Exhibit 11.02
FORMATION AGREEMENT
BY AND AMONG
SYLVAN LEARNING SYSTEMS, INC.,
AP EDUCATE INVESTMENTS, LLC,
R. XXXXXXXXXXX XXXXX-XXXXX
AND
XXXXXXX X. XXXXXX
JUNE 30, 2000
FORMATION AGREEMENT
THIS FORMATION AGREEMENT is executed on this 30th day of June, 2000
(the "Closing Date"), by and among SYLVAN LEARNING SYSTEMS, INC. a Maryland
corporation ("Sylvan"), AP EDUCATE INVESTMENTS, LLC, a Delaware limited
liability company ("Apollo"), R. XXXXXXXXXXX XXXXX-XXXXX ("Xxxxx-Xxxxx") and
XXXXXXX X. XXXXXX ("Xxxxxx").
WHEREAS, the parties hereto have agreed to create Sylvan Ventures,
Inc., a Delaware corporation (the "Corporation"), and Sylvan Ventures, LLC, a
Delaware limited liability company (the "Incubator"), for the purposes of (a)
investing, either directly or indirectly, in Subject Companies (as defined
below); (b) promoting the development of such Subject Companies; (c) providing
strategic guidance and operational support to such Subject Companies; (d)
promoting collaboration among such Subject Companies; and (e) owning and
managing the Real Estate Assets (as defined below).
WHEREAS, the parties hereto have agreed to contribute cash to the
Corporation, and cash and other property to the Incubator.
WHEREAS, in connection with the formation of the Corporation, the
parties have agreed to set forth certain of their respective rights and
obligations with respect to the Corporation, and the conduct of the business of
the Corporation, in that certain Stockholders' Agreement of even date herewith
(the "Stockholders' Agreement"), a copy of which is attached hereto as EXHIBIT
A.
WHEREAS, in connection with the formation of the Incubator, the parties
have agreed to set forth certain of their respective rights and obligations (and
the rights and obligations of the Corporation) with respect to the Incubator,
and the conduct of the business of the Incubator, in that certain Limited
Liability Company Agreement of even date herewith (the "Operating Agreement"), a
copy of which is attached hereto as EXHIBIT B.
WHEREAS, (i) each of Apollo and the Corporation has agreed to set forth
certain of their respective rights and obligations with respect to the
securities of the Corporation acquired by Apollo hereunder in a Registration
Rights Agreement of even date herewith (the "Corporate Registration Rights
Agreement"), a copy of which is attached hereto as EXHIBIT C, and (ii) each of
Apollo and the Incubator has agreed to set forth certain of their respective
rights and obligations with respect to the securities of the Incubator acquired
by Apollo hereunder in a Registration Rights Agreement of even date herewith
(the "Incubator Registration Rights Agreement"), a copy of which is attached
hereto as EXHIBIT D.
WHEREAS, the parties hereto intend that this Agreement memorialize
their respective representations, warranties, covenants and other agreements
made to induce each of the parties hereto to form the Corporation and the
Incubator and execute and deliver the other Closing Documents, as defined
herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the parties hereto, intending to be
legally bound, hereby agree as follows:
I.
DEFINITIONS
SECTION 1.01. DEFINITIONS. The following capitalized terms shall have
the meanings specified in this Section 1.01. Other terms are defined in the
recitals hereto or in the text of this Agreement, and shall have the meanings
respectively ascribed to them.
"ACCREDITED INVESTOR" has the meaning set forth in Section 4.06 hereof.
"AGREEMENT" means this Formation Agreement, as the same may be amended,
supplemented or modified in accordance with the terms hereof.
"CAPITAL STOCK" means, with regard to any corporation, partnership,
limited liability company or other business entity, any and all shares,
interests, participation or other equivalents (however designated), whether
voting or non-voting, representing ownership (whether direct, indirect or
contingent) of such corporation, partnership or other business entity.
"CERTIFICATE OF FORMATION" means that certain Certificate of Formation
with respect to the Incubator filed for record with the Secretary of State
before the Closing Date, a copy of which is attached hereto as EXHIBIT E.
"CERTIFICATE OF INCORPORATION" means that certain Certificate of
Incorporation with respect to the Corporation filed for record with the
Secretary of State on or before the Closing Date, a copy of which is attached
hereto as EXHIBIT F.
"CHANCERY ACQUISITION PRICE" has the meaning set forth in Section
3.04(a) hereof.
-2-
"CHANCERY ADDITIONAL CAPITAL CALL" has the meaning set forth in Section
3.04(a) hereof.
"CHANCERY REIMBURSEMENT AMOUNT" has the meaning set forth in Section
3.04(a) hereof.
"CLOSING DOCUMENTS" means this Agreement, the Certificate of
Incorporation, the Corporate Bylaws, the Stockholders' Agreement, the
Certificate of Formation, the Operating Agreement, the Corporate Registration
Rights Agreement, the Incubator Registration Rights Agreement, the Employment
Agreements, the Membership Profit Interest Plan, the Membership Profit Interest
Grant Agreements, the Closing Tax Opinion, and the Post-Closing Tax Opinions.
