Execution Counterpart
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SECURITIES PURCHASE AGREEMENT
Dated as of November 1, 1996
among
JLC HOLDINGS, INC.,
SOFTWARE SYSTEMS CORP.,
JLC LEARNING CORPORATION
and
SYLVAN LEARNING SYSTEMS, INC.
TABLE OF CONTENTS
1. Certain Rules of Construction.............................................. 1
2. Authorization, Purchase and Sale of Warrant and Preferred Stock............ 1
2.1. Authorization of Warrant and Preferred Stock....................... 1
2.2. Purchase and Sale of Warrant and Preferred Stock................... 1
2.3. The Closing........................................................ 2
3. Representations and Warranties of Holdings, SSC and the Company............ 2
3.1. Organization, Power and Standing.................................... 2
3.2. Authorization and Enforceability.................................... 2
3.3. Capitalization...................................................... 3
3.3.1. Holdings.................................................. 3
3.3.2. SSC....................................................... 3
3.3.3. The Company............................................... 4
3.4. Subsidiaries........................................................ 4
3.5. Financial Statements; Budgets....................................... 4
3.6. Absence of Undisclosed Liabilities.................................. 4
3.7. Change in Condition................................................. 5
3.8. Transactions with Affiliates........................................ 5
3.9. Non-Contravention, etc.............................................. 5
3.10. Compliance with Laws, etc.......................................... 5
3.11. Tax Matters........................................................ 6
3.12. No Illegal Payments, etc........................................... 6
3.13. No Governmental Approval or Consent Required....................... 6
3.14. Litigation, etc.................................................... 6
3.15. Securities Laws.................................................... 7
3.16. Brokerage.......................................................... 7
3.17. Purchase Entirely for Own Account.................................. 7
3.18. Restricted Securities.............................................. 7
3.19. Disclosure......................................................... 7
3.20. Exercise Numbers as Percentages of Holdings' Common Stock.......... 7
4. Representations and Warranties of the Investor............................. 8
4.1. Organization, Power and Standing.................................... 8
4.2. Authorization and Enforceability.................................... 8
4.3. Capitalization...................................................... 8
4.4. Non-Contravention, etc.............................................. 8
4.5. No Governmental Approval or Consent Required........................ 9
4.6. Litigation, etc.................................................... 9
4.7. Brokerage.......................................................... 9
4.8. Purchase Entirely for Own Account.................................. 9
4.9. Restricted Securities.............................................. 9
4.10. Suitability....................................................... 10
4.11. Legends........................................................... 10
4.12. Exchange Act Filings.............................................. 10
4.13. Eligibility to Use Form S-3....................................... 10
4.14. Disclosure........................................................ 10
5. Conditions to the Investor's Obligations at the Closing.................. 10
5.1. Representations and Warranties.................................... 10
5.2. Performance....................................................... 11
5.3. Compliance Certificate............................................ 11
5.4. Amendment to the Holdings Certificate of Incorporation............ 11
5.5. Amendment to the Company Articles of Incorporation................ 11
5.6. Qualifications.................................................... 11
5.7. Restatement Agreement............................................. 11
5.8. Stockholders Agreement............................................ 11
5.9. Product Supply Agreement.......................................... 11
5.10. Academic Systems Stock Transfer Agreement........................ 11
5.11. Amendment to Bank Credit Agreement............................... 11
5.12. Amendment to Note Purchase Agreement............................. 12
5.13. Opinion of Company's Counsel..................................... 12
5.14. Opinion of Company's Illinois Counsel............................ 12
5.15. Secretary's Certificate of Holdings.............................. 12
5.16. Secretary's Certificate of the Company........................... 12
6. Conditions to the Company's Obligations at the Closing................... 12
6.1. Representations and Warranties.................................... 12
6.2. Payment of Purchase Price......................................... 13
6.3. Absence of Certain Events......................................... 13
6.4. Performance....................................................... 13
6.5. Compliance Certificate............................................ 13
6.6. Qualifications.................................................... 13
6.7. Restatement Agreement............................................. 13
6.8. Stockholders Agreement............................................ 13
6.9. Product Supply Agreement.......................................... 13
6.10. Academic Systems Stock Transfer Agreement........................ 14
6.11. Opinion of Investor's Counsel.................................... 14
6.12. Secretary's Certificate of the Investor.......................... 14
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7. Affirmative Covenants of Holdings and the Company....................... 14
7.1. Financial Statements and Other Information....................... 14
7.1.1. Accounts............................................... 14
7.1.2. Annual Financial Statements............................ 14
7.1.3. Quarterly Financial Statements......................... 15
7.1.4. Budgets................................................ 15
7.1.5. Notice of Litigation, Defaults, etc.................... 15
7.2. Sale of Sylvan Shares............................................ 15
7.3. Incurrence of Specified Debt..................................... 15
7.4. Sale of the Enterprise........................................... 16
7.5. Sale of Additional Preferred Stock............................... 16
7.6. Change in Nature of Business..................................... 16
7.7. Dividends on Preferred Stock..................................... 16
7.8. Return of Certain Initial Sylvan Shares.......................... 17
7.9. Excess Value of Sylvan Shares.................................... 17
7.10. Observer Rights................................................. 17
8. Affirmative Covenants of the Investor................................... 17
8.1. Confidentiality.................................................. 17
8.2. Use of Financial Statements and Other Information................ 18
8.3. Registration of Sylvan Shares.................................... 18
8.4. Issuance of Subsequent Sylvan Shares............................. 18
8.5. Guaranteed Value of Sylvan Shares................................ 18
8.6. Restrictions on Transfer......................................... 18
8.7. Bridge Loan...................................................... 19
9. Consulting Arrangement................................................... 20
10. Consents............................................................... 20
10.1. Consent to Issuance and Sale of Additional Preferred Stock...... 20
10.2. Consent to Payment of Certain Dividends on the Common Stock..... 21
11. Development of At-Home Learning Software Program....................... 21
11.1. Planning Phase.................................................. 21
11.2. Formation of Limited Liability Company.......................... 21
11.3. Other Terms..................................................... 21
11.4. Provision of Certain Products and Services...................... 22
11.5. Source Codes.................................................... 22
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12. Expiration of Certain Representations, Warranties and Obligations..... 23
13. Indemnification; Expenses............................................. 23
13.1. Indemnification by Holdings, SSC and the Company............... 23
13.2. Indemnification by the Investor................................ 23
13.3. Limitations on Indemnification Obligations..................... 24
13.4. Expenses....................................................... 24
14. Definitions........................................................... 24
15. Miscellaneous......................................................... 33
15.1. Notices........................................................ 33
15.2. Specific Performance........................................... 33
15.3. Binding Effect; Assignment..................................... 34
15.4. Course of Dealing; Amendments, Waivers and Consents............ 34
15.5. General........................................................ 34
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SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT, dated as of November 1, 1996, is
among JLC HOLDINGS, INC., a Delaware corporation ("Holdings"), SOFTWARE SYSTEMS
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CORP., a Delaware corporation ("SSC"), JLC LEARNING CORPORATION, an Illinois
---
corporation (the "Company"), and SYLVAN LEARNING SYSTEMS, INC., a Maryland
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corporation (the "Investor"). The parties agree as follows:
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1. Certain Rules of Construction. Certain capitalized terms are used in this
-----------------------------
Agreement with the specific meanings defined below in Section 14. Except as
otherwise explicitly specified to the contrary or unless the context clearly
requires otherwise, (a) the capitalized term "Section" refers to sections of
this Agreement, (b) the capitalized term "Exhibit" refers to exhibits to this
Agreement, (c) the capitalized term "Schedule" refers to schedules to this
Agreement, (d) references to a particular Section include all subsections
thereof, (e) the word "including" shall be construed as "including without
limitation," (f) references to a particular statute or regulation include all
rules and regulations thereunder and any successor statute, regulation or rules,
in each case as from time to time in effect, (g) words in the singular or plural
form include the plural and singular form, respectively, and (h) references to a
particular Person include such Person's successors and assigns to the extent not
prohibited by this Agreement.
2. Authorization, Purchase and Sale of Warrant and Preferred Stock.
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2.1. Authorization of Warrant and Preferred Stock. Holdings has
--------------------------------------------
authorized the issuance and sale under this Agreement of a warrant in
substantially the form of Exhibit A (the "Warrant") to purchase shares of
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Holdings Common Stock. The Company has authorized the issuance and sale under
this Agreement of 20,000 shares of Preferred Stock. The rights, privileges and
preferences of the Preferred Stock are as set forth in the Articles of
Incorporation of the Company, as in effect from time to time.
2.2. Purchase and Sale of Warrant and Preferred Stock. Subject to the
------------------------------------------------
terms and conditions of this Agreement and on the basis of the representations
and warranties set forth herein:
(a) Holdings agrees to sell to the Investor, and the Investor agrees
to purchase from Holdings, the Warrant; and
(b) the Company agrees to sell to the Investor, and the Investor
agrees to purchase from the Company, 20,000 shares of Preferred Stock (the
"Shares").
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The aggregate purchase price for the Warrant and the Shares sold by Holdings and
the Company to the Investor under this Agreement and the Academic Systems Shares
assigned by Company to the Investor under the Academic Systems Stock Transfer
Agreement shall be $20,600,000. The parties agree (i) to allocate $100,000,
$20,000,000 and $500,000 of such aggregate purchase price to the Warrant, the
Shares and the Academic Systems Shares, respectively, and (ii) to
prepare and, if appropriate, file, all financial statements, income tax returns
and other reports on a basis consistent with such allocation.
2.3. The Closing. The purchase and sale of the Warrant and the Shares
-----------
shall take place at a closing (the "Closing") at 10:00 a.m. (Boston time)
-------
on November 7, 1996 at the offices of Ropes & Xxxx, One International Place,
Boston, Massachusetts or at such other time and place as the parties shall
mutually agree. At the Closing, (a) Holdings shall deliver to the Investor the
Warrant to be acquired by the Investor pursuant to this Agreement and (b) the
Company shall deliver to the Investor a certificate or certificates, registered
in the Investor's name, representing the Shares to be acquired by the Investor
pursuant to this Agreement, in each case against payment by the Investor to
Holdings and the Company of the aggregate purchase price of $20,600,000, of
which purchase price (a) $5,000,000 shall be payable in lawful money of the
United States of America by wire transfer to one or more accounts designated by
Holdings and the Company prior to the Closing and (b) $15,600,000 shall be
payable by delivery to the Company of a certificate or certificates, registered
in the Company's name, representing a number of shares of Sylvan Common Stock
(the "Initial Sylvan Shares") determined by dividing $16,070,000 by the Initial
---------------------
Specified Price. Upon receipt by Holdings from the Investor of the purchase
price for the Warrant, Holdings shall, directly or indirectly through SSC,
contribute an amount equal to such purchase price to the Company.
3. Representations and Warranties of Holdings, SSC and the Company. In order
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to induce the Investor to enter into this Agreement and to consummate the
transactions contemplated hereby, each of Holdings, SSC and the Company jointly
and severally represents and warrants to the Investor as follows:
3.1. Organization, Power and Standing. Each of Holdings and its
--------------------------------
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation. Each of
Holdings and its Subsidiaries is duly qualified or licensed to do business, and
is in good standing, as a foreign corporation in each jurisdiction in which the
failure to be so qualified or licensed and in good standing would have a
Material Adverse Effect. Each of Holdings and its Subsidiaries has all
requisite power and authority, corporate and otherwise, (a) to own its property,
(b) to carry on its business as currently conducted and (c) to consummate the
transactions contemplated by each Transaction Document to which it is a party.
The Company has furnished to the Investor correct and complete copies of the
Charter and By-laws of each of Holdings and its Subsidiaries.
3.2. Authorization and Enforceability. Each Transaction Document to
--------------------------------
which Holdings or any of its Subsidiaries is a party has been duly authorized by
all necessary corporate action of such Person and its stockholders and
directors. Each Transaction Document has been duly executed and delivered by
each of Holdings and its Subsidiaries party thereto and is the legal, valid and
binding obligation of such Person, enforceable against such Person in accordance
with its terms.
