Exhibit 2.1
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") dated as of March
12, 1997, by and among Sylvan Learning Systems, Inc., a Maryland corporation
(the "Purchaser") and National Education Corporation, a Delaware corporation
(the "Company").
W I T N E S S E T H:
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The Purchaser and the Company have reached an agreement to combine their
companies through a merger (the "Merger") of a wholly-owned Maryland subsidiary,
to be formed of the Purchaser ("Newco") with and into the Company in a
transaction qualifying as a pooling of interests under applicable accounting
rules and a tax-free reorganization under Sections 368(a) of the Internal
Revenue Code of 1986, as amended. As a result of the Merger, each outstanding
share of the Company's Common Stock shall be converted into 0.58 shares of the
Purchaser's Common Stock (the "Exchange Ratio"). The Purchaser and the Company
wish to enter into a definitive agreement setting forth the terms and conditions
of the Merger.
Accordingly, in consideration of the foregoing and of the covenants,
agreements, representations and warranties hereinafter contained, the Purchaser
and the Company hereby agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby
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represents and warrants to the Company that the statements contained in this
Article I are true and correct, except as set forth in the disclosure schedule
delivered by the Purchaser to the Company on or before the date of this
Agreement (the "Purchaser Disclosure Schedule"). The Purchaser Disclosure
Schedule shall be arranged in sections corresponding to the numbered and
lettered sections contained in this Article I. The disclosure in any section,
however, shall be deemed to constitute disclosure for all sections in this
Article I.
1.1. Organization and Standing; Subsidiaries.
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(a) Each of the Purchaser and its subsidiaries whose business or
assets are material to Purchaser, either individually or on a consolidated basis
(collectively, the "Purchaser Subsidiaries," and, together with the Purchaser,
collectively "Sylvan") is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its businesses as now being conducted, except where
the failure to be so organized, existing and in good standing or to have such
power and authority would not, and reasonably could not be expected to,
individually or in the aggregate, have a material adverse effect on the
business, assets (whether tangible or intangible), financial condition, results
of operations or business prospects ("Material Adverse Effect") of Sylvan. The
Purchaser has heretofore delivered to the Company accurate and complete copies
of the Purchaser's Certificate of Incorporation and By-Laws, as currently in
effect, and promptly will
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deliver to the Company accurate and complete copies of the Articles or
Certificate of Incorporation and By-Laws, as currently in effect, of each of the
Purchaser Subsidiaries. The Purchaser Disclosure Schedule includes a list of
each of the Purchaser Subsidiaries.
(b) Each of the Purchaser and the Purchaser Subsidiaries is duly
qualified or licensed and in good standing to do business in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing necessary, except
in such jurisdictions where the failure to be so duly qualified or licensed and
in good standing would not, individually or in aggregate, have a Material
Adverse Effect on Sylvan.
1.2. Capitalization of Purchaser.
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(a) The Purchaser's entire authorized capital stock consists of
50,000,000 shares, 40,000,000 of which are classified as Common Stock, $.01 par
value ("Purchaser Common Stock"), and 10,000,000 of which are classified as
Preferred Stock, par value $.01 per share, with 200,000 shares designated as
Series A Junior Participating Preferred Stock; and, prior to the Effective Time
will consist of 100,000,000 shares, 90,000,000 of which will be classified as
Purchaser Common Stock. As of the date hereof, no shares of Preferred Stock are
issued or outstanding, 24,516,623 shares of Purchaser Common Stock are
outstanding and 4,433,943 shares of Purchaser Common Stock were reserved for
issuance upon exercise of options outstanding under the Purchaser's stock option
plans (the "Outstanding Purchaser Options"), 98,479 shares of Purchaser Common
Stock were reserved for issuance upon exercise of outstanding warrants (the
"Outstanding Purchaser Warrants"), 1,351,319 shares of Purchaser Common Stock
were reserved for issuance upon exercise of future option grants under the
Purchaser's stock option plans and 50,000 shares of Purchaser Common Stock were
reserved for issuance in connection with the Purchaser's employee stock purchase
plan. Except as set forth above or in the Purchaser Disclosure Schedule, there
are outstanding (i) no shares of capital stock or other voting securities of the
Purchaser, (ii) no securities of the Purchaser or any of the Purchaser
Subsidiaries convertible into or exchangeable for shares of capital stock or
voting securities of the Purchaser, (iii) no options, warrants or other rights
to acquire from the Purchaser or any of the Purchaser Subsidiaries (including
any rights issued or issuable under a shareholder rights plan or similar
arrangement), and no obligations of the Purchaser or any of the Purchaser
Subsidiaries to issue any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of the
Purchaser, (iv) no equity equivalents, interests in the ownership or earnings of
the Purchaser or any of the Purchaser Subsidiaries or other similar rights (with
the securities listed in clauses (i) through (iv) referred to collectively as
the "Sylvan Securities"), and (v) no outstanding obligations of the Purchaser or
any of the Purchaser Subsidiaries to repurchase, redeem or otherwise acquire any
Sylvan Securities or to make any investment (by loan, capital contribution or
otherwise) in any other entity.
(b) All of the outstanding capital stock of, or other ownership
interests in, each Sylvan Subsidiary, is owned by the Purchaser, directly or
indirectly, free and clear of any Lien (as hereinafter defined) or any other
limitation or restriction (including any restriction
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on the right to vote or sell the same, except as may be provided as a matter of
law). There are no securities of the Purchaser or any of the Purchaser
Subsidiaries convertible into or exchangeable for, no options or other rights to
acquire from the Purchaser or any of the Purchaser Subsidiaries, and no other
contract, understanding, arrangement or obligation (whether or not contingent)
providing for the issuance or sale, directly or indirectly, of any capital stock
or other ownership interests in, or any other securities of, any Sylvan
Subsidiary. There are no outstanding contractual obligations of the Purchaser or
any of the Purchaser Subsidiaries to repurchase, redeem or otherwise acquire any
outstanding shares of capital stock or other ownership interests in any
subsidiary of the Purchaser. For purposes of this Agreement, "Lien" means, with
respect to any asset (including, without limitation, any security) any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in respect of
such asset.
(c) All issued and outstanding shares of the capital stock of the
Sylvan Securities and of the Purchaser Subsidiaries have been duly and validly
issued and are fully paid and non-assessable, free of any preemptive rights. The
Outstanding Purchaser Options and the Outstanding Purchaser Warrants have been
duly and validly issued and are in full force and effect.
1.3. Financial Statements; Exchange Act Filings.
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(a) The Purchaser has heretofore delivered to the Company copies
of: (i) the Purchaser's consolidated financial statements as of and for the
years ended December 31, 1993, 1994 and 1995, which have been audited by Ernst &
Young LLP, independent auditors (the "Purchaser Audited Financial Statements"),
and (ii) the Purchaser's consolidated financial statements as of and for
the twelve months ended December 31, 1996, which are unaudited (the
"Purchaser Unaudited Financial Statements"). The Purchaser Audited Financial
Statements and Purchaser Unaudited Financial Statements (collectively, the
"Purchaser Financial Statements") fairly present, in conformity with generally
accepted accounting principles applied on a consistent basis by the Purchaser
(except as may be indicated in the notes thereto) and in conformity with the
Commission's Regulation S-X, the consolidated financial position of the
Purchaser and its consolidated subsidiaries as of the dates thereof and their
consolidated results of operations and cash flows for the periods then ended
(subject in the case of any unaudited financial statements to normal recurring
year-end audit adjustments, which are not expected to be material in amount).
Since January 1, 1996, the Purchaser has not made any material changes in the
accounting policies applied to the Purchaser Audited Financial Statements, and
no such changes are contemplated nor, to the best of the Purchaser's knowledge,
required under generally accepted accounting principles or the Commission's
Regulation S-X.
(b) The Purchaser has heretofore delivered to the Company
complete copies of all periodic reports, statements and other documents
(including exhibits thereto) that the Purchaser has filed with the U.S.
Securities and Exchange Commission (the "Commission") under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") since becoming subject to
the reporting requirements of the Exchange Act on December 11, 1993
(collectively,
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the "Purchaser SEC Reports"). All Purchaser SEC Reports required to be filed
with the Commission by the Purchaser during the twelve months preceding the date
of this Agreement were filed in a timely manner and complied in all material
respects with the applicable requirements of the Exchange Act and the rules and
regulations promulgated thereunder. At the time filed with the SEC, no Purchaser
SEC Report contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
1.4. No Undisclosed Liabilities. Except as and to the extent reflected
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or reserved against in the consolidated balance sheets included within the
Purchaser Financial Statements, at the date of such statements, Sylvan had no
material liabilities or obligations (whether accrued, absolute or contingent),
of the character which, under generally accepted accounting principles, should
be accrued, shown, disclosed or indicated in a consolidated balance sheet of the
Purchaser or explanatory notes or information supplementary thereto, including
without limitation, any liabilities resulting from failure to comply with any
law or any federal, state or local tax liabilities due or to become due whether
(a) incurred in respect of or measured by income for any period ending on or
prior to the close of business on such dates, or (b) arising out of transactions
entered into, or any state of facts existing, on or prior thereto.
1.5. Absence of Certain Changes, Events or Conditions. Since December
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31, 1996, (i) Sylvan has not incurred any liabilities of any nature, whether or
not accrued, contingent or otherwise, which would have a Material Adverse Effect
on the Purchaser, and (ii) there have been no events, changes or effects with
respect to the Purchaser and the Purchaser Subsidiaries having or which could
have, individually or in the aggregate, a Material Adverse Effect on the
Purchaser, and (iii) the Purchaser and the Purchaser Subsidiaries have conducted
their businesses only in the ordinary course and in a manner consistent with
prior practice.
1.6. No Default. Neither the Purchaser nor any of the Purchaser
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Subsidiaries is in default or violation (and no event has occurred which with
notice or the lapse of time or both would constitute a default or violation) of
any term, condition or provision of (i) its Charter or By-Laws (or similar
governing documents), (ii) any note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which the Purchaser or
any of the Purchaser Subsidiaries is now a party or by which any of them or any
of their respective properties or assets may be bound, or (iii) any order, writ,
injunction, decree, law, statute, rule or regulation applicable to the
Purchaser, any of the Purchaser Subsidiaries or any of their respective
properties or assets, except in the case of (ii) or (iii) for violations,
breaches or defaults that would not, individually or in the aggregate, have a
Material Adverse Effect on Sylvan.
1.7. Litigation, Etc. (i) There is no suit, claim, action, proceeding
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or investigation pending or, to the knowledge of the Purchaser, threatened
against the Purchaser or any of the Purchaser Subsidiaries or any of their
respective properties or assets before any court, administrative agency or
commission or other governmental authority or instrumentality
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("Governmental Entity") which, individually or in the aggregate, could have a
Material Adverse Effect on Sylvan if decided adversely to Sylvan or could
prevent or delay the consummation of the transactions contemplated by this
Agreement, and (ii) neither the Purchaser nor any of the Purchaser Subsidiaries
is subject to any outstanding order, writ, injunction or decree which, insofar
as can be reasonably foreseen, individually or in the aggregate, in the future
could have a Material Adverse Effect on Sylvan or could prevent or delay the
consummation of the transactions contemplated hereby. Except as noted on the
Purchaser Disclosure Schedule, all claims listed thereon are covered by the
Purchaser's liability insurance (subject to applicable deductibles not in excess
of $500,000) and are being defended by and at the cost of the Purchaser's
liability insurance carrier.
1.8. Intellectual Property.
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(a) The Purchaser or one of the Purchaser Subsidiaries owns, or
is licensed or otherwise possesses legally enforceable rights to use, all
patents, trademarks, trade names, service marks, copyrights, and any
applications for such patents, trademarks, trade names, service marks and
copyrights, processes, formulae, methods, schematics, technology, know-how,
computer software programs or applications and tangible or intangible
proprietary information or material that are necessary to conduct the business
of Sylvan as currently conducted, or proposed to be conducted, the absence of
which would be reasonably likely to have a Material Adverse Effect on Sylvan
(the "Purchaser Intellectual Property Rights"). The Purchaser Disclosure
Schedule lists (i) all patents and patent applications and all trademarks,
registered copyrights, trade names and service marks, which the Purchaser
considers to be material to the business of Sylvan and included in the Purchaser
Intellectual Property Rights, including the jurisdictions in which each such
Purchaser Intellectual Property Right has been issued or registered or in which
any such application for such issuance and registration has been filed, (ii) all
material licenses, sublicenses and other agreements as to which the Purchaser or
any of the Purchaser Subsidiaries is a party and pursuant to which any person is
authorized to use any Purchaser Intellectual Property Rights, and (iii) all
material licenses, sublicenses and other agreements as to which the Purchaser or
any of the Purchaser Subsidiaries is a party and pursuant to which the Purchaser
or any of the Purchaser Subsidiaries is authorized to use any third party
patents, trademarks or copyrights, including software ("Purchaser Third Party
Intellectual Property Rights") which are incorporated in or form a part of any
Sylvan product that is material to its business.
(b) Neither the Purchaser nor any of the Purchaser Subsidiaries
is, nor will any of them be as a result of the execution and delivery of this
Agreement or the performance of its obligations under this Agreement, in breach
of any license, sublicense or other agreement relating to the Purchaser
Intellectual Property Rights or Purchaser Third Party Intellectual Property
Rights, the breach of which could have a Material Adverse Effect on Sylvan.
(c) To the Purchaser's knowledge, all patents, registered
trademarks, service marks and copyrights held by the Purchaser or any of the
Purchaser Subsidiaries are valid
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and subsisting. Neither the Purchaser nor any of the Purchaser Subsidiaries (i)
has been sued (or threatened with suit) in any suit, action or proceeding which
involves a claim of infringement of any patents, trademarks, service marks,
copyrights or violation of any trade secret or other proprietary right of any
third party; and (ii) has any knowledge that the manufacturing, marketing,
licensing or sale of its products or services infringes any patent, trademark,
service xxxx, copyright, trade secret or other proprietary right of any third
party, which such infringement could have a Material Adverse Effect on Sylvan.
1.9. Environmental Laws and Regulations. (i) The Purchaser and each of
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the Purchaser Subsidiaries is in material compliance with all applicable
federal, state and local laws and regulations relating to pollution or
protection of human health or the environment (including, without limitation,
ambient air, surface water, ground water, land surface or subsurface strata)
(collectively, "Environmental Laws"), except for non-compliance that
individually or in the aggregate would not have a Material Adverse Effect on
Sylvan, which compliance includes, but is not limited to the possession by the
Purchaser and the Purchaser Subsidiaries of all material permits and other
governmental authorizations required under applicable Environmental Laws, and
compliance with the terms and conditions thereof; (ii) neither the Purchaser nor
any of the Purchaser Subsidiaries has received written notice of, or is the
subject of, any action, cause of action, claim, investigation, demand or notice
by any person or entity alleging liability under or non-compliance with any
Environmental Law (an "Environmental Claim") that individually or in the
aggregate could have a Material Adverse Effect on Sylvan; and (iii) there are no
circumstances that are reasonably likely to prevent or interfere with such
compliance in the future or give rise to an Environmental Claim in the future.
1.10. Compliance. (i) The Purchaser and each of the Purchaser
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Subsidiaries hold all licenses, permits, variances, exemptions, orders,
approvals and other authorizations of all Governmental Entities necessary for
the lawful conduct of their respective businesses (the "Purchaser Permits"),
except for failures to hold such permits, licenses, variances, exemptions,
orders, approvals and other authorizations which would not, individually or in
the aggregate, have a Material Adverse Effect on Sylvan; (ii) the Purchaser and
the Purchaser Subsidiaries are in compliance with the terms of each of the
Purchaser Permits, except where the failure so to comply would not have a
Material Adverse Effect on Sylvan, (iii) the businesses of the Purchaser and the
Purchaser Subsidiaries are not being conducted in violation of any law,
ordinance or regulation of any Governmental Entity, except for violations or
possible violations which individually or in the aggregate do not, and, insofar
as reasonably can be foreseen, in the future will not, have a Material Adverse
Effect on Sylvan, and (iv) no investigation or review by any Governmental Entity
with respect to the Purchaser or any of the Purchaser Subsidiaries is pending
or, to the best knowledge of the Purchaser, threatened, nor, to the best
knowledge of the Purchaser, has any Governmental Entity indicated an intention
to conduct the same, other than, in each case, those which the Purchaser
reasonably believes will not have a Material Adverse Effect on Sylvan.
1.11. Labor Matters. Neither the Purchaser nor any of the Purchaser
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Subsidiaries is a party to any collective bargaining agreement relating to its
employees. No labor
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dispute, strike, work stoppage, employee action or labor relations problem of
any kind which has affected or may affect the Purchaser, any of the Purchaser
Subsidiaries or any of their respective businesses or operations has occurred
during the past five years or currently is pending or, to the knowledge of the
Purchaser, threatened.
