-----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, L9c0OxDp6SEE6bK/ZSu3xvDz9wSRfJf1QzqI92yCxLbKEuhkRYjrtImDaQk6zx7n qtSp7IGl/kHh73e2ILDHig== 0000950169-99-000050.txt : 19990521 0000950169-99-000050.hdr.sgml : 19990521 ACCESSION NUMBER: 0000950169-99-000050 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19990520 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: 333-78961 FILM NUMBER: 99631470 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 SYLVAN LEARNING SYSTEMS AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 20, 1999 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 $4,216,524.00 $1,173 ====================================================================================================================
(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 MAY 20, 1999 PROSPECTUS 162,174 SHARES SYLVAN LEARNING SYSTEMS, INC. COMMON STOCK ----------- The shares of common stock of Sylvan Learning Systems, Inc. covered by this Prospectus are outstanding shares which may be offered and sold by the stockholders named herein. Sylvan will not receive any proceeds from the sale of the shares by the selling stockholders. The common stock is quoted on the Nasdaq National Market under the symbol "SLVN." On May 19, 1999, the last sale price for the common stock as reported on the Nasdaq Stock Market was $26.00 per share. The selling stockholders may sell shares of the common stock offered hereby in transactions on the Nasdaq Stock Market, in privately-negotiated transactions or otherwise, in each case at negotiated prices. The brokers or dealers through or to whom the shares of common stock covered hereby may be sold may be deemed "underwriters" within the meaning of the Securities Act of 1933, in which event all brokerage commissions or discounts and other compensation received by such brokers or dealers may be deemed underwriting compensation. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is , 1999. [The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is prohibited.] AVAILABLE INFORMATION Sylvan is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Reports, proxy statements and other information filed by Sylvan with the Commission, including the reports and other information incorporated by reference into this Prospectus, can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at its regional offices located at 7 World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can also be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at rates prescribed by the Commission or from the Commission's Internet web site at http:\\www.sec.gov. The common stock of Sylvan is quoted on the Nasdaq National Market. Reports, proxy statements and other information concerning Sylvan can be inspected at the offices of the Nasdaq Stock Market, 1735 K Street, Washington, D.C. 20006. This Prospectus does not contain all the information set forth in the Registration Statement of which this Prospectus is a part and exhibits relating thereto which Sylvan has filed with the Commission. Copies of the information and exhibits are on file at the offices of the Commission and may be obtained, upon payment of the fees prescribed by the Commission, may be examined without charge at the offices of the Commission or through the Commission's Internet web site. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by Sylvan with the Commission (File No. 0-22844) pursuant to the 1934 Act are incorporated herein by reference: (i) Annual Report on Form 10-K for the year ended December 31, 1998; (ii) Quarterly Report on Form 10-Q for the quarter ended March 31, 1999; (iii) the description of common stock contained in Item 4 of Sylvan's Registration Statement on Form 8-A, filed with the Commission under the 1934 Act; and (iv) all other documents filed by Sylvan pursuant to Sections 13(a), 13(c), 14 or 15(d) of the 1934 Act subsequent to the date of filing of the Registration Statement of which this Prospectus is a part and prior to the termination of the offering made hereby. Sylvan will provide without charge to each person to whom a copy of this Prospectus is delivered, upon the request of any such person, a copy of any or all of the documents which have been incorporated herein by reference, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference into such documents). Requests for such documents should be directed to Sylvan Learning Systems, Inc., 1000 Lancaster Street, Baltimore, Maryland 21202, Attention: Chief Financial Officer, telephone: (410) 843-8000. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. THE COMPANY Sylvan is the leading provider of educational services to families, schools and industry. Sylvan provides lifelong educational services through three divisions: Sylvan Learning Centers, Sylvan Prometric and Sylvan Contract Educational Services. Sylvan Learning Centers provides personalized instructional services to kindergarten through 12th grade students of various skill levels. Sylvan Prometric provides computer-based testing for academic admissions and professional and licensing certification programs. This division includes Wall Street Institute and Aspect. Wall Street is a European-based franchisor and operator of learning centers for English language instruction that also administers certain computer-based testing programs throughout Europe and Latin America. Aspect is a leading provider of international educational programs, primarily English as a Second Language for students worldwide. Sylvan Contract Educational Services provides educational services and professional development through contracts with school systems and other organizations. This division includes the operations of Canter and Associates, Inc. and Canter Educational Products, Inc., a leading provider of materials and training programs for educators. Sylvan delivers its services through approximately 3,000 educational and testing centers around the globe. In 1998, system-wide revenues were approximately $622.2 million, composed of $246.6 million from Sylvan Learning Centers (including $197.4 million from franchised Learning Centers), $275.1 million from Sylvan Prometric and $100.5 million from Sylvan Contract Educational Services. SYLVAN LEARNING CENTERS. This division provides supplemental instruction in reading, mathematics and reading readiness, featuring an extensive series of standardized diagnostic tests, individualized instruction, a student motivational system and continued involvement from both parents and the child's regular school teacher. As of December 31, 1998, Sylvan or its franchisees operated 727 Learning Centers. These centers are in 49 states, six Canadian provinces, South Korea and Guam. As of that date, Sylvan owned and operated 63 Learning Centers, and more than 420 franchisees operated 663 Sylvan Learning Centers. SYLVAN PROMETRIC. As of December 31, 1998, Sylvan's testing business was operated through more than 2,400 testing centers, approximately 1,200 of which are located in the United States and Canada and the remainder of which are located in more than 120 foreign countries. Sylvan Prometric's principal customers are Educational Testing Services ("ETS") and, in the Information Technology ("IT") industry, Microsoft Corp. and Novell, Inc. Sylvan provides certification testing for its IT customers that have worldwide certification programs for various professionals, such as network administrators and engineers, service technicians and instructors, application specialists and developers, and system administrators, operators and engineers. Sylvan has been designated the exclusive commercial provider of computer-based tests administered by ETS (excluding the SAT/PSAT and Achievement Test). As of December 31, 1998, Sylvan operated 116 permanent and 30 temporary sites in 79 countries to facilitate delivery of international testing for ETS. Sylvan also provides testing services to organizations that license beginning teachers, physicians, registered and practical nurses, pilots and aviation mechanics and for organizations in many other fields, including computer professionals, medical laboratory technicians and military candidates. Through Sylvan's December 1996 acquisition of Wall Street Institute and its May 1998 acquisition of Aspect, Sylvan provides live and computer-based English instruction in the U.S., Canada, Europe, Latin America and Australia. SYLVAN CONTRACT EDUCATIONAL SERVICES. As of December 31, 1998, Sylvan provided educational services under federal and various state funding programs to students in 139 public and 775 non-public schools. Sylvan provides remedial educational services to public and non-public school systems. Sylvan expanded these services through its May 1997 acquisition of I-R, Inc. and Independent Child Study Teams, Inc. Sylvan's January 1998 acquisition of Canter, which specializes in teacher training products and services, enhances Sylvan's teacher development services for public and non-public school contracts and capitalizes on the growing market for teacher training. Sylvan also provides educational and training services to large corporations throughout the United States, including racial and gender workplace diversity training and skills improvement programs such as writing, advanced reading, listening and public speaking, through its wholly-owned subsidiary, The PACE Group and Sylvan's Sylvan-At-Work program. Sylvan's principal executive offices are located at 1000 Lancaster Street, Baltimore, Maryland 21202, and its telephone number is (410) 843-8000. - 2 - USE OF PROCEEDS All of the proceeds from the sale of the shares of Sylvan's common stock offered hereby will be received by the selling stockholders. Sylvan will receive none of the proceeds from the sale of the shares of common stock offered hereby. SELLING STOCKHOLDERS The following table sets forth information regarding the beneficial ownership of Sylvan's common stock by the selling stockholders, the maximum number of shares of common stock to be sold by the selling stockholders hereby, and the beneficial ownership of Sylvan's common stock by the selling stockholders after this offering, assuming that all shares of common stock offered hereby are sold.
Shares Beneficially Shares Beneficially Owned Prior to Offering Shares To Owned After Offering ----------------------- Be Sold In -------------------- Name and Address of Number Percent Offering Number Percent Beneficial Owner - --------------------------------------------- -------- --------- ------------ -------- --------- Judy Berman(1) 41,176 * 41,176 -0- -0- 3305 Garrison Farms Road Baltimore, Maryland 21208 Lynne Peverley(1) 41,176 * 41,176 -0- -0- 4228 Blue Barrow Ellicott City, Maryland 21042 Congress & Co., as Escrow Agent(1) 13,496 * 13,496 -0- -0- Two International Place, 5th Floor Boston, Massachusetts 02110 Audrey Nash Abel(2) 19,445 * 19,445 -0- -0- 2404 Coral Ridge Drive Melbourne, Florida 32935 Marcia F. Cason(3) 9,300 * 9,300 -0- -0- 1704 Briarcliff Drive Orlando, Florida 32806 George A. Perkins(4) 16,660 * 16,660 -0- -0- 1636 Old Fayetteville Road Sylacauga, Alabama 35151 Eddie W. McLain(5) 16,661 * 16,661 -0- -0- 123 Hickory Street Childersburg, Alabama 35044 Southeast Learning Systems, Inc.(4) 4,260 * 4,260 -0- -0- c/o George A. Perkins 1636 Old Fayetteville Road Sylacauga, Alabama 35151
- ------------- * Less than 1%. 1. Pursuant to the Stock Exchange Agreement, dated as of December 31, 1998, by and among Sylvan, on the one hand, and Berman, Peverley & Associates, P.A., ("Berman, Peverley") and Judy Berman and Lynne Peverley (collectively, the "Stockholders"), on the other hand (the "Stock Purchase Agreement"), Sylvan acquired all of the issued and outstanding capital stock of Berman, Peverley in exchange for 162,174 shares of Sylvan's common stock, 13,496 shares (the "Escrow Shares") of which were placed in two escrow accounts. Each escrow account - 3 - stands as security for claims made by Sylvan against the Stockholders in respect of the representations, warranties and covenants made by the Stockholders in the Agreement. The Escrow Shares may be released to the Stockholders at specified times under the terms of the escrow agreements. There can be no assurance, however, that any of the Escrow Shares will be released to the Stockholders. 2. Pursuant to the Agreement and Plan of Reorganization, dated March _, 1999, by and among Sylvan, on the one hand, and Abel Educators, Inc. ("Abel") and Audrey Nash Abel, on the other hand, Sylvan acquired all of the issued and outstanding capital stock of Abel in exchange for 19,445 shares of Sylvan's common stock. 3. Pursuant to the Agreement and Plan of Reorganization, dated March _, 1999, by and among Sylvan, on the one hand, and Fox Educational Services, Inc. ("Fox") and Marcia F. Cason, on the other hand, Sylvan acquired all of the issued and outstanding capital stock of Fox in exchange for 9,300 shares of Sylvan's common stock. 4. Pursuant to the Agreement and Plan of Reorganization, dated May 12, 1999, by and among Sylvan, on the one hand, and Alabama Education Systems, Inc. ("Alabama") and George A. Perkins and Eddie W. McLain, on the other hand, Sylvan acquired all of the issued and outstanding capital stock of Alabama in exchange for 33,321 shares of Sylvan's common stock. 5. Pursuant to the Agreement and Plan of Reorganization, dated May _, 1999, by and among Sylvan, on the one hand, and The Emerald Coast Corporation ("Emerald") and Southeast Learning Systems, Inc., on the other hand, Sylvan acquired all of the issued and outstanding capital stock of Emerald in exchange for 4,260 shares of Sylvan's common stock. - 4 - PLAN OF DISTRIBUTION Sylvan's common stock is quoted on the Nasdaq National Market under the symbol "SLVN." The shares covered by this Prospectus (the "Shares") may be sold from time to time by the selling stockholders (or their pledgees, donees, transferees or other successors in interest) directly or through broker-dealers or underwriters who may act solely as agents, or who may acquire the Shares as principals. In connection with any sales of the Shares hereunder, the selling stockholders and any broker-dealers participating such sales may be deemed to be "underwriters" within the meaning of the Securities Act. The distribution of the Shares hereunder by the selling stockholders may be effected in one or more transactions that may take place on the Nasdaq National Market or otherwise, including block trades or ordinary brokers' transactions, or through privately negotiated transactions, through an underwritten public offering, or through a combination of any such methods of sale, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. Usual and customary or specially negotiated brokerage fees or commissions may be paid by the selling stockholders in connection with such sales. From time to time, the selling stockholders may engage in short sales, short sales against the box, puts and calls and other transactions in securities of Sylvan or derivatives thereof, and may sell and deliver the Shares in connection therewith or in settlement of securities loans. From time to time, the selling stockholders may pledge their Shares pursuant to the margin provisions of their customer agreements with their respective brokers. Upon a default by the selling stockholders, the broker may offer and sell the pledged shares from time to time. Sylvan will not bear any commissions or discounts paid or allowed by the selling stockholders to underwriters, dealers, brokers or agents. To the extent required, the specific Shares to be sold, purchase price, public offering price, the names of any such agent, dealer or underwriter and any applicable commission or discount with respect to a particular offering may be set forth in an accompanying Prospectus Supplement. Sylvan has agreed to bear the cost of preparing the Registration Statement of which Prospectus is a part and all filing fees and legal and accounting expenses in connection with registration of the Shares offered by the selling stockholders hereby under federal and state securities laws. LEGAL MATTERS The legality of the Shares offered hereby has been passed upon for Sylvan by Piper & Marbury L.L.P., Baltimore, Maryland. EXPERTS The consolidated financial statements of Sylvan Learning Systems, Inc. at December 31, 1998 and 1997 and for each of the three years in the period ended December 31, 1998, incorporated by reference in this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon incorporated herein by reference which, as to the year 1996, is based in part on the report of Deloitte & Touche LLP, independent auditors, and as to the years 1997 and 1996, are based in part on the reports of Smith, Lange & Phillips, LLP and Deloitte & Touche, 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. - 5 - ================================================================================ No person has been authorized by Sylvan to give any information or to make any representations other than those contained in this Prospectus in connection with the offer contained in this Prospectus, and if given or made, such information or representations may not be relied upon as having been authorized by Sylvan. This Prospectus does not constitute an offer 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 Sylvan since the date hereof. ----------------------------- TABLE OF CONTENTS PAGE - ---- Available Information.......................................................1 Incorporation of Certain Documents by Reference...................................................1 The Company.................................................................2 Use of Proceeds.............................................................3 Selling Stockholders........................................................3 Plan of Distribution........................................................5 Legal Matters...............................................................5 Experts.....................................................................5 162,174 SHARES SYLVAN LEARNING SYSTEMS, INC. COMMON STOCK PROSPECTUS MAY , 1999 ================================================================================ INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the expenses in connection with this Registration Statement. Sylvan will pay all expenses of the offering. All of such expenses are estimates, other than the filing fees payable to the Securities and Exchange Commission. Filing Fee-Securities and Exchange Commission......... $ 1,173 Nasdaq National Market Listing Fees................... 3,243 Fees and Expenses of Counsel.......................... 6,000 Miscellaneous Expenses................................ 5,000 -------- TOTAL................................................. $15,416 ======== ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Sylvan's Charter provides that, to the fullest extent that limitations on the liability of directors and officers are permitted by the Maryland General Corporation Law, no director or officer of Sylvan shall have any liability to Sylvan or its stockholders for monetary damages. The Maryland General Corporation Law provides that a corporation's charter may include a provision which restricts or limits the liability of its directors or officers to the corporation or its stockholders for money damages except: (1) to the extent that it is provided that the person actually received an improper benefit or profit in money, property or services, for the amount of the benefit or profit in money, property or services actually received, or (2) to the extent that a judgment or other final adjudication adverse to the person is entered in a proceeding based on a finding in the proceeding that the person's action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding. Sylvan's Charter and By-laws provide that Sylvan shall indemnify and advance expenses to its currently acting and its former directors to the fullest extent permitted by the Maryland General Corporation Law and that Sylvan shall indemnify and advance expenses to its officers to the same extent as its directors and to such further extent as is consistent with law. The Charter and By-laws provide that Sylvan will indemnify its directors and officers and may indemnify employees or agents of Sylvan to the fullest extent permitted by law against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with Sylvan. In addition, Sylvan's Charter provides that its directors and officers will not be liable to stockholders for money damages, except in limited instances. However, nothing in the Charter or By-laws of Sylvan protects or indemnifies a director, officer, employee or agent against any liability to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. To the extent that a director has been successful in defense of any proceeding, the Maryland General Corporation Law provides that he shall be indemnified against reasonable expenses incurred in connection therewith. - 2 - ITEM 16. EXHIBITS. Exhibit No. Description ----------- ----------- 3.1 Articles of Amendment and Restatement of the Charter* 3.2 Amended and Restated By-Laws dated September 27, 1996** 4.1 Specimen Stock Certificate* 4.2 Stock Exchange Agreement dated as of December 31, 1998, by and among Sylvan and Berman, Peverley & Associates, P.A., Judy Berman and Lynne Peverley 4.3 Agreement and Plan of Reorganization, dated March , 1999, by and among Sylvan and Abel Educators, Inc. and Audrey Nash Abel. 4.4 Agreement and Plan of Reorganization, dated March , 1999, by and among Sylvan and Fox Educational Service, Inc. and Marcia F. Cason. 4.5 Agreement and Plan of Reorganization, dated May 12, 1999, by and among Sylvan and Alabama Education Systems, Inc. and George A. Perkins and Eddie W. McLain 4.6 Agreement and Plan of Reorganization, dated May 12, 1999, by and among Sylvan and Emerald Coast Corporation and Southeast Learning Systems 5.1 Opinion of Piper & Marbury L.L.P. 23.1 Consent of Ernst & Young LLP 23.2 Consent of Deloitte & Touche LLP 23.3 Consent of Deloitte & Touche 23.4 Consent of Smith, Lange & Phillips, LLP 23.5 Consent of Piper & Marbury L.L.P. (contained in Exhibit 5.1) 24.1 Powers of Attorney (included on signature page) -------------- * Incorporated by reference from the Registrant's Registration Statement on Form S-1 (No. 33-69558) ** Incorporated by reference from Sylvan's Annual Report on Form 10-K for the Year ended December 31, 1996. ITEM 17. UNDERTAKINGS. (a) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suite or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has - 3 - been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (c) The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (d) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement; (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the "Securities Act"); (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs in contained in periodic reports filed by the registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") that are incorporated by reference in the registration statement. (2) That for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement or Amendment to be signed on its behalf by the undersigned, thereunto duly authorized, in Baltimore, Maryland, on this 20th day of May, 1999. 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 - 4 - 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 --------- ----- ---- Co-Chief Executive Officer and Chairman of the /s/ R. Christopher Hoehn-Saric Board of Directors (Principal Executive Officer) May 20, 1999 ------------------------------- R. Christopher Hoehn-Saric /s/ Douglas L. Becker Co-Chief Executive Officer May 20, 1999 ------------------------------- President, Secretary and Director Douglas L. Becker /s/ B. Lee McGee Chief Financial Officer (Principal May 20, 1999 ------------------------------- Financial and Accounting Officer) B. Lee McGee Director May __, 1999 ------------------------------- Donald V. Berlanti /s/ R. William Pollock Director May 6, 1999 ------------------------------- R. William Pollock /s/ J. Phillip Samper Director May 20, 1999 ------------------------------- J. Phillip Samper /s/ Nancy A. Cole Director May 7, 1999 ------------------------------- Nancy A. Cole Director May __, 1999 ------------------------------- James H. McGuire /s/ Rick Inatome Director May 20, 1999 ------------------------------- Rick Inatome
- 5 - EXHIBIT INDEX Sequentially Numbered Page Exhibit No. Description ----------- ----------- 3.1 Articles of Amendment and Restatement* 3.2 Amended and Restated By-Laws dated September 27, 1996** 4.1 Specimen Stock Certificate* 4.2 Stock Exchange Agreement dated as of December 31, 1998, by and among Sylvan and Berman, Peverley & Associates, P.A., Judy Berman and Lynne Peverley 4.3 Agreement and Plan of Reorganization, dated March , 1999, by and among Sylvan and Abel Educators, Inc. and Audrey Nash Abel. 4.4 Agreement and Plan of Reorganization, dated March , 1999, by and among Sylvan and Fox Educational Service, Inc. and Marcia F. Cason. 4.5 Agreement and Plan of Reorganization, dated May 12, 1999, by and among Sylvan and Alabama Education Systems, Inc. and George A. Perkins and Eddie W. McLain 4.6 Agreement and Plan of Reorganization, dated May 12, 1999, by and among Sylvan and Emerald Coast Corporation and Southeast Learning Systems 5.1 Opinion of Piper & Marbury L.L.P. 23.1 Consent of Ernst & Young LLP 23.2 Consent of Deloitte & Touche LLP 23.3 Consent of Deloitte & Touche 23.4 Consent of Smith, Lange & Phillips, LLP 23.5 Consent of Piper & Marbury L.L.P. (contained in Exhibit 5.1) 24.1 Powers of Attorney (included on signature page) - ------------------- * Incorporated by reference from the Registrant's Registration Statement on Form S-1 (No. 33-69558) ** Incorporated by reference from Sylvan's Annual Report on Form 10-K for the Year ended December 31, 1996. - 6 - EX-4 2 EXHIBIT 4.2 EXHIBIT 4.2 STOCK EXCHANGE AGREEMENT THIS STOCK EXCHANGE AGREEMENT (this "Agreement"), dated as of December 31, 1998, is by and among SYLVAN LEARNING SYSTEMS, INC., a Maryland corporation (the "Buyer"), on the one hand, and BERMAN, PEVERLEY & ASSOCIATES, P.A., a Maryland corporation (the "Company"), and JUDY BERMAN and LYNNE PEVERLEY (each a "Stockholder," and collectively the "Stockholders") on the other hand. WHEREAS, Buyer desires to purchase from the Stockholders, and the Stockholders each desire to sell to Buyer, upon the terms and subject to the conditions set forth herein (the "Stock Exchange"), 500 shares of the Company's Common Stock, no par value (the "Shares"), which Shares are owned by the Stockholders and constitute all of the issued and outstanding equity interests in the Company, in exchange for a number of shares of Common Stock, $.01 par value, of Buyer, having an aggregate Market Value (as defined herein) equal to $1,710,000 plus the Net Working Capital (as defined herein) ("Buyer Shares"). WHEREAS, for United States federal income tax purposes it is intended that the Stock Exchange shall qualify as a "reorganization" under the provisions of Section 368(a) of the United States Internal Revenue Code of 1986, as amended (the "Code"). WHEREAS, the Stock Exchange is intended to qualify as a pooling of interests under applicable generally accepted accounting principles ("GAAP") and U.S. Securities and Exchange Commission ("SEC") rules and regulations. NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants, agreements and conditions hereinafter set forth, and intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE I PURCHASE AND SALE OF STOCK Section 1.1. Stock to Be Exchanged. Upon the terms and subject to the conditions contained herein, at the Closing (as defined below), each of the Stockholders shall sell and transfer to Buyer, and Buyer shall purchase and accept from each of the Stockholders, that number of Shares as is set forth next to each such Stockholder's name on Schedule 1.1. Section 1.2. Share Transfer. At the Closing (as defined below), in order to effect the transfer of Shares, each Stockholder shall endorse the reverse side of each and every stock certificate evidencing her Shares. - 7 - Section 1.3. Deliveries by Buyer and Stockholders. (a) Upon the terms and subject to the conditions contained herein, (including Section 1.3(b) below regarding Escrow Shares) in consideration of, and in full payment for and solely in respect of, the Stock Exchange, Buyer shall deliver or cause to be delivered to the Stockholders certificates representing a number of Buyer Shares equal to $1,710,000 plus any Net Working Capital less Distribution Payable, if any, divided by $27.49 (the "Market Value"), such number of Buyer Shares to be allocated among the Stockholders as set forth in Schedule 1.1 (the "Purchase Price"), free and clear of all Liens (as defined herein). (b) Upon receipt of the Buyer Shares, at the Closing, the Stockholders shall deliver to the Escrow Agent (as herein defined): (i) certificates representing a number of Buyer Shares having an aggregate Market Value equal to $171,000 in respect of the General Escrow (as defined herein) and (ii) certificates representing a number of Buyer Shares having a Market Value equal to $200,000 in respect of the Special Escrow (as defined herein) (such shares to be delivered by each Stockholder as set forth in Schedule 1.1), duly endorsed for transfer, to be held by the Escrow Agent in accordance with the terms of the Escrow Agreements. Section 1.4. Time and Place of Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall be held at the principal offices of Sylvan Learning Systems, Inc. in Baltimore, Maryland, or such other place as the parties may agree on the date (the "Closing Date") set by Buyer (with at least one business day notice to the Stockholders), which date shall be within five business days following the date upon which all conditions set forth in Article V have been satisfied or waived, however in no event later than January 31, 1999. Notwithstanding the Closing Date, the effective date of the Stock Exchange shall be as of December 31, 1998. Section 1.5. Change in Capitalization. In the event of any change in the number and/or price of the outstanding Buyer Shares from and after the date hereof through the Closing Date, by reason of a recapitalization, spin-off, stock dividend, stock split, extraordinary dividend or other similar transaction, or of a dividend (other than a regular quarterly cash dividend), recapitalization, merger or other similar transaction involving Buyer, amounts hereunder shall be appropriately and proportionately adjusted. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS AND THE COMPANY Each of the Stockholders, jointly and severally together with the Company, hereby represents and warrants to the Buyer that the statements contained in this Article II are true and correct, except as set forth in the schedules delivered by the Company and the Stockholders on or before the date of this Agreement (the "Company Disclosure Schedules"). The Company Disclosure Schedules shall be arranged in sections corresponding to the numbered and lettered sections contained in this Agreement. The disclosure in any section shall be deemed to constitute disclosure for all sections in this Agreement. - 8 - Section 2.1. Incorporation; Authorization; Etc. (a) The Company is a professional service corporation, duly organized and validly existing under the laws of the State of Maryland. The Company (1) has all requisite power and authority to own all of its properties and assets and to carry on its business as it is now being conducted, and (2) is in good standing, and is duly licensed, authorized or qualified to transact business in each jurisdiction in which the ownership or lease of real property or the conduct of its business requires it to be so qualified except where the failure to be in good standing or to be duly licensed, authorized or qualified to transact business, would not reasonably be expected to, individually or in the aggregate, have a material adverse effect on the business, assets, results of operations, or financial condition (collectively, the "Business Condition") of the Company. The Company has heretofore delivered or made available to Buyer complete and correct copies of its organizational documents as in effect on the date hereof. (b) Each of the Stockholders has full power, capacity and authority to execute and deliver this Agreement and to perform his obligations under this Agreement. This Agreement has been duly executed and delivered by and is the legal, valid and binding obligation of each of the Stockholders and, assuming the due execution and delivery thereof by Buyer, is enforceable against each of the Stockholders in accordance with its terms. (c) The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by the Board of Directors of the Company, and no additional proceedings (corporate or otherwise) on the part of any of the Stockholders of the Company are necessary to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby. This Agreement has been duly executed and delivered by and, assuming the due execution and delivery thereof by Buyer, constitutes the legal, valid and binding obligation of the Company and is enforceable against the Company in accordance with its terms, subject to general principles of equity. (d) Except as set forth in Schedule 2.1(d), the execution and delivery of this Agreement by the Company and the Stockholders and the consummation by the Company and the Stockholders of the transactions contemplated by this Agreement will not (1) violate any provision of the certificate of incorporation or by-laws or similar organizational instrument of the Company, (2) result in a violation of any provision of, or constitute a default (with or without notice or lapse of time) under, or give rise to a right of termination, cancellation or acceleration of (or entitle any party to accelerate whether after the giving of notice or lapse of time or both) any obligation under, or result in the imposition of any lien upon or the creation of a security interest in any of the Shares or any of the Company's assets or properties pursuant to, any note, bond, debt instrument, mortgage, indenture, lien, lease, agreement or other instrument, or any judgment, injunction, order or decree to which the Company or any of the Stockholders is a party or by which any of them is bound, (3) violate or conflict with any United States (federal, state or local) or foreign (federal, provincial or local) law, statute, ordinance, rule or regulation ("Law") or any order, writ, injunction, judgment, award, stipulation or decree rendered by any Governmental Authority (as defined herein) ("Order") applicable to the Company or any of their material respective properties or assets or any of the Stockholders, except for violations or conflicts, if any, that would not reasonably be expected, individually or in the aggregate, to have a material adverse effect on the Business Condition of the Company, (4) trigger the rights of the Company under any shareholder rights plan or similar arrangement or (5) restrict any business combination between the Buyer or any of its subsidiaries and the Company. - 9 - (e) No consent, approval, order or authorization of, or registration, declaration or filing with (1) any Governmental Authority or (2) any individual, corporation or other entity (including any holder of the Company's securities) is required by or with respect to the Company or any Stockholder in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (A) satisfaction of all information and waiting period requirements of the Hart-Scott-Rodino Antitrust Improvement Act of 1976 and any regulations promulgated thereunder (the "HSR Act"), if any, (B) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under federal securities laws , applicable state "blue sky" laws, and the securities laws of any foreign country, (C) those set forth in the Schedule 2.1(e), and (D) such other consents, authorizations, filings, approvals and registrations which, if not obtained or made, would not be reasonably likely, individually or in the aggregate, to have a material adverse effect on the Business Condition of the Company. Section 2.2. Capitalization; Structure; No Investments. (a) The entire authorized capital stock of the Company is 500 shares of Common Stock, with no par value, of which 500 shares are issued and outstanding and all are owned by the Stockholders in the amounts set forth on Schedule 1.1. All of the issued and outstanding Shares have been duly and validly issued and are fully paid and nonassessable, free of preemptive rights and are owned by the Stockholders. Except as set forth on Schedule 2.2(a)(1), there are outstanding (1) no shares of capital stock or other voting securities of the Company, (2) no securities of the Company convertible into or exchangeable for shares of capital stock or voting securities of the Company, (3) no options, warrants or other rights to acquire from the Company (including any rights issued or issuable under a shareholders rights plan or similar arrangement), and no obligations of the Company to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of the Company, (4) no equity equivalents, interests in the ownership or earnings of the Company (including stock appreciation or phantom stock rights) or other similar rights (with the securities listed in clauses (1) through (4) referred to collectively as the "Company's Securities"), and (5) no outstanding obligations of the Company to repurchase, redeem or otherwise acquire any Company Securities or to make any investment (by loan, capital contribution or otherwise) in any other entity. Except as set forth in Schedule 2.2(a)(1), no decision has been taken by the Stockholders to distribute profits or reserves or to repay capital, which still has to be executed, and no distribution will be made after the date hereof that will prevent accounting for the Stock Exchange as a pooling of interests. The Company's stock records, a copy of which is attached hereto as Schedule 2.2(a)(2), is true, accurate and complete. (b) The Company has no subsidiaries nor any equity investment of any kind in any corporation, partnership, limited liability company, joint venture or other legal entity. There are no outstanding obligations, options, warrants or other rights of any kind to acquire equity interests in any such entities. Section 2.3. Ownership of Shares. Each of the Stockholders has good and valid title to the Shares shown opposite the name of such Stockholder on Schedule 1.1, free and clear of any liens, claims, charges, security interests, options or other legal or equitable encumbrances of any kind ("Liens"). No person or entity (other than a Stockholder with respect to the number of Shares set forth opposite the name of such Stockholder on Schedule 1.1) has any power or right, whether or not shared with any other person or - 10 - entity, to dispose of or direct the disposition of any Shares or vote or direct the voting of any such Shares. Upon consummation of the Stock Exchange as contemplated by this Agreement, Buyer will acquire good and valid title to such Shares, free and clear of any Liens. Section 2.4. Financial Statements. (a) The Company has previously delivered to the Buyer true, correct and complete copies of its compiled balance sheets as of December 31, 1997 and December 31, 1996, and related compiled income statements for the 12-month periods then ended, in each case with the accompanying compilation report of Asher & Simons, P.A. (the "Company Compiled Financial Statements"). (b) The Company Compiled Financial Statements were prepared in conformity with sound accounting practices applied on a consistent basis throughout the period involved. The Company Compiled Financial Statements present fairly the financial position of the Company as of their respective dates, and operating results, as the case may be, for the periods presented therein. Section 2.5. Title to Properties; Encumbrances. Except for properties disposed of in the ordinary course of business consistent with past practice, the Company has good and marketable title to, or holds by valid and existing lease or license, free and clear of all Liens, each piece of real and personal property currently used by them in, the business as presently conducted by the Company. Schedule 2.5 sets forth all real property owned and all real property leased by the Company with the name, address, terms of material leases and annual payment obligations (whether mortgage or rent) for each. The Stockholders have received no written notice of any violation of any zoning, use or other similar laws with respect to any material property used in the operation of the Company's businesses. The Company does not own any real property. Section 2.6. Litigation; Orders. There is no action, suit, arbitration, inquiry, proceeding or investigation ("Action") by or before any court or tribunal in any jurisdiction or any federal, state, municipal, domestic, foreign or other administrative agency, department, commission, board, bureau or other governmental or regulatory authority or instrumentality (each a "Governmental Authority") pending nor, to the knowledge of the Stockholders after due and reasonable inquiry, is any Action threatened against or involving the Stockholders, the Company, or affecting any properties or assets of any of the Stockholders or the Company, which, in any such case, could reasonably be expected to (a) prevent or materially delay the ability of the Stockholders or the Company to consummate the transactions contemplated hereby, or (b) individually or in the aggregate, have a material adverse effect on the Business Condition of the Company. None of the Stockholders or the Company is subject to any Order which could reasonably be expected to prevent or materially delay the ability of any of the Stockholders or the Company to consummate the transactions contemplated hereby or, individually or in the aggregate, have a material adverse effect on the Business Condition of the Company. Section 2.7. Intellectual Property. (a) The Company owns, or has a valid license to use, all of the patents, trademarks, trade names, service marks, registered copyrights or applications ("Intellectual Property") which are currently used by them in, and are reasonably necessary to enable them to carry on, their businesses as presently conducted. Schedule 2.7 lists (1) all material Intellectual Property, including jurisdictions in which - 11 - each such material Intellectual Property right has been issued or registered, and (2) all material licenses, sublicenses and other agreements where the Company has taken or given a right to use such Intellectual Property right from or to a third party. To the Stockholders' knowledge, all registered Intellectual Property held by the Company are valid and subsisting. (b) Except as set forth in Schedule 2.7, no claims which would, individually or in the aggregate, have a material adverse effect on the Business Condition of the Company have been asserted by any person (1) challenging the ownership, validity or effectiveness of any Intellectual Property owned, used, filed by or licensed to or by the Company as of the date hereof, (2) to the effect that the sale of any product or the provision of any service as now sold or provided by the Company infringes on any Intellectual Property of a third party, or (3) against the use by the Company of any Intellectual Property. Section 2.8. Licenses, Approvals, Other Authorizations, Consents, Reports, Etc. (a) The Company has all governmental licenses, permits, franchises, approvals and other authorizations of any Governmental Authority (the "Licenses") necessary to own, lease and operate their properties and enable them to carry on their businesses as presently conducted except for those Licenses, the lack of which would not have a material adverse effect on the Business Condition of the Company. All such Licenses are in full force and effect except where the failure to be in full force and effect would not, individually or in the aggregate, have a material adverse effect on the Business Condition of the Company. As of the date hereof, to the Stockholders' knowledge after reasonable inquiry, no proceeding is pending seeking the revocation or limitation of any such License that would, individually or in the aggregate, have a material adverse effect on the Business Condition of the Company. (b) Schedule 2.8(b) lists all consents, approvals, registrations, filings, applications, notices, orders, authorizations, qualifications and waivers required to be made, filed, given or obtained by any of the Company or the Stockholders with, to or from any persons or Governmental Authorities in connection with the consummation of the Stock Exchange, except for those (1) that become applicable solely as a result of the specific regulatory status of Buyer or its affiliates, or (2) the failure to make, file, give or obtain which would not, individually or in the aggregate, either have a material adverse effect on the Business Condition of the Company or prevent the consummation of the Stock Exchange. (c) All speech pathologists employed by the Company are duly licensed as speech pathologists in the State of Maryland. Section 2.9. Labor Matters. Except as set forth in Schedule 2.9, as of the date hereof, the Company is not involved in or, to the Stockholders' knowledge after reasonable inquiry has not been, threatened with any labor dispute, arbitration, lawsuit or administrative proceeding relating to labor matters involving the employees of the Company (excluding routine workers' compensation claims) that would reasonably be expected, individually or in the aggregate, to have a material adverse effect on the Business Condition of the Company. Section 2.10. Compliance with Laws. Except as set forth in Schedule 2.10, to the Stockholders' knowledge after reasonable inquiry, the conduct of the business of each of the Company substantially complies with all applicable Laws and all Orders applicable thereto, except for violations or - 12 - failures so to comply, if any, that would not reasonably be expected, individually or in the aggregate, to have a material adverse effect on the Business Condition of the Company. Section 2.11. Material Contracts. (a) Schedule 2.11(a) identifies each of the following material agreements, contracts, documents and other items (whether written or oral) as to which the is a party or otherwise is bound (and all such contracts, or summaries thereof, have been made available to Buyer) as of the date of the execution of this Agreement: (i) [intentionally omitted], (ii) all documents relating to indebtedness for money borrowed, including guarantees; (iii) all agreements or plans relating to employment, compensation of or benefits for officers, employees or consultants of the Company, including without limitation, any collective bargaining arrangements; (iv) all contracts for the purchase of materials, supplies, services, merchandise or equipment involving consideration of more than $10,000 or involving purchases in excess of normal operating requirements; (v) any contract, agreement, or instrument not entered into in the ordinary course of the business of the Company; (vi) any contract containing material restrictions on the operations of the Company or any restrictions on its ability to compete in any geographic region or in any line of business; (vii) any lease of real property and all personal property leases calling for annual lease payments in excess of $10,000 (viii) all licenses and accreditations received by the Company; (ix) all contracts between the Company and third parties relating to the provision of the Company's services; and (x) each and every other contract which is material to the financial condition, earnings, operation or business of the Company. The contracts and agreements identified in Schedule 2.11(a), together with all contracts between the Company and speech or hearing pathologists, are collectively referred to herein as the "Contracts." (b) Except as set forth in Section 2.11(b) of the Company Disclosure Schedule: (i) Neither the execution, delivery and performance of this Agreement nor the consummation of the transactions contemplated hereby will conflict in any material respect with or result in a material breach of, or give rise to a right of termination of, or accelerate the performance required by, any terms of any Contract, or constitute a default in any material respect thereunder. (ii) The Company is not under any liability or obligation to refund any material amount previously paid to the for services provided by the Company under the Contracts, and the Company has paid or has made adequate provision to pay when due all accounts payable, payroll, payroll taxes and other amounts due on account of the Contracts; (iii) The Company has not secured any of the Contracts other than in compliance with all applicable laws, rules and regulations; and the terms of payment and/or compensation for each of the Contracts complies with all applicable laws, rules and regulations relating to competitive bidding; each of the Contracts not obtained through competitive bidding was secured in an arms' length transaction. (iv) Each of the Contracts is valid and existing and in full force and effect against the Company and, to the knowledge of the Company, against the other party thereto; true and complete copies of each Contract have been heretofore provided to the Buyer; the Company has, in all material respects, performed