EXHIBIT 10.35
AGREEMENT FOR SALE
entered into between
1. Mr. JURGEN GRATZE, Allmendenweg 10, 45894 Gelsenkirchen, Germany,
- hereinafter referred to as "SELLER 1" -
2. Mr. JURGEN BIRKNER, Westerholter Str. 26, 45894 Gelsenkirchen, Germany,
- hereinafter referred to as "SELLER 2" -
3. Mr. MARTIN MOHR, Frankampstr. 77, 45881 Gelsenkirchen, Germany,
- hereinafter referred to as "SELLER 3" -
- SELLERS 1-3 also collectively referred to as
"SELLERS" and being jointly and severally liable -
and
DORANA EINUNDVIERZIGSTE VERWALTUNGSGESELLSCHAFT MBH, being registered in the
Commercial Register of the Frankfurt Local Court under the file No. HR B 45490,
being represented by Dr. Volker Schacht or Dr. Christof Siefarth, acting with a
power of attorney,
- hereinafter referred to as "CORPORATION PURCHASER" -
DORANA FUNFZIGSTE VERWALTUNGSGESELLSCHAFT MBH, being registered in the
Commercial Register of the Frankfurt Local Court under the file No. HR B 45743,
being represented by Dr. Volker Schacht or Dr. Christof Siefarth, acting with a
power of attorney,
- hereinafter referred to as "PARTNERSHIP PURCHASER" -
- CORPORATION PURCHASER and PARTNERSHIP PURCHASER also
collectively referrerd to as "PURCHASERS" and being
joint and several creditors -
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WHEREAS, SCHULERHILFE Gesellschaft fur Nachhilfeunterricht mbH ("SCHULERHILFE
CORPORATION") is registered in the Commercial Register of the Local Court of
Gelsenkirchen-Buer under the file no. HRB 1657. SELLER 1 and SELLER 2
participate in the stated capital of Schulerhilfe Corporation in the total
amount of DM50,000.00 paid in full with shares in the nominal amounts of
DM10,000.00 and DM15,000.00 each. SELLER 1 is the sole managing director of
Schulerhilfe Corporation.
WHEREAS, ZGS Zentrale Gelsenkirchener SCHULERHILFE J. Gratze + M. Mohr GbR mbH
("SCHULERHILFE PARTNERSHIP"), is a civil law partnership (Gesellschaft
burgerlichen Rechts) using the abbreviation "mbH" (mit beschrankter Haftung -
with limited liability) in the course of business. Schulerhilfe Partnership is
not registered in the Commercial Register. SELLER 1 owns a ninety-seven and
one-half percent (97.5%) interest in Schulerhilfe Partnership; SELLER 3 owns the
remaining two and one-half (2.5%) interest in Schulerhilfe Partnership.
WHEREAS, Schulerhilfe Corporation and Schulerhilfe Partnership (collectively
also referred to as the "Schulerhilfe Entities") are engaged in the business of
providing extracurricular educational services, including private and group
coaching for pupils, which are either provided by its own employees or by
independent contractors or by franchisees (the "Schulerhilfe Business").
WHEREAS, SELLER 1 and SELLER 2 intend to sell and transfer, and CORPORATION
PURCHASER intends to take over all of the shares in Schulerhilfe Corporation
from SELLERS;
SELLER1 and SELLER 2 subject to the terms of this Agreement;
WHEREAS, SELLER 1 and SELLER 3 intend to sell and transfer, and PARTNERSHIP
PURCHASER intends to take over all interest in Schulerhilfe
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Partnership from SELLER 1 and SELLER 3 subject to the terms of this Agreement;
WHEREAS, the parties have agreed that the acquisition agreed upon hereinafter
shall be structured and carried out in a way that the sales price agreed upon in
this Agreement shall be paid (a) as a fixed sales price, partly in cash and
partly in Sylvan Restricted Stock (as hereinafter defined) and, (b) as an
Earnout Payment (as hereinafter defined), at Sylvan's option, in cash or in
Sylvan Unrestricted Stock (as hereinafter defined) and/or a combination thereof
subject to the terms and conditions of this Agreement.
NOW, THEREFORE, for and in consideration of the promises and the mutual
covenants and agreements herein contained, the parties hereto hereby agree as
follows:
1. OBJECTS OF SALE
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1.1 SALE OF SHARES IN SCHULERHILFE CORPORATION.
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SELLER 1 and SELLER 2 hereby sell to CORPORATION PURCHASER their shares
in Schulerhilfe Corporation in the nominal amounts of DM10,000.00 and
DM15,000.00 each (the "Shares"). CORPORATION PURCHASER accepts such
sale. The transfer of the shares shall be made as of today's date and
shall be executed pursuant to the terms and conditions substantially in
the form of the transfer agreement attached hereto as Exhibit 1.
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1.2 SALE OF INTEREST IN SCHULERHILFE PARTNERSHIP.
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SELLER 1 and SELLER 3 hereby sell to PARTNERSHIP PURCHASER all 100%
interest in Schulerhilfe Partnership (the "Interest"). PARTNERSHIP
PURCHASER accepts such sale. The transfer of the interest shall be made
as of today's date and pursuant to the terms and conditions
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substantially in the form of the transfer agreement attached hereto as
Exhibit 2.
1.3 PROFIT PARTICIPATION.
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SELLERS shall not be entitled to any profit distribution of the
Schulerhilfe Corporation and Schulerhilfe Partnership which become due
as of today's date, because the SELLERS will participate in any
profit/loss of the Schulerhilfe Corporation and Schulerhilfe
Partnership arising prior to today's date through the sales price
adjustment set forth in sec. 2.4 of this Agreement.
1.4 CORPORATE CONSENT.
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In their capacity as shareholders - and SELLER 1 also in his capacity
as managing director of Schulerhilfe Corporation SELLER 1 and SELLER 2
hereby grant the consent required under corporate law pursuant to sec.
13 para.1 of the articles of association of Schulerhilfe Corporation
regarding the sale and transfer of the shares in Schulerhilfe
Corporation, substantially in the form of the shareholders resolution
of Schulerhilfe Corporation attached hereto as Schedule 1.4.
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2. SALES PRICE AND PAYMENT
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2.1 SALES PRICE.
-----------
The aggregate sales price (the ,,Sales Price") for the Shares in
Schulerhilfe Corporation and for the Interest in Schulerhilfe
Partnership payable to SELLERS shall be
(a) a fixed amount of DM33.5 (Thirty-Three and One-Half) million out
of which
(i) DM27.5 (Twenty-Seven and One-Half) million are payable in
cash to a bank account to be designated by SELLER 1, and
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(ii) DM6.0 (Six) million in Sylvan Restricted Stock (as defined
and further provided hereinafter) subject to a three-year
restriction, and
(b) an amount of up to DM21.5 (Twenty-One and One-Half) million as an
Earnout Payment (as defined and further provided hereinafter),
payable, in the sole discretion of PURCHASERS, either in cash, or
in Sylvan Unrestricted Stock (as defined and further provided
hereinafter) (the "Earnout Stock").
2.2 PAYMENT OF THE FIXED SALES PRICE.
--------------------------------
(a) The partial Sales Price set forth in sec. 2.1 (a) (i)
hereinbefore shall be paid by PURCHASERS until November 30, 1998
(the "Payment Date") at the latest.
(b) Notwithstanding the obligations set forth in sec. 3.12
hereinafter, the partial Sales Price set forth in sec. 2.1 (a)
(ii) hereinbefore shall be paid by PURCHASERS until the Payment
Date, in shares of the US$ 0.01 par value common stock of Sylvan
Learning Systems, Inc. ("Sylvan") (the,,Sylvan Common Stock"),
with the number of shares to be transferred by PURCHASERS
determined by dividing the portion of the Sales Price by the
average closing price of the Sylvan Common Stock as quoted on
NASDAQ for the fifteen (15) trading days prior to today's date;
provided that, for the purpose of calculating the average stock
price during such fifteen (15) day period, the single highest and
single lowest closing stock prices shall be disregarded. The
currency exchange rate that the parties will use to determine the
value of the Sylvan Common Stock in German Marks is the average
daily exchange rate as published in the Wall Street Journal over
the two-month period prior to today's date.
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(c) SELLERS shall, for a time period expiring at the third
anniversary of today's date, be restricted from selling, hedging
or in any way disposing of any Sylvan Common Stock held by them
(the "Sylvan Restricted Stock").
(d) Nothing herein shall be construed as requiring PURCHASERS to
transfer any fractional shares; and, PURCHASERS, at their sole
discretion, shall have the right to pay to the SELLERS cash
payments in lieu of any fractional shares.
2.3 PAYMENT OF THE EARNOUT.
----------------------
(a) The exact amount of the partial Sales Price set forth in sec. 2.1
(b) hereinbefore (the "Earnout Payment") shall be determined
pursuant to the terms and conditions set forth in sec. 2.5
hereinafter.
(b) The Earnout payment shall be due on February 15, 2000, but may be
paid, at PURCHASERS' sole discretion, before that date.
(c) If PURCHASERS elect to make the Earnout Payment by providing
Earnout Stock, as set forth in sec. 2.1 (b) hereinbefore, the
following provisions shall apply:
(i) The value of the Earnout Stock shall be determined by
dividing the portion of the Sales Price by the average
closing price of the Sylvan Common Stock as quoted on
NASDAQ for the fifteen (15) trading days prior to date set
forth in sec. 2.3 (b) hereinbefore; provided that, for the
purpose of calculating the average stock price during such
fifteen (15) day period, the single highest and single
lowest closing stock prices shall be disregarded. The
currency exchange rate that the parties will use to
determine the value of the Sylvan Common Stock in German
Marks is the average daily
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exchange rate as published in the Wall Street Journal over
the two-month period prior to such date.
(ii) For a period of sixty (60) days following the transfer of
the Earnout Stock to SELLERS, SELLERS shall be restricted
from selling, hedging or in anyway disposing of the Earnout
Stock held by them, unless, in the sole discretion of
PURCHASERS, PURCHASERS provide for otherwise in writing.
(iii) If the transfer of Earnout Stock is made within the period
of sixty (60) days as set forth in sec. 2.3 (c)(ii)
hereinbefore, the following shall apply:
(A) If the proceeds from the sale of the Earnout Stock
made at PURCHASERS' direction, as converted in
Deutsche Mark or Euro, as the case may be, at the
exchange rate published in the Wall Street Journal as
of the day of such sale, is less than the amount of
the partial Sales Price determined in accordance with
sec. 2.3 (a) hereinbefore, PURCHASERS shall make an
adjustment in cash payable to SELLERS within fourteen
(14) days following the sale of the Earnout Stock.
(B) If the amount actually received by SELLERS from such
sale exceeds the amount of the partial Sales Price
determined in accordance with sec. 2.3 (a)
hereinbefore, SELLERS shall pay to PURCHASERS the
exceeding amount in cash within fourteen (14) days
following the sale of the Earnout Stock minus the US
and/or German tax imposed on SELLERS on the capital
gain from the sale of the Earnout Stock, and SELLERS
shall retransfer to PURCHASERS all of the Earnout
Stock which was not sold.
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(d) Nothing herein shall be construed as requiring PURCHASERS to
transfer any fractional shares; and, PURCHASERS, at their sole
discretion, shall have the right to pay to the SELLERS cash
payments in lieu of any fractional shares.
2.4 SALES PRICE ADJUSTMENTS/EQUITY GUARANTEE
----------------------------------------
(a) The parties agree that as of today's date the minimum Working
Capital of Schulerhilfe Corporation shall be DM1.00 [Deutsche
Mark One] (the "Corporation Minimum Working Capital"). The
parties mutually agree that as of today's date the minimum
Working Capital of Schulerhilfe Partnership shall be DM1.00
[Deutsche Mark One] (the ,,Partnership Minimum Working Capital").
(b) For the purposes of this sec. 2.6 (a) "Working Capital" shall be
the working capital, as defined under US generally accepted
accounting principles, i.e. current assets less current
liabilities, including current portions due (one year or less) of
long term liabilities.
(c) Within sixty (60) days after today's date PURCHASERS shall
deliver to SELLERS (the date of such delivery being the
"Adjustment Date") balance sheets of Schulerhilfe Corporation
and Schulerhilfe Partnership set up as of October 31, 1998, in
accordance with the accounting principles set forth in sec. 2.4
(b) hereinbefore, which shall be the basis for calculating the
Working Capital as of today's date of Schulerhilfe Corporation
(the "Corporation Closing Date Working Capital") and of
Schulerhilfe Partnership (the "Partnership Closing Date Working
Capital"), collectively referred to as "Statements". The
Statements shall have been prepared by PURCHASERS and audited by
PURCHASERS' auditors, Ernst & Young (or such other firm of
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independent certified public accountants appointed by PURCHASERS
for this purpose). In rendering the Statements, PURCHASERS and
their auditors shall consult with the SELLERS or, as the case may
be, with the auditors of the Schulerhilfe Entities; and shall
permit the Schulerhilfe Entities and such auditors at the
earliest practicable date access to and copies of the work papers
and calculations relating to the Statements.
(d) Any dispute which may arise between PURCHASERS and the SELLERS
with respect to the calculation of the Working Capital shall be
resolved in the following manner:
(i) if the SELLERS dispute the calculation of the Working
Capital the SELLERS shall notify the CORPORATION PURCHASER
or the PARTNERSHIP PURCHASER, as the case may be, within
thirty (30) days after the Adjustment Date specifying
therein in detail the basis and reason for such dispute and
the amount which is in dispute;
(ii) during the thirty (30) day period following the date of
such notice(s), the CORPORATION PURCHASER and/or the
PARTNERSHIP PURCHASER and the SELLERS shall attempt to
resolve such dispute(s); and
(iii) if at the end of the thirty (30) day period specified in
clause (ii) above the parties shall have failed to reach an
agreement with respect to such dispute(s), the matter shall
be referred for settlement to one of the worldwide
operating firms of independent certified public accountants
as the parties mutually agree or any such firm to be
elected by the president of the German Institute of
Chartered Accountants (IDW Dusseldorf) at the request of
PURCHASERS and/or SELLERS (the,,Accounting Firm"). The
Accounting Firm shall be instructed to use every reasonable
effort to perform
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such services within thirty (30) days of the submissions to
it of the applicable Statements and related dispute(s).
