-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RFeP0IFWQ3EHM55ApimcxgpSEVtvoMCFfX4mePOpBXHUETrrqCV2itPxAz4dTcP7 0jW8cU0nt6LjQORtyoP6ng== 0000928385-98-002391.txt : 19981124 0000928385-98-002391.hdr.sgml : 19981124 ACCESSION NUMBER: 0000928385-98-002391 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19981123 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYLVAN LEARNING SYSTEMS INC CENTRAL INDEX KEY: 0000912766 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EDUCATIONAL SERVICES [8200] IRS NUMBER: 521492296 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-67727 FILM NUMBER: 98756757 BUSINESS ADDRESS: STREET 1: 1000 LANCASTER ST CITY: BALTIMORE STATE: MD ZIP: 21202 BUSINESS PHONE: 4108438000 MAIL ADDRESS: STREET 1: 1000 LANCASTER ST CITY: BALTIMORE STATE: MD ZIP: 21202 S-3 1 FORM S-3 AS FILED WITH THE SECURITIES AND EXCHANGE REGISTRATION NO. 333- COMMISSION ON NOVEMBER __, 1998 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 __________________________ FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 __________________________ SYLVAN LEARNING SYSTEMS, INC. (Exact Name Of Registrant As Specified in its charter) MARYLAND 52-1492296 (State Of Incorporation) (I.R.S. Employer Identification No.) 1000 LANCASTER STREET BALTIMORE, MARYLAND 21202 (410) 843-8000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) DOUGLAS L. BECKER PRESIDENT, CO-CHIEF EXECUTIVE OFFICER AND SECRETARY SYLVAN LEARNING SYSTEMS, INC. 1000 LANCASTER STREET BALTIMORE, MARYLAND 21202 (410) 843-8000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) Copies of all communications, including all communications sent to the agent for service, should be sent to: RICHARD C. TILGHMAN, JR., ESQUIRE PIPER & MARBURY L.L.P. 36 SOUTH CHARLES STREET BALTIMORE, MARYLAND 21201 (410) 539-2530 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box: [_] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered in connection with dividend or interest reinvestment plans, check the following box: [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [_] If delivery of the prospectus is expected to be made pursuant to rule 434, please check the following box: [_] CALCULATION OF REGISTRATION FEE
============================================================================================================ TITLE OF SHARES TO BE REGISTERED PROPOSED MAXIMUM AGGREGATE OFFERING PRICE AMOUNT OF REGISTRATION FEE - ------------------------------------------------------------------------------------------------------------ COMMON STOCK, $.01 PAR VALUE $17,617,998 $4,898 ============================================================================================================
(1) CALCULATED IN ACCORDANCE WITH RULE 457(O) OF THE SECURITIES ACT OF 1933, AS AMENDED. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. SUBJECT TO COMPLETION NOVEMBER 23, 1998 PROSPECTUS 614,135 SHARES SYLVAN LEARNING SYSTEMS, INC. COMMON STOCK ___________ The shares of common stock of Sylvan Learning Systems, Inc. covered by this Prospectus are outstanding shares which may be offered and sold by the stockholders named herein. Sylvan will not receive any proceeds from the sale of the shares by the selling stockholders. The common stock is quoted on the Nasdaq National Market under the symbol "SLVN." On November 20, 1998, the last sale price for the common stock as reported on the Nasdaq Stock Market was $28.00 per share. The selling stockholders may sell shares of the common stock offered hereby in transactions on the Nasdaq Stock Market, in privately-negotiated transactions or otherwise, in each case at negotiated prices. The brokers or dealers through or to whom the shares of common stock covered hereby may be sold may be deemed "underwriters" within the meaning of the Securities Act of 1933, in which event all brokerage commissions or discounts and other compensation received by such brokers or dealers may be deemed underwriting compensation. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is , 1998. [The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is prohibited.] AVAILABLE INFORMATION Sylvan is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Reports, proxy statements and other information filed by Sylvan with the Commission, including the reports and other information incorporated by reference into this Prospectus, can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at its regional offices located at 7 World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can also be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at rates prescribed by the Commission or from the Commission's Internet web site at http:\\www.sec.gov. The common stock of Sylvan is quoted on the Nasdaq National Market. Reports, proxy statements and other information concerning Sylvan can be inspected at the offices of the Nasdaq Stock Market, 1735 K Street, Washington, D.C. 20006. This Prospectus does not contain all the information set forth in the Registration Statement of which this Prospectus is a part and exhibits relating thereto which Sylvan has filed with the Commission. Copies of the information and exhibits are on file at the offices of the Commission and may be obtained, upon payment of the fees prescribed by the Commission, may be examined without charge at the offices of the Commission or through the Commission's Internet web site. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by Sylvan with the Commission (File No. 0-22844) pursuant to the 1934 Act are incorporated herein by reference: (i) Annual Report on Form 10-K for the year ended December 31, 1997, as amended by its Annual Report on Form 10-K/A; (ii) Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998, June 30, 1998 and September 30, 1998; (iii) Current Report on Form 8-K dated July 29, 1998, relating to the restatement of Sylvan's consolidated financial statements for each of the three years in the period ended December 31, 1997 and for the quarters ended March 31, 1998 and 1997 to give retroactive effect to Sylvan's merger with Aspect International Language Schools, B.V. and subsidiaries ("Aspect"); (iv) Current Report on Form 8-K dated March 11, 1998, relating to the restatement of Sylvan's selected financial data schedule to give effect to Sylvan's adoption of Statement of Financial Accounting Standards No. 128, Earnings Per Share as of December 31, 1997; (v) the description of common stock contained in Item 4 of Sylvan's Registration Statement on Form 8-A, filed with the Commission under the 1934 Act; and (vi) all other documents filed by Sylvan pursuant to Sections 13(a), 13(c), 14 or 15(d) of the 1934 Act subsequent to the date of filing of the Registration Statement of which this Prospectus is a part and prior to the termination of the offering made hereby. Sylvan will provide without charge to each person to whom a copy of this Prospectus is delivered, upon the request of any such person, a copy of any or all of the documents which have been incorporated herein by reference, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference into such documents). Requests for such documents should be directed to Sylvan Learning Systems, Inc., 1000 Lancaster Street, Baltimore, Maryland 21202, Attention: Chief Financial Officer, telephone: (410) 843-8000. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. THE COMPANY Sylvan is the leading provider of educational services to families, schools and industry. Sylvan provides lifelong educational services through three divisions: Sylvan Learning Centers, Sylvan Prometric and Sylvan Contract Educational Services. Sylvan Learning Centers provides personalized instructional services to kindergarten through 12th grade students of various skill levels. Sylvan Prometric provides computer-based testing for academic admissions and professional and licensing certification programs. This division includes Wall Street Institute and Aspect. Wall Street is a European-based franchisor and operator of learning centers for English language instruction that also administers certain computer-based testing programs throughout Europe and Latin America. Aspect is a leading provider of international educational programs, primarily English as a Second Language for students worldwide. Sylvan Contract Educational Services provides educational services and professional development through contracts with school systems and other organizations. This division includes the operations of Canter and Associates, Inc. and Canter Educational Products, Inc., a leading provider of materials and training programs for educators. Sylvan delivers its services through approximately 3,000 educational and testing centers around the globe. In 1997, system-wide revenues were approximately $448.0 million, composed of $193.6 million from Sylvan Learning Centers ($162.4 million from franchised Learning Centers and $31.2 million from Company-owned Learning Centers, product sales, franchise sales fees and other franchise service revenues), $187.8 million from Sylvan Prometric and $66.6 million from Sylvan Contract Educational Services. In addition, Wall Street's franchise system generated approximately $85.0 million of revenues in 1997. Sylvan Learning Centers. This division provides supplemental instruction in reading, mathematics and reading readiness, featuring an extensive series of standardized diagnostic tests, individualized instruction, a student motivational system and continued involvement from both parents and the child's regular school teacher. As of September 30, 1998, Sylvan or its franchisees operated 710 Learning Centers. These centers are in 49 states, six Canadian provinces, South Korea and Guam. As of that date, Sylvan owned and operated 63 Learning Centers, and more than 450 franchisees operated 647 Sylvan Learning Centers. Sylvan Prometric. As of September 30, 1998, Sylvan's testing business was operated through more than 2,000 testing centers, approximately 1,100 of which are located in the United States and Canada and the remainder of which are located in more than 100 foreign countries. Sylvan Prometric's principal customers are Educational Testing Services ("ETS") and, in the Information Technology ("IT") industry, Microsoft Corp. and Novell, Inc. Sylvan provides certification testing for its IT customers that have worldwide certification programs for various professionals, such as network administrators and engineers, service technicians and instructors, application specialists and developers, and system administrators, operators and engineers. Sylvan has been designated the exclusive commercial provider of computer-based tests administered by ETS (excluding the SAT/PSAT and Achievement Test). As of September 30, 1998, Sylvan operated 174 permanent and 88 temporary sites in more than 100 countries to facilitate delivery of international testing for ETS. Sylvan also provides testing services to organizations that license beginning teachers, physicians, registered and practical nurses, pilots and aviation mechanics and for organizations in many other fields, including computer professionals, medical laboratory technicians and military candidates. Through Sylvan's December 1996 acquisition of Wall Street Institute and its May 1998 acquisition of Aspect, Sylvan provides live and computer-based English instruction in the U.S., Canada, Europe, Latin America and Australia. Sylvan Contract Educational Services. As of September 30, 1998, Sylvan provided educational services under federal and various state funding programs to students in 152 public and 700 non-public schools. Sylvan provides remedial educational services to public and non-public school systems. Sylvan expanded these services through its May 1997 acquisition of I-R, Inc. and Independent Child Study Teams, Inc. Sylvan's January 1998 acquisition of Canter, which specializes in teacher training products and services, enhances Sylvan's teacher development services for public and non-public school contracts and capitalizes on the growing market for teacher training. Sylvan also provides educational and training services to large corporations throughout the United States, including racial and gender workplace diversity training and skills improvement programs such as writing, advanced reading, listening and public speaking, through its wholly-owned subsidiary, The PACE Group and Sylvan's Sylvan-At-Work program. Sylvan's principal executive offices are located at 1000 Lancaster Street, Baltimore, Maryland 21202, and its telephone number is (410) 843-8000. -2- USE OF PROCEEDS All of the proceeds from the sale of the shares of Sylvan's common stock offered hereby will be received by the selling stockholders. Sylvan will receive none of the proceeds from the sale of the shares of common stock offered hereby. SELLING STOCKHOLDERS The following table sets forth information regarding the beneficial ownership of Sylvan's common stock by the person listed therein prior to this offering, the maximum number of shares of common stock to be sold by the selling stockholders hereby, and the beneficial ownership of Sylvan's common stock by the selling stockholders after this offering, assuming that all shares of common stock offered hereby are sold.
Shares Beneficially Shares Beneficially Owned Prior to Offering Shares To Owned After Offering Name and Address of ------------------------------ Be Sold In ------------------------------- Beneficial Owner Number Percent Offering Number Percent - ------------------------------------------ -------------- ------------ -------------- -------------- ------------ The Chauncey Group International, Ltd./1/ 277,056 * 277,056 -0- * 664 Rosedale Road Princeton, New Jersey 08540 Insurance Testing Corporation/2/ 258,246 * 258,246 -0- * 664 Rosedale Road Princeton, New Jersey 08540 Barbara S. Stipek/3/ 61,867 * 61,867 -0- * 5017 S.W. Orchard Lane Portland, Oregon 97219 Congress & Co., as Escrow Agent/3/ 16,966 * 16,966 -0- * Two International Place, 5th Floor Boston, Massachusetts 02110
_____________ * Less than 1%. 1. Pursuant to the Stock Purchase Agreement between The Chauncey Group International, Ltd. ("Chauncey") and Sylvan dated September 9, 1998, Sylvan acquired 52,632 shares of Chauncey's convertible preferred stock in exchange for 277,056 shares of Sylvan common stock. 2. Pursuant to the Asset Purchase Agreement by and between Sylvan and Insurance Testing Corporation ("ITC") dated August 1, 1998, Sylvan acquired certain of ITC's assets in exchange for 258,246 shares of Sylvan common stock. 3. Pursuant to the Stock Purchase Agreement by and among Barabara S. Stipek (the "Stockholder") and Sylvan dated August 15, 1998 (the "Stock Purchase Agreement"), Sylvan acquired all of the issued and outstanding capital stock of Pacific Language Associates, Inc. in exchange for 78,833 shares of Sylvan's common stock, 16,966 shares (the "Escrow Shares") of which were placed in two escrow accounts. Each escrow account stands as security for claims made by Sylvan against the Stockholder in respect of the representations, warranties and covenants made by the Stockholder in the Agreement. The Escrow Shares may be released to the Stockholder at specified times under the terms of the escrow agreements. There can be no assurance, however, that any of the Escrow Shares will be released to the Stockholder. -3- PLAN OF DISTRIBUTION Sylvan's common stock is quoted on the Nasdaq National Market under the symbol "SLVN." The Shares may be sold from time to time by the selling stockholders (or their pledgees, donees, transferees or other successors in interest) directly or through broker-dealers or underwriters who may act solely as agents, or who may acquire the Shares as principals. In connection with any sales of the Shares hereunder, the selling stockholders and any broker-dealers participating such sales may be deemed to be "underwriters" within the meaning of the Securities Act. The distribution of the Shares hereunder by the selling stockholders may be effected in one or more transactions that may take place on the Nasdaq National Market or otherwise, including block trades or ordinary brokers' transactions, or through privately negotiated transactions, through an underwritten public offering, or through a combination of any such methods of sale, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. Usual and customary or specially negotiated brokerage fees or commissions may be paid by the selling stockholders in connection with such sales. From time to time, the selling stockholders may engage in short sales, short sales against the box, puts and calls and other transactions in securities of Sylvan or derivatives thereof, and may sell and deliver the Shares in connection therewith or in settlement of securities loans. From time to time, the selling stockholders may pledge their Shares pursuant to the margin provisions of their customer agreements with their respective brokers. Upon a default by the selling stockholders, the broker may offer and sell the pledged shares from time to time. Sylvan will not bear any commissions or discounts paid or allowed by the selling stockholders to underwriters, dealers, brokers or agents. To the extent required, the specific shares of common stock to be sold, purchase price, public offering price, the names of any such agent, dealer or underwriter and any applicable commission or discount with respect to a particular offering may be set forth in an accompanying Prospectus Supplement. Sylvan has agreed to bear the cost of preparing the Registration Statement of which Prospectus is a part and all filing fees and legal and accounting expenses in connection with registration of the shares of common stock offered by the selling stockholders hereby under federal and state securities laws. LEGAL MATTERS The legality of the shares offered hereby has been passed upon for Sylvan by Piper & Marbury L.L.P., Baltimore, Maryland. EXPERTS The consolidated financial statements of Sylvan at December 31, 1997 and 1996, and for each of the three years in the period ended December 31, 1997 appearing in the Current Report on Form 8-K dated July 29, 1998 of Sylvan have been audited by Ernst & Young LLP, independent auditors, as set forth in their report included therein and incorporated herein by reference, which, as to the years 1996 and 1995, is based in part on the reports of Deloitte & Touche LLP, independent auditors, and as to the years 1997, 1996 and 1995, is based in part on the reports of Smith, Lange & Phillips, LLP and Deloitte & Touche, independent auditors. Such consolidated financial statements are incorporated herein by reference in reliance upon such reports given upon the authority of such firms as experts in accounting and auditing. -4- ============================================= ============================================= No person has been authorized by Sylvan to give any information or to make any representations other than those contained in this Prospectus in connection with the offer contained in this Prospectus, and if 614,135 SHARES given or made, such information or representations may not be relied upon as having been authorized by Sylvan. This Prospectus does not constitute an offer SYLVAN LEARNING to sell or a solicitation of an offer SYSTEMS, INC. to buy any of the securities in any jurisdiction in which such offer or solicitation is not authorized, or in COMMON STOCK which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation. Neither the delivery of PROSPECTUS this Prospectus nor any sale made hereunder shall create an implication that there has been no change in the affairs of Sylvan since the date hereof.
