Exhibit 2.1
[EXECUTION COPY]
ASSET PURCHASE AGREEMENT
by and among
EDUCATE OPERATING COMPANY, LLC
APOLLO SYLVAN, LLC
APOLLO XXXXXX XX, LLC.
EDUCATE, INC.
SYLVAN LEARNING SYSTEMS, INC.
and
SYLVAN VENTURES, L.L.C.
dated as of
March 10, 2003
TABLE OF CONTENTS
ARTICLE I PURCHASE AND SALE OF ASSETS..................................................................1
Section 1.1 SALE AND TRANSFER OF ASSETS.....................................................1
Section 1.2 THE PURCHASE PRICE..............................................................2
Section 1.3 WORKING CAPITAL ADJUSTMENT......................................................3
Section 1.4 EARN OUT........................................................................4
Section 1.5 ALLOCATION OF PURCHASE PRICE; TAX FILINGS.......................................5
ARTICLE II THE CLOSING.................................................................................6
Section 2.1 THE CLOSING.....................................................................6
Section 2.2 DELIVERIES BY THE SELLERS.......................................................6
Section 2.3 DELIVERIES BY PURCHASER.........................................................8
Section 2.4 DELIVERIES BY PARENT............................................................9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLERS..............................................9
Section 3.1 AUTHORIZATION...................................................................9
Section 3.2 BINDING AGREEMENT..............................................................10
Section 3.3 [INTENTIONALLY OMITTED]........................................................10
Section 3.4 ORGANIZATION; QUALIFICATION OF THE SELLERS.....................................10
Section 3.5 SUBSIDIARIES AND AFFILIATES....................................................10
Section 3.6 CONSENTS AND APPROVALS; NO VIOLATIONS..........................................11
Section 3.7 FINANCIAL STATEMENTS...........................................................12
Section 3.8 BOOKS AND RECORDS..............................................................12
Section 3.9 NO UNDISCLOSED LIABILITIES.....................................................12
Section 3.10 ACCOUNTS RECEIVABLE............................................................12
Section 3.11 DISPUTED ACCOUNTS PAYABLE......................................................12
Section 3.12 ABSENCE OF CERTAIN CHANGES.....................................................14
Section 3.13 TITLE TO PROPERTIES; ENCUMBRANCES..............................................15
Section 3.14 REAL PROPERTY..................................................................15
Section 3.15 ENVIRONMENTAL MATTERS..........................................................17
Section 3.16 CONTRACTS AND COMMITMENTS......................................................19
Section 3.17 CUSTOMERS AND SUPPLIERS........................................................20
Section 3.18 INSURANCE......................................................................20
Section 3.19 LITIGATION.....................................................................20
Section 3.20 COMPLIANCE WITH LAWS...........................................................21
Section 3.21 EMPLOYEE BENEFIT PLANS.........................................................21
Section 3.22 TAX MATTERS....................................................................22
Section 3.23 INTELLECTUAL PROPERTY..........................................................25
Section 3.24 LABOR MATTERS..................................................................27
Section 3.25 PERSONNEL......................................................................29
Section 3.26 PROPRIETY OF PAST PAYMENTS.....................................................29
Section 3.27 INVESTMENT IN THE SELLER NOTE..................................................30
Section 3.28 INFORMATION FOR FINANCING......................................................31
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Section 3.29 BROKERS OR FINDERS.............................................................31
Section 3.30 FULL DISCLOSURE................................................................31
Section 3.31 eSYLVAN BURN RATE..............................................................31
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER AND HOLDINGS...................................31
Section 4.1 ORGANIZATION...................................................................31
Section 4.2 AUTHORIZATION; VALIDITY OF AGREEMENT; NECESSARY ACTION.........................32
Section 4.3 CONSENTS AND APPROVALS; NO VIOLATIONS..........................................32
Section 4.4 INVESTMENT IN TARGET SUBSIDIARY EQUITY INTERESTS...............................33
Section 4.5 BROKERS OR FINDERS.............................................................34
Section 4.6 OPERATIONS OF PURCHASER, APOLLO SYLVAN, APOLLO XXXXXX XX AND HOLDINGS..........34
Section 4.7 LITIGATION.....................................................................34
Section 4.8 OWNERSHIP OF CONVERTIBLE DEBENTURES............................................34
ARTICLE V COVENANTS...................................................................................34
Section 5.1 INTERIM OPERATIONS OF THE TARGETED BUSINESSES..................................34
Section 5.2 NO SOLICITATION; OTHER OFFERS..................................................38
Section 5.3 ACCESS.........................................................................39
Section 5.4 EFFORTS AND ACTIONS TO CAUSE CLOSING TO OCCUR..................................40
Section 5.5 NOTIFICATION OF CERTAIN MATTERS................................................42
Section 5.6 STOCK OPTIONS..................................................................43
Section 5.7 USE OF XXXXXX XXXXX............................................................43
Section 5.8 LIMITATION ON TRANSACTIONS WITH AFFILIATES.....................................44
Section 5.9 NON-COMPETES...................................................................44
Section 5.10 SUBSEQUENT ACTIONS.............................................................46
Section 5.11 PUBLICITY......................................................................46
Section 5.12 MAIL RECEIVED AFTER CLOSING....................................................46
Section 5.13 ACCESS TO BOOKS AND RECORDS....................................................47
Section 5.14 WAIVER OF BULK SALES REQUIREMENT...............................................48
Section 5.15 TUITION FINANCE PAYMENTS.......................................................48
Section 5.16 INTELLECTUAL PROPERTY..........................................................48
Section 5.17 VENTURES CAPITAL CALLS.........................................................48
Section 5.18 DEFERRED PURCHASE PRICE........................................................48
Section 5.19 CONVERTIBLE DEBENTURES.........................................................48
Section 5.20 POST CLOSING CONSENTS..........................................................48
Section 5.21 XXXXXX MATERIALS...............................................................49
Section 5.22 CONTRIBUTION OF APOLLO IV......................................................49
ARTICLE VI CONDITIONS.................................................................................50
Section 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE CLOSING....................50
Section 6.2 CONDITIONS TO OBLIGATIONS OF PURCHASER TO EFFECT THE CLOSING...................50
Section 6.3 CONDITIONS TO OBLIGATIONS OF THE SELLERS TO EFFECT THE CLOSING.................52
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ARTICLE VII TERMINATION...............................................................................53
Section 7.1 TERMINATION....................................................................53
Section 7.2 EFFECT OF TERMINATION..........................................................55
Section 7.3 TERMINATION FEE................................................................55
ARTICLE VIII TAX MATTERS..............................................................................56
Section 8.1 TAX INDEMNIFICATION............................................................56
Section 8.2 TAX CLAIMS.....................................................................57
Section 8.3 TAX RETURN FILINGS, PAYMENTS, AND REFUNDS......................................58
Section 8.4 TAX SHARING AGREEMENTS; POWERS OF ATTORNEY.....................................59
Section 8.5 TRANSFER TAXES.................................................................59
Section 8.6 ASSISTANCE AND COOPERATION.....................................................59
Section 8.7 CHARACTERIZATION OF INDEMNIFICATION PAYMENTS...................................60
Section 8.8 SURVIVAL OF TAX CLAIMS AND SECTION 3.22 REPRESENTATIONS........................60
ARTICLE IX INDEMNIFICATION............................................................................60
Section 9.1 INDEMNIFICATION; REMEDIES......................................................60
Section 9.2 AGGREGATE DOLLAR LIMITATION....................................................61
Section 9.3 NOTICE OF CLAIM; DEFENSE.......................................................62
Section 9.4 SURVIVAL OF INDEMNIFICATION CLAIMS; OFFSET.....................................62
Section 9.5 EFFECT OF INVESTIGATION........................................................63
Section 9.6 SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES..........................63
ARTICLE X DEFINITIONS AND INTERPRETATION..............................................................63
Section 10.1 DEFINITIONS....................................................................63
Section 10.2 INTERPRETATION.................................................................79
ARTICLE XI MISCELLANEOUS..............................................................................80
Section 11.1 FEES AND EXPENSES..............................................................80
Section 11.2 AMENDMENT AND MODIFICATION.....................................................81
Section 11.3 NOTICES........................................................................81
Section 11.4 COUNTERPARTS...................................................................82
Section 11.5 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES.................................82
Section 11.6 SEVERABILITY...................................................................82
Section 11.7 GOVERNING LAW..................................................................83
Section 11.8 ENFORCEMENT; VENUE.............................................................83
Section 11.9 TIME OF ESSENCE................................................................83
Section 11.10 EXTENSION; WAIVER..............................................................83
Section 11.11 ELECTION OF REMEDIES...........................................................83
Section 11.12 ASSIGNMENT.....................................................................83
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EXHIBIT A ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT B TERMS OF SELLER NOTE
EXHIBIT C XXXX OF SALE FOR SYLVAN TARGET ASSETS
EXHIBIT D SUBLEASE FOR 0000 XXXXX XXXXXX
EXHIBIT E SUBLEASE FOR 506 S. CENTRAL - KOLDKISS
EXHIBIT F SUBLEASE FOR 0000 XXXXXXXXX XXXXXX
EXHIBIT G SHARED SERVICES AGREEMENT
EXHIBIT H FORM OF MASTER LICENSE AGREEMENT
EXHIBIT I FIRST AMENDMENT TO INVESTORS AGREEMENT
EXHIBIT J SECURITIES PURCHASE AGREEMENT
EXHIBIT K OPINION OF SELLERS' COUNSEL
EXHIBIT L OPINION OF PURCHASER'S COUNSEL
EXHIBIT M FINANCING TERM SHEET
EXHIBIT N BALANCE SHEET
EXHIBIT O CALCULATION OF WORKING CAPITAL
ANNEX A SYLVAN TARGET ASSETS AND ENCUMBRANCES
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ASSET PURCHASE AGREEMENT
Asset Purchase Agreement, dated as of March 10, 2003, by and among Educate
Operating Company, LLC, a Delaware limited liability company ("PURCHASER"),
Apollo Sylvan, LLC, a Delaware limited liability company ("APOLLO SYLVAN"),
Apollo Xxxxxx XX, LLC, a Delaware limited liability company ("APOLLO XXXXXX XX"
and together with Apollo Sylvan, "PARENT"), Educate, Inc., a Delaware
corporation ("HOLDINGS"), Sylvan Learning Systems, Inc., a Maryland corporation
("SYLVAN"), Sylvan Ventures, L.L.C., a Delaware limited liability company
("VENTURES" and, together with Sylvan, the "SELLERS"), and only with respect to
Section 5.22, Apollo Management IV, L.P., a Delaware limited partnership
("APOLLO IV"). CERTAIN CAPITALIZED TERMS USED IN THIS AGREEMENT HAVE THE
MEANINGS ASSIGNED TO THEM IN ARTICLE X.
WHEREAS, Sylvan desires to sell and Parent, Holdings and Purchaser desire to
purchase the assets composing Sylvan's K-12 educational business (the "K-12
BUSINESS");
WHEREAS, Ventures desires to sell and Purchaser desires to purchase all of
Ventures' right, title and interest in Connections Academy and eSylvan (the
"VENTURES BUSINESSES" and, together with the K-12 Business, the "TARGETED
BUSINESSES"); and
WHEREAS, each of the Managing Member of Apollo Sylvan, the Managing Member of
Apollo Xxxxxx XX, the Managing Member of Purchaser, the Board of Directors of
Holdings, the Board of Directors of Sylvan and the Board of Managers of Ventures
has approved, and deems it advisable and in the best interests of its respective
stockholders or membership interest holders, as the case may be, to consummate,
the acquisition of the Targeted Businesses by Parent, Holdings, or Purchaser, as
the case may be, which acquisition is to be effected by the sale of all the
Target Assets to Parent, Holdings, or Purchaser, as the case may be, subject
only to those liabilities expressly assumed by Parent, Holdings, or Purchaser,
as the case may be, pursuant hereto, and otherwise upon the terms and subject to
the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
Section 1.1 SALE AND TRANSFER OF ASSETS Subject to the terms and conditions
of this Agreement, at the Closing the Sellers shall sell, convey, assign,
transfer and deliver to Purchaser the Targeted Businesses as a going concern,
including all the Target Assets, free and clear of all Encumbrances, except for
the Encumbrances specifically to be assumed by Purchaser pursuant to Annex A
hereto.
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Section 1.2 THE PURCHASE PRICE.
(a) Subject to the terms and conditions of this Agreement, in
consideration of the aforesaid sale, conveyance, assignment, transfer and
delivery to Purchaser of the Targeted Businesses and the Target Assets, at the
Closing (or as otherwise indicated) (i) Purchaser shall (u) pay to Sylvan an
amount of cash equal to the Cash Amount, (v) pay to Ventures an amount equal to
$10,000,000; (w) deliver to Sylvan the Xxxxxx Note; (x) deliver to Sylvan a
promissory note in a form agreed to by the parties prior to Closing and
containing the terms substantially consistent with those set forth on Exhibit B
(subject to such changes therein as may be required to obtain Financing) in the
principal amount of $55,000,000, dated as of the Closing Date, duly executed by
Holdings (the "SELLER NOTE") (y) assume those liabilities (and only those
liabilities) of the Sellers related to the Targeted Businesses pursuant to
Section 1.2(b) below, and (z) agree to pay to Sylvan as and when provided
herein, the Deferred Purchase Price; and (ii) Parent shall deliver the
Convertible Debentures with a principal amount equal to the Debenture Amount,
((i) and (ii) collectively referred to herein as, the "PURCHASE PRICE").
(b) Subject to the terms and conditions of this Agreement,
simultaneously with the sale, assignment, transfer, conveyance and delivery to
Purchaser of the Target Assets, Purchaser shall assume the following liabilities
and obligations of the Sellers that relate to the Targeted Businesses and the
Target Assets (collectively, the "ASSUMED LIABILITIES"):
(i) all trade accounts payable of the Targeted Businesses arising
in the ordinary course of business;
(ii) all liabilities and obligations arising from and after the
Closing Date relating to the ownership or operation of the Target
Assets from and after the Closing Date, including, without
limitation, the commercial performance under the Leases and the
contracts and agreements of the Targeted Businesses in accordance
with their respective terms that are assigned to Purchaser pursuant
to this Agreement; PROVIDED, HOWEVER, that the parties acknowledge
that the liabilities and obligations relating to the ownership or
operation of the Target Assets arising prior to the Closing Date or
as a result of action or inaction prior to the Closing Date shall be
retained by the Sellers;
(iii) all liabilities and obligations of the Sellers listed on
Part 1.2(b) of the Disclosure Schedule;
(iv) all liabilities and obligations under applicable Laws
arising from and after the Closing Date in connection with the
ownership or operation of the Target Assets arising from and after
the Closing Date; PROVIDED, HOWEVER, that the parties acknowledge
that the liabilities and obligations under applicable Laws in
connection with the ownership or operation of the Target Assets
arising prior to the Closing
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Date or as a result of action or inaction prior to the Closing Date
shall be retained by the Sellers; and
(v) liabilities and obligations for Taxes as and to the extent
set forth in Article VIII hereof.
Section 1.3 WORKING CAPITAL ADJUSTMENT.
(a) At least two Business Days prior to the Closing Date, the Sellers
shall provide Purchaser with the Pre-Closing Balance Sheet, together with a
calculation of the Closing Working Capital Adjustment Amount. On the Closing
Date, the Sellers shall pay to the Purchaser, in cash, an amount equal to the
Closing Working Capital Adjustment Amount.
(b) As soon as possible after the Closing Date, but in no event later
than 60 days after the Closing Date, the Purchaser shall prepare and deliver to
the Sellers the Closing Balance Sheet together with a calculation of the Final
Working Capital Adjustment Amount, and the Preliminary Bonus Schedule. The
Sellers shall have 30 days to review the Closing Balance Sheet and the
calculation of the Final Working Capital Adjustment Amount and to deliver a
written notice (the "DISPUTE NOTICE") of any disagreements specifying in
reasonable detail the nature and extent of such disagreement. If no Dispute
Notice is delivered within such period, Purchaser's calculation shall be deemed
accepted by the Sellers. If the Sellers and the Purchaser are unable to resolve
any such disagreement within 10 Business Days of the Purchaser's receipt of the
Dispute Notice, the items of disagreement shall be referred for final
determination to an independent accounting firm of national reputation (the
"INDEPENDENT ACCOUNTANT") reasonably agreed to by the Purchaser and the Sellers.
The Independent Accountant shall make a determination of the Final Working
Capital Adjustment Amount within 20 Business Days following appointment by the
Purchaser and the Sellers and such determination shall be binding on the
parties.
(c) The Sellers shall pay the Purchaser an amount, in cash, equal to
the Final Working Capital Adjustment Amount, if positive, or the Purchaser shall
pay the Sellers an amount in cash equal to the Final Working Capital Adjustment
Amount (up to a maximum amount equal to the Closing Working Capital Adjustment
Amount), if negative, following the determination of such amount pursuant to
clause (b) hereof.
(d) On April 15, 2004, Purchaser will deliver to the Sellers a schedule
of all bonuses paid by Purchaser for services performed during the 2003 calendar
year (which bonuses in the aggregate shall be referred to herein as the "2004
BONUS AMOUNT") to its employees who were employed by the Sellers (or any Target
Subsidiary) immediately prior to the Closing (each, an "ELIGIBLE EMPLOYEE"). If
the 2004 Bonus Amount is less than the amount set forth under the "Accrued
Bonuses" line item on the Closing Balance Sheet, on an annualized basis, then
Purchaser shall pay to Sellers on April 15, 2004, an amount equal to the product
of (i) the difference of (A) the amount set forth under the "Accrued Bonuses"
line item on the Closing Balance Sheet, MINUS (B)
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the 2004 Bonus Amount; MULTIPLIED BY (ii) a percentage equal to the
percentage relationship that the number of days from January 1, 2003 to the
Closing Date bears to 365, expressed as a decimal; PROVIDED that such payment
shall not exceed the net amount paid, if any, by Sellers to Purchaser as part
of the Closing Working Capital Adjustment Amount and the Final Working
Capital Adjustment Amount. If the Sellers dispute the 2004 Bonus Amount, the
dispute resolution procedures set forth in clause (b) of this Section 1.3
shall apply.
Section 1.4 EARN OUT.
(a) From and including the end of the last day of Connection Academy's
fourth full fiscal quarter after the Closing Date to December 31, 2007, if on
the last day of any fiscal quarter (each a "MEASUREMENT DATE"), the Charter
School EBITDA during the Measurement Period equals or exceeds the Initial Target
Amount, then Holdings shall be required to pay Ventures or its successors, in
cash, an amount equal to the Initial Earn Out Amount not later than six months
following the Measurement Date (a "PAYMENT DATE"); PROVIDED, THAT, if the Seller
Note remains outstanding on any Payment Date, Holdings may elect, in lieu of
paying such amount in cash, to have such amount added to the outstanding
principal balance of the Seller Note.
(b) From the date that the Initial Earn Out Amount is earned by Sylvan
to December 31, 2007, if on any Measurement Date, the Charter School EBITDA
during the Measurement Period equals or exceeds the Incremental Target Amount,
then Holdings shall be required to pay Ventures or its successors, in cash, an
amount equal to the Incremental Earn Out Amount not later than the Payment Date;
PROVIDED, THAT, if the Seller Note remains outstanding on any Payment Date,
Holdings may elect, in lieu of paying such amount in cash, to have such amount
added to the outstanding principal balance of the Seller Note.
(c) In the event that Purchaser transfers or sells Connections Academy
to a third party prior to December 31, 2007, the Purchaser shall either (i)
provide for the buyer to assume in writing the obligations under this Section
1.4, or (ii) pay to Ventures or its successors $10,000,000 in cash, MINUS any
amounts previously paid to Ventures or its successors (or added to the balance
of the Seller Note) pursuant to this Section 1.4; PROVIDED, THAT, if the Seller
Note remains outstanding on any Payment Date, Holdings may elect, in lieu of
paying such amount in cash, to have such amount added to the outstanding
principal balance of the Seller Note.
(d) Purchaser shall provide a written statement to Sylvan not later
than 90 days following any Measurement Date providing an accounting of all
calculations made in connection with such Measurement Date pursuant to this
Section 1.4 and all financial data relied on by Purchaser in making such
calculations. If requested by Sylvan, Purchaser shall permit Sylvan and its
auditors, through its authorized representatives, to have reasonable access to
and examine and make copies of all books, records or information relating to all
calculations made in connection with this Section 1.4 and such financial and
operating data and other information relied upon in making such calculations
that are not delivered to Sylvan pursuant hereto. In connection with
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such request, Purchaser shall comply with the provisions of Section 5.13(c) of
this Agreement.
Section 1.5 ALLOCATION OF PURCHASE PRICE; TAX FILINGS.
(a) The Sellers and the Purchaser shall cooperate in good faith to jointly
prepare an allocation of the Purchase Price and all other capitalizable costs
incurred in connection with the Transactions (collectively, the "ALLOCABLE
AMOUNT") among the Target Assets in accordance with Section 1060 of the Code and
the U.S. Treasury regulations thereunder (and any similar provision of state,
local or foreign law, as appropriate), which allocation shall be binding upon
the Purchaser and the Sellers. If Purchaser and the Sellers cannot agree on the
allocation within 60 days after the Closing Date, such dispute shall be settled
by Deloitte & Touche LLP or another accounting firm of international reputation,
in either case, mutually acceptable to Purchaser and Sellers (an "INDEPENDENT
ACCOUNTING FIRM"). The Independent Accounting Firm shall resolve such dispute
within 30 days of its submission. The determination of the allocation of the
Purchase Price by the Independent Accounting Firm, as set forth in a written
notice to Purchaser and Sellers, shall be final, binding and conclusive on the
parties. The fees and disbursements of the Independent Accounting Firm shall be
allocated between Purchaser and Sellers in the same proportion that the
aggregate amount of the disputed items submitted to the Independent Accounting
Firm that are unsuccessfully disputed by each party (as finally determined by
the Independent Accounting Firm) bears to the total amount of all disputed items
submitted to the Independent Accounting Firm. The parties agree that the
purchase price allocation for the German Subsidiaries shall equal $29,000,000
(inclusive of any and all intercompany obligations of any one of the German
Subsidiaries). Any subsequent adjustments to the consideration for the Target
Assets shall be reflected in such allocation as jointly revised by Purchaser and
the Sellers in a manner consistent with Section 1060 of the Code and the U.S.
Treasury regulations thereunder (and any similar provision of state, local or
foreign law, as appropriate).
(b) Each of Sellers and Purchaser shall (i) be bound by the allocation of
the Allocable Amount for all Tax purposes, (ii) prepare and file all Tax returns
to be filed with any taxing authority in a manner consistent with such
allocation, and (iii) take no position inconsistent with this Section 1.5 in any
Tax return, any proceeding before any taxing authority or otherwise unless and
to the extent required to do so pursuant to a determination (as defined in
Section 1313(a) of the Code or any similar provision of state, local or foreign
law). In the event the allocation of the Allocable Amount is disputed by any
taxing authority, the party receiving notice of such dispute shall promptly
notify the other party of such dispute, and the Sellers and Purchaser shall
cooperate in good faith in responding to such challenge in order to preserve the
effectiveness of such allocation.
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ARTICLE II
THE CLOSING
Section 2.1 THE CLOSING. The sale and transfer of the Targeted Businesses by
the Sellers to Purchaser (the "CLOSING") shall take place at the offices of
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP, 0000 Xxx Xxxx Xxxxxx, XX, Xxxxxxxxxx,
XX 00000-0000 at 10:00 a.m., eastern time, on the later of (a) five Business
Days following the satisfaction and/or waiver of all conditions to close set
forth in Article VI (other than conditions which can be satisfied only by the
delivery of certificates, opinions or other documents at the Closing), (b) the
fifth Business Day following the end of the most recently completed calendar
month, unless another date or place is agreed in writing by each of the parties
hereto, and (c) 30 days after the date hereof (the "CLOSING DATE").
Section 2.2 DELIVERIES BY THE SELLERS. At the Closing, each of the Sellers
(as appropriate) shall deliver or cause to be delivered to Purchaser:
(a) a wire transfer of same day funds or bank accounts of Target
Subsidiaries with cash balances which together represent an amount equal to the
Cash On-Hand Amount;
(b) an executed Assignment and Assumption Agreement in the form
attached hereto as Exhibit A;
(c) a duly executed Xxxx of Sale in the form attached hereto as
Exhibit C;
(d) an executed Sublease for 0000 Xxxxx Xxxxxx in the form attached as
Exhibit D hereto;
(e) an executed Sublease for 506 S. Central in the form attached as
Exhibit E hereto;
(f) an executed Sublease for 0000 Xxxxxxxxx Xxxxxx in the form attached
as Exhibit F hereto;
(g) an executed Shared Services Agreement in the form attached hereto
as Exhibit G;
(h) executed Master License Agreements relating to Sylvan's operation
of the UK/France Subsidiaries and Sylvan's operations in Spain, in substantially
the form attached hereto as Exhibit H;
(i) all documents of title and instruments of conveyance necessary to
transfer record and/or beneficial ownership to Purchaser of all automobiles,
trucks, trailers, aircraft (and any other property owned by the Sellers which
require execution, endorsement and/or delivery of a document in order to vest
record or beneficial ownership thereof in Purchaser) which are included in the
Target Assets;
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(j) (A) a mutually acceptable executed agreement, duly notarized before
a German notary, between Sylvan I BV and Purchaser for the assignment of all of
the shares (GESCHAFTSANTEILE) of Dorana Einundvierzigste Verwaltungsgesellschaft
mbH ("DORANA") and (B) certificates representing the outstanding capital stock
and/or ownership interests of each Target Subsidiary (other than Dorana), each
such certificate to be duly and validly endorsed in favor of Purchaser or
accompanied by separate stock powers duly and validly executed by the Sellers
and otherwise sufficient to vest in Purchaser ownership of such stock free of
any adverse claim or Encumbrance;
(k) assignments of all Target Intellectual Property and all
applications therefor and all of the IP Agreements, in each case to the extent
that any one of the Target Subsidiaries is not the sole and exclusive owner of
such Intellectual Property or a party to such IP Agreements, respectively;
(l) executed copies of the Requisite Consents and any other consents
referred to in Section 5.4(c) hereof that the Sellers may (but are not required
by Closing to) obtain;
(m) an executed First Amendment to Investors Agreement in the form
attached hereto as Exhibit I;
(n) an executed Securities Purchase Agreement in the form attached
hereto as Exhibit J;
(o) all documents containing or relating to "know-how" to be acquired
by Purchaser pursuant hereto;
(p) all of the books and records of the Sellers relating to the
Targeted Businesses;
(q) the opinion of counsel referred to in Section 6.2(a) hereof;
(r) the Officers' Certificate referred to in Section 6.2(b) hereof;
(s) a certification of non-foreign status for the Sellers in the form
and manner which complies with the requirements of Section 1445 of the Code and
the regulations promulgated thereunder and any similar state and local laws and
regulations;
(t) any other certifications which may be required under applicable law
stating that no Taxes are due to any taxing authority for which the Purchaser
could have liability to withhold and pay with respect to the transfer of the
Target Assets;
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(u) all such other deeds, endorsements, assignments, consents and other
instruments as, in the opinion of Purchaser's counsel, are necessary to vest in
Purchaser good and marketable title to the Target Assets; and
(v) all other previously undelivered documents required to be delivered
by the Sellers to Purchaser at or prior to the Closing in connection with the
Transactions.
