EXHIBIT 4.2
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STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") dated as of
September 9, 1998, is made between The Chauncey Group International, Ltd., a
Delaware corporation ("Chauncey") and Sylvan Learning Systems, Inc., a Maryland
corporation ("Sylvan").
RECITALS
WHEREAS, Sylvan wishes to subscribe for certain convertible preferred
stock of Chauncey in exchange for, at Sylvan's option, either Eight Million
Dollars ($8,000,000) or its equivalent in shares of common stock of Sylvan, and
Chauncey is willing to issue and sell to Sylvan such preferred stock on the
terms described herein.
NOW THEREFORE, in consideration of the premises, and other good and
valuable consideration the adequacy of which is expressly acknowledged, the
parties hereby agree as follows:
ARTICLE I
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DEFINITIONS
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1.1 Defined Terms. The following terms shall have the meanings set
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forth herein:
"affiliate of", or a Person "affiliated" with, a specified Person, is a Person
that directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the Person specified.
"Asset Purchase Agreement" shall mean that certain asset purchase
agreement entered into by and between ITC and Sylvan, on even date herewith.
"Business Day" shall mean any day other than a (i) Saturday, (ii)
Sunday, or (iii) any day on which commercial banking institutions in New York,
New York are authorized or obligated to close, provided, however, that if four
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(4) consecutive days are not Business Days, the next day shall be deemed a
Business Day whether or not banks located in New York, New York are authorized
or obligated to close.
"Chauncey Common Stock" shall mean the common stock, par value $1.00
per share, of Chauncey.
"Closing Date" shall mean the date when Closing actually occurs.
"Exchange Act" shall mean the Securities and Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"ITC" shall mean Insurance Testing Corporation, a Minnesota
Corporation.
"Lien" shall mean any mortgage, security interest, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
otherwise), charge, preference, priority or other security agreement, option,
warrant, attachment, right of first refusal, preemptive, conversion, put, call
or other claim or right, restriction on transfer (other than restrictions
imposed by federal and state securities laws), or preferential arrangement of
any kind or nature whatsoever (including any restriction on the transfer of any
assets, any conditional sale or other title retention agreement, any financing
lease involving substantially the same economic effect as any of the foregoing
and the filing of any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction).
"Limited Liability Company Agreement" shall mean that certain limited
liability company agreement between ITC and NAI/BLOCK, entered into on even date
herewith.
"NAI/Block" shall mean Block Testing Services Inc., a Maryland
corporation ("Block") and National Assessment Institute, Inc., a Florida
corporation and wholly owned subsidiary of Block.
"Person" shall mean any natural person, sole proprietorship,
corporation, general partnership, limited partnership, limited liability
company, union, association, court, agency, agreement, tribunal,
instrumentality, commission, arbitrator, board, bureau, or other entity or
authority.
"Prime Rate" shall mean the prime rate as reported in the "Money
Rates" column of The Wall Street Journal, or, if such prime rate is not so
published, the "prime" or "base" rate quoted by the Chase Manhattan Bank, or any
other international bank chosen by Chauncey if The Chase Manhattan Bank is no
longer in existence.
"Qualified Public Offering" shall mean an underwritten public offering
of the Chauncey Common Stock, registered under the Securities Act, in which the
aggregate net proceeds to Chauncey shall be at least Fifteen Million Dollars
($15,000,000).
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Shareholder" shall mean any holder of Shares.
"Shares" shall mean any and all issued and outstanding shares of
capital stock of Chauncey, including, without limitation, the Chauncey Common
Stock and the Preferred Stock.
"Sylvan Common Stock" shall mean the common stock of Sylvan, par value
$.01 per share.
"Sylvan Shares" shall mean a number of shares of Sylvan Common Stock
with an aggregate value of Eight Million Dollars ($8,000,000) as of the day of
the Closing.
"Transfer" as a noun, any voluntary or involuntary sale, assignment,
transfer, pledge, hypothecation, exchange or other disposition of the Preferred
Interest (as defined below) by any means whatsoever, whether by operation of law
or otherwise; and as a verb, any action or actions taken by or on behalf of
Sylvan which result in such sale, assignment, transfer, pledge, hypothecation,
exchange or other disposition of the Preferred Interest (as defined below).
In addition, the following terms are defined elsewhere in this
Agreement:
Agreement Introductory Paragraph
Chauncey Introductory Paragraph
Sylvan Introductory Paragraph
Preferred Stock 2.1
Effective Time 2.3
Post Closing Period 2.6
Closing 3.1
Sylvan Put Notice 4.1
Chauncey Financial Statements 5.1(f)
Preferred Interest 8.1
Claims 9.2
Indemnity Obligation 9.3
Indemnifying Party 9.3
Indemnified Party 9.3
Annex A
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Agreed Value Annex A
Liquidation Preference Annex A
Preferential Dividend Annex A
1.2 Accounting Terms. Accounting terms used herein and not otherwise
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defined herein shall be construed in accordance with generally accepted
accounting definitions and principles consistently applied.