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TABLE OF CONTENTS PAGE ---- AVAILABLE INFORMATION............. 1 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE......... 1 THE COMPANY....................... 2 USE OF PROCEEDS................... 3 SELLING STOCKHOLDERS.............. 3 PLAN OF DISTRIBUTION.............. 4 LEGAL MATTERS..................... 4 EXPERTS........................... 4 , 1998 ============================================= ================================================
INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the expenses in connection with this Registration Statement. Sylvan will pay all expenses of the offering. All of such expenses are estimates, other than the filing fees payable to the Securities and Exchange Commission.
Filing Fee-Securities and Exchange Commission.............................................. $ 4,898.00 Nasdaq National Market Listing Fees........................................................ 12,282.70 Fees and Expenses of Counsel............................................................... 6,000.00 Miscellaneous Expenses..................................................................... 5,000.00 ---------- TOTAL...................................................................................... $28,180.70 ==========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Sylvan's Charter provides that, to the fullest extent that limitations on the liability of directors and officers are permitted by the Maryland General Corporation Law, no director or officer of Sylvan shall have any liability to Sylvan or its stockholders for monetary damages. The Maryland General Corporation Law provides that a corporation's charter may include a provision which restricts or limits the liability of its directors or officers to the corporation or its stockholders for money damages except: (1) to the extent that it is provided that the person actually received an improper benefit or profit in money, property or services, for the amount of the benefit or profit in money, property or services actually received, or (2) to the extent that a judgment or other final adjudication adverse to the person is entered in a proceeding based on a finding in the proceeding that the person's action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding. Sylvan's Charter and By-laws provide that Sylvan shall indemnify and advance expenses to its currently acting and its former directors to the fullest extent permitted by the Maryland General Corporation Law and that Sylvan shall indemnify and advance expenses to its officers to the same extent as its directors and to such further extent as is consistent with law. The Charter and By-laws provides that Sylvan will indemnify its directors and officers and may indemnify employees or agents of Sylvan to the fullest extent permitted by law against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with Sylvan. In addition, Sylvan's Charter provides that its directors and officers will not be liable to stockholders for money damages, except in limited instances. However, nothing in the Charter or By-laws of Sylvan protects or indemnifies a director, officer, employee or agent against any liability to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. To the extent that a director has been successful in defense of any proceeding, the Maryland General Corporation Law provides that he shall be indemnified against reasonable expenses incurred in connection therewith. ITEM 16. EXHIBITS.
Exhibit No. Description ----------- ----------- 3.1 Articles of Amendment and Restatement of the Charter* 3.2 Amended and Restated By-Laws dated September 27, 1996** 4.1 Specimen Stock Certificate* 4.2 Stock Purchase Agreement between The Chauncey Group International, Ltd. and Sylvan dated September 9, 1998 4.3 Asset Purchase Agreement by and between Sylvan and Insurance Testing Corporation dated August 1, 1998 4.4 Stock Purchase Agreement by and among Barabara S. Stipek and Sylvan dated August 15, 1998 5.1 Opinion of Piper & Marbury L.L.P. 23.1 Consent of Ernst & Young LLP 23.2 Consent of Deloitte & Touche LLP 23.3 Consent of Deloitte & Touche 23.4 Consent of Smith, Lange & Phillips, LLP 23.5 Consent of Piper & Marbury L.L.P. (contained in Exhibit 5.1) 24.1 Powers of Attorney (included on signature page) ______________
* Incorporated by reference from the Registrant's Registration Statement on Form S-1 (No. 33-69558) ** Incorporated by reference from Sylvan's Annual Report on Form 10-K for the Year ended December 31, 1996. ITEM 17. UNDERTAKINGS. (a) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suite or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (c) The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (d) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement; (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the "Securities Act"); (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post- effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs in contained in periodic reports filed by the registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") that are incorporated by reference in the registration statement. (2) That for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement or Amendment to be signed on its behalf by the undersigned, thereunto duly authorized, in Baltimore, Maryland, on this 23rd day of November, 1998. SYLVAN LEARNING SYSTEMS, INC. By /s/ R. Christopher Hoehn-Saric ------------------------------------------- R. Christopher Hoehn-Saric, Chairman of the Board and Co-Chief Executive Officer Know all men by these presents, that each person whose signature appears below constitutes and appoints R. Christopher Hoehn-Saric and Douglas L. Becker (with full power to each of them to act alone) as his true and lawful attorney- in-fact and agent, with full power of substitution, for him and in his name, place and stead in any and all capacities to sign any or all amendments or post- effective amendments to this Registration Statement, including post-effective amendments filed pursuant to Rule 462(b) of the Securities Act of 1933, as amended, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, to sign any and all applications, registration statements, notices or other document necessary or advisable to comply with the applicable state securities laws, and to file the same, together with all other documents in connection therewith, with the appropriate state securities authorities, granting unto said attorneys- in-fact and agents or any of them, or their or his substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons in the capacities and on the dates indicated.
Signature Title Date ---------- ----- ---- /s/ R. Christopher Hoehn-Saric Co-Chief Executive Officer and Chairman of the ______________________________ Board of Directors (Principal Executive Officer) November 23, 1998 R. Christopher Hoehn-Saric /s/ Douglas L. Becker __________________________ Co-Chief Executive Officer November 23, 1998 Douglas L. Becker President, Secretary and Director /s/ B. Lee McGee __________________________ Chief Financial Officer (Principal November 23, 1998 B. Lee McGee Financial and Accounting Officer) /s/ Donald V. Berlanti __________________________ Director November 23, 1998 Donald V. Berlanti __________________________ Director November __, 1998 R. William Pollock __________________________ Director November __, 1998 J. Phillip Samper /s/ Nancy A. Cole __________________________ Director November 23, 1998 Nancy A. Cole /s/ James H. McGuire __________________________ Director November 23, 1998 James H. McGuire /s/ Rick Inatome __________________________ Director November 23, 1998 Rick Inatome
EXHIBIT INDEX
Sequentially Exhibit No. Description Numbered Page ----------- ----------- ------------- 3.1 Articles of Amendment and Restatement* 3.2 Amended and Restated By-Laws dated September 27, 1996** 4.1 Specimen Stock Certificate* 4.2 Stock Purchase Agreement between The Chauncey Group International, Ltd. and Sylvan dated September 9, 1998 4.3 Asset Purchase Agreement by and between Sylvan and Insurance Testing Corporation dated August 1, 1998 4.4 Stock Purchase Agreement by and among Barabara S. Stipek and Sylvan dated August 15, 1998 5.1 Opinion of Piper & Marbury L.L.P. 23.1 Consent of Ernst & Young LLP 23.2 Consent of Deloitte & Touche LLP 23.3 Consent of Deloitte & Touche 23.4 Consent of Smith, Lange & Phillips, LLP 23.5 Consent of Piper & Marbury L.L.P. (contained in Exhibit 5.1) 24.1 Powers of Attorney (included on signature page) ___________________
* Incorporated by reference from the Registrant's Registration Statement on Form S-1 (No. 33-69558) ** Incorporated by reference from Sylvan's Annual Report on Form 10-K for the Year ended December 31, 1996. EX-4.2 2 STOCK PURCHASE AGREEMENT EXHIBIT 4.2 ----------- STOCK PURCHASE AGREEMENT This Stock Purchase Agreement (this "Agreement") dated as of September 9, 1998, is made between The Chauncey Group International, Ltd., a Delaware corporation ("Chauncey") and Sylvan Learning Systems, Inc., a Maryland corporation ("Sylvan"). RECITALS WHEREAS, Sylvan wishes to subscribe for certain convertible preferred stock of Chauncey in exchange for, at Sylvan's option, either Eight Million Dollars ($8,000,000) or its equivalent in shares of common stock of Sylvan, and Chauncey is willing to issue and sell to Sylvan such preferred stock on the terms described herein. NOW THEREFORE, in consideration of the premises, and other good and valuable consideration the adequacy of which is expressly acknowledged, the parties hereby agree as follows: ARTICLE I --------- DEFINITIONS ----------- 1.1 Defined Terms. The following terms shall have the meanings set ------------- forth herein: "affiliate of", or a Person "affiliated" with, a specified Person, is a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified. "Asset Purchase Agreement" shall mean that certain asset purchase agreement entered into by and between ITC and Sylvan, on even date herewith. "Business Day" shall mean any day other than a (i) Saturday, (ii) Sunday, or (iii) any day on which commercial banking institutions in New York, New York are authorized or obligated to close, provided, however, that if four -------- ------- (4) consecutive days are not Business Days, the next day shall be deemed a Business Day whether or not banks located in New York, New York are authorized or obligated to close. "Chauncey Common Stock" shall mean the common stock, par value $1.00 per share, of Chauncey. "Closing Date" shall mean the date when Closing actually occurs. "Exchange Act" shall mean the Securities and Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "ITC" shall mean Insurance Testing Corporation, a Minnesota Corporation. "Lien" shall mean any mortgage, security interest, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise), charge, preference, priority or other security agreement, option, warrant, attachment, right of first refusal, preemptive, conversion, put, call or other claim or right, restriction on transfer (other than restrictions imposed by federal and state securities laws), or preferential arrangement of any kind or nature whatsoever (including any restriction on the transfer of any assets, any conditional sale or other title retention agreement, any financing lease involving substantially the same economic effect as any of the foregoing and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction). "Limited Liability Company Agreement" shall mean that certain limited liability company agreement between ITC and NAI/BLOCK, entered into on even date herewith. "NAI/Block" shall mean Block Testing Services Inc., a Maryland corporation ("Block") and National Assessment Institute, Inc., a Florida corporation and wholly owned subsidiary of Block. "Person" shall mean any natural person, sole proprietorship, corporation, general partnership, limited partnership, limited liability company, union, association, court, agency, agreement, tribunal, instrumentality, commission, arbitrator, board, bureau, or other entity or authority. "Prime Rate" shall mean the prime rate as reported in the "Money Rates" column of The Wall Street Journal, or, if such prime rate is not so published, the "prime" or "base" rate quoted by the Chase Manhattan Bank, or any other international bank chosen by Chauncey if The Chase Manhattan Bank is no longer in existence. "Qualified Public Offering" shall mean an underwritten public offering of the Chauncey Common Stock, registered under the Securities Act, in which the aggregate net proceeds to Chauncey shall be at least Fifteen Million Dollars ($15,000,000). "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Shareholder" shall mean any holder of Shares. "Shares" shall mean any and all issued and outstanding shares of capital stock of Chauncey, including, without limitation, the Chauncey Common Stock and the Preferred Stock. "Sylvan Common Stock" shall mean the common stock of Sylvan, par value $.01 per share. "Sylvan Shares" shall mean a number of shares of Sylvan Common Stock with an aggregate value of Eight Million Dollars ($8,000,000) as of the day of the Closing. "Transfer" as a noun, any voluntary or involuntary sale, assignment, transfer, pledge, hypothecation, exchange or other disposition of the Preferred Interest (as defined below) by any means whatsoever, whether by operation of law or otherwise; and as a verb, any action or actions taken by or on behalf of Sylvan which result in such sale, assignment, transfer, pledge, hypothecation, exchange or other disposition of the Preferred Interest (as defined below). In addition, the following terms are defined elsewhere in this Agreement:
Agreement Introductory Paragraph Chauncey Introductory Paragraph Sylvan Introductory Paragraph Preferred Stock 2.1 Effective Time 2.3 Post Closing Period 2.6 Closing 3.1 Sylvan Put Notice 4.1 Chauncey Financial Statements 5.1(f) Preferred Interest 8.1 Claims 9.2 Indemnity Obligation 9.3 Indemnifying Party 9.3 Indemnified Party 9.3
Annex A - ------- Agreed Value Annex A Liquidation Preference Annex A Preferential Dividend Annex A 1.2 Accounting Terms. Accounting terms used herein and not otherwise ---------------- defined herein shall be construed in accordance with generally accepted accounting definitions and principles consistently applied. 1.3 Singular and Plural. Words used herein in the singular, ------------------- where the context so permits, shall be deemed to include the plural and vice versa. The definitions of words in the singular herein shall apply to such words when used in the plural where the context so permits and vice versa. ARTICLE II ---------- PURCHASE AND SALE ----------------- 2.1 Description of the Preferred Stock. The preferred stock shall ---------------------------------- consist of Fifty Two Thousand Six Hundred and Thirty Two (52,632) shares of convertible preferred stock of Chauncey, bearing the rights and characteristics set forth in Section B of Annex A hereto (the "Preferred Stock"), representing, as of the date of this Agreement, and assuming the repurchase of Chauncey stock currently owned by certain Chauncey shareholders, one hundred percent (100%) of the total issued and outstanding Preferred Stock of Chauncey on a fully diluted basis and five percent (5%) of the total issued and outstanding capital stock of Chauncey on a fully diluted basis. 2.2 Subscription and Sale. Pursuant to the terms and subject to the --------------------- conditions hereof, on the Closing Date, but effective as of the Effective Time, Chauncey shall offer for subscription and issue to Sylvan the Preferred Stock for the Purchase Price (as defined below) and Sylvan shall subscribe and pay for such Preferred Stock in accordance with Section 2.4. 2.3 Effective Time. The subscription of the Preferred Stock shall be -------------- effective as of the date Sylvan delivers the Purchase Price to Chauncey (the "Effective Time"). 2.4 Purchase Price. The Purchase Price for the Preferred Stock shall -------------- be, at Sylvan's option, either Eight Million Dollars ($8,000,000) or the Sylvan Shares (the "Purchase Price"). 2.5 Payment of Purchase Price. At the Closing Sylvan shall either ------------------------- (i) deliver to Chauncey the amount set forth in Section 2.4, by wire transfer or other delivery of immediately available funds to the credit of such account as Chauncey shall designate, or (ii) offer for subscription and issue to Chauncey the Sylvan Shares. 