1.12. Information for Proxy Statement. None of the information
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supplied or to be supplied by the Purchaser in writing for inclusion in (i) the
Registration Statement on Form S-4 to be filed by the Purchaser with the
Commission (the "S-4") in order to register the shares of Purchaser Common Stock
to be issued as a result of the Merger under the Securities Act of 1933, as
amended (the "Securities Act"); (ii) proxy materials relating to the meetings of
the Purchaser's and the Company's stockholders to be held in connection with the
Merger (the "Joint Proxy Statement"); (iii) reports filed under the Exchange Act
with the Commission by the Purchaser or the Company in connection with the
Merger or filed by the Purchaser with the Commission between the date of this
Agreement and the Effective Time as otherwise required under the Exchange Act
and the rules and regulations promulgated thereunder; or (iv) the Purchaser
Disclosure Schedule will, at the respective times that (A) the S-4 is filed with
the SEC(B) the S-4 is declared effective by the SEC, (C) the Joint Proxy
Statement is mailed to the stockholders of the Purchaser and the Purchaser, and
(D) any meeting of stockholders (including adjournments) is held to consider the
Merger, contains or will contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
1.13. No Conflict With Other Documents. Neither the execution,
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delivery and performance of this Agreement by the Purchaser nor the consummation
by the Purchaser of the transactions contemplated hereby will (i) conflict with
or result in any breach of any provision of the respective Charter or By-Laws
(or similar governing documents) of the Purchaser or of any of the Purchaser
Subsidiaries; (ii) trigger the rights of the Purchaser or any Purchaser
Subsidiary or any holder of the Sylvan Securities under any shareholder rights
plan or similar arrangement; (iii) restrict any business combination between the
Company and the Purchaser or any of its subsidiaries; (iv) result in a violation
or breach of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration) under, or result in the material modification of,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or obligation
to which the Purchaser or any of the Purchaser Subsidiaries is a party or by
which any of them or any of their respective properties or assets may be bound;
or (v) violate any order, writ, injunction, decree, law, statute, rule or
regulation applicable to the Purchaser or any of the Purchaser Subsidiaries or
any of their respective properties or assets, except in the case of (iv) or (v)
for violations, breaches or defaults which could not, individually or in the
aggregate, have a Material Adverse Effect on Sylvan.
1.14. Authority; Consents.
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(a) The Purchaser has all necessary corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby.
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The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Purchaser's Board of Directors and no other corporate proceedings on the part of
the Purchaser or any of the Purchaser Subsidiaries are necessary to authorize
this Agreement or to consummate the transactions contemplated hereby (other
than, with respect to the Merger, the approval and adoption of this Agreement by
the holders of a majority of the then outstanding shares of Purchaser Common
Stock). This Agreement has been duly and validly executed and delivered by the
Purchaser and constitutes a valid, legal and binding agreement of the Purchaser,
enforceable against the Purchaser in accordance with its terms.
(b) Upon Purchaser Stockholder Approval (as defined below), the
satisfaction of all other conditions contained herein and the filing of the
Articles of Merger with the State Department of Assessments and Taxation of the
State of Maryland (the "SDAT") and the Certificate of Merger with the Secretary
of State of the State of Delaware, this Agreement will result in the valid,
legally binding and enforceable statutory merger of Newco with and into the
Purchaser.
(c) Under the Purchaser's Charter, By-Laws, rules of the Nasdaq
Stock Market (National Market) and other applicable laws and regulations to
which the Purchaser is subject (i) only the affirmative vote of the holders of
at least a majority of the outstanding shares of Purchaser Common Stock voting
together as a single class ("Purchaser Stockholder Approval") is required and
sufficient for the approval by the Purchaser's stockholders of the transactions
contemplated by this Agreement; and (ii) statutory appraisal rights will not be
available to the holders of any of Sylvan's Securities in connection with the
Merger.
(d) No consent, approval, order or authorization of, or
registration, declaration or filing with (i) any Governmental Entity or (ii) any
individual, corporation or other entity (including any holder of Sylvan
Securities) is required by or with respect to the Purchaser in connection with
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for (A) the Purchaser Stockholder
Approval, (B) the declaration of effectiveness of the Form S-4 by the Commission
in accordance with the Securities Act, (C) the filing of the Articles of Merger
with the SDAT and the Certificate of Merger with the Delaware Secretary of
State, (D) the filing of the Joint Proxy Statement with the Commission in
accordance with the Exchange Act, (E) satisfaction of all information and
waiting period requirements of the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act
of 1976 and any regulations promulgated thereunder, (F) such consents,
approvals, orders, authorizations, registrations declarations and filings as may
be required under applicable state "blue sky" or securities laws and the
securities laws of any foreign country, (G) those set forth in the Purchaser
Disclosure Schedule, and (H) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, would not be
reasonably likely to have a Material Adverse Effect on Sylvan.
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1.15. Contracts.
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(a) Neither the Purchaser nor any of the Purchaser Subsidiaries
is a party to or subject to: (i) any employment contract with any officer,
consultant, director or employee; (ii) any plan or contract or arrangement
providing for bonuses, pensions, options, deferred compensation, retirement
payments, profit sharing, or the like; (iii) any contract or agreement with any
labor union; (iv) any contract, agreement, instrument or other document that
would be required to be filed as an exhibit to a Registration Statement on Form
S-1 were the Purchaser or any of the Purchaser Subsidiaries to file such a
Registration Statement on the date of this Agreement, (v) any contract,
agreement, instrument or other document not entered into by the Purchaser or any
of the Purchaser Subsidiaries in the ordinary course of business, under which
the Purchaser or any of the Purchaser Subsidiaries is required to make annual
payments to any third party in excess of $500,000 or (vi) any agreement, voting
trust, understanding or arrangement, written or oral, concerning the election of
directors. Neither the Purchaser nor any of the Purchaser Subsidiaries has
breached, or received in writing any claim or threat that it has breached, any
of the terms or conditions of any agreement, contract or commitment referred to
in the prior sentence ("Purchaser Material Contracts") in such a manner as would
permit any other party to cancel or terminate the same or would permit any other
party to seek material damages from the Purchaser or any of the Purchaser
Subsidiaries under any Purchaser Material Contract. Each Purchaser Material
Contract that has not expired or been terminated is in full force and effect and
is not subject to any material default thereunder of which the Purchaser is
aware by any party obligated to the Purchaser or any of the Purchaser
Subsidiaries pursuant to the Purchaser Material Contract.
(b) The consummation of the Merger and the transactions
contemplated by this Agreement will not cause a default under, or provide any
right of termination or modification with respect to, any Purchaser Material
Contract which default, termination or modification would have a Material
Adverse Effect on Sylvan.
1.16. Customers and Suppliers. Neither the Purchaser nor any of the
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Purchaser Subsidiaries has received notice that, nor do any of them have
knowledge or any reason to believe that, any customer that represented 5% or
more of Purchaser's consolidated revenues in any of the past three years will
not continue to do business with the Purchaser or the Purchaser Subsidiaries at
volumes consistent with past practices subsequent to the Merger. Neither the
Purchaser nor any of the Purchaser Subsidiaries has any outstanding purchase
contracts or commitments or unaccepted purchase orders which are in excess of
the normal, ordinary and usual requirements of its business. No entity which is
now supplying, or during 1996 supplied, to the Purchaser or the Purchaser
Subsidiaries products and services has reduced or otherwise discontinued, or
threatened to reduced or discontinue, supplying such items to the Purchaser or
the Purchaser Subsidiaries on reasonable terms, except for such reductions or
discontinuations which would not have a Material Adverse Effect on Sylvan.
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1.17. Tax Matters.
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(a) For the purposes of this Agreement, a "Tax" or,
collectively, "Taxes," means any and all material federal, state, local and
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other person or entity with respect to such amounts and including any
liability for taxes of a predecessor entity.
(b) The Purchaser and the Purchaser Subsidiaries have accurately
prepared and timely filed all material federal, state, local and foreign
returns, estimates, information statements and reports required to be filed at
or before the Effective Time ("Returns") relating to any and all Taxes
concerning or attributable to the Purchaser, any of the Purchaser Subsidiaries
or any of their operations or assets, and such Returns are true and correct in
all material respects and have been completed in all material respects in
accordance with applicable law; and copies of all Returns of the Purchaser and
the Purchaser Subsidiaries for the past three years have been or will be
provided by the Purchaser to the Company.
(c) The Purchaser and each of the Purchaser Subsidiaries as of
the Effective Time: (i) will have paid all Taxes any of them is required to pay
prior to the Effective Time, (ii) will have withheld with respect to their
employees all federal and state income taxes, FICA, FUTA and other Taxes
required to be withheld, and (iii) will have collected all sales and use taxes
on account of sales by the Purchaser or any Purchaser Subsidiary or the use of
any of their products, except in each instance where any failure to make such
payment or withholding would not be reasonably likely to have a Material Adverse
Effect on Sylvan.
(d) There is no Tax deficiency outstanding, proposed or assessed
against the Purchaser or any of the Purchaser Subsidiaries that is not reflected
as a liability on the Purchaser Financial Statements nor has the Purchaser or
any of the Purchaser Subsidiaries executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
1.18. Title to Properties; Absence of Liens and Encumbrances, Etc. The
------------------------------------------------------------
Purchaser Disclosure Schedule includes a true and complete list of all real
property owned by the Purchaser or the Purchaser Subsidiaries and real property
leased by the Purchaser or the Purchaser Subsidiaries pursuant to leases
providing for the occupancy, in each case, of not less than 20,000 square feet
("Material Leases") and the name of the lessor, the date of the Material Lease
and each amendment to the Material Lease and the aggregate annual rental or
other fee payable under any such Material Lease. The Purchaser and the Purchaser
Subsidiaries have good and marketable title to all their owned properties and
assets, real and personal, in each case free and clear of all liens,
encumbrances and imperfections of title, except those liens, encumbrances or
imperfections of title which individually or in the aggregate would not have a
Material
-10-
Adverse Effect on Sylvan. Neither the Purchaser nor any of the Purchaser
Subsidiaries has received any notice of violation of any applicable zoning laws,
orders, regulations, or requirements relating to its operations or properties it
owns or leases which has not been complied with, nor any proposed changes in any
such laws, orders or regulations which might have a Material Adverse Effect on
Sylvan. The Purchaser has no knowledge of any threatened or impending
condemnation by any Government Entity of any properties owned or leased by the
Purchaser or the Purchaser Subsidiaries. All Material Leases are in good
standing, valid and effective in accordance with their respective terms, and
neither the Purchaser nor any Purchaser Subsidiary is in default under any of
such leases, except where the lack of such good standing, validity and
effectiveness or the existence of such default would not have a Material Adverse
Effect on Sylvan.
1.19. Pension and Employee Benefit Plans.
----------------------------------
(a) The Purchaser has set forth on the Purchaser Disclosure
Schedule all employee benefit plans (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) and all bonus,
stock option, stock purchase, incentive, deferred compensation, supplemental
retirement, severance and other similar employee benefit plans, and all
unexpired severance agreements, written or otherwise, for the benefit of, or
relating to, any current or former employee of the Purchaser or any of the
Purchaser Subsidiaries or any trade or business (whether or not incorporated)
which is a member or which is under common control with the Purchaser within the
meaning of Section 414 of the Code (an "ERISA Affiliate") (together, the
"Purchaser Employee Plans").
(b) With respect to each Purchaser Employee Plan, the Purchaser
has made or will make available to the Company, a true and correct copy of (i)
the most recent annual report (Form 5500) filed with the Internal Revenue
Service ("IRS"), (ii) such Purchaser Employee Plan, (iii) each trust agreement
and group annuity contract, if any, relating to such Purchaser Employee Plan and
(iv) the most recent actuarial report or valuation relating to a Purchaser
Employee Plan subject to Title IV of ERISA.
(c) With respect to the Purchaser Employee Plans, individually
and in the aggregate, no event has occurred, and to the knowledge of the
Purchaser there exists no condition or set of circumstances, in connection with
which the Purchaser could be subject to any liability under ERISA, the Code or
any other applicable law that is reasonably likely to have a Material Adverse
Effect on Sylvan.
(d) With respect to the Purchaser Employee Plans, individually
and in the aggregate, there are no funded benefit obligations for which
contributions have not been made or properly accrued and there are no unfunded
benefit obligations which have not been accounted for by reserves, or otherwise
properly footnoted in accordance with generally accepted accounting principles,
on the Purchaser Financial Statements, which obligations are reasonably expected
to have a Material Adverse Effect on Sylvan.
-11-
(e) Except as provided for in this Agreement, neither the
Purchaser nor any of the Purchaser Subsidiaries is a party to any oral or
written (i) union or collective bargaining agreement, (ii) agreement with any
officer or other key employee of the Purchaser or any of the Purchaser
Subsidiaries, the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving the Purchaser
of the nature contemplated by this Agreement, (iii) agreement with any officer
providing any term of employment or compensation guarantee extending for a
period longer than one year from the date hereof, providing for the payment of
compensation in excess of $100,000 per annum or providing for severance benefits
or other benefits upon or following termination of employment, or (iv) agreement
or plan, including any stock option plan, stock appreciation right plan,
restricted stock plan or stock purchase plan, any of the benefits of which will
be increased, or the vesting of the benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement.
(f) Each of the Purchaser Employee Plans which is intended to
qualify under Section 401 of the Code is designated on the Purchaser Disclosure
Schedule as being a qualified plan (the Plans so designated being hereinafter
referred to as the "Purchaser Qualified Plans"). Each Purchaser Qualified Plan
is qualified under Section 401(a) of the Code and is the subject of a currently
effective determination letter from the Internal Revenue Service confirming such
qualification. True and correct copies of all determination letters from the
Internal Revenue Service with respect to the Purchaser Qualified Plans which
were issued after the effective date of ERISA have been or will be delivered to
the Purchaser. With respect to each Purchaser Qualified Plan, the Purchaser has
not obtained a waiver of any minimum funding requirements imposed by ERISA or
the Code in respect of such Purchaser Qualified Plan, and has not incurred any
liability to the Pension Benefit Guaranty Corporation in connection with any
such Purchaser Qualified Plan. As of the date hereof, the value of the assets in
each of the Purchaser Qualified Plans which is a defined benefit plan exceeds
the present value of accrued benefits of all participants in such Plan when such
benefits are valued on a termination basis using Pension Benefit Guaranty
Corporation interest and other assumptions. No "reportable event," as such term
is defined in ERISA and in regulations issued thereunder, has occurred with
respect to any of the Purchaser Qualified Plans since the effective date of
ERISA.
(g) The Purchaser has identified to the Company which, if any, of
the Purchaser Employee Plans are multi-employer pension plans (as defined by
ERISA) and the number of employees of Sylvan who participated in multi-employer
plans during the year ended December 31, 1996. Since April 29, 1980, neither the
Purchaser nor any of the Purchaser Subsidiaries has, with respect to any multi-
employer plan, suffered or otherwise caused a "complete withdrawal" or "partial
withdrawal" (as such terms are defined by ERISA).
1.20. Foreign Corrupt Practices Act. Neither the Purchaser nor any of
-----------------------------
the Purchaser Subsidiaries, nor any director, officer, agent, employee,
consultant, or any other person associated with or acting on behalf of any of
them, has engaged or is engaged in any course of conduct, or is a party to any
agreement or involved in any transaction, which has or would give
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rise to a violation of the Foreign Corrupt Practices Act of 1977 or any other
United States statute or regulation governing the conduct of business abroad by
United States corporations and their subsidiaries.
1.21. Insurance. The Purchaser Disclosure Schedule lists the insurance
---------
currently carried by the Purchaser and the Purchaser Subsidiaries in respect of
their respective properties and operations, including, without limitation,
information as to limits of coverage, deductibles, annual premium requirements
and expiration dates with respect to product liability, general liability,
umbrella liability, contractual liability, employers' liability, automobile
liability, workers' compensation, property and casualty, business interruption
and other insurance carried by the Purchaser and the Purchaser Subsidiaries
(collectively, the "Purchaser Insurance"). All Purchaser Insurance continues to
be in full force and effect, and the Purchaser and the Purchaser Subsidiaries
are in compliance with all requirements and provisions thereof. None of the
Purchaser Insurance is subject to any retroactive rate or audit adjustments or
co-insurance arrangements. The Purchaser has no reason to believe that any such
Purchaser Insurance will not be renewed upon the expiration thereof at premiums
substantially equivalent to those currently being paid by the Purchaser and the
Purchaser Subsidiaries. The Purchaser Insurance heretofore and currently carried
by the Purchaser and the Purchaser Subsidiaries were and are consistent with
types and amounts of coverages customarily carried by similarly situated
companies.
1.22. No Pending Transactions. Except for the transactions
-----------------------
contemplated by this Agreement and the Other Acquisitions (as hereinafter
defined in Section 3.3), neither the Purchaser nor any of the Purchaser
Subsidiaries is a party to or bound by or the subject of any agreement,
undertaking, commitment or discussion with another party with respect to any
Acquisition Transaction (as hereinafter defined in Section 3.2).
1.23. Disclosure. No representation or warranty made by the Purchaser
----------
in this Agreement and no statement contained in a certificate, schedule, list or
other instrument or document specified in or delivered pursuant to this
Agreement, whether heretofore furnished to the Purchaser or hereafter required
to be furnished to the Purchaser, contains or will contain any untrue statement
of a material fact or omits or will omit to state any material fact necessary to
make the statements contained herein or therein not misleading.