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3.3. Capitalization.
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3.3.1. Holdings. Upon the filing of the Amendment to the Holdings
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Certificate of Incorporation, the entire authorized capital stock of
Holdings will consist of (a) 11,500,000 shares of Class A-1 Common Stock,
$.01 par value per share, of which 2,217,204 shares will be issued and
outstanding, (b) 3,200,000 shares of Class A-2 Common Stock, $.01 par value
per share, of which 333,330 shares will be issued and outstanding, (c)
3,650,000 shares of Class L-1 Common Stock, $.01 par value per share, of
which 2,217,204 shares will be issued and outstanding, and (d) 600,000
shares of Class L-2 Common Stock, $.01 par value per share, of which
333,330 will be issued and outstanding. Schedule 3.3.1 sets forth each
holder of record of issued and outstanding shares of capital stock of
Holdings and the number of such shares held by such holder. Holdings holds
no shares of its capital stock in its treasury. Holdings has reserved
shares of its capital stock for issuance as set forth on Schedule 3.3.1.
All of the issued and outstanding shares of capital stock of Holdings are
duly authorized, validly issued, fully paid and non-assessable. When issued
in accordance with the terms of this Agreement, the Warrant will be duly
authorized and validly issued. When issued in accordance with the terms of
the Warrant, the Warrant Shares will be duly authorized, validly issued,
fully paid and non-assessable. Except as set forth on Schedule 3.3.1, there
are no outstanding warrants, options or other rights to purchase or acquire
from Holdings, or exchangeable for or convertible into, any securities of
Holdings. There are no preemptive rights with respect to the issuance by
Holdings of the Warrant or the Warrant Shares. Holdings has not violated
the Securities Act, any state blue sky or securities law or the preemptive
rights of any Person in connection with the issuance of any of its
securities. There is no Contractual Obligation or provision in the Charter
or By-laws of Holdings which (i) obligates Holdings to purchase or redeem,
or make any payment in respect of, any shares of its capital stock or any
of its other securities that are convertible into, or exchangeable for,
shares of its capital stock, (ii) provides for any stock appreciation or
similar right or (iii) grants any right to share in the equity, income,
revenues or cash flow of Holdings or any of its Subsidiaries.
3.3.2. SSC. The entire authorized capital stock of SSC consists of
---
3,000 shares of Common Stock, $.01 par value per share, of which 1,000
shares are issued and outstanding. Holdings is the holder of record of all
the issued and outstanding shares of capital stock of SSC and owns such
shares of capital stock free and clear of any Liens other than restrictions
on transfer imposed by applicable securities laws. SSC holds no shares of
its capital stock in its treasury. All of the issued and outstanding shares
of capital stock of SSC are duly authorized, validly issued, fully paid and
non-assessable. There are no outstanding warrants, options or other rights
to purchase or acquire from SSC, or exchangeable for or convertible into,
any securities of SSC. SSC has not violated the Securities Act, any state
blue sky or securities law or the preemptive rights of any Person in
connection with the issuance of any of its securities. There is no
Contractual Obligation or provision in the Charter or By-laws of SSC which
(a) obligates SSC to purchase or redeem, or make any payment in respect of,
any shares of its capital stock or any of its other securities that are
convertible into, or exchangeable for, shares of
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its capital stock, (b) provides for any stock appreciation or similar right
or (c) grants any right to share in the equity, income, revenues or cash
flow of SSC or any of its Subsidiaries.
3.3.3. The Company. Upon the filing of the Amendment to the Company
-----------
Articles of Incorporation, the entire authorized capital stock of the
Company will consist of (a) 120,585,000 shares of Common Stock, of which
1,000 shares will be issued and outstanding, and (b) 20,000 shares of
Preferred Stock, of which no shares will be issued and outstanding. SSC is
the holder of record of all the issued and outstanding shares of Common
Stock and owns such shares of Common Stock free and clear of any Liens
other than restrictions on transfer imposed by applicable securities laws.
The Company holds no shares of its capital stock in its treasury. All of
the issued and outstanding shares of Common Stock are duly authorized,
validly issued, fully paid and non-assessable. When issued in accordance
with the terms of this Agreement, the Shares will be duly authorized,
validly issued, fully paid and non-assessable. There are no outstanding
warrants, options or other rights to purchase or acquire from the Company,
or exchangeable for or convertible into, any securities of the Company.
There are no preemptive rights with respect to the issuance by the Company
of the Shares. The Company has not violated the Securities Act, any state
blue sky or securities law or the preemptive rights of any Person in
connection with the issuance of any of its securities. There is no
Contractual Obligation or provision in the Charter or By-laws of the
Company which (i) obligates the Company to purchase or redeem, or make any
payment in respect of, any shares of its capital stock or any of its other
securities that are convertible into, or exchangeable for, shares of its
capital stock, (ii) provides for any stock appreciation or similar right or
(iii) grants any right to share in the equity, income, revenues or cash
flow of the Company.
3.4. Subsidiaries. Holdings has no Subsidiaries other than SSC, the
------------
Company and Ideal Learning, Inc., a Texas corporation.
3.5. Financial Statements; Budgets. A copy of each of the Financial
-----------------------------
Statements and the Budgets is attached hereto as Schedule 3.5. The Financial
Statements (a) are complete and correct in all material respects, (b) were
prepared in accordance with GAAP, consistently applied, and (c) present fairly,
in all material respects, the financial position of Holdings and its
Subsidiaries at the date thereof and the results of their operations for the
period covered thereby, in each case subject to normal year-end audit
adjustments and the addition of footnotes. Each Budget was prepared in good
faith based on assumptions that were reasonable at the time such Budget was
prepared, it being understood that the actual results of operations of the
Company and its Subsidiaries will depend in part upon future general economic
conditions and other matters not within the control of the Company and its
Subsidiaries.
3.6. Absence of Undisclosed Liabilities. As of September 30, 1996,
----------------------------------
neither Holdings nor any of its Subsidiaries had any liabilities or obligations
of the type required to be reflected or disclosed in a balance sheet prepared in
accordance with GAAP that were not so reflected or
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disclosed in the balance sheet of Holdings and its Subsidiaries as at September
30, 1996 included in the Financial Statements.
3.7. Change in Condition. Since September 30, 1996:
-------------------
(a) the business of Holdings and its Subsidiaries has been conducted
only in the Ordinary Course of Business;
(b) neither Holdings nor any of its Subsidiaries has incurred any
liabilities or obligations other than in the Ordinary Course of Business;
(c) except for borrowings in the Ordinary Course of Business under
credit facilities in existence on September 30, 1996, neither Holdings nor
any of its Subsidiaries has become liable in respect of any Guarantee or
has incurred or otherwise become liable in respect of any Debt;
(d) neither Holdings nor any of its Subsidiaries has declared or
made any Distribution; and
(e) no event or events have occurred which, individually or in the
aggregate, may reasonably be expected to have a Material Adverse Effect.
3.8. Transactions with Affiliates. Except as set forth on Schedule
----------------------------
3.8, no Affiliate of Holdings or any of its Subsidiaries is an employee,
consultant, competitor, customer, distributor, supplier or vendor of, or is
party to any Contractual Obligation with, Holdings or any of its Subsidiaries.
3.9. Non-Contravention, etc. Neither the execution and delivery of
----------------------
the Transaction Documents nor the consummation of any of the transactions
contemplated hereby or thereby will constitute, result in, or give rise to, (a)
any breach of, or default under, any Contractual Obligation or provision of the
Charter or By-Laws of Holdings or any of its Subsidiaries, or any Legal
Requirement applicable to Holdings or any of its Subsidiaries, (b) the
acceleration of the time for performance of any obligation under any such
Contractual Obligation, (c) the imposition of any Lien upon, or the forfeiture
of, any asset of Holdings or any of its Subsidiaries, (d) the requirement that
any consent under, or waiver of, any such Contractual Obligation, Charter or By-
Law provision or Legal Requirement be obtained or (e) any modification of terms,
right of termination or other right or cause of action under any such
Contractual Obligation.
3.10. Compliance with Laws, etc. The operations of the business of
-------------------------
Holdings and its Subsidiaries as previously or currently conducted were not, and
are not, in violation of, and neither Holdings nor any of its Subsidiaries is in
default under, any Legal Requirement, except for such violations or defaults as
have not had and will not have, individually or in the aggregate, a Material
Adverse Effect. Each of Holdings and its Subsidiaries has been duly granted all
licenses, permits, franchises and other authorizations under any Legal
Requirement necessary for the conduct of its business as currently conducted or
currently proposed to be conducted, except
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licenses, permits, franchises and other authorizations the failure of which to
obtain has not had and will not have, individually or in the aggregate, a
Material Adverse Effect.
3.11. Tax Matters. All Tax Returns that are required to be filed by,
-----------
or with respect to, Holdings or any of its Subsidiaries have been duly and
timely filed in accordance with all applicable Legal Requirements, and no claim
has been made by any taxing authority in any jurisdiction where Holdings or any
of its Subsidiaries does not file Tax Returns that it is or may be subject to
taxation by such jurisdiction. All Taxes shown to be due on the Tax Returns
referred to in the immediately preceding sentence have been paid in full, and
all other assessments that are due have been paid in full. None of the Tax
Returns referred to in the first sentence of this Section 3.11 has been examined
by the Internal Revenue Service or any state, local or foreign taxing authority.
3.12. No Illegal Payments, etc. Neither Holdings, any of its
------------------------
Subsidiaries, nor any of their respective officers, employees or agents
(including as agents, directors or stockholders acting on behalf of Holdings),
(a) has (i) directly or indirectly given or agreed to give any gift,
contribution, payment or similar benefit to any supplier, customer, governmental
employee or other Person who was, is or may be in a position to help or hinder
Holdings or any of its Subsidiaries (or assist in connection with any actual or
proposed transaction) or (ii) made or agreed to make any contribution, or
reimbursed any political gift or contribution made by any other Person, to any
candidate for federal, state, local or foreign public office, which in either
case would subject Holdings or any of its Subsidiaries to any damage or penalty
in any civil, criminal or governmental litigation or proceeding or (b) has
established or maintained any unrecorded fund or asset or made any false entries
on any books or records for any purpose.
3.13. No Governmental Approval or Consent Required. Except for (a)
--------------------------------------------
the filing of the Amendment to the Holdings Certificate of Incorporation, (b)
the filing of the Amendment to the Company Articles of Incorporation and (c)
federal and state securities law filings which have been made or will be made in
a timely manner, based in part on the representations and warranties of the
Investor contained in Section 4, no approval, consent, waiver, authorization or
other order of, declaration to, or filing, registration, qualification or
recording with, any governmental authority is required to be obtained or made by
or on behalf of Holdings or any of its Subsidiaries in connection with the
execution and delivery of the Transaction Documents or the performance of the
transactions contemplated hereby and thereby.
3.14. Litigation, etc. Except as set forth on Schedule 3.14, there
---------------
is no action, suit, proceeding or investigation pending or, to the best
knowledge of each of Holdings and the Company, threatened against Holdings or
any of its Subsidiaries which questions the validity of any of the Transaction
Documents or the right of Holdings or any of its Subsidiaries to enter into any
of the Transaction Documents or to consummate the transactions contemplated
hereby or thereby, or which might reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect, nor is Holdings or
any of its Subsidiaries aware that there is any basis for the foregoing.
Neither Holdings nor any of its Subsidiaries is a party to, or subject to the
provisions of, any order, writ, injunction, judgment or decree of any court or
governmental agency or instrumentality.
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3.15. Securities Laws. Assuming that the Investor's representations
---------------
and warranties contained in Section 4 are true and correct as of the Closing,
(a) the offer, issuance and sale by Holdings to the Investor of the Warrant, (b)
the issuance by Holdings to the Investor of the Warrant Shares and (c) the
offer, issuance and sale by the Company to the Investor of the Shares are, and
will be as of the Closing, exempt from the registration and prospectus delivery
requirements of the Securities Act, and have been, or will be as of the Closing,
registered or qualified (or are, or will be as of the Closing, exempt from
registration and qualification) under the registration, permit or qualification
requirements of all applicable state blue sky and securities laws.