Each of the parties to the dispute(s) shall bear all costs
and expenses incurred in connection with this sec 2.4 (d)
(iii), and the fees of the Accounting Firm shall be borne
proportionally to the degree of prevailing in accordance
with secs. 91 ss. German Code on Civil Procedure. The
decision(s) of the Accounting Firm in accordance with the
provisions hereof shall be final and binding and there
shall be no right of appeal therefrom.
(e) (i) Within ten (10) days after the Adjustment Date the
following adjustment payments shall be made in cash:
(A) CORPORATION PURCHASER shall pay to SELLERS an amount
equal to the amount by which the Corporation Closing
Date Working Capital exceeds the Corporation Minimum
Working Capital; or alternatively,
(B) SELLERS shall pay to CORPORATION PURCHASER an amount
equal to the amount by which the Corporation Closing
Date Working Capital is lower than the Corporation
Minimum Working Capital,
AND
(C) PARTNERSHIP PURCHASER shall pay to SELLERS an amount
by which the Partnership Closing Date Working Capital
exceeds the Partnership Minimum Working Capital; or
alternatively,
(D) SELLERS shall pay to PARTNERSHIP PURCHASER an amount
by which the Partnership Closing Date
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Working Capital is lower than the Partnership Minimum
Working Capital,
(ii) Provided, however, that in the event of any dispute made in
accordance with the provisions of sec. 2.4 (d) (iii)
hereinbefore, the disputed amount shall be paid within ten
(10) days after the settlement or determination of the
dispute, as the case may be.
2.5 DETERMINATION OF EARNOUT PAYMENT.
--------------------------------
(a) The determination of the Earnout Payment referred to in secs. 2.1
(b) and 2.3 (a) hereinbefore shall be based on the franchise and
advertising fees (the "Franchise Fees") for the calendar year
1999 actually collected by PARTNERSHIP PURCHASER until January
31, 2000 at the latest (the "Collected Franchise Fees") from (i)
the 720 franchise centers as to which franchise agreements have
been entered into as of September 18, 1998, and which are
identified in a list to be prepared by the parties jointly and
promptly (the "Franchise Centers"), and (ii) such Franchise
Centers which will be operating in PARTNERSHIP PURCHASER'S
franchise system after today's date.
(b) The projected Franchise Fees for the calendar year 1999 shall
equal an amount of DM6.5 (Six and One-half) million. If the
Collected Franchise Fees equal or exceed an amount of DM6.5 (Six
and One-Half) million, the Earnout Payment shall amount to DM21.5
(Twenty-one and One-half) million. If the Collected Franchise
Fees are less than an amount of DM6.5 (Six and One-Half) million,
the Earnout Payment shall be as follows:
(i) If the Collected Franchise Fees are less than the amount of
DM6.5 (Six and One-Half) million but exceed an amount of
DM6,264,800.00 (or the equivalent to 68 Franchise Centers
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not paying an amount of DM700.00 per month), the Earnout
Payment shall be reduced Deutschmark for Deutschmark.
(ii) If the Collected Franchise Fees are less than the amount of
DM6,264,800.00 but exceed an amount of DM5,979,200.00 (or
the equivalent to 102 Franchise Centers not paying an
amount of DM700.00 per month), the Earnout Payment shall be
reduced at a multiple of two times the amount less than DM
6,264,800.00 of Collected Franchise Fees plus Deutschmark
for Deutschmark of the amount between DM6,264,800.00 and
DM6.5 million.
(iii) If the Collected Franchise Fees are less than the amount of
DM5,979,200.00 but exceed an amount of DM5,693,600.00 (or
the equivalent to 136 Franchise Centers not paying an
amount of DM700.00 per month), the Earnout Payment shall be
reduced at a multiple of four times the amount less than DM
6.5 million of Collected Franchise Fees.
(iv) If the Collected Franchise Fees are less than the amount of
DM5,693,600.00, the Earnout Payment shall be reduced at a
multiple of nine times the amount less than DM 6.5 million
of Collected Franchise Fees.
The following schedule illustrates the above calculation (Amounts in DM):
- ----------------------------------------------------------------------------------------------------------
Total of Collected Franchise Fees obtained by Number of
Partnership Purchaser from January 1, 1999 through Non-Paying Total Payment Made for
December 31, 1999 from an Average of 773 Centers Centers Earnout
- ----------------------------------------------------------------------------------------------------------
6,500,000 0-40 21,500,000
6,300,000 41-68 21,300,000
6,000,000 69-102 20,735,200
5,700,000 103-136 18,300,000
5,400,000 - 171 11,600,000
5,000,000 - 218 8,000,000
4,111,111 or less - 324 0
- ----------------------------------------------------------------------------------------------------------
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2.6 TAXES.
-----
The SELLERS shall reimburse to the Partnership Purchaser any taxes,
social security and other public charges, including but not limited to
late charges, penalties and interest thereon - minus any refund of such
taxes - (the "Taxes") of the Schulerhilfe Partnership which relate to
the period until today's date other than those Taxes as to which
amounts were set aside in the balance sheet of Schulerhilfe Partnership
referred to in sec. 2.4 (c) herein. The SELLERS shall reimburse to the
Corporation Purchaser all the Taxes of the Schulerhilfe Corporation
which relate to the time period until today's date other than those
Taxes as to which amounts were set aside in the balance sheet of
Schulerhilfe Corporation referred to in sec. 2.4 (c) herein. Taxes
resulting from the fact that depreciations, value adjustments or
reserves have not been accepted by the tax authorities, shall not be
taken into account in calculating the taxes to be reimbursed, to the
extent that the positions not accepted by the tax authorities lead to
tax reductions in the subsequent five fiscal years. The amounts payable
by the SELLERS shall become due at the same time as the respective
Taxes. The provisions of sec. 6.4 of this Agreement shall apply mutatis
mutandis.
3. ADDITIONAL AGREEMENTS
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3.1 CONFIDENTIALITY IF TRANSACTIONS ARE NOT CONSUMMATED.
---------------------------------------------------
If the transactions contemplated herein are not consummated, then
PURCHASERS shall return to SELLERS any statements, documents or other
written information furnished by or on behalf of SELLERS. PURCHASERS
shall not reveal to any third party or utilize for any purpose, (i) any
information contained in any such statements, documents or other
written information provided to PURCHASERS or any of their agents or
representatives by or on behalf of SELLERS or (ii) any analyses or
compilations thereof by PURCHASERS, or (iii) any of the trade secrets
or other confidential business or other proprietary
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information of the Schulerhilfe Entities, provided that the obligations
of PURCHASERS, their agents and representatives hereunder shall not
apply to:
(a) any information which was known to PURCHASERS or any of their
directors, officers, employees, agents, representatives or
affiliates prior to its disclosure by or on behalf of SELLERS;
(b) any information which was in the public domain prior to the
disclosure thereof to PURCHASERS by or on behalf of SELLERS;
(c) any information which comes into the public domain through no
cause of PURCHASERS or any of their directors, officers,
employees, agents, representatives or affiliates; or
(d) any information which is disclosed to PURCHASERS or any of their
directors, officers, employees, agents or representatives by a
third party (which term shall not include the employees,
attorneys, accountants or other representatives of the
Schulerhilfe Entities); or
(e) any information which is required to be disclosed pursuant to
applicable laws, regulations or court order.
3.2 COOPERATION.
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The parties shall cooperate fully with each other and with their
respective counsel and accountants in connection with any steps
required to be taken as part of their respective obligations under this
Agreement, and all parties shall use their commercially practicable
best efforts to satisfy or cause the satisfaction of the conditions
contained in this Agreement, to consummate the transactions
contemplated herein and to fulfill their obligations hereunder.
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3.3 MANAGEMENT AGREEMENT WITH SELLER 1.
----------------------------------
SELLER 1 is the managing director of Schulerhilfe Corporation. As of
today's date, his employment relationship shall be subject to the
Management Agreement substantially in the form attached as Exhibit 3.
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The current employment relationship between SELLER 1 and Schulerhilfe
Corporation shall become ineffective on the day preceding today's date.
SELLERS agree to indemnify CORPORATION PURCHASER from all claims
resulting from this employment relationship, which have been accrued up
to today's date.
3.4 EMPLOYMENT AGREEMENT WITH SELLER 3.
----------------------------------
SELLER 3 is an employee of Schulerhilfe Corporation. As of today's
date, his employment relationship shall be subject to the Employment
Agreement substantially in the form attached as Exhibit 4. The current
---------
employment relationship between SELLER 3 and Schulerhilfe Corporation
shall become ineffective on the day preceding today's date. SELLERS
agree to indemnify CORPORATION PURCHASER from all claims resulting from
this employment relationship, which have been accrued up to today's
date.
3.5 CONSULTING AGREEMENT WITH SELLER 2.
----------------------------------
SELLER 2 has been retained as a free-lance consultant of Schulerhilfe
Corporation pursuant to the terms of a contract for services. As of
today's date, his contractual relationship shall be subject to the
Consulting Agreement substantially in the form attached as Exhibit 5.
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The current contractual relationship between SELLER 2 and Schulerhilfe
Corporation shall become ineffective on the day preceding today's date.
SELLERS agree to indemnify CORPORATION PURCHASER from all claims
resulting from this contractual relationship, which have been accrued
up to today's date.
3.6 DISTRIBUTIONS.
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Until today's date, each of the Schulerhilfe Entities shall be entitled
to make distributions to its partners and shareholders, respectively;
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provided, however, that such distributions are only made to an extent
that they do not cause the Working Capital of each of the Schulerhilfe
Entities to fall below the Minimum Working Capital of the respective
Schulerhilfe Entity as defined in sec. 2.4 (a) hereinbefore.
3.7 PURCHASER'S ACCESS AND INSPECTION.
---------------------------------
Upon reasonable notice, SELLERS shall cause the Schulerhilfe Entities
to provide PURCHASERS and their authorized representatives full access
during normal business hours from and after the date hereof to all the
Assets and all the assets of the Schulerhilfe Entities (collectively,
the "Schulerhilfe Assets") and to the books and records of the
Schulerhilfe Business, wherever situated, for the purpose of making
such investigation with respect to the transactions contemplated hereby
as PURCHASERS may reasonably desire; provided, however, that in
conducting such activities, PURCHASERS shall not, and shall cause their
representatives not to, unduly interfere with the business, employees
and franchisees of the Schulerhilfe Entities. SELLERS shall cause the
Schulerhilfe Entities to furnish PURCHASERS with such information
concerning the Schulerhilfe Business as PURCHASERS may reasonably
request. SELLERS shall cause the Schulerhilfe Entities' personnel to
assist PURCHASERS in making such investigation and shall cause their
respective counsel, accountants and other non-employee representatives
to be reasonably available to Purchasers for such purposes. No
investigation made heretofore or hereafter by PURCHASERS shall affect
the representations or warranties of hereunder, each of which shall
survive any such investigation.
3.8 ASSIGNMENT OF TRADEMARK REGISTRATIONS AND TRADEMARK APPLICATIONS.
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SELLER 1 individually, or SELLER 2 individually, or SELLER 1 and SELLER
2 jointly, are proprietors of the trademark and service mark
registrations and applications (including registrations and
applications therefor and goodwill associated therewith)
("Trademarks") set forth in Schedule 3.8. All registered Trademarks
------------
have been used, except the registered German Trademark with the file
number 111 89 48, which has not been used in
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the last five years. Prior to the Payment Date, SELLER 1 and/or SELLER
2 shall take such measures as are necessary to assign to PARTNERSHIP
PURCHASER those Trademarks: (i) used in connection with the
Schulerhilfe Business; and (ii) either (A) not comprising a portion of
the Assets or (B) not owned exclusively by the Schulerhilfe
Corporation, substantially in the form set forth in Exhibit 6. The
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SELLER 1 and/or the SELLER 2 shall submit to PARTNERSHIP PURCHASER all
files and documents regarding the registrations of and applications for
the Trademarks, particularly, but not limited to, the trademark
certificates and the correspondence with the respective trademark
offices.
3.9 RESTRICTIONS FROM DISPOSING OF SYLVAN RESTRICTED STOCK AND EARNOUT
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STOCK.
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Notwithstanding SELLERS' restriction on the disposition of Sylvan
Restricted Stock and/or Earnout Stock set forth hereinbefore, SELLERS
shall provide written notice to PURCHASERS at least five (5) business
days prior to engaging in any sale, hedge or other disposition of any
Sylvan Restricted Stock and/or Earnout Stock held by SELLERS.
3.10 RELEASE FROM RESTRICTIONS OF SALE OF SYLVAN RESTRICTED STOCK.
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At the time the Earnout Payment as set forth in sec. 2.1 (b)
hereinbefore is paid, PURCHASERS may release SELLERS from the
restrictions of the Sylvan Restricted Stock as set forth in sec. 2.2
(c) hereinbefore and SELLERS are obliged to sell the Sylvan Restricted
Stock upon the order of PURCHASERS, if the stock exchange price of the
Sylvan Restricted Stock, as quoted on NASDAQ at the last trading day
prior to that date, exceeds an amount of DM6.4 million (Six Million
Four-Hundred Thousand). The proceeds from such sale of the Sylvan
Restricted Stock exceeding an amount of DM6.4 million (Six Million
Four-Hundred Thousand) shall be paid to PURCHASERS, at PURCHASERS sole
discretion, in cash or by retransferring the corresponding number of
Sylvan Common Stock to SELLERS.
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3.11 EXCLUSION OF SCHULERHILFE BUSINESS HEADQUARTERS.
-----------------------------------------------
Prior to signing this Agreement, SELLERS shall have executed a transfer
agreement satisfactory in substance and form, by which SELLER 1 and
SELLER 3 acquire the real property including the real property and all
of the headquarters building of the Schulerhilfe Business, as further
described, including the excerpt from the land register, in Schedule
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3.11 (the "Schulerhilfe Business Headquarters") at the book value as
----
set forth in the financial accounts of SCHULERHILFE PARTNERSHIP as of
today's date with economic effect as of today's date and by assuming
any and all liabilities, including, but not limited to those, listed in
Schedule 3.11, relating to the or in connection with the Schulerhilfe
-------------
Business Headquarters.