Section 2.3 DELIVERIES BY PURCHASER. At the Closing, Purchaser shall deliver
to the Sellers or their designees:
(a) a wire transfer of same day funds (i) in the amount of the Cash
Amount to Sylvan and/or any of its Subsidiaries in accordance with the
allocation schedule prepared in accordance with Section 1.5 and (ii) in the
amount of $10,000,000 to Ventures;
(b) an executed Assignment and Assumption Agreement in the form
attached hereto as Exhibit A;
(c) a duly executed Xxxx of Sale in the form attached hereto as
Exhibit C;
(d) the Seller Note duly executed by Holdings dated as of the
Closing Date;
(e) an original promissory note representing the Xxxxxx Note, together
with an allonge assigning such note to Sylvan;
(f) an executed Sublease for 0000 Xxxxx Xxxxxx in the form attached
hereto as Exhibit D;
(g) an executed Sublease for 506 S. Central in the form attached hereto
as Exhibit E;
(h) an executed Sublease for 0000 Xxxxxxxxx Xxxxxx relating to
Purchaser in the form attached hereto as Exhibit F;
(i) an executed Shared Services Agreement in the form attached hereto
as Exhibit G;
(j) executed Master License Agreements relating to Sylvan's operation
of the UK/France Subsidiaries and Sylvan's operations in Spain, in substantially
the form attached hereto as Exhibit H;
(k) a First Amendment to Investors Agreement in the form attached
hereto as Exhibit I, duly executed by Purchaser;
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(l) an executed Securities Purchase Agreement in the form attached
hereto as Exhibit J;
(m) the opinion of counsel referred to in Section 6.3(a) hereof;
(n) the Officers' Certificates referred to in Sections 6.3(b) and
6.3(c) hereof; and
(o) such other documents as are required to be delivered by Purchaser
to the Sellers pursuant to this Agreement.
Section 2.4 DELIVERIES BY PARENT. At the Closing, Parent shall deliver to the
Sellers or their designees original promissory notes representing the
Convertible Debentures with an aggregate principal amount equal to the Debenture
Amount, together with allonges assigning such notes to Sylvan. At the direction
and on behalf of Parent, the Sellers or their designees will deliver the portion
of the Target Businesses acquired by Parent directly to the Purchaser so that
the portion of the Targeted Businesses acquired by Parent will be delivered to,
and held by, Purchaser immediately after the Closing.
ARTICLE III
REPRESENTATIONS AND
WARRANTIES OF THE SELLERS
Except as specifically set forth in the Disclosure Schedule prepared and
signed by Sylvan and delivered to Purchaser simultaneously with the execution
hereof, Sylvan represents and warrants to Purchaser that all of the statements
contained in this Article III are true and complete as of the date of this
Agreement (or, if made as of a specified date, as of such date), and will be
true and complete as of the Closing Date as though made on the Closing Date. The
listing of an item in one part of the Disclosure Schedule shall be deemed to be
a listing in each part of the Disclosure Schedule to which such item relates
only to the extent that it is reasonably apparent from a reading of such
disclosure that it also qualifies or applies to such other part.
Section 3.1 AUTHORIZATION. Sylvan has full corporate power and authority to
execute and deliver this Agreement and to consummate the Transactions. Ventures
has full limited liability company power and authority to execute this Agreement
and to consummate the Transactions. The execution, delivery and performance by
the Sellers of this Agreement and the consummation by them of the Transactions
have been duly authorized by Board of Directors of Sylvan and Board of Managers
of Ventures, and no other corporate or limited liability company action on the
part of the Sellers is necessary to authorize the execution and delivery by the
Sellers of this Agreement or the consummation by them of the Transactions. No
vote of, or consent by, the holders of any class or series of capital stock,
membership interests or Voting Debt issued by the Sellers or any Target
Subsidiary is necessary to authorize the
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execution and delivery by the Sellers of this Agreement or the consummation by
them of the Transactions.
Section 3.2 BINDING AGREEMENT. This Agreement has been duly executed and
delivered by each of the Sellers and, assuming due and valid authorization,
execution and delivery thereof by Purchaser, this Agreement is a valid and
binding obligation of the Sellers enforceable against the Sellers in accordance
with its terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar laws of
general application affecting enforcement of creditors' rights generally and
(ii) the availability of the remedy of specific performance or injunctive or
other forms of equitable relief may be subject to equitable defenses and would
be subject to the discretion of the court before which any proceeding therefor
may be brought.
Section 3.3 [INTENTIONALLY OMITTED].
Section 3.4 ORGANIZATION; QUALIFICATION OF THE SELLERS.
(a) Sylvan (i) is a corporation duly organized, validly existing and in
good standing under the laws of the State of Maryland; (ii) has full corporate
power and authority to carry on the business of the Targeted Businesses owned by
it as it is now being conducted and to own the Target Assets owned by it; and
(iii) is duly qualified or licensed to do business as a foreign corporation in
good standing in every jurisdiction in which the conduct by it of the Targeted
Businesses' business requires such qualification, except where the failure to be
licensed as a foreign corporation would not have, individually or in the
aggregate, a material adverse effect on the Targeted Businesses; and
(b) Ventures (i) is a limited liability company duly formed, validly
existing and in good standing under the laws of the state of Delaware and (ii)
has full limited liability company power and authority to execute and perform
its obligations under this Agreement and to carry on the business of the
Targeted Businesses owned by it as it is now being conducted and to own the
Target Assets owned by it.
Section 3.5 SUBSIDIARIES AND AFFILIATES. Part 3.5 of the Disclosure Schedule
sets forth the name, jurisdiction of incorporation and authorized and
outstanding capital of each Target Subsidiary and the jurisdictions in which
each Target Subsidiary is qualified to do business. Except as set forth in Part
3.5 of the Disclosure Schedule, all the outstanding capital stock and other
equity interests of each Target Subsidiary is owned directly by the Sellers free
and clear of all Encumbrances and all material claims or charges of any kind,
and is validly issued, fully paid and nonassessable, and there are no
outstanding options, rights or agreements of any kind relating to the issuance,
sale or transfer of any capital stock or other equity interests of any such
Target Subsidiary. Each Target Subsidiary (i) is a corporation, limited
liability company or limited partnership duly organized, validly existing and in
good standing under the laws of its state or country of incorporation or
formation, as the case may be; (ii) has full corporate, limited liability
company or limited partnership power and
10
authority to carry on its business as it is now being conducted and to own the
properties and assets it now owns; and (iii) is duly qualified or licensed to do
business as a foreign corporation, limited liability company or limited
partnership in good standing in every jurisdiction in which ownership of
property or the conduct of its business requires such qualification, except
where the failure to be licensed as a foreign corporation, limited liability
company or limited partnership would not have, individually or in the aggregate,
a material adverse effect on the Targeted Businesses. The Sellers have
heretofore delivered to Purchaser complete and correct copies of the certificate
of incorporation and by-laws or similar governance documents of each Target
Subsidiary, as presently in effect.
Section 3.6 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for the filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Exchange Act, the HSR Act and state
securities or blue sky laws, and except as indicated on Part 3.6 of the
Disclosure Schedule hereto, none of the execution, delivery or performance of
this Agreement by the Sellers, the consummation by the Sellers of the
Transactions or compliance by the Sellers with any of the provisions hereof will
(i) conflict with or result in any breach of any provision of the certificate of
incorporation, the certificate of organization, the by-laws, operating
agreement, limited liability company agreement, limited partnership agreement or
similar organizational documents of the Sellers or any Target Subsidiary, (ii)
require any filing with, or permit, authorization, consent or approval of, any
Governmental Entity or other Person (including, without limitation, consents
from parties to loans, contracts, leases and other agreements to which either of
the Sellers or any Target Subsidiary is a party), (iii) require any consent,
approval or notice under, or result in a violation or breach of, or constitute
(with or without due notice or the passage of time or both) a default (or give
rise to any right of termination, amendment, cancellation or acceleration)
under, any of the terms, conditions or provisions of any material agreement to
which either of the Sellers or any of the Target Subsidiaries is a party or by
which the Target Assets are bound, or (iv) violate any material order, writ,
injunction, decree, statute, rule or regulation applicable to the Sellers, the
Target Assets, any Target Subsidiary or any of their properties or assets,
excluding from the foregoing clause (ii), such violations, breaches or defaults
which would not have, individually or in the aggregate, a material adverse
effect on the Targeted Businesses.
Section 3.7 FINANCIAL STATEMENTS. True and complete copies of the Financial
Statements are included in Part 3.7 of the Disclosure Schedule. The Financial
Statements have been prepared from, are in accordance with and accurately
reflect, the books and records of the Sellers and their Subsidiaries, comply in
all material respects with applicable accounting requirements, have been
prepared in accordance with US GAAP applied on a consistent basis during the
periods involved (except as may be stated in the notes thereto) and fairly
present the consolidated financial position and the consolidated results of
operations and cash flows (and changes in financial position, if any) of the
Targeted Businesses and the Target Subsidiaries as of the times and for the
periods referred to therein (subject, in the case of unaudited statements, to
normally recurring year-end audit adjustments which are not material either
individually or in the aggregate). At least 10 Business Days prior to the
Closing Date, Sellers shall have
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delivered auditors reports for the Financial Statements and such reports shall
not identify any changes, modifications or adjustments to the Financial
Statements.
Section 3.8 BOOKS AND RECORDS. The books of account, minute books, stock
record books and other records of the Sellers relating to the Targeted
Businesses and the Target Subsidiaries are complete and correct in all material
respects and have been maintained in accordance with sound business practices.
The minute books of the Target Subsidiaries contain accurate and complete
records of all meetings of, and action taken by, the shareholders and directors
of such subsidiaries and no meeting of the shareholders or boards of directors
(or committees) of such subsidiaries has been held for which minutes have not
been prepared or, if prepared, are not contained in such minute books. True and
complete copies of all minute books and all stock record books of each Target
Subsidiary have heretofore been delivered to Purchaser.
Section 3.9 NO UNDISCLOSED LIABILITIES. Except (a) for liabilities and
obligations incurred in the ordinary course of business and consistent with past
practice prior to the date hereof; (b) for liabilities and obligations incurred
in the ordinary course of business and consistent with past practice after the
date hereof which were permitted to be incurred pursuant to the terms of this
Agreement and (c) for liabilities and obligations incurred outside the ordinary
course of business or inconsistent with past practice listed on Part 3.9(c) of
the Disclosure Schedule, neither the Targeted Businesses nor any Target
Subsidiary had, as of the Balance Sheet Date, or has any liability or obligation
of any nature, whether or not accrued, contingent or otherwise. Notwithstanding
anything herein to the contrary, any intercompany liability or obligation to
which a German Subsidiary is a party shall remain outstanding and be acquired by
Purchaser as part of the Targeted Assets; PROVIDED, HOWEVER, that prior to the
Closing Date, Seller shall eliminate, or caused to be eliminated, an
intercompany liability or obligation if Purchaser notifies Seller at least 10
Business Days prior to Closing of its determination to eliminate such
intercompany obligation.
Section 3.10 ACCOUNTS RECEIVABLE. All accounts receivable of the Targeted
Businesses, whether reflected in the Balance Sheet or otherwise, represent sales
actually made in the ordinary course of business, and are current and
collectible net of any reserves shown on the Balance Sheet.
Section 3.11 DISPUTED ACCOUNTS PAYABLE. There are no unpaid invoices or bills
representing amounts alleged to be owed by the Sellers on account of the
Targeted Businesses or alleged to be owed by any Target Subsidiary or other
alleged obligations of the Targeted Businesses, which either of the Sellers or a
Target Subsidiary has disputed or determined to dispute or refuse to pay, which
exceed $250,000 in the aggregate.
Section 3.12 ABSENCE OF CERTAIN CHANGES. Since the Balance Sheet Date, the
Targeted Businesses and each Target Subsidiary has conducted its respective
business only in the ordinary and usual course consistent with past practice,
and neither the Sellers (with respect to the Targeted Businesses), the Targeted
Businesses nor any Target Subsidiary has:
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(a) suffered any material adverse change in its consolidated financial
condition, results of operations, assets, liabilities (absolute, accrued,
contingent or otherwise), reserves, businesses or operations;
(b) other than deferred revenues (calculated in a manner consistent
with the Balance Sheet) and advertising expenses, including without limitation,
media buys, incurred any liability or obligation (absolute, accrued, contingent
or otherwise), except non-material obligations incurred in the ordinary course
of business and consistent with past practice, which do not exceed $250,000 in
the aggregate (counting obligations or liabilities arising from one transaction
or a series of similar transactions, and all periodic installments or payments
under any Lease or other agreement providing for periodic installments or
payments, at the total amount of such obligation or liability), or increased, or
experienced any change in any assumptions underlying or methods of calculating,
any bad debt, contingency or other reserves;
(c) paid, discharged or satisfied any claim, liability or obligation
(whether absolute, accrued, contingent or otherwise) in excess of $500,000 in
the aggregate other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice of liabilities and
obligations reflected or reserved against in the Balance Sheet or incurred in
the ordinary course of business and consistent with past practice since the
Balance Sheet Date;
(d) permitted or allowed any of its property or assets (real, personal
or mixed, tangible or intangible) to be subjected to any Encumbrance, except for
liens for current taxes not yet due, and carriers liens, warehousemen's liens,
materialman's liens and mechanic's liens, in each case which arise automatically
by operation of law;
(e) written off as uncollectible any notes or accounts receivable,
except for write-offs in the ordinary course of business and consistent with
past practice;
(f) cancelled any material debts or waived any claims or rights of
substantial value;
(g) sold, transferred, or otherwise disposed of any of its properties
or assets (real, personal or mixed, tangible or intangible), except in the
ordinary course of business and consistent with past practice;
(h) disposed of or permitted to lapse any rights to the use of any
Intellectual Property, or disposed of or disclosed to any Person other than
representatives of Purchaser any trade secret, formula, process, know-how or
other Intellectual Property not theretofore a matter of public knowledge and not
subject to a confidentiality agreement;
(i) except as set forth on Part 3.12(i) of the Disclosure Schedule,
granted any increase in the compensation of officers or employees of the
13
Targeted Businesses (including any such increase pursuant to any bonus, pension,
profit sharing or other plan or commitment) or any other general increase in the
compensation payable or to become payable to any officer or employee of the
Targeted Businesses, and no such increase is customary on a periodic basis or
required by agreement or understanding;
(j) except as set forth on Part 3.12(j) of the Disclosure Schedule,
granted, issued, accelerated, paid, accrued or agreed to pay or make any accrual
or arrangement for payment of salary or other payments or benefits pursuant to,
or adopt or amend, any new or existing Plan.
(k) made any single capital expenditure or commitment in excess of
$1,000,000 for additions to property, plant, equipment or intangible capital
assets or made aggregate capital expenditures and commitments in excess of
$2,500,000 in the aggregate for additions to property, plant, equipment or
intangible capital assets;
(l) as to the Target Subsidiaries and Ventures only, declared, paid or
set aside for payment any dividend or other distribution in respect of its
capital stock or membership interests;
(m) made any change in any method of accounting or accounting practice
other than those required by US GAAP;
(n) paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets (real, personal or mixed, tangible or
intangible) to, or entered into any agreement or arrangement with, any of its
Affiliates or any of its officers or directors or any Affiliate of any of its
officers or directors except for compensation to officers at rates not exceeding
the rates of such fees and compensation paid during the year ended December 31,
2002; or
(o) agreed, whether in writing or otherwise, to take any action
described in this section.
Section 3.13 TITLE TO PROPERTIES; ENCUMBRANCES. Except for property having an
aggregate book value not in excess of $250,000 sold since the Balance Sheet Date
in the ordinary course of business and consistent with past practice, the
Sellers and each Target Subsidiary have good, valid and marketable title to all
the Target Assets that each of them purports to own (tangible and intangible)
free and clear of all Encumbrances, including (i) all the properties and assets
reflected in the Balance Sheet, and (ii) all such properties and assets
purchased by the Sellers for the use and benefit of the Targeted Businesses or
by any Target Subsidiary since the date of the Balance Sheet, which subsequently
acquired personal properties and assets (other than inventory and short term
investments) described in clause (ii) immediately preceding are listed in Part
3.13 of the Disclosure Schedule. The rights, properties and other assets to be
conveyed to Purchaser pursuant hereto include all rights, properties and other
assets used by the Sellers to conduct the Targeted Businesses' business or are
necessary to permit Purchaser to conduct the Targeted Businesses' business after
the Closing in all material respects in
14
the same manner as such business has been conducted by the Sellers prior to the
date hereof, subject to the consents listed in Part 3.6 of the Disclosure
Schedule. The bills of sale and the deeds, endorsements, assignments and other
instruments to be executed and delivered by the Sellers to Purchaser at the
Closing will be valid and binding obligations of the Sellers, enforceable in
accordance with their respective terms, and will effectively vest in Purchaser
good, valid and marketable title to all the assets to be transferred to
Purchaser pursuant to and as contemplated by this Agreement free and clear of
all Encumbrances, except Encumbrances to be assumed by Purchaser pursuant to
Annex A hereto and restrictions on transfer imposed by state or federal
securities laws.
Section 3.14 REAL PROPERTY.
(a) Part 3.14 of the Disclosure Schedule sets forth a correct and
complete list (except for the Leases to which a German Subsidiary is a party
(provided that the Sellers shall provide to Purchaser the schedules referenced
in this Section 3.14(a) with respect to such Leases prior to Closing)) of: (i)
all of the Leases; (ii) the entity that is the tenant, subtenant, licensee, user
or occupier under each Lease; (iii) a clear description of the specific unit or
space corresponding to each Lease; (iv) the expiration date of each Lease (not
taking into account any options to renew or extend thereunder), and the number
and length of options to renew or extend the same; (v) the current monthly rent
payable under each Lease; (vi) the security deposit and prepaid rents of more
than one (1) month for each Lease; (vii) any outstanding agreements (whether
written or oral) to amend or modify any Lease; and (viii) any material repairs
or improvements to the real property that is the subject of each Lease that is
currently planned or budgeted for by the Sellers, or that is necessary for the
reasonable use, occupancy or operation of the Targeted Businesses.
(b) Correct and complete copies of all Leases (other than those to
which the German Subsidiaries are a party), and all amendments, modifications,
guarantees and other material documents relating thereto, have been made
available to Purchaser in accordance with the terms of this Agreement.
(c) Each Lease is in full force and effect, is the legal, binding and
enforceable obligation of either a Seller or a Target Subsidiary, and either a
Seller or a Target Subsidiary holds a valid and existing leasehold estate
thereunder.
(d) Neither the Sellers, nor the Target Subsidiaries nor to the
Knowledge of the Sellers, any other party to a Lease, is in breach or default
thereunder, and no event has occurred which, with notice or lapse of time or
both, would constitute a breach or default by the Sellers or the Target
Subsidiaries or, to the Knowledge of the Sellers, any other party thereto. The
Sellers and the Target Subsidiaries have not, and to the Knowledge of the
Sellers, no third party has, repudiated or disputed any provision of any Lease.
(e) Neither the Sellers nor the Target Subsidiaries have assigned,
transferred, conveyed, mortgaged, hypothecated, pledged or otherwise encumbered
any of their interest in the Leases or the Leased Real Property.
15
(f) All of the Leased Real Property is actively used in the Targeted
Businesses.
(g) To the Knowledge of the Sellers, each individual Leased Real
Property, and the Sellers' and the Target Subsidiaries' use and occupancy
thereof and operations thereat, is in material compliance with all Laws,
including, without limitation: (a) the Americans with Disabilities Act, 42
U.S.C. Section 12102 et seq., together with all rules, regulations and official
interpretations promulgated pursuant thereto; and (b) Laws concerning zoning,
building, fire, life safety, health codes and sanitation. Neither the Sellers
nor the Target Subsidiaries have received notice of, and to the Knowledge of the
Sellers, there is not, any condition at the Leased Real Property which could
give rise to any material violation of Law.
(h) There are no eminent domain, condemnation or other similar
proceedings pending or, to the Knowledge of the Sellers, threatened, affecting
any portion of the Leased Real Property except for proceedings affecting Leased
Real Property that would not have, individually or in the aggregate, a material
adverse effect on the Targeted Businesses. There exists no writ, injunction,
decree, order or judgment outstanding, nor any litigation pending or, to the
Knowledge of the Sellers, threatened, relating to the Leases or the ownership,
lease, use, occupancy or operation by the Sellers, the Target Subsidiaries, or
any of their Affiliates of the Leased Real Property.
(i) The current use, occupancy and operation of the Leased Real
Property does not violate in any material respect any instrument of record or
agreement affecting the Leased Real Property, or the Lease relating to such
Leased Real Property.
(j) Except as set forth in Part 3.14(j) of the Disclosure Schedule, no
damage or destruction has occurred with respect to any of the Leased Real
Property that would have, individually or in the aggregate, a material adverse
effect on the Targeted Businesses.
(k) There are currently in effect such insurance policies for the
Leased Real Property as are customarily maintained with respect to similar
properties. Correct and complete copies of all insurance policies maintained by
the Sellers with respect to the Leased Real Property have been made available to
Purchaser in accordance with this Agreement. All premiums due on such insurance
policies have been paid by the Sellers or the Target Subsidiaries and the
Sellers or the Target Subsidiaries will maintain such insurance policies from
the date hereof through the Closing or earlier termination of this Agreement.
Neither the Sellers nor the Target Subsidiaries have received, and to the
Knowledge of the Sellers there is no, notice or request from any insurance
company requesting the performance of any work or alteration with respect to the
Leased Real Property or any portion thereof. Neither the Sellers nor the Target
Subsidiaries have received notice from any insurance company concerning, nor to
the Knowledge of the Sellers are there, any material defects or material
inadequacies in the Leased Real Property, which, if not corrected, could result
in the termination of insurance coverage or materially increase its cost.
16
(l) The Leased Real Property is in good condition and repair and
adequate for the use, occupancy and operation of the Targeted Businesses, and to
the Knowledge of the Sellers, there are no facts or conditions affecting any of
the Leased Real Property as would have, individually or in the aggregate, a
material adverse effect on the Targeted Businesses.
(m) Except as set forth in Part 3.14(m) of the Disclosure Schedule,
there is no construction underway at any of the Leased Real Property, and all
improvements, trade fixtures, furniture, furnishings and equipment installed by
the Sellers or the Target Subsidiaries thereat have been or will be paid for in
full by the Sellers or the Target Subsidiaries.
(n) To the Knowledge of the Sellers, legal access is available to all
the Leased Real Property, and neither the Sellers nor the Target Subsidiaries
have received notice to the contrary.
(o) All required permits, licenses, approvals and authorizations
(collectively, the "REAL PROPERTY PERMITS") of Governmental Entities having
jurisdiction over the Leased Real Property, the absence of which would have a
material adverse effect on the Targeted Businesses, have been issued to the
Sellers or the Target Subsidiaries to enable the Leased Real Property to be
lawfully used, occupied and operated for all of the purposes for which it is
currently used, occupied and operated, and are in full force and effect. The
Sellers have made correct and complete copies of the Real Property Permits
(other than those which pertain to the German Subsidiaries) available to
Purchaser in accordance with this Agreement. Neither the Sellers nor the Target
Subsidiaries have received any notice from any Governmental Entity threatening a
suspension, revocation, modification or cancellation of any Real Property Permit
and, to the Knowledge of the Sellers, there is no basis for the issuance of any
such notice or the taking of any such action.
(p) All of the Leased Real Property is adequately served by utilities
and services necessary for the use, occupancy and operation thereof, including,
without limitation, electricity, water, gas, sewer, and waste disposal.
(q) Neither the Sellers nor the Target Subsidiaries hold any interest
in real property that is actively used in the Targeted Businesses, other than
the Leased Real Property. There is no real property material to the operations
of the Targeted Businesses other than the Leased Real Property.
Section 3.15 ENVIRONMENTAL MATTERS.
(a) Each of the Sellers (with respect to the Targeted Businesses) and
the Target Subsidiaries is in material compliance with the Environmental Laws,
which compliance includes, but is not limited to, the possession by the Targeted
Businesses and each Target Subsidiary of all permits and other governmental
authorizations required under applicable Environmental Laws, and compliance with
the terms and conditions thereof. Neither the Sellers (with respect to the
Targeted
17
Businesses) nor any Target Subsidiary has received any communication (written
or, to the Knowledge of the Sellers, oral), whether from a Governmental Entity,
citizens group, employee or otherwise, that alleges that the Sellers (with
respect to the Targeted Businesses), the Targeted Businesses or any Target
Subsidiary is not in such compliance, and, to the Knowledge of the Sellers,
there are no circumstances that may prevent or interfere with such compliance in
the future. The Sellers have delivered to Purchaser prior to the execution of
this Agreement all information that is in the possession of or reasonably
available to the Sellers, the Targeted Businesses or any Target Subsidiary
regarding environmental matters pertaining to, or the environmental condition
of, the businesses of the Targeted Businesses and the Target Subsidiaries or the
compliance (or non-compliance) by the Targeted Businesses or any Target
Subsidiary with any Environmental Law.
(b) There is no Environmental Claim pending or, to the Knowledge of the
Sellers, threatened against the Sellers (with respect to the Targeted
Businesses), the Targeted Businesses or any Target Subsidiary, or, to the
Knowledge of the Sellers, against any Person whose liability for any
Environmental Claim the Sellers (with respect to the Targeted Businesses) or any
Target Subsidiary have retained or assumed either contractually or by operation
of law.
(c) To the Knowledge of the Sellers, there are no past or present
actions, activities, circumstances, conditions, events or incidents, including,
without limitation, the release, emission, discharge, presence or disposal of
any Materials of Environmental Concern, that would form the basis of any
Environmental Claim against the Sellers (with respect to the Targeted
Businesses) or any Target Subsidiary or, to the Knowledge of the Sellers,
against any person or entity whose liability for any Environmental Claim the
Sellers (with respect to the Targeted Businesses) have retained or assumed
either contractually or by operation of law.