3.16. Brokerage. Except for the fees of Alex. Xxxxx & Sons
---------
Incorporated, which the Company agrees to pay, there are no claims for brokerage
commissions or finder's fees or similar compensation in connection with the
transactions contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of Holdings or any of its Subsidiaries, and each
of Holdings and the Company agrees to indemnify and hold the Investor harmless
against any damages incurred as a result of any such claim.
3.17. Purchase Entirely for Own Account. The Sylvan Shares will be
---------------------------------
acquired for investment for the Company's own account, not as a nominee or
agent. The Company has no present intention of selling, granting any
participation in, or otherwise distributing, the Sylvan Shares other than
pursuant to an effective registration statement covering the Sylvan Shares under
the Securities Act. The Company does not have any contract, undertaking,
agreement or arrangement with any Person to sell or transfer, or grant any
participation to such Person or to any third Person with respect to, any of the
Sylvan Shares.
3.18. Restricted Securities. The Company understands that the Sylvan
---------------------
Shares may not be sold or transferred, or otherwise disposed of, without
registration under the Securities Act, or an exemption therefrom, and that in
the absence of an effective registration statement covering the Sylvan Shares or
an available exemption from registration under the Securities Act, the Sylvan
Shares must be held indefinitely. In the absence of an effective registration
statement covering the Sylvan Shares, the Company will sell or transfer, or
otherwise dispose of, the Sylvan Shares only in a manner consistent with its
representations, warranties and agreements set forth herein.
3.19. Disclosure. Neither this Agreement nor any other Transaction
----------
Document contains any untrue statement of material fact by Holdings or any of
its Subsidiaries. This Agreement and the other Transaction Documents do not,
taken as a whole, omit to state a material fact necessary in order to make the
statements of Holdings and its Subsidiaries contained herein or therein not
misleading.
3.20. Exercise Numbers as Percentages of Holdings' Common Stock. The
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Class A Exercise Number (as defined in the Warrant) of 775,919 in effect on and
prior to February 7, 1997 and the Class A Exercise Number of 950,382 in effect
after November 7, 1998 represent, respectively, 16.5% and 19.9% of the shares of
Holdings Class A Common Stock outstanding on
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the date hereof, in each case assuming the conversion, exercise or exchange of
any options, warrants (other than the Jostens Warrant) or other securities
outstanding on the date hereof which are convertible into, or exercisable or
exchangeable for, shares of Holdings Class A Common Stock. The Class L Exercise
Number (as defined in the Warrant) of 775,919 in effect on and prior to February
7, 1997 and the Class L Exercise Number of 950,382 in effect after November 7,
1998 represent, respectively, 16.5% and 19.9% of the shares of Holdings Class L
Common Stock outstanding on the date hereof, in each case assuming the
conversion, exercise or exchange of any options, warrants (other than the
Jostens Warrant) or other securities outstanding on the date hereof which are
convertible into, or exercisable or exchangeable for, shares of Holdings Class L
Common Stock.
4. Representations and Warranties of the Investor. In order to induce each
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of Holdings, SSC and the Company to enter into this Agreement and to consummate
the transactions contemplated hereby, the Investor hereby represents and
warrants to each of Holdings, SSC and the Company that:
4.1. Organization, Power and Standing. The Investor (a) is a
--------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Maryland and (b) has all requisite power and authority,
corporate and otherwise, (i) to own its property, (ii) to carry on its business
as currently conducted and (iii) to consummate the transactions contemplated by
each Transaction Document to which it is a party. The Investor has furnished to
each of Holdings and the Company correct and complete copies of the Charter and
By-laws of the Investor.
4.2. Authorization and Enforceability. Each Transaction Document to
--------------------------------
which the Investor is a party (a) has been duly authorized by all necessary
corporate action of the Investor and its stockholders and directors, (b) has
been duly executed and delivered by the Investor and (c) is the legal, valid and
binding obligation of the Investor, enforceable against the Investor in
accordance with its terms.
4.3. Capitalization. All of the issued and outstanding shares of
--------------
capital stock of the Investor are duly authorized, validly issued, fully paid
and non-assessable. When issued in accordance with the terms of this Agreement,
the Sylvan Shares will be duly authorized, validly issued, fully paid and non-
assessable. There are no preemptive rights with respect to the issuance by the
Investor of the Sylvan Shares. The Investor has not violated the Securities
Act, any state blue sky or securities law or the preemptive rights of any Person
in connection with the issuance of any of its securities. Except as set forth
on Schedule 4.3, there are no existing rights with respect to registration under
the Securities Act of any of the Investor's securities.
4.4. Non-Contravention, etc. Neither the execution and delivery of
----------------------
the Transaction Documents nor the consummation of any of the transactions
contemplated hereby or thereby will constitute, result in, or give rise to, (a)
any breach of, or default under, any Contractual Obligation or provision of the
Charter or By-Laws of the Investor, or any Legal Requirement applicable to the
Investor, (b) the acceleration of the time for performance of any obligation
under any such Contractual Obligation, (c) the imposition of any Lien upon, or
the forfeiture of, any asset of the Investor, (d) the requirement that any
consent under, or waiver of, any such
-8-
Contractual Obligation, Charter or By-Law provision or Legal Requirement be
obtained or (e) any modification of terms, right of termination or other right
or cause of action under any such Contractual Obligation.
4.5. No Governmental Approval or Consent Required. Except for
--------------------------------------------
federal and state securities law filings which have been made or will be made in
a timely manner [and except as set forth on Schedule 4.5], based in part on the
representations and warranties of Holdings and the Company contained in Section
3, no approval, consent, waiver, authorization or other order of, declaration
to, or filing, registration, qualification or recording with, any governmental
authority is required to be obtained or made by or on behalf of the Investor in
connection with the execution and delivery of the Transaction Documents or the
performance of the transactions contemplated hereby and thereby.
4.6. Litigation, etc. There is no action, suit, proceeding or
---------------
investigation pending or, to the best knowledge of the Investor, threatened
against the Investor which questions the validity of any of the Transaction
Documents or the right of the Investor to enter into any of the Transaction
Documents or to consummate the transactions contemplated hereby or thereby, nor
is the Investor aware that there is any basis for the foregoing.
4.7. Brokerage. There are no claims for brokerage commissions or
---------
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of the Investor, and the Investor agrees to indemnify and hold each of
Holdings and the Company harmless against any damages incurred as a result of
any such claims.
4.8. Purchase Entirely for Own Account. The Securities will be
---------------------------------
acquired for investment for the Investor's own account, not as a nominee or
agent and not with a view to the distribution of any part thereof. The Investor
has no present intention of selling, granting any participation in, or otherwise
distributing, the Securities, it being understood that the disposition of the
Investor's property shall at all times remain within the Investor's control.
The Investor does not have any contract, undertaking, agreement or arrangement
with any Person to sell or transfer, or grant any participation to such Person
or to any third Person with respect to, any of the Securities.
4.9. Restricted Securities. The Investor understands that the
---------------------
Securities may not be sold or transferred, or otherwise disposed of, without
registration under the Securities Act, or an exemption therefrom, and that in
the absence of an effective registration statement covering the Warrant, the
Warrant Shares or the Shares or an available exemption from registration under
the Securities Act, the Securities must be held indefinitely. In the absence of
an effective registration statement covering the Securities, the Investor will
sell or transfer, or otherwise dispose of, the Securities only in a manner
consistent with its representations, warranties and agreements set forth herein
and the terms and conditions set forth in the Warrant and the Stockholders
Agreement.
-9-
4.10. Suitability. The Investor is an "accredited investor" (as
-----------
defined in Rule 501(a) promulgated under the Securities Act). The Investor's
financial condition is such that it is able to bear the risk of holding the
Securities for an indefinite period of time and can bear the loss of its entire
investment in the Securities. The Investor has such knowledge and experience in
financial and business matters and in making high-risk investments of this type
that it is capable of evaluating the merits and risks of the purchase of the
Securities.
4.11. Legends. The Investor understands that the certificates
-------
evidencing the Securities may bear substantially the following legends:
(a) "These securities have not been registered under the Securities
Act of 1933, as amended. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with
respect to these securities under such Act or an opinion of counsel
satisfactory to the Company that such registration is not required or
unless sold pursuant to Rule 144(k) of such Act."
(b) Any legend required by the laws of any applicable jurisdiction.
4.12. Exchange Act Filings. The Investor has furnished to each of
--------------------
Holdings and the Company correct and complete copy of each Public Document
(other than the exhibits thereto). At the time of its filing by the Investor
with the Securities and Exchange Commission, each Public Document (a) contained
all information required to be contained therein and otherwise complied in all
material respects with the requirements of the Securities Act and the Exchange
Act and (b) did not contain any untrue statement of material fact or omit to
state a material fact necessary in order to make the statements contained
therein not misleading in light of the circumstances under which they were made.
Since the time of the most recent filing of any Public Document by the Investor
with the Securities and Exchange Commission, no event or condition has occurred
which would be required to be disclosed under the Securities Act or the Exchange
Act.
4.13. Eligibility to Use Form S-3. The Investor is eligible to effect the
---------------------------
registration of the Sylvan Shares on Form S-3 under the Securities Act.
4.14. Disclosure. Neither this Agreement nor any other Transaction
----------
Document contains any untrue statement of material fact by the Investor. This
Agreement and the other Transaction Documents do not, taken as a whole, omit to
state a material fact necessary in order to make the statements of the Investor
contained herein or therein not misleading.
5. Conditions to the Investor's Obligations at the Closing. The obligation
-------------------------------------------------------
of the Investor under Section 2 to purchase the Warrant and the Shares at the
Closing is subject to the fulfillment at or prior to the Closing of each of the
following conditions (unless waived by the Investor in accordance with Section
15.4):
5.1. Representations and Warranties. The representations and warranties
------------------------------
of Holdings, SSC and the Company contained in Section 3 shall be true and
correct on and as of the date of
-10-
the Closing with the same effect as though such representations and warranties
had been made on and as of the date of the Closing.
5.2. Performance. Holdings, SSC and the Company shall have performed
-----------
and complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it at or prior
to the Closing.
5.3. Compliance Certificate. Holdings, SSC and the Company shall
----------------------
have delivered to the Investor at the Closing a certificate dated the date of
the Closing and signed by the Chief Executive Officer of each of Holdings, SSC
and the Company certifying that the conditions specified in this Section 5 have
been fulfilled.
5.4. Amendment to the Holdings Certificate of Incorporation.
------------------------------------------------------
Holdings shall have filed with the Delaware Secretary of State an amendment to
the Certificate of Incorporation of Holdings in the form of Exhibit B (as so
filed, the "Amendment to the Holdings Certificate of Incorporation").
------------------------------------------------------
5.5. Amendment to the Company Articles of Incorporation. The Company
--------------------------------------------------
shall have filed with the Illinois Secretary of State an amendment to the
Articles of Incorporation of the Company in the form of Exhibit C (as so filed,
the "Amendment to the Company Articles of Incorporation").
--------------------------------------------------
5.6. Qualifications. All authorizations, approvals or permits, if
--------------
any, of any Governmental Authority that are required in connection with the
lawful issuance and sale of the Warrant and the Shares to the Investor pursuant
to this Agreement (other than those which are not required to be obtained prior
to the Closing) shall have been duly obtained and shall be effective on and as
of the date of the Closing.
5.7. Restatement Agreement. Each of Holdings, SSC, the Company and
---------------------
the stockholders of Holdings shall have executed and delivered to the Investor a
restatement agreement in substantially the form of Exhibit D.
5.8. Stockholders Agreement. Each of Holdings, SSC, the Company and
----------------------
the stockholders of Holdings shall have executed and delivered to the Investor a
second restated stockholders agreement in substantially the form of Exhibit E.
5.9. Product Supply Agreement. The Company shall have executed and
------------------------
delivered to the Investor a product supply and license agreement in
substantially the form of Exhibit F.