3.12 ESCROW ACCOUNT.
--------------
At the Payment Date, the Sylvan Restricted Stock shall be paid into an
escrow account, and held pursuant to an escrow agreement, substantially
in the form attached hereto as Exhibit 7 (the "Escrow Agreement")
---------
providing for the escrow of the Sylvan Restricted Stock payable to
SELLERS to secure for a period of two (2) years after the Payment Date
PURCHASERS' claims resulting from this Agreement. PURCHASERS shall bear
the fee of the Escrow Agent to the extent that such fee exceeds an
amount of DM4,000.00, while SELLERS shall bear the fee up to that
amount. The Escrow Agent shall be the State Street Bank, as set forth
in the Escrow Agreement.
4. ADDITIONAL OBLIGATIONS.
----------------------
4.1 CERTIFICATE OF SELLERS.
----------------------
The SELLERS shall deliver to PURCHASERS a certificate, dated as of the
Payment Date or, at an earlier date designated by PURCHASERS,
certifying in such detail as PURCHASERS may reasonably request, (a) the
absence of any material adverse change in the Schulerhilfe Business
compared to the state of the business as reflected in the August 31,
-19-
1998, financial statements of the Schulerhilfe Entities audited by
Ernst & Young, and (b) the accuracy of the representations and
warranties set forth herein as well as the compliance with all
agreements and conditions set forth herein.
4.2 INTERIM STATEMENTS.
------------------
PURCHASERS shall receive until November 20, 1998, a copy of each of the
Schulerhilfe Partnership's and the Schulerhilfe Corporation's unaudited
financial statements as of October 31, 1998, and for the period then
ended (the "Interim Statements"), accompanied by the representation of
the SELLERS that such financial statements are (a) true, correct and
complete in all material respects, and (b) present fairly the financial
condition of each of the Schulerhilfe Entities as of such date and the
result of its operations for the period then ended.
4.3 GENERAL OBLIGATIONS.
-------------------
Each party shall, at the reasonable request of any other party, from
time to time and at any time and without further consideration, do,
execute, acknowledge and deliver, or cause to be done acts, deeds,
assignments, transfers, assumptions, conveyances, powers of attorney,
receipts, acknowledgments, acceptances, notarizations, filings and
assurances as may be necessary or convenient to procure for the party
so requesting, and its successors and assigns, or for aiding and
assisting in collecting and reducing to possession, any and all of the
Assets or otherwise to satisfy and perform the obligations of the
parties hereunder.
5. REPRESENTATIONS AND WARRANTIES OF SELLERS.
-----------------------------------------
SELLERS have submitted and will submit in performing this Agreement to
PURCHASERS several documents and information. SELLERS hereby represent,
warrant and covenant to PURCHASERS that such documents and information
are true and not misleading in any material respect and that they have
not omitted any statement necessary. There is no material
-20-
fact adversely affecting the Schulerhilfe Business, which has not been
disclosed to PURCHASERS.
INDEPENDENT GUARANTEE AGREEMENT: SELLERS, by the way of an independent
-------------------------------
guarantee agreement and being jointly and severally liable, hereby
represent, warrant and covenant to PURCHASERS as follows:
5.1 ORGANIZATION AND EXISTENCE OF SCHULERHILFE CORPORATION
------------------------------------------------------
(a) Schulerhilfe Corporation is a limited liability company
registered in the Commercial Register of the Local Court in
Gelsenkirchen-Buer under the file no. HRB 1657, and is created
and validly existing under the laws of the Federal Republic of
Germany. SELLER 1 and SELLER 2 participate in the stated capital
of Schulerhilfe Corporation in the total amount of DM50,000.00
paid in full with shares in the nominal amounts of DM10,000.00
and DM15,000.00 each. SELLER 1 is the sole managing director of
Schulerhilfe Corporation.
(b) The articles of association and the entry of Schulerhilfe
Corporation in the Commercial Register of the Local Court in
Gelsenkirchen-Buer, both of which are attached as Schedule 5.1
------------
(b), correspond with the current state of Schulerhilfe
---
Corporation. There are no additional or ancillary agreements to
this shareholders agreement. All shareholders resolutions passed
by Schulerhilfe Corporation modifying the articles of association
are set forth in Schedule 5.1 (b). Further shareholders
----------------
resolutions, particularly those abrogating the shareholders
agreements fully or partly or giving another contents, do not
exist.
(c) The stated capital of the Schulerhilfe Corporation has been paid
in cash and in full as of today's date. Repayments of the assets
required for the preservation of the stated capital have not
occurred.
-21-
5.2 SELLERS' POWER OF DISPOSING OF SHARES IN SCHULERHILFE CORPORATION.
-----------------------------------------------------------------
SELLER 1 and SELLER 2 are the lawful owners of the shares in
Schulerhilfe Corporation sold under this Agreement. The shares are
unencumbered of any rights of third parties. SELLER 1 and SELLER 2 are
authorized and able to dispose of the shares free and unencumbered.
There are particularly no rights of preemption of third parties or
other rights of preemption and agreements aiming at a transfer or
encumbrance of the shares.
5.3 ORGANIZATION AND EXISTENCE OF SCHULERHILFE PARTNERSHIP
------------------------------------------------------
(a) Schulerhilfe Partnership is a civil law partnership (Gesellschaft
burgerlichen Rechts) using the abbreviation "mbH" (mit
beschrankter Haftung - with limited liability) in the course of
business. Schulerhilfe Partnership is not registered in any
commercial register and is created and validly existing under the
laws of the Federal Republic of Germany.
(b) The articles of association of Schulerhilfe Partnership attached
as Schedule 5.3 (b) correspond with the current state of
----------------
Schulerhilfe Partnership. There are no additional or ancillary
agreements to this articles of association. All partnership
resolutions passed by Schulerhilfe Partnership modifying the
articles of association are set forth in Schedule 5.3 (b).
----------------
Further shareholders resolutions, particularly those abrogating
the articles of association fully or partly or giving another
contents, do not exist.
5.4 SELLERS' POWER OF DISPOSING INTEREST IN SCHULERHILFE PARTNERSHIP.
----------------------------------------------------------------
SELLLER 1 is the lawful owner of a ninety-seven and one-half percent
(97.5%) Interest in Schulerhilfe Partnership; SELLER 3 is the lawful
owner of the remaining two and one-half percent (2.5%) Interest in
Schulerhilfe Partnership. The Interest in Schulerhilfe Partnership is
unencumbered of any rights of third parties. SELLER 1 and SELLER 3 are
-22-
authorized and able to dispose of the Interest free and unencumbered.
There are particularly no rights of preemption of third parties or
other rights of preemption and agreements aiming at a transfer or
encumbrance of the Interest. SELLER 1 and SELLER 3 particularly
represent and warrant that they are entitled to transfer to PARTNERSHIP
PURCHASER the Interest in Schulerhilfe Partnership.
WARRANTED CHARACTERISTICS: Furthermore, SELLERS, being jointly and
-------------------------
severally liable, hereby represent, warrant and covenant as a warranted
characteristic ("zugesicherte Eigenschaft") within the meaning of sec.
459 para.2 German Civil Code to PURCHASERS as follows:
5.5 TRANSFER OF ASSETS.
------------------
SELLERS warrant and represent that through the transfer of the interest
in the Schulerhilfe Partnership to the PARTNERSHIP PURCHASER, the
PARTNERSHIP PURCHASER acquires all right, title and interest of the
Schulerhilfe Partnership in and to the Assets including, without
limitation, the following:
(a) any and all real property, interests in real property and all
structures, improvements and buildings located thereon used by
the Schulerhilfe Partnership in the Schulerhilfe Business,
including: (i) all real property, interests therein and
improvements, buildings and structures shown as "Property, Plant
and Equipment" on the Schulerhilfe Partnership's balance sheet as
of December 31, 1997, however, with the exclusion of the
Schulerhilfe Business Headquarters as set forth in sec. 3.11
hereinbefore; (ii) the real property described in Schedule 5.14
-------------
(a); and (iii) all leaseholds, easements, rights of way, licenses
---
and other interests in real property used in the Schulerhilfe
Business, including, without limitation, all Realty Use Rights
(as defined in Paragraph 5.14 (c) hereinafter) and interests.
-23-
(b) all computers, peripherals, printers, hardware, equipment,
vehicles, furniture, fixtures, office equipment and other
tangible personal property used by the Schulerhilfe Partnership
in the conduct and operation of the Schulerhilfe Business,
including, without limitation, all such assets shown as
"Property, Plant and Equipment" on the balance sheet as of
December 31, 1997 and all such assets described and identified in
Schedule 5.5 (b) (all of the aforesaid being hereinafter
----------------
collectively referred to as "Personal Property");
(c) all inventories and materials utilized by the Schulerhilfe
Partnership in the Schulerhilfe Business;
(d) all of the notes and accounts receivable arising from or as a
result of the operation of the Schulerhilfe Business by the
Schulerhilfe Partnership in existence at the close of business on
the last business day before today's date (all such notes and
accounts receivable, the "Receivables");
(e) all of the proprietary and confidential information used in the
conduct and operation of the Schulerhilfe Business by the
Schulerhilfe Partnership, including, without limitation: (i) any
and all computer software, source code, object code, programming
language or other system codes, instructions or algorithms for
individual software used in the Schulerhilfe Business by the
Schulerhilfe Partnership, and any and all rights of copyright
therein; (ii) any and all trade secrets, technical information,
know-how, ideas, designs, processes, procedures, discoveries,
patents, patent applications, and all improvements thereof, used
by the Schulerhilfe Partnership relating to the Schulerhilfe
Business, (iii) all data, files, books and records, customer
lists, and order information of the Schulerhilfe Partnership,
(iv) all of the trademarks, service marks and trade names used by
the Schulerhilfe Partnership in the conduct and operation of the
-24-
Schulerhilfe Business (including, without limitation, all rights
to the name "Schulerhilfe"), all registrations and pending
applications therefor, and all goodwill associated therewith, and
(v) any and all other information, intellectual property rights
and intangible property rights relating to the Assets or the
operation of the Schulerhilfe Business by the Schulerhilfe
Partnership;
(f) all of the Schulerhilfe Partnership's right, title and interest
under the contracts, leases, licenses and agreements,
particularly the Franchise Agreements (as defined in sec. 5.28
(a) hereinafter), which are identified in Schedule 5.5 (f)
------------
attached hereto (collectively the "Assigned Contracts") to the
extent these Assigned Contracts are assignable without the
consent of the third party. For other contracts which require the
consent of the third party to be assigned and as to which the
third party refuses to consent to the assignment, the parties
shall put each other in a position as if the contract is
assigned;
(g) and all other assets of any nature whatsoever, both tangible and
intangible, of the Schulerhilfe Partnership used by the
Schulerhilfe Partnership in the Schulerhilfe Business, including
but not limited to any and all claims, choses in action, deposits
and prepaid amounts.
5.6 COMPLIANCE WITH AND ABSENCE OF INCONSISTENT OBLIGATIONS.
-------------------------------------------------------
To the extent the Schulerhilfe Assets or the Schulerhilfe Business or
the transactions contemplated herein might be adversely affected, no
Schulerhilfe Entity, nor any predecessor of any Schulerhilfe Entity, is
in default under or in violation of, and each Schulerhilfe Entity has
complied in all material respects with, all provisions of all
applicable laws, regulations, orders, injunctions, rulings and other
public restrictions. No governmental authority has required any change
in the Schulerhilfe Business or the Assets, or of the business or
assets of any Schulerhilfe Entity generally, which may affect the
Schulerhilfe Business or the
-25-
Schulerhilfe Assets, which has not been fully implemented and paid for
by such Schulerhilfe Entity. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated herein
will result in a violation or breach of, or constitute a default under,
any term or provision of any mortgage, pledge, security agreement,
instrument, order, judgment, decree, rule, regulation, law, contract,
agreement or any other commitment or restriction to which any of the
Schulerhilfe Entities or the SELLERS are a party or by which any of
them or any of their respective assets is subject or bound, nor will
such actions result in (a) the creation of any claim, lien, charge or
encumbrance on any of the assets, shares or interest of any of the
Schulerhilfe Entities, (b) the acceleration or creation of any
obligation of the Schulerhilfe Entities which may impair SELLERS'
ability to perform this Agreement, or (c) the forfeiture of any right
or privilege of any of the Schulerhilfe Entities which may impair
SELLERS' ability to perform this Agreement. Neither Schulerhilfe
Corporation nor Schulerhilfe Partnership have entered into any
corporate relationships of any kind with third parties. Particularly,
the Schulerhilfe Entities have not entered into a participation or sub-
participation agreement with regard to another company. There are no
contracts between enterprises within the meaning of secs. 291, 292
German Stock Corporation Act as well as other agreements regarding
cooperations and no letters of support in favor of other enterprises.
Furthermore, there are no dormant partnerships, participating loans
(partiarische Darlehen) or other obligations with regard to
participations regarding earnings, regardless whether this refers to
the companies or individual participations. Furthermore, there have
been no such relationships, except the Intercompany Agreement
(Pachtvertrag) entered into between Schulerhilfe Partnership and
Schulerhilfe Corporation dated January 2, 1979, plus the amendment to
such tenancy agreement dated December 3, 1996, which are attached as
Schedule 5.6.
------------
-26-
5.7 REQUIRED CONSENTS.
-----------------
The execution and delivery of this Agreement by the SELLERS and the
consummation of the transactions contemplated by this Agreement do not
require the consent, approval or action of, or any filing with or
notice to, any corporation, person or firm or any public, governmental
or judicial German authority except those listed on Schedule 5.7. With
------------
regard to SELLERS, there are no matrimonial restraints on disposal.
5.8 NO OVERINDEBTEDNESS OR INSOLVENCY OF SCHULERHILFE ENTITIES.
----------------------------------------------------------
Neither the Schulerhilfe Corporation nor the Schulerhilfe Partnership
are overindebted or insolvent. No requests for opening composition or
bankruptcy proceedings regarding their assets have been filed.