(d) Without in any way limiting the generality of the foregoing,
(i) all on-site and off-site locations where the Sellers (with respect to the
Targeted Businesses) have stored, disposed or arranged for the disposal of
Materials of Environmental Concern are identified in Part 3.15(d)(i) of the
Disclosure Schedule, (ii) all underground storage tanks, and the capacity and
contents of such tanks, located on property owned or leased by the Sellers for
which Sellers (with respect to the Targeted Businesses) are legally or
operationally responsible are identified in Part 3.15(d)(ii) of the Disclosure
Schedule, (iii) except as set forth in Part 3.15(d)(iii) of the Disclosure
Schedule, to the Knowledge of the Sellers (with respect to the Targeted
Businesses), there is no asbestos contained in or forming part of any building,
building component, structure or office space owned or leased by the Sellers,
and (iv) except as set forth in Part 3.15(d)(iv) of the Disclosure Schedule, no
polychlorinated biphenyls (PCBs) or PCB-containing items are used or stored at
any property owned or leased by the Sellers related to the Targeted Businesses
for which Sellers are legally or operationally responsible.
(e) The Sellers have provided to Purchaser all assessments, reports,
data, results of investigations or audits, and other information that is in the
18
possession of or reasonably available to the Sellers regarding environmental
matters pertaining to or the environmental condition of the Targeted Businesses,
or the compliance (or noncompliance) by the Sellers with any Environmental Laws
with respect to the Targeted Businesses.
(f) The Sellers are not required by virtue of the Transactions, or as a
condition to the effectiveness of any Transactions, (i) to perform a site
assessment for Materials of Environmental Concern, (ii) to remove or remediate
Materials of Environmental Concern, (iii) to give notice to or receive approval
from any Governmental Entity, or (iv) to record or deliver to any person or
entity any disclosure document or statement pertaining to environmental matters.
Section 3.16 CONTRACTS AND COMMITMENTS.
(a) Neither the Targeted Businesses nor any Target Subsidiary has any
agreements, contracts, commitments or restrictions which are material to its
business or operations which require the making of any charitable contribution.
(b) No purchase contracts or commitments of the Targeted Businesses or
any Target Subsidiary continue for a period of more than twelve months and are
not terminable without additional material cost with notice of 30 days or less
(other than equipment leases, maintenance agreements or other arrangements
consistent with the normal, ordinary and usual requirements of business) or at
any excessive price.
(c) Except as set forth in Part 3.16(c) of the Disclosure Schedule,
neither the Targeted Businesses nor any Target Subsidiary has any outstanding
contracts with directors, officers, employees, agents, consultants, advisors,
salesmen, sales representatives, distributors or dealers that are not cancelable
by it on notice of not longer than 30 days and without liability, penalty or
premium or any agreement or arrangement providing for the payment of any bonus
or commission based on sales or earnings.
(d) Except as set forth in Part 3.16(d) of the Disclosure Schedule,
neither the Targeted Businesses nor any Target Subsidiary has any employment
agreement, or any other agreement that contains any severance or termination pay
liabilities or obligations.
(e) Except as would not have, individually or in the aggregate, a
material adverse effect, neither the Sellers (with respect to the Targeted
Businesses) nor any Target Subsidiary is in default under or in violation of,
nor to the Knowledge of the Sellers is there any valid basis for any claim of
default under or violation of, any material contract, commitment or restriction
to which it is a party or by which it is bound.
(f) Set forth in Part 3.16(f) of the Disclosure Schedule is a list of
all employees employed and consultants retained by the Targeted Businesses and
the Target Subsidiaries.
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(g) Except as set forth in Part 3.16(g) of the Disclosure Schedule,
neither the Sellers (with respect to the Targeted Businesses) nor any Target
Subsidiary is restricted by agreement from carrying on its business anywhere in
the world.
(h) No Target Subsidiary has outstanding any agreement to acquire any
debt obligations of others.
(i) Except as set forth in Part 3.16(i) of the Disclosure Schedule, no
Target Subsidiary has any power of attorney outstanding or any obligations or
liabilities (whether absolute, accrued, contingent or otherwise), as guarantor,
surety, co-signer, endorser, co-maker, indemnitor or otherwise in respect of the
obligation of any Person.
Section 3.17 CUSTOMERS AND SUPPLIERS. To the Knowledge of the Sellers, there
has not been any material adverse change in the business relationship of the
Targeted Businesses with any franchisee who accounted for more than 5% of the
Targeted Businesses royalties (on a consolidated basis) during the last twelve
months, or with any supplier from whom the Targeted Businesses purchased more
than 5% of the goods or services (on a consolidated basis) which it purchased
during the same period. Since January 1, 2002, no material licensor or licensee
of the Targeted Businesses has cancelled or otherwise modified its relationship
with the Targeted Businesses and, to the Knowledge of the Sellers, (a) no such
Person has any intention to do so and (b) the consummation of the Transactions
will not adversely affect any of such relationships.
Section 3.18 INSURANCE. Part 3.18 of the Disclosure Schedule sets forth (a) a
true and complete list and description of all insurance policies, other
insurance arrangements and other contracts or arrangements for the transfer or
sharing of insurance risks by the Targeted Businesses or the Target Subsidiaries
in force on the date hereof with respect to the business or assets of the
Targeted Businesses or the Target Subsidiaries, together with a statement of the
aggregate amount of claims paid out, and claims pending, under each such
insurance policy or other arrangement through the date hereof and (b) a
description of such risks which the Sellers (with respect to the Targeted
Businesses) or the Target Subsidiaries, or the Board of Directors or officers
thereof, have designated as being self-insured. All such policies are in full
force and effect, all premiums due thereon have been paid and the Targeted
Businesses and the Target Subsidiaries are otherwise in compliance in all
material respects with the terms and provisions of such policies. Neither the
Targeted Businesses nor any Target Subsidiary has received any notice of
cancellation or non-renewal of any such policy or arrangement nor, to the
Knowledge of the Sellers, is the termination of any such policies or
arrangements threatened.
Section 3.19 LITIGATION. Except as set forth in Part 3.19 of the Disclosure
Schedule, there is no action, suit, inquiry, proceeding or investigation by or
before any court or governmental or other regulatory or administrative agency or
commission pending, or, to the Knowledge of the Sellers, threatened against, or
involving the Targeted Businesses, or which questions or challenges the validity
of this Agreement
20
or any action taken or to be taken by the Sellers or any Target Subsidiary
pursuant to this Agreement or in connection with the Transactions; and, to the
Knowledge of the Sellers, there is no valid basis for any such action,
proceeding or investigation. Neither the Sellers nor any Target Subsidiary is
subject to any judgment, order or decree which would have a material adverse
effect on the Targeted Businesses.
Section 3.20 COMPLIANCE WITH LAWS. Except as set forth on Part 3.20 of the
Disclosure Schedule, the Sellers and the Target Subsidiaries have complied in a
timely manner and in all material respects with all domestic and foreign laws,
rules and regulations, ordinances, judgments, decrees, orders, writs and
injunctions of all federal, state, local, foreign governments and agencies
thereof that affect the business, properties or assets of the Targeted
Businesses, and no notice, charge, claim, action or assertion has been received
by the Sellers or any Target Subsidiary or has been filed, commenced or, to the
Knowledge of the Sellers, threatened against the Sellers (with respect to the
Targeted Businesses) or any Target Subsidiary alleging any violation of any of
the foregoing, except where such failure to comply or alleged violation would
not have, individually or in the aggregate, a material adverse effect on the
Targeted Businesses.
Section 3.21 EMPLOYEE BENEFIT PLANS.
(a) Part 3.21 of the Disclosure Schedule contains a true and complete
list of all Plans. Neither the Sellers nor any Target Subsidiary nor any ERISA
Affiliate has any commitment or formal plan, whether legally binding or not, to
create any additional employee benefit plan or modify or change any existing
Plan that would affect any employee or consultant or former employee or
consultant of the Targeted Businesses or any Target Subsidiary.
(b) Each Seller has heretofore delivered to Purchaser a true and
complete copy of each Plan and any amendments thereto (or if a Plan is not a
written Plan, a description thereof), each agreement creating or modifying any
related trust or other funding vehicle, any reports or summaries required under
ERISA or the Code and the most recent determination letter received from the
Internal Revenue Service with respect to each Plan intended to qualify under
Section 401 of the Code.
(c) None of the Sellers, any Target Subsidiary or any ERISA Affiliate
currently maintains, sponsors, participates in or contributes to, or within the
past six years, has ever maintained, established, sponsored, participated in or
contributed to any Plan that is subject to Title IV of ERISA, and no condition
exists or is reasonably likely to exist as a result of which either of the
Sellers, any Target Subsidiary or any ERISA Affiliate could have any liability
under Title IV of ERISA.
(d) Each Plan has been operated and administered in all material
respects in accordance with its terms and applicable law, including ERISA and
the Code.
(e) Each Plan intended to be "qualified" within the meaning of
Section 401(a) of the Code is so qualified, and the trusts maintained thereunder
are
21
exempt from taxation under Section 501(a) of the Code. Each Plan intended to
satisfy the requirements of Section 501(c)(9) has satisfied such requirements.
(f) No Plan provides medical, surgical, hospitalization, death or
similar benefits (whether or not insured) for employees or former employees of
the Targeted Businesses or any Target Subsidiary for periods extending beyond
their retirement or other termination of service, other than (i) coverage
mandated by applicable law, (ii) death benefits under any "pension plan," or
(iii) benefits the full cost of which is borne by the current or former employee
(or his beneficiary).
(g) Except as disclosed in Part 3.21(g) of the Disclosure Schedule, the
consummation of the Transactions will not, either alone or in combination with
another event, (i) entitle any current or former employee of the Targeted
Businesses or any Target Subsidiary to severance pay, unemployment compensation
or any other payment, except as expressly provided in this Agreement, or (ii)
accelerate the time of payment or vesting, or increase the amount of
compensation due any such employee.
Section 3.22 TAX MATTERS.
(a) Each of the Target Subsidiaries has duly filed, or will have duly
filed (or there has been or will be duly filed on its behalf), all income, Value
Added Tax ("VAT") and other material Tax returns (including any consolidated,
combined or similar Tax return of which the Target Subsidiaries is required to
be included) required to be filed on or before the Closing Date, and there has
been duly filed any other Tax returns required to be filed to the extent such
Tax returns relate to the Target Subsidiaries, and, in each case, such Tax
returns are true, correct and complete in all material respects. Each of the
Target Subsidiaries has duly paid or will have duly paid (or there has been or
will be duly paid on its behalf), all Taxes required to have been paid by it and
any other Taxes payable with respect to the Target Subsidiaries. The Target
Subsidiaries have established adequate reserves for Taxes in accordance with US
GAAP and, in the case of German Subsidiaries, FRG GAAP for the payment of all
accrued Taxes not yet due and payable. The reserves for Taxes reflected in the
Financial Statements are adequate in accordance with US GAAP and, in the case of
German Subsidiaries, FRG GAAP to cover all Taxes accrued or accruable through
the date thereof.
(b) There are no encumbrances for Taxes (other than statutory liens for
current Taxes not yet due) on any of the assets of the Target Subsidiaries or
the Targeted Businesses.
(c) Each of the Target Subsidiaries has complied in all material
respects with all applicable laws, rules and regulations relating to Tax
information reporting and withholding requirements, including, without
limitation, requirements with respect to wages and other compensation, and have,
within the manner prescribed by law, withheld and paid over to the proper taxing
authorities all amounts required to be so withheld and paid over under
applicable laws.
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(d) Except as set forth on Part 3.22(d) of the Disclosure Schedule, no
federal, state, local or foreign audits or other administrative proceedings or
court proceedings are presently pending with regard to any Taxes or Tax returns
of Target Subsidiaries or, with respect to the Targeted Businesses, the Sellers,
other than presently pending Federal income tax audits of Sellers for the
taxable periods ending on December 31, 1997, December 31, 1998 and December 31,
1999. Neither the Target Subsidiaries nor, with respect to the Targeted
Businesses, the Sellers, have received a written notice of any proposed claims,
audits or proceedings with respect to Taxes, and, to the Knowledge of the
Sellers, no such claims, audits or proceedings are threatened, other than
presently pending Federal income tax audits of Sellers for the taxable periods
ending on December 31, 1997, December 31, 1998 and December 31, 1999. All Tax
assessment or deficiencies that have been claimed, proposed or asserted against
any Target Subsidiaries or, with respect to the Targeted Businesses, the
Sellers, have been fully paid or finally settled, and with respect to the Target
Subsidiaries or, to the Knowledge of Xxxx Xxxxxxxxxxxx with respect to the
Targeted Businesses, no issue has been raised in any audit, examination or other
proceeding by any taxing authority that, by application of similar principles,
would result in the proposal or assertion of a Tax deficiency for another year
not so examined.
(e) Except as set forth on Part 3.22(e) of the Disclosure Schedule, the
Target Subsidiaries have not requested an extension of time within which to file
any Tax return which has not since been filed, and no currently effective
waivers, extensions, or comparable consents regarding any statute of limitations
with respect to Taxes or Tax returns has been given by or on behalf of the
Target Subsidiaries.
(f) The income, VAT and other material Tax returns of the Target
Subsidiaries have been examined and any disputes relating thereto have been
settled with the appropriate taxing authority (or the applicable statutes of
limitation for the assessment of Taxes for such periods have expired) for the
periods set forth in Part 3.22(f) of the Disclosure Schedule.
(g) With respect to the Target Subsidiaries and Targeted Businesses,
the Sellers have made available to Purchaser correct and complete copies of (i)
all of their material Tax returns filed within the past three years, (ii) all
audit reports, letter rulings, technical advice memoranda and similar documents
issued by a Governmental Entity within the past five years relating to the
federal, state, local or foreign Taxes, and (iii) any closing letters or
agreements with any Governmental Entities within the past five years with
respect to Taxes.
(h) None of the Target Subsidiaries is liable for the Taxes of any
other Person as a transferee, successor or otherwise.
(i) No claim has been made by a Tax authority in a jurisdiction where
the Target Subsidiaries do not file Tax returns that they are or may be subject
to taxation by that jurisdiction, or that a Tax return with respect to the
Target Subsidiaries is required to be filed in that jurisdiction.
23
(j) None of the Target Subsidiaries will be required to include any
item of income in, or exclude any item of deduction from, taxable income for any
taxable period (or portion thereof) ending after the Closing Date as a result of
any change in method of accounting for a taxable period ending on or prior to
the Closing Date under Section 481 of the Code, nor has any taxing authority
proposed any such adjustment to taxable income or change in accounting method.
(k) Except as set forth on Part 3.22(k) of the Disclosure Schedule,
none of the Target Subsidiaries (i) has been a member of any consolidated,
unitary or combined Tax return and (ii) is a party to, bound by, or otherwise
obligated under any Tax sharing agreement, Tax indemnification agreement or
similar contract or arrangement or has potential liability or obligation to any
third party as a result of, or pursuant to, any such agreement, contract or
arrangement.
(l) No power of attorney which is currently in force has been granted
by or on behalf of the Target Subsidiaries with respect to any matter relating
to Taxes.
(m) The Target Subsidiaries have not taken any action, nor has any
action been taken on their behalf, inconsistent with past practice that would
have the effect of deferring any Tax liability of any of the Target Subsidiaries
from any taxable period ending on or before the Closing Date to any taxable
period ending after the Closing Date.
(n) No taxing authority is asserting or, to the Knowledge of the
Sellers, threatening to assert a claim against any Target Subsidiary, under or
as a result of Section 482 of the Code, section 8 paragraph 3
Koerperschaftsteuergesetz, section 8a Koerperschaftsteuergesetz, section 1
Aussensteuergesetz, section 4 paragraph 1 and paragraph 4a Einkommensteuergesetz
or any similar provision of state, local or foreign law.
(o) No election under Section 341(f) of the Code has been made by any
of the Target Subsidiaries.
(p) No events have occurred which could impose on Purchaser any
transferee liability for any Taxes due or to become due from any Seller.
(q) Ventures has been classified as a partnership for federal income
tax purposes throughout its existence. Except as indicated on Part 3.22(q) of
the Disclosure Schedule, each of the Target Subsidiaries has been classified as
a corporation for federal income tax purposes.
(r) None of the Target Subsidiaries is, or has been during the previous
five years, a U.S. real property holding corporation under Section 897 of the
Code.
(s) Schuelerhilfe Gesellschaft fur Nachhilfeunterricht GmbH & Co. KG
is, and always has been, entitled to the exemption from (i) VAT pursuant to
24
section 4 no. 21 Umsatzsteuergesetz (VAT code) and (ii) the exception from trade
tax pursuant to section 3 no. 13 of Gewerbesteuer. None of the German
Subsidiaries has or had any positive balance (positiver Endbetrag) in the
meaning of section 38 paragraph 1 sentence 1 Koerperschaftsteuergesetz. Section
50c Einkommensteuergesetz was not and is not applicable on any share in any of
the German Subsidiaries including any of their predecessors.
(t) Section 21 Umwandlungssteuergesetz is not applicable on any share
in any of the German Subsidiaries. None of the shares in any of the German
Subsidiaries has been acquired directly or indirectly from an individual at a
value below fair market value. None of the German Subsidiaries is a
Finanzunternehmen in the meaning of section 8b paragraph 7
Koerperschaftsteuergesetz. None of the shares in any of the German Subsidiaries
have been written off with tax effect.
(u) None of the Transactions triggers a tax liability for any of the
Target Subsidiaries.
Section 3.23 INTELLECTUAL PROPERTY.
(a) Part 3.23(a) of the Disclosure Schedule sets forth, for all of the
following included in Target Intellectual Property, a complete list (including
the owner, and for each such application or registration, the record owner, the
jurisdiction, and the registration and application numbers) of all United
States, foreign, international and state: (i) Patents and Patent applications;
(ii) Trademark registrations, applications and material unregistered Trademarks;
(iii) Domain Names; (iv) Copyright registrations and applications, and
unregistered Copyrights material to the operation of the Targeted Businesses;
and (v) Software (excluding Software that is commercially available at retail to
consumers and is subject to "shrink-wrap" or "click-through" license
agreements).
(b) Part 3.23(b) of the Disclosure Schedule sets forth a complete list
of all IP Agreements.
(c) (i) Except as set forth in Part 3.23(c) of the Disclosure Schedule,
there is no pending or, to the Knowledge of the Sellers, threatened Claim
against the Sellers or any Target Subsidiary involving Target Intellectual
Property or the conduct of the Targeted Businesses (1) alleging
Infringement of Intellectual Property or other rights of any Person or (2)
challenging the Sellers' or any Target Subsidiary's ownership or use of,
or the validity, enforceability or registrability of any such Intellectual
Property;
(ii) Neither the Sellers nor any Target Subsidiary has brought or
threatened a Claim against any Person (1) alleging Infringement of Target
Intellectual Property rights, or (2) challenging any Person's ownership or
use of, or the validity, enforceability or registrability of any
Intellectual Property, and to the Knowledge of the Sellers, there is no
basis for a Claim regarding any of the foregoing;
25
(d) Except as would not have, individually or in the aggregate, a
material adverse effect on the Targeted Businesses:
(i) the Sellers or the Target Subsidiaries (1) own or have the
valid and enforceable right to use all Target Intellectual Property free
and clear of all Encumbrances (except as set forth on Annex A), and (2)
are listed in the records of the appropriate United States, state, or
foreign registry as the sole current owner of record for each application
and registration listed on Part 3.23(a) of the Disclosure Schedule;
(ii) the Target Intellectual Property, (1) has been duly
maintained, (2) is subsisting, in full force and effect, (3) has not been
cancelled, expired or abandoned, and (4) is valid and enforceable;
(iii) there are no actions that must be taken by the Sellers or the
Target Subsidiaries within 90 days from the date hereof, including the
payment of any registration, maintenance, or renewal fees or the filing
with the United States Patent and Trademark Office or such other
appropriate U.S. or foreign office or similar administrative agency,
documents, applications or certificates for the purposes of obtaining,
maintaining, perfecting, preserving, or renewing any rights in the
registered or applied-for Target Intellectual Property;
(iv) no Target Intellectual Property is subject to any outstanding
decree, order, judgment, settlement agreement, or stipulation that
restricts in any manner the use, transfer or licensing thereof by the
Sellers or the Target Subsidiaries;
(v) neither this Agreement nor the transactions contemplated by
this Agreement will result in (1) any third party being granted rights or
access to, or the placement in or release from escrow, of any Target
Intellectual Property, (2) the Sellers or the Target Subsidiaries granting
to any third party rights greater than the rights granted by the Sellers
or the Target Subsidiaries prior to Closing to Target Intellectual
Property pursuant to any agreement to which the Sellers or the Target
Subsidiaries are a party or by which they are bound, (3) the Sellers (with
respect to the Target Intellectual Property) or the Target Subsidiaries
being bound by, or subject to, any non-compete or other restriction on the
operation or scope of its businesses greater than the restrictions to
which the Sellers or the Target Subsidiaries are bound or subject to prior
to Closing, or (4) the Sellers (with respect to the Target Intellectual
Property) or the Target Subsidiaries being obligated to pay any royalties
or other amounts to any third party in excess of the amounts payable by
the Sellers or the Target Subsidiaries prior to the Closing pursuant to
any agreement to which the Sellers or the Target Subsidiaries are a party
or by which they are bound;
26
(vi) there exists no event or condition which will result in a
violation or breach of, or constitute (with or without due notice of lapse
of time or both) a default by the Sellers or any Target Subsidiary or the
other Person thereto, under any IP Agreement, and the consummation of the
Transactions will not result in a violation or breach of, or constitute
(with or without due notice of lapse of time or both) a default by the
Sellers or any Target Subsidiary or the other Person thereto under any IP
Agreement;
(vii) the Sellers and the Target Subsidiaries take reasonable
measures to protect the confidentiality of their Trade Secrets included in
the Target Intellectual Property, including requiring their employees and
Persons having access thereto to execute written non-disclosure agreements
substantially in the form(s) previously provided to Purchaser with respect
to employees;
(viii) the Target Intellectual Property is sufficient for the
continued conduct of the Targeted Businesses after the Closing Date in the
same manner as such Targeted Business was conducted prior to the Closing
Date;
(ix) no Seller, current or former shareholder, partner, director,
officer or employee of the Sellers or any Target Subsidiary (or any of
their respective predecessors in interest) has or will have, after giving
effect to the Transactions, any legal or equitable right, title, or
interest in or to, or any right to use, directly or indirectly, in whole
or in part, any Target Intellectual Property;
(e) The Sellers (with respect to Target Intellectual Property) and each
Target Subsidiary (i) disclose their personal data collection and use on their
Web site(s) and have done so since January 1, 2000; and (ii) are, and have been
since January 1, 2000, in compliance with such posted data protection practices.
(f) Except as set forth in Part 3.23(f) of the Disclosure Schedule,
there is no Intellectual Property material to the operations of the Targeted
Businesses other than the Target Intellectual Property.
Section 3.24 LABOR MATTERS.
(a) There is no labor strike, dispute, corporate campaign, slowdown,
stoppage or lockout actually pending or, to the Knowledge of the Sellers,
threatened against or affecting the Targeted Businesses or any Target
Subsidiary, and during the past five years there has not been any such action.
(b) Except as set forth in Part 3.24(b) of the Disclosure Schedule,
neither the Sellers (with respect to the Targeted Businesses) nor any Target
Subsidiary is a party to or bound by any collective bargaining or similar
agreement with
27
any labor organization or work rules or practices agreed to with any labor
organization or employee association applicable to employees of the Targeted
Businesses or any Target Subsidiary.
(c) No labor union has been certified by the National Labor Relations
Board as bargaining agent for any of the employees of the Targeted Businesses;
no notice has been received by either Seller from any labor union stating that
it has been designated as the bargaining agent for any of said employees; and no
petition has been filed with the Sellers by any labor union requesting an
election to determine whether or not it is the exclusive bargaining agent for
any of said employees.
(d) None of the employees of the Targeted Businesses is represented by
any labor organization and, to the Knowledge of the Sellers, there have been no
union organizing activities among the employees of the Targeted Businesses
within the past five years, nor, to the Knowledge of the Sellers, does any
question concerning representation exist concerning such employees.
(e) No collective bargaining agreement which is binding on the Sellers
(with respect to the Targeted Businesses) or any Target Subsidiary restricts any
of them from relocating or closing any of their operations.
(f) The Targeted Businesses have not experienced any work stoppage or
other labor difficulty since inception.
(g) Each of the Sellers (with respect to the Targeted Businesses) and
each of the Target Subsidiaries is, and has at all times since January 1, 1999
been, in compliance, in all material respects, with all applicable laws,
regulations, ordinances or other applicable legal requirements respecting
employment and employment practices, terms and conditions of employment, wages,
hours of work and occupational safety and health, and is not engaged in, and has
not since January 1, 1999 engaged in, any unfair labor practices, as defined in
the National Labor Relations Act and the regulations promulgated thereto, or any
other applicable laws, regulations, ordinances or other applicable legal
requirements.
(h) [INTENTIONALLY OMITTED]
(i) There is no unfair labor practice charge or complaint against the
Sellers (with respect to the Targeted Businesses) or any Target Subsidiary
pending or, to the Knowledge of the Sellers, threatened before the National
Labor Relations Board or any similar state or foreign agency.
(j) There is no presently pending grievance arising out of any
collective bargaining agreement or other grievance procedure.
(k) To the Knowledge of the Sellers, no charge with respect to or
relating to the Targeted Businesses or any Target Subsidiary is pending before
the Equal Employment Opportunity Commission or any other agency responsible for
the
28
prevention of unlawful employment practices, except as set forth in Part 3.24(k)
of the Disclosure Schedule.
(l) Except as set forth in Part 3.24(l) of the Disclosure Schedule,
neither the Sellers (with respect to the Targeted Businesses) nor any Target
Subsidiary has received notice of the intent of any federal, state, local or
foreign agency responsible for the enforcement of labor or employment laws to
conduct an investigation with respect to or relating to the Targeted Businesses,
and no such investigation is in progress.
(m) Except as set forth in Part 3.24(m) of the Disclosure Schedule,
there are no complaints, lawsuits or other proceedings pending or, to the
Knowledge of the Sellers, threatened in any forum by or on behalf of any present
or former employee of the Targeted Businesses, any applicant for employment or
classes of the foregoing alleging breach of any express or implied contract of
employment, any laws governing employment or the termination thereof or other
discriminatory, wrongful or tortious conduct in connection with the employment
relationship.