1.3 Singular and Plural. Words used herein in the singular,
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where the context so permits, shall be deemed to include the plural and vice
versa. The definitions of words in the singular herein shall apply to such
words when used in the plural where the context so permits and vice versa.
ARTICLE II
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PURCHASE AND SALE
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2.1 Description of the Preferred Stock. The preferred stock shall
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consist of Fifty Two Thousand Six Hundred and Thirty Two (52,632) shares of
convertible preferred stock of Chauncey, bearing the rights and characteristics
set forth in Section B of Annex A hereto (the "Preferred Stock"), representing,
as of the date of this Agreement, and assuming the repurchase of Chauncey stock
currently owned by certain Chauncey shareholders, one hundred percent (100%) of
the total issued and outstanding Preferred Stock of Chauncey on a fully diluted
basis and five percent (5%) of the total issued and outstanding capital stock of
Chauncey on a fully diluted basis.
2.2 Subscription and Sale. Pursuant to the terms and subject to the
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conditions hereof, on the Closing Date, but effective as of the Effective Time,
Chauncey shall offer for subscription and issue to Sylvan the Preferred Stock
for the Purchase Price (as defined below) and Sylvan shall subscribe and pay for
such Preferred Stock in accordance with Section 2.4.
2.3 Effective Time. The subscription of the Preferred Stock shall be
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effective as of the date Sylvan delivers the Purchase Price to Chauncey (the
"Effective Time").
2.4 Purchase Price. The Purchase Price for the Preferred Stock shall
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be, at Sylvan's option, either Eight Million Dollars ($8,000,000) or the Sylvan
Shares (the "Purchase Price").
2.5 Payment of Purchase Price. At the Closing Sylvan shall either
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(i) deliver to Chauncey the amount set forth in Section 2.4, by wire transfer or
other delivery of immediately available funds to the credit of such account as
Chauncey shall designate, or (ii) offer for subscription and issue to Chauncey
the Sylvan Shares.
2.6 Guaranteed Value of Sylvan Shares.
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(a) Post-Closing Period. For one hundred twenty (120) days
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following the Closing Date (the "Post Closing Period"), upon (i) sale by
Chauncey of any Sylvan Shares received under Section 2.5 and (ii) written notice
from Chauncey to Sylvan at the conclusion of the earlier of (x) the sale of all
Sylvan Shares received under this Agreement or (y) the expiration of the Post
Closing Period, setting forth the total sale price for the Sylvan Shares sold,
such Sylvan Shares shall be subject to subsections (b) and (c).
(b) Guaranteed Value. Subject to the adjustment in subsection
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(c), (i) if the sale price for all the shares of Sylvan Common Stock sold net of
all costs to Chauncey of such sale is less than Eight Million Dollars
($8,000,000) then Sylvan promptly shall pay to Chauncey an amount equal to such
difference and (ii) if the sale
price for all the shares of Sylvan Common Stock sold net of all costs to
Chauncey of such sale is greater than Eight Million Dollars ($8,000,000),
Chauncey promptly shall pay to Sylvan an amount equal to such difference.
(c) Adjustment For and Repurchase of Unsold Sylvan Shares. If
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all Sylvan Shares have not been sold by Chauncey within the Post Closing Period,
then the calculations in subsection (b) shall be done based on the actual sales
price for the number of shares of Sylvan Shares actually sold compared to Eight
Million Dollars ($8,000,000) adjusted to reflect the percentage of Sylvan Shares
actually sold; provided, however, that if Chauncey's failure to sell any or all
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of the Sylvan Shares by the date of the expiration of the Post Closing Period is
the result of any event or restriction not caused by Xxxxxxxx, Xxxxxx shall
repurchase such remaining shares as are held by Chauncey for a repurchase price
equal to Eight Million Dollars ($8,000,000) minus the net proceeds received by
Chauncey with respect to sales made prior to the expiration of the Post Closing
Period; provided, further, that at anytime within the Post Closing Period, upon
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written notice by Sylvan, Chauncey shall sell to Sylvan any remaining shares as
are held by Chauncey for a repurchase price equal to Eight Million Dollars
($8,000,000) minus the net proceeds received by Chauncey with respect to sales
made prior to the date of such notice.
ARTICLE III
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THE CLOSING
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3.1 Date of Closing. Subject to the conditions stated in this
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Agreement, the consummation of the transactions contemplated hereby (the
"Closing") shall occur at the Effective Time, or such other date as is mutually
satisfactory to the parties hereto.