5.9 NO OVERINDEBTEDNESS OR INSOLVENCY OF SELLERS.
--------------------------------------------
With regard to the assets of SELLERS neither bankruptcy nor judicial
composition proceedings have been applied for, adjudicated or have not
been opened due to insufficiency of funds. There are no facts which
could justify the avoidance of the sale of the shares in Schulerhilfe
Corporation or the sale of the interest of Schulerhilfe Partnership
pursuant to the provisions of the German Bankruptcy Act and the German
Composition Proceedings Act as well as the German Avoidance Act.
SELLERS do not have liabilities in a material amount against third
parties.
5.10 NO TRANSFER OF ENTIRE ASSETS OF SELLERS.
---------------------------------------
The shares of SELLER 1 and SELLER 2 in Schulerhilfe Corporation or the
Interest of SELLER 1 and SELLER 3 in Schulerhilfe Partnership do not
consist of the entire or almost entire assets of any of the SELLERS.
5.11 LIABILITIES.
-----------
No Schulerhilfe Entity has any debt, liability or obligation of any
kind which relates to or may have any material effect on the
Schulerhilfe Assets or the Schulerhilfe Business after today's date,
whether or not accrued, whether known or unknown, contingent or
absolute or otherwise, including, without limitation: (a) liability for
any taxes related
-27-
to the Schulerhilfe Business prior to today's date; or (b) products or
warranty liability related to the Schulerhilfe Business prior to
today's date arising from or by virtue of the sale or disposition of
personal property, or the rendering of services, of any type, kind or
variety, by any Schulerhilfe Entity or any of their predecessors; or
(c) unfunded liabilities related to the Schulerhilfe Business prior to
today's date with respect to any national or state mandated employee
social security or welfare program, plan or obligation or any Employee
Benefit Program, except (i) liabilities reflected in the Financial
Statements, (ii) liabilities incurred in the ordinary course of
business which are not in the aggregate materially adverse to the
Schulerhilfe Business or financial condition of the Schulerhilfe
Business, and (iii) liabilities reflected in the Interim Statements or
in Schedule 5.11.
-------------
5.12 AUTHORITY TO OWN ASSETS AND CONDUCT BUSINESS/POSSESSION OF PERMITS AND
----------------------------------------------------------------------
BUSINESS LICENSES.
-----------------
Each of the Schulerhilfe Entities is entitled to own or lease the
properties used or usable in connection with the Schulerhilfe Business
and to carry on the Schulerhilfe Business as and in the places where
such business is now conducted. Each of the Schulerhilfe Entities is
licensed or qualified in all jurisdictions where the character of the
property used in the Schulerhilfe Business or the nature of the
Schulerhilfe Business makes such license or qualification necessary.
The Schulerhilfe Entities, the individuals representing the
Schulerhilfe Entities as well as its personnel are in possession of all
necessary permits, particularly, but not limited to, those permits
required under applicable trade acts (Gewerbeordnungen), school
organization acts (Schulordnungsgesetze) and similar acts or
ordinances. All permits and business licenses granted and required for
conducting the Schulerhilfe Business and all such jurisdictions are
listed on Schedule 5.12. Schedule 5.12 lists (a) all locations where
------------- -------------
the Schulerhilfe Business is conducted and located or where any of the
Schulerhilfe Entities has an office or place of business or maintains
any inventory with respect to the Schulerhilfe Business, and (b) each
name under which each of the Schulerhilfe Entities, or any predecessor
of the
-28-
Schulerhilfe Entities, has operated the Schulerhilfe Business during
the past two (2) years. Each Schulerhilfe Entity possesses all, and no
Schulerhilfe Entity is in violation of any, certificates, licenses,
permits and other authorizations from governmental or regulatory
authorities that are necessary for the ownership, maintenance and
operation by such Schulerhilfe Entity of the Schulerhilfe Business or
the Schulerhilfe Assets. SELLERS warrant and represent that the
information contained in Schedule 5.12 is correct and complete, that no
-------------
further permits and business licenses are required for conducting the
Schulerhilfe Business and that all such permits and business licenses
are not negatively affected by the transfer to PURCHASERS by this
Agreement.
5.13 TITLE TO ASSETS.
---------------
The Schulerhilfe Entities are the sole and unencumbered legal owners of
the property identified in the respective balance sheets as of December
31, 1997 as well as those laid down in their respective books (the
"Assets"). The Schulerhilfe Entities may freely dispose of the Assets.
There are no rights whatsoever of third parties with regard to the
Assets with the exclusion of those listed in the attached Schedule
--------
5.13. There is no property required for conducting the business being
----
owned by third parties. The Assets include all the properties and
assets necessary to conduct the Schulerhilfe Business as presently
conducted by the Schulerhilfe Entities; the Schulerhilfe Entities own
such Assets. Except as set forth on Schedule 5.13, the Schulerhilfe
-------------
Entities have good title to all such assets, real and personal, movable
and immovable, tangible and intangible, including, without limitation,
those reflected on the respective balance sheets as of December 31,
1997 (except as since sold or otherwise disposed of in the ordinary
course of business), free and clear of all claims, liens, charges,
mortgages, attachments and other encumbrances of any kind or character
except (a) those reflected on the respective balance sheets as of
December 31, 1997 as securing specified liabilities (with respect to
which no default exists), (b) any interim statements, (c) liens for
taxes not yet due and payable, and (d) minor imperfections of title and
liens and encumbrances, if any,
-29-
which (i) are not substantial in amount, (ii) do not impair the
operations of the Schulerhilfe Business and (iii) have arisen only in
the ordinary course of business.
5.14 REAL PROPERTY INTERESTS.
-----------------------
With the exception of the Schulerhilfe Business Headquarters to be
transferred to SELLER 1 and SELLER 3 prior to signing this Agreement as
set forth in sec. 3.11 hereinbefore:
(a) Schedule 5.14 (a) sets forth and identifies, by street address or
-----------------
parcel number, each and every parcel of real property owned or
used by any of the Schulerhilfe Entities in the conduct of the
Schulerhilfe Business and whether such real property is owned or
leased (the ,,Real Property"). The excerpt from the land register
(Grundbuchauszug) set forth in Schedule 5.14 (a) corresponds with
-----------------
the current state of the Real Property.
(b) The SELLERS warrant and represent that the Schulerhilfe Entities
have good and marketable free title to all Real Property owned by
them, and all buildings, structures and other improvements
thereon and all fixtures thereto which are used or useable in
Schulerhilfe's Business free and clear of any lien, charge, claim
or encumbrance whatsoever, registered or not registered, except
as set forth on Schedule 5.14 (b).
-----------------
(c) All leases, easements, rights of way, licenses and other non-
ownership interests granted to or by the Schulerhilfe Entities in
any of the Real Property (collectively, the "Realty Use Rights")
are valid and effective in accordance with their terms. All such
Realty Use Rights are listed on Schedule 5.14 (c) which have not
-----------------
been modified in any material respect, and all of which are in
full force and effect in accordance with their terms. There is
not under any Realty Use Right: (i) any default or any claimed
default or event of default or event which with notice or lapse
of time, or both, would constitute a default by any of the
Schulerhilfe Entities
and in respect of which SELLERS or the Schulerhilfe Entities have
not taken adequate steps to prevent a default on their part from
occurring, or (ii) any existing default by the other party to
such Realty Use Right or any event of default or event which with
notice or lapse of time, or both, would constitute a default by
the other party to such Realty Use Right. No Schulerhilfe Entity
has any claims, actions or causes of action against any other
party to a Realty Use Right for failure of such party to perform
and satisfy its duties and obligations under such Realty Use
Right. Each Schulerhilfe Entity is lawfully in possession of all
Real Property which such Schulerhilfe Entity uses under Realty
Use Rights. Each Schulerhilfe Entity is presently occupying the
entirety of each parcel of Real Property for the purposes set
forth in such Realty Use Right, except the lease agreements with
third parties set forth in Schedule 5.14 (c).
-----------------
(d) No Schulerhilfe Entity, nor any predecessor of any Schulerhilfe
Entity, has caused any work or improvements to be performed upon
or made to any Real Property for which there remains outstanding
any payment obligation that would or might serve as the basis for
any lien, charge, claim or encumbrance in favor of the person or
entity which performed the work.
(e) All requisite certificates of occupancy and other permits or
approvals legally required with respect to the improvements on
the Real Property and the occupancy and use thereof have been
obtained and are currently in effect.
(f) The interest of each Schulerhilfe Entity in and under each Realty
Use Right, to which such Schulerhilfe Entity is a party, is
unencumbered and subject to no present claim, contest, dispute,
action or threatened action or proceeding or otherwise other than
minor imperfections of title which do not have a material adverse
effect on the Realty Use Right.
-31-
(g) Except as set forth in Schedule 5.14 (g), no rent or use fee has
-----------------
been paid in advance, no security deposit has been paid and no
brokerage commission is payable by any Schulerhilfe Entity with
respect to any Realty Use Right.
(h) No Schulerhilfe Entity has received any notice that the owner of
the Real Property used by such Schulerhilfe Entity under any
Realty Use Right has made any assignment, pledge or hypothecation
of such Realty Use Right or the rents or use fees due thereunder.
(i) Limited to real property owned by the Schulerhilfe Entities: All
of such real property is free from any use or occupancy
restrictions. No options have been granted to others to purchase,
lease or otherwise acquire any interest in the Real Property, or
any part thereof. The Schulerhilfe Entities have the exclusive
right of possession of each tract comprising the Real Property.
There is lawfully available to all of the Real Property water,
gas, sewers, electricity, and telephone service sufficient to
allow the Schulerhilfe Business to continue to be conducted as
heretofore conducted by the Schulerhilfe Entities, and all of
which are now being utilized by the Schulerhilfe Entities. All of
the Real Property has reasonably suitable access to existing
paved roads and other public rights of way. All of the Real
Property is free and clear of any liens, charges, claims,
security interests, encumbrances or other restrictions, whether
existing of record or otherwise, except the following (as to
which no event of default has occurred): (i) liens for taxes
which are not past due, (ii) easements for the erection and
maintenance of public utilities servicing the Real Property.
-32-
(j) All of the real property not owned by the Schulerhilfe Entities
is in all respects fit for the purpose of conducting the
Schulerhilfe Business.
(k) Limited to the real property owned by the Schulerhilfe Entities:
The present use of and improvements on the Real Property are in
conformity in all material respects with all applicable laws,
rules, regulations and ordinances, including, without limitation,
all applicable ordinances and regulations and with all deed
restrictions of record, and there is no proposed change therein
that would affect any of the Real Property or its use. There
exists no conflict or dispute with any regulatory authority or
other person relating to any Real Property or the activities
thereon. All improvements on the Real Property are located within
the lot lines (and within the mandatory set-backs from such lot
lines established by applicable law) and not over areas subject
to easements or rights of way.
(l) Limited to the real property owned by the Schulerhilfe Entities:
All buildings and improvements on the Real Property are in good
condition and repair, suited for the operation of the
Schulerhilfe Business and are in compliance in all material
respects with all applicable laws, rules, regulations, and
ordinances, including, without limitation, all applicable
building, electrical, plumbing, gas, fire, environmental and
other regulatory laws, rules, regulations, and ordinances, and
the Schulerhilfe Entities have not received any notice of any
violation or alleged violation of any thereof. No toxic or
hazardous materials were used, to the best of SELLERS' knowledge,
in the construction or improvements of any building located on
the Real Property or otherwise used by the Schulerhilfe Entities
in connection with the Schulerhilfe Business.
(m) Limited to real property owned by the Schulerhilfe Entities:
Prior to the date hereof, the SELLERS have delivered to
PURCHASERS true and correct copies of all deeds, easements,
servitudes, mortgages
-33-
and other documents relating to or affecting the title to the
Real Property.
5.15 TANGIBLE PROPERTY.
-----------------
All tangible property owned or used by the Schulerhilfe Entities is in
good working condition, subject to normal wear and tear, is suited for
the use intended and is operated in conformity with all applicable laws
and regulations. There are no defects or conditions which would cause
such tangible property to be or to become inoperable or unsafe if used
as intended.
5.16 FINANCIAL STATEMENTS.
--------------------
The unaudited financial statements of the Schulerhilfe Entities as of
December 31, 1995, December 31, 1996, and as of December 31, 1997 (the
"Reference Dates") which are attached as Schedule 5.16 have been
-------------
prepared in accordance with balance sheet regulations of German
commercial law observing the principle of formal and substantive
balance sheet continuity. They give an accurate and complete
presentation of the companies as of the Reference Dates with regard to
finances, assets and earnings. The present value of the Assets
complies, the present value of the liabilities complies at most, with
the respective balance estimates. With the exclusion of liabilities
resulting from the financial statements as of December 31, 1997 and as
to which liability reserves have been made and have been separately
identified, the companies do not have any liabilities to be recorded in
the balance sheets. SELLERS particularly warrant and represent that
there are no claims against any of the Schulerhilfe Entities resulting
from property civil liability whatsoever and that SELLERS are not aware
of liabilities to be expected other than those occurring in the
ordinary course of business. As to all uncertain liabilities which may
be taken into account because of possible losses resulting from pending
transactions and further facts resulting in a duty to provide for
liability reserves, sufficient liability reserves have been provided
for in the financial statements as of December 31, 1997. Particularly,
the financial statements as of December 31, 1997 and the Interim
-34-
Statements provide for sufficient liability reserves with regard to tax
liabilities, official levies and social security contributions of the
Schulerhilfe Entities accruing. SELLERS warrant and represent that the
Schulerhilfe Entities have not created claims resulting from
operational pension duties. The receivables resulting from the
financial statements as of December 31, 1997 and from the financial
statements as of August 31, 1998 (as audited by Ernst & Young) are
existing, minus value adjustments identified, to the full extent
lawfully and are free of claims and encumbrances of third parties. They
have the economical value identified and may be collected on their
respective due dates. SELLERS particularly warrant and represent that
with the exclusion of those liabilities mentioned in the annual
statement as of December 31, 1997 and the Interim Statements, or as to
which liability reserves have been made or specifically entered, there
are no liabilities of the Schulerhilfe Entities.