"CLOSING TAX OPINION" has the meaning set forth in Section 3.05(f)
hereof.
"COMMON STOCK" has the meaning set forth in Section 2.02 hereof.
"COMMON UNITS" has the meaning set forth in the Operating Agreement.
"CORPORATE BYLAWS" means the Bylaws of the Corporation to be adopted by
the Board of Directors of the Corporation at the organizational meeting of the
Corporation, a copy of which is attached hereto as EXHIBIT G.
"CORPORATE CLOSING" has the meaning set forth in Section 2.05 hereof.
"EMPLOYMENT AGREEMENT(S)" means, collectively, (i) that certain
Employment Agreement, dated as of the Closing Date, by and among Sylvan, the
Incubator and Xxxxxx, and (ii) that certain Employment Agreement, dated as of
the Closing Date, by and among the Corporation, the Incubator, Sylvan and
Xxxxx-Xxxxx, copies of each of which are attached hereto as EXHIBITS H AND I,
respectively.
"INCUBATOR CLOSING" has the meaning set forth in Section 2.05 hereof.
"LIEN" means, with respect to any Person, any mortgage, lien, pledge,
charge, security interest or other encumbrance, or any interest or title of any
vendor, lessor, lender or other secured party to or of such Person under any
conditional sale or other title retention agreement or lease with respect to
which the lessee is required concurrently to recognize the acquisition of an
asset and the incurrence of a liability in accordance with United States
generally accepted accounting principles, upon or with
-3-
respect to any property or asset of such Person (including in the case of
Capital Stock, stockholder agreements, voting trust agreements and all similar
arrangements).
"MEMBERSHIP INTERESTS" has the meaning set forth in the Operating
Agreement.
"MANAGEMENT INVESTORS" means each of Xxxxx-Xxxxx and Xxxxxx.
"MATERIAL ADVERSE EFFECT" means, with respect to any Person, a material
adverse effect on (i) the business, operations, affairs, condition (financial or
otherwise), assets, prospects or properties of such Person taken as a whole, or
(ii) the ability of such Person to perform its obligations under this Agreement
or any of the other Closing Documents to which it is a party, or (iii) the
validity or enforceability of this Agreement or any of the other Closing
Documents to which such Person is a party.
"MEMBERSHIP PROFIT INTEREST GRANT AGREEMENT(S)" means those certain
Membership Profit Interest Grant Agreements, dated as of the Closing Date, by
and between the Incubator and each of Xxxxx-Xxxxx and Xxxxxx, copies of which
are attached hereto as EXHIBITS J AND K, respectively.
"ONLINE NOTES" has the meaning set forth in Section 3.02 hereof.
"PERSON" means any individual, corporation, partnership, joint venture,
association, limited liability company, joint-stock company, trust, estate or
other entity, unincorporated organization or government or other agency or
political subdivision thereof.
"PLAN ASSETS" has the meaning set forth in Section 5.06 hereof.
"POST-CLOSING TAX OPINIONS" has the meaning set forth in Section
3.02(b) hereof.
"PREFERRED STOCK" has the meaning set forth in Section 2.02 hereof.
"PREFERRED UNITS" has the meaning set forth in the Operating Agreement.
"PURCHASE AGREEMENT" has the meaning set forth in Section 7.04 hereof.
"REAL ESTATE ASSETS" has the meaning set forth in the Operating
Agreement.
-4-
"SEC" means the Securities and Exchange Commission.
"SECRETARY OF STATE" means the Secretary of State of the State of
Delaware.
"SHARES" has the meaning set forth in Section 2.02 hereof.
"SUBJECT COMPANIES" has the meaning set forth in the Operating
Agreement.
II.
FORMATION OF THE CORPORATION
SECTION 2.01. FORMATION. Based upon the representations, warranties,
covenants and agreements contained herein and in the other Closing Documents,
each of Sylvan, Apollo and the Management Investors hereby agrees to form the
Corporation on the terms and conditions set forth herein and therein.
SECTION 2.02. PURCHASE PRICE FOR SHARES. Contemporaneously with the
execution and delivery of this Agreement,
(i) Sylvan is paying cash in the aggregate amount of
$19,603.46 to the Corporation in consideration for 7,126 shares of
common stock of the Corporation, par value $0.01 per share (the "Common
Stock");
(ii) Apollo is paying cash in the aggregate amount of
$8,910.65 to the Corporation in consideration for 2,499 shares of
convertible preferred stock of the Corporation, par value $0.01 per
share (the "Preferred Stock"); and
(iii) the Management Investors are paying cash in the
aggregate amount of $1,336.59 to the Corporation in consideration for
375 shares of Common Stock as follows:
Xxxxx-Xxxxx: $668.30 for 187.5 shares
Xxxxxx: $668.29 for 187.5 shares
Upon payment in full of such amounts, all such shares of Capital Stock of the
Corporation (collectively, the "Shares") shall be validly issued, fully-paid and
non-assessable, subject to Article IV of the Stockholders' Agreement.