5.10. Academic Systems Stock Transfer Agreement. The Company shall
-----------------------------------------
have executed and delivered to the Investor a stock transfer agreement in
substantially the form of Exhibit G.
5.11. Amendment to Bank Credit Agreement. The Company and the
----------------------------------
lenders party to the Bank Credit Agreement shall have entered into an amendment
to the Bank Credit Agreement in substantially the form of Exhibit H.
-11-
5.12. Amendment to Note Purchase Agreement. The Company and the
------------------------------------
lenders party to the Note Purchase Agreement shall have entered into an
amendment to the Note Purchase Agreement in substantially the form of Exhibit I.
5.13. Opinion of Company's Counsel. Ropes & Xxxx, counsel for the
----------------------------
Company, shall have delivered to the Investor an opinion dated the date of the
Closing in substantially the form of Exhibit J.
5.14. Opinion of Company's Illinois Counsel. Xxxxxxxx & Xxxxx,
-------------------------------------
Illinois counsel for the Company, shall have delivered to the Investor an
opinion dated the date of the Closing in substantially the form of Exhibit K.
5.15. Secretary's Certificate of Holdings. Holdings shall have
-----------------------------------
delivered to the Investor at the Closing a certificate dated the date of the
Closing and signed by the Secretary or an Assistant Secretary of Holdings
certifying: (a) that attached thereto is a correct and complete copy of the
Certificate of Incorporation of Holdings as in effect on the date of the
Closing; (b) that attached thereto is a correct and complete copy of the By-Laws
of Holdings as in effect on the date of the Closing; (c) that attached thereto
is a correct and complete copy of all resolutions adopted by the Board of
Directors of Holdings authorizing (i) the execution, delivery and performance of
each Transaction Document to which Holdings is a party, (ii) the issuance, sale
and delivery of the Warrant and (iii) the reservation, issuance and delivery of
the Warrant Shares, and that all such resolutions are in full force in effect;
and (d) to the incumbency and specimen signature of certain officers of
Holdings.
5.16. Secretary's Certificate of the Company. The Company shall have
--------------------------------------
delivered to the Investor at the Closing a certificate dated the date of the
Closing and signed by the Secretary or an Assistant Secretary of the Company
certifying: (a) that attached thereto is a correct and complete copy of the
Articles of Incorporation of the Company as in effect on the date of the
Closing; (b) that attached thereto is a correct and complete copy of the By-Laws
of the Company as in effect on the date of the Closing; (c) that attached
thereto is a correct and complete copy of all resolutions adopted by the Board
of Directors of the Company authorizing (i) the execution, delivery and
performance of each Transaction Document to which the Company is a party and
(ii) the issuance, sale and delivery of the Shares, and that all such
resolutions are in full force in effect; and (d) to the incumbency and specimen
signature of certain officers of the Company.
6. Conditions to the Company's Obligations at the Closing. The obligations
------------------------------------------------------
of Holdings and the Company under Section 2 to issue and sell the Warrant and
the Shares, respectively, are subject to the fulfillment at or prior to the
Closing of each of the following conditions (unless waived by Holdings and the
Company in accordance with Section 15.4):
6.1. Representations and Warranties. The representations and
------------------------------
warranties of the Investor contained in Section 4 shall be true and correct on
and as of the date of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of the
Closing.
-12-
6.2. Payment of Purchase Price. The Investor shall have delivered
-------------------------
payment of the aggregate purchase price of the Warrant, the Shares and the
Academic Systems Shares as set forth in Section 2.3.
6.3. Absence of Certain Events. Since the date hereof:
-------------------------
(a) no suspension or material limitation in trading in
securities generally on the New York Stock Exchange or on the NASDAQ
shall have occurred;
(b) no suspension or material limitation in trading in the
Investor's securities on the NASDAQ shall have occurred;
(c) no general moratorium on commercial banking activities
shall have been declared by any federal, Illinois, California,
Maryland or Massachusetts authorities; and
(d) no outbreak or escalation of hostilities involving the
United States shall have occurred and no declaration by the United
States of a national emergency of war shall have been made.
6.4. Performance. The Investor shall have performed and complied
-----------
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it at or prior to the Closing.
6.5. Compliance Certificate. The Investor shall have delivered to
----------------------
Holdings and the Company at the Closing a certificate dated the date of the
Closing and signed by the Chief Executive Officer of the Investor certifying
that the conditions specified in this Section 6 have been fulfilled.
6.6. Qualifications. All authorizations, approvals or permits, if
--------------
any, of any Governmental Authority that are required in connection with the
lawful issuance of the Sylvan Shares to the Company pursuant to this Agreement
(other than those which are not required to be obtained prior to the Closing)
shall have been duly obtained and shall be effective on and as of the date of
the Closing.
6.7. Restatement Agreement. The Investor shall have executed and
---------------------
delivered to each of Holdings, SSC, the Company and the stockholders of Holdings
a restatement agreement in substantially the form of Exhibit D.
6.8. Stockholders Agreement. The Investor shall have executed and
----------------------
delivered to each of Holdings, SSC, the Company and the stockholders of Holdings
a second restated stockholders agreement in substantially the form of Exhibit E.
6.9. Product Supply Agreement. The Investor shall have executed and
------------------------
delivered to the Company a product supply and license agreement in substantially
the form of Exhibit F.
-13-
6.10. Academic Systems Stock Transfer Agreement. The Investor shall
-----------------------------------------
have executed and delivered to the Company a stock transfer agreement in
substantially the form of Exhibit G.
6.11. Opinion of Investor's Counsel. Piper & Marbury L.L.P., counsel
-----------------------------
for the Investor, shall have delivered to each of Holdings and the Company an
opinion dated the date of the Closing in substantially the form of Exhibit L.
6.12. Secretary's Certificate of the Investor. The Investor shall
---------------------------------------
have delivered to each of Holdings and the Company at the Closing a certificate
dated the date of the Closing and signed by the Secretary or an Assistant
Secretary of the Investor certifying: (a) that attached thereto is a correct
and complete copy of the Certificate of Incorporation of the Investor as in
effect on the date of the Closing; (b) that attached thereto is a correct and
complete copy of the By-Laws of the Investor as in effect on the date of the
Closing; (c) that attached thereto is a correct and complete copy of all
resolutions adopted by the Board of Directors of the Investor authorizing (i)
the execution, delivery and performance of each Transaction Document to which
the Investor is a party and (ii) the issuance, sale and delivery of the Sylvan
Shares, and that all such resolutions are in full force in effect; and (d) to
the incumbency and specimen signature of certain officers of the Investor.
7. Affirmative Covenants of Holdings and the Company.
-------------------------------------------------
7.1. Financial Statements and Other Information.
------------------------------------------
7.1.1. Accounts. Each of Holdings and its Subsidiaries shall
--------
maintain a standard system of accounts in accordance with GAAP
consistently applied.
7.1.2. Annual Financial Statements. Holdings shall furnish
---------------------------
to the Investor as soon as available, and in any event within 120 days
after the end of each fiscal year of Holdings, (a) the consolidated
and consolidating balance sheets of Holdings and its Subsidiaries as
at the end of such fiscal year, (b) the consolidated and consolidating
statements of income of Holdings and its Subsidiaries for such fiscal
year and (c) the consolidated statements of changes in shareholders'
equity and of cash flows of Holdings and its Subsidiaries for such
fiscal year. The financial statements referred to in this Section
7.1.2 (i) shall be in reasonable detail, (ii) shall set forth actual
versus budgeted amounts, (iii) shall, in the case of the consolidated
financial statements, set forth comparative figures for the
immediately preceding fiscal year of Holdings and (iv) shall be
accompanied by unqualified reports of Price Waterhouse LLP or other
auditors selected by the Board of Directors of Holdings, who shall be
independent public accountants of national standing satisfactory to
the Investor, containing no material uncertainty, to the effect that
they have audited the consolidated financial statements referred to in
this Section 7.1.2 in accordance with generally accepted auditing
standards and that such financial statements present fairly, in all
material respects, the consolidated financial position of Holdings and
its Subsidiaries at the dates thereof and the results of their
consolidated operations for the periods covered thereby in conformity
with GAAP.
-14-
7.1.3. Quarterly Financial Statements. Holdings shall
------------------------------
furnish to the Investor as soon as available, and in any event within
60 days after the end of each of the first three fiscal quarters of
Holdings, the internally prepared (a) consolidated and consolidating
balance sheets of Holdings and its Subsidiaries as of the end of such
fiscal quarter, (b) consolidated and consolidating statements of
income of Holdings and its Subsidiaries for such fiscal quarter and
for the portion of the fiscal year then ended and (c) consolidated
statements of changes in shareholders' equity and of cash flows of
Holdings and its Subsidiaries for such fiscal quarter and for the
portion of the fiscal year then ended. The financial statements
referred to in this Section 7.1.3 (i) shall be in reasonable detail,
(ii) shall set forth actual versus budgeted amounts, (iii) shall, in
the case of consolidated financial statements, set forth comparative
figures for the same period in the preceding fiscal year and (iv)
shall be accompanied by a certificate of Holdings signed by the
principal financial officer of Holdings to the effect that such
financial statements have been prepared in accordance with GAAP and
present fairly, in all material respects, the financial position of
Holdings and its Subsidiaries at the dates thereof and the results of
their operations for the periods covered thereby, subject to normal
year-end audit adjustments and the addition of footnotes.
7.1.4. Budgets. Holdings shall furnish to the Investor as
-------
soon as available, and in any event within 30 days after the beginning
of each fiscal year of Holdings, an annual budget of Holdings and its
Subsidiaries for such fiscal year, which budget shall set forth, with
appropriate discussion, the principal assumptions upon which such
budget is based.
7.1.5. Notice of Litigation, Defaults, etc. Within 10
-----------------------------------
business days of acquiring knowledge thereof, Holdings, SSC and the
Company shall furnish to the Investor notice of any litigation or any
administrative or arbitration proceeding which has, or creates a
material risk of having, a Material Adverse Effect. Within 10 business
days of acquiring knowledge thereof, Holdings, SSC and the Company
shall notify the Investor of the existence of any default by Holdings
or any of its Subsidiaries under (i) this Agreement or (ii) under any
other agreement if such default has, or creates a material risk of
having, a Material Adverse Effect.
7.2. Sale of Sylvan Shares. The Company may sell or transfer the
---------------------
Sylvan Shares at any time in accordance with applicable securities laws;
provided, however, that the Company shall use commercially reasonable efforts to
-------- -------
make any such sale or transfer in a manner which will not materially depress the
public trading price of the Sylvan Common Stock; and provided, further, that if
-------- -------
the Company sells or transfers in excess of 50,000 Sylvan Shares in any single
transaction, then the Company shall engage Alex. Xxxxx & Sons Incorporated or
another nationally recognized broker or investment banking firm to make such
sale or transfer.
7.3. Incurrence of Specified Debt. Without the prior written consent
----------------------------
of the Investor, the Company will not incur any Specified Debt if, after giving
effect to any such incurrence and any contemporaneous payment of indebtedness by
the Company, the ratio of Specified Debt to
-15-
EBITDA for the period of four fiscal quarters of the Company most recently ended
would exceed 4.5 to 1.
7.4. Sale of the Enterprise. In the event that (a) any third party
----------------------
makes to Holdings, SSC or the Company a written proposal to Holdings, SSC or the
Company with respect to a Sale of the Enterprise or (b) Holdings, SSC or the
Company decides to pursue a Sale of the Enterprise, then Holdings, SSC or the
Company, as the case may be, shall promptly give notice (the "Notice of Sale")
--------------
to the Investor of such proposal or decision. The Investor shall have two
business days after receipt of the Notice of Sale to submit to the Person
issuing the Notice of Sale an offer to purchase the capital stock or assets
which are the subject of the proposed Sale of the Enterprise (the "Offer"). If,
-----
within two business days after receipt of the Notice of Sale, the Investor shall
submit an Offer to the Person issuing the Notice of Sale, then for a period of
five business days after the receipt of the Offer, each of Holdings, SSC and the
Company (a) shall defer its negotiations with any third party with respect to
such proposed Sale of the Enterprise and (ii) shall negotiate with the Investor
in good faith with respect to the terms of the Offer; provided, however, that
-------- -------
none of Holdings, SSC or the Company shall have any obligation to consummate any
such transaction with the Investor.
7.5. Sale of Additional Preferred Stock. Until May 7, 1998, the
----------------------------------
Company shall use its best efforts to sell at least $10,000,000 in additional
preferred stock having terms that are substantially similar to the terms of the
Shares.
7.6. Change in Nature of Business. Neither Holdings nor any of its
----------------------------
Subsidiaries shall make any material change in the nature of the Business as
carried on as of the date hereof.
7.7. Dividends on Preferred Stock. The Company covenants and agrees
----------------------------
that, during each Accrual Year commencing on or after November 7, 1998, the
Company will, if funds are legally available therefor, declare and pay to each
holder of Preferred Stock the annual dividend accrued during such Accrual Year
and described in Section 1.1 of Paragraph 2 of Article Five of the Articles of
Incorporation of the Company, as in effect from time to time; provided, however,
-------- -------
that the Company shall have no obligation to declare and pay any annual dividend
accrued during any such Accrual Year and described in Section 1.1(a) of
Paragraph 2 of Article Five if:
(i) after giving effect to the payment of such dividend, the
Company's aggregate amount of available cash and available borrowing
capacity under revolving loans contained in the Senior Credit
Facilities is less than $10,000,000; or
(ii) on November 6 during any year specified in the table
below, Consolidated EBITDA (as defined in the applicable Senior Credit
Facility) of the Company for the period of four fiscal quarters of the
Company most recently ended is less than the
-16-
product of (A) the Consolidated EBITDA of the Company required by any
Senior Credit Facility for such period of four fiscal quarters
multiplied by (B) the percentage specified opposite such year in such
---------- --
table:
Year Percentage
---- ----------
1999 200%
2000 175%
2001 150%
2002 150%
7.8. Return of Certain Initial Sylvan Shares. Within one business
---------------------------------------
day after the date upon which the registration statement covering the Sylvan
Shares under the Securities Act filed pursuant to Section 8.3 shall become
effective, the Company shall deliver to the Investor a certificate or
certificates, endorsed to the Investor, representing a number of the Initial
Sylvan Shares equal to the excess, if any, of (a) the number of Initial Sylvan
Shares over, (b) the quotient of (i) $16,070,000 divided by (ii) the Subsequent
---- ------- --
Specified Price.
7.9. Excess Value of Sylvan Shares. Upon the sale by the Company of
-----------------------------
all Sylvan Shares then held by the Company, (a) the Company promptly shall
furnish the Investor with a written notice setting forth the price received by
the Company in respect of each Sylvan Share sold by the Company in each
transaction after the date of the Closing and (b) if the Aggregate Net Proceeds
exceed $15,600,000, the Company promptly shall pay to the Investor an amount
equal to the lesser of:
(i) the excess of (A) the Aggregate Net Proceeds over
----
(B) $15,600,000; and
(ii) the aggregate amount of payments received by the Company
from the Investor pursuant to Section 8.5.
7.10. Observer Rights. Each of SSC and the Company agrees that one
---------------
representative designated by the Investor (a) shall be entitled to receive all
notices, and to attend all meetings, of the Board of Directors of such Person in
a non-voting observer capacity and (b) shall be entitled to receive copies of
all minutes of such meetings, together with copies of any items distributed to
the members of the Board of Directors at such meeting, in each case whether or
not such designated representative attends any such meeting; provided, however,
-------- -------
that if any such information is deemed confidential by SSC or the Company, as
the case may be, such designated representative shall first provide such Person
with reasonable assurances in writing that such designated representative will
maintain the confidentiality of such information.
8. Affirmative Covenants of the Investor.
-------------------------------------
8.1. Confidentiality. The Investor covenants and agrees that the
---------------
Investor and any of its Affiliates that receives information under Section 7.1
shall maintain the confidentiality of all financial, confidential and
proprietary information of Holdings and its Subsidiaries acquired by
-17-
the Investor or such Affiliate in receiving such information. Notwithstanding
the preceding sentence, the Investor or such Affiliate may disclose such
information (a) when required by law or governmental order or regulation, or
when required by a subpoena or other process, provided that the Investor or such
Affiliate first gives Holdings advance notice of such disclosures as soon as
possible; (b) to the extent necessary to enforce this Agreement, the
Stockholders Agreement and the transactions contemplated hereby and thereby; (c)
to its attorneys, accountants, consultants and other professionals to the extent
necessary to obtain their services in connection with the Investor's investment
in Holdings, provided that the requirements of this Section 8.1 shall in turn be
binding on any such attorney, accountant, consultant or other professional; (d)
as may be required by any prospective purchaser of the Warrant, any Shares or
any Warrant Shares from the Investor, provided that prior to such disclosure
such prospective purchaser shall agree in writing to be bound by the provisions
of this Section 8.1; or (e) to any Affiliate of the Investor.
8.2. Use of Financial Statements and Other Information. The Investor
-------------------------------------------------
covenants and agrees that the Investor and any of its Affiliates that receives
information under Section 7.1 shall use such information solely for the purpose
of evaluating its investment in Holdings and its Subsidiaries.
8.3. Registration of Sylvan Shares. Within three business days after
-----------------------------
the date of the Closing, the Investor shall file a registration statement
covering the Sylvan Shares under the Securities Act by taking the actions set
forth in Exhibit M.
8.4. Issuance of Subsequent Sylvan Shares. Within one business day
------------------------------------
after the date upon which the registration statement covering the Sylvan Shares
under the Securities Act filed pursuant to Section 8.3 shall become effective,
the Investor shall deliver to the Company a certificate or certificates,
registered in the Company's name, representing a number of shares of Sylvan
Common Stock (the "Subsequent Sylvan Shares") equal to the excess, if any, of
------------------------
(a) the quotient of (i) $16,070,000 divided by (ii) the Subsequent Specified
------- --
Price over (b) the number of Initial Sylvan Shares.
----
8.5. Guaranteed Value of Sylvan Shares. From time to time upon (a)
---------------------------------
any sale by the Company of any Guaranteed Sylvan Share and (b) written notice
from the Company to the Investor setting forth the Sale Price, the Investor
promptly shall pay to the Company an amount equal to the excess, if any, of (i)
the Subsequent Specified Price over (ii) the Sale Price; provided, however, that
---- -------- -------
the aggregate number of Guaranteed Sylvan Shares in respect of which the
Investor shall be required to make any payment pursuant to this Section 8.5
shall not exceed the Number of Guaranteed Sylvan Shares at the time the notice
referred to in clause (b) above is given by the Company to the Investor.
8.6. Restrictions on Transfer. Prior to any transfer of any
------------------------
Securities, the holder thereof will give not less than five days' prior written
notice to the issuer of such Securities of such
-18-
holder's intention to effect such transfer, describing in reasonable detail the
manner of the proposed transfer. No holder of Securities shall transfer any
Securities unless:
(a) there is then in effect a registration statement under the
Securities Act covering such proposed transfer and such transfer is
made in accordance with such registration statement and all applicable
state securities laws; or
(b) (i) such holder delivers to the issuer of such Securities a
reasonably satisfactory opinion of counsel (which counsel shall be
reasonably acceptable to the issuer of such Securities) addressed to
the issuer of such Securities to the effect that the proposed transfer
may be effected without registration of such Securities under the
Securities Act or applicable state securities laws and (ii) the
transferee agrees in writing to be bound by all of the terms of this
Agreement;
and thereupon such holder shall be entitled, within 60 days after receipt by the
issuer of such Securities of the notice described in the immediately preceding
sentence, to transfer such Securities in accordance with terms of each of (A)
such notice and (B) this Agreement; provided, however, that in no event shall
-------- -------
such holder transfer any Securities to any Competitor Institution. Each
certificate representing Securities so transferred shall bear the restrictive
legend referred to in Section 4.11, in each case unless the holder has delivered
to the issuer of such Securities a reasonably satisfactory opinion of counsel
(which counsel shall be reasonably acceptable to the issuer of such Securities)
that such restrictions are no longer required in order to assure compliance with
the Securities Act or applicable state securities laws. Whenever any of such
restrictions shall cease and terminate as to any of the Securities, the holder
thereof shall be entitled to receive, without expense, from the issuer of such
Securities a new certificate of like tenor not bearing that part of the legend
set forth in Section 4.11 that it is no longer applicable.
8.7. Bridge Loan. At any time after the date on which the date of
-----------
the Closing and prior to the date on which the registration statement covering
the Sylvan Shares under the Securities Act filed pursuant to Section 8.3 shall
become effective, the Investor shall, upon not less than three business days'
prior written notice from the Company to the Investor, make a secured loan (the
"Secured Bridge Loan") to the Company in such amount as the Company may request
-------------------
in such notice; provided, however, that in no event shall the amount of the
-------- -------
Secured Bridge Loan exceed $7,800,000. The Secured Bridge Loan:
(a) shall be made by the Investor to the Company in lawful
money of the United States of America by wire transfer to one or more
accounts designated by the Company in such notice against delivery by
the Company to the Investor of a promissory note in a form mutually
satisfactory to each of the Company and the Investor;
(b) shall bear interest at the applicable federal rate in
effect under the Internal Revenue Code on the date that the Secured
Bridge Loan is made pursuant to this Section 8.7;
-19-
(c) shall, upon any sale by the Company of any Sylvan Share, be
prepaid by the Company in an amount equal to the Sale Price; and
(d) shall be due and payable in full on the date on which the
Company shall have sold all of the Sylvan Shares.
As security for the payment and performance of the Secured Bridge Loan, the
Company shall pledge to the Investor, and shall grant to the Investor a security
interest in, all of the Company's right, title and interest in and to all of the
Sylvan Shares. The Company shall take, or cause to be taken, all such actions
as may be reasonably requested by the Investor in order to perfect the security
interest granted by the Company to the Investor pursuant to this Section 8.7.
9. Consulting Arrangement. During the period commencing on the date of the
----------------------
Closing and ending on November 1, 1999, the Investor shall provide the Company
with consulting services with respect to the education industry, including
advice and counsel in respect of industry trends, public school contracting,
government regulation, development and marketing of products, expansion of the
Company's customer base and other areas of relevant expertise. In providing
such consulting services, representatives of the Investor will, upon the
reasonable request of the Company, travel to the offices of the Company to meet
with the directors, officers and employees of the Company; provided, however,
-------- -------
that in no event shall representatives of the Investor be required to travel to
the offices of the Company more than twice in any calendar month. In
consideration of such consulting services, the Company shall pay to the Investor
a consulting fee of $500,000 per annum payable on December 31 in each of 1996,
1997 and 1998; provided, however, that at the election of the Company, the
-------- -------
Company may defer (a) until December 31, 1999 the payment of (i) up to $350,000
of such consulting fee due on December 31, 1996 and up to $150,000 of such
consulting fee due on December 31, 1997 and (b) until December 31, 2000 the
payment of (i) up to $50,000 of such consulting fee due on December 31, 1997 and
up to $100,000 of such consulting fee due on December 31, 1998.
10. Consents.
--------
10.1. Consent to Issuance and Sale of Additional Preferred Stock.
----------------------------------------------------------
The Investor hereby (a) consents to (i) the issuance and sale by Holdings of
additional warrants to purchase Holdings Common Stock having terms that are
substantially similar to the terms of the Warrant and (ii) the issuance and sale
by the Company of up to $10,000,000 in additional preferred stock having terms
that are substantially similar to the terms of the Shares, in each case prior to
May 7, 1998, and (b) agrees to execute such documents as may be reasonably
requested by Holdings and the Company in order to permit such issuance,
including an amendment to the Stockholders Agreement pursuant to which the
purchaser of such warrants and preferred stock shall become party thereto on
substantially the same terms as the Investor; provided, however, that (A) the
-------- -------
issuance and sale of such warrants shall be subject to the anti-dilution
provisions set forth in section 3.4 of the Warrant and (B) such preferred stock
shall be pari passu with, or junior to, the Preferred Stock with respect to
dividends, liquidation preferences and redemption rights.