5. 17 EMPLOYMENT AGREEMENTS.
---------------------
Schedule 5.17 lists all employees of all Schulerhilfe Entities and
-------------
others who on the date hereof perform services on a regular basis for
the Schulerhilfe Business, other than those persons who are solely
franchisees or their employees of the Schulerhilfe Entities (the
,,Schulerhilfe Employees"). To the extent required by law, the social
data (name, age, marital status, number and age of dependants, home
address, phone number, salary, length of service, maternity or
handicapped status, etc.) of the Schulerhilfe Employees are completely
and correctly entered into the respective personnel files kept at the
premises of the Schulerhilfe Entities. No key employee has terminated
his or her employment, nor plans not to continue his or her employment
with the Schulerhilfe Business after the date hereof. Except as set
forth in Schedule 5.17, no Schulerhilfe Entity is a party to any
-------------
collective bargaining agreement or any agreement, understanding,
protocol or arrangement of any kind with any union, labor organization
or other employee group or representative, whether public or private,
which relates to the Schulerhilfe Employees. With respect to all of the
-35-
Schulerhilfe Employees, the Schulerhilfe Entities, and their respective
predecessors, have complied with (i) all laws and regulations
prohibiting or regulating discrimination in employment on the basis of
age, race, sex, nationality, religion or other prohibited
classifications, and (ii) all other labor and employment laws and
regulations applicable to persons employed in connection with the
Schulerhilfe Business, including, without limitation, those laws and
regulations relating to wages, hours, health, safety, employee welfare,
payment of payroll and social security taxes and other obligations,
maintenance of workers' compensation insurance, employee retirement and
redundancy and labor and employment relations. There are no further
liabilities of the Schulerhilfe Entities from any employment
relationships. The PURCHASERS are aware that tutoring teachers render
services to the Schulerhilfe Entities on a free-lance basis and are
being compensated on the basis and are being compensated on the basis
of invoices presented by such tutoring teachers. SELLERS do not
represent that this interpretation of the law will be accepted by the
German tax authorities in the future. The list of salaries set forth in
Schedule 5.17 does correctly state the complete salaries of the
-------------
managing director and the Schulerhilfe Employees of the head office as
of July 31, 1998. There have been no pay raises inbetween, with the
exception of those pay raises identified in the list of salaries
Schedule 5.17.
-------------
5.18 EMPLOYEE BENEFIT MATTERS.
------------------------
(a) Except as set forth in Schedule 5.18 (a) or as generally imposed
-------------
by applicable law, no Schulerhilfe Entity provides, and no
Schulerhilfe Entity is obligated to provide, directly or
indirectly, any benefits for employees of the Schulerhilfe
Business, including, without limitation, any social plan,
pension, profit sharing, retirement, bonus, medical or
hospitalization insurance, vacation or other employee benefits
under any practice, agreement, understanding, law or regulation.
-36-
(b) Except as set forth in Schedule 5.18 (b) or as generally imposed
-----------------
by applicable law, the transactions contemplated in this
Agreement will not entitle any Schulerhilfe Employee to severance
or redundancy pay and will not accelerate the time of payment or
vesting or increase the amount of any compensation or other
benefits due to any Schulerhilfe Employee.
(c) Schedule 5.18 (c) summarizes the material terms of each employee
-----------------
benefit program (including, without limitation, retirement
benefit schemes, health insurance, pension insurance,
unemployment insurance, workmen's compensation, medical care,
holiday pay, bonuses and life insurance) maintained by or on
behalf of any Schulerhilfe Entity or any other party (including
any terminated pension programs) which covers or covered any
Schulerhilfe Employees (an "Employee Benefit Program"), other
than any Employee Benefit Program generally imposed or required
to be maintained pursuant to applicable law. With respect to each
Employee Benefit Program, except as expressly set forth in
Schedule 5.18 (c), no litigation, administrative or other
-----------------
proceeding or claim is pending, threatened or anticipated and
there are no outstanding requests for information by participants
or beneficiaries of such program. Each Employee Benefit Program
has been administered in compliance in all material respects with
all applicable laws and regulations and all required filings have
been made and notices have been given.
(d) Each Schulerhilfe Entity, or as the case may be each of its
predecessors, has timely made payment in full of all
contributions to each Employee Benefit Program which any of them
is or was obligated to make. There are no contributions declared
or payable by any Schulerhilfe Entity to any Employee Benefit
Program which have not been paid in full.
-37-
5.19 INSURANCE.
---------
Schedule 5.19 lists all policies of insurance presently maintained by
-------------
or on behalf of the Schulerhilfe Entities with respect to the
Schulerhilfe Assets or the Schulerhilfe Business, all of which are and
will be maintained through today's date in full force and effect.
Schedule 5.19 lists all occurrences which may form the basis for a
-------------
claim by or on behalf of any Schulerhilfe Entity under any such policy
and for which no claim for payment has been made; such Schulerhilfe
Entity has not waived (either intentionally or inadvertently) its right
to make the related claim under any such policy. All premiums due on
the insurance policies listed in Schedule 5.19 have been paid and no
-------------
Schulerhilfe Entity, nor the SELLERS, have received any notice of
cancellation with respect thereto. No Schulerhilfe Entity has ever been
refused any insurance by any insurance carrier to which it has applied
for insurance with respect to the Schulerhilfe Assets, or the
Schulerhilfe Business except for legal expenses insurance
("Rechtsschutzversicherung") having been applied for approx. twenty
(20) years prior to today's date. SELLERS and PURCHASERS shall jointly
use their best efforts to transfer all insurance contracts protecting
the Schulerhilfe Business in order to obtain insurance coverage as of
today's date.
5.20 CONTRACTS.
---------
Schedule 5.20 lists all contracts and commitments with respect to the
-------------
Schulerhilfe Business (including but not limited to Assigned Contracts,
which are designated as such on Schedule 5.5 (f)), or by which the
----------------
Schulerhilfe Assets, or the Schulerhilfe Business may be bound or
affected (collectively, the "Contracts"), whether written or verbal,
including, without limitation, purchase and sales orders individually
involving a payment of more than DM100,000.00 (or the equivalent
thereof in the applicable local currency), employment contracts, labor
and union contracts, leases, shareholder agreements, employee benefit
programs, deferred compensation agreements, notes, bonds, mortgages,
security agreements, guaranties, security deposits, performance bonds,
letters of credit, loan agreements, currency exchange and interest rate
-38-
positions or agreements, distribution agreements, sales representative
agreements, commercial agency agreements, warranties, contribution
agreements, brokers or agency contracts, powers of attorney and any
contract which involves payments in excess of an aggregate of
DM100,000.00 (or the equivalent thereof in the applicable local
currency) or has a term or requires performance over a period of more
than one year; except for (i) agreements for Realty Use Rights which
are set forth in Schedule 5.14 (c), (ii) Franchise Agreements set forth
-----------------
in Schedule 5.28; and (iii) non-material contracts with pupils relating
-------------
to the provision of services by the Schulerhilfe Entities.
Particularly, the Schulerhilfe Entities have not granted guarantees or
entered into guarantee agreements or have taken over further agreements
providing for a joint liability. The SELLERS have delivered to
PURCHASERS a true and correct copy of each written Contract (including
all amendments thereto), duly signed by both parties, where applicable,
and a summary of the material terms of each oral Contract. SELLERS
warrant and represent that all Contracts continue to be valid without
being terminated. No Schulerhilfe Entity, nor any predecessor of any
Schulerhilfe Entity, is in default or in arrears under any of the terms
of the Contracts. No condition exists or has occurred which with the
giving of notice or the lapse of time, or both, would constitute a
default or accelerate the maturity of, or otherwise modify, any
Contract. All Contracts are in full force and effect. No default by any
other party to any Contract is known or claimed by the SELLERS or the
Schulerhilfe Partnership to exist. No termination of any of the
Contracts has been threatened.
5.21 INTELLECTUAL PROPERTY RIGHTS.
----------------------------
The Schulerhilfe Entities are solely and without encumbrances permitted
to make use of all proprietary inventions, designs, ideas, processes,
methods, software, source and object code, trademarks, service marks,
trade names, copyrights and other know-how including the rights
resulting from applications made as well as all rights of use thereof
comprising the intellectual property of the Schulerhilfe Entities
-39-
(collectively, the "Schulerhilfe Intellectual Property"). If any
Schulerhilfe Intellectual Property is owned or registered in the name
of any other person than Schulerhilfe Corporation or Schulerhilfe
Partnership, SELLERS shall provide that all such Schulerhilfe
Intellectual Property is or will be transferred to PARTNERSHIP
PURCHASER and that all documents required for such transfer have been
duly executed prior to today's date or will be executed thereafter.
There are neither claims of third parties with regard to these rights
nor have third parties claimed to have such rights. The Schulerhilfe
Entities have the means, rights and information required to conduct the
Schulerhilfe Business as currently conducted without incurring any
liability for license fees or royalties or any claims of infringement
of patents, trade secrets, copyrights, trademarks, service marks or
other proprietary rights. All hardware and software used in the
Schulerhilfe Business is set forth in Schedule 5.21. The operations of
-------------
the Schulerhilfe Entities on or after January 1, 2000, without
limitation to date, shall in no way be different than the operations
prior to that date, and the equipment, systems and software of the
Schulerhilfe Entities will be able to process, store, record and
present data containing dates in the year 2000 and thereafter, without
limitation to date, in the same manner as data containing dates prior
to the year 2000. There are no rights of third parties with respect to
any trademark, service mark, trade secret, trade name, software, source
or object code, copyright, patent, patent application, invention or
device, comprising a part of the Schulerhilfe Intellectual Property.
Without limiting the generality of the foregoing, all of the individual
software of the Schulerhilfe Business, its source code, its object code
and its programs are owned by the Schulerhilfe Entities, free and clear
of any claims of (i) any individual, including any present or former
employee of the Schulerhilfe Entities or (ii) any present or former
independent contractor to or of the Schulerhilfe Entities.
5.22 INVENTORIES AND MATERIALS.
-------------------------
The inventories and materials of the Schulerhilfe Entities reflected on
the December 31, 1997 balance sheets and the inventories and materials
produced or acquired by the Schulerhilfe Entities subsequent to the
date
-40-
thereof consisted and will consist of items of a quality and
quantity usable in the ordinary course of the Schulerhilfe Business as
presently conducted by the Schulerhilfe Entities. Except as set forth
in Schedule 5.22, no Schulerhilfe Entity, nor any predecessor of any
-------------
Schulerhilfe Entity, has given or will give any express warranty with
respect to any goods or products sold or services performed in
connection with the Schulerhilfe Business prior to today's date.
5.23 TAXES.
-----
The Schulerhilfe Entities each have duly filed or will file when due
all tax returns and reports and all returns and reports of all
governmental units or authorities having jurisdiction, for all periods
prior to or including today's date, with respect to taxes imposed upon
any of the Assets, or taxes imposed on any Schulerhilfe Entity
(including but not limited to income, value added and payroll taxes)
which might create a lien or encumbrance on any of the Assets after
transfer thereof to any of the PURCHASER, impose upon PURCHASERS any
successor liability for taxes, or otherwise affect adversely the
ability of any of the PURCHASER to carry on the Schulerhilfe Business
after today's date, and each Schulerhilfe Entity has paid or will pay
when due all of such taxes. There are no waivers or agreements by any
Schulerhilfe Entity for the extension of time for the assessment of any
taxes. There is not now being presently conducted any audit or
examination of any tax return of any Schulerhilfe Entity by any
governmental unit or authority, nor is there presently proposed by any
such governmental unit or authority any deficiency or assessment of
taxes as a result of any audit or examination of any tax return of any
Schulerhilfe Entity. The PURCHASERS are aware of the fact that
Schulerhilfe Corporation is exempted from the payment of value added
tax and trade tax and that this tax exemption is under permanent
control of the competent authorities; the operator of the Schulerhilfe
Business is solely responsible to achieve this exemption after today's
date.
-41-
5.24 ENVIRONMENTAL MATTERS.
---------------------
Each Schulerhilfe Entity, and each of its predecessors, has complied
with all laws and regulations relating to pollution and environmental
control which are applicable to, and the failure to comply with which
may have an adverse effect on, the Assets or the Schulerhilfe Business.
Schedule 5.24 describes (a) all permits, regulatory plans and
-------------
compliance schedules with respect to the Assets and the Schulerhilfe
Business, and (b) all litigation, investigations, inquiries and other
proceedings, rulings, orders or citations pending, threatened or
contemplated by government officials or others with respect to the
Schulerhilfe Business or the Assets, in each case relating to emissions
or the proper disposal of materials. The SELLERS have delivered to
PURCHASERS true and correct copies of all permits, regulatory plans and
compliance schedules described in Schedule 5.24. No Schulerhilfe Entity
-------------
is in violation of any of the permits, plans or compliance schedules
described in or required to be described in Schedule 5.24 or of any
-------------
law, regulation, order or decree regulating emissions or the proper
disposal of materials.
5.25 GOVERNMENT REPORTS.
------------------
Schedule 5.25 lists, and SELLERS have furnished PURCHASERS with true
-------------
and correct copies of all material reports filed since January 1, 1995
by the Schulerhilfe Entities which in any way relate to the Assets or
the Schulerhilfe Business with all government agencies and other
regulatory authorities with whom any Schulerhilfe Entity must file
significant reports (other than tax returns, payroll withholding and
similar reports), including, without limitation, agencies and
authorities regulating employment and labor relations, competition,
work place safety, taxes and environmental matters.
5.26 SOLE SOURCE SUPPLIERS.
---------------------
Schedule 5.26 lists the names and addresses of any sole source
-------------
suppliers of significant goods, equipment or services to any
Schulerhilfe Entity used in connection with the Schulerhilfe Business
(other than public utilities) with respect to which practical
alternative sources of
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supply are not available. Except as set forth in Schedule 5.26 no sole
-------------
source supplier of the Schulerhilfe Business intends to discontinue or
substantially diminish or change its relationship with the Schulerhilfe
Business or the terms thereof, and no sole source supplier of the
Schulerhilfe Business intends to increase prices or charges for goods
or services presently supplied other than in the ordinary course of
business.
