-----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, LBA4cO1BUfzLzpeDVSXnTwU3W5Jgy7/ASItM662cr9+QF585an33PhE90rhFmynK 9mMw6ZOdsWv5CHmyeDpCZA== 0000928385-98-000309.txt : 19980225 0000928385-98-000309.hdr.sgml : 19980225 ACCESSION NUMBER: 0000928385-98-000309 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19980223 SROS: NASD 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: 333-46747 FILM NUMBER: 98547698 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 Commission on February 23, 1998 Registration No. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- FORM S-3 REGISTRATION STATEMENT Under The Securities Act of 1933 -------------------------- SYLVAN LEARNING SYSTEMS, INC. (Exact name of registrant as specified in its charter) MARYLAND 52-1492296 (State of Incorporation) (I.R.S. Employer Identification No.) 1000 Lancaster Street Baltimore, Maryland 21202 (410) 843-8000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Douglas L. Becker President, Co-Chief Executive Officer and Secretary Sylvan Learning Systems, Inc. 1000 Lancaster Street Baltimore, Maryland 21202 (410) 843-8000 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies of all communications, including all communications sent to the agent for service, should be sent to: Richard C. Tilghman, Jr., Esquire Piper & Marbury L.L.P. 36 South Charles Street Baltimore, Maryland 21201 (410) 539-2530 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box: [_] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered in connection with dividend or interest reinvestment plans, check the following box: [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: [_] CALCULATION OF REGISTRATION FEE
================================================================================================================ Title of Shares to be Registered Proposed Maximum Aggregate Offering Price Amount of Registration Fee - ---------------------------------------------------------------------------------------------------------------- Common Stock, $.01 par value $25,775,412 $7,604 ================================================================================================================
(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 February 23, 1998 PROSPECTUS 660,908 Shares SYLVAN LEARNING SYSTEMS, INC. Common Stock ----------- The shares of Common Stock of Sylvan Learning Systems, Inc. (the "Company") covered by this Prospectus are outstanding shares which may be offered and sold from time to time by the stockholders named herein. See "Selling Stockholders." The Company will not receive any proceeds from the sale of the shares by the Selling Stockholders. The Common Stock is quoted on the Nasdaq National Market under the symbol "SLVN." On February 20, 1998 the last sale price for the Common Stock as reported on the Nasdaq Stock Market was $40.125 per share. The Selling Stockholders may from time to time sell shares of the Common Stock offered hereby in transactions on the Nasdaq Stock Market, in privately- negotiated transactions or otherwise, in each case at negotiated prices. See "Plan of Distribution." The brokers or dealers through or to whom the shares of Common Stock covered hereby may be sold may be deemed "underwriters" within the meaning of the Securities Act of 1933, in which event all brokerage commissions or discounts and other compensation received by such brokers or dealers may be deemed underwriting compensation. ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ----------- The date of this Prospectus is , 1998. [Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.] AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Reports, proxy statements and other information filed by the Company with the Commission, including the reports and other information incorporated by reference into this Prospectus, can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at its regional offices located at 7 World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can also be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at rates prescribed by the Commission or from the Commission's Internet web site at http:\\www.sec.gov. The Common Stock of the Company is quoted on the Nasdaq National Market. Reports, proxy statements and other information concerning the Company can be inspected at the offices of the Nasdaq Stock Market, 1735 K Street, Washington, D.C. 20006. This Prospectus does not contain all the information set forth in the Registration Statement of which this Prospectus is a part and exhibits relating thereto which the Company has filed with the Commission. Copies of the information and exhibits are on file at the offices of the Commission and may be obtained, upon payment of the fees prescribed by the Commission, may be examined without charge at the offices of the Commission or through the Commission's Internet web site. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by the Company with the Commission (File No. 0-22844) pursuant to the 1934 Act are incorporated herein by reference: (i) the Company's Annual Report on Form 10-K for the year ended December 31, 1996, as amended by its Annual Report on Form 10-K/A (with Items 6, 7 and 8 thereof having been superseded by the information contained in the Company's Current Report on Form 8-K dated July 15, 1997), (ii) the Company's Current Report on Form 8-K and 8-K/A dated January 28, 1997, relating to the Company's acquisition of Wall Street Institute; (iii) the Company's Current Report on Form 8-K/A dated March 12, 1997, relating to the termination of the Company's Merger Agreement with National Education Corporation; (iv) the Company's Current Report on Form 8-K and 8-K/A dated April 17, 1997 and May 30, 1997, relating to the Company's acquisition of I-R, Inc. and Independent Child Study Teams, Inc. (collectively, "Educational Inroads"); (v) the Company's Current Report on Form 8-K dated July 15, 1997, restating certain historical financial information to reflect the acquisition of Educational Inroads; (vi) the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997; June 30, 1997; and September 30, 1997; (vii) the description of Common Stock contained in Item 4 of the Company's Registration Statement on Form 8-A, filed with the Commission under the 1934 Act; and (viii) all other documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the 1934 Act subsequent to the date of filing of the Registration Statement of which this Prospectus is a part and prior to the termination of the offering made hereby. The Company will provide without charge to each person to whom a copy of this Prospectus is delivered, upon the request of any such person, a copy of any or all of the documents which have been incorporated herein by reference, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference into such documents). Requests for such documents should be directed to Sylvan Learning Systems, Inc., 1000 Lancaster Street, Baltimore, Maryland 21202, Attention: Chief Financial Officer, telephone: (410) 843-8000. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. -2- THE COMPANY Sylvan Learning Systems, Inc. (the "Company" or "Sylvan") is a leading international private provider of educational and testing services. The Company delivers a broad array of supplemental and remedial educational services and computer-based testing through three principal divisions. The Core Educational Services division designs and delivers individualized tutorial services to school-age children and adults at 669 franchised and Company-owned Sylvan Learning Centers. Sylvan Prometric, the Company's testing services division, administers computer-based tests for major organizations, corporations, professional associations and governmental agencies through its worldwide network of Testing Centers. The Contract Educational Services division provides Sylvan's core educational services under federal and state funding programs to more than 12,000 students in 89 public schools and more than 38,000 students in 507 non-public schools (including Educational Inroads) and provides on-site educational and training services to employees of large corporations. Since 1994, the Company has substantially expanded its business through a combination of internal growth and acquisitions and has increased revenue and operating income from $68.7 million and $3.4 million, respectively, in 1994 to $181.9 million and $22.7 million, respectively, in 1996. Sylvan's 1996 systemwide revenues were approximately $310.3 million, consisting of $165.1 million from core educational services ($139.5 million from franchised Learning Centers and $25.6 million from Company-owned Learning Centers, product sales and franchise sales fees), $87.0 million from testing services and $58.2 million from contract educational services. Core Educational Services. The Company's Core Educational Services division provides supplemental instruction in reading, mathematics and reading readiness and features 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, 1997, the Company or its franchisees operated 669 Learning Centers in 49 states, five Canadian provinces, Hong Kong, South Korea and Guam, with 403 franchisees owning and operating 628 Sylvan Learning Centers and Sylvan owning and operating 41 Learning Centers. Sylvan Prometric Testing Services. As of September 30, 1997, Sylvan or its authorized representatives operated 1,908 Testing Centers, 1,207 of which were located in North America and the remainder in 97 foreign countries. The Company enters into contracts directly with various professional licensure, educational and information technology ("IT") businesses, organizations and agencies, under which Sylvan receives a fee based upon the number of tests given for those customers. Principal customers for the Company's testing services are Educational Testing Services ("ETS") and, in the IT industry, Microsoft Corp. and Novell, Inc. IT customers sponsor worldwide certification programs for various professionals such as network administrators and engineers, service technicians and instructors. Sylvan has been designated as the exclusive commercial provider of computer-based tests administered by ETS (excluding the SAT and PSAT) and operates 47 testing centers in 33 countries to facilitate delivery of international testing for ETS. The Company also provides testing services for organizations responsible for licensing broker-dealers, pilots, aviation mechanics, computer professionals and medical laboratory technicians. Through the Company's December 1996 acquisition of Wall Street Institute International B.V. and its affiliates ("Wall Street"), Sylvan now provides live and computer-based English instruction and testing in Europe and Latin America through a network of more than 180 franchised and Company-owned centers. Contract Educational Services; PACE; Sylvan-at-Work; Caliber Learning Network, Inc. Sylvan provides educational services under federal and various state funding programs to students in 89 public and 507 non-public schools. Sylvan 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 ("PACE"), and the Company's Sylvan-at-Work program. In November 1996, Caliber Learning Network, Inc. was formed as a joint initiative of Sylvan and MCI Telecommunications Corporation to become a worldwide distribution network of professional education centers equipped with satellite-based video conferencing and computer network capabilities. Sylvan currently owns a 10 percent interest in Caliber Learning Network and has the option to acquire a majority interest in the future. -3- The Company's principal executive offices are located at 1000 Lancaster Street, Baltimore, Maryland 21202, and its telephone number is (410) 843-8000. USE OF PROCEEDS All of the proceeds from the sale of the shares of the Company's Common Stock offered hereby will be received by the Selling Stockholders. The Company will receive none of the proceeds from the sale of the shares of Common Stock offered hereby. -4- SELLING STOCKHOLDERS The following table sets forth information regarding the beneficial ownership of the Company's Common Stock by the person listed therein (the "Selling Stockholders") prior to this offering, the maximum number of shares of Common Stock to be sold by the Selling Stockholders hereby, and the beneficial ownership of the Company's Common Stock by the Selling Stockholders after this offering, assuming that all shares of Common Stock offered hereby are sold.
Shares Beneficially Shares Beneficially Owned Prior to Offering Shares To Owned After Offering ------------------------- Be Sold In -------------------------- Name and Address of Beneficial Owner Number Percent Offering Number Percent ========================================= ============ =========== ============ ============ ============ Block Testing Services L.P(1).......... 471,622 1.6% 471,622 -- -- 650 Dundee Road, Suite 370 Northbrook, IL 60062 Dr. James A. Bax(2).................... 86,410 ** 86,410 -- -- Dr. Anthony W. Mitchell(2)............. 42,434 ** 42,434 -- -- Sue J. Mitchell(2)..................... 42,435 ** 42,435 -- -- Leslie Zalk............................ 5,186 ** 5,186 -- -- 507 Morning Canyon Road Carona Del Mar, CA 92625 Kathleen Gillan........................ 1,765 ** 1,765 -- -- 4110 Apricot Irvin CA 92620 Carleen Garza.......................... 2,207 ** 2,207 -- -- 575 North Ramprt Way Denver, CO 80220 Evelyn M. Tuey......................... 1,765 ** 1,765 -- -- 3829 Sheffield Circle Danville, CA 92526 Stephanie Thomas....................... 1,103 ** 1,103 -- -- 3112 Quail Run Rossmoor, CA 90720 Merida M. Phillips..................... 883 ** 883 -- -- 2955 Champion, #295 Justin CA 92782 Kay L. Bennett......................... 574 ** 574 -- -- 6332 Silverood Drive Huntington Beach, CA 92647 Patricia McSwain....................... 2,074 ** 2,074 -- -- 10 Evening Breeze Irvine, CA 92612 Harold Sakayan......................... 2,450 ** 2,450 -- -- 8813 Belmart Road Potomac, MD 20854
-5- - -------------- * Less than 1%. (1) The general partner of this holder is Registry Testing Services L.L.C. ("Registry LLC"). The members of Registry LLC are Messrs. Steven Taslitz, Eric Becker and Merrick Elfman (managing member). Each of the members of Registry LLC disclaims beneficial ownership of the shares of Common Stock of the Company owned by the holder. Mr. Becker is the brother of Douglas L. Becker, the President and Co-Chief Executive Officer of the Company. (2) The address of this holder is c/o of Harold W. Mullis, Jr., Esquire, Trenam Kemker, 2700 Barnett Plaza, 101 East Kennedy Boulevard, Tampa, Florida 33601. Pursuant to an asset purchase agreement, dated as of December 1, 1997, by and among Block Testing Services L.P. ("Block"), Block State Testing Services L.P. ("Block State") and the Company (the "Block Agreement"), the Company acquired all of the assets and certain liabilities of Block and Block Stock in exchange for the issuance to Block of 315,669 shares of Common Stock of the Company and the issuance to Dr. James A. Bax, Dr. Anthony W. Mitchell and Sue J. Mitchell (the "Block Debtholders") of an aggregate of 171,279 shares of Common Stock of the Company, all of which are being offered in this Prospectus, as required by the Block Agreement. None of the Block Debtholders nor any of their affiliates is an officer, director, employee or affiliate of the Company. Pursuant to an agreement and plan of reorganization dated as of December 1, 1997 by and among Block, National Assessment Institute, Inc. ("NAI"), NAI Merger Corp. and the Company (the "NAI Merger Agreement"), the Company acquired from Block all of the outstanding stock of NAI in exchange for the issuance to Block of an aggregate of 155,953 shares of Common Stock of the Company, all of which are being offered in this Prospectus, as required by the NAI Merger Agreement. Pursuant to an Agreement for Purchase of Stock, effective as of October 1, 1997 (the "PMZ Agreement"), by and among the Company and Leslie Zalk, Kathleen Gillan, Carleen Garza, Evelyn M. Tuey, Stephanie Thomas, Merida M. Phillips, Kay L. Bennett and Patricia McSwain (collectively, the "PMZ Stockholders"), the Company acquired from the PMZ Stockholders 75% of the issued and outstanding capital stock of PMZ, Inc. ("PMZ") in exchange for the issuance to the PMZ Stockholders of an aggregate of 15,557 shares of Common Stock of the Company. The Company already held 25% of the PMZ capital stock prior to the consummation of the PMZ Agreement. All of the shares of Common Stock of the Company issued to the PMZ Stockholders pursuant to the PMZ Agreement are being offered in this Prospectus, as required by the PMZ Agreement. None of the PMZ Stockholders nor any of their affiliates is an officer, director, employee or affiliate of the Company. Pursuant to an Agreement for Purchase of Operating Sylvan Learning Center from VCM, Inc. ("VCM"), dated September 30, 1997 (the "VCM Agreement"), by and between the Company and VCM, the Company acquired all of the issued and outstanding shares of capital stock of VCM in exchange for the issuance to VCM's sole stockholder, Harold Sakayan (the "VCM Stockholder" and, together with Block, the Block Debtholders and the PMZ Stockholders, the "Selling Stockholders"), of an aggregate of 2,450 shares of Common Stock of the Company. All of the shares of Common Stock issued to the VCM Stockholder pursuant to the VCM Agreement are being offered in this Prospectus, as required by the VCM Agreement. Neither the VCM Stockholder nor any of his affiliates is an officer, director, employee or affiliate of the Company. PLAN OF DISTRIBUTION The Company's Common Stock is quoted on the Nasdaq National Market under the symbol "SLVN." The Shares may be sold from time to time by the Selling Stockholders directly or through broker-dealers or underwriters who may act solely as agents, or who may acquire the Shares 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 -6- combination of any such methods of sale, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. Usual and customary or specially negotiated brokerage fees or commissions may be paid by the Selling Stockholders in connection with such sales. The Company will not bear any commissions or discounts paid or allowed by the Selling Stockholders to underwriters, dealers, brokers or agents. To the extent required, the specific shares of Common Stock to be sold, purchase price, public offering price, the names of any such agent, dealer or underwriter and any applicable commission or discount with respect to a particular offering may be set forth in an accompanying Prospectus Supplement. The Company has agreed to bear the cost of preparing the Registration Statement of which this Prospectus is a part and all filing fees and legal and accounting expenses in connection with registration of the shares of Common Stock offered by the Selling Stockholders hereby under federal and state securities laws. LEGAL MATTERS The legality of the shares offered hereby has been passed upon for the Company by Piper & Marbury L.L.P., Baltimore, Maryland. EXPERTS The consolidated financial statements and schedule of Sylvan Learning Systems, Inc. at December 31, 1996 and 1995 and for each of the three years in the period ended December 31, 1996, incorporated by reference in this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein also 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 year 1994, is based in part on the report of Canterelli & Vernoia, CPAs, independent auditors. Such consolidated financial statements have been incorporated herein by reference in reliance upon such reports given upon the authority of such firms as experts in accounting and auditing. -7- =============================================================================== No person has been authorized by the Company 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 given or made, such information or representations may not be relied upon as having been authorized by the Company. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities in any jurisdiction in which such offer or solicitation is not authorized, or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation. Neither the delivery of this Prospectus nor any sale made hereunder shall create an implication that there has been no change in the affairs of the Company since the date hereof. -----------------------------
TABLE OF CONTENTS PAGE - ---- Available Information..............................2 Incorporation of Certain Documents by Reference...........................2 The Company........................................3 Use of Proceeds....................................4 Selling Stockholders...............................5 Plan of Distribution...............................6 Legal Matters......................................7 Experts............................................7
================================================================================ 660,908 Shares SYLVAN LEARNING SYSTEMS, INC. Common Stock PROSPECTUS ,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. The Company will pay all expenses of the offering. All of such expenses are estimates, other than the filing fees payable to the Securities and Exchange Commission.
Filing Fee-Securities and Exchange Commission.................$ 7,604.00 Nasdaq National Market Listing Fees........................... 11,490.00 Fees and Expenses of Counsel.................................. 6,000.00 Miscellaneous Expenses........................................ 23,000.00 ---------- TOTAL........................................................$48,094.00 ==========
Item 15. Indemnification of Directors and Officers. The Company's Charter provides that, to the fullest extent that limitations on the liability of directors and officers are permitted by the Maryland General Corporation Law, no director or officer of the Company shall have any liability to the Company or its stockholders for monetary damages. The Maryland General Corporation Law provides that a corporation's charter may include a provision which restricts or limits the liability of its directors or officers to the corporation or its stockholders for money damages except: (1) to the extent that it is provided that the person actually received an improper benefit or profit in money, property or services, for the amount of the benefit or profit in money, property or services actually received, or (2) to the extent that a judgment or other final adjudication adverse to the person is entered in a proceeding based on a finding in the proceeding that the person's action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding. The Company's Charter and By-laws provide that the Company shall indemnify and advance expenses to its currently acting and its former directors to the fullest extent permitted by the Maryland General Corporation Law and that the Company shall indemnify and advance expenses to its officers to the same extent as its directors and to such further extent as is consistent with law. The Charter and By-laws provides that the Company will indemnify its directors and officers and may indemnify employees or agents of the Company to the fullest extent permitted by law against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Company. In addition, the Company's Charter provides that its directors and officers will not be liable to stockholders for money damages, except in limited instances. However, nothing in the Charter or By-laws of the Company protects or indemnifies a director, officer, employee or agent against any liability to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. To the extent that a director has been successful in defense of any proceeding, the Maryland General Corporation Law provides that he shall be indemnified against reasonable expenses incurred in connection therewith. II-1 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 Asset Purchase Agreement by and among Sylvan Learning Systems, Inc., Block Testing Services L.P. and Block State Testing Services L.P, dated as of December 1, 1997 4.3 Agreement and Plan of Reorganization by and among Sylvan Learning Systems, Inc., Block Testing Services L.P., National Assessment Institute, Inc. and NAI Merger Corp, dated as of December 1, 1997 4.4 Agreement for the Purchase of Stock by and among Sylvan Learning Systems, Inc. and the Stockholders of PMZ, Inc., dated as of October 1, 1997 4.5 Agreement for Purchase of Operating Sylvan Learning Center from VCM, Inc. by and between VCM, Inc. and Sylvan Learning Systems, Inc., dated as of September 30, 1997 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 Canterelli and Vernoia, CPAs 23.4 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), filed on September 28, 1993. ** Incorporated by reference from the Company'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 II-2 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. II-3 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 February, 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 February 23, 1998 R. Christopher Hoehn-Saric (Principal Executive Officer) /s/ Douglas L. Becker - -------------------------------------- Co-Chief Executive Officer February 23, 1998 Douglas L. Becker President, Secretary and Director /s/ B. Lee McGee - -------------------------------------- Chief Financial Officer (Principal February 23, 1998 B. Lee McGee Financial and Accounting Officer) /s/ Donald V. Berlanti - -------------------------------------- Director February 23, 1998 Donald V. Berlanti - -------------------------------------- Director February 23, 1998 R. William Pollock Director February 23, 1998 - -------------------------------------- J. Phillip Samper - -------------------------------------- Director February 23, 1998 Nancy A. Cole /s/ James H. McGuire - -------------------------------------- Director February 23, 1998 James H. McGuire /s/ Rick Inatome - -------------------------------------- Director February 23, 1998 Rick Inatome
II-4 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 Asset Purchase Agreement by and among Sylvan Learning Systems, Inc., Block Testing Services L.P. and Block State Testing Services L.P, dated as of December 1, 1997 4.3 Agreement and Plan of Reorganization by and among Sylvan Learning Systems, Inc., Block Testing Services L.P., National Assessment Institute, Inc. and NAI Merger Corp, dated as of December 1, 1997 4.4 Agreement for the Purchase of Stock by and among Sylvan Learning Systems, Inc. and the Stockholders of PMZ, Inc., dated as of October 1, 1997 4.5 Agreement for Purchase of Operating Sylvan Learning Center from VCM, Inc. by and between VCM, Inc. and Sylvan Learning Systems, Inc., dated as of September 30, 1997 5.1 Opinion of Piper & Marbury LLP 23.1 Consent of Ernst & Young LLP. 23.2 Consent of Deloitte & Touche LLP 23.3 Consent of Canterelli & Vernoia, CPAs 23.4 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), filed on September 28, 1993. ** Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1996. II-5 EX-4.2 2 ASSET PURCHASE AGREEMENT EXHIBIT 4.2 ----------- ASSET PURCHASE AGREEMENT ------------------------ THIS ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of the 1st day of December, 1997, by and among SYLVAN LEARNING SYSTEMS, INC., a Maryland corporation ("Buyer"), BLOCK TESTING SERVICES L.P., a Delaware limited partnership ("Block") and BLOCK STATE TESTING SERVICES L.P., a Delaware limited partnership ("Block State"; and, together with Block, the "Companies"). R E C I T A L S: - - - - - - - - WHEREAS, the Companies are engaged in the business of designing, marketing, selling, distributing and administering paper and pencil tests and the licensing of individuals thereto (the "Business"); and WHEREAS, Buyer desires to acquire, and Sellers desire to sell, the Assets (as described on Schedule A, attached hereto), for a purchase price which is established herein, all upon the terms and conditions hereinafter set forth. NOW, THEREFORE, and in consideration of the mutual premises and representations, warranties and covenants and other good and valuable consideration, the receipt and sufficiency of which being acknowledged, the parties agree as follows: 1. SALE AND PURCHASE. On the Closing Date (as defined in Section 4 ----------------- hereof), in reliance on the representations, warranties, and agreements of the parties, and on the terms and subject to the conditions set forth herein, the Companies shall sell, convey, transfer, assign and deliver to Buyer, the Assets, free and clear of all Encumbrances (as defined in Section 5B hereof), except for those Encumbrances arising in connection with the Assumed Liabilities (as defined below). The Assets shall not include those assets identified on Schedule B, attached hereto (the "Excluded Assets"). Buyer is not assuming any liability or obligation of the Companies of any nature whatsoever, except as expressly set forth in Schedule C hereto (the "Assumed Liabilities"). The Companies shall remain liable and responsible for all obligations and liabilities not expressly assumed by Buyer hereunder. 2. PURCHASE PRICE. The purchase price (the "Purchase Price") for -------------- the Assets shall be Three Hundred Fifteen Thousand Six Hundred Sixty-nine (315,669) shares of Buyer's common stock, $0.01 par value (collectively, the "SLS Stock"). Within ten (10) days after the Closing Date, but not before January 1, 1998, Buyer shall deliver certificates representing an additional aggregate of 171,279 shares of SLS Stock to Dr. James A. Bax, Dr. Anthony W. Mitchell and Sue J. Mitchell, as directed by such persons' counsel. Buyer will also indemnify and hold the Companies harmless from any liability or obligation of any nature arising out of the promissory notes issued to Laura Jane Bax and James A. Bax by NAI Merger Corp., and guaranteed by Block. No fractional shares of SLS Stock, and no cash in lieu thereof, shall be issued or delivered in connection with the transactions contemplated by this Agreement. When issued, the SLS Stock will be fully paid and non-assessable. Notwithstanding anything herein to the contrary, Buyer shall use its best efforts to file, by March 31, 1998, a registration statement on Form S-3 covering the sale from time to time of the SLS Stock, and shall use its best efforts to cause the Registration Statement to become effective and to maintain its effectiveness until the earlier of (i) such time as all of the SLS Stock has been sold pursuant thereto and (ii) such time as the SLS Stock is eligible for transfer without restriction pursuant to Rule 144(k) under the Securities Act of 1933, as amended (the "1933 Act") as if not held by an affiliate of Buyer. Buyer will also furnish to Block with respect to the SLS Stock so registered under the Registration Statement such number of copies of prospectuses and preliminary prospectuses in conformity with the 1 requirements of the 1933 Act and such other documents as Block may reasonably request in order to facilitate the public sale or other disposition of all or any of the SLS Stock by Block, provided, however, that the obligation of Buyer to deliver copies of prospectuses or preliminary prospectuses to Block shall be subject to the receipt by Buyer of reasonable assurances from Block that Block will comply with the applicable provisions of the 1933 Act and of such other securities or blue sky laws as may be applicable in connection with any use of such prospectuses or preliminary prospectuses. Buyer will file documents required of Buyer to register or qualify under the securities or blue sky laws for Block to offer and sell the SLS Stock in all states reasonably requested, provided, however, that Buyer shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so qualified or has not so consented. Buyer shall promptly notify Block of the happening of any event of which Buyer has knowledge which results in the prospectus included in the registration statement, if any, containing an untrue statement of a material fact or omitting to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and Buyer will use its best efforts to prepare a supplement or amendment to the registration statement to correct such untrue statement or omission, and deliver a number of copies of such supplement or amendment to Block as may be reasonably requested. Buyer will notify Block of the issuance by the Securities and Exchange Commission ("SEC") of any stop order or other suspension of effectiveness of the registration statement at the earliest possible time. Buyer will permit Block's counsel to review the registration statement and all amendments and supplements thereto, at Block's cost, for a reasonable period time prior to Buyer's filing with the SEC. Buyer shall bear all expenses in connection with the obligations described in this Section and the registration of the SLS Stock pursuant to a registration statement, including registration, listing and filing fees and expenses of complying with the securities and blue sky laws, brokerage commissions, placement agent fees, underwriting discounts and fees and expenses, if any, of counsel or other advisers to Buyer and Block only as the same applies to the registration contemplated by this Section; provided, however, that such fees and expenses shall not include brokerage commissions incurred by Block upon the sale of any of the SLS Stock. Other than as described in this Section, Buyer is under no other obligations to (i) register any of the SLS Stock on behalf of Block under the 1933 Act (ii) conduct, arrange or coordinate any distribution of the SLS Stock, (iii) retain any underwriters in connection with the negotiation and/or distribution of the SLS Stock or (iv) assist Block in complying with any exemption from registration of the SLS Stock under the 1933 Act. At all times that any of the SLS Stock remains outstanding, Buyer shall comply with the requirements of Rule 144 under the 1933 Act regarding the availability of current public information to the extent required to enable any holder of SLS Stock to sell such shares without registration under the 1933 Act pursuant to Rule 144. The Purchase Price shall be allocated for Federal Income Tax purposes among the Assets in accordance with Exhibit 1, and each party agrees that, to the extent permitted by law, it or he shall account for the sale of the Assets in a manner consistent with such allocation. 