-20-
10.2. Consent to Payment of Certain Dividends on the Common Stock.
-----------------------------------------------------------
The Investor hereby consents to the declaration and payment by the Company of
dividends on the Common Stock to the extent, and for the purposes (including (a)
the payment of (i) the Company's allocable share of Holdings' consolidated tax
expenses and (ii) the annual management fee of $750,000 owing from Holdings to
Xxxx Capital Partners IV, L.P., a Delaware limited partnership, and (b) the
repurchase of shares of Common Stock), permitted by Section 7.08 of the Bank
Credit Agreement, as in effect on the date hereof.
11. Development of At-Home Learning Software Program.
------------------------------------------------
11.1. Planning Phase. The Company and the Investor hereby
--------------
acknowledge that, after the Closing, the Company and the Investor intend to
determine the feasibility of developing and marketing computer-based, at-home
learning software. During a planning phase, the Company plans to spend up to
$1,200,000 in research and development of at-home learning software, market
research and analysis and preliminary planning for such product; provided,
--------
however, that any expenditure of all or any portion of such amount shall be made
-------
only after a committee comprised of two individuals appointed by the Company and
two individuals appointed by the Investor unanimously approves the items for
which such expenditure will be made and the amount of such expenditure. For
purposes of determining the amount of any expenditure, any personnel of the
Company and the Investor will be charged at 120% of the base salary of such
personnel, based on the number of hours worked (assuming a 40-hour work week),
and other expenses of the Company and the Investor, including all outside
expenses will be charged at actual cost. All software developed by the Company
will remain the property of the Company.
11.2. Formation of Limited Liability Company. If the Company and the
--------------------------------------
Investor decide to proceed with the at-home learning software, the Company and
the Investor shall form a Delaware limited liability company pursuant to an
agreement containing such terms as the Company and the Investor shall mutually
agree, and the terms of such limited liability company agreement will thereafter
control the joint venture. The excess of the revenues of the joint venture over
its expenses, including as expenses any direct costs incurred by the Company in
producing and delivering its software, shall be divided based on the number of
students referred to the joint venture by the Company and Sylvan respectively,
with 60% of the portion of the balance which is attributable to students
referred by Sylvan being paid to Sylvan and 40% of such portion being paid to
the Company and with the portion of the balance which is attributable to
students referred by the Company being shared equally. Unless otherwise agreed
the terms set forth in Section 11.3 shall also apply to the joint venture.
11.3. Other Terms. The board of managers of the limited liability
-----------
company will be comprised of two individuals appointed by the Company and two
individuals appointed by the Investor. The Company will make an initial capital
contribution to the limited liability company consisting of the results of all
research and development of software and market research and analysis, in each
case conducted during the planning phase; provided, however, that in no event
-------- -------
shall the Company be required to contribute to the limited liability company
-21-
any software developed during such phase; and provided, further, that the
-------- -------
Company shall grant to the limited liability company a perpetual, non-exclusive,
royalty-free license to any such software. The Investor will make an initial
capital contribution to the limited liability company consisting of market data
and customer information. The assets constituting the Company's initial capital
contribution to the limited liability company and the assets constituting the
Investor's initial capital contribution to the limited liability company shall
be deemed to have equal value and shall increase the respective capital accounts
of the Company and the Investor by equal amounts. In addition, the Company and
the Investor will contribute to the limited liability company cash in such
amount, if any, as they may mutually determine to be necessary. The Company and
the Investors shall make any such cash contributions to the limited liability
company in equal portions. The Company and the Investor will provide such other
goods and services other than the software which is Licensed to the joint
venture by the Company to the limited liability company on such terms, including
price, as the Company and the Investor shall mutually determine.
11.4. Provision of Certain Products and Services. The Company
------------------------------------------
acknowledges and agrees that the Investor may, in the future, use the Investor's
base curriculum to provide the Investor's customers with at-home tutorial
learning services which may not be subject to this Section 11; provided,
--------
however, that in no event shall the Investor use the curriculum of the Company
-------
or, as long as the limited liability company is operating, the curriculum of the
limited liability company to provide such services. The Investor acknowledges
and agrees that the Company may, in the future, use the Company's base
curriculum to provide the Company's customers with at-home learning software and
services which may not be subject to this Section 11; provided, however, that in
-------- -------
no event shall the Company use the curriculum of the Investor or, as long as the
limited liability company is operating, the curriculum of the limited liability
company to provide such software or services.
11.5. Source Codes. The Company acknowledges that an important
------------
component of the Investor's decision to develop and market at-home learning
software in the limited liability company is the availability of the on-going
services which the limited liability company would be able to provide in the
form of upgrades and modifications of such software, including any such upgrades
or modifications which are requested, and paid for, by the limited liability
company from time to time in order to conform such software to the limited
liability company's on-going requirements. As a result, the Company agrees that
should the Company for any reason cease to be able to provide upgrades and
modifications of the software which it has developed during the planning phase
on the basis which the Company customarily provides to customers generally, it
will make the source codes and system documentation for such software available
to the limited liability company for the sole purpose of enabling the limited
liability company to upgrade and modify the software for the requirements of the
Persons permitted to use such software as provided in the applicable agreement
between the limited liability company and such Persons; provided, however, that
-------- -------
the limited liability company shall use the source codes and system
documentation so provided only for the foregoing purpose, shall keep such source
codes confidential, shall take all reasonable steps requested by the Company to
protect such confidentiality and shall hold the Company harmless from and
-22-
against any and all losses, costs, damages and expenses which the Company may
suffer as a result of the limited liability company's failure to comply with the
provisions of this sentence.
12. Expiration of Certain Representations, Warranties and Obligations. The
-----------------------------------------------------------------
representations and warranties of the parties contained in this Agreement shall
expire on the date on which Holdings shall deliver to the Investor the audited
consolidated financial statements of Holdings and its Subsidiaries for the
fiscal year of Holdings ending December 31, 1997 required to be delivered
pursuant to Section 7.1.2; provided, however, that the representations and
-------- -------
warranties contained in Sections 3.1 through 3.3, 3.9, 3.15, 4.1 through 4.5 and
4.8 through 4.11 shall survive until the Investor ceases to own the Warrant, any
Shares and any Warrant Shares. The obligations of the Company to comply with
(a) Sections 7.1, 7.3 and 7.6 shall terminate upon the closing of a Qualified
Public Offering, (b) Section 7.4 shall terminate upon the earlier of (i) the
initial public offering of any equity securities of the Company or (ii) the
third anniversary of the Closing and (c) Section 7.10 shall terminate upon the
date on which the Investor owns less than 5% of the shares of Holdings Common
Stock held by the Investor on the date of the Closing (assuming the exercise of
the Warrant for shares of Holdings Common Stock).
13. Indemnification; Expenses.
-------------------------
13.1. Indemnification by Holdings, SSC and the Company. Subject to
------------------------------------------------
Section 13.3, from and after the date of the Closing, each of Holdings, SSC and
the Company, jointly and severally, will indemnify and hold harmless the
Investor and its directors, officers and controlling persons within the meaning
of the Exchange Act (collectively, the "Investor Indemnified Parties") against
----------------------------
any and all expenses, losses, claims, damages and liabilities at any time
imposed upon or reasonably incurred by any one or more of the Investor
Indemnified Parties in connection with, arising out of or resulting from any
claim, action, suit or proceeding in which any one or more of the Investor
Indemnified Parties may be involved or with which any one or more of the
Investor Indemnified Parties may be threatened by, arising from or relating to
any breach of any representation or warranty made by Holdings, SSC or the
Company in Section 3, including any amounts paid by any one or more of the
Investor Indemnified Parties in a reasonable compromise or settlement of any
such claim, action, suit or proceeding, or threatened claim, action, suit or
proceeding, made with the consent of Holdings, SSC and the Company, which
consent shall not be unreasonably withheld or delayed.
13.2. Indemnification by the Investor. Subject to Section 13.3, from
-------------------------------
and after the date of the Closing, the Investor will indemnify and hold harmless
each of Holding, the Company and their respective directors, officers and
controlling persons within the meaning of the Exchange Act (collectively, the
"Company Indemnified Parties") against any and all expenses, losses, claims,
----------------------------
damages and liabilities at any time imposed upon or reasonably incurred by any
one or more of the Company Indemnified Parties in connection with, arising out
of or resulting from any claim, action, suit or proceeding in which any one or
more of the Company Indemnified Parties may be involved or with which any one or
more of the Company Indemnified Parties may be threatened by, arising from or
relating to any breach of any representation or warranty made by the Investor in
Section 4, including any amounts paid by any one or more of the Company
Indemnified Parties in a reasonable compromise or settlement of any such claim,
action, suit or
-23-
proceeding, or threatened claim, action, suit or proceeding, made with the
consent of the Investor, which consent shall not be unreasonably withheld or
delayed.
13.3. Limitations on Indemnification Obligations. After the
------------------------------------------
expiration of any representation or warranty contained in Sections 3 or 4, no
claim for indemnification may be made by any Indemnified Party under this
Section 13 with respect to any breach of such representation or warranty;
provided, however, that any such claim for indemnification made prior to the
-------- -------
expiration of such representation or warranty shall survive the expiration of
such representation or warranty. In no event shall the liability of Holdings,
SSC and the Company for indemnification obligations under Section 13.1 exceed
$20,600,000 in the aggregate. In no event shall the liability of the Investor
for indemnification obligations under Section 13.2 exceed $20,600,000 in the
aggregate.
13.4. Expenses. Each of the parties hereto will bear its own
--------
expenses in connection with this Agreement and the other Transaction Documents
and the transactions contemplated hereby and thereby.
14. Definitions. Certain capitalized terms are used in this Agreement with
-----------
the specific meanings defined below in this Section 14.
14.1. "Academic Systems" means Academic Systems Corporation, a
----------------
California corporation.
14.2. "Academic Systems Preferred Stock" means each of Academic
--------------------------------
Systems' Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock, in each case $.001 par value per share.
14.3. "Academic Systems Shares" means the shares of Academic Systems
-----------------------
Preferred Stock assigned and transferred by the Company to the Investor under
the Academic Systems Stock Transfer Agreement.
14.4. "Academic Systems Stock Transfer Agreement" means the Stock
-----------------------------------------
Transfer Agreement dated as of November 1, 1996, as amended and in effect from
time to time, between the Company and the Investor.
14.5. "Accrual Year" means the period commencing on November 7 in any
------------
calendar year and ending on November 6 in the immediately succeeding calendar
year.
14.6. "Affiliate" means, with respect to any specified Person at any
---------
time, (a) each Person directly or indirectly controlling, controlled by or under
direct or indirect common control with such specified Person at such time, (b)
each Person who is or has been within two years prior to the time in question an
officer, director or direct or indirect beneficial holder of at least 10% of any
class of the outstanding capital stock of such specified Person, (c) the Members
of the Immediate Family of (i) each officer, director or holder described in
clause (b) above and (ii) if such specified Person is a natural person, of such
specified Person and (d) each Person of which
-24-
such specified Person or an Affiliate (as defined in clauses (a) through (c)
above) thereof shall, directly or indirectly, beneficially own at least 10% of
any class of outstanding capital stock or other evidence of beneficial interest
at such time.
14.7. "Aggregate Net Proceeds" means an amount equal to the sum of
----------------------
(a) the Aggregate Sale Price plus (b) the aggregate amount of payments received
----
by the Company from the Investor pursuant to Section 8.5.1.
14.8. "Aggregate Sale Price" means the sum of the respective Sale
--------------------
Prices in respect of all Sylvan Shares.
14.9. "Agreement" means this Stock Purchase Agreement, as amended
---------
and in effect from time to time.
14.10. "Amendment to the Company Articles of Incorporation" is
--------------------------------------------------
defined in Section 5.5.
14.11. "Amendment to the Holdings Certificate of Incorporation" is
------------------------------------------------------
defined in Section 5.4.