5.27 LEGAL DISPUTES.
--------------
Except as set forth in Schedule 5.27 there are no actions, suits,
-------------
claims, proceedings or other legal disputes pending or threatened
against, by or affecting the Schulerhilfe Business in any court or
before any arbitrator or governmental agency which could reasonably be
expected to have a material adverse effect on the operation of the
Schulerhilfe Business or on the Schulerhilfe Assets or which would
prevent or impede the transactions contemplated by this Agreement.
Except as set forth in Schedule 5.27 no Schulerhilfe Entity has been
-------------
charged with, or is under investigation with respect to any charge
concerning, any violation of any provision of any applicable law,
ordinance, regulation, order or governmental restriction, which could
reasonably be expected to have a material adverse effect on the
operation of the Schulerhilfe Business or on the Schulerhilfe Assets or
which would prevent or in any way impede the transactions contemplated
by this Agreement. There are no unsatisfied judgments against any
Schulerhilfe Entity or any orders, injunctions or consent decrees to
which any Schulerhilfe Entity is subject.
5.28 FRANCHISEES.
-----------
Schedule 5.28 sets forth the following information, all of which is
-------------
true and current in all material respects:
(a) names, addresses, and telephone numbers of all current and former
master and unit franchisees of the Schulerhilfe Business
("Franchisee" or "Franchisees"), indicating in each case whether
-43-
the Franchisee is a master or unit franchisee and the country,
province or other territory covered by such franchise;
(b) a listing of any and all share capital or other equity interests
held by the Schulerhilfe Entities or SELLERS in and to any
Franchisee; and, a listing of any commitment of the Schulerhilfe
Entities or SELLERS, contingent or otherwise, to provide to any
franchisee, (a) any amount of equity or debt capital, or, (b) any
rights of any nature, including but not limited to any share of
revenues or profits in or other financial compensation from, any
other franchise or any territory in which a franchise may be
established at any future date;
(c) a listing of all 720 franchise agreements with all Franchisees
currently in effect (the "Franchisee Agreements"). A binder of
true and correct copies of the different versions of the
Franchise Agreements used has already been provided to
PURCHASERS' representatives;
(d) a listing of the current confidential operation manual or related
manuals, and other documents relating to the franchise operations
of the Schulerhilfe Business, true and correct copies of which
shall be provided to PURCHASERS promptly;
(e) copies of checklists or standard forms used in conjunction with
the Schulerhilfe Business' franchising program;
(f) a listing of all correspondence, along with any other relevant
information, with or between the Schulerhilfe Entities or SELLERS
and any Franchisee after December 31, 1997 relating to any
dispute in excess of DM10,000.00, any threatened termination of
any franchise agreement or any disputed interpretation of any
franchise agreement, true and correct copies of which shall be
provided to PURCHASERS promptly;
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(g) written details with respect to any Franchisee that, as of the
date hereof, is not in good standing or meeting the payment
condition under the franchise agreement.
5.29 FRANCHISEE TERMINATION.
----------------------
Schedule 5.29 sets forth a list of names and addresses of all
-------------
Franchisees which have left the franchise system of the Schulerhilfe
Business between January 1, 1996 and July 31, 1998, and shall deliver
an amended list containing the terminated Franchisees promptly; and,
SELLERS shall furnish PURCHASERS with a true and correct copy of all
termination agreements and releases with respect thereto.
5.30 NO FRANCHISEE ASSOCIATION
-------------------------
Except as set forth on Schedule 5.30, no franchise association (either
-------------
independent or company-sponsored) is currently in place. The
organization of a franchise association is not currently contemplated
by any Schulerhilfe Entity or by any of the Franchisees.
5.31 RELATED PARTY TRANSACTIONS.
--------------------------
Except as set forth in Schedule 5.31 SELLERS have not entered into any
-------------
contract with or for the benefit of (a) any party owning, or formerly
owning, beneficially or of record, directly or indirectly, any shares
of or any interest in any Schulerhilfe Entity, (b) any natural person
related by blood, adoption or marriage to any such party, (c) any
director, officer or similar representative of any Schulerhilfe Entity
or the SELLERS, or (d) any party or entity in which any of the
foregoing parties has, directly or indirectly, at least a five percent
(5%) beneficial interest (a "Related Party"). Without limiting the
generality of the foregoing, except as set forth in Schedule 5.31, no
-------------
Related Party, directly or indirectly, owns or controls any assets or
properties which are used in the Schulerhilfe Business and no Related
Party, directly or indirectly, engages in or has any significant
interest in or in connection with any business which is, or has been
within the last two (2) years, a competitor, customer or supplier of
any Schulerhilfe Entity or has done business with any Schulerhilfe
Entity or which currently sells or provides products or services which
are similar or related to the products or services sold or provided in
connection with the Schulerhilfe Business. The SELLERS do not engage in
or does not have any interest in or in connection with any business
which is, or
-45-
has been, within the last five (5) years, a competitor, customer or
supplier of any Schulerhilfe Entity or has done business with any
Schulerhilfe Entity or which currently sells or provides products or
services which are similar or related to the products or services sold
or provided in connection with the Schulerhilfe Business.
5.32 CONDUCT OF THE SCHULERHILFE BUSINESS PENDING PAYMENT DATE
---------------------------------------------------------
Except as expressly otherwise provided herein, without the prior
written consent of PURCHASERS, between the date hereof and the Payment
Date, the SELLERS covenant that:
(a) Business in the Ordinary Course.
-------------------------------
The Schulerhilfe Business shall be conducted only in the ordinary
course.
(b) Extraordinary Agreements.
------------------------
No Schulerhilfe Entity will enter into any contract or other
arrangements for the Schulerhilfe Business except in the ordinary
course of business.
(c) Acquisition of Materials.
------------------------
Without limiting the generality of clause (b) above, no
Schulerhilfe Entity will enter into any contract or commitment
for the purchase of materials, products, services or supplies for
the Schulerhilfe Business, except contracts or commitments which
are entered into in the ordinary course of business at prices and
on terms which are consistent with the Schulerhilfe Entities'
prior operating
-46-
practices and are necessary to enable the Schulerhilfe Entities
to conduct the Schulerhilfe Business' normal operations.
(d) Maintenance.
-----------
The Schulerhilfe Entities will maintain the Schulerhilfe Assets
in good operating condition, except for ordinary wear and tear
and for damage by fire or other casualty.
(e) Insurance.
---------
The Schulerhilfe Entities will maintain and keep in full force
and effect all of the insurance referred to in sec. 5.19 hereof
or other insurance equivalent thereto in all material respects.
(f) Encumbrances.
------------
The Schulerhilfe Entities will not sell, mortgage, lease, buy or
otherwise acquire, transfer or dispose of the Schulerhilfe
Assets, except (i) sales of inventory in the ordinary course of
business or (ii) in connection with retirement or replacement of
tangible personal property in the ordinary and necessary course
of the Schulerhilfe Business.
(g) Employee Compensation.
---------------------
No increase or decrease will be made in the compensation payable
or to become payable by any of the Schulerhilfe Entities to any
officer, employee or agent of the Schulerhilfe Business nor will
any employment, bonus or profit sharing arrangement be made to or
with any officer, employee or agent of the Schulerhilfe Business.
(h) Related Party Transactions.
--------------------------
SELLERS and the Schulerhilfe Entities will not enter into any
contract or transaction of the kind described in sec. 5.31 hereof
with any Related Party in connection with the Schulerhilfe
Business.
-47-
(i) No Distributions.
----------------
Except as contemplated by Section 3.6 hereof, no Schulerhilfe
Entity shall pay or declare any dividend or other distribution
with respect to its capital stock, nor shall any Schulerhilfe
Entity, directly or indirectly, redeem, purchase or otherwise
acquire any of its capital stock, except in the ordinary course
of business consistent with past practices.
(j) Preservation of Business.
------------------------
SELLERS shall preserve the Schulerhilfe Business, keep available
the services of its present employees, preserve the goodwill of
the franchisees, suppliers, customers and others having business
relations with it. Without limiting the generality of the
foregoing, no franchise of the Schulerhilfe Business shall be
transferred, sold, assigned or terminated except in the ordinary
course.
5.33 EVENTS SINCE DECEMBER 31, 1997.
------------------------------
Except as expressly contemplated in this Agreement or as set forth in
Schedule 5.33 or specifically identified in the December 31, 1997
-------------
Balance Sheet:
(a) There has been no change in the Schulerhilfe Assets, the
Schulerhilfe Business or the liabilities, results of operations
or financial or other condition of the Schulerhilfe Business or
in the Schulerhilfe Business' relationships with Franchisees,
suppliers, customers, employees, lessors or others, other than
changes in the ordinary course of business.
(b) There has been no damage, destruction or loss, whether or not
insured against, to the Schulerhilfe Assets or the Schulerhilfe
Business which could reasonably be expected to have a material
adverse effect on the operation of the Schulerhilfe Business or
on the Schulerhilfe Assets.
-48-
(c) The Schulerhilfe Business has been operated only in the ordinary
course of business with the diligence of a prudent businessman.
(d) The books, accounts and records of the Schulerhilfe Entities have
been maintained in the usual, regular and ordinary manner on a
basis consistent with prior practice. Modifications with regard
to the property, financial or earnings situation of the
Schulerhilfe Business with the exclusion of modifications
resulting from the ordinary course of business have not occurred.
SELLERS warrant and represent that such modifications resulting
from the ordinary course of business do not have a negative
impact on the Schulerhilfe Business. Particularly, SELLERS are
not aware of any circumstances or events, which may have a
negative impact on the profitability of the Schulerhilfe Business
or which may be extraordinarily burdensome or which may provide
for an obligation of the Schulerhilfe Entities to provide for
liability reserves in a balance sheet to be drawn as of today's
date.
(e) There has been no (i) increase in the compensation or in the rate
of compensation or commissions payable or to become payable by
any Schulerhilfe Entity to any director, officer, manager or
other employee, agent or other representative with an annual
salary exceeding DM50,000.00, (ii) general increase in the
compensation or in the rate of compensation payable or to become
payable to hourly employees or to any of the Schulerhilfe
Employees, (iii) employee of the Schulerhilfe Business hired at a
salary in excess of DM100,000.00 per annum (or the equivalent in
the currency in which any such person is compensated), or (iv)
payment of or commitment to pay any bonus, profit share or other
extraordinary compensation to any Schulerhilfe Employee. For
purposes of clause (ii) of the foregoing sentence, "general
increase" means any increase generally applicable to a class or
group of employees and does not include increases granted to
individual employees for merit, length of service, change in
-49-
position or responsibility or other reasons applicable to
specific employees and not generally applicable to a class or
group of employees.
(f) There has been no labor dispute or any organizational effort by
any union or employee charge of any illegal labor or employment
practice involving any Schulerhilfe Entity or the Schulerhilfe
Business.
(g) There has been no mortgage, lien or other encumbrance or security
interest (other than liens for taxes not yet due and payable)
created on or in any asset of the Schulerhilfe Entities or
assumed by any Schulerhilfe Entity with respect to any such
asset.
(h) There has been no indebtedness or other liability or obligation
(whether absolute, accrued, contingent or otherwise) incurred by
any Schulerhilfe Entity with respect to the Schulerhilfe
Business, except in the ordinary course of business.
(i) No obligation or liability has been discharged or satisfied,
other than the liabilities reflected on the Financial Statements
and liabilities incurred since December 31, 1997 in the ordinary
course of business.
(j) There has been no sale, transfer or other disposition of any
asset of the Schulerhilfe Business, except sales for full value
in the ordinary course of business of (i) assets having a fair
market value in each case of less than DM10,000.00 and (ii)
inventory.
(k) There has been no amendment, termination or waiver of any
material right with respect to the Schulerhilfe Business under
any contract or agreement or governmental license, permit or
permission.
-50-
(l) There have been no amendments or other corporate actions having
the effect of an amendment increasing past or future
contributions of any kind whatsoever to any Employee Benefit
Program, other than Employee Benefit Programs generally imposed
or required to be maintained pursuant to applicable law.
(m) No Schulerhilfe Entity has paid for or agreed to pay for, or
otherwise incurred, any expenses on behalf of the Schulerhilfe
Business with respect to any products or services which were
delivered or rendered to, or for the benefit of, or guaranteed
the indebtedness or any other obligation of, any person, firm or
corporation, including, without limitation, any Schulerhilfe
Entity or any Related Party, other than for the benefit of the
Schulerhilfe Business.
(n) SELLERS have not (i) paid any judgment resulting from any suit,
proceeding, arbitration, claim or counterclaim or (ii) made any
payment to any party of more than DM40,000.00 (or the equivalent
in the currency in which such payment was made) in settlement of
any suit, proceeding, arbitration, claim or counterclaim relating
to the Schulerhilfe Business or any of the Schulerhilfe Assets.
(o) No Schulerhilfe Entity has discontinued or determined to
discontinue the production or sale of any products or services
previously produced in connection with the Schulerhilfe Business
and representing more than one percent (1%) of the sales of the
Schulerhilfe Business during the fiscal periods covered by the
Financial Statements.
(p) There has not been paid nor declared by any Schulerhilfe Entity
any dividend or other distribution with respect to the capital
stock or shares of such Schulerhilfe Entity other than the
interim
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dividend for the financial year 1998 which has not exceeded the
regular earnings distributable since December 31, 1997, nor has
any Schulerhilfe Entity, directly or indirectly, redeemed,
purchased or otherwise acquired any of its capital stock or
shares.
6. INDEMNITIES.
-----------
6.1 INDEMNIFICATION OF PURCHASERS.
-----------------------------
(a) If any of the warranties and representations set forth in sec. 5
herein or any other information contained in this Agreement or in
any certificate, schedule, instrument or document delivered to
PURCHASERS by or on behalf of the SELLERS pursuant to the
provisions of this Agreement, is incorrect or incomplete or is
not complied with, the SELLERS shall jointly and severally
indemnify and hold harmless PURCHASERS against and in respect of
any and all losses, damages, liabilities, costs and expenses
suffered or incurred by any PURCHASER (including any entity
associated with PURCHASERS within the meaning of sec. 15 German
Stock Corporation Act, as well as their respective officers,
directors, employees and other agents and representatives).
(b) The right to withdraw from this Agreement pursuant to sec. 462
German Civil Code ("Wandlung") shall not be applicable.
6.2 LIMITATION OF CLAIMS.
--------------------
(a) The SELLERS' liability to indemnify PURCHASERS as joint and
several creditors for a non-fulfillment of any of the
representations and warranties set forth in sec. 5 of this
Agreement shall be limited as follows:
(i) PURCHASERS shall not be entitled to raise individual claims
in the amount of less than DM5,000.00 each, unless it is a
-52-
repetitive claim based on the same economical or legal
issue;
(ii) PURCHASERS shall not be entitled to raise a claim if the
aggregate amount of claims (of both PURCHASERS jointly) is
less than DM250,000.00.
Such limitations shall not apply to SELLERS' obligations set
forth in secs. 2.4 (Sales Price Adjustments) and 2.6 (Taxes).
(b) SELLERS' total liability with regard to indemnification is
limited to DM28,000,000.00 minus fifty percent (50%) of the
amount by which the Earnout Payment as set forth in secs. 2.1
(b), 2.3, and 2.5 hereinbefore is lower than DM 21.5 (Twenty-One
and One-Half) million.
(c) The statute of limitations with regard to all claims of
PURCHASERS resulting out of or in connection with this Agreement
shall expire on October 31, 2001. With regard to Taxes, see sec.
2.6, the statute of limitations shall be six months following the
date the respective assessment becomes final.
6.3 EXCEPTIONS TO INDEMNIFICATIONS AND LIMITATION OF CLAIMS.
-------------------------------------------------------
None of the indemnifications or limitations set forth in secs. 6.1 and
6.2 hereinbefore, shall affect PURCHASERS' claims for performance
regarding an unencumbered transfer of the shares in Schulerhilfe
Corporation, the interest in Schulerhilfe Partnership nor those
obligations of SELLERS set forth in secs. 3, 4 and 5.1 through 5.4
herein. Furthermore, the claims of PURCHASERS resulting from fraudulent
conduct (secs. 123, 476 German Civil Code) and resulting from an
intentional tortious conduct or wilful damage contrary to public policy
(secs. 823 para.2, 826 German Civil Code) shall remain unaffected.
-53-
6.4 DEFENSE OF CLAIMS.
-----------------
(a) If any claim or action by a third party arises for which the
SELLERS are liable for indemnification under the terms of this
Agreement, then the PURCHASERS shall notify the SELLERS promptly
(but not later than ten (10) business days prior to the time when
an answer or other responsive pleading or notice with respect to
such claim is required) after such claim or action arises and is
known to PURCHASERS, and shall give SELLERS a reasonable
opportunity:
(i) to take part in any examination of the respective books and
records;
(ii) to conduct any proceedings or negotiations in connection
therewith and necessary or appropriate to defend the
PURCHASER(S);
(iii) to take all other required steps or proceedings to settle
or defend any such claim or action; and
(iv) to employ counsel to contest any such claim or action in
the name of the PURCHASER(S) or otherwise.
If SELLERS wish to assume the defense of such claim or action, he
shall give written notice to the PURCHASER(S) within thirty (30)
days after notice from the PURCHASER(S) of such claim or action
(unless the claim or action reasonably requires a response in
less than thirty (30) days after the notice is given to SELLERS,
in which event they shall notify PURCHASER(S) at least five (5)
days prior to such reasonably required response date), and
SELLERS shall thereafter assume the defense of any such claim or
liability through counsel of its choosing (subject to the
PURCHASER(S) approval of such counsel, which approval will not
-54-
be unreasonably withheld or delayed), shall be responsible for
the expenses of such defense, and shall be bound by the results
of its defense or settlement of claim to the extent it produces
damage or loss to the PURCHASER(S). The SELLERS shall not settle
any such claim without prior written notice to and consultation
with the PURCHASER(S). So long as the SELLERS are diligently
contesting any such claim in good faith, the PURCHASER(S) may pay
or settle such claim only at its/their own expense. The
indemnitee shall have the right to participate in such defense
with separate counsel, at its expense, provided that the
indemnitor shall direct and control any such defense.
(b) If SELLERS shall not assume the defense of, or if after so
assuming shall fail to diligently defend any such claim or
action, the PURCHASER(S) may take over the defense of such claim
or action in such manner as they may deem appropriate (provided
that SELLERS may participate in such defense at his own expense)
and the PURCHASER(S) may settle such claim or litigation on such
terms as they may in good faith deem appropriate, and SELLERS
shall reimburse the PURCHASER(S) as provided herein for the
amount of all expenses, legal and otherwise, reasonably and
necessarily incurred by the PURCHASER(S) in connection with the
defense against and settlement of such claim or action. If no
settlement of such claim or litigation is made, SELLERS shall
satisfy any judgment rendered with respect to such claim or in
such action, before PURCHASER(S) are required to do so, and pay
all expenses, legal or otherwise, reasonably and necessarily
incurred by the PURCHASER(S) in the defense of such claim or
litigation.
(c) If a judgment is rendered against any of the PURCHASER(S) in any
action covered by the indemnification hereunder, or any lien in
respect of such judgment attaches to any of the assets of any of
the PURCHASER(S), then SELLERS shall immediately upon such
-55-
entry or attachment pay such judgment in full or discharge such
lien unless, at SELLERS' expense and direction, an appeal is
taken under which the execution of the judgment or satisfaction
of the lien is stayed. If and when a final judgment is rendered
in any such action, SELLERS shall forthwith pay such judgment or
discharge such lien before any of PURCHASER(S) is compelled to do
so.
7. COVENANT NOT TO COMPETE
-----------------------
7.1 NO COMPETITION.
--------------
The parties are aware of the fact that the market of the provision of
extracurricular educational services in Germany is currently dominated
by two main competitors and, therefore, extremely vulnerable. The
parties mutually agree that they intend to cooperate closely in the
future with regard to the Schulerhilfe Business. Therefore, in
consideration of the facts described hereinbefore and in consideration
of the substantial Sales Price paid by PURCHASERS to SELLERS, SELLERS
agree to refrain for a time period of ten (10) years from today's date
from engaging in any competition with the Schulerhilfe Business. They
shall be refrained from establishing or taking over or participating,
directly or indirectly, a competing enterprise, particularly the
provision of extracurricular educational services. Furthermore, SELLERS
shall refrain from any conduct or support - as employee or otherwise -
for a competing enterprise, particularly the provision of
extracurricular educational services. Within the scope of the business
of Schulerhilfe Corporation and Schulerhilfe Partnership they shall
refrain from engaging in any business for his own or another person's
account. The territorial application of this covenant not to compete
shall be the current member states of the European Union, Poland and
Switzerland as well as any other country where PURCHASERS are
conducting the Schulerhilfe Business during the term of this covenant
not to compete.
-56-
7.2 CONTRACTUAL PENALTY.
-------------------
In case of any violation of this covenant not to compete upon
termination, a contractual penalty in the amount of DM450,000.00 (in
words: German Marks Fourhundred-and-fifty Thousand) shall be payable.
In case of a continuing violation (participation or conduct exceeding a
time period of one month) the contractual penalty has to be paid for
each month of the violating conduct. The payment of the contractual
penalty does not exempt SELLERS from observing the covenant not to
compete upon termination.
7.3 FURTHER CLAIMS OF PURCHASERS.
----------------------------
Further claims of PURCHASERS, such as claiming damages or claims for
injunctive relief, shall remain unaffected.
7.4 NO OFFSETTING.
-------------
It shall not be permitted to offset against any claims of PURCHASER
resulting from a violation of this covenant not to compete upon
termination (contractual penalty, damages, claims of all kinds).
8. PUBLICITY
---------
8.1 INFORMATION TO THE PUBLIC.
-------------------------
The public shall only be informed of this Agreement and its contents
following the explicit mutual coordination with regard to time, method
and contents of the publication.
8.2 STATUTORY RESTRICTIONS.
----------------------
The parties understand that mandatory statutory provisions may require
that some information regarding this Agreement and its contents has to
be submitted to some authorities despite the agreement between the
parties described in secs. 3.1 and 9 herein. Particularly, SELLERS are
aware of the fact and agrees to take into account that PURCHASERS are
part of a group of companies and that other companies of such group of
companies are publicly traded companies in the United States of America
-57-
or elsewhere, and that announcements may be necessary or convenient to
comply with applicable securities laws, particularly with the rules and
regulations of the US Securities Exchange Commission, the US National
Association of Securities Dealers or any other applicable securities
commission, authority or association.
9. CONFIDENTIALITY
---------------
Both parties agree to keep confidential all business and operation
secrets of the respective other party as well as any further matters or
operations made known to such party in the course of the negotiations,
the signing and the performance of this Agreement. This relates
particularly, but not limited to, any information contained in any
statement, document, analysis, compilation, trade secret or other
business as well as proprietary information or any other similar
information submitted by one party. Each party shall provide that no
third parties, including its directors, officers, employees, agents,
representatives or affiliates reveal any such knowledge without the
prior written consent of the other party.
10. TERMINATION
-----------
10.1 RESCISSION RIGHT OF PURCHASERS.
------------------------------
This Agreement may be rescinded by PURCHASERS (Rucktrittsrecht) at any
time and at PURCHASERS' sole discretion, prior to the Payment Date upon
written notice to SELLERS, and, upon such termination of this
Agreement, PURCHASERS shall have no liability whatsoever to SELLERS
except as provided otherwise in this Agreement, but to retransfer the
Shares in SCHULERHILFE CORPORATION and the Interest in SCHULERHILFE
PARTNERSHIP.
10.2 CONTRACTUAL PENALTY.
-------------------
If PURCHASERS make use of their right pursuant to sec. 10.1
hereinbefore, however, due to SELLERS fault taking action having
-58-
detrimental impact on the Schulerhilfe Business, SELLERS shall
indemnify PURCHASERS or associated enterprises within the meaning of
sec. 15 German Stock Corporation Act, from any and all expenses,
including, but not limited to, attorneys and consultants fees, incurred
in connection with entering into this Agreement, however, limited to a
maximum amount of US$ 700,000.00 (United States Dollars
Seven-hundred-thousand).
10.3 NO EFFECT ON CLAIMS FOR PERFORMANCE.
-----------------------------------
The aforementioned right of rescission of PURCHASERS - as well as any
other exclusion and/or limitation of SELLERS' liability contained in
this Agreement - shall not affect the PURCHASERS' claims set forth in
sec. 6.3 hereinbefore and any right of termination arising thereof.
10.4 OTHER EFFECTS OF TERMINATION FOR CERTAIN CAUSES.
-----------------------------------------------
Notwithstanding anything contained in this sec. 10 to the contrary, the
termination of this Agreement shall not (i) affect any claim hereunder
which accrued prior to the date of termination, or (ii) extinguish or
otherwise affect the obligations of PURCHASERS under secs. 3.1 and 9
herein.
11. EXPENSES
--------
11.1 GENERAL EXPENSES.
----------------
All expenses incurred by the respective party in connection with the
authorization, preparation, execution and performance of this Agreement
by the respective party, including, but not limited to, all fees and
expenses of agents, representatives, counsel and accountants for the
respective party, shall be paid by the respective party which has given
the respective instruction or which has caused such expenses.
-59-
11.2 COSTS OF NOTARIAL DEEDS.
-----------------------
The costs of any notarial deed, notarized applications to commercial
registers required for the performance of this Agreement shall be paid
by SELLERS.
11.3 SALES AND TRANSFER TAXES
------------------------
The SELLERS shall be jointly and severally responsible for the payment
of all sales, excise, transfer, land transfer tax (Grunderwerbssteuer),
capital value added and similar taxes or fees imposed by any
governmental authority in connection with the sale and transfer of the
shares in Schulerhilfe Corporation and of the Interest in Schulerhilfe
Partnership.
12. MISCELLANEOUS
-------------
12.1 NOTICES
-------
All notices, requests, demands or other communications required or
permitted to be given or made under this Agreement shall be made in
writing and delivered personally or sent by mail, if given or made to a
location within the country in which it is dispatched, or by air mail
if given or made to a location outside the country from which it is
dispatched, or by express courier, or by facsimile transmission to the
intended recipient thereof at its address or facsimile number set out
below (or to such other address or facsimile number as any party may
from time to time duly notify the others). Any such notice, demand or
communication shall be deemed to have been duly given
(a) immediately, if delivered personally, or given or made by
confirmed facsimile; or
(b) the day after dispatch, if given or made by express courier to a
location within the country in which it is dispatched; or
(c) two (2) days after dispatch, if given or made by express courier
to a location outside the country from which it is dispatched; or
-60-
(d) three (3) days after submitted by mail, if given or made by a
letter addressed to a location within the country in which it is
posted; or
(e) seven (7) days after submitted by air mail, if made or given by
letter addressed to a location outside the country in which it is
posted;
and in proving the same it shall be sufficient to show that receipt of
a facsimile was confirmed by the recipient. The addresses and facsimile
numbers of the parties for purposes of this Agreement are:
If to SELLERS:
Herrn Jurgen Gratze, or
Herrn Jurgen Birkner, or
Herrn Martin Mohr
Allmendenweg 10
45894 Gelsenkirchen
Facsimile No.: (+49)[0]209-36 06 221
With a copy to:
Feddersen Laule Scherzberg & Ohle Hansen Ewerwahn
Stiftstr. 9 - 17
D-60313 Frankfurt am Main
Facsimile No.: (+49) [0]69-28 26 15
Attn.: Prof. Dr. Gerhard Laule or
Dr. Ekkehard Moeser
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If to CORPORATION PURCHASER:
c/o Sylvan Learning Systems, Inc.
1000 Lancaster Street
Baltimore, Maryland 21202, USA
Facsimile No.: (+1)410-843-8060
Attn.: Robert W. Zentz, Esq.
Vice President, General Counsel
If to PARTNERSHIP PURCHASER:
c/o Sylvan Learning Systems, Inc.
