EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
FOR THE PURCHASE OF ASSETS OF OPERATING
SYLVAN LEARNING CENTERS
FROM
ATLANTA LEARNING SYSTEMS, LLC, PITTSBURGH LEARNING SYSTEMS, LLC, AND BOSTON
LEARNING SYSTEMS, LLC
THIS ASSET PURCHASE AGREEMENT ("AGREEMENT") is made and entered into this
28th day of January, 2002, but shall be effective at the commencement of
business on January 1, 2002 (the "EFFECTIVE DATE"), by and among:
"SELLERS" and "BUYER"
Atlanta Learning Systems, LLC Sylvan Learning Systems, Inc.
Boston Learning Systems, LLC 0000 Xxxxx Xxxxxx
Xxxxxxxxxx Learning Systems, LLC Xxxxxxxxx, Xxxxxxxx 00000
c/o Sterling Capital, Ltd. Attention: Xxxxxx Xxxxx, Esq.
Attention: Xxx X. Xxxxxxx, Esq.
000 Xxxxxx Xxxx - Xxxxx 000
Xxxxxxxxxx, Xxxxxxxx 00000
RECITALS
A. Each of the Sellers now operates Sylvan Learning Centers (hereinafter
collectively called "THE CENTERS") in the Territories ("TERRITORIES") and at the
locations set forth on EXHIBIT A, attached hereto, and desires to sell the
businesses located at the Centers to Buyer, together with all property and
assets necessary for the continued operation of the Centers as a going concern
(collectively, all of the Centers (with any new centers opened in the
Territories) and such assets are hereinafter called the "BUSINESS") on the terms
and conditions herein set forth. The term "Territories" shall not include those
areas on EXHIBIT A which are in italicized bold face and marked with an asterisk
(the "EXCLUDED TERRITORIES"), but only if Buyer's development of the Excluded
Territories does not interfere with or adversely effect the "Contribution
Margin" (defined below); otherwise, the Excluded Territories will be included
within the definition of Territories for the purpose of determining the
consideration to be delivered pursuant to SECTIONS 2.2(i) AND (ii) hereof.
B. Buyer desires to purchase the Business, all on the terms and conditions
herein set forth.
C. The parties entered into Option Agreements (the "OPTIONS"), as amended
from time to time, providing for certain of the terms and conditions under which
Buyer would buy the Business, but, conditioned upon, and concurrently with, the
consummation of the transactions contemplated hereby, the Options shall be
deemed void and of no further force and effect.
In consideration of the covenants hereinafter set forth, the parties agree
as follows:
1. SALE OF BUSINESS.
1.1. SALE OF PURCHASED ASSETS. On the Closing Date (as defined in
SECTION 8), each Seller shall sell, transfer, and deliver to Buyer and
Buyer shall purchase, free and clear of all liens, pledges, or encumbrances
of all kinds (except for those encumbrances pursuant to operating or
capital leases), all of the assets of the Business, including but not
limited to the Leases (defined below) (along with the lease and utility
deposits in respect thereof) and related fixtures and improvements, all
other leasehold interests, and all personal property, tangible and
intangible, including but not limited to all furniture, fixtures,
equipment, prepaid items, rights to any refunds on product liability
insurance policies, cash, prepaids, accounts receivable excluding notes
receivable from any of Sellers' members (or their affiliates), computer
hardware and software, customer lists, inventory, trade names, trademarks,
logos, supplies, sales material (including order forms, brochures,
packaging materials and supplier lists), together with all files,
records, documents and other written and recorded materials relating to the
Business (provided that Sellers may retain copies or have access to such
materials after Closing for tax and other purposes) (collectively such
assets are the "PURCHASED ASSETS"). All of the Purchased Assets shall be
inventoried, and a schedule of same prepared and agreed to by Sellers and
Buyer prior to Closing. Each Seller agrees at Closing to execute and
deliver to Buyer a xxxx of sale ("XXXX OF SALE") in the form of EXHIBIT B,
transferring title to all of the Purchased Assets. Said Xxxx of Sale shall
only include each Seller's warranty of clear title and an inventoried list
of the Purchased Assets.
1.2. EXCLUDED ASSETS. Buyer is not purchasing the contracts described
in attached EXHIBIT C2, the corporate records of Seller, notes receivable
from any of Sellers' members (or their affiliates) any shares or other
equity interests in eSylvan, Inc., Xxxxxx Xxxxxxx'x truck lease (and any
obligations in respect thereof) or rights to refunds (tax, insurance or
otherwise) (such assets are the "EXCLUDED ASSETS"). The eSylvan, Inc. stock
may be distributed after the Closing to the direct and indirect equity
holders of the Sellers.
1.3. ASSUMED LIABILITIES. For purposes of this Agreement, the term
"ASSUMED LIABILITIES" shall mean and include only (i) those outstanding
liabilities and obligations of Sellers which are specifically referred to
or reflected in either the Seller Financial Statements (defined below), the
notes and attachments thereto (including SCHEDULE 5.2(a), and the Leases,
including items referred to as "Deferred Revenue,", or "Prepaid Revenue" or
"Prepaid Tuition", (ii) those trade payables and any other normally
recurring operating expenses which arose in the ordinary course of Sellers'
business, consistent with past practices, including refunds occurring in
the ordinary course of business, (iii) those liabilities and obligations of
Sellers for the payment of salary, commissions, fees, bonuses or other
compensation, or for business expense reimbursement, to employees, agents,
representatives or independent contractors of Sellers, which arose in the
ordinary course of Sellers' business, consistent with past practices, and
(iv) those performance obligations of each Seller arising after the Closing
Date pursuant to the express provisions of the contracts to which any
Seller is a party which was entered into by a Seller in the ordinary course
of such Seller's business, consistent with past practices. The term
"ASSUMED LIABILITIES" shall not include any liability of any Seller of any
nature to Bank of America, or any other indebtedness listed on EXHIBIT C1,
attached hereto (the "FUNDED DEBT"), or any obligation or liability related
to the contracts described on EXHIBIT C2. Buyer shall sign all assumption
documents deemed necessary or appropriate by landlords to evidence Buyer's
assumption of any of the Leases. Any liability or obligation which is or
should be accrued as of the Closing and which is paid by Buyer shall be
used in the calculation of "NNWC" (as defined below), except every dollar
of "Deferred Revenue,", or "Prepaid Revenue" or "Prepaid Tuition" shall
only be counted as $0.50 for purposes of determining the NNWC; such amount
shall not include an obligation under an assumed contract or lease which
accrues after the Closing Date; provided, however that if Buyer desires (or
gets a demand) to pay a liability not disclosed pursuant to this Agreement,
Buyer shall give Sellers notice of such desire or demand, and shall give
Sellers the opportunity to contest such payment in good faith. Between the
Closing and December 31, 2002, Buyer will provide Sellers with a monthly
status report on the amount of the NNWC, and thereafter until the NNWC has
been reimbursed, will provide such reports on a quarterly basis. For
refunds for people who are included in "Unearned Revenues", only 50% of the
amount refunded will be added to NNWC, and for those people who are not
included in "Unearned Revenues", none of the amount refunded will be added
to the NNWC.