3.2 Place of Closing. The Closing shall be held at such place as the
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parties hereto may agree in writing.
3.3 Conditions to Chauncey's Closing. The obligations of Chauncey
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hereunder are subject to the following conditions, each of which must be
satisfied or waived by Chauncey prior to the Closing:
(a) Delivery of Purchase Price. At the Closing, Chauncey shall
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have the Eight Million ($18,000) or a cerifticate presenting the Sylvan Shares,
with all necessary transfer taxes paid or other revenue stamps affixed thereto.
(b) Other Deliveries. Sylvan shall have delivered such documents,
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certificates and/or instructions as may be reasonably necessary or advisable to
carry out Sylvan's obligations under, and to fulfill the purpose of, this
Agreement .
(c) Representations and Warranties True. Chauncey shall be
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satisfied that all representations and warranties of Sylvan contained in this
Agreement are true in all material respects at and as of the Closing as if such
representations and warranties were made at and as of the Closing, and that
Sylvan shall have performed and satisfied all material agreements in all
material respects as required by this Agreement to be performed and satisfied by
Sylvan at or prior to the Closing.
(d) Other Agreements. Each of the Limited Liability Company
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Agreement, the Asset Purchase Agreement and the Collaboration Agreement shall
have been executed and delivered by each party thereto, and each such document
shall be in full force and effect as of the Closing.
3.4 Conditions to Sylvan's Closing. The obligations of Sylvan
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hereunder are subject to the following conditions, each of which must be
satisfied or waived by Sylvan prior to the Closing:
(a) Resolutions. Prior to or at the Closing, Sylvan shall have
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received resolutions of the Board of Directors and/or Shareholders of Chauncey,
as required by law and Chauncey's Articles of Incorporation and By-laws,
authorizing and approving the transactions contemplated by this Agreement,
certified by
the respective Secretary or Assistant Secretary of Chauncey, together with
certified copies of Chauncey's Articles of Incorporation and By-laws and a good-
standing certificate with respect to Chauncey from the State of Delaware.
(b) Stock Certificates. At the Closing, Chauncey shall deliver to
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Sylvan a certificate representing the Preferred Stock, with all necessary
transfer taxes paid or other revenue stamps affixed thereto.
(c) Opinion of Counsel. Prior to or at the Closing, Sylvan shall have
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received an opinion of Xxxxxx, Xxxxxx & Xxxxxxxxx in form and substance
reasonably acceptable to Sylvan.
(d) Other Deliveries. Chauncey shall have delivered such additional
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instruments, as may be reasonably necessary or advisable to carry out Chauncey's
obligations under, and to fulfill the purpose of, this Agreement and any other
document, certificate or other instructions delivered pursuant hereto.
(e) Representations and Warranties True. Sylvan shall be satisfied
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that all representations and warranties of Chauncey contained in this Agreement
shall be true in all material respects as at and as of the Closing as if such
representations and warranties were made at and as of the Closing, and that
Chauncey has performed and satisfied all material agreements in all material
respects as required by this Agreement to be performed and satisfied by Chauncey
at or prior to the Closing.
(f) Other Agreements. Each of the Limited Liability Company
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Agreement, the Asset Purchase Agreement and the Collaboration Agreement shall
have been executed and delivered by each party thereto, and each such document
shall be in full force and effect as of the Closing.
ARTICLE IV
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PUT RIGHTS AND EFFECT OF QUALIFIED PUBLIC OFFERING
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4.1 Put Rights of Preferred Stock Holder. At the written request of
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Sylvan made (i) on or after the tenth (10th) anniversary of the date hereof or
(ii) upon the termination of the Limited Liability Company Agreement (the
"Sylvan Put Notice") Chauncey shall purchase all but not less than all of the
Preferred Stock.
4.2 Purchase Price. The value of the Preferred Stock, in the
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aggregate, to be purchased by Chauncey pursuant to Section 4.1 above shall be
equal to (i) Eight Million Dollars ($8,000,000), plus (ii) interest at a 6%
annual rate compounded annually from the Closing Date until the earlier of (x)
the date of the Sylvan Put Notice, or (y) the tenth anniversary of the date
hereof, plus (iii) interest at the Prime Rate from the date the Sylvan Put
Notice was received by Chauncey until payment.
4.3 Effect of Qualified Public Offering In the event of a
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Qualified Public Offering, (i) any rights and obligations with respect to the
repurchase of Preferred Stock provided for above shall terminate and be of no
further effect; provided, however, no such termination shall occur if Chauncey
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has received the Sylvan Put Notice prior to Chauncey sending Sylvan notice of a
proposed registration with respect to such Qualified Public Offering and (ii)
all outstanding shares of Preferred Stock shall convert automatically into
shares of Chauncey Common Stock as set forth in Section B.5 of Annex A.
