. Neither Buyer nor any of its affiliates,
------------------
has taken or agreed to take any action that would prevent the Stock Exchange
from qualifying for pooling of interests accounting treatment under U.S. GAAP
and applicable SEC rules and regulations. Buyer is not aware of any agreement,
plan or other circumstance relating to Buyer or its affiliates, that would
prevent the Stock Exchange from qualifying as a pooling of interest and Buyer
has no reason to believe that the Stock Exchange will not qualify as a pooling
of interest for accounting purposes.
Section 3.13. Reorganization. Buyer has not and, as of the Closing Date will
--------------
not have, taken any action or failed to take any action which action or failure
would result in the failure of the Stock Exchange to qualify as a reorganization
within the meaning of Section 368(a)(1)(B) of the Code. Buyer, afte due and
reasonable inquiry, has no knowledge of any fact or circumstance that is
reasonably likely to prevent the Stock Exchange from qualifying as a
reorganization with the meaning of Section 368(a)(1)(B) of the Code.
ARTICLE IV
COVENANTS OF THE COMPANY, THE STOCKHOLDER AND BUYER
---------------------------------------------------
Section 4.1. Investigation of Business; Access to Properties and Records;
------------------------------------------------------------
Records Retention.
-----------------
(a) Between the date hereof and the Closing Date, each of the Company and
Buyer shall (and shall cause each of its Subsidiaries to) afford to
representatives of the other party ("Respective Representatives") reasonable
--------------------------
access to their respective offices, properties, books and records during normal
business hours in order that such party may have full opportunity to make such
investigations as it desires of the affairs of the other party, and the Company
and Buyer shall, and shall cause their employees and officers to furnish such
data as is reasonably requested by the other party's representatives; provided,
--------
however, that such investigation shall be upon reasonable prior written notice
-------
and shall not unreasonably disrupt the personnel and operations of the other
party. All requests for access shall be made to such representatives of the
other party as such party shall designate in writing, who shall be solely
responsible for coordinating all such requests and all access permitted
hereunder. It is further understood and agreed that neither party nor its
representatives shall contact any of the employees, customers, suppliers, joint
venture partners, or other associates or affiliates of the other party, , in
connection with the transactions contemplated by this Agreement, whether in
person or by telephone, mail or other means of communication, without the
specific prior authorization of the other party. No information or knowledge
obtained in any investigation pursuant to this Section 4.1(a) shall affect or be
deemed to modify any representation or warranty contained in this Agreement or
any disclosure schedule or the conditions to the obligations of the parties to
consummate the Stock Exchange.
(b) The Stockholder and the Company and Buyer will hold and will cause
their respective employees, agents and representatives to hold in confidence,
unless compelled to disclose by judicial or administrative process or, in the
opinion of its legal counsel, by other requirements of law, all documents and
information concerning the other party and its Subsidiaries furnished to it in
connection with the transactions contemplated by this Agreement, including all
analyses, abstracts and summaries thereof created by the other party, and will
not release or disclose such information to any other person, except its
auditors, attorneys, financial advisors and other consultants and advisors in
connection with this
Agreement who need to know such information. If the transactions contemplated by
this Agreement are not consummated, such confidence shall be maintained and, if
requested by or on behalf of the furnishing party, the other party will, and
will use all reasonable efforts to cause its auditors, attorneys, financial
advisors and other consultants, agents and representatives to, return to the
furnishing party or destroy all copies of written information so furnished to it
or its agents and representatives.
(c) Buyer agrees (1) to hold all of the books and records of the Company
existing on the Closing Date and not to destroy or dispose of any thereof for a
period of six years from the Closing Date or such longer time as may be required
by law, and thereafter, if it proposes to destroy or dispose of any of such
books and records, to offer first in writing at least sixty days prior to such
proposed destruction or disposition to surrender them to the Stockholder and (2)
at any time and from time to time following the Closing Date to afford the
Stockholder, her accountants and counsel, during normal business hours, upon
reasonable request, full access to such books, records and other data and to the
employees of the Company to the extent that such access may be requested for any
legitimate purpose (including, without limitation, for the purposes of
determining the Tax treatment to the Stockholder of the Stock Exchange) at no
cost to the Stockholder (other than for reasonable out-of-pocket expenses).
Section 4.2. Registration Rights.
-------------------
(a) None of the information supplied by Buyer or the Stockholder,
respectively, for inclusion or incorporation by reference in the registration
statements relating to the registration of Buyer Shares in the Stock Exchange
with the SEC (each a "Registration Statement") will, at the time the
----------------------
Registration Statements become effective, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading. If (i)
Buyer becomes aware of the occurrence of any event with respect to Buyer or its
officers and directors or any other information not supplied by the Stockholder
or (ii) the Stockholder become aware of any facts with respect to the
information supplied by her, which is required to be described in the
Registration Statements (or in any amendment of, or supplement to, the
Registration Statements), Buyer shall notify the Stockholder or the Stockholder
shall notify the Buyer, as the case may be, and Buyer shall promptly prepare an
appropriate amendment or supplement in which such event shall be so described
and such amendment or supplement will comply with all provisions of applicable
law. The Buyer will take such actions as are necessary to ensure that the
Registration Statements will comply in all material respects with the
requirements of the Securities Act (other than with respect to information
supplied by the Stockholder for inclusion therein). Buyer is not aware of any
facts or circumstances which would prevent or delay the filing or the
effectiveness of the Registration Statements as required by Section 4.2(b) of
this Agreement.