all obligations required to be performed by it under, and is not in material default in any respect under, in material conflict in any respect with, or in material violation in any respect of, any of the - 13 - Contracts; and the Company has not received notice of non-compliance or alleged non-compliance with any of the Contracts; to the knowledge of the Stockholders, each other party to any Contract has, in all material respects, performed all obligations required to be performed by it under, and is not in material default in any respect under, in material conflict in any respect with, or in material violation in any respect of, any of the Contracts; (v) The Company has no knowledge of any current intention on the part of any of the parties to the Contracts to cancel the same or not to renew the same with the Company at the end of the current term thereof; (vi) The Company is duly licensed in the appropriate jurisdiction to provide speech and hearing pathology services at all sites where the Company currently provides such services and, where applicable, is accredited by an accrediting body that is recognized by, and satisfactory to, the regulating agency in the jurisdiction where such services are provided. (vii) The Company has not received any claim of material overpayment or alleged material overpayment by any other party to any of the Contracts, and except as described in Schedule 2.11(b), there have been no audits or other reviews of the costs, billing methods or performance of the Company under any of the Contracts, and no such audits or other reviews are in progress or, to the knowledge of the Company or the Stockholders contemplated; and (viii) Except as set forth in Schedule 2.11(b), no consent, approval or authorization of, notice to or declaration, filing or registration with, any third party is required in connection with the Stock Exchange or the execution, delivery and performance of this Agreement and the Closing Documents and the consummation of the transactions contemplated hereby and thereby. Section 2.12. No Undisclosed Liabilities. Except as reflected, reserved against or otherwise disclosed in the Company Compiled Financial Statements (including the notes thereto), the Company does not have any liabilities or obligations except liabilities and obligations which (a) were incurred after December 31, 1997 in the ordinary course of business in nature and amount consistent with past practice, or (b) are specifically contemplated by this Agreement. Section 2.13. Taxes. (a) The Company has in all material respects accurately prepared and timely filed (or will, prior to Closing have prepared and filed) all material federal, state, local and foreign Returns, estimates, information statements and reports required to be filed at or before the Closing Date relating to any and all Taxes concerning or attributable to the Company or any of its operations or assets, and such material Returns are true and correct in all material respects and have been completed in all material respects in accordance with applicable law. Copies of all material Returns of the Company for the past three years have been or will be provided or made available by the Company to the Buyer. In particular, and without in any manner limiting the foregoing, none of the Returns of the Company that relate to pre-Closing periods contains any position which, individually or in the aggregate, is or would be subject to material penalties under Section 6662 of the Code (or any corresponding provision of state, local or foreign Tax law). - 14 - (b) Except as set forth in Schedule 2.13, as of the date hereof, the Company: (1) has paid all Taxes it is or was required to pay (and as of the Closing Date will have paid all Taxes it is required to pay prior to the Closing Date), (2) has withheld with respect to its employees all Taxes (and as of the Closing Date will have withheld all such Taxes it is required to withhold prior to the Closing Date), and (3) has collected all Taxes on account of sales by the Company or the use of any of its products (and as of the Closing Date will have collected all such Taxes it is required to collect prior to the Closing Date) in each case where such payment, withholding or collection is required, except, in each instance, where any failure to make such payment, withholding or collection would not be reasonably likely, individually or in the aggregate, to have a material adverse effect on the Business Condition of the Company. (c) There is no Tax deficiency outstanding, proposed or assessed against the Company that is not reflected as a liability in the Company Unaudited Financial Statements or Company Audited Financial Statements which would reasonably be likely, individually or in the aggregate, to have a material adverse effect on the Business Condition of the Company, nor has the Company executed any waiver of any statute of limitations on or extending the period for the assessment or collection of any material Tax. (d) In connection with its incorporation, the Company elected to be a Subchapter S corporation; such election being a valid Subchapter S election. Since such original election, the Company has been a Subchapter S corporation at all times, and the Company has never converted to a C corporation, nor has the Company's Subchapter S status ever been terminated. (e) As used in this Agreement, "Returns" shall mean returns, reports and forms required to be filed with any domestic or foreign Taxing Authority. "Taxes" shall mean (1) all taxes (whether federal, state, local or foreign) based upon or measured by income and any other tax whatsoever, including gross receipts, profits, sales, use, occupation, value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise, or property taxes, together with all interest, penalties and additions imposed with respect thereto and (2) any obligations under any agreements or arrangements with respect to any Taxes described in clause (1) above including liability for Taxes of a predecessor entity. "Taxing Authority" shall mean any Governmental Authority having jurisdiction over the assessment, determination, collection, or other imposition of Tax. Section 2.14. Employee Benefit Plans. (a) Schedule 2.14(a) lists all material compensation and benefit plans, contracts and arrangements in effect as of the date hereof including, without limitation, all bonus, incentive or deferred compensation, severance pay, pension, profit sharing, savings and thrift and medical and life insurance plans in which any current or former employees of the Company ("Company Employees") participate (collectively, "Company Benefit Plans"). Substantially all of the employees of the Company are party to employment agreements with the Company and each of these agreements is substantially similar to one of three types of form agreements used by the Company. True and correct copies of the three types of form agreements are attached to Schedule 2.14(a) and Schedule 2.14(a) identifies which employees are subject and party to each form type. - 15 - (b) All Company Benefit Plans which are "employee benefit plans," as defined in Section 3(3) of ERISA, in all material respects are in compliance with and have been administered in compliance with all applicable requirements of law, including but not limited to the Code and ERISA, and all contributions required to be made to each such plan under the terms of such plan, ERISA or the Code for all periods of time prior to the date hereof and the Closing Date have been or will be, as the case may be, made or accrued, except for such noncompliance or failures to contribute which would not, individually or in the aggregate, have a material adverse effect on the Business Condition of the Company. With respect to the Company Employee Plans, individually and in the aggregate, there are no funded benefit obligations for which contributions have not been made or properly accrued and there are no unfunded benefit obligations which have not been accounted for by reserves, or otherwise properly disclosed in accordance with GAAP, in the Company Audited Financial Statements. (c) With respect to any Company Benefit Plan which is intended to qualify under Section 401(a) of the Code ("Company Qualified Plan"), a favorable determination letter as to the qualification under Section 401(a) of the Code has been issued, or the remedial amendment period for such determination has not expired. To the best knowledge of the Stockholders, no "disqualified person" (as defined in Section 4975 of the Code) has engaged in any "prohibited transaction" (as such term is defined in Section 4975 of the Code), which could subject any Company Qualified Plan (or its related trust), or the Company to any tax or penalty imposed under Section 4975 of the Code. The value of the assets in each of the Company Qualified Plans which is a defined benefit plan exceeds the present value of accrued benefits of all participants in such Plan when such benefits are valued on a termination basis using Pension Benefit Guaranty Corporation interest and other assumptions. (d) The Company is not required to contribute to, or has been required to contribute to, any "multiemployer plan," as such term is defined in Section 4001(a)(3) of ERISA. (e) Except as otherwise set forth in Schedule 2.14(e) hereto, neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (1) result in any payment (including, without limitation, severance, unemployment compensation, golden parachute or otherwise) becoming due to any Employee under any Company Benefit Plan or otherwise, (2) increase any benefits otherwise payable by the Company under any Company Benefit Plan or (3) result in the acceleration of the time of payment or vesting of any such benefits to any material extent, which, individually or in the aggregate, would have a material adverse effect on the Business Condition of the Company. (f) Each Company Benefit Plan which is not a Company Benefit Plan has been maintained in all material respects in accordance with its terms and with all legal requirements applicable thereto and is funded or provided for in accordance with applicable laws, except for any such failure to so maintain or fund which would not, individually or in the aggregate, have a material adverse effect on the Business Condition of the Company. Section 2.15. No Material Adverse Change. Except as set forth in Schedule 2.15, since December 31, 1997, there has not been any event, occurrence or circumstance that has had, individually or in the aggregate, a material adverse effect on the Business Condition of the Company, or any event, occurrence or circumstance that would, or would reasonably be expected, individually or in the aggregate, to - 16 - have a material adverse effect on the Business Condition of the Company, or a material adverse effect on the ability of any of the Stockholders to consummate the transactions contemplated hereby. Section 2.16. Brokers, Finders, Etc. Except as set forth on Schedule 2.16, neither the Company nor any of the Stockholders has employed, or is subject to any claim of, any broker, finder, or similar consultant or intermediary in connection with the transactions contemplated by this Agreement which might be entitled to a fee or commission from the Company upon the consummation of the transactions contemplated hereby. Section 2.17. Schedules. Disclosure of any fact or item in any Schedule hereto referenced by a particular paragraph or Section in this Agreement shall, should the existence of the fact or item or its contents be clearly relevant to any other paragraph or Section, be deemed to be disclosed with respect to that other paragraph or Section whether or not an explicit cross-reference appears, unless the context indicates otherwise. Section 2.18. Environmental Laws and Regulations. The Company is in material compliance with all applicable Laws in effect as of the date of this Agreement relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata) (collectively, "Environmental Laws"), which compliance includes, but is not limited to the possession by the Company of all material permits and other governmental authorizations required under applicable Environmental Laws, and compliance with the terms and conditions thereof and the Company has not received written notice of, or is the subject of, any Action, demand or notice by any person or entity alleging liability under or non-compliance with any Environmental Law (an "Environmental Claim"), and none of the Stockholders has any reason to believe any of the foregoing is being contemplated nor has any of the Stockholders seen on any of the real property owned or leased by the Company hazardous materials or contaminants, as defined in the Environmental Law, and there are no circumstances that are reasonably likely to prevent or interfere with such compliance in the future or give rise to an Environmental Claim in the future. Section 2.19. Bank Accounts, Etc. Schedule 2.19 sets forth a list of all bank accounts, safe deposit boxes and lock boxes of the Company including, with respect to each such account and lock box, identification of all authorized signatories. Section 2.20. Insurance. Schedule 2.20 sets forth a list of all material general liability, product liability, fire, casualty, motor vehicle and other insurance or bonding maintained by or on behalf of the Company or any of its respective employees as of the date hereof. All requirements and provisions of all such policies are being substantially complied with. No notice of cancellation has been given to or received by the Company with respect to any such insurance policy. To the knowledge of the Company and the Stockholders, no such policies are or will become subject to an assessment due to any retroactive rate or audit adjustments or coinsurance arrangements. Section 2.21. Recent Operations. Since December 31, 1997, (a) the Company has operated its business substantially as it was operated immediately prior to such date in the ordinary course of business; (b) the Company and each of the Stockholders has used its or his commercially reasonable efforts to preserve intact the business relationships of the Company; (c) there have been no material bonuses paid to or - 17 - material increases in the compensation of officers or employees of the Company; and (d) the Company has not declared or paid any dividend or made any other distribution with respect to its capital stock other than in the ordinary course of business. Section 2.22. Transactions with Affiliates. Except as set forth in Schedule 2.22, the Company is not a party to any material transaction with any (a) current or former officer or director of the Company, or (b) any parent, spouse, child, brother or sister of any such officer or director or (c) any "affiliate" or "associate" of any such persons or entities (as such terms are defined in the rules and regulations promulgated under the Securities Act of 1933, as amended (the "Securities Act")), including, without limitation, any material transaction involving a contract, agreement or other arrangement providing for the employment of, furnishing of materials, products or services by, rental of real or personal property from, or otherwise requiring payments to, any such person or entity. Section 2.23. Investment Intent. (a) It is understood that as of the Closing the Buyer Shares will not have been registered under the Securities Act or any state securities laws, and that such shares will be delivered without registration in reliance upon an exemption from the registration requirements of the Securities Act and applicable state securities laws. Each of the Stockholders represents that he is acquiring the Buyer Shares hereunder only for his own account for investment and not with any intention of making, or with a view to, or for sale in connection with, any distribution thereof within the meaning of the Securities Act until such shares first are registered under the Securities Act as required by Section 4.2 of this Agreement or such shares can be transferred pursuant to Rule 144 of the Securities Act. (b) In connection with the foregoing, each of the Stockholders hereby severally represents and warrants that: (1) he has reviewed, discussed and evaluated the information made available by Buyer and has had the opportunity to ask questions of, and receive answers from, executive officers of Buyer concerning the terms and conditions of this Agreement and to obtain any additional information which he considered necessary to verify the accuracy of the information delivered by Buyer in connection with this Agreement; (2) he understands that he must bear the economic risks of the investment in Sylvan Common Stock to be made hereunder for an indefinite period of time because such stock has not been registered under the Securities Act and, therefore, may not be sold until such stock subsequently is registered under the Securities Act or an exemption from registration is available; and (3) he has sufficient knowledge and experience in financial and business matters to enable him to be capable of evaluating the merits and the risks of the exchange of his shares of equity interest in the Company for his Buyer Shares, as contemplated by this Agreement and his prospective investment in Buyer. (c) It is understood and agreed that, to implement the requirements of the Securities Act and state securities laws and evidence the restrictions upon transfer contained in this - 18 - Agreement, Sylvan will cause a legend to be conspicuously noted on the certificates representing the Sylvan Common Stock deliverable hereunder, and that Sylvan will issue stop transfer instructions to its transfer agent, to the effect that such stock has not been registered under the Securities Act and that no transfer may take place except pursuant to an effective registration statement or after delivery of any opinion of counsel reasonably satisfactory to Sylvan to the effect that registration thereof for the purpose of transfer is not required under the Securities Act. Section 2.24. No Agreements Regarding the Buyer Shares. The Stockholders, the Company or any of their respective affiliates have not taken or have not agreed to take any action that would prevent the Stock Exchange from qualifying for "pooling of interests" accounting treatment under applicable accounting rules, including, without limitation, GAAP and applicable SEC rules and regulations and accounting standards. Neither the Stockholders nor the Company is aware of any agreement, plan or other circumstance relating to the Stockholders or the Company that would prevent the Stock Exchange from so qualifying and none of the Stockholders nor the Company has reason to believe that the Stock Exchange will not qualify as a pooling of interests for accounting purposes. Without limiting the generality of the foregoing sentence, since December 31, 1997 (i) the Company has not had any treasury stock transactions and none are planned during the period between the date hereof and the Closing Date, (ii) the Company has not adopted any new or amended any existing stock option or stock purchase plans, (iii) the Company has not disposed of any assets other than in the ordinary course of business, and (iv) the Stockholders have not entered into any agreement that would restrict voting rights with respect to the Buyer Shares to be issued pursuant to this Agreement. Each of the Stockholders represents and warrants that he has not entered into any agreement or understanding with anyone for the transfer of the Buyer Shares in a transaction that would prevent Buyer from accounting for the Stock Exchange as a pooling of interests. If requested, the President and/or the Chief Financial Officer of the Company will execute any documentation on behalf of the Company reasonably required by Buyer's independent public accountants with respect to pooling of interest accounting issues. Section 2.25. No Pending Transactions. Except for the transactions contemplated by this Agreement, the Company is not a party to or bound by or the subject of any agreement, undertaking, commitment, negotiation or discussion with another party with respect to any Acquisition Transaction (as defined below). For purposes of this Section, the term "Acquisition Transaction" means any (i) acquisition of all or any material portion of the assets of, or any equity interest in, any corporation, partnership, joint venture, company, organization or other entity, (ii) sale of all or any material portion of the assets of, or equity interest in, the Company or (iii) any merger, consolidation, business combination (or other similar transaction) involving the Company. Section 2.26. Reorganization. The Stockholders have not and, as of the Closing Date will not have, taken any action or failed to take any action which action or failure would result in the failure of the Stock Exchange to qualify as a reorganization within the meaning of Section 368(a) of the Code. The Stockholders have no knowledge of any fact or circumstance that is reasonably likely to prevent the Stock Exchange from qualifying as a reorganization within the meaning of Section 368(a) of the Code. Section 2.27 Disclosure. No representation or warranty made by the Company or the Stockholders in this Agreement and no statement contained in a certificate, schedule, list or other instrument or document specified in or delivered pursuant to this Agreement, whether heretofore furnished to the Buyer or hereafter required to be furnished to the Buyer, contains or - 19 - will contain any untrue statement of a material fact or omits or will omit to state any material fact necessary to make the statements contained herein or therein not misleading. ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER Buyer hereby represents and warrants to the Company and the Stockholders that the statements contained in this Article III are true and correct except as disclosed in the Buyer SEC Reports (as defined in Section 3.4) or as set forth in the schedules delivered by the Buyer to the Company on or before the date of this Agreement (the "Buyer Disclosure Schedules"). The Buyer Disclosure Schedules shall be arranged in sections corresponding to the numbered and lettered sections contained in this Agreement. The disclosure in any section of the Buyer Disclosure Schedules shall be deemed to constitute disclosure for all sections in this Agreement. Section 3.1. Incorporation; Authorization; Etc. (a) Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland. Buyer (1) has all requisite power and authority to own all of its properties and assets and to carry on its business as it is now being conducted, and (2) is in good standing, and is duly licensed, authorized or qualified to transact business in each jurisdiction in which the ownership or lease of real property or the conduct of its business requires it to be so qualified except where the failure to be in good standing or to be duly licensed, authorized or qualified to transact business, would not reasonably be expected to, individually or in the aggregate, have a material adverse effect on the Business Condition of Buyer. Buyer has heretofore delivered or made available to the Stockholders complete and correct copies of its certificate of incorporation and by-laws as in effect on the date hereof. (b) The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by the Board of Directors of Buyer, and no additional proceedings (corporate or otherwise) on the part of Buyer or its stockholders are necessary to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby. This Agreement has been duly executed and delivered by, and, assuming the due execution and delivery thereof by the Company and the Stockholders, constitutes the legal, valid and binding obligation of, Buyer and is enforceable against Buyer in accordance with its terms, subject to general principles of equity. (c) The execution and delivery of this Agreement by Buyer and the consummation by Buyer of the transactions contemplated by this Agreement will not (1) violate any provision of the certificate of incorporation or by-laws or similar organizational instrument of Buyer, (2) result in a violation of any provision of, or constitute a default (with or without notice or lapse of time) under, or give rise to a right of termination, cancellation or acceleration of (or entitle any party to accelerate whether after the giving of notice or lapse of time or both) any obligation under, or result in the imposition of any lien upon or the creation of a security interest in any of Buyer's assets or properties pursuant to, any note, bond, debt instrument, mortgage, indenture, lien, lease, agreement or other instrument, or any judgment, injunction, order or decree to which Buyer or is a party or by which any of them is bound, or (3) violate or conflict with any - 20 - Law or Order applicable to Buyer, except, in the case of clauses (2) and (3), for any such violations, defaults, rights or restrictions that would not, individually or in the aggregate, (A) have a material adverse effect on the Business Condition of Buyer, (B) an adverse effect on the value of the Buyer Shares or (C) on adverse effect on the ability of Buyer to consummate the Stock Exchange. (d) No consent, approval, order or authorization of, or registration, declaration or filing with (1) any Governmental Authority or (2) any individual, corporation or other entity (including any holder of Buyer's securities) is required by or with respect to Buyer in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (A) satisfaction of all information and waiting period requirements of the HSR Act and any regulations promulgated thereunder, (B) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under federal securities laws (including an order of effectiveness with respect to the Registration Statement), applicable state "blue sky" laws, and the securities laws of any foreign country, and (C) such other consents, authorizations, filings, approvals and registrations which, if not obtained or made, would not be reasonably likely to have (i) a material adverse effect on the Business Condition of Buyer, or (ii) an adverse effect on the value of the Buyer Shares. Section 3.2. Capitalization; Structure; No Investments. As of the date hereof, Buyer's entire authorized capital stock consists of 90,000,000 shares, 80,000,000 of which are classified as Common Stock, $.01 par value ("Buyer Common Stock"), and 10,000,000 of which are classified as Preferred Stock, par value $.01 per share, with 900,000 shares designated as Series A Junior Participating Preferred Stock. As of October 31, 1998, no shares of Preferred Stock are issued or outstanding and 48,580,296 shares of Buyer Common Stock are issued and outstanding. Section 3.3. Title to Buyer Shares. Upon consummation of the Stock Exchange, the Buyer Shares issued to the Stockholders will be duly authorized, validly issued, fully paid, non-assessable and free of preemptive rights. Each of the Stockholders will acquire good and valid title to the Buyer Shares issued by Buyer in the Stock Exchange, free and clear of any Liens or restrictions on transfer (other than as set forth in the Securities Act or the rules and regulations thereunder and other than as specifically required so that the Stock Exchange qualifies for pooling of interests accounting treatment). Section 3.4. Reports and Financial Statements. (a) Buyer has filed all reports (including without limitation proxy statements) required to be filed with the SEC in the period from January 1, 1996 to the date hereof (collectively, the "Buyer SEC Reports"), and has furnished or made available to the Stockholders true and complete copies of all the Buyer SEC Reports. None of the Buyer SEC Reports, as of their respective dates (as amended through the date hereof), contained any untrue statement of material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. All of the Buyer SEC Reports, as of their respective dates (as amended through the date hereof), complied in all material respects with the requirements of the Securities Act of 1933 (the "Securities Act") and the Securities Exchange Act of 1934 (the "Exchange Act") and the applicable rules and regulations thereunder. - 21 - (b) Buyer previously has made available to the Stockholders correct and complete copies of its audited consolidated financial statements (including balance sheets, statements of operations and statements of cash flows, and, in each case, the related footnotes thereto) as of December 31, 1996 and December 31, 1997, and for each of the three years in the period ended December 31, 1997, accompanied by the report of Ernst & Young, LLP ("Ernst & Young") in the form contained in Buyer's Annual Report to the SEC on Form 10-K for the year ended December 31, 1997 (the "Audited Buyer Financial Statements"). Each of the consolidated balance sheets included in the Audited Buyer Financial Statements presents fairly, in all material respects, the consolidated financial position of Buyer and its subsidiaries as of the respective date thereof, and each of the other related consolidated statements included in such Audited Buyer Financial Statements presents fairly, in all material respects, the consolidated results of operations and cash flows of Buyer and its subsidiaries for the respective periods thereof, all in conformity with GAAP consistently applied during the periods involved except as otherwise noted therein. Section 3.5. Brokers, Finders, Etc. Buyer has not employed, or is subject to any claim of, any broker, finder, or similar consultant or intermediary in connection with the transactions contemplated by this Agreement which might be entitled to a fee or commission from Buyer upon the consummation of the transactions contemplated hereby. Section 3.6. Investment Intent. It is understood that the Shares are not being registered, for purposes of the transactions hereunder, under the Securities Act or any state securities laws, and the Shares will be delivered without registration in reliance upon an exemption from the registration requirements of the Securities Act and applicable state securities laws. Buyer represents that it is acquiring the Shares hereunder only for its own account for investment and not with any intention of making, or with a view to, or for sale in connection with, any distribution thereof within the meaning of the Securities Act unless such shares first are registered under the Securities Act. In connection with the foregoing, Buyer hereby represents and warrants that: (a) it has reviewed, discussed and evaluated the information made available by the Company and has had the opportunity to ask questions of, and receive answers from, executive officers of the Company concerning the terms and conditions of this Agreement and to obtain any additional information which he considered necessary to verify the accuracy of the information delivered by the Company in connection with this Agreement; (b) it understands that it must bear the economic risks of the investment in the Shares to be made hereunder for an indefinite period of time because such stock has not been registered under the Securities Act and, therefore, may not be sold until such stock subsequently is registered under the Securities Act or an exemption from registration is available; and (c) it has sufficient knowledge and experience in financial and business matters to enable it to be capable of evaluating the merits and the risks of the Stock Exchange. - 22 - ARTICLE IV COVENANTS OF THE COMPANY, THE STOCKHOLDERS AND BUYER ---------------------------------------------------- Section 4.1. Investigation of Business; Access to Properties and Records; ------------------------------------------------------------------------- Records Retention. - ------------------ (a) Between the date hereof and the Closing Date, each of the Company and Buyer shall afford to representatives of the other party ("Respective Representatives") reasonable access to their respective offices, properties, books and records during normal business hours in order that such party may have full opportunity to make such investigations as it desires of the affairs of the other party and the Company and Buyer shall, and shall cause their employees and officers to furnish such data as is reasonably requested by the other party's representatives; provided, however, that such investigation shall be upon reasonable prior written notice and shall not unreasonably disrupt the personnel and operations of the other party. All requests for access shall be made to such representatives of the other party as such party shall designate in writing, who shall be solely responsible for coordinating all such requests and all access permitted hereunder. It is further understood and agreed that neither party nor its representatives shall contact any of the employees, customers, suppliers, joint venture partners, or other associates or affiliates of the other party in connection with the transactions contemplated by this Agreement, whether in person or by telephone, mail or other means of communication, without the specific prior authorization of the other party. No information or knowledge obtained in any investigation pursuant to this Section 4.1(a) shall affect or be deemed to modify any representation or warranty contained in this Agreement or any disclosure schedule or the conditions to the obligations of the parties to consummate the Stock Exchange. (b) Each of the Stockholders and the Company and Buyer will hold and will cause their respective employees, agents and representatives to hold in confidence, unless compelled to disclose by judicial or administrative process or, in the opinion of its legal counsel, by other requirements of law, all documents and information concerning the other party furnished to it in connection with the transactions contemplated by this Agreement, and will not release or disclose such information to any other person, except its auditors, attorneys, financial advisors and other consultants and advisors in connection with this Agreement who need to know such information. If the transactions contemplated by this Agreement are not consummated, such confidence shall be maintained and, if requested by or on behalf of the furnishing party, the other party will, and will use all reasonable efforts to cause its auditors, attorneys, financial advisors and other consultants, agents and representatives to, return to the furnishing party or destroy all copies of written information so furnished to it or its agents and representatives. Section 4.2. Registration Rights. (a) None of the information supplied by Buyer or the Stockholders, respectively, for inclusion or incorporation by reference in the registration statements relating to the issuance of Buyer Shares in the Stock Exchange (each a "Registration Statement") will, at the time the Registration Statements become effective, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading. If (i) Buyer becomes aware of the occurrence of any event with respect to Buyer or its officers and directors or any other information not supplied by the Stockholders or (ii) the Stockholders become aware of any facts with respect to the information supplied by them, which is required to be described in the Registration Statements (or in any amendment of, or supplement to, the Registration Statements), Buyer shall notify the Stockholders or the Stockholders shall notify the Buyer, as the case may be, and Buyer shall promptly prepare an appropriate - 23 - amendment or supplement in which such event shall be so described and such amendment or supplement will comply with all provisions of applicable law. The Buyer will take such actions as are necessary to ensure that the Registration Statements will comply in all material respects with the requirements of the Securities Act (other than with respect to information supplied by the Stockholders for inclusion therein). Buyer is not aware of any facts or circumstances which would prevent or delay the filing or the effectiveness of the Registration Statements as required by Section 4.2(b) of this Agreement. (b) As soon as practicable after the date of this Agreement (but not prior to the Closing), Buyer shall file a Registration Statement with respect to the Buyer Shares on Form S-3 with the SEC pursuant to Rule 415 registering the Buyer Shares under the Securities Act. Such filing shall occur not more than 5 days after all requisite financial statements of the Company for 1996, 1997 and 1998, prepared in accordance with GAAP, are available and all necessary consents to the use of audit reports relating thereto have been received, which Buyer shall use its best efforts to obtain as promptly as possible. This Registration Statement will cover 100% of the Buyer Shares issuable at the Closing. Buyer shall use its best efforts to prepare any financial statements, and other information, required for such filings as promptly as practicable after the date hereof. If Form S-3 or Rule 415 is unavailable, then Buyer shall register the Buyer Shares with a different form or arrangement that will provide the same benefits to the Stockholders. Buyer shall use its best efforts to cause the first Registration Statement to become effective as promptly as practicable, and also will take any other action reasonably required to be taken under federal or state securities laws to maintain the effectiveness of the Registration Statements until all of the Buyer Shares are sold. Buyer shall take all other actions reasonably requested by the Stockholders to facilitate sales of the Buyer Shares. Buyer shall be responsible for the payment of all fees and expenses relating to the Buyer Shares to be registered, and the Registration Statement in accordance with this Section. (c) The parties hereto agree that Buyer shall have no obligation to (1) conduct, arrange or coordinate any distribution or sales activities on behalf of the Stockholders with respect to the Buyer Shares other than as set forth in (a) above or (2) retain any underwriter(s) in connection with the registration and/or distribution of the Buyer Shares pursuant to this Section 4.2. (d) The Stockholders, the Company and Buyer will cooperate and promptly make all registrations, filings and applications, to give all notices and to obtain all governmental and other consents, transfers, approvals, orders, qualifications and waivers, including any notification required by the HSR Act, necessary or desirable for the consummation of the Stock Exchange and the other transactions contemplated by this Agreement as promptly as practicable, or that may thereafter be reasonably necessary or desirable to effect the transfer or renewal of any accreditations, licenses, approvals and authorizations of the Company. Section 4.3. Further Assurances. The Stockholders, the Company and Buyer agree that, from time to time, whether at or after the Closing Date, each of them will execute and deliver such further instruments of conveyance and transfer and take such other action as may be reasonably necessary to carry out the terms of this Agreement. The parties will take all reasonable actions including, without limitation, taking of all action reasonably necessary to obtain material Governmental Entity approvals of, material third party consents to, contesting any legal proceedings filed to prevent or delay, and executing additional documents reasonably necessary to consummate the transactions contemplated hereby as promptly - 24 - as practicable. The Stockholders, the Company and Buyer further agree that they will not take any action that will prevent their performance of this Agreement in accordance with its terms. Section 4.4. Conduct of Business of the Company. Except as contemplated by this Agreement, during the period from the date of this Agreement to the Closing Date, the Stockholders shall cause the Company to conduct its operations in the ordinary course of business consistent with past practice, and to use their commercially reasonable efforts to maintain and preserve their business organization and their material rights and franchises and to retain the services of their officers and key employees and maintain relationships with customers, suppliers and other third parties to the end that their goodwill and ongoing business shall not be impaired in any material respect at or prior to the Closing Date. Without limiting the generality of the foregoing, during the period from the date of this Agreement to the Closing Date, the Stockholders covenant that, except as otherwise contemplated by this Agreement and the transactions contemplated hereby, without the prior written consent of Buyer the Company will not, and the Stockholders agree not to, and to cause the Company not to: (a) amend or propose to amend its certificate of incorporation or by-laws or similar organization instruments; (b) authorize for issuance, issue, sell, agree to issue or sell or redeem or otherwise acquire (1) any shares of its capital stock or other equity interests, or (2) any securities convertible into, or options with respect to, or warrants to purchase or rights to subscribe for, any shares of its capital stock or evidences of indebtedness or other debt or equity securities including, without limitation, any stock appreciation rights; (c) except as disclosed in Schedule 4.4(c), split, combine or reclassify any shares of its capital stock, declare, set aside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of its capital stock, or redeem or otherwise acquire any of its securities; (d) (1) create, incur or assume any indebtedness for money borrowed (including obligations in respect of capital leases) or issue any debt securities; (2) except in the ordinary course of business, assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any person other than the Company, if such assumption, guarantee, endorsement or other liability is in any such case material to the Company; (3) make any material loans, advances or capital contributions to or investments in, any person other than the (except for customary loans or advances to employees); or (4) pledge or otherwise encumber its equity interests; (e) except in the ordinary course of business or as required by any Law, (1) increase in any manner the base compensation of, or enter into or amend any employment, bonus, incentive, severance, consulting, or other compensation agreement with, any existing director, officer or key employee; or (2) commit itself to any additional pension, profit-sharing, deferred compensation, group insurance, severance pay, retirement or other employee benefit plan, fund or similar arrangement or amend or commit itself to amend any of such plans, funds or similar arrangements in existence on the date hereof so as to increase benefits thereunder; - 25 - (f) except in the ordinary course of business or as required by any Law or contractual obligations existing on the date hereof or as provided for in or contemplated by this Agreement the Company shall not (1) sell, transfer or otherwise dispose of any assets outside of the ordinary course of business, (2) create any new Lien, other than a Company Permitted Lien, on its properties or assets, (3) enter into any joint venture or partnership, or (4) purchase any assets or securities of any person; (g) except as contemplated by this Agreement or as may be required as a result of a change in Law, change any of the material accounting principles or practices used by it; (h) revalue in any material respect any of its material assets, including, without limitation, materially writing down the value of inventory or writing-off material notes or material accounts receivable balances other than in the ordinary course of business; (i) (1) acquire or agree to acquire (by merger, consolidation, acquisition of stock or assets or otherwise) any corporation, partnership or other business organization or division thereof or any equity interest therein; (2) enter into any contract or agreement other than in the ordinary course of business consistent with past practice; (3) authorize any new capital expenditure or expenditures which, individually, is in excess of $25,000; or (4) enter into or amend any contract, agreement, commitment or arrangement providing for the taking of any action that would be prohibited hereunder; (j) make any tax election or settle or compromise any income tax liability (although Buyer's consent shall not be unreasonably withheld); (k) pay, discharge or satisfy any material claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business of liabilities reflected or reserved against in the Company Audited Financial Statements (or the notes thereto) or in the ordinary course of business consistent with past practice; (l) settle or compromise any pending or threatened Action relating to the transactions contemplated hereby; (m) pledge or otherwise encumber, or create or suffer to exist any Lien upon, the Shares or any other equity interest in the Company; (n) mortgage or pledge any of its assets, tangible or intangible, or create or suffer to exist any Lien thereupon; (o) enter into any commitment or transaction outside the ordinary course of business consistent with past practice which would be material to the Company; or (p) take or agree to take any action prohibited by this Section 4.4. - 26 - Section 4.5. Conduct of Business of Buyer. Except as contemplated by this Agreement, during the period from the date of this Agreement to the Closing Date, Buyer shall conduct their operations in the ordinary course of business consistent with past practice, and to use their commercially reasonable efforts to maintain and preserve their business organization and their material rights and franchises and to retain the services of their officers and key employees and maintain relationships with customers, suppliers and other third parties to the end that their goodwill and ongoing business shall not be impaired in any material respect at the Closing Date. Section 4.6. Pooling. Except as set forth in Schedule 4.6, from and after the date hereof and until the Closing Date, none of Buyer, the Company, or any of their respective affiliates over which any such party may exercise control, or the Stockholders shall take any action, or fail to take any action, that is reasonably likely to jeopardize the treatment of the Stock Exchange as a pooling of interests for accounting purposes. From the date of this Agreement until Buyer has caused to be published financial results covering at least 30 days of combined operations of the Company and Buyer, each of Buyer, the Company and the Stockholders shall take all reasonable actions necessary to cause the Stock Exchange to be characterized as a pooling of interests for accounting purposes if such a characterization shall have been jeopardized by action taken by Buyer, the Company or the Stockholders prior to the Closing Date. Section 4.7. Allocation of Buyer Shares. Buyer and the Stockholders acknowledge that all of the Buyer Shares shall be allocated to the Shares, and that none of such Buyer Shares are allocable to the agreements described in Section 5.3(d). Buyer covenants that no position inconsistent with such allocation shall be taken for any purpose (including, without limitation, on any Return or in any proceeding). Section 4.8. Preparation and Filing of Returns. (a) The Company shall prepare and file, or cause to be prepared and filed, all Returns required to be filed after the Closing Date; provided, however, that the Stockholders shall have the right to review and approve (which approval must not be unreasonably withheld) prior to filing all Returns with respect to any taxable period (or portion thereof) that includes or predates the Closing Date. In connection therewith, the Stockholders shall assist Buyer in obtaining such information that Buyer reasonably requests of the Stockholders and that is not otherwise required to be provided hereunder with respect to the operations, ownership, assets or activities of the Company to the extent such information is relevant to any Tax Return which Buyer has the right and obligation hereunder to file; provided, however, that such information shall not include the delivery of the Stockholders' personal Tax Returns. (b) In order to apportion the Companies' 1999 earnings between the Stockholders and the Purchaser, the Company's earnings for the period beginning on January 1, 1999 to but not including the Closing Date shall be allocated to the Stockholders and the Company's earnings for the period beginning on the Closing Date and ending on December 31, 1999 shall be allocated to the Purchaser. For tax purposes, such apportionment of earnings shall be determined on a pro rata basis based on the number of days in the year consistent with Section 1362(e)(2) of the Code. Section 4.9. Public Announcements. From the date hereof until the Closing Date, the Stockholders and Buyer will, before issuing, or permitting any agent or affiliate to issue, any press releases or otherwise making or permitting any agent or affiliate to make, any public statements with respect to this Agreement and the transactions contemplated hereby, obtain the consent of the other party, except in the - 27 - event, and only to the extent, that disclosure is required by law; provided, that in such instances the disclosing party will consult with the other party prior to making such disclosure. Section 4.10. Insurance. Through the close of business on the Closing Date, the Stockholders will cause the Company to keep, or cause to be kept, in effect all material insurance policies presently maintained or suitable replacements therefor. Buyer shall be responsible for causing the Company to maintain and obtain insurance from and after the Closing Date. Section 4.11. No Solicitation. The Stockholders and the Company and its affiliates, officers, directors, employees, representatives and agents (a) shall immediately cease any existing discussions or negotiations, if any, with any parties other than the parties to this Agreement ("Other Parties") with respect to any acquisition of all or any portion of the assets of, or any equity interest in, the Company or any business combination with the Company; (b) shall not solicit, initiate, encourage, or furnish information in response to any inquiries or proposals that constitute, or could reasonably be expected to lead to, a proposal or offer by any Other Parties for a merger, consolidation, business combination, sale of substantial assets, sale of shares of capital stock or other equity interests involving the Company (including without limitation by way of a tender offer or similar transactions involving the Company), (any of the foregoing transactions with any other parties being referred to in this Agreement as an "Acquisition Transaction"); and (c) shall not engage in negotiations or discussions concerning, or provide any non-public information to any Other Parties relating to, any Acquisition Transaction. If the Company or any of its respective representatives or agents shall nevertheless receive any indications of interests or proposals with respect to any Acquisition Transactions, it shall provide a copy of any such written proposal to Buyer immediately after receipt thereof by the Company or any of its respective representatives or agents. Section 4.12. Notification of Certain Matters. The Company or the Stockholders shall give prompt written notice to Buyer, and Buyer shall give prompt written notice to the Company, of (a) the occurrence or nonoccurrence of any event, the occurrence or nonoccurrence of which would be likely to cause any representation or warranty contained in this Agreement to be untrue in any material respect at or prior to the Closing Date, and (b) any material failure of the Company or Buyer, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 4.16 shall not cure such breach or non-compliance or limit or otherwise affect the remedies available hereunder to the party receiving such notice. Section 4.13. Closing Financial Statements. (a) No later than five (5) days prior to the Closing, the Company shall have provided to the Buyer: (i) an audited balance sheet of the Company as of November 30, 1998, and related income statement for the 11-month period then ended (including the related notes thereto), with the accompanying report of Jules Willen, CPA (the "Closing Audited Financial Statements"); and (ii) a compiled balance sheet as of December 31, 1998 and related compiled income statements for the 12-month period then ended, in each case with the accompanying compilation report of Asher & Simons, P.A. (the "Closing Compiled Financial Statements"). - 28 - (b) The Closing Audited Financial Statements and the Closing Compiled Financial Statements shall be collectively referred to herein as the "Closing Financial Statements." The Closing Financial Statements shall be prepared in conformity with GAAP applied on a consistent basis throughout the periods presented and shall present fairly the financial position of the Company as of their respective dates, and operating results, as the case may be, for the periods presented therein. (c) The balance sheet included in the Closing Compiled Financial Statements may, at the option of the Stockholders, include an entry for a distribution payable equal to all or a portion of the Net Working Capital in such balance sheet (the "Distribution Payable"). Net Working Capital shall equal (I) the aggregate amount of current assets, less (II) the aggregate amount of current liabilities, determined in accordance with GAAP. The Distribution Payable, if any, shall be due and payable by the Company to the Stockholders promptly after the Closing; provided that the portion of the Distribution Payable attributable to the accounts receivable included in the Net Working Capital shall only be paid by the Company to the Stockholders when and if such receivables are paid and collected by the Company and then only to the extent of the proceeds collected by the Company; each such payment to be made within 15 days of the collection of such accounts receivable. Section 4.14. Merger May Be Desired. (a) The Company and the Stockholders recognize that the Buyer may desire to treat the Stock Exchange as a merger/tax-free reorganization under Section 368(a)(1)(A) of the Code. If Buyer makes this determination, and on the Closing Date, the Company will be merged with and into the Buyer pursuant to the provisions and with the effect provided in the general corporation laws of the State of Maryland. The Company and the Stockholders will use their best efforts to cooperate with the Buyer in this regard, including, without limitation, preparing and executing appropriate merger documents under the corporate laws of Maryland, containing the terms provided in this Agreement, including the Articles of Merger which shall be filed with the Maryland State Department of Assessments and Taxation on the Closing Date. The Buyer shall be the surviving corporation in such a merger. (b) Also, and as a result of such a merger and without any action by the Stockholders, all of the Shares, and all rights in respect thereof, shall be converted into the Buyer Shares. The allocation of the Buyer Shares to the Stockholders shall be in accordance with Schedule 1.1 of the Company Disclosure Schedule. In order to effect such conversion, (i) the Stockholders will deliver to the Buyer at the Closing certificates in due and proper form representing all of the Shares and (ii) the Buyer shall deliver to each of the Stockholders a certificate or certificates, in due and proper form, representing the Buyer Shares to which each of such Stockholders is entitled as a result of such a merger. (c) The Company and the Stockholders shall not be liable to the Buyer for any representations, warranties or disclosures rendered misleading or untrue as a result of the Buyer changing the form of the transaction from a stock exchange to a merger. - 29 - ARTICLE V CONDITIONS ---------- Section 5.1. Mutual Conditions. The obligations of the parties hereto to consummate the Stock Exchange shall be subject to fulfillment of the following conditions: (a) No Order or attachment which prevents the consummation of the Stock Exchange shall have been issued and remain in effect, and no statute, rule or regulation shall have been enacted by any Governmental Authority which prohibits, restrains, enjoins or restricts the consummation of the Stock Exchange. (b) All authorizations, approvals, consents and waivers of, or declarations or filings with, any Governmental Authorities or third parties, including approval, if any, from Baltimore City Public Schools, required to permit consummation of the transactions contemplated by this Agreement and listed in Schedule 2.1(e), shall have been filed or obtained and shall not have been terminated, suspended or withdrawn as of the Closing Date. All applicable waiting periods under the HSR Act or applicable antitrust acts in other jurisdictions with respect to the transactions contemplated hereby shall have expired or been terminated. (c) The Buyer Shares issued hereunder shall have been approved for listing on the Nasdaq Stock Market, subject only to official notice of issuance. (d) The parties shall have entered into an indemnification agreement relating to certain matters currently identified by the parties (the "Indemnification Agreement"). Section 5.2. Conditions to Obligations of the Stockholders and the Company. The obligations of the Stockholders and the Company to consummate the Stock Exchange and the transactions contemplated hereby shall be subject to the fulfillment of the following conditions unless waived by all of the Stockholders: (a) The representations and warranties of Buyer set forth in Article III of this Agreement shall be true and correct in all respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, except (1) to the extent such representations and warranties are by their express provisions made as of a specified date (which shall be true and correct in all respects as of such date) and (2) for the effect of transactions contemplated by this Agreement, except, in each case, where the failure to be true and correct would not, individually or in the aggregate, reasonably be expected to interfere with the Stockholders obtaining the benefit of their bargain hereunder, without regard to materiality qualifications in individual representations and warranties. (b) Buyer shall have performed in all material respects each obligation and agreement and shall have complied in all material respects with each covenant to be performed and complied with by it hereunder at or prior to the Closing Date. (c) Buyer shall have furnished the Stockholders with a certificate dated the Closing Date signed on behalf of it by its Chairman, President or any Vice President to the effect that the conditions set forth in Sections 5.2(a) and (b) have been satisfied. - 30 - Section 5.3. Conditions to Obligations of Buyer. The obligations of Buyer to consummate the Stock Exchange and the other transactions contemplated hereby shall be subject to the fulfillment of the following conditions unless waived by Buyer: (a) The representations and warranties of the Stockholders and the Company set forth in Article II of this Agreement shall be true and correct in all respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date except (1) to the extent such representations and warranties are by their express provisions made as of a specified date (which shall be true and correct in all respects as of such date) and (2) for the effect of transactions contemplated by this Agreement except, in each case, where the failure to be true and correct would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the Business Condition of the Company without regard to materiality qualifications in individual representations and warranties. (b) Each of the Stockholders and the Company shall have performed in all material respects each obligation and agreement and shall have complied in all material respects with each covenant to be performed and complied with by them hereunder at or prior to the Closing Date. (c) The Company shall have furnished Buyer with a certificate signed on its behalf by its Directors dated the Closing Date to the effect that the conditions set forth in Sections 5.3(a) and (b) have been satisfied. (d) Each Stockholder shall have entered into an employment agreement with Buyer substantially in the form attached hereto as Exhibit A, and such agreements shall be in full force and effect. (e) Each Stockholder shall have delivered a duly executed resignation letter to the Company with respect to her position as a member of the Board of Company. (f) Since the date of the Agreement, there shall not have been any event, occurrence, development or circumstances that individually or in the aggregate had, or reasonably would be expected to have, a material adverse effect on the (i) Business Condition, financial or otherwise, or the earnings, business affairs or management of the Company, whether or not in the ordinary course of business or (ii) ability of the Company or the Stockholders to consummate the transactions contemplated hereby. (g) Buyer shall have received the opinion of legal counsel to the Company as reasonably requested by Buyer, in form and substance reasonably satisfactory to the Buyer and its counsel, to the effect that: (i) the Company is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and it has the full power to carry on the speech pathology business; (ii) the Company is duly qualified to do business in all jurisdictions where the character of its properties or the nature of its activities makes such qualification necessary and where the failure to qualify would be materially adverse to the Company; (iii) based solely on a review of the minute book of the Company, the authorized, issued and outstanding capital stock or equity interests of the Company are as set forth in Section 2.2 of this Agreement and the Company Disclosure Schedule or - 31 - in such opinion; (iv) each of the issued and outstanding shares of such stock has been duly authorized and issued and is fully paid and non-assessable; (v) the execution, delivery and performance of this Agreement and all other documents to be executed by the Company in connection with this Agreement and all other Company Documents in the case of the Company, and other documents to be executed by the Stockholders in connection with this Agreement (the "Stockholder Documents") and, together with the Company Documents (the "Seller Documents") have been duly executed and delivered by the Company and the Stockholders, as the case may be and constitute valid and legally binding obligations of the Company and the Stockholders, as the case may be subject to principles of equity and bankruptcy; (vi) the execution and delivery of this Agreement and the other Seller Documents did not, and the consummation of the transactions contemplated hereby or thereby will not, violate any provision of any agreement, instrument, order, judgment or decree, of which such counsel has actual knowledge, to which the Company and the Stockholders, as the case may be is a party or by which it or any of them is bound provided no opinion shall be required as to the provision of any agreement requiring approval for assignment of such agreement; (vii) except as may be specified by such counsel, such counsel does not know of any material suit or proceeding pending or threatened against or affecting any of the Stockholders or their business or properties or the consummation of the transactions contemplated hereunder; and (viii) to the knowledge of counsel, there are no regulatory and governmental approvals, consents and filings required of any of the Stockholders and the Company for the consummation of the transactions contemplated by this Agreement or any of the other Seller Documents. (h) Closing Financial Statements. The Company shall have provided to Buyer the Closing Financial Statements, with the Closing Compiled Financial Statements reflecting gross revenues and net income of at least $4,090,000 and $595,000, respectively. (i) Reports of Accountants. Buyer shall have received from Ernst & Young, independent accountants, an opinion to the effect that the Stock Exchange, if consummated in accordance with the provisions of this Agreement, will qualify for pooling of interests accounting treatment in accordance with GAAP and the rules and regulations of the SEC. (j) Affiliate Agreements. Buyer shall have received from each Stockholder an affiliate agreement substantially in the form attached hereto as Exhibit B and such affiliate agreement shall be in full force and effect. ARTICLE VI TERMINATION, AMENDMENT AND MODIFICATION --------------------------------------- Section 6.1. Termination. This Agreement may be terminated at any time prior to the Closing: (a) by mutual written consent of each of the parties hereto; (b) by Buyer on the one hand, or by the Stockholders on the other hand (provided that the party seeking termination has diligently and in good faith performed or complied in all material - 32 - respects with the agreements and covenants required to be performed by it hereunder) in the event that the transactions contemplated hereby are not consummated pursuant to this Agreement on or before January 31, 1999; (c) by either Buyer, or the Stockholders and the Company, as the case may be, if a court of competent jurisdiction or other Governmental Authority shall have issued a nonappealable final Order or taken any other action, in each case having the effect of permanently restraining, enjoining or otherwise prohibiting the Stock Exchange, except, if the party relying on such Order or other action has not complied with its obligations under this Agreement; or (d) by Buyer, or the Stockholders and the Company, as the case may be, if there has been a material breach of any representation, warranty, covenant or agreement on the part of the other party set forth in this Agreement, which breach shall not have been cured in the case of a representation or warranty, prior to the Closing or, in the case of a covenant or agreement, within 30 business days following receipt by the breaching party of written notice of such breach from the other party. Section 6.2. Procedure and Effect of Termination. In the event of termination of this Agreement pursuant to Section 6.1, written notice thereof shall forthwith be given by the terminating party to the other party hereto, and this Agreement shall thereupon terminate and become void and have no effect, and the transactions contemplated hereby shall be abandoned without further action by the parties hereto, except that the provisions of Sections 4.1(b) and 7.7 shall survive the termination of this Agreement; provided however, that such termination shall not relieve any party hereto of any liability for any willful breach of this Agreement. If this Agreement is terminated as provided herein, all filings, applications and other submissions made pursuant hereto shall, to the extent practicable, be withdrawn from the agency or other persons to which they were made. ARTICLE VII MISCELLANEOUS ------------- Section 7.1. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall becomeeffective when one or more counterparts have been signed by each of the parties and delivered to the other parties. Section 7.2. Amendment and Modification. This Agreement may be amended, modified or supplemented only by written agreement of all the parties hereto. Section 7.3. Governing Law and Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of Maryland without reference to the choice of law principles thereof. The parties hereto agree that the appropriate and exclusive forum for any disputes between any of the parties hereto arising out of this Agreement or the transactions contemplated hereby shall be federal district court in Baltimore, Maryland. The parties hereto further agree that the parties will not bring suit with respect to any disputes arising out of this Agreement or the transactions contemplated hereby, except as expressly set forth below for the execution or enforcement of judgment, in any court or jurisdiction other than - 33 - the above specified court. The foregoing shall not limit the rights of any party to obtain execution of judgment in any other jurisdiction. The parties further agree, to the extent permitted by law, that final and unappealable judgment against any of them in any action or proceeding contemplated above shall be conclusive and may be enforced in any other jurisdiction within or outside the United States by suit on the judgment, a certified or exemplified copy of which shall be conclusive evidence of the fact and amount of such judgment. Section 7.4. Entire Agreement. This Agreement, the Schedules hereto and any other agreement contemplated herein contain the entire agreement between the parties with respect to the subject matter hereof and there are no agreements, understandings, representations or warranties between the parties with respect to the subject matter hereof other than those set forth or referred to herein or therein, except for that certain Confidentiality Agreement between Buyer and the Company, as modified in writing from time to time, shall remain in full force and effect. Section 7.5. Agreement for the Parties' Benefit Only. This Agreement is not intended to confer upon any person not a party hereto any rights or remedies hereunder, and no person other than the parties hereto is entitled to rely on any representation, warranty or covenant contained herein. Section 7.6 Survival of Representations and Warranties. Solely for purposes of the indemnification provisions set forth in Article VIII, and subject to the limitations set forth therein, the representations and warranties set forth in this Agreement, shall survive the Closing under this Agreement until December 31, 1999; provided that (A) the representations and warranties in Section 2.13, and the related indemnification obligations of the Stockholders, shall survive the Closing until the fifth anniversary of the Closing Date; (B) any representations and warranties contained in any separate agreement contemplated herein, and the related indemnification obligations of the Stockholders, shall survive the Closing as provided in such separate agreement; (C) any claims, actions or suits based upon fraud, willful misconduct or intentional misrepresentation on the Buyer or any representative of it, on the one hand, the Company or any of the Stockholders, on the other hand, shall continue in full force and effect without limitation until expiration of the statute of limitations applicable thereto. If prior to the close of business on the scheduled date for expiration of a particular representation, warranty or covenant that is the basis for a claim for indemnity under Article VIII, the Stockholders or Buyer shall have been notified of such claim, then the representation, warranty or covenant that is the basis for such claim shall continue to survive and shall remain a basis for indemnity, to the extent of such specific claim only, until such claim is finally resolved or disposed of. Except as described above, to the extent that the covenants of the parties contained in this Agreement that contemplate or may involve actions to be taken (a) solely prior to the Closing shall not survive the Closing, and (b) after the Closing, they shall survive until such actions shall have been performed in accordance with their terms. Section 7.7. Expenses. All legal and other costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses. Section 7.8. Specific Performance. The Stockholders and Buyer each acknowledge that, in view of the uniqueness of the Company, the Stockholders and Buyer would not have an adequate remedy at law for money damages in the event that this Agreement were not performed in accordance with its terms, and therefore agree that the Stockholders and Buyer shall be entitled to specific - 34 - enforcement of the terms hereof in addition to any other remedy to which any of the Stockholders or Buyer may be entitled, at law or in equity. Section 7.9. Notices. All notices hereunder shall be sufficiently given for all purposes hereunder if in writing and delivered personally or sent by registered mail or certified mail, postage prepaid, to the appropriate address as set forth below. Notice to the Stockholders shall be addressed to: Judy Berman 3305 Garrison Farms Road Baltimore, MD 21208 Lynne Peverley 4228 Blue Barrow Ellicott City, MD 21042 with copy to: Tydings & Rosenberg, LLP 100 East Pratt Street, 26th Floor Baltimore, MD 21202 Attention: Barry Weiskopf, Esq. Facsimile: (410) 727-5460 or at such other address and to the attention of such other person as the Company may designate by written notice to Buyer. Notice to Buyer shall be addressed to: Sylvan Learning Systems, Inc. 1000 Lancaster Street Baltimore, Maryland 21202 Attention: Robert Zentz, Esq. Facsimile No: (410) 843-8060 with copy to: Piper & Marbury L.L.P. 36 South Charles Street Baltimore, Maryland 21201 Attention: Herbert D. Frerichs, Jr., Esq. Facsimile No: (410) 576-2385 or at such other address and to the attention of such other person as Buyer may designate by written notice to the Company and the Stockholders. Any notice shall be deemed to have been served or given upon receipt. - 35 - Section 7.10. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and assigns. Section 7.11. Interpretation; Absence of Presumption. (a) For the purposes hereof, (1) words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires, (2) the terms "hereof," "herein," and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including all of the Schedules hereto) and not to any particular provision of this Agreement, and Article, Section, paragraph, and Schedule references are to the Articles, Sections, paragraphs, and Schedules to this Agreement unless otherwise specified, (3) the word "including" and words of similar import when used in this Agreement shall mean "including, without limitation," unless the context otherwise requires or unless otherwise specified, (4) the word "or" shall not be exclusive, and (5) provisions shall apply, when appropriate, to successive events and transactions. (b) This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting or causing any instrument to be drafted. Section 7.12. Extension; Waiver. At any time prior to the Closing Date, each party hereto may but shall not be required to (a) extend the time for the performance of any of the obligations or other acts of the other party, (b) waive any inaccuracies in the representations and warranties of the other party contained herein or in any document, certificate or writing delivered pursuant hereto, or (c) waive compliance by the other party with any of the agreements or conditions contained herein. Any agreement on the part of either party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the parties hereto, and the failure of any party hereto to assert any of its rights hereunder shall not constitute a waiver of such rights absent such instrument in writing. Section 7.13. Validity. If any provision of this Agreement, or the application thereof to any person or circumstance, is held invalid or unenforceable, the remainder of this Agreement, and the application of such provision to other persons or circumstances, shall not be affected thereby, and to such end, the provisions of this Agreement are agreed to be severable. ARTICLE VIII INDEMNIFICATION AND ESCROW Section 8.1. Indemnification by the Stockholders. Each of the Stockholders, jointly and severally, and the Company, hereby covenants and agrees to indemnify and hold harmless the Buyer and its respective successors and assigns (subject to the notice, timing and amount limitations set forth in this Agreement) against and in respect of any liability, loss, damage, expense or other cost, including without limitation reasonable attorneys' fees and expenses (such amounts being referred to herein as a "Loss") resulting from any (a) breach of any representation or warranty, (b) breach or nonfulfillment of any agreement or covenant on the part of the Company with respect to matters occurring before the Closing or any of the Stockholders under this Agreement which survives the Closing, or (c) any of the matters listed on Schedule - 36 - 2.13 or the last paragraph of Schedule 2.14. The remedy provided in this Article VIII shall be Buyer's exclusive remedy with respect to Losses arising out of the matters set forth in this Section 8.1; provided nothing herein shall relieve any party for liability, or limit the amount of such party's liability, for fraud, willful misconduct or intentional misrepresentation. Buyer grants to the Stockholders and their duly appointed representatives the sole right to negotiate, resolve, settle or contest any claim for Tax with respect to which the Stockholders may have to indemnify Buyer under this Article VIII; provided, however, that the Stockholders must engage professional advisors approved by Buyer with respect to the foregoing, such approval must not be unreasonably withheld. If the Stockholders do not assume the defense of any such claim for Tax, Buyer may defend the same in such manner as it may deem appropriate, but not settle or otherwise compromise any such audit or proceeding at the expense of the Stockholders without first obtaining the written consent of the Stockholders, such consent must not be unreasonably withheld. Section 8.2. Indemnification by the Buyer. Buyer hereby covenants and agrees to indemnify and hold harmless each of the Stockholders, their successors and assigns (subject to the notice and timing requirements and survival and amount limitations provided in this Agreement), against and in respect of any Loss resulting from any (a) breach of any representation or warranty or (b) breach or nonfulfillment of any agreement or covenant on the part of Buyer or any affiliate (including, without limitation, the Company after the Closing) under this Agreement or pursuant to any certificate of Buyer delivered to the Stockholders and/or the Company (or its counsel) pursuant to Section 4.11. Buyer shall satisfy any indemnification obligation hereunder with Common Stock of Buyer that qualifies as voting stock for purposes of section 368(a)(1)(B) of the Code and that has a fair market value equal to the amount of such Loss. Section 8.3. Indemnification Procedure. The procedure for indemnification of parties shall be as follows: (a) If at any time a party is entitled to indemnification hereunder (the "Indemnitee") or shall become aware of any state of facts that have resulted or may result in a Loss, the Indemnitee shall promptly give written notice (a "Notice of Claim") to the party obligated to provide indemnification (the "Indemnitor") of the discovery of such potential or actual Loss. The Notice of Claim shall set forth (A) a description of the nature of the potential or actual Loss, and (B) the total amount of Loss anticipated (including any costs or expenses which have been or may be reasonably incurred in connection therewith). Except for a failure to deliver a Notice of Claim within the applicable survival period as provided under Section 7.6 (which failure shall constitute a complete defense) the Indemnitee's failure to give prompt notice shall constitute a defense (in whole or in part) to any claim by the Indemnitee against the Indemnitor for indemnification only to the extent that such failure shall have caused or increased such liability or adversely affected the ability of the Indemnitor to defend against or reduce its liability. (b) The Indemnitor shall accept or reject any Loss as to which a Notice of Claim is sent by the Indemnitee by giving written notice of such acceptance or rejection (the "Indemnitor Notice") to the Indemnitee within sixty (60) days after the date of receipt of the Notice of Claim. Failure of the Indemnitor to reject a Loss within 60 days of receipt of the Notice of Claim shall be conclusive evidence of the Indemnitor's acceptance of its responsibility to indemnify the Indemnitee against such Loss. - 37 - (c) If the Indemnitor elects to reject the claim, the Indemnitor Notice shall set forth a description of the nature of the basis for the rejection of such claim. (d) The parties agree that any controversy or claim arising out of or relating to this Agreement or breach thereof shall be settled by arbitration in accordance with the National Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator shall be conclusive and binding on the parties hereto and may be entered in any court having jurisdiction thereover. In reaching its decision, the arbitrator shall have no authority to change or modify any provision of this Agreement. Such arbitration shall act as the administrator and exclusive arbitrator with respect to all claims for indemnity and all decisions of the arbitration shall be final and binding on the parties hereto. The cost of the American Arbitration Association and related parties shall be split evenly between the Stockholders, on the one hand, and the Buyer, on the other hand. (e) If any Notice of Claim relates to any Third-Party Claim, the Notice of Claim shall state the nature, basis and amount of such claim. In the event that the Indemnitor accepts the Loss as to which the Notice of Claim is sent, the Indemnitor shall have the right, at its election, by written notice given to the Indemnitee, to assume the defense of the claim as to which such notice has been given with counsel reasonably acceptable to the Indemnitee. Except as provided in the next sentence, if the Indemnitor so elects to assume such defense, it shall diligently and in good faith defend such claim and shall keep the Indemnitee reasonably informed of the status of such defense, and the Indemnitee shall cooperate with the Indemnitor in the defense of such claim, provided that in the case of any settlement providing for remedies other than monetary damages for which indemnification is provided, the Indemnitee shall have the right to approve the settlement, which approval shall not be unreasonably withheld or delayed. If the Indemnitor does not so elect to defend any claim as aforesaid or shall fail to defend any claim diligently and in good faith (after having so elected), the Indemnitee may, at the Indemnitor's expense, assume the defense of such claim and take such other action as it may elect to defend or settle such claim as it may determine in its reasonable discretion. Section 8.4. Limitations on Indemnity. Buyer shall make no claim for indemnity under Section 8.1, and the Stockholders shall make no claim for indemnity under Section 8.2, until the dollar amount of all Losses shall exceed $20,000 (the "Basket"), in which event the Indemnitor shall be responsible for the aggregate amount of such Losses, including the amount of the Basket, provided that no party shall be required to make any payments with respect to individual items where the Losses related thereto are less than $5,000 and such items shall not be aggregated for purposes of determining the Basket, provided, further that the Stockholder's obligation and liability for any and all breaches of the representations and warranties and covenants set forth in this Agreement shall be limited to $1,710,000. Section 8.5. General Escrow of Certain Buyer Shares. (a) At the Closing the Stockholders, the Buyer and State Street Bank & Trust, Inc. N.A. (the "Escrow Agent"), shall enter into an escrow agreement (the "General Escrow Agreement"), the terms of which shall be mutually satisfactory to all of the parties, pursuant to which a portion of the Buyer Shares to be issued in the Stock Exchange having an aggregate Market Value equal to $171,000 (the "General Escrow Shares"), will be delivered by the Stockholders to the Escrow Agent (the "General Escrow"). The - 38 - General Escrow Agreement shall permit the Stockholders to vote all General Escrow Shares. The General Escrow Shares will stand as security for any and all claims made hereunder, except for claims described in Section 8.6(a) below, by the Buyer against the Stockholders in respect of the representations, warranties and covenants made by the Company and/or the Stockholders in this Agreement. (b) Payment to the Buyer of any amounts pursuant to this Article VIII shall be delivered to and released by such Escrow Agent as and when provided pursuant to the General Escrow Agreement. The General Escrow Agreement shall provide that the number of General Escrow Shares released in respect of any General Escrow claims shall be determined by using the Market Value. The General Escrow Agreement shall also provide that promptly upon the expiration of the period ending on December 31, 1999, the Escrow Agent shall release from the General Escrow and deliver to Stockholders all remaining General Escrow Shares, unless a claim against the General Escrow is pending at such time, in which event all General Escrow Shares not covered by such claim shall be released to the Stockholders and the release of such other General Escrow Shares shall occur promptly after the resolution of such pending claim. Section 8.6. Special Escrow of Certain Buyer Shares. (a) At the Closing the Stockholders, the Buyer and an Escrow Agent (which shall be a commercial bank selected by the Buyer and reasonably acceptable to the Stockholders, shall enter into a second escrow agreement (the "Special Escrow Agreement") pursuant to which a portion of the Buyer Shares to be issued in the Stock Exchange having an aggregate Market Value equal to $200,000 (the "Special Escrow Shares") will be delivered by the Stockholders to the Escrow Agent (the "Special Escrow"). The Special Escrow Agreement shall permit the Stockholders to vote all Special Escrow Shares. The Special Escrow Shares will stand as security only for any and all claims made hereunder by Buyer against the Stockholder in respect of matters covered by the Indemnification Agreement. The parties mutually agree that the Special Escrow is reasonable. (b) Payment to Buyer of any amounts pursuant to this Article VIII shall be delivered to and released by the Escrow Agent as and when provided pursuant to the Special Escrow Agreement. The Special Escrow Agreement shall provide that the number of Special Escrow Shares released in respect of any Special Escrow claims shall be determined by using the Market Value. The Special Escrow Agreement shall also provide that (i) promptly upon the expiration of the period ending one (1) year from the Closing Date, the Escrow Agent shall release from the Special Escrow one-half (1/2) of the Special Escrow Shares, unless a claim against the Special Escrow is pending at such time, in which event all applicable Special Escrow Shares not covered by such claim shall be released to the Stockholders and the release of such other Special Escrow Shares shall occur promptly after the resolution of such pending claim and (ii) promptly upon the expiration of the period ending two (2) years from the Closing Date, the Escrow Agent shall release from the Special Escrow and deliver to Stockholders all remaining Special Escrow Shares, unless a claim against the Special Escrow is pending at such time, in which event all Special Escrow Shares not covered by such claim shall be released to the Stockholders and the release of such other Special Escrow Shares shall occur promptly after the resolution of such pending claim. Section 8.7. Indemnification Sole Remedy. The indemnification contained in this Article VIII and the Indemnification Agreement shall be deemed to be the exclusive remedy of the Indemnified Party in connection with or arising from any failure by the Indemnifying Party to perform any of - 39 - its covenants or obligations in this Agreement or any breach by the Indemnifying Party of any representation or warranty contained in this Agreement. Notwithstanding the above, the indemnification contained in this Section 8.7 shall not be the exclusive remedy for the Indemnified Party in regard to any claims, actions or suits based upon fraud, willful misconduct or intentional misrepresentation on the Indemnified Party or any representative of it, on the one hand, the Indemnifying Party, on the other hand. - 40 - IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of each of the parties as of the day first above written. SYLVAN LEARNING SYSTEMS, INC. By: --------------------------------- Name: Title: BERMAN, PEVERLEY & ASSOCIATES, P.A. By: --------------------------------- Name: Title: ------------------------------------ JUDY BERMAN ------------------------------------- LYNNE PEVERLEY - 41 - SCHEDULES --------- Schedule 1.1 Outstanding Shares Schedule 2.1(d) Conflicts Schedule 2.1(e) Consents Schedule 2.2(a)(1) Company Securities Schedule 2.2(a)(2) Stockholders Register Schedule 2.5 Real Property Schedule 2.7 Intellectual Property Schedule 2.8(b) Approvals, Authorizations, Consents, Etc. Schedule 2.9 Labor Matters Schedule 2.10 Compliance Schedule 2.11(a) Material Contracts Schedule 2.11(b) Conflicts, Breaches, Material Overpayments Schedule 2.13 Taxes Schedule 2.14(a) Benefit Plans Schedule 2.14(e) Severance and Other Payments Schedule 2.15 Material Adverse Changes Schedule 2.16 Company Brokers and Finders Schedule 2.19 Bank Accounts Schedule 2.20 Insurance Schedule 2.22 Transactions with Affiliates Schedule 4.4(c) Conduct of Business Schedule 4.6 Pooling of Interests EXHIBITS -------- Exhibit A Form of Employment Agreement Exhibit B Form of Affiliate Letter - 1 - EX-4 3 EXHIBIT 4.3 EXHIBIT 4.3 AGREEMENT AND PLAN OF REORGANIZATION AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement"), effective as of March 31, 1999 but dated this ______ day of March, 1999, by and among SYLVAN LEARNING SYSTEMS, INC., a Maryland corporation (the "Purchaser"), Abel Educators, Inc., a Florida corporation (the "Company"), and Audrey Nash Abel, the sole stockholder of the Company (the "Stockholder," whether one or more). W I T N E S S E T H: The Stockholder owns all the issued and outstanding capital stock of the Company. The Purchaser and the Stockholder wish to enter into an agreement for the acquisition of the Company by the Purchaser through a merger of the Company into the Purchaser in a transaction qualifying as a tax-free reorganization under Section 368(a)(1)(A) of the Code (the "Merger"). The parties agree and acknowledge that for accounting purposes, the Merger is to be treated as a pooling-of-interests. The Purchaser, the Company and the Stockholder wish to enter into a definitive agreement setting forth the terms and conditions of the Merger. Accordingly, in consideration of the foregoing and of the covenants, agreements, representations and warranties hereinafter contained, the Purchaser, the Company and the Stockholder hereby agree as follows: 1. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby represents and warrants to the Company and the Stockholder as follows: 1.1 Organization and Standing. The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland and has the corporate power to carry on its business as it is now being conducted and to own or hold under lease the properties and assets it now owns or holds under lease. Copies of the Charter and By-Laws of the Purchaser have been delivered to the Company, and such copies are complete and correct and in full force and effect on the date of this Agreement. The Purchaser has at all times in the past operated and used its assets in material compliance with, and currently is not in violation of, and has obtained all material licenses and permits required by, any law, rule or regulation. 1.2 Financial Statements. The Purchaser has delivered to the Company -28- copies of the Purchaser's audited consolidated financial statement for the fiscal year ended December 31, 1997. These financial statements are true and complete in all material respects, have been prepared in accordance with generally accepted accounting principles ("GAAP") consistently followed throughout the periods covered by such statements (except as may be stated in the explanatory notes to such statements), and present fairly the consolidated financial position and results of operations of the Purchaser at the dates of such statements and for the periods covered thereby. The Purchaser also has delivered to the Company copies of its Annual Report on Form 10-K for the year ended December 31, 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 cancellation, or result in the creation of any lien, charge or encumbrance upon any of its properties or assets, except where such event or occurrence would not, singly or in the aggregate, have a material adverse on the Purchaser. 1.4 Brokers and Advisors. The Purchaser has taken no action which would give rise to a valid claim against any party hereto for a brokerage commission, finder's fee, counseling or advisory fee, or like payment. 1.5 Authority. The execution, delivery and performance of this Agreement by the Purchaser have been duly authorized by its Board of Directors, and this Agreement is a valid, legally binding and enforceable obligation of the Purchaser. Upon the satisfaction of all conditions contained herein and the filing of Articles of Merger with the Maryland State Department of Assessments and Taxation and the Florida Secretary of State, this Agreement will result in the valid, legally binding and enforceable statutory merger of the Company and the Purchaser. The Purchaser warrants and represents that the approval of this Agreement by its shareholders is not required. 1.6 Validity of Common Stock. The shares of Purchaser's Common Stock to be issued and delivered by the Purchaser in connection with the Merger have been duly authorized for issuance and will, when issued and delivered as provided in this Agreement, be duly and validly issued, fully paid and non-assessable. -29- 1.7 Tax-Free Reorganization. The Purchaser is not aware of any events or conditions relating to the Purchaser which would preclude the Company or the Stockholder from treating the Merger as a tax-free reorganization under Section 368(a)(1)(A) of the Code. 1.8 Registration Statement on Form S-3. As of the date hereof, the Purchaser is aware of no events, actions or conditions which would prevent the Purchaser from being able to comply with the provisions of Section 11.1 of this Agreement, and will use its best efforts to comply, and to continue to be eligible to comply, with the provisions of Section 11.1. 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SOLE STOCKHOLDER. The Company and the sole Stockholder hereby jointly and severally represent and warrant to the Purchaser as follows: 2.1 Authorized and Issued Shares. The Company's entire authorized capital stock consists of 500 shares of Common Stock, $1.00 par value per share (the "Company Common Stock"), of which 300 shares are issued and outstanding. No shares of Company Common Stock are held in the Company's treasury and no shares are reserved for issuance. All outstanding shares of Company Common Stock have been duly authorized and are validly issued and are fully paid and non-assessable and are owned by the Stockholder. The Company is not a party to or bound by any options, calls, contracts, preemptive rights or commitments of any character relating to any issued or unissued capital stock, or any other equity security issued or to be issued by the Company. 2.2 Organization. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida, 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. 2.3 Transactions with Affiliates. Except as set forth in Section 2.3 of the disclosure schedule delivered to the Purchaser pursuant to this Agreement (the "Disclosure Schedule") or in the Company Financial Statements (as hereinafter defined), the Company is not a party to any contract, agreement or other arrangement with any current or former officer, director or stockholder or any affiliate of any such persons. Each transaction required to be listed -30- on the Disclosure Schedule is on terms no less favorable than terms available from unrelated parties. 2.4 Financial Statements. The Company has provided to the Purchaser the unaudited financial statements of the Company for the twelve months ended on December 31, 1998, which have been prepared on an accrual basis, but excluding accrual related income tax adjustments (collectively, the "Company Financial Statements"). The Company Financial Statements are complete and correct, have been prepared on a consistent basis throughout the periods covered thereby and present fairly and accurately the financial position and results of operations of the Company as of and for the periods indicated. There are no material liabilities or obligations of the Company, whether contingent or absolute, as of the dates of such statements, including liability for taxes of any type, which in accordance with GAAP consistently applied should have been shown or provided for in the Company Financial Statements and are not so shown or provided for. Since December 31, 1998, there has been no material adverse change in the condition (financial or otherwise), assets, liabilities, earnings, net worth, financial position, business, operations, properties or prospects of the Company except as shown on Schedule 2.4 of Disclosure Schedule. The Company's accounts receivable arose, and all accounts receivable that will be outstanding as of the Closing Date shall have arisen, from bona fide transactions in the ordinary course of business and will be collectible by the Company in full, less applicable reserves shown in the Company Financial Statements, in the ordinary course of business within ninety days of the Closing Date, and there are no offsets or claims related to such accounts receivable. 2.5 Taxes. The Company and the Stockholder have properly prepared and filed all federal, state and other tax returns required to be filed in connection with the operations of the Company. True and complete copies of all federal and state income tax returns for the Company and the Stockholder for each of the years ended July 31, 1996 through July 31, 1997 have been delivered or made available to the Purchaser on or prior to the date hereof and copies of other returns will be made available upon request. Except as set forth on Section 2.5 of the Disclosure Schedule or in the Company Financial Statements, neither the Company nor the Stockholder, to the best knowledge of the Stockholder, has any liability for any federal, state, county, local or other taxes whatsoever that arose or otherwise was incurred on or before the date of the balance sheet for 1998 included in the Company Financial Statements. To the best knowledge of the Stockholder, no proposed taxes, additions to tax, interest or penalties have been asserted or are pending against the Company or the Stockholder with respect to periods ending on or before Closing, and no such matters are under discussion with the applicable authorities. There are no agreements, waivers, or other arrangements providing for extensions of time with respect to the assessment or collection of any unpaid tax against the Company or the Stockholder. The Company and the Stockholder have withheld or otherwise collected all taxes or amounts it or she 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 -31- compensation, sales or use taxes or workmen's compensation, and all such amounts have been timely remitted to the proper authorities. 2.6 Agreements. Section 2.6 of the Disclosure Schedule identifies each of the following agreements, contracts, documents and other items (whether written or oral) as to which the Company is a party or otherwise is bound (and all such contracts, or summaries thereof, have been made available to the Purchaser): (i) all documents relating to indebtedness for money borrowed or collateral therefor, including guarantees; (ii) all agreements or plans relating to employment, compensation of or benefits for officers or employees of the Company; (iii) all contracts for the purchase of materials, supplies, services, merchandise or equipment involving consideration of more than $2,000 or involving purchases in excess of normal operating requirements; (iv) any contract, agreement, or instrument not entered into in the ordinary course of the business of the Company on a basis consistent with past practice; (v) any contract containing restrictions on the Company's operations or its ability to compete in any geographic region or in any line of business; (vi) any lease of real property and all personal property leases calling for annual lease payments in excess of $2,000; and (vii) each and every other contract which is material to the financial condition, earnings, operation or business of the Company. Each of the contracts and agreements so listed (collectively, the "Contracts") is a valid and existing contract or agreement in full force and effect and there exists no default by the Company thereunder. None of the Contracts will be violated or breached and no default or right of termination or modification shall arise thereunder as a result of the consummation of the transactions contemplated by this Agreement. 2.7 Property. Section 2.7 of the Disclosure Schedule sets forth a schedule (the "Property Schedule") of (i) all real property owned or leased by the Company (the "Real Property"), (ii) all individual items of tangible personal property and assets (other than inventory) of the Company having a fair market value in excess of $2,000, and (iii) all patents, trademarks, trade names, service marks, trade secrets, copyrights, franchise rights or applications therefor which are held, used, prepared in connection with or otherwise related to the conduct of the business of the Company. Except as set forth in the Property Schedule, the Company has good and marketable title to all of such property and assets owned by it, free of any pledge, mortgage, lien, lease, security agreement, encumbrance, charge or claim of any nature whatsoever. The machinery and equipment of the Company are, in all material respects, in good operating condition and repair, ordinary wear and tear excepted. To the Company's knowledge, the Company is not infringing on any patent, trademark, trade name, service mark, trade secret or copyright of another entity and has received no notice or claim of any such infringement. 2.8 Legal Proceedings, Etc. Except as set forth in Section 2.8 of the Disclosure Schedule, there are no legal, administrative, arbitration, or other proceedings or governmental investigations pending or, to the best of the Company's and the Stockholder's knowledge, threatened against the Company, the Stockholder or the respective properties or -32- assets of the Company and the Stockholder. 2.9 Compliance; Licenses. The Company has at all times in the past operated and used its assets in material compliance with, and currently is not in violation of, and has obtained all material licenses and permits required by, any law, rule or regulation. Section 2.9 of the Disclosure Schedule contains a true and complete list of all material licenses, permits, approvals, franchises and other authorizations as are necessary in order to enable the Company to own and conduct its business. 2.10 Bank Accounts, etc. Section 2.10 of the Disclosure Schedule sets forth a true and complete list of all bank accounts, safe deposit boxes and lock boxes of the Company including, with respect to each such account and lock box identification of all authorized signatories. 2.11 Insurance. Section 2.11 of the Disclosure Schedule sets forth a summary of all general liability, product liability, fire, casualty, motor vehicle and other insurance currently maintained by or on behalf of the Company. All requirements and provisions thereof are being complied with. True and correct copies of all insurance policies relating to such coverage have been provided by the Company to the Purchaser. No notice of cancellation has been given to or received by the Company with respect to any of its insurance policies, and no such policies are subject to any retroactive rate or audit adjustments or coinsurance arrangements. 2.12 Employee Plans. Except as set forth in Section 2.12 of the Disclosure Schedule, the Company does not maintain, sponsor or contribute to any plans in effect for pension, profit-sharing, deferred compensation, severance pay, bonuses, stock options, stock purchases, or any other retirement or deferred benefit, or for any health, accident or other welfare plan, or any other employee or retired employee benefits or incentive plan, program, contract, understanding or arrangement in which any employee, former employee, retired employee, or beneficiary of any of these, of the Company is entitled to participate. The plans, programs, contracts, understandings and arrangements listed on the Disclosure Schedule pursuant to this Section 2.12 are hereinafter referred to as the "Employee Plans." The Company has supplied the Purchaser with complete and accurate copies of each such Employee Plan. Each Employee Plan has been operated according to its terms in compliance with all applicable laws. 2.13 Recent Operations; Employee Matters. Since December 31, 1998, (i) the Company has operated its business substantially as it was operated immediately prior to said date and only in the ordinary course, and the Company and the Stockholder have used their best efforts to preserve intact the Company's business relationships, (ii) there have been no bonuses paid to or increases in the compensation of officers or employees, except as set forth in Section 2.13(ii) of the Disclosure Schedule, and (iii) except as set forth in Section 2.13(iii) of the -33- Disclosure Schedule, the Company has not declared or paid any dividend or made any other distribution with respect to its capital stock. 2.14 Stockholder Distributions. No dividends or distributions were declared and/or paid to the Stockholder (whether in cash or other assets) after December 31, 1998 through the date hereof (the "1999 Period"). 2.15 Environmental Matters. To the best of Company's knowledge, no storage tanks, underground or otherwise, are now located on any properties occupied by the Company, the Company has complied in all material respects with all environmental laws relating to its operations or properties occupied by it and there are no asbestos containing materials located on properties occupied by the Company. The Company has not received any notice, demand, suit or information request pursuant to the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") or any comparable state law, nor does it have knowledge of any other party's receipt of same relating to any properties occupied by the Company. 2.16 Disclosure. The Company and the Stockholder have disclosed to the Purchaser all facts material to the assets, business, operations, financial condition and prospects of the Company. All agreements, schedules, exhibits, documents, certificates, reports or statements furnished or to be furnished to the Purchaser by or on behalf of the Company in connection with this Agreement or the transactions contemplated hereby are true, complete and accurate in all material respects, and to the best knowledge of the Stockholder, no such items contain any untrue statement of a material fact or omit a material fact necessary in order to make the statements contained herein and therein not misleading. 2.17 No Conflict With Other Documents. Neither the execution and delivery of this Agreement, nor the carrying out of any of the transactions contemplated hereby, will result in any violation, termination or modification of, or be in conflict with, the Company's Articles of Incorporation or By-Laws, any terms of any contract, instrument or other agreement to which the Company is a party or by which it or any of its properties is bound or affected, or any law, rule, regulation, license, permit, judgment, decree or order applicable to the Company or by which any of its properties or assets are bound or affected, or result in any breach of or constitute a default (or with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation, or result in the creation of any lien, charge or encumbrance upon any of its properties or assets, except where such event or occurrence would not, singly or in the aggregate, have a material adverse effect on the Company. 2.18 Brokers and Advisors. The Company has taken no action which would give rise to a valid claim against any party hereto for a brokerage commission, finder's fee, -34- counseling or advisory fee, or like payment. 2.19 Authority. The execution, delivery and performance of this Agreement by the Company have been duly authorized by the sole Director and the Stockholder, and this Agreement is a valid and legally binding and enforceable obligation of the Company. Upon the satisfaction of all conditions contained herein and the filing of the Articles of Merger with the Maryland State Department of Assessments and Taxation and the Florida Secretary of State, this Agreement will result in the valid, legally binding and enforceable statutory merger of the Company and the Purchaser. 2.20 Employees Holding Sylvan Certification. Section 2.20 of the Disclosure Schedule sets forth the names of all those employees of the Company who have ever been trained or certified by Purchaser, and the particular certification held by each and when issued. 3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The Stockholder hereby represents and warrants to the Purchaser as follows: 3.1 Ownership of Company Common Stock. Such Stockholder has good and marketable title to the number of issued and outstanding shares of Company Common Stock set forth opposite his or her name on Section 3.1 of the Disclosure Schedule, free and clear of any pledges, liens, restrictions, claims or encumbrances of any kind. Such Stockholder is not a party to or bound by any options, calls, contracts, or commitments of any character relating to any issued or unissued stock or any other equity security issued or to be issued by the Company. 3.2 No Conflicts. Neither the execution and delivery of this Agreement nor the carrying out of the transactions contemplated hereby, will result in any breach of or constitute a default (or with notice or lapse of time or both would become a default), or give to others any rights, under the terms of any contract, instrument or other agreement to which such Stockholder is a party or is otherwise bound, or any judgment, decree or order applicable to such Stockholder. 3.3 Binding Effect. This Agreement is a valid and legally binding and enforceable obligation of the Stockholder. 3.4 Litigation. There is no litigation, proceeding or governmental investigation pending as to which Stockholder has been served with process or summons, or to the best of Stockholder's knowledge, threatened or in prospect against or relating to such Stockholder or the shares of Company Common Stock owned by him or her or the transactions contemplated by this Agreement. 3.5 Brokers and Advisors. Such Stockholder has taken no action which would give rise to a valid claim against any party hereto for a brokerage commission, finder's fee, -35- counseling or advisory fee, or like payment. 3.6 Investment Intent. It is understood that the shares of Purchaser Common Stock to be delivered to the Stockholder pursuant to this Agreement are not being registered, for purposes of the transactions hereunder, under the Securities Act of 1933, as amended (the "Securities Act") or any state securities laws, and the shares are being delivered without registration in reliance upon an exemption from the registration requirements of the Securities Act or any state securities laws. The Stockholder is acquiring the Purchaser Common Stock hereunder only for his own account and not with any intention of making, or with a view to, or for sale in connection with, any distribution thereof within the meaning of the Securities Act unless such shares first are registered under the Securities Act. In connection with the foregoing, each of the Stockholder hereby represents and warrants that: (a) such Stockholder has reviewed, discussed and evaluated the information delivered under Section 1.2 and has had the opportunity to ask questions of, and receive answers from, executive officers of the Purchaser concerning the terms and conditions of this Agreement and to obtain any additional information which such Stockholder considered necessary to verify the accuracy of the information delivered under Section 1.2; (b) such Stockholder understands that he or she must bear the economic risks of the investment in Purchaser Common Stock to be made hereunder for an indefinite period of time because such stock has not been registered under the Securities Act and, therefore, may not be sold until such stock subsequently is registered under the Securities Act or an exemption from registration is available; and (c) such Stockholder has sufficient knowledge and experience in financial and business matters to enable such Stockholder to be capable of evaluating the merits and the risks of the exchange of the Company Common Stock for the Purchaser Common Stock contemplated by this Agreement and such Stockholder's prospective investment in the Purchaser. 3.7 Legends. It is understood and agreed that, to implement the requirements of the Securities Act and state securities laws and evidence the restrictions upon transfer contained in this Agreement, the Purchaser will cause a legend to be conspicuously noted on the certificates representing the Purchaser Common Stock deliverable hereunder, and that the Purchaser will issue stop transfer instructions to its transfer agent, to the effect that such stock has not been registered under the Securities Act and that no transfer may take place except as permitted by Section 11 of this Agreement and after delivery of an opinion of Purchaser's counsel to the effect that registration thereof for the purpose of transfer is not required under the Securities Act or that the stock proposed to be transferred has been effectively registered for that -36- purpose under the Securities Act. 3.8 No Agreements with Respect to Purchaser Common Stock. Except for this Agreement, Stockholder has not entered into any agreement or understanding with anyone for the sale, at Stockholder's option or otherwise, of any of the Purchaser Common Stock to be delivered hereunder to Stockholder at the Closing. 3.9 Preparation of Final Tax Returns. The Stockholder will cause to be prepared, and timely filed with the appropriate authorities, any and all tax returns for the Company for the tax period ending March 31, 1999, and pay any tax liability due thereunder that is not covered by any credits or tax deposits to which the Company may be entitled as of March 31, 1999. 4. COVENANTS OF THE PURCHASER. The Purchaser covenants to the Company and the Stockholder that, except as otherwise consented to in writing by the Company after the date of this Agreement: 4.1 Stock Reservation. Between the date hereof and the Closing Date, the Purchaser will keep available and reserve a sufficient number of shares of Purchaser Common Stock for issuance and delivery to the Stockholder as contemplated in this Agreement. 4.2 Cause Conditions to be Satisfied. The Purchaser will use its best efforts to cause all of the conditions described in Sections 8 of this Agreement to be satisfied (to the extent such matters reasonably are within its control). 4.3 Registration Statement on Form S-3. The Purchaser will use its best efforts to meet the requirements for eligibility set forth in paragraph A. of the General Instructions to Form S-3, as promulgated by the U.S. Securities and Exchange Commission in fulfilling its obligations under Section 11 hereof. 4.4 Consents. The Purchaser agrees to take all necessary corporate or other action and to use best efforts to obtain all consents and approvals required for consummation of the transactions contemplated by this Agreement. 4.5 Tax-Free Reorganization. The Purchaser recognizes that the Company and the Stockholder desire to treat the Merger as a tax-free reorganization under Section 368(a)(1)(A) of the Code and will use its best efforts to cooperate with the Company and the Stockholder in this regard. The Purchaser will take no actions which would disqualify the transaction from being treated as a pooling of interests under applicable accounting rules and the Code. -37- 5. COVENANTS OF THE COMPANY AND THE STOCKHOLDER. The Company and the Stockholder jointly and severally covenant to the Purchaser that, except as otherwise consented to in writing by the Purchaser after the date of this Agreement: 5.1 Conduct of Business. After the date hereof and through the date of the Closing, with respect to the Company (a) its business will be conducted only in the ordinary course; (b) it will terminate each of its Employee Plans and will not enter into, adopt or amend any employee benefit plan, agreement or arrangement, enter into or amend any employment contracts, or increase the salaries or compensation of its officers or employees, other than ordinary increases in salaries in accordance with past practices; (c) it shall pay in full all liabilities outstanding on the date hereof except for (i) those balances owed to the holders of the Company's notes and other liabilities as shown in Section 5.1(c) of the Disclosure Schedule, and (ii) accrued employee compensation, leave and benefits and the taxes thereon as shown in Section 5.1 (c) of the Disclosure Schedule (all of which liabilities and balances shown in Section 5.1(c) shall, by virtue of the merger, become liabilities of the Purchaser); and (d) it shall not incur any additional liability for borrowed money, or encumber any of its assets; (e) all outstanding loans payable by the Company to the Stockholder or receivable by the Company from the Stockholder or any employee shall be repaid in full by the appropriate party; (f) its current assets at all times will exceed all of its liabilities; (g) except as shown in Sec 5.1(g) of the Disclosure Schedule, all trade payables and liabilities and obligations payable in installments shall be current; (h) it will use its best efforts to preserve its business organization intact, to keep available the service of its officers and employees and to preserve the goodwill of suppliers, customers and others doing business with it; (i) it will not enter into any agreement for the purchase, sale or other disposition, or purchase, sell or dispose of, any equipment, supplies, inventory, investments or other assets (other than sales of inventory and purchases of materials and supplies in the ordinary course of business and in accordance with past practices); (j) it will not compromise or write off any material account receivable other than by collection of the full recorded amount thereof; (k) no change shall be made in its Charter or By-Laws; (l) no change shall be made in the number of shares or terms of its authorized, issued or outstanding capital stock, nor shall it enter into or grant any options, calls, contracts or commitments of any character relating to any issued or unissued capital stock; (m) no dividend or other distribution or payment shall be declared or paid in respect of its capital stock; and (n) no bonus or additional compensation in excess of normal salary shall be paid to or declared for the benefit of any Stockholder. 5.2 Consents. The Company and the Stockholder agree to take all necessary corporate or other action and to use their best efforts to obtain all consents and approvals required for consummation of the transactions contemplated by this Agreement. 5.3 Restated Financial Statements. The Stockholder will cause the Company to deliver to Purchaser the Company's financial statements for the calendar year ended December -38- 31, 1998 and for the three month period ended March 31, 1999 as soon as practicable after the execution of this Agreement, but in no event later than April 7, 1999. Said statements shall be prepared to reflect the business operations of the Company on an accrual basis in accordance with GAAP. 5.4 Cause Conditions to Be Satisfied. The Company and the Stockholder will use their best efforts to cause all of the conditions described in Sections 7 and 8 of this Agreement to be satisfied (to the extent such matters reasonably are within their control). 5.5 Tax-Free Reorganization. The Company and the Stockholder recognize that the Purchaser desires to treat the Merger as a tax-free reorganization under Section 368(a)(1)(A) of the Code and will use best efforts to cooperate with the Purchaser in this regard. The Company and the Stockholder will take no actions which would disqualify the transaction from being treated as a pooling of interests under applicable accounting rules and the Code. 6. MERGER OF PURCHASER AND THE COMPANY. Subject to the terms and conditions of this Agreement, the Purchaser and the Company agree to effect the following transactions at the Closing: 6.1 Conditions. The Purchaser and the Company will deliver to the other appropriate evidence of the satisfaction of the conditions to their respective obligations hereunder. 6.2 Merger. At the Closing, the Company will be merged with and into the Purchaser pursuant to the provisions and with the effect provided in the general corporation laws of the States of Maryland and Florida. The parties shall prepare and execute appropriate merger documents under the corporate laws of Maryland and Florida, containing the terms provided in this Agreement, including a Certificate and Articles of Merger which shall be filed with the Maryland State Department of Assessments and Taxation and with the Florida Secretary of State on the Effective Closing Date, or immediately thereafter. The Purchaser shall be the surviving corporation in the Merger. Each of Purchaser, the Company and the Stockholder do acknowledge that in executing this Agreement, they do respectively adopt same as the plan of merger and reorganization for Purchaser and the Company. 6.3 Conversion Amount; Conversion of the Company Shares. As a result of the Merger and without any action by the holders thereof, all of the shares of Company Common Stock issued and outstanding immediately prior to the Merger and all rights in respect thereof, shall be converted into that number shares of Purchaser Common Stock having a market value of $550,000.00, or such other amount as the Purchaser and Stockholder shall mutually agree to in writing at or prior to the Closing (the "Conversion Amount"). As a result of such conversion, -39- the Stockholder will receive the number of shares of Purchaser Common Stock to be issued pursuant to the Merger, rounded to the nearest whole share. In order to effect such conversion, (i) the Stockholder will deliver to the Purchaser at the Closing certificates in due and proper form representing the shares of Company Common Stock owned by such Stockholder, duly endorsed or accompanied by duly executed stock powers, with signatures guaranteed by a commercial bank or a member of the National Association of Securities Dealers, Inc., and (ii) the Purchaser shall deliver to the Stockholder a certificate, in due and proper form, representing the number of shares of Purchaser Common Stock to which such Stockholder is entitled. Each share of Purchaser Common Stock issued pursuant to the Merger shall be fully paid and non-assessable. For purposes of the foregoing, the market value of the Purchaser Common Stock shall equal the average of the closing prices reported by Commodity Systems, Inc. in Yahoo! Finance/Historical Quotes for each of the fifteen (15) consecutive trading days ended and including Friday, March 26, 1999. 6.4. Closing. The closing (the "Closing") of the transactions contemplated by this Agreement shall take place at the offices of Hendry, Stover et al, attorneys for the Stockholder, in Orlando, Florida, beginning at 9 a.m. on March 29, 1999, or at such other time and place as may be agreed upon in writing by the Purchaser and the Stockholder (the "Closing Date"). The closing shall be effective as of the close of business on March 31, 1999 (the "Effective Closing Date"). 7. CONDITIONS TO THE PURCHASER'S OBLIGATIONS. Unless waived by the Purchaser in writing in its sole discretion, all obligations of the Purchaser under this Agreement are subject to the fulfillment, prior to or at the Closing, of each of the following conditions: 7.1. Approvals of Governmental Authorities. All governmental approvals necessary or advisable in the reasonable opinion of the Purchaser's counsel to consummate the transactions contemplated by this Agreement shall have been received and shall not contain any provision which, in the reasonable judgment of the Purchaser, is unduly burdensome. 7.2 No Adverse Proceedings or Events. No suit, action or other proceeding against the Company or the Purchaser, or their respective officers or directors, or either of the Stockholder, shall be threatened or pending before any court or governmental agency in which it will be, or it is, sought to restrain or prohibit any of the transactions contemplated by this Agreement or to obtain damages or other relief in connection with this Agreement or the transactions contemplated hereby. 7.3. Consents and Actions; Contracts. All requisite consents of any third parties and other actions which the Company has covenanted to use its best efforts to obtain and take under Section 5.2 hereof shall have been obtained and completed. All material contracts and agreements of the Company, including, without limitation, all contracts and agreements listed on -40- Section 2.6 of the Disclosure Schedule, shall be in full force and effect and shall not be affected by the consummation of the transactions contemplated hereby. 7.4 Other Evidence. The Purchaser shall have received from the Company and the Stockholder such further certificates and documents evidencing due action in accordance with this Agreement, including certified copies of proceedings of the Board of Directors and stockholders of the Company, as the Purchaser reasonably shall request. 7.5 Current Financial Statements and Projections. The Stockholder shall have provided, or caused the Company to have provided to Purchaser the financial statements of the Company for calendar year 1998 showing a recurring EBIT of at least $110,000 for such year, the financial statements of the Company for the two (2) month period ended February 28, 1999, and a projection of revenues and expenses for calendar year 1999, which projection reflects a recurring EBIT of at least $110,000 for such year. Such financial statements shall be prepared on an accrual basis, in accordance with GAAP. "EBIT" means the Company's net recurring revenues minus all of its recurring expense items (excluding any extraordinary and non-recurring items) and depreciation and amortization, but excluding interest and taxes. 7.6 Purchase of Other Orlando Area Centers. The obligation of Purchaser to close and deliver to Stockholder the Purchaser Common Stock is conditioned on Purchaser closing on the purchase of all of the following six (6) Sylvan Learning Centers #600, 626, 636, 643, 647 and 652 on or before March 31, 1999. At the present time, Purchaser has non-binding letters of agreement to purchase all of said centers by March 31, 1999. If the closing of purchases on all of the centers listed above does not occur, for whatever reason, by March 31, 1999, Purchaser reserves the right to cancel this transaction by telephonic notice to Stockholder not later than 10:00 p.m. March 31, 1999, in which case the Purchaser Common Stock shall not be delivered to Stockholder, and Purchaser will promptly return all closing documents delivered by the Company and Stockholder at the Closing. 7.7 Resignation of Officers and Directors. Each and every officer and director of the Company shall have resigned from any and all positions with the Company as director, officer or employee effective as of immediately prior to the Effective Closing Date. 7.8 Non-compete Agreement. The Purchaser and Audrey Nash Abel shall have entered into a Non-compete Agreement in substantially the form of Exhibit A attached hereto. 7.9 Secretary's Certificate. The Company and the Stockholder shall have delivered to Purchaser such proper and duly executed Consents, Resolutions and Secretary's Certificates, as appropriate, evidencing the approval of this Agreement and the Merger by the Company's directors and stockholders, as required by law. -41- 7.10 Merritt Island Premises Lease. The Purchaser and Stockholder shall have entered into an Office Lease, in substantially the same form shown in Exhibit B attached hereto, covering the building and premises at 333 S. Plumosa St., Merritt Island, Florida 32952, owned by Stockholder. 7.11 Termination of Sylvan License Agreement #636. The Purchaser and the Company and the Stockholder shall have entered into a Mutual Termination and Release, in substantially the same form shown in Exhibit C attached hereto, covering Sylvan License Agreement #636. 7.12 Consulting Agreement. The Purchaser and Audrey Nash Abel shall have entered into a Consulting Agreement in substantially the same form of Exhibit D attached hereto. 8. CONDITIONS TO THE COMPANY'S AND THE STOCKHOLDER'S OBLIGATIONS. Unless waived by the Company and the Stockholder, all obligations of the Company and the Stockholder under this Agreement are subject to the fulfillment, prior to or at the Closing, of each of the following conditions: 8.1. No Adverse Proceedings or Events. No suit, action or other proceeding against the Company or the Purchaser, or their respective officers or directors, or the Stockholder, shall be threatened or pending before any court or governmental agency in which it will be, or it is, sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the transactions contemplated hereby. 8.2. Consents and Actions. All requisite consents of any third parties and other actions which the Purchaser has covenanted to use its best efforts to obtain and take under Section 4.4 of this Agreement shall have been obtained and completed. 8.3. Other Evidence. The Company and the Stockholder shall have received from the Purchaser such further certificates and documents evidencing due action in accordance with this Agreement, including certified copies of proceedings of the Board of Directors of the Purchaser, as the Company and the Stockholder reasonably shall request. 8.4 Secretary's Certificate. The Purchaser shall have delivered to the Stockholder such proper and duly executed Secretary's Certificates, as appropriate, evidencing the approval of this Agreement and the Merger by the Purchaser's directors, as required by law. 8.5 Merritt Island Premises Lease. The Purchaser and Stockholder shall have entered into an Office Lease, in substantially the same form shown in Exhibit B attached hereto, covering the building and premises at 333 S. Plumosa St., Merritt Island, Florida 32952, owned by Stockholder. 8.6 Termination of Sylvan License Agreement #636. The Purchaser and the Company and the Stockholder shall have entered into a Mutual Termination and Release, in substantially the same form shown in Exhibit C attached hereto, covering Sylvan License Agreement #636. 8.7 Consulting Agreement. The Purchaser and Audrey Nash Abel shall have entered into a Consulting Agreement in substantially the same form of Exhibit D attached hereto. 9. INDEMNIFICATION. -42- 9.1. Indemnification by the Stockholder. The Stockholder hereby covenants and agrees to indemnify and hold harmless the Purchaser and its respective successors and assigns, at all times from and after the date of Effective Closing Date against and in respect of the following: (i) any damage or loss resulting from any misrepresentation, breach of representation or warranty or breach or non-fulfillment of any agreement or covenant on the part of the Company or the Stockholder under this Agreement, or from any inaccuracy or misrepresentation in or omission from any certificate or other instrument or document furnished or to be furnished by the Company or the Stockholder hereunder; (ii) any liabilities or obligations of the Company or the Stockholder for federal, state or local income tax or, to the extent not accrued or reflected in the Financial Statements, any personal property, FICA, withholding, excise, unemployment, sales or franchise taxes arising from operations of the Company prior to the Effective Closing Date except as shown in Schedule 5.1(c) and 5.1(g) of the Disclosure Schedule. (iii) all claims, actions, suits, proceedings, demands, assessments, judgments, costs, reasonable attorneys' fees and expenses of any nature incident to any of the matters indemnified against pursuant to this Section 9.1, including, without limitation, all such costs and expenses incurred in the defense thereof or in the enforcement of any rights of the Purchaser hereunder. 9.2. Notice and Defense. The Purchaser shall notify the Stockholder of any asserted liability, damage, loss or expense claimed to give rise to indemnification hereunder and the Stockholder shall have an initial right to defend, compromise and settle such matter provided that the Purchaser is fully protected from any liability, loss damage, cost or expense in connection therewith. Within ten (10) days of receipt of such notice, Stockholder shall respond in writing as to whether Stockholder will engage counsel at Stockholder's expense to defend the claim. If Stockholder does not respond, or affirmatively declines to defend the claim or disputes its obligation to indemnify, the Purchaser shall then have, at its election, the right to compromise or defend any such matter at the Stockholder's sole cost and expense through counsel chosen by the Purchaser and reasonably acceptable to the Stockholder; provided, however, that any such compromise or defense shall be conducted in a manner which is reasonable and the Stockholder shall in all events have a right to veto any such compromise or defense which might increase the potential liability of, or create a new liability for, the Stockholder (other than under Section 9.1). Each party agrees in all cases to cooperate with the defending party and its or his counsel in the compromise of or defending of any such liabilities or claims. In addition, the non-defending party shall at all times be entitled to monitor such defense through the appointment, at its or his own cost and expense, of advisory counsel of its own choosing. As to any claim paid by the -43- Purchaser for which the Stockholder has indemnity liability under this Section 9, and which the Stockholder does not reimburse Purchaser within five (5) days following demand for reimbursement by Purchaser, Purchaser may, in addition to any other remedies, (if such Stockholder is then an employee of Purchaser) offset the amount of the Stockholder's liability on the claim paid against any compensation payable to the Stockholder. 9.3. Indemnification by the Purchaser. From and after the Closing Date, the Purchaser hereby covenants and agrees to indemnify and hold harmless the Stockholder against and in respect of the following: (i) any liability, loss, damage or expense resulting from any misrepresentation, breach of warranty or non-fulfillment of any agreement or covenant on the part of Purchaser under this Agreement, or from any misrepresentation in or omission from any certificate or other instrument or document furnished or to be furnished by the Purchaser hereunder; and (ii) all claims, actions, suits, proceedings, demands, assessments, judgments, costs, reasonable attorneys' fees and expenses of any nature incident to any of the matters indemnified against pursuant to this Section 9.3, including without limitation, all such costs and expenses incurred in the defense thereof or in the enforcement of any rights of the Stockholder hereunder. The Stockholder shall notify the Purchaser of any asserted liability, damage, loss or expense claimed to give rise to indemnification hereunder and thereafter the Purchaser shall have the right to defend, compromise and settle such matter provided that the Stockholder is fully protected from any cost or expense in connection therewith. Within ten (10) days of receipt of such notice, Purchaser shall respond in writing as to whether Purchaser will engage counsel at Purchasher's expense to defend the claim. If Purchaser does not respond, or affirmatively declines to defend the claim or disputes its obligation to indemnify, the Shareholder shall then have, at its election, the right to compromise or defend any such matter at the Purchaser's sole cost and expense through counsel chosen by the Shareholder and reasonably acceptable to the Purchaser; provided, however, that any such compromise or defense shall be conducted in a manner which is reasonable and the Purchaser shall in all events have a right to veto any such compromise or defense which might increase the potential liability of, or create a new liability for, the Purchaser (other than under Section 9.3). Each party agrees in all cases to cooperate with the defending party and its or his counsel in the compromise of or defending of any such liabilities or claims. In addition, the non-defending party shall at all times be entitled to monitor such defense through the appointment, at its or his own cost and expense, of advisory counsel of its own choosing. -44- 10. SURVIVAL; LIMITATIONS. 10.1 Survival. The representations, warranties and agreements made by the parties in this Agreement and in any other certificates and documents delivered in connection herewith, including the indemnification obligations of the Stockholder and Purchaser set forth in Section 9 hereof, shall survive the Closing under this Agreement regardless of any investigation made by the party making claim hereunder, except that, subject to the provisions of the next sentence, neither the Purchaser, on the one hand, nor the Stockholder, on the other, shall have any liability with respect to any matter if notice of a claim has not been provided on or prior to March 31, 2001. Notwithstanding the foregoing, (i) any indemnification obligations of the Stockholder relating to federal, state or local tax matters or environmental matters of any sort shall continue in full force and effect without limitation until expiration of the statute of limitations applicable to such tax or environmental matters, (ii) the representation and warranty contained in Sections 2.1, 2.2 or 3.1 and any indemnification obligations of the Stockholder in connection therewith shall continue in full force and effect until expiration of the statute of limitations applicable thereto, (iii) any claims, actions or suits the Purchaser, on the one hand, or the Company or the Stockholder, on the other hand, may have which arises from any fraud or willful misconduct on the part of the Stockholder or the Company, or any representative of either, on the one hand, and the Purchaser or any representative of it, on the other hand, shall continue in full force and effect without limitation until expiration of the statute of limitations applicable thereto. 10.2 Limitations. No indemnified party shall be entitled to indemnification hereunder until such time as a single loss or an aggregate of several losses equals Ten Thousand Dollars ($10,000), at which time such indemnified party shall be entitled to indemnification for all losses sustained, incurred, paid or required to be paid by such indemnified party in excess of the $10,000; and in no event shall any party to this Agreement be entitled to indemnification for a single loss or an aggregate of several losses which exceeds the Conversion Amount. 11. REGISTRATION RIGHTS. 11.1 Registration Procedures and Expenses. Purchaser shall: (a) as soon as practicable after the closing date but in no event later than ninety (90) days after the closing date, prepare and file with the Securities and Exchange Commission (the "Commission"), and use its best efforts to have same declared effective as soon as practicable after filing, a registration statement on Form S-3 which meets the requirements of Rule 415 promulgated under the Securities Act (a "Shelf Registration Statement") covering the sale by the Stockholder from time to time of 80% of the shares of the Purchaser Common Stock received by the Stockholder in the Merger, and as soon as practicable after the filing of the first Shelf Registration Statement, but in no event later than sixty (60) days -45- after the filing of the first Shelf Registration Statement, a second Shelf Registration Statement covering the sale by the Stockholder from time to time of the remaining 20% of the shares of Purchaser Common Stock. The foregoing notwithstanding, Purchaser shall have no obligation to file a Shelf Registration Statement or to maintain the effectiveness of any previously filed Shelf Registration Statement if the sale of the Purchaser Common Stock pursuant to exemption from registration under Rule 144 is available to the Stockholder. Further, the Purchaser may extend its obligation to file a registration statement if the Purchaser advises the Stockholder that there is a pending, but unannounced transaction or development which Purchaser determines is not then appropriate for disclosure, and that registration of the Purchaser Common Stock would require such disclosure, provided that such extension shall not exceed thirty (30) days. (b) use its best efforts, subject to receipt of necessary information from the Stockholder, to cause each of the Shelf Registration Statements to become effective; (c) prepare and file with the Commission and NASDAQ 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 continuously effective, supplemented and amended 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 NASDAQ, and promptly notify the Stockholder of the filing of, such amendment or supplement to each such Shelf Registration Statement and the prospectus as may be necessary to correct any statements or omissions if, at any time when a prospectus relating to the Purchaser Common Stock is required to be delivered under the Securities Act, any event has occurred the result of which is that any such prospectus then in effect would include or incorporate an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances in which they were made and to make the Shelf Registration Statement effective for the period required hereunder; (e) advise the Stockholder, promptly after it shall receive notices or requests for amendments, supplements or other additional information or after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission or any state securities commission suspending the effectiveness of any of such Shelf Registration Statements or the initiation or threatening of any proceeding for that purpose and promptly use its diligent best efforts to prevent the issuance of any stop order and to obtain its withdrawal if such stop order should be issued; (f) furnish to the Stockholder with respect to the Purchaser Common Stock registered under any of the Shelf Registration Statements such number of copies of prospectuses and preliminary prospectuses and amendments and supplements thereto in conformity with the requirements of the Securities Act and such other documents as the Stockholder may reasonably request (but in no event more than 100 copies), in order to facilitate the public sale or other disposition of all or any of the registered Purchaser Common Stock by the Stockholder; provided, however, that the obligation -46- of Purchaser to deliver copies of prospectuses or preliminary prospectuses to the Stockholder shall be subject to the receipt by Purchaser of reasonable assurances from the Stockholder that the Stockholder will comply with the applicable provisions of the Securities Act and of such other securities or blue sky laws as may be applicable in connection with any use of such prospectuses or preliminary prospectuses; (g) file documents required of Purchaser for normal blue sky clearance in states reasonably specified in writing by the Stockholder, provided, however, that Purchaser shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so qualified or has not so consented, and cooperate and assist in filings to be made to NASDAQ; (h) bear all expenses in connection with the procedures in paragraphs (a) through (g) of this Section 11.1 and the registration of the Purchaser Common Stock pursuant to each of the Shelf Registration Statements, other than fees and expenses, if any, of counsel or other advisers to the Stockholder. (i) when shares are sold by the Stockholder, facilitate timely preparation and delivery of stock certificates without restrictive legends, and in such amounts and names as requested by Stockholder; and (j) provide prompt notice to Stockholder of the date the Shelf Registration Statement, including any prospectus relating to same and any amendment or supplement thereto, has become effective. 11.2 Engagement of Underwriters. The parties hereto agree that the Purchaser shall have no obligation to (i) conduct, arrange or coordinate any distribution or sales activities on behalf of the Stockholder with respect to the Purchaser Common Stock other than as set forth in Section 11.1 above or (ii) retain any underwriter(s) in connection with the registration and/or distribution of the Purchaser Common Stock pursuant to this Section 11. The Stockholder agrees that any underwriter(s) or counsel engaged in connection with the registration or distribution of the Purchaser Common Stock required to be registered pursuant to this Section 11 will be retained by and at the sole expense of the Stockholder and agrees further that any discounts or commissions payable to such underwriter(s) shall also be an expense solely of the Stockholder. In the event the Stockholder engages one or more underwriters pursuant to this Section 11.2, the Stockholder shall enter into an underwriting agreement with the managing or lead managing underwriter in the form customarily used by such underwriter with such changes thereto as the parties thereto shall agree; and, further, shall provide to such underwriter any documents or other information as is necessary, in the underwriter's reasonable opinion, to facilitate the effectiveness of the Shelf Registration Statement and the completion of the distribution of the Purchaser Common Stock so registered. 11.3 Indemnification with respect to Shelf Registration Statements. Purchaser hereby agrees to indemnify the Stockholder against liability arising out of or based upon any untrue statement or alleged untrue statement of material fact in any of the Shelf Registration Statements filed by Purchaser pursuant hereto, or the omission or alleged omission to state or incorporate by reference in such Shelf Registration Statements any material fact required to be stated therein or necessary in order to make the statements therein not misleading, other than any such statement included or incorporated by reference in, or omitted from, such Shelf Registration -47- Statements by Purchaser in reliance upon and in conformity with written information furnished to Purchaser specifically for use therein by or on behalf of the Stockholder or by her agents. The Stockholder hereby agrees to indemnify Purchaser against liability arising out of or based upon any untrue statement or alleged untrue statement of a material fact included or incorporated by reference in the Shelf Registration Statements or the omission or alleged omission to state or incorporate by reference therein any material fact required to be stated therein or necessary in order to make the statements therein not misleading, if such statement or omission was made by Purchaser in reliance upon and in conformity with written information furnished to Purchaser by Stockholder for use or incorporation by reference in such Shelf Registration Statements. 12. CONFIDENTIALITY. After the date hereof, the Stockholder will hold in confidence and not reveal to any third parties any knowledge or information of a confidential nature with respect to the business, products, know-how and methods of operation of the Company, and will not disclose, publish or make use of the same, provided, however, that the foregoing shall not be applicable to any disclosure or use of confidential information or knowledge that can be demonstrated to have (i) been publicly known prior to the date of this Agreement, (ii) become well known by publication or otherwise not due to the unauthorized act or omission on the part of the Stockholder, or (iii) been supplied to the Stockholder by a third party without violation of the rights of the Company or the Purchaser or any other party. The parties agree that the remedy at law for any breach by the Stockholder of this Section 12 shall be inadequate and that the aggrieved party shall be entitled to injunctive relief in addition to any other remedy. 13. EXPENSES. Each party to this Agreement shall pay all of its expenses relating hereto, including legal and accounting fees and disbursements of its counsel, accountants and financial advisors, whether or not the transactions hereunder are consummated. If said transactions are consummated, it is expressly understood that the Stockholder will bear, and will not cause the Company to pay, any legal fees or other expenses incurred by Company in connection with the transactions contemplated by this agreement, as well as the cost of furnishing the audited and reviewed Company Financial Statements referred to in Section 2.4; provided, however, that in the event of any litigation between the parties hereto relating to or arising from this Agreement, the prevailing party in such litigation shall be entitled to payment by the non-prevailing party of all reasonable attorney's fees and costs. 14. NOTICES. Except as otherwise provided herein, all notices, requests, demands and other communications under or in connection with this Agreement shall be in writing, and, (a) if to the Purchaser, shall be addressed to: O. Steven Jones General Counsel Sylvan Learning Systems, Inc. 1000 Lancaster Street -48- Baltimore, Maryland 21202 with a copy to: Richard C. Tilghman, Jr., Esquire Piper & Marbury 36 South Charles Street Baltimore, Maryland 21201 (b) if to the Company or the Stockholder, shall be addressed to: AUDREY NASH ABEL 2404 Coral Ridge Circle Melbourne, Florida 32935 with a copy to: Susan Lynn, CPA 300 Magnolia Avenue, Suite A Merritt Island, Florida 32952 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 -49- 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. The parties hereto acknowledge and agree that time is of the essence. IN WITNESS WHEREOF, the Purchaser, the Company and the Stockholder have caused this Agreement to be duly executed and their respective seals to be hereunto affixed as of the date first above written. WITNESS: SYLVAN LEARNING SYSTEMS, INC. __________________________ By:_____________________________ Name: O. Steven Jones __________________________ Title: Vice President _________________________ WITNESS: ABEL EDUCATORS, INC. __________________________ By:_____________________________ Name: Audrey Nash Abel __________________________ Title: President _________________________ [Corporate Seal] WITNESS: STOCKHOLDER: ___________________________ ___________________________(Seal) Audrey Nash Abel -50- SCHEDULE TO AGREEMENT AND PLAN OF REORGANIZATION BETWEEN SYLVAN LEARNING SYSTEMS, INC. Schedule 2.3 - Transactions with Affiliates Schedules 2.4 - Material Adverse Changes Schedule 2.5 - Taxes Schedule 2.6 - Agreements (i) indebtedness for money borrowed (ii) officer/employee compensation, plans, benefits (iii) contracts for purchase of materials, services, etc. (iv) contracts not in ordinary course (v) contracts containing restrictions on Company's operations (vi) real property leases (vii) other material contracts Schedule 2.7 - Property (i) real property owned or leased (ii) tangible personal property (iii) intellectual property Schedule 2.8 - Legal Proceedings -51- Schedule 2.9 - Licenses/Permits Schedule 2.10 - Bank Accounts Schedule 2.11 - Insurance Schedule 2.12 - Employee matters/Plans/Benefits Schedule 2.13 (ii) - Bonuses paid/Compensation increases since 12/31/97 Schedule 2.13 (iii) - Dividends declared or paid since 12/31/97 Schedule 2.20 - Employees holding Sylvan certification Schedule 3.1 Stockholders # Shares owned Percentage of shares ------------ TOTAL 100.000% Schedule 5.1 (c) - (i) the Company's notes and other liabilities not being paid at or prior to Closing (ii) accrued employee compensation, etc. Schedule 5.1 (g) - Trade payables and liabilities not paid current through Closing EXHIBITS EXHIBIT A - NONCOMPETE AGREEMENT FOR AUDREY NASH ABEL Exhibit B - Office Lease for 333 S. Plumosa Street, Merritt Island, Florida Exhibit C - Mutual Termination and Release (Sylvan License Agreement #636) Exhibit D - Consulting Agreement for Audrey Nash Abel -52- EX-4 4 EXHIBIT 4.4 EXHIBIT 4.4 AGREEMENT AND PLAN OF REORGANIZATION AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement"), effective as of March 31, 1999 but dated this day of March, 1999, by and among SYLVAN LEARNING SYSTEMS, INC., a Maryland corporation (the "Purchaser"), Fox Educational Services, Inc., a Florida corporation (the "Company"),which has elected to be treated as an S Corporation pursuant to Subchapter S of the Internal Revenue Code of 1986, as amended (the "Code") and Marcia F. Cason, the sole stockholder of the Company (the "Stockholder," whether one or more). W I T N E S S E T H: The Stockholder owns all the issued and outstanding capital stock of the Company. The Purchaser and the Stockholder wish to enter into an agreement for the acquisition of the Company by the Purchaser through a merger of the Company into the Purchaser in a transaction qualifying as a tax-free reorganization under Section 368(a)(1)(A) of the Code (the "Merger"). The parties agree and acknowledge that for accounting purposes, the Merger is to be treated as a pooling-of-interests. The Purchaser, the Company and the Stockholder wish to enter into a definitive agreement setting forth the terms and conditions of the Merger. Accordingly, in consideration of the foregoing and of the covenants, agreements, representations and warranties hereinafter contained, the Purchaser, the Company and the Stockholder hereby agree as follows: 1. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby represents and warrants to the Company and the Stockholder as follows: 1.1 Organization and Standing. The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland and has the corporate power to carry on its business as it is now being conducted and to own or hold under lease the properties and assets it now owns or holds under lease. Copies of the Charter and By-Laws of the Purchaser have been delivered to the Company, and such copies are complete and correct and in full force and effect on the date of this Agreement. The Purchaser has at all times in the past operated and used its assets in material compliance with, and currently is not in violation of, and has obtained all material licenses and permits required by, any law, rule or regulation. 1.2 Financial Statements. The Purchaser has delivered to the Company copies of the Purchaser's audited consolidated financial statement for the fiscal year ended December 31, 1997. These financial statements are true and complete in all material respects, have been prepared in accordance with generally accepted accounting principles ("GAAP") -53- consistently followed throughout the periods covered by such statements (except as may be stated in the explanatory notes to such statements), and present fairly the consolidated financial position and results of operations of the Purchaser at the dates of such statements and for the periods covered thereby. The Purchaser also has delivered to the Company copies of its Annual Report on Form 10-K for the year ended December 31, 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 cancellation, or result in the creation of any lien, charge or encumbrance upon any of its properties or assets, except where such event or occurrence would not, singly or in the aggregate, have a material adverse on the Purchaser. 1.4 Brokers and Advisors. The Purchaser has taken no action which would give rise to a valid claim against any party hereto for a brokerage commission, finder's fee, counseling or advisory fee, or like payment. 1.5 Authority. The execution, delivery and performance of this Agreement by the Purchaser have been duly authorized by its Board of Directors, and this Agreement is a valid, legally binding and enforceable obligation of the Purchaser. Upon the satisfaction of all conditions contained herein and the filing of Articles of Merger with the Maryland State Department of Assessments and Taxation and the Florida Secretary of State, this Agreement will result in the valid, legally binding and enforceable statutory merger of the Company and the Purchaser. The Purchaser warrants and represents that the approval of this Agreement by its shareholders is not required. 1.6 Validity of Common Stock. The shares of Purchaser's Common Stock to be issued and delivered by the Purchaser in connection with the Merger have been duly authorized for issuance and will, when issued and delivered as provided in this Agreement, be duly and validly issued, fully paid and non-assessable. 1.8 Tax-Free Reorganization. The Purchaser is not aware of any events or conditions relating to the Purchaser which would preclude the Company or the Stockholder from treating the Merger as a tax-free reorganization under Section 368(a)(1)(A) of the Code. 1.8 Registration Statement on Form S-3. As of the date hereof, the -54- 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 of this Agreement, and will use its best efforts to comply, and to continue to be eligible to comply, with the provisions of Section 11.1. 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SOLE STOCKHOLDER. The Company and the sole Stockholder hereby jointly and severally represent and warrant to the Purchaser as follows: 2.1 Authorized and Issued Shares. The Company's entire authorized capital stock consists of 500 shares of Common Stock, $1.00 par value per share (the "Company Common Stock"), of which 500 shares are issued and outstanding. No shares of Company Common Stock are held in the Company's treasury and no shares are reserved for issuance. All outstanding shares of Company Common Stock have been duly authorized and are validly issued and are fully paid and non-assessable and are owned by the Stockholder. The Company is not a party to or bound by any options, calls, contracts, preemptive rights or commitments of any character relating to any issued or unissued capital stock, or any other equity security issued or to be issued by the Company. 2.2 Organization. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida, 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. The Company has duly and effectively elected to be treated as a S Corporation under and is presently operating in accordance with the provisions of Subchapter S of the Code. 2.3 Transactions with Affiliates. Except as set forth in Section 2.3 of the disclosure schedule delivered to the Purchaser pursuant to this Agreement (the "Disclosure Schedule") or in the Company Financial Statements (as hereinafter defined), the Company is not a party to any contract, agreement or other arrangement with any current or former officer, director or stockholder or any affiliate of any such persons. Each transaction required to be listed on the Disclosure Schedule is on terms no less favorable than terms available from unrelated parties. 2.4 Financial Statements. The Company has provided to the Purchaser the unaudited financial statements of the Company for the twelve months ended on December 31, 1998, which have been prepared on an accrual basis, but excluding accrual related income tax adjustments (collectively, the "Company Financial Statements"). The Company Financial Statements are complete and correct, have been prepared on a consistent basis throughout the periods covered thereby and present fairly and accurately the financial position and results of -55- operations of the Company as of and for the periods indicated. There are no material liabilities or obligations of the Company, whether contingent or absolute, as of the dates of such statements, including liability for taxes of any type, which in accordance with GAAP consistently applied should have been shown or provided for in the Company Financial Statements and are not so shown or provided for. Since December 31, 1998, there has been no material adverse change in the condition (financial or otherwise), assets, liabilities, earnings, net worth, financial position, business, operations, properties or prospects of the Company except as shown on Schedule 2.4 of Disclosure Schedule. The Company's accounts receivable arose, and all accounts receivable that will be outstanding as of the Closing Date shall have arisen, from bona fide transactions in the ordinary course of business and will be collectible by the Company in full, less applicable reserves shown in the Company Financial Statements, in the ordinary course of business within ninety days of the Closing Date, and there are no offsets or claims related to such accounts receivable. 2.5 Taxes. The Company and the Stockholder have properly prepared and filed all federal, state and other tax returns required to be filed in connection with the operations of the Company. True and complete copies of all federal and state income tax returns for the Company and the Stockholder for each of the years ended December 31, 1997 through December 31, 1998 have been delivered or made available to the Purchaser on or prior to the date hereof and copies of other returns will be made available upon request. Except as set forth on Section 2.5 of the Disclosure Schedule or in the Company Financial Statements, neither the Company nor the Stockholder, to the best knowledge of the Stockholder, has any liability for any federal, state, county, local or other taxes whatsoever that arose or otherwise was incurred on or before the date of the balance sheet for 1998 included in the Company Financial Statements. To the best knowledge of the Stockholder, no proposed taxes, additions to tax, interest or penalties have been asserted or are pending against the Company or the Stockholder with respect to periods ending on or before Closing, and no such matters are under discussion with the applicable authorities. There are no agreements, waivers, or other arrangements providing for extensions of time with respect to the assessment or collection of any unpaid tax against the Company or the Stockholder. The Company and the Stockholder have withheld or otherwise collected all taxes or amounts it or she was required to withhold or collect under any applicable federal, state or local law, including, without limitation, any amounts required to be withheld or collected with respect to employee state and federal income tax withholding, social security, unemployment compensation, sales or use taxes or workmen's compensation, and all such amounts have been timely remitted to the proper authorities. 2.6 Agreements. Section 2.6 of the Disclosure Schedule identifies each of the following agreements, contracts, documents and other items (whether written or oral) as to which the Company is a party or otherwise is bound (and all such contracts, or summaries thereof, have been made available to the Purchaser): (i) all documents relating to indebtedness for money borrowed or collateral therefor, including guarantees; (ii) all agreements or plans relating to employment, compensation of or benefits for officers or employees of the Company; (iii) all contracts for the purchase of materials, supplies, services, merchandise or equipment involving consideration of more than $2,000 or involving purchases in excess of normal -56- operating requirements; (iv) any contract, agreement, or instrument not entered into in the ordinary course of the business of the Company on a basis consistent with past practice; (v) any contract containing restrictions on the Company's operations or its ability to compete in any geographic region or in any line of business; (vi) any lease of real property and all personal property leases calling for annual lease payments in excess of $2,000; and (vii) each and every other contract which is material to the financial condition, earnings, operation or business of the Company. Each of the contracts and agreements so listed (collectively, the "Contracts") is a valid and existing contract or agreement in full force and effect and there exists no default by the Company thereunder. None of the Contracts will be violated or breached and no default or right of termination or modification shall arise thereunder as a result of the consummation of the transactions contemplated by this Agreement. 2.7 Property. Section 2.7 of the Disclosure Schedule sets forth a schedule (the "Property Schedule") of (i) all real property owned or leased by the Company (the "Real Property"), (ii) all individual items of tangible personal property and assets (other than inventory) of the Company having a fair market value in excess of $2,000, and (iii) all patents, trademarks, trade names, service marks, trade secrets, copyrights, franchise rights or applications therefor which are held, used, prepared in connection with or otherwise related to the conduct of the business of the Company. Except as set forth in the Property Schedule, the Company has good and marketable title to all of such property and assets owned by it, free of any pledge, mortgage, lien, lease, security agreement, encumbrance, charge or claim of any nature whatsoever. The machinery and equipment of the Company are, in all material respects, in good operating condition and repair, ordinary wear and tear excepted. To the Company's knowledge, the Company is not infringing on any patent, trademark, trade name, service mark, trade secret or copyright of another entity and has received no notice or claim of any such infringement. 2.8 Legal Proceedings, Etc. Except as set forth in Section 2.8 of the Disclosure Schedule, there are no legal, administrative, arbitration, or other proceedings or governmental investigations pending or, to the best of the Company's and the Stockholder's knowledge, threatened against the Company, the Stockholder or the respective properties or assets of the Company and the Stockholder. 2.9 Compliance; Licenses. The Company has at all times in the past operated and used its assets in material compliance with, and currently is not in violation of, and has obtained all material licenses and permits required by, any law, rule or regulation. Section 2.9 of the Disclosure Schedule contains a true and complete list of all material licenses, permits, approvals, franchises and other authorizations as are necessary in order to enable the Company to own and conduct its business. 2.10 Bank Accounts, etc. Section 2.10 of the Disclosure Schedule sets forth a true and complete list of all bank accounts, safe deposit boxes and lock boxes of the Company including, with respect to each such account and lock box identification of all authorized signatories. -57- 2.11 Insurance. Section 2.11 of the Disclosure Schedule sets forth a summary of all general liability, product liability, fire, casualty, motor vehicle and other insurance currently maintained by or on behalf of the Company. All requirements and provisions thereof are being complied with. True and correct copies of all insurance policies relating to such coverage have been provided by the Company to the Purchaser. No notice of cancellation has been given to or received by the Company with respect to any of its insurance policies, and no such policies are subject to any retroactive rate or audit adjustments or coinsurance arrangements. 2.12 Employee Plans. Except as set forth in Section 2.12 of the Disclosure Schedule, the Company does not maintain, sponsor or contribute to any plans in effect for pension, profit-sharing, deferred compensation, severance pay, bonuses, stock options, stock purchases, or any other retirement or deferred benefit, or for any health, accident or other welfare plan, or any other employee or retired employee benefits or incentive plan, program, contract, understanding or arrangement in which any employee, former employee, retired employee, or beneficiary of any of these, of the Company is entitled to participate. The plans, programs, contracts, understandings and arrangements listed on the Disclosure Schedule pursuant to this Section 2.12 are hereinafter referred to as the "Employee Plans." The Company has supplied the Purchaser with complete and accurate copies of each such Employee Plan. Each Employee Plan has been operated according to its terms in compliance with all applicable laws. 2.14 Recent Operations; Employee Matters. Since December 31, 1998, (i) the Company has operated its business substantially as it was operated immediately prior to said date and only in the ordinary course, and the Company and the Stockholder have used their best efforts to preserve intact the Company's business relationships, (ii) there have been no bonuses paid to or increases in the compensation of officers or employees, except as set forth in Section 2.13(ii) of the Disclosure Schedule, and (iii) except as set forth in Section 2.13(iii) of the Disclosure Schedule, the Company has not declared or paid any dividend or made any other distribution with respect to its capital stock. 2.14 Stockholder Distributions. No dividends or distributions were declared and/or paid to the Stockholder (whether in cash or other assets) after December 31, 1998 through the date hereof (the "1999 Period"). 2.15 Environmental Matters. To the best of Company's knowledge, no storage tanks, underground or otherwise, are now located on any properties occupied by the Company, the Company has complied in all material respects with all environmental laws relating to its operations or properties occupied by it and there are no asbestos containing materials located on properties occupied by the Company. The Company has not received any notice, demand, suit or information request pursuant to the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") or any comparable state law, nor does it have knowledge of any other party's receipt of same relating to any properties occupied by the Company. -58- 2.16 Disclosure. The Company and the Stockholder have disclosed to the Purchaser all facts material to the assets, business, operations, financial condition and prospects of the Company. All agreements, schedules, exhibits, documents, certificates, reports or statements furnished or to be furnished to the Purchaser by or on behalf of the Company in connection with this Agreement or the transactions contemplated hereby are true, complete and accurate in all material respects, and to the best knowledge of the Stockholder, no such items contain any untrue statement of a material fact or omit a material fact necessary in order to make the statements contained herein and therein not misleading. 2.17 No Conflict With Other Documents. Neither the execution and delivery of this Agreement, nor the carrying out of any of the transactions contemplated hereby, will result in any violation, termination or modification of, or be in conflict with, the Company's Articles of Incorporation or By-Laws, any terms of any contract, instrument or other agreement to which the Company is a party or by which it or any of its properties is bound or affected, or any law, rule, regulation, license, permit, judgment, decree or order applicable to the Company or by which any of its properties or assets are bound or affected, or result in any breach of or constitute a default (or with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation, or result in the creation of any lien, charge or encumbrance upon any of its properties or assets, except where such event or occurrence would not, singly or in the aggregate, have a material adverse effect on the Company. 2.18 Brokers and Advisors. The Company has taken no action which would give rise to a valid claim against any party hereto for a brokerage commission, finder's fee, counseling or advisory fee, or like payment. 2.19 Authority. The execution, delivery and performance of this Agreement by the Company have been duly authorized by the sole Director and the Stockholder, and this Agreement is a valid and legally binding and enforceable obligation of the Company. Upon the satisfaction of all conditions contained herein and the filing of the Articles of Merger with the Maryland State Department of Assessments and Taxation and the Florida Secretary of State, this Agreement will result in the valid, legally binding and enforceable statutory merger of the Company and the Purchaser. 2.21 Employees Holding Sylvan Certification. Section 2.20 of the Disclosure Schedule sets forth the names of all those employees of the Company who have ever been trained or certified by Purchaser, and the particular certification held by each and when issued. 3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The Stockholder hereby represents and warrants to the Purchaser as follows: 3.1 Ownership of Company Common Stock. Such Stockholder has good and marketable title to the number of issued and outstanding shares of Company Common Stock set forth opposite his or her name on Section 3.1 of the Disclosure Schedule, free and clear of -59- any pledges, liens, restrictions, claims or encumbrances of any kind. Such Stockholder is not a party to or bound by any options, calls, contracts, or commitments of any character relating to any issued or unissued stock or any other equity security issued or to be issued by the Company. 3.2 No Conflicts. Neither the execution and delivery of this Agreement nor the carrying out of the transactions contemplated hereby, will result in any breach of or constitute a default (or with notice or lapse of time or both would become a default), or give to others any rights, under the terms of any contract, instrument or other agreement to which such Stockholder is a party or is otherwise bound, or any judgment, decree or order applicable to such Stockholder. 3.3 Binding Effect. This Agreement is a valid and legally binding and enforceable obligation of the Stockholder. 3.4 Litigation. There is no litigation, proceeding or governmental investigation pending as to which Stockholder has been served with process or summons, or to the best of Stockholder's knowledge, threatened or in prospect against or relating to such Stockholder or the shares of Company Common Stock owned by him or her or the transactions contemplated by this Agreement. 3.5 Brokers and Advisors. Such Stockholder has taken no action which would give rise to a valid claim against any party hereto for a brokerage commission, finder's fee, counseling or advisory fee, or like payment. 3.6 Investment Intent. It is understood that the shares of Purchaser Common Stock to be delivered to the Stockholder pursuant to this Agreement are not being registered, for purposes of the transactions hereunder, under the Securities Act of 1933, as amended (the "Securities Act") or any state securities laws, and the shares are being delivered without registration in reliance upon an exemption from the registration requirements of the Securities Act or any state securities laws. The Stockholder is acquiring the Purchaser Common Stock hereunder only for his own account and not with any intention of making, or with a view to, or for sale in connection with, any distribution thereof within the meaning of the Securities Act unless such shares first are registered under the Securities Act. In connection with the foregoing, each of the Stockholder hereby represents and warrants that: (a) such Stockholder has reviewed, discussed and evaluated the information delivered under Section 1.2 and has had the opportunity to ask questions of, and receive answers from, executive officers of the Purchaser concerning the terms and conditions of this Agreement and to obtain any additional information which such Stockholder considered necessary to verify the accuracy of the information delivered under Section 1.2; (b) such Stockholder understands that he or she must bear the economic risks of the investment in Purchaser Common Stock to be made hereunder for an indefinite period of time because such stock has not been registered under the Securities Act and, -60- therefore, may not be sold until such stock subsequently is registered under the Securities Act or an exemption from registration is available; and (c) such Stockholder has sufficient knowledge and experience in financial and business matters to enable such Stockholder to be capable of evaluating the merits and the risks of the exchange of the Company Common Stock for the Purchaser Common Stock contemplated by this Agreement and such Stockholder's prospective investment in the Purchaser. 3.7 Legends. It is understood and agreed that, to implement the requirements of the Securities Act and state securities laws and evidence the restrictions upon transfer contained in this Agreement, the Purchaser will cause a legend to be conspicuously noted on the certificates representing the Purchaser Common Stock deliverable hereunder, and that the Purchaser will issue stop transfer instructions to its transfer agent, to the effect that such stock has not been registered under the Securities Act and that no transfer may take place except as permitted by Section 11 of this Agreement and after delivery of an opinion of Purchaser's counsel to the effect that registration thereof for the purpose of transfer is not required under the Securities Act or that the stock proposed to be transferred has been effectively registered for that purpose under the Securities Act. 3.10 No Agreements with Respect to Purchaser Common Stock. Except for this Agreement, Stockholder has not entered into any agreement or understanding with anyone for the sale, at Stockholder's option or otherwise, of any of the Purchaser Common Stock to be delivered hereunder to Stockholder at the Closing. 3.11 Preparation of Final Tax Returns. The Stockholder will cause to be prepared, and timely filed with the appropriate authorities, any and all tax returns for the Company for the tax period ending March 31, 1999, and pay any tax liability due thereunder that is not covered by any credits or tax deposits to which the Company may be entitled as of March 31, 1999. 4. COVENANTS OF THE PURCHASER. The Purchaser covenants to the Company and the Stockholder that, except as otherwise consented to in writing by the Company after the date of this Agreement: 4.2 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 -61- Stock for issuance and delivery to the Stockholder as contemplated in this Agreement. 4.2 Cause Conditions to be Satisfied. The Purchaser will use its best efforts to cause all of the conditions described in Sections 8 of this Agreement to be satisfied (to the extent such matters reasonably are within its control). 4.3 Registration Statement on Form S-3. The Purchaser will use its best efforts to meet the requirements for eligibility set forth in paragraph A. of the General Instructions to Form S-3, as promulgated by the U.S. Securities and Exchange Commission in fulfilling its obligations under Section 11 hereof. 4.4 Consents. The Purchaser agrees to take all necessary corporate or other action and to use best efforts to obtain all consents and approvals required for consummation of the transactions contemplated by this Agreement. 4.5 Tax-Free Reorganization. The Purchaser recognizes that the Company and the Stockholder desire to treat the Merger as a tax-free reorganization under Section 368(a)(1)(A) of the Code and will use its best efforts to cooperate with the Company and the Stockholder in this regard. The Purchaser will take no actions which would disqualify the transaction from being treated as a pooling of interests under applicable accounting rules and the Code. 5. COVENANTS OF THE COMPANY AND THE STOCKHOLDER. The Company and the Stockholder jointly and severally covenant to the Purchaser that, except as otherwise consented to in writing by the Purchaser after the date of this Agreement: 5.1 Conduct of Business. After the date hereof and through the date of the Closing, with respect to the Company (a) its business will be conducted only in the ordinary course; (b) it will terminate each of its Employee Plans and will not enter into, adopt or amend any employee benefit plan, agreement or arrangement, enter into or amend any employment contracts, or increase the salaries or compensation of its officers or employees, other than ordinary increases in salaries in accordance with past practices; (c) it shall pay in full all liabilities outstanding on the date hereof except for (i) those balances owed to the holders of the Company's notes and other liabilities as shown in Section 5.1(c) of the Disclosure Schedule, and (ii) accrued employee compensation, leave and benefits and the taxes thereon as shown in Section 5.1 (c) of the Disclosure Schedule (all of which liabilities and balances shown in Section 5.1(c) shall, by virtue of the merger, become liabilities of the Purchaser); and (d) it shall not incur any additional liability for borrowed money, or encumber any of its assets; (e) all outstanding loans payable by the Company to the Stockholder or receivable by the Company from the Stockholder or any employee shall be repaid in full by the appropriate party; (f) its current assets at all times will exceed all of its liabilities; (g) except as shown in Sec 5.1(g) of the Disclosure Schedule, all trade payables and liabilities and obligations payable in installments shall be current; (h) it will use its best efforts to preserve its business organization intact, to keep available the service of its officers and employees and to preserve the goodwill of suppliers, -62- customers and others doing business with it; (i) it will not enter into any agreement for the purchase, sale or other disposition, or purchase, sell or dispose of, any equipment, supplies, inventory, investments or other assets (other than sales of inventory and purchases of materials and supplies in the ordinary course of business and in accordance with past practices); (j) it will not compromise or write off any material account receivable other than by collection of the full recorded amount thereof; (k) no change shall be made in its Charter or By-Laws; (l) no change shall be made in the number of shares or terms of its authorized, issued or outstanding capital stock, nor shall it enter into or grant any options, calls, contracts or commitments of any character relating to any issued or unissued capital stock; (m) no dividend or other distribution or payment shall be declared or paid in respect of its capital stock; and (n) no bonus or additional compensation in excess of normal salary shall be paid to or declared for the benefit of any Stockholder. 5.2 Consents. The Company and the Stockholder agree to take all necessary corporate or other action and to use their best efforts to obtain all consents and approvals required for consummation of the transactions contemplated by this Agreement. 5.3 Restated Financial Statements. The Stockholder will cause the Company to deliver to Purchaser the Company's financial statements for the calendar year ended December 31, 1998 and for the three month period ended March 31, 1999 as soon as practicable after the execution of this Agreement, but in no event later than April 7, 1999. Said statements shall be prepared to reflect the business operations of the Company on an accrual basis in accordance with GAAP. 5.4 Cause Conditions to Be Satisfied. The Company and the Stockholder will use their best efforts to cause all of the conditions described in Sections 7 and 8 of this Agreement to be satisfied (to the extent such matters reasonably are within their control). 5.5 Tax-Free Reorganization. The Company and the Stockholder recognize that the Purchaser desires to treat the Merger as a tax-free reorganization under Section 368(a)(1)(A) of the Code and will use best efforts to cooperate with the Purchaser in this regard. The Company and the Stockholder will take no actions which would disqualify the transaction from being treated as a pooling of interests under applicable accounting rules and the Code. 7. MERGER OF PURCHASER AND THE COMPANY. Subject to the terms and conditions of this Agreement, the Purchaser and the Company agree to effect the following transactions at the Closing: 6.1 Conditions. The Purchaser and the Company will deliver to the other appropriate evidence of the satisfaction of the conditions to their respective obligations hereunder. 6.2 Merger. At the Closing, the Company will be merged with and into the Purchaser pursuant to the provisions and with the effect provided in the general corporation laws -63- of the States of Maryland and Florida. The parties shall prepare and execute appropriate merger documents under the corporate laws of Maryland and Florida, containing the terms provided in this Agreement, including a Certificate and Articles of Merger which shall be filed with the Maryland State Department of Assessments and Taxation and with the Florida Secretary of State on the Effective Closing Date, or immediately thereafter. The Purchaser shall be the surviving corporation in the Merger. Each of Purchaser, the Company and the Stockholder do acknowledge that in executing this Agreement, they do respectively adopt same as the plan of merger and reorganization for Purchaser and the Company. 6.3 Conversion Amount; Conversion of the Company Shares. As a result of the Merger and without any action by the holders thereof, all of the shares of Company Common Stock issued and outstanding immediately prior to the Merger and all rights in respect thereof, shall be converted into that number shares of Purchaser Common Stock having a market value of $275,000.00, or such other amount as the Purchaser and Stockholder shall mutually agree to in writing at or prior to the Closing (the "Conversion Amount"). As a result of such conversion, the Stockholder will receive the number of shares of Purchaser Common Stock to be issued pursuant to the Merger, rounded to the nearest whole share. In order to effect such conversion, (i) the Stockholder will deliver to the Purchaser at the Closing certificates in due and proper form representing the shares of Company Common Stock owned by such Stockholder, duly endorsed or accompanied by duly executed stock powers, with signatures guaranteed by a commercial bank or a member of the National Association of Securities Dealers, Inc., and (ii) the Purchaser shall deliver to the Stockholder a certificate, in due and proper form, representing the number of shares of Purchaser Common Stock to which such Stockholder is entitled. Each share of Purchaser Common Stock issued pursuant to the Merger shall be fully paid and non-assessable. For purposes of the foregoing, the market value of the Purchaser Common Stock shall equal the average of the closing prices reported by Commodity Systems, Inc. in Yahoo! Finance/Historical Quotes for each of the fifteen (15) consecutive trading days ended and including Friday, March 26, 1999. 6.4. Closing. The closing (the "Closing") of the transactions contemplated by this Agreement shall take place at the offices of the Company in Orlando, Florida, beginning at 9 a.m. on March 30, 1999, or at such other time and place as may be agreed upon in writing by the Purchaser and the Stockholder (the "Closing Date"). The closing shall be effective as of the close of business on March 31, 1999 (the "Effective Closing Date"). 7. CONDITIONS TO THE PURCHASER'S OBLIGATIONS. Unless waived by the Purchaser in writing in its sole discretion, all obligations of the Purchaser under this Agreement are subject to the fulfillment, prior to or at the Closing, of each of the following conditions: 7.1. Approvals of Governmental Authorities. All governmental approvals necessary or advisable in the reasonable opinion of the Purchaser's counsel to consummate the transactions contemplated by this Agreement shall have been received and shall not contain any provision which, in the reasonable judgment of the Purchaser, is unduly burdensome. -64- 7.2 No Adverse Proceedings or Events. No suit, action or other proceeding against the Company or the Purchaser, or their respective officers or directors, or either of the Stockholder, shall be threatened or pending before any court or governmental agency in which it will be, or it is, sought to restrain or prohibit any of the transactions contemplated by this Agreement or to obtain damages or other relief in connection with this Agreement or the transactions contemplated hereby. 7.3. Consents and Actions; Contracts. All requisite consents of any third parties and other actions which the Company has covenanted to use its best efforts to obtain and take under Section 5.2 hereof shall have been obtained and completed. All material contracts and agreements of the Company, including, without limitation, all contracts and agreements listed on Section 2.6 of the Disclosure Schedule, shall be in full force and effect and shall not be affected by the consummation of the transactions contemplated hereby. 7.4 Other Evidence. The Purchaser shall have received from the Company and the Stockholder such further certificates and documents evidencing due action in accordance with this Agreement, including certified copies of proceedings of the Board of Directors and stockholders of the Company, as the Purchaser reasonably shall request. 7.5 Current Financial Statements and Projections. The Stockholder shall have provided, or caused the Company to have provided to Purchaser the financial statements of the Company for calendar year 1998 showing a recurring EBIT of at least $50,000 for such year, the financial statements of the Company for the two (2) month period ended February 28, 1999, and a projection of revenues and expenses for calendar year 1999, which projection reflects a recurring EBIT of at least $50,000 for such year. Such financial statements shall be prepared on an accrual basis, in accordance with GAAP. "EBIT" means the Company's net recurring revenues minus all of its recurring expense items (excluding any extraordinary and non-recurring items) and depreciation and amortization, but excluding interest and taxes. 7.6 Purchase of Other Orlando Area Centers. The obligation of Purchaser to close and deliver to Stockholder the Purchaser Common Stock is conditioned on Purchaser closing on the purchase of all of the following six (6) Sylvan Learning Centers #600, 626, 636, 643, 647 and 652 on or before March 31, 1999. At the present time, Purchaser has non-binding letters of agreement to purchase all of said centers by March 31, 1999. If the closing of purchases on all of the centers listed above does not occur, for whatever reason, by March 31, 1999, Purchaser reserves the right to cancel this transaction by telephonic notice to Stockholder not later than 10:00 p.m. March 31, 1999, in which case the Purchaser Common Stock shall not be delivered to Stockholder, and Purchaser will promptly return all closing documents delivered by the Company and Stockholder at the Closing. 7.8 Resignation of Officers and Directors. Each and every officer and director of the Company shall have resigned from any and all positions with the Company as director, officer or employee effective as of immediately prior to the Effective Closing Date. 7.8 Non-compete Agreement. The Purchaser and Marcia F. Cason shall have entered into a Non-compete Agreement in substantially the form of Exhibit A attached hereto. 7.10 Secretary's Certificate. The Company and the Stockholder shall have delivered to Purchaser such proper and duly executed Consents, Resolutions and Secretary's Certificates, as appropriate, evidencing the approval of this Agreement and the Merger by the Company's directors and stockholders, as required by law. 7.10 Termination of Sylvan License Agreement #626. The Purchaser and the Company and the Stockholder shall have entered into a Mutual Termination and Release, in substantially the same form shown in Exhibit B attached -65- hereto, covering Sylvan License Agreement #626. 7.11 Consulting Agreement. The Purchaser and Marcia F. Cason shall have entered into a Consulting Agreement in substantially the same form of Exhibit C attached hereto. 8. CONDITIONS TO THE COMPANY'S AND THE STOCKHOLDER'S OBLIGATIONS. Unless waived by the Company and the Stockholder, all obligations of the Company and the Stockholder under this Agreement are subject to the fulfillment, prior to or at the Closing, of each of the following conditions: 8.1. No Adverse Proceedings or Events. No suit, action or other proceeding against the Company or the Purchaser, or their respective officers or directors, or the Stockholder, shall be threatened or pending before any court or governmental agency in which it will be, or it is, sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the transactions contemplated hereby. 8.2. Consents and Actions. All requisite consents of any third parties and other actions which the Purchaser has covenanted to use its best efforts to obtain and take under Section 4.4 of this Agreement shall have been obtained and completed. 8.4. Other Evidence. The Company and the Stockholder shall have received from the Purchaser such further certificates and documents evidencing due action in accordance with this Agreement, including certified copies of proceedings of the Board of Directors of the Purchaser, as the Company and the Stockholder reasonably shall request. 8.6 Secretary's Certificate. The Purchaser shall have delivered to the Stockholder such proper and duly executed Secretary's Certificates, as appropriate, evidencing the approval of this Agreement and the Merger by the Purchaser's directors, as required by law. 8.5 Termination of Sylvan License Agreement #626. The Purchaser and the Company and the Stockholder shall have entered into a -66- Mutual Termination and Release, in substantially the same form shown in Exhibit B attached hereto, covering Sylvan License Agreement #626. 8.6 Consulting Agreement. The Purchaser and Marcia F. Cason shall have entered into a Consulting Agreement in substantially the same form of Exhibit C attached hereto. 9. INDEMNIFICATION. 9.1. Indemnification by the Stockholder. The Stockholder hereby covenants and agrees to indemnify and hold harmless the Purchaser and its respective successors and assigns, at all times from and after the date of Effective Closing Date against and in respect of the following: (i) any damage or loss resulting from any misrepresentation, breach of representation or warranty or breach or non-fulfillment of any agreement or covenant on the part of the Company or the Stockholder under this Agreement, or from any inaccuracy or misrepresentation in or omission from any certificate or other instrument or document furnished or to be furnished by the Company or the Stockholder hereunder; (ii) any liabilities or obligations of the Company or the Stockholder for federal, state or local income tax or, to the extent not accrued or reflected in the Financial Statements, any personal property, FICA, withholding, excise, unemployment, sales or franchise taxes arising from operations of the Company prior to the Effective Closing Date except as shown in Schedule 5.1(c) and 5.1(g) of the Disclosure Schedule. (iii) all claims, actions, suits, proceedings, demands, assessments, judgments, costs, reasonable attorneys' fees and expenses of any nature incident to any of the matters indemnified against pursuant to this Section 9.1, including, without limitation, all such costs and expenses incurred in the defense thereof or in the enforcement of any rights of the Purchaser hereunder. 9.2. Notice and Defense. The Purchaser shall notify the Stockholder of any asserted liability, damage, loss or expense claimed to give rise to indemnification hereunder and the Stockholder shall have an initial right to defend, compromise and settle such matter provided that the Purchaser is fully protected from any liability, loss damage, cost or expense in connection therewith. Within ten (10) days of receipt of such notice, Stockholder shall respond in writing as to whether Stockholder will engage counsel at Stockholder's expense to defend the claim. If Stockholder does not respond, or affirmatively declines to defend the claim or disputes its obligation to indemnify, the Purchaser shall then have, at its election, the right to compromise -67- or defend any such matter at the Stockholder's sole cost and expense through counsel chosen by the Purchaser and reasonably acceptable to the Stockholder; provided, however, that any such compromise or defense shall be conducted in a manner which is reasonable and the Stockholder shall in all events have a right to veto any such compromise or defense which might increase the potential liability of, or create a new liability for, the Stockholder (other than under Section 9.1). Each party agrees in all cases to cooperate with the defending party and its or his counsel in the compromise of or defending of any such liabilities or claims. In addition, the non-defending party shall at all times be entitled to monitor such defense through the appointment, at its or his own cost and expense, of advisory counsel of its own choosing. As to any claim paid by the Purchaser for which the Stockholder has indemnity liability under this Section 9, and which the Stockholder does not reimburse Purchaser within five (5) days following demand for reimbursement by Purchaser, Purchaser may, in addition to any other remedies, (if such Stockholder is then an employee of Purchaser) offset the amount of the Stockholder's liability on the claim paid against any compensation payable to the Stockholder. 9.3. Indemnification by the Purchaser. From and after the Closing Date, the Purchaser hereby covenants and agrees to indemnify and hold harmless the Stockholder against and in respect of the following: (i) any liability, loss, damage or expense resulting from any misrepresentation, breach of warranty or non-fulfillment of any agreement or covenant on the part of Purchaser under this Agreement, or from any misrepresentation in or omission from any certificate or other instrument or document furnished or to be furnished by the Purchaser hereunder; and (ii) all claims, actions, suits, proceedings, demands, assessments, judgments, costs, reasonable attorneys' fees and expenses of any nature incident to any of the matters indemnified against pursuant to this Section 9.3, including without limitation, all such costs and expenses incurred in the defense thereof or in the enforcement of any rights of the Stockholder hereunder. The Stockholder shall notify the Purchaser of any asserted liability, damage, loss or expense claimed to give rise to indemnification hereunder and thereafter the Purchaser shall have the right to defend, compromise and settle such matter provided that the Stockholder is fully protected from any cost or expense in connection therewith. Within ten (10) days of receipt of such notice, Purchaser shall respond in writing as to whether Purchaser will engage counsel at Purchasher's expense to defend the claim. If Purchaser does not respond, or affirmatively declines to defend the claim or disputes its obligation to indemnify, the Shareholder shall then have, at its election, the right to compromise or defend any such matter at the Purchaser's sole cost and expense through counsel chosen by the Shareholder and reasonably acceptable to the Purchaser; provided, however, that any such compromise or defense shall be conducted in a manner which is reasonable and the Purchaser shall in all events have a right to veto any such compromise or defense which might increase the potential liability of, or create a new liability for, the Purchaser (other than under Section 9.3). Each party agrees in all cases to cooperate with the defending -68- 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. 10. SURVIVAL; LIMITATIONS. 10.2 Survival. The representations, warranties and agreements made by the parties in this Agreement and in any other certificates and documents delivered in connection herewith, including the indemnification obligations of the Stockholder and Purchaser set forth in Section 9 hereof, shall survive the Closing under this Agreement regardless of any investigation made by the party making claim hereunder, except that, subject to the provisions of the next sentence, neither the Purchaser, on the one hand, nor the Stockholder, on the other, shall have any liability with respect to any matter if notice of a claim has not been provided on or prior to March 31, 2001. Notwithstanding the foregoing, (i) any indemnification obligations of the Stockholder relating to federal, state or local tax matters or environmental matters of any sort shall continue in full force and effect without limitation until expiration of the statute of limitations applicable to such tax or environmental matters, (ii) the representation and warranty contained in Sections 2.1, 2.2 or 3.1 and any indemnification obligations of the Stockholder in connection therewith shall continue in full force and effect until expiration of the statute of limitations applicable thereto, (iii) any claims, actions or suits the Purchaser, on the one hand, or the Company or the Stockholder, on the other hand, may have which arises from any fraud or willful misconduct on the part of the Stockholder or the Company, or any representative of either, on the one hand, and the Purchaser or any representative of it, on the other hand, shall continue in full force and effect without limitation until expiration of the statute of limitations applicable thereto. 10.2 Limitations. No indemnified party shall be entitled to indemnification hereunder until such time as a single loss or an aggregate of several losses equals Five Thousand Dollars ($5,000), 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 $5,000; and in no event shall any party to this Agreement be entitled to indemnification for a single loss or an aggregate of several losses which exceeds the Conversion Amount. 11. REGISTRATION RIGHTS. 11.1 Registration Procedures and Expenses. Purchaser shall: (a) as soon as practicable after the closing date but in no event later than ninety (90) days after the closing date, prepare and file with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 which meets the requirements of Rule 415 promulgated under the Securities Act (a "Shelf Registration Statement") covering the sale by the Stockholder from time to time of 80% of the shares of the Purchaser Common Stock received by the Stockholder in the Merger, and as soon as practicable after the filing of the first Shelf Registration Statement, but in no event later than sixty (60) days after the filing of the first Shelf Registration Statement, a second Shelf Registration Statement covering the sale by the Stockholder from time to time of the remaining 20% of the shares of Purchaser Common Stock. The foregoing notwithstanding, Purchaser shall have no obligation to file a Shelf Registration Statement or to -69- maintain the effectiveness of any previously filed Shelf Registration Statement if the sale of the Purchaser Common Stock pursuant to exemption from registration under Rule 144 is available to the Stockholder. Further, the Purchaser may extend its obligation to file a registration statement if the Purchaser advises the Stockholder that there is a pending, but unannounced transaction or development which Purchaser determines is not then appropriate for disclosure, and that registration of the Purchaser Common Stock would require such disclosure. (b) use its best efforts, subject to receipt of necessary information from the Stockholder, to cause each of the Shelf Registration Statements to become effective; (c) prepare and file with the Commission such amendments and supplements to the Shelf Registration Statements and the prospectus used in connection therewith as may be necessary to keep the Shelf Registration Statements effective until the earlier of the date on which the Purchaser Common Stock registered by such Shelf Registration Statement has been sold, or one year from the date of the initial filing thereof; (d) during the period referred to in (c) above, prepare and promptly file with the Commission, and promptly notify the Stockholder of the filing of, such amendment or supplement to each such Shelf Registration Statement and the prospectus as may be necessary to correct any statements or omissions if, at any time when a prospectus relating to the Purchaser Common Stock is required to be delivered under the Securities Act, any event has occurred the result of which is that any such prospectus then in effect would include or incorporate an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances in which they were made; (e) advise the Stockholder, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of any of such Shelf Registration Statements or the initiation or threatening of any proceeding for that purpose and promptly use its diligent best efforts to prevent the issuance of any stop order and to obtain its withdrawal if such stop order should be issued; (f) furnish to the Stockholder with respect to the Purchaser Common Stock registered under any of the Shelf Registration Statements such number of copies of prospectuses and preliminary prospectuses in conformity with the requirements of the Securities Act and such other documents as the Stockholder may reasonably request (but in no event more than 100 copies), in order to facilitate the public sale or other disposition of all or any of the registered Purchaser Common Stock by the Stockholder; provided, however, that the obligation of Purchaser to deliver copies of prospectuses or preliminary prospectuses to the Stockholder shall be subject to the receipt by Purchaser of reasonable assurances from the Stockholder that the Stockholder will comply with the applicable provisions of the Securities Act and of such other securities or blue sky laws as may be applicable in connection with any use of such prospectuses or preliminary prospectuses; (g) file documents required of Purchaser for normal blue sky -70- clearance in states reasonably specified in writing by the Stockholder, provided, however, that Purchaser shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so qualified or has not so consented; and (h) bear all expenses in connection with the procedures in paragraphs (a) through (g) of this Section 11.1 and the registration of the Purchaser Common Stock pursuant to each of the Shelf Registration Statements, other than fees and expenses, if any, of counsel or other advisers to the Stockholder. 11.2 Engagement of Underwriters. The parties hereto agree that the Purchaser shall have no obligation to (i) conduct, arrange or coordinate any distribution or sales activities on behalf of the Stockholder with respect to the Purchaser Common Stock other than as set forth in Section 11.1 above or (ii) retain any underwriter(s) in connection with the registration and/or distribution of the Purchaser Common Stock pursuant to this Section 11. The Stockholder agrees that any underwriter(s) or counsel engaged in connection with the registration or distribution of the Purchaser Common Stock required to be registered pursuant to this Section 11 will be retained by and at the sole expense of the Stockholder and agrees further that any discounts or commissions payable to such underwriter(s) shall also be an expense solely of the Stockholder. In the event the Stockholder engages one or more underwriters pursuant to this Section 11.2, the Stockholder shall enter into an underwriting agreement with the managing or lead managing underwriter in the form customarily used by such underwriter with such changes thereto as the parties thereto shall agree; and, further, shall provide to such underwriter any documents or other information as is necessary, in the underwriter's reasonable opinion, to facilitate the effectiveness of the Shelf Registration Statement and the completion of the distribution of the Purchaser Common Stock so registered. 11.3 Indemnification with respect to Shelf Registration Statements. Purchaser hereby agrees to indemnify the Stockholder against liability arising out of or based upon any untrue statement or alleged untrue statement of material fact in any of the Shelf Registration Statements filed by Purchaser pursuant hereto, or the omission or alleged omission to state or incorporate by reference in such Shelf Registration Statements any material fact required to be stated therein or necessary in order to make the statements therein not misleading, other than any such statement included or incorporated by reference in, or omitted from, such Shelf Registration Statements by Purchaser in reliance upon and in conformity with written information furnished to Purchaser specifically for use therein by or on behalf of the Stockholder. The Stockholder hereby agrees to indemnify Purchaser against liability arising out of or based upon any untrue statement or alleged untrue statement of a material fact included or incorporated by reference in the Shelf Registration Statements or the omission or alleged omission to state or incorporate by reference therein any material fact required to be stated therein or necessary in order to make the statements therein not misleading, if such statement or omission was made by Purchaser in reliance upon and in conformity with written information furnished to Purchaser for use or incorporation by reference in such Shelf Registration Statements. 12. CONFIDENTIALITY. After the date hereof, the Stockholder will hold in -71- confidence and not reveal to any third parties any knowledge or information of a confidential nature with respect to the business, products, know-how and methods of operation of the Company, and will not disclose, publish or make use of the same, provided, however, that the foregoing shall not be applicable to any disclosure or use of confidential information or knowledge that can be demonstrated to have (i) been publicly known prior to the date of this Agreement, (ii) become well known by publication or otherwise not due to the unauthorized act or omission on the part of the Stockholder, or (iii) been supplied to the Stockholder by a third party without violation of the rights of the Company or the Purchaser or any other party. The parties agree that the remedy at law for any breach by the Stockholder of this Section 12 shall be inadequate and that the aggrieved party shall be entitled to injunctive relief in addition to any other remedy. 13. EXPENSES. Each party to this Agreement shall pay all of its expenses relating hereto, including legal and accounting fees and disbursements of its counsel, accountants and financial advisors, whether or not the transactions hereunder are consummated. If said transactions are consummated, it is expressly understood that the Stockholder will bear, and will not cause the Company to pay, any legal fees or other expenses incurred by Company in connection with the transactions contemplated by this agreement, as well as the cost of furnishing the audited and reviewed Company Financial Statements referred to in Section 2.4; provided, however, that in the event of any litigation between the parties hereto relating to or arising from this Agreement, the prevailing party in such litigation shall be entitled to payment by the non-prevailing party of all reasonable attorney's fees and costs. 14. NOTICES. Except as otherwise provided herein, all notices, requests, demands and other communications under or in connection with this Agreement shall be in writing, and, (a) if to the Purchaser, shall be addressed to: O. Steven Jones General Counsel Sylvan Learning Systems, Inc. 1000 Lancaster Street Baltimore, Maryland 21202 with a copy to: Richard C. Tilghman, Jr., Esquire Piper & Marbury 36 South Charles Street Baltimore, Maryland 21201 (b) if to the Company or the Stockholder, shall be addressed to: -72- MARCIA F. CASON 1704 BRIERCLIFF DRIVE ORLANDO, FLORIDA 32806 with a copy to: 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. -73- IN WITNESS WHEREOF, the Purchaser, the Company and the Stockholder have caused this Agreement to be duly executed and their respective seals to be hereunto affixed as of the date first above written. WITNESS: SYLVAN LEARNING SYSTEMS, INC. __________________________ By:_____________________________ Name: O. Steven Jones ___________________________ Title: Vice President _________________________ WITNESS: FOX EDUCATIONAL SERVICES, INC. __________________________ By:_____________________________ Name: Marcia F. Cason _________________________ Title: President _________________________ [Corporate Seal] WITNESS: STOCKHOLDER: ___________________________ ___________________________(Seal) Marcia F. Cason -74- SCHEDULE TO AGREEMENT AND PLAN OF REORGANIZATION BETWEEN SYLVAN LEARNING SYSTEMS, INC. Schedule 2.3 - Transactions with Affiliates - NONE Schedules 2.4 - Material Adverse Changes - NONE Schedule 2.5 - Taxes - NONE Schedule 2.6 - Agreements (i) indebtedness for money borrowed - FIRST UNION BANK LOAN #4340-5802-0197-3873; BALANCE $20,201. (ii) officer/employee compensation, plans, benefits - NONE (iii) contracts for purchase of materials, services, etc. - ADVERTISING COMMITMENT WESH-TV, THROUGH SHEA KING COMMUNICATIONS, $9,900 TOTAL PAYABLE INSTALLMENTS APRIL - OCTOBER 1999. (iv) contracts not in ordinary course - NONE (v) contracts containing restrictions on Company's operations - NONE (vi) real property leases - A. PREMISES: 7600 DR. PHILLIPS BLVD., SUITE 48, ORLANDO, FL SQ. FOOTAGE: 2400 SQ. FT. LANDLORD: ORLANDO MARKETPLACE, L.P. LEASE DATE: 1-26-99 EXP. DATE: 3-31-04 B. PREMISES: 1489 E. SILVER STAR ROAD., OCOEE, FL SQ. FOOTAGE: 1,260 SQ. FT. LANDLORD: LAKE OLYMPIA SQUARE PARTNERSHIP LEASE DATE: 12-13-95 EXP. DATE: 10-31-06 (vii) other material contracts - NONE Schedule 2.7 - Property -75- (i) real property owned or leased - SEE SCHEDULE 2.6(VI) (ii) tangible personal property - NONE (iii) intellectual property - NONE Schedule 2.8 - Legal Proceedings - NONE Schedule 2.9 - Licenses/Permits - NONE Schedule 2.10 - Bank Accounts - FIRST UNION NATIONAL BANK OF FLORIDA; ACCT #2143000233884 Schedule 2.11 - Insurance - STANDARD FRANCHISEE COVERAGE THROUGH BRYCE INSURANCE Schedule 2.12 - Employee matters/Plans/Benefits - NONE (ALL TERMINATED PRIOR TO 3-31-99) Schedule 2.13 (ii) - Bonuses paid/Compensation increases since 12/31/98 - NONE Schedule 2.13 (iii) - Dividends declared or paid since 12/31/98 - NONE Schedule 2.20 - Employees holding Sylvan certification: Marcia F. Cason-Center Director 3/16/86 Susanna Brosonski-Director of Education 9/23/96 Schedule 3.1 Stockholders # Shares owned Percentage of shares ------------ -------------- -------------------- Marcia F. Carson 500 100% Schedule 5.1 (c) - (i) the Company's notes and other liabilities not being paid at or prior to -76- Closing - SEE SCHEDULE 2.6(I) (ii) accrued employee compensation, etc. - $800.00 DUE TO TWO DIRECTORS Schedule 5.1 (g) - Trade payables and liabilities not paid current through Closing - SEE SETTLEMENT STATEMENT OF 3-30-99. EXHIBITS EXHIBIT A - NONCOMPETE AGREEMENT FOR MARCIA F. CASON Exhibit B - Mutual Termination and Release (Sylvan License Agreement #626) Exhibit C - Consulting Agreement for Marcia F. Cason -77- EX-4 5 EXHIBIT 4.5 EXHIBIT 4.5 AGREEMENT AND PLAN OF REORGANIZATION AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement"), effective as of April 30, 1999 but dated this 12th day of May, 1999, by and among SYLVAN LEARNING SYSTEMS, INC., a Maryland corporation (the "Purchaser"), Alabama Education Systems, Inc. an Alabama corporation (the "Company"),which has elected to be treated as an S Corporation pursuant to Subchapter S of the Internal Revenue Code of 1986, as amended (the "Code") and George A. Perkins and Eddie W. McLain, the only stockholders of the Company (the "Stockholder," whether one or more). W I T N E S S E T H: The Stockholder owns all the issued and outstanding capital stock of the Company. The Purchaser and the Stockholder wish to enter into an agreement for the acquisition of the Company by the Purchaser through a merger of the Company into the Purchaser in a transaction qualifying as a tax-free reorganization under Section 368(a)(1)(A) of the Code (the "Merger"). The parties agree and acknowledge that for accounting purposes, the Merger is to be treated as a pooling-of-interests. The Purchaser, the Company and the Stockholder wish to enter into a definitive agreement setting forth the terms and conditions of the Merger. Accordingly, in consideration of the foregoing and of the covenants, agreements, representations and warranties hereinafter contained, the Purchaser, the Company and the Stockholder hereby agree as follows: 1. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby represents and warrants to the Company and the Stockholder as follows: 1.1 Organization and Standing. The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland and has the corporate power to carry on its business as it is now being conducted and to own or hold under lease the properties and assets it now owns or holds under lease. Copies of the Charter and By-Laws of the Purchaser have been delivered to the Company, and such copies are complete and correct and in full force and effect on the date of this Agreement. The Purchaser has at all times in the past operated and used its assets in material compliance with, and currently is not in violation of, and has obtained all material licenses and permits required by, any law, rule or regulation. 1.2 Financial Statements. The Purchaser has delivered to the Company copies of the Purchaser's audited consolidated financial statement for the fiscal year ended December 31, 1998. These financial statements are true and complete in all material respects, have been prepared in accordance with generally accepted accounting principles ("GAAP") consistently followed throughout the periods covered by such statements (except as may be stated in the explanatory notes to such statements), and present fairly the consolidated financial position and results of operations of the Purchaser at the dates of such statements and for the periods covered thereby. The Purchaser also has delivered to the Company copies of its Annual Report on Form 10-K for the year ended December 31, 1998, and all other reports or documents required to be filed with the Securities and Exchange Commission pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), after the filing of such 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 cancellation, or result in the creation of any lien, charge or encumbrance upon any of its properties or assets, except where such event or occurrence would not, singly or in the aggregate, have a material adverse on the Purchaser. 1.4 Brokers and Advisors. The Purchaser has taken no action which would give rise to a valid claim against any party hereto for a brokerage commission, finder's fee, counseling or advisory fee, or like payment. 1.5 Authority. The execution, delivery and performance of this Agreement by the Purchaser have been duly authorized by its Board of Directors, and this Agreement is a valid, legally binding and enforceable obligation of the Purchaser. Upon the satisfaction of all conditions contained herein and the filing of Articles of Merger with the Maryland State Department of Assessments and Taxation and the Alabama Secretary of State, this Agreement will result in the valid, legally binding and enforceable statutory merger of the Company and the Purchaser. The Purchaser warrants and represents that the approval of this Agreement by its shareholders is not required. 1.6 Validity of Common Stock. The shares of Purchaser's Common Stock to be issued and delivered by the Purchaser in connection with the Merger have been duly authorized for issuance and will, when issued and delivered as provided in this Agreement, be duly and validly issued, fully paid and non-assessable. 1.9 Tax-Free Reorganization. The Purchaser is not aware of any -2- events or conditions relating to the Purchaser which would preclude the Company or the Stockholder from treating the Merger as a tax-free reorganization under Section 368(a)(1)(A) of the Code. 1.8 Registration Statement on Form S-3. As of the date hereof, the Purchaser is aware of no events, actions or conditions which would prevent the Purchaser from being able to comply with the provisions of Section 11.1 of this Agreement, and will use its best efforts to comply, and to continue to be eligible to comply, with the provisions of Section 11.1. 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SOLE STOCKHOLDER. The Company and the Stockholder hereby jointly and severally represent and warrant to the Purchaser as follows: 2.1 Authorized and Issued Shares. The Company's entire authorized capital stock consists of 10,000 shares of Common Stock, $0.10 par value per share (the "Company Common Stock"), of which 594 shares are issued and outstanding. 1,098 shares of Company Common Stock are held in the Company's treasury; no shares are reserved for issuance. All outstanding shares of Company Common Stock have been duly authorized and are validly issued and are fully paid and non-assessable and are owned by the Stockholder. The Company is not a party to or bound by any options, calls, contracts, preemptive rights or commitments of any character relating to any issued or unissued capital stock, or any other equity security issued or to be issued by the Company. 2.2 Organization. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Alabama 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. The Company has duly and effectively elected to be treated as a S Corporation under and is presently operating in accordance with the provisions of Subchapter S of the Code. 2.3 Transactions with Affiliates. Except as set forth in Section 2.3 of the disclosure schedule delivered to the Purchaser pursuant to this Agreement (the "Disclosure Schedule") or in the Company Financial Statements (as hereinafter defined), the Company is not a party to any contract, agreement or other arrangement with any current or former officer, director or stockholder or any affiliate of any such persons. Each transaction required to be listed on the Disclosure Schedule is on terms no less favorable than terms available from unrelated parties. -3- 2.4 Financial Statements. The Company has provided to the Purchaser the unaudited financial statements of the Company for the twelve months ended on December 31, 1998, which have been prepared on an accrual basis, but excluding accrual related income tax adjustments (collectively, the "Company Financial Statements"). The Company Financial Statements are complete and correct, have been prepared on a consistent basis throughout the periods covered thereby and present fairly and accurately the financial position and results of operations of the Company as of and for the periods indicated. There are no material liabilities or obligations of the Company, whether contingent or absolute, as of the dates of such statements, including liability for taxes of any type, which in accordance with GAAP consistently applied should have been shown or provided for in the Company Financial Statements and are not so shown or provided for. Since December 31, 1998, there has been no material adverse change in the condition (financial or otherwise), assets, liabilities, earnings, net worth, financial position, business, operations, properties or prospects of the Company except as shown on Schedule 2.4 of Disclosure Schedule. The Company's accounts receivable arose, and all accounts receivable that will be outstanding as of the Closing Date shall have arisen, from bona fide transactions in the ordinary course of business and will be collectible by the Company in full, less applicable reserves shown in the Company Financial Statements, in the ordinary course of business within ninety days of the Closing Date, and there are no offsets or claims related to such accounts receivable. 2.5 Taxes. The Company and the Stockholder have properly prepared and filed all federal, state and other tax returns required to be filed in connection with the operations of the Company. True and complete copies of all federal and state income tax returns for the Company and the Stockholder for each of the years ended December 31, 1997 through December 31, 1998 have been delivered or made available to the Purchaser on or prior to the date hereof and copies of other returns will be made available upon request. Except as set forth on Section 2.5 of the Disclosure Schedule or in the Company Financial Statements, neither the Company nor the Stockholder, to the best knowledge of the Stockholder, has any liability for any federal, state, county, local or other taxes whatsoever that arose or otherwise was incurred on or before the date of the balance sheet for 1998 included in the Company Financial Statements. To the best knowledge of the Stockholder, no proposed taxes, additions to tax, interest or penalties have been asserted or are pending against the Company or the Stockholder with respect to periods ending on or before Closing, and no such matters are under discussion with the applicable authorities. There are no agreements, waivers, or other arrangements providing for extensions of time with respect to the assessment or collection of any unpaid tax against the Company or the Stockholder. The Company and the Stockholder have withheld or otherwise collected all taxes or amounts it or she 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. -4- 2.6 Agreements. Section 2.6 of the Disclosure Schedule identifies each of the following agreements, contracts, documents and other items (whether written or oral) as to which the Company is a party or otherwise is bound (and all such contracts, or summaries thereof, have been made available to the Purchaser): (i) all documents relating to indebtedness for money borrowed or collateral therefor, including guarantees; (ii) all agreements or plans relating to employment, compensation of or benefits for officers or employees of the Company; (iii) all contracts for the purchase of materials, supplies, services, merchandise or equipment involving consideration of more than $2,000 or involving purchases in excess of normal operating requirements; (iv) any contract, agreement, or instrument not entered into in the ordinary course of the business of the Company on a basis consistent with past practice; (v) any contract containing restrictions on the Company's operations or its ability to compete in any geographic region or in any line of business; (vi) any lease of real property and all personal property leases calling for annual lease payments in excess of $2,000; and (vii) each and every other contract which is material to the financial condition, earnings, operation or business of the Company. Each of the contracts and agreements so listed (collectively, the "Contracts") is a valid and existing contract or agreement in full force and effect and there exists no default by the Company thereunder. None of the Contracts will be violated or breached and no default or right of termination or modification shall arise thereunder as a result of the consummation of the transactions contemplated by this Agreement. 2.7 Property. Section 2.7 of the Disclosure Schedule sets forth a schedule (the "Property Schedule") of (i) all real property owned or leased by the Company (the "Real Property"), (ii) all individual items of tangible personal property and assets (other than inventory) of the Company having a fair market value in excess of $2,000, and (iii) all patents, trademarks, trade names, service marks, trade secrets, copyrights, franchise rights or applications therefor which are held, used, prepared in connection with or otherwise related to the conduct of the business of the Company. Except as set forth in the Disclosure Schedule, the Company has good and marketable title to all of such property and assets owned by it, free of any pledge, mortgage, lien, lease, security agreement, encumbrance, charge or claim of any nature whatsoever. The machinery and equipment of the Company are, in all material respects, in good operating condition and repair, ordinary wear and tear excepted. To the Company's knowledge, the Company is not infringing on any patent, trademark, trade name, service mark, trade secret or copyright of another entity and has received no notice or claim of any such infringement. 2.8 Legal Proceedings, Etc. Except as set forth in Section 2.8 of the Disclosure Schedule, there are no legal, administrative, arbitration, or other proceedings or governmental investigations pending or, to the best of the Company's and the Stockholder's knowledge, threatened against the Company, the Stockholder or the respective properties or assets of the Company and the Stockholder. -5- 2.9 Compliance; Licenses. The Company has at all times in the past operated and used its assets in material compliance with, and currently is not in violation of, and has obtained all material licenses and permits required by, any law, rule or regulation. Section 2.9 of the Disclosure Schedule contains a true and complete list of all material licenses, permits, approvals, franchises and other authorizations as are necessary in order to enable the Company to own and conduct its business. 2.10 Bank Accounts, etc. Section 2.10 of the Disclosure Schedule sets forth a true and complete list of all bank accounts, safe deposit boxes and lock boxes of the Company including, with respect to each such account and lock box identification of all authorized signatories. 2.11 Insurance. Section 2.11 of the Disclosure Schedule sets forth a summary of all general liability, product liability, fire, casualty, motor vehicle and other insurance currently maintained by or on behalf of the Company. All requirements and provisions thereof are being complied with. True and correct copies of all insurance policies relating to such coverage have been provided by the Company to the Purchaser. No notice of cancellation has been given to or received by the Company with respect to any of its insurance policies, and no such policies are subject to any retroactive rate or audit adjustments or coinsurance arrangements. 2.12 Employee Plans. Except as set forth in Section 2.12 of the Disclosure Schedule, the Company does not maintain, sponsor or contribute to any plans in effect for pension, profit-sharing, deferred compensation, severance pay, bonuses, stock options, stock purchases, or any other retirement or deferred benefit, or for any health, accident or other welfare plan, or any other employee or retired employee benefits or incentive plan, program, contract, understanding or arrangement in which any employee, former employee, retired employee, or beneficiary of any of these, of the Company is entitled to participate. The plans, programs, contracts, understandings and arrangements listed on the Disclosure Schedule pursuant to this Section 2.12 are hereinafter referred to as the "Employee Plans." The Company has supplied the Purchaser with complete and accurate copies of each such Employee Plan. Each Employee Plan has been operated according to its terms in compliance with all applicable laws. 2.15 Recent Operations; Employee Matters. Since December 31, 1998, (i) the Company has operated its business substantially as it was operated immediately prior to said date and only in the ordinary course, and the Company and the Stockholder have used their best efforts to preserve intact the Company's business relationships, (ii) there have been no bonuses paid to or increases in the compensation of officers or employees, except as set forth in Section 2.13(ii) of the Disclosure Schedule, and (iii) except as set forth in Section 2.13(iii) of the Disclosure Schedule, the Company -6- has not declared or paid any dividend or made any other distribution with respect to its capital stock. 2.14 Stockholder Distributions. No dividends or distributions were declared and/or paid to the Stockholder (whether in cash or other assets) after December 31, 1998 through the date hereof (the "1999 Period"). 2.15 Environmental Matters. To the best of Company's knowledge, no storage tanks, underground or otherwise, are now located on any properties occupied by the Company, the Company has complied in all material respects with all environmental laws relating to its operations or properties occupied by it and there are no asbestos containing materials located on properties occupied by the Company. The Company has not received any notice, demand, suit or information request pursuant to the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") or any comparable state law, nor does it have knowledge of any other party's receipt of same relating to any properties occupied by the Company. 2.16 Disclosure. The Company and the Stockholder have to their best knowledge 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 to the best knowledge of the Stockholder, no such items contain any untrue statement of a material fact or omit a material fact necessary in order to make the statements contained herein and therein not misleading. 2.17 No Conflict With Other Documents. Neither the execution and delivery of this Agreement, nor the carrying out of any of the transactions contemplated hereby, will result in any violation, termination or modification of, or be in conflict with, the Company's Articles of Incorporation or By-Laws, any terms of any contract, instrument or other agreement to which the Company is a party or by which it or any of its properties is bound or affected, or any law, rule, regulation, license, permit, judgment, decree or order applicable to the Company or by which any of its properties or assets are bound or affected, or result in any breach of or constitute a default (or with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation, or result in the creation of any lien, charge or encumbrance upon any of its properties or assets, except where such event or occurrence would not, singly or in the aggregate, have a material adverse effect on the Company. 2.18 Brokers and Advisors. The Company has taken no action which would give rise to a valid claim against any party hereto for a brokerage commission, finder's fee, counseling or advisory fee, or like payment. -7- 2.19 Authority. The execution, delivery and performance of this Agreement by the Company have been duly authorized by the sole Director and the Stockholder, and this Agreement is a valid and legally binding and enforceable obligation of the Company. Upon the satisfaction of all conditions contained herein and the filing of the Articles of Merger with the Maryland State Department of Assessments and Taxation and the Alabama Secretary of State, this Agreement will result in the valid, legally binding and enforceable statutory merger of the Company and the Purchaser. 2.22 Employees Holding Sylvan Certification. Section 2.20 of the Disclosure Schedule sets forth the names of all those employees of the Company who have ever been trained or certified by Purchaser, and the particular certification held by each and when issued. 3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The Stockholder hereby represents and warrants to the Purchaser as follows: 3.1 Ownership of Company Common Stock. Such Stockholder has good and marketable title to the number of issued and outstanding shares of Company Common Stock set forth opposite his or her name on Section 3.1 of the Disclosure Schedule, free and clear of any pledges, liens, restrictions, claims or encumbrances of any kind. Such Stockholder is not a party to or bound by any options, calls, contracts, or commitments of any character relating to any issued or unissued stock or any other equity security issued or to be issued by the Company. 3.2 No Conflicts. Neither the execution and delivery of this Agreement nor the carrying out of the transactions contemplated hereby, will result in any breach of or constitute a default (or with notice or lapse of time or both would become a default), or give to others any rights, under the terms of any contract, instrument or other agreement to which such Stockholder is a party or is otherwise bound, or any judgment, decree or order applicable to such Stockholder. 3.3 Binding Effect. This Agreement is a valid and legally binding and enforceable obligation of the Stockholder. 3.4 Litigation. There is no litigation, proceeding or governmental investigation pending as to which Stockholder has been served with process or summons, or to the best of Stockholder's knowledge, threatened or in prospect against or relating to such Stockholder or the shares of Company Common Stock owned by him or her or the transactions contemplated by this Agreement. 3.5 Brokers and Advisors. Such Stockholder has taken no action which would give rise to a valid claim against any party hereto for a brokerage -8- commission, finder's fee, counseling or advisory fee, or like payment. 3.6 Investment Intent. It is understood that the shares of Purchaser Common Stock to be delivered to the Stockholder pursuant to this Agreement are not being registered, for purposes of the transactions hereunder, under the Securities Act of 1933, as amended (the "Securities Act") or any state securities laws, and the shares are being delivered without registration in reliance upon an exemption from the registration requirements of the Securities Act or any state securities laws. The Stockholder is acquiring the Purchaser Common Stock hereunder only for his own account and not with any intention of making, or with a view to, or for sale in connection with, any distribution thereof within the meaning of the Securities Act unless such shares first are registered under the Securities Act. In connection with the foregoing, each Stockholder hereby represents and warrants that: (a) such Stockholder has reviewed, discussed and evaluated the information delivered under Section 1.2 and has had the opportunity to ask questions of, and receive answers from, executive officers of the Purchaser concerning the terms and conditions of this Agreement and to obtain any additional information which such Stockholder considered necessary to verify the accuracy of the information delivered under Section 1.2; (b) such Stockholder understands that he or she must bear the economic risks of the investment in Purchaser Common Stock to be made hereunder for an indefinite period of time because such stock has not been registered under the Securities Act and, therefore, may not be sold until such stock subsequently is registered under the Securities Act or an exemption from registration is available; and (c) such Stockholder has sufficient knowledge and experience in financial and business matters to enable such Stockholder to be capable of evaluating the merits and the risks of the exchange of the Company Common Stock for the Purchaser Common Stock contemplated by this Agreement and such Stockholder's prospective investment in the Purchaser; and (d) such Stockholder understands that notwithstanding the registration for sale under the Securities Act of the Purchaser Common Stock, such Stockholder cannot sell such stock until after the date on which the Purchaser has reported financial statements in a quarterly report on Form 10-Q that include at least 30 days of operating results subsequent to the Effective Closing Date. 3.7 Legends. It is understood and agreed that, to implement the requirements of the Securities Act and state securities laws and evidence the restrictions upon transfer contained in this Agreement, the Purchaser will cause a legend to be -9- conspicuously noted on the certificates representing the Purchaser Common Stock deliverable hereunder, and that the Purchaser will issue stop transfer instructions to its transfer agent, to the effect that such stock has not been registered under the Securities Act and that no transfer may take place except as permitted by Section 11 of this Agreement and after delivery of an opinion of Purchaser's counsel to the effect that registration thereof for the purpose of transfer is not required under the Securities Act or that the stock proposed to be transferred has been effectively registered for that purpose under the Securities Act. 3.12 No Agreements with Respect to Purchaser Common Stock. Except for this Agreement, Stockholder has not entered into any agreement or understanding with anyone for the sale, at Stockholder's option or otherwise, of any of the Purchaser Common Stock to be delivered hereunder to Stockholder at the Closing. 3.13 Preparation of Final Tax Returns. The Stockholder will cause to be prepared, and timely filed with the appropriate authorities, any and all tax returns for the Company for the tax period ending April 30, 1999, and pay any tax liability due thereunder that is not covered by any credits or tax deposits to which the Company may be entitled as of April 30, 1999. 4. COVENANTS OF THE PURCHASER. The Purchaser covenants to the Company and the Stockholder that, except as otherwise consented to in writing by the Company after the date of this Agreement: 4.3 Stock Reservation. Between the date hereof and the Closing Date, the Purchaser will keep available and reserve a sufficient number of shares of Purchaser Common Stock for issuance and delivery to the Stockholder as contemplated in this Agreement. 4.2 Cause Conditions to be Satisfied. The Purchaser will use its best efforts to cause all of the conditions described in Sections 8 of this Agreement to be satisfied (to the extent such matters reasonably are within its control). 4.3 Registration Statement on Form S-3. The Purchaser will use its best efforts to meet the requirements for eligibility set forth in paragraph A. of the General Instructions to Form S-3, as promulgated by the U.S. Securities and Exchange Commission in fulfilling its obligations under Section 11 hereof. 4.4 Consents. The Purchaser agrees to take all necessary corporate or other action and to use best efforts to obtain all consents and approvals required for consummation of the transactions contemplated by this Agreement. 4.5 Tax-Free Reorganization. The Purchaser recognizes that the Company and the Stockholder desire to treat the Merger as a tax-free reorganization -10- under Section 368(a)(1)(A) of the Code and will use its best efforts to cooperate with the Company and the Stockholder in this regard. The Purchaser will take no actions which would disqualify the transaction from being treated as a pooling of interests under applicable accounting rules and the Code. 5. COVENANTS OF THE COMPANY AND THE STOCKHOLDER. The Company and the Stockholder jointly and severally covenant to the Purchaser that, except as otherwise consented to in writing by the Purchaser after the date of this Agreement: 5.1 Conduct of Business. After the date hereof and through the date of the Closing, with respect to the Company (a) its business will be conducted only in the ordinary course; (b) it will terminate each of its Employee Plans and will not enter into, adopt or amend any employee benefit plan, agreement or arrangement, enter into or amend any employment contracts, or increase the salaries or compensation of its officers or employees, other than ordinary increases in salaries in accordance with past practices; (c) it shall pay in full all liabilities outstanding on the date hereof except for (i) those balances owed to the holders of the Company's notes and other liabilities as shown in Section 5.1(c) of the Disclosure Schedule, and (ii) accrued employee compensation, leave and benefits and the taxes thereon as shown in Section 5.1 (c) of the Disclosure Schedule (all of which liabilities and balances shown in Section 5.1(c) shall, by virtue of the merger, become liabilities of the Purchaser); and (d) it shall not incur any additional liability for borrowed money, or encumber any of its assets; (e) all outstanding loans payable by the Company to the Stockholder or receivable by the Company from the Stockholder or any employee shall be repaid in full by the appropriate party; (f) its current assets at all times will exceed all of its liabilities; (g) except as shown in Sec 5.1(g) of the Disclosure Schedule, all trade payables and liabilities and obligations payable in installments shall be current; (h) it will use its best efforts to preserve its business organization intact, to keep available the service of its officers and employees and to preserve the goodwill of suppliers, customers and others doing business with it; (i) it will not enter into any agreement for the purchase, sale or other disposition, or purchase, sell or dispose of, any equipment, supplies, inventory, investments or other assets (other than sales of inventory and purchases of materials and supplies in the ordinary course of business and in accordance with past practices); (j) it will not compromise or write off any material account receivable other than by collection of the full recorded amount thereof; (k) no change shall be made in its Charter or By-Laws; (l) no change shall be made in the number of shares or terms of its authorized, issued or outstanding capital stock, nor shall it enter into or grant any options, calls, contracts or commitments of any character relating to any issued or unissued capital stock; (m) no dividend or other distribution or payment shall be declared or paid in respect of its capital stock; and (n) no bonus or additional compensation in excess of normal salary shall be paid to or declared for the benefit of any Stockholder. 5.2 Consents. The Company and the Stockholder agree to take all necessary corporate or other action and to use their best efforts to obtain all consents and -11- approvals required for consummation of the transactions contemplated by this Agreement. 5.3 Restated Financial Statements. The Stockholder will cause the Company to deliver to Purchaser the Company's financial statements for the calendar year ended December 31, 1998 and for the four month period ended April 30, 1999 as soon as practicable after the execution of this Agreement, but in no event later than May 12, 1999. Said statements shall be prepared to reflect the business operations of the Company on an accrual basis in accordance with GAAP. 5.4 Cause Conditions to Be Satisfied. The Company and the Stockholder will use their best efforts to cause all of the conditions described in Sections 7 and 8 of this Agreement to be satisfied (to the extent such matters reasonably are within their control). 5.5 Tax-Free Reorganization. The Company and the Stockholder recognize that the Purchaser desires to treat the Merger as a tax-free reorganization under Section 368(a)(1)(A) of the Code and will use best efforts to cooperate with the Purchaser in this regard. The Company and the Stockholder will take no actions which would disqualify the transaction from being treated as a pooling of interests under applicable accounting rules and the Code. 8. MERGER OF PURCHASER AND THE COMPANY. Subject to the terms and conditions of this Agreement, the Purchaser and the Company agree to effect the following transactions at the Closing: 6.1 Conditions. The Purchaser and the Company will deliver to the other appropriate evidence of the satisfaction of the conditions to their respective obligations hereunder. 6.2 Merger. At the Closing, the Company will be merged with and into the Purchaser pursuant to the provisions and with the effect provided in the general corporation laws of the States of Maryland and Alabama. The parties shall prepare and execute appropriate merger documents under the corporate laws of Maryland and Alabama, containing the terms provided in this Agreement, including a Certificate and Articles of Merger which shall be filed with the Maryland State Department of Assessments and Taxation and with the Alabama Secretary of State on the Effective Closing Date, or immediately thereafter. The Purchaser shall be the surviving corporation in the Merger. Each of Purchaser, the Company and the Stockholder do acknowledge that in executing this Agreement, they do respectively adopt same as the plan of merger and reorganization for Purchaser and the Company. 6.3 Conversion Amount; Conversion of the Company Shares. As a result of the Merger and without any action by the holders thereof, all of the shares of -12- Company Common Stock issued and outstanding immediately prior to the Merger and all rights in respect thereof, shall be converted into that number shares of Purchaser Common Stock having a market value of $970,000.00, or such other amount as the Purchaser and Stockholder shall mutually agree to in writing at or prior to the Closing (the "Conversion Amount"). As a result of such conversion, the Stockholder will receive the number of shares of Purchaser Common Stock to be issued pursuant to the Merger, rounded to the nearest whole share. In order to effect such conversion, (i) the Stockholder will deliver to the Purchaser at the Closing certificates in due and proper form representing the shares of Company Common Stock owned by such Stockholder, duly endorsed or accompanied by duly executed stock powers, and (ii) the Purchaser shall deliver to the Stockholder a certificate, in due and proper form, representing the number of shares of Purchaser Common Stock to which such Stockholder is entitled. Each share of Purchaser Common Stock issued pursuant to the Merger shall be fully paid and non-assessable. For purposes of the foregoing, the market value of the Purchaser Common Stock shall equal the average of the closing prices reported by Commodity Systems, Inc. in Yahoo! Finance/Historical Quotes for each of the fifteen (15) consecutive trading days ended and including Tuesday, May 11, 1999. 6.4. Closing. The closing (the "Closing") of the transactions contemplated by this Agreement shall take place at the offices of the stockholder's attorneys in Birmingham, Alabama, beginning at 9 a.m. on May 12, 1999, or at such other time and place as may be agreed upon in writing by the Purchaser and the Stockholder (the "Closing Date"). The closing shall be effective as of the close of business on April 30, 1999 (the "Effective Closing Date"). 7. CONDITIONS TO THE PURCHASER'S OBLIGATIONS. Unless waived by the Purchaser in writing in its sole discretion, all obligations of the Purchaser under this Agreement are subject to the fulfillment, prior to or at the Closing, of each of the following conditions: 7.1. Approvals of Governmental Authorities. All governmental approvals necessary or advisable in the reasonable opinion of the Purchaser's counsel to consummate the transactions contemplated by this Agreement shall have been received and shall not contain any provision which, in the reasonable judgment of the Purchaser, is unduly burdensome. 7.2 No Adverse Proceedings or Events. No suit, action or other proceeding against the Company or the Purchaser, or their respective officers or directors, or either of the Stockholder, shall be threatened or pending before any court or governmental agency in which it will be, or it is, sought to restrain or prohibit any of the transactions contemplated by this Agreement or to obtain damages or other relief in connection with this Agreement or the transactions contemplated hereby. 7.3. Consents and Actions; Contracts. All requisite consents of any -13- third parties and other actions which the Company has covenanted to use its best efforts to obtain and take under Section 5.2 hereof shall have been obtained and completed. All material contracts and agreements of the Company, including, without limitation, all contracts and agreements listed on Section 2.6 of the Disclosure Schedule, shall be in full force and effect and shall not be affected by the consummation of the transactions contemplated hereby. 7.4 Other Evidence. The Purchaser shall have received from the Company and the Stockholder such further certificates and documents evidencing due action in accordance with this Agreement, including certified copies of proceedings of the Board of Directors and stockholders of the Company, as the Purchaser reasonably shall request. 7.5 Current Financial Statements and Projections. The Stockholder shall have provided, or caused the Company to have provided to Purchaser the financial statements of the Company for calendar year 1998 showing a recurring EBIT of at least $200,000.00 for such year, and the financial statements of the Company for the four (4) month period ended April 30, 1999 showing a recurring EBIT of at least $66,000 for such period. Such financial statements shall be prepared on an accrual basis, in accordance with GAAP. "EBIT" means the Company's net recurring revenues minus all of its recurring expense items (excluding any extraordinary and non-recurring items) and depreciation and amortization, but excluding interest and taxes. 7.6 Resignation of Officers and Directors. Each and every officer and director of the Company shall have resigned from any and all positions with the Company as director, officer or employee effective as of immediately prior to the Effective Closing Date. 7.7 Non-compete Agreement. The Purchaser and Stockholders shall have entered into a Non-compete Agreement in substantially the form of Exhibit A attached hereto. 7.8 Secretary's Certificate. The Company and the Stockholder shall have delivered to Purchaser such proper and duly executed Consents, Resolutions and Secretary's Certificates, as appropriate, evidencing the approval of this Agreement and the Merger by the Company's directors and stockholders, as required by law. 7.9 Termination of Sylvan License Agreements #2600 and 2605. The Purchaser and the Company and the Stockholder shall have entered into a Mutual Termination and Release, in substantially the same form shown in Exhibit B attached hereto, covering Sylvan License Agreements #2600 and 2605. 7.10 Consulting Agreement. The Purchaser and each of George A. Perkins and Eddie W. McLain shall have entered into a Consulting Agreement in -14- substantially the same form of Exhibit C attached hereto. 7.11 Call Center Agreement. The Purchaser and George A. Perkins shall have entered into a Call Center Agreement in substantially the same form shown in Exhibit D attached hereto, covering Sylvan Learning Centers #614, 615, 3012, and 3013. 7.12 Assignment and Release of Consulting Agreement. The Company and James Miles shall have entered into an agreement, in form acceptable to Purchaser, pursuant to which the right and obligations of the Company under the Company's consulting agreement with James Miles shall be assigned to Southeast Learning Systems, Inc., and the obligations of the company under such agreement shall be released and cancelled by James Miles. 8. CONDITIONS TO THE COMPANY'S AND THE STOCKHOLDER'S OBLIGATIONS. Unless waived by the Company and the Stockholder, all obligations of the Company and the Stockholder under this Agreement are subject to the fulfillment, prior to or at the Closing, of each of the following conditions: 8.1. No Adverse Proceedings or Events. No suit, action or other proceeding against the Company or the Purchaser, or their respective officers or directors, or the Stockholder, shall be threatened or pending before any court or governmental agency in which it will be, or it is, sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the transactions contemplated hereby. 8.2. Consents and Actions. All requisite consents of any third parties and other actions which the Purchaser has covenanted to use its best efforts to obtain and take under Section 4.4 of this Agreement shall have been obtained and completed. 8.5. Other Evidence. The Company and the Stockholder shall have received from the Purchaser such further certificates and documents evidencing due action in accordance with this Agreement, including certified copies of proceedings of the Board of Directors of the Purchaser, as the Company and the Stockholder reasonably shall request. 8.7 Secretary's Certificate. The Purchaser shall have delivered to the Stockholder such proper and duly executed Secretary's Certificates, as appropriate, evidencing the approval of this Agreement and the Merger by the Purchaser's directors, as required by law. 8.5 Termination of Sylvan License Agreements #2600 and 2605. The Purchaser and the Company and the Stockholder shall have entered into a Mutual Termination and Release, in substantially the same form shown in Exhibit B attached hereto, covering Sylvan License Agreements #2600 and 2605. 8.6 Consulting Agreement. The Purchaser and each of George A. Perkins and Eddie W. McLain shall have entered into a Consulting Agreement in substantially the same form of Exhibit C attached hereto. 8.7 Call Center Agreement. The Purchaser and George A. Perkins shall have entered into a Call Center Agreement in substantially the same form shown in Exhibit D -15- attached hereto, covering Sylvan Leaning Centers #614, 615, 3012, and 3013. 9. INDEMNIFICATION. 9.1. Indemnification by the Stockholder. The Stockholder hereby covenants and agrees to indemnify and hold harmless the Purchaser and its respective successors and assigns, at all times from and after the date of Effective Closing Date against and in respect of the following: (i) any damage or loss resulting from any misrepresentation, breach of representation or warranty or breach or non-fulfillment of any agreement or covenant on the part of the Company or the Stockholder under this Agreement, or from any inaccuracy or misrepresentation in or omission from any certificate or other instrument or document furnished or to be furnished by the Company or the Stockholder hereunder; (ii) any liabilities or obligations of the Company or the Stockholder for federal, state or local income tax or, to the extent not accrued or reflected in the Financial Statements, any personal property, FICA, withholding, excise, unemployment, sales or franchise taxes arising from operations of the Company prior to the Effective Closing Date except as shown in Schedule 5.1(c) and 5.1(g) of the Disclosure Schedule. (iii) all claims, actions, suits, proceedings, demands, assessments, judgments, costs, reasonable attorneys' fees and expenses of any nature incident to any of the matters indemnified against pursuant to this Section 9.1, including, without limitation, all such costs and expenses incurred in the defense thereof or in the enforcement of any rights of the Purchaser hereunder. 9.2. Notice and Defense. The Purchaser shall notify the Stockholder of any asserted liability, damage, loss or expense claimed to give rise to indemnification hereunder and the Stockholder shall have an initial right to defend, compromise and settle such matter provided that the Purchaser is fully protected from any liability, loss damage, cost or expense in connection therewith. Within ten (10) days of receipt of such notice, Stockholder shall respond in writing as to whether Stockholder will engage counsel at Stockholder's expense to defend the claim. If Stockholder does not respond, or affirmatively declines to defend the claim or disputes its obligation to indemnify, the Purchaser shall then have, at its election, the right to compromise or defend any such matter at the Stockholder's sole cost and expense through counsel chosen by the Purchaser and reasonably acceptable to the Stockholder; provided, however, that any such compromise or defense shall be conducted in a manner which is reasonable and the Stockholder shall in all events have a right to veto any such compromise or defense which might increase the potential liability of, or create a new liability for, the -16- Stockholder (other than under Section 9.1). Each party agrees in all cases to cooperate with the defending party and its or his counsel in the compromise of or defending of any such liabilities or claims. In addition, the non-defending party shall at all times be entitled to monitor such defense through the appointment, at its or his own cost and expense, of advisory counsel of its own choosing. As to any claim paid by the Purchaser for which the Stockholder has indemnity liability under this Section 9, and which the Stockholder does not reimburse Purchaser within five (5) days following demand for reimbursement by Purchaser, Purchaser may, in addition to any other remedies, (if such Stockholder is then an employee of Purchaser) offset the amount of the Stockholder's liability on the claim paid against any compensation payable to the Stockholder. 9.3. Indemnification by the Purchaser. From and after the Closing Date, the Purchaser hereby covenants and agrees to indemnify and hold harmless the Stockholder against and in respect of the following: (i) any liability, loss, damage or expense resulting from any misrepresentation, breach of warranty or non-fulfillment of any agreement or covenant on the part of Purchaser under this Agreement, or from any misrepresentation in or omission from any certificate or other instrument or document furnished or to be furnished by the Purchaser hereunder; and (ii) all claims, actions, suits, proceedings, demands, assessments, judgments, costs, reasonable attorneys' fees and expenses of any nature incident to any of the matters indemnified against pursuant to this Section 9.3, including without limitation, all such costs and expenses incurred in the defense thereof or in the enforcement of any rights of the Stockholder hereunder. The Stockholder shall notify the Purchaser of any asserted liability, damage, loss or expense claimed to give rise to indemnification hereunder and thereafter the Purchaser shall have the right to defend, compromise and settle such matter provided that the Stockholder is fully protected from any cost or expense in connection therewith. Within ten (10) days of receipt of such notice, Purchaser shall respond in writing as to whether Purchaser will engage counsel at Purchaser's expense to defend the claim. If Purchaser does not respond, or affirmatively declines to defend the claim or disputes its obligation to indemnify, the Shareholder shall then have, at its election, the right to compromise or defend any such matter at the Purchaser's sole cost and expense through counsel chosen by the Shareholder and reasonably acceptable to the Purchaser; provided, however, that any such compromise or defense shall be conducted in a manner which is reasonable and the Purchaser shall in all events have a right to veto any such compromise or defense which might increase the potential liability of, or create a new liability for, the Purchaser (other than under Section 9.3). Each party agrees in all cases to cooperate with the defending party and its or his counsel in the compromise of or defending of any such -17- 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. 10. SURVIVAL; LIMITATIONS. 10.3 Survival. The representations, warranties and agreements made by the parties in this Agreement and in any other certificates and documents delivered in connection herewith, including the indemnification obligations of the Stockholder and Purchaser set forth in Section 9 hereof, shall survive the Closing under this Agreement regardless of any investigation made by the party making claim hereunder, except that, subject to the provisions of the next sentence, neither the Purchaser, on the one hand, nor the Stockholder, on the other, shall have any liability with respect to any matter if notice of a claim has not been provided on or prior to April 30, 2001. Notwithstanding the foregoing, (i) any indemnification obligations of the Stockholder relating to federal, state or local tax matters or environmental matters of any sort shall continue in full force and effect without limitation until expiration of the statute of limitations applicable to such tax or environmental matters, (ii) the representation and warranty contained in Sections 2.1, 2.2 or 3.1 and any indemnification obligations of the Stockholder in connection therewith shall continue in full force and effect until expiration of the statute of limitations applicable thereto, (iii) any claims, actions or suits the Purchaser, on the one hand, or the Company or the Stockholder, on the other hand, may have which arises from any fraud or willful misconduct on the part of the Stockholder or the Company, or any representative of either, on the one hand, and the Purchaser or any representative of it, on the other hand, shall continue in full force and effect without limitation until expiration of the statute of limitations applicable thereto. 10.2 Limitations. No indemnified party shall be entitled to indemnification hereunder until such time as a single loss or an aggregate of several losses equals 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 the Conversion Amount. 11. REGISTRATION RIGHTS. 11.1 Registration Procedures and Expenses. Purchaser shall: (a) as soon as practicable after the closing date but in no event later than ninety (90) days after the closing date, prepare and file with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 which meets the requirements of Rule 415 promulgated under the Securities Act (a "Shelf -18- Registration Statement") covering the sale by the Stockholder from time to time of all of the shares of the Purchaser Common Stock received by the Stockholder in the Merger. The foregoing notwithstanding, Purchaser shall have no obligation to file a Shelf Registration Statement or to maintain the effectiveness of any previously filed Shelf Registration Statement if the sale of the Purchaser Common Stock pursuant to exemption from registration under Rule 144 is available to the Stockholder. Further, the Purchaser may extend its obligation to file a registration statement if the Purchaser advises the Stockholder that there is a pending, but unannounced transaction or development which Purchaser determines is not then appropriate for disclosure, and that registration of the Purchaser Common Stock would require such disclosure. (b) use its best efforts, subject to receipt of necessary information from the Stockholder, to cause each of the Shelf Registration Statements to become effective; (c) prepare and file with the Commission such amendments and supplements to the Shelf Registration Statements and the prospectus used in connection therewith as may be necessary to keep the Shelf Registration Statements effective until the earlier of the date on which the Purchaser Common Stock registered by such Shelf Registration Statement has been sold, or one year from the date of the initial filing thereof; (d) during the period referred to in (c) above, prepare and promptly file with the Commission, and promptly notify the Stockholder of the filing of, such amendment or supplement to each such Shelf Registration Statement and the prospectus as may be necessary to correct any statements or omissions if, at any time when a prospectus relating to the Purchaser Common Stock is required to be delivered under the Securities Act, any event has occurred the result of which is that any such prospectus then in effect would include or incorporate an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances in which they were made; (e) advise the Stockholder, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of any of such Shelf Registration Statements or the initiation or threatening of any proceeding for that purpose and promptly use its diligent best efforts to prevent the issuance of any stop order and to obtain its withdrawal if such stop order should be issued; (f) furnish to the Stockholder with respect to the Purchaser Common Stock registered under any of the Shelf Registration Statements such number of copies of prospectuses and preliminary prospectuses in conformity with the requirements of the Securities Act and such other documents as the Stockholder may reasonably -19- request (but in no event more than 100 copies), in order to facilitate the public sale or other disposition of all or any of the registered Purchaser Common Stock by the Stockholder; provided, however, that the obligation of Purchaser to deliver copies of prospectuses or preliminary prospectuses to the Stockholder shall be subject to the receipt by Purchaser of reasonable assurances from the Stockholder that the Stockholder will comply with the applicable provisions of the Securities Act and of such other securities or blue sky laws as may be applicable in connection with any use of such prospectuses or preliminary prospectuses; (g) file documents required of Purchaser for normal blue sky clearance in states reasonably specified in writing by the Stockholder, provided, however, that Purchaser shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so qualified or has not so consented; and (h) bear all expenses in connection with the procedures in paragraphs (a) through (g) of this Section 11.1 and the registration of the Purchaser Common Stock pursuant to each of the Shelf Registration Statements, other than fees and expenses, if any, of counsel or other advisers to the Stockholder. 11.2 Engagement of Underwriters. The parties hereto agree that the Purchaser shall have no obligation to (i) conduct, arrange or coordinate any distribution or sales activities on behalf of the Stockholder with respect to the Purchaser Common Stock other than as set forth in Section 11.1 above or (ii) retain any underwriter(s) in connection with the registration and/or distribution of the Purchaser Common Stock pursuant to this Section 11. The Stockholder agrees that any underwriter(s) or counsel engaged in connection with the registration or distribution of the Purchaser Common Stock required to be registered pursuant to this Section 11 will be retained by and at the sole expense of the Stockholder and agrees further that any discounts or commissions payable to such underwriter(s) shall also be an expense solely of the Stockholder. In the event the Stockholder engages one or more underwriters pursuant to this Section 11.2, the Stockholder shall enter into an underwriting agreement with the managing or lead managing underwriter in the form customarily used by such underwriter with such changes thereto as the parties thereto shall agree; and, further, shall provide to such underwriter any documents or other information as is necessary, in the underwriter's reasonable opinion, to facilitate the effectiveness of the Shelf Registration Statement and the completion of the distribution of the Purchaser Common Stock so registered. 11.3 Indemnification with respect to Shelf Registration Statements. Purchaser hereby agrees to indemnify the Stockholder against liability arising out of or based upon any untrue statement or alleged untrue statement of material fact in any of the Shelf Registration Statements filed by Purchaser pursuant hereto, or the omission or alleged omission to state or incorporate by reference in such Shelf Registration Statements any material fact required to be stated therein or necessary in order to make the statements therein not misleading, other than any such statement included or -20- incorporated by reference in, or omitted from, such Shelf Registration Statements by Purchaser in reliance upon and in conformity with written information furnished to Purchaser specifically for use therein by or on behalf of the Stockholder. The Stockholder hereby agrees to indemnify Purchaser against liability arising out of or based upon any untrue statement or alleged untrue statement of a material fact included or incorporated by reference in the Shelf Registration Statements or the omission or alleged omission to state or incorporate by reference therein any material fact required to be stated therein or necessary in order to make the statements therein not misleading, if such statement or omission was made by Purchaser in reliance upon and in conformity with written information furnished to Purchaser for use or incorporation by reference in such Shelf Registration Statements. 12. CONFIDENTIALITY. After the date hereof, the Stockholder will hold in confidence and not reveal to any third parties any knowledge or information of a confidential nature with respect to the business, products, know-how and methods of operation of the Company, and will not disclose, publish or make use of the same, provided, however, that the foregoing shall not be applicable to any disclosure or use of confidential information or knowledge that can be demonstrated to have (i) been publicly known prior to the date of this Agreement, (ii) become well known by publication or otherwise not due to the unauthorized act or omission on the part of the Stockholder, or (iii) been supplied to the Stockholder by a third party without violation of the rights of the Company or the Purchaser or any other party. The parties agree that the remedy at law for any breach by the Stockholder of this Section 12 shall be inadequate and that the aggrieved party shall be entitled to injunctive relief in addition to any other remedy. 13. EXPENSES. Each party to this Agreement shall pay all of its expenses relating hereto, including legal and accounting fees and disbursements of its counsel, accountants and financial advisors, whether or not the transactions hereunder are consummated. If said transactions are consummated, it is expressly understood that the Stockholder will bear, and will not cause the Company to pay, any legal fees or other expenses incurred by Company in connection with the transactions contemplated by this agreement, as well as the cost of furnishing the audited and reviewed Company Financial Statements referred to in Section 2.4; provided, however, that in the event of any litigation between the parties hereto relating to or arising from this Agreement, the prevailing party in such litigation shall be entitled to payment by the non-prevailing party of all reasonable attorney's fees and costs. 14. NOTICES. Except as otherwise provided herein, all notices, requests, demands and other communications under or in connection with this Agreement shall be in writing, and, (a) if to the Purchaser, shall be addressed to: General Counsel -21- Sylvan Learning Systems, Inc. 1000 Lancaster Street Baltimore, Maryland 21202 with a copy to: Richard C. Tilghman, Jr., Esquire Piper & Marbury 36 South Charles Street Baltimore, Maryland 21201 (b) if to the Company or the Stockholder, shall be addressed to: GEORGE A. PERKINS EDDIE W. MCLAIN 1636 OLD FAYETTEVILLE ROAD 123 HICKORY STREET SYLACAUGA, ALABAMA 35151 CHILDERSBURG, ALABAMA 35044 with a copy to: H. Graham Beene, Esq. c/o Burr and Forman, LLP Suite 300 SouthTrust Tower 420 North 20th Street Birmingham, Alabama 35203 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 -22- any and all prior understandings, written or oral, between the parties, and this Agreement may be amended, modified, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the amendment, modification, waiver, discharge or termination is sought. 16. GENERAL. The paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns, but nothing herein, express or implied, is intended to or shall confer any rights, remedies or benefits upon any person other than the parties hereto. This Agreement may not be assigned by any party hereto. This Agreement shall be construed in accordance with and governed by the laws of the State of Maryland. IN WITNESS WHEREOF, the Purchaser, the Company and the Stockholder have caused this Agreement to be duly executed and their respective seals to be hereunto affixed as of the date first above written. WITNESS: SYLVAN LEARNING SYSTEMS, INC. __________________________ By:_____________________________ Name: O. Steven Jones ___________________________ Title: Vice President __________________________ WITNESS: ALABAMA EDUCATION SYSTEMS, INC. __________________________ By:_____________________________ Name: __________________________ Title: ___________________________ [Corporate Seal] WITNESS: STOCKHOLDER: ___________________________ ___________________________(Seal) George A. Perkins WITNESS: STOCKHOLDER: ___________________________ ___________________________(Seal) Eddie W. McLain -23- SCHEDULE TO AGREEMENT AND PLAN OF REORGANIZATION BETWEEN SYLVAN LEARNING SYSTEMS, INC. Schedule 2.3 - Transactions with Affiliates - None Schedules 2.4 - Material Adverse Changes - None Schedule 2.5 - Taxes - None Schedule 2.6 - Agreements (i) indebtedness for money borrowed: a. Promissory Note dated April 10, 1998 in the original principal sum of $80,000 payable to James Miles. b. Promissory Note dated April 10, 1998 in the original principal sum of $20,000 payable to James Miles. (ii) officer/employee compensation, plans, benefits: a. Deneen Hughes Employment Agreement dated July 14, 1997. b. Vacation and sick leave policies benefits specified in personnel manual. (iii) contracts for purchase of materials, services, etc.: a. Consulting Agreement with James Miles dated April 10, 1998. b. Cooperative advertising agreement with Advertising Accounts, Inc. (iv) contracts not in ordinary course - None (v) contracts containing restrictions on Company's operations - None (vi) real property leases: a. Premises leased: 402 Office Park Drive, Suite G-14, Birmingham, Alabama Square Footage: 2,973 Landlord: Boardwalk Management Corporation Lease Date: March 1, 1997 Expiration Date: February 28, 2002 -24- b. Premises leased: 1301 Center Point Parkway, Suite 202, Birmingham, Alabama Square Footage: ______ Landlord: Parkway Promenade Partners Lease Date: August 21, 1997 Expiration Date: March 31, 2003 c. Premises leased: 3659 Lorna Road, Suite 137, Birmingham, Alabama Square Footage: 1,750 Landlord: Lorna Brook Village, LLC Lease Date: December 15, 1997 Expiration Date: November 30, 2002 (vii) other material contracts - None Schedule 2.7 - Property (i) real property owned or leased - see schedule 2.6(vi) (ii) tangible personal property - None (iii) intellectual property - None Schedule 2.8 - Legal Proceedings - None Schedule 2.9 - Licenses/Permits - None Schedule 2.10 - Bank Accounts: (i) Checking account #01407049602 at National Bank of Commerce Schedule 2.11 - Insurance: (i) American States Insurance Company: Policy Number: 01-WC-304116-20 (Worker's Compensation) Policy Number: 01-CC-121851-3 (Commercial Property/Liability/Automobile) Schedule 2.12 - Employee matters/Plans/Benefits: (i) Health coverage through United Healthcare (HMO) provided for employees: -Stephanie Boykin -Deanna Richardson -Janice Lawless -Sonja Singleton -Kerri Masuen -Sara Ward -Kimberly Nichols -Kathleen Winfrey Schedule 2.13 (ii) - Bonuses paid/Compensation increases since 12/31/98 - None other than regular monthly bonuses paid to staff (iii) - Dividends declared or paid since 12/31/98 - None Schedule 2.20 - Employees holding Sylvan certification: (i) Nancy Brown CD/DE 96/98 2605 (ii) Sara Ward CD 1996 2604 (iii) Stephanie Caddell CD/DE 1999 2604 (iv) Kathleen Winfrey CD/DE 1999 2600 (v) Kimberly Nichols DE 1999 2600 (vi) Daneen Hughes Exec. Director 1999 2600 -25- Schedule 3.1 Stockholders # Shares owned Percentage of shares ------------ -------------- -------------------- George A. Perkins 297 50% Eddie W. McLain 297 50% Schedule 5.1 (c) - (i) the Company's notes and other liabilities not being paid at or prior to Closing - see schedule 2.6(i) (ii) accrued employee compensation, etc. - None Schedule 5.1 (g) - Trade payables and liabilities not paid current through Closing - None EXHIBITS EXHIBIT A - NONCOMPETE AGREEMENT FORM Exhibit B - Mutual Termination and Release Form Exhibit C - Consulting Agreement Form Exhibit D - Call Center Agreement Form -26- EX-4 6 EXHIBIT 4.6 EXHIBIT 4.6 AGREEMENT AND PLAN OF REORGANIZATION AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement"), effective as of April 30, 1999 but dated this 12th day of May, 1999, by and among SYLVAN LEARNING SYSTEMS, INC., a Maryland corporation (the "Purchaser"), The Emerald Coast Corporation, an Alabama corporation (the "Company"), and Southeast Learning Systems, Inc., the sole stockholder of the Company, and George A. Perkins and Eddie W. McLain, the sole and only stockholders of Southeast Learning Systems, Inc. (the said Southeast Learning Systems, Inc., George A. Perkins and Eddie W. McLain, collectively being called herein the "Stockholder," whether one or more). W I T N E S S E T H: The Stockholder owns all the issued and outstanding capital stock of the Company. The Purchaser and the Stockholder wish to enter into an agreement for the acquisition of the Company by the Purchaser through a merger of the Company into the Purchaser in a transaction qualifying as a tax-free reorganization under Section 368(a)(1)(A) of the Code (the "Merger"). The parties agree and acknowledge that for accounting purposes, the Merger is to be treated as a pooling-of-interests. The Purchaser, the Company and the Stockholder wish to enter into a definitive agreement setting forth the terms and conditions of the Merger. Accordingly, in consideration of the foregoing and of the covenants, agreements, representations and warranties hereinafter contained, the Purchaser, the Company and the Stockholder hereby agree as follows: 1. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby represents and warrants to the Company and the Stockholder as follows: 1.1 Organization and Standing. The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland and has the corporate power to carry on its business as it is now being conducted and to own or hold under lease the properties and assets it now owns or holds under lease. Copies of the Charter and By-Laws of the Purchaser have been delivered to the Company, and such copies are complete and correct and in full force and effect on the date of this Agreement. The Purchaser has at all times in the past operated and used its assets in material compliance with, and currently is not in violation of, and has obtained all material licenses and permits required by, any law, rule or regulation. 1.2 Financial Statements. The Purchaser has delivered to the Company copies of the Purchaser's audited consolidated financial statement for the fiscal year ended December 31, 1998. These financial statements are true and complete in all material respects, - 2 - have been prepared in accordance with generally accepted accounting principles ("GAAP") consistently followed throughout the periods covered by such statements (except as may be stated in the explanatory notes to such statements), and present fairly the consolidated financial position and results of operations of the Purchaser at the dates of such statements and for the periods covered thereby. The Purchaser also has delivered to the Company copies of its Annual Report on Form 10-K for the year ended December 31, 1998, and all other reports or documents required to be filed with the Securities and Exchange Commission pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), after the filing of such 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 cancellation, or result in the creation of any lien, charge or encumbrance upon any of its properties or assets, except where such event or occurrence would not, singly or in the aggregate, have a material adverse on the Purchaser. 1.4 Brokers and Advisors. The Purchaser has taken no action which would give rise to a valid claim against any party hereto for a brokerage commission, finder's fee, counseling or advisory fee, or like payment. 1.5 Authority. The execution, delivery and performance of this Agreement by the Purchaser have been duly authorized by its Board of Directors, and this Agreement is a valid, legally binding and enforceable obligation of the Purchaser. Upon the satisfaction of all conditions contained herein and the filing of Articles of Merger with the Maryland State Department of Assessments and Taxation and the Alabama Secretary of State, this Agreement will result in the valid, legally binding and enforceable statutory merger of the Company and the Purchaser. The Purchaser warrants and represents that the approval of this Agreement by its shareholders is not required. 1.6 Validity of Common Stock. The shares of Purchaser's Common Stock to be issued and delivered by the Purchaser in connection with the Merger have been duly authorized for issuance and will, when issued and delivered as provided in this Agreement, be duly and validly issued, fully paid and non-assessable. 1.7 Tax-Free Reorganization. The Purchaser is not aware of any events or conditions relating to the Purchaser which would preclude the Company or the Stockholder from treating the Merger as a tax-free reorganization under Section 368(a)(1)(A) of the Code. - 3 - 1.8 Registration Statement on Form S-3. As of the date hereof, the Purchaser is aware of no events, actions or conditions which would prevent the Purchaser from being able to comply with the provisions of Section 11.1 of this Agreement, and will use its best efforts to comply, and to continue to be eligible to comply, with the provisions of Section 11.1. 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SOLE STOCKHOLDER. The Company and the Stockholder hereby jointly and severally represent and warrant to the Purchaser as follows: 2.1 Authorized and Issued Shares. The Company's entire authorized capital stock consists of 10,000 shares of Common Stock, $0.10 par value per share (the "Company Common Stock"), of which 1500 shares are issued and outstanding. 3,500 shares of Company Common Stock are held in the Company's treasury; no shares are reserved for issuance. All outstanding shares of Company Common Stock have been duly authorized and are validly issued and are fully paid and non-assessable and are owned by the Stockholder. The Company is not a party to or bound by any options, calls, contracts, preemptive rights or commitments of any character relating to any issued or unissued capital stock, or any other equity security issued or to be issued by the Company. 2.2 Organization. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Alabama 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. 2.3 Transactions with Affiliates. Except as set forth in Section 2.3 of the disclosure schedule delivered to the Purchaser pursuant to this Agreement (the "Disclosure Schedule") or in the Company Financial Statements (as hereinafter defined), the Company is not a party to any contract, agreement or other arrangement with any current or former officer, director or stockholder or any affiliate of any such persons. Each transaction required to be listed on the Disclosure Schedule is on terms no less favorable than terms available from unrelated parties. - 4 - 2.4 Financial Statements. The Company has provided to the Purchaser the unaudited financial statements of the Company for the twelve months ended on June 30, 1998, which have been prepared on an accrual basis, but excluding accrual related income tax adjustments (collectively, the "Company Financial Statements"). The Company Financial Statements are complete and correct, have been prepared on a consistent basis throughout the periods covered thereby and present fairly and accurately the financial position and results of operations of the Company as of and for the periods indicated. There are no material liabilities or obligations of the Company, whether contingent or absolute, as of the dates of such statements, including liability for taxes of any type, which in accordance with GAAP consistently applied should have been shown or provided for in the Company Financial Statements and are not so shown or provided for. Since June 30, 1998, there has been no material adverse change in the condition (financial or otherwise), assets, liabilities, earnings, net worth, financial position, business, operations, properties or prospects of the Company except as shown on Schedule 2.4 of Disclosure Schedule. The Company's accounts receivable arose, and all accounts receivable that will be outstanding as of the Closing Date shall have arisen, from bona fide transactions in the ordinary course of business and will be collectible by the Company in full, less applicable reserves shown in the Company Financial Statements, in the ordinary course of business within ninety days of the Closing Date, and there are no offsets or claims related to such accounts receivable. 2.5 Taxes. The Company and the Stockholder have properly prepared and filed all federal, state and other tax returns required to be filed in connection with the operations of the Company. True and complete copies of all federal and state income tax returns for the Company and the Stockholder for each of the years ended June 30, 1997 through June 30, 1998 have been delivered or made available to the Purchaser on or prior to the date hereof and copies of other returns will be made available upon request. Except as set forth on Section 2.5 of the Disclosure Schedule or in the Company Financial Statements, neither the Company nor the Stockholder, to the best knowledge of the Stockholder, has any liability for any federal, state, county, local or other taxes whatsoever that arose or otherwise was incurred on or before the date of the balance sheet for 1998 included in the Company Financial Statements. To the best knowledge of the Stockholder, no proposed taxes, additions to tax, interest or penalties have been asserted or are pending against the Company or the Stockholder with respect to periods ending on or before Closing, and no such matters are under discussion with the applicable authorities. There are no agreements, waivers, or other arrangements providing for extensions of time with respect to the assessment or collection of any unpaid tax against the Company or the Stockholder. The Company and the Stockholder have withheld or otherwise collected all taxes or amounts it or she 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 - 2.6 Agreements. Section 2.6 of the Disclosure Schedule identifies each of the following agreements, contracts, documents and other items (whether written or oral) as to which the Company is a party or otherwise is bound (and all such contracts, or summaries thereof, have been made available to the Purchaser): (i) all documents relating to indebtedness for money borrowed or collateral therefor, including guarantees; (ii) all agreements or plans relating to employment, compensation of or benefits for officers or employees of the Company; (iii) all contracts for the purchase of materials, supplies, services, merchandise or equipment involving consideration of more than $2,000 or involving purchases in excess of normal operating requirements; (iv) any contract, agreement, or instrument not entered into in the ordinary course of the business of the Company on a basis consistent with past practice; (v) any contract containing restrictions on the Company's operations or its ability to compete in any geographic region or in any line of business; (vi) any lease of real property and all personal property leases calling for annual lease payments in excess of $2,000; and (vii) each and every other contract which is material to the financial condition, earnings, operation or business of the Company. Each of the contracts and agreements so listed (collectively, the "Contracts") is a valid and existing contract or agreement in full force and effect and there exists no default by the Company thereunder. None of the Contracts will be violated or breached and no default or right of termination or modification shall arise thereunder as a result of the consummation of the transactions contemplated by this Agreement. 2.7 Property. Section 2.7 of the Disclosure Schedule sets forth a schedule (the "Property Schedule") of (i) all real property owned or leased by the Company (the "Real Property"), (ii) all individual items of tangible personal property and assets (other than inventory) of the Company having a fair market value in excess of $2,000, and (iii) all patents, trademarks, trade names, service marks, trade secrets, copyrights, franchise rights or applications therefor which are held, used, prepared in connection with or otherwise related to the conduct of the business of the Company. Except as set forth in the Disclosure Schedule, the Company has good and marketable title to all of such property and assets owned by it, free of any pledge, mortgage, lien, lease, security agreement, encumbrance, charge or claim of any nature whatsoever. The machinery and equipment of the Company are, in all material respects, in good operating condition and repair, ordinary wear and tear excepted. To the Company's knowledge, the Company is not infringing on any patent, trademark, trade name, service mark, trade secret or copyright of another entity and has received no notice or claim of any such infringement. 2.8 Legal Proceedings, Etc. Except as set forth in Section 2.8 of the Disclosure Schedule, there are no legal, administrative, arbitration, or other proceedings or governmental investigations pending or, to the best of the Company's and the Stockholder's knowledge, threatened against the Company, the Stockholder or the respective properties or assets of the Company and the Stockholder. - 6 - 2.9 Compliance; Licenses. The Company has at all times in the past operated and used its assets in material compliance with, and currently is not in violation of, and has obtained all material licenses and permits required by, any law, rule or regulation. Section 2.9 of the Disclosure Schedule contains a true and complete list of all material licenses, permits, approvals, franchises and other authorizations as are necessary in order to enable the Company to own and conduct its business. 2.10 Bank Accounts, etc. Section 2.10 of the Disclosure Schedule sets forth a true and complete list of all bank accounts, safe deposit boxes and lock boxes of the Company including, with respect to each such account and lock box identification of all authorized signatories. 2.11 Insurance. Section 2.11 of the Disclosure Schedule sets forth a summary of all general liability, product liability, fire, casualty, motor vehicle and other insurance currently maintained by or on behalf of the Company. All requirements and provisions thereof are being complied with. True and correct copies of all insurance policies relating to such coverage have been provided by the Company to the Purchaser. No notice of cancellation has been given to or received by the Company with respect to any of its insurance policies, and no such policies are subject to any retroactive rate or audit adjustments or coinsurance arrangements. 2.12 Employee Plans. Except as set forth in Section 2.12 of the Disclosure Schedule, the Company does not maintain, sponsor or contribute to any plans in effect for pension, profit-sharing, deferred compensation, severance pay, bonuses, stock options, stock purchases, or any other retirement or deferred benefit, or for any health, accident or other welfare plan, or any other employee or retired employee benefits or incentive plan, program, contract, understanding or arrangement in which any employee, former employee, retired employee, or beneficiary of any of these, of the Company is entitled to participate. The plans, programs, contracts, understandings and arrangements listed on the Disclosure Schedule pursuant to this Section 2.12 are hereinafter referred to as the "Employee Plans." The Company has supplied the Purchaser with complete and accurate copies of each such Employee Plan. Each Employee Plan has been operated according to its terms in compliance with all applicable laws. 2.13 Recent Operations; Employee Matters. Since December 31, 1998, (i) the Company has operated its business substantially as it was operated immediately prior to said date and only in the ordinary course, and the Company and the Stockholder have used their best efforts to preserve intact the Company's business relationships, (ii) there have been no bonuses paid to or increases in the compensation of officers or employees, except as set forth in Section 2.13(ii) of the Disclosure Schedule, and (iii) except as set forth in Section 2.13(iii) of the Disclosure Schedule, the Company has not declared or paid any dividend or made any other distribution with respect to its capital stock. - 7 - 2.14 Stockholder Distributions. No dividends or distributions were declared and/or paid to the Stockholder (whether in cash or other assets) after June 30, 1998 through the date hereof (the "1999 Period"). 2.15 Environmental Matters. To the best of Company's knowledge, no storage tanks, underground or otherwise, are now located on any properties occupied by the Company, the Company has complied in all material respects with all environmental laws relating to its operations or properties occupied by it and there are no asbestos containing materials located on properties occupied by the Company. The Company has not received any notice, demand, suit or information request pursuant to the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") or any comparable state law, nor does it have knowledge of any other party's receipt of same relating to any properties occupied by the Company. 2.16 Disclosure. The Company and the Stockholder have to their best knowledge 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 to the best knowledge of the Stockholder, no such items contain any untrue statement of a material fact or omit a material fact necessary in order to make the statements contained herein and therein not misleading. 2.17 No Conflict With Other Documents. Neither the execution and delivery of this Agreement, nor the carrying out of any of the transactions contemplated hereby, will result in any violation, termination or modification of, or be in conflict with, the Company's Articles of Incorporation or By-Laws, any terms of any contract, instrument or other agreement to which the Company is a party or by which it or any of its properties is bound or affected, or any law, rule, regulation, license, permit, judgment, decree or order applicable to the Company or by which any of its properties or assets are bound or affected, or result in any breach of or constitute a default (or with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation, or result in the creation of any lien, charge or encumbrance upon any of its properties or assets, except where such event or occurrence would not, singly or in the aggregate, have a material adverse effect on the Company. 2.18 Brokers and Advisors. The Company has taken no action which would give rise to a valid claim against any party hereto for a brokerage commission, finder's fee, counseling or advisory fee, or like payment. - 8 - 2.19 Authority. The execution, delivery and performance of this Agreement by the Company have been duly authorized by the sole Director and the Stockholder, and this Agreement is a valid and legally binding and enforceable obligation of the Company. Upon the satisfaction of all conditions contained herein and the filing of the Articles of Merger with the Maryland State Department of Assessments and Taxation and the Alabama Secretary of State, this Agreement will result in the valid, legally binding and enforceable statutory merger of the Company and the Purchaser. 2.23 Employees Holding Sylvan Certification. Section 2.20 of the Disclosure Schedule sets forth the names of all those employees of the Company who have ever been trained or certified by Purchaser, and the particular certification held by each and when issued. 3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The Stockholder hereby represents and warrants to the Purchaser as follows: 3.1 Ownership of Company Common Stock. Such Stockholder has good and marketable title to the number of issued and outstanding shares of Company Common Stock set forth opposite his or her name on Section 3.1 of the Disclosure Schedule, free and clear of any pledges, liens, restrictions, claims or encumbrances of any kind. Such Stockholder is not a party to or bound by any options, calls, contracts, or commitments of any character relating to any issued or unissued stock or any other equity security issued or to be issued by the Company. 3.2 No Conflicts. Neither the execution and delivery of this Agreement nor the carrying out of the transactions contemplated hereby, will result in any breach of or constitute a default (or with notice or lapse of time or both would become a default), or give to others any rights, under the terms of any contract, instrument or other agreement to which such Stockholder is a party or is otherwise bound, or any judgment, decree or order applicable to such Stockholder. 3.3 Binding Effect. This Agreement is a valid and legally binding and enforceable obligation of the Stockholder. 3.4 Litigation. There is no litigation, proceeding or governmental investigation pending as to which Stockholder has been served with process or summons, or to the best of Stockholder's knowledge, threatened or in prospect against or relating to such Stockholder or the shares of Company Common Stock owned by him or her or the transactions contemplated by this Agreement. 3.5 Brokers and Advisors. Such Stockholder has taken no action which would give rise to a valid claim against any party hereto for a brokerage commission, finder's fee, counseling or advisory fee, or like payment. - 9 - 3.6 Investment Intent. It is understood that the shares of Purchaser Common Stock to be delivered to the Stockholder pursuant to this Agreement are not being registered, for purposes of the transactions hereunder, under the Securities Act of 1933, as amended (the "Securities Act") or any state securities laws, and the shares are being delivered without registration in reliance upon an exemption from the registration requirements of the Securities Act or any state securities laws. The Stockholder is acquiring the Purchaser Common Stock hereunder only for his own account and not with any intention of making, or with a view to, or for sale in connection with, any distribution thereof within the meaning of the Securities Act unless such shares first are registered under the Securities Act. In connection with the foregoing, each Stockholder hereby represents and warrants that: (a) such Stockholder has reviewed, discussed and evaluated the information delivered under Section 1.2 and has had the opportunity to ask questions of, and receive answers from, executive officers of the Purchaser concerning the terms and conditions of this Agreement and to obtain any additional information which such Stockholder considered necessary to verify the accuracy of the information delivered under Section 1.2; (b) such Stockholder understands that he or she must bear the economic risks of the investment in Purchaser Common Stock to be made hereunder for an indefinite period of time because such stock has not been registered under the Securities Act and, therefore, may not be sold until such stock subsequently is registered under the Securities Act or an exemption from registration is available; and (e) 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; and (f) such Stockholder understands that notwithstanding the registration for sale under the Securities Act of the Purchaser Common Stock, such Stockholder cannot sell such stock until after the date on which the Purchaser has reported financial statements in a quarterly report on Form 10-Q that include at least 30 days of operating results subsequent to the Effective Closing Date. 3.7 Legends. It is understood and agreed that, to implement the requirements of the Securities Act and state securities laws and evidence the restrictions upon transfer contained in this Agreement, the Purchaser will cause a legend to be conspicuously noted on the certificates representing the Purchaser Common Stock deliverable hereunder, and that the Purchaser will issue stop transfer instructions to its transfer agent, to the effect that such stock has not been registered under the Securities Act and that no transfer may take place except as permitted by Section 11 of this Agreement and after delivery of an opinion of Purchaser's counsel to the effect that registration thereof for the purpose of transfer is not required under the Securities Act or that the stock proposed to be transferred has been effectively registered for that purpose under the Securities Act. - 10 - 3.14 No Agreements with Respect to Purchaser Common Stock. Except for this Agreement, Stockholder has not entered into any agreement or understanding with anyone for the sale, at Stockholder's option or otherwise, of any of the Purchaser Common Stock to be delivered hereunder to Stockholder at the Closing. 3.15 Preparation of Final Tax Returns. The Stockholder will cause to be prepared, and timely filed with the appropriate authorities, any and all tax returns for the Company for the tax period ending April 30, 1999, and pay any tax liability due thereunder that is not covered by any credits or tax deposits to which the Company may be entitled as of April 30, 1999. 4. COVENANTS OF THE PURCHASER. The Purchaser covenants to the Company and the Stockholder that, except as otherwise consented to in writing by the Company after the date of this Agreement: 4.4 Stock Reservation. Between the date hereof and the Closing Date, the Purchaser will keep available and reserve a sufficient number of shares of Purchaser Common Stock for issuance and delivery to the Stockholder as contemplated in this Agreement. 4.2 Cause Conditions to be Satisfied. The Purchaser will use its best efforts to cause all of the conditions described in Sections 8 of this Agreement to be satisfied (to the extent such matters reasonably are within its control). 4.3 Registration Statement on Form S-3. The Purchaser will use its best efforts to meet the requirements for eligibility set forth in paragraph A. of the General Instructions to Form S-3, as promulgated by the U.S. Securities and Exchange Commission in fulfilling its obligations under Section 11 hereof. 4.4 Consents. The Purchaser agrees to take all necessary corporate or other action and to use best efforts to obtain all consents and approvals required for consummation of the transactions contemplated by this Agreement. 4.5 Tax-Free Reorganization. The Purchaser recognizes that the Company and the Stockholder desire to treat the Merger as a tax-free reorganization under Section 368(a)(1)(A) of the Code and will use its best efforts to cooperate with the Company and the Stockholder in this regard. The Purchaser will take no actions which would disqualify the transaction from being treated as a pooling of interests under applicable accounting rules and the Code. - 11 - 5. COVENANTS OF THE COMPANY AND THE STOCKHOLDER. The Company and the Stockholder jointly and severally covenant to the Purchaser that, except as otherwise consented to in writing by the Purchaser after the date of this Agreement: 5.1 Conduct of Business. After the date hereof and through the date of the Closing, with respect to the Company (a) its business will be conducted only in the ordinary course; (b) it will terminate each of its Employee Plans and will not enter into, adopt or amend any employee benefit plan, agreement or arrangement, enter into or amend any employment contracts, or increase the salaries or compensation of its officers or employees, other than ordinary increases in salaries in accordance with past practices; (c) it shall pay in full all liabilities outstanding on the date hereof except for (i) those balances owed to the holders of the Company's notes and other liabilities as shown in Section 5.1(c) of the Disclosure Schedule, and (ii) accrued employee compensation, leave and benefits and the taxes thereon as shown in Section 5.1 (c) of the Disclosure Schedule (all of which liabilities and balances shown in Section 5.1(c) shall, by virtue of the merger, become liabilities of the Purchaser); and (d) it shall not incur any additional liability for borrowed money, or encumber any of its assets; (e) all outstanding loans payable by the Company to the Stockholder or receivable by the Company from the Stockholder or any employee shall be repaid in full by the appropriate party; (f) its current assets at all times will exceed all of its liabilities; (g) except as shown in Sec 5.1(g) of the Disclosure Schedule, all trade payables and liabilities and obligations payable in installments shall be current; (h) it will use its best efforts to preserve its business organization intact, to keep available the service of its officers and employees and to preserve the goodwill of suppliers, customers and others doing business with it; (i) it will not enter into any agreement for the purchase, sale or other disposition, or purchase, sell or dispose of, any equipment, supplies, inventory, investments or other assets (other than sales of inventory and purchases of materials and supplies in the ordinary course of business and in accordance with past practices); (j) it will not compromise or write off any material account receivable other than by collection of the full recorded amount thereof; (k) no change shall be made in its Charter or By-Laws; (l) no change shall be made in the number of shares or terms of its authorized, issued or outstanding capital stock, nor shall it enter into or grant any options, calls, contracts or commitments of any character relating to any issued or unissued capital stock; (m) no dividend or other distribution or payment shall be declared or paid in respect of its capital stock; and (n) no bonus or additional compensation in excess of normal salary shall be paid to or declared for the benefit of any Stockholder. 5.2 Consents. The Company and the Stockholder agree to take all necessary corporate or other action and to use their best efforts to obtain all consents and approvals required for consummation of the transactions contemplated by this Agreement. 5.3 Restated Financial Statements. The Stockholder will cause the Company to deliver to Purchaser the Company's financial statements for the fiscal year ended June 30, 1998 and for the ten month period ended April 30, 1999 as soon as practicable after the execution of this Agreement, but in no event later than May 12, 1999. Said statements shall be prepared to reflect the business operations of the Company on an accrual basis in accordance with GAAP. - 12 - 5.4 Cause Conditions to Be Satisfied. The Company and the Stockholder will use their best efforts to cause all of the conditions described in Sections 7 and 8 of this Agreement to be satisfied (to the extent such matters reasonably are within their control). 5.5 Tax-Free Reorganization. The Company and the Stockholder recognize that the Purchaser desires to treat the Merger as a tax-free reorganization under Section 368(a)(1)(A) of the Code and will use best efforts to cooperate with the Purchaser in this regard. The Company and the Stockholder will take no actions which would disqualify the transaction from being treated as a pooling of interests under applicable accounting rules and the Code. 9. MERGER OF PURCHASER AND THE COMPANY. Subject to the terms and conditions of this Agreement, the Purchaser and the Company agree to effect the following transactions at the Closing: 6.1 Conditions. The Purchaser and the Company will deliver to the other appropriate evidence of the satisfaction of the conditions to their respective obligations hereunder. 6.2 Merger. At the Closing, the Company will be merged with and into the Purchaser pursuant to the provisions and with the effect provided in the general corporation laws of the States of Maryland and Alabama. The parties shall prepare and execute appropriate merger documents under the corporate laws of Maryland and Alabama, containing the terms provided in this Agreement, including a Certificate and Articles of Merger which shall be filed with the Maryland State Department of Assessments and Taxation and with the Alabama Secretary of State on the Effective Closing Date, or immediately thereafter. The Purchaser shall be the surviving corporation in the Merger. Each of Purchaser, the Company and the Stockholder do acknowledge that in executing this Agreement, they do respectively adopt same as the plan of merger and reorganization for Purchaser and the Company. - 13 - 6.3 Conversion Amount; Conversion of the Company Shares. As a result of the Merger and without any action by the holders thereof, all of the shares of Company Common Stock issued and outstanding immediately prior to the Merger and all rights in respect thereof, shall be converted into that number shares of Purchaser Common Stock having a market value of $175,000.00, or such other amount as the Purchaser and Stockholder shall mutually agree to in writing at or prior to the Closing (the "Conversion Amount"). As a result of such conversion, the Stockholder will receive the number of shares of Purchaser Common Stock to be issued pursuant to the Merger, rounded to the nearest whole share. In order to effect such conversion, (i) the Stockholder will deliver to the Purchaser at the Closing certificates in due and proper form representing the shares of Company Common Stock owned by such Stockholder, duly endorsed or accompanied by duly executed stock powers, and (ii) the Purchaser shall deliver to the Stockholder a certificate, in due and proper form, representing the number of shares of Purchaser Common Stock to which such Stockholder is entitled. Each share of Purchaser Common Stock issued pursuant to the Merger shall be fully paid and non-assessable. For purposes of the foregoing, the market value of the Purchaser Common Stock shall equal the average of the closing prices reported by Commodity Systems, Inc. in Yahoo! Finance/Historical Quotes for each of the fifteen (15) consecutive trading days ended and including Tuesday, May 11, 1999. 6.4. Closing. The closing (the "Closing") of the transactions contemplated by this Agreement shall take place at the offices of the stockholder's attorneys in Birmingham, Alabama, beginning at 9 a.m. on May 12, 1999, or at such other time and place as may be agreed upon in writing by the Purchaser and the Stockholder (the "Closing Date"). The closing shall be effective as of the close of business on April 30, 1999 (the "Effective Closing Date"). 7. CONDITIONS TO THE PURCHASER'S OBLIGATIONS. Unless waived by the Purchaser in writing in its sole discretion, all obligations of the Purchaser under this Agreement are subject to the fulfillment, prior to or at the Closing, of each of the following conditions: 7.1. Approvals of Governmental Authorities. All governmental approvals necessary or advisable in the reasonable opinion of the Purchaser's counsel to consummate the transactions contemplated by this Agreement shall have been received and shall not contain any provision which, in the reasonable judgment of the Purchaser, is unduly burdensome. 7.2 No Adverse Proceedings or Events. No suit, action or other proceeding against the Company or the Purchaser, or their respective officers or directors, or either of the Stockholder, shall be threatened or pending before any court or governmental agency in which it will be, or it is, sought to restrain or prohibit any of the transactions contemplated by this Agreement or to obtain damages or other relief in connection with this Agreement or the transactions contemplated hereby. 7.3. Consents and Actions; Contracts. All requisite consents of any third parties and other actions which the Company has covenanted to use its best efforts to obtain and take under Section 5.2 hereof shall have been obtained and completed. All material contracts and agreements of the Company, including, without limitation, all contracts and agreements listed on Section 2.6 of the Disclosure Schedule, shall be in full force and effect and shall not be affected by the consummation of the transactions contemplated hereby. - 14 - 7.4 Other Evidence. The Purchaser shall have received from the Company and the Stockholder such further certificates and documents evidencing due action in accordance with this Agreement, including certified copies of proceedings of the Board of Directors and stockholders of the Company, as the Purchaser reasonably shall request. 7.5 Current Financial Statements and Projections. The Stockholder shall have provided, or caused the Company to have provided to Purchaser the financial statements of the Company for the fiscal year ended June 30, 1998 showing a recurring EBIT of at least $40,000.00 for such year. Such financial statements shall be prepared on an accrual basis, in accordance with GAAP. "EBIT" means the Company's net recurring revenues minus all of its recurring expense items (excluding any extraordinary and non-recurring items) and depreciation and amortization, but excluding interest and taxes. 7.6 Resignation of Officers and Directors. Each and every officer and director of the Company shall have resigned from any and all positions with the Company as director, officer or employee effective as of immediately prior to the Effective Closing Date. 7.7 Non-compete Agreement. The Purchaser and Stockholders shall have entered into a Non-compete Agreement in substantially the form of Exhibit A attached hereto. 7.8 Secretary's Certificate. The Company and the Stockholder shall have delivered to Purchaser such proper and duly executed Consents, Resolutions and Secretary's Certificates, as appropriate, evidencing the approval of this Agreement and the Merger by the Company's directors and stockholders, as required by law. 7.9 Termination of Sylvan License Agreements #2607 and 2609. The Purchaser and the Company and the Stockholder shall have entered into a Mutual Termination and Release, in substantially the same form shown in Exhibit B attached hereto, covering Sylvan License Agreements #2607 and 2609. 7.13 Consulting Agreement. The Purchaser and each of George A. Perkins and Eddie W. McLain shall have entered into a Consulting Agreement in substantially the same form of Exhibit C attached hereto. 7.14 Call Center Agreement. The Purchaser and George A. Perkins shall have entered into a Call Center Agreement in substantially the same form shown in Exhibit D attached hereto, covering Sylvan Learning Centers #614, 615, 3012, and 3013. - 15 - 8. CONDITIONS TO THE COMPANY'S AND THE STOCKHOLDER'S OBLIGATIONS. Unless waived by the Company and the Stockholder, all obligations of the Company and the Stockholder under this Agreement are subject to the fulfillment, prior to or at the Closing, of each of the following conditions: 8.1. No Adverse Proceedings or Events. No suit, action or other proceeding against the Company or the Purchaser, or their respective officers or directors, or the Stockholder, shall be threatened or pending before any court or governmental agency in which it will be, or it is, sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the transactions contemplated hereby. 8.2. Consents and Actions. All requisite consents of any third parties and other actions which the Purchaser has covenanted to use its best efforts to obtain and take under Section 4.4 of this Agreement shall have been obtained and completed. 8.6. Other Evidence. The Company and the Stockholder shall have received from the Purchaser such further certificates and documents evidencing due action in accordance with this Agreement, including certified copies of proceedings of the Board of Directors of the Purchaser, as the Company and the Stockholder reasonably shall request. 8.8 Secretary's Certificate. The Purchaser shall have delivered to the Stockholder such proper and duly executed Secretary's Certificates, as appropriate, evidencing the approval of this Agreement and the Merger by the Purchaser's directors, as required by law. 8.5 Termination of Sylvan License Agreements #2607 and 2609. The Purchaser and the Company and the Stockholder shall have entered into a Mutual Termination and Release, in substantially the same form shown in Exhibit B attached hereto, covering Sylvan License Agreements #2607 and 2609. 8.6 Consulting Agreement. The Purchaser and each of George A. Perkins and Eddie W. McLain shall have entered into a Consulting Agreement in substantially the same form of Exhibit C attached hereto. 8.7 Call Center Agreement. The Purchaser and George A. Perkins shall have entered into a Call Center Agreement in substantially the same form shown in Exhibit D attached hereto, covering Sylvan Learning Centers #614, 615, 3012, and 3013. - 16 - 9. INDEMNIFICATION. 9.1. Indemnification by the Stockholder. The Stockholder hereby covenants and agrees to indemnify and hold harmless the Purchaser and its respective successors and assigns, at all times from and after the date of Effective Closing Date against and in respect of the following: (i) any damage or loss resulting from any misrepresentation, breach of representation or warranty or breach or non-fulfillment of any agreement or covenant on the part of the Company or the Stockholder under this Agreement, or from any inaccuracy or misrepresentation in or omission from any certificate or other instrument or document furnished or to be furnished by the Company or the Stockholder hereunder; (ii) any liabilities or obligations of the Company or the Stockholder for federal, state or local income tax or, to the extent not accrued or reflected in the Financial Statements, any personal property, FICA, withholding, excise, unemployment, sales or franchise taxes arising from operations of the Company prior to the Effective Closing Date except as shown in Schedule 5.1(c) and 5.1(g) of the Disclosure Schedule. (iii) all claims, actions, suits, proceedings, demands, assessments, judgments, costs, reasonable attorneys' fees and expenses of any nature incident to any of the matters indemnified against pursuant to this Section 9.1, including, without limitation, all such costs and expenses incurred in the defense thereof or in the enforcement of any rights of the Purchaser hereunder. 9.2. Notice and Defense. The Purchaser shall notify the Stockholder of any asserted liability, damage, loss or expense claimed to give rise to indemnification hereunder and the Stockholder shall have an initial right to defend, compromise and settle such matter provided that the Purchaser is fully protected from any liability, loss damage, cost or expense in connection therewith. Within ten (10) days of receipt of such notice, Stockholder shall respond in writing as to whether Stockholder will engage counsel at Stockholder's expense to defend the claim. If Stockholder does not respond, or affirmatively declines to defend the claim or disputes its obligation to indemnify, the Purchaser shall then have, at its election, the right to compromise or defend any such matter at the Stockholder's sole cost and expense through counsel chosen by the Purchaser and reasonably acceptable to the Stockholder; provided, however, that any such compromise or defense shall be conducted in a manner which is reasonable and the Stockholder shall in all events have a right to veto any such compromise or defense which might increase the potential liability of, or create a new liability for, the Stockholder (other than under Section 9.1). Each party agrees in all cases to cooperate with the defending party and its or his counsel in the - 17 - compromise of or defending of any such liabilities or claims. In addition, the non-defending party shall at all times be entitled to monitor such defense through the appointment, at its or his own cost and expense, of advisory counsel of its own choosing. As to any claim paid by the Purchaser for which the Stockholder has indemnity liability under this Section 9, and which the Stockholder does not reimburse Purchaser within five (5) days following demand for reimbursement by Purchaser, Purchaser may, in addition to any other remedies, (if such Stockholder is then an employee of Purchaser) offset the amount of the Stockholder's liability on the claim paid against any compensation payable to the Stockholder. 9.3. Indemnification by the Purchaser. From and after the Closing Date, the Purchaser hereby covenants and agrees to indemnify and hold harmless the Stockholder against and in respect of the following: (i) any liability, loss, damage or expense resulting from any misrepresentation, breach of warranty or non-fulfillment of any agreement or covenant on the part of Purchaser under this Agreement, or from any misrepresentation in or omission from any certificate or other instrument or document furnished or to be furnished by the Purchaser hereunder; and (ii) all claims, actions, suits, proceedings, demands, assessments, judgments, costs, reasonable attorneys' fees and expenses of any nature incident to any of the matters indemnified against pursuant to this Section 9.3, including without limitation, all such costs and expenses incurred in the defense thereof or in the enforcement of any rights of the Stockholder hereunder. The Stockholder shall notify the Purchaser of any asserted liability, damage, loss or expense claimed to give rise to indemnification hereunder and thereafter the Purchaser shall have the right to defend, compromise and settle such matter provided that the Stockholder is fully protected from any cost or expense in connection therewith. Within ten (10) days of receipt of such notice, Purchaser shall respond in writing as to whether Purchaser will engage counsel at Purchasher's expense to defend the claim. If Purchaser does not respond, or affirmatively declines to defend the claim or disputes its obligation to indemnify, the Shareholder shall then have, at its election, the right to compromise or defend any such matter at the Purchaser's sole cost and expense through counsel chosen by the Shareholder and reasonably acceptable to the Purchaser; provided, however, that any such compromise or defense shall be conducted in a manner which is reasonable and the Purchaser shall in all events have a right to veto any such compromise or defense which might increase the potential liability of, or create a new liability for, the Purchaser (other than under Section 9.3). Each party agrees in all cases to cooperate with the defending party and its or his counsel in the compromise of or defending of any such liabilities or claims. In addition, the non-defending party shall at all times be entitled to monitor such defense through the appointment, at its or his own cost and expense, of advisory counsel of its own choosing. - 18 - 10. SURVIVAL; LIMITATIONS. 10.4 Survival. The representations, warranties and agreements made by the parties in this Agreement and in any other certificates and documents delivered in connection herewith, including the indemnification obligations of the Stockholder and Purchaser set forth in Section 9 hereof, shall survive the Closing under this Agreement regardless of any investigation made by the party making claim hereunder, except that, subject to the provisions of the next sentence, neither the Purchaser, on the one hand, nor the Stockholder, on the other, shall have any liability with respect to any matter if notice of a claim has not been provided on or prior to April 30, 2001. Notwithstanding the foregoing, (i) any indemnification obligations of the Stockholder relating to federal, state or local tax matters or environmental matters of any sort shall continue in full force and effect without limitation until expiration of the statute of limitations applicable to such tax or environmental matters, (ii) the representation and warranty contained in Sections 2.1, 2.2 or 3.1 and any indemnification obligations of the Stockholder in connection therewith shall continue in full force and effect until expiration of the statute of limitations applicable thereto, (iii) any claims, actions or suits the Purchaser, on the one hand, or the Company or the Stockholder, on the other hand, may have which arises from any fraud or willful misconduct on the part of the Stockholder or the Company, or any representative of either, on the one hand, and the Purchaser or any representative of it, on the other hand, shall continue in full force and effect without limitation until expiration of the statute of limitations applicable thereto. 10.2 Limitations. No indemnified party shall be entitled to indemnification hereunder until such time as a single loss or an aggregate of several losses equals Five Thousand Dollars ($5,000), 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 $5,000; and in no event shall any party to this Agreement be entitled to indemnification for a single loss or an aggregate of several losses which exceeds the Conversion Amount. 11. REGISTRATION RIGHTS. - 19 - 11.1 Registration Procedures and Expenses. Purchaser shall: (a) as soon as practicable after the closing date but in no event later than ninety (90) days after the closing date, prepare and file with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 which meets the requirements of Rule 415 promulgated under the Securities Act (a "Shelf Registration Statement") covering the sale by the Stockholder from time to time of all of the shares of the Purchaser Common Stock received by the Stockholder in the Merger. The foregoing notwithstanding, Purchaser shall have no obligation to file a Shelf Registration Statement or to maintain the effectiveness of any previously filed Shelf Registration Statement if the sale of the Purchaser Common Stock pursuant to exemption from registration under Rule 144 is available to the Stockholder. Further, the Purchaser may extend its obligation to file a registration statement if the Purchaser advises the Stockholder that there is a pending, but unannounced transaction or development which Purchaser determines is not then appropriate for disclosure, and that registration of the Purchaser Common Stock would require such disclosure. (b) use its best efforts, subject to receipt of necessary information from the Stockholder, to cause each of the Shelf Registration Statements to become effective; (c) prepare and file with the Commission such amendments and supplements to the Shelf Registration Statements and the prospectus used in connection therewith as may be necessary to keep the Shelf Registration Statements effective until the earlier of the date on which the Purchaser Common Stock registered by such Shelf Registration Statement has been sold, or one year from the date of the initial filing thereof; (d) during the period referred to in (c) above, prepare and promptly file with the Commission, and promptly notify the Stockholder of the filing of, such amendment or supplement to each such Shelf Registration Statement and the prospectus as may be necessary to correct any statements or omissions if, at any time when a prospectus relating to the Purchaser Common Stock is required to be delivered under the Securities Act, any event has occurred the result of which is that any such prospectus then in effect would include or incorporate an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances in which they were made; - 20 - (e) advise the Stockholder, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of any of such Shelf Registration Statements or the initiation or threatening of any proceeding for that purpose and promptly use its diligent best efforts to prevent the issuance of any stop order and to obtain its withdrawal if such stop order should be issued; (f) furnish to the Stockholder with respect to the Purchaser Common Stock registered under any of the Shelf Registration Statements such number of copies of prospectuses and preliminary prospectuses in conformity with the requirements of the Securities Act and such other documents as the Stockholder may reasonably request (but in no event more than 100 copies), in order to facilitate the public sale or other disposition of all or any of the registered Purchaser Common Stock by the Stockholder; provided, however, that the obligation of Purchaser to deliver copies of prospectuses or preliminary prospectuses to the Stockholder shall be subject to the receipt by Purchaser of reasonable assurances from the Stockholder that the Stockholder will comply with the applicable provisions of the Securities Act and of such other securities or blue sky laws as may be applicable in connection with any use of such prospectuses or preliminary prospectuses; (g) file documents required of Purchaser for normal blue sky clearance in states reasonably specified in writing by the Stockholder, provided, however, that Purchaser shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so qualified or has not so consented; and (h) bear all expenses in connection with the procedures in paragraphs (a) through (g) of this Section 11.1 and the registration of the Purchaser Common Stock pursuant to each of the Shelf Registration Statements, other than fees and expenses, if any, of counsel or other advisers to the Stockholder. - 21 - 11.2 Engagement of Underwriters. The parties hereto agree that the Purchaser shall have no obligation to (i) conduct, arrange or coordinate any distribution or sales activities on behalf of the Stockholder with respect to the Purchaser Common Stock other than as set forth in Section 11.1 above or (ii) retain any underwriter(s) in connection with the registration and/or distribution of the Purchaser Common Stock pursuant to this Section 11. The Stockholder agrees that any underwriter(s) or counsel engaged in connection with the registration or distribution of the Purchaser Common Stock required to be registered pursuant to this Section 11 will be retained by and at the sole expense of the Stockholder and agrees further that any discounts or commissions payable to such underwriter(s) shall also be an expense solely of the Stockholder. In the event the Stockholder engages one or more underwriters pursuant to this Section 11.2, the Stockholder shall enter into an underwriting agreement with the managing or lead managing underwriter in the form customarily used by such underwriter with such changes thereto as the parties thereto shall agree; and, further, shall provide to such underwriter any documents or other information as is necessary, in the underwriter's reasonable opinion, to facilitate the effectiveness of the Shelf Registration Statement and the completion of the distribution of the Purchaser Common Stock so registered. 11.3 Indemnification with respect to Shelf Registration Statements. Purchaser hereby agrees to indemnify the Stockholder against liability arising out of or based upon any untrue statement or alleged untrue statement of material fact in any of the Shelf Registration Statements filed by Purchaser pursuant hereto, or the omission or alleged omission to state or incorporate by reference in such Shelf Registration Statements any material fact required to be stated therein or necessary in order to make the statements therein not misleading, other than any such statement included or incorporated by reference in, or omitted from, such Shelf Registration Statements by Purchaser in reliance upon and in conformity with written information furnished to Purchaser specifically for use therein by or on behalf of the Stockholder. The Stockholder hereby agrees to indemnify Purchaser against liability arising out of or based upon any untrue statement or alleged untrue statement of a material fact included or incorporated by reference in the Shelf Registration Statements or the omission or alleged omission to state or incorporate by reference therein any material fact required to be stated therein or necessary in order to make the statements therein not misleading, if such statement or omission was made by Purchaser in reliance upon and in conformity with written information furnished to Purchaser for use or incorporation by reference in such Shelf Registration Statements. 12. CONFIDENTIALITY. After the date hereof, the Stockholder will hold in confidence and not reveal to any third parties any knowledge or information of a confidential nature with respect to the business, products, know-how and methods of operation of the Company, and will not disclose, publish or make use of the same, provided, however, that the foregoing shall not be applicable to any disclosure or use of confidential information or knowledge that can be demonstrated to have (i) been publicly known prior to the date of this Agreement, (ii) become well known by publication or otherwise not due to the unauthorized act or omission on the part of the Stockholder, or (iii) been supplied to the Stockholder by a third party without violation of the rights of the Company or the Purchaser or any other party. The parties agree that the remedy at law for any breach by the Stockholder of this Section 12 shall be inadequate and that the aggrieved party shall be entitled to injunctive relief in addition to any other remedy. - 22 - 13. EXPENSES. Each party to this Agreement shall pay all of its expenses relating hereto, including legal and accounting fees and disbursements of its counsel, accountants and financial advisors, whether or not the transactions hereunder are consummated. If said transactions are consummated, it is expressly understood that the Stockholder will bear, and will not cause the Company to pay, any legal fees or other expenses incurred by Company in connection with the transactions contemplated by this agreement, as well as the cost of furnishing the audited and reviewed Company Financial Statements referred to in Section 2.4; provided, however, that in the event of any litigation between the parties hereto relating to or arising from this Agreement, the prevailing party in such litigation shall be entitled to payment by the non-prevailing party of all reasonable attorney's fees and costs. 14. NOTICES. Except as otherwise provided herein, all notices, requests, demands and other communications under or in connection with this Agreement shall be in writing, and, (a) if to the Purchaser, shall be addressed to: General Counsel Sylvan Learning Systems, Inc. 1000 Lancaster Street Baltimore, Maryland 21202 with a copy to: Richard C. Tilghman, Jr., Esquire Piper & Marbury 36 South Charles Street Baltimore, Maryland 21201 (b) if to the Company or the Stockholder, shall be addressed to: George A. Perkins Eddie W. McLain 1636 Old Fayetteville Road 123 Hickory Street - 23 - Sylacauga, Alabama 35151 Childersburg, Alabama 35044 with a copy to: H. Graham Beene, Esq. c/o Burr and Forman, LLP Suite 300 SouthTrust Tower 420 North 20th Street Birmingham, Alabama 35203 All such notices, requests, demands or communications shall be mailed postage prepaid, certified mail, return receipt requested, or by overnight delivery or delivered personally, and shall be sufficient and effective when delivered to or received at the address so specified. Any party may change the address at which it is to receive notice by like written notice to the other. 15. ENTIRE AGREEMENT. This Agreement (including the exhibits hereto and the lists, schedules and documents delivered pursuant hereto, which are a part hereof) is intended by the parties to and does constitute the entire agreement of the parties with respect to the transactions contemplated by this Agreement. This Agreement supersedes any and all prior understandings, written or oral, between the parties, and this Agreement may be amended, modified, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the amendment, modification, waiver, discharge or termination is sought. 16. GENERAL. The paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns, but nothing herein, express or implied, is intended to or shall confer any rights, remedies or benefits upon any person other than the parties hereto. This Agreement may not be assigned by any party hereto. This Agreement shall be construed in accordance with and governed by the laws of the State of Maryland. IN WITNESS WHEREOF, the Purchaser, the Company and the Stockholder have caused this Agreement to be duly executed and their respective seals to be hereunto affixed as of the date first above written. WITNESS: SYLVAN LEARNING SYSTEMS, INC. __________________________ By:_____________________________ - 24 - Name: O. Steven Jones Title: Vice President WITNESS: THE EMERALD COAST CORPORATION __________________________ By:___________________________________ Name: __________________________ [Corporate Seal] Title: ___________________________ WITNESS: STOCKHOLDER: Southeast Learning Systems, Inc. ___________________________ By:___________________________(Seal) Eddie W. McLain, President WITNESS: STOCKHOLDER: ___________________________ ___________________________(Seal) George A. Perkins WITNESS: STOCKHOLDER: ___________________________ ___________________________(Seal) Eddie W. McLain - 25 - Schedule to Agreement and Plan of Reorganization between Sylvan Learning Systems, Inc. Schedule 2.3 - Transactions with Affiliates - None Schedules 2.4 - Material Adverse Changes - None Schedule 2.5 - Taxes - None Schedule 2.6 - Agreements (i indebtedness for money borrowed - None (ii)officer/employee compensation, plans, benefits - None (iii) contracts for purchase of materials, services, etc. a. Cooperative advertising agreement with Advertising Accounts, Inc. (iv) contracts not in ordinary course - None (v) contracts containing restrictions on Company's operations - None (vi) real property leases: d. Premises leased: 7500 Memorial Parkway South, Suite 119, Huntsville, Alabama Square Footage: 1,503 Landlord: Landman Properties, LLC Lease Date: March 1, 1996 Expiration Date: July 31, 2001 e. Premises leased: 9076 Highway 20 West, Suite E, Madison, Alabama Square Footage: 1,400 Landlord: Allstate Life Insurance Company Lease Date: April 22, 1997 Expiration Date: November 14, 2002 (vii) other material contracts - None Schedule 2.7 - Property (i) real property owned or leased - see schedule 2.6(vi) (ii) tangible personal property - None (iii) intellectual property - None Schedule 2.8 - Legal Proceedings - None Schedule 2.9 - Licenses/Permits - None Schedule 2.10 - Bank Accounts (i) checking account #64863023 at SouthTrust Bank Schedule 2.11 - Insurance: (i) Monumental Life Insurance Company Policy Number ALWC 8706-01 (Worker's Compensation) Policy Number ALEL 008706-1 (Bodily Injury) (ii) American States Insurance Company Policy Number 01-CD-357013-8 (Commercial Property/Liability /Automobile) Schedule 2.12 - Employee matters/Plans/Benefits - None Schedule 2.13 (ii) Bonuses paid/Compensation increases since 12/31/98 - None other than regular monthly bonuses paid to staff. (iii) - Dividends declared or paid since 12/31/98 - None Schedule 2.20 - Employees holding Sylvan certification: (i) Fran Sheridan Exec. Director 1998 2607 (ii) Barbara Lehman CD 1996 2607 - 26 - Schedule 3.1 Stockholders # Shares owned Percentage of shares ------------ ------ ----- Southeast Learning Systems, Inc. 1,500 100% Schedule 5.1 (c) - (i) the Company's notes and other liabilities not being paid at or prior to Closing - None (iii) accrued employee compensation, etc. - None Schedule 5.1 (g) - Trade payables and liabilities not paid current through Closing - EXHIBITS Exhibit A - Noncompete Agreement Form Exhibit B - Mutual Termination and Release Form Exhibit C - Consulting Agreement Form Exhibit D - Call Center Agreement Form - 27 - EX-5 7 EXHIBIT 5.1 EXHIBIT 5.1 PIPER & MARBURY L.L.P. CHARLES CENTER SOUTH 36 SOUTH CHARLES STREET BALTIMORE, MARYLAND 21201-3018 410-539-2530 WASHINGTON FAX: 410-539-0489 NEW YORK PHILADELPHIA EASTON May 20, 1999 Sylvan Learning Systems, Inc. 1000 Lancaster Street Baltimore, Maryland 21201 Re: Registration Statement on Form S-3 Ladies and Gentlemen: We have acted as counsel to Sylvan Learning Systems, Inc., a Maryland corporation (the "Company"), in connection with Sylvan'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 162,174 shares of Sylvan's common stock, par value $.01 per share (the "Shares"), which were previously issued by Sylvan and are being registered for resale by the holders thereof. In this capacity, we have examined Sylvan's Charter and By-Laws, the proceedings of the Board of Directors of Sylvan 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 8 EXHIBIT 23.1 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 162,174 shares of its common stock and to the incorporation by reference therein of our report dated February 25, 1999, with respect to the consolidated financial statements of Sylvan Learning Systems, Inc. included in its Annual Report (Form 10-K) for the year ended December 31, 1998, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP _____________________ Baltimore, Maryland May 19, 1999 EX-23 9 EXHIBIT 23.2 EXHIBIT 23.2 CONSENT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in this Registration Statement of Sylvan Learning Systems, Inc. on Form S-3 of our reports on the financial statements of Independent Child Study Teams, Inc. and I-R, Inc. for the year ended December 31, 1996 dated March 14, 1997, appearing in the Annual Report on Form 10-K of Sylvan Learning Systems, Inc. for the year ended December 31, 1998 and to the reference to us under the heading "Experts" in the Prospectus, which is part of this Registration Statement. /s/ DELOITTE & TOUCHE LLP _________________________ Parsippany, New Jersey May 13, 1999 EX-23 10 EXHIBIT 23.3 EXHIBIT 23.3 CONSENT OF DELOITTE & TOUCHE, INDEPENDENT AUDITORS We consent to the incorporation by reference in this Registration Statement of Sylvan Learning Systems, Inc., on Form S-3 and the Prospectus, which is part of this Registration Statement, of our report dated July 27, 1998, with respect to the consolidated financial statements of Anglo-World Education (UK) Limited and Subsidiaries included in Sylvan Learning Systems, Inc.'s Current Report on Form 8-K dated July 29, 1998. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ DELOITTE & TOUCHE _____________________ Southampton United Kingdom May 20, 1999 EX-23 11 EXHIBIT 23.4 EXHIBIT 23.4 CONSENT OF SMITH, LANGE & PHILLIPS LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our reports listed below, with respect to the financial statements of ASPECT, INC. included in the Registration Statement (Form S-3 No. 333_____) and related Prospectus of Sylvan Learning Systems, Inc. COMPANY NAME: Smith, Lange & Phillips LLP /s/ Smith, Lange & Phillips LLP _______________________________ COUNTRY: U.S.A. DATE: May 13, 1999 -----END PRIVACY-ENHANCED MESSAGE-----