1000 Lancaster Street
Baltimore, Maryland 21202, USA
Facsimile No.: (+1)410-843-8060
Attn.: Robert W. Zentz, Esq.
Vice President, General Counsel
With regard to CORPORATION PURCHASER and PARTNERSHIP PURCHASER with
copies to:
Paul, Hastings, Janofsky & Walker LLP
600 Peachtree Street, N.E., Suite 2400
Atlanta, Georgia 30308-2222, USA
Facsimile No.: (+1)404-815-2424
Attn.: Richard M. Asbill, Esq. or
W. Andrew Scott, Esq.
GORG Rechtsanwalte
Sachsenring 81
D-50677 Koln
Facsimile No.: (+49) [0]221-33 66 080
Attn.: Dr. Volker Schacht or
Dr. Christof Siefarth
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Any party may change the address to which notices, requests, demands or
other communications to such parties shall be delivered or mailed by
giving notice thereof to the other parties hereto in the manner
provided herein.
12.2 COUNTERPARTS
------------
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, and all of which shall constitute
one and the same instrument.
12.3 AGREEMENT
---------
This Agreement supersedes all prior discussions and agreements between
the parties with respect to the subject matters covered hereby. This
Agreement shall not be altered or amended except by an instrument in
writing signed by or on behalf of the parties hereto, provided,
however, notarization is not required by law.
12.4 SUCCESSORS AND ASSIGNS.
----------------------
This Agreement shall be binding upon and for the benefit of the parties
and their respective heirs, beneficiaries, executors, successors and
assigns. SELLERS may not assign this Agreement without the prior
written consent of PURCHASERS. PURCHASERS may assign this Agreement or
any parts thereof, after duly informing SELLERS, to any entity of the
Sylvan group of companies.
12.5 SCHEDULES AND EXHIBITS.
----------------------
All schedules and exhibits attached to this Agreement shall constitute
an integral part of this Agreement.
12.6 HEADINGS.
--------
All headings as to the contents of this Agreement are inserted for
convenience and shall not be construed as a part of this Agreement or
as a limitation of the scope of any terms or provision of this
Agreement.
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12.7 DISPUTE RESOLUTION.
------------------
The contracting parties shall make all efforts to reach a friendly
understanding with regard to all possible differences resulting from
this Agreement by weighing their mutual interests and the mutual
advantages and disadvantages. If they are unable to reach a friendly
understanding, all disputes arising out of or in connection with this
Agreement shall be finally settled by German ordinary courts. The place
of venue shall be Cologne, Germany.
12.8 APPLICABLE LAW.
--------------
This Agreement and all claims resulting thereof, whether contractual,
in tort or otherwise, shall be exclusively governed by German
substantive law. The application of the United Nations Convention on
the International Sale of Goods (CISG) is explicitly excluded.
12.9 LANGUAGE OF THE AGREEMENT.
-------------------------
This Agreement is drafted in English and will be translated into German
(Exhibit 8). The English version shall be authoritative. However, the
---------
German version shall be agreed upon between Dr. Ekkehard Moeser and Dr.
Christof Siefarth until the Payment Date and will be used in case of
doubt for the purpose of interpretation.
12.10 PARTIAL INVALIDITY AND SEVERABILITY.
-----------------------------------
If any provision of this Agreement is rendered illegal, invalid or
unenforceable, this shall not affect the validity of the remaining
provisions of this Agreement. In this case the respective provision
shall be replaced by a provision which will implement the commercial
purpose of the illegal, invalid or unenforceable provision taking into
account what the parties would have agreed upon if they would have been
aware of the illegality, invalidness or unenforceability. The same
shall apply if this Agreement is incomplete.
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Place:_____________________ Place:_____________________
Date:______________________ Date:______________________
___________________________ ___________________________
SELLER 1 CORPORATION PURCHASER
___________________________ ___________________________
SELLER 2 PARTNERSHIP PURCHASER
___________________________
SELLER 3
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LIST OF SCHEDULES
SCHEDULE SCHEDULE DESCRIPTION
-------- --------------------
1.4 Shareholders Resolution of Schulerhilfe
Corporation
3.8 List of Trademark Registrations and Trademark
Applications
3.11 Description and Liabilities of Schulerhilfe
Business Headquarters
5.1(b) Entry of Schulerhilfe Corporation in
Commercial Register and Articles of
Association of Schulerhilfe Corporation / All
Shareholders Resolutions of Schulerhilfe
Corporation
5.3(b) Articles of Association and Shareholders
Resolutions of Schulerhilfe Partnership
5.5(b) Personal Property
5.5(f) Assigned Contracts
5.6 Intercompany Agreement of January 2, 1979,
with amendments
5.7 Required Consents
5.11 Liabilities of Schulerhilfe Entities
5.12 Jurisdictions, Locations and Names of
Schulerhilfe Entities where the Schulerhilfe
Business is conducted / Permits and Business
Licenses
5.13 Exceptions to Title
5.14(a) Real Property
5.14(b) Exceptions to Real Property
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5.14(c) Realty Use Rights / Third Party Lease
Agreements
5.14(g) Real Property Documents
5.16 Financial Statements
5.17 Social Data of Employees / Collective
Bargaining Agreements
5.18(a) Employee Benefits - Listing
5.18(b) Employee Benefits - Severance
5.18(c) Employee Benefits - Plans
5.19 Insurance
5.20 Contracts
5.21 Hardware and Software
5.22 Inventories and Materials
5.24 Environmental - Permits and Litigation
5.25 Government Reports
5.26 Sole Source Providers
5.27 Legal Disputes
5.28 Franchisees, Franchise Agreements and Related
Information
5.29 Franchise Terminations
5.30 Franchise Associations
5.31 Related Party Transactions
5.33 Events since December 31, 1997
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LIST OF EXHIBITS
----------------
EXHIBIT REFERRED TO IN SEC. DESCRIPTION
------- ------------------ -----------
1 1.1 Schulerhilfe Corporation
Share Transfer Agreement
2 1.2 Schulerhilfe Partnership
Interest Transfer Agreement
3 3.3 Management Agreement with
SELLER 1
4 3.4 Employment Agreement with
SELLER 3
5 3.5 Consulting Agreement with
SELLER 2
6 3.8 Assignment of Trademark
Registrations and Trademark
Applications
7 3.12 Escrow Agreement
8 12.9 German Version of Agreement
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INDEX OF DEFINITIONS
--------------------
SCHEDULE DEFINED TERM
- -------- ------------
2.4(d)(iii) Accounting Firm
2.4(c) Adjustment Date
5.13 Assets
5.5(f) Assigned Contracts
2.5 (a) Collected Franchise Fees
5.20 Contracts
2.4(a) Corporation Closing Date Working Capital
2.4(a) Corporation Minimum Working Capital
2.1 Earnout Payment
2.1 Earnout Stock
4.1(b) Effective Time
5.18(c) Employee Benefit Program
5.28 Franchisee
5.28(c) Franchise Agreements
2.5 (a) Franchise Centers
2.5 (a) Franchise Fees
1.1 Interest
4.2(e) Interim Statement
2.4(a) Partnership Closing Date Working Capital
2.4(a) Partnership Minimum Working Capital
-69-
2.2(a) Payment Date
5.5(b) Personal Property
5.14(a) Real Property
5.14(c) Realty Use Rights
5.5(d) Receivables
5.16 Reference Dates
5.31 Related Party
2.1 Sales Price
3.8 Schulerhilfe Assets
0.0 Schulerhilfe Business
3.11 Schulerhilfe Business Headquarters
0.0 Schulerhilfe Entities
5.21 Schulerhilfe Intellectual Property
1.1 Shares
2.4(a) Statements
2.2(b) Sylvan
2.2(b) Sylvan Common Stock
2.2(b) Sylvan CommonRestricted Stock
2.6 Taxes
3.9 Trademarks
2.4(b) Working Capital
-70-
TABLE OF CONTENTS
1. OBJECTS OF SALE................................................................................ 3
1.1 Sale of Shares in Schulerhilfe Corporation..................................................... 3
1.2 Sale of Interest in Schulerhilfe Partnership................................................... 3
1.3 Profit Participation........................................................................... 4
1.4 Corporate Consent.............................................................................. 4
2. SALES PRICE AND PAYMENT........................................................................ 4
2.1 Sales Price.................................................................................... 4
2.2 Payment of the fixed Sales Price............................................................... 5
2.3 Payment of the Earnout......................................................................... 6
2.4 Sales Price Adjustments/Equity Guarantee....................................................... 8
2.5 Determination of Earnout Payment............................................................... 11
2.6 Taxes.......................................................................................... 13
3. ADDITIONAL AGREEMENTS.......................................................................... 13
3.1 Confidentiality if Transactions are not Consummated............................................ 13
3.2 Cooperation.................................................................................... 14
3.3 Management Agreement with Seller 1............................................................. 15
3.4 Employment Agreement with SELLER 3............................................................. 15
3.5 Consulting Agreement with SELLER 2............................................................. 15
3.6 Distributions.................................................................................. 15
3.7 PURCHASER's Access and Inspection.............................................................. 16
3.8 Assignment of Trademark Registrations and Trademark Applications............................... 16
3.9 Restrictions from Disposing of Sylvan Restricted Stock and Earnout Stock....................... 17
3.10 Release from Restrictions of Sale of Sylvan Restricted Stock................................... 17
3.11 Exclusion of Schulerhilfe Business Headquarters................................................ 18
3.12 Escrow Account................................................................................. 18
4. ADDITIONAL OBLIGATIONS......................................................................... 18
4.1 Certificate of SELLERS......................................................................... 18
4.2 Interim Statements............................................................................. 19
4.3 General Obligations............................................................................ 19
5. REPRESENTATIONS AND WARRANTIES OF SELLERS...................................................... 19
5.1 Organization and Existence of Schulerhilfe Corporation......................................... 20
5.2 SELLERS' Power of Disposing of Shares in Schulerhilfe Corporation.............................. 21
5.3 Organization and Existence of Schulerhilfe Partnership......................................... 21
5.4 SELLERS' Power of Disposing Interest in Schulerhilfe Partnership............................... 21
5.5 Transfer of Assets............................................................................. 22
5.6 Compliance with and Absence of Inconsistent Obligations........................................ 24
5.7 Required Consents.............................................................................. 26
5.8 No Overindebtedness or Insolvency of Schulerhilfe Entities..................................... 26
5.9 No Overindebtedness or Insolvency of SELLERS................................................... 26
5.10 No Transfer of Entire Assets of SELLERS........................................................ 26
5.11 Liabilities.................................................................................... 26
5.12 Authority to Own Assets and Conduct Business/
Possession of Permits and Business Licenses.................................................... 27
5.13 Title to Assets................................................................................ 28
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5.14 Real Property Interests........................................................................ 29
5.15 Tangible Property.............................................................................. 33
5.16 Financial Statements........................................................................... 33
5.17 Employment Agreements.......................................................................... 34
5.18 Employee Benefit Matters....................................................................... 35
5.19 Insurance...................................................................................... 37
5.20 Contracts...................................................................................... 37
5.21 Intellectual Property Rights................................................................... 38
5.22 Inventories and Materials...................................................................... 39
5.23 Taxes.......................................................................................... 40
5.24 Environmental Matters.......................................................................... 41
5.25 Government Reports............................................................................. 41
5.26 Sole Source Suppliers.......................................................................... 41
5.27 Legal Disputes................................................................................. 42
5.28 Franchisees.................................................................................... 42
5.29 Franchisee Termination......................................................................... 44
5.30 No Franchisee Association...................................................................... 44
5.31 Related Party Transactions..................................................................... 44
5.32 Conduct of the Schulerhilfe Business Pending Payment Date...................................... 45
(a) Business in the Ordinary Course................................................................ 45
(b) Extraordinary Agreements....................................................................... 45
(c) Acquisition of Materials....................................................................... 45
(d) Maintenance.................................................................................... 46
(e) Insurance...................................................................................... 46
(f) Encumbrances................................................................................... 46
(g) Employee Compensation.......................................................................... 46
(h) Related Party Transactions..................................................................... 46
(i) No Distributions............................................................................... 47
(j) Preservation of Business....................................................................... 47
5.33 Events Since December 31, 1997................................................................. 47
6. INDEMNITIES.................................................................................... 51
6.1 Indemnification of PURCHASERS.................................................................. 51
6.2 Limitation of Claims........................................................................... 51
6.3 Exceptions to Indemnifications and Limitation of Claims........................................ 52
6.4 Defense of Claims.............................................................................. 53
7. COVENANT NOT TO COMPETE........................................................................ 55
7.1 No Competition................................................................................. 55
7.2 Contractual Penalty............................................................................ 56
7.3 Further Claims of PURCHASERS................................................................... 56
7.4 No Offsetting.................................................................................. 56
8. PUBLICITY...................................................................................... 56
8.1 Information to the Public...................................................................... 56
8.2 Statutory Restrictions......................................................................... 56
9. CONFIDENTIALITY................................................................................ 57
10. TERMINATION.................................................................................... 57
10.1 Rescission Right of PURCHASERS................................................................. 57
-72-
10.2 Contractual Penalty............................................................................ 57
10.3 No Effect on Claims for Performance............................................................ 58
10.4 Other Effects of Termination for Certain Causes................................................ 58
11. EXPENSES....................................................................................... 58
11.1 General Expenses............................................................................... 58
11.2 Costs of Notarial Deeds........................................................................ 59
11.3 Sales and Transfer Taxes....................................................................... 59
12. MISCELLANEOUS.................................................................................. 59
12.1 Notices........................................................................................ 59
12.2 Counterparts................................................................................... 62
12.3 Agreement...................................................................................... 62
12.4 Successors and Assigns......................................................................... 62
12.5 Schedules and Exhibits......................................................................... 62
12.6 Headings....................................................................................... 62
12.7 Dispute Resolution............................................................................. 63
12.8 Applicable Law................................................................................. 63
12.9 Language of the Agreement...................................................................... 63
12.10 Partial Invalidity and Severability............................................................ 63
List of Schedules....................................................................................... 65
List of Exhibits........................................................................................ 67
Index of Definitions.................................................................................... 68
Table of Contents....................................................................................... 70