-5-
SECTION 2.03. ORGANIZATION. Sylvan hereby represents and warrants that,
prior to the Corporate Closing, the Certificate of Incorporation was filed for
record with the Secretary of State. Effective immediately after the Corporate
Closing, the Board of Directors of the Corporation shall hold the organizational
meeting of the Corporation (which may be by unanimous consent of all directors
in lieu of a meeting) pursuant to which the Corporation shall, among other
things, (i) adopt and approve the Corporate Bylaws, (ii) authorize the issuance
of the Shares to Sylvan, Apollo and the Management Investors pursuant to this
Agreement, (iii) authorize and approve the Stockholders' Agreement, the
Corporate Registration Rights Agreement, and the Employment Agreement with
Xxxxx-Xxxxx, and (iv) authorize and approve the Operating Agreement, the
acquisition by the Corporation of a Membership Interest in the Incubator, and
the capital contributions by the Corporation to the Incubator pursuant to
Sections 3.02 and 3.04 hereof.
SECTION 2.04. COMPANY CAPITAL CALL.
(a) In connection with the Chancery Additional Capital Call, the
parties hereto acknowledge and agree that the Corporation shall be deemed to
have made a "Company Capital Call" (as defined in the Stockholders' Agreement)
in the aggregate amount of $51,035.14 representing the Corporation's pro-rata
share of the Chancery Reimbursement Amount, pursuant to which each of Sylvan
(subject to Section 2.04(b) below), Apollo and the Management Investors shall
contribute, contemporaneously with the execution and delivery of this Agreement
and in accordance with Section 4.01 of the Stockholders' Agreement, the
following amounts to the Corporation:
Sylvan: $33,515.62
Apollo: $15,234.37
Xxxxx-Xxxxx: $ 1,142.57
Xxxxxx: $ 1,142.58
TOTAL: $51,035.14
==========
(b) The parties hereto acknowledge and agree that, in lieu of Sylvan
paying in cash its $33,515.62 share of such Company Capital Call, such amount
(on a dollar-for-dollar basis) shall be applied to, credited against, and
treated as a payment of, the amount payable by the Corporation pursuant to
Section 3.04 hereof in connection with the Chancery Additional Capital Call;
provided, however, that in no event shall such payment reduce the amount payable
by each of Apollo and the Management Investors pursuant to Section 2.04(a)
hereof.
SECTION 2.05 CLOSING. Closing with respect to the initial
capitalization of the Corporation (the "Corporate Closing") is occurring on the
Closing Date
-6-
contemporaneously with the execution and delivery of this Agreement by the
parties hereto, and shall be deemed to occur immediately prior to the closing
with respect to the initial capitalization of the Incubator hereunder (the
"Incubator Closing"). At the Corporate Closing, (i) each of Sylvan, Apollo and
the Management Investors is paying (by cashier's or certified check) the
purchase price for its respective Shares in accordance with Section 2.02 hereof
and its pro-rata share of the Company Capital Call pursuant to Section 2.04
hereof, (ii) each of Sylvan, Apollo, the Management Investors and the
Corporation is executing and delivering the Stockholders' Agreement, and (iii)
each of Apollo and the Corporation is executing and delivering the Corporate
Registration Rights Agreement.
III.
FORMATION OF THE INCUBATOR
SECTION 3.01. FORMATION. Based upon the representations, warranties,
covenants and agreements contained herein and in the other Closing Documents,
each of Sylvan, Apollo and the Management Investors hereby agrees to form (and
cause the Corporation to form) the Incubator on the terms and conditions set
forth herein and in the Operating Agreement.
SECTION 3.02. INITIAL CAPITAL CONTRIBUTIONS.
(a) Contemporaneously with the execution and delivery of this
Agreement:
(i) in consideration for 284.34 Common Units of the
Incubator, Sylvan is contributing (or, in the case of the Real Estate Assets,
will contribute, pursuant to Section 3.02(b) hereof, and, in the case of the
Capital Stock of Caliber (as defined below), has previously contributed) to the
Incubator
(A) cash in the aggregate amount of
$6,547,463.00;
(B) all of Sylvan's rights, title and
interest in and to the Real Estate Assets; and
(C) all of Sylvan's rights, title and
interest in and to the Capital Stock and any options, warrants or rights to
acquire Capital Stock of each of Caliber Learning Network, Inc., a Maryland
corporation ("Caliber"), ZapMe! Corporation, a Delaware corporation ("ZapMe"),
XxxxxxXxxxxxxx.Xxx, Inc., a Delaware corporation ("Online") and eSylvan, Inc., a
Maryland corporation ("eSylvan") (collectively, the "Contributed Entities"),
and, in the case of Online, each of the following Bridge Notes payable by Online
to Sylvan (collectively, the "Online Notes"):
-7-
(1) Bridge Note dated April 7, 1999
in the original principal sum of $213,253, as amended by that certain Extension
Agreement dated April 30, 1999 by and between Online and Sylvan.