2. CONSIDERATION AND ALLOCATION. In consideration of the sale of the
Business, Buyer agrees to pay a purchase price ("PURCHASE PRICE") as follows:
2.1. AT CLOSING. At Closing, Buyer shall deliver the following:
(i) Eleven Million Dollars ($11,000,000.00) in cash by wire
transfer ("CASH"); Sellers shall use all or a portion of the Cash to
extinguish all of the Funded Debt in accordance with the payment terms
on EXHIBIT C1, and then the balance to fund a portion of the NNWC; AND
(ii) Buyer shall assume and pay, perform and discharge the
Assumed Liabilities, provided, however that if and to the extent that
the liabilities and accruals of Sellers (including accruals for
employee bonuses earned prior to Closing and not to be paid until
after Closing) as of the Closing Date exceed the value of any working
capital assets (such as cash, accounts receivables, prepaids and
deposits) transferred hereunder (the "NNWC"), such amount shall be
deducted ("DEDUCTIONS") from the Contingent Annual Payments and Final
Contingent Payment until Buyer is reimbursed; AND
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(iii) Within ten (10) days after Closing, Buyer shall deliver to
Sellers a certificate for that number of shares of Buyer's common
stock, $0.01 par value (collectively, the "SLS STOCK") equal to $3.0
million divided by the "Average Market Value", where "Average Market
Value" means the arithmetic average (rounded to the nearest fifth
decimal place) of the closing price per share of SLS Stock, as
reported on the Nasdaq National Market, for the thirty (30)
consecutive trading days ending on the Effective Date. The SLS Stock
shall be treated as set forth in SECTION 2.3 hereof.
2.2. CONTINGENT CONSIDERATION. After the Closing Date, and subject to
the limitation set forth in Section 2.2(v), and for the relevant periods
as discussed below, Buyer will deliver contingent consideration to
Sellers, as follows:
(i) CONTINGENT ANNUAL PAYMENT. Subject to the proviso in SECTION
2.1(II), for each of the four twelve month periods ended December 31,
2002, 2003, 2004 and 2005 (each, a "YEAR" and together the "YEARS"),
Buyer shall pay (each, a "CONTINGENT ANNUAL PAYMENT") the aggregate
"Contribution Margin" (defined below) generated by Buyer in the
Territories during each Year. Each Contingent Annual Payment shall be
due and payable on or before March 15 of the Year immediately
following the Year for which Contribution Margin is being measured
(I.E., the Contingent Annual Payment for the twelve month period ended
December 31, 2002 shall be due and payable on or before March 15,
2003, the Contingent Annual Payment for the twelve month period ended
December 31, 2003 shall be due and payable on or before March 15,
2004, the Contingent Annual Payment for the twelve month period ended
December 31, 2004 shall be due and payable on or before March 15,
2005, and the Contingent Annual Payment for the twelve month period
ended December 31, 2005 shall be due and payable on or before March
15, 2006). For purposes hereof, each Year shall be measured
independently of all other Years (I.E., one Year shall not be netted
against another Year).
(a) "CONTRIBUTION MARGIN" shall mean, for the twelve months
ended on December 31 of each Year, the aggregate "contribution
margin" (as identified in Buyer's current form of profit and loss
statements of its corporate owned centers, a sample ("SAMPLE") of
which is attached hereto as SCHEDULE 2.2(i)(a)) of Buyer in the
Territories, after deducting 8% of gross revenues for what would
have been royalties paid to Buyer had Sellers continued to own
the Business, but before (I.E., after adding back) the following:
(w) interest, (x) income taxes, (y) any allocation of Buyer's
corporate overhead (except for a reasonable allocation of
corporate operations' department overhead as identified in the
Sample, and treated consistently across all corporate owned
centers), and, (z) only to the extent such items are included in
the calculation of Contribution Margin, Corporate Expenses (as
defined below), all as presented in accordance with U.S.
generally accepted accounting principles, consistently applied.
For purposes of calculating only the Final Contingent Payment, if
the Contribution Margin in any Territory is less than $0.00 for
the twelve months to end December 31, 2005, the Contribution
Margin from such Territory shall be deemed to be $0.00. All
reports (including balance sheets, profit and loss statements and
cash flow statements), whether in the form of the Sample or
otherwise, regarding the Territories, the Centers and the
Contribution Margin in respect thereof which are prepared by
Buyer shall be delivered to Sellers. Buyer shall prepare and
deliver such reports no less frequently than quarterly.
(b) "CORPORATE EXPENSES" shall mean the sum of all of the
following: any and all expenses, costs, fees (including, but not
limited to legal, accounting, brokerage or consulting), salaries,
benefits, bonuses, reimbursements, non-recurring charges, taxes
and other charges arising out of (i) Buyer's (or its affiliates')
corporate or oversight responsibilities, (ii) Buyer's fees and
expenses for any employees, or the contracting of any services
(including but not limited to, management fees, lawyers,
accountants or otherwise) to Buyer or their replacements,
successors, counterparts and assistants, and (iii) the
transactions contemplated by this Agreement or any other
acquisition of any other center or territory by Buyer, whether
through the acquisition of assets, stock, equity interest, or any
stake in any center or any business owning any center or by which
Buyer purchases or is granted any right to open any center
(including but not limited to non-compete,
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franchising or licensing (or otherwise) payments, goodwill,
intangibles, signing bonuses, extraordinary compensation, consent
or approval fees, any non-cash amortization charges, or any
similar items), or cost of grants to any third party in respect
of the right to own, operate or manage any center.
(c) In the event of a "Change of Control" (defined below),
Sellers shall have the option of "putting" the right to receive
all of the Annual Contingent Payments and the Final Contingent
Payment in exchange for a lump sum payment from Buyer equal to
the total invested capital in Sellers, plus a compounded 10% per
annum rate of interest, accruing from the date such capital was
initially invested. In calculating such invested amount, (i) the
SLS Stock shall be valued at $3 million, (ii) no benefit shall be
given for tax benefits or tax distributions, if any, received
from those persons or entities investing in Sellers, and (iii)
credit shall be given to Buyer for any prior Annual Contingent
Payments actually received by Sellers.
(d) From the Closing Date until no later than December 31,
2005, Buyer shall operate the Business in the Territories only in
the ordinary course and shall use its best commercial efforts to
advance the best interests of the business in the Territories. In
furtherance of the foregoing, without limitation, from (y) July
1, 2004 until December 31, 2005, Buyer shall need Sellers'
consent (which consent shall not be unreasonably withheld) in
order to either open any new centers in the Territories, or close
any centers in the Territories, or (z) January 1, 2005 until
December 31, 2005, spend (as a percentage of revenues) more money
on capital/equipment items or advertising then the average per
Year spent during the other Years on such items.
(ii) FINAL CONTINGENT PAYMENT.
(a) On or before March 15, 2006, Buyer will determine the
aggregate Contribution Margin generated in the Territories for
the Year ended December 31, 2005 (the "2005 CONTRIBUTION
MARGIN"), and shall make a payment to Sellers (the "FINAL
CONTINGENT PAYMENT") equal to the amount by which seven times the
2005 Contribution Margin is greater than $14 million.
(b) In the event of a Change of Control, Sellers shall have
the rights set forth in SECTION 2.2(i)(c) hereof.
(iii) "Change of Control" shall mean any of (i) a sale of more
than 25% of Buyer's stock or assets to an acquiring company, or the
"spin-off" or "spin-out" or divestiture or similar transaction of
Buyer's learning center business, except where such sale is the taking
public of a division such as Sylvan Ventures, Sylvan International
University, or OHE, (ii) a merger transaction in which Buyer is not
the surviving corporation, or where Buyer survives but is managed or
controlled by the management team of the other party to the merger or
an affiliate thereof, (iii) neither Xxxxxxx Xxxxxx nor R. Xxxxxxxxxxx
Xxxxx-Xxxxx is then serving in a position of responsibility over Buyer
or Buyer's learning center business, for whatever reason or (iv) a
single transaction or occurrence (or series of related transactions or
occurrences) in which at least fifty percent (50%) of the members of
Buyer's Board of Directors resign, are removed or are replaced (or
have their votes diluted by the addition of more Board members).
(iv) INTEREST. Each Annual Contingent Payment and the Final
Contingent Payment shall not bear interest from the end of each Year
and for 75 days after the end of each Year, and thereafter shall bear
interest at the prime rate of interest (as reported in the Midwest
Edition of the Wall Street Journal, the "PRIME RATE"), plus 5%. Buyer
shall make all records used in the calculation of Contribution Margin
available to Sellers for inspection.
(v) LIMITATION ON CONTINGENT PAYMENTS. Notwithstanding anything
to the contrary contained herein, the sum of all of the Contingent
Annual Payments and the Final Contingent Payment shall in no event
exceed $8 million, plus interest (the "CAP"), less any amounts of the
NNWC not reimbursed. For purposes hereof, the amount of any Deductions
(to the extent reimbursed) shall not be included in determining the
Cap
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or credits against the Cap. Only by way of example, if the NNWC is
$1,200,000, and the Contribution Margin for 2002 is $500,000 and the
Contribution Margin for 2003 is $1,000,000, then: (1) the Deduction
equals $1,200,000; (2) the Annual Contingent Payment for 2002 is $0;
(3) the Annual Contingent Payment for 2003 is $300,000; and, (3) the
Cap is $8,000,000, NOT $6.8 million.
2.3. SLS STOCK ISSUES.
(i) No fractional shares of SLS Stock, and no cash in lieu
thereof, shall be issued or delivered in connection with the
transactions contemplated by this Agreement. When issued, the SLS
Stock will be fully paid and non-assessable.