(n) Since the enactment of the WARN Act, (i) neither the Sellers (with
respect to the Targeted Businesses) nor any Target Subsidiary has effectuated a
"plant closing" (as defined in the WARN Act) affecting any site of employment or
one or more facilities or operating units within any site of employment or
facility of the Targeted Businesses, (ii) there has not occurred a "mass layoff"
(as defined in the WARN Act) affecting any site of employment or facility of the
Targeted Businesses, (iii) the Targeted Businesses have not been affected by any
transaction or closure, or engaged in layoffs or employment terminations,
sufficient to trigger application of any similar state, local or foreign law or
regulation and (iv) none of the Targeted Businesses' employees have suffered an
"employment loss" (as defined in the WARN Act) during the six-month period prior
to the date hereof.
Section 3.25 PERSONNEL. Part 3.25 of the Disclosure Schedule sets forth a
true and complete list of (i) the names and current salaries of all employees of
the Targeted Businesses and (ii) the wage rates for non-salaried employees of
the Targeted Businesses. To the Knowledge of the Sellers, except as set forth in
Part 3.25 of the Disclosure Schedule, no officer, key employee or group of
employees has any plans to terminate employment with the Targeted Businesses as
a result of the Transactions or otherwise.
Section 3.26 PROPRIETY OF PAST PAYMENTS. (a) No unrecorded fund or asset of
the Targeted Businesses has been established for any purpose, (b) no
accumulation or use of corporate funds of the Targeted Businesses has been made
without being properly accounted for in the books and records of the Targeted
Businesses, (c) no payment has been made by or on behalf of the Targeted
Businesses with the understanding that any part of such payment is to be used
for any purpose other than that described in the documents supporting such
payment and (d) none of the Sellers (with respect to the Targeted Businesses),
any Target Subsidiary, any director, officer, employee or agent of the Targeted
Businesses or any Target Subsidiary or any other
29
Person associated with or acting for or on behalf of the Targeted Businesses or
any Target Subsidiary has, directly or indirectly, made any illegal
contribution, gift, bribe, rebate, payoff, influence payment, kickback or other
payment to any Person, private or public, regardless of form, whether in money,
property or services, (i) to obtain favorable treatment for the Targeted
Businesses, in securing business, (ii) to pay for favorable treatment for
business secured for the Targeted Businesses, (iii) to obtain special
concessions, or for special concessions already obtained, for or in respect of
the Targeted Businesses or (iv) otherwise for the benefit of the Targeted
Businesses, in violation of any federal, state, local, municipal, foreign,
international, multinational or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty (including
existing site plan approvals, zoning or subdivision regulations or urban
redevelopment plans relating to the Leased Real Property). Neither the Sellers
(with respect to the Targeted Businesses) nor any Target Subsidiary nor any
current director, officer, agent, employee of the Targeted Businesses or other
Person acting on behalf of the Targeted Businesses or any Target Subsidiary, has
accepted or received any unlawful contribution, payment, gift, kickback or
expenditure.
Section 3.27 INVESTMENT IN THE SELLER NOTE.
(a) By reason of the business and financial experience of Sylvan and
Sylvan's financial advisors, Sylvan has the capacity to evaluate the merits and
risks of accepting the Seller Note and to protect its interests in connection
with the Transactions.
(b) Sylvan is acquiring the Seller Note for investment for its own
account, not as a nominee or agent, and not with a view to, or for resale in
connection with, any distribution thereof in violation of the Securities Act.
Sylvan understands that the Seller Note has not been, and will not be,
registered under the Securities Act by reason of a specific exemption from the
registration provisions of the Securities Act, the availability of which depends
upon, among other things, the bona fide nature of the investment intent and the
accuracy of Sylvan's representations as expressed herein.
(c) Sylvan understands that no public market now exists for the Seller
Note, that a public market for such security will not develop in the future and
that such security is subject to the transfer restrictions contained therein.
Sylvan acknowledges that the Seller Note may be required to be held by Sylvan
until its maturity.
(d) Sylvan and Sylvan's advisors, if any, have had an opportunity to
ask questions of, and to receive information from, Holdings and Purchaser
concerning the condition, business, operations and proposed operations of
Holdings and Purchaser and the terms and conditions of the Seller Note, and to
obtain any additional information material to Sylvan's decision to accept the
Seller Note or necessary to verify the accuracy of other information and data
received by Sylvan in connection with the Transactions.
30
(e) Sylvan has made either alone or together with Sylvan's advisors, if
any, such independent investigation of Holdings and Purchaser and related
matters as (i) the Sellers deem to be, or the Sellers' advisors, if any, have
advised to be, necessary or advisable in connection with the Sellers' acceptance
of the Seller Note to be transferred to Sylvan and (ii) Sylvan and Sylvan's
advisors, if any, believe to be necessary in order to reach an informed decision
as to the advisability of accepting such Seller Note.
Section 3.28 INFORMATION FOR FINANCING. None of the information supplied or
to be supplied by the Sellers in writing expressly for the purpose of inclusion
or incorporation by reference in any syndication or other materials to be
delivered to potential financing sources in connection with the Transactions
will, at the date delivered, contain any untrue statement of material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
Section 3.29 BROKERS OR FINDERS. No agent, broker, investment banker,
financial advisor or other firm or Person is or will be entitled to any broker's
or finder's fee or any other commission or similar fee in connection with any of
the Transactions, except for Credit Suisse First Boston LLC and U.S. Bancorp
Xxxxx Xxxxxxx Inc., whose fees are payable by Sylvan.
Section 3.30 FULL DISCLOSURE. To the Knowledge of the Sellers, the Sellers
have disclosed to Purchaser all facts material to the business, results of
operations, assets, liabilities and financial condition of the Targeted
Businesses.
Section 3.31 ESYLVAN BURN RATE. As of the Closing Date, the projected Cash
Burn Rate of eSylvan (based on the then most recent budget as adjusted for
actions taken subsequent to the date thereof) for the one year period following
the Closing Date is not greater than $4,000,000.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PURCHASER AND HOLDINGS
Purchaser and Holdings represent and warrant to the Sellers that all of the
statements contained in this Article IV are true and complete as of the date of
this Agreement and will be true and complete as of the Closing Date as though
made on the Closing Date:
Section 4.1 ORGANIZATION.
(a) Each of Purchaser, Apollo Sylvan and Apollo Xxxxxx XX is a
limited liability company duly organized, validly existing and in good standing
under the laws of Delaware and has all requisite limited liability company or
other power and authority and all necessary governmental approvals to own, lease
and operate its
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properties and to carry on its business as now being conducted, except where the
failure to be so organized, existing and in good standing or to have such power,
authority, and governmental approvals would not have, individually or in the
aggregate, a material adverse effect on the ability of Purchaser, Apollo Sylvan
or Apollo Xxxxxx XX to consummate the Transactions.
(b) Holdings is a corporation duly organized, validly existing and in
good standing under the laws of Delaware and has all requisite corporate or
other power and authority and all necessary governmental approvals to own, lease
and operate its properties and to carry on its business as now being conducted,
except where the failure to be so organized, existing and in good standing or to
have such power, authority, and governmental approvals would not have,
individually or in the aggregate, a material adverse effect on the ability of
Holdings to consummate the Transactions. Apollo holds directly or indirectly not
less than 80% of the outstanding capital stock of Holdings.
Section 4.2 AUTHORIZATION; VALIDITY OF AGREEMENT; NECESSARY ACTION. Each of
Purchaser, Apollo Sylvan, Apollo Xxxxxx XX and Holdings has full corporate or
limited liability company power and authority to execute and deliver this
Agreement and to consummate the Transactions. The execution, delivery and
performance by Purchaser, Apollo Sylvan, Apollo Xxxxxx XX and Holdings of this
Agreement and the consummation of the Transactions have been duly authorized by
each of the Managing Members of Purchaser, Apollo Sylvan and Apollo Xxxxxx XX
and the Board of Directors of Holdings and no other corporate or limited
liability company action on the part of Purchaser, Apollo Sylvan, Apollo Xxxxxx
XX or Holdings is necessary to authorize the execution and delivery by
Purchaser, Apollo Sylvan, Apollo Xxxxxx XX or Holdings of this Agreement or the
consummation of the Transactions. No vote of, or consent by, the holders of any
class or series of stock or Voting Debt issued by Purchaser, Apollo Sylvan,
Apollo Xxxxxx XX or Holdings is necessary to authorize the execution and
delivery by Purchaser, Apollo Sylvan, Apollo Xxxxxx XX or Holdings of this
Agreement or the consummation by them of the Transactions. This Agreement has
been duly executed and delivered by Purchaser, Apollo Sylvan, Apollo Xxxxxx XX
and Holdings, and, assuming due and valid authorization, execution and delivery
hereof by the Sellers, is a valid and binding obligation of Purchaser, Apollo
Sylvan, Apollo Xxxxxx XX and Holdings, enforceable against Purchaser, Apollo
Sylvan, Apollo Xxxxxx XX and Holdings in accordance with its terms except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar laws of general application affecting
enforcement of creditors' rights generally and (ii) the availability of the
remedy of specific performance or injunctive or other forms of equitable relief
may be subject to equitable defenses and would be subject to the discretion of
the court before which any proceeding therefor may be brought.
Section 4.3 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for the filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Exchange Act, the HSR Act and state
securities or blue sky laws, none of the execution, delivery or performance of
this Agreement by Purchaser, Apollo Sylvan, Apollo Xxxxxx XX or Holdings, the
consummation by Purchaser, Apollo Sylvan, Apollo Xxxxxx XX or Holdings of the
Transactions or
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compliance by Purchaser, Apollo Sylvan, Apollo Xxxxxx XX or Holdings with any of
the provisions hereof will (i) conflict with or result in any breach of any
provision of the certificate of incorporation, certificate of formation, limited
liability company agreement, by-laws or other similar organizational document of
Purchaser, Apollo Sylvan, Apollo Xxxxxx XX or Holdings, (ii) require any filing
with, or permit, authorization, consent or approval of, any Governmental Entity
(other than filings with the commercial register), (iii) result in a violation
or breach of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, cancellation or
acceleration) under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which Purchaser, Apollo Sylvan, Apollo Xxxxxx XX,
Holdings or any of their Subsidiaries is a party or by which any of them or any
of their respective properties or assets may be bound, or (iv) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
Purchaser, Apollo Sylvan, Apollo Xxxxxx XX or Holdings or any of their
Subsidiaries or any of their properties or assets, excluding from the foregoing
clauses (ii), (iii) and (iv) such violations, breaches or defaults which would
not have, individually or in the aggregate, a material adverse effect on the
ability of Purchaser, Apollo Sylvan, Apollo Xxxxxx XX or Holdings to consummate
the Transactions or which arise from the regulatory status of the Sellers or the
Target Subsidiaries.
Section 4.4 INVESTMENT IN TARGET SUBSIDIARY EQUITY INTERESTS.
(a) By reason of the business and financial experience of Purchaser and
Purchaser's financial advisors, Purchaser has the capacity to evaluate the
merits and risks of accepting the Target Subsidiary Equity Interests and to
protect its interests in connection with the Transactions.
(b) Purchaser is acquiring the Target Subsidiary Equity Interests for
investment for its own account, not as a nominee or agent, and not with a view
to, or for resale in connection with, any distribution thereof in violation of
the Securities Act. Purchaser understands that the Target Subsidiary Equity
Interests have not been, and will not be, registered under the Securities Act by
reason of a specific exemption from the registration provisions of the
Securities Act, the availability of which depends upon, among other things, the
bona fide nature of the investment intent and the accuracy of Purchaser's
representations as expressed herein.
(c) Purchaser understands that no public market now exists for the
Target Subsidiary Equity Interests, that a public market for such securities
will not develop in the future and that such securities are non-transferable by
their terms.
(d) Purchaser and Purchaser's advisors, if any, have had an opportunity
to ask questions of, and to receive information from, the Sellers concerning the
condition, business, operations and proposed operations of the Sellers and the
rights and privileges of the Target Subsidiary Equity Interests, and to obtain
any additional information material to Purchaser's decision to accept the Target
Subsidiary Equity Interests or necessary to verify the accuracy of other
information and data received by Purchaser in connection with the Transactions.
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(e) Purchaser has made either alone or together with Purchaser's
advisors, if any, such independent investigation of the Sellers and related
matters as (i) Purchaser deems to be, or Purchaser's advisors, if any, have
advised to be, necessary or advisable in connection with Purchaser's acceptance
of the Target Subsidiary Equity Interests to be transferred to Purchaser and
(ii) Purchaser and Purchaser's advisors, if any, believe to be necessary in
order to reach an informed decision as to the advisability of accepting such
Target Subsidiary Equity Interests.
Section 4.5 BROKERS OR FINDERS. Neither Purchaser, Apollo Sylvan, Apollo
Xxxxxx XX, Holdings nor any of their Subsidiaries or their Affiliates has
entered into any agreement or arrangement entitling any agent, broker,
investment banker, financial advisor or other firm or Person to any broker's or
finder's fee or any other commission or similar fee in connection with any of
the Transactions, except for X.X. Xxxxxx Securities Inc. and JPMorgan Chase
Bank, whose fees are payable by Purchaser.
Section 4.6 OPERATIONS OF PURCHASER, APOLLO SYLVAN, APOLLO XXXXXX XX AND
HOLDINGS. None of Holdings, Purchaser, Apollo Sylvan nor Apollo Xxxxxx XX has
conducted any operations or business and, other than this Agreement and other
agreements entered into in connection with the Transactions, including, without
limitation, the Financing, none of Holdings, Purchaser, Apollo Sylvan nor Apollo
Xxxxxx XX is party to any material agreement, contract or understanding.
Section 4.7 LITIGATION. As of the date hereof, there is no action, suit,
inquiry, proceeding or investigation by or before any court or governmental or
other regulatory or administrative agency or commission pending, or, to the
knowledge of Purchaser, Apollo Sylvan, Apollo Xxxxxx XX or Holdings, threatened
against, or involving the Purchaser, Apollo Sylvan, Apollo Xxxxxx XX or Holdings
which questions or challenges the validity of this Agreement or any action taken
or to be taken by the Purchaser, Apollo Sylvan, Apollo Xxxxxx XX or Holdings
pursuant to this Agreement or in connection with the Transactions; and, to the
knowledge of Purchaser, Apollo Sylvan, Apollo Xxxxxx XX and Holdings, there is
no valid basis for any such action, proceeding or investigation.
Section 4.8 OWNERSHIP OF CONVERTIBLE DEBENTURES. Parent has full power and
authority to surrender, without restriction, the Convertible Debentures
surrendered at Closing and Sylvan will acquire good and unencumbered title to
the Convertible Debentures surrendered at Closing, free and clear of all
Encumbrances.
ARTICLE V
COVENANTS
Section 5.1 INTERIM OPERATIONS OF THE TARGETED BUSINESSES. Each Seller
covenants and agrees that, after the date hereof and prior to the Closing Date,
except (i) as expressly provided in this Agreement, (ii) as set forth in Part
5.1 of the Disclosure Schedule or (iii) as may be agreed in writing by
Purchaser:
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(a) the businesses of the Targeted Businesses shall be conducted in the
same manner as heretofore conducted and only in the ordinary course of business
consistent with past practice, and each of the Sellers, the Targeted Businesses
and the Target Subsidiaries shall use its commercially reasonable efforts to
preserve the business organization and assets of the Targeted Businesses intact,
keep available the services of the current officers and employees of the
Targeted Businesses and maintain the existing relations with franchisees,
customers, suppliers, creditors, business partners and others having business
dealings with the Targeted Businesses;
(b) no Target Subsidiary shall: (i) amend its certificate of
incorporation or by-laws or similar organizational documents, (ii) issue, sell,
transfer, pledge, dispose of or encumber any shares of any class or series of
its capital stock or Voting Debt, or securities convertible into or exchangeable
for, or options, warrants, calls, commitments or rights of any kind to acquire,
any shares of any class or series of its capital stock or any Voting Debt, (iii)
declare, set aside or pay any dividend or other distribution payable in cash,
stock or property with respect to any shares of any class or series of its
capital stock; (iv) split, combine or reclassify any shares of any class or
series of its capital stock; or (v) redeem, purchase or otherwise acquire
directly or indirectly any shares of any class or series of its capital stock,
or any instrument or security which consists of or includes a right to acquire
such shares;
(c) neither the Sellers (with respect to the Targeted Businesses) nor
any Target Subsidiary shall modify or amend in any material respects or
terminate any of its material contracts or waive, release or assign any material
rights or claims, except in the ordinary course of business and consistent with
past practice;
(d) none of the Target Subsidiaries shall: (i) incur or assume any
long-term debt or, except in the ordinary course of business, incur or assume
short-term Indebtedness exceeding in the aggregate $1,000,000 from the date
hereof until the Closing; PROVIDED, HOWEVER, that the Target Subsidiaries may
incur or assume Indebtedness not to exceed $200,000 for capital expenditures;
(ii) pay, repay, discharge, purchase, repurchase or satisfy any Indebtedness
issued or guaranteed by any Target Subsidiary, except as required by the terms
thereof; (iii) modify the terms of any material Indebtedness or other liability;
(iv) assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any other
Person, except as described in Part 5.1(d)(iv) of the Disclosure Schedule as
being in the ordinary course of business and consistent with past practice; (v)
except as set forth in Part 5.1(d)(v) of the Disclosure Schedule, make any
loans, advances or capital contributions to, or investments in, any other Person
(other than to or in other Target Subsidiaries existing on the date hereof);
(vi) enter into any material commitment or transaction (including any capital
expenditure or purchase, sale or lease of assets or real estate); or (vii) write
down the value of any inventory or write off as uncollectible any notes or
accounts receivable other than as required by US GAAP or in the ordinary course
of business;
(e) neither the Sellers (with respect to the Targeted Businesses) nor
any Target Subsidiary shall lease, sublease, license, assign, mortgage, pledge,
or
35
encumber any assets other than in the ordinary and usual course of business and
consistent with the past practice described in the Disclosure Schedule or
transfer, sell or dispose of any assets other than in the ordinary and usual
course of business and consistent with past practice or dispose of or permit to
lapse any rights to any Intellectual Property; PROVIDED, HOWEVER, that
notwithstanding any of the provisions of this Section 5.1, the Sellers may sell
any or all of the Tuition Portfolio Assets;
(f) neither the Sellers nor any Target Subsidiary shall make any change
in the compensation payable or to become payable to any of the officers,
employees, agents or consultants of the Targeted Businesses (other than normal
recurring increases in the ordinary course of business consistent with past
practice in wages payable to employees who are not officers of the Targeted
Businesses), or enter into or amend any employment, severance, consulting,
termination or other agreement with, or employee benefit plan for, or make any
loan or advance to, any of the officers, employees, Affiliates, agents or
consultants of the Targeted Businesses or make any change in its existing
borrowing or lending arrangements for or on behalf of any of such Persons
pursuant to an employee benefit plan or otherwise;
(g) neither the Sellers nor any Target Subsidiary shall (i) pay or make
any accrual or arrangement for payment of any pension, retirement allowance or
other employee benefit pursuant to any existing plan, agreement or arrangement
to any officer or employee of the Targeted Businesses, or pay or agree to pay or
make any accrual or arrangement for payment to any officer or employee of the
Targeted Businesses of any amount relating to unused vacation days, except to
the extent the Targeted Businesses or a Target Subsidiary is unconditionally
obligated to do so on the date hereof, (ii) adopt or pay, grant, issue,
accelerate or accrue salary or other payments or benefits pursuant to any
pension, profit-sharing, bonus, extra compensation, incentive, deferred
compensation, stock purchase, stock option, stock appreciation right, group
insurance, severance pay, retirement or other employee benefit plan, agreement
or arrangement, or any employment or consulting agreement with or for the
benefit of any officer, employee, agent or consultant of the Targeted
Businesses, whether past or present, except to the extent the Sellers or a
Target Subsidiary is unconditionally obligated to do so on the date hereof, or
(iii) amend in any material respect any such existing plan, agreement or
arrangement in a manner inconsistent with the foregoing;
(h) neither the Sellers (with respect to the Targeted Businesses) nor
any Target Subsidiary shall permit any insurance policy naming it as a
beneficiary or a loss payable payee to be cancelled or terminated without notice
to Purchaser, except policies providing coverage for losses not in excess of
$1,000,000 which are replaced without diminution in or gaps in coverage;
(i) neither the Sellers (with respect to the Targeted Businesses) nor
any of the Target Subsidiaries shall enter into any contract or transaction
relating to the purchase or disposition of assets other than in the ordinary
course of business consistent with past practices;
36
(j) neither the Sellers (with respect to the Targeted Businesses) nor
any of the Target Subsidiaries shall pay, repurchase, discharge or satisfy any
of its 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 and consistent with past
practice of claims, liabilities or obligations reflected or reserved against in,
or contemplated by, the Financial Statements or incurred since the Balance Sheet
Date in the ordinary course of business;.
(k) no Target Subsidiary shall adopt a plan of complete or partial
liquidation, dissolution, merger, consolidation, restructuring, recapitalization
or other reorganization;
(l) the Sellers shall not redeem or repurchase the Convertible
Debentures prior to the Closing Date;
(m) neither the Sellers (with respect to the Targeted Businesses) nor
any of the Target Subsidiaries shall (i) change any of the accounting methods
used by it unless required by US GAAP or FRG GAAP or (ii) make or change any
material Tax election, file any material amended Tax return, enter into any
material closing agreement, settle or compromise any material liability with
respect to Taxes, agree to any material adjustment of any Tax attribute, file
any claim for a material refund of Taxes, or consent to any extension or waiver
of the limitation period application to any material Tax claim or assessment;
(n) neither the Sellers nor any of the Target Subsidiaries shall take,
or agree to or commit to take, any action that would or would result in any of
the conditions to the Closing set forth in Article VI not being satisfied, or
would make any representation or warranty of the Sellers contained herein
inaccurate in any respect at, or as of any time prior to, the Closing Date, or
that would materially impair the ability of the Sellers or Purchaser to
consummate the Closing in accordance with the terms hereof or materially delay
such consummation;
(o) neither the Sellers nor any of the Target Subsidiaries shall enter
into any agreement, contract, commitment or arrangement to do any of the
foregoing, or authorize, recommend, propose or announce an intention to do, any
of the foregoing;
(p) prior to the Closing Date, Ventures shall not make any distribution
or payment with respect to any of its equity interests; and
(q) the Sellers shall file, on a timely basis, with appropriate taxing
authorities all Tax returns required to be filed prior to the Closing Date with
respect to, or on behalf of, operations of the Targeted Businesses or the Target
Subsidiaries.
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Section 5.2 NO SOLICITATION; OTHER OFFERS.
(a) After the date hereof and prior to the Closing Date or earlier
termination of this Agreement in accordance with its terms, the Sellers will
not, and the Sellers will cause their Subsidiaries and Affiliates and the
officers, directors, employees, investment bankers, attorneys, consultants and
other agents and advisors of the Sellers and their Subsidiaries and Affiliates
not to, directly or indirectly, (i) take any action to encourage, solicit,
initiate or knowingly facilitate the submission of any Acquisition Proposal or
(ii) encourage or engage in discussions or negotiations with, or disclose any
nonpublic information relating to the Targeted Businesses or afford access to
the properties, books or records of the Targeted Businesses or of the Sellers
regarding the Target Assets to, any Person (other than to Purchaser, its
representatives and advisors) concerning an Acquisition Proposal. The Sellers
will notify Purchaser as soon as reasonably practicable, but in any event,
within forty-eight hours of any Acquisition Proposal received by the Sellers or
any of their Subsidiaries or any of their representatives, Affiliates,
employees, advisors, agents, officers or directors, any indication that any
Person is considering making an Acquisition Proposal or any request for
nonpublic information relating to the Targeted Businesses or for access to the
properties, books or records of the Sellers or any of their Subsidiaries by any
Person who is considering making, or has made, an Acquisition Proposal. The
Sellers shall provide such notice orally and in writing and shall identify the
Person making, and the terms and conditions of, any such Acquisition Proposal,
indication or request and shall also include, as and when received, copies of
any written offer, proposal or materials received. The Sellers shall keep
Purchaser fully informed, on a current basis, of the status and details of any
such Acquisition Proposal, indication or request. Upon execution of this
Agreement, the Sellers shall and shall cause their Subsidiaries, and their
respective officers, directors, Affiliates, representatives, consultants and
advisors to immediately cease any discussions or negotiations with any Persons
conducted prior to the execution of this Agreement with respect to any
Acquisition Proposal and shall request (or if any of them has contractual rights
to do so, demand) the return of all documents, analyses, financial statements,
projections and other data and information previously furnished to others in
connection with any potential Acquisition Proposal.
(b) Notwithstanding the foregoing, the Sellers may engage in
discussions or negotiations with, and furnish nonpublic information or access
to, any Person in response to an unsolicited Acquisition Proposal by such Person
received without violation of this Agreement if (i) the Sellers have complied
with the terms of Section 5.2(a), (ii) the Board of Directors of Sylvan or the
Special Committee of Sylvan, as appropriate, determines in good faith that such
Acquisition Proposal would result in a Superior Proposal and, after consultation
with outside legal counsel, that the failure to take such action would be deemed
to constitute a breach of its fiduciary duties under applicable law, (iii) such
Person executes a confidentiality agreement with terms no less favorable to the
Sellers than those contained in the Confidentiality Agreement and (iv) the
Sellers shall have delivered to Purchaser three Business Days' prior written
notice (the "FIRST NOTICE") advising Purchaser that it intends to take such
action. Upon receipt of the First Notice, Purchaser will notify the Sellers as
soon as reasonably practicable, but in any event, within three Business Days
after receipt of such notice, of
38
the Termination Fee (the "TERMINATION FEE NOTICE") it will elect in the event of
termination of this Agreement on the basis of such Acquisition Proposal pursuant
to Section 7.3(a)(x) or 7.3(a)(y). If Purchaser elects the Termination Fee
pursuant to Section 7.3(a)(y), it shall not be required to make the election
provided in subparts (a) and (b) of that section at the time it provides the
Termination Fee Notice, but shall be required to make such election no later
than five Business Days after the Purchaser's receipt of the notice specified in
Section 7.1(c)(iii)(C). The Sellers shall deliver no more than one First Notice
with respect to a Person that has provided an Acquisition Proposal unless such
Person provides a new Acquisition Proposal following a matching offer by
Purchaser pursuant to Section 7.1(c)(ii)(D).