3. PAYMENT OF PURCHASE PRICE. In full consideration for the ------------------------- purchase and sale of the Assets pursuant to this Agreement, on January 5, 1998, Buyer shall pay to Block the entire Purchase Price. 4. CLOSING. The consummation of the transactions contemplated ------- hereby (the "Closing") shall take place within five (5) days after all conditions precedent have been satisfied, but not later than December 31, 1997, at 9:00 A.M. (the "Closing Date") at Buyer's offices, or otherwise, on such other date or place as the parties hereto may mutually agree. The Closing shall be deemed to be effective for financial accounting purposes at 8:00 a.m. on December 1, 1997. 5. THE COMPANIES' REPRESENTATIONS, WARRANTIES, COVENANTS AND --------------------------------------------------------- AGREEMENTS. Each of the Companies hereby jointly and severally, with each - ----------- other, represents and warrants to, covenants and agrees with, Buyer, now and as of the Closing Date, as follows: a. Organization, Standing and Power. Each of Block and Block -------------------------------- State is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware. The federal 2 employer identification numbers, state identification numbers for sales and tax purposes and all similar identification numbers for each of the Companies have been delivered to Buyer. Each of the Companies has all requisite power and authority to own, lease and operate the Assets owned by each and to carry on the Business as now being conducted in the manner that, and in the places in which, the Business is now being conducted. Neither of the Companies conducts any business or owns or leases any asset or property of any nature outside of the United States. Each of the Companies has the full power and authority and legal capacity to enter into and deliver this Agreement, sell the Assets and perform all other acts necessary or appropriate to consummate all of the transactions contemplated hereby. b. Capital Structure; Ownership of Assets and Related Matters. ---------------------------------------------------------- i. All of the issued and outstanding limited partnership interests in Block State are owned by Block, both beneficially and of record, and all of the issued and outstanding general partnership interests in Block State are owned by Block State Testing Services, Inc., a Delaware corporation, the issued and outstanding capital stock of which is owned by Block, and there are no options or similar rights outstanding with respect to such interests and stock. Each of Block and Block State has and will have, at Closing, good and marketable title to, or a valid and transferable leasehold interest in, all of the Assets, except for such Assets as may be sold or otherwise disposed of between the date hereof and the Closing Date in the ordinary course of business. No other "Person" (as defined in Section 15 hereof) has any fee, leasehold or equitable interest in and to the Assets owned by such party, except as disclosed to Buyer. Except for those Encumbrances arising in connection with the Assumed Liabilities, when delivered to Buyer, the Assets will be free and clear of all the following (hereinafter collectively referred to as "Encumbrances") other than liens arising pursuant to the Assumed Liabilities: security interests, liens, pledges, claims, charges, escrows, encumbrances, options, rights of first refusal, mortgages, indentures, security agreements or other agreements, arrangements, contracts, commitments, understandings or obligations, whether written or oral, encumbering title in any way, other than the Encumbrances created hereby. ii. Intentionally Left Blank. iii. Except as set forth above in Section 5B(i), Block's ownership of National Assessment Institute, Inc., a Florida corporation ("NAI"), and as fully disclosed in the chart attached, neither Block nor Block State owns, and has ever owned, shares of any class of capital stock of any other corporation and does not have any interest in any other entity and there are no contracts, commitments, agreements, understandings or arrangements relating to such. iv. Neither of the Companies has ever assumed or succeeded to the liabilities of any Person, whether by operation of law or otherwise, except in connection with the acquisition of the stock of NAI and the business assets of H.H. Block & Associates, Inc. ("HHB"). Neither of the Companies has ever been known by any other name and neither has or does business under any other name. NAI has never been known by any other name and has or does not do business under any other name, except for "ACSI". The Companies have never been known by any other name and have or do not do business under any other name, except for "Block & Associates." v. Except for sales of products and services in the ordinary course of business, and the rights of Buyer hereunder, there are no outstanding options, warrants or rights to purchase or acquire any interest in any of the Assets. Except for this Agreement, there are no contracts, commitments, agreements, understandings, arrangements or restrictions relating to the ownership or operation of any of the Assets. vi. The Assets constitute all of the property necessary for the conduct of the Business in the manner in which and to the extent to which it is currently being conducted. vii. The Assets do not include any interest of any nature in any parcel of real property, except for the fixtures, leasehold improvements and leases delivered to Buyer (collectively, the "Real Estate"). 3 c. Authorization. This Agreement and all writings relating ------------- hereto to be executed and delivered by each of the Companies have been duly authorized by all necessary action and constitute the valid and binding obligations of each, enforceable in accordance with their respective terms. The individuals executing this Agreement and the other documents executed in connection herewith individually and on behalf of each of the Companies have been duly authorized and have the legal capacity to execute all of such documents in such capacities. Neither the execution and delivery hereof nor any writing relating hereto nor the consummation by either of the Companies of the transactions contemplated hereby or thereby, nor compliance with any of the provisions hereof or thereof, will: (i) conflict with or result in a material breach of either of the Companies' charter or formation documents; (ii) violate in any material respect any statute, law, rule or regulation or any order, writ, injunction or decree of any court or governmental authority; or (iii) violate or conflict with or constitute a default in any material respect under (or give rise to any right of termination, modification, cancellation or acceleration under), any agreement or writing of any nature to which either of the Companies is a party or by which the Assets may be bound or affected, or result in the creation of any Encumbrance against or upon any of the Assets under any agreement or writing to which either of the Companies is a party or by which any of them or their respective assets may be bound or affected, or (iv) impair or in any way limit any governmental or official license, approval, permit or authorization of either of the Companies; provided, however that the Companies and NAI hereby state, and Buyer acknowledges, that the transfer of the contracts held by each may be subject to immediate termination because of the transfer contemplated hereby. Except as disclosed to Buyer, including the consent of the customers of the Companies which have a written contract with either, no consent or approval of or notification to any Person is necessary or required in connection with the execution and delivery by either of the Companies of this Agreement or any writing relating hereto or the consummation of the transactions contemplated hereby or thereby. d. Financial Statements. -------------------- i. The Companies have delivered to Buyer the consolidated balance sheets and the related statements of income, changes in shareholders' equity and changes in shareholders' equity and changes in financial position of both of the Companies, and the notes thereto and the auditor's report thereon, if applicable, as at and for the fiscal year ended December 31, 1996 (collectively, the "Historical Financials"). The Historical Financials are true, correct and complete and present fairly the financial position of the Companies and the results of their operations, retained earnings and changes in financial positions as at the dates thereof and for the periods covered thereby, do not include or omit to state any material fact which renders them misleading, and have been prepared in conformity with generally accepted accounting principles applied on a consistent basis, except as may be disclosed in the reports relating thereto. At the Closing, the Companies and NAI shall deliver to Buyer a consolidated balance sheet dated as of November 30, 1997 (the "Closing Balance Sheet") based on the best knowledge and good faith of the Companies, which shall be prepared on a basis consistent with the Historical Financials and in accordance with the provisions hereof. ii. Except as indicated to Buyer, the statements of income included in the Historical Financials do not contain any items of special or nonrecurring income, and the balance sheets included in the Historical Financials do not, and the Closing Balance Sheet will not reflect any write-up or revaluation increasing the book value of any asset. e. Liabilities. ----------- i. Except as disclosed therein, the liabilities on the Historical Financials consisted, and the liabilities on the Closing Balance Sheet will consist, solely of obligations and liabilities incurred by the Companies either (A) in the ordinary and regular course of Business to Persons which are not affiliated with the Companies, or (B) in connection with the purchase by the business of NAI and HHB. ii. As of November 30, 1997 in connection with the Business, neither of the Companies or NAI will have, any liability or obligation of any nature whatsoever, including, without limitation, known or unknown, fixed or contingent, accrued, absolute, matured or unmatured, or any "loss contingencies" 4 considered "probable" or "reasonably possible" within the meaning of the Financial Accounting Standards Board's ("FASB") Statement of Financial Accounting Standards No. 5, which were not or will not be recorded on the Historical Financials or the Closing Balance Sheet, as the case may be, or (in the case of liabilities not required to be recorded on such financial statements in accordance with generally accepted accounting principles applied on a consistent basis) specifically disclosed in the footnotes to the Closing Balance Sheet or otherwise disclosed to Buyer. iii. All reserves and allowances included or to be included in the Historical Financials and the Closing Balance Sheet are, and will be, adequate, appropriate and reasonable (in accordance with generally accepted accounting principles), as has been required by the Companies' outside auditors. f. Absence of Changes. Except as otherwise indicated to Buyer ------------------ on Schedule 5F, attached hereto, the Business has been operated only in the ordinary and regular course and there has not been, since June 30, 1997 and through the Closing Date there will not be, with respect to each of the Companies and NAI and with respect to the Business: (i) any material and adverse change in its condition, financial or otherwise; (ii) any material and adverse damage, destruction or loss, whether or not covered by insurance; (iii) other than for purchases of inventory in the ordinary course of business, the incurring of any obligation or liability of any nature (whether absolute, accrued, contingent or otherwise and whether due or to become due) in excess of $100,000.00; (iv) any transfer or application of any assets of either the Companies or NAI to the payment of any amount payable to or for the benefit of either or any of the following Persons ("Companies' Affiliates"): any member of the family of any owner of the Companies or any Person which is controlled, directly or indirectly, by any owner or by any member of the family of any owner; (v) any declaration, setting aside or payment of any dividend or other distribution in respect of any shares of capital stock of the Companies or NAI, or any direct or indirect redemption, purchase or other acquisition of any such stock; (vi) any organized labor negotiations, strike or work stoppage affecting the Business or any threat of the foregoing; (vii) any sale, transfer or other disposition of any tangible or intangible asset of either the Companies or NAI to any Person (except for (a) payments of third party obligations incurred in the ordinary and regular course of business, in accordance with the regular payment practice of the Companies and NAI, and (b) sales of products and services in the ordinary and regular course of business); (viii) any termination or waiver of any rights of material value to the Business; (ix) to the Companies' knowledge, the adoption of any statute, rule, regulation or order which materially and adversely affects the Business; (x) any increase in the compensation of, or benefits for, officers, employees, independent contractors or other Persons performing services for either of the Companies or NAI (including, without limitation, any increase pursuant to any bonus, pension, profit-sharing or other plan or commitment), having annual remuneration in excess of $75,000, except for increases in accordance with the Companies and NAI's normal salary administration policies; (xi) any capital expenditure or commitment in excess of $75,000.00 for property, plant or equipment of the Companies or NAI; (xii) any forward purchase commitments not completed by the Closing Date involving more than $75,000.00; (xiii) any material change in the accounting methods or practices followed by either of the Companies or NAI or any change in depreciation or amortization policies or rates theretofore adopted; (xiv) any payment made (or withheld) by either the Companies or NAI not in accordance with their usual or customary practices; (xv) any sale of goods or services to any customer where the payment for such goods or services allows for the payment therefor more than thirty (30) days after the goods or services have been provided to such customer; or (xvi) any commitment, obligation or understanding to do any of the foregoing. g. Tax Matters. Each of the Companies and NAI has filed, and ----------- will file, all tax returns and reports required to be filed and, in respect of any period ending prior to or which includes the Closing Date, has paid, or has set up an adequate reserve for the payment of, all taxes required to be paid or anticipated to be payable, which reserve either is reflected in the Historical Financials or will be reflected in the Closing Balance Sheet, as the case may be. Neither the Companies nor NAI have any liability for any such taxes in excess of the amounts so paid or reserves so established. Each of the Companies and NAI has properly withheld and paid, and will properly withhold and pay, all payroll or similar taxes. Neither the Companies nor NAI is delinquent in the payment of any tax, assessment, penalties or interest and neither has requested any extension of time within which to file any tax returns in respect of any fiscal year which have not since been filed. All tax returns filed or to be filed are, or will be, true and correct. No deficiencies for any tax, assessment, penalties or interest have been proposed, asserted, assessed or, to the knowledge of the Companies, threatened against the Companies or NAI. Other than the NAI Federal tax returns for the years 5 ended August 31, 1993 (audit closed) and August 31, 1995 (audit currently pending), no tax returns of Block or NAI have been audited by the appropriate governmental authority since June, 1993, and, to the knowledge of the Companies, none is threatened or contemplated. As of the date hereof, neither the Companies nor NAI has given or been requested to give waivers of any statute of limitations relating to the assessment or payment of any taxes for any taxable period. For purposes hereof, the term "tax" shall include all Federal, state, local and foreign taxes, assessments, and all franchise, sales, use, occupation, property, excise or other taxes, and governmental charges, including penalties and interest relating to the foregoing. h. Property Owned, Leased or Licensed. ---------------------------------- i. The Companies have delivered to Buyer as Schedule 5H(i)(a), attached hereto, a list of all real estate leased by either the Companies or NAI (collectively, the "Real Estate"). Neither the Companies nor NAI owns any fee interest in any real property and neither has any understandings or commitments to purchase any. ii. True and complete copies of all leases relating to the Real Estate have been delivered to Buyer. iii. With respect to such leases, such leases are in full force and effect, are valid and binding obligations of the parties thereto and are enforceable against its parties in accordance with the terms thereof. There are no defaults (alleged or actual) by either party to such leases and no event has occurred which with due notice or lapse of time or both would constitute a default. iv. The Companies and NAI have delivered depreciation schedules to Buyer, which contain lists of each item of machinery, equipment, tooling, office furniture, automobiles, trucks and other fixed assets (collectively, the "Fixed Assets") owned or leased by either the Companies or NAI included on the Historical Financials or to be included on the Closing Balance Sheet. The Companies and NAI have also delivered to Buyer a true and correct copy of each lease or other agreement under which either the Companies or NAI pays in excess of $25,000 annually to lease, license, hold or operate any Fixed Asset. v. The Companies and NAI have delivered Schedule 5H(iii), attached hereto, a list of all unexpired non-governmental licenses, franchises, distribution rights and the like held by either of the Companies and NAI and all unexpired trademarks, trade names, service marks, copyrights, know- how, patents or any other proprietary rights and applications for any of the foregoing owned by or registered in the name of either of the Companies and NAI (collectively, the "Intangibles"). The term "Intangibles" does not include any contract rights. Each of the Companies and NAI, as the case may be, owns, or has a valid licensee interest in, all Intangibles, and pays no royalty with respect to any of them, has the exclusive right to bring actions for the infringement thereof and has not granted any rights of any nature in any of the Intangibles to any Person. To the Companies' knowledge, no product made or sold by the Companies and NAI or for their benefit violates any license, franchise or distribution agreement or infringes any trademark, trade name, service mark, copyright, know-how or patent of another Person. All Intangibles are assignable to Buyer without the consent of any Person. i. Insurance. Each of the Companies and NAI presently --------- maintains in effect insurance covering the Assets and the Business from reasonably foreseeable losses and any liabilities or risks relating thereto. The Companies have delivered to Buyer a list of all insurance policies or performance bonds held or issued by or on behalf of Block or NAI and now in force (collectively, the "Insurance Policies"). Such coverage fully complies with all contractual requirements of the Business. j. Agreements, Etc. The Companies have delivered to Buyer ---------------- Schedule 5J, attached hereto, a list of all material written contracts, agreements, leases, instruments and other obligations of the Companies and NAI (collectively, the "Contracts"). With respect to the Contracts, except as disclosed to Buyer: (i) all are in full force and effect, have not been modified or amended, and constitute legal, valid and binding obligations of the respective parties 6 thereto; (ii) each of the Companies and NAI has, in all material respects, performed all of the obligations required to be performed by it to date and is not in default or, to the knowledge of the Companies, alleged, to be in default in any respect thereunder, no party has been released from any obligation thereto and there exists no event, condition or occurrence which, with or without notice, lapse of time or the occurrence of any other event, would constitute a material default thereunder by either, or to the Companies' knowledge, would constitute a material default on the part of any other party thereto provided, however that the Companies and NAI hereby state, and Buyer acknowledges, that the transfer of the contracts held by each may be subject to immediate termination because of the transfer contemplated hereby; and (iii) none require the payment or performance of material considerations by either of Block or NAI on or after the Closing Date without the receipt of consideration of commensurate value, within the meaning of applicable fraudulent conveyance laws or decisions. Neither Block nor NAI is restricted by any agreement to which it is a party from carrying on the Business anywhere in the world. The Contracts confer on each of Block and NAI all rights necessary to enable them to conduct the Business as now being conducted. k. Litigation and Claims, Etc. Except as disclosed to Buyer on --------------------------- Schedule 5K, attached hereto, there are no personal injury, product liability or other actions, suits, claims, investigations or legal or administrative or arbitration proceedings of any nature pending or, to the knowledge of the Companies, threatened, against or involving any of the Companies or NAI, whether at law or in equity. l. Compliance. Each of the Companies and NAI is in compliance, ---------- in all material respects, with all federal, state and local laws, ordinances, regulations, permits, licenses, decrees, judgments and orders applicable to the Business; and no proceeding is pending or, to the knowledge of the Companies, threatened, to revoke or limit any thereof. m. Inventories. The inventories of each of the Companies and ----------- NAI included on the Historical Financials and to be included on the Closing Balance Sheet are and will be valued at the lower of cost or market value. Such inventories are all usable in the ordinary and regular course of the Business, and are fit and sufficient for the purpose for which they were purchased. Each of the Companies and NAI has exercised, and on the Closing Date will exercise, its best efforts to have, the proper amount of inventories to conduct the Business consistent with past practices. n. Employee Matters. Each of Block and NAI has accrued on the ---------------- Historical Financials, and will accrue adequate reserves on the Closing Balance Sheet, all wages, salaries, contractual bonuses, vacation pay and other compensation earned by, or accrued for the benefit of, all employees, if vested or payable by such date. Neither the Companies nor NAI is a party to or bound by any collective bargaining agreement or any other agreement. There is not pending or, to the knowledge of the Companies, threatened any labor dispute, strike or work stoppage against the Companies or NAI which may affect the Business. There are no activities or proceedings of any labor union to organize any employees of either the Companies or NAI. o. Employee Benefit Plans. ---------------------- i. Except as disclosed to Buyer on Schedule 5O(i), attached hereto, neither of the Companies nor NAI nor any current or former Plan Affiliate of the Companies or NAI has at any time had any liability with respect to any of the following (whether written, unwritten or terminated): (a) any "employee welfare benefit plan," as defined in Section 3(1) of ERISA, (b) any "employee pension benefit plan," as defined in Section 3(2) of ERISA, or (c) any other plan, policy, program, arrangement or agreement providing employee benefits (or other similar benefits) to former employees, dependents, beneficiaries, directors or independent contractors, including, but not limited to, any bonus or incentive plan, stock option, restricted stock, stock bonus plan, salary reduction agreement, change-of-control agreement, severance agreement, material fringe benefit program, short-term disability plan or sick leave, personnel policy, vacation time, holiday pay, moving expense reimbursement program, employment agreement or consulting agreement which could result in Buyer having any liability, whether direct or indirect. 7 ii. As used herein, the following terms shall have the following respective meanings: (a) the term "Employee Plan" shall mean any plan, policy, program, arrangement or agreement described in Section 5O(i), whether or not scheduled; and (b) the term "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. iii. With respect to any person or entity ("First Person"), the term "Plan Affiliate" shall mean any other person or entity with whom the First Person constitutes all or part of a controlled group, or which would be treated with the First Person as under common control or whose employees would be treated as employed by the First Person, under Section 414 of the Code and any regulations, administrative rulings and case law interpreting the foregoing. iv. No Employee Plan (a) is subject to Title IV of ERISA, (b) is a "multi-employer plan" as defined in Section 4001 of ERISA, a "multi-employer plan" within the meaning of Section 3(37) of ERISA, a "multiple employer plan" within the meaning of Code Section 413(c) or a "multiple employer welfare arrangement" within the meaning of Section 3(40) of ERISA, or (c) provides any welfare-type benefits for retirees or former employees, or their spouses or dependents (except for limited continued medical benefit coverage for former employees, their spouses and other dependents as required to be provided under Section 4980B of the Code. v. A complete copy of each written Employee Plan as amended to the Closing, together with Form 5500 Annual Reports for the three (3) most recent plan years, if any; a copy of any funding vehicle with respect to each such plan; a copy of the most recent determination letter with respect to such plan (if any); have been delivered to Buyer. No person has made any statement, whether oral or in writing, regarding any Employee Plan which will result in any liability to Buyer in excess of any liability previously disclosed pursuant to this paragraph. vi. Each Employee Plan (a) has been and currently complies in form and in operation in all respects with all applicable requirements of ERISA and the Code and any other applicable Federal and state laws, (b) has been and is operated and administered in compliance with its terms (except as otherwise required by law); (c) has been and is operated in compliance with the applicable requirements of the Code and ERISA in such a manner as to qualify, where appropriate, for both Federal and state purposes, for income tax exclusions to its participants, tax-exempt income for its funding vehicle, and the allowance of deductions and credits with respect to contributions thereto; and (d) where applicable, has received a favorable determination letter from the Internal Revenue Service ("Service"). vii. With respect to each Employee Plan, no person has: (a) has entered into any non-exempt "prohibited transaction," as such terms is defined in ERISA or the Code; or (b) has breached a fiduciary obligation; which could subject Buyer to any liability. viii. With respect to each Employee Plan all required or recommended contributions, payments, premiums, contributions, reimbursements, expenses, accruals or other liabilities for all periods ending prior to or as of the Closing (including periods from the first day of the then current plan year to the Closing) (a) have been fully satisfied, (b) will be accrued at Closing, or (c) are subject to a funding arrangement separate from the assets of any of the Companies or any of its Plan Affiliates. p. Transactions with Related Parties. The Companies have --------------------------------- delivered Schedule 5P, attached hereto, a list of all amounts directly or indirectly paid (or deemed for accounting purposes to have been paid) or to be paid by either the Companies or NAI, to, or received by any of the Companies or NAI from any Person which is controlled by, controls, or under common control with, directly or indirectly, any of the Companies or NAI during the current and the last fiscal year for products or services. q. Accounts and Notes Receivable. The Companies have delivered ----------------------------- to Buyer an aged list of unpaid accounts and notes receivable relating to the Business and constituting an Asset (the "Receivables") owing to either as of November 30, 1997. All of the Receivables reflected on the Historical Financials and to be reflected on 8 the Closing Balance Sheet constituted and will constitute only valid claims against third parties. The Receivables arose or will arise from bona fide transactions in the ordinary and regular course of Business and all (subject to the reserve for bad debt) are collectible within ninety (90) days after they arose or will arise, and are not subject to any defenses, set-offs or counterclaims. The Historical Financials do, and the Closing Balance Sheet will, include reserves for bad debt reasonably based on past customer performance. r. Customers and Suppliers. Except as disclosed to Buyer, in ----------------------- connection with the Business, neither Block nor NAI is required to provide any bonding, guaranty or other financial security arrangements in connection with any transactions with any of its customers or suppliers. The Companies have no knowledge or reason to believe that as a result of the transactions contemplated hereby or otherwise, any customer or supplier of either of the Companies intends to cease or substantially reduce, the purchase or sale, respectively, of goods or services from or to Buyer on terms and conditions similar to those imposed on purchases and sales from and to the Companies and NAI prior to the date hereof, except that if appropriate consents to transfer are not obtained, certain contracts may be subject to cancellation. s. Bank Accounts; Officers; Directors; Credit Cards. The ------------------------------------------------ Companies and NAI have delivered to Buyer a list of all bank accounts, safe deposit boxes and the like in the name of or controlled by them. t. Illegal Payments. None of the Companies know of or have ---------------- reason to believe that (i) any shareholder, director or officer made any illegal payments, gifts or the like in the procurement of any of the contracts being assigned hereunder. u. Material Disclosures. No representation, warranty, covenant -------------------- or agreement by the Companies contained herein, and no statement contained in any certificate, Schedule, Exhibit, list or other writing furnished to Buyer in connection with the transactions contemplated hereby, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading. All Schedules and Exhibits hereto and all writings furnished to Buyer hereunder or in connection with the transactions contemplated hereby are accurate, true and complete in all material respects. All representations, warranties, covenants and agreements made by the Companies herein and all other agreements and instruments delivered in connection herewith or pursuant hereto and facts and information contained in the Exhibits and Schedules shall be true and correct in all material respects as of the Closing Date with the same effect as if they had been made at and as of the Closing Date. 6. BUYER'S REPRESENTATIONS, WARRANTIES, AGREEMENTS AND