(ii) Buyer will:
(a) within 15 days after the Closing Date, prepare and file
with the United States Securities and Exchange Commission
("COMMISSION") a registration statement ("REGISTRATION
STATEMENT"), covering the sale of all the SLS Stock by Sellers
(or Sellers' direct and indirect members) from time to time on
the Nasdaq National Market or in privately-negotiated
transactions and provide a copy to Sellers, and Sellers' counsel,
of any correspondence between Buyer and the Commission relating
to the Registration Statement;
(b) use its best efforts to cause the Registration Statement
to become effective as soon as practicable and to maintain its
effectiveness until the earlier of (y) such time as all of the
SLS Stock has been sold pursuant thereto and (z) such time as the
SLS Stock is eligible for transfer without restriction pursuant
to Rule 144(k) under the Securities Act of 1933, as amended (the
"1933 ACT") as if not held by an affiliate of Buyer;
(c) prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus used
in connection therewith as may be necessary to keep the
Registration Statement effective until the date on which the SLS
Stock is no longer required to be registered for the sale thereof
by Sellers (or Sellers' direct and indirect members) in any
transaction;
(d) furnish to Sellers with respect to the SLS Stock so
registered under the Registration Statement such number of copies
of prospectuses and preliminary prospectuses in conformity with
the requirements of the 1933 Act and such other documents as
Sellers may reasonably request in order to facilitate the public
sale or other disposition of all or any of the SLS Stock by
Sellers;
(e) file documents required of Buyer to register or qualify
under the securities or blue sky laws for Sellers (or Sellers'
direct and indirect members) to offer and sell the SLS Stock in
all states reasonably requested, provided, however, that Buyer
shall not be required to qualify to do business or consent to
service of process in any jurisdiction in which it is not now so
qualified or has not so consented;
(f) promptly notify Sellers of the happening of any event of
which Buyer has knowledge which results in the prospectus
included in the Registration Statement, if any, containing an
untrue statement of a material fact or omitting to state a
material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under
which they were made, not misleading, and Buyer will prepare a
supplement or amendment to the Registration Statement to correct
such untrue statement or omission, and deliver a number of copies
of such supplement or amendment to Sellers as may be reasonably
requested;
(g) notify Sellers of the issuance by the Securities and
Exchange Commission ("SEC") of any stop order or other suspension
of effectiveness of the Registration Statement at the
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earliest possible time, and do all things reasonably necessary
remove the condition or event giving rise to such stop order or
suspension;
(h) Buyer will permit Sellers' counsel to review the
registration statement and all amendments and supplements
thereto, at Sellers' cost, for a reasonable period of time prior
to Buyer's filing with the SEC; and
(i) Buyer represents and warrants to Sellers and its
affiliates that it is eligible to file the Registration Statement
on Form S-3, and will pay all Registration Expenses (as defined
below) over $15,000 if not so eligible.
(iii) Sellers shall bear the expenses ("REGISTRATION EXPENSES")
described below in connection with the obligations described in this
Section and the registration of the SLS Stock pursuant to the
Registration Statement; PROVIDED, HOWEVER, that if and to the extent
that Buyer or another person participates in the offering made
pursuant to the Registration Statement, then Buyer shall pay a share
of the Registration Expenses pro rata based upon the relative amount
of proceeds to be received from the Registration Statement, and
provided further however, that each party to the Registration
Statement shall bear its own brokerage commissions incurred upon the
sale of any of the SLS Stock. For purposes hereof, Registration
Expenses shall include only registration, listing and filing fees, and
reasonable attorneys' fees only as the same directly applies to the
registration contemplated by this Section.
(iv) At all times that any of the SLS Stock remains outstanding,
Buyer shall comply with the requirements of Rule 144 under the 1933
Act regarding the availability of current public information to the
extent required to enable any holder of SLS Stock to sell such shares
without registration under the 1933 Act pursuant to Rule 144.
(v) Notwithstanding anything to the contrary contained herein,
and subject to SECTION 2.3(iv) hereof, 100% of the SLS Stock shall be
immediately distributed or loaned by Sellers to Superior Learning
Systems, LLC, the majority equity holder of each of the Sellers
("SUPERIOR"), and shall be pledged by Superior to Buyer and held by
Buyer solely as security for Superior's guaranty of the debt evidenced
by the amended and restated promissory notes ("NOTES") issued to Buyer
by each of Sterling Learning Systems (U.K.) Limited ($1 million
principal), and France Learning Systems, S.A.R.L. ($2.5 million
principal). The Notes are attached hereto as EXHIBIT D1, and the
Pledge Agreement ("PLEDGE") pursuant to which the SLS Stock shall be
pledged to Buyer is attached as EXHIBIT D2. The SLS Stock shall not be
delivered to Sellers until and unless all of the equity holders of
Sellers have consented to the distribution/loan and pledge as set
forth in this SECTION 2.3(V). If the SLS Stock is to be foreclosed
upon because of a default under the Notes, the SLS Stock shall be
valued using the arithmetic average (rounded to the nearest fifth
decimal place) of the closing price per share of SLS Stock, as
reported on the Nasdaq National Market, for the thirty (30)
consecutive trading days ending on the foreclosure date. Immediately
after the Notes have been satisfied, all SLS Stock then held by Buyer
shall be immediately delivered to Sellers.
(vi) All shares of SLS Stock and proceeds thereof shall be deemed
to be owned by the Sellers, and Sellers shall be entitled to vote the
same and to receive all dividends declared thereon; provided, however,
that there shall also be deposited with Buyer, subject to the terms of
this SECTION 2.3, all shares of SLS Stock issuable to Sellers as a
result of any stock dividend or split with respect to the shares of
SLS Stock then on deposit with Buyer.
(vii) Sellers may instruct Buyer to sell all or any portion of
the shares of SLS Stock held by Buyer as security and cause the
proceeds thereof to be substituted for such shares at any time. Such
proceeds shall be held in an interest bearing account or accounts with
a bank or other financial institution. In addition, Sellers need only
deposit with Buyer that amount of shares of SLS Stock (or proceeds)
equal to $3 million. Therefore, at any time and from time to time
while the SLS Stock (or proceeds) exceeds $3 million, Sellers may
provide Buyer with notice to deliver ("DELIVERY NOTICE") that amount
of shares (or proceeds) equal to such excess, and Buyer shall make
such delivery to Sellers within five (5) days after the receipt of the
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Delivery Notice, PROVIDED HOWEVER THAT, if shares of SLS Stock are to
be delivered pursuant to the Delivery Notice, then simultaneously with
providing to Buyer the Delivery Notice, Sellers shall pay to Buyer an
amount in cash equal to (y) the number of shares of SLS Stock to be
delivered pursuant to the Delivery Notice TIMES (z) the Average Market
Value (as defined in SECTION 2.1(iii) above).
2.4. ALLOCATION. The Consideration shall be allocated for Federal
Income Tax purposes among the Sellers in accordance with EXHIBIT E, and
each party agrees that, to the extent permitted by law, it shall account
for the sale of the Purchased Assets in a manner consistent with such
allocation.
2.5. DISPUTES. In the event of any dispute between Buyer and Sellers
with respect to the calculation of Contribution Margin with respect to any
period, either party may submit such dispute for resolution to the Atlanta
office of Ernst and Young. The cost of such arbitration shall be shared
equally between Buyer and Sellers.