ARTICLE V
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PIGGYBACK REGISTRATION RIGHTS
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5.1 Piggyback Registration Rights. If at any time Chauncey
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decides to make a Qualified Public Offering, other than an initial public
offering, and proposes to file a registration statement for the public sale of
any shares of Chauncey Common Stock, Chauncey shall, not later than thirty (30)
days prior to the initial filing of the registration statement, deliver notice
of its intent to file such registration statement to Sylvan,
setting forth the minimum and maximum proposed offering price, commissions, and
discounts in connection with the offering, and other relevant information.
Within twenty (20) days after receipt of notice of Chauncey's intent to file a
registration statement, Sylvan shall be entitled to request the inclusion in
such registration statement of any or all of Chauncey Common Stock owned by
Sylvan ("Sylvan Registrable Securities"). Chauncey will use commercially
reasonable efforts to cause the Sylvan Registrable Securities to be included in
the offering covered by such registration statement; provided, however, that if
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the Qualified Public Offering involves an underwriting, the right of Sylvan to
have the Sylvan Registrable Securities included in the Qualified Public Offering
under this Article 5 shall be conditioned on Sylvan's participation in the
underwriting and the inclusion of the Sylvan Registrable Securities in the
underwriting to the extent provided in this Article 5. In this case, Sylvan
shall, together with Chauncey, enter into an underwriting agreement in customary
form with the underwriter or underwriters selected by Chauncey. Notwithstanding
any other provisions of this Article 5, if the underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, or in the event that the offering is not being underwritten,
Chauncey determines in good faith that marketing factors require a limitation on
the number of shares to be offered, the number of shares to be offered in the
Qualified Public Offering shall not exceed such limitation and if the total
number of the shares proposed to be registered by Chauncey and the Sylvan
Registrable Securities requested to be included as provided above exceeds such
limitation, Chauncey shall be entitled to include in the offering the full
amount of shares to be sold on its behalf and Sylvan shall be entitled to sell
up to the remaining balance of the limitation in proportion, as nearly as
practicable, to the respective amounts of Sylvan Registrable Shares at the time
of the Qualified Public Offering.
5.2 Expenses . All expenses incurred by Chauncey in connection
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with any registration of the Sylvan Registrable Securities effected under
Section 5.1 hereof, including, without limitation, all registration or filing
fees, fees and expenses of complying with state securities and blue sky laws,
printing expenses, fees and expenses of Chauncey's counsel and accountants shall
be paid by Chauncey; provided, however, that all underwriting discounts and
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selling commissions applicable to the Sylvan Registrable Securities and any fees
and expenses of counsel and accountants for Sylvan, shall be borne by Sylvan.
ARTICLE VI
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REPRESENTATIONS AND WARRANTIES
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6.1 Representations and Warranties of Chauncey. Chauncey represents
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and warrants as of the date hereof and as of the Closing Date as follows:
(a) Organization. Chauncey is a corporation duly organized,
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validly existing and in good standing under the laws of the State of Delaware,
and is duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
respective businesses in the places and in the manner as now conducted.
(b) Capital Stock. The authorized capital stock of Chauncey
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consists of 1,900,000 shares of common stock, which are outstanding as of the
date of this Agreement and 100,000 shares of Preferred Stock. Chauncey has no
other Shares or capital stock of any class or other equity securities or equity
equivalents authorized, issued or outstanding. Chauncey has reserved a
sufficient number of authorized Shares for issuance for conversion of the
Preferred Stock. All of the Shares of Preferred Stock to be issued to Sylvan in
accordance herewith will be offered, issued, sold and delivered by Chauncey in
compliance with all applicable state and federal laws concerning the issuance of
securities and none of such shares was or will be issued in violation of the
preemptive rights of any Shareholder.
(c) Transfer of the Preferred Stock. Upon the consummation of
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the transactions contemplated hereby, Sylvan will acquire title to the Preferred
Stock, free and clear of any and all Liens. The Preferred Stock has been, or
will be prior to the Closing, duly authorized and, when issued and delivered to
Sylvan as provided in this Agreement, will be validly issued, fully paid, and
nonassessable, and the issuance of such shares will not be subject to any
agreement or restriction of any kind and will not violate or contravene the
terms of any
contract, agreement, note, bond, mortgage, indenture, deed or trust, license,
franchise, permit, lease, plan, instrument, or other document binding on
Chauncey.