COVENANTS. ------------------------------------------------------------- Buyer represents and warrants to, and agrees and covenants with, the Companies, now and as of the Closing Date, as follows: a. Organization, Standing and Power. Buyer is a corporation -------------------------------- duly organized, validly existing and in good standing under the laws of the State of Maryland. Buyer has all requisite corporate power and authority to own, lease and operate the Business and to carry on the Business after the transactions contemplated hereby. Buyer has the full power and authority to enter into this Agreement and perform all acts necessary or appropriate to consummate all of the transactions contemplated hereby. b. Authorization. This Agreement and all writings relating ------------- hereto to be executed and delivered by Buyer have been duly authorized by all necessary action and constitute the valid and binding obligations of Buyer, enforceable in accordance with their respective terms. The individuals executing this Agreement and the other documents executed in connection herewith on behalf of Buyer have been duly authorized to execute all of such documents on behalf thereof. Neither the execution and delivery hereof nor any writing relating hereto nor the consummation by Buyer of the transactions contemplated hereby or thereby, nor compliance with any of the provisions hereof or thereof, will: (i) conflict with or result in a material breach of the Articles of Organization of Buyer; (ii) violate any statute, law, rule or regulation or any order, writ, injunction or decree of any court or governmental authority; or (iii) violate or conflict with or constitute a default under (or give rise to any right of 9 termination, modification, cancellation or acceleration under), any agreement or writing of any nature to which Buyer is a party or by which its assets may be bound or affected, or result in the creation of any Encumbrance against or upon any of its assets under any agreement or writing to which it is a party or by which it or its assets may be bound or affected; or (iv) impair or in any way limit any governmental or official license, approval, permit or authorization of Buyer. No consent or approval of or notification to any Person is necessary or required in connection with the execution and delivery by Buyer hereof or any writing relating hereto or the consummation of the transactions contemplated hereby or thereby. c. Material Disclosures. No representation, warranty, covenant -------------------- or agreement by Buyer contained herein, and no statement contained in any certificate, Schedule, Exhibit, list or other writing furnished to any of the Companies in connection with the transactions contemplated hereby, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading. All Schedules and Exhibits hereto and all copies of all writings furnished to the Companies hereunder or in connection with the transactions contemplated hereby are accurate, true and complete. All representations, warranties, covenants and agreements made by Buyer herein and facts and information contained in the Exhibits and Schedules shall be true and correct as of the Closing Date with the same effect as if they had been made at and as of the Closing Date. 7. CLOSING TRANSACTIONS. On the Closing Date (or on a date -------------------- otherwise indicated herein): a. The Companies shall deliver or cause to be delivered to Buyer: i. Such bills of sale, endorsements, assignments, receipts and other instruments, in such form as are reasonably satisfactory to Buyer, as shall be sufficient to vest in Buyer or Buyer's nominee good and marketable title to the Assets, free and clear of all Encumbrances other than liens arising pursuant to the Assumed Liabilities. ii. Such keys, lock and safe combinations, and other similar items as Buyer shall require to obtain full occupation and control of the Assets. iii. As between the Companies and Buyer, possession of the Real Estate. iv. All consents, waivers and releases necessary, required or appropriate to consummate the transactions contemplated hereby, except consents to transfers of the Companies' contracts, which Buyer acknowledges will not be procured by the Companies and which are not a condition to the consummation of the transactions contemplated hereby. v. The Closing Balance Sheet, and consolidated unaudited financial statements for the Companies and NAI as of November 30, 1997. vi. Certified copies of resolutions duly adopted by each of the Companies' General Partner approving the transactions contemplated by, and authorizing the execution, delivery and performance by each of the Companies and NAI of, this Agreement, and a certificate as to the incumbency of officers of each executing any instrument or other document delivered in connection with such transactions. vii. Such other documents as the Buyer may reasonably request. viii. Buyer shall deliver or cause to be delivered to the Companies: ix. On January 5, 1998 and not before, the entire Purchase Price. 10 x. Certified copies of resolutions duly adopted by Buyer's Board of Directors approving the transactions contemplated by, and authorizing the execution, delivery and performance by Buyer of, this Agreement, and a certificate as to the incumbency of officers of each executing any instrument or other document delivered in connection with such transactions. xi. Such other documents as the Companies may reasonably request. 8. INTENTIONALLY LEFT BLANK. ------------------------ 9. CONDITIONS OF OBLIGATIONS OF BUYER. The obligations of Buyer to ---------------------------------- perform this Agreement are subject to the satisfaction of the following conditions on or prior to the Closing Date: a. Representations and Warranties. The representations and ------------------------------ warranties of the Companies in this Agreement or in any Schedule, Exhibit, certificate or document delivered in connection herewith shall be true and correct in all material respects on the Closing Date. b. Performance of Obligations of the Companies. The Companies ------------------------------------------- shall have performed all agreements and obligations required to be performed by them on or prior to the Closing Date. c. Consents, Waivers and Releases. The Companies shall have ------------------------------ obtained, or to the reasonable satisfaction of Buyer obviated the need to obtain, all consents, waivers and releases from third parties necessary to execute and deliver this Agreement and consummate the transactions contemplated hereby. Also, Buyer shall have obtained the consent the Board of Directors of Sylvan Learning Systems, Inc. to execute and deliver this Agreement and consummate the transactions contemplated hereby. Notwithstanding the foregoing, Buyer acknowledges and agrees that assignments of contracts will not be a condition precedent to the consummation of the transactions contemplated hereby, nor will such consents be required at any time after the Closing. d. No Litigation. No action, suit or other proceeding shall ------------- be pending before any court, tribunal or governmental authority seeking or threatening to restrain or prohibit the consummation of the transactions contemplated hereby, or seeking to obtain damages in respect thereof, or involving a claim that consummation thereof would result in the violation of any law, decree or regulation of any governmental authority having appropriate jurisdiction. e. Closing Documents. The Companies shall have delivered, or ----------------- shall have caused the delivery of, all appropriate documents and instruments described in Section 7 hereof. f. Working Capital. On a consolidated basis, as of the --------------- Effective Date, the sum of Companies' and NAI's cash and all other current assets (other than excluded assets) less all current liabilities to be assumed by Buyer (but not including deferred revenue items) shall be greater than $0.00. 10. CONDITIONS OF OBLIGATIONS OF THE COMPANIES. The obligations of ------------------------------------------ the Companies to perform this Agreement are subject to the satisfaction, on or prior to the Closing Date, of the following conditions: a. Representations and Warranties. The representations and ------------------------------ warranties of Buyer herein or in any Schedule, Exhibit, certificate or document delivered in connection herewith shall be true and correct in all material respects on the Closing Date. b. Performance of Obligations of Buyer. Buyer shall have ----------------------------------- performed all agreements and obligations required to be performed by it on or prior to the Closing Date. c. Consents, Waivers and Releases. Buyer shall have obtained, ------------------------------ or to the reasonable satisfaction of the Companies obviated the need to obtain, all consents, waivers and releases from third parties 11 necessary to execute and deliver this Agreement, buy the Assets and consummate the transactions contemplated hereby. d. No Litigation. No action, suit or other proceeding shall ------------- be pending before any court, tribunal or governmental authority seeking or threatening to restrain or prohibit the consummation of the transactions contemplated hereby, or seeking to obtain damages in respect thereof, or involving a claim that consummation thereof would result in the violation of any law, decree or regulation of any governmental authority having appropriate jurisdiction. e. Closing Documents. Buyer shall have delivered, or shall ----------------- have caused the delivery of, all appropriate documents and instruments described in Section 7 hereof. 11. CLOSING NOT A WAIVER. The fact that the parties have chosen to -------------------- consummate the transactions contemplated hereby shall not act or be deemed or construed as a waiver of either party or estop either party from pursuing their respective rights to indemnification hereunder or other remedies for any reason whatsoever. 12. POST-CLOSING COVENANTS. ---------------------- a. Restrictive Covenants. --------------------- i. Non-disclosure. Each of the Companies acknowledges that it has been and will be entrusted with trade secrets, marketing, operating and strategic plans, customer and supplier lists, proprietary information and other confidential or specialized data and/or information relative to the Business, whether now existing or to be developed or created after the Closing Date (collectively, "Trade Secrets"). Each of the Companies covenants and agrees that each shall at all times after the date hereof hold in strictest confidence any and all Trade Secrets that may have come or may come into its possession or within its knowledge concerning or related to the products, services, processes, businesses, suppliers, customers and clients of each of the Companies in connection with the Business and the Assets. Each of the Companies covenants and agrees that neither it nor any Person controlled by it will for any reason, directly or indirectly, for itself or for the benefit of any other Person, use, copy, divulge or otherwise disseminate or disclose any of the Trade Secrets owned or used by, or licensed to, the Companies or any of their affiliates or otherwise relating to the Companies or the Business, provided that each of the Companies may disclose Trade Secrets pursuant to an order by a court of competent jurisdiction, provided, further, that each of the Companies shall give Buyer notice of such order and any court pleading requesting such disclosure, in order to provide Buyer with an opportunity to prevent such disclosure or procure an appropriate protective order. ii. Customers. Each of the Companies acknowledges that customers and customer accounts of the Companies comprising the Assets will, after the Closing, at all times be the sole and separate property of Buyer, in which neither of the Companies have any rights whatsoever, and all activities of or work performed by neither of the Companies for or on behalf of Buyer in the future will be performed solely for the benefit of Buyer and the goodwill resulting from such efforts by any of the Companies is and at all times will be the sole and separate property of Buyer, which goodwill is intended to be protected, in part, by this Section. iii. Non-Solicitation; Non-Hire. Each of the Companies agrees that from the Closing Date and continuing for a period (the "Non-Compete Period") of five (5) years from the Closing Date, neither they nor any person or enterprise controlled by them will solicit or, without Buyer's prior written consent, hire, for employment or any other reason any person who, at any time within one (1) year prior to the time of the act of solicitation, or hire, was employed by Buyer or either of the Companies or NAI. iv. Non-Competition by Companies. During the Non- Compete Period, each of the Companies agree that none of them nor any person or enterprise controlled by them will become a stockholder, director, officer, agent, employee or representative of or consultant to a corporation or member of a partnership, engage as a sole proprietor in any business, act as a consultant to any of the foregoing or otherwise engage, directly or 12 indirectly, in any enterprise which competes with the Business anywhere in the continental United States; provided, however, that the foregoing shall not prohibit (i) the ownership of less than two percent (2%) of the outstanding shares of the stock of any corporation engaged in any business, which shares are regularly traded on a national securities exchange or in any over-the-counter market, and (ii) the ownership and operation of Registry Services International, L.P.. v. Relief, Reformation; Severability. The parties agree that the covenants contained in this Section 12A are separate and are reasonable in their scope and duration and may be enforced by specific performance or otherwise. The parties shall not raise any issue of reasonableness as a defense in any proceeding to enforce any of the covenants herein. Notwithstanding the foregoing, in the event that a covenant included in this Section 12A shall be deemed by any court to be unreasonably broad in any respect, the court which makes such finding shall modify such covenant for the purpose of making such covenant reasonable in scope and duration. The validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected by any such modification. vi. Remedies. The parties acknowledge that any breach of the restrictive covenants herein will cause irreparable harm to the other, and that such harm will be difficult if not impossible to ascertain. Therefore, if any action or proceeding is commenced by or on behalf of any party to enforce the provisions hereof, such party shall be entitled to equitable relief, including injunction, against any actual or threatened breach hereof, and any damages arising therefrom including, without limitation, reasonable fees of its attorneys and their support staff and all other costs and expenses incurred by the other party in good faith in connection therewith without bond and without liability should such relief be denied, modified or vacated. Neither the right to obtain such relief nor the obtaining of such relief shall be exclusive of or preclude any party from any other remedy. Each party hereby waives the claim or defense to an action for equitable relief by the other that the other has an adequate remedy at law or has not been or is not being irreparably injured by such breach. FURTHERMORE, EACH PARTY HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE OF ANY NATURE ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE RESTRICTIVE COVENANTS CONTAINED IN SECTION 12A HEREOF. INSTEAD, ANY DISPUTES RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY. 13. INDEMNIFICATION. --------------- a. The Companies jointly and severally agree to indemnify and hold harmless Buyer against any and all damages, losses, settlement payments, obligations, liabilities, claims, actions, causes of action, suits, proceedings, costs of investigations, demands, assessments, judgments, Encumbrances and costs and expenses (including, without limitation, attorneys' fees, interest, penalties and all costs associated therewith incurred by such party in good faith) (collectively, "Losses") suffered, sustained, incurred or paid by any indemnified party, to which such indemnified party may become subject under any federal, state or local law, rule or regulation, at common law or otherwise (including in settlement of any litigation), only to the extent that such Losses (or actions in respect thereof) exceed in the aggregate $250,000 (net of insurance proceeds paid with respect thereto and tax benefits derived therefrom) and arise out of or are based upon (i) any untrue or inaccurate statement made by either of the Companies herein, including the information included in any Exhibit hereto; (ii) the claims of any broker or finder engaged by either of the Companies; (iii) the nonfulfillment or breach or alleged nonfulfillment or breach of any agreement or covenant of any of the Companies; (iv) the assertion against any indemnified party or any of their assets of any liability or obligation of any of the Companies which is not an Assumed Liability or related to an Assumed Liability; and (v) all currently outstanding matters of litigation, or claims currently threatened against either of the Companies; and will reimburse each indemnified party for any legal or other cost or expense incurred by such party in good faith in connection with investigating or defending any such loss, claim, damage, liability or action. Notwithstanding anything herein to the contrary, the Companies shall have no indemnity obligation whatsoever to Buyer based in whole or in part because of the failure to procure consents to the assignments of any of the Contracts from the Companies to Buyer. The indemnity obligation described in this Section 13A shall be the sole and exclusive remedy of Buyer, and shall not survive the Closing. 13 b. Buyer will indemnify and hold harmless each of the Companies against any and all Losses suffered, sustained, incurred or paid by any indemnified party, to which such indemnified party may become subject under any federal, state or local law, rule or regulation, at common law or otherwise (including in settlement of any litigation), insofar as such Losses (or actions in respect thereof) arise out of or are based upon (i) any untrue or inaccurate statement or alleged untrue or inaccurate statement of any material fact made by Buyer herein, including the information included in any Exhibit hereto; (ii) the claims of any broker or finder engaged by Buyer; (iii) the nonfulfillment or breach or alleged nonfulfillment or breach of any agreement or covenant of Buyer, and; (iv) the assertion against any indemnified party or any of their assets of any liability or obligation of Buyer, or relating to Buyer's operations or any of its assets, including the Assumed Liabilities; and will reimburse each indemnified party for any legal or other expenses reasonably incurred by such party in connection with investigating or defending any such loss, claim, damage, liability or action. The indemnity obligation described in this Section 13B shall be the sole and exclusive remedy of the Companies. 14. INTENTIONALLY LEFT BLANK. ------------------------- 15. MISCELLANEOUS. ------------- a. Manner of Closing. At the Closing, all transactions shall ----------------- be conducted substantially concurrently and no transaction shall be deemed to be completed until all are completed. b. Access to Records. Buyer shall afford to the Representative ----------------- and its agents, the opportunity, upon reasonable advance notice, to examine and make copies of the books and records of each of the Companies and NAI having an effect on all periods through the Closing Date, in connection with tax and financial reporting matters and other bona fide business purposes, and Buyer shall use reasonable efforts to retain such books and records for a period of four (4) years from the date of such books and records. c. Parties in Interest. This Agreement shall be binding upon, ------------------- inure to the benefit of, and be enforceable by the parties and their respective executors, successors and assigns. Notwithstanding the foregoing, the Companies are prohibited from assigning their respective interests hereunder, by operation of law or otherwise. The Companies hereby consent to a collateral assignment of Buyer's rights hereunder to a lender, understanding that such lender shall have the ability to enforce the rights of Buyer granted herein. d. Entire Agreement; Amendments. This Agreement, the Exhibits ---------------------------- and Schedules attached hereto, and the other writings referred to herein or delivered in connection herewith contain the entire understanding of the parties with respect to its subject matter, and supersedes all prior understandings and agreements. This Agreement may be amended only by a written instrument duly executed by the parties. Any reference herein to this Agreement shall be deemed to include the Exhibits and Schedules attached hereto. If any provision of this Agreement is determined to be illegal or unenforceable, such provision will be deemed amended to the extent necessary to conform to applicable law or, if it cannot be so amended without materially altering the intention of the parties, it will be deemed stricken and the remainder of the Agreement will remain in full force and effect. e. Headings. The section and subsection headings contained in -------- this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. f. Notices. All notices, claims, certificates, requests, ------- demands and other communications ("communications") hereunder shall be in writing and shall be deemed to have been duly given when personally delivered, mailed (by registered or certified mail, postage prepaid) or sent by overnight courier service or facsimile addressed as follows: If to either of the Companies, to: Block Testing Services, LLC 650 Dundee Road, Suite 370 Northbrook, IL 60062 14 Attention: Dean J. Bozzano, CEO Facsimile: (847)480-1251 If to Buyer: SYLVAN LEARNING SYSTEMS, INC. 100 Lancaster Street Baltimore, MD 21202 Attention: General Counsel's Office Facsimile: (843)843-806 or to such other address as the person to whom a communication is to be given may have furnished to the others in writing in accordance herewith. A communication given by any other means shall be deemed duly given on the earlier of when actually received by the addressee or three (3) days after sending such communication. Notice hereunder to Representative shall be deemed to be notice to each of the Companies. g. Public Announcements. All public announcements relating to -------------------- this Agreement or the transactions contemplated hereby, including announcements to employees, will be made only as may be agreed upon jointly by the parties hereto, or as Buyer considers required or appropriate to comply with applicable law. Any governmental, public or private inquiries or requests for information shall be promptly referred to Buyer. h. Further Assurances. After the Closing Date, without further ------------------ consideration, the parties shall execute and deliver such further instruments and documents as either party shall reasonably request to consummate the transactions contemplated hereby and to perfect Buyer's title to the Assets. i. Waivers. Any party to this Agreement may, by written notice ------- to the other party hereto, waive any provision of this Agreement. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent, same or different breach. j. Counterparts. The Agreement may be executed in one or more ------------ counterparts, but all such counterparts shall constitute one and the same instrument. k. Use of Certain Terms. The term "Person" shall mean an -------------------- individual, a partnership, a joint venture, a joint stock company, a corporation, a trust, an unincorporated organization, a limited liability company, any other legal entity and a government, governmental body or quasi- governmental body, or any department, agency or political subdivision thereof. l. Applicable Law. The terms and conditions of this Agreement -------------- shall be governed by and construed in accordance with the laws of the State of Delaware. m. Agreement to Arbitrate. In the event of any other dispute ---------------------- arising out of, connected with, related or incidental to this Agreement and the documents or instruments delivered in connection herewith, such dispute shall be submitted to arbitration in accordance with the terms of this Section. The party who is alleging that a dispute exists shall send a notice of such dispute to all other parties, which notice shall set forth in detail the dispute, the parties involved and the position of such party with respect thereto. Within ten (10) business days after the delivery of such a notice, counsel for the parties shall mutually select as an arbitrator an attorney practicing in Baltimore, Maryland, who is experienced in commercial arbitration. If counsel for the parties are unable to agree upon the selection of the arbitrator, an arbitrator residing in or about Baltimore, Maryland experienced in commercial arbitration shall be selected by the Baltimore, Maryland office of the American Arbitration Association. The arbitrator so selected shall schedule a hearing in Baltimore, Maryland, on the disputed issues within forty-five (45) days after his appointment, and the arbitrator shall render his decision after the hearing, in writing, as expeditiously as is possible, and shall be delivered to the parties. The arbitrator shall render his decision based on written materials supplied by the parties to the arbitration in support of their respective oral presentations at the hearing, and no party shall be entitled to discovery in such matter. Each party shall supply a copy of any written materials to be submitted to the arbitrator at 15 least fifteen (15) days prior to the scheduled hearing. The parties agree that the arbitrator shall not have any power or authority to award punitive damages. A default judgment may be entered against any party who fails to appear at the arbitration hearing. Such decision and determination shall be final and unappealable and shall be filed as a judgment of record in any jurisdiction designated by the successful party. The successful party shall be entitled to recover all fees, costs and expenses incurred in connection with such arbitration. The parties hereto agree that this paragraph has been included to rapidly and inexpensively resolve any disputes between them with respect to the matters described above, and that this paragraph shall be grounds for dismissal of any court action commenced by any party with respect to a dispute arising out of such matters. THE PARTIES AGREE THAT ANY ARBITRATION SHALL BE GOVERNED BY AND PURSUANT TO THE FEDERAL ARBITRATION ACT, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER. n. Pronouns. All pronouns and any variations thereof shall be -------- deemed to refer to the masculine, feminine, singular and plural as the identity of that person referred to requires. o. Joint and Several Obligations. The duties and obligations ----------------------------- of each of the Companies are joint and several, and the Companies hereby acknowledge the same, and each of the Companies hereby guarantees performance of all duties and obligations of the other under and pursuant to this Agreement. p. Effect of Disputes. Notwithstanding the fact that there ------------------ may from time to time be disputes among the parties concerning the terms and conditions hereof, the parties agree not to under any circumstances, disparage, criticize or denigrate the talents, skills, prospects, abilities, integrity or character of the other parties hereto, or such parties' management, directors, employees, agents or representatives (including those of Buyer's affiliates). The provisions of this Section shall survive the execution and termination hereof, irrespective of the reason for such termination. q. Non-Recourse Obligations. Buyer specifically acknowledges ------------------------ and agrees that, notwithstanding any provision to the contrary contained in this Agreement, except as set forth below in the paragraph preceding the signature block of NAI, its only recourse for enforcement of the covenants and agreements of the Companies contained herein, shall be against the Assets of the Companies and that all of such covenants and agreements of the Companies contained herein, including without limitation the indemnity obligations of the Companies contained in Section 13 hereof, are and shall be non-recourse to both the general and limited partners of the Block. The foregoing shall in no way be deemed to be a limitation of the Buyer's rights to seek indemnification as assignee of Block's rights under each of the (i) Stock Purchase Agreement ("SPA") dated July, 1997, by and among NAI Acquisition Corp., a Delaware corporation ("Sub"), Block, NAI, Bax & Associates, Inc., a Florida corporation ("BAI"), and AWM Associates, Inc., a Florida corporation ("AWM") and Dr. James A. Bax and Anthony W. Mitchell, Ph.D., and (ii) Asset Purchase Agreement ("APA") dated as of February 1, 1996 among Block, H.H. Block & Associates, Inc., NAI, James Bax and Anthony Mitchell. r. Mutual Drafting. This Agreement is the joint product of --------------- the Companies and Buyer and their respective counsel, and each provision hereof has been subject to the mutual consultation, negotiation and agreement of such parties and counsel, and shall not be construed for or against any party hereto. 16 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written. BLOCK TESTING SERVICES L.P. BLOCK STATE TESTING SERVICES L.P. By BLOCK TESTING SERVICES L.L.C. By BLOCK STATE TESTING SERVICES INC. By By ------------------------------------- ----------------------------------- Dean J. Bozzano, CEO Dean J. Bozzano, President SYLVAN LEARNING SYSTEMS, INC. By ------------------------------------- B. Lee McGee, Chief Financial Officer The undersigned, National Assessment Institute, Inc., hereby agrees to indemnify and hold Buyer harmless, pursuant to the provisions of Section 13A hereof, from any breaches of the representations set forth in the second sentence of Section 5B(i) and the representations in Section 5B(v) hereof, provided, that the foregoing obligation of indemnity shall survive only until June 30, 1998 and shall in no event exceed Losses of more than $1 million. NATIONAL ASSESSMENT INSTITUTE, INC. By -------------------------------- Dean J. Bozzano, President 17 EX-4.3 3 AGREEMENT AND PLAN OF REORGANIZATION EXHIBIT 4.3 ----------- AGREEMENT AND PLAN OF REORGANIZATION ------------------------------------ THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement"), dated as of the 1st day of December, 1997, by and among SYLVAN LEARNING SYSTEMS, INC., a Maryland corporation ("Sylvan"), NAI MERGER CORP., a Delaware corporation and wholly owned subsidiary of Sylvan ("Sub"), BLOCK TESTING SERVICES L.P., a Delaware limited partnership ("Block") and NATIONAL ASSESSMENT INSTITUTE, INC., a Florida corporation and wholly owned subsidiary of Block ("NAI"; and, together with Block, the "Companies"). R E C I T A L S: - - - - - - - - WHEREAS, the Companies are engaged in the business of designing, marketing, selling, distributing and administering paper and pencil tests and the licensing of individuals thereto (the "Business"); and WHEREAS, the parties deem it desirable, upon the terms and conditions contained herein, that Sub be merged with and into NAI, with NAI being the surviving corporation (the "Merger"); and WHEREAS, for Federal Income taxes it is intended that the Merger qualify as a "reorganization" within the meaning of Section 368(a)(2)(E) of the Internal Revenue Code of 1986, as amended (the "Code"), and the parties shall do all things necessary or appropriate to cause the merger to so qualify. NOW, THEREFORE, and in consideration of the mutual premises and representations, warranties and covenants and other good and valuable consideration, the receipt and sufficiency of which being acknowledged, the parties agree as follows: 1. MERGER. On the Closing Date (as defined in Section 4 hereof), in ------ reliance on the representations, warranties, and agreements of the parties, and on the terms and subject to the conditions set forth herein, Sub will be merged with and into NAI pursuant to the provisions and with the effect provided in the General Corporation Laws of Delaware and Florida. The parties shall execute and deliver appropriate merger documents under the corporate laws of Delaware and Florida, containing the terms provided in this Agreement, including Certificates of Merger which shall be filed with the Secretaries of State of Delaware and Florida on the Closing Date. The Merger shall become effective when properly executed Certificates of Merger are so filed. As a result of the Merger, each share of common stock of Sylvan, $0.01 par value theretofore authorized (whether issued or unissued) shall remain unchanged and shall be deemed to be shares of the common stock of Sylvan. Accordingly, each such share on the Closing Date shall continue to be and remain issued and outstanding shares of common stock of Sylvan without any action on the part of the holders of any such shares of stock. As a result of the Merger, each share of the common stock of NAI, $0.01 par value theretofore authorized (whether issued or unissued) shall remain unchanged and shall be deemed to be shares of the common stock of NAI. Accordingly, each such share on the Closing Date shall continue to be and remain issued and outstanding shares of common stock of NAI without any action on the part of the holders of any such shares of stock. As a result of the Merger, each share of the common stock of Sub, $0.01 par value theretofore authorized (whether issued or unissued) shall be canceled, and the separate existence of Sub shall cease. 