2.6. NO DEFAULT UNDER NOTES. BUYER ACKNOWLEDGES AND AGREES THAT NO
PART OF THE PURCHASE PRICE OR ANY OTHER CONSIDERATION PAID OR DELIVERED TO
SELLERS UNDER THIS AGREEMENT SHALL BE PAID OVER OR DELIVERED TO BUYER IN
ORDER TO SATISFY ANY OBLIGATION UNDER THE NOTES OR OTHERWISE, AND THAT SUCH
NON-PAYMENT AND/OR NON-DELIVERY SHALL NOT CONSTITUTE A DEFAULT OR BREACH
UNDER THE PLEDGE, THE NOTES OR ANY OTHER DOCUMENT AND/OR INSTRUMENT
DELIVERED IN CONNECTION HEREWITH OR THEREWITH. THE NOTES WILL BE AMENDED
AND RESTATED AS SET FORTH ON EXHIBIT D1 TO REFLECT THE FOREGOING.
2.7. FINAL SETTLEMENT OF NNWC. If, after calculation of the Contingent
Annual Payments and the Final Contingent Payment, there remains an
un-reimbursed NNWC amount, Buyer may sell such shares of the SLS Stock so
as to collect such un-reimbursed amount.
2.8. POST-EFFECTIVE DATE, PRE-CLOSING FINANCIAL CONSIDERATIONS. The
parties agree and acknowledge that all benefits and burdens of running the
Business are transferred as of the Effective Date, and before Closing all
decisions of a material nature shall be made by Sellers only after
conferring with Buyer. In furtherance of the foregoing, all profits (if
any) of the Business shall accrue to the benefit of Buyer, and likewise,
Buyer shall bear the burden of all losses (if any) of the Business, as well
as be responsible for any interest on Funded Debt accruing after the
Effective Date.
2.9. POST-CLOSING CASH ISSUES. Buyer will cover checks written on or
before the Effective Date which have not cleared on or before the Closing,
and to the extent that such checks were not accounted for before the
Closing, the amount of such checks will be added to the NNWC.
3. INSTRUMENTS OF TRANSFER. At the Closing, each Seller will execute and
deliver to Buyer the Xxxx of Sale. From and after the date of this Agreement,
each Seller shall give to Buyer, and its agents and employees, full access
during normal business hours to all books, records, and other documents
concerning the Business that Buyer reasonably may request. From time to time
after the Closing, on Buyer's request, each Seller will execute and deliver at
Buyer's sole expense such instruments of conveyance and transfer as may be
required in conformity with this Agreement for the adequate assignment, grant,
or transfer to Buyer of any property, leases, or other assets being sold to
Buyer hereunder.
4. PREMISES LEASES. At Closing and thereafter, each Seller shall use all
reasonable efforts to assign, all right, title and interest under the leases
("LEASES") to the Centers; provided, that the consents to the assignments of the
various Leases will not be procured, the procurement of such consents will not
be a condition to Closing, and the fact that Sellers shall not have procured
such consents shall not be a breach of any of the Sellers' obligations
hereunder, and Buyer agrees to take the Leases with full knowledge that consents
to the assignments were required, and Buyer will indemnify and hold Sellers
harmless from any damages in connection with not receiving such consents. If
consent to any assignment is not procured by Closing, Buyer shall simply occupy
such space and hold each Seller harmless from any and all costs which may arise
out of the failure to procure such consent, and all costs and expenses arising
after the Closing from such Leases. Each Seller has provided Buyer with a copy
of the Leases.
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All rents and other charges accruing as of the Closing shall have been paid or
accrued by Sellers in full. All rents and other charges accruing after Closing
shall be the sole responsibility of Buyer. Notwithstanding the foregoing, should
a landlord start eviction proceedings against Buyer, solely due to the parties'
failure to procure a consent to the assignment pursuant hereto, then the costs
of moving such center shall be deducted from Contribution Margin for the Year in
which such moving costs are incurred.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLERS. Each Seller hereby
represents and warrants to Buyer as follows:
5.1. ORGANIZATION. Each Seller is a limited liability company duly
organized, validly existing and in good standing under the laws of the
State of Delaware, and is qualified to do business in the state of their
respective business operations, and each has the power and authority to
carry on the Business as it is now being conducted and to own or hold under
lease the properties or assets it now owns or holds under lease and to
perform the actions contemplated hereby.
5.2. FINANCIAL STATEMENTS. Attached hereto as SCHEDULE 5.2 is
unaudited partial balance sheets for each Seller for purposes of
calculating the NNWC, including a schedule of all liabilities, debt, and
obligations of the Business as of December 31, 2001 to be discharged by
Buyer (with SCHEDULE 5.2(a) thereto, the "SELLER FINANCIAL STATEMENTS").
Other than the Funded Debt (which will be discharged at Closing), there are
no material liabilities or obligations of any Seller or the Business,
whether contingent or absolute, as of the date of such statement, including
liability for taxes of any type, which are not shown or provided for in the
Seller Financial Statements, and which if fixed, would materially and
adversely affect the value of the goodwill and reputation of Buyer.
5.3. TAXES. Other than those shown on the Seller Financial Statements,
no Seller has any liability for any federal, state, county, local or other
taxes, fees or assessments, or interest or penalties thereon (collectively,
"TAXES") whatsoever that arose or otherwise was incurred with respect to
the Business on or before the date of this Agreement, and no Seller has
knowledge that any Taxes are due or owing.
5.4. LEGAL PROCEEDINGS, ETC. There are no legal, administrative,
arbitration, or other proceedings or governmental investigations pending
or, to Sellers' knowledge, threatened against any Seller, the Business or
the assets of Sellers.
5.5. COMPLIANCE; LICENSES. Each Seller has at all times in the past
operated the Business and used its assets in material compliance with, and
currently is not in violation in any material respect of, and has obtained
all material licenses and permits required by, any law, rule or regulation.