(d) No Conflict. The execution, delivery and performance of this
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Agreement, the consummation of the transactions contemplated herein and the
fulfillment of the terms hereof will not:
(i) conflict with, or result in a breach or violation of the
Chauncey Articles of Incorporation and By-laws;
(ii) subject to compliance with any agreements between Chauncey
and its lenders, conflict with in any material respect, or result in a default
(or would constitute a default but for a requirement of notice or lapse of time
or both) under any material document, agreement or other instrument to which
Chauncey is a party, or result in the creation or imposition of any lien, charge
or encumbrance on any of Chauncey's properties pursuant to (x) any law or
regulation to which Chauncey or any of its property is subject, or (y) any
judgment, order, or decree to which Chauncey is bound or any of its property is
subject;
(iii) result in termination or any impairment of any material
permit, license, franchise, contractual right or other authorization of
Chauncey; or
(iv) violate any law, order, judgment, rule, regulation, decree
or ordinance to which Chauncey is subject, or by which Chauncey is bound.
(e) Authorization. The representative of Chauncey executing this
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Agreement has all requisite corporate power and authority to enter into and bind
Chauncey to the terms of this Agreement. Chauncey has the full legal right,
power, and corporate authority to enter into this Agreement and the transactions
contemplated hereby. The execution and delivery of this Agreement by Chauncey
and the performance by Chauncey of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of Chauncey, and this
Agreement has been duly and validly authorized by all necessary corporate
action. This Agreement is a legal, valid and binding obligation of Chauncey
enforceable in accordance with its terms.
(f) Financial Statements. Schedule 6.1(f) includes five
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complete and correct copies of (i) Chauncey's audited balance sheet, statement
of operations and statement of cash flow as of June 30, 1997 (collectively the
"Audited Financial Statements") and (ii) Chauncey's quarterly unaudited balance
sheet, statement of operations and statement of cash flow as of March 31, 1998
certified by the Chief Financial Officer of Chauncey (the "Unaudited Financial
Statements" and, collectively with the Audited Financial Statements, the
"Chauncey Financial Statements" ). Except as noted on the auditor's report, or
the Chief Financial Officer's certificate, as the case may be, accompanying the
Chauncey Financial Statements, such Chauncey Financial Statements have been
prepared in accordance with GAAP consistently applied and there has been no
materia adverse change in the financial condition of Chauncey since the date of
the Chauncey Financial Statements.
(g) Compliance with Law. Chauncey is not in violation of any
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order, injunction, judgment, ruling, law, or regulation of any court or
governmental authority applicable to the property or business of Chauncey, which
violation or violations in the aggregate would have a material adverse effect on
Chauncey. The licenses, permits and other governmental authorizations held by
Chauncey are valid and sufficient for the conduct of Chauncey's businesses as
currently conducted, except where the failure to hold such licenses, permits,
and other governmental authorizations would not have a material adverse effect.
(h) Fees. Chauncey has incurred no liability, contingent or
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otherwise, for brokers' or finders' fees relating to the transactions
contemplated by this Agreement for which Sylvan shall have any responsibility
whatsoever.
6.2 Representations and Warranties of Sylvan. Sylvan represents and
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warrants to Chauncey as of the date hereof and as of the Closing Date as
follows:
(a) Organization. Sylvan is a corporation duly organized,
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validly existing and in good standing under the laws of the State of Maryland,
and is duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
respective businesses in the places and in the manner as now conducted.
(b) Capitalization of Sylvan. The authorized capital stock of
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Sylvan consists of 90,000,000 shares of $.01 par value common stock (as
previously defined "Sylvan Common Stock") of which 31,195,090 shares of Sylvan
Common Stock were issued and outstanding on April 8, 1998. All such issued
shares of Sylvan Common Stock are, and when issued to Chauncey in accordance
with this Agreement will be, duly and validly issued, fully paid and non-
assessable. None of the outstanding shares of Sylvan Common Stock were, and non
of the shares of Sylvan Common Stock to be issued to Chauncey in accordance with
this Agreement will be, issued in violation of any preemptive rights.
(c) SEC Reports.
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(i) Sylvan has heretofore delivered to Chauncey copies of
Sylvan's (w) Annual Report on Form 10-K for the year ended December 31, 1997 as
filed with the Securities and Exchange Commission, (x) proxy statements relating
to Sylvan's annual meeting of stockholders held in 1997, (y) Annual Report for
Stockholders for 1997, and (z) all other reports or registration statements
filed by Sylvan with the Securities and Exchange Commission since December 31,
1997. There has been no material adverse change from the information set forth
in any SEC Document (as defined below) filed on or after the date hereof and or
prior to the Closing Date.