14.12. "Bank Credit Agreement" means each of (a) the Revolving Credit
---------------------
Agreement dated as of June 29, 1995 among the Company, Holdings, SSC, the
lenders from time to time party thereto and Banque Indosuez, New York Branch, as
agent and collateral agent for the lenders, together with any documents related
thereto (including any guarantee agreements, promissory notes and collateral
documents), and shall also mean (b) all agreements and other documents described
in clause (a) above, as the same may be amended, supplemented or otherwise
modified from time to time, or refunded, refinanced, restructured, replaced,
renewed, repaid or extended from time to time (whether with the original lenders
and agents or with other lenders or agents or otherwise, and whether provided
under the original "Bank Credit Agreement" or other credit agreements or
otherwise).
14.13. "Budget" means the annual budgets (including projected balance
------
sheets and projected income statements) of the Company for the respective fiscal
years of the Company ending on December 31 in each of 1997, 1998 and 1999
furnished by the Company to the lenders under the Company's senior credit
facility with respect to compliance by the Company with covenants under such
senior credit facility.
14.14. "Business" means, with respect to Holdings, SSC and the
--------
Company, (a) the production or marketing of educational or edutainment software
products or related services, including maintenance, training services and other
educational services, distributed through schoolhouse marketing, home marketing
or any other distribution channel to students or school administrators anywhere
in the world and (b) the production or marketing of educational or edutainment
software products or related services, including maintenance, training services
and other educational services, distributed through any channel to prisons,
adult learning centers, after-school learning centers or similar institutions
anywhere in the world.
-25-
14.15. "By-laws" means all written by-laws, rules, regulations and
-------
all other documents (other than the Charter) relating to the management,
governance or internal regulation of a Person (other than a natural person) or
interpretative of the Charter of such Person, each as from time to time in
effect.
14.16. "Charter" means the articles or organization, certificate of
-------
incorporation, statute, constitution, joint venture agreement, partnership
agreement, trust indenture, limited liability company agreement or other charter
document of any Person (other than a natural person), each as from time to time
in effect.
14.17. "Closing" is defined in Section 2.3.
-------
14.18. "Code" means the federal Internal Revenue Code of 1986.
----
14.19. "Common Stock" means the Company's Class A Common Stock, $.001
------------
par value per share.
14.20. "Company" is defined in the preamble to this Agreement.
-------
14.21. "Company Indemnified Parties" is defined in Section 13.2.
---------------------------
14.22. "Competitor Institution" means (a) any Person which is engaged
----------------------
through a Subsidiary or otherwise, directly or indirectly, in any business which
is the same as or similar to any business of Holdings and its Subsidiaries and
(b) any Person which beneficially owns, directly or indirectly, 5% or more of
any class of outstanding capital stock or other equity interests of any Person
described in clause (a) above.
14.23. "Contractual Obligation" means, with respect to any Person,
----------------------
any contract, agreement, deed, mortgage, lease, license, commitment,
undertaking, arrangement or understanding, written or oral, or other document or
instrument, including any document or instrument evidencing or otherwise
relating to any indebtedness but excluding the Charter and By-laws of such
Person, to which or by which such Person is a party or otherwise subject or
bound or to which or by which any property or right of such Person is subject or
bound.
14.24. "Debt" means, with respect to any Person, all obligations of
----
such Person (a) for borrowed money, (b) evidenced by notes, bonds, debentures or
similar instruments, (c) for the deferred purchase price of goods or services
(other than trade payables or accruals incurred in the Ordinary Course of
Business), (d) under capital leases and (e) in the nature of Guarantees of the
obligations described in clauses (a) through (d) above of any other Person.
14.25. "Distribution" means, with respect to the capital stock of or
------------
other evidence of beneficial interest in any Person, (a) the declaration or
payment of any dividend on or in respect of any shares of any class of such
capital stock or beneficial interest; (b) the purchase, redemption or other
retirement of any shares of any class of such capital stock or beneficial
interest, directly, or indirectly through a Subsidiary or otherwise; (c) any
other distribution on or
-26-
in respect of any shares of any class of such capital stock or beneficial
interest, or on or in respect of any stock appreciation or similar right; and
(d) the payment of cash in lieu of shares upon the exercise of any stock option
or similar instrument.
14.26. "EBITDA" means, for any period, the sum of:
------
(a) the net income (or loss) of the Company and its
Subsidiaries, determined in accordance with GAAP on a consolidated
basis; plus
----
(b) all amounts deducted in computing such consolidated net
income (or loss) in respect of (i) depreciation and amortization, (ii)
interest on, and commitment fees with respect to, indebtedness
(including payments in the nature of interest under capitalized leases
and interest rate protection agreements) and (iii) taxes based upon or
measured by net income.
14.27. "Exchange Act" means the Securities Exchange Act of 1934.
------------
14.28. "Financial Statements" means each of (a) the unaudited
--------------------
consolidated balance sheet of Holdings and its Subsidiaries as at September 30,
1996 and (b) the unaudited consolidated statements of income and cash flows of
Holdings and its Subsidiaries for the period of nine months then ended.
14.29. "GAAP" means generally accepted accounting principles, as from
----
time to time in effect, including the statements and interpretations of the
United States Financial Accounting Standards Board.
14.30. "Governmental Authority" means any federal, state, local or
----------------------
foreign government, governmental authority, regulatory or administrative agency,
governmental commission, court or tribunal (or any department, bureau or
division thereof) or any arbitral body.
14.31. "Guarantee" means (a) any guarantee of the payment or
---------
performance of, or any contingent obligation in respect of, any indebtedness or
other obligation of any other Person, (b) any other arrangement whereby credit
is extended to one obligor on the basis of any promise or undertaking of another
Person (i) to pay the indebtedness of such obligor, (ii) to purchase any
obligation owed by such obligor, (iii) to purchase or lease assets (other than
inventory in the ordinary course of business) under circumstances that would
enable such obligor to discharge one or more of its obligations, or (iv) to
maintain the capital, working capital, solvency or general financial condition
of such obligor, and (c) any liability as a general partner of a partnership or
as a venturer in a joint venture in respect of indebtedness or other obligations
of such partnership or venture.
-27-
14.32. "Guaranteed Sylvan Shares" means:
------------------------
(a) prior to May 7, 1997, any Sylvan Share (i) designated in
writing by the Company to the Investor as a "Guaranteed Sylvan Share"
prior to the sale thereof and (ii) sold by the Company with the
written consent of the Investor; and
(b) on or after May 7, 1997, any Sylvan Share (i) designated
in writing by the Company to the Investor as a "Guaranteed Sylvan
Share" prior to the sale thereof and (ii) sold by the Company.
14.33. "Holdings" is defined in the preamble to this Agreement.
--------
14.34. "Holdings Class A Common Stock" means each of Holdings' Class
-----------------------------
A-1 Common Stock and Class A-2 Common Stock, in each case $.01 par value per
share.
14.35. "Holdings Class L Common Stock" means each of Holdings' Class
-----------------------------
L-1 Common Stock and Class L-2 Common Stock, in each case $.01 par value per
share.
14.36. "Holdings Common Stock" means each of Holdings' Class A-1
---------------------
Common Stock and Class L-1 Common Stock, in each case $.01 par value per share.
14.37. "Indemnified Party" means each of the Company Indemnified
-----------------
Parties and the Investor Indemnified Parties.
14.38. "Initial Specified Price" means the average of the last bid
-----------------------
prices in respect of the Sylvan Common Stock on the NASDAQ on each of the 10
trading days immediately prior to the date of the Closing (as adjusted for a
three for two stock split).
14.39. "Initial Sylvan Shares" is defined in Section 2.3.
---------------------
14.40. "Investor" is defined in the preamble to this Agreement.
--------
14.41. "Investor Indemnified Parties" is defined in Section 13.1.
----------------------------
14.42. "Jostens" means Jostens, Inc., a Minnesota corporation.
-------
14.43. "Jostens Warrant" means the Warrant dated as of November 8,
---------------
1996, as amended and in effect from time to time, issued by Holdings to Jostens,
pursuant to which Jostens may purchase up to 1,495,000 shares of Holdings' Class
A-2 Common Stock, $.01 par value per share.
14.44. "Legal Requirement" means any federal, state, local or foreign
-----------------
law, statute, standard, ordinance, code, order, rule, regulation, resolution or
promulgation, or any order, judgment or decree of any Governmental Authority, or
any license, franchise, permit or similar
-28-
right granted under any of the foregoing, or any similar provision having the
force and effect of law.
14.45. "Lien" means any mortgage, pledge, lien, security interest,
----
charge, claim, equity, encumbrance, restriction on transfer, conditional sale or
other title retention device or arrangement (including without limitation a
capital lease), transfer for the purpose of subjection to the payment of any
indebtedness, or restriction on the creation of any of the foregoing, whether
relating to any property or right or the income or profits therefrom; provided,
--------
however, that the term "Lien" shall not include (a) statutory liens for Taxes to
-------
the extent that the payment thereof is not in arrears or otherwise due, (b)
encumbrances in the nature of zoning restrictions, easements, rights or
restrictions of record on the use of real property if the same do not detract
from the value of such property, (c) statutory or common law liens to secure
landlords, lessors or renters under leases or rental agreements confined to the
premises rented to the extent that no payment or performance under any such
lease or rental agreement is in arrears or is otherwise due, (d) deposits or
pledges made in connection with, or to secure payment of, worker's compensation,
unemployment insurance, old age pension or other social security programs
mandated under applicable Legal Requirements and (e) statutory or common law
liens in favor of carriers, warehousemen, mechanics and materialmen, statutory
or common law liens to secure claims for labor, materials or supplies and other
like liens, which secure obligations to the extent that payment thereof is not
in arrears or otherwise due.
14.46. "Material Adverse Effect" means any change in or effect on the
-----------------------
business, operations, assets or condition, financial or otherwise, of Holdings
or any of its Subsidiaries which is materially adverse to the Company and its
Subsidiaries taken as a whole.
14.47. "Members of the Immediate Family" means, with respect to any
-------------------------------
natural person, (a) each spouse, parent, brother, sister or child of such
natural person; (b) each spouse of any Person described in clause (a) above; (c)
each child of any Person described in clauses (a) or (b) above; (d) each trust
created solely for the benefit of one or more of the Persons described in
clauses (a) through (c) above; and (e) each custodian or guardian of any
property of one or more of the Persons described in clauses (a) through (d)
above in his or her capacity as such custodian or guardian.
14.48. "Multiplier" means the lesser of (a) one or (b) a number equal
----------
to the sum of:
(i) 0.3333; plus
----
(ii) the product of (A) 0.6667 multiplied by (B) 0.1
---------- --
multiplied by (iii) the number of weeks (including any partial week)
---------- --
during the period commencing on November 21, 1996 and ending on the
date on which the registration statement covering the Sylvan Shares
under the Securities Act filed pursuant to Section 8.3 shall become
effective.
14.49. "Note Purchase Agreement" means each of (a) the Senior
-----------------------
Subordinated 12.25% Note Purchase Agreement dated as of June 29, 1995 among the
Company, Holdings, SSC, the purchasers of the Notes (as defined therein) party
thereto, together with any documents related
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thereto (including any guarantee agreements, promissory notes and collateral
documents), and shall also mean (b) all agreements and other documents described
in clause (a) above, as the same may be amended, supplemented or otherwise
modified from time to time, or refunded, refinanced, restructured, replaced,
renewed, repaid or extended from time to time (whether with the original
purchasers of the Notes or with other purchasers of the Notes or otherwise, and
whether provided under the original "Note Purchase Agreement" or other note
purchase agreements or otherwise).
14.50. "Notice of Sale" is defined in Section 7.4.
--------------
14.51. "Number of Guaranteed Sylvan Shares" means a number equal to
----------------------------------
the lesser of (a) the product of (i) the number of Sylvan Shares received by the
Company from the Investor pursuant to this Agreement multiplied by (ii) the
---------- --
Multiplier and (b) the Guaranteed Sylvan Shares.