5.6. EMPLOYEE MATTERS. No Seller maintains, sponsors or contributes to
any plans in effect for pension, profit-sharing, deferred compensation,
severance pay (except as described on SCHEDULE 5.2(a)), bonuses, stock
options, stock purchases, or any other retirement or deferred benefit, or
for any health, accident or other welfare plan, or any other employee or
retired employee benefits or incentive plan, program, contract,
understanding or arrangement in which any employee, former employee,
retired employee, or beneficiary of any of these, of the Business is
entitled to participate, except as has been provided to Buyer. All
employees of the Business are "at will" employees, and no employee of the
Business has or is a party to any written employment or other agreement
with any Seller. Buyer shall have no responsibility to hire any employees
of any Seller, and Buyer is not assuming any back pay, vacation pay, sick
pay or employee benefits of any kind of any Seller, unless disclosed on the
Seller Financial Statements.
5.7. NO CONFLICT WITH OTHER DOCUMENTS. Except for those issues where
consents have been procured, neither the execution and delivery of this
Agreement, nor the carrying out of any of the transactions contemplated
hereby, will result in any violation, termination or modification of, or be
in conflict with, any Seller's charter instruments, any terms of any
material contract (except for the Leases under which Sellers operate the
Centers), instrument or other agreement to which any Seller is a party or
by which it or the Business or any of its properties is bound, or any law,
rule, regulation, license, permit, judgment, decree or order applicable to
any Seller, the Business or by which any of its properties or assets are
bound.
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5.8. BROKERS AND ADVISORS. No Seller has taken an action which would
give rise to a valid claim against any party hereto for a brokerage
commission, finder's fee, counseling or advisory fee, or like payment.
5.9. AUTHORITY. The execution, delivery and performance of this
Agreement by Sellers have been duly authorized by Sellers, and this
Agreement is a valid and legally binding and enforceable obligation of
Sellers.
5.10. TITLE TO ASSETS. Each Seller has good and indefeasible title to
all of its properties, lease agreements and assets to be transferred and
assumed hereunder. Except for the claims of any secured creditors shown in
the Seller Financial Statements, such properties and assets which are owned
by Sellers will be delivered to Buyer free and clear of all mortgages,
liens, and encumbrances. Sellers' accounts receivable arose, and all
accounts receivable that will be outstanding as of the Closing Date shall
have arisen, from bona fide transactions in the ordinary course of business
and will be collectible by Buyer in full in the ordinary course of business
within one hundred twenty (120) days of the Closing Date, and there are no
offsets or claims related to such accounts receivable.
5.11. INSURANCE. All property and assets owned by Sellers are and will
continue to be insured only through the Closing Date with the same amount
of insurance as currently in place, and Buyer shall be responsible for
securing replacement policies in Buyer's name to be effective only upon
Closing.
5.12. CONSENTS. Each Seller agrees to take all reasonable action and
to use its best efforts to obtain all consents and approvals required for
consummation of the transactions contemplated by this Agreement, except as
to the Leases; Buyer acknowledges that consents to the assignments of the
various Leases will not be procured. The parties agree that no third party
consents are required to consummate the transactions contemplated by this
Agreement.
5.13. EMPLOYMENT CONTRACTS. Sellers will assist Buyer in seeking to
secure employment contracts and/or non-competition and non-solicitation
agreements with Sellers' existing employees; but such employment and/or
non-compete agreements shall not be a condition precedent to the
consummation of the transactions contemplated hereby.
5.14. CAUSE CONDITIONS TO BE SATISFIED. Each Seller will use its best
efforts to cause all of the conditions described in SECTION 6 of this
Agreement to be satisfied by the Closing Date.
5.15. TRUE AND CORRECT AT CLOSING. All of the foregoing
representations, warranties and covenants will be true and correct as of
the Closing Date and shall survive for one (1) year following the Closing
Date.
6. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. The obligations of Buyer
under this Agreement are subject to fulfillment of each of the following
conditions prior to or at the Closing Date:
6.1. The Xxxx of Sale shall be valid in accordance with its terms, and
shall effectively vest in Buyer good and indefeasible title to the
Purchased Assets (except as to leaseholds) as contemplated by this
Agreement, free and clear of any liabilities, obligations, or encumbrances.
6.2. There shall not have been any material breach of representations
or warranties of Sellers contained in this Agreement, and such
representations and warranties shall be correct in all material respects on
the actual Closing Date, except as affected by transactions contemplated
herein and changes occurring in the ordinary course of business. Buyer
acknowledges that the CONSENTS TO ASSIGNMENTS OF THE LEASES WILL NOT BE
PROCURED BY SELLERS, IT BEING UNDERSTOOD THAT SUCH CONSENTS ARE NOT A
CONDITION TO THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY.
7. PRORATIONS/REIMBURSEMENTS/ADJUSTMENTS/ASSUMED OBLIGATIONS. There shall
be prorated, reimbursed, or the purchase price adjusted, as the case may be, in
the manner indicated below, between Sellers and Buyer, as of the Effective Date,
as follows: for property/ad valorem taxes for the year in which the Effective
Date resides and assessed against any property transferred hereunder will be
prorated through Closing with
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the amount paid by Buyer but supposed to be paid by Sellers (if any) in
accordance with this provision being added to the NNWC amount, and the amount
already paid by Sellers but supposed to be paid by Buyer in accordance with this
provision to be credited against the NNWC amount.
8. CLOSING DATE. The closing ("CLOSING") with respect to the transactions
contemplated by this Agreement shall be held no later than January 31, 2002 (the
"CLOSING DATE") at the offices of Buyer's counsel, but shall be effective as of
the Effective Date.