(ii) Sylvan has filed and will file with the Securities and
Exchange Commission, all forms, reports, schedules, statements, exhibits and
other documents (collectively the "SEC Documents") required to be filed on or
before the date hereof or the Closing Date, respectively, by Sylvan under the
Securities Act or the Exchange Act. At the time of the filings the SEC Documents
filed by Sylvan (x) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, and (y) complied in all
material respects with the applicable requirements of the Securities Act and the
Exchange Act, as the case may be. No SEC Document filed on or after the date
hereof and on or prior to the Closing Date will contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements made therein not misleading. Sylvan
shall deliver to Chauncey a copy of any SEC document within five (5) days of the
date of filing of such SEC document with the Securities Exchange Commission.
(e) No Conflict. Sylvan has all requisite power and authority to
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carry on its business as presently conducted, to enter into this Agreement, to
purchase the Preferred Stock on the terms described in this Agreement and to
perform its other obligations under this Agreement. The consummation of the
transactions contemplated by this Agreement will not violate, or be in conflict
with, any material provision of the By-laws of Sylvan or any agreement or
instrument to which Sylvan is a party or by which it is bound, noncompliance
with which would have a material adverse effect upon Chauncey or upon Sylvan's
acquisition or ownership of the Preferred Stock or upon any of the transactions
contemplated by this Agreement, or, to the knowledge of Sylvan, any judgment,
decree, order, statute, rule or regulation applicable to Sylvan (subject to
required approvals of federal, state or other governmental agencies).
(f) Authorization. The representative of Sylvan executing this
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Agreement has all requisite corporate power and authority to enter into and bind
Sylvan to the terms of this Agreement. Sylvan has the full legal right, power,
and corporate authority to enter into this Agreement and the transactions
contemplated hereby. The execution and delivery of this Agreement by Sylvan and
the performance by Sylvan of the transactions
contemplated herein have been duly and validly authorized by the Board of
Directors of Sylvan, and this Agreement has been duly and validly authorized by
all necessary corporate action. This Agreement is a legal, valid and binding
obligation of Sylvan enforceable in accordance with its terms.
(g) Investment Intent. Sylvan acknowledges that the Preferred
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Stock has not been registered under the Securities Act of 1933, as amended, or
applicable state securities laws and that the certificates representing such
Shares will bear a legend to such effect. Sylvan is acquiring the Preferred
Stock hereunder for investment purposes only and not with a view to, or for
resale in connection with, the distribution thereof and with no intention of
distributing or selling any thereof except in compliance with federal or state
securities laws, and will make no sale or other transfer of the Preferred Stock
except in compliance with federal or state securities laws.
(h) Fees. Sylvan has incurred no liability, contingent or
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otherwise,for brokers' or finders' fees relating to the transactions
contemplated by this Agreement for which Chauncey shall have any responsibility
whatsoever.
ARTICLE VII
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OBLIGATIONS AFTER CLOSING
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7.1 Use of Proceeds. The Purchase Price shall be used by Chauncey to
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redeem Shares owned by certain shareholders of Chauncey and for working capital
and other general business purposes of Chauncey.
7.2 Transfer Taxes. [Chauncey] shall pay all transfer, documentary,
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sales, use, registration, excise or similar taxes in connection with the
transactions contemplated by this Agreement, provided, however, that if Sylvan
exercises the option to pay for the Preferred Stock in Sylvan Shares, Sylvan
shall pay all transfer, documentary, sales, use, registration, excise or similar
taxes in connection with the transactions involving the Sylvan Shares.
7.3 Financial Information. Chauncey shall prepare financial
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statements in accordance with generally accepted accounting principles
consistently applied as of each March 31, June 30, September 30, and December 31
for the periods then ended. Quarterly statements shall contain consolidated
financial statements including a balance sheet, statement of income, and
statements of the source and application of cash flow for the period then ended.
Annual statements prepared as of each June 30 and for the year period then ended
shall be audited and accompanied by an opinion from an independent certified
public accountant. Copies of the financial statements required by this
subsection shall be furnished to Chauncey within 45 days after the end of each
fiscal period except for the annual statements, copies of which shall be
furnished within 90 days after the end of the fiscal period to which they
relate.
7.4 Further Assurances. After the Closing, Chauncey and Sylvan shall
------------------
each execute, acknowledge and deliver or cause to be executed, acknowledged and
delivered such instruments and take such other action as may be necessary or
advisable to assure to each other the rights, titles, interests, estates, and
privileges intended to be assigned, delivered, or reserved to such party and to
consummate the transactions and to carry out their obligations under this
Agreement and under any document, certificate, or other instrument delivered
pursuant hereto.
7.5 Sale of Sylvan Shares. Chauncey may sell or transfer the Sylvan
---------------------
Shares at any time in accordance with applicable securities laws, provided,
--------
however, that Chauncey 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
-------- -------
Xxxxxxxx xxxxx or transfers in excess of 50,000 shares of Sylvan Common Stock in
any single transaction then Chauncey shall engage Alex, Xxxxx & Sons
Incorporated or another nationally recognized broker or investment banking firm
to make such sale or transfer.