2. MERGER CONSIDERATION. As a result of the Merger and without any action -------------------- on the part of any Person (as defined below), Block, as holder of all of the issued and outstanding shares of stock of NAI (collectively, the "Shares"), shall receive One Hundred Fifty Thousand Nine Hundred Fifty-three (155,953) shares of Sylvan's common stock, $0.01 par value (collectively, the "SLS Stock"). 1 No fractional shares of SLS Stock, and no cash in lieu thereof, shall be issued or delivered in connection with the transactions contemplated by this Agreement. When issued, the SLS Stock will be fully paid and non-assessable. Notwithstanding anything herein to the contrary, Sylvan shall use its best efforts to file, by March 31, 1998, a registration statement on Form S-3 covering the sale from time to time of the SLS Stock, and shall use its best efforts to cause the Registration Statement to become effective and to maintain its effectiveness until the earlier of (i) such time as all of the SLS Stock has been sold pursuant thereto and (ii) such time as the SLS Stock is eligible for transfer without restriction pursuant to Rule 144(k) under the Securities Act of 1933, as amended (the "1933 Act") as if not held by an affiliate of Sylvan. Sylvan will also furnish to Block with respect to the SLS Stock so registered under the Registration Statement such number of copies of prospectuses and preliminary prospectuses in conformity with the requirements of the 1933 Act and such other documents as Block may reasonably request in order to facilitate the public sale or other disposition of all or any of the SLS Stock by Block, provided, however, that the obligation of Sylvan to deliver copies of prospectuses or preliminary prospectuses to Block shall be subject to the receipt by Sylvan of reasonable assurances from Block that Block will comply with the applicable provisions of the 1933 Act and of such other securities or blue sky laws as may be applicable in connection with any use of such prospectuses or preliminary prospectuses. Sylvan will file documents required of Sylvan to register or qualify under the securities or blue sky laws for Block to offer and sell the SLS Stock in all states reasonably requested, provided, however, that Sylvan shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so qualified or has not so consented. Sylvan shall promptly notify Block of the happening of any event of which Sylvan has knowledge which results in the prospectus included in the registration statement, if any, containing an untrue statement of a material fact or omitting to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and Sylvan will use its best efforts to prepare a supplement or amendment to the registration statement to correct such untrue statement or omission, and deliver a number of copies of such supplement or amendment to Block as may be reasonably requested. Sylvan will notify Block of the issuance by the Securities and Exchange Commission ("SEC") of any stop order or other suspension of effectiveness of the registration statement at the earliest possible time. Sylvan will permit Block's counsel to review the registration statement and all amendments and supplements thereto, at Block's cost, for a reasonable period time prior to Sylvan's filing with the SEC. Sylvan shall bear all expenses in connection with the obligations described in this Section and the registration of the SLS Stock pursuant to a registration statement, including registration, listing and filing fees and expenses of complying with the securities and blue sky laws, brokerage commissions, placement agent fees, underwriting discounts and fees and expenses, if any, of counsel or other advisers to Sylvan and Block only as the same applies to the registration contemplated by this Section; provided, however, that such fees and expenses shall not include brokerage commissions incurred by Block upon the sale of any of the SLS Stock. Other than as described in this Section, Sylvan is under no other obligations to (i) register any of the SLS Stock on behalf of Block under the 1933 Act (ii) conduct, arrange or coordinate any distribution of the SLS Stock, (iii) retain any underwriters in connection with the negotiation and/or distribution of the SLS Stock or (iv) assist Block in complying with any exemption from registration of the SLS Stock under the 1933 Act. At all times that any of the SLS Stock remains outstanding, Sylvan shall comply with the requirements of Rule 144 under the 1933 Act regarding the availability of current public information to the extent required to enable any holder of SLS Stock to sell such shares without registration under the 1933 Act pursuant to Rule 144. 3. DELIVERY OF SLS STOCK. All of the SLS Stock shall be deemed issued as --------------------- of the Merger, and certificate(s) representing the SLS Stock shall be delivered to Block within five (5) business days following the Merger. 4. CLOSING. The consummation of the transactions contemplated hereby (the ------- "Closing") shall take place within five (5) days after all conditions precedent have been satisfied, but not later than December 31, 1997, at 9:00 A.M. (the "Closing Date") at Sylvan's offices, or otherwise, on such other date or place as the parties hereto may mutually agree. The Closing shall be deemed to be effective for financial accounting purposes at 8:00 a.m. on December 1, 1997. 2 5. THE COMPANIES' REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS. -------------------------------------------------------------------- Each of the Companies hereby jointly and severally, with each other, represents and warrants to, covenants and agrees with, Sylvan, now and as of the Closing Date, as follows: a. Organization, Standing and Power. Block is a limited partnership -------------------------------- duly organized, validly existing and in good standing under the laws of the State of Delaware. NAI is a corporation duly organized, validly existing and in good standing under the laws of Florida. The federal employer identification numbers, state identification numbers for sales and tax purposes and all similar identification numbers for each of the Companies have been delivered to Sylvan. NAI has all requisite power and authority to own, lease and operate its assets (collectively, "Assets")owned by it and to carry on the Business as now being conducted in the manner that, and in the places in which, the Business is now being conducted. Neither of the Companies conducts any business or owns or leases any asset or property of any nature outside of the United States. Each of the Companies has the full power and authority and legal capacity to enter into and deliver this Agreement and perform all acts necessary or appropriate to consummate all of the transactions contemplated hereby. b. Capital Structure; Ownership of Assets and Related Matters. ---------------------------------------------------------- i. All of the issued and outstanding capital stock of NAI is owned by Block, and there are no options or similar rights outstanding with respect to such interests and stock. NAI has and will have, at Closing, good and marketable title to, or a valid and transferable leasehold interest in, all of the Assets, except for such Assets as may be sold or otherwise disposed of between the date hereof and the Closing Date in the ordinary course of business. No other "Person" (as defined in Section 15 hereof) has any fee, leasehold or equitable interest in and to the Assets owned by NAI, except as disclosed to Sylvan. Except for those Encumbrances arising in connection with the Companies' loan from NationsBank, N.A. and capitalized leases disclosed to Sylvan, when delivered to Sylvan, the Assets will be free and clear of all the following (hereinafter collectively referred to as "Encumbrances"): security interests, liens, pledges, claims, charges, escrows, encumbrances, options, rights of first refusal, mortgages, indentures, security agreements or other agreements, arrangements, contracts, commitments, understandings or obligations, whether written or oral, encumbering title in any way, other than the Encumbrances created hereby. ii. Except for the rights of Sylvan under this Agreement, there are no outstanding options, warrants or other rights, contracts, commitments, agreements, understandings, arrangements or restrictions relating to the purchase or acquisition of any shares of capital stock or other equity securities or interests of NAI. iii. Except as set forth above in Section 5B(i), Block's ownership of National Assessment Institute, Inc., a Florida corporation ("NAI"), and as fully disclosed to Sylvan, neither of the Companies has ever owned shares of any class of capital stock of any other corporation and does not have any interest in any other entity and there are no contracts, commitments, agreements, understandings or arrangements relating to such. iv. Neither of the Companies has ever assumed or succeeded to the liabilities of any Person, whether by operation of law or otherwise, except in connection with the acquisition of the stock of NAI and the business assets of H.H. Block & Associates, Inc. ("HHB"). Neither of the Companies has ever been known by any other name and neither has or does business under any other name, except for NAI, which was named "ACSI", and Block does business under the name "Block & Associates". v. Except for sales of products and services in the ordinary course of business, and the rights of Sylvan hereunder, there are no outstanding options, warrants or rights to purchase or acquire any interest in any of the Assets. Except for this Agreement, there are no contracts, commitments, agreements, understandings, arrangements or restrictions relating to the ownership or operation of any of the Assets. vi. The Assets constitute all of the property necessary for the conduct of NAI's Business in the manner in which and to the extent to which it is currently being conducted. 3 vii. The Assets do not include any interest of any nature in any parcel of real property, except for the fixtures, leasehold improvements and leases delivered to Sylvan (collectively, the "Real Estate"). c. Authorization. This Agreement and all writings relating hereto ------------- to be executed and delivered by each of the Companies have been duly authorized by all necessary action and constitute the valid and binding obligations of each, enforceable in accordance with their respective terms. The individuals executing this Agreement and the other documents executed in connection herewith individually and on behalf of each of the Companies have been duly authorized and have the legal capacity to execute all of such documents in such capacities. Neither the execution and delivery hereof nor any writing relating hereto nor the consummation by either of the Companies of the transactions contemplated hereby or thereby, nor compliance with any of the provisions hereof or thereof, will: (i) conflict with or result in a material breach of either of the Companies' charter or formation documents; (ii) violate in any material respect any statute, law, rule or regulation or any order, writ, injunction or decree of any court or governmental authority; or (iii) violate or conflict with or constitute a default in any material respect under (or give rise to any right of termination, modification, cancellation or acceleration under), any agreement or writing of any nature to which either of the Companies is a party or by which the Assets may be bound or affected, or result in the creation of any Encumbrance against or upon any of the Assets under any agreement or writing to which either of the Companies is a party or by which any of them or their respective assets may be bound or affected, or (iv) impair or in any way limit any governmental or official license, approval, permit or authorization of either of the Companies; provided, however that the Companies hereby state, and Sylvan acknowledges, that the "change in control" of NAI pursuant hereto may subject NAI's contracts to immediate termination. Except as disclosed to Sylvan, including the consent of the customers of the Companies which have a written contract with either, no consent or approval of or notification to any Person is necessary or required in connection with the execution and delivery by either of the Companies of this Agreement or any writing relating hereto or the consummation of the transactions contemplated hereby or thereby. d. Financial Statements. -------------------- i. The Companies have delivered to Sylvan the consolidated balance sheets and the related statements of income, changes in shareholders' equity and changes in financial position of NAI, and the notes thereto and the auditor's report thereon, if applicable, as at and for the fiscal year ended August 31, 1996 and the seven month period ended March 31, 1997 (collectively, the "Historical Financials"). The Historical Financials are true, correct and complete and present fairly the financial position of NAI and the results of its operations, retained earnings and changes in financial positions as at the dates thereof and for the periods covered thereby, do not include or omit to state any material fact which renders them misleading, and have been prepared in conformity with generally accepted accounting principles applied on a consistent basis, except as may be disclosed in the reports relating thereto. At the Closing, the Companies shall deliver to Sylvan a consolidated balance sheet dated as of November 30, 1997 (the "Closing Balance Sheet") based on the best knowledge and good faith of the Companies, which shall be prepared on a basis consistent with the Historical Financials and in accordance with the provisions hereof. ii. Except as indicated to Sylvan, the statements of income included in the Historical Financials do not contain any items of special or nonrecurring income, and the balance sheets included in the Historical Financials do not, and the Closing Balance Sheet will not reflect any write-up or revaluation increasing the book value of any asset. e. Liabilities. ----------- i. Except as disclosed thereon, the liabilities on the Historical Financials consisted, and the liabilities on the Closing Balance Sheet will consist, solely of obligations and liabilities incurred by NAI either (A) in the ordinary and regular course of Business to Persons which are not affiliated with the Companies, or (B) in connection with the purchase by the business of NAI and HHB. 4 ii. As of November 30, 1997 in connection with the Business, neither of the Companies will have, any liability or obligation of any nature whatsoever, including, without limitation, known or unknown, fixed or contingent, accrued, absolute, matured or unmatured, or any "loss contingencies" considered "probable" or "reasonably possible" within the meaning of the Financial Accounting Standards Board's ("FASB") Statement of Financial Accounting Standards No. 5, which were not or will not be recorded on the Historical Financials or the Closing Balance Sheet, as the case may be, or (in the case of liabilities not required to be recorded on such financial statements in accordance with generally accepted accounting principles applied on a consistent basis) specifically disclosed in the footnotes to the Closing Balance Sheet or otherwise disclosed to Sylvan. iii. All reserves and allowances included or to be included in the Historical Financials and the Closing Balance Sheet are, and will be, adequate, appropriate and reasonable (in accordance with generally accepted accounting principles), as has been required by the Companies' outside auditors. f. Absence of Changes. Except as otherwise indicated to Sylvan on ------------------ Schedule 5F, attached hereto, the Business has been operated only in the ordinary and regular course and there has not been, since June 30, 1997 and through the Closing Date there will not be, with respect to each of the Companies and with respect to the Business: (i) any material and adverse change in its condition, financial or otherwise; (ii) any material and adverse damage, destruction or loss, whether or not covered by insurance; (iii) other than for purchases of inventory in the ordinary course of business, the incurring of any obligation or liability of any nature (whether absolute, accrued, contingent or otherwise and whether due or to become due) in excess of $100,000.00; (iv) any transfer or application of any assets of either the Companies to the payment of any amount payable to or for the benefit of either or any of the following Persons ("Companies' Affiliates"): any member of the family of any owner of the Companies or any Person which is controlled, directly or indirectly, by any owner or by any member of the family of any owner; (v) any declaration, setting aside or payment of any dividend or other distribution in respect of any shares of capital stock of the Companies, or any direct or indirect redemption, purchase or other acquisition of any such stock; (vi) any organized labor negotiations, strike or work stoppage affecting the Business or any threat of the foregoing; (vii) any sale, transfer or other disposition of any tangible or intangible asset of either the Companies to any Person (except for (a) payments of third party obligations incurred in the ordinary and regular course of business, in accordance with the regular payment practice of the Companies, and (b) sales of products and services in the ordinary and regular course of business); (viii) any termination or waiver of any rights of material value to the Business; (ix) to the Companies' knowledge, the adoption of any statute, rule, regulation or order which materially and adversely affects the Business; (x) any increase in the compensation of, or benefits for, officers, employees, independent contractors or other Persons performing services for either of the Companies (including, without limitation, any increase pursuant to any bonus, pension, profit-sharing or other plan or commitment), having annual remuneration in excess of $75,000, except for increases in accordance with the Companies' normal salary administration policies; (xi) any capital expenditure or commitment in excess of $75,000.00 for property, plant or equipment of the Companies; (xii) any forward purchase commitments not completed by the Closing Date involving more than $75,000.00; (xiii) any material change in the accounting methods or practices followed by either of the Companies or any change in depreciation or amortization policies or rates theretofore adopted; (xiv) any payment made (or withheld) by either of the Companies not in accordance with their usual or customary practices; (xv) any sale of goods or services to any customer where the payment for such goods or services allows for the payment therefor more than thirty (30) days after the goods or services have been provided to such customer; or (xvi) any commitment, obligation or understanding to do any of the foregoing. g. Tax Matters. Each of the Companies has filed, and will file, all ----------- tax returns and reports required to be filed and, in respect of any period ending prior to or which includes the Closing Date, has paid, or has set up an adequate reserve for the payment of, all taxes required to be paid or anticipated to be payable, which reserve either is reflected in the Historical Financials or will be reflected in the Closing Balance Sheet, as the case may be. Neither of the Companies have any liability for any such taxes in excess of the amounts so paid or reserves so established. Each of the Companies has properly withheld and paid, and will properly withhold and pay, all payroll or similar taxes. Neither of the Companies is delinquent in the payment of any tax, assessment, penalties or interest and neither has requested any extension of time within which to file any tax returns in respect of any fiscal year which have not since 5 been filed. All tax returns filed or to be filed are, or will be, true and correct. No deficiencies for any tax, assessment, penalties or interest have been proposed, asserted, assessed or, to the knowledge of the Companies, threatened against the Companies. Other than the NAI Federal tax returns for the years ended August 31, 1993 (audit closed) and August 31, 1995 (audit currently pending), no tax returns of the Companies have been audited by the appropriate governmental authority since June, 1993, and, to the knowledge of the Companies, none is threatened or contemplated. As of the date hereof, neither of the Companies has given or been requested to give waivers of any statute of limitations relating to the assessment or payment of any taxes for any taxable period. For purposes hereof, the term "tax" shall include all Federal, state, local and foreign taxes, assessments, and all franchise, sales, use, occupation, property, excise or other taxes, and governmental charges, including penalties and interest relating to the foregoing. h. Property Owned, Leased or Licensed. ---------------------------------- i. The Companies have delivered to Sylvan as Schedule 5H(i)(a), attached hereto, a list of all real estate leased by either of the Companies (collectively, the "Real Estate"). Neither of the Companies owns any fee interest in any real property and neither has any understandings or commitments to purchase any. ii. True and complete copies of all leases relating to the Real Estate have been delivered to Sylvan. iii. With respect to such leases, such leases are in full force and effect, are valid and binding obligations of the parties thereto and are enforceable against its parties in accordance with the terms thereof. There are no defaults (alleged or actual) by either party to such leases and no event has occurred which with due notice or lapse of time or both would constitute a default. iv. The Companies have delivered depreciation schedules to Sylvan, which contain lists of each item of machinery, equipment, tooling, office furniture, automobiles, trucks and other fixed assets (collectively, the "Fixed Assets") owned or leased by either of the Companies included on the Historical Financials or to be included on the Closing Balance Sheet. The Companies have also delivered to Sylvan a true and correct copy of each lease or other agreement under which either of the Companies pays in excess of $25,000 annually to lease, license, hold or operate any Fixed Asset. v. The Companies have delivered Schedule 5H(iii), attached hereto, a list of all unexpired non-governmental licenses, franchises, distribution rights and the like held by either of the Companies and all unexpired trademarks, trade names, service marks, copyrights, know-how, patents or any other proprietary rights and applications for any of the foregoing owned by or registered in the name of either of the Companies (collectively, the "Intangibles"). The term "Intangibles" does not include any contract rights. Each of the Companies owns, or has a valid licensee interest in, all Intangibles, and pays no royalty with respect to any of them, has the exclusive right to bring actions for the infringement thereof and has not granted any rights of any nature in any of the Intangibles to any Person. To the Companies' knowledge, no product made or sold by the Companies or for their benefit violates any license, franchise or distribution agreement or infringes any trademark, trade name, service mark, copyright, know-how or patent of another Person. All Intangibles are assignable to Sylvan without the consent of any Person. i. Insurance. Each of the Companies presently maintains in effect --------- insurance covering the Assets and the Business from reasonably foreseeable losses and any liabilities or risks relating thereto. The Companies have delivered to Sylvan a list of all insurance policies or performance bonds held or issued by or on behalf of Block or NAI and now in force (collectively, the "Insurance Policies"). Such coverage fully complies with all contractual requirements of the Business. j. Agreements, Etc. The Companies have delivered to Sylvan Schedule --------------- 5J, attached hereto, a list of all material written contracts, agreements, leases, instruments and other obligations of the Companies (collectively, the "Contracts"). With respect to the Contracts, except as disclosed to Sylvan: (i) all are in full force and effect, have not 6 been modified or amended, and constitute legal, valid and binding obligations of the respective parties thereto; (ii) each of the Companies has, in all material respects, performed all of the obligations required to be performed by it to date and is not in default or, to the knowledge of the Companies, alleged, to be in default in any respect thereunder, no party has been released from any obligation thereto and there exists no event, condition or occurrence which, with or without notice, lapse of time or the occurrence of any other event, would constitute a material default thereunder by either, or to the Companies' knowledge, would constitute a material default on the part of any other party thereto, provided, however that the Companies hereby state, and Sylvan acknowledges, that the "change in control" of NAI pursuant hereto may subject NAI's contracts to immediate termination; and (iii) none require the payment or performance of material considerations by either of Block or NAI on or after the Closing Date without the receipt of consideration of commensurate value, within the meaning of applicable fraudulent conveyance laws or decisions. Neither Block nor NAI is restricted by any agreement to which it is a party from carrying on the Business anywhere in the world. The Contracts confer on each of Block and NAI all rights necessary to enable them to conduct the Business as now being conducted. k. Litigation and Claims, Etc. Except as disclosed to Sylvan on -------------------------- Schedule 5K, attached hereto, there are no personal injury, product liability or other actions, suits, claims, investigations or legal or administrative or arbitration proceedings of any nature pending or, to the knowledge of the Companies, threatened, against or involving any of the Companies, whether at law or in equity. l. Compliance. Each of the Companies is in compliance, in all ---------- material respects, with all federal, state and local laws, ordinances, regulations, permits, licenses, decrees, judgments and orders applicable to the Business; and no proceeding is pending or, to the Companies' knowledge, threatened, to revoke or limit any thereof. i. Inventories. The inventories of each of the Companies included ----------- on the Historical Financials and to be included on the Closing Balance Sheet are and will be valued at the lower of cost or market value. Such inventories are all usable in the ordinary and regular course of the Business, and are fit and sufficient for the purpose for which they were purchased. Each of the Companies has exercised, and on the Closing Date will exercise, its best efforts to have, the proper amount of inventories to conduct the Business consistent with past practices. j. Employee Matters. Each of Block and NAI has accrued on the ---------------- Historical Financials, and will accrue adequate reserves on the Closing Balance Sheet, all wages, salaries, contractual bonuses, vacation pay and other compensation earned by, or accrued for the benefit of, all employees, if vested or payable by such date. Neither of the Companies is a party to or bound by any collective bargaining agreement or any other agreement. There is not pending or, to the Companies' knowledge, threatened any labor dispute, strike or work stoppage against the Companies which may affect the Business. There are no activities or proceedings of any labor union to organize any employees of either of the Companies. k. Employee Benefit Plans. ---------------------- i. Except as disclosed to Sylvan on Schedule 5O(i), attached hereto, neither of the Companies nor any current or former Plan Affiliate of the Companies has at any time had any liability with respect to any of the following (whether written, unwritten or terminated): (a) any "employee welfare benefit plan," as defined in Section 3(1) of ERISA, (b) any "employee pension benefit plan," as defined in Section 3(2) of ERISA, or (c) any other plan, policy, program, arrangement or agreement providing employee benefits (or other similar benefits) to former employees, dependents, beneficiaries, directors or independent contractors, including, but not limited to, any bonus or incentive plan, stock option, restricted stock, stock bonus plan, salary reduction agreement, change-of-control agreement, severance agreement, material fringe benefit program, short-term disability plan or sick leave, personnel policy, vacation time, holiday pay, moving expense reimbursement program, employment agreement or consulting agreement which could result in Sylvan having any liability, whether direct or indirect. ii. As used herein, the following terms shall have the following respective meanings: (a) the term "Employee Plan" shall mean any plan, policy, program, arrangement or agreement described in Section 7 5O(i), whether or not scheduled; and (b) the term "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. iii. With respect to any person or entity ("First Person"), the term "Plan Affiliate" shall mean any other person or entity with whom the First Person constitutes all or part of a controlled group, or which would be treated with the First Person as under common control or whose employees would be treated as employed by the First Person, under Section 414 of the Code and any regulations, administrative rulings and case law interpreting the foregoing. iv. No Employee Plan (a) is subject to Title IV of ERISA, (b) is a "multi-employer plan" as defined in Section 4001 of ERISA, a "multi- employer plan" within the meaning of Section 3(37) of ERISA, a "multiple employer plan" within the meaning of Code Section 413(c) or a "multiple employer welfare arrangement" within the meaning of Section 3(40) of ERISA, or (c) provides any welfare-type benefits for retirees or former employees, or their spouses or dependents (except for limited continued medical benefit coverage for former employees, their spouses and other dependents as required to be provided under Section 4980B of the Code. v. A complete copy of each written Employee Plan as amended to the Closing, together with Form 5500 Annual Reports for the three (3) most recent plan years, if any; a copy of any funding vehicle with respect to each such plan; a copy of the most recent determination letter with respect to such plan (if any); have been delivered to Sylvan. No person has made any statement, whether oral or in writing, regarding any Employee Plan which will result in any liability to Sylvan in excess of any liability previously disclosed pursuant to this paragraph. vi. Each Employee Plan (a) has been and currently complies in form and in operation in all respects with all applicable requirements of ERISA and the Code and any other applicable Federal and state laws, (b) has been and is operated and administered in compliance with its terms (except as otherwise required by law); (c) has been and is operated in compliance with the applicable requirements of the Code and ERISA in such a manner as to qualify, where appropriate, for both Federal and state purposes, for income tax exclusions to its participants, tax-exempt income for its funding vehicle, and the allowance of deductions and credits with respect to contributions thereto; and (d) where applicable, has received a favorable determination letter from the Internal Revenue Service ("Service"). vii. With respect to each Employee Plan, no person has: (a) has entered into any non-exempt "prohibited transaction," as such terms is defined in ERISA or the Code; or (b) has breached a fiduciary obligation; which could subject Sylvan to any liability. viii. With respect to each Employee Plan all required or recommended contributions, payments, premiums, contributions, reimbursements, expenses, accruals or other liabilities for all periods ending prior to or as of the Closing (including periods from the first day of the then current plan year to the Closing) (a) have been fully satisfied, (b) will be accrued at Closing, or (c) are subject to a funding arrangement separate from the assets of any of the Companies or any of its Plan Affiliates. l. Transactions with Related Parties. The Companies have delivered --------------------------------- Schedule 5P, attached hereto, a list of all amounts directly or indirectly paid (or deemed for accounting purposes to have been paid) or to be paid by either of the Companies to, or received by either of the Companies from any Person which is controlled by, controls, or under common control with, directly or indirectly, either of the Companies during the current and the last fiscal year for products or services. m. Accounts and Notes Receivable. The Companies have delivered to ----------------------------- Sylvan an aged list of unpaid accounts and notes receivable relating to the Business and constituting an Asset (the "Receivables") owing to either as of November 30, 1997. All of the Receivables reflected on the Historical Financials and to be reflected on the Closing Balance Sheet constituted and will constitute only valid claims against third parties. The Receivables arose or will arise from bona fide transactions in the ordinary and regular course of Business and all (subject to the reserve for bad 8 debt) are collectible within ninety (90) days after they arose or will arise, and are not subject to any defenses, set-offs or counterclaims. The Historical Financials do, and the Closing Balance Sheet will, include reserves for bad debt reasonably based on past customer performance. n. Customers and Suppliers. Except as disclosed to Sylvan, in ----------------------- connection with the Business, neither Block nor NAI is required to provide any bonding, guaranty or other financial security arrangements in connection with any transactions with any of its customers or suppliers. The Companies have no knowledge or reason to believe that as a result of the transactions contemplated hereby or otherwise, any customer or supplier of either of the Companies intends to cease or substantially reduce, the purchase or sale, respectively, of goods or services from or to Sylvan on terms and conditions similar to those imposed on purchases and sales from and to the Companies and NAI prior to the date hereof, except that if appropriate consents to transfer due to NAI's "change in control" are not obtained, certain contracts may be subject to cancellation. o. Bank Accounts; Officers; Directors; Credit Cards. The Companies ------------------------------------------------ have delivered to Sylvan a list of all bank accounts, safe deposit boxes and the like in the name of or controlled by them. p. Illegal Payments. None of the Companies know of or have reason ---------------- to believe that (i) any shareholder, director or officer made any illegal payments, gifts or the like in the procurement of any of the contracts being assigned hereunder. q. Material Disclosures. No representation, warranty, covenant or -------------------- agreement by the Companies contained herein, and no statement contained in any certificate, Schedule, Exhibit, list or other writing furnished to Sylvan in connection with the transactions contemplated hereby, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading. All Schedules and Exhibits hereto and all writings furnished to Sylvan hereunder or in connection with the transactions contemplated hereby are accurate, true and complete in all material respects. All representations, warranties, covenants and agreements made by the Companies herein and all other agreements and instruments delivered in connection herewith or pursuant hereto and facts and information contained in the Exhibits and Schedules shall be true and correct in all material respects as of the Closing Date with the same effect as if they had been made at and as of the Closing Date. 4. SYLVAN'S REPRESENTATIONS, WARRANTIES, AGREEMENTS AND COVENANTS. Sylvan -------------------------------------------------------------- represents and warrants to, and agrees and covenants with, the Companies, now and as of the Closing Date, as follows: a. Organization, Standing and Power. Sylvan is a corporation duly -------------------------------- organized, validly existing and in good standing under the laws of the State of Maryland. Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Sylvan has all requisite corporate power and authority to own, lease and operate the Business and to carry on the Business after the transactions contemplated hereby. Each of Sylvan and Sub has the full power and authority to enter into this Agreement and perform all acts necessary or appropriate to consummate all of the transactions contemplated hereby. b. Authorization. This Agreement and all writings relating hereto ------------- to be executed and delivered by Sylvan and Sub have been duly authorized by all necessary action and constitute the valid and binding obligations of Sylvan and Sub, enforceable in accordance with their respective terms. The individuals executing this Agreement and the other documents executed in connection herewith on behalf of Sylvan and Sub have been duly authorized to execute all of such documents on behalf thereof. Neither the execution and delivery hereof nor any writing relating hereto nor the consummation by Sylvan and Sub of the transactions contemplated hereby or thereby, nor compliance with any of the provisions hereof or thereof, will: (i) conflict with or result in a material breach of the Articles of Organization of each of Sylvan and Sub; (ii) violate any statute, law, rule or regulation or any order, writ, injunction or decree of any court or governmental authority; or (iii) violate or conflict with or constitute a default under (or give rise to any right of termination, modification, cancellation or acceleration under), any agreement or writing of any nature to which either is a party or by which the assets of either may be bound or affected, or result in the creation of any 9 Encumbrance against or upon any of the assets of either under any agreement or writing to which either is a party or by which either or the assets of either may be bound or affected; or (iv) impair or in any way limit any governmental or official license, approval, permit or authorization of Sylvan. No consent or approval of or notification to any Person is necessary or required in connection with the execution and delivery by Sylvan or Sub hereof or any writing relating hereto or the consummation of the transactions contemplated hereby or thereby. c. Material Disclosures. No representation, warranty, covenant or -------------------- agreement by Sylvan contained herein, and no statement contained in any certificate, Schedule, Exhibit, list or other writing furnished to any of the Companies in connection with the transactions contemplated hereby, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading. All Schedules and Exhibits hereto and all copies of all writings furnished to the Companies hereunder or in connection with the transactions contemplated hereby are accurate, true and complete. All representations, warranties, covenants and agreements made by Sylvan herein and facts and information contained in the Exhibits and Schedules shall be true and correct as of the Closing Date with the same effect as if they had been made at and as of the Closing Date. 5. CLOSING TRANSACTIONS. On the Closing Date (or on a date otherwise -------------------- indicated herein): a. The Companies shall deliver or cause to be delivered to Sylvan and/or Sub: i. Such keys, lock and safe combinations, and other similar items as Sylvan shall require to obtain full occupation and control of the Assets. ii. As between the Companies and Sylvan, possession of the Real Estate. iii. All consents, waivers and releases necessary, required or appropriate to consummate the transactions contemplated hereby, except consents to transfers of NAI's contracts because of the "change of control" of NAI, which Sylvan acknowledges will not be procured by the Companies and which are not a condition to the consummation of the transactions contemplated hereby. iv. The Closing Balance Sheet, and consolidated unaudited financial statements for the Companies and Block State Testing Services, L.P. as of November 30, 1997. v. Certified copies of resolutions duly adopted by Block's General Partner approving the transactions contemplated by, and authorizing the execution, delivery and performance by each of the Companies of, this Agreement, and a certificate as to the incumbency of officers of each executing any instrument or other document delivered in connection with such transactions. vi. Such other documents as the Sylvan may reasonably request. b. Sylvan shall deliver or cause to be delivered to the Companies: i. Within five (5) days after the Closing, certificates representing the SLS Stock. ii. Certified copies of resolutions duly adopted by Sylvan's Board of Directors approving the transactions contemplated by, and authorizing the execution, delivery and performance by Sylvan of, this Agreement, and a certificate as to the incumbency of officers of each executing any instrument or other document delivered in connection with such transactions. iii. Such other documents as the Companies may reasonably request. 6. INTENTIONALLY LEFT BLANK. ------------------------ 10 7. CONDITIONS OF OBLIGATIONS OF Sylvan. The obligations of Sylvan to ----------------------------------- perform this Agreement are subject to the satisfaction of the following conditions on or prior to the Closing Date: a. Representations and Warranties. The representations and ------------------------------ warranties of the Companies in this Agreement or in any Schedule, Exhibit, certificate or document delivered in connection herewith shall be true and correct in all material respects on the Closing Date. b. Performance of Obligations of the Companies. The Companies shall ------------------------------------------- have performed all agreements and obligations required to be performed by them on or prior to the Closing Date. c. Consents, Waivers and Releases. The Companies shall have ------------------------------ obtained, or to the reasonable satisfaction of Sylvan obviated the need to obtain, all consents, waivers and releases from third parties necessary to execute and deliver this Agreement and consummate the transactions contemplated hereby. Also, Sylvan shall have obtained the consent the Board of Directors of Sylvan Learning Systems, Inc. to execute and deliver this Agreement and consummate the transactions contemplated hereby. Notwithstanding the foregoing, Sylvan acknowledges and agrees that assignments of contracts due to NAI's "change in control" will not be a condition precedent to the consummation of the transactions contemplated hereby, nor will such consents be required at any time after the Closing. d. No Litigation. No action, suit or other proceeding shall be ------------- pending before any court, tribunal or governmental authority seeking or threatening to restrain or prohibit the consummation of the transactions contemplated hereby, or seeking to obtain damages in respect thereof, or involving a claim that consummation thereof would result in the violation of any law, decree or regulation of any governmental authority having appropriate jurisdiction. e. Closing Documents. The Companies shall have delivered, or shall ----------------- have caused the delivery of, all appropriate documents and instruments described in Section 7 hereof. f. Working Capital. On a consolidated basis, as of the Effective --------------- Date, the sum of the Companies' and NAI's cash and all other current assets (other than excluded assets) less all current liabilities to be assumed by Sylvan (but not including deferred revenue items) shall be greater than $0.00. 8. CONDITIONS OF OBLIGATIONS OF THE COMPANIES. The obligations of the ------------------------------------------ Companies to perform this Agreement are subject to the satisfaction, on or prior to the Closing Date, of the following conditions: a. Representations and Warranties. The representations and ------------------------------ warranties of Sylvan herein or in any Schedule, Exhibit, certificate or document delivered in connection herewith shall be true and correct in all material respects on the Closing Date. b. Performance of Obligations of Sylvan. Sylvan shall have ------------------------------------ performed all agreements and obligations required to be performed by it on or prior to the Closing Date. c. Consents, Waivers and Releases. Sylvan shall have obtained, or ------------------------------ to the reasonable satisfaction of the Companies obviated the need to obtain, all consents, waivers and releases from third parties necessary to execute and deliver this Agreement, buy the Assets and consummate the transactions contemplated hereby. d. No Litigation. No action, suit or other proceeding shall be ------------- pending before any court, tribunal or governmental authority seeking or threatening to restrain or prohibit the consummation of the transactions contemplated hereby, or seeking to obtain damages in respect thereof, or involving a claim that consummation thereof would result in the violation of any law, decree or regulation of any governmental authority having appropriate jurisdiction. 11 e. Closing Documents. Sylvan shall have delivered, or shall have ----------------- caused the delivery of, all appropriate documents and instruments described in Section 7 hereof. 9. CLOSING NOT A WAIVER. The fact that the parties have chosen to -------------------- consummate the transactions contemplated hereby shall not act or be deemed or construed as a waiver of either party or estop either party from pursuing their respective rights to indemnification hereunder or other remedies for any reason whatsoever. 10. POST-CLOSING COVENANTS. ---------------------- a. Restrictive Covenants. --------------------- i. Non-disclosure. Each of the Companies acknowledges that it has been and will be entrusted with trade secrets, marketing, operating and strategic plans, customer and supplier lists, proprietary information and other confidential or specialized data and/or information relative to the Business, whether now existing or to be developed or created after the Closing Date (collectively, "Trade Secrets"). Each of the Companies covenants and agrees that each shall at all times after the date hereof hold in strictest confidence any and all Trade Secrets that may have come or may come into its possession or within its knowledge concerning or related to the products, services, processes, businesses, suppliers, customers and clients of each of the Companies in connection with the Business and the Assets. Each of the Companies covenants and agrees that neither it nor any Person controlled by it will for any reason, directly or indirectly, for itself or for the benefit of any other Person, use, copy, divulge or otherwise disseminate or disclose any of the Trade Secrets owned or used by, or licensed to, the Companies or any of their affiliates or otherwise relating to the Companies or the Business, provided that each of the Companies may disclose Trade Secrets pursuant to an order by a court of competent jurisdiction, provided, further, that each of the Companies shall give Sylvan notice of such order and any court pleading requesting such disclosure, in order to provide Sylvan with an opportunity to prevent such disclosure or procure an appropriate protective order. ii. Customers. Each of the Companies acknowledges that customers and customer accounts of the Companies comprising the Assets will, after the Closing, at all times be the sole and separate property of Sylvan, in which neither of the Companies have any rights whatsoever, and all activities of or work performed by neither of the Companies for or on behalf of Sylvan in the future will be performed solely for the benefit of Sylvan and the goodwill resulting from such efforts by any of the Companies is and at all times will be the sole and separate property of Sylvan, which goodwill is intended to be protected, in part, by this Section. iii. Non-Solicitation; Non-Hire. Each of the Companies agrees that from the Closing Date and continuing for a period (the "Non-Compete Period") of five (5) years from the Closing Date, neither they nor any person or enterprise controlled by them will solicit or, without Sylvan's prior written consent, hire, for employment or any other reason any person who, at any time within one (1) year prior to the time of the act of solicitation, or hire, was employed by Sylvan or either of the Companies. iv. Non-Competition by Companies. During the Non-Compete Period, each of the Companies agree that none of them nor any person or enterprise controlled by them will become a stockholder, director, officer, agent, employee or representative of or consultant to a corporation or member of a partnership, engage as a sole proprietor in any business, act as a consultant to any of the foregoing or otherwise engage, directly or indirectly, in any enterprise which competes with the Business anywhere in the continental United States; provided, however, that the foregoing shall not prohibit (i) the ownership of less than two percent (2%) of the outstanding shares of the stock of any corporation engaged in any business, which shares are regularly traded on a national securities exchange or in any over-the-counter market, and (ii) the ownership and operation of Registry Services International, L.P. v. Relief, Reformation; Severability. The parties agree that the covenants contained in this Section 12A are separate and are reasonable in their scope and duration and may be enforced by specific performance or otherwise. The parties shall not raise any issue of reasonableness as a defense in any proceeding to enforce any of 12 the covenants herein. Notwithstanding the foregoing, in the event that a covenant included in this Section 12A shall be deemed by any court to be unreasonably broad in any respect, the court which makes such finding shall modify such covenant for the purpose of making such covenant reasonable in scope and duration. The validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected by any such modification. vi. Remedies. The parties acknowledge that any breach of the restrictive covenants herein will cause irreparable harm to the other, and that such harm will be difficult if not impossible to ascertain. Therefore, if any action or proceeding is commenced by or on behalf of any party to enforce the provisions hereof, such party shall be entitled to equitable relief, including injunction, against any actual or threatened breach hereof, and any damages arising therefrom including, without limitation, reasonable fees of its attorneys and their support staff and all other costs and expenses incurred by the other party in good faith in connection therewith without bond and without liability should such relief be denied, modified or vacated. Neither the right to obtain such relief nor the obtaining of such relief shall be exclusive of or preclude any party from any other remedy. Each party hereby waives the claim or defense to an action for equitable relief by the other that the other has an adequate remedy at law or has not been or is not being irreparably injured by such breach. FURTHERMORE, EACH PARTY HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE OF ANY NATURE ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE RESTRICTIVE COVENANTS CONTAINED IN SECTION 12A HEREOF. INSTEAD, ANY DISPUTES RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY. 11. INDEMNIFICATION. --------------- a. The Companies jointly and severally agree to indemnify and hold harmless Sylvan against any and all damages, losses, settlement payments, obligations, liabilities, claims, actions, causes of action, suits, proceedings, costs of investigations, demands, assessments, judgments, Encumbrances and costs and expenses (including, without limitation, attorneys' fees, interest, penalties and all costs associated therewith incurred by such party in good faith) (collectively, "Losses") suffered, sustained, incurred or paid by any indemnified party, to which such indemnified party may become subject under any federal, state or local law, rule or regulation, at common law or otherwise (including in settlement of any litigation), only to the extent that such Losses (or actions in respect thereof) exceed in the aggregate $250,000 (net of insurance proceeds paid with respect thereto and tax benefits derived therefrom) and arise out of or are based upon (i) any untrue or inaccurate statement made by either of the Companies herein, including the information included in any Exhibit hereto; (ii) the claims of any broker or finder engaged by either of the Companies; (iii) the nonfulfillment or breach or alleged nonfulfillment or breach of any agreement or covenant of any of the Companies; (iv) the assertion against any indemnified party or any of their assets of any liability or obligation of any of the Companies which is not an Assumed Liability or related to an Assumed Liability; and (v) all currently outstanding matters of litigation, or claims currently threatened against either of the Companies; and will reimburse each indemnified party for any legal or other cost or expense incurred by such party in good faith in connection with investigating or defending any such loss, claim, damage, liability or action. Notwithstanding anything herein to the contrary, the Companies shall have no indemnity obligation whatsoever to Sylvan based in whole or in part because of the failure to procure consents to the assignments of any of the Contracts from the Companies to Sylvan. The indemnity obligation described in this Section 13A shall be the sole and exclusive remedy of Sylvan, and shall not survive the Closing. b. Sylvan will indemnify and hold harmless each of the Companies against any and all Losses suffered, sustained, incurred or paid by any indemnified party, to which such indemnified party may become subject under any federal, state or local law, rule or regulation, at common law or otherwise (including in settlement of any litigation), insofar as such Losses (or actions in respect thereof) arise out of or are based upon (i) any untrue or inaccurate statement or alleged untrue or inaccurate statement of any material fact made by Sylvan herein, including the information included in any Exhibit hereto; (ii) the claims of any broker or finder engaged by Sylvan; (iii) the nonfulfillment or breach or alleged nonfulfillment or breach of any agreement or covenant of Sylvan, and; (iv) the assertion against any indemnified party or any of their assets of any liability or obligation of Sylvan, or relating to Sylvan's operations or any of its assets, including the Assumed Liabilities; and will reimburse each indemnified party 13 for any legal or other expenses reasonably incurred by such party in connection with investigating or defending any such loss, claim, damage, liability or action. The indemnity obligation described in this Section 13B shall be the sole and exclusive remedy of the Companies. 12. INTENTIONALLY LEFT BLANK. ------------------------- 13. MISCELLANEOUS. ------------- a. Manner of Closing. At the Closing, all transactions shall be ----------------- conducted substantially concurrently and no transaction shall be deemed to be completed until all are completed. b. Access to Records. Sylvan shall afford to the Representative and ----------------- its agents, the opportunity, upon reasonable advance notice, to examine and make copies of the books and records of each of the Companies having an effect on all periods through the Closing Date, in connection with tax and financial reporting matters and other bona fide business purposes, and Sylvan shall use reasonable efforts to retain such books and records for a period of four (4) years from the date of such books and records. c. Parties in Interest. This Agreement shall be binding upon, inure ------------------- to the benefit of, and be enforceable by the parties and their respective executors, successors and assigns. Notwithstanding the foregoing, the Companies are prohibited from assigning their respective interests hereunder, by operation of law or otherwise. The Companies hereby consent to a collateral assignment of Sylvan's rights hereunder to a lender, understanding that such lender shall have the ability to enforce the rights of Sylvan granted herein. d. Entire Agreement; Amendments. This Agreement, the Exhibits and ---------------------------- Schedules attached hereto, and the other writings referred to herein or delivered in connection herewith contain the entire understanding of the parties with respect to its subject matter, and supersedes all prior understandings and agreements. This Agreement may be amended only by a written instrument duly executed by the parties. Any reference herein to this Agreement shall be deemed to include the Exhibits and Schedules attached hereto. If any provision of this Agreement is determined to be illegal or unenforceable, such provision will be deemed amended to the extent necessary to conform to applicable law or, if it cannot be so amended without materially altering the intention of the parties, it will be deemed stricken and the remainder of the Agreement will remain in full force and effect. e. Headings. The section and subsection headings contained in this -------- Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. f. Notices. All notices, claims, certificates, requests, demands ------- and other communications ("communications") hereunder shall be in writing and shall be deemed to have been duly given when personally delivered, mailed (by registered or certified mail, postage prepaid) or sent by overnight courier service or facsimile addressed as follows: If to either of the Companies, to: Block Testing Services, LLC 650 Dundee Road, Suite 370 Northbrook, IL 60062 Attention: Dean J. Bozzano, CEO Facsimile: (847)480-1251 If to Sylvan: SYLVAN LEARNING SYSTEMS, INC. 100 Lancaster Street Baltimore, MD 21202 Attention: General Counsel's Office Facsimile: (843)843-806 14 or to such other address as the person to whom a communication is to be given may have furnished to the others in writing in accordance herewith. A communication given by any other means shall be deemed duly given on the earlier of when actually received by the addressee or three (3) days after sending such communication. Notice hereunder to Representative shall be deemed to be notice to each of the Companies. g. Public Announcements. All public announcements relating to this -------------------- Agreement or the transactions contemplated hereby, including announcements to employees, will be made only as may be agreed upon jointly by the parties hereto, or as Sylvan considers required or appropriate to comply with applicable law. Any governmental, public or private inquiries or requests for information shall be promptly referred to Sylvan. h. Further Assurances. After the Closing Date, without further ------------------ consideration, the parties shall execute and deliver such further instruments and documents as either party shall reasonably request to consummate the transactions contemplated hereby and to perfect Sylvan's title to the Assets. i. Waivers. Any party to this Agreement may, by written notice to ------- the other party hereto, waive any provision of this Agreement. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent, same or different breach. j. Counterparts. The Agreement may be executed in one or more ------------ counterparts, but all such counterparts shall constitute one and the same instrument. k. Use of Certain Terms. The term "Person" shall mean an -------------------- individual, a partnership, a joint venture, a joint stock company, a corporation, a trust, an unincorporated organization, a limited liability company, any other legal entity and a government, governmental body or quasi- governmental body, or any department, agency or political subdivision thereof. l. Applicable Law. The terms and conditions of this Agreement shall -------------- be governed by and construed in accordance with the laws of the State of Delaware. m. Agreement to Arbitrate. In the event of any other dispute ---------------------- arising out of, connected with, related or incidental to this Agreement and the documents or instruments delivered in connection herewith, such dispute shall be submitted to arbitration in accordance with the terms of this Section. The party who is alleging that a dispute exists shall send a notice of such dispute to all other parties, which notice shall set forth in detail the dispute, the parties involved and the position of such party with respect thereto. Within ten (10) business days after the delivery of such a notice, counsel for the parties shall mutually select as an arbitrator an attorney practicing in Baltimore, Maryland, who is experienced in commercial arbitration. If counsel for the parties are unable to agree upon the selection of the arbitrator, an arbitrator residing in or about Baltimore, Maryland experienced in commercial arbitration shall be selected by the Baltimore, Maryland office of the American Arbitration Association. The arbitrator so selected shall schedule a hearing in Baltimore, Maryland, on the disputed issues within forty-five (45) days after his appointment, and the arbitrator shall render his decision after the hearing, in writing, as expeditiously as is possible, and shall be delivered to the parties. The arbitrator shall render his decision based on written materials supplied by the parties to the arbitration in support of their respective oral presentations at the hearing, and no party shall be entitled to discovery in such matter. Each party shall supply a copy of any written materials to be submitted to the arbitrator at least fifteen (15) days prior to the scheduled hearing. The parties agree that the arbitrator shall not have any power or authority to award punitive damages. A default judgment may be entered against any party who fails to appear at the arbitration hearing. Such decision and determination shall be final and unappealable and shall be filed as a judgment of record in any jurisdiction designated by the successful party. The successful party shall be entitled to recover all fees, costs and expenses incurred in connection with such arbitration. The parties hereto agree that this paragraph has been included to rapidly and inexpensively resolve any disputes between them with respect to the matters described above, and that this paragraph shall be grounds for dismissal of any court action commenced by any party with respect to a dispute arising out of such matters. 15 THE PARTIES AGREE THAT ANY ARBITRATION SHALL BE GOVERNED BY AND PURSUANT TO THE FEDERAL ARBITRATION ACT, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER. n. Pronouns. All pronouns and any variations thereof shall be deemed to -------- refer to the masculine, feminine, singular and plural as the identity of that person referred to requires. o. Joint and Several Obligations. The duties and obligations of each of ----------------------------- the Companies are joint and several, and the Companies hereby acknowledge the same, and each of the Companies hereby guarantees performance of all duties and obligations of the other under and pursuant to this Agreement. p. Effect of Disputes. Notwithstanding the fact that there may from time ------------------ to time be disputes among the parties concerning the terms and conditions hereof, the parties agree not to under any circumstances, disparage, criticize or denigrate the talents, skills, prospects, abilities, integrity or character of the other parties hereto, or such parties' management, directors, employees, agents or representatives (including those of Sylvan's affiliates). The provisions of this Section shall survive the execution and termination hereof, irrespective of the reason for such termination. q. Non-Recourse Obligations. Sylvan specifically acknowledges and agrees ------------------------- that, notwithstanding any provision to the contrary contained in this Agreement, except as set forth in the last sentence of this Section, its only recourse for enforcement of the covenants and agreements of the Companies contained herein, shall be against the Assets of the Companies and that all of such covenants and agreements of the Companies contained herein, including without limitation the indemnity obligations of the Companies contained in Section 13 hereof, are and shall be non-recourse to both the general and limited partners of the Block. The foregoing shall in no way be deemed to be a limitation of Sylvan's rights to seek indemnification as assignee of Block's rights under each of the (i) Stock Purchase Agreement ("SPA") dated July, 1997, by and among NAI Acquisition Corp., a Delaware corporation ("Sub"), Block, NAI, Bax & Associates, Inc., a Florida corporation ("BAI"), and AWM Associates, Inc., a Florida corporation ("AWM") and Dr. James A. Bax and Anthony W. Mitchell, Ph.D., and (ii) Asset Purchase Agreement ("APA") dated as of February 1, 1996 among Block, H.H. Block & Associates, Inc., NAI, James Bax and Anthony Mitchell. Notwithstanding the foregoing, NAI hereby agrees to indemnify and hold Sylvan harmless, pursuant to the provisions of Section 13A hereof, from any breaches of the representations set forth in the second sentence of Section 5B(i) and the representations in Section 5B(v) hereof, provided, that the foregoing obligation of indemnity shall survive only until June 30, 1998 and shall in no event exceed Losses of more than $1 million. r. Mutual Drafting. This Agreement is the joint product of the Companies --------------- and Sylvan and their respective counsel, and each provision hereof has been subject to the mutual consultation, negotiation and agreement of such parties and counsel, and shall not be construed for or against any party hereto. 