1.24. Transactions with Affiliates. Neither the Purchaser nor any of
----------------------------
the Purchaser Subsidiaries is a party to any transaction with any (i) current or
former officer or director of the Purchaser or any of the Purchaser
Subsidiaries, or (ii) any parent, spouse, child, brother, sister or other family
relation of any such officer or director or (iii) any corporation, partnership
or other entity of which any such officer or director or any such family
relation is an officer, director, partner or greater than 10% stockholder (based
on percentage ownership of voting stock) or (iv) any "affiliate" or "associate"
of any such persons or entities (as such terms are defined in the rules and
regulations promulgated under the Securities Act), including, without
limitation, any transaction involving a contract, agreement or other arrangement
providing for the employment of, furnishing of materials, products or services
by, rental of real or personal property from, or otherwise requiring payments
to, any such person or entity.
-13-
1.25. Pooling of Interests. To the best of its knowledge, neither the
--------------------
Purchaser, any of the Purchaser Subsidiaries nor any affiliate of Sylvan has,
through the date of this Agreement, taken or agreed to take any action which
would prevent the Purchaser from accounting for the business combination to be
effected by the Merger as a pooling of interests.
1.26. Opinion of Financial Advisor. The financial advisor to the
----------------------------
Purchaser, Alex. Xxxxx & Sons Incorporated, has delivered to the Purchaser an
opinion dated the date of this Agreement to the effect that the Exchange Ratio
is fair, from a financial point of view, to Purchaser.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Purchaser that the statements contained in this
Article II are true and correct, except as set forth in the disclosure schedule
delivered by the Company to the Purchaser on or before the date of this
Agreement (the "Company Disclosure Schedule"). The Company Disclosure Schedule
shall be arranged in sections corresponding to the numbered and lettered
sections contained in this Article II. The disclosure in any paragraph shall be
deemed to constitute disclosure for all sections in this Article II.
2.1. Organization and Standing; Subsidiaries.
---------------------------------------
(a) Each of the Company and its subsidiaries whose business or
assets are material to the Company either individually or on a consolidated
basis (collectively, the "Company Subsidiaries," and, together with the Company,
collectively the "Corporation") is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its businesses as now being
conducted, except where the failure to be so organized, existing and in good
standing or to have such power and authority would not, and reasonably could not
be expected to, individually or in the aggregate, have a Material Adverse Effect
on the Corporation. The Company has heretofore delivered to the Purchaser
accurate and complete copies of the Company's Certificate of Incorporation and
By-Laws, as currently in effect, and promptly will deliver to the Purchaser
accurate and complete copies of the Articles or Certificate of Incorporation and
By-Laws, as currently in effect, of each of the Company Subsidiaries. The
Company's Disclosure Schedule includes a list of each of the Company
Subsidiaries.
(b) Each of the Company and the Company Subsidiaries is duly
qualified or licensed and in good standing to do business in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing necessary, except
in such jurisdictions where the failure to be so duly qualified or licensed and
in good standing would not, individually or in aggregate, have a Material
Adverse Effect on the Corporation.
-14-
2.2. Capitalization of the Company.
-----------------------------
(a) The Company's entire authorized capital stock consists of
70,000,000 shares, of which 65,000,000 shares are classified as Common Stock,
par value $.01 per share (the "Company Common Stock"), and 5,000,000 of which
are classified as Preferred Stock, par value $.10 per share. As of the date
hereof, there are no shares of Preferred Stock issued and outstanding,
36,239,254 shares of Company Common Stock issued and outstanding (including
697,556 shares of Company Common Stock held in the Company's treasury),
5,197,787 shares reserved for issuance in connection with the Company's stock
option plans (of which options to purchase 3,113,013 shares are outstanding (the
"Outstanding Options")); and 2,300,000 shares reserved for issuance upon
conversion of the Company's 6 1/2% Convertible Debentures (the "Debentures")
outstanding on the date hereof (the "Outstanding Debentures"). Except as set
forth above or in the Company Disclosure Schedule, there are outstanding (i) no
shares of capital stock or other voting securities of the Company, (ii) no
securities of the Company or any of the Company Subsidiaries convertible into or
exchangeable for shares of capital stock or voting securities of the Company,
(iii) no options, warrants or other rights to acquire from the Company or any of
the Company Subsidiaries (including any rights issued or issuable under a
shareholders rights plan or similar arrangement), and no obligations of the
Company or any of the Company Subsidiaries to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of the Company, (iv) no equity equivalents, interests in the
ownership or earnings of the Company or any of the Company Subsidiaries or other
similar rights (with the securities listed in clauses (i) through (iv) referred
to collectively as the "Corporation's Securities"), and (v) no outstanding
obligations of the Company or any of the Company Subsidiaries to repurchase,
redeem or otherwise acquire any of the Corporation's Securities or to make any
investment (by loan, capital contribution or otherwise) in any other entity.
The Company Disclosure Statement sets forth a list of all Outstanding Options,
including the shares of each holder thereof, which such options are currently
vested and which such options will vest as a result of the Merger.
(b) All of the outstanding capital stock of, or other ownership
interests in, each of the Company Subsidiaries, is owned by the Company,
directly or indirectly, free and clear of any Lien or any other limitation or
restriction (including any restriction on the right to vote or sell the same,
except as may be provided as a matter of law). There are no securities of the
Company or any of the Company Subsidiaries convertible into or exchangeable for,
no options or other rights to acquire from the Company or any of the Company
Subsidiaries, and no other contract, understanding, arrangement or obligation
(whether or not contingent) providing for the issuance or sale, directly or
indirectly, of any capital stock or other ownership interests in, or any other
securities of, any of the Company Subsidiaries. There are no outstanding
contractual obligations of the Company or any of the Company Subsidiaries to
repurchase, redeem or otherwise acquire any outstanding shares of capital stock
or other ownership interests in any subsidiary of the Company.
(c) All issued and outstanding shares of the capital stock of the
Company or any of the Company Subsidiaries have been duly and validly issued and
are fully
-15-
paid and non-assessable, free of any preemptive rights. The Outstanding Options
and the Outstanding Debentures have been duly and validly issued and are in full
force and effect. As of the date hereof, there are $56,994,000 principal amount
of Outstanding Debentures; and $500,000 principal amount of Debentures have
heretofore been repurchased by the Company.
2.3. Financial Statements; Exchange Act Filings.
------------------------------------------
(a) The Company has heretofore delivered to the Purchaser copies
of: (i) the Company's consolidated financial statements as of and for the years
ended December 31, 1993, 1994 and 1995, which have been audited by Price
Waterhouse, independent public accountants (the "Company Audited Financial
Statements"), and (ii) the Company's unaudited consolidated financial statements
as of and for the twelve months ended December 31, 1996, which are unaudited
(the "Company Unaudited Financial Statements"). The Company Audited Financial
Statements and Company Unaudited Financial Statements (collectively, the
"Company Financial Statements") fairly present, in conformity with generally
accepted accounting principles applied on a consistent basis by the Company
(except as may be indicated in the notes thereto) and in conformity with the
Commission's Regulation S-X, the consolidated financial position of the Company
and its consolidated subsidiaries as of the dates thereof and their consolidated
results of operations and cash flows for the periods then ended (subject in the
case of any unaudited financial statements to normal recurring year-end audit
adjustments, which are not expected to be material in amount). Since January 1,
1996, the Company has not made any material changes in the accounting policies
applied to the Company Audited Financial Statements, and no such changes are
currently contemplated nor, to the best of the Company's knowledge, required
under generally accepted accounting principles or the Commission's Regulation
S-X. The restructuring charges and losses from discontinued operations shown on
the Company Financial Statements have been properly recorded in accordance with
generally accepted accounting principles, represent management's best estimate
of the cost of discontinuing the operations to which such charges relate, and,
to the best of the Company's knowledge, there will be no further charges other
than those already accrued on the Company Financial Statements as a result of
the discontinuation of such operations.
(b) The Company has heretofore delivered to the Purchaser copies
of: (i) the financial statements of Xxxxx-Xxxxxx Publishing Corporation ("Xxxxx-
Xxxxxx") as of and for the years ended December 31, 1993, 1994 and 1995, which
have been audited by Price Waterhouse, independent public accountants (the
"Xxxxx-Xxxxxx Audited Financial Statements"), and (ii) Xxxxx-Xxxxxx'x unaudited
consolidated financial statements as of and for the twelve months ended December
31, 1996, (the "Xxxxx-Xxxxxx Unaudited Financial Statements"). The Xxxxx-Xxxxxx
Audited Financial Statements and Xxxxx-Xxxxxx Unaudited Financial Statements
(collectively, the "Xxxxx-Xxxxxx Financial Statements") fairly present, in
conformity with generally accepted accounting principles applied on a consistent
basis by the Company (except as may be indicated in the notes thereto), the
consolidated financial position of Xxxxx-Xxxxxx and its consolidated
subsidiaries as of the dates thereof and their consolidated results of
operations and cash flows for the periods then ended (subject in the case of any
-16-
unaudited interim financial statements to normal recurring year-end audit
adjustments, which are not expected to be material in amount).
(c) The Company has heretofore delivered to the Purchaser
complete copies of all periodic reports, statements and other documents
(including Exhibits thereto) that the Company and Xxxxx-Xxxxxx have filed with
the Commission under the Exchange Act since January 1, 1992 (collectively, the
"Company SEC Reports"). All Company SEC Reports required to be filed with the
Commission by the Company and Xxxxx-Xxxxxx during the twelve months preceding
the date of this Agreement were filed in a timely manner and complied in all
material respects with the applicable requirements of the Exchange Act and the
rules and regulations promulgated thereunder. At the time filed with the SEC, no
Company SEC Report contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
2.4. No Undisclosed Liabilities.
--------------------------
(a) Except as and to the extent reflected or reserved against in
the consolidated balance sheets included within the Company Financial
Statements, at the date of such statements, the Corporation had no material
liabilities or obligations (whether accrued, absolute or contingent), of the
character which, under generally accepted accounting principles, should be
accrued, shown, disclosed or indicated in a consolidated balance sheet of the
Company or explanatory notes or information supplementary thereto, including
without limitation, any liabilities resulting from failure to comply with any
law or any federal, state or local tax liabilities due or to become due whether
(a) incurred in respect of or measured by income for any period ending on or
prior to the close of business on such dates, or (b) arising out of transactions
entered into, or any state of facts existing, on or prior thereto.
(b) Except as and to the extent reflected or reserved against in
the consolidated balance sheets included within the Xxxxx-Xxxxxx Financial
Statements, at the date of such statements, Xxxxx-Xxxxxx had no material
liabilities or obligations (whether accrued, absolute or contingent), of the
character which, under generally accepted accounting principles, should be
accrued, shown, disclosed or indicated in a consolidated balance sheet of Xxxxx-
Xxxxxx or explanatory notes or information supplementary thereto, including
without limitation, any liabilities resulting from failure to comply with any
law or any federal, state or local tax liabilities due or to become due whether
(a) incurred in respect of or measured by income for any period prior to the
close of business on such dates, or (b) arising out of transactions entered
into, or any state of facts existing, prior thereto.
2.5. Absence of Certain Changes, Events or Conditions. Since December
------------------------------------------------
31, 1996, (i) the Company has not incurred any liabilities of any nature,
whether or not accrued, contingent or otherwise, which would have a Material
Adverse Effect on the Company, and (ii) there have been no events, changes or
effects with respect to the Company and the Company Subsidiaries having or which
could have, individually or in the aggregate, a
-17-
Material Adverse Effect on the Company, and (iii) the Company and the Company
Subsidiaries have conducted their businesses only in the ordinary course and in
a manner consistent with prior practice.
2.6. No Default. Neither the Company nor any of the Company
----------
Subsidiaries is in default or violation (and no event has occurred which with
notice or the lapse of time or both would constitute a default or violation) of
any term, condition or provision of (i) its Certificate of Incorporation or By-
Laws (or similar governing documents), (ii) any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to which
the Company or any of the Company Subsidiaries is now a party or by which any of
them or any of their respective properties or assets may be bound, or (iii) any
order, writ, injunction, decree, law, statute, rule or regulation applicable to
the Company, any of the Company Subsidiaries or any of their respective
properties or assets, except in the case of (ii) or (iii) for violations,
breaches or defaults that would not, individually or in the aggregate, have a
Material Adverse Effect on the Corporation.
2.7. Litigation, Etc. (i) There is no suit, claim, action, proceeding
----------------
or investigation pending or, to the knowledge of the Company, threatened against
the Company or any of the Company Subsidiaries or any of their respective
properties or assets before any Governmental Entity which, individually or in
the aggregate, could have a Material Adverse Effect on the Corporation if
decided adversely to the Corporation or could prevent or delay the consummation
of the transactions contemplated by this Agreement, and (ii) neither the Company
nor any of the Company Subsidiaries is subject to any outstanding order, writ,
injunction or decree which, insofar as can be reasonably foreseen, individually
or in the aggregate, in the future could have a Material Adverse Effect on the
Corporation or could prevent or delay the consummation of the transactions
contemplated hereby. Except as noted on the Company Disclosure Schedule, all
claims listed thereon are covered by the Company's liability insurance (subject
to applicable deductibles not in excess of $500,000) and are being defended by
and at the cost of the Company's liability insurance carrier.
2.8. Intellectual Property.
---------------------
(a) The Company or one of the Company Subsidiaries owns, or is
licensed or otherwise possesses legally enforceable rights to use, all patents,
trademarks, trade names, service marks, copyrights, and any applications for
such patents, trademarks, trade names, service marks and copyrights, processes,
formulae, methods, schematics, technology, know-how, computer software programs
or applications and tangible or intangible proprietary information or material
that are necessary to conduct the business of the Corporation as currently
conducted, or proposed to be conducted, the absence of which would be reasonably
likely to have a Material Adverse Effect on the Corporation (the "Company
Intellectual Property Rights"). The Company Disclosure Schedule lists (i) all
patents and patent applications and all trademarks, registered copyrights, trade
names and service marks, which the Company considers to be material to the
business of the Corporation and included in the Company Intellectual Property
Rights, including the jurisdictions in which each such Company Intellectual
Property Right has
-18-
been issued or registered or in which any such application for such issuance and
registration has been filed, (ii) all material licenses, sublicenses and other
agreements as to which the Company or any of the Company Subsidiaries is a party
and pursuant to which any person is authorized to use any Company Intellectual
Property Rights, and (iii) all material licenses, sublicenses and other
agreements as to which the Company or any of the Company Subsidiaries is a party
and pursuant to which the Company or any of the Company Subsidiaries is
authorized to use any third party patents, trademarks or copyrights, including
software ("Company Third Party Intellectual Property Rights") which are
incorporated in or form a part of any Corporation product that is material to
its business.
(b) Neither the Company nor any of the Company Subsidiaries is,
nor will any of them be as a result of the execution and delivery of this
Agreement or the performance of its obligations under this Agreement, in breach
of any license, sublicense or other agreement relating to the Company
Intellectual Property Rights or Company Third Party Intellectual Property
Rights, the breach of which could have a Material Adverse Effect on the
Corporation.
(c) To the Company's knowledge, all patents, registered
trademarks, service marks and copyrights held by the Company or any of the
Company Subsidiaries are valid and subsisting. Neither the Company nor any of
the Company Subsidiaries (i) has been sued (or threatened with suit) in any
suit, action or proceeding which involves a claim of infringement of any
patents, trademarks, service marks, copyrights or violation of any trade secret
or other proprietary right of any third party; and (ii) has any knowledge that
the manufacturing, marketing, licensing or sale of its products or services
infringes any patent, trademark, service xxxx, copyright, trade secret or other
proprietary right of any third party, which such infringement could have a
Material Adverse Effect on the Corporation.
2.9. Environmental Laws and Regulations. (i) The Company and each of
----------------------------------
the Company Subsidiaries is in material compliance with all applicable
Environmental Laws, except for non-compliance that individually or in the
aggregate would not have a Material Adverse Effect on the Corporation, which
compliance includes, but is not limited to the possession by the Company and the
Company Subsidiaries of all material permits and other governmental
authorizations required under applicable Environmental Laws, and compliance with
the terms and conditions thereof; (ii) neither the Company nor any of the
Company Subsidiaries has received written notice of, or is the subject of, any
Environmental Claim that individually or in the aggregate would have a Material
Adverse Effect on the Corporation; and (iii) there are no circumstances that are
reasonably likely to prevent or interfere with such compliance in the future or
give rise to an Environmental Claim in the future.
2.10. Compliance. (i) The Company and each of the Company Subsidiaries
----------
hold all licenses, permits, variances, exemptions, orders, approvals and other
authorizations of all Governmental Entities necessary for the lawful conduct of
their respective businesses (the "Company Permits"), except for failures to hold
such permits, licenses, variances, exemptions, orders, approvals and other
authorizations which would not, individually or in the aggregate,
-19-
have a Material Adverse Effect on the Corporation; (ii) the Company and the
Company Subsidiaries are in compliance with the terms of each of the Company
Permits, except where the failure so to comply would not have a Material Adverse
Effect on the Corporation, (iii) the businesses of the Company and the Company
Subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any Governmental Entity, except for violations or possible
violations which individually or in the aggregate do not, and, insofar as
reasonably can be foreseen, in the future will not, have a Material Adverse
Effect on the Corporation, and (iv) no investigation or review by any
Governmental Entity with respect to the Company or any of the Company
Subsidiaries is pending or, to the best knowledge of the Company, threatened,
nor, to the best knowledge of the Company, has any Governmental Entity indicated
an intention to conduct the same, other than, in each case, those which the
Company reasonably believes will not have a Material Adverse Effect on the
Corporation.
2.11. Labor Matters. Neither the Company nor any of the Company
-------------
Subsidiaries is a party to any collective bargaining agreement relating to its
employees. No labor dispute, strike, work stoppage, employee action or labor
relations problem of any kind which has affected or may affect the Company, any
of the Company Subsidiaries or any of their respective businesses or operations
has occurred during the past five years or currently is pending or, to the
knowledge of the Company, threatened.
2.12. Information for Proxy Statement. None of the information
-------------------------------
supplied or to be supplied by the Company in writing for inclusion in (i) the
S-4; (ii) the Joint Proxy Statement, (iii) reports filed under the Exchange Act
with the Commission by the Purchaser or the Company in connection with the
Merger, or filed by the Company or Xxxxx-Xxxxxx with the Commission between the
date of this Agreement and the Effective Time as otherwise required under the
Exchange Act and the rules and regulations promulgated thereunder; or (iv) the
Company Disclosure Schedule will, at the respective times that (A) the S-4 is
filed with the SEC (B) the S-4 is declared effective by the SEC, (C) the Joint
Proxy Statement is mailed to the stockholders of the Company and the Purchaser,
and (D) any meeting of stockholders (including adjournments) is held to consider
the Merger, contains or will contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
2.13. No Conflict With Other Documents. Neither the execution,
--------------------------------
delivery and performance of this Agreement by the Company nor the consummation
by the Company of the transactions contemplated hereby will (i) conflict with or
result in any breach of any provision of the respective Certificate of
Incorporation or By-Laws (or similar governing documents) of the Company or of
any of the Company Subsidiaries; (ii) trigger the rights of the Company or any
of the Company Subsidiaries or any holder of the Corporation's Securities under
any shareholder rights plan or similar arrangement; (iii) restrict any business
combination between the Purchaser or any of its subsidiaries and the Company or
any of its subsidiaries; (iv) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, amendment, cancellation or acceleration) under, or
result in the material modification of, any of the terms, conditions or
provisions of any note, bond, mortgage,
-20-
indenture, lease, license, contract, agreement or other instrument or obligation
to which the Company or any of the Company Subsidiaries is a party or by which
any of them or any of their respective properties or assets may be bound; or (v)
violate any order, writ, injunction, decree, law, statute, rule or regulation
applicable to the Company or any of the Company Subsidiaries or any of their
respective properties or assets, except in the case of (iv) or (v) for
violations, breaches or defaults which could not, individually or in the
aggregate, have a Material Adverse Effect on the Corporation.
2.14. Authority; Consents.
-------------------
(a) The Company has all necessary corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by the Company's Board of Directors and no other corporate
proceedings on the part of the Company or any of the Company Subsidiaries are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby (other than, with respect to the Merger, the approval and
adoption of this Agreement by the holders of a majority of the then outstanding
shares of Company Common Stock). This Agreement has been duly and validly
executed and delivered by the Company and constitutes a valid, legal and binding
agreement of the Company, enforceable against the Company in accordance with its
terms.
(b) Upon Company Stockholder Approval (as defined below),
the satisfaction of all other conditions contained herein and the filing of the
Articles of Merger with the SDAT and the Certificate of Merger with the
Secretary of State of the State of Delaware, this Agreement will result in the
valid, legally binding and enforceable statutory merger of Newco with and into
the Purchaser.
(c) Under the Company's Charter, By-Laws, the regulations of
the New York Stock Exchange, Inc. and other laws and regulations applicable to
the Company and the Company Subsidiaries (i) only the affirmative vote of the
holders of at least a majority of the outstanding shares of Company Common Stock
voting together as a single class ("Company Stockholder Approval") is required
and sufficient for the approval by the Company's stockholders of the
transactions contemplated by this Agreement; and (ii) statutory appraisal rights
will not be available to the holders of any of the Corporation's Securities in
connection with the Merger.
(d) No consent, approval, order or authorization of, or
registration, declaration or filing with (i) any Governmental Entity or (ii) any
individual, corporation or other entity (including any holder of the
Corporation's Securities) is required by or with respect to the Company in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby, except for (A) the Company Stockholder
Approval, (B) the declaration of effectiveness of the Form S-4 by the Commission
in accordance with the Securities Act, (C) the filing of the Articles of Merger
with the SDAT and the Certificate of
-21-
Merger with the Delaware Secretary of State, (D) the filing of the Joint Proxy
Statement with the Commission in accordance with the Exchange Act, (E)
satisfaction of all information and waiting period requirements of the Xxxx-
Xxxxx-Xxxxxx Antitrust Improvements Act of 1976 and any regulations promulgated
thereunder, (F) such consents, approvals, orders, authorizations, registrations
declarations and filings as may be required under applicable state "blue sky" or
securities laws and the securities laws of any foreign country, (G) those set
forth in the Company Disclosure Schedule ,and such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not be reasonably likely to have a Material Adverse Effect on the
Corporation.
2.15. Contracts.
---------
(a) Neither the Company nor any of the Company Subsidiaries
is a party to or subject to: (i) any employment contract with any officer,
consultant, director or employee; (ii) any plan or contract or arrangement
providing for bonuses, pensions, options, deferred compensation, retirement
payments, profit sharing, or the like; (iii) any contract or agreement with any
labor union; (iv) any contract, agreement, instrument or other document that
would be required to be filed as an exhibit to a Registration Statement on Form
S-1 were the Company or any of the Company Subsidiaries to file such a
Registration Statement on the date of this Agreement, (v) any contract,
agreement, instrument or other document not entered into by the Company or any
of the Company Subsidiaries in the ordinary course of business, under which the
Company or any of the Company Subsidiaries is required to make annual payments
to any third party in excess of $500,000 or (vi) any agreement, voting trust,
understanding or arrangement, written or oral, concerning the election of
directors. Neither the Company nor any of the Company Subsidiaries has breached,
or received in writing any claim or threat that it has breached, any of the
terms or conditions of any agreement, contract or commitment referred to in the
prior sentence ("Company Material Contracts") in such a manner as would permit
any other party to cancel or terminate the same or would permit any other party
to seek material damages from the Company or any of the Company Subsidiaries
under any Company Material Contract. Each Company Material Contract that has not
expired or been terminated is in full force and effect and is not subject to any
material default thereunder of which the Company is aware by any party obligated
to the Company or any of the Company Subsidiaries pursuant to the Company
Material Contract.
(b) The consummation of the Merger and the transactions
contemplated by this Agreement will not cause a default under, or provide any
right of termination or modification with respect to, any Company Material
Contract which default, termination or modification would have a Material
Adverse Effect on the Corporation.
2.16. Customers and Suppliers. Neither the Company nor any of the
-----------------------
Company Subsidiaries has received notice that, nor do any of them have knowledge
or any reason to believe that, any customer that represented 5% or more of
Company's consolidated revenues in any of the past three years will not continue
to do business with the Company or the Company Subsidiaries at volumes
consistent with past practices subsequent to the Merger. Neither the
-22-
Company nor any of the Company Subsidiaries has any outstanding purchase
contracts or commitments or unaccepted purchase orders which are in excess of
the normal, ordinary and usual requirements of its business. No entity which is
now supplying, or during 1996 supplied, to the Company or the Company
Subsidiaries products and services has reduced or otherwise discontinued, or
threatened to reduced or discontinue, supplying such items to the Company or the
Company Subsidiaries on reasonable terms, except for such reductions or
discontinuations which would not have a Material Adverse Effect on the
Corporation.
2.17. Tax Matters.
-----------
(a) For the purposes of this Agreement, a "Tax" or,
collectively, "Taxes," means any and all material federal, state, local and
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other person or entity with respect to such amounts and including any
liability for taxes of a predecessor entity.
(b) The Company and the Company Subsidiaries have accurately
prepared and timely filed all material Returns relating to any and all Taxes
concerning or attributable to the Company, any of the Company Subsidiaries or
any of their operations or assets, and such Returns are true and correct in all
material respects and have been completed in all material respects in accordance
with applicable law; and copies of all Returns of the Company and the Company
Subsidiaries for the past three years have been or will be provided by Newco to
the Purchaser.
(c) The Company and each of the Company Subsidiaries as of
the Effective Time: (i) will have paid all Taxes any of them is required to pay
prior to the Effective Time, (ii) will have withheld with respect to their
employees all federal and state income taxes, FICA, FUTA and other Taxes
required to be withheld, and (iii) will have collected all sales and use taxes
on account of sales by the Company or any Company Subsidiary or use of any of
their products, except in each instance where any failure to make such payment
or withholding would not be reasonably likely to have a Material Adverse Effect
on the Corporation.
(d) There is no Tax deficiency outstanding, proposed or
assessed against the Company or any of the Company Subsidiaries that is not
reflected as a liability on the Company Financial Statements nor has the Company
or any of the Company Subsidiaries executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
2.18. Title to Properties; Absence of Liens and Encumbrances, Etc.
------------------------------------------------------------
The Company Disclosure Schedule sets forth a true and complete list of all real
property owned by the Company or the Company Subsidiaries and real property
leased by the Company or the
-23-
Company Subsidiaries pursuant to Material Leases and the name of the lessor, the
date of the Material Lease and each amendment to the Material Lease and the
aggregate annual rental or other fee payable under any such Material Lease. The
Company and the Company Subsidiaries have good and marketable title to all their
owned properties and assets, real and personal, in each case free and clear of
all liens, encumbrances, and imperfections of title, except those liens,
encumbrances or imperfections of title which individually or in the aggregate
would not have a Material Adverse Effect on the Corporation. Neither the Company
nor any of the Company Subsidiaries has received any notice of violation of any
applicable zoning laws, orders, regulations, or requirements relating to its
operations or properties it owns or leases which has not been complied with, nor
any proposed changes in any such laws, orders or regulations which might have a
Material Adverse Effect on the Corporation. The Company has no knowledge of any
threatened or impending condemnation by any Government Entity of any properties
owned or leased by the Company or the Company Subsidiaries. All Material Leases
are in good standing, valid and effective in accordance with their respective
terms, and neither the Company nor any Company Subsidiary is in default under
any of such leases, except where the lack of such good standing, validity and
effectiveness or the existence of such default would not have a Material Adverse
Effect on the Corporation.
2.19. Pension and Employee Benefit Plans.
----------------------------------
(a) The Company has set forth on the Company Disclosure
Schedule all employee benefit plans (as defined in Section 3(3) of ERISA) and
all bonus, stock option, stock purchase, incentive, deferred compensation,
supplemental retirement, severance and other similar employee benefit plans, and
all unexpired severance agreements, written or otherwise, for the benefit of, or
relating to, any current or former employee of the Company or any of the Company
Subsidiaries or any ERISA Affiliate (together, the "Company Employee Plans").
(b) With respect to each Company Employee Plan, the Company
has made or will make available to Sylvan, a true and correct copy of (i) the
most recent annual report (Form 5500) filed with the IRS, (ii) such Company
Employee Plan, (iii) each trust agreement and group annuity contract, if any,
relating to such Company Employee Plan and (iv) the most recent actuarial report
or valuation relating to a Company Employee Plan subject to Title IV of ERISA.
(c) With respect to the Company Employee Plans, individually
and in the aggregate, no event has occurred, and to the knowledge of the Company
there exists no condition or set of circumstances, in connection with which the
Company could be subject to any liability under ERISA, the Code or any other
applicable law that is reasonably likely to have a Material Adverse Effect on
the Corporation.
(d) With respect to the Company Employee Plans, individually
and in the aggregate, there are no funded benefit obligations for which
contributions have not been made or properly accrued and there are no unfunded
benefit obligations which have not been accounted for by reserves, or otherwise
properly footnoted in accordance with generally accepted
-24-
accounting principles, on the Company Financial Statements, which obligations
are reasonably expected to have a Material Adverse Effect on the Corporation.
(e) Except as provided for in this Agreement, neither the
Company nor any of the Company Subsidiaries is a party to any oral or written
(i) union or collective bargaining agreement, (ii) agreement with any officer or
other key employee of the Company or any of the Company Subsidiaries, the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction involving the Company of the nature
contemplated by this Agreement, (iii) agreement with any officer providing any
term of employment or compensation guarantee extending for a period longer than
one year from the date hereof, providing for the payment of compensation in
excess of $100,000 per annum or providing for severance benefits or other
benefits upon or following termination of employment, or (iv) agreement or plan,
including any stock option plan, stock appreciation right plan, restricted stock
plan or stock purchase plan, any of the benefits of which will be increased, or
the vesting of the benefits of which will be accelerated, by the occurrence of
any of the transactions contemplated by this Agreement or the value of any of
the benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
(f) Each of the Company Employee Plans which is intended to
qualify under Section 401 of the Code is designated on the Company Disclosure
Schedule as being a qualified plan (the Plans so designated being hereinafter
referred to as the "Company Qualified Plans"). Each Company Qualified Plan is
qualified under Section 401(a) of the Code and is the subject of a currently
effective determination letter from the Internal Revenue Service confirming such
qualification. True and correct copies of all determination letters from the
Internal Revenue Service with respect to the Company Qualified Plans which were
issued after the effective date of ERISA have been or will be delivered to the
Purchaser. With respect to each Company Qualified Plan, the Company has not
obtained a waiver of any minimum funding requirements imposed by ERISA or the
Code in respect of such Company Qualified Plan, and has not incurred any
liability to the Pension Benefit Guaranty Corporation in connection with any
such Company Qualified Plan. As of the date hereof, the value of the assets in
each of the Company Qualified Plans which is a defined benefit plan exceeds the
present value of accrued benefits of all participants in such Plan when such
benefits are valued on a termination basis using Pension Benefit Guaranty
Corporation interest and other assumptions. No "reportable event," as such term
is defined in ERISA and in regulations issued thereunder, has occurred with
respect to any of the Company Qualified Plans since the effective date of ERISA.
(g) The Company has identified to the Purchaser which, if
any, of the Company Employee Plans are multi-employer pension plans (as defined
by ERISA) and the number of employees of the Corporation who participated in
multi-employer plans during the year ended December 31, 1996. Since April 29,
1980, neither the Company nor any of the Company Subsidiaries has, with respect
to any multi-employer plan, suffered or otherwise caused a "complete withdrawal"
or "partial withdrawal" (as such terms are defined by ERISA).
-25-
2.20. Foreign Corrupt Practices Act. Neither the Company nor any
-----------------------------
of the Company Subsidiaries, nor any director, officer, agent, employee,
consultant, or any other person associated with or acting on behalf of any of
them, has engaged or is engaged in any course of conduct, or is a party to any
agreement or involved in any transaction, which has or would give rise to a
violation of the Foreign Corrupt Practices Act of 1977 or any other United
States statute or regulation governing the conduct of business abroad by United
States corporations and their subsidiaries.
2.21. Insurance. The Company Disclosure Schedule lists the
---------
insurance currently carried by the Company and the Company Subsidiaries in
respect of their respective properties and operations, including, without
limitation, information as to limits of coverage, deductibles, annual premium
requirements and expiration dates with respect to product liability, general
liability, umbrella liability, contractual liability, employers' liability,
automobile liability, workers' compensation, property and casualty, business
interruption and other insurance carried by the Company and the Company
Subsidiaries (collectively, the "Company Insurance"). All Company Insurance
continues to be in full force and effect, and the Company and the Company
Subsidiaries are in compliance with all requirements and provisions thereof.
None of the Company Insurance is subject to any retroactive rate or audit
adjustments or co-insurance arrangements. The Company has no reason to believe
that any such Company Insurance will not be renewed upon the expiration thereof
at premiums substantially equivalent to those currently being paid by the
Company and the Company Subsidiaries. The Company Insurance heretofore and
currently carried by the Company and the Company Subsidiaries were and are
consistent with types and amounts of coverages customarily carried by similarly
situated companies.
2.22. No Pending Transactions. Except for the transactions
-----------------------
contemplated by this Agreement and the Company Acquisitions (as hereinafter
defined in Section 3.1), neither the Company nor any of the Company Subsidiaries
is a party to or bound by or the subject of any agreement, undertaking,
commitment or discussion with another party with respect to an Acquisition
Transaction (as hereinafter defined in Section 3.2).
2.23. Disclosure. No representation or warranty made by the
----------
Company in this Agreement and no statement contained in a certificate, schedule,
list or other instrument or document specified in or delivered pursuant to this
Agreement, whether heretofore furnished to the Purchaser or hereafter required
to be furnished to the Purchaser, contains or will contain any untrue statement
of a material fact or omits or will omit to state any material fact necessary to
make the statements contained herein or therein not misleading.
2.24. Transactions with Affiliates. Neither the Company nor any
----------------------------
of the Company Subsidiaries is a party to any transaction with any (i) current
or former officer or director of the Company or any of the Company Subsidiaries,
or (ii) any parent, spouse, child, brother, sister or other family relation of
any such officer or director or (iii) any corporation, partnership or other
entity of which any such officer or director or any such family relation is an
officer, director, partner or greater than 10% stockholder (based on percentage
ownership of voting stock) or (iv) any "affiliate" or "associate" of any such
persons or entities (as such terms
-26-
are defined in the rules and regulations promulgated under the Securities Act),
including, without limitation, any transaction involving a contract, agreement
or other arrangement providing for the employment of, furnishing of materials,
products or services by, rental of real or personal property from, or otherwise
requiring payments to, any such person or entity.
2.25. Pooling of Interests. To the best of its knowledge, neither
--------------------
the Company, any of the Company Subsidiaries nor any affiliate of the
Corporation has, through the date of this Agreement, taken or agreed to take any
action which would prevent the Purchaser from accounting for the business
combination to be effected by the Merger as a pooling of interests.
2.26. Opinion of Financial Advisor. The financial advisor to the
----------------------------
Company, BZW, the investment banking division of Barclays Bank PLC ("BZW"), has
delivered to the Company an opinion dated the date of this Agreement to the
effect that the aggregate Merger consideration to be received by the holders of
the issued and outstanding shares of Company Common Stock is fair in the
aggregate from a financial point of view to the holders of the Company Common
Stock as a group.
2.27. Section 203 of the DGCL Not Applicable. The Boards of
--------------------------------------
Directors of the Company and the Company Subsidiaries have taken all action so
that the restrictions contained in Section 203 of the DGCL applicable to a
"business combination" (as defined in Section 203) will not apply to the
execution, delivery or performance of this Agreement or the consummation of the
Merger, the other transactions contemplated by this Agreement or any other
transaction between the Purchaser or any of its subsidiaries and the Company or
any of its subsidiaries.
SECTION 3. COVENANTS.
3.1 Conduct of Business of the Company. Except as contemplated
----------------------------------
by this Agreement or as contemplated by any acquisition agreements or
negotiations described on the Company Disclosure Statement or in the Company's
SEC Reports ("Company Acquisitions"), during the period from the date hereof to
the earlier of termination of this Agreement or the Effective Time, the Company
agrees to conduct its business and that of the Company Subsidiaries only in the
ordinary course of business consistent with past practice and to use all
reasonable efforts consistent with past practices and policies to preserve
intact its present business organization (including the services of its existing
employees) and preserve its relationships with customers, suppliers and others
having business dealings with it, to the end that its goodwill and ongoing
business shall be unimpaired at the Effective Date. Without limiting the
generality of the foregoing, and except as otherwise expressly provided in this
Agreement, neither the Company nor any of the Company Subsidiaries will, without
the prior written consent of the Purchaser:
(a) amend or propose to amend its Certificate or Articles of
Incorporation or By-Laws;
-27-
(b) authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or otherwise)
any stock of any class or any other securities or equity equivalents (including,
without limitation, any stock options or stock appreciation rights), except
(i) shares of Company Common Stock issuable upon conversion of the Outstanding
Debentures (at a conversion rate of one share of Company Common Stock for
every $25.00 of Outstanding Debentures), (ii) shares of Company Common Stock
issuable upon exercise of the Company Outstanding Options, or amend any of the
terms of any such securities or agreements outstanding as of the date hereof,
except as specifically contemplated by this Agreement, and (iii) for amendments
to the NETG Stock Option Plan in order to provide that such Plan and the options
granted thereunder survive the Merger;
(c) split, combine or reclassify any shares of its capital
stock, declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its capital
stock, or redeem or otherwise acquire any of its securities or any securities of
the Company Subsidiaries, except that the Company may repurchase Outstanding
Debentures to the extent necessary to satisfy its 1997 sinking fund obligation
under the Indenture by which the Debentures were issued;
(d) (i) incur or assume any long-term or short-term debt or
issue any debt securities except for borrowings under existing lines of credit
in the ordinary course of business; (ii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise) for
the obligations of any other person or entity except in the ordinary course of
business consistent with past practice, and except for obligations of wholly-
owned subsidiaries of it; (iii) make any loans, advances or capital
contributions to, or investments in, any other person or entity (other than to
subsidiaries of it or advances to employees in the ordinary course of business
consistent with past practice and in amounts not material to the maker of such
loan or advance); (iv) pledge or otherwise encumber shares of its capital stock
or any of the Company Subsidiaries; or (v) mortgage or pledge any of its
material assets, tangible or intangible, or create or suffer to exist any
material Lien thereupon;
(e) except as may be required by law or as contemplated by
this Agreement or the Company Acquisitions, enter into, adopt or amend or
terminate any bonus, profit sharing, compensation, severance, termination, stock
option, stock appreciation right, restricted stock, performance unit, stock
equivalent, stock purchase agreement, pension, retirement, deferred
compensation, employment, severance or other employee benefit agreement, trust,
plan, fund or other arrangement for the benefit or welfare of any director,
officer or employee in any manner, or (except for normal increases in the
ordinary course of business consistent with past practice that, in the
aggregate, do not result in a material increase in benefits or compensation
expense to it, and as required under existing agreements or in the ordinary
course of business generally consistent with past practice) increase in any
manner the compensation or fringe benefits of any director, officer or employee
or pay any benefit not required by any plan and arrangement as in effect as of
the date hereof (including, without limitation, the granting of stock
appreciation rights or performance units);
-28-
(f) acquire, sell, lease, license to others or dispose of
any assets outside the ordinary course of business which individually or in the
aggregate are material to the Corporation, or enter into any commitment or
transaction outside the ordinary course of business consistent with past
practice which would be material to the Corporation;
(g) except as may be required as a result of a change in law
or in generally accepted accounting principles, change any of the accounting
principles or practices used by it;
(h) revalue in any material respect any of its assets,
including, without limitation, writing down the value of inventory or writing-
off notes or accounts receivable other than in the ordinary course of business;
(i) (i) acquire or agree to acquire (by merger,
consolidation, acquisition of stock or assets or otherwise) any corporation,
partnership or other business organization or division thereof or any equity
interest therein, other than the Company Acquisitions; (ii) enter into any
contract or agreement other than in the ordinary course of business consistent
with past practice which would be material to it; (iii) authorize any new
capital expenditure or expenditures which, individually, is in excess of
$250,000 or, in the aggregate, are in excess of $2,500,000; or (iv) enter
into or amend any contract, agreement, commitment or arrangement providing for
the taking of any action that would be prohibited hereunder;
(j) make any tax election or settle or compromise any income
tax liability material to the Company;
(k) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business of liabilities reflected or reserved against in, or
contemplated by, the consolidated financial statements (or the notes thereto) of
the Company and the Company Subsidiaries or incurred in the ordinary course of
business consistent with past practice;
(l) settle or compromise any pending or threatened suit,
action or claim relating to the transactions contemplated hereby; or
(m) take, or agree in writing or otherwise to take, any of
the actions described in this Section 4.1(a) through 4.1(l) or any action which
would make any of the representations or warranties of the Company contained in
this Agreement untrue or incorrect as of the date when made.
3.2. No Solicitation. The Company, its affiliates and their
---------------
respective officers, directors, employees, representatives and agents (i) shall
immediately cease any existing discussions or negotiations, if any, with any
parties with respect to any acquisition (other than the
-29-
transactions contemplated by this Agreement or the Company Acquisitions) of all
or any material portion of the assets of, or any equity interest in, the Company
or any of the Company Subsidiaries or any business combination with the Company
or any of the Company Subsidiaries, (ii) shall not solicit, initiate, encourage,
or furnish information in response to any inquiries or proposals that
constitute, or could reasonably be expected to lead to, a proposal or offer for
a merger, consolidation, business combination, sale of substantial assets, sale
of shares of capital stock (including without limitation by way of a tender
offer or similar transactions involving the Company, other than the transactions
contemplated by this Agreement) (any of the foregoing transactions being
referred to in this Agreement as an "Acquisition Transaction") (iii) shall not
engage in negotiations or discussions concerning, or provide any non-public
information to any person or entity relating to, any Acquisition Transaction, or
(iv) shall not agree to, approve or recommend any Acquisition Transaction;
except, with respect to clauses (ii) (as to the furnishing of information only)
(iii) and (iv), where the Board of Directors of the Company has received the
written opinion of Irell & Xxxxxxx LLP to the effect that the failure of the
Board of Directors to so act would constitute a violation of the Board of
Directors' fiduciary responsibilities to the holders of the Company Common Stock
under the DGCL (it being understood that for this purpose, the failure to
respond to an Acquisition Proposal which in the judgment of the Company's Board
of Directors and BZW is superior, from a financial point of view, to the
Company's stockholders may be deemed to be a breach of such fiduciary duty). If
the Company shall nevertheless receive any indications of interests or proposals
with respect to any Acquisition Transactions, it shall provide a copy of any
such written proposal to the Purchaser immediately after receipt thereof by the
Company or any of its representatives or agents.
3.3. Conduct of Business of the Purchaser. Except as contemplated
------------------------------------
by this Agreement or as contemplated by any acquisition agreements or
negotiations described on the Purchaser Disclosure Statement or in the Purchaser
SEC Reports ("Other Acquisitions"), during the period from the date hereof to
the earlier of termination of this Agreement or the Effective Time, the
Purchaser agrees to conduct its business and that of the Purchaser Subsidiaries
only in the ordinary course of business consistent with past practice and to use
all reasonable efforts consistent with past practices and policies to preserve
intact its present business organization (including the services of its existing
employees) and preserve its relationships with customers, suppliers and others
having business dealings with it, to the end that its goodwill and ongoing
business shall be unimpaired at the Effective Date. Without limiting the
generality of the foregoing, and except as otherwise expressly provided in this
Agreement, neither the Purchaser nor any of the Purchaser Subsidiaries will,
without the prior written consent of the Company:
(a) amend or propose to amend its Charter or By-Laws;
(b) authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or otherwise)
any stock of any class or any other securities or equity equivalents (including,
without limitation, any stock options or stock appreciation rights), except
(i) shares of the Purchaser Common Stock issuable upon exercise of
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Purchaser Outstanding Options and Purchaser Outstanding Warrants, (ii) shares of
Common Stock issuable in connection with the Other Acquisitions, or (iii) shares
of Common Stock pursuant to the Purchaser's Employee Stock Purchase Plan.
(c) split, combine or reclassify any shares of its capital
stock, declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its capital
stock, or redeem or otherwise acquire any of its securities or any securities of
the Purchaser Subsidiaries;
(d) (i) incur or assume any long-term or short-term debt or
issue any debt securities, except for borrowings under existing lines of credit
in the ordinary course of business or pursuant to the Other Acquisitions; (ii)
assume, guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other person or
entity except in the ordinary course of business consistent with past practice,
and except for obligations of wholly-owned subsidiaries of the Purchaser; (iii)
make any loans, advances or capital contributions to, or investments in, any
other person or entity (other than to subsidiaries of the Purchaser or advances
to employees in the ordinary course of business consistent with past practice
and in amounts not material to the maker of such loan or advance); (iv) pledge
or otherwise encumber shares of capital stock of the Purchaser or any of the
Purchaser Subsidiaries; or (v) mortgage or pledge any of its material assets,
tangible or intangible, or create or suffer to exist any material Lien
thereupon;
(e) except as may be required by law or as contemplated by
this Agreement or the Other Acquisitions, enter into, adopt or amend or
terminate any bonus, profit sharing, compensation, severance, termination, stock
option, stock appreciation right, restricted stock, performance unit, stock
equivalent, stock purchase agreement, pension, retirement, deferred
compensation, employment, severance or other employee benefit agreement, trust,
plan, fund or other arrangement for the benefit or welfare of any director,
officer or employee in any manner, or (except for normal increases in the
ordinary course of business consistent with past practice that, in the
aggregate, do not result in a material increase in benefits or compensation
expense to the Purchaser, and as required under existing agreements or in the
ordinary course of business generally consistent with past practice) increase in
any manner the compensation or fringe benefits of any director, officer or
employee or pay any benefit not required by any plan and arrangement as in
effect as of the date hereof (including, without limitation, the granting of
stock appreciation rights or performance units);
(f) acquire, sell, lease, license to others or dispose of
any assets outside the ordinary course of business which individually or in the
aggregate are material to Sylvan, or enter into any commitment or transaction
outside the ordinary course of business consistent with past practice which
would be material to Sylvan;
(g) except as may be required as a result of a change in law
or in generally accepted accounting principles, change any of the accounting
principles or practices used by it;
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(h) revalue in any material respect any of its assets,
including, without limitation, writing down the value of inventory or writing-
off notes or accounts receivable other than in the ordinary course of business;
(i) (i) acquire or agree to acquire (by merger,
consolidation, acquisition of stock or assets or otherwise) any corporation,
partnership or other business organization or division thereof or any equity
interest therein, other than the Other Acquisitions; (ii) enter into any
contract or agreement other than in the ordinary course of business consistent
with past practice which would be material to the Purchaser or (iii) enter into
or amend any contract, agreement, commitment or arrangement providing for the
taking of any action that would be prohibited hereunder;
(j) make any tax election or settle or compromise any income
tax liability material to the Purchaser;
(k) pay, discharge or satisfy any claim, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business of liabilities reflected or reserved against in, or
contemplated by, the consolidated financial statements (or the notes thereto) of
the Purchaser and the Purchaser Subsidiaries or incurred in the ordinary course
of business consistent with past practice;
(l) settle or compromise any pending or threatened suit,
action or claim relating to the transactions contemplated hereby; and
(m) take, or agree in writing or otherwise to take, any of
the actions described in this Section 4.2(a) through 4.2(j) or any action which
would make any of the representations or warranties of the Purchaser and
Acquisition contained in this Agreement untrue or incorrect as of the date when
made.
3.4. Access to Information.
---------------------
(a) Between the date hereof and the Effective Time, the
Company and the Purchaser will give each other and their respective authorized
representatives reasonable access to all employees, plants, offices, warehouses
and other facilities and to the other's books and records and those of the
other's subsidiaries, will permit each other to make such inspections as the
requesting party may reasonably request and will cause each other's officers and
those of the other's subsidiaries to furnish the requesting party with such
financial and operating data and other information with respect to the other's
business and properties and any of the other's subsidiaries as the requesting
party may from time to time reasonably request.
(b) Each of the Company and the Purchaser will hold and will
cause its employees, agents and representatives to hold in confidence, unless
compelled to disclose by judicial or administrative process or, in the written
opinion of its legal counsel, by other
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requirements of law, all documents and information concerning the other party
and its subsidiaries furnished to it in connection with the transactions
contemplated by this Agreement, and will not release or disclose such
information to any other person, except its auditors, attorneys, financial
advisors and other consultants and advisors in connection with this Agreement
who need to know such information. If the transactions contemplated by this
Agreement are not consummated, such confidence shall be maintained and, if
requested by or on behalf of the furnishing party, the other party will, and
will use all reasonable efforts to cause its auditors, attorneys, financial
advisors and other consultants, agents and representatives to, return to the
furnishing party or destroy all copies of written information so furnished to it
or its agents and representatives.
(c) No information or knowledge obtained in any
investigation pursuant to this Section 3.4 shall affect or be deemed to modify
any representation or warranty contained in this Agreement or any disclosure
schedule or the conditions to the obligations of the parties to consummate the
Merger.
3.5 Filings with the Governmental Entities.
--------------------------------------
(a) As promptly as practical after the execution of this
Agreement, the Purchaser and the Company shall prepare and shall cooperate with
the other in preparing and shall file with the Commission the Joint Proxy
Statement, and the Purchaser shall prepare and file with the Commission the S-4,
in which the Joint Proxy Statement will be included. The Purchaser and the
Company shall use all reasonable efforts and shall cooperate with each other in
causing the S-4 to become effective as soon after such filing as practical;
provided that the Purchaser shall not be obligated to agree to account for the
Merger as a "purchase" in order to have the S-4 declared effective by the
Commission. The Joint Proxy Statement shall include the recommendation of the
Board of Directors of the Company in favor of this Agreement and the Merger and
the recommendation of the Board of Directors of the Purchaser in favor of the
issuance of shares of the Purchaser Common Stock pursuant to the Merger.
(c) The Purchaser and the Company shall, and the Company
shall cause Xxxxx-Xxxxxx to, file in a timely manner all periodic reports or
other documents required under the Exchange Act and the Rules and Regulations
promulgated thereunder to be filed by the Purchaser, the Company or Xxxxx-
Xxxxxx, as applicable, between the date of this Agreement and the Effective
Time; and the form and content of all such filings shall be in material
compliance with the requirements of the Exchange Act and the Rules and
Regulations promulgated thereunder.
(b) The Purchaser and the Company shall make all necessary
filings with respect to the Merger under the Securities Act and the Exchange Act
and applicable state blue sky laws and the rules and regulations thereunder and
the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976 and the rules and
regulations promulgated thereunder.
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3.6. Additional Agreement; Reasonable Efforts. Subject to the
----------------------------------------
terms and conditions herein provided, each of the parties hereto agrees to use
all reasonable efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things reasonably necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation, (i)
the taking of all action reasonably necessary, proper or advisable to secure any
necessary approvals of any Governmental Entity and will cooperate and furnish
information to the other in connection with obtaining any such approvals; (ii)
using all reasonable efforts to obtain consents of all third parties necessary,
proper or advisable for the consummation of the transactions contemplated by
this Agreement; (iii) contesting any legal proceeding relating to the Merger;
and (iv) the execution of any additional instruments necessary to consummate the
transactions contemplated hereby.
3.7. Public Announcements. The Purchaser and the Company will
--------------------
consult with each other before issuing any press release or otherwise making any
public statements with respect to the Merger or this Agreement, and shall not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by applicable law or pursuant to the
rules of the Commission or the Purchaser's listing agreement with the Nasdaq
Stock Market and the Company's listing agreement with the New York Stock
Exchange, Inc.
3.8. Stockholders Meetings.
---------------------
(a) The Company and the Purchaser each shall call a meeting
of its respective stockholders to be held as promptly as practicable for the
purpose of voting, in the case of the Company, upon this Agreement and the
Merger and, in the case of the Purchaser, upon (i) the issuance of shares of
Purchaser Common Stock pursuant to the Merger, (ii) amendment of the Purchaser's
Charter for the purpose of increasing the number of authorized shares of
Purchaser Common Stock to 90,000,000 and (iii) election of the four nominees
submitted by the Company to the Purchaser prior to the execution of this
Agreement to the Purchaser Board of Directors (collectively, the "Purchaser
Voting Proposal"). The Company and the Purchaser will, through their respective
Boards of Directors, recommend to their respective stockholders approval of such
matters and will coordinate and cooperate with respect to the timing of such
meetings and shall use their best efforts to hold such meetings on the same day
and as soon as practicable after the date hereof. Each party shall use all
reasonable efforts to solicit from its stockholders proxies in favor of such
matters.
(b) The Purchaser shall also propose to its stockholders at
the Purchaser Stockholders' Meeting, as a proposal separate from the Purchaser
Voting Proposal, an increase in the number of shares of the Purchaser Common
Stock reserved for issuance under one or more of the Purchaser's employee stock
option plans by an aggregate of 4,000,000 shares. The approval by the
Purchaser's stockholders of such additional proposal, however, shall not be a
condition to the closing of the Merger under this Agreement.
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3.9. Tax-Free Reorganization. The Purchaser and the Company shall
-----------------------
each use its best efforts to cause the Merger to be treated as a reorganization
within the meaning of Section 368(a) of the Code.
3.10 Pooling Accounting. The Purchaser and the Company shall each
------------------
use its best efforts to cause the business combination to be effected by the
Merger to be accounted for as a pooling of interests. Each of the Purchaser and
the Company shall use its best efforts (i) to cause its respective Affiliates
(as defined in Section 3.11 below) not to take any action that would adversely
affect the ability of the Purchaser to account for the business combination to
be effected by the Merger as a pooling of interests and (ii) to cause its
respective Affiliates to sign and deliver to the Purchaser a customary "pooling
letter" in form and substance agreed upon by the Company and the Purchaser.
3.11. Affiliate Agreements. Upon the execution of this Agreement,
--------------------
the Purchaser and the Company will provide each other with a list of those
persons who are, in their respective reasonable judgment, "affiliates" of the
Purchaser or the Company, respectively, within the meaning of Commission Rule
145 (each such person who is such an "affiliate" is referred to as an
"Affiliate"). The Purchaser and the Company shall provide each other such
information and documents as the other shall reasonably request for purposes of
reviewing such list and shall notify the other party in writing regarding any
change in the identity of its Affiliates prior to the Effective Time. The
Company shall use its best efforts to deliver or cause to be delivered to the
Purchaser by April 15, 1997 (and in any case shall deliver to the
Purchaser prior to the Effective Time) from each of the Affiliates of the
Company, an executed Affiliate Agreement, in form and substance satisfactory to
the Purchaser and the Company, by which such Affiliate of the Company agrees to
comply with the applicable requirements of Rule 145 ("Affiliates Agreement").
The Purchaser shall be entitled to place appropriate legends on the certificates
evidencing any of the Purchaser Common Stock to be received by such Affiliates
of the Company pursuant to the terms of this Agreement, and to issue appropriate
stop transfer instructions to the transfer agent for the Purchaser Common Stock,
consistent with the terms of the Affiliates Agreements.
3.12. NASDAQ Quotation. The Purchaser shall file an Application for
----------------
Listing of Additional Shares with the Nasdaq Stock Market (National Market)
prior to the Effective Time and will otherwise use its best efforts to cause the
shares of the Purchaser Common Stock to be issued in the Merger to be approved
for quotation on the Nasdaq Stock Market (National Market), subject to official
notice of issuance.
3.13 Brokers or Finders. Each of the Purchaser and the Company
------------------
represents, as to itself, and the Purchaser Subsidiaries and Affiliates of the
Purchaser, in the case of the Purchaser, and the Company Subsidiaries and
Affiliates of the Company, in the case of the Company, that no agent, broker,
investment banker, financial advisor or other firm or person is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
in connection with any of the transactions contemplated by this Agreement,
except BZW, whose fees and expenses will be paid by the Company in accordance
with the Company's agreement
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with such firm (copies of which have been delivered by the Company to the
Purchaser prior to the date of this Agreement), and Alex. Xxxxx & Sons
Incorporated, whose fees and expenses will be paid by the Purchaser in
accordance with the Purchaser's agreement with such firm (copies of which have
been delivered by the Purchaser to the Company prior to the date of this
Agreement), and each of the Purchaser and the Company agrees to indemnify and
hold the other harmless from and against any and all claims, liabilities or
obligations with respect to any other fees, commissions or expenses asserted by
any person on the basis of any agreement, act or statement alleged to have been
made by such party, its Affiliates and, in the case of the Purchaser, the
Purchaser Subsidiaries, and the Company Subsidiaries, in the case of the
Company.
3.14 Indemnification.
---------------
(a) The Company shall and, the Purchaser shall, from and after the
Effective Time, indemnify, defend and hold harmless each person who is now, or
has been at any time prior to the date of this Agreement or who becomes prior to
the Effective Time, an officer or director of the Company or any of the Company
Subsidiaries (the "Indemnified Parties") against all losses, claims, damages,
costs, expenses, liabilities or judgments or amounts that are paid in settlement
with the approval of the indemnifying party (which approval shall not be
unreasonably withheld) of or in connection with any claim, action, suit,
proceeding or investigation based in whole or in part on or arising in whole or
in part out of the fact that such person is or was a director or officer, of the
Company or any of the Company Subsidiaries, whether pertaining to any matter
existing or occurring at or prior to the Effective Time and whether asserted or
claimed prior to, or at or after, the Effective Time ("Indemnified Liabilities")
including, without limitation, all losses, claims, damages, costs, expenses,
liabilities or judgments based in whole or in part on, or arising in whole or in
part out of, or pertaining to this Agreement or the transactions contemplated
hereby, in each case to the full extent a corporation is permitted under the
DGCL or the Maryland General Corporation Law, as the case may be, to indemnify
its own directors and officers. The Company or the Purchaser, as the case may
be, will pay expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the full extent permitted by law upon
receipt of any undertaking contemplated by Section 145(e) of the DGCL. Without
limiting the foregoing, in the event any such claim, action, suit, proceeding or
investigation is brought against any Indemnified Party (whether arising before
or after the Effective Time), (i) the Indemnified Parties may retain counsel
satisfactory to them and the Company (or them and the Purchaser after the
Effective Time), (ii) the Company (or, after the Effective Time, the Purchaser)
shall pay all reasonable fees and expenses of such counsel for the Indemnified
Parties promptly as statements therefor are received, and (iii) the Company (or,
after the Effective Time, the Purchaser) will use all reasonable efforts to
assist in the defense of any such matter, provided that neither the Company nor
the Purchaser shall be liable for any settlement of any claim effected without
its written consent, which consent shall not be unreasonably withheld. Any
Indemnified Party wishing to claim indemnification under this Section 3.14, upon
learning of any such claim, action, suit, proceeding or investigation, shall
promptly notify the Company or the Purchaser (but the failure
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so to notify an Indemnifying Party shall not relieve it from any liability which
it may have under this Section 3.14 except to the extent such failure prejudices
such party), and shall deliver to the Company (or, after the Effective Time, the
Purchaser) the undertaking contemplated by the DGCL or the Maryland General
Corporation Law, as the case may be. The Indemnified Parties as a group may
retain only one law firm to represent them with respect to each such matter
unless there is, under applicable standards of professional conduct, a conflict
on any significant issue between the positions of any two or more Indemnified
Parties.
(b) For a period of five years after the Effective Time, the Purchaser
shall use reasonable efforts to maintain in effect, if available, directors' and
officers' liability insurance covering those persons who are currently covered
by the Company's directors' and officers' liability insurance policy (a copy of
which has heretofore been delivered to the Purchaser) on terms and in an amount
comparable to those now applicable to directors and officers of the Company;
provided, however, that in no event shall the Purchaser be required to expend in
any year in excess of 125% of the current premium being paid by the Company for
such coverage.
(c) In the event that the Purchaser or any of its respective
successors and assigns consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or transfers and conveys all or substantially all of its
property and assets to any person, then, and in each case, proper provisions
shall be made so that the successors and assigns of the Purchaser assume the
obligations set forth in this Section 3.14.
(d) The provisions of this Section 3.14 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and representatives, and may not be amended, altered or repealed without
the written consent of any affected Indemnified Party.
3.15. Voting Agreements. The Company shall use its best efforts to cause
-----------------
each person who is identified as an Affiliate of the Company to execute and
deliver to the Purchaser a Voting Agreement substantially in the form attached
hereto as Exhibit within ten (10) days from the date that the Joint Proxy
Statement is mailed to the Company's and the Purchaser's stockholders. The
Purchaser shall use its best efforts to cause each person who is identified as
an Affiliate of the Purchaser to execute and deliver to the Company a Voting
Agreement substantially in the form attached hereto as Exhibit within ten
(10) days from the date that the Joint Proxy Statement is mailed to the
Company's and the Purchaser's stockholders.
3.16. Notification of Certain Matters. The Company shall give prompt
-------------------------------
notice to the Purchaser, and the Purchaser shall give prompt notice to the
Company, of (i) the occurrence or nonoccurrence of any event, the occurrence or
nonoccurrence of which would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
at or prior to the Effective Time (as defined below), and (ii) any material
failure of the Company or the Purchaser, as the case may be, to comply with or
satisfy any
-37-
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 3.16 shall not cure such breach or non-compliance or limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
3.17 Election to the Purchaser Board of Directors. The Purchaser shall
--------------------------------------------
take such action as is necessary to cause the size of its Board of Directors to
increase to ten (10) persons, six (6) of which shall be: Xxxxxxx X. Xxxxxx, R.
Xxxxxxxxxxx Xxxxx-Xxxxx, Xxxxxxx Xxxxxxx (or his designee), Xxxxxx Xxxxxxxx (or
his designee), Xxx Xxx and the designee of Educational Testing Services. Of the
remaining four (4) persons, three (3) will be selected by the Company from the
Company's existing Board of Directors and the final person will be selected by
the Purchaser from the Purchaser's existing Board of Directors. It is
understood that the Purchaser may decide to eliminate its classified Board of
Directors in connection with the Merger, in which event each director would
serve a one year term. However, if the Purchaser decides to maintain its
classified Board of Directors, the Company's nominees and Xxx Xxx shall be
elected to serve for varying terms corresponding to each of the three classes of
directors such that not more than two Company nominees are included in any one
class.
3.18 Registration Statement on Form S-3. As soon as practicable after the
----------------------------------
end of the thirtieth day following the Effective Date, but in no event later
than 90 days following the Effective Date, the Purchaser shall file with the
Commission a Registration Statement on Form S-3 (the "Form S-3") relating to the
shares of the Purchaser Common Stock issued in respect of those shares of
Company Common Stock issued upon conversion of the Debentures in the fall of
1995 which remain subject to an effective registration statement on Form S-3
filed with the SEC by the Company (the "Debenture Shares"). Further, the
Purchaser shall take all steps reasonably necessary to maintain the
effectiveness of the Form S-3 until such time as the holders of such Debenture
Shares are permitted to sell such Debenture Shares without regard to the volume
restrictions under Rule 144 or Rule 145 under the Securities Act.
3.19 Amendment to Indenture. Each of the Purchaser and the Company will
----------------------
use its best efforts to cause the Trustee under the Indenture relating to the
Debentures to amend the Indenture, effective at the Effective Time, such that
the Purchaser assumes the rights and obligations of the Company thereunder.
3.20 Employment, Non-Compete and Continuity Agreements. The Company will
-------------------------------------------------
use its best efforts to cause each of Xxxxx Nine, Xxx Xxxxxx and Xxxxx L'Allier
to have entered into employment agreements in form and substance satisfactory to
the Purchaser, which employment agreements shall include non-competition
agreements during and following termination or expiration of such employment
agreements and which shall be replacement agreements to the employment
agreements between said individuals and the Company or a Company Subsidiary.
-38-
3.21. Cause Conditions to be Satisfied. Each of the Purchaser and the
--------------------------------
Company will use its best efforts to cause all of the conditions described in
Section 5 of this Agreement to be satisfied (to the extent such matters
reasonably are within its control).
3.22. Publication of Combined Results of Operations. As soon as
---------------------------------------------
practicable after the end of the thirtieth day following the Effective Date, the
Purchaser shall publish results of operations of the Purchaser, including those
of the Company, for such 30 day period sufficient to permit Affiliates to make
sales of the Purchaser's Common Stock received in the Merger without adversely
affecting the pooling of interests accounting treatment for the Merger.
4. MERGER OF THE PURCHASER AND NEWCO. Subject to the terms and conditions
of this Agreement, the Purchaser and the Company agree to effect the following
transactions at the closing:
4.1. Conditions. The Purchaser and the Company will deliver to the other
----------
appropriate evidence of the satisfaction of the conditions to their respective
obligations hereunder.
4.2. Merger. The Merger shall have the effects set forth under the
------
General Corporation Law of Maryland and the DGCL. Without limiting the
generality of the foregoing and subject thereto, at the Effective Time (the time
immediately after which the Articles of Merger have been accepted for record by
the SDAT and the Certificate of Merger has been accepted for record by the
Delaware Secretary of State), Newco will be merged with and into the Company,
which shall survive the Merger; and all the properties, rights, privileges,
powers and franchises of the Company and Newco shall vest in the Company, as the
surviving corporation in the Merger, and all debts, liabilities and duties of
the Company and Newco shall become the debts, liabilities and duties of the
Company, as the surviving corporation in the Merger.
4.3. Conversion of the Shares of Company and Newco Common Stock. (a) As
----------------------------------------------------------
a result of the Merger and without any action by the holders thereof, each share
of Company Common Stock issued and outstanding immediately prior to the Merger
(excluding shares held by the Company as treasury stock, if any, which shares
shall be canceled and extinguished), and all rights in respect thereof, shall be
converted into 0.58 shares of Purchaser Common Stock (the "Exchange Ratio").
Each share of Purchaser Common Stock issued pursuant to the Merger shall be
fully paid and non-assessable. From and after the Effective Time, each
certificate which theretofore represented shares of Company Common Stock shall
evidence ownership of shares of Purchaser Common Stock on the basis hereinabove
set forth, and the conversion shall be complete and effective at the Effective
Time without regard to the date or dates on which outstanding certificates
representing converted shares of Company Common Stock may be surrendered for
exchange for certificates representing shares of Purchaser Common Stock.
(b) As a result of the Merger and without any action by the holders
thereof, each share of Newco Common Stock issued and outstanding immediately
prior to the
-39-
Merger, and all rights in respect thereof, shall be converted into one share of
Common Stock of the Company, as the surviving corporation in the Merger.
4.4. Fractional Shares. No fractional shares of Purchaser Common Stock
-----------------
will be issued in connection with the Merger. As a mechanical device for
rounding fractional interests to whole shares, in any case where the conversion
ratio provided for in Section 6.4 indicates that any holder of Company Common
Stock would otherwise be entitled to delivery of a fractional share of Purchaser
Common Stock, such holder shall be entitled to receive a cash payment with
respect to such fraction of a share to which such holder otherwise would be
entitled. Such cash payment shall be equal to the product obtained by
multiplying the fraction of a share to which the holder thereof otherwise would
be entitled by the average closing price of the Purchaser Common Stock on the
Nasdaq Stock Market (National Market) for the ten (10) trading days immediately
preceding the Effective Time.
4.5 Exchange of Shares of Company Common Stock.
------------------------------------------
(a) Prior to the Effective Time, the Purchaser shall designate a bank
or trust company reasonably acceptable to the Company to act as Exchange Agent
in connection with the Merger (the "Exchange Agent") pursuant to an exchange
agency agreement providing for the matters set forth in this Section 4.5, and
otherwise reasonably satisfactory to the Company. At or prior to the Effective
Time, the Purchaser shall deposit with the Exchange Agent certificates
representing the shares of the Purchaser Common Stock issuable pursuant to
Section 4.3 in exchange for the shares of Company Common Stock (the "Exchange
Fund").
(b) Promptly after the Effective Time, the Exchange Agent shall mail
to each record holder, as of the Effective Time, of an outstanding certificate
or certificates which immediately prior to the Effective Time represented shares
of the Company Common Stock (the "Certificates"), a form letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon proper delivery of the Certificates to
the Exchange Agent) and instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing shares of the Purchaser
Common Stock. Upon surrender to the Exchange Agent of a Certificate, together
with a duly executed letter of transmittal and any other required documents, the
holder of such Certificate shall receive in exchange therefor (as promptly as
practicable) a certificate representing that number of whole shares of Purchaser
Common Stock which such holder has the right to receive pursuant to this Section
4, and the Certificate so surrendered shall forthwith be canceled. If a
transfer of ownership of shares of Company Common Stock which was not previously
registered on the Company's transfer records occurs or is requested, a
certificate representing the appropriate number of shares of Purchaser Common
Stock may be issued to the transferee if the Certificate so surrendered is
properly endorsed or otherwise in proper form for transfer, provided that the
signatures on the Certificate or any related stock power shall be properly
guaranteed and the person requesting such transfer shall pay any transfer or
other taxes required by reason of such transfer. Until surrendered in
accordance with the provisions of this Section 4.5(b), each Certificate (other
than Certificates representing shares of Company Common Stock held in the
-40-
Company's treasury or by the Purchaser or any subsidiary of the Company or the
Purchaser, shall represent for all purposes only the right to receive for each
share of Company Common Stock represented thereby shares of Purchaser Common
Stock and cash in lieu of fractional shares, all as provided for under this
Agreement.
(c) After the Effective Time, there shall be no transfers on the stock
transfer books of the Purchaser of the shares of Company Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Purchaser, they shall be canceled and
exchanged as provided for, and in accordance with the procedures set forth, in
this Section 4.
(d) From and after the Effective Time, the holders of Certificates
evidencing ownership of shares of Company Common Stock outstanding immediately
prior to the Effective Time shall cease to have any rights with respect to such
shares of Company Common Stock, except as otherwise provided herein or by
applicable law. Such holders shall have no rights, after the Effective Time,
with respect to such shares of Company Common Stock except to surrender such
Certificates in exchange for shares of Purchaser Common Stock as provided for
under this Agreement.
(e) Any portion of the Exchange Fund which remains undistributed to
the stockholders of the Company for one year after the Effective Time shall be
delivered to the Purchaser, upon demand, and any stockholders of the Company who
have not previously complied with this Section 4.5 shall thereafter look only to
the Purchaser for delivery of shares of Purchaser Common Stock, any cash in lieu
of fractional shares of Purchaser Common Stock and any dividends or
distributions with respect to Purchaser Common Stock (without interest thereon).
(f) Neither the Purchaser nor the Company shall be liable to any
holder of shares of Company Common Stock or Purchaser Common Stock, as the case
may be, for such shares (or dividends or distributions with respect thereto)
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
4.6. Issuance of Shares in Another Name. If any certificate for shares of
----------------------------------
Purchaser Common Stock is to be issued in a name other than the exact name in
which the certificate surrendered is exchange therefore is registered, it shall
be a condition of the issuance thereof that the certificate so surrendered shall
be properly endorsed and otherwise in proper form for transfer and that the
person requesting such exchange pay to the Exchange Agent any transfer or other
taxes required by reason thereof or establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable.
4.7. The Company Transfer Books Closed and Stock Delisted. At the
----------------------------------------------------
Effective Time, the stock transfer books of the Company shall be deemed closed,
and no transfer of shares of Company Common Stock shall be made thereafter. The
Company shall notify the National Association of Securities Dealers, Inc. and
the New York Stock Exchange, Inc., and
-41-
each transfer agent and registrar for the shares of Company Common Stock, at
least ten (10) days before the Effective Time that no transfer of shares will be
made after that date. In anticipation of the Effective Time, the Company shall
do all such things necessary to cause trading in its shares to be terminated
simultaneously with the Effective Time.
4.8. Stock Options. From and after the Effective Time, the Company Options
-------------
and the option plans related thereto shall be deemed to have been adopted by the
Purchaser and shall continue thereafter as separate stock options and separate
stock option plans of the Company, subject to amendment or termination as
provided therein, and to the following: (i) the then outstanding options to
purchase shares of Company Common Stock under such stock option plans shall
relate, without change in their terms and conditions, to the number of shares of
Purchaser Common Stock into which such Company shares would have been
convertible if the Company Options had been exercised prior to the Effective
Time, rounded to the nearest whole share, (ii) such stock options plans shall
continue in effect only with respect to the Company Options then outstanding,
and no further grants shall be made thereunder, and (iii) the exercise period of
all Company Options that would otherwise terminate earlier shall be extended
until the later of 90 days following satisfaction of the covenant specified in
Section 3.20 or 90 days following registration of Purchaser's Common Stock
underlying the Company Options on the Commission's Form S-8. From and after the
Effective Time, the then outstanding stock options and related stock option
plans of NETG shall continue. Holders of such outstanding NETG options shall
execute individual agreements confirming such continuation of such outstanding
options and plans.
4.9. Adjustments. If after the date of this Agreement and prior to the
-----------
Effective Time the Purchaser shall declare a stock dividend upon, or subdivide,
split up, reclassify or combine the Purchaser Common Stock, and the record date
for such action shall occur prior to the Effective Time, then upon the
effectiveness of the Merger, the number of shares of Purchaser Common Stock to
be delivered for each share of Company Common Stock shall be adjusted so that
each holder of shares of Company Common Stock shall be entitled to receive such
number of shares of Purchaser Common Stock that it would own, or be entitled to
own, if the Effective Time had occurred immediately prior to the occurrence of
the record date for such event.
4.10. Charter and By-Laws. The Charter and By-Laws of Newco, both as in
-------------------
effect at the Effective Time, shall be the Charter and By-Laws of the Company
(as survivor of the Merger) after the Effective Time.
-42-
4.11. Executive Officers of Purchaser and Company. As of the
-------------------------------------------
Effective Time, the following persons shall constitute the officers of Purchaser
and Company in the capacities set forth below:
R. Xxxxxxxxxxx Xxxxx-Xxxxx -- Chairman of the Board
Xxxxxxx X. Xxxxxx -- President, Co-Chief Executive
Officer and Secretary
Xxx Xxx -- Co-Chief Executive Officer
B. Xxx XxXxx -- Executive Vice President and
Chief Financial Officer
Xxxx X. Xxxx -- Vice President, Human Resources
O. Xxxxxx Xxxxx -- Vice President and General
Counsel
4.12. Closing. The closing on the transactions contemplated by this
-------
Agreement shall take place at the offices of Piper & Xxxxxxx, Xxxxxxx Center
South, 00 Xxxxx Xxxxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxx 00000 beginning at 10:00
a.m. on the 2nd business day after the later of the Company's or the Purchaser's
stockholders meeting to act upon the Merger, or at such other time and place as
may be agreed upon by the Purchaser and the Company; provided, that if all of
the conditions specified in this Agreement have not been satisfied or waived as
of such date, the closing shall be postponed until two (2) business days
following the satisfaction or waiver of all of the conditions of this Agreement.
SECTION 5. CONDITIONS TO CONSUMMATION OF THE MERGER.
5.1 Conditions to Each Party's Obligations to Effect the Merger.
-----------------------------------------------------------
The respective obligations of each party hereto to effect the Merger is subject
to the satisfaction at or prior to the Effective Time of the following
conditions, any of which may be waived in writing by both the Company and the
Purchaser:
(a) Stockholder Approval. This Agreement and the Merger shall
--------------------
have received Purchaser Stockholder Approval and Company Stockholder Approval;
(b) No Illegality or Injunctions. No statute, rule,
----------------------------
regulation, executive order, decree, ruling, injunction or restraining order
shall have been enacted, entered, promulgated or enforced by any Governmental
Entity which prohibits, restrains, enjoins or restricts the consummation of the
Merger or materially limits the Purchaser's or the Company's conduct of its
business nor shall any proceedings brought by any Governmental Entity seeking
any of the foregoing be pending;
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(c) Approvals. Other than the filings of the Articles of Merger and
---------
the Certificate of Merger, all authorizations, consents, orders or approvals of,
or declarations or filings with, or expirations of waiting periods imposed by,
any Governmental Entity or any individual, corporation or other entity the
failure of which to obtain would be reasonably likely to have a Material Adverse
Effect on the Purchaser or the Company shall have been filed, occurred or been
obtained.
(d) Pooling Letters. The Purchaser and the Company shall have
---------------
received letters from Ernst & Young LLP and Price Waterhouse, respectively, each
dated the date of the Joint Proxy Statement and confirmed in writing at the
Effective Time and addressed to the Purchaser and the Company, respectively,
stating that the business combination to be effected by the Merger will qualify
as a pooling of interests transaction under generally accepted accounting
principles.
(e) NASDAQ. The Listing Application for the shares of Purchaser
------
Common Stock to be issued in the Merger shall have been filed with and accepted
by the Nasdaq Stock Market (National Market).
(f) Accountants' Letter. The Purchaser shall have received a letter
-------------------
from Price Waterhouse relating to the Company, and the Company shall have
received a letter from Ernst & Young LLP relating to the Purchaser, each dated
the day of the mailing of the Joint Proxy Statement and reconfirmed as of the
date of the closing, with respect to their independence as accountants and the
compliance as to form of the financial statements of the respective companies
contained in the Joint Proxy Statement with generally accepted accounting
principles and the accounting requirements of the Securities Act and the
Exchange Act, and giving certain negative assurances based upon limited reviews
but not audits with respect to the unaudited financial statements (including pro
forma financial statements) included in or incorporated by reference into the
Joint Proxy Statement, in a manner consistent with the provisions of the
Association of Independent Certified Public Accountants' Statement on Auditing
Standards No. 38.
(g) Accuracy of Prospectus and Joint Proxy Statement . On and as of
-------------------------------------------------
the dates of the respective meetings of the stockholders of the Purchaser and
the Company at which action is to be taken on the transactions contemplated
hereby, the Joint Proxy Statement and prospectus included in the S-4 shall
contain no statement which, at the time and in light of the circumstances under
which it is made, is false or misleading with respect to any material fact, or
which omits to state any material fact necessary in order to make the statements
made therein not misleading.
(h) Effectiveness of S-4. The S-4 shall have become effective, and no
--------------------
stop order suspending its effectiveness shall have been issued and no
proceedings for that purpose shall have been instituted, pending or threatened.
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5.2. Additional Conditions to Obligations of the Purchaser. The
-----------------------------------------------------
obligations of the Purchaser to effect the Merger are subject to the
satisfaction of each of the following conditions, any of which may be waived in
writing exclusively by the Purchaser:
(a) Representation and Warranties; Absence of Changes. The
-------------------------------------------------
representations and warranties of the Company set forth in this Agreement shall
be true and correct in all material respects as of the date of this Agreement
and (except to the extent such representations and warranties speak as of an
earlier date) as of the Effective Time as though made on and as of the Effective
Time, except for (i) changes contemplated by this Agreement and (ii) where the
failure to be so true and correct would not be reasonably likely to have a
Material Adverse Effect on the Company or a material adverse effect upon the
consummation of the transactions contemplated hereby. Since the date of this
Agreement, there shall have been no change in the business, results of
operations, financial condition or business prospects of the Company or the
Company Subsidiaries that is having, has had or reasonably could be expected to
have a Material Adverse Effect on the Corporation. The Purchaser shall have
received a certificate signed on behalf of the Company by the Chief Executive
Officer and the Chief Financial Officer of the Company to the foregoing effect,
it being understood that such certificates are being delivered by them in their
capacities as officers of the Company and that such individuals assume no
personal liability with respect thereto.
(b) Performance of Obligations of the Company. The Company shall
-----------------------------------------
have performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Effective Time; and the Purchaser
shall have received a certificate signed on behalf of the Company by the Chief
Executive Officer and the Chief Financial Officer of the Company to such effect,
it being understood that such certificates are being delivered by them in their
capacities as officers of the Company and that such individuals assume no
personal liability with respect thereto.
(c) Blue Sky Laws. The Purchaser shall have received all state
-------------
securities or "blue sky" permits and other authorizations necessary to issue
shares of the Purchaser Common Stock pursuant to the Merger.
(d) Opinion of the Company's Counsel. The Purchaser shall have
--------------------------------
received the opinion of Irell & Xxxxxxx LLP, counsel to the Company, in form and
substance reasonably satisfactory to the Purchaser and its counsel, to the
effect that: (i) the Company and each of the Company Subsidiaries are
corporations duly organized, validly existing and in good standing under the
laws of their respective jurisdictions of incorporation, and each has full
corporate power to carry on its business as it is now being conducted and to own
or hold under lease the properties and assets it now owns or holds under lease;
(ii) the Company and each of the Company Subsidiaries are duly qualified to do
business in all jurisdictions where the character of their respective properties
or the nature of their respective activities makes such qualification necessary
and where the failure to qualify would be materially adverse to the Company or
the Company Subsidiaries, individually; (iii) to the actual best knowledge of
such counsel, the authorized, issued and outstanding capital stock of the
Company and the Company
-45-
Subsidiaries are as set forth in Section 2.2 of this Agreement and the Company
Disclosure Schedule or in such opinion, and to the actual best knowledge of such
counsel, each of the issued and outstanding shares of such stock has been duly
authorized and issued and is fully paid and non-assessable; (iv) the execution,
delivery and performance of this Agreement and all other documents to be
executed by the Company in connection with this Agreement (the "Company
Documents") have been duly authorized and approved by all requisite action of
the Board of Directors and stockholders of the Company, and this Agreement and
all other Company Documents have been duly executed and delivered by the Company
and constitute valid and legally binding obligations of the Company; (v) the
execution and delivery of this Agreement and the other Company Documents did
not, and the consummation of the transactions contemplated hereby or thereby
will not, violate any provision of any agreement, instrument, order, judgment or
decree, of which such counsel has actual knowledge, to which the Company or any
of the Company Subsidiaries is a party or by which it is bound; (vi) the holders
of the Company Common Stock are not entitled to statutory appraisal rights under
Section 262 of the DGCL; (vii) except as may be specified by such counsel, such
counsel does not know of any material suit or proceeding pending or threatened
against or affecting the Company or the Company Subsidiaries, its business or
properties or the consummation of the transactions contemplated hereunder;
(viii) the Articles of Merger and Certificate of Merger have been duly
authorized by all requisite action of the Board of Directors and stockholders of
the Company, have been duly executed and delivered by the Company and, upon the
filing thereof with the SDAT and the Secretary of State of the State of
Delaware, will be valid and effective as a statutory merger of the Purchaser and
the Company, in accordance with the terms thereof; (ix) all regulatory and
governmental approvals, consents and filings required of the Company and the
Company Subsidiaries for the consummation of the transactions contemplated by
this Agreement or any of the other Company Documents have been obtained or made,
and, to the best knowledge of such counsel, all such approvals, consents or
filings remain in full effect as of the date of such opinion; (x) the Joint
Proxy Statement complies as to form in all material respects with the
requirements of the Exchange Act and the applicable Rules and Regulations of the
Commission thereunder, except that such counsel need express no opinion as to
any financial statements, schedules and other financial or statistical
information included therein or as to any information relating to or supplied by
the Purchaser for inclusion therein; and (xi) to such further effect regarding
the validity and sufficiency of legal proceedings and matters relative to the
transactions contemplated by this Agreement as the Purchaser may reasonably
request. In rendering such opinion, such counsel may rely upon the opinion of
the Company's in-house counsel and may limit its opinion to matters of federal
law, the law of the State of California or the DGCL.
In addition to the matters set forth above, such opinion shall also include
a statement to the effect that nothing has come to the attention of such counsel
which leads them to believe that the S-4, the Joint Proxy Statement, any
document incorporated by reference thereto or any amendment or supplement to any
of the foregoing, contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary in order to
make the statements therein not misleading (except that such counsel need
express no view as to financial statements, schedules and other financial or
statistical information included or
-46-
incorporated by reference therein or as to any information relating to or
supplied by the Purchaser for inclusion therein). With respect to such matters,
such counsel may state that their belief is based solely upon the actual
knowledge of lawyers at such firm who are actively involved in legal matters
involving the Company, but without independent check and verification.
(e) Fairness Opinion. The fairness opinion delivered to the
----------------
Purchaser's Board of Directors by Alex. Xxxxx & Sons Incorporated in accordance
with Section 1.26 shall not have been withdrawn.
(f) Employment, Non-Compete and Continuity Agreements. The prior
-------------------------------------------------
employment agreements between the Company or any of the Company Subsidiaries and
each of Xxx Xxx, Xxxxx Xxxxx, Xxxx Xxxxxxxx and Xxxxxxx Xxxxx shall have been
terminated in such a manner that no such person shall be entitled to any
severance payments on account of the Merger. Additionally, each of Messrs. Yau,
Keisling and Xxxxx and Xx. Xxxxx shall have entered into replacement employment
agreements in form and substance satisfactory to the Purchaser, which employment
agreements shall include non-competition agreements during and following
termination or expiration of such employment agreements. Xxxxx Xxxxx and Xxxxxx
Xxxxxxx shall have entered into continuity agreements in form and substance
satisfactory to the Purchaser with respect to continuation of their right to
benefits under the Company's SERP Plan and other benefits theretofore provided
to such individuals by the Company.
(g) SERP Change of Control Provisions. Subject to more specific
---------------------------------
provisions that may be contained in the employment and continuity agreements to
be entered into pursuant to Section 5.2(f): (i) Purchaser and the Company agree
that the condition in Section 8 of the Company's SERP Plan that a participant's
employment with the Company must be terminated voluntarily or involuntarily
within two years of a change of control in order to receive accelerated vesting
and payout of SERP retirement benefits will be waived for those Company SERP
participants who are currently active employees of the Company or a Company
subsidiary and who otherwise would be entitled to accelerated vesting if they
did terminate their employment within two years of a change of control; (ii)
SERP participants who remain employees after the Merger will be entitled to
payment of SERP retirement benefits, with interest from the Effective Time, only
when their employment terminates and (iii) there shall be no further accrual of
additional benefits under the Company's SERP Plan from and after the Merger.
(h) Xxxxx-Xxxxxx Options. Xxxxx-Xxxxxx Publishing Company and Xxxxx
--------------------
Xxxxx shall have amended the option agreements between them so that the options
thereunder shall not vest as a result of the Merger.
(i) Benefit Plans. The Company shall have taken or caused to be taken
-------------
all steps and actions reasonably required by the Purchaser, on advice of its
counsel, with respect to the termination or amendment of Company Employee Plans,
including delivering notices and filing such documents as counsel to the
Purchaser deems reasonably necessary.
-47-
(j) Kaleidoscope Inc. The Company shall have obtained a letter of
----------------
credit, performance bond or other substantial evidence of financial security, in
each instance in form and substance reasonably acceptable to Purchaser,
regarding performance obligations of Kaleidoscope Inc. to the Company.
(k) Tax Opinion. The Purchaser shall have received the opinion of
-----------
Ernst & Young L.L.P., in form and substance reasonably satisfactory to the
Purchaser, to the effect that the Merger will be treated for Federal income tax
purposes as a tax-free reorganization within the meaning of Section 368(a) of
the Code.
5.3. Additional Conditions to Obligations of the Company. The obligation
---------------------------------------------------
of the Company to effect the Merger is subject to the satisfaction of each of
the following conditions, any of which may be waived, in writing, exclusively by
the Company:
(a) Representations and Warranties; Absence of Changes. The
--------------------------------------------------
representations and warranties of the Purchaser set forth in this Agreement
shall be true and correct in all material respects as of the date of this
Agreement and (except to the extent such representations speak as of an earlier
date) as of the Effective Time as though made on and as of the Effective Time,
except for (i) changes contemplated by this Agreement and (ii) where the failure
to be so true and correct would not be reasonably likely to have a Material
Adverse Effect on the Purchaser or a Material Adverse Effect upon the
consummation of the transactions contemplated hereby. Since the date of this
Agreement, there shall have been no change in the business, results of
operations, financial condition or business prospects of the Purchaser that is
having, has had or reasonably could be expected to have a Material Adverse
Effect on Sylvan. The Company shall have received a certificate signed on
behalf of the Purchaser by the chief executive officer and the chief financial
officer of the Purchaser to the foregoing effect, it being understood that such
certificates are being delivered by them in their capacities as officers of the
Purchaser and that such individuals assume no personal liability with respect
thereto.
(b) Performance of Obligations of the Purchaser. The Purchaser shall
-------------------------------------------
have performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Effective Time; and the Company
shall have received a certificate signed on behalf of the Purchaser by the Chief
Executive Officer and the Chief Financial Officer of the Purchaser to such
effect, it being understood that such certificates are being delivered by them
in their capacities as officers of the Purchaser and that such individuals
assume no personal liability with respect thereto.
(c) Tax Opinion. The Company shall have received the opinion of Irell
-----------
& Xxxxxxx LLP, counsel to the Company, in form and substance reasonably
satisfactory to the Company, to the effect that the Merger will be treated for
Federal income tax purposes as a tax-free reorganization within the meaning of
Section 368 (a) of the Code.
(d) Opinion of the Purchaser's Counsel. The Company shall have
----------------------------------
received the opinion of Piper & Marbury L.L.P., counsel to the Purchaser, in
form and substance
-48-
reasonably satisfactory to the Company and its counsel, to the effect that: (i)
the Purchaser and each of the Purchaser Subsidiaries are corporations duly
organized, validly existing and in good standing under the laws of their
respective jurisdictions of incorporation, and each has full corporate power to
carry on its business as it is now being conducted and to own or hold under
lease the properties and assets it now owns or holds under lease; (ii) the
Purchaser and each of the Purchaser Subsidiaries are duly qualified to do
business in all jurisdictions where the character of their respective properties
or the nature of their respective activities makes such qualification necessary
and where the failure to qualify would be materially adverse to the Purchaser or
the Purchaser Subsidiaries, individually; (iii) to the actual best knowledge of
such counsel, the authorized, issued and outstanding capital stock of the
Purchaser and the Purchaser Subsidiaries are as set forth in Section 1.2 of this
Agreement and the Purchaser Disclosure Schedule or in such opinion, and to the
actual best knowledge of such counsel, each of the issued and outstanding shares
of such stock has been duly authorized and issued and is fully paid and non-
assessable; (iv) the execution, delivery and performance of this Agreement and
all other documents to be executed by the Purchaser in connection with this
Agreement (the "Purchaser Documents") have been duly authorized and approved by
all requisite action of the Board of Directors and stockholders of the
Purchaser, and this Agreement and all other Purchaser Documents have been duly
executed and delivered by the Purchaser and constitute valid and legally binding
obligations of the Purchaser; (v) the execution and delivery of this Agreement
and the other Purchaser Documents did not, and the consummation of the
transactions contemplated hereby or thereby will not, violate any provision of
any agreement, instrument, order, judgment or decree, of which such counsel has
actual knowledge, to which the Purchaser or any of the Purchaser Subsidiaries is
be a party or by which it is bound; (vi) except as may be specified by such
counsel, such counsel does not know of any material suit or proceeding pending
or threatened against or affecting the Purchaser or the Purchaser Subsidiaries,
its business or properties or the consummation of the transactions contemplated
hereunder; (vii) the Articles of Merger and Certificate of Merger have been duly
authorized by all requisite action of the Board of Directors and stockholders of
the Purchaser, have been duly executed and delivered by the Purchaser and, upon
the filing thereof with the SDAT and the Secretary of State of the State of
Delaware, will be valid and effective as a statutory merger of the Purchaser and
the Company, in accordance with the terms thereof; (viii) all regulatory and
governmental approvals, consents and filings required of the Purchaser and the
Purchaser Subsidiaries for the consummation of the transactions contemplated by
this Agreement or any of the other Purchaser Documents have been obtained or
made, and, to the best knowledge of such counsel, all such approvals, consents
or filings remain in full effect as of the date of such opinion; (ix) the S-4
and the Joint Proxy Statement comply as to form in all material respects with
the requirements of the Securities Act and the Exchange Act, respectively, and,
in each case, to the applicable Rules and Regulations of the Commission
thereunder, except that such counsel need not express an opinion as to any
financial statements, schedules and other financial or statistical information
included therein or as to any information relating to or supplied by the Company
for inclusion therein; and (x) to such further effect regarding the validity and
sufficiency of legal proceedings and matters relative to the transactions
contemplated by this Agreement as the Company may reasonably
-49-
request. In rendering such opinion, such counsel may rely upon Purchaser's in-
house counsel and may limit its opinion to matters of federal law, the law of
the State of Maryland or the DGCL.
In addition to the matters set forth above, such opinion shall also include
a statement to the effect that nothing has come to the attention of such counsel
which leads them to believe that the S-4, the Joint Proxy Statement, any
document incorporated by reference thereto or any amendment or supplement to any
of the foregoing, contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary in order to
make the statements therein not misleading (except that such counsel need
express no view as to financial statements, schedules and other financial or
statistical information included or incorporated by reference therein or as to
any information relating to or supplied by the Company for inclusion therein).
With respect to such matters, such counsel may state that their belief is based
solely upon the actual knowledge of lawyers at such firm who are actively
involved in legal matters involving the Purchaser, but without independent check
and verification.
(e) Fairness Opinion. The fairness opinion delivered to the Company's
----------------
Board of Directors by BZW in accordance with Section 2.26 shall not have been
withdrawn.
SECTION 6. TERMINATION AND AMENDMENT
6.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Effective Time (with respect to Sections 6.1(b) through 6.1(g), by written
notice by the terminating party to the other party), whether before or after
approval of the matters presented in connection with the Merger by the
stockholders of the Company or the Purchaser:
(a) by mutual written consent of the Purchaser and the Company; or
(b) by either the Purchaser or the Company if the Merger shall not
have been consummated by September 30, 1997 (provided that the right to
terminate this Agreement under this Section 6.1(b) shall not be available to any
party whose failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Merger to occur on or before such
date); or
(c) by either the Purchaser or the Company, if a court of competent
jurisdiction or other Governmental Entity shall have issued a nonappealable
final order, decree or ruling or taken any other action, in each case having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Merger, except, if the party relying on such order, decree or ruling or other
action has not complied with its obligations under this Agreement; or
(d) by the Purchaser or the Company, if at the Company Stockholders'
Meeting (including any adjournment or postponement), the requisite vote of the
stockholders of the Company in favor of this Agreement and the Merger shall not
have been obtained, or if at the Purchaser Stockholders' Meeting (including any
adjournment or postponement), the requisite
-50-
vote of the stockholders of the Purchaser in favor of the Purchaser Voting
Proposal shall not have been obtained; or
(e) by the Purchaser, if (i) the Board of Directors of the Company
shall have withdrawn or modified its recommendation of this Agreement or the
Merger, or shall have resolved to do any of the foregoing, for any reason other
than the occurrence of an event relating to Sylvan which has a Material Adverse
Effect on Sylvan, or (ii) the Company fails to call and hold the Company
Stockholders' Meeting within forty (40) days after the Commission declares the
S-4 effective;
(f) by the Company, if (i) the Board of Directors of the Purchaser
shall have withdrawn or modified its recommendation of the Purchaser Voting
Proposal or shall have resolved to do any of the foregoing, for any reason other
than the occurrence of an event relating to the Company which has a Material
Adverse Effect on the Company or (ii) the Purchaser fails to call and hold the
Purchaser Stockholders' Meeting within forty (40) days after the Commission
declares the S-4 effective;
(g) by the Purchaser or the Company, as the case may be, if there has
been a material breach of any representation, warranty, covenant or agreement on
the part of the other party set forth in this Agreement, which breach shall not
have been cured in the case of a representation or warranty, prior to the
Closing or, in the case of a covenant or agreement, within 20 business days
following receipt by the breaching party of written notice of such breach from
the other party.
(h) by the Purchaser or the Company if the average last sale price for
the Purchaser's Common Stock, as reported by NASDAQ, for the ten (10) trading
days ending on the last trading day before the agreed upon Effective Time (the
"Average Share Price") shall be less than $29.86, provided however, that the
Company may not terminate this Agreement pursuant to this Paragraph (h) if the
Purchaser shall agree at the Effective Time to revise the Exchange Ratio to
equal the quotient of (i) $29.86 multiplied by the Exchange Ratio divided by
(ii) the Average Share Price.
6.2 Effect of Termination. In the event of termination of this Agreement
---------------------
as provided in Section 6.1, this Agreement shall immediately become void and
there shall be no liability or obligation on the part of the Purchaser or the
Company or their respective officers, directors, stockholders or Affiliates,
except as set forth in Section 6.3 and further except to the extent that such
termination results from the willful breach by a party of any of its
representations, warranties or covenants set forth in this Agreement; provided
that, the provisions of Sections 3.4(b), 3.13 and 6.3 of this Agreement shall
remain in full force and effect and survive any termination of this Agreement.
-51-
6.3. Fees and Expenses.
-----------------
(a) Except as set forth in this Section 6.3, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, whether or not the
Merger is consummated; provided, however, that the Purchaser and the Company
shall share equally all fees and expenses, other than attorneys' fees, incurred
in relation to the printing and filing of the Joint Proxy Statement (including
any related preliminary materials) and the S-4 (including financial statements
and exhibits) and any amendments or supplements. The Purchaser shall pay the
filing fees applicable to the S-4, and the Company shall pay the fees applicable
to the Proxy Statement.
(b) As reimbursement for expenses incurred by the Purchaser relating
to the transactions contemplated by this Agreement prior to termination and as
liquidated damages for the Purchaser's having terminated this Agreement (it
being understood that actual damages would be difficult, if not impossible to
determine with certainty in the event of such termination), the Company shall
pay the Purchaser a fee equal to:
(i) $30,000,000 upon the termination of this Agreement by the
Purchaser pursuant to Section 6.1(e).
(ii) $10,000,000 upon the termination of this Agreement by the
Purchaser pursuant to (A) Section 6.1(d) as a result of the failure to receive
the requisite vote for approval of this Agreement and the Merger by the
stockholders of the Company at the Company Stockholders' Meeting or (B) pursuant
to Section 6.1(g) after a material breach by the Company of this Agreement;
provided, however, in the event the Company shall have consummated an
Acquisition Transaction in which the Company or substantially all of its assets
are acquired (even if the acquisition is structured so that the Company or one
of its subsidiaries is the survivor in the transaction) by a party other than
the Purchaser or any of its affiliates (in any case, a "Third Party
Acquisition") at any time on or before the expiration of eight calendar months
from the Purchaser's termination under clauses (A) and (B) of this paragraph
6.3(b)(ii), the Company shall, or shall cause its successor to pay the Purchaser
an additional amount of liquidated damages equal to $20,000,000.
(c) As reimbursement for expenses incurred by the Company relating to
the transactions contemplated by this Agreement prior to termination and as
liquidated damages for the Company's having terminated this Agreement (it being
understood that actual damages would be difficult, if not impossible to
determine with certainty in the event of such termination), the Purchaser shall
pay the Company a fee equal to $10,000,000 upon the termination of this
Agreement by the Company pursuant to (i) Section 6.1(d) as a result of the
failure to receive the requisite vote for approval of this Agreement and the
Merger by the stockholders of the Purchaser at the Purchaser Stockholders'
Meeting or (ii) pursuant to Section 6.1(g) after a material breach by the
Purchaser of this Agreement.
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(d) The expenses and fees, if applicable, payable pursuant to
Sections 6.3(b) and 6.3(c) shall be paid within five business days after the
first to occur of the events described therein; provided that, in no event shall
the Company (or its successor) or the Purchaser, as applicable, be required to
pay any expenses or termination fees, if applicable, to the other party, if,
immediately prior to the termination of this Agreement, the terminating party
was in breach of any of its material obligations under this Agreement. The
payments provided in this Section 6.3 shall be the exclusive remedy for any
breach of this Agreement.
6.4. Amendment. This Agreement may be amended by action taken by the
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Company and the Purchaser at any time before or after Purchaser Stockholder
Approval or Company Stockholder Approval but, after any such approval, no
amendment shall be made which requires the further approval of such shareholders
under applicable law without such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of the parties
hereto.
6.5. Extension; Waiver. At any time prior to the Effective Time, each
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party hereto may but shall not be required to (i) extend the time for the
performance of any of the obligations or other acts of the other party, (ii)
waive any inaccuracies in the representations and warranties of the other party
contained herein or in any document, certificate or writing delivered pursuant
hereto, or (iii) waive compliance by the other party with any of the agreements
or conditions contained herein. Any agreement on the part of either party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party, and the failure of either
party hereto to assert any of its rights hereunder shall not constitute a waiver
of such rights absent such instrument in writing.
SECTION 7. MISCELLANEOUS
7.1. Nonsurvival of Representations and Warranties. The representations
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and warranties and agreements made herein shall not survive beyond the Effective
Time, except those contained in Sections 4, 3.14, 3.20, and 6.3(a).
7.2. Entire Agreement; Assignment. This Agreement (a) constitutes the
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entire agreement between the parties hereto with respect to the subject matter
hereof and supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof;
(b) except as provided in Sections 3.14, 3.15 and 3.19, is not intended to
confer upon any person other than the parties hereto any rights or remedies
hereunder; and (c) shall not be assigned by operation of law or otherwise.
7.3. Validity. If any provision of this Agreement, or the application
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thereof to any person or circumstance, is held invalid or unenforceable, the
remainder of this Agreement, and the application of such provision to other
persons or circumstances, shall not be affected thereby, and to such end, the
provisions of this Agreement are agreed to be severable.
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7.4. Notices. All notices, requests, claims, demands and other
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communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by facsimile
by reputable overnight express delivery service or by registered or certified
mail (postage prepaid, return receipt requested), to the other party as follows:
If to the Purchaser: Sylvan Learning Systems, Inc., 0000 Xxxxxxxxx
Xxxxxx, Xxxxxxxxx, Xxxxxxxx 00000, Attention: B. Xxx XxXxx, with a copy to
Xxxxxxx X. Xxxxxxxx, Xx., Esquire, Piper & Marbury L.L.P., 00 Xxxxx Xxxxxxx
Xxxxxx, Xxxxxxxxx, Xxxxxxxx 00000.
If to the Company: National Education Corporation, 0000 Xxxx Xxxxxx,
Xxxxxx, Xxxxxxxxxx 00000, Attention: Xxxxxx X. Xxxxxxx, Esquire, Vice
President, Secretary and General Counsel, with a copy to Xxxxx X. Xxxxx,
Esquire, Irell & Xxxxxxx LLP, 0000 Xxxxxx xx xxx Xxxxx, Xxxxx 000, Xxx
Xxxxxxx, XX 00000;
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above.
7.5. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware, without regard to the
principles of conflicts of law thereof.
7.6. Descriptive Headings. The descriptive headings herein are inserted
--------------------
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
7.7. Parties in Interest. This Agreement shall be binding upon and inure
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solely to the benefit of each party hereto and its successors and permitted
assigns, and except as provided in Sections 7.2, nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
rights, benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
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7.8. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed on its behalf as of the day and year first above written.
SYLVAN LEARNING SYSTEMS, INC.
/s/
---------------------------------
By:
Title:
NATIONAL EDUCATION CORPORATION
/s/
---------------------------------
By:
Title:
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