9. INDEMNIFICATION.
9.1 INDEMNIFICATION BY SELLERS. Subject to the terms and conditions of
SECTION 10 hereof, Sellers hereby covenant and agree to jointly and
severally indemnify and hold harmless Buyer and its respective successors
and assigns, at all times from and after the Closing Date against and in
respect of the following:
(i) any claim, demand, expense, cost, damage or loss
(collectively, "CLAIM") resulting from any misrepresentation, breach
of representation or warranty or breach or non-fulfillment of any
agreement or covenant on the part of Sellers under this Agreement, or
from any inaccuracy or misrepresentation in or omission from any
certificate or other instrument or document furnished or to be
furnished by Sellers hereunder; and
(ii) any Claim which arises out of any liabilities or obligations
of Sellers, included but not limited to federal, state or local income
taxes, FICA, withholding, excise, unemployment, sales or franchise
taxes, arising from operations of Sellers prior to the Effective Date;
and
(iii) any Claim of Sellers and the Business which accrues or
arises prior to the Effective Date, other than any debt, obligation or
liability expressly assumed hereunder by Buyer; and
(iv) all Claims, actions, suits, proceedings, demands,
assessments, judgments, costs, reasonable attorneys' fees and expenses
of any nature incident to any of the matters indemnified against
pursuant to this SECTION 9.1, including, without limitation, all such
costs and expenses incurred in the defense thereof or in the
enforcement of any rights of Buyer hereunder.
Buyer shall notify Sellers of any asserted liability, damage, loss or
expense claimed to give rise to indemnification hereunder. Thereafter, Sellers
shall have, at their election, the right to compromise or defend any such matter
at Sellers' sole cost and expense through counsel chosen by Sellers and
reasonably acceptable to Buyer. If Sellers fail to settle and compromise the
claim, or establish a cash escrow with Buyer and defend the claim, Buyer may pay
such claim at Sellers' expense.
9.2. INDEMNIFICATION BY BUYER. Subject to the terms and conditions of
SECTION 10 hereof, Buyer hereby covenants and agrees to indemnify and hold
harmless Sellers against and in respect of the following:
(i) any Claim resulting from any misrepresentation, breach of
warranty or non-fulfillment of any agreement or covenant on the part
of Buyer under this Agreement, or from any misrepresentation in or
omission from any certificate or other instrument or document
furnished or to be furnished by Buyer hereunder; and
(ii) any Claim which arises out of any liabilities or obligations
of Buyer, included but not limited to federal, state or local income
taxes, FICA, withholding, excise, unemployment, sales or franchise
taxes, arising from operations of Buyer; and
(iii) all Claims, actions, suits, proceedings, demands,
assessments, judgments, costs, reasonable attorneys' fees and expenses
of any nature incident to any of the matters indemnified against
pursuant to this SECTION 9.2, including without limitation, all such
costs and expenses incurred in the defense thereof or in the
enforcement of any rights of Sellers hereunder; and
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(iv) any Claim related to the Business which accrues or arises
after the Effective Date, other than any debt, obligation or liability
expressly assumed hereunder by Buyer
Sellers shall notify Buyer of any asserted liability, damage, loss or
expense claimed to give rise to indemnification hereunder and thereafter Buyer
shall have the right to defend, compromise and settle such matter provided that
Sellers are fully protected from any cost or expense in connection therewith. If
Buyer fails to compromise or defend on the claim, or to establish a cash escrow
with Sellers and defend the claim, Sellers may defend or compromise the claim at
Buyer's sole cost and expense.
10. GENERAL RULES REGARDING INDEMNIFICATION. The obligations and
liabilities of each indemnifying party hereunder with respect to claims
resulting from the assertion of liability by the other party or indemnified
third parties shall be subject to the following terms and conditions:
10.1. The indemnified party shall give prompt written notice (which in
no event shall exceed ten (10) days from the date on which the indemnified
party first became aware of such claim or assertion) to the indemnifying
party of any claim which might give rise to a claim by the indemnified
party against the indemnifying party based on the indemnity agreements
contained in SECTION 9 hereof, stating the nature and basis of said claims
and the amounts thereof, to the extent known;
10.2. If any action, suit or proceeding is brought against the
indemnified party with respect to which the indemnifying party may have
liability under the indemnity agreements contained in SECTION 9 hereof, the
action, suit or proceeding shall, upon the written acknowledgment by the
indemnifying party that it is obligated to indemnify under such indemnity
agreement, be defended (including all proceedings on appeal or for review
which counsel for the indemnified party shall deem appropriate) by the
indemnifying party. The indemnified party shall have the right to employ
its own counsel in any such case, but the fees and expenses of such counsel
shall be at the indemnified party's own expense unless (a) the employment
of such counsel and the payment of such fees and expenses both shall have
been specifically authorized in writing by the indemnifying party in
connection with the defense of such action, suit or proceeding, or (b)
counsel to such indemnified party shall have reasonably concluded and
specifically notified the indemnifying party that there may be specific
defenses available to it which are different from those available to the
indemnifying party, in any of which events the indemnifying party, to the
extent made necessary by such defenses, shall not have the right to direct
the defense of such action, suit or proceeding on behalf of the indemnified
party. In the latter such case only that portion of such fees and expenses
of the indemnified party's separate counsel reasonably related to matters
covered by the indemnity agreements contained in SECTION 9 hereof shall be
borne by the indemnifying party. The indemnified party shall be kept fully
informed of such action, suit or proceeding at all stages thereof whether
or not it is represented by separate counsel.
10.3. The indemnified party shall make available, upon reasonable
notice, to the indemnifying party and its attorneys and accountants all
books and records of the indemnified party relating to such proceedings or
litigation and the parties hereto agree to render to each other such
assistance as they may reasonably require of each other in order to ensure
the proper and adequate defense of any such action, suit or proceeding.
10.4. The indemnified party shall not make any settlement of any
claims without the written consent of the indemnifying party, which consent
shall not be unreasonably withheld or delayed.
10.5. If any claims are made by an indemnified party for which an
indemnifying party would be liable, and it appears likely that such claims
might also be covered by the indemnified party's insurance policies, the
indemnified party shall make a timely claim under such policies and to the
extent that such party obtains any recovery from such insurance, such
recovery shall be offset against any sums due from an indemnifying party
(or shall be repaid to the indemnifying party by the indemnified party to
the extent that an indemnifying party has already paid any such amounts).
In addition, any claim for indemnity hereunder shall reduced by any tax
benefit reasonably expected by Buyer to be received or actually received by
Buyer, viewing such claim without being affected by any of Buyer's other
activities.