(c) Nothing contained in this Section 5.2 or any other provision of
this Agreement shall prohibit the Sellers or any director, officer, agent or
employee of the Sellers from (i) taking and disclosing to Sylvan's shareholders
a position with respect to a tender or exchange offer by a third party pursuant
to Rule 14d-9 and 14e-2 promulgated under the Exchange Act or (ii) making such
disclosure to Sylvan's shareholders as, in the good faith judgment of Sylvan's
Board of Directors after consultation with outside counsel, is required under
applicable law.
Section 5.3 ACCESS.
(a) Between the date of this Agreement and the Closing, the Sellers
shall (i) afford Purchaser and its authorized representatives, at reasonably
agreeable times, reasonable access to all offices and other facilities of the
Targeted Businesses and to all books and records relating to the Targeted
Businesses, (ii) permit Purchaser, at reasonably agreeable times, to make such
inspections and to make copies of such books and records as it may reasonably
require and (iii) furnish Purchaser with such financial and operating data and
other information concerning the Targeted Businesses as Purchaser may from time
to time reasonably request. Purchaser and its authorized representatives shall
conduct all such inspections in a manner that will limit disruptions to the
business and operations of the Targeted Businesses.
(b) Purchaser and its authorized representatives (including its
designated engineers or consultants) may at reasonably agreeable times enter
into and upon all or any portion of the Targeted Businesses' or any Target
Subsidiary's properties (including all the Leased Real Property) in order to
investigate and assess, as Purchaser deems necessary or appropriate in its sole
and absolute discretion, the environmental condition of such properties or the
business conducted thereat. Such investigation may include, but need not be
limited to, the performance of soil and surface or ground water sampling,
monitoring, borings or testing and any other tests, investigations, audits,
assessments, studies, inspections or other procedures relating to environmental
conditions or Materials of Environmental Concern. The Sellers shall, and shall
cause the Targeted Businesses and the Target Subsidiaries to, cooperate with
Purchaser and its authorized representatives in conducting such investigation,
shall allow Purchaser and its authorized representatives full access at such
agreed upon times to their properties and businesses, together with full
permission to conduct such investigation, and shall provide to Purchaser and its
authorized representatives all plans, soil or surface or ground water tests
39
or reports, any environmental investigation results, reports or assessments
previously or contemporaneously conducted or prepared by or on behalf of, or in
the possession of or reasonably available to the Sellers or any Target
Subsidiary or any of their engineers, consultants or agents and all other
relevant information relating to environmental matters in respect of the
Targeted Businesses.
Section 5.4 EFFORTS AND ACTIONS TO CAUSE CLOSING TO OCCUR.
(a) Prior to the Closing, upon the terms and subject to the conditions
of this Agreement, Purchaser and the Sellers shall use their respective
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done and cooperate with each other in order to do, all things
necessary, proper or advisable (subject to any applicable laws) to consummate
the Closing and the Transactions as promptly as practicable including, but not
limited to, (i) the preparation and filing of all forms, registrations and
notices required to be filed to consummate the Closing and the other
Transactions and the taking of such actions as are necessary to obtain any
requisite approvals, authorizations, consents, orders, licenses, permits,
qualifications, exemptions or waivers by any third party or Governmental Entity,
and (ii) the preparation of any disclosure documents and other materials
reasonably requested by Purchaser in order to facilitate the Financing of any of
the Transactions. In addition, Purchaser and the Sellers shall use their
respective reasonable best efforts to obtain any (i) permission, approval or
consent from any Governmental Entity or other Person required to be obtained
prior to Closing or (ii) financing of the Transactions.
(b) Prior to the Closing, each party shall promptly consult with the
other parties hereto with respect to, provide any necessary information with
respect to, and provide the other parties (or their respective counsel) with
copies of, all filings made by such party with any Governmental Entity or any
other information supplied by such party to a Governmental Entity in connection
with this Agreement and the Transactions. Each party hereto shall promptly
provide the other parties with copies of any communication received by such
party from any Governmental Entity regarding any of the Transactions. If any
party hereto or Affiliate thereof receives a request for additional information
or documentary material from any such Governmental Entity with respect to any of
the Transactions, then such party shall endeavor in good faith to make, or cause
to be made, as soon as reasonably practicable and after consultation with the
other parties, an appropriate response in compliance with such request. To the
extent that transfers, amendments or modifications of permits (including
environmental permits) are required as a result of the execution of this
Agreement or consummation of any of the Transactions, the Sellers shall use
their reasonable best efforts to effect such transfers, amendments or
modifications.
(c) The Sellers shall use their reasonable best efforts to obtain,
prior to the Closing, (i) the unconditional consent to the Closing and the other
Transactions of each lender whose consent, waiver or amendment is required under
any agreement to permit the consummation of the Transactions and to whom the
Sellers or any Target Subsidiary owes in excess of $250,000 as of the Closing
Date, (ii) the unconditional consent to the Closing and the other Transactions
of each lessor under each
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Lease whose consent, waiver or amendment is required to permit the consummation
of the Transactions and the assignment or sublease of each such Lease, in every
case without loss of any premises, loss of any option to renew or expand,
increase in rent, or other material change to the terms and conditions of such
Lease that were effective prior to the request for said consent; (iii)
non-disturbance and attornment agreements in a form reasonably satisfactory to
Purchaser from each of the master landlords under the subleases described in
Exhibits D, E and F, and from each of the master landlords' mortgagees, if any,
providing, among other things, that if Sylvan's lease with any such landlord
terminates for a reason other than a Purchaser default under its sublease (or if
any mortgagee forecloses on the master landlord's estate and Sylvan's lease
and/or Purchaser's sublease is subordinate to such mortgage), then such master
landlord (or mortgagee, as the case may be) agrees not to disturb Purchaser in
its peaceable possession of the sublet premises for the remaining term of the
sublease, so long as Purchaser attorns to such party and agrees to recognize
such party as its landlord in connection therewith, including paying all
sublease rent thereto; (iv) the unconditional consent to the Closing and the
other Transactions of the issuer of each material insurance policy whose right
to consent, waiver or amendment is required, to avoid loss of insurance, to
permit the consummation of the Transactions pursuant to its terms and (v) the
unconditional consent to the Closing and the other Transactions of each other
party to each material contract whose consent, waiver or amendment is required
thereunder to permit the consummation of the Transactions, except for such
consents identified on Part 5.4(c) of the Disclosure Schedule the failure of
which to obtain would not materially adversely affect the Targeted Businesses or
any Target Subsidiary or the ability of the Sellers or Purchaser to consummate
the Transactions. All such releases and consents obtained prior to Closing shall
be in writing and executed counterparts thereof shall be delivered to Purchaser
at or prior to the Closing.
(d) In addition to and without limiting the agreements of the parties
contained above, the Sellers and Purchaser shall:
(i) take promptly all actions necessary to make the filings
required of them or any of their Affiliates under the HSR Act,
(ii) comply at the earliest practicable date with any request for
additional information or documentary material received by the Sellers or
Purchaser or any of their Affiliates from the FTC or the DOJ pursuant to
the HSR Act or from any State Attorney General or other Governmental
Entity in connection with antitrust matters,
(iii) cooperate with each other in connection with any filing under
the HSR Act and in connection with resolving any investigation or other
inquiry concerning the Transactions commenced by the FTC, DOJ, any State
Attorney General or any other Governmental Entity;
41
(iv) use their reasonable best efforts to resolve such objections,
if any, as may be asserted with respect to the Transactions under any
antitrust law, and
(v) advise the other parties promptly of any material communication
received by such party from the FTC, DOJ, any State Attorney General or
any other Governmental Entity regarding any of the Transactions, and of
any understandings, undertakings or agreements (oral or written) such
party proposes to make or enter into with the FTC, DOJ, any State Attorney
General or any other Governmental Entity in connection with the
Transactions.
Concurrently with the filing of notifications under the HSR Act or as soon
thereafter as practicable, the Sellers and Purchaser shall each request early
termination of the HSR Act waiting period.
(e) Notwithstanding the foregoing or any other covenant herein
contained, in connection with the receipt of any necessary approvals under the
HSR Act, neither the Sellers nor any Target Subsidiary shall be entitled without
Purchaser's prior written consent or required to divest or hold separate or
otherwise take or commit to take any action that limits Purchaser's freedom of
action with respect of, or its ability to retain, the Targeted Businesses or any
material portions thereof or any of the businesses, product lines, properties or
assets of the Targeted Businesses.
(f) Notwithstanding the foregoing or any other covenant herein
contained, nothing in this Agreement shall be deemed to require Purchaser to
divest or hold separate any assets or agree to limit its future activities,
method or place of doing business, to commence any litigation against any entity
in order to facilitate the consummation of any of the Transactions or to defend
against any litigation brought by any Governmental Entity seeking to prevent the
consummation of, or impose limitations on, any of the Transactions.
(g) Notwithstanding the foregoing or any other covenant herein
contained, nothing in this Agreement shall be deemed to require the Sellers, in
order to facilitate consummation of the Transactions or to resolve a challenge
to any of the Transactions on antitrust grounds, (i) to divest any assets other
than the Targeted Businesses and the Target Assets, (ii) to make any
divestitures that would result in the Sellers receiving an amount less than the
total Purchase Price or (iii) to sell anything less than the Targeted Businesses
and the Target Assets for an amount less than the total Purchase Price.
Section 5.5 NOTIFICATION OF CERTAIN MATTERS.
(a) From time to time prior to the Closing, the Sellers shall promptly
supplement or amend the Disclosure Schedule with respect to any matter arising
after the delivery thereof pursuant hereto that, if existing at, or occurring
on, the date of this Agreement, would have been required to be set forth or
described in the
42
Disclosure Schedule. No supplement or amendment of the Disclosure Schedule made
after the execution hereof by Purchaser pursuant to this section or otherwise
shall be deemed to cure any breach of any representation of or warranty made
pursuant to this Agreement.
(b) The Sellers shall give notice to Purchaser promptly after becoming
aware of (i) the occurrence or non-occurrence of any event whose occurrence or
non-occurrence would be likely to cause either (A) any representation or
warranty contained in this Agreement to be untrue or inaccurate in any material
respect at any time from the date hereof to the Closing Date or (B) any
condition set forth in Article VI to be unsatisfied in any material respect at
any time from the date hereof to the Closing Date and (ii) any failure of the
Sellers or any officer, director, employee or agent thereof, 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 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
(c) The Sellers shall deliver to Purchaser copies of (i) all audit
reports, letter rulings, technical advice memoranda and similar documents issued
by a Governmental Entity relating to the United States federal, state, local or
foreign Taxes due from or with respect to the Targeted Businesses or any Target
Subsidiary and (ii) any closing agreements entered into by or on behalf of the
Sellers relating to the Targeted Businesses or any Target Subsidiary with any
taxing authority, which come into the possession of the Sellers after the date
hereof.
(d) The Sellers shall use their reasonable best efforts to assist
Purchaser in connection with financing matters related to the consummation of
the Transactions.
(e) If, after the date hereof, Apollo obtains actual knowledge of a
breach of any of the representations and warranties of the Sellers other than
information obtained from the Sellers in writing, Purchaser shall notify the
Sellers of such breach prior to the Closing Date. If Purchaser has delivered
such a notice, the Closing Date shall not occur prior to the 10th Business Day
following the delivery of such notice.
Section 5.6 STOCK OPTIONS. The Board of Directors of Sylvan will take any and
all necessary actions to ensure that each unexpired and unexercised outstanding
option to purchase shares of Sylvan's common stock held by employees of the
Sellers who are retained by the Purchaser in connection with the Transactions,
will continue to vest as if such employees had continued to be employed by
Sylvan for a period of twelve months following the Closing Date, and will be
exercisable for twenty-four months following the Closing Date.
Section 5.7 USE OF XXXXXX XXXXX. Sellers agree that, except as expressly set
forth in the Master License Agreements, they shall, and shall cause their
Subsidiaries to, as soon as practicable after the Closing Date and in any event
within (x) 10 days (in the case of clause (a)(i) below) and (y) 3 days (in the
case of clauses (a)(ii)
43
below) following the Closing Date, (a) cease to (i) make any use of the name
or xxxx "Sylvan", any other Trademark included in the Target Intellectual
Property, and any Trademarks related thereto or containing or comprising the
foregoing, including any Trademark confusingly similar thereto or dilutive
thereof (the "XXXXXX XXXXX"), and (ii) represent itself as having any
affiliation with the Targeted Businesses; PROVIDED, HOWEVER, that in the case
of any Seller or any Subsidiary of a Seller whose corporate, company or trade
name includes any Xxxxxx Xxxx, said Seller or Subsidiary of a Seller shall
have a period of 12 months to change its corporate, company or trade name to
a name that does not include any Xxxxxx Xxxx and to make any necessary legal
filings with the appropriate Governmental Authority to effectuate such
change. Any use of the Xxxxxx Xxxxx by Sellers or their Subsidiaries pursuant
to this Section 5.7 shall be in conformity with the practices of Sellers as
of the Closing Date and shall be in a manner that does not in any material
way harm or disparage Purchaser or the reputation or goodwill of the Xxxxxx
Xxxxx. At the written request of Purchaser, Sellers shall assign, or shall
cause the applicable Subsidiary to assign, to Purchaser any rights to any
Xxxxxx Xxxxx that it may retain.
Section 5.8 LIMITATION ON TRANSACTIONS WITH AFFILIATES. Except as set forth
in Part 5.8 of the Disclosure Schedule, from the date hereof until the Closing
Date, the Sellers shall not, and shall not permit any of their Subsidiaries to,
directly or indirectly, sell, lease, transfer or otherwise dispose of any of the
Target Assets or to permit any Target Subsidiary to purchase any property or
assets from, or enter into any contract, understanding, loan, advance or
guarantee with, or for the benefit of, an Affiliate of the Sellers (other than
Targeted Businesses) or any of their Subsidiaries (other than Target
Subsidiaries) (an "AFFILIATE TRANSACTION"), unless (a) such Affiliate
Transaction is on terms that are no less favorable to the Targeted Businesses or
such Target Subsidiary than those that could have been obtained in a comparable
transaction from an unrelated Person and (b) with respect to any Affiliate
Transaction (or series of related Affiliate Transactions) involving or having a
potential value of more than $500,000, in addition to compliance with clause
(a), such Affiliate Transaction shall also be approved by a majority of the
disinterested members of the Board of Directors of Sylvan or the Board of
Managers of Ventures, as the case may be, after determining, in their reasonable
good faith judgment, that (i) such transaction is in the best interest of the
Targeted Businesses based on full disclosure of all relevant facts and
circumstances and (ii) such transaction is on fair and reasonable terms
competitive with those that could be obtained from an unrelated third party
(such approval and determination to be evidenced by a resolution of such
disinterested directors of the Board of Directors of Sylvan or the Board of
Managers of Ventures, as the case may be). Notwithstanding the foregoing, the
provisions of this Section 5.8 shall not prevent the Sellers from entering into
this Agreement or any of the other Transactions contemplated by this Agreement.
Section 5.9 NON-COMPETES.
(a) Without the express prior written consent of Purchaser, neither the
Sellers nor any Subsidiary or Affiliate of the Sellers shall, at any time during
the three-year period immediately following the Closing Date, directly or
indirectly, own, manage, control or participate in the ownership, management or
control of, or consult
44
with, a Seller Competing Business; PROVIDED, that the foregoing shall not
prohibit the Sellers or any Affiliate or Subsidiary of the Sellers from owning
as a passive investment 5% or less of the outstanding equity of any
publicly-traded entity, or the ownership by the Sellers or any Subsidiary or
Affiliate of the Sellers of a Seller Competing Business that (i) constitutes a
portion of a business acquired by the Sellers or a Subsidiary or Affiliate of a
Seller and (ii) has revenues (together with those of any other Seller Competing
Business acquired by the Sellers or a Subsidiary or Affiliate of a Seller as
part of another business) of less than $25 million in the aggregate. In the
event that the revenues of any one or more Seller Competing Businesses equal or
exceed $25 million in the aggregate, Sellers shall, and shall cause such
Subsidiary or Affiliate to, use their commercially reasonable efforts to sell or
discontinue any such Seller Competing Businesses (or portions thereof) within 1
year following the acquisition of the Seller Competing Business that puts the
Sellers or such Subsidiary or Affiliate at or over the $25 million revenue
threshold such that after such sale or discontinuation, the Seller Competing
Businesses, in the aggregate, have revenues of less than $25 million. The
Sellers agree that the Sellers and Sellers' Subsidiaries and Affiliates will
not, for a period of one year after the Closing Date, solicit any person now
employed by the Sellers for the primary benefit of the Targeted Businesses for
employment by the Sellers if such Person is then employed by Purchaser or any
Subsidiary or Affiliate of Purchaser. Purchaser agrees that the restrictions set
forth in this subsection (a) above shall not apply to any solicitation by the
Sellers directed at the public in general in publications available to the
public in general or any contact which the Sellers can demonstrate through
written records was initiated by such employee.
(b) Without the express prior written consent of the Sellers, neither
Purchaser nor any Subsidiary or Affiliate of Purchaser shall, at any time during
the three-year period immediately following the Closing Date, directly or
indirectly, own, manage, control or participate in the ownership, management or
control of, or consult with, a Purchaser Competing Business; PROVIDED, that the
foregoing shall not prohibit Purchaser or any Affiliate or Subsidiary of
Purchaser from owning as a passive investment 5% or less of the outstanding
equity of any publicly-traded entity, or the ownership by the Purchaser or any
Subsidiary or Affiliate of the Purchaser of a Purchaser Competing Business that
(i) constitutes a portion of a business acquired by the Purchaser or a
Subsidiary or Affiliate of the Purchaser and (ii) has revenues (together with
those of any other Purchaser Competing Business acquired by the Purchaser or a
Subsidiary or Affiliate of the Purchaser as part of another business) of less
than $25 million in the aggregate. In the event that the revenues of any one or
more Purchaser Competing Businesses equal or exceed $25 million in the
aggregate, Purchaser shall, and shall cause such Subsidiary or Affiliate to, use
their commercially reasonable efforts to sell or discontinue any such Purchaser
Competing Businesses (or portions thereof) within 1 year following the
acquisition of the Purchaser Competing Business that puts the Purchaser or such
Subsidiary or Affiliate at or over the $25 million revenue threshold, such that
after such sale or discontinuation, the Purchaser Competing Businesses, in the
aggregate, have revenues of less than $25 million. Purchaser agrees that
Purchaser and Purchaser's Subsidiaries and Affiliates will not, for a period of
one year after the Closing Date, solicit any person now employed by the Sellers
for employment by the Purchaser (other than pursuant to the Transactions) if
such Person is then employed by the Sellers or any
45
Subsidiary or Affiliate of the Sellers. The Sellers agree that the restrictions
set forth in this subsection (b) above shall not apply to any solicitation by
Purchaser directed at the public in general in publications available to the
public in general or any contact which Purchaser can demonstrate through written
records was initiated by such employee. The activities of Apollo and its
portfolio companies and limited partners that are not subsidiaries of Holdings
and do not use the Xxxxxx Xxxxx in their businesses shall not be limited by this
Section 5.9(b).
Section 5.10 SUBSEQUENT ACTIONS.
(a) If at any time after the Closing, Purchaser will consider or be
advised that any deeds, bills of sale, instruments of conveyance, assignments,
assurances or any other actions or things are necessary or desirable to vest,
perfect or confirm ownership (of record or otherwise) in Purchaser, its right,
title or interest in, to or under any or all of the Target Assets or otherwise
to carry out this Agreement, the Sellers shall execute and deliver all deeds,
bills of sale, instruments of conveyance, powers of attorney, assignments and
assurances and take and do all such other actions and things as may be
reasonably requested by Purchaser in order to vest, perfect or confirm any and
all right, title and interest in, to and under such rights, properties or assets
in Purchaser or otherwise to carry out this Agreement.
(b) In case at any time after the Closing Date any further action is
necessary, proper or advisable to carry out the purposes of this Agreement, as
soon as reasonably practicable, each party hereto shall take, or cause its
proper officers or directors to take, all such necessary, proper or advisable
actions.
(c) Ventures will not, for a period of one year after the Closing Date,
allow a distribution within the meaning of Section 731 of the Code. Ventures
will adopt a closing of the books methodology under Section 706 of the Code in
respect of the sale of the Preferred Units as defined in the Securities Purchase
Agreement.
Section 5.11 PUBLICITY. The initial press release with respect to the
execution of this Agreement shall be a joint press release acceptable to
Purchaser and Sylvan. Thereafter, until the Closing, or the date the
Transactions are terminated or abandoned pursuant to Article VII, neither the
Sellers, Purchaser nor any of their respective Affiliates shall issue or cause
the publication of any press release or other public announcement with respect
to this Agreement or the other Transactions without the written agreement of the
other party, except as may be required by law or by any listing agreement with a
national securities exchange or trading market (in which case the other party
shall be consulted prior to release).
Section 5.12 MAIL RECEIVED AFTER CLOSING. Following the Closing, Purchaser
may receive and open all mail addressed to the Sellers or any Target Subsidiary
and deal with the contents thereof in its discretion to the extent that such
mail and the contents thereof relate to the Targeted Businesses or the Target
Assets or any of the obligations or liabilities assumed by Purchaser pursuant to
this Agreement. Purchaser shall promptly deliver or cause to be delivered to the
Sellers all mail received by
46
Purchaser or the Targeted Businesses after the Closing addressed to the Sellers
or any Subsidiary of the Sellers which does not relate to the Targeted
Businesses or the Target Assets. The Sellers shall promptly deliver or cause to
be delivered to Purchaser all mail received by the Sellers or any Subsidiary of
the Sellers after the Closing addressed to Purchaser or any Subsidiary of
Purchaser which relates to the Targeted Businesses or the Target Assets.
Section 5.13 ACCESS TO BOOKS AND RECORDS.
(a) On and after the Closing, during normal business hours, the Sellers
will permit Purchaser and its auditors, through its authorized representatives,
to have reasonable access to and examine and make copies of all books and
records of the Sellers relating to the Targeted Businesses which are not
delivered to Purchaser pursuant hereto (including correspondence, memoranda,
books of account and the like) and relating to events occurring prior to the
date hereof and to transactions or events occurring prior to the date hereof.
(b) Purchaser shall cooperate with the Sellers and make available to
the Sellers such documents, books, records or information transferred to
Purchaser and relating to activities of the Targeted Businesses or the Sellers
prior to the Closing as the Sellers may reasonably require after the Closing in
connection with any tax determination or contractual obligations to third
parties or to defend or prepare for the defense of any claim against the Sellers
or to prosecute or prepare for the prosecution of claims against third parties
by the Sellers relating to the conduct of the business of the Targeted
Businesses by the Sellers prior to the Closing or in connection with any
governmental investigation of the Sellers or any of their Affiliates.
(c) Each party will direct its employees to render any assistance which
the other party may reasonably request in examining or utilizing records
referred to in this section, provided that each party shall be reimbursed by the
other for any out-of-pocket expenses which it may incur in rendering the
services provided for in this section. Each party agrees not to destroy any
files or records which are subject to this section without giving reasonable
notice to the other, and within fifteen days of receipt of such notice, such
other party may cause to be delivered to it the records intended to be
destroyed, at such other party's expense. Each party shall treat all information
received from the other parties pursuant to this Agreement with at least the
same care as it treats its own confidential information, and will not disclose
such information to third parties without the written consent of the party
providing such information (or if disclosure is required under applicable law,
without providing reasonable prior written notice to the party providing such
information).
Section 5.14 WAIVER OF BULK SALES REQUIREMENT. Each of the parties waives
compliance with any applicable bulk sales laws with respect to the Target
Assets, including without limitation the Uniform Commercial Code Bulk Transfer
provisions. The Sellers agree to pay and discharge in due course and will
indemnify and save harmless Purchaser from and against all claims made by the
Sellers' creditors, including
47
expenses and attorneys' fees incurred by Purchaser in defending against such
claims, except those expressly assumed by Purchaser pursuant hereto.
Section 5.15 TUITION FINANCE PAYMENTS. Purchaser will remit to the Sellers
within 10 Business Days of receipt all payments received in respect of the
Tuition Portfolio Assets, including proceeds from the sale of such assets, net
of Purchaser's reasonable costs of collection, administration and sale.
Section 5.16 INTELLECTUAL PROPERTY.
(a) Neither the Sellers nor any Target Subsidiary shall do any act or
omit to do any act whereby any Target Intellectual Property may lapse, become
abandoned, dedicated to the public, or unenforceable except in the ordinary
course of business consistent with past practices and only as to Target
Intellectual Property which is not material.
(b) Neither the Sellers nor any Target Subsidiary shall, with respect
to any material Trademarks included in the Target Intellectual Property, cease
the use of any of such Trademarks or fail to maintain the level of the quality
of products sold and services rendered under any of such Trademarks at a level
at least substantially consistent with the quality of such products and services
as of the date hereof.
(c) The Sellers will not use, register or authorize others to use or
register Target Intellectual Property or any other Intellectual Property
substantially or confusingly similar thereto and will not challenge Purchaser's
right to use or register such Intellectual Property.
Section 5.17 VENTURES CAPITAL CALLS. Ventures agrees that it will not make
capital calls in excess of $6,000,000 (including the $2,500,000 capital call
discussed by the parties immediately prior to the date hereof) from the date
hereof to and including the Closing Date.
Section 5.18 DEFERRED PURCHASE PRICE. Purchaser shall pay the Deferred
Purchase Price to the Sellers, in cash, in the amounts and on the dates set
forth on Part 5.18 of the Disclosure Schedule hereof.
Section 5.19 CONVERTIBLE DEBENTURES. Purchaser agrees that in the event it
elects to tender to Sylvan less than 75% of the Convertible Debentures, it shall
fund the difference in value between 75% and the percentage of Convertible
Debentures actually converted in the form of equity rather than credit.
Section 5.20 POST CLOSING CONSENTS.
(a) With respect to any Lease that is assigned or subleased to the
Purchaser at Closing that (i) required the consent of the landlord to such
assignment or sublease, and (ii) was assigned or subleased without obtaining
such consent, if (1) any such Lease has a remaining term of at least one year
from the Closing Date, and (2) the lessor under such Lease seeks to terminate or
materially amend the terms or conditions of
48
such Lease after the Closing Date, then Sylvan shall pay to Purchaser all
out-of-pocket expenses incurred by Purchaser (y) in connection with the
relocation of the learning center subject to such Lease and in connection with
the execution and delivery of a new lease with substantially the same terms and
conditions as the Lease that was terminated or materially altered; or (z) all
damages associated with the assignment or sublease of such Lease to Purchaser,
in the case of each of (y) and (z), up to a maximum of $100,000 per Lease.
(b) If the Sellers do not obtain any requisite consent for assignment
of the Target Intellectual Property listed on Part 3.23(a)(v) of the Disclosure
Schedule prior to Closing, the Sellers shall pay to the Purchaser the cost of
replacing such Target Intellectual Property with Intellectual Property of the
same type.
(c) If the Sellers do not obtain any requisite consent for the
assignment of any SES Contract, then (i) with respect to contracts with a stated
term of more than one year that are terminated (other than for nonperformance)
within 12 months following the Closing Date, Sylvan shall pay Purchaser the
previous 12-month period Contribution Margin, MULTIPLIED BY a number that
represents the number of years the contractual relationship has existed with
Sylvan, rounded to the nearest whole number; PROVIDED, HOWEVER, that in no event
shall the multiplier be greater than five; PROVIDED, FURTHER, that if the
requisite Governmental Entity refuses to pay the amount due on the SES Contract
and expresses, as the reason for such refusal, the assignment contemplated by
this Agreement or the other Transactions, the Sellers will pay to Purchaser the
amount owed by such Governmental Entity under such SES Contract. Purchaser shall
use its reasonable best efforts to collect the amount owed by such Governmental
Entity under such SES Contract and shall promptly remit the amount collected to
Sylvan.
(d) For a period of 180 days following the Closing Date, Sellers shall
direct their internal legal department to use their reasonable best efforts to
assist the Purchaser in obtaining any consents not obtained prior to the
Closing. For a period of 180 days following the Closing Date, Purchaser shall
use its reasonable best efforts to assist the Sellers in obtaining any consents
not obtained prior to the Closing. Nothing contained in this Section 5.20(d)
shall waive Sellers' obligations with respect to the remainder of this Section
5.20.
Section 5.21 XXXXXX MATERIALS. Sylvan and the Purchaser will, between the
date hereof and the Closing Date, negotiate in good faith with the intent of
reaching an agreement regarding the matters set forth on Part 5.21 of the
Disclosure Schedule. The parties acknowledge that they have not reached a final
understanding as to the terms set forth on Part 5.21 and, therefore, they may
not, despite Sylvan's and the Purchaser's good faith efforts, reach an
agreement.
Section 5.22 CONTRIBUTION OF APOLLO IV. Promptly following the satisfaction
or waiver of the conditions set forth in Section 6.1 and Section 6.2 hereof
(other than any condition whose satisfaction is conditioned upon the
contribution provided for in this Section 5.22), Apollo IV, or its designees,
shall contribute $20,000,000, in cash, to the Purchaser to fund a portion of the
Purchase Price.
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ARTICLE VI
CONDITIONS
Section 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE CLOSING. The
respective obligation of each party to effect the Closing shall be subject to
the satisfaction at or prior to the Closing Date of each of the following
conditions:
(a) STATUTES; COURT ORDERS. No statute, rule or regulation shall have
been enacted or promulgated by any governmental authority which prohibits the
consummation of the Closing; and there shall be no order or injunction of a
court of competent jurisdiction in effect precluding consummation of the
Closing.
(b) HSR APPROVAL. The applicable waiting period under the HSR Act shall
have expired or been terminated.
(c) If the Sellers have delivered a First Notice pursuant to Section
5.2(b) hereof, at least 23 calendar days have elapsed since the date of
Purchaser's receipt of such First Notice.
(d) The transactions related to the Securities Purchase Agreement shall
have been consummated.
Section 6.2 CONDITIONS TO OBLIGATIONS OF PURCHASER TO EFFECT THE CLOSING. The
obligations of Purchaser to consummate the Closing shall be subject to the
satisfaction on or prior to the Closing Date of each of the following
conditions:
(a) OPINION OF SELLERS' COUNSEL. The Sellers shall have delivered to
Purchaser at the Closing opinions of counsel to the Sellers (including reliance
letters in favor of lenders providing the Financing), including opinions of Xxxx
Xxxxxxx LLP, dated the Closing Date, in form and substance satisfactory to
Purchaser, as to the matters set forth on Exhibit K hereto.
(b) CERTIFICATE OF SELLERS' OFFICERS. Each Seller shall have delivered
to Purchaser at the Closing a certificate signed by the chief executive officer
of such Seller and by the chief financial officer of such Seller, dated the
Closing Date, in form and substance satisfactory to Purchaser, to the effect
that, as of the Closing Date, (w) all of the representations and warranties of
such Seller set forth in this Agreement that are qualified as to materiality are
true and complete (without giving effect to any update made to the Disclosure
Schedule), (x) all such representations and warranties that are not so qualified
are true and complete in all material respects (without giving effect to any
update made to the Disclosure Schedule), (y) there has not occurred any material
adverse change (or any development that, insofar as reasonably can be foreseen,
is reasonably likely to result in any material adverse change) in the
consolidated financial condition, businesses or results of operations of the
Targeted Businesses and the Target Subsidiaries, taken as a whole, and (z) such
Seller has performed in all material respects
50
all obligations required under this Agreement to be performed by it at or
prior to the Closing.
(c) CONSENTS OBTAINED. The Requisite Consents shall have been obtained,
and a copy of each such consent or approval shall have been provided to
Purchaser at or prior to the Closing.
(d) [INTENTIONALLY OMITTED]
(e) FINANCING. Purchaser shall have consummated the Financing.
(f) MATERIAL ADVERSE CHANGE. There shall not have occurred after the
date hereof any material adverse change (or any development that, insofar as
reasonably can be foreseen, would result in any material adverse change) in (i)
the consolidated financial condition, results of operations, assets, liabilities
(absolute, accrued, contingent or otherwise), reserves, businesses or operations
of the Targeted Businesses and the Target Subsidiaries, taken as a whole, or
(ii) the ability of the Targeted Businesses or the Target Subsidiaries to
consummate the Transactions.
(g) REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties of the Sellers set forth in this Agreement that are qualified as to
materiality shall be true and complete (without giving effect to any update made
to the Disclosure Schedule) and any such representations and warranties that are
not so qualified shall be true and complete in all material respects (without
giving effect to any update made to the Disclosure Schedule), in each case as of
the date of this Agreement and as of the Closing Date.
(h) SELLERS' BREACH. The Sellers shall not have failed to perform in
any material respect any obligation or to comply in any material respect with
any agreement or covenant of the Sellers to be performed or complied with by it
under this Agreement.
(i) FIRPTA CERTIFICATE. Purchaser shall have received (i) a
certification of non-foreign status for the Sellers in the form and manner which
complies with the requirements of Section 1445 of the Code and the regulations
promulgated thereunder, and any similar state or local law and regulation, and
(ii) any other certifications which may be required under applicable law stating
that no Taxes are due to any taxing authority for which the Purchaser could have
liability to withhold and pay with respect to the transfer of the Target Assets.
(j) TERMINATION. The Transactions shall not have been terminated or
abandoned in accordance with the terms of this Agreement.
The foregoing conditions are for the sole benefit of Purchaser and may be waived
by Purchaser, in whole or in part, at any time and from time to time in the sole
discretion of Purchaser. The failure by Purchaser at any time to exercise any of
the foregoing rights
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shall not be deemed a waiver of any such right and each such right shall be
deemed an ongoing right which may be asserted at any time and from time to time.
Section 6.3 CONDITIONS TO OBLIGATIONS OF THE SELLERS TO EFFECT THE
CLOSING. The obligations of the Sellers to consummate the Closing shall be
subject to the satisfaction on or prior to the Closing Date of each of the
following conditions:
(a) OPINION OF PURCHASER'S COUNSEL. Purchaser shall have delivered to
the Sellers at the Closing an opinion of Skadden, Arps, Slate, Xxxxxxx & Xxxx
LLP, counsel to the Purchaser, dated the Closing Date, in form and substance
satisfactory to the Sellers, as to the matters set forth on Exhibit L hereto.
(b) CERTIFICATE OF PURCHASER'S OFFICERS. Purchaser shall have delivered
to the Sellers at the Closing a certificate signed by the chief executive
officer and treasurer of Purchaser, dated the Closing Date, in form and
substance satisfactory to the Sellers, to the effect that, as of the Closing
Date, (x) all of the representations and warranties of Purchaser set forth in
this Agreement that are qualified as to materiality are true and complete, (y)
all such representations and warranties that are not so qualified are true and
complete in all material respects, and (z) Purchaser has performed in all
material respects all obligations required under this Agreement to be performed
by it at or prior to the Closing.
(c) CERTIFICATE OF HOLDINGS' OFFICERS. Holdings shall have delivered to
the Sellers at the Closing a certificate signed by the chief executive officer
of Holdings and by the chief financial officer of Holdings, dated the Closing
Date, in form and substance satisfactory to the Sellers, to the effect that, as
of the Closing Date, (x) all of the representations and warranties of Holdings
set forth in this Agreement that are qualified as to materiality are true and
complete, (y) all such representations and warranties that are not so qualified
are true and complete in all material respects, and (z) Holdings has performed
in all material respects all obligations required under this Agreement to be
performed by it at or prior to the Closing.
(d) REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties of Purchaser and Holdings set forth in this Agreement that are
qualified as to materiality shall be true and complete and any such
representations and warranties that are not so qualified shall be true and
complete in all material respects, in each case as of the date of this Agreement
and as of the Closing Date.
(e) PURCHASER'S OR HOLDINGS' BREACH. Neither Purchaser nor Holdings
shall have failed to perform in any material respect any obligation or to comply
in any material respect with any agreement or covenant of either of them to be
performed or complied with by it under this Agreement.
(f) TERMINATION. The Transactions shall not have been terminated or
abandoned in accordance with the terms of this Agreement.
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The foregoing conditions are for the sole benefit of the Sellers and may be
waived by the Sellers, in whole or in part, at any time and from time to time in
the sole discretion of the Sellers. The failure by the Sellers at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
ARTICLE VII
TERMINATION
Section 7.1 TERMINATION. This Agreement may be terminated or abandoned at any
time prior to the Closing Date:
(a) by the mutual written consent of Purchaser and the Sellers;
(b) by either Purchaser or the Sellers if any Governmental Entity shall
have issued an order, decree or ruling or taken any other action (which order,
decree, ruling or other action the parties hereto shall use their reasonable
best efforts to lift), which permanently restrains, enjoins or otherwise
prohibits the acquisition by Purchaser of the Targeted Businesses or any of the
Target Subsidiaries and such order, decree, ruling or other action shall have
become final and non-appealable;
(c) by the Sellers:
(i) if Purchaser shall have breached in any material respect any of
its representations, warranties, covenants or other agreements contained
in this Agreement, which breach cannot be or has not been cured within 30
days after the giving of written notice by the Sellers to Purchaser
specifying such breach;
(ii) on or after July 31, 2003, if the Closing shall not have
theretofore occurred and if the failure of the Closing to occur is not
the result of a breach of a representation, warranty or covenant by the
Sellers; PROVIDED, HOWEVER, that the Purchaser or the Sellers may extend
such date by up to 3 months in the event that the applicable waiting
period under the HSR Act shall not have expired or been terminated prior
to July 31, 2003; PROVIDED FURTHER that such date shall be extended by
an amount of time equal to any period during which consummation of the
Transactions is prohibited pursuant to an injunction or restraint issued
by a court of competent jurisdiction; PROVIDED FURTHER that such date
shall be extended as necessary if a notice is given by Purchaser to the
Sellers pursuant to Section 5.5(e) hereof within 10 Business Days prior to
the Closing Date.
(iii) if (A) the Board of Directors of Sylvan, or the Special
Committee of Sylvan, as appropriate, authorizes Sylvan to enter into a
written agreement concerning a Superior Proposal, (B) the
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Sellers shall have complied with Section 5.2, (C) the Sellers shall have
given Purchaser a prior written notice of their intention to terminate the
Agreement, attaching a description of all material terms and conditions of
the Superior Proposal to such notice, (D) Purchaser does not make, within
five Business Days after receipt of such notice, an offer which the Board
of Directors, or the Special Committee of Sylvan, as appropriate, of
Sylvan determines, in good faith after consultation with its independent
financial advisor and legal counsel, is at least as favorable to Sylvan or
its stockholders, taking into account legal, financial, regulatory and
other matters, including the likelihood of consummation, as the Superior
Proposal, it being understood that the Sellers shall not enter into any
such written agreement during such five Business Day period, and (E) upon
such termination pursuant to this clause (c)(iii), the Sellers shall pay
to Purchaser the fee required to be paid pursuant to Section 7.3. The
Sellers agree to notify Purchaser promptly if their intention to enter
into a written agreement referred to in their notification shall change at
any time after giving such notification.
(d) by Purchaser:
(i) if the Sellers shall have breached in any material respect
any of their representations, warranties, covenants or other agreements
contained in this Agreement, which breach cannot be or has not been cured
within 30 days after the giving of written notice by Purchaser to the
Sellers specifying such breach;
(ii) on or after July 31, 2003, if the Closing shall not have
theretofore occurred and if the failure of the Closing to occur is not the
result of a breach of a representation, warranty or covenant by Purchaser;
PROVIDED, HOWEVER, that the Purchaser or the Sellers may extend such date
by up to 3 months in the event that the applicable waiting period under
the HSR Act shall not have expired or been terminated prior to July 31,
2003; PROVIDED FURTHER that such date shall be extended by an amount of
time equal to any period during which consummation of the Transactions is
prohibited pursuant to an injunction or restraint issued by a court of
competent jurisdiction; PROVIDED FURTHER that such date shall be extended
as necessary if a notice is given by Purchaser to the Sellers pursuant to
Section 5.5(e) hereof within 10 Business Days prior to the Closing Date.
(iii) if either of the Sellers shall have entered into, or
publicly announced its intention to enter into, a definitive agreement or
an agreement in principle with respect to an Acquisition Proposal with any
Person other than Purchaser (or an Affiliate of Purchaser); or
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(iv) if on or prior to the expiration of 23 calendar days after
the delivery to Purchaser of a First Notice, Sylvan fails to confirm in
writing to Purchaser that it has discontinued discussions with the
Person(s) who made the Acquisition Proposal that triggered the First
Notice and that it intends to consummate the Transactions.
Section 7.2 EFFECT OF TERMINATION. In the event of the termination or
abandonment of the Transactions by any party hereto pursuant to the terms of
this Agreement, written notice thereof shall forthwith be given to the other
party or parties specifying the provision hereof pursuant to which such
termination or abandonment of the Transactions is made.
Section 7.3 TERMINATION FEE.
(a) If:
(i) the Sellers shall terminate this Agreement pursuant to
Section 7.1(c)(iii);
(ii) Purchaser shall terminate this Agreement pursuant to
Section 7.1(d)(iii) or 7.1(d)(iv); or
(iii) either the Sellers or the Purchaser shall terminate this
Agreement pursuant to Section 7.1(c)(ii) or Section 7.1(d)(ii), and within six
months after such Termination Date, either of the Sellers enter into an
agreement with respect to an Acquisition Proposal;
then in any case, as described in clause (i) to (iii), the Sellers shall, at the
election of Purchaser as provided to the Sellers pursuant to Section 5.2(b),
either:
(x) pay Purchaser $7.5 million in cash on the Termination Date or
the date a Seller enters into an agreement in accordance with the terms of
Section 7.3(a)(iii) (the "ACQUISITION PROPOSAL AGREEMENT DATE"); or
(y) pay Purchaser $2.0 million in cash on the Termination Date or
the Acquisition Proposal Agreement Date, and purchase on the Termination Date or
the Acquisition Proposal Agreement Date all of Purchaser's interest in Ventures
for an amount equal to Apollo's Net Capital Investment--Preferred Units (as such
term is defined in the Ventures Limited Liability Company Agreement) payable, at
Purchaser's election in either (a) cash or (b) Sylvan Common Shares at the
Current Market Price as of the date that Purchaser makes its election between
clauses (a) and (b) hereof. Any such purchase shall be pursuant to an agreement
between Sylvan and Purchaser and pursuant to which the Purchaser shall be
released of all liabilities with respect to Ventures. Purchaser shall make
customary representations and warranties and give customary indemnities to the
Sellers only with respect to its ownership of the interests free and clear of
liens.
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(b) In addition to any payment made under Section 7.3(a), if this
Agreement is terminated pursuant to Section 7.1, this Agreement shall become
void and of no effect with no liability on the part of any party (or any
stockholder, director, officer, employee, agent, consultant or representative of
such party) to the other party hereto, and, except in the case of termination as
a result of a material breach of this Agreement by Purchaser, the Sellers shall
reimburse Purchaser up to a maximum of $2 million for its reasonable and
documented out-of-pocket expenses (including fees for accountants, lawyers,
financial advisors, contractors and consultants) incurred in connection with
this Agreement and the Transactions.
(c) In the event this Agreement is terminated pursuant to this Article
VII, the provisions under this Section 7.3 shall survive such termination.
ARTICLE VIII
TAX MATTERS
Section 8.1 TAX INDEMNIFICATION.
(a) From and after the Closing Date, Sylvan shall be liable for and
shall indemnify and hold the Purchaser Indemnified Persons harmless from and
against all losses, liabilities, damages, judgments, settlements and expenses
(including interest and penalties recovered by a third party with respect
thereto and reasonable attorneys' fees and expenses and reasonable accountants'
fees and expenses incurred in the investigation or defense of any of the same or
in asserting, preserving or enforcing any of the rights of Purchaser arising
under Article VIII) imposed on, sustained, incurred or suffered by the Purchaser
Indemnified Persons (including, upon the Closing, the Target Subsidiaries),
directly or indirectly, by reason of or resulting from any and all Taxes imposed
upon the Target Subsidiaries or in respect of the Targeted Businesses with
respect or pursuant to (i) any taxable period ending on or before the Closing
Date (a "PRE-CLOSING PERIOD"), (ii) any taxable period beginning before the
Closing Date and ending after the Closing Date (a "STRADDLE PERIOD"), but only
with respect to the portion of such Straddle Period ending on and including the
Closing Date and in the manner provided in Section 8.1(c) hereof (such portion,
a "PRE-CLOSING STRADDLE PERIOD"), (iii) Treasury Regulation Section 1.1502-6 (or
any comparable provision under state, local or foreign law or regulation
imposing several liability upon members of a consolidated, combined, affiliated
or unitary group) for any Pre-Closing Period, (iv) a breach or inaccuracy in any
representation contained in Section 3.22 of this Agreement; PROVIDED, that
indemnification pursuant to this clause (iv) shall be subject to the limits
contained in Section 9.1(d)(ii), Section 9.1(d)(iii), Section 9.2 and Section
9.5, (v) breaches of any covenant of the Sellers set forth in this Article VIII,
Section 1.5 or Section 5.10(c) or (vi) Taxes other than Transfer Taxes
attributable to the Sellers and arising from the Transactions.
(b) From and after the Closing Date, the Purchaser shall be liable for
and shall indemnify and hold the Sellers and their Affiliates harmless from and
against all losses, liabilities, damages, judgments, settlements and expenses
(including
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interest and penalties recovered by a third party with respect thereto and
reasonable attorneys' fees and expenses and reasonable accountants' fees and
expenses incurred in the investigation or defense of any of the same or in
asserting, preserving or enforcing any of the rights of the Sellers arising
under Article VIII) imposed on, sustained, incurred or suffered by the Sellers
or their Affiliates, directly or indirectly, by reason of or resulting from any
and all Taxes imposed upon the Target Subsidiaries or in respect of the Targeted
Businesses with respect or pursuant to (i) any taxable period beginning after
the Closing Date (a "POST-CLOSING PERIOD"), (ii) any Straddle Period, but only
with respect to the portion of such Straddle Period beginning the day after the
Closing Date and in the manner provided in Section 8.1(c) hereof (such portion,
a "POST-CLOSING STRADDLE PERIOD") and (iii) Taxes imposed as a result of a
breach of any covenant of Purchaser set forth in this Article VIII or Section
1.5.
(c) For purposes of calculating the Taxes imposed which relate to a
Straddle Period and must be allocated between a Pre-Closing Straddle Period and
a Post-Closing Straddle Period, the portion of such Taxes related to the portion
of such Straddle Period ending on the Closing Date shall (i) in the case of any
Taxes other than Taxes based upon or related to income, sales, gross receipts,
premiums, wages, capital expenditures or expenses, be deemed to be the amount of
such Tax for the entire Straddle Period multiplied by a fraction the numerator
of which is the number of days in the Straddle Period ending on the Closing Date
and the denominator of which is the number of days in the entire Straddle
Period, and (ii) in the case of any Taxes based upon or related to income,
sales, gross receipts, premiums, wages, capital expenditures or expenses, be
deemed to be equal to the amount which would be payable if the Straddle Period
ended on and included the Closing Date.
Section 8.2 TAX CLAIMS.
(a) If Purchaser, any of its Affiliates or, effective upon the Closing,
the Target Subsidiaries, receives any notice of deficiency, proposed adjustment,
adjustment, assessment audit, examination or other administrative or court
proceeding, suit, dispute or other claim (a "TAX CLAIM") asserted, commenced or
initiated against the Target Subsidiaries or the Targeted Businesses with
respect to a Pre-Closing Period, Purchaser shall promptly notify the Sellers of
the receipt of such Tax Claim and shall give the Sellers such information with
respect thereto as the Sellers may reasonably request provided, however, that
the failure to give such notice on a timely basis shall not affect the
indemnification provided herein except to the extent the indemnifying party has
been actually and materially prejudiced as a result of such failure. The Sellers
shall have the right to assume the defense (at the Sellers' expense) of any Tax
Claim asserted, commenced or initiated against the Target Subsidiaries or the
Targeted Businesses with respect to a Pre-Closing Period through counsel of
Sellers' own choosing by notifying Purchaser within twenty days of the receipt
by the Sellers of such notice from Purchaser provided, however, that any such
counsel shall be reasonably satisfactory to Purchaser. The Sellers shall be
liable for the fees and expenses of counsel employed by Purchaser for any period
during which the Sellers have not assumed the defense of any such third-party
claim (other than during any period in which Purchaser will have failed to give
notice of the third-party claim as provided above). If the Sellers assume such
defense,
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Purchaser shall have the right to participate in the defense thereof and to
employ counsel, at its own expense, separate from the counsel employed by the
Sellers, it being understood that the Sellers shall control such defense.
Sellers shall not enter into any settlement with respect to any such Tax Claim
without Purchaser's prior written consent, which shall not be unreasonably
withheld.
(b) If any of the Sellers or their Affiliates receives any Tax Claim
asserted, commenced or initiated against the Target Subsidiaries or the Targeted
Businesses with respect to a Straddle Period or a Post-Closing Period, Sellers
shall promptly notify the Purchaser of the receipt of such Tax Claim and shall
give the Purchaser such information with respect thereto as the Purchaser may
reasonably request; PROVIDED, HOWEVER, that the failure to give such notice on a
timely basis shall not affect the indemnification provided herein except to the
extent the indemnifying party has been actually and materially prejudiced as a
result of such failure. The Purchaser shall be solely responsible for
controlling the defense of any Tax Claim asserted, commenced or initiated
against the Target Subsidiaries or the Targeted Businesses with respect to (i) a
Straddle Period or a Post-Closing Period and (ii) a Pre-Closing Period to the
extent Sellers have failed to defend such Tax Claim, provided, however, that if
such Tax Claim relates to a Straddle Period, Sellers, may, at their own expense,
participate in such Tax Claim to the extent the matters raised in such Tax Claim
relate to Pre-Closing Straddle Periods. Purchaser shall not enter into any
settlement with respect to a Pre-Closing Period without the Sellers' prior
written consent, which shall not be unreasonably withheld.
(c) Notwithstanding any other provision of this Agreement, the Sellers
shall not have the right to control, defend, settle, compromise or contest any
Tax Claim to the extent that Purchaser and its Affiliates waives their right to
indemnification from the Sellers with respect to such Tax Claim.
Section 8.3 TAX RETURN FILINGS, PAYMENTS, AND REFUNDS.
(a) Sellers shall prepare or cause to be prepared at their own cost and
expense and in a manner consistent with past practice, and duly file or cause to
be duly filed, all Tax returns with respect to the Target Subsidiaries and the
Targeted Businesses for Pre-Closing Periods, and shall be responsible for
remitting or causing to be remitted all Taxes reflected on such Tax returns. No
less than twenty Business Days prior to the earlier of the date on which each
such Tax return is filed or due to be filed (taking into account any applicable
extensions), copies of all such Tax returns (or the portion thereof relating to
the Target Subsidiaries) shall be furnished to Purchaser for its review and
comment.
(b) Purchaser shall prepare or cause to be prepared, and file or cause
to be filed, on a timely basis, all Tax returns, other than the Tax returns
referred to in Section 8.3(a), with respect to the Target Subsidiaries and the
Targeted Businesses for Straddle Periods and Post-Closing Periods and shall be
responsible for remitting all Taxes reflected on such Tax returns. No less than
twenty Business Days prior to the earlier of the date on which each such Tax
return is filed or due to be filed (taking into account any
58
applicable extensions), Purchaser shall furnish to the Sellers copies of all
such Tax returns prepared and filed by Purchaser (or the relevant portion
thereof relating to the Target Subsidiaries) that include a Pre-Closing Straddle
Period for its review and comment. Upon Purchaser's written request, the Sellers
shall pay to Purchaser all Taxes due and payable with respect to any Tax return
for a Straddle Period to the extent such Taxes relate to a Pre-Closing Straddle
Period, as determined under Section 8.1(c). Sellers and Purchaser shall share in
the cost and expense payable to outside accountants or advisors for preparing
any Tax return for a Straddle Period, such cost and expense to be apportioned
among the Sellers and Purchaser in a manner consistent with the principles set
forth in Section 8.1(c).
(c) Sellers shall be entitled to any Tax refunds attributable to any
Pre-Closing Period or Pre-Closing Straddle Period provided, however, that
Purchaser shall be entitled to any such Tax refunds to the extent the refund
results from the carry back of a tax attribute from a Post-Closing Straddle
Period or a Post-Closing Period. Purchaser shall be entitled to any tax refunds
attributable to any Post-Closing Period or Post-Closing Straddle Period.
Section 8.4 TAX SHARING AGREEMENTS; POWERS OF ATTORNEY. All (i) Tax sharing
agreements or similar agreements, written or unwritten (other than those
provided by this Agreement), with respect to or involving the Target
Subsidiaries or the Targeted Businesses and (ii) powers of attorney granted by
or on behalf of the Target Subsidiaries or the Targeted Businesses with respect
to any matter relating to Taxes shall be terminated as of the Closing Date and,
after the Closing Date, the Target Subsidiaries or the Targeted Businesses shall
not be bound thereby or have any liability thereunder.
Section 8.5 TRANSFER TAXES. All Transfer Taxes arising out of, in connection
with or attributable to the Transactions shall be shared equally by Sellers on
the one hand and Purchaser on the other. The Transfer Tax Payor shall prepare
and timely file all relevant Tax returns required to be filed in respect of such
Transfer Tax (and will provide a copy of such Tax return to the other party for
review and comment at least 10 Business Days prior to filing), pay the Transfer
Tax shown on such Tax return, and notify the other party or parties in writing
of the Transfer Tax shown on such Tax return and how such Transfer Tax was
calculated, and the party or parties that did not pay the Transfer Tax shall
reimburse the Transfer Tax Payor for such party or parties share of the amount
of such Transfer Tax in immediately available funds within ten (10) Business
Days of receipt of such notice.
Section 8.6 ASSISTANCE AND COOPERATION. After the Closing, each of Purchaser
and the Sellers shall (a) cooperate fully in preparing any Tax returns and
preparing for any audits, disputes or litigation with any taxing authority
regarding any Tax returns of the Targeted Businesses or the Target Subsidiaries,
(b) make available to the other and to any taxing authority as reasonably
requested all information and documents relating to Taxes of the Target
Subsidiaries or the Target Assets, (c) provide timely notice to the other in
writing of any pending or threatened Tax Claim for any taxable period for which
the other party may have liability under this Article VIII, and (d) furnish the
other with copies of all correspondence received from any taxing authority
59
in connection with any Tax Claim with respect to any taxable period for which
the other may have liability under this Article VIII.
Section 8.7 CHARACTERIZATION OF INDEMNIFICATION PAYMENTS. All amounts paid by
the Sellers to Purchaser or its Affiliates or by Purchaser to the Sellers or its
Affiliates pursuant to this Article VIII or Article IX shall be treated as
adjustments to the Purchase Price for all Tax purposes.
Section 8.8 SURVIVAL OF TAX CLAIMS AND SECTION 3.22 REPRESENTATIONS.
Notwithstanding any other provision of this Agreement to the contrary, any
obligations of the parties pursuant to this Article VIII and all representations
and warranties contained in Section 3.22 of this Agreement shall be
unconditional and absolute (other than losses under Section 8.1(a)(iv), which
shall be limited to the extent set forth therein) and shall survive until sixty
days after the expiration of the applicable statute of limitations (taking into
account any applicable extensions or tollings thereof) relating to the Taxes at
issue.
ARTICLE IX
INDEMNIFICATION
Section 9.1 INDEMNIFICATION; REMEDIES.
(a) Except with respect to the representations and warranties contained
in Section 3.22 and any obligations or covenants relating to Taxes (each of
which will be governed exclusively by the provisions set forth in Article VIII,
other than losses under Section 8.1(a)(iv), which shall be subject to this
Article IX to the extent set forth in Section 8.1(a)(iv)), Sylvan shall
indemnify, defend and hold harmless the Purchaser Indemnified Persons from and
against and in respect of all Purchaser Losses.
(b) Purchaser shall indemnify, defend and hold harmless the Seller
Indemnified Persons from and against and in respect of all Seller Losses.
(c) Sylvan shall indemnify, defend and hold harmless the Purchaser
Indemnified Persons from and against and in respect of any withdrawal liability
to which the Purchaser becomes liable arising solely as a result of any complete
or partial withdrawal from any multi-employer plan (as defined in Section 3(37)
or Section 4001(a)(3) of ERISA or Section 414(f) of the Code) by the Sellers or
any Person that is or at any time within the five-year period prior to the date
of this Agreement was under common control (within the meaning of subsections
414(b), (c), (m) or (o) of the Code) with the Sellers.
(d) Sylvan's indemnification obligations under Sections 9.1(a) and
9.1(c) and, with respect to clauses (ii) and (iii) hereof, Section 8.1(a)(iv)
shall be subject to each of the following limitations:
(i) Sylvan's indemnification obligations relating to (A) Purchaser
Losses and ERISA Claims shall survive only until the 18th month
anniversary of the Closing Date and (B) Tax Claims
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shall survive as provided in Article VIII. No claim for the recovery of
any Purchaser Losses, ERISA Claims or Tax Claims may be asserted by any
Purchaser Indemnified Person after the expiration of the applicable
indemnification period; PROVIDED, HOWEVER, that claims first asserted in
writing by any Purchaser Indemnified Person with reasonable specificity
prior to the expiration of the applicable indemnification period shall not
thereafter be barred by the expiration of the applicable indemnification
period; PROVIDED, FURTHER, that the limitations set forth in this Section
9.1(d)(i) shall not apply to Purchaser Losses arising out of any breach by
the Sellers of any representation or warranty contained in Sections 3.1,
3.2, 3.4, 3.5, 3.6, or 3.13 or any Purchaser Losses arising out of, based
upon or relating to paragraph (iii) of the definition of Purchaser Losses,
in each case prior to the fourth anniversary of the Closing Date;
PROVIDED, FURTHER, that the limitation set forth in this Section 9.1(d)(i)
shall not apply to Purchaser Losses arising out of, based upon or
relating to clause (iv) of the definition of Purchaser Losses;
(ii) No reimbursement for Purchaser Losses or ERISA Claims asserted
under Section 9.1(a) or Section 9.1(c) respectively, or for losses under
Section 8.1(a)(iv) shall be required unless and until the cumulative
aggregate amount of such Purchaser Losses, ERISA Claims and losses under
Section 8.1(a)(iv) exceeds $1,000,000, and then only to the extent that
the aggregate amount of Purchaser Losses, ERISA Claims and losses under
Section 8.1(a)(iv), as finally determined, exceeds such amount; PROVIDED,
HOWEVER, the limitations set forth in this Section 9.1(d)(ii) shall not
apply to Purchaser Losses arising out of, based upon, or relating to, any
Purchaser Losses (A) set forth in paragraphs (iii), (iv) and (v) of the
definition thereof or (B) that are based upon a failure of the Sellers to
make payments provided for in Sections 1.3 and 5.20 hereof; and
(iii) Sylvan's indemnification obligations relating to Purchaser
Losses, ERISA Claims or Tax Claims incurred as a result of a breach of the
representations and warranties pertaining to Ventures, Connections Academy
or eSylvan contained in this Agreement shall be limited to the percentage
of such Purchaser Losses, ERISA Claims or Tax Claims set forth in Part
9.1(d) of the Disclosure Schedule.
Section 9.2 AGGREGATE DOLLAR LIMITATION. The aggregate dollar amount of all
payments Sylvan shall be obligated to make pursuant to this Article IX and
Section 8.1(a)(iv) shall not exceed $25,000,000; PROVIDED, HOWEVER,
notwithstanding anything to the contrary herein, Sylvan's indemnification
obligations with respect to claims by the Purchaser arising out of Sylvan's
breach of any representation or warranty contained in Sections 3.1, 3.2 and 3.13
and the second sentence of Section 3.5 shall not exceed the Designated Purchase
Price; provided, FURTHER, that the limitations set forth in this Section 9.2
shall not apply to Purchaser Losses arising out of, based upon, or relating to,
any Purchaser Losses (A) set forth in paragraphs (iii), (iv) or (v) of the
definition thereof or
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(B) that are based upon a failure of the Sellers to make payments provided for
in Sections 1.3 and 5.20 hereof.
Section 9.3 NOTICE OF CLAIM; DEFENSE. Purchaser or the Sellers, as the case
may be (the "INDEMNIFIED Party"), shall give the other party (the "INDEMNIFYING
PARTY") prompt notice of any third-party claim that may give rise to any
indemnification obligation under this Article IX, together with the estimated
amount of such claim, and the Indemnifying Party shall have the right to assume
the defense (at the Indemnifying Party's expense) of any such claim through
counsel of the Indemnifying Party's own choosing by so notifying the Indemnified
Party within 30 days of the first receipt by the Indemnifying Party of such
notice from the Indemnified Party; PROVIDED, HOWEVER, that any such counsel
shall be reasonably satisfactory to the Indemnified Party. Failure to give such
notice shall not affect the indemnification obligations hereunder in the absence
of actual and material prejudice. If, under applicable standards of professional
conduct, a conflict with respect to any significant issue between any Purchaser
Indemnified Person or any Seller Indemnified Person, as the case may be, and the
Indemnifying Party exists in respect of such third-party claim, the Indemnifying
Party shall pay the reasonable fees and expenses of such additional counsel as
may be required to be retained in order to eliminate such conflict. If the
Indemnifying Party chooses to defend or prosecute a third-party claim, the
Indemnified Party shall cooperate in the defense or prosecution thereof, which
cooperation shall include, to the extent reasonably requested by the
Indemnifying Party, the retention, and the provision to the Indemnifying Party,
of records and information reasonably relevant to such third-party claim, and
making employees of the Targeted Businesses available on a mutually convenient
basis to provide additional information and explanation of any materials
provided hereunder. If the Indemnifying Party chooses to defend or prosecute any
third-party claim, the Indemnified Party shall agree to any settlement,
compromise or discharge of such third-party claim that the Indemnifying Party
may recommend and that, by its terms, discharges the Indemnified Party and its
Affiliates from the full amount of liability in connection with such third-party
claim; PROVIDED, HOWEVER, that, the Indemnifying Party shall not consent to, and
the Indemnified Party shall not be required to agree to, the entry of any
judgment or enter into any settlement that (i) provides for injunctive or other
non-monetary relief affecting the Indemnified Party or any Affiliate of the
Indemnified Party, (ii) does not include as an unconditional term thereof the
giving of a release from all liability with respect to such claim by each
claimant or plaintiff to each Indemnified Party that is the subject of such
third-party claim, or (iii) contains any admission of wrongdoing by the Targeted
Businesses or any of their employees.
Section 9.4 SURVIVAL OF INDEMNIFICATION CLAIMS; OFFSET.
(a) The indemnification obligations set forth in this Article IX and in
Article VIII shall survive the Closing. If agreed to by the Sellers or if a
Seller's obligation to pay such indemnification is determined by a court of
competent jurisdiction and is final and nonappealable, Sellers' indemnification
obligations may be satisfied, in whole or in part, by offset against obligations
of Purchaser under the Seller Note delivered pursuant to this Agreement. If
exercised, such right of offset shall be applied, at Purchaser's option, to
either (a) the payment next due under the Seller Note after such
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right of offset is asserted, and, to the extent necessary to satisfy such right
of offset, to subsequent payments due under the Seller Note in the chronological
order in which such payments are scheduled or (b) the outstanding principal
amount of the Seller Note.
Section 9.5 EFFECT OF INVESTIGATION. The right to indemnification,
payment of Purchaser Losses or for other remedies based on any representation,
warranty, covenant or obligation of the Sellers contained in or made pursuant to
this Agreement shall not be affected by any investigation conducted with respect
to, or any knowledge acquired (or capable of being acquired) at any time after
the execution and delivery of this Agreement, with respect to the accuracy or
inaccuracy of or compliance with, any such representation, warranty, covenant or
obligation. Purchaser shall have no right of indemnification pursuant to Article
VIII or this Article IX with respect to any breach of a representation or
warranty contained in this Agreement to the extent that Apollo (excluding Apollo
Sylvan, Apollo Xxxxxx XX, Holdings and Purchaser) had actual knowledge of such
breach prior to the date hereof. The waiver of any condition to the obligation
of Purchaser to consummate the Transactions, where such condition is based on
the accuracy of any representation or warranty, or on the performance of or
compliance with any covenant or obligation, shall not affect the right to
indemnification, payment of Purchaser Losses, or other remedy based on such
representation, warranty, covenant or obligation.
Section 9.6 SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES. Each
of the covenants, representations and warranties of the Sellers in this
Agreement or in any schedule, instrument or other document delivered pursuant to
Articles III and V of this Agreement shall survive the Closing Date and shall
continue in force thereafter as limited by Section 9.1(d), except the
representations and warranties contained in Section 3.22 and all covenants
relating to Tax matters shall survive as provided in Article VIII.
ARTICLE X
DEFINITIONS AND INTERPRETATION
Section 10.1 DEFINITIONS. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context clearly requires otherwise:
"Acquisition Proposal" shall mean any offer or proposal for, or any
indication of interest in, an acquisition, directly or indirectly, of all or any
portion of the Sylvan Target Assets, alone or in combination with any other
assets
"Acquisition Proposal Agreement Date" shall have the meaning set forth in
Section 7.3(a)(x).
"Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under
the Exchange Act.
"Affiliate Transaction" shall have the meaning set forth in Section 5.8.
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"Agreement" or "this Agreement" shall mean this
Asset Purchase Agreement,
together with the exhibits and appendices hereto and the Disclosure Schedule.
"Allocable Amount" shall have the meaning set forth in Section 1.5(a).
"Apollo" shall mean Apollo Advisors, L.P. and its Affiliates.
"Apollo Sylvan" shall have the meaning set forth in the introductory
paragraph.
"Apollo Xxxxxx XX" shall have the meaning set forth in the introductory
paragraph.
"Assignment and Assumption Agreement" shall mean that certain Assignment and
Assumption Agreement in the form attached as Exhibit A hereto.
"Assumed Liabilities" shall have the meaning set forth in Section 1.2(b).
"Audit Date" shall mean December 31, 2002.
"Balance Sheet" shall mean the balance sheet of the Targeted Businesses as of
the Audit Date.
"Balance Sheet Date" shall mean the Audit Date.
"Xxxx of Sale" shall mean that certain Xxxx of Sale for the Sylvan Target
Assets in the form attached as Exhibit C hereto.
"Business Day" shall mean a day other than Saturday, Sunday or other day on
which commercial banks in
New York,
New York are authorized or required by law
to close.
"Xxxxxx" shall mean The Xxxxxx Group of Companies, Inc., a California
corporation.
"Xxxxxx Note" shall mean that certain Promissory Note in the original
principal amount of the Net Capital Investment--Preferred Units, MINUS
$10,000,000 made by Xxxxxx in favor of Apollo.
"Cash Amount" means $112,550,000, PLUS an amount equal to the difference
between (a) $72,450,000 and (b) the Debenture Value of the Convertible
Debentures surrendered by Parent at Closing; MINUS an amount equal to the
accrued and unpaid interest on the Debenture Amount on the Closing Date; PLUS
the Center Buy Back Amount.
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"Cash Burn Rate" shall mean eSylvan's total cash requirements (excluding
amounts payable pursuant to clause (v) of the definition of Purchaser Losses) in
excess of its revenues.
"Cash On-Hand Amount" shall mean the greater of (i) $5,000,000, and (ii) the
amount of cash and cash equivalents reflected on the Balance Sheet.
"Center Buy Back Amount" shall mean $354,451, PLUS all amounts paid pursuant
to the Chelmsford Note prior to the Closing Date.
"Charter School Business" shall mean (i) the business of Connections Academy
or its Subsidiaries, and (ii) any business of Holdings or its Subsidiaries
(excluding any business owned by Connections Academy or its Subsidiaries)
consisting of the opening and operation of government funded "charter schools"
as such term is defined under applicable law on the date hereof.
"Charter School EBITDA" means, as to any Measurement Period, the net income
of the Charter School Business (calculated in accordance with US GAAP
consistently applied from and after the Closing Date) for that Measurement
Period, PLUS
(1) the interest expense attributable to the Charter School Business
for such Measurement Period, whether paid in cash or accrued and
whether or not capitalized, including amortization of debt issuance
costs and original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest
component of all payments associated with capital lease obligations,
net of the effect of all payments made or received pursuant to hedging
obligations, to the extent that any such expense was deducted in
computing net income for the Charter School Business; PLUS
(2) depreciation, amortization (including amortization of goodwill
and other intangibles but excluding amortization of prepaid cash
expenses that were paid in a prior period) and other non-cash expenses
(excluding any such non-cash expense to the extent that it represents
an accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior period)
attributable to the Charter School Business, to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing net income for the Charter School Business; PLUS
(3) tax expense of the Charter School Business to the extent that
such expense was deducted in computing net income for the Charter
School Business; PLUS
(4) any corporate level overhead allocations or charges of Purchaser
charged to Connections Academy and deducted in computing net income for
the Charter School Business, excluding (a) Connections Academy's
allocable portion (based on a pass through of all Purchaser costs)
associated with the rental of
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office space, and (b) the fair value of any charges for services
performed by Purchaser for Connections Academy for which the Purchaser
incurred incremental expense; MINUS
(5) an implied interest rate compounding quarterly on any capital
contributed to Connections Academy by Purchaser (or any Affiliate of
Purchaser) excluding any capital contributed in connection with an
acquisition of a Charter School Business by Connections Academy, from
the date that each such contribution is made accruing at a rate per
annum equal to 7%; MINUS
(6) any Charter School EBITDA attributable to any Charter School
Business acquired by Connections Academy or Purchaser (or their
Affiliates) after the Closing Date.
"Chelmsford Note" shall mean that certain note dated January 1, 2003 in the
original principal amount of $280,000, issued by Sylvan in favor of Chelmsford
Sylvan Learning Center, Inc.
"Claim" means any suit, arbitration, opposition, interference, cancellation
or other adversarial proceeding.
"Closing" shall have the meaning set forth in Section 2.1.
"Closing Balance Sheet" shall mean a consolidated balance sheet of Sylvan
dated as of the Closing Date, prepared in accordance with US GAAP.
"Closing Date" shall have the meaning set forth in Section 2.1.
"Closing Working Capital Adjustment Amount" means an amount of Working
Capital equal to the difference (to the extent positive) of (i) the amount of
Working Capital reflected on the Balance Sheet, minus (ii) the amount of Working
Capital set forth on the Pre-Closing Balance Sheet.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Confidentiality Agreement" shall mean the Confidentiality and Non-Disclosure
Agreement dated as of January 30, 2003 between Sylvan and Apollo.
"Connections Academy" shall mean Connections Academy, Inc., a Delaware
corporation.
"Contribution Margin" shall mean an amount equal to 25% of the revenues
generated from an SES Contract.
"Convertible Debentures" shall mean the 5% Convertible Subordinated
Debentures due 2010 sold to Apollo by Sylvan pursuant to that certain Purchase
Agreement dated as of February 23, 2000 between Sylvan and those investors
executing such Agreement, including Apollo.
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"Copyrights" means all copyrights in works of authorship of any type,
including without limitation, moral rights and rights of attribution and
integrity, copyrights in Software and in the content contained on any Web site,
and registrations and applications for any of the foregoing, and rights to xxx
for past Infringement thereof.
"CTB/XxXxxx-Xxxx Contract" shall mean that certain Agreement, dated as of
July 1, 1996, by and between Sylvan and CTB/XxXxxx-Xxxx, a division of the
Educational and Professional Publishing Division of The XxXxxx-Xxxx Companies,
Inc.
"Current Market Price" means the average of the daily closing prices per
share of Sylvan common shares for the 15 consecutive Trading Days immediately
prior to such date. The closing price for each day shall be the last quoted
price as reported by the National Association of Securities Dealers, Inc.
Automated Quotation System.
"Debenture Amount" equals the original principal amount of Convertible
Debentures representing a Debenture Value of $72,450,000, provided that such
amount may be reduced if, prior to the Closing Date, the Purchaser notifies
Sylvan in writing of its intention to pay a greater portion of the consideration
in cash in lieu of Parent's surrender of Convertible Debentures.
"Debenture Value" means an amount equal to the greater of (a) the product of
(i) $19, multiplied by (ii) the number of shares into which the Convertible
Debentures surrendered on the Closing Date are convertible on the Closing Date,
and (b) the product of (i) the average closing price of Sylvan's common stock as
quoted on the NASDAQ Stock Market for the 15 consecutive Trading Days
immediately preceding the Closing Date, multiplied by (ii) the number of shares
into which the Convertible Debentures surrendered on the Closing Date are
convertible.
"Deferred Purchase Price" shall mean the amount, calculated in accordance
with Part 5.18 of the Disclosure Schedule, paid in the manner set forth in
Section 5.18.
"Defect" shall mean a defect or impurity of any kind, whether in design,
manufacture, processing, or otherwise, including any dangerous propensity
associated with any reasonably foreseeable use of a Product, or the failure to
warn of the existence of any defect, impurity, or dangerous propensity.
"Designated Purchase Price" shall mean the Cash Amount, PLUS the Debenture
Value.
"Disclosure Schedule" shall mean the disclosure schedule of even date
herewith prepared and signed by the Sellers and delivered to Purchaser
simultaneously with the execution hereof.
"Dispute Notice" shall have the meaning set forth in Section 1.3(b).
"DOJ" shall mean the Antitrust Division of the United States Department of
Justice.
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"Domain Names" means any alphanumeric designation which is registered with or
assigned by any domain name registrar, domain name registry, or other domain
name registration authority as part of an electronic address on the Internet (or
successor technology).
"Dorana" shall have the meaning set forth in Section 2.2(k).
"Eligible Employee" shall have the meaning set forth in Section 1.3(d).
"Encumbrances" shall mean any and all encumbrances, liens, charges, security
interests, options, claims, mortgages, pledges, proxies, voting trusts or
agreements, obligations, understandings or arrangements or other restrictions on
title or transfer of any nature whatsoever.
"Environmental Claim" means any claim, action, cause of action, investigation
or notice (written or oral) by any Person alleging potential liability
(including, without limitation, potential liability for investigatory costs,
cleanup costs, governmental response costs, natural resources damages, property
damages, personal injuries, or penalties) arising out of, based on or resulting
from (a) the presence, or release into the environment, of Materials of
Environmental Concern at any location, whether or not owned or operated by the
Seller or any Target Subsidiary or (b) circumstances forming the basis of any
violation, or alleged violation, of any Environmental Law.
"Environmental Laws" means all federal, state, local and foreign laws and
regulations relating to pollution, protection or preservation of human health or
the environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata, and natural resources),
including, without limitation, laws and regulations relating to emissions,
discharges, releases or threatened releases of Materials of Environmental
Concern, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Materials of
Environmental Concern.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall mean any trade or business, whether or not
incorporated, that together with the Sellers would be deemed a "single employer"
within the meaning of Section 4001(b) of ERISA.
"ERISA Claim" shall mean a claim for indemnification or defense arising out
of Section 9.1(c), including reasonable attorneys' fees and expenses and
reasonable accountants' fees and expenses incurred in the investigation or
defense of any of the same or in asserting, preserving or enforcing any of the
rights of Purchaser arising under Section 9.1(c).
"eSylvan" shall mean eSylvan, Inc., a Maryland corporation.
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"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Excluded Sylvan Assets" shall mean all assets of Sylvan not included as
Sylvan Target Assets, including the UK/France Subsidiaries.
"Excluded Ventures Assets" shall mean all assets of Ventures not included as
Ventures Target Assets.
"Final Working Capital Adjustment Amount" means an amount equal to the
difference of (i) the amount of Working Capital reflected on the Balance Sheet
(less the Closing Working Capital Adjustment Amount set forth in clause (a) of
the definition thereof paid to the Purchaser on the Closing Date), minus (ii)
the amount of Working Capital set forth on the Closing Balance Sheet.
"Financial Statements" shall mean (a) the consolidated balance sheets of the
Targeted Businesses and the Target Subsidiaries as at December 31 in each of the
years 2001 and 2002 (or such shorter period agreed to by Purchaser) together
with consolidated statements of income, shareholders' equity and cash flows for
each of the years then ended, and which, as of the Closing Date, will be
certified by Ernst & Young LLP, independent certified public accountants, whose
reports thereon will be included therein.
"Financing" shall mean debt financing on terms not less favorable to the
borrower than those set forth in Exhibit M hereto, in an amount equal to at
least $130,000,000 as set forth in Exhibit M.
"First Amendment to Investors Agreement" shall mean that certain First
Amendment to Investors Agreement in the form attached as Exhibit J hereto.
"First Notice" shall have the meaning set forth in Section 5.2(b).
"FRG GAAP" shall mean generally accepted accounting principles in the Federal
Republic of Germany.
"FTC" shall mean the United States Federal Trade Commission.
"German Subsidiaries" shall mean ZGS Zentrale Gelsenkirchener Schuelerhilfe
GmbH, Schuelerhilfe Gesellschaft fur Xxxxxxxxxxxxxxxxxxx XxxX & Xx. XX, Xxxxxx
Einundvierzigste Verwal tungsgesellschaft mbH and Schuelerhilfe Promotion GmbH.
"Governmental Entity" shall mean any Federal, state, local or foreign
governmental authority or regulatory body, any subdivision, agency, commission
or authority thereof or any quasi-governmental or private body exercising any
governmental regulatory authority thereunder and any Person directly or
indirectly owned by and subject to the control of any of the foregoing, or any
court, arbitrator or other judicial or quasi-judicial tribunal.
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"Holdings" shall have the meaning set forth in the introductory paragraph.
"HSR Act" shall mean the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended.
"Incremental Earn Out Amount" means on any Measurement Date following the
date that the Initial Earn Out Amount is earned, an amount equal to the product
of (a) $1,670,000, MULTIPLIED BY (b) the Incremental Return on such Measurement
Date, if positive; PROVIDED, THAT in no event shall such amount (together with
the Initial Earn Out Amount and any Incremental Earn Out Amounts earned during
any prior Measurement Period) be greater than $10,000,000 in the aggregate.
"Incremental Return" shall mean for any period the quotient of (a) the
Incremental Target Amount for such Measurement Period, DIVIDED BY (b)
$1,000,000; PROVIDED, THAT such amount shall be rounded down to the nearest
whole number.
"Incremental Target Amount" shall mean as of any Measurement Date, the
difference of (a) the Charter Business EBITDA for such period, MINUS (b) the
greater of $3,000,000 and the highest Charter Business EBITDA achieved, if any,
in any previous Measurement Period.
"Indebtedness" shall mean (i) all indebtedness for borrowed money or for the
deferred purchase price of property or services (other than current trade
liabilities incurred in the ordinary course of business and payable in
accordance with customary practices), (ii) any other indebtedness that is
evidenced by a note, bond, debenture or similar instrument, (iii) all
obligations under financing leases, (iv) all obligations in respect of
acceptances issued or created, (v) all liabilities secured by any Encumbrance on
any property and (vi) all guarantee obligations.
"Indemnified Party" shall have the meaning set forth in Section 9.3.
"Indemnifying Party" shall have the meaning set forth in Section 9.3.
"Independent Accountant" shall have the meaning set forth in Section 1.3(b).
"Independent Accounting Firm" shall have the meaning set forth in
Section 1.5(a).
"Infringement" means an assertion that a given item infringes,
misappropriates, dilutes (with respect to Trademarks), unfairly competes with,
constitutes unauthorized use of or otherwise violates the Intellectual Property
rights of any Person.
"Initial Earn Out Amount" means on any Measurement Date an amount equal to
$5,000,000, PLUS an amount equal to the product of (a) $1,670,000, MULTIPLIED BY
(b) the Incremental Return, if any; PROVIDED, HOWEVER, that the Initial Earn Out
Amount shall not be greater than $10,000,000.
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"Initial Target Amount" shall mean $3,000,000.
"Intellectual Property" means all Copyrights; Patents; Rights of Publicity;
Software; Trademarks; Domain Names; Trade Secrets; and other similar intangible
assets.
"IP Agreements" means all agreements to which the Sellers or any Target
Subsidiary are a party or otherwise bound (whether oral or written, and whether
between Sellers or any Target Subsidiary and an independent Person or
inter-corporate) which contain provisions (a) granting to any Person rights in
Target Intellectual Property; (b) granting to Sellers or any Target Subsidiary
any rights in Intellectual Property used or held for use in the Targeted
Businesses that are owned or controlled by any Person; (c) consenting to another
Person's use of Target Intellectual Property, or covenanting not to xxx any
Person for Infringement of any such Intellectual Property; (d) limiting the
Sellers' or any Target Subsidiary's use of Target Intellectual Property; or (e)
transferring ownership of any Target Intellectual Property to the Sellers or any
Target Subsidiary.
"K-12 Business" shall have the meaning set forth in the recitals.
"Knowledge of the Sellers" concerning a particular subject, area or aspect of
the Targeted Businesses' business or affairs shall mean the knowledge of senior
management of such Targeted Businesses (excluding Xxxxx Xxxxx-Xxxxx and Xxxxx
Xxxxx) and all knowledge which was or could reasonably be expected to have been
obtained upon inquiry by such persons of those employees of the Sellers and the
Target Subsidiaries (other than Xxxxx Xxxxx-Xxxxx and Xxxxx Xxxxx) whose duties
would, in the normal course of Sellers' affairs, result in such employees having
knowledge concerning such subject, area or aspect.
"Laws" means any constitutional provision, statute or other law, rule,
regulation, or interpretation of any Governmental Entity and any Order.
"Lease" shall mean each agreement (whether written or oral) pursuant to which
the Sellers (for the use or benefit of the Targeted Businesses) or any Target
Subsidiary lease, sublease, license, use or occupy any real or personal property
(excluding such agreements relating solely to personal property calling for
rental or similar periodic payments not exceeding $10,000 per annum, and
excluding such agreements relating to premises that are not actively used in the
Targeted Businesses).
"Leased Real Property" shall mean, collectively, all real property that is
leased, subleased, licensed, used or occupied by the Sellers or any Target
Subsidiary for the use or benefit of the Targeted Businesses, or that is
reflected as an asset of the Targeted Businesses on the Pre-Closing Balance
Sheet.
"Master License Agreement" shall mean that certain Master License Agreement
in the form attached as Exhibit I hereto.
"material adverse effect" shall have the meaning set forth in Section
10.2(g).
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"Materials of Environmental Concern" means chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum and
petroleum products, asbestos or asbestos-containing materials or products,
polychlorinated biphenyls, lead or lead-based paints or materials, radon or
mold.
"Measurement Date" shall have the meaning set forth in Section 1.4(a).
"Measurement Period" shall mean, for any Person as to any Measurement Date,
the immediately preceding four full fiscal quarters.
"Order" means any decree, injunction, judgment, order, ruling, assessment or
writ.
"Parent" shall have the meaning set forth in the introductory paragraph.
"Patents" means all inventions (whether patentable or unpatentable and
whether or not reduced to practice), and all U.S. and foreign patents and
industrial designs, including without limitation any continuations, divisionals,
continuations-in-part, renewals, reissues and applications for any of the
foregoing, and rights to xxx for past Infringement thereof.
"Payment Date" shall have the meaning set forth in Section 1.4(a).
"Person" shall mean a natural person, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Entity or other entity or organization.
"Plan" shall mean each deferred compensation and each incentive compensation,
stock purchase, stock option and other equity compensation plan, program,
agreement or arrangement; each severance or termination pay, medical, surgical,
hospitalization, life insurance and other "welfare" plan, fund or program
(within the meaning of Section 3(1) of ERISA); each profit-sharing, stock bonus
or other "pension" plan, fund or program (within the meaning of Section 3(2) of
ERISA); each employment, termination or severance agreement; and each other
employee benefit plan, fund, program, agreement or arrangement, in each case,
that is sponsored, maintained or contributed to or required to be contributed to
by either of the Sellers or any Target Subsidiary by any ERISA Affiliate, or to
which the Sellers or an ERISA Affiliate is party, whether written or oral, for
the benefit of any director, employee or former employee of the Targeted
Businesses or any Target Subsidiary.
"Post-Closing Period" shall have the meaning set forth in Section 8.1(b).
"Post-Closing Straddle Period" shall have the meaning set forth in Section
8.1(b).
"Pre-Closing Balance Sheet" means an unaudited consolidated balance sheet of
Sylvan dated as of the end of the calendar month immediately preceding the
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Closing Date, prepared in accordance with US GAAP on the same basis as the
balance sheet attached hereto as Exhibit N.
"Pre-Closing Period" shall have the meaning set forth in Section 8.1(a).
"Pre-Closing Straddle Period" shall have the meaning set forth in
Section 8.1(a).
"Preliminary Bonus Schedule" shall mean a schedule that contains with respect
to each Eligible Employee (a) the portion of the amount set forth under the
"Accrued Bonuses" line item on the Closing Balance Sheet, on an annualized
basis, that relates to such Eligible Employee, and (b) the total bonus amount
that such Eligible Employee is eligible to be paid during the 2003 calendar
year.
"Product" shall mean any product designed, manufactured, shipped, sold,
marketed, distributed and/or otherwise introduced into the stream of commerce by
the Sellers on behalf of the Targeted Businesses or by any Target Subsidiary,
including any product sold in the United States by the Sellers or any Target
Subsidiary as the distributor, agent, or pursuant to any other contractual
relationship with a non-U.S. manufacturer.
"Purchase Price" shall have the meaning set forth in Section 1.2(a).
"Purchaser" shall have the meaning set forth in the introductory paragraph.
"Purchaser Competing Business" shall mean any enterprise that provides
facility-based or online post-secondary degree programs (i.e., associates,
bachelors, masters and PhD degrees) for students after grade 12 or any
enterprise that provides facility-based or online degree programs for students
after the level of education required by a Governmental Entity, in the case of
persons residing outside the United States.
"Purchaser Indemnified Persons" shall mean Purchaser and each of its
Affiliates.
"Purchaser Losses" shall mean any and all demands, claims, actions or causes
of action, assessments, losses, damages, liabilities, costs and expenses
(including interest and penalties recovered by a third party with respect
thereto and reasonable attorneys' fees and expenses and reasonable accountants'
fees and expenses incurred in the investigation or defense of any of the same or
in asserting, preserving or enforcing any of the rights of Purchaser arising
under Article IX) incurred by any of the Purchaser Indemnified Persons that
arise out of or are based upon or relate to:
(i) any breach by the Sellers of any of their representations and
warranties contained in or made by or pursuant to this Agreement (without
giving effect to any update made to the Disclosure Schedule);
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(ii) any breach by the Sellers of any of their covenants contained
in this Agreement;
(iii) any liability or obligation arising or resulting from action
or inaction prior to the Closing Date other than Assumed Liabilities;
(iv) alleged infringement or other violation, whether prior to or
after the Closing Date, of or in connection with Patents owned or
controlled by XXX Xxxxxxxxxxx; and
(v) all severance or termination payments required to be paid by
the Purchaser or eSylvan after the Closing with respect to the persons to
be listed on Schedule 10.1 that will be delivered, and be reasonably
acceptable, to Purchaser at least 5 Business Days prior to Closing and any
other costs set forth on that schedule.
PROVIDED, HOWEVER, that the term "Purchaser Losses" shall not include the
matters referred to in Section 9.1(c) hereof.
"Qualified Acquisition Proposal" means any Acquisition Proposal
received by the Sellers which involves, at a minimum, 90% in value of the
Sellers' interest in the Sylvan Target Assets, that includes financing terms at
least as favorable to Sylvan as that proposed by Purchaser and the consideration
for which contains (i) at least as much cash as that proposed by Purchaser,
including in such calculation as cash the Debenture Value of the Convertible
Debentures offered as consideration by Purchaser and (ii) seller notes having an
aggregate face amount no greater than those to be provided by Purchaser;
PROVIDED, HOWEVER, that the foregoing clauses (i) and (ii) shall not apply to an
offer to purchase all or substantially all of the stock or assets of Sylvan.
"Real Property Permits" shall have the meaning set forth in Section
3.14(o).
"Requisite Consent" shall mean the consents and approvals necessary to
the consummation of the Transactions from:
(a) the lessors under at least 75 of the Leases for Sylvan
corporate-owned learning centers located in the United States whose
consent, waiver or amendment is required to permit the consummation of
the Transactions and the assignment or sublease of each such Lease, in
every case without loss of any premises, loss of any option to renew or
expand, increase in rent, or other material change to the terms and
conditions of such Lease that were effective prior to the date hereof;
(b) each lessor and sublessor of the Sylvan corporate office space
and call center whose consent, waiver or amendment is required to
permit the consummation of the Transactions and the assignment or
sublease of each such Lease, in every case without loss of any
premises, loss of any option to renew or
74
expand, increase in rent, or other material change to the terms and
conditions of such Lease that were effective prior to the date hereof;
(c) each party to the CTB/McGraw Hill Contract whose consent, waiver
or amendment is required pursuant to its terms to permit the
consummation of the Transactions;
(d) all requisite consents relating to the Xxxxxx Xxx financing
program.
(e) subject to Section 5.20(b), each party to license or use
agreements relating to the Target Intellectual Property listed in Part
3.23(a)(v) of the Disclosure Schedule; and
(f) each Governmental Entity party to a contract with the K-12
Business (each an "SES CONTRACT") that (i) expires in accordance with
its terms on or after August 31, 2003, and (ii) requires the consent,
waiver or amendment to permit the consummation of the Transactions
without any material change to the terms and conditions of such SES
Contract that were effective prior to the date hereof; PROVIDED,
HOWEVER, that such consent will only be required for SES Contracts that
provide for payments to Sylvan during the upcoming fiscal year that
represent no more than 70% in the aggregate of all of the revenues from
SES Contracts booked by Sylvan during the 2002 fiscal year.
"Rights of Publicity" means all rights of publicity and privacy,
including but not limited to the use of the names, likenesses, voices,
signatures, biographical information, persona and other recognizable aspects of
real Persons, and rights to xxx for past Infringement thereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities Purchase Agreement" shall mean that certain Securities
Purchase Agreement, by and between Apollo Sylvan and Xxxxxx in the form attached
as Exhibit J hereto.
"SEC" shall mean the United States Securities and Exchange Commission.
"Seller Competing Business" shall mean any enterprise that engages in,
owns or operates businesses that provide facility-based or online tutoring
services or tutoring services provided under contract with a Governmental Entity
in the United States, in each case, for grades K-12 and younger students (other
than any business conducted pursuant to the Master License Agreement) and any
enterprise that owns or operates government funded "charter schools" as such
term is defined under applicable law in effect on the date hereof.
"Seller Indemnified Persons" shall mean the Sellers and each of their
Affiliates.
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"Seller Losses" shall mean any and all demands, claims, actions or
causes of action, assessments, losses, damages, liabilities, costs and expenses
(including interest and penalties recovered by a third party with respect
thereto and reasonable attorneys' fees and expenses and reasonable accountants'
fees and expenses incurred in the investigation or defense of any of the same or
in asserting, preserving or enforcing any of the rights of the Sellers arising
under Article IX) incurred by any of the Seller Indemnified Persons that arise
out of or are based upon or relate to (i) any breach by Purchaser of any of its
representations, warranties or covenants contained in or made by or pursuant to
this Agreement or (ii) any liability or obligation arising or resulting from
action or inaction after the Closing Date (other than claims relating to alleged
or other violations of or in connection with Patents owned or controlled by XXX
Xxxxxxxxxxx).
"Seller Note" shall have the meaning set forth in Section 1.2(a).
"Sellers" shall have the meaning set forth in the introductory
paragraph.
"Shared Services Agreement" shall mean that certain Shared Services
Agreement in the form attached as Exhibit H hereto.
"Software" means all computer programs (whether in source code or
object code form), databases, compilations and data, technology supporting and
content contained on any owned or operated Internet or intranet site, and all
documentation, including user manuals and training materials, related to any of
the foregoing.
"Straddle Period" shall have the meaning set forth in Section 8.1.
"Subsidiary" shall mean, with respect to any Person, any corporation or
other organization, whether incorporated or unincorporated, of which (a) at
least a majority of the securities or other interests having by their terms
ordinary voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such Person or by
any one or more of its Subsidiaries, or by such Person and one or more of its
Subsidiaries or (b) such Person or any other Subsidiary of such Person is a
general partner (excluding any such partnership where such Person or any
Subsidiary of such party does not have a majority of the voting interest in such
partnership), and, with respect to Sylvan, shall include Ventures.
"Superior Proposal" means any bona fide Qualified Acquisition Proposal
that the Board of Directors of Sylvan, or the Special Committee of Sylvan, as
appropriate, determines, in its good faith judgment and after consultation with
its independent financial advisor and legal counsel, would be more favorable to
Sylvan, or, in the case of a sale of Sylvan, its stockholders, taking into
account legal, financial, regulatory and other matters, including the likelihood
of consummation, than the Transactions.
"Sylvan" shall have the meaning set forth in the introductory
paragraph.
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"Sylvan Common Share" means each issued and outstanding share of Sylvan
common stock, par value $0.01 per share.
"Xxxxxx Xxxxx" shall have the meaning set forth in Section 5.7.
"Sylvan Target Assets" shall mean all of the property, assets, goodwill
and business as a going concern of every kind, nature and description, real,
personal or mixed, tangible or intangible, wherever situated, which is owned or
leased by Sylvan for the purpose of conducting, or used in, the K-12 Business
including all the issued and outstanding equity interests of the Target
Subsidiaries owned by Sylvan and all of Sylvan's Tuition Portfolio Assets, but
does not include any Excluded Sylvan Assets. The Sylvan Target Assets shall
include, without limitation, the assets identified on Annex A as Sylvan Target
Assets.
"Target Assets" shall mean the Sylvan Target Assets (excluding any cash
in the Target Subsidiaries to the extent it is captured by the definition of
"Cash On-Hand Amount"), the Ventures Target Assets and cash in an amount equal
to the Cash On-Hand Amount.
"Targeted Businesses" shall have the meaning set forth in the recitals.
"Target Intellectual Property" means all Intellectual Property owned,
singly or jointly, by the Target Subsidiaries together with all Intellectual
Property owned, used or held for use by the Sellers or any Subsidiary and used
or held for use primarily in the Targeted Businesses.
"Target Subsidiary" shall mean the German Subsidiaries, Connections
Academy and eSylvan.
"Target Subsidiary Equity Interests" shall mean all of the issued and
outstanding equity interests of the Target Subsidiaries held by the Sellers.
"Tax" or "Taxes" means (i) any and all taxes, customs, duties, tariffs,
imposts, charges, deficiencies, assessments, levies or other like governmental
charges, including, without limitation, income, gross receipts, excise, real or
personal property, ad valorem, value added, estimated, alternative minimum,
stamp, sales, withholding, social security, occupation, use, service, service
use, license, net worth, payroll, franchise, transfer and recording taxes and
charges, imposed by the Internal Revenue Service ("IRS") or any other taxing
authority (whether domestic or foreign including, without limitation, any state,
county, local or foreign government or any subdivision or taxing agency
thereof), whether computed on a separate, consolidated, unitary, combined or any
other basis; and such terms shall include any interest, fines, penalties or
additional amounts attributable to, or imposed upon, or with respect to, any
such amounts, (ii) any liability for the payment of any amounts described in
(i) as a result of being a member of an affiliated, consolidated, combined,
unitary, or similar group or as a result of transferor or successor liability,
and (iii) any liability for the payment of any amounts as a result of being a
party to any tax sharing agreement or as a result of any obligation to indemnify
77
any other person with respect to the payment of any amounts of the type
described in (i) or (ii).
"Tax Contest" shall mean any deficiency, proposed adjustment,
adjustment, assessment audit, examination or other administrative or court
proceeding, suit, dispute or other claim.
"Tax Claim" shall have the meaning in Section 8.2(a).
"Tax returns" means any return, declaration, report, claim for refund
or information return or statement filed or required to be filed with any taxing
authority relating to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
"Termination Date" means the date on which the Agreement is terminated
pursuant to Section 7.1
"Termination Fee" means that Section 7.3 fee payable by the Sellers to
Purchaser at Purchaser's election pursuant to Section 7.3(a).
"Termination Fee Notice" shall have the meaning set forth in Section
5.2(b).
"Trademarks" means all trademarks, service marks, trade names, designs,
logos, emblems, signs or insignia, slogans, other similar designations of source
or origin and general intangibles of like nature, together with the goodwill
symbolized by any of the foregoing, registrations and applications and renewals
relating to any of the foregoing, and rights to xxx for past Infringement
thereof.
"Trade Secrets" means all confidential information, financing and
marketing information, technology, know-how, inventions, proprietary processes,
formulae, algorithms, models and methodologies, and rights to xxx for past
Infringement thereof.
"Trading Day" means a day on which the National Association of
Securities Dealers, Inc. Automated Quotation System is operating for the
transaction of business.
"Transactions" shall mean all the transactions provided for or
contemplated by this Agreement.
"Transfer Taxes" shall mean all sales (including, without limitation,
bulk sales), use, transfer, recording, ad valorem, privilege, documentary,
gains, gross receipts, registration, conveyance, excise, license, stamp, duties,
value added or similar Taxes and fees.
"Transfer Tax Payor" shall mean the party which has primary legal
responsibility for the payment of any particular Transfer Tax.
78
"Tuition Portfolio Assets" shall mean the accounts receivable and other
assets associated with the tuition financing business of Sylvan that are owned
by Sylvan on the Closing Date.
"2004 Bonus Amount" shall have the meaning set forth in Section 1.3(d).
"UK/France Subsidiaries" shall mean France Learning Systems LLC, France
Learning Systems SARL, UK Learning Systems LLC and UK Learning Systems Ltd.
"US GAAP" shall mean United States generally accepted accounting
principles.
"VAT" shall have the meaning set forth in Section 3.22(a).
"Ventures" shall have the meaning set forth in the introductory
paragraph.
"Ventures Businesses" shall have the meaning set forth in the recitals.
"Ventures Limited Liability Company Agreement" shall mean the Limited
Liability Agreement of Ventures, dated as of June 30, 2000.
"Ventures Target Assets" shall mean all of the issued and outstanding
equity interests of Connections Academy and eSylvan.
"Voting Debt" shall mean indebtedness having general voting rights and
debt convertible into securities having such rights.
"WARN Act" shall mean the Worker Adjustment and Retraining Notification
Act.
"Working Capital" shall be calculated in accordance with the formula
set forth on Exhibit O.
Section 10.2 INTERPRETATION.
(a) When a reference is made in this Agreement to a section or article,
such reference shall be to a section or article of this Agreement unless
otherwise clearly indicated to the contrary.
(b) Whenever the words "include", "includes" or "including" are used in
this Agreement they shall be deemed to be followed by the words "without
limitation."
(c) The words "hereof", "herein" and "herewith" and words of similar
import shall, unless otherwise stated, be construed to refer to this Agreement
as a whole and not to any particular provision of this Agreement, and article,
section,
79
paragraph, exhibit and schedule references are to the articles, sections,
paragraphs, exhibits and schedules of this Agreement unless otherwise
specified.
(d) The meaning assigned to each term defined herein shall be equally
applicable to both the singular and the plural forms of such term, and words
denoting any gender shall include all genders. Where a word or phrase is defined
herein, each of its other grammatical forms shall have a corresponding meaning.
(e) A reference to any party to this Agreement or any other agreement
or document shall include such party's successors and permitted assigns.
(f) A reference to any legislation or to any provision of any
legislation shall include any amendment to, and any modification or re-enactment
thereof, any legislative provision substituted therefor and all regulations and
statutory instruments issued thereunder or pursuant thereto.
(g) As used in this Agreement, any reference to any event, change or
effect that would have a material adverse effect on or with respect to any
entity (or group of entities taken as a whole) means such event, change or
effect would be materially adverse to (i) the consolidated financial condition,
results of operations, assets, liabilities (absolute, accrued, contingent or
otherwise), reserves, businesses or operations of such entity as a whole (or, if
used with respect thereto, of such group of entities taken as a whole) or (ii)
the ability of such entity (or group) to consummate the Transactions.
(h) The parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
ARTICLE XI
MISCELLANEOUS
Section 11.1 FEES AND EXPENSES. All costs and expenses incurred in connection
with this Agreement and the consummation of the Transactions shall be paid by
the party incurring such expenses, except as specifically provided to the
contrary in this Agreement and except as follows:
(a) The Sellers shall bear all legal, accounting and other fees and
expenses incurred by the Sellers and each Target Subsidiary in connection with
the negotiation, execution and closing of the Transactions and all costs and
expenses incurred by the Sellers in connection with or arising out of (i)
obtaining consents to the assignment and subletting of the Leases to Purchaser
or (ii) the actual assignment or sublease of each such Lease, other than
Transfer Taxes (which shall be paid as provided in Section 8.5);
80
(b) All of the fees payable in connection with the Pre-Merger
Notification filing for the Transactions required by the HSR Act shall be paid
equally by the Sellers on the one hand and Purchasers on the other hand; and
(c) Purchaser shall pay all expenses it incurs pursuant to subsections
(a) and (b) of Section 5.3.
Section 11.2 AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified and supplemented in any and all respects, but only by a written
instrument signed by all of the parties hereto expressly stating that such
instrument is intended to amend, modify or supplement this Agreement.
Section 11.3 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given when mailed, delivered personally,
telecopied (which is confirmed) or sent by an overnight courier service, such as
Federal Express, to the parties at the following addresses (or at such other
address for a party as shall be specified by such party by like notice):
if to Purchaser, Parent or Holdings, to:
Educate Operating Company, LLC
c/o Apollo Management IV, L.P.
1301 Avenue of the Xxxxxxxx
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxx X. Xxxx
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
and if after Closing to:
Educate Operating Company, LLC
0000 Xxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxx Xxxxxxx
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
with a copy (which shall not constitute notice) to:
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
000 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxx, Esq.
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
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if to Sylvan, to:
Sylvan Learning Systems, Inc.
0000 Xxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx X. Xxxxx, Esq.
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
if to Ventures to:
Sylvan Ventures, LLC
0000 Xxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Attention: B. Xxx XxXxx
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
in each case with a copy (which shall not constitute notice) to:
Xxxx Xxxxxxx LLP
0000 X Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Attention: Xxxxxx X. Xxxxxxx, Esq.
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Section 11.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 11.5 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
and the Confidentiality Agreement (a) constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof and thereof and (b) are
not intended to confer upon any Person other than the parties hereto and thereto
any rights or remedies hereunder.
Section 11.6 SEVERABILITY. Any term or provision of this Agreement that is
held by a court of competent jurisdiction or other authority to be invalid, void
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction or other authority declares that any term or provision
hereof is invalid, void or unenforceable, the parties
82
agree that the court making such determination shall have the power to reduce
the scope, duration, area or applicability of the term or provision, to
delete specific words or phrases, or to replace any invalid, void or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid
or unenforceable term or provision.
Section 11.7 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of
New York including, without
limitation, Section 5-1401 of the
New York General Obligations Law.
Section 11.8 ENFORCEMENT; VENUE. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Maryland or in Maryland state court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any Federal court located in the State of Maryland or
any Maryland state court in the event any dispute arises out of this Agreement
or any of the Transactions, (b) agrees that it shall not attempt to deny or
defeat such personal jurisdiction by motion or other request for leave from any
such court and (c) agrees that it shall not bring any action relating to this
Agreement or any of the Transactions in any court other than a Federal or state
court sitting in the State of Maryland.
Section 11.9 TIME OF ESSENCE. Each of the parties hereto hereby agrees that,
with regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
Section 11.10 EXTENSION; WAIVER. At any time prior to the Closing Date, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained in this Agreement
or in any document delivered pursuant to this Agreement or (c) waive compliance
by the other parties with any of the agreements or conditions contained in this
Agreement. Any agreement on the part of a party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party. The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of those
rights.
Section 11.11 ELECTION OF REMEDIES. Neither the exercise of nor the failure
to exercise a right of set-off or to give notice of a claim under this Agreement
will constitute an election of remedies or limit Purchaser or any of the
Purchaser Indemnified Persons in any manner in the enforcement of any other
remedies that may be available to any of them, whether at law or in equity.
Section 11.12 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether
83
by operation of law or otherwise) without the prior written consent of the other
parties, except that Purchaser may assign, in its sole discretion, any or all of
its rights and interests hereunder to any direct or indirect wholly owned
Subsidiary of Purchaser. Subject to the preceding sentence, this Agreement shall
be binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement or
caused this Agreement to be executed by their respective officers thereunto duly
authorized as of the date first written above.
EDUCATE, INC.
By: /s/ Xxxxxxxx X. Xxxx
-------------------------------------
Name: Xxxxxxxx X. Xxxx
Title: Vice President
EDUCATE OPERATING COMPANY, LLC
By: /s/ Xxxxxxxx X. Xxxx
-------------------------------------
Name: Xxxxxxxx X. Xxxx
Title: Vice President
APOLLO SYLVAN, LLC
By: /s/ Xxxxxxxx X. Xxxx
-------------------------------------
Name: Xxxxxxxx X. Xxxx
Title: Vice President
APOLLO XXXXXX XX, LLC
By: /s/ Xxxxxxxx X. Xxxx
-------------------------------------
Name: Xxxxxxxx X. Xxxx
Title: Vice President
SYLVAN LEARNING SYSTEMS, INC.
By: /s/ Xxxx X. Xxxxxxx
-------------------------------------
Name: Xxxx X. Xxxxxxx
Title: Senior Vice President and Chief
Financial Officer
SYLVAN VENTURES, L.L.C.
By: /s/ B. Xxx XxXxx
-------------------------------------
Name: B. Xxx XxXxx
Title: Chief Financial Officer
And only with respect to Section 5.22
Apollo Management IV L.P.
a Delaware Limited Partnership,
By: AIF IV Management, Inc.
a Delaware Corporation,
its General Partner
By: /s/ Xxxxxxxx X. Xxxx
--------------------------------
Name: Xxxxxxxx X. Xxxx
Title: Vice President