(b) As soon as practicable after the date of this Agreement (but not
prior to the Closing, Buyer shall file a Registration Statement with respect to
the Buyer Shares on Form S-3 with the SEC pursuant to Rule 415 registering the
Buyer Shares under the Securities Act. Such filing shall occur not more than 5
days after all requisite financial statements of the Company for 1995, 1996 and
1997, prepared in accordance with U.S. GAAP, are available and all necessary
consents to the use of audit reports relating thereto have been received, which
Buyer shall use its best efforts to obtain as promptly as possible. This
Registration Statement will cover 100% of the Buyer Shares issuable at the
Closing. Buyer shall use its best efforts to prepare any financial statements,
and other information, required for such filing as promptly as practicable after
the date hereof. If Form S-3 or Rule 415 is unavailable, then Buyer shall
register the Buyer Shares with a different form or arrangement that will provide
the same benefits to the Stockholder. Buyer shall use its best efforts to cause
the Registration Statement to become effective as promptly as practicable and
also will take any other action reasonably required to be taken under federal or
state securities laws to maintain the effectiveness of the Registration
Statements until all of the Buyer Shares are sold. Buyer shall take all other
actions reasonably requested by the Stockholder to facilitate sales of the Buyer
Shares. Buyer shall be responsible for the payment of all fees and expenses
relating to the Buyer Shares to be registered, and the Registration Statement in
accordance with this Section.
(c) The parties hereto agree that Buyer shall have no obligation to (1)
conduct, arrange or coordinate any distribution or sales activities on behalf of
the Stockholder with respect to the Buyer Shares other than as set forth in (a)
above or (2) retain any underwriter(s) in connection with the registration
and/or distribution of the Buyer Shares pursuant to this Section 4.2.
(d) The Stockholder, the Company and Buyer will cooperate and promptly
make all registrations, filings and applications, to give all notices and to
obtain all governmental and other consents, transfers, approvals, orders,
qualifications and waivers, necessary or desirable for the consummation of the
Stock Exchange and the other transactions contemplated by this Agreement as
promptly as practicable, or that may thereafter be reasonably necessary or
desirable to effect the transfer or renewal of any accreditations, licenses,
approvals and authorizations of the Company.
Section 4.3. Further Assurances. The Stockholder, the Company and Buyer
------------------
agree that, from time to time, whether at or after the Closing Date, each of
them will execute and deliver such further instruments of conveyance and
transfer and take such other action as may be necessary to carry out the terms
of this Agreement. The parties will take all reasonable actions including,
without limitation, taking of all action reasonably necessary to obtain material
Governmental Entity approvals of, material third party consents to, contesting
any legal proceedings filed to prevent or delay, and executing additional
documents reasonably necessary to consummate the transactions contemplated
hereby as promptly as practicable. The Stockholder, the Company and Buyer
further agree that they will not take any action that will prevent their
performance of this Agreement in accordance with its terms.
Section 4.4. Conduct of Business of the Company. Except as contemplated by
----------------------------------
this Agreement, during the period from the date of this Agreement to the
Closing Date, the Stockholder shall cause the Company to conduct its operations
in the ordinary course of business consistent with past practice, and to use its
commercially reasonable efforts to maintain and preserve its business
organization and its material rights and franchises and to retain the services
of its officers and key employees and maintain relationships with customers,
suppliers and other third parties to the end that its goodwill and ongoing
business shall not be impaired in any material respect at or prior to the
Closing Date. Without limiting the generality of the foregoing, during the
period from the date of this Agreement to the Closing Date, the Stockholder
covenants that, except as otherwise contemplated by this Agreement and the
transactions contemplated hereby, without the prior written consent of Buyer the
Company will not, and the Stockholder agrees not to, and not to cause the
Company to:
(a) amend or propose to amend its articles of incorporation or by-laws or
similar organization instruments;
(b) authorize for issuance, issue, sell, agree to issue or sell or redeem
or otherwise acquire (1) any shares of its capital stock or other equity
interests, or (2) any securities convertible into, or options with respect to,
or warrants to purchase or rights to subscribe for, any shares of its capital
stock or evidences of indebtedness or other debt or equity securities including,
without limitation, any stock appreciation rights;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock,
or redeem or otherwise acquire any of its securities;
(d) except as set forth in Schedule 4.4(d), (1) create, incur or assume
any indebtedness for money borrowed (including obligations in respect of capital
leases) or issue any debt securities; (2) except in the ordinary course of
business, assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any person
other than the Company, if such assumption, guarantee, endorsement or other
liability is in any such case material to the Company other than the endorsement
of checks and instruments received by the Company;
(3) make any material loans, advances or capital contributions to or investments
in, any person other than the Company; or (4) pledge or otherwise encumber its
equity interests;
(e) except as set forth in Schedule 4.4(e) or in the ordinary course of
business or as required by any Law, (1) increase in any manner the base
compensation of, or enter into or amend any employment, bonus, incentive,
severance, consulting, or other compensation agreement with, any existing
director, officer or key employee; or (2) commit itself to any additional
pension, profit-sharing, deferred compensation, group insurance, severance pay,
retirement or other employee benefit plan, fund or similar arrangement or amend
or commit itself to amend any of such plans, funds or similar arrangements in
existence on the date hereof so as to increase benefits thereunder;
(f) except in the ordinary course of business or as required by any Law
or contractual obligations existing on the date hereof or as provided for in or
contemplated by this Agreement the Company shall not (1) sell, transfer or
otherwise dispose of any assets with a value in excess of $1,000 outside of the
ordinary course of business, (2) create any new Lien, other than a Company
Permitted Lien, on its properties or assets, (3) enter into any joint venture or
partnership, or (4) purchase any assets or securities of any person, except in
the ordinary course of business consistent with past practice;
(g) except as contemplated by this Agreement or as may be required as a
result of a change in Law, change any of the material accounting principles or
practices used by it;
(h) revalue in any material respect any of its material assets,
including, without limitation, materially writing down the value of inventory or
writing-off material notes or material accounts receivable balances other than
in the ordinary course of business;
(i) (1) acquire or agree to acquire (by merger, consolidation,
acquisition of stock or assets or otherwise) any corporation, partnership or
other business organization or division thereof or any equity interest therein;
(2) enter into any contract or agreement other than in the ordinary course of
business consistent with past practice; (3) authorize any new capital
expenditure or expenditures in an amount in excess of $1,000; or (4) enter into
or amend any material contract, agreement, commitment or arrangement providing
for the taking of any action that would be prohibited hereunder;
(j) make any tax election or settle or compromise any income tax
liability (although Buyer's consent shall not be unreasonably withheld);
(k) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business of liabilities reflected or reserved against in the Company
Unaudited Financial Statements (or the notes thereto) or in the ordinary course
of business consistent with past practice;
(l) settle or compromise any pending or threatened Action relating to the
transactions contemplated hereby;
(m) pledge or otherwise encumber shares of its equity interests;
(n) except as set forth in Schedule 4.4(n), mortgage or pledge any of its
assets, tangible or intangible, or create or suffer to exist any Lien thereupon;
(o) enter into any commitment or transaction outside the ordinary course
of business consistent with past practice which would be material to the
Company; or
(p) take or agree to take any action prohibited by this Section 4.4.
Section 4.5. Conduct of Business of Buyer. Except as contemplated by this
----------------------------
Agreement, during the period from the date of this Agreement to the Closing
Date, Buyer shall, and shall cause its Subsidiaries to, conduct their operations
in the ordinary course of business consistent with past practice, and to use
their commercially reasonable efforts to maintain and preserve their business
organization and their material rights and franchises and to retain the services
of their officers and key employees and maintain relationships with customers,
suppliers and other third parties to the end that their goodwill and ongoing
business shall not be impaired in any material respect at the Closing Date.
Section 4.6. Pooling. Except as set forth in Schedule 4.6, from and after
-------
the date hereof and until the Closing Date, none of Buyer, the Company, or any
of their respective Subsidiaries or other affiliates over which they exercise
control, or the Stockholder shall take any action, or fail to take any action,
that is reasonably likely to jeopardize the treatment of the Stock Exchange as a
pooling of interests for accounting purposes. From the date of this Agreement
until Buyer has caused to be published financial results covering at least 30
days of combined operations of the Company and Buyer, each of Buyer, the Company
and the Stockholder shall take all reasonable actions necessary to cause the
Stock Exchange to be characterized as a pooling of interests for accounting
purposes if such a characterization shall have been jeopardized by action taken
by Buyer, the Company or the Stockholder prior to the Closing Date.
Section 4.7. Allocation of Buyer Shares. Buyer and the Stockholder
--------------------------
acknowledge that all of the Buyer Shares shall be allocated to the Shares, and
that none of such Buyer Shares are allocable to the agreements described in
Section 5.3(d). Buyer covenants that no position inconsistent with such
allocation shall be taken for any purpose (including, without limitation, on any
Return or in any proceeding).
Section 4.8. Preparation and Filing of Returns. (a) Buyer shall cause the
---------------------------------
Company to prepare and file, or cause to be prepared and filed, all Returns
required to be filed after the Closing Date; provided, however, that the
-------- -------
Stockholder shall have the right to review at least three weeks prior to filing
and approve prior to filing, (which approval must not be unreasonably withheld),
all Returns with respect to any taxable period (or portion thereof) that
includes or predates the Closing Date. In connection therewith, the Stockholder
shall assist Buyer in obtaining such information that Buyer reasonably requests
of the Stockholder and that is not otherwise required to be provided hereunder
with respect to the operations, ownership, assets or activities of the Company
and/or its subsidiaries to the extent such information is relevant to any Tax
Return which Buyer has the right and obligation hereunder to file; provided,
--------
however, that such information shall not include the delivery of the
-------
Stockholder's personal Tax Returns.
(b) With respect to Returns for periods ending prior to Closing or for
which Stockholder is responsible under this Agreement, Buyer shall cause the
Company to assist the Stockholder, without cost to the Stockholder, in obtaining
such information that Stockholder reasonably requests of the Company, to the
extent such information is relevant to any such Tax Return.
Section 4.9. Amended Returns. Neither Buyer nor the Company shall file or
---------------
permit to be filed any amended Return with respect to any taxable period (or
portion thereof) that ends before or includes the Closing Date without first
obtaining the written permission of the Stockholder, such permission must not be
unreasonably withheld. The Company will file such an amended Return and Buyer
shall permit the filing thereof if reasonably requested by the Stockholder and
agreed to by a mutually-selected and jointly engaged Tax advisor of the Company
and the Stockholder. Stockholder is not aware of any facts as of the date
hereof that would necessitate the Company's filing of an amended Return.
Section 4.10. Public Announcements. From the date hereof until the Closing
--------------------
Date, the Stockholder and Buyer will, before issuing, or permitting any agent or
affiliate to issue, any press releases or otherwise making or permitting any
agent or affiliate to make, any public statements with respect to this Agreement
and the transactions contemplated hereby, obtain the consent of the other party,
except in the
event, and only to the extent, that disclosure is required by law;
provided, that in such instances the disclosing party will consult with the
--------
other party prior to making such disclosure.
Section 4.11. Insurance. Through the close of business on the Closing Date,
---------
the Stockholder will cause the Company to keep, or cause to be kept, in effect
all material insurance policies presently maintained or suitable replacements
therefor. Buyer shall be responsible for causing the Company to maintain and
obtain insurance from and after the Closing Date.
Section 4.12. No Solicitation. The Company, and its respective affiliates,
---------------
officers, directors, employees, representatives and agents (a) shall immediately
cease any existing discussions or negotiations, if any, with any parties other
than the parties to this Agreement ("Other Parties") with respect to any
-------------
acquisition of all or any portion of the assets of, or any equity interest in
the Company or any business combination with the Company; (b) shall not solicit,
initiate, encourage, or furnish information in response to any inquiries or
proposals that constitute, or could reasonably be expected to lead to, a
proposal or offer by any Other Parties for a merger, consolidation, business
combination, sale of substantial assets, sale of shares of capital stock or
other equity interests involving the Company (including without limitation by
way of a tender offer or similar transactions involving the Company), (any of
the foregoing transactions with any other parties being referred to in this
Agreement as an "Acquisition Transaction"); and (c) shall not engage in
-----------------------
negotiations or discussions concerning, or provide any non-public information to
any Other Parties relating to, any Acquisition Transaction. If the Company or
any of its respective representatives or agents shall nevertheless receive any
indications of interests or proposals with respect to any Acquisition
Transactions, it shall provide a copy of any such written proposal to Buyer
immediately after receipt thereof by the Company, or any of its respective
representatives or agents.
Section 4.13. Notification of Certain Matters. The Stockholder shall give
-------------------------------
prompt written notice to Buyer, and Buyer shall give prompt written notice to
the Stockholder, of (a) the occurrence or nonoccurrence of any event, the
occurrence or nonoccurrence of which would be likely to cause any representation
or warranty contained in this Agreement to be untrue in any material respect at
or prior to the Closing Date, and (b) any material failure of the Company or
Buyer, as the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 4.13shall not cure such
breach or non-compliance or limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
Section 4.14. Closing Balance Sheet. No later than five (5) days prior to
---------------------
the Closing, the Company shall have provided to the Buyer an unaudited balance
sheet of the Company as of July 31, 1998, prepared on a basis consistent with
past practices (the "Closing Balance Sheet.
---------------------
ARTICLE V
CONDITIONS
----------
Section 5.1. Mutual Conditions. The obligations of the parties hereto to
-----------------
consummate the Stock Exchange shall be subject to fulfillment of the following
conditions:
(a) No Order or attachment which prevents the consummation of the Stock
Exchange shall have been issued and remain in effect, and no statute, rule or
regulation shall have been enacted by any Governmental Authority which
prohibits, restrains, enjoins or restricts the consummation of the Stock
Exchange.
(b) All authorizations, approvals, consents and waivers of, or
declarations or filings with, any Governmental Authorities or third parties,
required to permit consummation of the transactions contemplated by this
Agreement and listed in Schedules 2.1(f) or 3.1(e), shall have been filed or
obtained and shall not have been terminated, suspended or withdrawn as of the
Closing Date.
Section 5.2. Conditions to Obligations of the Stockholder and the Company.
------------------------------------------------------------
The obligations of the Stockholder to consummate the Stock Exchange and the
transactions contemplated hereby shall be subject to the fulfillment of the
following conditions unless waived by the Stockholder:
(a) The representations and warranties of Buyer set forth in Article III
of this Agreement shall be true and correct in all respects as of the date of
this Agreement and as of the Closing Date as though made on and as of the
Closing Date, except (1) to the extent such representations and warranties are
by their express provisions made as of a specified date (which shall be true and
correct in all respects as of such date) and (2) for the effect of transactions
contemplated by this Agreement, except, in each case, where the failure to be
true and correct would not, individually or in the aggregate, reasonably be
expected to interfere with the Stockholder obtaining the benefit of her bargain
hereunder, without regard to materiality qualifications in individual
representations and warranties.
(b) A release of Stockholder and ▇▇▇▇▇▇ ▇▇▇▇▇▇ from any personal
guarantee for any Company obligation to Centennial Bank.
(c) Buyer shall have performed in all material respects each obligation
and agreement and shall have complied in all material respects with each
covenant to be performed and complied with by it hereunder at or prior to the
Closing Date.
(d) Buyer shall have furnished the Stockholder with a certificate dated
the Closing Date signed on behalf of it by its Chairman, President or any Vice
President to the effect that the conditions set forth in Sections 5.2(a) and (b)
have been satisfied.
(e) Contemporaneously with Closing, the Buyer shall cause the Company to
pay the remaining balance due on the two promissory notes dated September 30,
1997 to payable ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and to Stockholder.
(f) ▇▇▇ ▇▇▇▇▇▇ shall have entered into an employment and non-compete
agreement with Buyer substantially in the form attached hereto as Exhibit A (the
"Employment Agreement").
(g) Since the date of the Agreement, there shall not have been any event,
occurrence, development or circumstances that individually or in the aggregate
had, or reasonably would be expected to have, a material adverse effect on the
(i) Business Condition, financial or otherwise, or the earnings, business
affairs or management of the Buyer, whether or not in the ordinary course of
business or (ii) ability of the Buyer to consummate the transactions
contemplated hereby.
Section 5.3. Conditions to Obligations of Buyer. The obligations of Buyer to
----------------------------------
consummate the Stock Exchange and the other transactions contemplated hereby
shall be subject to the fulfillment of the following conditions unless waived by
Buyer:
(a) The representations and warranties of the Stockholder set forth in
Article II of this Agreement shall be true and correct in all respects as of the
date of this Agreement and as of the Closing Date as though made on and as of
the Closing Date except (1) to the extent such representations and warranties
are by her express provisions made as of a specified date (which shall be true
and correct in all respects as of such date) and (2) for the effect of
transactions contemplated by this Agreement except, in each case, where the
failure to be true and correct would not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the Business
Condition of the Company, without regard to materiality qualifications in
individual representations and warranties.
(b) The Stockholder shall have performed in all material respects each
obligation and agreement and shall have complied in all material respects with
each covenant to be performed and complied with by her hereunder at or prior to
the Closing Date.
(c) The Stockholder shall have furnished Buyer with a certificate dated
the Closing Date to the effect that the conditions set forth in Sections 5.3(a)
and (b) have been satisfied.
(d) Company shall have obtained written agreement of World Learning, Inc.
to surrender the Centennial Bank irrevocable letter of credit dated October 14,
1997 in exchange for a $200,000.00 payment at Closing or shall have made
arrangements with Centennial Bank with respect thereto that are reasonably
satisfactory to Buyer.
(e) ▇▇▇▇▇▇ ▇▇▇▇▇▇ shall have entered into the Employment Agreement.
Stockholder shall have entered into a non-compete agreement with Buyer
substantially in the form attached hereto as Exhibit B.
(f) The Stockholder shall have delivered a duly executed resignation
letter to the Company with respect to her position as an employee, officer and
director of the Company. Any persons designated by Buyer prior to Closing, if
any, shall have been appointed to the above-referenced positions.
(g) The Stockholder shall have delivered to the Buyer a compiled balance
sheet as of August 31, 1998, reviewed by the Company's accountant.
(h) Since the date of the Agreement, there shall not have been any event,
occurrence, development or circumstances that individually or in the aggregate
had, or reasonably would be expected to have, a material adverse effect on the
(i) Business Condition, financial or otherwise, or the earnings, business
affairs or management of the Comany, whether or not in the ordinary course of
business or (ii) ability of the Stockholder to consummate the transactions
contemplated hereby.
ARTICLE VI
INDEMNIFICATION AND ESCROW
--------------------------
Section 6.1. Indemnification by the Stockholder. The Stockholder,
----------------------------------
hereby covenants and agrees to indemnify and hold harmless the Buyer and its
respective successors and assigns (subject to the notice, timing and amount
limitations set forth in this Agreement) against and in respect of any
liability, loss, damage, expense or other cost, including without limitation
reasonable attorneys' fees and expenses (a "Loss") resulting from any (a)
----
breach of any representation or warranty, or (b) breach or nonfulfillment of any
agreement or covenant on the part of the Stockholder with respect to matters
occurring before the Closing under this Agreement which survives the Closing.
The indemnity provided in this Section 6.1 shall be satisfied by the
Stockholder to the extent permitted by this Article VI. Notwithstanding any
other provision of this Agreement to the contrary, the term "Loss" shall not
include (a) any loss, liability, claim, damage or diminution in value that
results from claims that were or would have been covered by the Company's
insurance in effect as of the Closing if Buyer causes or permits the Company to
terminate such coverage and fails to obtain adequate tail coverage; (b) any
loss, liability, claim, damage or diminution in value that is proximately caused
by any action of the Company or Buyer following the Closing, or (c) any
consequential, incidental or punitive damages; and the term "Loss" shall mean
the actual dollar amount of each such Loss and shall not be based on any
multiple of such Loss. The remedy provided in this Article VI shall be Buyer's
exclusive remedy with respect to Losses arising out of the matters set forth in
this Section 6.1; provided nothing herein shall relieve any party for liability
for fraud. Buyer grants to the Stockholder and her duly appointed
representative the sole right to negotiate, resolve, settle or contest any claim
for Tax with respect to which the Stockholder may have to indemnify Buyer under
this Article VI; provided, however, that the Stockholder must engage
-------- -------
professional advisors approved by Buyer with respect to the foregoing, such
approval must not be unreasonably withheld. If the Stockholder does not assume
the defense of any such claim for Tax, Buyer may defend the same in such manner
as it may deem appropriate, but not settle or otherwise compromise any such
audit or proceeding at
the expense of the Stockholder without first obtaining
the written consent of the Stockholder, such consent must not be unreasonably
withheld.
Section 6.2. Indemnification by the Buyer. Buyer hereby covenants and agrees
----------------------------
to indemnify and hold harmless the Stockholder, her successors and assigns
(subject to the notice and timing requirements and survival and amount
limitations provided in this Agreement), against and in respect of any Loss
resulting from any (a) breach of any representation or warranty or (b) breach or
nonfulfillment of any agreement or covenant on the part of Buyer or any
affiliate (including, without limitation, the Company after the Closing) under
this Agreement. Buyer shall satisfy any indemnification obligation hereunder
with Common Stock of Buyer that qualifies as voting stock for purposes of
section 368(a)(1)(B) of the Code and that has a fair market value equal to the
amount of such Loss.
Section 6.3. Indemnification Procedure. The procedure for indemnification of
-------------------------
parties shall be as follows:
(a) If at any time a party is entitled to indemnification hereunder (the
"Indemnitee") or shall become aware of any state of facts that have resulted or
----------
may result in a Loss, the Indemnitee shall promptly give written notice (a
"Notice of Claim") to the party obligated to provide indemnification (the
---------------
"Indemnitor") of the discovery of such potential or actual Loss. The Notice of
----------
Claim shall set forth (A) a description of the nature of the potential or actual
Loss, and (B) the total amount of Loss anticipated (including any costs or
expenses which have been or may be reasonably incurred in connection therewith).
Except for a failure to deliver a Notice of Claim within the applicable survival
period as provided under Section 7.6 (which failure shall constitute a complete
defense) the Indemnitee's failure to give prompt notice shall constitute a
defense (in whole or in part) to any claim by the Indemnitee against the
Indemnitor for indemnification only to the extent that such failure shall have
caused or increased such liability or adversely affected the ability of the
Indemnitor to defend against or reduce its liability.
(b) The Indemnitor shall accept or reject any Loss as to which a Notice
of Claim is sent by the Indemnitee by giving written notice of such acceptance
or rejection (the "Indemnitor Notice") to the Indemnitee and the Unaffiliated
Firm (defined below) within sixty (60) days after the date of receipt of the
Notice of Claim. Failure of the Indemnitor to reject a Loss within 60 days of
receipt of the Notice of Claim shall be conclusive evidence of the Indemnitor's
acceptance of its responsibility to indemnify the Indemnitee against such Loss.
(c) If the Indemnitor elects to reject the claim, the Indemnitor Notice
shall set forth a description of the nature of the basis for the rejection of
such claim.
(d) Should the Indemnitee and the Indemnitor fail to reach a settlement
within ten (10) days of the Indemnitor's Notice that the Indemnitor has rejected
any loss as provided in Section (b) above, the Indemnitee and Indemnitor shall
jointly engage ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP or if such firm is unable or unwilling to act
in such capacity, KPMG Peat Marwick LLP (the "Unaffiliated Firm"). The
-----------------
Unaffiliated Firm shall act as the administrator and exclusive arbitrator with
respect to all such claims for indemnity, and all decisions of the Unaffiliated
Firm shall be final and binding on the parties hereto. Each of Buyer and
Stockholder agrees to execute, if requested by the Unaffiliated Firm, a
reasonable engagement letter including customary indemnities. The cost of such
Unaffiliated Firm shall be split evenly between the Stockholder and the Buyer.
Promptly after the engagement of the Unaffiliated Firm, the parties hereto shall
furnish the Unaffiliated Firm with a copy of the Notice of Claim and a copy of
this Agreement and the Schedules and Exhibits attached hereto together with a
statement and/or analysis of each party's position. The Unaffiliated Firm will
have the authority to request in writing such additional written submissions
from either the Indemnitor or the Indemnitee, as it deems appropriate. Neither
party will communicate with the Unaffiliated Firm without providing the other
party a reasonable opportunity to participate in such communication with the
Unaffiliated Firm. The Unaffiliated Firm will have thirty (30) days from the
date of delivery of the Indemnitor Notice to review the documents provided to
it. Upon the expiration of such 30-day period (the "Determination Date") the
------------------
Unaffiliated Firm will simultaneously
furnish all parties with its determination as to the amount, if any, that the
Indemnitee is entitled to with respect to such claim (except for claims made
against the Indemnitee by any Third Party ("Third-Party Claims") as to which the
------------------
Unaffiliated Firm will determine whether such claim is covered by the provisions
of this Article VI). Each such determination shall be conclusive and binding on
the parties hereto.
(e) If any Notice of Claim relates to any Third-Party Claim, the Notice
of Claim shall state the nature, basis and amount of such claim. In the event
that the Indemnitor accepts the Loss as to which the Notice of Claim is sent or
the Unaffiliated Firm determines that such Loss is covered by this Article VI,
or if a dispute is pending before the Unaffiliated Firm, the Indemnitor shall
have the right, at its election, by written notice given to the Indemnitee, to
assume the defense of the claim as to which such notice has been given with
counsel reasonably acceptable to the Indemnitee. Except as provided in the next
sentence, if the Indemnitor so elects to assume such defense, it shall
diligently and in good faith defend such claim and shall keep the Indemnitee
reasonably informed of the status of such defense, and the Indemnitee shall
cooperate with the Indemnitor in the defense of such claim, provided that in the
case of any settlement providing for remedies other than monetary damages for
which indemnification is provided, the Indemnitee shall have the right to
approve the settlement, which approval shall not be unreasonably withheld or
delayed. If the Indemnitor does not so elect to defend any claim as aforesaid or
shall fail to defend any claim diligently and in good faith (after having so
elected), the Indemnitee may, at the Indemnitor's expense, assume the defense of
such claim and take such other action as it may elect to defend or settle such
claim as it may determine in its reasonable discretion.
Section 6.4. Limitations on Indemnity. Buyer shall make no claim for
indemnity under Section 6.1, and the Stockholder shall make no claim for
indemnity under Section 6.2, until the dollar amount of all Losses shall exceed
$25,000.00 (the "Basket"), in which event the Indemnitor shall be responsible
------
for the aggregate amount of such Losses, including the amount of the Basket,
provided that no party shall be required to make any payments with respect to
individual items where the Losses related thereto are less than $10,000 and such
items shall not be aggregated for purposes of determining the Basket, provided,
further that the Stockholder's obligation and liability for any and all breaches
of the representations and warranties and covenants set forth in this Agreement
shall be limited to the value of the General Escrow Shares (as defined below).
Section 6.5. General Escrow of Certain Buyer Shares.
--------------------------------------
(a) At the Closing the Stockholder, the Buyer and an escrow agent (which
shall be a commercial bank selected by the Buyer and reasonably acceptable to
the Stockholder, shall enter into an escrow agreement (the "General Escrow
Agreement"), the terms of which shall be mutually satisfactory to all of the
parties, pursuant to which a portion of the Buyer Shares to be issued in the
Stock Exchange having an aggregate Market Value equal to $ 250,000.00 (the
"General Escrow Shares"), will be delivered by the Stockholder to the escrow
agent (the "General Escrow"). The General Escrow Agreement shall permit the
Stockholder to receive all dividends and other distributions paid in respect of
the General Escrow Shares and to vote all General Escrow Shares. The General
Escrow Shares will stand as security for any and all claims made hereunder, by
the Buyer against the Stockholder in respect of the representations, warranties
and covenants made by the Company and/or the Stockholder in this Agreement.
(b) Payment to the Buyer of any amounts pursuant to this Article VI shall
be delivered to and released by such escrow agent as and when provided pursuant
to the General Escrow Agreement. The General Escrow Agreement shall provide that
the number of General Escrow Shares released in respect of any General Escrow
claims shall be determined by using the Closing Date Market Value. The General
Escrow Agreement shall also provide that promptly upon the expiration of the
period ending on the earlier of (i) twelve (12) months from the Closing Date, or
(ii) the date of completion of the first post-Closing audit of the Buyer's
consolidated financial statements, the escrow agent shall release from the
General Escrow and deliver to Stockholder all remaining General Escrow Shares,
unless a claim against the General Escrow is pending at such time, in which
event all General Escrow Shares not covered by such claim shall be released to
the Stockholder and the release of such other General Escrow Shares shall occur
promptly after the resolution of such pending claim.
Section 6.6. Special Escrow of Certain Buyer Shares.
(a) At the Closing the Stockholder, the Buyer and an escrow agent (which
shall be a commercial bank selected by the Buyer and reasonably acceptable to
the Stockholder, shall enter into a second escrow agreement (the "Special Escrow
Agreement") pursuant to which a portion of the Buyer Shares to be issued in the
Stock Exchange having an aggregate Market Value equal to $175,000 (the "Special
Escrow Shares") will be delivered by the Stockholder to the escrow agent (the
"Special Escrow"). The Special Escrow Agreement shall permit the Stockholder to
receive all dividends and other distributions paid in respect of the Special
Escrow Shares and to vote all Special Escrow Shares. The Special Escrow Shares
will stand as security only for any and all claims made hereunder by Buyer
against the Stockholder in respect of any breach of Section 2.11(b)(ii) with
respect to a violation of or noncompliance with the United States Fair Labor
Standards Act, laws regarding the payment of payroll taxes or similar applicable
state laws. The parties mutually agree that the Special Escrow is reasonable.
(b) Payment to Buyer of any amounts pursuant to this Article VIII shall
be delivered to and released by such escrow agent as and when provided pursuant
to the Special Escrow Agreement. The Special Escrow Agreement shall provide that
the number of Special Escrow Shares released in respect of any Special Escrow
claims shall be determined by using the Closing Date Market Value. The Special
Escrow Agreement shall provide that promptly upon the expiration of the period
ending twenty four (24) months from the Closing Date, the escrow agent shall
release from the Special Escrow and deliver to Stockholder, all remaining
Special Escrow Shares, unless a claim against the Special Escrow is pending at
such time, in which event all Special Escrow Shares not covered by such claim
shall be released to the Stockholder and the release of such other Special
Escrow Shares shall occur promptly after the resolution of such pending claim.
If the Escrow Agent has not released the full amount contemplated by the prior
sentence because a matter is still in dispute, then to the extent that the
dispute is resolved in the Stockholder's favor, the escrow agent shall
immediately release the amounts held pending resolution of such dispute.
Section 6.7. Indemnification Sole Remedy. The indemnification contained
---------------------------
in this Article VI shall be deemed to be the exclusive remedy of the Indemnified
Party in connection with or arising from any failure by the Indemnifying Party
to perform any of its covenants or obligations in this Agreement or any breach
by the Indemnifying Party of any representation or warranty contained in this
Agreement; provided the provisions of this Section 6.5 shall in no way restrict
or limit any parties' liability for fraud.
ARTICLE VII
MISCELLANEOUS
-------------
Section 7.1. Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 7.2. Amendment and Modification. This Agreement may be amended,
--------------------------
modified or supplemented only by written agreement of all the parties hereto.
Section 7.3. Governing Law and Jurisdiction. This Agreement shall be
------------------------------
governed by and construed in accordance with the laws of Maryland without
reference to the choice of law principles thereof. The parties hereto agree
that the appropriate and exclusive forum for any disputes between any of the
parties hereto arising out of this Agreement or the transactions contemplated
hereby shall be federal district court in Baltimore, Maryland. The parties
hereto further agree that the parties will not bring suit
with respect to any disputes arising out of this Agreement or the transactions
contemplated hereby, except as expressly set forth below for the execution or
enforcement of judgment, in any court or jurisdiction other than the above
specified court. The foregoing shall not limit the rights of any party to obtain
execution of judgment in any other jurisdiction. The parties further agree, to
the extent permitted by law, that final and unappealable judgment against any of
them in any action or proceeding contemplated above shall be conclusive and may
be enforced in any other jurisdiction within or outside the United States by
suit on the judgment, a certified or exemplified copy of which shall be
conclusive evidence of the fact and amount of such judgment.
Section 7.4. Entire Agreement. This Agreement and the Schedules hereto
----------------
contain the entire agreement between the parties with respect to the subject
matter hereof and there are no agreements, understandings, representations or
warranties between the parties with respect to the subject matter hereof other
than those set forth or referred to herein or therein.
Section 7.5. Agreement for the Parties' Benefit Only. This Agreement is not
---------------------------------------
intended to confer upon any person not a party hereto any rights or remedies
hereunder, and no person other than the parties hereto is entitled to rely on
any representation, warranty or covenant contained herein.
Section 7.6. Survival of Representations and Warranties. Solely for purposes
------------------------------------------
of the indemnification provisions set forth in Article VI, and subject to the
limitations set forth therein, the representations and warranties set forth in
this Agreement, shall survive the Closing under this Agreement for a period of
the lesser of (i) twelve (12) months from the Closing Date, or (ii) until the
date of completion of the first post-Closing audit of Buyer's consolidated
financial statements; provided that the representations and warranties in
--------
Section 2.7(c) and 2.11(b)(ii) shall survive the Closing for eighteen (18)
months and that the representations and warranties in Section 2.13 shall survive
the Closing until the fifth anniversary of the Closing Date. If prior to the
close of business on the scheduled date for expiration of a particular
representation, warranty or covenant that is the basis for a claim for indemnity
under Article VI, the Stockholder or Buyer shall have been notified of such
claim, then the representation, warranty or covenant that is the basis for such
claim shall continue to survive and shall remain a basis for indemnity, to the
extent of such specific claim only, until such claim is finally resolved or
disposed of. Except as described above, to the extent that the covenants of the
parties contained in this Agreement that contemplate or may involve actions to
be taken (a) solely prior to the Closing shall not survive the Closing, and (b)
after the Closing, they shall survive until such actions shall have been
performed in accordance with their terms. Notwithstanding anything herein to
the contrary and without limiting the survival of any other covenants that may
survive the Closing, all covenants regarding Taxes, Sections 4.2 and 4.7 shall
survive indefinitely.
Section 7.7. Expenses. Except as set forth in Sections 4.8 and 5.3(f) of
--------
this Agreement, all legal and other costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such costs and expenses.
Section 7.8. Specific Performance. The Stockholder and Buyer each
--------------------
acknowledge that, in view of the uniqueness of the Company, the Stockholder and
Buyer would not have an adequate remedy at law for money damages in the event
that this Agreement were not performed in accordance with its terms, and
therefore agree that the Stockholder and Buyer shall be entitled to specific
enforcement of the terms hereof in addition to any other remedy to which any of
the Stockholder or Buyer may be entitled, at law or in equity.
Section 7.9. Notices. All notices hereunder shall be sufficiently given for
-------
all purposes hereunder if in writing and delivered personally or sent by
registered mail or certified mail, postage prepaid, to the appropriate address
as set forth below. Notice to the Stockholder shall be addressed to:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇. ▇. ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇, LLP
1600 Pioneer Tower
▇▇▇ ▇. ▇. ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Notice to Buyer shall be addressed to:
Sylvan Learning Systems, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Facsimile No: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Piper & Marbury L.L.P.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇., Esq.
Facsimile No: (▇▇▇) ▇▇▇-▇▇▇▇
or at such other address and to the attention of such other person as Buyer
may designate by written notice to the Company and the Stockholder. Any notice
shall be deemed to have been served or given upon receipt.
Section 7.10. Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of the parties hereto and their successors and assigns.
Neither this Agreement nor any of the rights, interests or obligations shall be
assigned by any of the parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other parties and any purported
assignment without such consent shall be null and void; provided, that prior to
--------
the Closing, the Buyer may assign its rights hereunder to a wholly-owned
subsidiary subject to the Stockholder's prior written agreement that she does
not believe that such assignment will adversely impact the treatment of the
Stock Exchange as a reorganization within the meaning of section 368(a)(1)(B) of
the Code or the Tax treatment of the Stock Exchange; and provided, further, that
-------- -------
notwithstanding any such permitted assignment, the Buyer shall remain liable for
all of the Buyer's obligations under this Agreement.
Section 7.11. Interpretation; Absence of Presumption.
--------------------------------------
(a) For the purposes hereof, (1) words in the singular shall be held to
include the plural and vice versa and words of one gender shall be held to
include the other gender as the context requires, (2) the terms "hereof,"
"herein," and "herewith" and words of similar import shall, unless otherwise
stated, be construed to refer to this Agreement as a whole (including all of the
Schedules hereto) and not to any particular provision of this Agreement, and
Article, Section, paragraph, and Schedule references are to the Articles,
Sections, paragraphs, and Schedules to this Agreement unless otherwise
specified, (3) the word "including" and words of similar import when used in
this Agreement shall mean "including, without limitation," unless the context
otherwise requires or unless otherwise specified, (4) the word "or" shall not be
exclusive, and (5) provisions shall apply, when appropriate, to successive
events and transactions.
(b) This Agreement shall be construed without regard to any presumption
or rule requiring construction or interpretation against the party drafting or
causing any instrument to be drafted.
Section 7.12. Extension; Waiver. At any time prior to the Closing Date, each
-----------------
party hereto may but shall not be required to (a) extend the time for the
performance of any of the obligations or other acts of the other party, (b)
waive any inaccuracies in the representations and warranties of the other party
contained herein or in any document, certificate or writing delivered pursuant
hereto, or (c) waive compliance by the other party with any of the agreements or
conditions contained herein. Any agreement on the part of either party hereto
to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed by the parties hereto, and the failure of any party
hereto to assert any of its rights hereunder shall not constitute a waiver of
such rights absent such instrument in writing.
Section 7.13. Validity. If any provision of this Agreement, or the
--------
application thereof to any person or circumstance, is held invalid or
unenforceable, the remainder of this Agreement, and the application of such
provision to other persons or circumstances, shall not be affected thereby, and
to such end, the provisions of this Agreement are agreed to be severable.
IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of each of
the parties as of the day first above written.
STOCKHOLDER: SYLVAN LEARNING SYSTEMS, INC.
By:
------------------------------- ---------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Name:
------------------------------
Title:
------------------------------