(2) Bridge Note dated May 26, 1999
in the original principal sum of $479,819.
(3) Bridge Noted dated May 1, 2000
in the original principal sum of $319,880.
(ii) Apollo is contributing $2,976,120.00 to
the Incubator in consideration for 99.70 Preferred Units;
(iii) the Corporation is contributing
$29,850.70 to the Incubator in consideration for one (1) Common Unit; and
(iv) the Management Investors are
contributing an aggregate of $446,567.00 to the Incubator in consideration for
an aggregate of 14.96 Common Units, as follows:
Xxxxx-Xxxxx: $223,283 for 7.48 Common Units
Xxxxxx: $223,283.50 for 7.48 Common Units
(b) The parties hereto acknowledge and agree that:
(i) as soon as practicable after the
Incubator Closing, and as part of the initial capitalization of the Incubator,
Sylvan shall identify and acquire the Real Estate Assets, and contribute to the
Incubator all of Sylvan's rights, title and interest in and to such Real Estate
Assets;
(ii) as a condition precedent to each of
Sylvan's contributions of the Real Estate Assets to the Incubator, Apollo shall
receive a tax opinion of Xxxxxxx, Xxxxxxx and Xxxxxx, LLP in substantially the
form attached hereto as EXHIBIT L (collectively, the "Post-Closing Tax
Opinions");
(iii) the aggregate gross fair market value
of the Real Estate Assets, as of the date such Real Estate Assets are
contributed to the Incubator, shall not exceed $70,000,000, and such Real Estate
Assets shall secure non-recourse liabilities (which shall at all times be
non-recourse to the Incubator and each of its "Members," as defined in the
Operating Agreement) in an amount not to exceed $65,000,000 relating to such
Real Estate Assets; and
-8-
(iv) the fair market value of the
Contributed Entities as of the Closing Date is $65,000,000.
(c) The parties intend that the contributions to the
Incubator set forth in this Section 3.02 with respect to each of the parties
hereto shall be treated as a contribution of property in exchange for an
interest in the Incubator within the meaning of Section 721 of the Internal
Revenue Code of 1986, as amended (the "Code"), and all such parties shall report
such contributions accordingly for purposes of all Federal, state and local
taxes.
(d) Sylvan shall pay all real property transfer taxes
and all other transfer, sales and use taxes directly or indirectly resulting
from, or arising out of or in connection with, the contribution by Sylvan of the
Real Estate Assets and the Contributed Entities.
SECTION 3.03. ORGANIZATION. Sylvan hereby represents and warrants that,
prior to the Incubator Closing, the Certificate of Formation was filed for
record with the Secretary of State. Effective as of the Incubator Closing, the
Board of Managers of the Incubator shall authorize and approve each of the
Employment Agreements, the Membership Profit Interest Plan Grant Agreements, and
the Incubator Registration Rights Agreement, and shall adopt and approve the
Membership Profit Interest Plan.
SECTION 3.04. ACQUISITION OF CHANCERY SOFTWARE, LTD.
(a) Contemporaneously with the execution and delivery of this
Agreement, Sylvan is contributing to the Incubator all of Sylvan's rights, title
and interest in and to 2,443,792 Class A Preferred Shares, no par value, and
368,875 Common Shares, no par value, of Chancery Software, Ltd., a British
Columbia corporation (collectively, the "Chancery Shares"), which Sylvan
previously acquired, on behalf of the Incubator, for an aggregate purchase price
of $17,096,769.69, consisting of $16,666,661.44 for the Class A Preferred Shares
and $430,108.25 for the Common Shares (the "Chancery Acquisition Price"), all
pursuant to that certain Preferred Share Purchase Agreement, dated March 24,
2000, by and among Chancery Software, Ltd., Sylvan and certain other investors.