14.52. "Offer" is defined in Section 7.4.
-----
14.53. "Ordinary Course of Business" means the ordinary course of
---------------------------
business consistent with past custom and practice for the business operations in
question, including without limitation past practice with respect to quantity
and frequency, and the Company's standard employment and payroll policies and
practices.
14.54. "Person" means any present or future natural person or any
------
corporation, association, partnership, limited liability company, limited
liability partnership, joint venture, joint stock or other company, business
trust, trust, organization, business or government or any governmental agency or
political subdivision thereof.
14.55. "Preferred Stock" means the Company's Class A Preferred Stock,
---------------
$.01 par value per share.
14.56. "Product Supply Agreement" means the Product Supply and
------------------------
License Agreement dated as of November 1, 1996, as amended and in effect from
time to time, between the Company and the Investor.
14.57. "Public Documents" means each of:
----------------
(a) the Investor's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995, together with the exhibits thereto and
the information incorporated therein by reference;
(b) the Investor's Quarterly Reports on Form 10- for the
fiscal quarters ended March 31, 1996 and June 30, 1996, respectively,
together with the exhibits thereto and the information incorporated
therein by reference; and
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(c) the Investor's Current Reports on Form 8-K filed with the
Securities and Exchange Commission after December 31, 1995, together
with the exhibits thereto and the information incorporated therein by
reference.
14.58. "Qualified Public Offering" means the initial sale of common
-------------------------
stock by Holdings in a public offering registered under the Securities Act in
which:
(a) the aggregate gross proceeds received by Holdings equal
or exceed $15,000,000; and
(b) the product of (i) the price per share of such common
stock multiplied by (ii) the number of shares of such common stock
---------- --
issued or issuable to the Investor upon exercise of the Warrant equals
or exceeds the sum of (A) $20,000,000 plus (B) all accrued and unpaid
dividends on the Preferred Stock.
14.59. "Restatement Agreement" means the Restatement Agreement dated
---------------------
as of November 1, 1996, as amended and in effect from time to time, among
Holdings, SSC, the Company, the stockholders of Holdings and the Investor.
14.60. "Sale of the Enterprise" means any single transaction (or
----------------------
series of related transactions) effecting:
(a) a consolidation, merger or other business combination of
Holdings, SSC or the Company with or into any other corporation or
entity in which the stockholders of Holdings, SSC or the Company, as
the case may be, do not own more than 50% of the outstanding voting
power of the surviving corporation or entity immediately after such
consolidation, merger or other business combination; or
(b) a sale of 50% or more of the capital stock or assets of
Holdings, SSC or the Company.
14.61. "Sale Price" means, with respect to any sale by the Company of
----------
any Sylvan Share, the price (net of any sale commissions and underwriting
discounts) received by the Company from the purchaser in respect of such Sylvan
Share.
14.62. "Secured Bridge Loan" is defined in Section 8.7.
-------------------
14.63. "Securities" means each of the Warrant, the Shares and the
----------
Warrant Shares.
14.64. "Securities Act" means the Securities Act of 1933.
--------------
14.65. "Senior Credit Facility" means each of (a) the Bank Credit
----------------------
Agreement and (b) each other loan agreement pursuant to which the Company may
incur senior indebtedness, together with any documents related thereto
(including any guarantee agreements, promissory notes and collateral documents),
in each case as such agreements and other documents may be
-31-
amended, supplemented or otherwise modified from time to time, or refunded,
refinanced, restructured, replaced, renewed, repaid or extended from time to
time (whether with the original lenders and agents or with other lenders or
agents or otherwise, and whether provided under the original loan agreement or
other loan agreements or otherwise).
14.66. "Shares" is defined in Section 2.2.
------
14.67. "Specified Debt" means, with respect to any Person, all
--------------
obligations of such Person (a) for borrowed money or (b) evidenced by notes,
bonds, debentures or similar instruments; provided, however, that the term
-------- -------
"Specified Debt" shall specifically exclude (i) obligations under capitalized
and operating leases and (ii) purchase money obligations.
14.68. "SSC" is defined in the preamble to this Agreement.
---
14.69. "Stockholders Agreement" means the Second Restated
----------------------
Stockholders Agreement dated as of November 1, 1996, as amended and in effect
from time to time, among Holdings, SSC, the Company, the stockholders of
Holdings and the Investor.
14.70. "Subsequent Specified Price" means the last bid price in
--------------------------
respect of the Sylvan Common Stock on the NASDAQ on the date upon which the
registration under the Securities Act of the Sylvan Shares pursuant to Section
8.3 shall become effective.
14.71. "Subsequent Sylvan Shares" is defined in Section 8.4.
------------------------
14.72. "Subsidiary" means any Person of which the Company (or other
----------
specified Person) shall at the time, directly or indirectly through one or more
Subsidiaries, (a) own at least 50% of the outstanding capital stock (or other
shares of beneficial interest) entitled to vote generally, (b) hold at least 50%
of the partnership, joint venture or similar interests or (c) be a general
partner or joint venturer.
14.73. "Sylvan Common Stock" means the Investor's Common Stock, $.01
-------------------
par value per share.
14.74. "Sylvan Shares" means each of the Initial Sylvan Shares and
-------------
the Subsequent Sylvan Shares.
14.75. "Tax Return" means all federal, state, local and foreign Tax
----------
returns, Tax reports, claims for refund of Tax and declarations of estimated
Tax, or other statement relating to Taxes and any schedule or attachments to any
of the foregoing.
14.76. "Taxes" means any federal, state, local, or foreign income,
-----
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
section 59A of the Code), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real or
personal property, sales, use, transfer, registration, value added, alternative
or add-on minimum,
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estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
14.77. "Transaction Documents" means each of (a) this Agreement, (b)
---------------------
the Warrant, (c) the Restatement Agreement, (d) the Stockholders Agreement, (e)
the Product Supply Agreement, (f) the Academic Systems Stock Transfer Agreement
and (g) any other agreements, instruments, or documents entered into by the
Company or its Subsidiaries pursuant to this Agreement or the other Transaction
Documents (as defined in clauses (b) through (f) above).
14.78. "Warrant" is defined in Section 2.1.
-------
14.79. "Warrant Shares" means the shares of Holdings Common Stock is
--------------
upon exercise of the Warrant.
15. Miscellaneous.
-------------
15.1. Notices. Any notice required to be given pursuant to this
-------
Agreement shall be given in writing. Any notice, consent, approval, demand and
other communication in connection with this Agreement shall be deemed to be
given if given in writing (including telex, telecopy or similar
teletransmission) addressed as provided below (or to the addressee at such other
address as the addressee shall have specified by notice actually received by the
addressor), and if either (a) actually delivered in fully legible form to such
address (evidenced in the case of a telex by receipt of the correct answerback)
or (b) in the case of a letter, five days shall have elapsed after the same
shall have been deposited in the United States mails (i) with first-class
postage prepaid and registered or certified, with return receipt requested, or
(ii) with express delivery postage prepaid, with receipt required for delivery.
If to Holdings or the Company, to it at 0000 Xxxxxxx Xxxxxxx
Xxxxxxxxx, Xxxxx 000, Xxx Xxxxx, Xxxxxxxxxx 00000, to the attention of
its Chief Executive Officer, with a copy to each of (a) Xxxx Capital,
Inc., Two Xxxxxx Xxxxx, 0xx Xxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000, to the
attention of Xxxxxxx X. Xxxxxx and (b) Ropes & Xxxx, Xxx Xxxxxxxxxxxxx
Xxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000, to the attention of X. Xxxxxxxx
Malt, Esq.
If to the Investor, to it at 0000 Xxxxxxxx Xxxx, Xxxxxxxx,
Xxxxxxxx 00000, to the attention of its Chief Financial Officer, with
a copy to Piper & Marbury L.L.P., 00 Xxxxx Xxxxxxx Xxxxxx, Xxxxxxxxx,
Xxxxxxxx 00000-0000, to the attention of Xxxxxxx Xxxxxxxx, Esq.
15.2. Specific Performance. The parties recognize that their
--------------------
respective rights under this Agreement are unique, and, accordingly, each party
shall, in addition to such other remedies as may be available to it at law or in
equity, have the right to enforce its rights hereunder by actions for injunctive
relief and specific performance to the extent permitted by law. This Agreement
is not intended to limit or abridge any rights of either party which may exist
apart from this Agreement.
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15.3. Binding Effect; Assignment. All covenants, agreements,
--------------------------
representations, warranties and undertakings in this Agreement made by and on
behalf of any of the parties hereto shall bind and inure to the benefit of their
respective successors and permitted assigns, whether so expressed or not. No
party shall have the right to assign its rights and obligations hereunder, or
any interest herein, without the prior written consent of the other party.
15.4. Course of Dealing; Amendments, Waivers and Consents. No course
---------------------------------------------------
of dealing between the parties hereto shall operate as a waiver of any such
party's rights under this Agreement. Each party hereto acknowledges that if any
other party hereto, without being required to do so by this Agreement, gives any
notice or information to, or obtains any consent from, such party, such party
shall not by implication have amended, waived or modified any provision of this
Agreement, or created any duty to give any such notice or information or to
obtain any such consent on any future occasion. No delay or omission on the
part of any party hereto in exercising any right under this Agreement shall
operate as a waiver of such right or any other right hereunder or thereunder. A
waiver on any one occasion shall not be construed as a bar to or waiver of any
right or remedy on any future occasion. No amendment, waiver or consent with
respect to this Agreement shall be binding unless it is in writing and signed by
each of (a) Holdings, (b) the Company and (c) if any Shares are outstanding, the
holders of at least a majority of the Shares then outstanding or, if no Shares
are outstanding, the holders of at least a majority of the Exchange Shares then
outstanding.
15.5. General. All Exhibits and Schedules are hereby incorporated by
-------
reference and made a part of this Agreement. If any provision of this Agreement
shall be found by any court of competent jurisdiction to be invalid or
unenforceable, the parties hereby waive such provision to the extent that it is
found to be invalid or unenforceable. Such provision shall, to the maximum
extent allowable by law, be modified by such court so that it becomes
enforceable, and, as modified, shall be enforced as any other provision hereof,
all the other provisions hereof continuing in full force and effect. The
headings contained in this Agreement are for reference purposes only and shall
not in any way affect the meaning or interpretation hereof. This Agreement and
the other Transaction Documents constitute the entire understanding of the
parties with respect to the subject matter hereof and supersede any and all
prior understandings and agreements, whether written or oral, with respect to
such subject matter. This Agreement may be executed in counterparts, which
together shall constitute one and the same instrument. This Agreement shall be
governed by and construed in accordance with the laws (other than the conflict
of laws rules) of The Commonwealth of Massachusetts.
[The remainder of this page has been intentionally left blank.]
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IN WITNESS WHEREOF, each of the undersigned has caused this Agreement
to be executed by its duly authorized officer as an agreement under seal as of
the date first above written.
JLC HOLDINGS, INC.
By_________________________________
Title:
SOFTWARE SYSTEMS CORP.
By_________________________________
Title:
JLC LEARNING CORPORATION
By_________________________________
Title:
SYLVAN LEARNING SYSTEMS, INC.
By_________________________________
Title:
-35-
EXHIBITS AND SCHEDULES
Exhibits
--------
A - Warrant
B - Amendment to Holdings Certificate of
Incorporation
C - Amendment to Company Articles of Incorporation
D - Restatement Agreement
E - Stockholders Agreement
F - Product Supply Agreement
G - Academic Systems Stock Transfer Agreement
H - Amendment to Bank Credit Agreement
I - Amendment to Note Purchase Agreement
J - Opinion of Company's Counsel
K - Opinion of Company's Illinois Counsel
L - Opinion of Investor's Counsel
M - Registration of Sylvan Shares
Schedules of the Company
---------------------------
3.3.1 - Capitalization of Holdings
3.5 - Financial Statements; Budget
3.8 - Transactions with Affiliates
3.14 - Litigation
Schedules of the Investor
---------------------------
4.3 - Capitalization
4.5 - Approvals and Consents
4.6 - Litigation
-2-