16 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written. BLOCK TESTING SERVICES L.P. By BLOCK TESTING SERVICES L.L.C. By -------------------------------------- Dean J. Bozzano, CEO NATIONAL ASSESSMENT INSTITUTE, INC. By -------------------------------------- Dean J. Bozzano, President SYLVAN LEARNING SYSTEMS, INC. By -------------------------------------- B. Lee McGee, Chief Financial Officer NAI MERGER CORP. By -------------------------------------- B. Lee McGee, Chief Financial Officer 17 EX-4.4 4 STOCK PURCHASE AGREEMENT EXHIBIT 4.4 ----------- AGREEMENT FOR PURCHASE OF STOCK Agreement for Purchase of Stock (this "Agreement"), effective as of October 1, 1997 by and among Sylvan Learning Systems, Inc., a Maryland corporation (the "Purchaser") and Leslie Zalk, Kathleen Gillan, Carleen Garza, Evelyn M. Tuey, Stephanie Thomas, Merida M. Phillips, Kay L. Bennett, and Patricia McSwain (the "Stockholders"). WITNESSETH: The Stockholders, in aggregate, own seventy-five percent (75.0%) of all of the issued and outstanding capital stock of PMZ, Inc., a California corporation (the "Company"). The remaining 25% is owned by Purchaser. The Purchaser and Stockholders wish to enter into an agreement for the acquisition of Stockholders' interest and stock in the Company, and Purchaser makes such acquisition as part of its plan and effort to acquire the Company and all shares outstanding therein in a transaction or series of transactions qualifying as a tax-free reorganization under Section 368(a)(1)(A) of the Code. Accordingly, in consideration of the foregoing and of the covenants, agreements, representations and warranties hereinafter contained, the Purchaser and the Stockholders hereby agree as follows: 1. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby represents and warrants to the Stockholders as follows: 1.1 Organization and Standing. The Purchaser is a corporation duly ------------------------- organized, validly existing and in good standing under the laws of the State of Maryland and has the corporate power to carry on its business as it is now being conducted and to own or hold under lease the properties and assets it now owns or holds under lease. The Purchaser has at all times in the past operated and used its assets in material compliance with, and currently is not in violation of, and has obtained all material licenses and permits required by, any law, rule or regulation. 1.2 Financial Statements. The Purchaser has delivered to the -------------------- Stockholders copies of the Purchaser's audited consolidated financial statements for the fiscal years ended December 31, 1995 and 1996 and unaudited consooidated financial statements for the six month period ending June 30, 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 Stockholders copies of its Annual Report on Form 10-K for the year ended December 31, 1996, its proxy statement dated June 7, 1997, and all other reports or documents required to be filed with the Securities and Exchange Commission pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), after the filing of such Annual Report on Form 10-K and prior to the date of this Agreement. 1.3 No Conflict With Other Documents. Neither the execution and -------------------------------- delivery of this Agreement nor the carrying out of the transactions contemplated hereby will result in any violation, termination or modification of, or be in conflict with, the Purchaser's Charter or By-Laws, or, any terms of any contract, instrument or other agreement to which the Purchaser is a party or by which it or any of its properties is bound or affected, or any law, rule, regulation, license, permit, judgment, decree or order applicable to the Purchaser or by which any of its properties or assets are bound or affected, or result in any breach of or constitute a default (or with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or 1 cancellation, or result in the creation of any lien, charge or encumbrance upon any of its properties or assets, except where such event or occurrence would not, singly or in the aggregate, have a material adverse on the Purchaser. 1.4 Brokers and Advisors. The Purchaser has taken no action which -------------------- would give rise to a valid claim against any party hereto for a brokerage commission, finder's fee, counseling or advisory fee, or like payment. 1.5 Validity of Common Stock. The shares of Purchaser's Common Stock ------------------------ to be issued and delivered by the Purchaser in connection with the acquisition of Stockholders's shares in the Company have been duly authorized for issuance and will, when issued and delivered as provided in this Agreement, be duly and validly issued, fully paid and non-assessable. 1.6 Registration Statement on Form S-3. As of the date hereof, the ---------------------------------- Purchaser is aware of no events, actions or conditions which would prevent the Purchaser from being able to comply with the provisions of Section 11.1(a) of this Agreement, and will use its best efforts to continue to be eligible to comply with the provisions of Section 11.1(a). 1.7 Authority. The execution, delivery and performance of this --------- Agreement by the Purchaser have been duly authorized by its Board of Directors, and this Agreement is a valid, legally binding and enforceable obligation of the Purchaser. 1.8 Tax-Free Reorganization. The Purchaser is not aware of any ----------------------- events or conditions relating to the Purchaser which would preclude the Stockholders from treating the share exchange as a tax-free reorganization under Section 368(a)(1)(A) of the Code. 2. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. Each of the Stockholders hereby severally, but not jointly, represent and warrant to the Purchaser as follows: 2.1 Authorized and Issued Shares. The Company's entire authorized ---------------------------- capital stock consists of one million (1,000,000) shares of Common Stock, $1.00 par value per share (the "Company Common Stock"), of which 469,995 shares are issued and outstanding. No shares of Company Common Stock are held in the Company's treasury and no shares are reserved for issuance. All outstanding shares of Company Common Stock have been duly authorized and are validly issued and are fully paid and non-assessable and are owned by the Stockholders and the Purchaser. The Company is not a party to or bound by any options, calls, contracts, preemptive rights or commitments of any character relating to any issued or unissued capital stock, or any other equity security issued or to be issued by the Company. 2.2 Ownership of Company Common Stock. As shown on Schedule 1.2 to --------------------------------- this Agreement, each Stockholder has good and marketable title to their respective portion of the 352,495 issued and outstanding shares of Company Common Stock free and clear of any pledges, liens, restrictions, claims or encumbrances of any kind. The said 352,495 shares represent seventy-five percent (75%) of the 469,995 total shares of the Company that are issued and outstanding as of the effective date of this Agreement. Such Stockholders are not a party to or bound by any options, calls, contracts, or commitments of any character relating to any issued or unissued stock or any other equity security issued or to be issued by the Company. 2.3 Organization. The Company is a corporation duly organized, ------------ validly existing and in good standing under the laws of the State of California, and has the corporate power and authority to carry on its business as it is now being conducted and to own or hold under lease the properties or assets it now owns or holds under lease and to perform the actions contemplated hereby. Complete and accurate copies of the current Charter, By-Laws, minute books and stock transfer books of the Company have been provided to the Purchaser, and such copies are complete and correct and in full force and effect. The Company does not own or have any direct or indirect interest in any other corporation, firm, partnership, joint venture enterprise or other business entity. 2 2.4 Transactions with Affiliates. The Company is not a party to any ---------------------------- contract, agreement or other arrangement with any current or former officer, director or Stockholder or any affiliate of any such persons. 2.5 Financial Statements. The Stockholders have caused the Company -------------------- to provide to the Purchaser the reviewed financial statements for the fiscal year of the Company ended on December 31, 1996 and audited financial statements for the seven month period ending July 31, 1997, which have been reviewed audited by Alan Darnell, CPA (collectively, and together with all audited financial statements to be delivered after the execution of this Agreement, the "Company Financial Statements"). The Company Financial Statements are complete and correct, have been prepared on a consistent basis throughout the periods covered thereby and present fairly and accurately the financial position and results of operations of the Company as of and for the periods indicated. There are no material liabilities or obligations of the Company, whether contingent or absolute, as of the dates of such statements, including liability for taxes of any type, which in accordance with GAAP consistently applied should have been shown or provided for in the Company Financial Statements and are not so shown or provided for. Since July 31, 1997, there has been no material adverse change in the condition (financial or otherwise), assets, liabilities, earnings, net worth, financial position, business, operations, properties or prospects of the Company. The Company's accounts receivable arose, and all accounts receivable that will be outstanding as of the Closing Date shall have arisen, from bona ---- fide transactions in the ordinary course of business and will be collected by - ---- the Company in full, less applicable reserves shown in the Company Financial Statements, in the ordinary course of business within ninety days of the Closing Date, and there are no offsets or claims related to such accounts receivable. 2.6 Taxes. The Company and the Stockholders have properly prepared ----- and filed all federal, state and other tax returns required to be filed in connection with the operations of the Company. True and complete copies of all federal and state income tax returns for the Company for each of the years ended December 31, 1994 through December 31, 1996 have been delivered or made available to the Purchaser on or prior to the date hereof and copies of other returns will be made available upon request. Except as set forth on Section 2.6 of the Disclosure Schedule or in the Company Financial Statements, neither the Company nor the Stockholders has any liability for any federal, state, county, local or other taxes whatsoever that arose or otherwise were incurred on or before the date of the balance sheet for 1996 included in the Company Financial Statements. No proposed taxes, additions to tax, interest or penalties have been asserted or are pending against the Company or the Stockholders with respect to periods ending on or before Closing, and no such matters are under discussion with the applicable authorities. There are no agreements, waivers, or other arrangements providing for extensions of time with respect to the assessment or collection of any unpaid tax against the Company or the Stockholders. The Company and the Stockholders have withheld or otherwise collected all taxes or amounts it or he was required to withhold or collect under any applicable federal, state or local law, including, without limitation, any amounts required to be withheld or collected with respect to employee state and federal income tax withholding, social security, unemployment compensation, sales or use taxes or workmen's compensation, and all such amounts have been timely remitted to the proper authorities. 2.7 Agreements. Section 2.7 of the Disclosure Schedule identifies ---------- each of the following agreements, contracts, documents and other items (whether written or oral) as to which the Company is a party or otherwise is bound (and all such contracts, or summaries thereof, have been made available to the Purchaser): (i) all documents relating to indebtedness for money borrowed or collateral therefor, including guarantees; (ii) all agreements or plans relating to employment, compensation of or benefits for officers or employees of the Company; (iii) all contracts for the purchase of materials, supplies, services, merchandise or equipment involving consideration of more than $2,000 or involving purchases in excess of normal operating requirements; (iv) any contract, agreement, or instrument not entered into in the ordinary course of the business of the Company on a basis consistent with past practice; (v) any contract containing restrictions on the Company's operations or its ability to compete in any geographic region or in any line of business; (vi) any lease of real property and all personal property leases calling for annual lease payments in excess of $2,000; and (vii) each and every other contract which is material to the financial condition, earnings, operation or business of the Company. Each of the contracts and agreements so listed (collectively, the "Contracts") is a valid and existing contract or agreement in full force and effect and there exists no default thereunder by the Company. None of the Contracts will be violated or breached and no default or right of 3 termination or modification shall arise thereunder as a result of the consummation of the transactions contemplated by this Agreement. 2.8 Property. Section 2.8 of the Disclosure Schedule sets forth a -------- schedule (the "Property Schedule") of (i) all real property owned or leased by the Company (the "Real Property"), (ii) all individual items of tangible personal property and assets (other than inventory) of the Company having a fair market value in excess of $2,000, and (iii) all patents, trademarks, trade names, service marks, trade secrets, copyrights, franchise rights or applications therefor which are held, used, prepared in connection with or otherwise related to the conduct of the business of the Company. Except as set forth in the Property Schedule, the Company has good and marketable title to all of such property and assets owned by it, free of any pledge, mortgage, lien, lease, security agreement, encumbrance, charge or claim of any nature whatsoever. The machinery and equipment of the Company are, in all material respects, in good operating condition and repair, ordinary wear and tear excepted. To the Company's knowledge, the Company is not infringing on any patent, trademark, trade name, service mark, trade secret or copyright of another entity and has received no notice or claim of any such infringement. 2.9 Legal Proceedings, Etc. Except as set forth in Section 2.9 of ----------------------- the Disclosure Schedule, there are no legal, administrative, arbitration, or other proceedings or governmental investigations pending or, to the best of the Company's and the Stockholders's knowledge, threatened against the Company, the Stockholders or the respective properties or assets of the Company and the Stockholders. 2.10 Compliance; Licenses. The Company has at all times within the -------------------- past three years operated and used its assets in material compliance with, and currently is not in violation of, and has obtained all material licenses and permits required by, any law, rule or regulation. Section 2.10 of the Disclosure Schedule contains a true and complete list of all material licenses, permits, approvals, franchises and other authorizations as are necessary in order to enable the Company to own and conduct its business. 2.11 Bank Accounts, etc. Section 2.11 of the Disclosure Schedule ------------------ sets forth a true and complete list of all bank accounts, safe deposit boxes and lock boxes of the Company including, with respect to each such account and lock box, identification of all authorized signatories. 2.12 Insurance. Section 2.12 of the Disclosure Schedule sets forth a --------- summary of all general liability, product liability, fire, casualty, motor vehicle and other insurance currently maintained by or on behalf of the Company. All requirements and provisions thereof are being complied with. True and correct copies of all insurance policies relating to such coverage have been provided by the Company to the Purchaser. No notice of cancellation has been given to or received by the Company with respect to any of its insurance policies, and no such policies are subject to any retroactive rate or audit adjustments or coinsurance arrangements. 2.13 Employee Matters. Except as set forth in Section 2.13 of the ---------------- Disclosure Schedule, the Company does not maintain, sponsor or contribute to any plans in effect for pension, profit-sharing, deferred compensation, severance pay, bonuses, stock options, stock purchases, or any other retirement or deferred benefit, or for any health, accident or other welfare plan, or any other employee or retired employee benefits or incentive plan, program, contract, understanding or arrangement in which any employee, former employee, retired employee, or beneficiary of any of these, of the Company is entitled to participate. The plans, programs, contracts, understandings and arrangements listed on the Disclosure Schedule pursuant to this Section 2.13 are hereinafter referred to as the "Employee Plans." The Company has supplied the Purchaser with complete and accurate copies of each such Employee Plan. Each Employee Plan has been operated according to its terms in compliance with all applicable laws. 2.14 Recent Operations; Employee Matters. Since December 31, 1996, ----------------------------------- (i) the Company has operated its business substantially as it was operated immediately prior to said date and only in the ordinary course, and the Company and the Stockholders have used their best efforts to preserve intact the Company's business relationships, (ii) there have been no bonuses paid to or increases in the compensation of officers or employees, except 4 as set forth in Section 2.14(i) of the Disclosure Schedule, and (iii) except as set forth in Section 2.14(iii) of the Disclosure Schedule, the Company has not declared or paid any dividend or made any other distribution with respect to its capital stock. 2.15 Stockholders Distributions. No dividends or distributions have -------------------------- been declared and/or paid to the Stockholders (whether in cash or other assets) after December 31, 1996 through the date hereof (the "1997 Period"). 2.16 Environmental Matters. No storage tanks, underground or --------------------- otherwise, are now located on any properties occupied by the Company. The Company has complied in all material respects with all environmental laws relating to its operations or properties occupied by it. There are no asbestos containing materials located on properties occupied by the Company. The Company has not received any notice, demand, suit or information request pursuant to the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") or any comparable state law, nor does it have knowledge of any other party's receipt of same relating to any properties occupied by the Company. 2.17 Disclosure. The Stockholders have disclosed to the Purchaser ---------- all facts material to the assets, business, operations, financial condition and prospects of the Company. All agreements, schedules, exhibits, documents, certificates, reports or statements furnished or to be furnished to the Purchaser by or on behalf of the Company in connection with this Agreement or the transactions contemplated hereby are true, complete and accurate in all material respects, and no such items contain any untrue statement of a material fact or omit a material fact necessary in order to make the statements contained herein and therein not misleading. 2.18 No Conflict With Other Documents. Neither the execution and -------------------------------- delivery of this Agreement, nor the carrying out of any of the transactions contemplated hereby, will result in any violation, termination or modification of, or be in conflict with, the Company's Articles of Incorporation or By-Laws, any terms of any contract, instrument or other agreement to which the Company or any Stockholder is a party or by which it or any of its properties is bound or affected, or any law, rule, regulation, license, permit, judgment, decree or order applicable to the Company or Stockholder or by which any of its properties or assets are bound or affected, or result in any breach of or constitute a default (or with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation, or result in the creation of any lien, charge or encumbrance upon any of its properties or assets, except where such event or occurrence would not, singly or in the aggregate, have a material adverse effect on the Company. 2.19 Brokers and Advisors. Neither the Company nor any of the -------------------- Stockholders have taken any action which would give rise to a valid claim against any party hereto for a brokerage commission, finder's fee, counseling or advisory fee, or like payment. 2.20 Investment Intent. It is understood that the shares of ----------------- Purchaser Common Stock to be delivered to the Stockholders pursuant to this Agreement are not being registered, for purposes of the transactions hereunder, under the Securities Act of 1933, as amended (the "Securities Act") or any state securities laws, and the shares are being delivered without registration in reliance upon an exemption from the registration requirements of the Securities Act or any state securities laws. The Stockholders are acquiring the Purchaser Common Stock hereunder only for their own respective accounts and not with any intention of making, or with a view to, or for sale in connection with, any distribution thereof within the meaning of the Securities Act unless such shares first are registered under the Securities Act. In connection with the foregoing, each of the Stockholders hereby represents and warrants that: (a) such Stockholder has reviewed, discussed and evaluated the information delivered under Section 1.2 and has had the opportunity to ask questions of, and receive answers from, executive officers of the 5 Purchaser concerning the terms and conditions of this Agreement and to obtain any additional information which such Stockholders considered necessary to verify the accuracy of the information delivered under Section 1.2; (b) such Stockholder understands that she must bear the economic risks of the investment in Purchaser Common Stock to be made hereunder for an indefinite period of time because such stock has not been registered under the Securities Act and, therefore, may not be sold until such stock subsequently is registered under the Securities Act or an exemption from registration is available; and (c) such Stockholder has sufficient knowledge and experience in financial and business matters to enable such Stockholder to be capable of evaluating the merits and the risks of the exchange of the Company Common Stock for the Purchaser Common Stock contemplated by this Agreement and such Stockholder's prospective investment in the Purchaser. 2.21 Legends. It is understood and agreed that, to implement the ------- requirements of the Securities Act and state securities laws and evidence the restrictions upon transfer contained in this Agreement, the Purchaser will cause a legend to be conspicuously noted on the certificates representing the Purchaser Common Stock deliverable hereunder, and that the Purchaser will issue stop transfer instructions to its transfer agent, to the effect that such stock has not been registered under the Securities Act and that no transfer may take place except as permitted by Section 11 of this Agreement and after delivery of an opinion of Purchaser's counsel to the effect that registration thereof for the purpose of transfer is not required under the Securities Act or that the stock proposed to be transferred has been effectively registered for that purpose under the Securities Act. 2.22 No Agreements with Respect to Purchaser Common Stock. Except ---------------------------------------------------- for this Agreement, none of the Stockholders have entered into any agreement or understanding with anyone for the sale, at Stockholders' option or otherwise, of any of the Purchaser Common Stock to be delivered hereunder to Stockholders at the Closing. 3. COVENANTS OF THE PURCHASER. The Purchaser covenants to the Stockholders that, except as otherwise consented to in writing by the Stockholders after the date of this Agreement: 3.1 Stock Reservation. Between the date hereof and the Closing Date, ----------------- the Purchaser will keep available and reserve a sufficient number of shares of Purchaser Common Stock for issuance and delivery to the Stockholders as contemplated in this Agreement. 3.2 Cause Conditions to be Satisfied. The Purchaser will use its -------------------------------- best efforts to cause all of the conditions described in Sections 7 of this Agreement to be satisfied (to the extent such matters reasonably are within its control). 3.3 Registration Statement on Form S-3. The Purchaser will use its ---------------------------------- best efforts to meet the requirements for eligibility set forth in paragraph A. of the General Instructions to Form S-3, as promulgated by the U.S. Securities and Exchange Commission in fulfilling its obligations under Section 11 hereof. 3.4 Tax-Free Reorganization. The Purchaser recognizes that the ----------------------- Stockholders desire to treat the sale of their shares as a tax-free reorganization under Section 368(a)(1)(A) of the Code and will use its best efforts to cooperate with the Stockholders in this regard. 4. COVENANTS OF THE STOCKHOLDERS. The Stockholders severally, but not jointly, covenant to the Purchaser that, except as otherwise consented to in writing by the Purchaser after the date of this Agreement: 4.1 Conduct of Business. After the date hereof and through the date ------------------- of the Closing, with respect to the Company (a) its business will be conducted only in the ordinary course; (b) it will terminate each of its Employee Plans and will not enter into, adopt or amend any employee benefit plan, agreement or arrangement, enter 6 into or amend any employment contracts, or increase the salaries or compensation of its officers or employees; (c) it shall repay in full all debt outstanding on the date hereof except for those balances [should not exceed $350,000] owed to the holders of the Company's notes as shown in Section 4.1(c) of the Disclosure Schedule, and it shall not incur any additional liability for borrowed money, or encumber any of its assets; (d) all outstanding loans payable by the Company to any Stockholders or receivable by the Company from any Stockholders or any employee shall be repaid in full by the appropriate party except for the note payable to Leslie Zalk in the principal amount of $105,000; (e) its current assets at all times will be greater than its current liabilities by at least $40,000 before adjustments for deferred revenue made in converting the Company's financial statements from cash to accrual basis; (f) all trade payables and liabilities and obligations payable in installments shall be current and paid with the exception of those accounts shown in Section 4.1(e) of the Disclosure Schedule; (g) it will use its best efforts to preserve its business organization intact, to keep available the service of its officers and employees and to preserve the goodwill of suppliers, customers and others doing business with it; (h) it will not enter into any agreement for the purchase, sale or other disposition, or purchase, sell or dispose of, any equipment, supplies, inventory, investments or other assets (other than sales of inventory and purchases of materials and supplies in the ordinary course of business and in accordance with past practices); (i) it will not compromise or write off any material account receivable other than by collection of the full recorded amount thereof; (j) no change shall be made in its Charter or By-Laws; (k) no change shall be made in the number of shares or terms of its authorized, issued or outstanding capital stock, nor shall it enter into or grant any options, calls, contracts or commitments of any character relating to any issued or unissued capital stock; and (l) no dividend or other distribution or payment shall be declared or paid in respect of its capital stock, and (m) no bonus or additional compensation in excess of normal salary shall be paid to or declared for the benefit of any of the Stockholders. 4.2 Pre-Tax Income of the Company. The Company's Pre-Tax Income, ----------------------------- adjusted from cash to accrual basis and before adjustments for deferred revenues, as reflected in the Audited Financial Statements for the Company for the seven months ending July 31, 1997 will be equal to or greater than $150,000. "Pre-Tax Income" means the Company's EBIT minus interest, taxes and any distributions or dividends to the Stockholders. 4.3 Consents. The Stockholders agree to take all necessary corporate -------- or other action and to use their best efforts to obtain all consents and approvals required for consummation of the transactions contemplated by this Agreement. 4.4 Reviewed Financial Statements. The Stockholders will cause the ----------------------------- Company to deliver to Purchaser the Company's reviewed financial statements for the two month period of August - September 1997 as soon as practicable after the execution of this Agreement. 4.5 Cause Conditions to Be Satisfied. The Stockholders will use -------------------------------- their best efforts to cause all of the conditions described in Section 7 of this Agreement to be satisfied to the extent such matters are reasonably within their control. 4.6 1998 Net Earnings of the Company's Operations. The net --------------------------------------------- earnings of the PMZ Retail Group Sylvan Learning Centers shall be at least $600,000 in calendar year 1998. The PMZ Retail Group Sylvan Learning Centers shall include those centers open as of the date of the Closing, to wit:
Garden Grove Long Beach Huntington Beach ------------ ----------- ------------------ Laguna Hills Tustin San Juan ------------ ----------- ------------------- Capistrano - ---------- Irvine Newport Beach Downey ------ ------------- -------
plus any additional retail Sylvan Learning Centers that Purchaser shall establish in the territory covered by Sylvan License Agreements 543 and 595 as of the Closing. Net earnings shall be calculated on the accrual method, center by center, in accordance with generally accepted accounting principles, consistently applied from 1997 to 1998, and shall mean (whether any center has, in fact, a profit or a loss) the yearly revenues attributable to all operations 7 conducted in those centers less the sum of 1) all operating expenses directly incurred in operating the centers 2) advertising expenses incurred by Purchaser and allocated to the centers for local, Los Angeles co-op and national advertising contributions, 3) depreciation and amortization charges against capitalized items in the centers and intangibles on the books for the centers and 4) direct internal administrative overhead expense incurred by Purchaser for supervision of the corporate retail centers in accordance with Purchaser's previous practices in charging such expenses to Purchaser's retail Sylvan Learning centers (i.e. the K. Killian and staff overhead account). Revenues attributable to any STC operations shall be calculated as though the STC in the center had been operated as an STC Agent-operated center. None of Purchaser's revenues or expenses attributable to Mindsurf operations or public/non-public school contract services shall be taken into account in determining PMZ Retail Group net earnings. The $600,000 net earnings target shall be subject to ratable adjustment (upwards or downwards) in the event any of the Learning Centers listed above is sold prior to December 31, 1998 by taking into account that center's contribution to calendar year 1997 net earnings (stated on an accrual basis) for all of the centers combined. By way of example, if a center contributed 20% of the total centers' net earnings for 1997, and is sold January 1, 1998, then the $600,000 net earnings target will be reduced by $120,000 (20% of $600,000). If a center had a loss in 1997 equal to -5% of the total centers' net earnings for 1997, and is sold January 1, 1998, the $600,000 net earnings target will be increased by $30,000 (5% of $600,000). 5. SALE OF THE COMPANY COMMON STOCK AND CONSIDERATION. The Stockholders agree to sell, and the Purchaser agrees to buy, at the Closing, the Stockholders' 352,495 shares of Company Common Stock, and for and in consideration of such sale and transfer, Purchaser agrees to issue and deliver to Stockholders, ratably in accordance with their respective ownership of the 352,495 shares, that number of shares of Purchaser Common Stock having a Fair Market Value of $641,541. 5.1 Exchange of Shares. In order to effect the purchase and sale, ------------------ (i) the Stockholders will deliver to the Purchaser at the Closing, certificates in due and proper form representing the 352,495 shares of Company Common Stock owned by such Stockholders, duly endorsed or accompanied by duly executed stock powers, with signatures notarized or guaranteed by a commercial bank or a member of the National Association of Securities Dealers, Inc., and (ii) the Purchaser shall deliver to the Stockholders certificates in due and proper form, representing the number of shares of Purchaser Common Stock to which each such Stockholder is entitled, less shares retained by Seller to secure the Stockholders' indemnity obligations. Each share of Purchaser Common Stock issued pursuant to this Agreement shall be fully paid and non-assessable. For purposes of the foregoing, the Fair Market Value of the Purchaser Common Stock shall equal the average of the closing prices reported in the Wall Street Journal for the fifteen (15) trading days ended and including September 30, 1997. 5.2 Retainage of Shares by Seller. Of the total Purchaser Common ----------------------------- Stock to be issued to each of the Stockholders, one-fourth (1/4/th/) of same shall be retained by Purchaser through the completion of the audited financial results for 1998 (March 1, 1999) as security for each Stockholder's indemnity obligation under Section 9.1 which arise or are discovered on or before March 1, 1999. To the extent not required to secure any claim discovered or asserted but remaining unresolved as of March 1, 1999, all of said shares shall be surrendered to the respective owner-Stockholder immediately folling said date. Five percent (5%) of the shares shall be released by Sylvan on or before March 1, 19989 if the audited financial statement for the PMZ Retail Group Sylvan Learning Centers reflects that the ending balance of deferred tuition revenues as of 12/31/97 is less than $350,000. 6. CLOSING. The closing (the "Closing") of the transactions contemplated by this Agreement shall take place at the offices of the Company in Irvine, California beginning at 1:00 p.m. on October 2, 1997, or at such other time and place as may be agreed upon in writing by the Purchaser and the Company (the "Closing Date"), but shall be effective as of the beginning of business on October 1, 1997 (the "Effective Date"). 7. CONDITIONS TO THE PURCHASER'S OBLIGATIONS. Unless waived by the Purchaser in writing in its sole discretion, all obligations of the Purchaser under this Agreement are subject to the fulfillment, prior to or at the Closing, of each of the following conditions: 8 7.1 No Adverse Proceedings or Events. No suit, action or other -------------------------------- proceeding against the Company or the Purchaser, or their respective officers or directors, or either of the Stockholders, shall be threatened or pending before any court or governmental agency in which it will be, or it is, sought to restrain or prohibit any of the transactions contemplated by this Agreement or to obtain damages or other relief in connection with this Agreement or the transactions contemplated hereby. 7.2 Consents and Actions; Contracts. All requisite consents of any ------------------------------- third parties and other actions which the Stockholders have covenanted to use their best efforts to obtain and take under Section 4.5 hereof shall have been obtained and completed. All material contracts and agreements of the Company, including, without limitation, all contracts and agreements listed on Section 2.7 of the Disclosure Schedule, shall be in full force and effect and shall not be affected by the consummation of the transactions contemplated hereby. 7.3 Other Evidence. The Purchaser shall have received from the -------------- Company and the Stockholders such further certificates and documents evidencing due action in accordance with this Agreement,including certified copies of proceedings of the Board of Directors and Stockholders of the Company, as the Purchaser reasonably shall request. 7.4 Resignation of Stockholders. Each and every one of the --------------------------- Stockholders shall have resigned from any and all positions with the Company as director, officer or employee effective as of immediately prior to the Closing. 7.5 Employment Contract. Leslie Zalk and Purchaser shall enter into ------------------- the Employment Contract in the form shown as Exhibit B attached hereto. 7.6 Covenants, Representatives and Warranties True. As of the ---------------------------------------------- Closing, all of the Covenants, Representations and Warranties of the Stockholders shall be true and correct. 8. CONDITIONS TO THE STOCKHOLDERS' OBLIGATIONS. Unless waived by the Stockholders, all obligations of the Stockholders under this Agreement are subject to the fulfillment, prior to or at the Closing, of each of the following conditions: 8.1 No Adverse Proceedings or Events. No suit, action or other -------------------------------- proceeding against the Company or the Purchaser, or their respective officers or directors, or any of the Stockholders, shall be threatened or pending before any court or governmental agency in which it will be, or it is, sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the transactions contemplated hereby. 8.2 Consents and Actions. All requisite consents of any third -------------------- parties and other actions which the Purchaser has covenanted to use its best efforts to obtain and take under Section 3 of this Agreement shall have been obtained and completed. 8.3 Other Evidence. The Stockholders 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 and Stockholders of the Purchaser, as the Company and the Stockholders reasonably shall request. 9. INDEMNIFICATION. 9.1. Indemnification by the Stockholders. The Stockholders hereby ----------------------------------- covenant and agree severally, but not jointly, to indemnify and hold harmless the Purchaser and its respective successors and assigns, at all times from and after the date of Closing against and in respect of the following: 9 (i) any liability, loss, damage, cost or expense resulting from any misrepresentation, breach of representation or warranty or breach or non-fulfillment of any agreement or covenant on the part of the Stockholders under this Agreement, or from any inaccuracy or misrepresentation in or omission from any certificate or other instrument or document furnished or to be furnished by the Company or the Stockholders hereunder; (ii) To the extent not accrued or reflected in the Financial Statements covering the period prior to the Closing, any liabilities or obligations of the Company or the Stockholders arising from operations of the Company prior to the Closing, including but not limited to federal, state or local income tax or, any personal property, FICA, withholding, excise, unemployment, sales or franchise taxes. (iii) all claims, actions, suits, proceedings, demands, assessments, judgments, costs, reasonable attorneys' fees and expenses of any nature incident to any of the matters indemnified against pursuant to this Section 9.1, including, without limitation, all such costs and expenses incurred in the defense thereof or in the enforcement of any rights of the Purchaser hereunder. Each stockholder's liability under this Section 9.1 and Section 11.3 shall be limited to their respective percentage shown on Schedule 1.2 hereof, and in no event shall any individual stockholder's liability exceed the result of multiplying such percentage times $903,000. 9.2. Notice and Defense. The Purchaser shall notify the ------------------ Stockholders of any asserted liability, damage, loss or expense claimed to give rise to indemnification hereunder and the Stockholders 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, Stockholders shall respond in writing as to whether Stockholders will engage counsel at Stockholders' expense to defend the claim. If Stockholders do not respond, or affirmatively decline 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 Stockholders' sole cost and expense through counsel chosen by the Purchaser and reasonably acceptable to the Stockholders; provided, however, that any such compromise or defense shall be conducted in a manner which is reasonable and the Stockholders 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 Stockholders (other than under Section 9.1). Each party agrees in all cases to cooperate with the defending party and its or his counsel in the compromise of or defending of any such liabilities or claims. In addition, the non defending party shall at all times be entitled to monitor such defense through the appointment, at its or his own cost and expense, of advisory counsel of its own choosing. As to any claim paid by the Purchaser for which any of the Stockholders has indemnity liability under this Section 9, and which the Stockholder does not reimburse Purchaser within five (5) days following demand for reimbursement by Purchaser, Purchaser may (if it is then holding any of such Stockholder's Purchaser Common Stock) offset the amount of the Stockholder's liability on the claim paid against the shares of such Purchaser Common Stock retained by Purchaser, canceling that number of shares that then have a fair market value equal to the amount paid (for purposes of this section, fair market value shall mean the closing price of the stock as reported by the Wall Street Journal for the trading date immediately preceding the day reimbursement from the Stockholder is due). For purposes of determining the stockholder's liability for a shortfall in 1998 net earnings under the covenant of Section 4.6, each stockholder's liability shall equal the product of multiplying their respective percentage interest shown in Schedule 1.2 times 35/60ths times the total amount by which $600,000 exceeds actual net earnings, but in no event shall any stockholders' liability pursuant to Section 4.6 exceed the value of the shares held by Purchaser at the time the liability is determined. 9.3. Indemnification by the Purchaser. From and after the -------------------------------- Closing Date, the Purchaser hereby covenants and agrees to indemnify and hold harmless the Stockholders against and in respect of the following: (i) any liability, loss, damage, cost 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 10 from any misrepresentation in or omission from any certificate or other instrument or document furnished or to be furnished by the Purchaser hereunder; and (ii) Any liabilities or obligations of the Company arising from operations of the Company after the Closing, including but not limited to federal, state or local income tax or, any personal property, FICA, withholding, excise, unemployment, sales or franchise taxes. (iii) all claims, actions, suits, proceedings, demands, assessments, judgments, costs, reasonable attorneys' fees and expenses of any nature incident to any of the matters indemnified against pursuant to this Section 9.3, including without limitation, all such costs and expenses incurred in the defense thereof or in the enforcement of any rights of the Stockholders hereunder. The Stockholders 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 Stockholders are fully protected from any liability, loss, damage, cost or expense in connection therewith. 10. SURVIVAL; LIMITATIONS. 10.1 Survival. The representations, warranties and agreements made -------- by the parties in this Agreement and in any other certificates and documents delivered in connection herewith, including the indemnification obligations of the Stockholders and Purchaser set forth in Section 9 hereof, shall survive the Closing under this Agreement regardless of any investigation made by the party making claim hereunder, except that, subject to the provisions of the next sentence, neither the Purchaser, on the one hand, nor the Stockholders, 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 December 31, 1998. Notwithstanding the foregoing, (i) any indemnification obligations of the Stockholders relating to federal, state or local tax matters or environmental matters of any sort shall continue in full force and effect without limitation until expiration of the statute of limitations applicable to such tax or environmental matters, (ii) the representation and warranty contained in Sections 2.1, 2.2, or, 2.3 and any indemnification obligations of the Stockholders in connection therewith shall continue in full force and effect without any limitation, (iii) the liability under Section 4.6, and (iv) any claims, actions or suits the Purchaser, on the one hand, or the Company or the Stockholders, on the other hand, may have which arises from any fraud or willful misconduct on the part of the Stockholders or the Company, or any representative of either, on the one hand, and the Purchaser or any representative of it, on the other hand, shall continue in full force and effect without limitation until expiration of the statute of limitations applicable thereto. 10.2 Limitations. No indemnified party shall be entitled to ----------- indemnification hereunder until such time as a single loss or an aggregate of several losses equals Nine Thousand Dollars ($9,000), at which time such indemnified party shall be entitled to indemnification for all losses sustained, incurred, paid or required to be paid by such indemnified party in excess of the $9,000; and in no event shall any party to this Agreement be entitled to indemnification for a single loss or an aggregate of several losses which exceeds $903,000. 11. REGISTRATION RIGHTS. 11.1 Registration Procedures and Expenses. Purchaser shall: ------------------------------------ (a) as soon as practicable after the closing date but not later than ninety (90) days after the closing date, prepare and file with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 which meets the requirements of Rule 415 promulgated under the Securities Act (a "Shelf Registration Statement") covering the sale by the Stockholders from time to time of four fifths (4/5/ths/) of the shares of the Purchaser Common Stock received by the Stockholders under this Agreement. Purchaser may extend its obligation to file a registration statement only if Purchaser advises the Stockholders that there is a pending, but 11 unannounced transaction or development which Purchaser determines is not then appropriate for disclosure, and that registration of the Purchaser Common Stock would require such disclosure. (b) use its best efforts, subject to receipt of necessary information from the Stockholders, to cause each of the Shelf Registration Statements to become effective; (c) prepare and file with the Commission such amendments and supplements to the Shelf Registration Statements and the prospectus used in connection therewith as may be necessary to keep the Shelf Registration Statements effective until the earlier of the date on which the Purchaser Common Stock registered by such Shelf Registration Statement has been sold, or one year from the date of the initial filing thereof; (d) during the period referred to in (c) above, prepare and promptly file with the Commission, and promptly notify the Stockholders of the filing of, such amendment or supplement to each such Shelf Registration Statement and the prospectus as may be necessary to correct any statements or omissions if, at any time when a prospectus relating to the Purchaser Common Stock is required to be delivered under the Securities Act, any event has occurred the result of which is that any such prospectus then in effect would include or incorporate an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances in which they were made; (e) advise the Stockholders, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of any of such Shelf Registration Statements or the initiation or threatening of any proceeding for that purpose and promptly use its diligent best efforts to prevent the issuance of any stop order and to obtain its withdrawal if such stop order should be issued; (f) furnish to the Stockholders with respect to the Purchaser Common Stock registered under any of the Shelf Registration Statements such number of copies of prospectuses and preliminary prospectuses in conformity with the requirements of the Securities Act and such other documents as the Stockholders may reasonably request (but in no event more than 100 copies), in order to facilitate the public sale or other disposition of all or any of the registered Purchaser Common Stock by the Stockholders; provided, however, that -------- ------- the obligation of Purchaser to deliver copies of prospectuses or preliminary prospectuses to the Stockholders shall be subject to the receipt by Purchaser of reasonable assurances from the Stockholders that the Stockholders will comply with the applicable provisions of the Securities Act and of such other securities or blue sky laws as may be applicable in connection with any use of such prospectuses or preliminary prospectuses; (g) file documents required of Purchaser for normal blue sky clearance in states reasonably specified in writing by the Stockholders, provided, however, that Purchaser shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so qualified or has not so consented; and (h) bear all expenses in connection with the procedures in paragraphs (a) through (g) of this Section 11.1 and the registration of the Purchaser Common Stock pursuant to each of the Shelf Registration Statements, other than fees and expenses, if any, of counsel or other advisers to the Stockholders. 11.2 Engagement of Underwriters. The parties hereto agree that the -------------------------- Purchaser shall have no obligation to (i) conduct, arrange or coordinate any distribution or sales activities on behalf of the Stockholders with respect to the Purchaser Common Stock other than as set forth in Section 11.1 above or (ii) retain any underwriter(s) in connection with the registration and/or distribution of the Purchaser Common Stock pursuant to this Section 11. The Stockholders agrees that any underwriter(s) or counsel engaged in connection with the registration or distribution of the Purchaser Common Stock required to be registered pursuant to this Section 11 will be retained by and at the sole expense of the Stockholders and agrees further that any discounts or commissions payable to such underwriter(s) 12 shall also be an expense solely of the Stockholders. In the event the Stockholders engages one or more underwriters pursuant to this Section 11.2, the Stockholders shall enter into an underwriting agreement with the managing or lead managing underwriter in the form customarily used by such underwriter with such changes thereto as the parties thereto shall agree; and, further, shall provide to such underwriter any documents or other information as is necessary, in the underwriter's reasonable opinion, to facilitate the effectiveness of the Shelf Registration Statement and the completion of the distribution of the Purchaser Common Stock so registered. 11.3 Indemnification with respect to Shelf Registration Statements. ------------------------------------------------------------- Purchaser hereby agrees to indemnify the Stockholders against liability arising out of or based upon any untrue statement or alleged untrue statement of material fact in any of the Shelf Registration Statements filed by Purchaser pursuant hereto, or the omission or alleged omission to state or incorporated by reference in such Shelf Registration Statements any material fact required to be stated therein or necessary in order to make the statements therein not misleading, other than any such statement included or incorporated by reference in, or omitted from, such Shelf Registration Statements by Purchaser in reliance upon and in conformity with written information furnished to Purchaser specifically for use therein by or on behalf of the Stockholders. The Stockholders, severally and not jointly, hereby agree to indemnify Purchaser against liability arising out of or based upon any untrue statement or alleged untrue statement of a material fact included or incorporated by reference in the Shelf Registration Statements or the omission or alleged omission to state or incorporate by reference therein any material fact required to be stated therein or necessary in order to make the statements therein not misleading, if such statement or omission was made by Purchaser in reliance upon and in conformity with written information furnished to Purchaser for use or incorporation by reference in such Shelf Registration Statements. 12. CONFIDENTIALITY. After the date hereof, the Stockholders will hold in confidence and not reveal to any third parties any knowledge or information of a confidential nature with respect to the business, products, know-how and methods of operation of the Company, and will not disclose, publish or make use of the same, provided, however, that the foregoing shall not be applicable to any disclosure or use of confidential information or knowledge that can be demonstrated to have (i) been publicly known prior to the date of this Agreement, (ii) become known by publication or otherwise not due to the unauthorized act or omission on the part of the Stockholders, or (iii) been supplied to the Stockholders by a third party without violation of the rights of the Company or the Purchaser or any other party. The parties agree that the remedy at law for any breach by the Stockholders of this Section 12 shall be inadequate and that the aggrieved party shall be entitled to injunctive relief in addition to any other remedy. 13. EXPENSES. Each party to this Agreement shall pay all of its expenses relating hereto, including fees and disbursements of its counsel, accountants and financial advisors, whether or not the transactions hereunder are consummated. It is expressly understood that the Stockholders will bear, and will not cause the Company to pay, any legal fees or other expenses incurred in connection with the transactions contemplated by this agreement, as well as the cost of furnishing the audited and reviewed Company Financial Statements referred to in Sections 2.5 and 4.4; provided, however, that in the event of any litigation between the parties hereto relating to or arising from this Agreement, the prevailing party in such litigation, as may be determined by the court in its sole discretion, shall be entitled to payment by the non-prevailing party of all reasonable attorney's fees and costs. 14. NOTICES. Except as otherwise provided herein, all notices, requests, demands and other communications under or in connection with this Agreement shall be in writing, and, (a) if to the Purchaser, shall be addressed to: B. Lee McGee, Chief Financial Officer Sylvan Learning Systems, Inc. 1000 Lancaster Street Baltimore, Maryland 21202 with a copy to: 13 Richard C. Tilghman, Jr., Esquire Piper & Marbury 36 South Charles Street Baltimore, Maryland 21201 (b) if to the Company or the Stockholders, shall be addressed to: Leslie Zalk 4330 Barranca Pkwy. #208 Irvine, CA 92604 with a copy to: Rupert Barkoff Kilpatrick & Stockton, LLP 1100 Peachtree Street Suite 2800 Atlanta, GA 30309 All such notices, requests, demands or communications shall be mailed postage prepaid, certified mail, return receipt requested, or by overnight delivery or delivered personally, and shall be sufficient and effective when delivered to or received at the address so specified. Any party may change the address at which it is to receive notice by like written notice to the other. 15. ENTIRE AGREEMENT. This Agreement (including the exhibits hereto and the lists, schedules and documents delivered pursuant hereto, which are a part hereof) is intended by the parties to and does constitute the entire agreement of the parties with respect to the transactions contemplated by this Agreement. This Agreement supersedes any and all prior understandings, written or oral, between the parties, and this Agreement may be amended, modified, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the amendment, modification, waiver, discharge or termination is sought. 16. GENERAL. The paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns, but nothing herein, express or implied, is intended to or shall confer any rights, remedies or benefits upon any person other than the parties hereto. This Agreement may not be assigned by any party hereto. This Agreement shall be construed in accordance with and governed by the laws of the State of Maryland. 14 IN WITNESS WHEREOF, the Purchaser, the Company and the Stockholders have caused this Agreement to be duly executed and their respective seals to be hereunto affixed as of the date first above written. WITNESS: SYLVAN LEARNING SYSTEMS, INC. - -------------------------- By: ----------------------------------- O. Steven Jones, its Vice President Stockholders: (Seal) - --------------------------- Leslie Zalk (Seal) - --------------------------- Kathleen Gillan (Seal) - --------------------------- Carleen Garza (Seal) - --------------------------- Evelyn M. Tuey (Seal) ---------------------------- Stephanie Thomas (Seal) ---------------------------- Merida M. Phillips (Seal) ---------------------------- Kay L. Bennett (Seal) ---------------------------- Patricia McSwain 15 EX-4.5 5 PURCHASE AGREEMENT OF SYLVAN FROM VCM INC EXHIBIT 4.5 ----------- AGREEMENT FOR PURCHASE OF OPERATING SYLVAN LEARNING CENTER FROM VCM, INC. THIS AGREEMENT is made and entered into this 30th day of September, 1997, by and between: "Seller" and "Buyer" VCM, Inc. Sylvan Learning Systems, Inc. 8813 Belmart Road a Maryland corporation Potomac, Maryland 20854 1000 Lancaster Street Baltimore, Maryland 21202 RECITALS -------- A. Seller now operates one (1) Sylvan Learning Center (hereinafter called "the center" or "the business," whether one or more) located at 4600 C Lee Highway, Arlington, Virginia 22207, and desires to sell such business to Buyer, together with all property and assets necessary for the continued operation of the Center as a going concern on the terms and conditions herein set forth. B. Buyer desires to purchase such business, property, and assets, all on the terms and conditions herein set forth. In consideration of the covenants hereinafter set forth, the parties agree as follows: 1. SALE OF BUSINESS: Seller shall sell, transfer, and deliver to Buyer and Buyer shall purchase, at the closing date, free and clear of all liens, pledges, or encumbrances of all kind, seller's existing business located at 4600 C Lee Highway, Arlington, Virginia 22207, doing business as Sylvan Learning Center, and all assets and property used by Seller in connection therewith except for the personal items, photographs, mementos, etc. placed in the center by Seller's stockholders, which shall be removed at or immediately following Closing. All of said assets shall be inventoried, and a schedule of same prepared and agreed to by Seller and Buyer. Seller agrees at closing to provide Buyer with a bill of sale transferring title to all of said assets. Said bill of sale shall include Seller's warranty of clear title, and Seller's warranty that all mechanical, electrical, and electronic equipment is in good working and operating condition as of the effective day of the transfer. As to all other property transferred, Buyer must accept same in their AS IS condition. Buyer shall assume all responsibilities for operation of the center as of the closing date of this transaction; and continue uninterrupted the instruction of the students enrolled in the center as of the closing date. Further, Buyer assumes and agrees to honor all make-up and guarantee obligations that students may be entitled to receive in accordance with the center's current policies regarding same. 1 2. PURCHASE PRICE AND ALLOCATION: a. In consideration of the sale of assets and properties under this Agreement, Buyer agrees to pay a base purchase price of $100,000 to be paid as follows: 1. In common stock of Seller, at closing, having a Fair Market Value equal to the base purchase price as adjusted per Section 7 below (the "Sylvan Common Stock"). The per share Fair Market Value of the Sylvan Common Stock shall be determined by averaging the closing price of Sylvan Common Stock as reported by the Wall Street Journal for each of the fifteen (15) trading days including and immediately preceding Monday September 29, 1997. Of the total shares representing the purchase price payable to Seller, one-fourth (1/4/th/) of same shall be retained by Buyer through and until December 1, 1997 as security for Seller's indemnity obligations under Section 9.1 which arise or are discovered on or before December 1, 1997. b. The foregoing purchase price shall be apportioned among the properties and other assets being sold by the Seller to Buyer hereunder as follows: 1. The sum of $30,000 being paid by Buyer to Seller for all the furniture, fixtures, equipment, leasehold improvements, programs and learning materials of Seller, which sum shall be allocated to the individual items of furniture, fixtures, equipment, and library in the manner as Buyer shall reasonably determine. 2. The sum of $20,000 being paid by Buyer to Seller for Seller's customer lists, student files and customer inquiry information. 3. The sum of $34,000 for Seller's License Agreement (franchise rights). 4. The sum of $16,000 for goodwill. 3. INSTRUMENTS OF TRANSFER: At the closing, Seller will execute and deliver to Buyer bills of sale, assignments, and such other instruments of conveyance and transfer, required by Buyer's attorney and in a form which is satisfactory to both the Buyer and the Seller, as shall be effective to vest in Buyer marketable title to the assets to be sold, conveyed, and delivered hereunder. From the date of this Agreement Seller shall give to Buyer, and its employees, full access during normal business hours to all books, records, and other documents concerning the Center that Buyer reasonably may request. From time to time after the closing, on Buyer's request, Seller will execute and deliver at Buyer's expense such instruments of conveyance and transfer as may be required in conformity with this Agreement for the adequate assignment, grant, or transfer to Buyer of any property leases, or other assets being sold to Buyer hereunder. 4. Premises Lease: Seller shall assign, subject to landlord's consent, all -------------- rights, titles and interests under that certain lease dated May 1, 1995, between Seller and VMI Financial Company, landlord, covering the Sylvan Learning Center premises located at 4600 C Lee Highway, Arlington, Virginia 22207. Seller has provided Buyer with a copy of the lease. All rents and other charges accruing through September 30, 1997 shall have been paid in full as of the closing, and Buyer shall be under no obligation to close under this Agreement unless the landlord so stipulates in writing and consents to the assignment. 2 5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER AND THE STOCKHOLDERS. The Seller and each of the Stockholders hereby jointly and severally represent and warrant to the Buyer as follows: 5.1 Ownership of Seller Common Stock. The sole stockholders of the Seller -------------------------------- are Harold Sakayan, Victoria Sakayan and Claudine Sakayan (the "Stockholders"), and each such Stockholder has good and marketable title to all of the issued and outstanding shares of Seller's stock, free and clear of any pledges, liens, restrictions, claims or encumbrances of any kind. 5.2 Organization. The Seller is a corporation duly organized, validly ------------ existing and in good standing under the laws of the Commonwealth of Virginia, and has the corporate power and authority to carry on its business as it is now being conducted and to own or hold under lease the properties or assets it now owns or holds under lease and to perform the actions contemplated hereby. 5.3 Financial Statements. The Seller has provided to the Buyer the -------------------- unaudited financial statements for the fiscal years of the Seller ended on December 31, 1996 and the preliminary balance sheet and income statement for the seven month period ending July 31, 1997 (the "Seller Financial Statements"). The Seller Financial Statements are complete and correct, have been prepared and reviewed by a certified public accountant on a consistent basis throughout the periods covered thereby and present fairly and accurately the financial position and results of operations of the Seller as of and for the periods indicated. There are no material liabilities or obligations of the Seller, whether contingent or absolute, as of the dates of such statements, including liability for taxes of any type, which are not shown or provided for in the Seller Financial Statements. Since July 31, 1997, there has been no material adverse change in the condition (financial or otherwise), assets, liabilities, earnings, net worth, financial position, business, operations, properties or prospects of the Seller. The Seller's accounts receivable arose, and all accounts receivable that will be outstanding as of the Closing Date shall have arisen, from bona ---- fide transactions in the ordinary course of business and will be collectible by - ---- the Buyer in full, in the ordinary course of business within ninety days of the Closing Date, and there are no offsets or claims related to such accounts receivable. 5.4 Taxes. The Seller and the Stockholders have properly prepared and ----- filed all federal, state and other tax returns required to be filed in connection with the operations of the Seller. True and complete copies of all federal and state income tax returns for the Seller for each of the years ended December 31, 1995 through December 31, 1996 have been delivered or made available to the Buyer on or prior to the date hereof and copies of other returns will be made available upon request. The Seller has no liability for any federal, state, county, local or other taxes whatsoever that arose or otherwise was incurred on or before the date of this Agreement. The Seller and the Stockholders have withheld or otherwise collected all taxes or amounts it was required to withhold or collect under any applicable federal, state or local law, including, without limitation, any amounts required to be withheld or collected with respect to employee state and federal income tax withholding, social security, unemployment compensation, sales or use taxes or workmen's compensation, and all such amounts have been timely remitted to the proper authorities. 5.5 Legal Proceedings, Etc. There are no legal, administrative, ----------------------- arbitration, or other proceedings or governmental investigations pending or, to the best of the Seller's and the Stockholder's knowledge, threatened against the Seller, the Stockholder or the respective properties or assets of the Seller and the Stockholder. 5.6 Compliance; Licenses. The Seller 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 5.7 Employee Matters. 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, former employee, retired employee, or beneficiary of any of these, of the Seller is entitled to participate. No employee of Seller has or is a party to any employment or other contract with Seller. 5.8 No Conflict With Other Documents. Neither the execution and delivery -------------------------------- of this Agreement, nor the carrying out of any of the transactions contemplated hereby, will result in any violation, termination or modification of, or be in conflict with, the Seller's Articles of Incorporation or By-Laws, any 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. 5.9 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. 5.10 Authority. The execution, delivery and performance of this Agreement --------- by the Seller have been duly authorized by the Seller's Directors and the Stockholders, and this Agreement is a valid and legally binding and enforceable obligation of the Seller. 5.11 Title to Assets. Seller has good and indefeasible title to all of --------------- its properties, lease agreements and assets to be transferred and assumed hereunder. Such properties and assets are owned by Seller free and clear of all mortgages, liens, and encumbrances and liens for taxes not yet due and payable. 5.12 Insurance. All property and assets owned by Seller are and will --------- continue to be insured only through the effective closing date with the same amount of insurance as currently in place, and Buyer shall be responsible for securing replacement policies in Buyer's name to be effective upon closing. 5.13 No Debts. There are no debts owed by Seller that will not be paid -------- prior to closing, except debts accruing through the date of closing and to be invoiced to Seller thereafter. As to all debts (except those expressly assumed by Buyer) owed by Seller in connection with its operation of the center through the effective closing date, Seller hereby agrees to promptly pay same and to hold Buyer harmless from any and all liability as to same. All debt accruing or incurred with Buyer through the Closing Date shall be paid at the Closing. As to all debts accruing or incurred in connection with the operation of the Center after the effective closing date, Buyer agrees to promptly pay same and to hold Seller harmless from any and all liability regarding same. 5.14 Conduct of Business. After the date hereof and through the date of ------------------- the Closing, with respect to the Seller: (a) its business will be conducted only in the ordinary course; (b) it will not enter into, adopt or amend any employee benefit plan, agreement or arrangement, enter into or amend any employment contracts, or increase the salaries or compensation of its officers or employees; (c) it shall not encumber any of its assets; (d) it will use its best efforts to preserve its business organization intact, to keep available the service of its employees and to preserve the goodwill of suppliers, customers and others doing business with it; (e) it will not enter into any agreement for the purchase, sale or other disposition, or purchase, sell or dispose of, any equipment, supplies, inventory, investments or other assets; and (f) it will not compromise or write off any material account receivable other than by collection of the full recorded amount thereof. 4 5.15 Consents. The Company and the Stockholder agree to take all -------- necessary corporate or other action and to use their best efforts to obtain all consents and approvals required for consummation of the transactions contemplated by this Agreement. 5.16 Cause Conditions to Be Satisfied. The Company and the Stockholder -------------------------------- will use their best efforts to cause all of the conditions described in Section 6 of this Agreement to be satisfied. 5.17 True and Correct at Closing. All of the foregoing representations, --------------------------- warranties and covenants will be true and correct as of the Closing Date. 6. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS: The obligations of Buyer under this Agreement are subject to fulfillment of each of the following conditions prior to or at the closing: a. The instruments and conveyances of transfer executed and delivered by Seller at the closing shall be valid in accordance with their terms, and shall effectively vest in Buyer good and indefeasible title to the assets and business as contemplated by this Agreement, free and clear of any liabilities, obligations, or encumbrances except those liabilities and obligations expressly assumed by Buyer as provided herein. b. There shall not have been any material breach of representations or warranties of Seller contained in this Agreement, and such representations and warranties shall be substantially correct on the closing date, except as affected by transactions contemplated herein and changes occurring in the ordinary course of business. c. Between the date of execution of this Agreement and the closing date there shall not have been any material adverse change in the business or business prospects of Seller. d. The manner in which Seller is conducting its business shall not be in violation of any applicable law or regulation materially affecting the properties, assets, and rights to be sold pursuant to this Agreement, and Seller shall not be a party to, or be threatened with, any litigation or proceeding relating to its business or any transactions contemplated by this Agreement. e. Seller's Sylvan License Agreement #4716 shall have been terminated effective October 1, 1997 by Mutual Termination and Release forms duly executed by Buyer and Seller, and all of Seller's accounts with Buyer and SNAC paid in full. f. Prior to the Closing Date, the seller shall conduct an inventory of the program materials and there shall not be missing or in need of replacement (due to extremely worn condition) materials or books having a value of more than $500.00. 7. PRORATIONS/REIMBURSEMENTS/ADJUSTMENTS/ASSUMED OBLIGATIONS: 7.1 There shall be prorated, reimbursed, or the purchase price adjusted, as the case may be, in the manner indicated below, between Seller and Buyer, as of the effective date of closing, for the following: a. Buyer shall be entitled to, and Seller hereby assigns to Buyer, all accounts receivable in connection with instructional services rendered at the Seller's Sylvan Learning Center #4716 which are 5 outstanding and unpaid as of the effective closing date, and the purchase price shall be adjusted (increased) in Seller's favor only for those accounts receivable outstanding for services delivered in September 1997. b. Seller shall reimburse Buyer, by adjustment (decrease) to the purchase price, for all tuitions that Seller shall have received prior to the effective closing date for services to be performed beginning October 1, 1997 and later. c. Property/ad valorem taxes for 1997 assessed against the property transferred hereunder will be prorated through the date of closing with the paying party being entitled to reimbursement on demand from the other party for the other party's share of such paid taxes. 7.2 Buyer hereby assumes and agrees to pay the following obligations of Seller: a. Seller's premises lease in accordance with Section 4 hereof. b. Seller's 1997 commitments to Sylvan National Advertising Committee, Inc. due for operating months October 1997 and following. c. Seller's 1997 commitments to MAASA due for operating months October 1997 and following. d. Balance of $4,514.96 owed to Best Buy on an account for the purchase of two computers. 8. CLOSING DATE: The closing with respect to the transactions contemplated by this Agreement shall be held on September 30, 1997 at the offices of the Seller, at 4600 C Lee Highway, Arlington, Virginia 22207, but shall be effective as of the beginning of business on October 1, 1997 (the "effective closing date" or "Closing Date"). 9. INDEMNIFICATION: 9.1 Indemnification by the Seller and the Stockholders. The Seller and -------------------------------------------------- each of the Stockholders, jointly and severally, hereby covenant and agree to indemnify and hold harmless the Buyer and its respective successors and assigns, at all times from and after the date of Closing against and in respect of the following: (i) any damage or loss resulting from any misrepresentation, breach of representation or warranty or breach or non-fulfillment of any agreement or covenant on the part of the Seller or the Stockholders 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 or the Stockholders hereunder; (ii) any damage, loss or claim which arises out of any liabilities or obligations of the Seller or the Stockholders, included but not limited to federal, state or local income taxes, FICA, withholding, excise, unemployment, sales or franchise taxes, arising from operations of the Seller prior to the Closing; (iii) all claims, actions, suits, proceedings, demands, assessments, judgments, costs, reasonable attorneys' fees and expenses of any nature incident to any of the matters indemnified against pursuant to this Section 9.1, including, without limitation, all such costs and expenses incurred in the defense thereof or in the enforcement of any rights of the Buyer hereunder. 6 The Buyer shall notify the Stockholders of any asserted liability, damage, loss or expense claimed to give rise to indemnification hereunder. Thereafter, the Stockholders shall have, at their election, the right to compromise or defend any such matter at the Stockholders' sole cost and expense through counsel chosen by the Buyer and reasonably acceptable to the Buyer. If the Stockholders fail to settle and compromise the claim, or establish a cash escrow with Buyer and defend the claim, Buyer may pay such claim and offset the amount paid against the shares of Sylvan Common Stock retained by Buyer, canceling that number of shares that then have a fair market value equal to the amount paid (for purposes of this section, fair market value shall mean the closing price of the stock as reported by the Wall Street Journal for the trading date immediately preceding the day Sylvan pays the claim). If said shares have been released to Seller, or the claim exceeds the value of the shares, Buyer may also defend or compromise the claim at Seller's expense. 9.2 Indemnification by the Buyer. From and after the Closing Date, the ---------------------------- Buyer hereby covenants and agrees to indemnify and hold harmless the Stockholder against and in respect of the following: (i) any liability, loss, damage or expense resulting from any misrepresentation, breach of warranty or non-fulfillment of any agreement or covenant on the part of Buyer 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 Buyer hereunder; and (ii) any damage, loss or claim which arises out of any liabilities or obligations of the Buyer, included but not limited to federal, state or local income taxes, FICA, withholding, excise, unemployment, sales or franchise taxes, arising from operations of the Buyer after the Closing; (iii) all claims, actions, suits, proceedings, demands, assessments, judgments, costs, reasonable attorneys' fees and expenses of any nature incident to any of the matters indemnified against pursuant to this Section 9.2, including without limitation, all such costs and expenses incurred in the defense thereof or in the enforcement of any rights of the Stockholders hereunder. The Stockholders shall notify the Buyer of any asserted liability, damage, loss or expense claimed to give rise to indemnification hereunder and thereafter the Buyer shall have the right to defend, compromise and settle such matter provided that the Stockholders are fully protected from any cost or expense in connection therewith. If the Buyer fails to compromise or defend on the claim, Seller or the Stockholders may defend or compromise the claim at Buyer's expense. 10. COVENANTS REGARDING THE SYLVAN COMMON STOCK: 10.1 The Buyer hereby represents and warrants to the Seller as follows: A. Organization and Standing. The Buyer 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. The Buyer 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. B. Financial Statements. The Buyer has delivered to the Seller -------------------- copies of the Buyer's audited consolidated financial statements for the fiscal years ended December 31, 1995 and 1996. These financial statements are true and complete in all material respects, have been prepared in accordance with 7 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 Buyer at the dates of such statements and for the periods covered thereby. The Buyer also has delivered to the Seller copies of its Annual Report on Form 10-K for the year ended December 31, 1996, its proxy statement dated June 7, 1997, and all other reports or documents required to be filed with the Securities and Exchange Commission pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), after the filing of such Annual Report on Form 10-K and prior to the date of this Agreement. C. 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 Buyer's Charter or By-Laws, or, any terms of any contract, instrument or other agreement to which the Buyer 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 Buyer 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 Buyer. D. Brokers and Advisors. The Buyer 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. E. Validity of Common Stock. The shares of Buyer's Common Stock to ------------------------ be issued and delivered by the Buyer in connection with the acquisition of the assets of the Seller have been duly authorized for issuance and will, when issued and delivered as provided in this Agreement, be duly and validly issued, fully paid and non-assessable. F. Registration Statement on Form S-3. As of the date hereof, the ---------------------------------- Buyer is aware of no events, actions or conditions which would prevent the Buyer from being able to comply with the provisions of Section 11.1(a) of this Agreement, and will use its best efforts to continue to be eligible to comply with the provisions of Section 11.1(a). G. Registration Statement on Form S-3. The Buyer will use its best ---------------------------------- efforts to meet the requirements for eligibility set forth in paragraph A. of the General Instructions to Form S-3, as promulgated by the U.S. Securities and Exchange Commission in fulfilling its obligations under Section 11 hereof. 10.2 The Seller and each of the Stockholders hereby jointly and severally represent and warrant to the Buyer as follows: A. Investment Intent. It is understood that the shares of Sylvan ----------------- Common Stock to be delivered to the Seller pursuant to this Agreement are not being registered, for purposes of the transactions hereunder, under the Securities Act of 1933, as amended (the "Securities Act") or any state securities laws, and the shares are being delivered without registration in reliance upon an exemption from the registration requirements of the Securities Act or any state securities laws. The Seller is acquiring the Sylvan Common Stock hereunder only for its own account and not with any intention of making, or with a view to, or for sale in connection with, any distribution thereof within the meaning of the Securities Act unless such shares first are registered under the Securities Act. 8 In connection with the foregoing, the Seller and each of the Stockholders hereby represen and warrant that: (a) each has reviewed, discussed and evaluated the information delivered under Section 10.1 B and has had the opportunity to ask questions of, and receive answers from, executive officers of the Buyer concerning the terms and conditions of this Agreement and to obtain any additional information which such Stockholder considered necessary to verify the accuracy of the information delivered under Section 10.1 B; (b) each understands that it 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 (c) each has sufficient knowledge and experience in financial and business matters to enable them to be capable of evaluating the merits and the risks of the exchange of the Sylvan Common Stock for the business sold under this Agreement and their prospective investment in the Buyer. B. Legends. It is understood and agreed that, to implement the ------- requirements of the Securities Act and state securities laws and evidence the restrictions upon transfer contained in this Agreement, the Buyer will cause a legend to be conspicuously noted on the certificates representing the Sylvan Common Stock deliverable hereunder, and that the Buyer will issue stop transfer instructions to its transfer agent, to the effect that such stock has not been registered under the Securities Act and that no transfer may take place except as permitted by Section 11 of this Agreement and after delivery of an opinion of Buyer's counsel to the effect that registration thereof for the purpose of transfer is not required under the Securities Act or that the stock proposed to be transferred has been effectively registered for that purpose under the Securities Act. C. No Agreements with Respect to Purchaser Common Stock. Neither ---------------------------------------------------- Seller nor any of the Stockholders has entered into any agreement or understanding with anyone for the sale, at Stockholder's or Seller's option or otherwise, of any of the Sylvan Common Stock to be delivered hereunder to Seller at the Closing. 11. REGISTRATION RIGHTS: 11.1 Registration Procedures and Expenses. Buyer shall: ------------------------------------ (a) as soon as practicable after the closing date but not later than ninety (90) days after the closing date, prepare and file with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 which meets the requirements of Rule 415 promulgated under the Securities Act (a "Shelf Registration Statement") covering the sale by the Seller from time to time of the shares of the Sylvan Common Stock received by the Seller under this Agreement. Buyer may extend its obligation to file a registration statement only if Buyer advises Seller or the Stockholders that there is a pending, but unannounced transaction or development which Sylvan determines is not then appropriate for disclosure, and that registration of Seller's Sylvan Common Stock would require such disclosure. (b) use its best efforts, subject to receipt of necessary information from the Seller, to cause each of the Shelf Registration Statements to become effective; 9 (c) prepare and file with the Commission such amendments and supplements to the Shelf Registration Statements and the prospectus used in connection therewith as may be necessary to keep the Shelf Registration Statements effective until the earlier of the date on which the Sylvan Common Stock registered by such Shelf Registration Statement has been sold, or one year from the date of the initial filing thereof; (d) during the period referred to in (c) above, prepare and promptly file with the Commission, and promptly notify the Seller of the filing of, such amendment or supplement to each such Shelf Registration Statement and the prospectus as may be necessary to correct any statements or omissions if, at any time when a prospectus relating to the Sylvan Common Stock is required to be delivered under the Securities Act, any event has occurred the result of which is that any such prospectus then in effect would include or incorporate an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances in which they were made; (e) advise the Seller, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of any of such Shelf Registration Statements or the initiation or threatening of any proceeding for that purpose and promptly use its diligent best efforts to prevent the issuance of any stop order and to obtain its withdrawal if such stop order should be issued; (f) furnish to the Seller with respect to the Sylvan Common Stock registered under any of the Shelf Registration Statements such number of copies of prospectuses and preliminary prospectuses in conformity with the requirements of the Securities Act and such other documents as the Seller may reasonably request (but in no event more than 100), in order to facilitate the public sale or other disposition of all or any of the registered Sylvan Common Stock by the Seller; provided, however, that the obligation of Buyer to deliver copies of -------- ------- prospectuses or preliminary prospectuses to the Seller shall be subject to the receipt by Buyer of reasonable assurances from the Seller that the Seller will comply with the applicable provisions of the Securities Act and of such other securities or blue sky laws as may be applicable in connection with any use of such prospectuses or preliminary prospectuses; (g) file documents required of Buyer for normal blue sky clearance in states reasonably specified in writing by the Seller, provided, however, that Buyer shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so qualified or has not so consented; and (h) bear all expenses in connection with the procedures in paragraphs (a) through (g) of this Section 11.1 and the registration of the Sylvan Common Stock pursuant to each of the Shelf Registration Statements, other than fees and expenses, if any, of counsel or other advisers to the Seller. 11.2 Engagement of Underwriters. The parties hereto agree that the Buyer -------------------------- shall have no obligation to (i) conduct, arrange or coordinate any distribution or sales activities on behalf of the Seller with respect to the Sylvan Common Stock other than as set forth in Section 11.1 above or (ii) retain any underwriter(s) in connection with the registration and/or distribution of the Sylvan Common Stock pursuant to this Section 11. The Seller agrees that any underwriter(s) or counsel engaged in connection with the registration or distribution of the Sylvan Common Stock required to be registered pursuant to this Section 11 will be retained by and at the sole expense of the Seller and agrees further that any discounts or commissions payable to such underwriter(s) shall also be an expense solely of the Seller. In the event the Seller engages one or more underwriters pursuant to this Section 11.2, the Seller shall enter into an underwriting agreement with the managing or lead managing underwriter in the form customarily used by such underwriter with such changes thereto as the parties thereto shall agree; and, further, shall provide to such underwriter any documents or other information as is necessary, in the underwriter's reasonable opinion, to facilitate the effectiveness of the Shelf Registration Statement and the completion of the distribution of the Sylvan Common Stock so registered. 10 11.3 Indemnification with respect to Shelf Registration Statements. Buyer ------------------------------------------------------------- hereby agrees to indemnify the Seller and each Stockholder against liability arising out of or based upon any untrue statement or alleged untrue statement of material fact in any of the Shelf Registration Statements filed by Buyer pursuant hereto, or the omission or alleged omission to state or incorporated by reference in such Shelf Registration Statements any material fact required to be stated therein or necessary in order to make the statements therein not misleading, other than any such statement included or incorporated by reference in, or omitted from, such Shelf Registration Statements by Buyer in reliance upon and in conformity with written information furnished to Buyer specifically for use therein by or on behalf of the Seller. The Seller and each Stockholder hereby agrees to indemnify Buyer against liability arising out of or based upon any untrue statement or alleged untrue statement of a material fact included or incorporated by reference in the Shelf Registration Statements or the omission or alleged omission to state or incorporate by reference therein any material fact required to be stated therein or necessary in order to make the statements therein not misleading, if such statement or omission was made by Buyer in reliance upon and in conformity with written information furnished to Buyer for use or incorporation by reference in such Shelf Registration Statements. 12. NOTICES: All notices to be given hereunder shall be given in writing and shall be delivered personally or by registered or certified mail, postage prepaid, to Buyer and Seller at the addresses shown on Page 1 hereof. 13. ASSIGNMENT: Neither Buyer nor Seller shall have the right to assign its rights and interest in this Agreement. 14. BULK SALES: Buyer agrees to waive any requirement that Seller comply with the Transfer in Bulk sections of the Commercial Code of the Commonwealth of Virginia on the condition that Seller will deliver its Affidavit, duly sworn to, of "No Debts" at Closing. 15. COSTS AND EXPENSES: All costs and expenses incurred in conducting the purchase and sale described in this Agreement and in the manner prescribed by this Agreement shall be borne by Buyer and Seller in the following manner. a. Buyer and Seller shall be solely responsible for their respectively incurred legal fees, if any, incurred in the negotiation of this Agreement and related documents, reviewing and preparing documents required by the transaction and the closing. b. Seller shall pay all taxes, if any, arising because of the sale pursuant to this Agreement. 16. MISCELLANEOUS: a. This Agreement, including the exhibits, if any, referred to herein, contains the entire agreement between the parties with respect to the transaction contemplated herein. It may be executed in any number of counterparts, each and all of which shall be deemed for all purposes to be one agreement. 11 b. This Agreement shall be binding on and inure to the benefit of the successors and assigns of the parties hereto. c. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia and the place of the performance of this Agreement shall be Arlington, Virginia. d. If any one or more of the provisions contained in this Agreement for any reason are held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any of the other provisions hereof and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. e. Whenever the context shall so require, all words herein in the male gender shall be deemed to include the female or neuter gender, and all singular words shall include the plural and the plural words shall include the singular. f. The representations and warranties contained in or made pursuant to this Agreement shall survive the execution and examinations, and audits made at any time by or on behalf of any of the parties hereto. g. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorney's fees, costs, and necessary disbursements in addition to any other relief to which such party may be entitled. h. The headings of the paragraphs and subparagraphs are inserted solely for the convenience of reference and shall not constitute a part of this Agreement, nor limit, define or describe the scope or intent of this Agreement. i. This Agreement may not be altered, changed, or amended except by the written agreement of Seller and Buyer. 12 The parties have caused this Agreement to be executed on this 30th day of September, 1997. SELLER: VCM, Inc. Stockholders of VCM, Inc.: ---------------------------------- ----------------- By: Harold Sakayan, President Harold Sakayan ----------------- Victoria Sakayan ----------------- Claudine Sakayan BUYER: Sylvan Learning Systems, Inc. -------------------- By: O. Steven Jones, Vice President 13 EX-5.1 6 PIPER & MARBURY OPINION 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 February 23, 1998 Sylvan Learning Systems, Inc. 1000 Lancaster Street Baltimore, Maryland 21201 Re: Registration Statement on Form S-3 ---------------------------------- Dear Sirs: We have acted as counsel to Sylvan Learning Systems, Inc., a Maryland corporation (the "Company"), in connection with the Company's Registration Statement on Form S-3 (the "Registration Statement") filed on the date hereof with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"). The Registration Statement relates to 660,908 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 7 CONSENT OF ERNST & 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-_______) and related Prospectus of Sylvan Learning Systems, Inc. for the registration of 660,908 shares of its common stock and to the incorporation by reference therein of our report dated July 10, 1997, with respect to the consolidated financial statements and schedule of Sylvan Learning Systems, Inc. and subsidiaries included in its Current Report on Form 8-K dated July 15, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Baltimore, MD February 13, 1998 EX-23.2 8 CONSENT OF DELOITTE & TOUCHE EXHIBIT 23.2 ------------ CONSENT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS ------------------------------------------------------ We consent to the use of our reports on the financial statements of Independent Child Study Teams, Inc. and I--R, Inc., dated March 14, 1997, appearing in the prospectus, which is part of this Registration Statement, and to the reference to us under the heading "Experts" in such Registration Statement. /s/ DELOITTE & TOUCHE LLP Parsippany, New Jersey February 16, 1998 EX-23.3 9 CONSENT OF CANTERELLI & VERNOIA EXHIBIT 23.3 ------------ CONSENT OF CANTERELLI & VERNOIA, CPAs, INDEPENDENT AUDITORS ----------------------------------------------------------- We consent to the reference to our firm under the caption "Experts" and to the use of our report dated April 25, 1995 and May 10, 1995, with respect to the financial statements of I--R, Inc. and Independent Child Study Teams, Inc., respectively, included in the Registration Statement (Form S-3 No. 333- _________) and related Prospectus of Sylvan Learning Systems, Inc. for the registration of 660,908 shares of its common stock. /s/ CANTERELLI & VERNOIA, CPAs Sommerville, New Jersey February 16, 1998 -----END PRIVACY-ENHANCED MESSAGE-----