7.6 Registration Rights. Sylvan shall (i) file with the Securities
-------------------
and Exchange Commission a registration statement pursuant to the Securities Act
of 1933, as amended with respect to the Sylvan Common Stock and (ii) cause such
registration statement to be declared effective, within five (5) days after
Closing.
7.7 Issuance of Shares by Chauncey. If, at any time, Chauncey issues
------------------------------
additional shares of common stock at a price of less than One Hundred and Fifty
Two Dollars ($152) per share (a "Dilutive Offering"), Chauncey shall issue, and
offer for subscription to Sylvan, shares of common stock of Chauncey (i) at a
price equal to the price shares were sold in the Dilutive Offering and (ii) in
the amount needed by Sylvan to preserve its equity percentage in Chauncey
immediately prior to such Dilutive Offering.
ARTICLE VIII
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RESTRICTIONS ON TRANSFER
------------------------
8.1 Restrictions on Transfer. Except as may be expressly provided in
------------------------
this Article VII, Sylvan may not Transfer all or any part of the Preferred Stock
or the Put Rights established herein (collectively, the "Preferred Interest")
without the prior written consent (which may be withheld for any reason) of
Chauncey. A Transfer of the whole or any portion of Sylvan's Preferred Interest
in violation of the provisions of this Article VII shall be null and void ab
initio and shall be of no effect.
8.2 Permitted Transfers.
-------------------
(a) The restrictions on Transfers under Section 8.1 shall not
apply to (i) any Transfer (for any consideration or no consideration) by Sylvan
of all or any part of its Preferred Interest to any 100% Affiliate of Sylvan.
(b) Upon any permitted Transfer of Sylvan's Preferred Interest
pursuant to Section 8.1, the transferor and transferee shall file with Chauncey
an executed or authenticated copy of the written instrument of assignment or
transfer.
ARTICLE IX
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INDEMNIFICATION
---------------
9.1 Indemnification by Sylvan. From and after the Closing Date,
-------------------------
Sylvan shall defend, indemnify and save and hold harmless Chauncey, its
directors, officers, employees and agents against all losses, damages, claims,
demands, suits, costs, expenses, liabilities and sanctions of every kind and
character, including without limitation reasonable attorneys' fees, court costs
and costs of investigation (collectively, the "Claims") (a) arising out of or
resulting from any breach of any representation, warranty, covenant or agreement
of Sylvan under this Agreement (including the Schedule and the Annex hereto or
thereto); or (b) that relate to Claims by third parties with respect to any
violation by Sylvan of any federal or state securities laws in connection with
the transactions contemplated by this Agreement.
9.2 Indemnification by Chauncey. From and after the Closing Date,
---------------------------
Chauncey shall defend, indemnify and save and hold harmless Sylvan, its
directors, officers, employees and agents against all Claims (a) arising out of
or resulting from any breach of any representation, warranty, covenant or
agreement of Chauncey under this Agreement (including the Schedule and the Annex
hereto or thereto); or (b) that relate to Claims by third parties with respect
to any violation by Chauncey of any federal or state securities laws in
connection with the transactions contemplated by this Agreement.
9.3 Procedures. The parties hereto agree promptly to notify the
----------
other party of the making of any demand, the assertion of any Claim, or the
commencement of any suit, action or proceeding by any third party
for which indemnity may be sought under this Agreement (an "Indemnity
Obligation") prior to expending or committing to expend funds for which
indemnity may be sought. The party from whom indemnification is sought (the
"Indemnifying Party") shall have the right, but not the obligation, to assume
the defense or settlement of any Indemnity Obligation of which the party seeking
indemnification (the "Indemnified Party") gives notice; provided, however, that
if the Indemnifying Party does not elect to assume such defense or settlement,
the Indemnified Party shall have the right, but not the obligation, to assume
such defense or settlement but shall not thereby waive any right to indemnity
therefor by the Indemnifying Party pursuant to this Agreement, and the
Indemnifying Party shall at all times have the right, at its option and expense,
to participate fully therein. Each party shall have reasonable access to the
books, records and personnel in the possession or control of the other party
which are pertinent to the defense or settlement of any Indemnity Obligation.
The parties shall cooperate in the defense or settlement of any Indemnity
Obligation, but the party electing to assume such defense or settlement shall
have full authority to determine all action to be taken with respect thereto and
the terms of the settlement; provided, however, that without the consent of the
Indemnified Party, no settlement shall be entered into that does not include as
an unconditional term thereof the giving by the Person asserting such Claims of
an unconditional release of the Indemnified Party from all personal liability
with respect to such Claim. The Indemnified Party may join the Indemnifying
Party in any suit, action or proceeding to which any such right of indemnity
created by this Agreement would or might apply, for the purpose of enforcing any
such right.