2.6 Guaranteed Value of Sylvan Shares. --------------------------------- (a) Post-Closing Period. For one hundred twenty (120) days ------------------- following the Closing Date (the "Post Closing Period"), upon (i) sale by Chauncey of any Sylvan Shares received under Section 2.5 and (ii) written notice from Chauncey to Sylvan at the conclusion of the earlier of (x) the sale of all Sylvan Shares received under this Agreement or (y) the expiration of the Post Closing Period, setting forth the total sale price for the Sylvan Shares sold, such Sylvan Shares shall be subject to subsections (b) and (c). (b) Guaranteed Value. Subject to the adjustment in subsection ---------------- (c), (i) if the sale price for all the shares of Sylvan Common Stock sold net of all costs to Chauncey of such sale is less than Eight Million Dollars ($8,000,000) then Sylvan promptly shall pay to Chauncey an amount equal to such difference and (ii) if the sale price for all the shares of Sylvan Common Stock sold net of all costs to Chauncey of such sale is greater than Eight Million Dollars ($8,000,000), Chauncey promptly shall pay to Sylvan an amount equal to such difference. (c) Adjustment For and Repurchase of Unsold Sylvan Shares. If ----------------------------------------------------- all Sylvan Shares have not been sold by Chauncey within the Post Closing Period, then the calculations in subsection (b) shall be done based on the actual sales price for the number of shares of Sylvan Shares actually sold compared to Eight Million Dollars ($8,000,000) adjusted to reflect the percentage of Sylvan Shares actually sold; provided, however, that if Chauncey's failure to sell any or all -------- ------- of the Sylvan Shares by the date of the expiration of the Post Closing Period is the result of any event or restriction not caused by Chauncey, Sylvan shall repurchase such remaining shares as are held by Chauncey for a repurchase price equal to Eight Million Dollars ($8,000,000) minus the net proceeds received by Chauncey with respect to sales made prior to the expiration of the Post Closing Period; provided, further, that at anytime within the Post Closing Period, upon -------- ------- written notice by Sylvan, Chauncey shall sell to Sylvan any remaining shares as are held by Chauncey for a repurchase price equal to Eight Million Dollars ($8,000,000) minus the net proceeds received by Chauncey with respect to sales made prior to the date of such notice. ARTICLE III ----------- THE CLOSING ----------- 3.1 Date of Closing. Subject to the conditions stated in this --------------- Agreement, the consummation of the transactions contemplated hereby (the "Closing") shall occur at the Effective Time, or such other date as is mutually satisfactory to the parties hereto. 3.2 Place of Closing. The Closing shall be held at such place as the ---------------- parties hereto may agree in writing. 3.3 Conditions to Chauncey's Closing. The obligations of Chauncey -------------------------------- hereunder are subject to the following conditions, each of which must be satisfied or waived by Chauncey prior to the Closing: (a) Delivery of Purchase Price. At the Closing, Chauncey shall -------------------------- have the Eight Million ($18,000) or a cerifticate presenting the Sylvan Shares, with all necessary transfer taxes paid or other revenue stamps affixed thereto. (b) Other Deliveries. Sylvan shall have delivered such documents, ---------------- certificates and/or instructions as may be reasonably necessary or advisable to carry out Sylvan's obligations under, and to fulfill the purpose of, this Agreement . (c) Representations and Warranties True. Chauncey shall be ----------------------------------- satisfied that all representations and warranties of Sylvan contained in this Agreement are true in all material respects at and as of the Closing as if such representations and warranties were made at and as of the Closing, and that Sylvan shall have performed and satisfied all material agreements in all material respects as required by this Agreement to be performed and satisfied by Sylvan at or prior to the Closing. (d) Other Agreements. Each of the Limited Liability Company ---------------- Agreement, the Asset Purchase Agreement and the Collaboration Agreement shall have been executed and delivered by each party thereto, and each such document shall be in full force and effect as of the Closing. 3.4 Conditions to Sylvan's Closing. The obligations of Sylvan ------------------------------ hereunder are subject to the following conditions, each of which must be satisfied or waived by Sylvan prior to the Closing: (a) Resolutions. Prior to or at the Closing, Sylvan shall have ----------- received resolutions of the Board of Directors and/or Shareholders of Chauncey, as required by law and Chauncey's Articles of Incorporation and By-laws, authorizing and approving the transactions contemplated by this Agreement, certified by the respective Secretary or Assistant Secretary of Chauncey, together with certified copies of Chauncey's Articles of Incorporation and By-laws and a good- standing certificate with respect to Chauncey from the State of Delaware. (b) Stock Certificates. At the Closing, Chauncey shall deliver to ------------------ Sylvan a certificate representing the Preferred Stock, with all necessary transfer taxes paid or other revenue stamps affixed thereto. (c) Opinion of Counsel. Prior to or at the Closing, Sylvan shall have ------------------ received an opinion of Wilmer, Cutler & Pickering in form and substance reasonably acceptable to Sylvan. (d) Other Deliveries. Chauncey shall have delivered such additional ---------------- instruments, as may be reasonably necessary or advisable to carry out Chauncey's obligations under, and to fulfill the purpose of, this Agreement and any other document, certificate or other instructions delivered pursuant hereto. (e) Representations and Warranties True. Sylvan shall be satisfied ----------------------------------- that all representations and warranties of Chauncey contained in this Agreement shall be true in all material respects as at and as of the Closing as if such representations and warranties were made at and as of the Closing, and that Chauncey has performed and satisfied all material agreements in all material respects as required by this Agreement to be performed and satisfied by Chauncey at or prior to the Closing. (f) Other Agreements. Each of the Limited Liability Company ---------------- Agreement, the Asset Purchase Agreement and the Collaboration Agreement shall have been executed and delivered by each party thereto, and each such document shall be in full force and effect as of the Closing. ARTICLE IV ---------- PUT RIGHTS AND EFFECT OF QUALIFIED PUBLIC OFFERING -------------------------------------------------- 4.1 Put Rights of Preferred Stock Holder. At the written request of ------------------------------------ Sylvan made (i) on or after the tenth (10th) anniversary of the date hereof or (ii) upon the termination of the Limited Liability Company Agreement (the "Sylvan Put Notice") Chauncey shall purchase all but not less than all of the Preferred Stock. 4.2 Purchase Price. The value of the Preferred Stock, in the -------------- aggregate, to be purchased by Chauncey pursuant to Section 4.1 above shall be equal to (i) Eight Million Dollars ($8,000,000), plus (ii) interest at a 6% annual rate compounded annually from the Closing Date until the earlier of (x) the date of the Sylvan Put Notice, or (y) the tenth anniversary of the date hereof, plus (iii) interest at the Prime Rate from the date the Sylvan Put Notice was received by Chauncey until payment. 4.3 Effect of Qualified Public Offering In the event of a ----------------------------------- Qualified Public Offering, (i) any rights and obligations with respect to the repurchase of Preferred Stock provided for above shall terminate and be of no further effect; provided, however, no such termination shall occur if Chauncey -------- ------- has received the Sylvan Put Notice prior to Chauncey sending Sylvan notice of a proposed registration with respect to such Qualified Public Offering and (ii) all outstanding shares of Preferred Stock shall convert automatically into shares of Chauncey Common Stock as set forth in Section B.5 of Annex A. ARTICLE V --------- PIGGYBACK REGISTRATION RIGHTS ----------------------------- 5.1 Piggyback Registration Rights. If at any time Chauncey ----------------------------- decides to make a Qualified Public Offering, other than an initial public offering, and proposes to file a registration statement for the public sale of any shares of Chauncey Common Stock, Chauncey shall, not later than thirty (30) days prior to the initial filing of the registration statement, deliver notice of its intent to file such registration statement to Sylvan, setting forth the minimum and maximum proposed offering price, commissions, and discounts in connection with the offering, and other relevant information. Within twenty (20) days after receipt of notice of Chauncey's intent to file a registration statement, Sylvan shall be entitled to request the inclusion in such registration statement of any or all of Chauncey Common Stock owned by Sylvan ("Sylvan Registrable Securities"). Chauncey will use commercially reasonable efforts to cause the Sylvan Registrable Securities to be included in the offering covered by such registration statement; provided, however, that if -------- ------- the Qualified Public Offering involves an underwriting, the right of Sylvan to have the Sylvan Registrable Securities included in the Qualified Public Offering under this Article 5 shall be conditioned on Sylvan's participation in the underwriting and the inclusion of the Sylvan Registrable Securities in the underwriting to the extent provided in this Article 5. In this case, Sylvan shall, together with Chauncey, enter into an underwriting agreement in customary form with the underwriter or underwriters selected by Chauncey. Notwithstanding any other provisions of this Article 5, if the underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, or in the event that the offering is not being underwritten, Chauncey determines in good faith that marketing factors require a limitation on the number of shares to be offered, the number of shares to be offered in the Qualified Public Offering shall not exceed such limitation and if the total number of the shares proposed to be registered by Chauncey and the Sylvan Registrable Securities requested to be included as provided above exceeds such limitation, Chauncey shall be entitled to include in the offering the full amount of shares to be sold on its behalf and Sylvan shall be entitled to sell up to the remaining balance of the limitation in proportion, as nearly as practicable, to the respective amounts of Sylvan Registrable Shares at the time of the Qualified Public Offering. 5.2 Expenses . All expenses incurred by Chauncey in connection -------- with any registration of the Sylvan Registrable Securities effected under Section 5.1 hereof, including, without limitation, all registration or filing fees, fees and expenses of complying with state securities and blue sky laws, printing expenses, fees and expenses of Chauncey's counsel and accountants shall be paid by Chauncey; provided, however, that all underwriting discounts and ----------------- selling commissions applicable to the Sylvan Registrable Securities and any fees and expenses of counsel and accountants for Sylvan, shall be borne by Sylvan. ARTICLE VI ---------- REPRESENTATIONS AND WARRANTIES ------------------------------ 6.1 Representations and Warranties of Chauncey. Chauncey represents ------------------------------------------ and warrants as of the date hereof and as of the Closing Date as follows: (a) Organization. Chauncey is a corporation duly organized, ------------ validly existing and in good standing under the laws of the State of Delaware, and is duly authorized and qualified to do business under all applicable laws, regulations, ordinances and orders of public authorities to carry on its respective businesses in the places and in the manner as now conducted. (b) Capital Stock. The authorized capital stock of Chauncey ------------- consists of 1,900,000 shares of common stock, which are outstanding as of the date of this Agreement and 100,000 shares of Preferred Stock. Chauncey has no other Shares or capital stock of any class or other equity securities or equity equivalents authorized, issued or outstanding. Chauncey has reserved a sufficient number of authorized Shares for issuance for conversion of the Preferred Stock. All of the Shares of Preferred Stock to be issued to Sylvan in accordance herewith will be offered, issued, sold and delivered by Chauncey in compliance with all applicable state and federal laws concerning the issuance of securities and none of such shares was or will be issued in violation of the preemptive rights of any Shareholder. (c) Transfer of the Preferred Stock. Upon the consummation of ------------------------------- the transactions contemplated hereby, Sylvan will acquire title to the Preferred Stock, free and clear of any and all Liens. The Preferred Stock has been, or will be prior to the Closing, duly authorized and, when issued and delivered to Sylvan as provided in this Agreement, will be validly issued, fully paid, and nonassessable, and the issuance of such shares will not be subject to any agreement or restriction of any kind and will not violate or contravene the terms of any contract, agreement, note, bond, mortgage, indenture, deed or trust, license, franchise, permit, lease, plan, instrument, or other document binding on Chauncey. (d) No Conflict. The execution, delivery and performance of this ----------- Agreement, the consummation of the transactions contemplated herein and the fulfillment of the terms hereof will not: (i) conflict with, or result in a breach or violation of the Chauncey Articles of Incorporation and By-laws; (ii) subject to compliance with any agreements between Chauncey and its lenders, conflict with in any material respect, or result in a default (or would constitute a default but for a requirement of notice or lapse of time or both) under any material document, agreement or other instrument to which Chauncey is a party, or result in the creation or imposition of any lien, charge or encumbrance on any of Chauncey's properties pursuant to (x) any law or regulation to which Chauncey or any of its property is subject, or (y) any judgment, order, or decree to which Chauncey is bound or any of its property is subject; (iii) result in termination or any impairment of any material permit, license, franchise, contractual right or other authorization of Chauncey; or (iv) violate any law, order, judgment, rule, regulation, decree or ordinance to which Chauncey is subject, or by which Chauncey is bound. (e) Authorization. The representative of Chauncey executing this ------------- Agreement has all requisite corporate power and authority to enter into and bind Chauncey to the terms of this Agreement. Chauncey has the full legal right, power, and corporate authority to enter into this Agreement and the transactions contemplated hereby. The execution and delivery of this Agreement by Chauncey and the performance by Chauncey of the transactions contemplated herein have been duly and validly authorized by the Board of Directors of Chauncey, and this Agreement has been duly and validly authorized by all necessary corporate action. This Agreement is a legal, valid and binding obligation of Chauncey enforceable in accordance with its terms. (f) Financial Statements. Schedule 6.1(f) includes five -------------------- complete and correct copies of (i) Chauncey's audited balance sheet, statement of operations and statement of cash flow as of June 30, 1997 (collectively the "Audited Financial Statements") and (ii) Chauncey's quarterly unaudited balance sheet, statement of operations and statement of cash flow as of March 31, 1998 certified by the Chief Financial Officer of Chauncey (the "Unaudited Financial Statements" and, collectively with the Audited Financial Statements, the "Chauncey Financial Statements" ). Except as noted on the auditor's report, or the Chief Financial Officer's certificate, as the case may be, accompanying the Chauncey Financial Statements, such Chauncey Financial Statements have been prepared in accordance with GAAP consistently applied and there has been no materia adverse change in the financial condition of Chauncey since the date of the Chauncey Financial Statements. (g) Compliance with Law. Chauncey is not in violation of any ------------------- order, injunction, judgment, ruling, law, or regulation of any court or governmental authority applicable to the property or business of Chauncey, which violation or violations in the aggregate would have a material adverse effect on Chauncey. The licenses, permits and other governmental authorizations held by Chauncey are valid and sufficient for the conduct of Chauncey's businesses as currently conducted, except where the failure to hold such licenses, permits, and other governmental authorizations would not have a material adverse effect. (h) Fees. Chauncey has incurred no liability, contingent or ---- otherwise, for brokers' or finders' fees relating to the transactions contemplated by this Agreement for which Sylvan shall have any responsibility whatsoever. 6.2 Representations and Warranties of Sylvan. Sylvan represents and ---------------------------------------- warrants to Chauncey as of the date hereof and as of the Closing Date as follows: (a) Organization. Sylvan is a corporation duly organized, ------------ validly existing and in good standing under the laws of the State of Maryland, and is duly authorized and qualified to do business under all applicable laws, regulations, ordinances and orders of public authorities to carry on its respective businesses in the places and in the manner as now conducted. (b) Capitalization of Sylvan. The authorized capital stock of ------------------------ Sylvan consists of 90,000,000 shares of $.01 par value common stock (as previously defined "Sylvan Common Stock") of which 31,195,090 shares of Sylvan Common Stock were issued and outstanding on April 8, 1998. All such issued shares of Sylvan Common Stock are, and when issued to Chauncey in accordance with this Agreement will be, duly and validly issued, fully paid and non- assessable. None of the outstanding shares of Sylvan Common Stock were, and non of the shares of Sylvan Common Stock to be issued to Chauncey in accordance with this Agreement will be, issued in violation of any preemptive rights. (c) SEC Reports. ----------- (i) Sylvan has heretofore delivered to Chauncey copies of Sylvan's (w) Annual Report on Form 10-K for the year ended December 31, 1997 as filed with the Securities and Exchange Commission, (x) proxy statements relating to Sylvan's annual meeting of stockholders held in 1997, (y) Annual Report for Stockholders for 1997, and (z) all other reports or registration statements filed by Sylvan with the Securities and Exchange Commission since December 31, 1997. There has been no material adverse change from the information set forth in any SEC Document (as defined below) filed on or after the date hereof and or prior to the Closing Date. (ii) Sylvan has filed and will file with the Securities and Exchange Commission, all forms, reports, schedules, statements, exhibits and other documents (collectively the "SEC Documents") required to be filed on or before the date hereof or the Closing Date, respectively, by Sylvan under the Securities Act or the Exchange Act. At the time of the filings the SEC Documents filed by Sylvan (x) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, and (y) complied in all material respects with the applicable requirements of the Securities Act and the Exchange Act, as the case may be. No SEC Document filed on or after the date hereof and on or prior to the Closing Date will contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein not misleading. Sylvan shall deliver to Chauncey a copy of any SEC document within five (5) days of the date of filing of such SEC document with the Securities Exchange Commission. (e) No Conflict. Sylvan has all requisite power and authority to ----------- carry on its business as presently conducted, to enter into this Agreement, to purchase the Preferred Stock on the terms described in this Agreement and to perform its other obligations under this Agreement. The consummation of the transactions contemplated by this Agreement will not violate, or be in conflict with, any material provision of the By-laws of Sylvan or any agreement or instrument to which Sylvan is a party or by which it is bound, noncompliance with which would have a material adverse effect upon Chauncey or upon Sylvan's acquisition or ownership of the Preferred Stock or upon any of the transactions contemplated by this Agreement, or, to the knowledge of Sylvan, any judgment, decree, order, statute, rule or regulation applicable to Sylvan (subject to required approvals of federal, state or other governmental agencies). (f) Authorization. The representative of Sylvan executing this ------------- Agreement has all requisite corporate power and authority to enter into and bind Sylvan to the terms of this Agreement. Sylvan has the full legal right, power, and corporate authority to enter into this Agreement and the transactions contemplated hereby. The execution and delivery of this Agreement by Sylvan and the performance by Sylvan of the transactions contemplated herein have been duly and validly authorized by the Board of Directors of Sylvan, and this Agreement has been duly and validly authorized by all necessary corporate action. This Agreement is a legal, valid and binding obligation of Sylvan enforceable in accordance with its terms. (g) Investment Intent. Sylvan acknowledges that the Preferred ----------------- Stock has not been registered under the Securities Act of 1933, as amended, or applicable state securities laws and that the certificates representing such Shares will bear a legend to such effect. Sylvan is acquiring the Preferred Stock hereunder for investment purposes only and not with a view to, or for resale in connection with, the distribution thereof and with no intention of distributing or selling any thereof except in compliance with federal or state securities laws, and will make no sale or other transfer of the Preferred Stock except in compliance with federal or state securities laws. (h) Fees. Sylvan has incurred no liability, contingent or ---- otherwise,for brokers' or finders' fees relating to the transactions contemplated by this Agreement for which Chauncey shall have any responsibility whatsoever. ARTICLE VII ----------- OBLIGATIONS AFTER CLOSING ------------------------- 7.1 Use of Proceeds. The Purchase Price shall be used by Chauncey to --------------- redeem Shares owned by certain shareholders of Chauncey and for working capital and other general business purposes of Chauncey. 7.2 Transfer Taxes. [Chauncey] shall pay all transfer, documentary, -------------- sales, use, registration, excise or similar taxes in connection with the transactions contemplated by this Agreement, provided, however, that if Sylvan exercises the option to pay for the Preferred Stock in Sylvan Shares, Sylvan shall pay all transfer, documentary, sales, use, registration, excise or similar taxes in connection with the transactions involving the Sylvan Shares. 7.3 Financial Information. Chauncey shall prepare financial --------------------- statements in accordance with generally accepted accounting principles consistently applied as of each March 31, June 30, September 30, and December 31 for the periods then ended. Quarterly statements shall contain consolidated financial statements including a balance sheet, statement of income, and statements of the source and application of cash flow for the period then ended. Annual statements prepared as of each June 30 and for the year period then ended shall be audited and accompanied by an opinion from an independent certified public accountant. Copies of the financial statements required by this subsection shall be furnished to Chauncey within 45 days after the end of each fiscal period except for the annual statements, copies of which shall be furnished within 90 days after the end of the fiscal period to which they relate. 7.4 Further Assurances. After the Closing, Chauncey and Sylvan shall ------------------ each execute, acknowledge and deliver or cause to be executed, acknowledged and delivered such instruments and take such other action as may be necessary or advisable to assure to each other the rights, titles, interests, estates, and privileges intended to be assigned, delivered, or reserved to such party and to consummate the transactions and to carry out their obligations under this Agreement and under any document, certificate, or other instrument delivered pursuant hereto. 7.5 Sale of Sylvan Shares. Chauncey may sell or transfer the Sylvan --------------------- Shares at any time in accordance with applicable securities laws, provided, -------- however, that Chauncey shall use commercially reasonable efforts to make any - ------- such sale or transfer in a manner which will not materially depress the public trading price of the Sylvan Common Stock, and provided, further, that if -------- ------- Chauncey sells or transfers in excess of 50,000 shares of Sylvan Common Stock in any single transaction then Chauncey shall engage Alex, Brown & Sons Incorporated or another nationally recognized broker or investment banking firm to make such sale or transfer. 7.6 Registration Rights. Sylvan shall (i) file with the Securities ------------------- and Exchange Commission a registration statement pursuant to the Securities Act of 1933, as amended with respect to the Sylvan Common Stock and (ii) cause such registration statement to be declared effective, within five (5) days after Closing. 7.7 Issuance of Shares by Chauncey. If, at any time, Chauncey issues ------------------------------ additional shares of common stock at a price of less than One Hundred and Fifty Two Dollars ($152) per share (a "Dilutive Offering"), Chauncey shall issue, and offer for subscription to Sylvan, shares of common stock of Chauncey (i) at a price equal to the price shares were sold in the Dilutive Offering and (ii) in the amount needed by Sylvan to preserve its equity percentage in Chauncey immediately prior to such Dilutive Offering. ARTICLE VIII ------------ RESTRICTIONS ON TRANSFER ------------------------ 8.1 Restrictions on Transfer. Except as may be expressly provided in ------------------------ this Article VII, Sylvan may not Transfer all or any part of the Preferred Stock or the Put Rights established herein (collectively, the "Preferred Interest") without the prior written consent (which may be withheld for any reason) of Chauncey. A Transfer of the whole or any portion of Sylvan's Preferred Interest in violation of the provisions of this Article VII shall be null and void ab initio and shall be of no effect. 8.2 Permitted Transfers. ------------------- (a) The restrictions on Transfers under Section 8.1 shall not apply to (i) any Transfer (for any consideration or no consideration) by Sylvan of all or any part of its Preferred Interest to any 100% Affiliate of Sylvan. (b) Upon any permitted Transfer of Sylvan's Preferred Interest pursuant to Section 8.1, the transferor and transferee shall file with Chauncey an executed or authenticated copy of the written instrument of assignment or transfer. ARTICLE IX ---------- INDEMNIFICATION --------------- 9.1 Indemnification by Sylvan. From and after the Closing Date, ------------------------- Sylvan shall defend, indemnify and save and hold harmless Chauncey, its directors, officers, employees and agents against all losses, damages, claims, demands, suits, costs, expenses, liabilities and sanctions of every kind and character, including without limitation reasonable attorneys' fees, court costs and costs of investigation (collectively, the "Claims") (a) arising out of or resulting from any breach of any representation, warranty, covenant or agreement of Sylvan under this Agreement (including the Schedule and the Annex hereto or thereto); or (b) that relate to Claims by third parties with respect to any violation by Sylvan of any federal or state securities laws in connection with the transactions contemplated by this Agreement. 9.2 Indemnification by Chauncey. From and after the Closing Date, --------------------------- Chauncey shall defend, indemnify and save and hold harmless Sylvan, its directors, officers, employees and agents against all Claims (a) arising out of or resulting from any breach of any representation, warranty, covenant or agreement of Chauncey under this Agreement (including the Schedule and the Annex hereto or thereto); or (b) that relate to Claims by third parties with respect to any violation by Chauncey of any federal or state securities laws in connection with the transactions contemplated by this Agreement. 9.3 Procedures. The parties hereto agree promptly to notify the ---------- other party of the making of any demand, the assertion of any Claim, or the commencement of any suit, action or proceeding by any third party for which indemnity may be sought under this Agreement (an "Indemnity Obligation") prior to expending or committing to expend funds for which indemnity may be sought. The party from whom indemnification is sought (the "Indemnifying Party") shall have the right, but not the obligation, to assume the defense or settlement of any Indemnity Obligation of which the party seeking indemnification (the "Indemnified Party") gives notice; provided, however, that if the Indemnifying Party does not elect to assume such defense or settlement, the Indemnified Party shall have the right, but not the obligation, to assume such defense or settlement but shall not thereby waive any right to indemnity therefor by the Indemnifying Party pursuant to this Agreement, and the Indemnifying Party shall at all times have the right, at its option and expense, to participate fully therein. Each party shall have reasonable access to the books, records and personnel in the possession or control of the other party which are pertinent to the defense or settlement of any Indemnity Obligation. The parties shall cooperate in the defense or settlement of any Indemnity Obligation, but the party electing to assume such defense or settlement shall have full authority to determine all action to be taken with respect thereto and the terms of the settlement; provided, however, that without the consent of the Indemnified Party, no settlement shall be entered into that does not include as an unconditional term thereof the giving by the Person asserting such Claims of an unconditional release of the Indemnified Party from all personal liability with respect to such Claim. The Indemnified Party may join the Indemnifying Party in any suit, action or proceeding to which any such right of indemnity created by this Agreement would or might apply, for the purpose of enforcing any such right. ARTICLE X --------- MISCELLANEOUS ------------- 10.1 Survival. The representations, warranties, covenants, agreements -------- and indemnities set forth in this Agreement shall survive the Closing; provided, however, that any Claim or demand for breach of a representation or warranty under Section 9.1 or 9.2(a) and any Claim or demand under Section 9.2(b) must be asserted in writing on or before the one (1) year anniversary date of the Closing Date, after which date such indemnities shall expire except to the extent this Agreement expressly provides that any such provision shall survive for a longer period. If the Closing occurs, all conditions of Closing shall be deemed to have been satisfied or waived, and, after the Closing, neither party shall have any liability whatsoever to the other arising out of, resulting from or attributable to any such conditions of Closing, regardless of whether such conditions of Closing were, in fact, satisfied or waived. 10.2 Annex and Schedule. The Annex and the Schedule referred to in ------------------ this Agreement are hereby incorporated in this Agreement by reference and constitute a part of this Agreement. Each party to this Agreement and its counsel has received a copy of the Annex and the Schedule prior to and as of the execution of this Agreement. 10.3 Expenses. Each Party hereto shall pay its own expenses, -------- including legal fees, incurred by such party in the negotiation, documentation and closing of the transactions contemplated hereby. 10.4 Notices. All notices and communications required or permitted ------- under this Agreement shall be in writing and any communication or delivery hereunder shall be deemed to have been duly made when personally delivered to the individual indicated below, or if sent by Telecopier or mailed, when received by the party charged with such notice and addressed as follows: If to Sylvan: ------------ Sylvan Learning Systems, Inc. 1000 Lancaster Street Baltimore, Maryland 21202 Attn: Robert W. Zentz General Counsel Facsimile No.: (410) 843-8059 If to Chauncey: -------------- Chauncey Group International, Ltd. to: 664 Rosedale Princeton, New Jersey 08540 Attn: Michael Mitrano Chief Financial Officer Facsimile No.: (609) 720-6521 Copies of all notices (other than reports or other routine communications), which shall not constitute notice hereunder, shall be delivered to: Wilmer, Cutler & Pickering 2445 M Street, N.W. Washington, D.C. 20037 Attn: Russell J. Bruemmer Facsimile No.: (202) 663-6363 Any party may, by written notice so delivered to the other parties, change the address or individual to which delivery shall thereafter be made. 10.5 Amendments. Except for waivers specifically provided herein, ---------- this Agreement may not be amended nor any rights hereunder waived except by an instrument in writing signed by the party to be charged with such amendment or waiver and delivered by such party to the party claiming the benefit of such amendment or waiver. 10.6 Limitation of Remedies. In no event shall either party to this ---------------------- Agreement be entitled to recover special or consequential damages from the other party as a result of a breach of this Agreement by such other party, including, without limitation, special damages in the nature of lost or future profits. 10.7 Counterparts. This Agreement may be executed by Sylvan and ------------ Chauncey in any number of counterparts, no one of which need be executed by all parties hereto, but all of which together shall constitute one and the same instrument. 10.8 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED ------------- IN ACCORDANCE WITH THE LAWS OF DELAWARE, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. 10.9 Entire Agreement. This Agreement (including the Annex and the ---------------- Schedule hereto and all other agreements executed in connection herewith) constitutes the entire understanding among the parties with respect to the subject matter hereof, superseding all negotiations, prior discussions, agreements and understandings relating to such subject matter. 10.10 Parties in Interest. This Agreement shall be binding upon, and ------------------- shall inure to the benefit of, the parties hereto and, except as otherwise prohibited, their respective heirs, devisees, executors, administrators, successors and assigns; and except as provided in this Article VII, which is also intended to benefit and be enforceable by the Indemnified Parties, nothing contained in this Agreement, express or implied, is intended to confer upon any other Person any benefits, rights or remedies. 10.11 Nonwaiver. No course of dealing or any delay or failure to --------- exercise any right, power or remedy hereunder on the part of Sylvan shall operate as a waiver of or otherwise prejudice Sylvan's rights, powers or remedies. 10.12 Drafting. Each Party acknowledges that its legal counsel -------- participated in the preparation of this Agreement. The Parties therefore stipulate that the rule of construction that ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement to favor any Party against the other. IN WITNESS WHEREOF, the parties hereto each has caused this Agreement to be executed by its duly authorized officer all as of the day and year first set forth above. SYLVAN LEARNING SYSTEMS, INC. By: --------------------------------- Name: Its: THE CHAUNCEY GROUP INTERNATIONAL, LTD. By: --------------------------------- Name: Its: EX-4.3 3 ASSET PURCHASE AGREEMENT EXHIBIT 4.3 ----------- ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT (this "Agreement"), dated and effective as of August 1, 1998, by and between SYLVAN LEARNING SYSTEMS, INC., a Maryland corporation (the "Purchaser"), and INSURANCE TESTING CORPORATION, a Minnesota Corporation. ("The Seller"). W I T N E S S E T H: - - - - - - - - - - Seller is the sole operator of a network of computerized testing centers, the "Cogent Testing Network." The Purchaser and the Seller wish to enter into an agreement for the acquisition of the certain assets by the Purchaser. The Purchaser and the Seller wish to enter into a definitive agreement setting forth the terms and conditions of the acquisition of certain Seller's fixed assets related to the Cogent Testing Network. Purchaser and Seller agree that Purchaser is acquiring assets under this Agreement solely as a result of the simultaneous execution of the Limited Liability Company Agreement dated September 14, 1998 which requires Purchaser to provide a network of computerized testing centers. Accordingly, in consideration of the foregoing and of the covenants, agreements, representations and warranties hereinafter contained, the Purchaser and the Seller hereby agree as follows: 1. DEFINITIONS: 1.1 Defined Terms. The following terms shall have the meanings set -------------- forth herein: "Agreement" shall mean this Asset Purchase Agreement. "Closing Date" and "Closing" defined in Section 7.4 "Customer Contracts" mean all Seller contracts with customers which utilize the Cogent Testing Network for the delivery of services. "Claims" means written notification pursuant to Section 10.2 by either party to the other party of an event requiring indemnification under Article X. "Damages" means the amount demanded from an Indemnifying Party as a result of a Claim. "Employee Plans" defined in Section 4.6. "Financial Statements" defined in Section 4.1 "Indemnifying Party" means the party against whom a Claim is made under Article X. "Intellectual Property" defined in Section 4.3 (iii). "Joint Venture" means the Limited Liability Company Agreement entered into between Seller and NAI-Block, Inc. dated ____________. "Leases" means leases for all real property and all personal property in excess of $2,000 used in the Cogent Testing Network. "Purchased Assets" defined in Section 4.8 "Purchaser" shall mean Sylvan Learning Systems, Inc. "Purchase Price" defined in Section 2. -------------------------------------- "Real Property" defined in Section 4.3(i). "Seller" shall mean Insurance Testing Corporation "Supply Contracts" means all contracts to which Seller is a party under which services or materials are supplied to the Cogent Testing Network in excess of $2,000 on an annual basis. "Sylvan Common Stock" defined in Section 3.6. "Taxes" means all income, sales, use, property, excise, employment or any other tax payable to a government entity for any activity of the Cogent Testing Network prior to Closing. 2. PURCHASE OF PURCHASED ASSETS. The Seller shall sell the Purchased Assets to the Purchaser and the Purchaser shall purchase the Purchased Assets from the Seller at a price determined based on book value (book value of the assets less any accrued liabilities related to the Assets) plus four million five hundred thousand dollars ($4,500,000) (the "Purchase Price"). The Purchased Assets shall be transferred to the Purchaser pursuant to the terms and conditions of this Agreement, free and clear of all liens except those assumed by Purchaser. At the Closing, the Seller will deliver to the Purchaser a Bill of Sale and Assignment and any other appropriate documents of transfer so that the Purchaser will obtain all of Seller's right, title and interest in and to each of the Purchased Assets. 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby represents and warrants to the Seller as follows: 3.1 Organization and Standing. The Purchaser is a corporation duly ------------------------- organized, validly existing and in good standing under the laws of the State of Maryland and has the corporate power to carry on its business as it is now being conducted and to own or hold under lease the properties and assets it now owns or holds under lease. Copies of the Charter and By-Laws of the Purchaser have been made available to the Seller, and such copies are complete and correct and in full force and effect on the date of this Agreement. The Purchaser has at all times in the past operated and used its assets in material compliance with, and currently is not in violation of, and has obtained all material licenses and permits required by, any law, rule or regulation. 3.2 Financial Statements. The Purchaser has delivered to the Seller -------------------- copies of the Purchaser's audited consolidated financial statements for the fiscal year ended December 31, 1997. These financial statements are true and complete in all material respects, have been prepared in accordance with generally accepted accounting principles ("GAAP") consistently followed throughout the periods covered by such statements (except as may be stated in the explanatory notes to such statements), and present fairly the consolidated financial position and results of operations of the Purchaser at the dates of such statements and for the periods covered thereby. The Purchaser also has delivered to the Seller a copy of its Quarterly Report on Form 10-Q for the first quarter ended March 30, 1998, and all other reports or documents required to be filed with the Securities and Exchange Commission pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), after the filing of such Quarterly Report on Form 10-Q and prior to the date of this Agreement. 3.3 No Conflict With Other Documents. Neither the execution and -------------------------------- delivery of this Agreement nor the carrying out of the transactions contemplated hereby will result in any violation, termination or modification of, or be in conflict with, the Purchaser's Charter or By-Laws, or, any terms of any contract, instrument or other agreement to which the Purchaser is a party or by which it or any of its properties is bound or affected, or any law, rule, regulation, license, permit, judgment, decree or order applicable to the Purchaser or by which any of its properties or assets are bound or affected, or result in any breach of or constitute a default (or with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation, or result in the creation of any lien, charge or encumbrance upon any of its properties or assets, except where such event or occurrence would not, singly or in the aggregate, have a material adverse on the Purchaser. 3.4 Brokers and Advisors. The Purchaser has taken no action which -------------------- would give rise to a valid claim against any party hereto for a brokerage commission, finder's fee, counseling or advisory fee, or like payment. 3.5 Authority. The execution, delivery and performance of this --------- Agreement by the Purchaser have been duly authorized by its Board of Directors, and this Agreement is a valid, legally binding and enforceable obligation of the Purchaser. 3.6 Capitalization of Parent. The authorized capital stock of ------------------------ Purchaser consists of 90,000,000 shares of $0.01 par value common stock (as previously defined, the "Sylvan Common Stock") of which 31,195,090 shares of Sylvan Common Stock were issued and outstanding on April 8, 1998. All such issued shares of the Sylvan Common Stock are, and when issued to the Seller in accordance with this Agreement will be, duly and validly issued, fully paid and non-assessable. None of the outstanding shares of the Sylvan Common Stock were, and non of the Sylvan Common Stock to be issued to the Seller in accordance with this Agreement will be, issued in violation of any preemptive rights. 3.7 SEC Reports. ----------- (a) Purchaser has heretofore delivered to the Seller copies of Purchaser's (i) Annual Report on Form 10-K for the year ended December 31, 1997 as filed with the SEC, (ii) the proxy statements relating to Purchaser's annual meeting of stockholders held in 1997, (iii) Annual Report for Stockholders for 1997, and (iv) all other reports or registration statements filed by Purchaser with the SEC since December 31, 1997. (b) Purchaser has filed and will file with the SEC all forms, reports, schedules, statements, exhibits and other documents (collectively, the "SEC Documents") required to be filed on or before the date hereof or the Closing Date, respectively, by it under the 1933 Act or the Securities Exchange Act of 1934, as amended (the "1934 Act"). At the time of filings, the SEC Documents filed by Purchaser (i) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, and (ii) complied in all material respects with the applicable requirements of the 1933 Act and the 1934 Act, as the case may be. No SEC Document filed on or after the date hereof and on or prior to the Closing Date will contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein not misleading. There have been no material adverse changes for any SEC Document filed on or after the date hereof and/or prior to the Closing Date. 3.8 Cause Conditions to Be Satisfied. The Seller will use best -------------------------------- efforts to cause all of the conditions described in Section 6 of this Agreement to be satisfied (to the extent such matters reasonably are within their control). 4. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller hereby represents and warrants to the Purchaser as follows: 4.1 Financial Statements. The Seller has provided to the Purchaser -------------------- audited financial statements of Seller for the fiscal year ended December 30, 1996 and unaudited pro forma financial statements (including all assumptions used in such statements) for business conducted by the Cogent Testing Network for the fiscal years ended June 30, 1997 and June 30, 1998. (collectively, the " Financial Statements"). The Financial Statements are complete and correct, have been prepared on a consistent basis throughout the periods covered thereby and present fairly and accurately the financial position and results of operations of the business as of and for the periods indicated (including detailed expense information). Since June 30, 1998, there has been no material adverse change in the condition (financial or otherwise), assets, liabilities, earnings, net worth, financial position, business, operations, properties or prospects of the Business except as shown on Schedule 2.1 of the Disclosure Schedule. 4.2 Contracts and Leases. Schedule 4.2 contains an accurate list of -------------------- all Supply Contracts and Leases as of the Closing Date. (a) The Sellers have complied with all of its commitments and obligations and are not in default under any of the Supply Contracts or Leases except for any such default that would not, individually or in the aggregate, have a material adverse effect on the Cogent Testing Network, and no notice of default has been received with respect to any thereof. (b) Each Supply Contract and Lease is valid and binding on the Sellers and is in full force and effect and is not subject to any default thereunder by any party obligated to the Sellers pursuant thereto, except for any such default that would not, individually or in the aggregate, have a material adverse effect on the Cogent Testing Network. 4.3 Property. Section 4.3 of the Disclosure Schedule sets forth the -------- following property, except in the State of California, that is related to the conduct of the Cogent Testing Network (i) real property owned or leased by location including expiration dates and terms on all leases (the "Real Property"), (ii) all individual items of tangible personal property and assets (other than inventory) having a fair market value in excess of $2,000, and (iii) all patents, trademarks, trade names, service marks, trade secrets, copyrights, franchise rights or applications therefor which are held, used, prepared in connection with or otherwise related to the conduct of the Business ("Intellectual Property"). Except as set forth in the Disclosure Schedule, the Seller has good and marketable title to all of such property and assets owned by it, free of any pledge, mortgage, lien, lease, security agreement, encumbrance, charge or claim of any nature whatsoever. To the Seller's knowledge, the Cogent Testing Network is not infringing on any patent, trademark, trade name, service mark, trade secret or copyright of another entity and has received no notice or claim of any such infringement. 4.4 Legal Proceedings, Etc. Except as set forth in Section 4.4 of ----------------------- the Disclosure Schedule, there are no legal, administrative, arbitration, or other proceedings or governmental investigations pending or, to the best of the Seller's knowledge, threatened against Cogent Testing Network, the Seller or the respective properties or assets of Cogent Testing Network and the Seller. 4.5 Employee Plans. Except as set forth in Section 4.5 of the -------------- Disclosure Schedule, the Seller does not maintain, sponsor or contribute to any plans in effect for pension, profit-sharing, deferred compensation, severance pay, bonuses, stock options, stock purchases, or any other retirement or deferred benefit, or for any health, accident or other welfare plan, or any other employee or retired employee benefits or incentive plan, program, contract, understanding or arrangement in which any employee, or beneficiary of any employee, of the Cogent Testing Network is entitled to participate. The plans, programs, contracts, understandings and arrangements listed on the Disclosure Schedule pursuant to this Section 4.6 are hereinafter referred to as the "Employee Plans." The Seller has made available to the Purchaser complete and accurate copies of each such Employee Plan. Each Employee Plan has been operated according to its terms in compliance with all applicable laws. 4.6 Recent Operations; Employee Matters. Since January 1, 1998, ----------------------------------- there have been no bonuses paid to or increases in the compensation of Seller or the Seller's employees who operate the Cogent Testing Network, except as set forth in Section 4.6 of the Disclosure Schedule. 4.7 Environmental Matters. To the best of the Seller's knowledge, no --------------------- storage tanks, underground or otherwise, are now located on any properties occupied under the Leases the Seller has complied in all material respects with all environmental laws relating to its properties occupied under the Leases and there are no asbestos containing materials located on properties occupied under the Leases. The Seller has not received any notice, demand, suit or information request pursuant to the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") or any comparable state law, nor does it have knowledge of any other party's receipt of same relating to any properties occupied under the Leases. 4.8 The Purchased Assets. Except in the State of California, the -------------------- Purchased Assets as listed in Section 4.8 of the Disclosure Schedule include all of the assets that the Seller currently uses to perform its Customer Contacts and that are necessary to enable Purchaser to continue to Cogent Testing Network the Business in substantially the same manner as the Seller currently conducts the Cogent Testing Network. Except as set forth in Section 4.8 of the Disclosure Schedule, Seller has good and marketable title to all of the Purchased Assets, free of any lien. The tangible assets included among the Purchased Assets are in good operating condition and repair, ordinary wear and tear excepted. 4.9 Disclosure. All agreements, schedules, exhibits, documents, ---------- certificates, reports or statements furnished or to be furnished to the Purchaser by or on behalf of the Seller in connection with this Agreement or the transactions contemplated hereby are true, complete and accurate in all material respects, and no such items contain any untrue statement of a material fact or omit a material fact necessary in order to make the statements contained herein and therein not misleading. 4.10 No Conflict With Other Documents. Except as set forth in -------------------------------- Schedule 4.10 neither the execution and delivery of this Agreement, nor the carrying out of any of the transactions contemplated hereby, will result in any violation, termination or modification of, or be in conflict with the terms of any contract, instrument or other agreement to which the Seller is a party or by which it or any of its properties is bound or affected, or any law, rule, regulation, license, permit, judgment, decree or order applicable to the Seller or by which any of its properties or assets are bound or affected, or result in any breach of or constitute a default (or with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation, or result in the creation of any lien, charge or encumbrance upon any of its properties or assets, except where such event or occurrence would not, singly or in the aggregate, have a material adverse effect on the Cogent Testing Network . Notwithstanding anything to the contrary in this Section 4.10, Seller hereby states and Purchaser acknowledges that the Seller's Customer Contracts have been made available to Purchaser and that the Seller makes no representation as to the assignability of the Customer Contracts or as to any conflict between such Customer Contracts and this Agreement. 4.11 Brokers and Advisors. The Seller has taken no action which -------------------- would give rise to a valid claim against any party hereto for a brokerage commission, finder's fee, counseling or advisory fee, or like payment. 5. COVENANTS OF THE PURCHASER. The Purchaser covenants to the Seller that, except as otherwise consented to in writing by the Seller after the date of this Agreement: 5.1 Cause Conditions to be Satisfied. The Purchaser will use its -------------------------------- best efforts to cause all of the conditions described in Section 7 of this Agreement to be satisfied (to the extent such matters reasonably are within its control). 5.2 Consents. The Purchaser agrees to take all necessary corporate -------- or other action and to use best efforts to obtain all consents and approvals required for consummation of the transactions contemplated by this Agreement. 5.3 Guaranteed Value of Sylvan Shares. --------------------------------- (a) Post-Closing Period. For one hundred twenty (120) days ------------------- following the Closing Date (the "Post Closing Period"), upon (i) sale by Seller of any Sylvan Common Stock received under Section 2 and (ii) written notice from Seller to Purchaser at the conclusion of the earlier of (x) the sale of all Sylvan Common Stock received under this Agreement or (y) the expiration of the Post Closing Period, setting forth the total sale price for the Sylvan Common Stock sold, such Sylvan Common Stock shall be subject to subsections (b) and (c). (b) Guaranteed Value. Subject to the adjustment in subsection ---------------- (c), (i) if the sale price for all the shares of Sylvan Common Stock sold net of all costs to Seller of such sale is less than the Purchase Price then Purchaser promptly shall pay to Seller an amount equal to such difference and (ii) if the sale price for all the shares of Sylvan Common Stock sold net of all costs Seller of such sale is greater the Purchase Price, Seller promptly shall pay to Purchaser an amount equal to such difference. 5.4 Prohibition on Closing Testing Centers. For each of the testing -------------------------------------- centers listed on Schedule 2.2, Purchaser shall not close or discontinue operations without the written consent of Seller, which shall not be unreasonably withheld if Purchaser establishes to Seller's satisfaction that closure will not have an adverse effect on the Joint Venture or Seller's performance of its Customer Contracts. Purchaser shall not reduce substantially the number of employees currently employed at the testing centers listed on Schedule 2.2 without the written consent of Seller which shall not be unreasonably withheld if Purchaser establishes to Seller's satisfaction that such terminations will not have an adverse effect on the Joint Venture or Seller's performance of its Customer Contracts. 6. COVENANTS OF THE SELLER. The Seller covenants to the Purchaser that, except as otherwise consented to in writing by the Purchaser after the date of this Agreement: 6.1 Conduct of Cogent Testing Network. Through the date of the --------------------------------- Closing, with respect to the Cogent Testing Network or the Cogent Testing Network employee (as the case may be), the Seller (a) has not entered into, adopted or amended any employee benefit plan, agreement or arrangement, or entered into or amended any employment contracts, or increased the salaries or compensation of its employees, in the business (b) shall pay in full all accrued employee compensation, leave and benefits and the taxes thereon as shown in Section 6.1 (c) of the Disclosure Schedule; and (c) it shall not have encumbered any of its assets; and (d) it has not entered into any agreement for the sale or other disposition, sold or disposed of, any of the Purchased Assets . 6.2 Consents. The Seller agrees to take all necessary action and to -------- use best efforts to obtain all consents and approvals required for consummation of the transactions contemplated by this Agreement. 6.3 Sale of Sylvan Shares. The Seller may sell or transfer the --------------------- shares of Sylvan Common Stock at any time in accordance with applicable securities laws; provided, however, that the Seller shall use commercially -------- ------- reasonable efforts to make any such sale or transfer in a manner which will not materially depress the public trading price of the Sylvan Common Stock; and provided, further, that if the Seller sells or transfers in excess of 50,000 - -------- ------- shares of Sylvan Common Stock in any single transaction then the Seller shall engage Alex. Brown & Sons Incorporated or another nationally recognized broker or investment banking firm to make such sale or transfer. 7. CLOSING. Subject to the terms and conditions of this Agreement, the Purchaser and the Seller agree to effect the following transactions at the Closing: 7.1 Conditions. The Purchaser and the Seller will deliver to the ---------- other appropriate evidence of the satisfaction of the conditions to their respective obligations hereunder. Each of the Limited Liability Company Agreement, the Collaboration Agreement and the Stock Purchase Agreement shall have been executed and delivered by each party thereto, and each such document shall be in full force and effect as of the Closing. 7.2 Consideration for the Purchased Assets. The Purchaser, at the -------------------------------------- Purchaser's sole discretion, will deliver to the Seller by wire transfer or cashier's check to the credit of such account as Seller shall designate the Purchase Price of $____(the "Purchase Price") or shares of $0.01 par value Sylvan Common Stock, with the number shares to be transferred by Purchaser determined by dividing (x) the Purchase Price by (y) the average closing price of the Sylvan Common Stock as quoted on NASDAQ for the fifteen (15) trading days prior to the Closing; provided that, for purposes of calculating the average stock price during such fifteen (15) day period, the single highest and single lowest closing stock prices shall be disregarded. Nothing herein shall be construed as requiring Purchaser to transfer any fractional shares; and, Purchaser at its sole election shall have the right to pay to the Seller cash payments in lieu of any fractional shares. 7.3 Registration Rights. Purchaser shall (i) file with the United ------------------- States Securities and Exchange Commission (the "SEC") a registration statement pursuant to the Securities Act of 1933, as amended (the "1933 Act") with respect to the Sylvan Common Stock and (ii) cause such registration statement to be declared effective, within five (5) days after Closing. 7.4 Closing. The closing (the "Closing") of the transactions ------- contemplated by this Agreement shall take place at the offices of the Purchaser, in Baltimore, Maryland, beginning at 1:00 p.m. on , or at such other time and place as may be agreed upon in writing by the Purchaser and the Seller (the "Closing Date"). The closing shall be effective as of the close of business on (the "Effective Closing Date"). 8. CONDITIONS TO THE PURCHASER'S OBLIGATIONS. Unless waived by the Purchaser in writing in its sole discretion, all obligations of the Purchaser under this Agreement are subject to the fulfillment, prior to or at the Closing, of each of the following conditions: 8.1 Approvals of Governmental Authorities. Except for approvals ------------------------------------- related to Customer Contracts all governmental approvals necessary or advisable in the reasonable opinion of the Purchaser's counsel to consummate the transactions contemplated by this Agreement shall have been received and shall not contain any provision which, in the reasonable judgment of the Purchaser, is unduly burdensome. 8.2 No Adverse Proceedings or Events. Except as set forth in -------------------------------- Schedule 8.2, no suit, action or other proceeding against the Seller or the Purchaser, or their respective officers or directors, shall be threatened or pending before any court or governmental agency in which it will be, or it is, sought to restrain or prohibit any of the transactions contemplated by this Agreement or to obtain damages or other relief in connection with this Agreement or the transactions contemplated hereby. 8.3 Consents and Actions; Contracts. All actions which the Seller ------------------------------- has covenanted to use its best efforts to obtain and take under Section 6.2 hereof shall have been obtained and completed. The Sellers have obtained, or will use their best efforts to obtain prior to the Closing Date, all necessary consents, waivers and approvals of parties to any Supply Contracts or Leases that are required in connection with any of the transactions contemplated hereby, or are required by any governmental agency or other third party. All contracts and agreements listed on Section 4.2 of the Disclosure Schedule, shall be in full force and effect and shall not be affected by the consummation of the transactions contemplated hereby. 8.4 Intellectual Property Rights Retained by Seller. For the ------------------------------------------------ Intellectual Property used in the conduct of the Cogent Testing Network set forth on Schedule 4.3, the Seller shall have entered into an agreement with the Purchaser providing for a non-exclusive, non-transferable license of such Intellectual Property to enable the Purchase to operate the Cogent Testing Network. 8.5 Sublease Agreement. Except in the State of California, for each ------------------ of the Leases used in the conduct of the Cogent Testing Network set forth on Schedule 4.2, the Seller shall have entered into a sublease agreement with the Purchaser to enable the Purchaser to operate the Cogent Testing Network. 9. CONDITIONS TO THE SELLER'S OBLIGATIONS. Unless waived by the Seller, all obligations of the Seller under this Agreement are subject to the fulfillment, prior to or at the Closing, of each of the following conditions: 9.1 No Adverse Proceedings or Events. No suit, action or other -------------------------------- proceeding against the Seller or the Purchaser, or their respective officers or directors, shall be threatened or pending before any court or governmental agency in which it will be, or it is, sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the transactions contemplated hereby. 9.2 Consents and Actions. All requisite consents of any third -------------------- parties and other actions which the Purchaser has covenanted to use its best efforts to obtain and take under Section 4.4 of this Agreement shall have been obtained and completed. 9.3 Other Evidence. The Seller shall have received from the -------------- Purchaser such further certificates and documents evidencing due action in accordance with this Agreement, including certified copies of proceedings of the Board of Directors of the Purchaser, as the Seller reasonably shall request. 9.4 Purchased Assets Related to Seller's Customer Contracts. The ------------------------------------------------------- Seller shall have entered into an agreement with the Purchaser, on terms satisfactory to the Seller, for the Seller's use of the Purchased Assets related to the Seller's performance of any of its Customer Contracts The term of such agreement shall be the later of the termination of existing Customer Contracts or one year from the date of the termination of the Joint Venture. 10. INDEMNIFICATION. 10.1 Indemnification by the Seller. The Seller hereby covenants and ----------------------------- agrees to indemnify and hold harmless the Purchaser and its respective successors and assigns, at all times from and after the date of Effective Closing Date against and in respect of the following: (i) any liability, expense, damage or loss resulting from any misrepresentation, breach of representation or warranty or breach or non- fulfillment of any agreement or covenant on the part of the Seller under this Agreement, or from any inaccuracy or misrepresentation in or omission from any certificate or other instrument or document furnished or to be furnished by the Seller hereunder; (ii) all claims, actions, suits, proceedsings, demands, assessments, judgments, costs, reasonable attorneys' fees and expenses of any nature incident to any of the matters indemnified against pursuant to this Section 10.1, including, without limitation, all such costs and expenses incurred in the defense thereof or in the enforcement of any rights of the Purchaser hereunder. 10.2 Notice and Defense. The Purchaser shall notify the Seller of ------------------ any asserted liability, damage, loss or expense claimed to give rise to indemnification hereunder and the Seller shall have an initial right to defend, compromise and settle such matter provided that the Purchaser is fully protected from any liability, loss damage, cost or expense in connection therewith. Within ten (10) days of receipt of such notice, Seller shall respond in writing as to whether Seller will engage counsel at Seller's expense to defend the claim. If Seller does not respond, or affirmatively declines to defend the claim or disputes its obligation to indemnify, the Purchaser shall then have, at its election, the right to compromise or defend any such matter at the Seller's sole cost and expense through counsel chosen by the Purchaser and reasonably acceptable to the Seller; provided, however, that any such compromise or defense shall be conducted in a manner which is reasonable and the Seller shall in all events have a right to veto any such compromise or defense which might increase the potential liability of, or create a new liability for, the Seller (other than under Section 10.1). Each party agrees in all cases to cooperate with the defending party and its or his counsel in the compromise of or defending of any such liabilities or claims. In addition, the non-defending party shall at all times be entitled to monitor such defense through the appointment, at its or his own cost and expense, of advisory counsel of its own choosing. As to any claim paid by the Purchaser for which the Seller has indemnity liability under this Section 10, and which the Seller does not reimburse Purchaser within five (5) days following demand for reimbursement by Purchaser. 10.3 Indemnification by the Purchaser. From and after the Closing Date, -------------------------------- the Purchaser hereby covenants and agrees to indemnify and hold harmless the Seller against and in respect of the following: (i) any liability, loss, damage or expense resulting from any misrepresentation, breach of warranty or non-fulfillment of any agreement or covenant on the part of Purchaser under this Agreement, or from any misrepresentation in or omission from any certificate or other instrument or document furnished or to be furnished by the Purchaser hereunder; and (ii) all claims, actions, suits, proceedings, demands, assessments, judgments, costs, reasonable attorneys' fees and expenses of any nature incident to any of the matters indemnified against pursuant to this Section 10.3, including without limitation, all such costs and expenses incurred in the defense thereof or in the enforcement of any rights of the Seller hereunder. The Seller shall notify the Purchaser of any asserted liability, damage, loss or expense claimed to give rise to indemnification hereunder and thereafter the Purchaser shall have the right to defend, compromise and settle such matter provided that the Seller is fully protected from any cost or expense in connection therewith. 10.4 Notice and Defense. The Seller shall notify the Purchaser of ------------------ any asserted liability, damage, loss or expense claimed to give rise to indemnification hereunder and the Purchaser shall have an initial right to defend, compromise and settle such matter provided that the Seller is fully protected from any liability, loss damage, cost or expense in connection therewith. Within ten (10) days of receipt of such notice, Purchaser shall respond in writing as to whether Purchaser will engage counsel at Purchaser's expense to defend the claim. If Purchaser does not respond, or affirmatively declines to defend the claim or disputes its obligation to indemnify, the Seller shall then have, at its election, the right to compromise or defend any such matter at the Purchaser's sole cost and expense through counsel chosen by the Seller and reasonably acceptable to the Purchaser; provided, however, that any such compromise or defense shall be conducted in a manner which is reasonable and the Purchaser shall in all events have a right to veto any such compromise or defense which might increase the potential liability of, or create a new liability for, the Purchaser (other than under Section 10.3). Each party agrees in all cases to cooperate with the defending party and its or his counsel in the compromise of or defending of any such liabilities or claims. In addition, the non-defending party shall at all times be entitled to monitor such defense through the appointment, at its or his own cost and expense, of advisory counsel of its own choosing. As to any claim paid by the Seller for which the Purchaser has indemnity liability under this Section 10, and which the Purchaser does not reimburse Seller within five (5) days following demand for reimbursement by Seller. 10.5 Limitation and Indemnification. No Claim shall be made against ------------------------------ the Indemnifying Party for Damages unless the aggregate amount of all such Damages exceeds $25,000.00. Except for matters relating to Taxes and Sylvan Common Stock, an Indemnifying Party's aggregate liability in respect of indemnification Claims pursuant to Section 10.1 or 10.3 of this Agreement shall not exceed $4,500,000.00. 11. SURVIVAL; LIMITATIONS. The representations, warranties and agreements made by the parties in this Agreement and in any other certificates and documents delivered in connection herewith, including the indemnification obligations of the Seller and Purchaser set forth in Section 10 hereof, shall survive the Closing under this Agreement regardless of any investigation made by the party making claim hereunder, except that, subject to the provisions of the next sentence, neither the Purchaser, on the one hand, nor the Seller, on the other, shall have any liability with respect to any matter if notice of a claim has not been provided on or prior to , 1999. Notwithstanding the foregoing, (i) any indemnification obligations of the Seller relating to federal, state or local tax matters or environmental matters of any sort shall continue in full force and effect without limitation until expiration of the statute of limitations applicable to such tax or environmental matters, (ii) any claims, actions or suits the Purchaser, on the one hand, or the Seller, on the other hand, may have which arises from any fraud or willful misconduct on the part of the Seller, or any representative of Seller, on the one hand, and the Purchaser or any representative of it, on the other hand, shall continue in full force and effect without limitation until expiration of the statute of limitations applicable thereto. 12. CONFIDENTIALITY. After the date hereof, except in the performance of its Customer Contracts, the Seller will hold in confidence and not reveal to any third parties any knowledge or information of a confidential nature with respect to the business, products, know-how and methods of operation of the Cogent Testing Network , and will not disclose, publish or make use of the same, provided, however, that the foregoing shall not be applicable to any disclosure or use of confidential information or knowledge that can be demonstrated to have (i) been publicly known prior to the date of this Agreement, (ii) become well known by publication or otherwise not due to the unauthorized act or omission on the part of the Seller, or (iii) been supplied to the Seller by a third party without violation of the rights of the Purchaser or any other party. The parties agree that the remedy at law for any breach by the Seller of this Section 11 shall be inadequate and that the aggrieved party shall be entitled to injunctive relief in addition to any other remedy. 13. EXPENSES. Each party to this Agreement shall pay all of its expenses relating hereto, including legal and accounting fees and disbursements of its counsel, accountants and financial advisors, whether or not the transactions hereunder are consummated. 14. NOTICES. Except as otherwise provided herein, all notices, requests, demands and other communications under or in connection with this Agreement shall be in writing, and, (a) if to the Purchaser, shall be addressed to: Robert W. Zentz, General Counsel Sylvan Learning Systems, Inc. 1000 Lancaster Street Baltimore, Maryland 21202 with a copy to: Richard C. Tilghman, Jr., Esquire Piper & Marbury 36 South Charles Street Baltimore, Maryland 21201 (b) if to the Seller, shall be addressed to: 664 Rosedale Road Princeton, New Jersey 08540 Attention: Michael Mitrano Chief Financial Officer Fax: (609) 720-6521with a copy to: Wilmer, Cutler, and Pickering 2445 M. Street, N.W. Washington, D.C. 20037 Attention: Russell J. Bruemmer, Esq. Fax: (202) 663-6363 All such notices, requests, demands or communications shall be mailed postage prepaid, certified mail, return receipt requested, or by overnight delivery or delivered personally, and shall be sufficient and effective when delivered to or received at the address so specified. Any party may change the address at which it is to receive notice by like written notice to the other. 15. ENTIRE AGREEMENT. This Agreement (including the exhibits hereto and the lists, schedules and documents delivered pursuant hereto, which are a part hereof) is intended by the parties to and does constitute the entire agreement of the parties with respect to the transactions contemplated by this Agreement. This Agreement supersedes any and all prior understandings, written or oral, between the parties, and this Agreement may be amended, modified, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the amendment, modification, waiver, discharge or termination is sought. 16. GENERAL. The paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns, but nothing herein, express or implied, is intended to or shall confer any rights, remedies or benefits upon any person other than the parties hereto. This Agreement may not be assigned by any party hereto. This Agreement shall be construed in accordance with and governed by the laws of the State of Maryland. IN WITNESS WHEREOF, the Purchaser and the Seller have caused this Agreement to be duly executed and their respective seals to be hereunto affixed as of the date first above written. WITNESS: Sylvan Learning Systems, Inc. By: ---------------------- ------------------------------ Name: ---------------------------- Title: --------------------------- WITNESS: Insurance Testing Corporation By: ---------------------- ------------------------------ Name: ---------------------------- Title: --------------------------- EX-4.4 4 STOCK PURCHASE AGREEMENT 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 BARBARA S. STIPEK, (the "Stockholder,"). ----- ----------- WHEREAS, Buyer desires to purchase from the Stockholder, and the Stockholder desires to sell to Buyer, upon the terms and subject to the conditions set forth herein (the "Stock Exchange"), the shares of PACIFIC -------------- LANGUAGE ASSOCIATES, INC. dba INTENSIVE ENGLISH INSTITUTE, an Oregon corporation (the "Company") numbered 19, 21, and 23 (the "Shares"), which Shares constitute ------ all of the issued and outstanding equity interests in the Company in exchange for a number of shares of Common Stock, $.01 par value, of Buyer, having an aggregate Closing Date Market Value (as defined herein) equal to 2,500,000.00 ("Buyer Shares"). ------------ WHEREAS, for United States federal income tax purposes it is intended that the Stock Exchange shall qualify as a "reorganization" under the provisions of Section 368(a)(1)(B) of the United States Internal Revenue Code of 1986, as amended (the "Code"). ---- WHEREAS, the Stock Purchase is intended to qualify as a pooling of interests under applicable U.S. generally accepted accounting principles ("U.S. ---- GAAP") and U.S. Securities and Exchange Commission ("SEC") rules and - ---- --- regulations. NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants, agreements and conditions hereinafter set forth, and intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE I --------- PURCHASE AND SALE OF STOCK -------------------------- Section 1.1. Stock to Be Exchanged. Upon the terms and subject to the --------------------- conditions contained herein, at the Closing (as defined below), the Stockholder shall sell and transfer to Buyer, and Buyer shall purchase and accept from the Stockholder, the Shares. Section 1.2. Share Transfer. At the Closing (as defined below), in -------------- order to effect the transfer of Shares, the Stockholder will endorse the shares to the Buyer. Section 1.3. Deliveries by Buyer and Stockholder. ----------------------------------- (a) Upon the terms and subject to the conditions contained herein, (including Section 1.3(b) below regarding Escrow Shares) in consideration of, and in full payment for and solely in respect of, the Stock Exchange, Buyer shall deliver or cause to be delivered to the Stockholder certificates representing a number of Buyer Shares equal to $2,500,000.00 divided by the Closing Date Market Value of the Buyer Shares, (the "Purchase Price"), free and -------------- clear of all Liens (as defined herein). (b) Upon receipt of the Buyer Shares, at the Closing, the Stockholder shall deliver to the Escrow Agent (as herein defined): (i) certificates representing a number of Buyer Shares having an aggregate Closing Date Market Value equal to $ 250,000.00 in respect of the General Escrow (as defined herein) duly endorsed for transfer, to be held by the Escrow Agent in accordance with the terms of the General Escrow Agreement and (ii) certificates representing a number of Buyer Shares having an aggregate Closing Date Market Value equal to $175,000.00 in respect of the Special Escrow (as defined herein) duly endorsed for transfer, to be held by the Escrow Agent in accordance with the terms of the Special Escrow Agreement. (c) For purposes of this Agreement, the "Closing Date Market Value" of ------------------------- the Buyer Shares shall mean the average of the closing bid prices per share of the Buyer Common Stock during the period of the fifteen (15) most recent trading days ending on the day prior to the date of Closing. Section 1.4. Purchase Price Adjustments. -------------------------- (a) For purposes of this Paragraph 1.4, "Working Capital" shall equal (i) the aggregate amount of current assets, less (ii) the aggregate amount of ---- current liabilities. The term "current liabilities" shall not include (A) the notes payable by the Company to Stockholder and to Joe Stipek described in Section 5.2(e) of this Agreement; (B) the liability of the Company to Centennial Bank for the letter of credit issued to World Learning described in Section 5.3(d) of this Agreement whether evidenced by note or the letter of credit; or (C) any payments made by the Company at or before Closing with respect to either of the preceding. A pro forma calculation of the Working Capital of the Company based on the Company's July 31, 1998 interim financial statement is attached to this Agreement as Exhibit 1.4(a). (b) Within sixty (60) days after the Closing Date (the date of such delivery being the "Adjustment Date"), Buyer shall deliver to the Stockholder a statement of the Working Capital of the Company setting forth the Working Capital of the Company as of the Closing Date (the "Company Closing Date Working Capital"). The Statement shall have been prepared by Buyer in a manner consistent with the Company's past practice, except to the extent such past practice is not in accordance with U.S. GAAP. Any disputes with respect to Buyer's calculation of the Company Closing Date Working Capital shall be resolved by the Unaffiliated Firm (defined below) in the manner provided in Section 6.3 below. (c) Stockholder shall pay to Buyer any negative balance shown by the Company Closing Date Working Capital. (d) Buyer shall pay the outstanding balance of the notes payable by the Company to Stockholder and to Joseph Stipek described in section 5.2(e) of this Agreement and reduce the Purchase Price by such amounts. (e) Buyer shall pay the outstanding balance of the note payable to Centennial Bank datedOctober 14,1997, and reduce the Purchase Price by such amount. (f) Buyer shall redeem the irrevocable letter of credit held by World Learning, Inc. and issued by Centennial Bank in the amount of $200,000 and reduce the Purchase Price by such amount. Section 1.5. Time and Place of Closing. The closing of the transactions ------------------------- contemplated by this Agreement (the "Closing") shall be held at the offices of ------- Sylvan Learning Systems, Inc. 1000 Lancaster Street Baltimore, MD 21202 or such other place as the parties may agree on the date (the "Closing Date") set by ------------ Buyer (with at least one business day notice to the Stockholder), which date shall be within five business days following the date upon which all conditions set forth in Article V have been satisfied or waived, however in no event later than September 30, 1998. 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 Joseph Stipek from any personal guarantee for any Company obligation to Centennial Bank. (c) Buyer shall have performed in all material respects each obligation and agreement and shall have complied in all material respects with each covenant to be performed and complied with by it hereunder at or prior to the Closing Date. (d) Buyer shall have furnished the Stockholder with a certificate dated the Closing Date signed on behalf of it by its Chairman, President or any Vice President to the effect that the conditions set forth in Sections 5.2(a) and (b) have been satisfied. (e) Contemporaneously with Closing, the Buyer shall cause the Company to pay the remaining balance due on the two promissory notes dated September 30, 1997 to payable Joseph A. Stipek and to Stockholder. (f) Joe Stipek shall have entered into an employment and non-compete agreement with Buyer substantially in the form attached hereto as Exhibit A (the "Employment Agreement"). (g) Since the date of the Agreement, there shall not have been any event, occurrence, development or circumstances that individually or in the aggregate had, or reasonably would be expected to have, a material adverse effect on the (i) Business Condition, financial or otherwise, or the earnings, business affairs or management of the Buyer, whether or not in the ordinary course of business or (ii) ability of the Buyer to consummate the transactions contemplated hereby. Section 5.3. Conditions to Obligations of Buyer. The obligations of Buyer to ---------------------------------- consummate the Stock Exchange and the other transactions contemplated hereby shall be subject to the fulfillment of the following conditions unless waived by Buyer: (a) The representations and warranties of the Stockholder set forth in Article II of this Agreement shall be true and correct in all respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date except (1) to the extent such representations and warranties are by her express provisions made as of a specified date (which shall be true and correct in all respects as of such date) and (2) for the effect of transactions contemplated by this Agreement except, in each case, where the failure to be true and correct would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the Business Condition of the Company, without regard to materiality qualifications in individual representations and warranties. (b) The Stockholder shall have performed in all material respects each obligation and agreement and shall have complied in all material respects with each covenant to be performed and complied with by her hereunder at or prior to the Closing Date. (c) The Stockholder shall have furnished Buyer with a certificate dated the Closing Date to the effect that the conditions set forth in Sections 5.3(a) and (b) have been satisfied. (d) Company shall have obtained written agreement of World Learning, Inc. to surrender the Centennial Bank irrevocable letter of credit dated October 14, 1997 in exchange for a $200,000.00 payment at Closing or shall have made arrangements with Centennial Bank with respect thereto that are reasonably satisfactory to Buyer. (e) Joseph Stipek shall have entered into the Employment Agreement. Stockholder shall have entered into a non-compete agreement with Buyer substantially in the form attached hereto as Exhibit B. (f) The Stockholder shall have delivered a duly executed resignation letter to the Company with respect to her position as an employee, officer and director of the Company. Any persons designated by Buyer prior to Closing, if any, shall have been appointed to the above-referenced positions. (g) The Stockholder shall have delivered to the Buyer a compiled balance sheet as of August 31, 1998, reviewed by the Company's accountant. (h) Since the date of the Agreement, there shall not have been any event, occurrence, development or circumstances that individually or in the aggregate had, or reasonably would be expected to have, a material adverse effect on the (i) Business Condition, financial or otherwise, or the earnings, business affairs or management of the Comany, whether or not in the ordinary course of business or (ii) ability of the Stockholder to consummate the transactions contemplated hereby. ARTICLE VI INDEMNIFICATION AND ESCROW -------------------------- Section 6.1. Indemnification by the Stockholder. The Stockholder, ---------------------------------- hereby covenants and agrees to indemnify and hold harmless the Buyer and its respective successors and assigns (subject to the notice, timing and amount limitations set forth in this Agreement) against and in respect of any liability, loss, damage, expense or other cost, including without limitation reasonable attorneys' fees and expenses (a "Loss") resulting from any (a) ---- breach of any representation or warranty, or (b) breach or nonfulfillment of any agreement or covenant on the part of the Stockholder with respect to matters occurring before the Closing under this Agreement which survives the Closing. The indemnity provided in this Section 6.1 shall be satisfied by the Stockholder to the extent permitted by this Article VI. Notwithstanding any other provision of this Agreement to the contrary, the term "Loss" shall not include (a) any loss, liability, claim, damage or diminution in value that results from claims that were or would have been covered by the Company's insurance in effect as of the Closing if Buyer causes or permits the Company to terminate such coverage and fails to obtain adequate tail coverage; (b) any loss, liability, claim, damage or diminution in value that is proximately caused by any action of the Company or Buyer following the Closing, or (c) any consequential, incidental or punitive damages; and the term "Loss" shall mean the actual dollar amount of each such Loss and shall not be based on any multiple of such Loss. The remedy provided in this Article VI shall be Buyer's exclusive remedy with respect to Losses arising out of the matters set forth in this Section 6.1; provided nothing herein shall relieve any party for liability for fraud. Buyer grants to the Stockholder and her duly appointed representative the sole right to negotiate, resolve, settle or contest any claim for Tax with respect to which the Stockholder may have to indemnify Buyer under this Article VI; provided, however, that the Stockholder must engage -------- ------- professional advisors approved by Buyer with respect to the foregoing, such approval must not be unreasonably withheld. If the Stockholder does not assume the defense of any such claim for Tax, Buyer may defend the same in such manner as it may deem appropriate, but not settle or otherwise compromise any such audit or proceeding at the expense of the Stockholder without first obtaining the written consent of the Stockholder, such consent must not be unreasonably withheld. Section 6.2. Indemnification by the Buyer. Buyer hereby covenants and agrees ---------------------------- to indemnify and hold harmless the Stockholder, her successors and assigns (subject to the notice and timing requirements and survival and amount limitations provided in this Agreement), against and in respect of any Loss resulting from any (a) breach of any representation or warranty or (b) breach or nonfulfillment of any agreement or covenant on the part of Buyer or any affiliate (including, without limitation, the Company after the Closing) under this Agreement. Buyer shall satisfy any indemnification obligation hereunder with Common Stock of Buyer that qualifies as voting stock for purposes of section 368(a)(1)(B) of the Code and that has a fair market value equal to the amount of such Loss. Section 6.3. Indemnification Procedure. The procedure for indemnification of ------------------------- parties shall be as follows: (a) If at any time a party is entitled to indemnification hereunder (the "Indemnitee") or shall become aware of any state of facts that have resulted or ---------- may result in a Loss, the Indemnitee shall promptly give written notice (a "Notice of Claim") to the party obligated to provide indemnification (the --------------- "Indemnitor") of the discovery of such potential or actual Loss. The Notice of ---------- Claim shall set forth (A) a description of the nature of the potential or actual Loss, and (B) the total amount of Loss anticipated (including any costs or expenses which have been or may be reasonably incurred in connection therewith). Except for a failure to deliver a Notice of Claim within the applicable survival period as provided under Section 7.6 (which failure shall constitute a complete defense) the Indemnitee's failure to give prompt notice shall constitute a defense (in whole or in part) to any claim by the Indemnitee against the Indemnitor for indemnification only to the extent that such failure shall have caused or increased such liability or adversely affected the ability of the Indemnitor to defend against or reduce its liability. (b) The Indemnitor shall accept or reject any Loss as to which a Notice of Claim is sent by the Indemnitee by giving written notice of such acceptance or rejection (the "Indemnitor Notice") to the Indemnitee and the Unaffiliated Firm (defined below) within sixty (60) days after the date of receipt of the Notice of Claim. Failure of the Indemnitor to reject a Loss within 60 days of receipt of the Notice of Claim shall be conclusive evidence of the Indemnitor's acceptance of its responsibility to indemnify the Indemnitee against such Loss. (c) If the Indemnitor elects to reject the claim, the Indemnitor Notice shall set forth a description of the nature of the basis for the rejection of such claim. (d) Should the Indemnitee and the Indemnitor fail to reach a settlement within ten (10) days of the Indemnitor's Notice that the Indemnitor has rejected any loss as provided in Section (b) above, the Indemnitee and Indemnitor shall jointly engage Arthur Anderson LLP or if such firm is unable or unwilling to act in such capacity, KPMG Peat Marwick LLP (the "Unaffiliated Firm"). The ----------------- Unaffiliated Firm shall act as the administrator and exclusive arbitrator with respect to all such claims for indemnity, and all decisions of the Unaffiliated Firm shall be final and binding on the parties hereto. Each of Buyer and Stockholder agrees to execute, if requested by the Unaffiliated Firm, a reasonable engagement letter including customary indemnities. The cost of such Unaffiliated Firm shall be split evenly between the Stockholder and the Buyer. Promptly after the engagement of the Unaffiliated Firm, the parties hereto shall furnish the Unaffiliated Firm with a copy of the Notice of Claim and a copy of this Agreement and the Schedules and Exhibits attached hereto together with a statement and/or analysis of each party's position. The Unaffiliated Firm will have the authority to request in writing such additional written submissions from either the Indemnitor or the Indemnitee, as it deems appropriate. Neither party will communicate with the Unaffiliated Firm without providing the other party a reasonable opportunity to participate in such communication with the Unaffiliated Firm. The Unaffiliated Firm will have thirty (30) days from the date of delivery of the Indemnitor Notice to review the documents provided to it. Upon the expiration of such 30-day period (the "Determination Date") the ------------------ Unaffiliated Firm will simultaneously 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: Barbara S. Stipek 5017 S. W. Orchard Lane Portland, OR 97219 Fax: (503) 452-8494 with a copy to: Tonkon Torp, LLP 1600 Pioneer Tower 888 S. W. Fifth Avenue Portland, OR 97204 Attn: Vicki A. Ballou Fax: (503) 972-3728 Notice to Buyer shall be addressed to: Sylvan Learning Systems, Inc. 1000 Lancaster Street Baltimore, Maryland 21202 Attention: Mr. Robert W. Zentz Facsimile No: (410) 843-8060 with a copy to: Piper & Marbury L.L.P. 36 South Charles Street Baltimore, Maryland 21201 Attention: Richard C. Tilghman, Jr., Esq. Facsimile No: (410) 539-0489 or at such other address and to the attention of such other person as Buyer may designate by written notice to the Company and the Stockholder. Any notice shall be deemed to have been served or given upon receipt. Section 7.10. Successors and Assigns. This Agreement shall be binding upon ---------------------- and inure to the benefit of the parties hereto and their successors and assigns. Neither this Agreement nor any of the rights, interests or obligations shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties and any purported assignment without such consent shall be null and void; provided, that prior to -------- the Closing, the Buyer may assign its rights hereunder to a wholly-owned subsidiary subject to the Stockholder's prior written agreement that she does not believe that such assignment will adversely impact the treatment of the Stock Exchange as a reorganization within the meaning of section 368(a)(1)(B) of the Code or the Tax treatment of the Stock Exchange; and provided, further, that -------- ------- notwithstanding any such permitted assignment, the Buyer shall remain liable for all of the Buyer's obligations under this Agreement. Section 7.11. Interpretation; Absence of Presumption. -------------------------------------- (a) For the purposes hereof, (1) words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires, (2) the terms "hereof," "herein," and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including all of the Schedules hereto) and not to any particular provision of this Agreement, and Article, Section, paragraph, and Schedule references are to the Articles, Sections, paragraphs, and Schedules to this Agreement unless otherwise specified, (3) the word "including" and words of similar import when used in this Agreement shall mean "including, without limitation," unless the context otherwise requires or unless otherwise specified, (4) the word "or" shall not be exclusive, and (5) provisions shall apply, when appropriate, to successive events and transactions. (b) This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting or causing any instrument to be drafted. Section 7.12. Extension; Waiver. At any time prior to the Closing Date, each ----------------- party hereto may but shall not be required to (a) extend the time for the performance of any of the obligations or other acts of the other party, (b) waive any inaccuracies in the representations and warranties of the other party contained herein or in any document, certificate or writing delivered pursuant hereto, or (c) waive compliance by the other party with any of the agreements or conditions contained herein. Any agreement on the part of either party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the parties hereto, and the failure of any party hereto to assert any of its rights hereunder shall not constitute a waiver of such rights absent such instrument in writing. Section 7.13. Validity. If any provision of this Agreement, or the -------- application thereof to any person or circumstance, is held invalid or unenforceable, the remainder of this Agreement, and the application of such provision to other persons or circumstances, shall not be affected thereby, and to such end, the provisions of this Agreement are agreed to be severable. IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of each of the parties as of the day first above written. STOCKHOLDER: SYLVAN LEARNING SYSTEMS, INC. By: - ------------------------------- --------------------------------- Barbara S. Stipek Name: ------------------------------ Title: ------------------------------ EX-5.1 5 OPINION OF PIPER MARBURY EXHIBIT 5.1 ----------- PIPER & MARBURY L.L.P. CHARLES CENTER SOUTH WASHINGTON 36 SOUTH CHARLES STREET NEW YORK BALTIMORE, MARYLAND 21201-3018 PHILADELPHIA 410-539-2530 EASTON FAX: 410-539-0489 November 23, 1998 Sylvan Learning Systems, Inc. 1000 Lancaster Street Baltimore, Maryland 21201 Re: Registration Statement on Form S-3 ---------------------------------- Ladies and Gentlemen: We have acted as counsel to Sylvan Learning Systems, Inc., a Maryland corporation (the "Company"), in connection with its Registration Statement on Form S-3 (the "Registration Statement") filed on the date hereof with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"). The Registration Statement relates to 614,135 shares of the Company's common stock, par value $.01 per share (the "Shares"), which were previously issued by the Company and are being registered for resale by the holders thereof. In this capacity, we have examined the Company's Charter and By-Laws, the proceedings of the Board of Directors of the Company relating to the issuance of the Shares and such other documents, instruments and matters of law as we have deemed necessary to the rendering of this opinion. In such examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, and the conformity with originals of all documents submitted to us as copies. Based upon the foregoing, we are of the opinion and advise you that each of the Shares described in the Registration Statement has been duly authorized and validly issued and is fully paid and nonassessable. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement. In giving our consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act or the Rules and Regulations of the Commission thereunder. Very truly yours, /s/ Piper & Marbury L.L.P. EX-23.1 6 CONSENT OF ERNST AND YOUNG EXHIBIT 23.1 ------------ CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS -------------------------------------------------- We consent to the reference to our firm under the caption "Experts" in the Registration Statement (Form S-3 No. 333-______) of Sylvan Learning Systems, Inc. for the registration of 614,135 shares of its common stock and to the incorporation by reference therein of our report dated July 28, 1998 with respect to the consolidated financial statements of Sylvan Learning Systems, Inc. included in its Current Report on Form 8-K dated July 29, 1998, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Baltimore, Maryland November 20, 1998 EX-23.2 7 CONSENT OF DELOITTE AND TOUCHE EXHIBIT 23.2 ------------ CONSENT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS ------------------------------------------------------ We consent to the incorporation by reference in this Registration Statement of Sylvan Learning Systems, Inc. on Form S-3 of our reports on the financial statements of Independent Child Study Teams, Inc. and I-R, Inc. dated March 14, 1997, appearing in the Form 8-K of Sylvan Learning Systems, Inc. dated July 29, 1998. /s/ DELOITTE & TOUCHE LLP Parsippany, New Jersey November 20, 1998 EX-23.3 8 CONSENT OF DELOITTE & TOUCHE EXHIBIT 23.3 ------------ CONSENT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS ------------------------------------------------------ We consent to the incorporation by reference in this Registration Statement of Sylvan Learning Systems, Inc. on Form S-3 and the Prospectus, which is part of this Registration Statement, of our report dated July 27, 1998, with respect to the consolidated financial statements of Anglo-World Education (UK) Limited and Subsidiaries included in Sylvan Learning Systems, Inc.'s Current Report on Form 8-K dated July 29, 1998. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ DELOITTE & TOUCHE Southampton United Kingdom November 20, 1998 EX-23.4 9 CONSENT OF SMITH, LANGE & PHILLIPS EXHIBIT 23.4 ------------ CONSENT OF SMITH, LANGE & PHILLIPS LLP, INDEPENDENT AUDITORS ------------------------------------------------------------ We consent to the reference to our firm under the caption "Experts" and to the use of our reports listed below, with respect to the financial statements of Aspect, Inc. included in the Registration Statement (Form S-3 No. 333- ___________) and related Prospectus of Sylvan Learning Systems, Inc. for the registration of 614,135 shares of its common stock.
Fiscal Year Report Dated - -------------------- ----------------- September 30, 1995 June 11, 1998 September 30, 1996 December 10, 1996 September 30, 1997 December 7, 1997
COMPANY NAME: Smith, Lange & Phillips LLP /s/ Smith, Lange & Phillips LLP COUNTRY: U.S.A. DATE: November 20, 1998 -----END PRIVACY-ENHANCED MESSAGE-----