The parties hereto acknowledge and agree that the Incubator shall reimburse
Sylvan for the full amount of the Chancery Acquisition Price (the "Chancery
Reimbursement Amount"), and in connection therewith, the Incubator shall be
deemed to have made an "Additional Capital Call," as defined in the Operating
Agreement, in an aggregate amount equal to the Chancery Reimbursement Amount
(the "Chancery Additional Capital Call"), pursuant to which each of Sylvan,
Apollo, the Management Investors and the Corporation are paying (subject to
Section 3.04(b) below) at the Incubator Closing, in accordance with Section
3.1.3 of the Operating Agreement, the following amounts:
-9-
Sylvan: $ 11,194,218.88
Apollo: $ 5,088,281.30
Corporation: $ 51,035.14
Xxxxx-Xxxxx: $ 381,617.19
Xxxxxx: $ 381,617.18
TOTAL: $ 17,096,679.69
================
(b) The parties hereto acknowledge and agree that (i) in lieu
of Sylvan paying in cash its $11,194,218.88 share of such Chancery Additional
Capital Call, and (ii) in lieu of the Corporation paying $33,515.62 of the
Corporation's $51,035.14 share of the Chancery Additional Capital Call (which
$33,515.62 represents Sylvan's pro-rata share of the Corporation's share of the
Chancery Additional Capital Call pursuant to Section 2.04 hereof), all such
amounts (on a dollar-for-dollar basis) shall be applied to, credited against,
and treated as a payment of, the Chancery Reimbursement Amount; provided,
however, that in no event shall such payment reduce the amount payable by each
of Apollo, the Management Investors and, except to the extent set forth in
clause (ii) above, the Corporation, pursuant to Section 3.04(a) hereof.
(c) The parties intend that the contribution of the Chancery
Shares by Sylvan to the Incubator, and the payment of the Chancery Reimbursement
Amount by the Incubator to Sylvan, set forth in this Section 3.04, shall be
treated as a contribution followed by a reimbursement of a pre-formation
expenditure within the meaning of U.S. Treasury Regulation Section 1.707-4(d)
promulgated under the Code, and all such parties shall report such contribution
and reimbursement accordingly for purposes of all Federal, state and local
taxes.
(d) The parties hereto agree to cause the Incubator to further
reimburse Sylvan for any and all costs, expenses, fees, taxes and other
out-of-pocket payments which Sylvan has incurred or may incur in connection
with, or as a result of, Sylvan's acquisition and/or holding of the Chancery
Shares, and/or the transactions described in this Section 3.04, and all such
amounts shall be treated as an addition to, and part of, the Chancery
Reimbursement Amount.
SECTION 3.05. CLOSING. The Incubator Closing shall occur immediately
subsequent to the Corporate Closing. At the Incubator Closing:
(a) each of Sylvan, Apollo, the Corporation and the Management
Investors are paying, by wire transfer of immediately available funds (or in the
case of the Corporation, by cashier's or certified check), their respective cash
contributions to the Incubator's capital and their pro-rata share of the
Chancery Additional Capital Call in accordance with Sections 2.02 and 2.04
hereof, respectively;
-10-
(b) Sylvan is contributing (or, in the case of Caliber, has
previously contributed) the Contributed Entities and the Online Notes by
endorsing and delivering stock certificates, related stock powers, and/or other
evidence of transfer with respect to the Capital Stock of the Contributed
Entities and the Online Notes , copies of which are attached hereto as EXHIBIT
M;
(c) Sylvan is contributing the Chancery Shares by endorsing
and delivering stock certificates, related stock powers, and/or other evidence
of transfer with respect to the Chancery Shares, copies of which are attached
hereto as EXHIBIT N;
(d) the Incubator is paying Sylvan, by wire transfer of
immediately available funds, the Chancery Reimbursement Amount, less the amount
of such Chancery Reimbursement Amount deemed to be paid to Sylvan in accordance
with Section 3.04(b) hereof;
(e) each of Sylvan, Apollo, the Corporation, the Management
Investors and the Incubator (as the case may be) are executing each of the
Operating Agreement, the Incubator Registration Rights Agreement, the Employment
Agreements, and the Membership Profit Interest Plan Grant Agreements; and
(f) Xxxxxxx, Xxxxxxx and Xxxxxx, LLP is delivering a tax
opinion, a copy of which is attached hereto as EXHIBIT O (the "Closing Tax
Opinion").
IV.
REPRESENTATIONS AND WARRANTIES OF SYLVAN
To induce Apollo to enter into this Agreement and the other Closing
Documents to which it is a party, Sylvan hereby represents and warrants to
Apollo as follows, as of the date hereof:
SECTION 4.01. ORGANIZATION AND CORPORATE POWER. Sylvan is duly
organized, validly existing and in good standing under the laws of the State of
Maryland, and is duly qualified as a foreign corporation and is in good standing
in each jurisdiction in which such qualification is required by law, other than
those jurisdictions as to which the failure to be so qualified or in good
standing could not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect. Sylvan has the power and authority to (i) own or
hold under lease the properties it purports to own or hold under lease, (ii)
transact the business it transacts and proposes to transact, (iii) execute and
deliver this Agreement and all of the other Closing Documents to which it is a
party, and (iv) perform the provisions hereof and thereof.
-11-
SECTION 4.02. AUTHORIZATION AND VALIDITY. This Agreement and each of
the other Closing Documents to which Sylvan is a party has been duly authorized,
executed and delivered by Sylvan and is enforceable against Sylvan in accordance
with its respective terms, except as the enforceability thereof may be limited
by (i) bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium, or similar laws affecting creditors' rights generally, and (ii)
general principles of equity and the discretion of the court before which any
proceeding therefor may be brought (regardless of whether such enforcement is
considered in a proceeding at law or in equity).
SECTION 4.03. CAPITAL STOCK OF THE CONTRIBUTED ENTITIES.
(a) Sylvan previously owned 1,227,393 shares of the issued and
outstanding Common Stock of Caliber and 5,167,328 shares of the 6% non-voting
convertible preferred stock of Caliber, all of which have been contributed by
Sylvan to the Incubator, and as of the date hereof are, free and clear of all
Liens.
(b) Sylvan owns 652,495 shares of the issued and outstanding
common stock of ZapMe and warrants to acquire an additional 150,000 shares of
common stock of ZapMe, all of which are being contributed by Sylvan to the
Incubator hereunder, free and clear of all Liens, except for Item 7 on EXHIBIT P
hereof.
(c) Sylvan owns 2,000,000 shares of the issued and outstanding
Series B Preferred Stock of Online, 600,000 shares of the issued and outstanding
Series C Preferred Stock of Online, warrants to acquire an additional 350,000
shares of common stock of Online, and each of the Online Notes, all of which are
being contributed by Sylvan to the Incubator hereunder, free and clear of all
Liens, except for Items 5, 6 and 8 on EXHIBIT P hereof.
(d) Sylvan owns 13,666,666 shares of the issued and
outstanding common stock of eSylvan, all of which are being contributed by
Sylvan to the Incubator hereunder, free and clear of all Liens.
(e) The Shares of Capital Stock mentioned above in Sections
4.03(a), (b), (c), (d) and (e) constitute all the shares of Capital Stock of the
Persons mentioned in such Sections that Sylvan owns, directly or indirectly, or
has the right to acquire, other than any such rights relating to the Online
Notes.
SECTION 4.04. CONSENTS. Except as has been delivered or received, no
consent, approval or authorization of, or registration or filing with, any
Person is required in connection with the execution, delivery or performance by
Sylvan of this Agreement and the other Closing Documents to which Sylvan is a
party.
-12-
SECTION 4.05. NO CONFLICTS. The execution, delivery and performance by
Sylvan of this Agreement and the other Closing Documents to which Sylvan is a
party, and the consummation of the transactions contemplated thereby, do not
violate, contravene, result in any breach of, conflict with, constitute a
default under, or result in the creation of any Lien in respect of any property
of Sylvan under (i) the charter or bylaws of Sylvan, (ii), any bond, debenture,
note or any other evidence of indebtedness, or any other agreement, lease, deed
of trust, mortgage, indenture or instrument to which Sylvan is a party or by
which Sylvan is bound, or (iii) any Federal, state, local or foreign statute,
law, regulation, ordinance, rule, judgment, order, decree, permit, concession,
grant, franchise, license, agreement or governmental restriction, except in the
case of clause (ii), to the extent such violation, breach or default, if any,
could not, singly or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Notwithstanding the foregoing, after the date of this Agreement,
the business conducted by the Incubator may be restricted by certain restrictive
covenants set forth in Items 1 and 2 on EXHIBIT P hereof.
SECTION 4.06. INVESTMENT/ACCREDITED INVESTOR. Sylvan is acquiring its
Shares in the Corporation and its Membership Interests in the Incubator for its
own account for investment and not for distribution or resale to others in any
transaction which would be in violation of the securities laws of the United
States or any other jurisdiction. Sylvan is an "Accredited Investor" as defined
in Regulation D under the Securities Act of 1933 (an "Accredited Investor").
V.
REPRESENTATIONS AND WARRANTIES OF APOLLO
To induce Sylvan to enter into this Agreement and the other Closing
Documents to which it is a party, Apollo hereby represents and warrants to
Sylvan as follows, as of the date hereof:
SECTION 5.01. ORGANIZATION AND POWER. Apollo is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization, and is duly qualified and in good standing in each jurisdiction in
which such qualification is required by law, other than those jurisdictions as
to which the failure to be so qualified or in good standing could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Apollo has the power and authority to transact the business it
transacts and proposes to transact, and to execute and deliver this Agreement
and all of the other Closing Documents to which it is a party, and to perform
the provisions hereof and thereof.
-13-
SECTION 5.02. AUTHORIZATION AND VALIDITY. This Agreement and each of
the other Closing Documents to which Apollo is a party has been duly authorized,
executed and delivered by Apollo and is enforceable against Apollo in accordance
with its respective terms, except as the enforceability thereof may be limited
by (i) bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium, or similar laws affecting creditors' rights generally, and (ii)
general principles of equity and the discretion of the court before which any
proceeding therefor may be brought (regardless of whether such enforcement is
considered in a proceeding at law or in equity).
SECTION 5.03. CONSENTS. No consent to, approval or authorization of, or
registration or filing with, any Person is required in connection with the
execution, delivery or performance by Apollo of this Agreement and the other
Closing Documents to which Apollo is a party.
SECTION 5.04. NO CONFLICTS. The execution, delivery and performance by
Apollo of this Agreement and the other Closing Documents to which Apollo is a
party, and the consummation of the transactions contemplated thereby, do not
violate, contravene, result in any breach of, conflict with, constitute a
default under, (i) any charter, bylaws, partnership agreement, operating
agreement or similar governing documents of Apollo, (ii) any bond, debenture,
note or any other evidence of indebtedness, or any other agreement, lease, deed
of trust, mortgage, indenture or instrument to which Apollo is a party or by
which it is bound, or (iii) any Federal, state, local or foreign statute, law,
regulation, ordinance, rule, judgment, order, decree, permit, concession, grant,
franchise, license, agreement or governmental restriction, except in the case of
clause (ii), to the extent such violation, breach or default, if any, could not,
singly or in the aggregate, reasonably be expected to have a Material Adverse
Effect.
SECTION 5.05. INVESTMENT; ACCREDITED INVESTOR. Apollo is acquiring its
Shares in the Corporation and its Membership Interests in the Incubator for its
own account for investment and not for distribution or resale to others in any
transaction which would be in violation of the securities laws of the United
States or any other jurisdiction. Apollo is an Accredited Investor.
SECTION 5.06. PLAN ASSETS. Apollo does not hold any "plan assets," as
defined in United States Labor Regulations, 29 CFR Section 2510.3-101 ("Plan
Assets").
VI.
REPRESENTATIONS AND WARRANTIES OF MANAGEMENT INVESTORS
To induce Apollo to enter this Agreement and the other Closing
Documents to which it is a party, each of the Management Investors hereby
severally represents and warrants to Apollo as follows, as of the date hereof:
-14-
SECTION 6.01. NO CONFLICTS. The execution, delivery and performance by
such Management Investor of this Agreement and the other Closing Documents to
which such Management Investor is a party, and the consummation of the
transactions contemplated thereby, do not violate, contravene, result in any
breach of, conflict with, constitute a default under, (i) any employment
agreement, bond, debenture, note or any other evidence of indebtedness, or any
other agreement, lease, deed of trust, mortgage, indenture or instrument to
which such Management Investor is a party or by which he is bound, or (ii) any
Federal, state, local or foreign statute, law, regulation, ordinance, rule,
judgment, order, decree, permit, concession, grant, franchise, license,
agreement or governmental restriction, except in the case of clause (i), to the
extent such violation, breach or default, if any, could not, singly or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
SECTION 6.02. INVESTMENT/ACCREDITED INVESTOR. Such Management Investor
is acquiring its Shares in the Corporation and Membership Interests in the
Incubator for its own account for investment and not for distribution or resale
to others in any transaction which would be in violation of the securities laws
of the United States or any other jurisdiction. Such Management Investor is an
Accredited Investor.
VII.
MISCELLANEOUS
SECTION 7.01. ARBITRATION. In the event of any dispute among the
parties arising under or relating to this Agreement, the parties shall use their
best efforts to resolve such dispute by negotiation, including pursuing
available dispute resolution procedures such as mediation. If the parties are
unable to resolve such dispute within ten (10) days after a party provides
Notification to another party of such party's intent to submit the dispute to
arbitration pursuant hereto, such dispute shall be submitted by the parties to
arbitration in accordance with the procedures of the American Arbitration
Association. Any resulting hearing shall be held in the Baltimore, Maryland
area, or at such other location as may be agreed upon by the parties. The
resolution of any dispute achieved through such arbitration shall be binding and
enforceable by a court of competent jurisdiction. The costs of any arbitration
shall be borne equally by the parties.
SECTION 7.02. FURTHER ASSURANCES. Each of the parties hereto shall
execute all such certificates and other documents and shall do all such filing,
recording, publishing and other acts as appropriate to comply with the
requirements of law for the formation and operation of the Corporation and the
Incubator and to comply with any laws, rules, and regulations relating to the
acquisition, operation, or holding of property of the Corporation and the
Incubator.
-15-
SECTION 7.03. NOTIFICATIONS. Any notice, demand, consent, election,
offer, approval, request, or other communication (each, a "Notification")
required or permitted under this Agreement must be in writing and either
delivered personally or sent by certified or registered mail, postage prepaid,
return receipt requested. A Notification to any party hereto must be addressed
to such party at the last known address on the records of the Incubator. A
Notification delivered personally will be deemed given only when acknowledged in
writing by the Person to whom it is delivered. A Notification that is sent by
certified or registered mail will be deemed given on the date of certification
or registry thereof. Any party may designate, by Notification to all of the
others, substitute addresses or addressees for notices, and, thereafter, notices
are to be directed to those substitute addresses or addressees.
SECTION 7.04. ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement, the
Operating Agreement, the Corporate Registration Rights Agreement, the Incubator
Registration Rights Agreement, and that certain Purchase Agreement dated
February 23, 2000, by and among Sylvan, Apollo Investment Fund IV, LP, Guernsey
and certain other Persons (other than that certain Term Sheet attached as
Exhibit 7.4 to such Purchase Agreement (the "Term Sheet")), as amended (the
"Purchase Agreement") constitute the entire agreement between the parties
pertaining to the subject matter hereof, and supersede any and all prior
agreements, understandings, negotiations, and discussions of the parties,
whether oral or written, including without limitation the Term Sheet. No
amendment, modification or waiver of this Agreement shall be binding unless
executed in writing by all of the parties hereto, or in the case of a waiver, by
the party for whom such benefit was intended. No waiver of any of the provisions
of this Agreement shall be deemed or shall constitute a waiver of any other
provision of this Agreement, whether or not similar, nor shall such waiver
constitute a continuing waiver unless otherwise expressly so provided in
writing.
SECTION 7.05. APPLICABLE LAW; JURISDICTION. This Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware without regard to principles of conflict of laws, and the rights,
duties, and obligations of the parties shall be as stated in the Delaware
General Corporation Law or the Delaware Limited Liability Company Act, as the
case may be, except as provided herein. Any suit involving any dispute or matter
arising under this Agreement may only be brought in the United States District
Court for the State of Delaware or any Delaware court having jurisdiction over
the subject matter of the dispute or matter. Each Member consents to the
exercise of personal jurisdiction by any such court with respect to any such
proceeding.
SECTION 7.06. WORD MEANINGS; HEADINGS. In this Agreement, the singular
shall include the plural and the masculine gender shall include the feminine and
neuter and vice versa unless the context otherwise requires. The headings herein
are
-16-
inserted as a matter of convenience only, and do not define, limit, or describe
the scope of this Agreement or the intent of the provisions hereof.
SECTION 7.07. BINDING EFFECT. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective
successors and permitted assigns.
SECTION 7.08 INTERPRETATION. The parties and their respective legal
counsel actively participated in the negotiation and drafting of this Agreement,
and in the event of any ambiguity or mistake herein, or any dispute among the
parties with respect to the provisions hereof, no provision of this Agreement
shall be construed unfavorably against any of the parties on the ground that he,
it or his or its counsel was the drafter thereof.
SECTION 7.09. SEPARABILITY. Each provision of this Agreement shall be
considered separable, and if, for any reason, any provision or provisions herein
are determined to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation of or affect those portions of this
Agreement which are valid.
SECTION 7.10. ASSIGNMENT. This Agreement may not be assigned, in whole
or in part, by any of the parties hereto without the prior written consent of
all of the other parties hereto. The parties agree that any assignment and
transfer of (i) any Capital Stock of the Corporation shall be governed by the
Stockholders' Agreement, and (ii) any Membership Interests in the Incubator
shall be governed by the Operating Agreement.
SECTION 7.11. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
-17-
IN WITNESS WHEREOF, each of Sylvan, Apollo has caused this Agreement to
be executed on its behalf by its respective duly authorized officers or members,
and each of the Management Investors has executed this Agreement, or has caused
this Agreement to be executed on their behalf by their duly authorized
representatives, as of the day and year first above written.
WITNESS/ATTEST: SYLVAN LEARNING SYSTEMS, INC.
By:
---------------------------------- -------------------------------------
Name:
Title:
WITNESS/ATTEST: AP EDUCATE INVESTMENTS, LLC
BY: APOLLO MANAGEMENT IV,
L.P., ITS MANAGER
BY: AIF IV MANAGEMENT,
INC., ITS GENERAL PARTNER
By:
----------------------------------- ------------------------------------
Name:
Title:
WITNESS: MANAGEMENT INVESTORS:
--------------------
----------------------------------- ------------------------------------
R. Xxxxxxxxxxx Xxxxx-Xxxxx
----------------------------------- ------------------------------------
Xxxxxxx X. Xxxxxx
-18-
FORMATION AGREEMENT
LIST OF EXHIBITS
Exhibit A Stockholders' Agreement
Exhibit B Operating Agreement
Exhibit C Corporate Registration Rights Agreement
Exhibit D Incubator Registration Rights Agreement
Exhibit E Certificate of Formation
Exhibit F Certificate of Incorporation
Exhibit G Corporate Bylaws
Exhibit H Xxxxx-Xxxxx Employment Agreement
Exhibit I Xxxxxx Employment Agreement
Exhibit J Xxxxx-Xxxxx Membership Profit Interest Grant Agreement
Exhibit K Xxxxxx Membership Profit Interest Grant Agreement
Exhibit L Form of Post-Closing Tax Opinion (USRPHC)
Exhibit M Transfer Documents - Contributed Entities and Online Notes
Exhibit N Transfer Documents - Chancery Shares
Exhibit O Closing Tax Opinion - Allocations
Exhibit P Disclosure Schedule