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10.6. The indemnified party shall not make any claim unless and until
it has incurred indemnified losses, damages and expenses in the cumulative
aggregate amount of $75,000.00, and then only in respect of the excess over
such $75,000.00 minimum. All claims for indemnification and liability
pursuant thereto shall not, in any event, exceed 20% of the Purchase Price.
10.7 Buyer and Sellers acknowledge and agree that the foregoing
indemnification provisions in SECTIONS 9 AND 10 hereof shall be the sole
and exclusive remedies for breaches or defaults of any representation,
warranty, covenant or agreement contained herein or in any other document
or instrument delivered in connection herewith, except in the case of
fraud.
11. DUE DILIGENCE. Buyer's intention to consummate the proposed purchase is
based upon certain assumptions about Sellers' Business. From the date of this
Agreement to Closing, Buyer may, through its agents, accountants, attorneys and
others, make such investigations of Sellers as Buyer may deem necessary or
advisable.
12. CONDUCT PENDING CLOSING. Until Closing or January 15, 2002, Sellers
will:
12.1. Continue to operate its business in the ordinary course in a
manner consistent with the normal course of business practices, without
substantial change, and will maintain and not deplete its assets;
12.2. Take such steps as are necessary and appropriate to preserve its
existing relationships with customers, suppliers and key employees;
12.3. Neither negotiate for nor consummate the sale, lease, transfer
or conveyance in any way of its assets or any rights thereto to any party
other than Buyer, it being understood by the parties that Buyer
contemplates the expenditure of substantial sums of time and money in
connection with legal, accounting, financing and due diligence work to be
performed in conjunction with the proposed transactions prior to Closing.
Sellers further agree to not directly or indirectly (i) solicit or initiate
(including by way of furnishing any information) discussions with or (ii)
enter into negotiations or agreements with, or furnish any information to,
any corporation, partnership, person or other entity or group (other than
Buyer or its authorized representatives pursuant to this Agreement)
concerning any proposal for a merger, sale of substantial assets, sale of
shares of stock or securities or other takeover or business combination
transaction (the "ACQUISITION TRANSACTION") involving Sellers, and Sellers
will instruct their officers, directors, advisors and other financial and
legal representatives and consultants not to take any action contrary to
the foregoing provisions of this clause (including specifically instructing
its broker not to actively market the Purchased Assets as long as this
Agreement is in effect); and
12.4. Inform Buyer promptly of the occurrence of any event which may
result in a material adverse change to the Business or its financial
condition, or operations or to the condition of the Centers.
13. COSTS AND EXPENSES. All costs and expenses incurred in conducting the
purchase and sale described in this Agreement and in the manner prescribed by
this Agreement shall be borne by Buyer and Sellers in the following manner:
13.1. Buyer and Sellers shall be solely responsible for their
respectively incurred legal fees, accounting fees, and consulting fees, if
any, incurred in the negotiation of this Agreement and related documents,
reviewing and preparing documents required by the transaction and the
Closing.
13.2. Buyer shall pay all sales, income, transfer and documentary
taxes, if any, arising because of the sale pursuant to this Agreement.
13.3. Sellers shall be responsible for payment of the fees and
expenses of Sellers' broker.
14. MISCELLANEOUS.
14.1. This Agreement, including the exhibits and schedules, if any,
referred to herein, contains the
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entire agreement between the parties with respect to the transaction
contemplated herein. It may be executed in any number of counterparts, each
and all of which shall be deemed for all purposes to be one agreement.
14.2. This Agreement shall be binding on and inure to the benefit of
the successors and assigns of the parties hereto. Notwithstanding the
foregoing, neither Buyer nor Sellers shall have the right to assign its
rights and interest in this Agreement.
14.3. This Agreement shall be governed by and construed in accordance
with the laws of Maryland.
14.4. If any one or more of the provisions contained in this Agreement
for any reason are held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect
any of the other provisions hereof and this Agreement shall be construed as
if such invalid, illegal or unenforceable provision had never been
contained herein.
14.5. Whenever the context shall so require, all words herein in the
male gender shall be deemed to include the female or neuter gender, and all
singular words shall include the plural and the plural words shall include
the singular.
14.6. This Agreement may be terminated by the mutual consent of Buyer
and Sellers, or by either Buyer or Sellers, if the terminating party is not
then in material breach of its obligations hereunder, upon written notice
to the other upon the occurrence of any of the following: (a) by the
terminating party, if the other party is in material breach of its
obligations hereunder and such breach has not been cured by the other party
within 10 days of written notice of such breach; or, (b) if the Closing has
not occurred on or before January 15, 2002.
14.7. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorney's fees, costs, and necessary disbursements
in addition to any other relief to which such party may be entitled.
14.8. The headings of the paragraphs and subparagraphs are inserted
solely for the convenience of reference and shall not constitute a part of
this Agreement, nor limit, define or describe the scope or intent of this
Agreement.
14.9. This Agreement may not be altered, changed, or amended except by
the written agreement of Sellers and Buyer.
14.10. All notices to be given hereunder shall be given in writing and
shall be delivered personally or by registered or certified mail, postage
prepaid, to Buyer and Sellers at the addresses shown on Page 1 hereof.
14.11. The Recitals to this Agreement are incorporated herein.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
on the date set forth above.
BUYER:
SYLVAN LEARNING SYSTEMS, INC.
By /S/ XXXXX XXXXX
--------------------------------
Xxxxx Xxxxx, President
SELLERS:
ATLANTA LEARNING SYSTEMS, LLC
By ALS Manager, LLC
By /S/ XXXXXX X. XXXXXXX
--------------------------------
Xxxxxx X. Xxxxxxx, Manager
BOSTON LEARNING SYSTEMS, LLC
By BLS Manager, LLC
By /S/ XXXXXX X. XXXXXXX
--------------------------------
Xxxxxx X. Xxxxxxx, Manager
PITTSBURGH LEARNING SYSTEMS, LLC
By PLS Manager, LLC
By /S/ XXXXXX X. XXXXXXX
--------------------------------
Xxxxxx X. Xxxxxxx, Manager