ARTICLE X
---------
MISCELLANEOUS
-------------
10.1 Survival. The representations, warranties, covenants, agreements
--------
and indemnities set forth in this Agreement shall survive the Closing; provided,
however, that any Claim or demand for breach of a representation or warranty
under Section 9.1 or 9.2(a) and any Claim or demand under Section 9.2(b) must be
asserted in writing on or before the one (1) year anniversary date of the
Closing Date, after which date such indemnities shall expire except to the
extent this Agreement expressly provides that any such provision shall survive
for a longer period. If the Closing occurs, all conditions of Closing shall be
deemed to have been satisfied or waived, and, after the Closing, neither party
shall have any liability whatsoever to the other arising out of, resulting from
or attributable to any such conditions of Closing, regardless of whether such
conditions of Closing were, in fact, satisfied or waived.
10.2 Annex and Schedule. The Annex and the Schedule referred to in
------------------
this Agreement are hereby incorporated in this Agreement by reference and
constitute a part of this Agreement. Each party to this Agreement and its
counsel has received a copy of the Annex and the Schedule prior to and as of the
execution of this Agreement.
10.3 Expenses. Each Party hereto shall pay its own expenses,
--------
including legal fees, incurred by such party in the negotiation, documentation
and closing of the transactions contemplated hereby.
10.4 Notices. All notices and communications required or permitted
-------
under this Agreement shall be in writing and any communication or delivery
hereunder shall be deemed to have been duly made when personally delivered to
the individual indicated below, or if sent by Telecopier or mailed, when
received by the party charged with such notice and addressed as follows:
If to Sylvan:
------------
Sylvan Learning Systems, Inc.
0000 Xxxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Attn: Xxxxxx X. Xxxxx
General Counsel
Facsimile No.: (000) 000-0000
If to Chauncey:
--------------
Chauncey Group International, Ltd. to:
000 Xxxxxxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
Attn: Xxxxxxx Xxxxxxx
Chief Financial Officer
Facsimile No.: (000) 000-0000
Copies of all notices (other than reports or other routine
communications), which shall not constitute notice hereunder, shall be delivered
to:
Xxxxxx, Xxxxxx & Xxxxxxxxx
0000 X Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Attn: Xxxxxxx X. Xxxxxxxx
Facsimile No.: (000) 000-0000
Any party may, by written notice so delivered to the other parties,
change the address or individual to which delivery shall thereafter be made.
10.5 Amendments. Except for waivers specifically provided herein,
----------
this Agreement may not be amended nor any rights hereunder waived except by an
instrument in writing signed by the party to be charged with such amendment or
waiver and delivered by such party to the party claiming the benefit of such
amendment or waiver.
10.6 Limitation of Remedies. In no event shall either party to this
----------------------
Agreement be entitled to recover special or consequential damages from the other
party as a result of a breach of this Agreement by such other party, including,
without limitation, special damages in the nature of lost or future profits.
10.7 Counterparts. This Agreement may be executed by Sylvan and
------------
Chauncey in any number of counterparts, no one of which need be executed by all
parties hereto, but all of which together shall constitute one and the same
instrument.
10.8 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF DELAWARE, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE.
10.9 Entire Agreement. This Agreement (including the Annex and the
----------------
Schedule hereto and all other agreements executed in connection herewith)
constitutes the entire understanding among the parties with respect to the
subject matter hereof, superseding all negotiations, prior discussions,
agreements and understandings relating to such subject matter.
10.10 Parties in Interest. This Agreement shall be binding upon, and
-------------------
shall inure to the benefit of, the parties hereto and, except as otherwise
prohibited, their respective heirs, devisees, executors, administrators,
successors and assigns; and except as provided in this Article VII, which is
also intended to benefit and be enforceable by the Indemnified Parties, nothing
contained in this Agreement, express or implied, is intended to confer upon any
other Person any benefits, rights or remedies.
10.11 Nonwaiver. No course of dealing or any delay or failure to
---------
exercise any right, power or remedy hereunder on the part of Sylvan shall
operate as a waiver of or otherwise prejudice Sylvan's rights, powers or
remedies.
10.12 Drafting. Each Party acknowledges that its legal counsel
--------
participated in the preparation of this Agreement. The Parties therefore
stipulate that the rule of construction that ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of this
Agreement to favor any Party against the other.
IN WITNESS WHEREOF, the parties hereto each has caused this Agreement
to be executed by its duly authorized officer all as of the day and year first
set forth above.
SYLVAN LEARNING SYSTEMS, INC.
By:
---------------------------------
Name:
Its:
THE CHAUNCEY GROUP INTERNATIONAL, LTD.
By:
---------------------------------
Name:
Its:
