EXHIBIT 2.1
EXECUTION VERSION
ASSET PURCHASE AGREEMENT
BY AND AMONG
HAIGHTS CROSS COMMUNICATIONS, INC.
AS "HCCI"
HAIGHTS CROSS OPERATING COMPANY
AS "HCOC"
OPI ACQUISITION CO., INC.
AS "BUYER"
AND
OPTIONS PUBLISHING, INC.
AS "SELLER"
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ AND ▇▇▇ ▇▇▇▇▇▇
AS THE "STOCKHOLDERS"
DATED AS OF NOVEMBER 11, 2004
ASSET PURCHASE AGREEMENT
TABLE OF CONTENTS
PAGE
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SECTION 1 - PURCHASE AND SALE OF ASSETS......................................................................... 1
1.1 Sale of Assets..................................................................................... 1
1.2 Excluded Assets.................................................................................... 3
1.3 Assumption of Liabilities.......................................................................... 4
1.4 Excluded Liabilities............................................................................... 4
1.5 Purchase Price and Payment......................................................................... 6
1.6 [Intentionally Omitted]............................................................................ 6
1.7 Time and Place of Closing.......................................................................... 6
1.8 Further Assurances................................................................................. 6
1.9 Allocation of Purchase Price....................................................................... 6
1.10 Transfer Expenses, Costs and Taxes................................................................ 7
1.11 Use of Name....................................................................................... 7
1.12 Delivery of Contracts and Records................................................................. 7
SECTION 2 - REPRESENTATIONS AND WARRANTIES OF SELLER AND THE STOCKHOLDERS....................................... 7
2.1 Making of Representations and Warranties........................................................... 7
2.2 Organization....................................................................................... 8
2.3 Subsidiaries....................................................................................... 8
2.4 Capital Stock of Seller; Beneficial Ownership...................................................... 8
2.5 Authority of Seller; No Conflicts.................................................................. 8
2.6 Leased Property; Liens; Condition of Properties.................................................... 9
2.7 Financial Statements............................................................................... 10
2.8 Taxes.............................................................................................. 11
2.9 Accounts Receivable; Accounts Payable; Inventory................................................... 12
2.10 Absence of Undisclosed Liabilities................................................................ 13
2.11 Absence of Certain Developments................................................................... 13
2.12 Intellectual Property............................................................................. 14
2.13 Certain Contracts and Arrangements................................................................ 15
2.14 Litigation........................................................................................ 16
2.15 Compliance with Laws.............................................................................. 17
2.16 Insurance Coverage................................................................................ 17
2.17 Approvals......................................................................................... 17
2.18 Employee Benefit Programs; ERISA.................................................................. 17
2.19 Environmental Matters............................................................................. 18
2.20 Employees; Labor Matters.......................................................................... 18
2.21 Customers, Distributors and Partners.............................................................. 19
2.22 Suppliers......................................................................................... 19
2.23 Certain Payments.................................................................................. 19
2.24 Transactions with Affiliates...................................................................... 19
2.25 No Brokers or Finders............................................................................. 20
2.26 Privacy of Customer Information................................................................... 20
2.27 Disclosures....................................................................................... 20
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS...................................................... 20
3.1 Making of Representations and Warranties........................................................... 20
3.2 Authority of Stockholder........................................................................... 20
3.3 Beneficial Ownership............................................................................... 21
3.4 No Brokers or Finders.............................................................................. 21
SECTION 4 - REPRESENTATIONS AND WARRANTIES OF BUYER, HCOC AND HCCI.............................................. 21
4.1 Making of Representations and Warranties........................................................... 21
4.2 Organization....................................................................................... 21
4.3 Authority; No Conflicts............................................................................ 21
4.4 No Brokers or Finders.............................................................................. 22
4.5 Litigation......................................................................................... 22
SECTION 5 - INTERIM COVENANTS OF SELLER AND THE STOCKHOLDERS.................................................... 22
5.1 Conduct of Business................................................................................ 22
5.2 Access to Books and Records; Access to Customers and Employees..................................... 23
5.3 Notice of Default.................................................................................. 23
5.4 Consummation of Agreement; Consents................................................................ 24
5.5 Financial Information.............................................................................. 24
5.6 Leased Real Property............................................................................... 24
5.7 Cooperation of Seller.............................................................................. 25
5.8 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇.................................................................................. 25
5.9 No Solicitation of Other Offers.................................................................... 25
5.10 Confidentiality................................................................................... 26
5.11 Distributions..................................................................................... 26
5.12 Updated Disclosure................................................................................ 26
SECTION 6 - INTERIM COVENANTS OF BUYER, HCOC AND HCCI........................................................... 27
6.1 Notice of Default.................................................................................. 27
6.2 Consummation of Agreement.......................................................................... 27
6.3 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇.................................................................................. 27
6.4 Confidentiality.................................................................................... 28
SECTION 7 - CLOSING CONDITIONS.................................................................................. 29
7.1 Conditions to the Obligations of Buyer, HCOC and HCCI.............................................. 29
7.2 Conditions to Obligations of Seller................................................................ 32
SECTION 8 - INDEMNIFICATION..................................................................................... 34
8.1 Survival of Representations and Warranties......................................................... 34
8.2 Indemnification by Seller and the Stockholders..................................................... 35
8.3 Indemnification by Buyer, HCOC and HCCI............................................................ 35
8.4 Notice and Opportunity to Defend................................................................... 36
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8.5 Cooperation........................................................................................ 36
8.6 Indemnification Limits............................................................................. 37
8.7 Payment of Claims.................................................................................. 38
SECTION 9 - TERMINATION......................................................................................... 38
9.1 Termination........................................................................................ 38
9.2 Effect of Termination.............................................................................. 39
9.3 Right to Proceed................................................................................... 39
9.4 Buyer's Right to Specific Performance.............................................................. 39
9.5 Seller's Right to Liquidated Damages............................................................... 39
9.6 Waiver............................................................................................. 40
SECTION 10 - POST-CLOSING RIGHTS AND OBLIGATIONS................................................................ 40
10.1 Collection of Assets.............................................................................. 40
10.2 Payment of Obligations............................................................................ 40
10.3 Assumed Liabilities............................................................................... 40
10.4 Adjustment of Operating Expenses.................................................................. 40
10.5 Non-competition by Seller......................................................................... 41
10.6 Employees......................................................................................... 42
SECTION 11 - DEFINITIONS........................................................................................ 42
11.1 Certain Definitions............................................................................... 42
SECTION 12 - MISCELLANEOUS...................................................................................... 44
12.1 Fees and Expenses................................................................................. 44
12.2 Governing Law; Jurisdiction; Venue................................................................ 44
12.3 Notices........................................................................................... 45
12.4 Entire Agreement.................................................................................. 46
12.5 Assignability; Binding Effect..................................................................... 46
12.6 Captions and Gender............................................................................... 46
12.7 Execution in Counterparts......................................................................... 46
12.8 Amendments........................................................................................ 47
12.9 Publicity and Disclosures......................................................................... 47
12.10 Bulk Sales Law................................................................................... 47
12.11 Dispute Resolution............................................................................... 47
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EXHIBITS
Exhibit A Employment Agreement for ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Exhibit B-1 Noncompetition Agreement for ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Exhibit B-2 Noncompetition Agreement for ▇▇▇ ▇▇▇▇▇▇
Exhibit C Form of Indemnification Escrow Agreement
Exhibit D Form of ▇▇▇▇ of Sale and General Assignment
Exhibit E Form of Seller Legal Opinion
Exhibit F Form of Agreement of Assumption of Liabilities
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SCHEDULES
Schedule 1.1(b) Personal Property
Schedule 1.1(c)-1 Acquired Contracts
Schedule 1.1(c)-2 Excluded Contracts
Schedule 1.1(j) Computer Equipment, Software and Licenses
Schedule 1.1(n) Schedule of Cash Balances
Schedule 1.2 Excluded Assets
Schedule 1.4(f) Phantom Stock Payments
Schedule 2.2 Foreign Jurisdictions
Schedule 2.4 Ownership of Seller Capital Stock
Schedule 2.5(b) Defaults; Required Consents
Schedule 2.6(b) Leased Real Property
Schedule 2.6(c) Certain Matters Concerning the Leased Real Property
Schedule 2.6(e) Claims on Purchased Assets
Schedule 2.7(a) Unaudited Financial Statements
Schedule 2.8(h) Audits
Schedule 2.8(i) Tax Sharing Agreements
Schedule 2.8(j) Certain Tax Liabilities
Schedule 2.9(a) Accounts Receivable from Affiliates
Schedule 2.10 Certain Liabilities
Schedule 2.11 Certain Developments Since December 31, 2003
Schedule 2.12(a) Seller Patents, Seller Marks and Seller Copyrights
Schedule 2.12(b) Third-Party Software Used in Seller's Business
Schedule 2.13 Certain Contracts
Schedule 2.14 Litigation, Proceedings and Investigations
Schedule 2.16 Insurance Matters
Schedule 2.17 Required Approvals
Schedule 2.18 Employee Benefit Programs
Schedule 2.19 Environmental Matters
Schedule 2.20(a) List of Employees
Schedule 2.20(b) Employment Matters
Schedule 2.21 List of Customers, Distributors and Partners
Schedule 2.22 List of Suppliers
Schedule 2.24 Affiliated Transactions
Schedule 3.2 Defaults; Required Consents
Schedule 3.3 Ownership of Seller Capital Stock
Schedule 4.4 Brokers and Finders
Schedule 5.11 Estimated Tax Payments
Schedule 10.6 2005 Employee Bonus Plan
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ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "AGREEMENT") is entered into as of
November 11, 2004 by and among Haights Cross Communications, Inc., a Delaware
corporation ("HCCI"), Haights Cross Operating Company, a Delaware corporation
and a wholly owned subsidiary of HCCI ("HCOC"), OPI Acquisition Co., Inc., a
Delaware corporation and a wholly owned subsidiary of HCOC ("BUYER"), Options
Publishing, Inc., a New Hampshire corporation ("SELLER"), and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
and ▇▇▇ ▇▇▇▇▇▇, the principal stockholders of Seller (the "STOCKHOLDERS").
Capitalized terms used herein and not defined where used shall have the meanings
given them in Section 11.
W I T N E S S E T H
WHEREAS, subject to the terms and conditions hereof, Seller and the
Stockholders desire to sell substantially all of Seller's properties and assets
to Buyer;
WHEREAS, subject to the terms and conditions hereof, Buyer desires to
purchase such properties and assets of Seller for the consideration specified
herein and the assumption by Buyer of certain liabilities and obligations of
Seller; and
WHEREAS, Buyer and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ have entered into an Employment
Agreement in the form of Exhibit A hereto and a Noncompetition Agreement in the
form of Exhibit B-1 hereto, and Buyer and ▇▇▇ ▇▇▇▇▇▇ have entered into a
Noncompetition Agreement in the form Exhibit B-2 hereto, which agreements shall
be effective upon the Closing (as defined below)
NOW, THEREFORE, in order to consummate such purchase and sale and in
consideration of the mutual agreements set forth herein, the parties hereto
agree as follows:
SECTION 1 - PURCHASE AND SALE OF ASSETS
1.1 SALE OF ASSETS. Subject to the provisions of this Agreement, Seller
agrees to sell, assign, transfer and deliver to Buyer and Buyer agrees to
purchase from Seller, at the Closing (as defined below), all legal and
beneficial right, title and interest of Seller in and to all of the assets and
properties of every kind used in or relating to the conduct of operating and
administering the business of Seller or otherwise owned or used by Seller, other
than the Excluded Assets (such assets and properties, collectively, the
"PURCHASED ASSETS"), in each case free and clear of any and all mortgages,
liens, pledges, security interests, charges, encumbrances, claims, easements,
rights of way, covenants, conditions or restrictions or any other adverse
claims, rights or encumbrances of any kind or nature whatsoever ("CLAIMS"). The
Purchased Assets shall include, without limitation, the following:
(a) Accounts Receivable. All of Seller's accounts receivable (the
"ACCOUNTS RECEIVABLE");
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(b) Equipment and Other Tangible Personal Property. All of Seller's
office supplies, machinery, office equipment, furniture, furnishings,
fixtures, tools, instruments and other tangible personal property
(collectively, the "PERSONAL PROPERTY"), including, without limitation,
the Personal Property listed on Schedule 1.1(b) hereto (but excluding the
equipment and other tangible personal property to be acquired under the
Merrimack Purchase Agreement as defined below);
(c) Contracts. Seller's contracts (including, without limitation,
author contracts and licenses), agreements, leases, commitments, claims
and rights, all as listed on Schedule 1.1(c)-1 hereto (the "ACQUIRED
CONTRACTS"), which Acquired Contracts shall not include the contracts
listed on Schedule 1.1(c)-2 hereto (the "EXCLUDED CONTRACTS");
(d) Inventory. All of Seller's inventory, wherever located and
whether in the possession of Seller or any customer or potential customer
or any supplier;
(e) Prepaids; Credits; Deposits. All prepaid expenses, deposits and
similar items;
(f) Third Party Claims and Rights. All rights and claims against
third parties, including, without limitation, all rights under express or
implied warranties from suppliers;
(g) Customers and Customer Lists. All of Seller's past and present
lists of customers, lists of prospective customers, mailing lists, pending
new business, and customer files and records;
(h) Marketing and Editorial Materials. All advertising, editorial,
marketing promotional and ancillary materials and sources, information
pertaining to planned products or services (if any) and all rights related
thereto, including, without limitation, any and all films, negatives and
electronic files of books and publications;
(i) Permits and Licenses. All of Seller's Approvals (as defined in
Section 2.17 below) which are assignable or otherwise transferable,
together with, if any, all rights of renewal and amenities thereto;
(j) Computer Equipment and Software. All computer equipment and
computer software, including source code to the extent in Seller's
possession, whether completed or under development, and software licenses,
including, without limitation, those listed on Schedule 1.1(j) hereto;
(k) Record Books. Copies of all books and records of Seller for
periods commencing January 1, 2000, including, without limitation,
financial statements, journals and ledgers, repair and maintenance
records, correspondence related to the operation of Seller's business and
correspondence and materials related to Seller's tax returns, including
any declarations, reports or statements;
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(l) Other Intellectual Property. All right, title and interest in
and to all trade names (including exclusive rights to use "Options
Publishing" or any variants of any of the foregoing), trademarks and
trademark applications, service marks and service ▇▇▇▇ applications,
patents and patent applications, copyrights and copyright applications (in
any such case, whether registered or to be registered in the United States
of America or elsewhere) applied for, issued or owned, and all goodwill
related thereto, all intangible assets, and all processes, inventions,
trade secrets, engineering or technical drawings, data and designs,
formulas, internet domain names and Web sites, and all goodwill and other
intangibles;
(m) Personnel Records. All of Seller's personnel files and records
with respect to employees of Seller who become employees of Buyer
following the Closing; and
(n) Seller Cash. All cash and cash equivalents of Seller as of the
Closing (with a schedule of the weekly cash balances of Seller for the
period from October 1, 2004 through the date hereof, and the final cash
balance as of the date hereof, being set forth on Schedule 1.1(n) hereto);
(o) Other Assets. All other assets of Seller that are used or usable
in Seller's business.
Seller and Buyer acknowledge and agree that certain assets, including the
building, land, equipment and fixtures used in Seller's business, are owned by
Merrimack M&R Realty LLC ("MERRIMACK") and are being acquired by Buyer under a
separate purchase agreement with Merrimack (the "MERRIMACK PURCHASE AGREEMENT").
1.2 EXCLUDED ASSETS. Notwithstanding Section 1.1 to the contrary, Seller
is not selling, and Buyer is not purchasing, any of the following assets owned
by Seller, all of which shall be retained by Seller and shall not constitute
Purchased Assets (the "EXCLUDED ASSETS"):
(a) Rights Under this Agreement. The rights which accrue or will
accrue to Seller under this Agreement;
(b) Record Books. Originals of Seller's financial statements,
journals and ledgers, correspondence and materials related to Seller's tax
returns, including any declarations, reports or statements, stock record
books, record books containing minutes of meetings of directors and
stockholders and such other records as have to do exclusively with
Seller's organization or capitalization (collectively, the "CORPORATE
RECORDS"), provided, however, that following the Closing, Seller will
permit Buyer to have access to the original Corporate Records as Buyer may
from time to time reasonably request;
(c) Third Party Claims and Rights. All rights and claims against
third parties relating to the Excluded Assets or the Excluded Liabilities
(as defined below);
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(d) Loans to Affiliated Entities. All rights of Seller with respect
to amounts, including accrued interest, owed to Seller by Merrimack; and
(e) Excluded Property. All of the assets and property listed on
Schedule 1.2 hereto.
1.3 ASSUMPTION OF LIABILITIES. Subject to Section 1.4, upon the sale and
purchase of the Purchased Assets, Buyer shall assume and agree to pay or
discharge when due or perform in accordance with their respective terms only the
liabilities of Seller reflected on its balance sheet as of September 30, 2004 as
such liabilities may be increased or decreased in the ordinary course of
business between September 30, 2004 and the Closing Date (as defined below)
(collectively, the "ASSUMED LIABILITIES"), which Assumed Liabilities shall
include:
(a) Current Liabilities. All of the liabilities or obligations for
trade accounts payable, accrued expenses and other current liabilities
which have been incurred by Seller in the ordinary course of business in
accordance with the terms of this Agreement prior to the Closing Date;
(b) Liabilities Under Acquired Contracts. All of the liabilities or
obligations for payment or performance arising after the Closing under the
Acquired Contracts; and
(c) Certain Taxes. Payroll and sales or use Taxes relating to any
state or local jurisdiction due in respect of the operation of the
business of Seller prior to the Closing to the extent withheld or
collected by Seller as of the Closing.
The assumption of the Assumed Liabilities by Buyer shall not enlarge any
rights of third parties under contracts or arrangements with Buyer or Seller and
nothing herein shall prevent any party from contesting in good faith with any
third party any of such Assumed Liabilities.
1.4 EXCLUDED LIABILITIES. Except for the Assumed Liabilities, Buyer shall
not assume or be bound by all obligations or liabilities of Seller of any kind
or nature, known or unknown, accrued, absolute, contingent or otherwise,
whatsoever (the "EXCLUDED LIABILITIES"), which Excluded Liabilities shall
include, without limitation, all of the following:
(a) Liabilities Relating to this Agreement. Any liabilities or
obligations incurred by Seller in connection with this Agreement and the
transactions provided for herein, including, without limitation, counsel
and accountant's fees (except as provided under Section 12.1 below), and
expenses pertaining to the performance by Seller of its obligations
hereunder;
(b) Liabilities Relating to the Excluded Assets. Any liabilities or
obligations relating to or arising out of the Excluded Assets;
(c) Contractual Liabilities. Any liabilities under the Excluded
Contracts, and, to the extent not reflected and reserved against on
Seller's balance sheet as of September 30, 2004, any liabilities or
obligations that arise prior to the Closing Date
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in connection with any breach of, or any penalty payments Seller is
required to make in connection with the provisions of, any agreement to
which it is a party, including with respect to any Acquired Contract, in
each case in respect of actions taken by Seller prior to the Closing Date;
(d) Tax Liabilities. Except as provided in Section 1.3(c) above, any
liabilities or obligations of Seller, the Stockholders or any of its or
their respective Affiliates for Taxes (whether relating to periods before
or after the transactions contemplated in this Agreement or incurred by
Seller in connection with this Agreement and the transactions provided for
herein), including, without limitation, any liability for (i) corporate
income or franchise Taxes of Seller or any of its Affiliates, (ii) sales
and use Taxes relating to periods prior to the Closing Date which may be
assessed on or after the Closing Date as a result of investigations or
audits performed by applicable taxing authorities, and (iii) Taxes arising
out of the inclusion of Seller or any of its Affiliates in any group
filing consolidated, combined or unitary tax returns or arising out of any
transferee liability;
(e) Debt Obligations. Any liabilities or obligations in respect of
indebtedness for borrowed money;
(f) Phantom Stock Payments. Any liabilities or obligations under
Seller's Key Employee Performance Share Plan, all as listed on Schedule
1.4(f) hereto;
(g) Certain Accrued Expenses. Other than accrued but unpaid salary
payments to the Stockholders in respect of employment services for the
current pay period, any liabilities or obligations for accrued expenses,
whether or not reflected in the Financial Statements, the Audited
Financial Statements and/or the Quarterly Reviews (each as defined below),
relating to any amounts payable to the Stockholders or any related Person
or Affiliate of Seller or a Stockholder, including, without limitation, in
connection with the Excluded Contracts; and
(h) Other Liabilities. Any liabilities or obligations arising in
connection with or relating to all actions, suits, claims, proceedings,
demands, assessments and judgments, costs, losses, liabilities, damages,
deficiencies and expenses (whether or not arising out of third-party
claims), including, without limitation, interest, penalties, reasonable
attorneys' and accountants' fees and all amounts paid in investigation,
defense or settlement of any of the foregoing, which liabilities or
obligations relate to (i) the use or ownership of the Purchased Assets or
the operation of Seller's business prior to the Closing Date, (ii) any
actions taken by Seller or the Stockholders on or prior to the Closing
Date, or (iii) any continuing business activities of Seller or the
Stockholders or any of their respective Affiliates following the Closing
Date.
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1.5 PURCHASE PRICE AND PAYMENT. In consideration of the sale by Seller to
Buyer of the Purchased Assets, and upon the assumption by Buyer of the Assumed
Liabilities, at the Closing:
(a) Buyer will pay, or cause to be paid, to Seller an amount in cash
equal to (i) $50,000,000 (the "PURCHASE PRICE"), minus (ii) the Escrow
Amount (as defined below) (collectively, the "CLOSING CASH PAYMENT"), such
Closing Cash Payment to be paid by wire transfer of immediately available
funds to an account designated in writing by Seller; and
(b) Buyer will pay, or cause to be paid, to Mellon Trust of New
England, N.A., as escrow agent ("ESCROW AGENT"), an amount equal to
$2,000,000 (the "ESCROW AMOUNT") to secure the indemnification obligations
of Seller and the Stockholders under Section 8 hereof. The Escrow Agent
shall hold the Escrow Amount, together with accrued interest and other
earnings thereon, until March 31, 2006 in accordance with the terms and
conditions of the Indemnification Escrow Agreement between Seller, Buyer,
HCOC, HCCI and the Escrow Agent, in the form attached hereto as Exhibit C,
which shall be executed on the Closing Date.
1.6 [INTENTIONALLY OMITTED].
1.7 TIME AND PLACE OF CLOSING. The closing of the purchase and sale
provided for in this Agreement (herein called the "CLOSING") shall be held at
the offices of ▇▇▇▇▇▇▇ Procter LLP, Exchange Place, Boston, MA, at 10:00 a.m.,
Boston time, on (a) the later of (i) the date which is forty-five (45) days
following the date hereof, and (ii) the date which is ten (10) days following
the delivery by Seller to Buyer of Seller's Audited Financial Statements and
Quarterly Reviews (as defined herein), or (b) such other date and at such other
place or time as may be fixed by mutual agreement of Buyer and Seller (the
"CLOSING DATE"); provided, however, that if any of the conditions set forth in
Section 7.1 or Section 7.2 have not been satisfied or waived prior to the
Closing Date (except for any such conditions that are intended to be satisfied
at the Closing), then the party hereto for whose benefit such conditions have
been imposed may postpone the Closing by written notice to the other parties
hereto specifying the condition(s) not so satisfied until five (5) business days
after such condition or conditions shall have been satisfied or waived, which
date shall then become the Closing Date.
1.8 FURTHER ASSURANCES. Each party from time to time after the Closing at
the request of any other party and without further consideration shall execute
and deliver further instruments of transfer and assignment and take such other
action as such other party may reasonably require to more effectively carry out
the terms and conditions of, and the transactions contemplated by, this
Agreement.
1.9 ALLOCATION OF PURCHASE PRICE. On or before the date which is five (5)
days prior to the Closing, Seller shall prepare an allocation of the Purchase
Price (and all other capitalized costs) among the Purchased Assets sold (or
deemed sold for federal income tax purposes) by Seller to Buyer in accordance
with Section 1060 of the Internal Revenue Code of 1986, as amended (the "CODE")
and the Treasury regulations thereunder (and any similar provision of
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state, local or foreign law, as appropriate), which allocation shall be subject
to Buyer's reasonable approval and shall, in any event, value Seller's existing
tangible assets consistently with the values set forth in Seller's Audited
Financial Statements. Buyer and Seller and their Affiliates shall report, act
and file Tax Returns (as defined below) (including, but not limited to, Internal
Revenue Service Form 8594) in all respects and for all purposes consistent with
such allocation prepared by Seller and approved by Buyer. Neither Buyer nor
Seller nor their affiliates shall take any position (whether in audits, Tax
Returns or otherwise) which is inconsistent with such allocation unless required
to do so by applicable law.
1.10 TRANSFER EXPENSES, COSTS AND TAXES. Seller and Buyer shall bear
equally all transfer taxes, duties and charges applicable to the transfer of the
Purchased Assets in connection with this Agreement; provided that Seller and the
Stockholders shall be responsible for any other Taxes imposed upon Seller and/or
the Stockholders (including, without limitation, any income or other Taxes
imposed on Seller and/or the Stockholders with respect to the Purchase Price) in
connection with the transactions contemplated hereby, which shall be the sole
and exclusive responsibility of Seller and/or Stockholders. Any payment or
reimbursement from Buyer to Seller or Seller to Buyer required under this
Section 1.10 shall be made within ten (10) business days after any such valid
request for payment or reimbursement.
1.11 USE OF NAME. As of the Closing, Seller shall cease all use of the
names "Options" or "Options Publishing" (or any variant thereof) and, on the
Closing, shall take all necessary action under New Hampshire law to change its
corporate name to a name that does not include the names "Options" or "Options
Publishing" (or any variant thereof).
1.12 DELIVERY OF CONTRACTS AND RECORDS. Seller shall deliver to Buyer
at the premises of the business on the Closing Date copies of all business
records, tax returns, books, and other data included within the Purchased
Assets, and Seller shall take all reasonably requisite steps to put Buyer in
actual possession and operating control of the Purchased Assets being sold by
Seller. For a period of five years after the Closing, Seller and the
Stockholders shall afford to Buyer and its accountants and attorneys reasonable
access, during normal business hours and upon reasonable advance notice, to the
books and records of Seller delivered to Buyer under this Section and shall
permit Buyer, at Buyer's expense, to make extracts and copies therefrom to the
extent reasonably requested.
SECTION 2 - REPRESENTATIONS AND WARRANTIES OF SELLER AND THE STOCKHOLDERS
On or prior to the date hereof, Seller has delivered to Buyer the
schedules referenced in this Section 2 setting forth items of disclosure that
are necessary in response to an express disclosure requirement contained in a
provision hereof or as an exception to one or more representations or warranties
contained in this Section 2. Capitalized terms used in the schedules but not
defined therein shall have the meanings assigned to such terms in this
Agreement.
2.1 MAKING OF REPRESENTATIONS AND WARRANTIES. As a material inducement to
Buyer, HCOC and HCCI to enter into this Agreement and consummate the
transactions contemplated
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hereby, Seller and the Stockholders, jointly and severally, hereby make to
Buyer, HCOC and HCCI the representations and warranties contained in this
Section 2.
2.2 ORGANIZATION. Seller is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of New Hampshire with
full corporate power and authority to own or lease its properties and to conduct
its business in the manner and in the places where such properties are owned or
leased or such business is currently conducted. Seller is duly licensed or
qualified to do business as a foreign corporation in each jurisdiction listed on
Schedule 2.2 hereto, which jurisdictions are the only jurisdictions wherein the
character of its property, or the nature of the activities presently conducted
by it, makes such qualification necessary, except any such jurisdiction where
the failure to be so licensed or qualified would not be reasonably likely to
have a Material Adverse Effect on Seller. Seller is not in violation or conflict
with any provisions of its articles of incorporation or bylaws.
2.3 SUBSIDIARIES. Seller does not own or control, directly or indirectly,
any interest in any other Person.
2.4 CAPITAL STOCK OF SELLER; BENEFICIAL OWNERSHIP. The authorized capital
stock of Seller consists of 1,000,000 shares of common stock, no par value, of
which 100,000 shares have been duly and validly issued and are fully paid and
non-assessable. All outstanding shares of common stock of Seller are held,
beneficially and of record, as set forth on Schedule 2.4 hereto. There are no
outstanding subscriptions, options, warrants, commitments, preemptive rights,
agreements, arrangements or commitments of any kind relating to the issuance or
sale of, or outstanding securities convertible into or exercisable or
exchangeable for, capital stock of Seller.
2.5 AUTHORITY OF SELLER; NO CONFLICTS.
(a) Seller has full right, authority and power to enter into this
Agreement and the Transaction Documents (as defined below) executed and
delivered by Seller pursuant to this Agreement and to carry out the
transactions contemplated hereby and thereby. The execution, delivery and
performance by Seller of this Agreement and each such Transaction Document
have been duly authorized by all necessary action of Seller and its
directors and stockholders, and no other action on the part of Seller or
its directors and stockholders is required in connection therewith. For
purposes of this Agreement, "Transaction Documents" means the
Indemnification Escrow Agreement and the asset transfer and other
documents or agreements required to be executed and delivered in
connection with the Closing.
(b) This Agreement and the Transaction Documents constitute, or,
when executed and delivered by Seller, will constitute, valid and binding
obligations of Seller enforceable against Seller in accordance with their
terms, except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors and subject to general principles of
equity. Except as set forth on Schedule 2.5(b), the execution, delivery
and performance by Seller of this Agreement and each Transaction Document:
(i) do not and will not violate, conflict with or result in a default
(whether after the giving
8
of notice, lapse of time or both) under any material contract or
obligation to which it is a party or by which it or its assets are bound,
or any provision of its articles of incorporation or bylaws, or cause the
creation of any Claim upon any of the Purchased Assets, (ii) do not and
will not violate, conflict with or result in a default (whether after the
giving of notice, lapse of time or both) under, any provision of any law,
regulation or rule, or any order of, or any restriction imposed by any
court or other governmental agency applicable to it, (iii) require from it
any notice to, declaration or filing with, or consent or approval of any
governmental authority or other third party, except those required under
Section 7.1(e), or (iv) accelerate any obligation under, or give rise to a
right of termination of, any agreement, permit, license or authorization
to which it is a party or by which it is bound.
2.6 LEASED PROPERTY; LIENS; CONDITION OF PROPERTIES.
(a) Seller does not own any real property.
(b) Except as set forth on Schedule 2.6(b) hereto, Seller has
a valid and enforceable leasehold interest in the properties listed on
Schedule 2.6(b) (the "LEASED REAL PROPERTY"), subject only to the right of
reversion of the landlord or lessor under the leases to which the Leased
Real Property is subject (the "LEASES"), and, except as set forth in the
Leases, free and clear of all other prior or subordinate interests or
other Claims. Except as otherwise set forth on Schedule 2.6(b):
(i) the Leases are in full force and effect and have not been
modified, amended, or altered, in writing or otherwise;
(ii) all obligations of the landlord or lessor under the
Leases which have accrued have been performed, and, to the knowledge
of Seller, no landlord or lessor is in default under the Leases; and
(iii) all obligations of Seller, and any other tenant or
lessee under the Leases, which have accrued have been performed, and
no tenant or lessee is in default under the Leases, and, to the
knowledge of Seller, no circumstance presently exists which, with
notice or the passage of time, or both, would give rise to a default
by any tenant or lessee.
(c) Except as set forth in Schedule 2.6(c), to the knowledge
of Seller, there are no material defects in the physical condition of any
improvements constituting a part of the Leased Real Property, including,
without limitation, structural elements, mechanical systems, roofs, or
parking and loading areas, and all of such improvements are in good
operating condition and repair and have been well maintained. To the
knowledge of Seller, all water, sewer, gas, electric, telephone, drainage,
and other utilities required by law or necessary for the current or
planned operation of the Leased Real Property have been installed and
connected pursuant to valid permits, and such utilities are sufficient to
service the Leased Real Property.
9
(d) Seller has not received a notice from any governmental
authority of any violation of any law, ordinance, regulation, license,
permit, or authorization issued with respect to the Leased Real Property
that has not been corrected heretofore, and, to the knowledge of Seller,
no such violation on the part of Seller now exists which could have a
Material Adverse Effect on the operation or value of the Leased Real
Property. To the knowledge of Seller, (i) all improvements constituting a
part of the Leased Real Property are in compliance, in all material
respects, with all applicable laws, ordinances, regulations, licenses,
permits, and authorizations, and there are presently in effect all
licenses, permits, and authorizations required by law, ordinance, or
regulation, (ii) the transfer of the Leased Real Property to Buyer shall
include all rights to the use of any off-site facilities, if any,
necessary to ensure compliance with all such laws, ordinances, codes, and
regulations, and (iii) there is at least the minimum access required by
applicable subdivision or similar law to the Leased Real Property. There
is no pending, and Seller has not received a notice of any threatened,
real estate tax deficiency or reassessment or condemnation of all or any
portion of any of the Leased Real Property.
(e) Seller has good and marketable title to all of the
Purchased Assets. Except to the extent described on Schedule 2.6(e)
attached hereto, all of the Purchased Assets are free and clear of
restrictions on or conditions to transfer or assignment, and free and
clear of Claims. All of the Purchased Assets are in good operating
condition (ordinary wear and tear excepted) and are sufficient for the
conduct of Seller's business as currently conducted. The Purchased Assets,
together with the assets to be acquired from Merrimack under the Merrimack
Purchase Agreement, constitute all of the assets of Seller used or useable
in the operation of Seller's business, other than the Excluded Assets.
2.7 FINANCIAL STATEMENTS.
(a) Attached hereto as Schedule 2.7(a) are the following
financial statements of Seller (the "UNAUDITED FINANCIAL STATEMENTS"):
(i) Balance sheets of Seller as of December 31, 2003,
2002, 2001 and statements of income, stockholder's equity (deficit)
and cash flows of Seller for each year in the three (3) year period
ended December 31, 2003, in each case reviewed by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
▇▇., C.P.A. (the December 31, 2003 balance sheet being referred to
herein as the "BASE BALANCE SHEET"); and
(ii) An unaudited balance sheet of Seller as of
September 30, 2004 and unaudited statements of income, stockholder's
equity (deficit) and cash flows for the nine (9) month period then
ended, certified by Seller's chief executive officer.
(b) The Unaudited Financial Statements have been prepared,
from books and records maintained by Seller, in accordance with Seller's
Accounting Principles consistently applied during the periods covered
thereby, are complete and correct in all material respects and present
fairly in all material respects the financial
10
condition of Seller at the dates of such statements and the results of its
operations for the periods covered thereby.
(c) Seller has projected that, for the fiscal year ending
December 31, 2004, Seller will have Product Development Expenses (as
defined herein) of at least $2.4 million. The foregoing projection
represents the good faith estimate of Seller based upon assumptions made
by Seller which Seller believes in good faith were reasonable when made
and continue to be reasonable; provided, however, that the foregoing is
not a guarantee by Seller that such projected result will be achieved.
2.8 TAXES.
(a) Seller (including any predecessor thereto) has paid all
federal, state, local, foreign or other taxes, including, without
limitation, income taxes, estimated taxes, excise taxes, sales taxes, use
taxes, gross receipts taxes, franchise taxes, employment and payroll
related taxes, withholding taxes, stamp taxes, transfer and property
taxes, or other tax of any kind whatsoever, whether or not measured in
whole or in part by net income, including any interest, penalty, or
addition thereto, whether disputed or not (individually, a "TAX",
collectively, "TAXES") required to be paid by it through the date hereof.
(b) All Taxes and other assessments and levies that Seller is
required to withhold or collect have been withheld and collected and have
been, or will be, paid over to the proper governmental authorities when
due.
(c) Seller (including any predecessor thereto) has, in
accordance with applicable law, timely and properly filed all federal,
state, local and foreign tax returns, declarations, reports, claims for
refund, information returns or statements relating to Taxes (collectively,
"TAX RETURNS") required to be filed by it through the date hereof,
including, without limitation, all Tax Returns with respect to sales and
use Taxes for any state, local or other jurisdiction in which Seller has
established nexus in accordance with the tax laws of such jurisdiction.
All such Tax Returns were correct and complete in all material respects.
Seller is not currently the beneficiary of any extension of time within
which to file any Tax Return.
(d) Neither the Internal Revenue Service nor any other
governmental authority is now asserting or, to the knowledge of Seller,
threatening to assert against Seller any deficiency or claim for
additional Taxes.
(e) No claim has ever been made in writing by an authority in
a jurisdiction where Seller (including any predecessor thereto) does not
file Tax Returns that Seller (including any predecessor thereto) is or may
be subject to taxation by that jurisdiction.
(f) Seller has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
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(g) There are no Claims encumbering any of the assets of
Seller that arose in connection with any failure (or alleged failure) to
pay any Taxes (except where such Claims arise as a matter of law prior to
the due date for paying the related Taxes).
(h) Except as set forth on Schedule 2.8(h) attached hereto,
there has never been any audit of any Tax Return filed by Seller
(including any predecessor thereto), no such audit is in progress and
Seller (including any predecessor thereto) has not been notified by any
Tax authority that any such audit is contemplated or pending.
(i) Except as set forth in Section 1.9 and Section 1.10 and on
Schedule 2.8(i), Seller is not a party to any Tax allocation, Tax sharing
or similar agreement.
(j) Seller is, and at all times during its existence has been,
properly classified and taxed as an "S" corporation for federal, state,
local, and foreign income tax purposes. Except as set forth on Schedule
2.8(j), Seller (including any predecessor thereto) (i) is not and has not
been a member of an affiliated group filing a consolidated federal income
Tax Return, (ii) does not have any liability for the Taxes of any other
Person under Treasury Regulations Section 1.1502-6 (or any similar
provision of state, local or foreign law), and (iii) does not have any
liability for the Taxes of any other Person as a transferee or successor,
by contract, or otherwise.
(k) Seller is not a United States real property holding
corporation within the meaning of the Code.
2.9 ACCOUNTS RECEIVABLE; ACCOUNTS PAYABLE; INVENTORY.
(a) All of the accounts receivable of Seller (including,
without limitation, the Accounts Receivable) were incurred in the ordinary
course of business of Seller and are valid and enforceable claims and, to
the knowledge of Sellers, subject to no setoff or counterclaim and, except
as disclosed in the Unaudited Financial Statements, the Audited Financial
Statements and/or the Quarterly Reviews, are, to the knowledge of Seller,
collectible in accordance with their terms. Seller has no accounts or
loans receivable from any person, firm or corporation which is affiliated
with Seller or from any director, officer or employee of Seller, except as
disclosed on Schedule 2.9(a). Any reserve reflected in the Unaudited
Financial Statements, the Audited Financial Statements and/or the
Quarterly Reviews is adequate to account for any Accounts Receivable which
may later be uncollectible.
(b) All accounts payable of Seller arose in bona fide arm's
length transactions in the ordinary course of business and no such account
payable or note payable is delinquent by more than thirty (30) days in its
payment. Since December 31, 2003, Seller has paid its accounts payable in
the ordinary course of its business and in a manner consistent with its
past practices.
(c) All of Seller's inventory items are of a quality and
quantity salable in the ordinary course of its business, except as
disclosed in the Unaudited Financial
12
Statements, the Audited Financial Statements and/or the Quarterly Reviews.
The values of the inventories stated in the Base Balance Sheet reflect the
normal inventory valuation policies of Seller and were determined in
accordance with Seller's Accounting Principles consistently applied during
the periods covered thereby. Since December 31, 2003, no inventory items
have been sold or disposed of except through sales in the ordinary course
of business at profit margins consistent with Seller's experience in prior
years, and all sales commitments made for Seller's products are at prices
not less than inventory values plus selling expenses and said profit
margins.
2.10 ABSENCE OF UNDISCLOSED LIABILITIES. Seller does not have any
liability or obligation of any nature, whether accrued, absolute, contingent or
otherwise, asserted or unasserted, known or unknown, except liabilities or
obligations (a) stated or adequately reserved for on the Base Balance Sheet, (b)
incurred as a result of or arising out of the transactions contemplated by this
Agreement, or (c) set forth on Schedule 2.10. Except as set forth on Schedule
2.10, Seller has not assumed, guaranteed, endorsed or otherwise become directly
or contingently liable on or for any indebtedness of any other person.
2.11 ABSENCE OF CERTAIN DEVELOPMENTS. Since December 31, 2003, except as
set forth on Schedule 2.11 attached hereto or in the Unaudited Financial
Statements, Seller has conducted its business only in the ordinary course
consistent with past practice and there has been:
(a) no material adverse change in the condition (financial or
otherwise) of Seller or in the assets, liabilities, business or prospects
of Seller;
(b) no declaration, setting aside or payment of any dividend
or other distribution with respect to, or any direct or indirect
redemption or acquisition of, any of the capital stock of Seller;
(c) no waiver of any valuable right of Seller or cancellation
of any material debt or claim held by Seller;
(d) no increase in the compensation paid or payable to any
officer, director, employee or agent of Seller, other than normal merit
increases made in the ordinary course of business consistent with Seller's
past practices;
(e) no loss, destruction or damage to any property of Seller,
whether or not insured, having an effect in excess of $5,000;
(f) no labor dispute involving Seller and no change in the
personnel of Seller or the terms and conditions of their employment other
than in the ordinary course of business;
(g) no acquisition or disposition of any assets (or any
contract or arrangement therefore), including any Seller Intellectual
Property Assets, nor any other transaction by Seller, in each case other
than for fair value in the ordinary course of business;
13
(h) no change in accounting methods or practices of Seller,
including any changes in its revenue recognition or accrual and reserve
policies and practices;
(i) no reduction in any accrued expenses or other liabilities,
except for payments related to the expense or liability for which the
accrual was originally established;
(j) no amendment or termination of any contract or agreement
to which Seller is a party or by which it is bound which is expected or
estimated to result, or actually results, in a loss of revenues to Seller
in excess of $10,000;
(k) no distribution, commission or payment of any kind to a
Stockholder or any Affiliate of a Stockholder, pursuant to the Excluded
Contracts or otherwise, other than salary payments to the Stockholders in
respect of employment services; and
(l) no commitment (contingent or otherwise) to do any of the
foregoing.
2.12 INTELLECTUAL PROPERTY.
(a) Schedule 2.12(a) contains a complete and accurate list of
all Patents owned by Seller or otherwise used in Seller's business
("SELLER PATENTS"), Marks owned by Seller or otherwise used in Seller's
business ("SELLER MARKS") and Copyrights owned by Seller or otherwise used
in and, in either case, material to Seller's business ("SELLER
COPYRIGHTS"). Except as set forth on Schedule 2.12(a):
(i) Seller exclusively owns or possesses adequate and
enforceable rights to use, without payment to a third party, all of
the Intellectual Property Assets necessary for the operation of its
business, free and clear of all Claims;
(ii) All Seller Patents, Seller Marks and Seller Copyrights
which are issued by or registered with, as applicable, the U.S.
Patent and Trademark Office, the U.S. Copyright Office or in any
similar office or agency anywhere in the world are currently in
compliance with formal legal requirements (including without
limitation, as applicable, payment of filing, examination and
maintenance fees, proofs of working or use, timely post-registration
filing of affidavits of use and incontestability and renewal
applications) and are valid and enforceable;
(iii) There are no pending, or, to the knowledge of Seller,
threatened claims against Seller or any of its employees alleging
that any of the Seller Intellectual Property Assets or the Seller's
business, infringes or conflicts with the rights of others under any
Intellectual Property Assets ("THIRD PARTY RIGHTS");
(iv) To the knowledge of Seller, neither Seller's business nor
any Seller Intellectual Property Asset infringes or conflicts with
any Third Party Right;
14
(v) Seller has not received any communications alleging that
Seller has violated or, by conducting its business, would violate
any Third Party Rights or that any of the Seller Intellectual
Property Assets is invalid or unenforceable;
(vi) No current or former employee or consultant of Seller
owns any rights in or to any of the Seller Intellectual Property
Assets;
(vii) Seller is not aware of any violation or infringement by
a third party of any of the Seller Intellectual Property Assets;
(viii) Seller has taken reasonable security measures to
protect the secrecy, confidentiality and value of all Trade Secrets
used in its business (the "SELLER TRADE SECRETS").
(b) Schedule 2.12(b) contains a complete and accurate list of
all third party-software used in Seller's business, whether or not the
license for such software is in the name of Seller. Except as set forth on
Schedule 2.12(b), to the knowledge of Seller, Seller's use of any such
software does not violate the rights of any third party or the terms of
the applicable licenses.
2.13 CERTAIN CONTRACTS AND ARRANGEMENTS. Except as set forth in Schedule
2.13 (with true and correct copies provided to Buyer), Seller is not a party or
subject to or bound by:
(a) any contract or agreement involving a potential commitment
or payment by Seller in excess of $5,000 in any year;
(b) any contract, lease or agreement which is not cancelable
by Seller without penalty on no more than ninety (90) days notice;
(c) any contract containing covenants directly or explicitly
limiting in any material respect the freedom of Seller to compete in any
line of business or with any person or entity;
(d) any contract or agreement relating to the licensing,
distribution, development, purchase, sale or servicing of its products
except in the ordinary course of business;
(e) any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for borrowing or any pledge or
security arrangement;
(f) any employment contracts, noncompetition agreements or
other agreements with present or former officers, directors, employees or
stockholders of Seller or persons related to or affiliated with such
persons;
(g) any redemption or purchase agreements relating to Seller's
capital stock or other agreements affecting or relating to the capital
stock of Seller;
15
(h) any pension, profit sharing, bonus, retirement, severance
or equity incentive plans;
(i) any royalty, dividend or similar arrangement based on the
revenues or profits of Seller or any contract or agreement involving fixed
price or fixed volume arrangements;
(j) any joint venture, partnership, development or supply
agreement;
(k) any acquisition, merger or similar agreement;
(l) any collective bargaining agreement or other agreement
with any labor union or other employee representative of a group of
employees;
(m) any contract with any governmental entity or
(n) any other material contract not executed in the ordinary
course of business.
All contracts, agreements, leases and instruments set forth on Schedule
2.13 are valid and are in full force and effect and constitute legal, valid and
binding obligations of Seller and, to the knowledge of Seller, of the other
parties thereto, and are enforceable in accordance with their respective terms,
except as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the rights of
creditors and subject to general principles of equity. No party to any such
contract, agreement, lease or instrument has given notice of its intent, or, to
the knowledge of Seller, otherwise threatened, to terminate any such contract,
agreement, lease or instrument. Neither Seller nor, to the knowledge of Seller,
any other party, is in default in complying with any provisions of any such
contract, agreement, lease or instrument, and no condition or event or fact
exists which, with notice, lapse of time or both, would constitute a default
thereunder on the part of Seller.
2.14 LITIGATION. Except as set forth on Schedule 2.14, there is no
litigation or governmental proceeding or investigation pending or, to the
knowledge of Seller, threatened, by or against Seller or affecting any of
Seller's properties or assets, or against any officer, key employee or
stockholder of Seller in his or her capacity as such, nor, to the knowledge of
Seller, has there occurred any event nor does there exist any condition on the
basis of which any litigation, proceeding or investigation might properly be
instituted with, to the knowledge of Seller, any substantial chance of recovery.
Neither Seller nor any officer, key employee or stockholder in his or her
capacity as such is, to the knowledge of Seller, a party to or in default with
respect to any order, writ, injunction, decree, ruling or decision of any court,
commission, board or other government agency which may have a Material Adverse
Effect on Seller. Schedule 2.14 includes a description of all litigation,
claims, proceedings or, to the knowledge of Seller, investigations involving
Seller or any of its officers, directors, key employees or stockholders in
connection with the business of Seller occurring, arising or existing during the
past three (3) years.
16
2.15 COMPLIANCE WITH LAWS. Seller is, and heretofore has been, in
compliance, in all material respects, with all applicable statutes, ordinances,
orders, judgments, decrees, and rules and regulations promulgated by any
federal, state, municipal, foreign or other governmental authority which apply
to Seller or to the conduct of its business, and Seller has not received notice
of a violation or alleged violation of any such statute, ordinance, order, rule,
or regulation.
2.16 INSURANCE COVERAGE. Schedule 2.16 hereto contains an accurate summary
of the insurance policies currently maintained by Seller, including those
covering the Purchased Assets. Except as set forth on Schedule 2.16, there are
currently no claims pending against Seller which are covered under any insurance
policies currently in effect and covering the property, business or employees of
Seller, and all premiums due and payable to date with respect to the policies
maintained by Seller have been paid to date. To the knowledge of Seller, there
is no threatened termination of any such policies or arrangements. Except as set
forth on Schedule 2.16 attached hereto, during the past two (2) years there have
been no claims under any of Seller's insurance policies with respect to which
coverage has been questioned, denied or disputed by the applicable insurer.
2.17 APPROVALS. Schedule 2.17 lists all permits (including certificates of
occupancy), registrations, licenses, franchises, certifications and other
approvals (collectively, the "APPROVALS") required from federal, state or local
authorities in order for Seller to conduct its business or own or use the
Purchased Assets, except for those Approvals the failure of Seller to have would
not be reasonably expected to have a Material Adverse Effect on Seller. Except
as set forth on Schedule 2.17, Seller has obtained all such Approvals, which are
valid and in full force and effect, and is operating in compliance, in all
material respects, therewith. Such Approvals include, but are not limited to,
those required under federal, state or local statutes, ordinances, orders,
requirements, rules, regulations, or laws pertaining to environmental
protection, public health and safety, worker health and safety, buildings,
highways or zoning. Except as disclosed in Schedule 2.17, all such Approvals
will be available and assigned to Buyer upon Buyer's purchase of the Purchased
Assets.
2.18 EMPLOYEE BENEFIT PROGRAMS; ERISA. Except as set forth on Schedule
2.18 attached hereto, Seller does not have in effect any employment agreements,
consulting agreements, deferred compensation, pension or retirement agreements
or arrangements, bonus, severance, incentive or profit-sharing plans or
arrangements, or labor or collective bargaining agreements, written or oral. To
the knowledge of Seller, none of Seller's key employees presently intends to
terminate his or her employment. Seller is in compliance, in all material
respects, with all applicable laws and regulations relating to labor,
employment, fair employment practices, terms and conditions of employment, and
wages and hours. Except as set forth on Schedule 2.18 attached hereto, upon
termination of the employment of any employees, Seller will not be obligated to
provide advance notice of termination of employment or be liable to any such
employees for so-called "severance pay" or retiree health benefits. Seller is in
compliance, in all material respects, with the terms of all employee benefit
plans, programs and agreements ("EMPLOYEE PLANS"), including, without
limitation, those plans, programs and agreements listed on Schedule 2.18
attached hereto, and each such Employee Plan is in compliance, in all material
respects, with all of the requirements and provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and the Code and, except as
set forth on
17
Schedule 2.18 attached hereto, is terminable in the discretion of Seller without
liability to Seller upon or following such termination.
2.19 ENVIRONMENTAL MATTERS. No hazardous waste, substance or material, and
no oil, petroleum, petroleum product, asbestos, toxic substance, pollutant or
contaminant, all as defined by and regulated under applicable federal or state
laws or regulations (collectively, "HAZARDOUS MATERIAL"), has been generated,
transported, used, handled, processed, disposed, stored or treated by Seller on
the Leased Real Property, except in compliance, in all material respects, with
all applicable federal or state laws and regulations. No Hazardous Material has
been spilled, released, discharged, or disposed of, or transported by Seller
from, the Leased Real Property except in compliance, in all material respects,
with all applicable federal or state laws and regulations, and, to the knowledge
of Sellers, no Hazardous Material is present in, on, or under any such property
except in compliance, in all material respects, with all applicable federal or
state laws and regulations. The operations and business of Seller is, and at all
times has been, in compliance, in all material respects, with all applicable
environmental, health and safety laws, rules, ordinances, and regulations, and
all permits, registrations and approvals required under such laws, rules,
ordinances and regulations. Seller has no knowledge of any previous or present
generation, storage, disposal or existence of Hazardous Material at the Leased
Real Property, except for de minimis amounts of materials such as cleaning
supplies typically found at properties similar to the Leased Real Property. A
list of all environmental reports related or pertaining to the Leased Real
Property of which Seller has knowledge is set forth in Schedule 2.19 attached
hereto. Seller has not entered into any consent decree or administrative order
for any alleged violation of laws relating to Hazardous Material. Seller has not
received any written request for information or a demand letter from a citizen
with respect to a violation of laws pertaining to Hazardous Material.
2.20 EMPLOYEES; LABOR MATTERS.
(a) Schedule 2.20(a) hereto contains a true and complete list
of all managers and employees of, and consultants to, Seller who,
individually, received compensation from Seller for the fiscal year ended
December 31, 2003, or are scheduled to receive compensation from Seller
for the fiscal year ending December 31, 2004. In each case such Schedule
includes the current job title and aggregate annual compensation of each
such individual.
(b) Seller employs approximately 47 full-time employees and 3
part-time employees. Seller is not delinquent in payments to any of its
employees for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed for Seller as of the date hereof
or any amounts required to be reimbursed to such employees. Except as set
forth on Schedule 2.20(b), there are no charges of employment
discrimination, wrongful termination, sexual harassment, breaches of
express or implied employment arrangements, or unfair labor practices, nor
are there any strikes, slowdowns, stoppages of work, or any other
concerted interference with normal operations, existing, pending or, to
the knowledge of Seller, threatened against or involving Seller. There are
no grievances, complaints or charges that have been filed against Seller
under any dispute resolution procedure (including, but not limited to, any
18
proceedings under any dispute resolution procedure under any collective
bargaining agreement) that might have a Material Adverse Effect on Seller
or the conduct of Seller's business and no claim therefore has been
asserted. Seller is, and at all times Seller has been, in compliance, in
all material respects, with the requirements of the Immigration Reform
Control Act of 1986. Seller has never implemented any plant closing or
mass layoff of employees as those terms are defined in the Worker
Adjustment Retraining and Notification Act of 1988, as amended, or any
similar state or local law or regulation, and no layoffs that could
implicate such laws or regulation are currently contemplated.
2.21 CUSTOMERS, DISTRIBUTORS AND PARTNERS. Schedule 2.21 sets forth a true
and complete list of each customer and distributor of Seller who accounted for
revenues of Seller greater than $50,000 during any of the fiscal years ended
December 31, 2003, 2002 and 2001, showing with respect to each the name, address
and amount paid by such party to Seller in each such fiscal year (the
"Customers" and "Distributors", respectively) together with the names and
addresses of any Persons with which Seller has a material strategic partnership
or similar relationship ("PARTNERS"). Seller's relationships with its Customers,
Distributors and Partners are, to the knowledge of Seller, good commercial
working relationships, and no Customer, Distributor or Partner of Seller has
canceled or otherwise terminated its relationship with Seller. No Customer,
Distributor or Partner has, to the knowledge of Seller, any plan or intention to
terminate, cancel or otherwise materially and adversely modify its relationship
with Seller or to decrease materially or limit its usage, purchase or
distribution of the services or products of Seller.
2.22 SUPPLIERS. Schedule 2.22 sets forth a true and complete list of each
supplier of Seller who has provided services, supplies or materials to Seller in
an amount in excess of $25,000 during any of the fiscal years ended December 31,
2003 and 2002, showing with respect to each the name, address and amount paid to
such party by Seller in each such fiscal year. Seller's relationships with its
suppliers are, to the knowledge of Seller, good commercial working
relationships, and except as disclosed on Schedule 2.22, within the past twelve
months, no supplier that Seller has paid or is under contract to pay has
canceled, materially modified, or otherwise terminated its relationship with
Seller, nor to the knowledge of Seller, does any supplier have any plan or
intention to do any of the foregoing in a manner which would be reasonably
likely to have a Material Adverse Effect on Seller nor has Seller agreed to do
any of the foregoing.
2.23 CERTAIN PAYMENTS. Seller has not (except for bona fide advertising,
marketing, promotional or charitable purposes): (a) given, proposed to give, or
agreed to give any material gift or similar material benefits to any customers
or other persons for the purpose of furthering its business; (b) used any
corporate funds or other funds for contributions, payments, gifts or
entertainment in violation of law; (c) made any expenditures relating to
political activities to government employees, officials or others in violation
of any applicable law; (d) established or maintained any unlawful funds or funds
not reflected on the Unaudited Financial Statements.
2.24 TRANSACTIONS WITH AFFILIATES. Except as set forth on Schedule 2.24,
there are no loans, leases or other agreements or transactions between Seller or
any present or former stockholder, director, officer or employee of Seller, or
to the knowledge of Seller, any member
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of such officer's, director's, employee's, or stockholder's immediate family, or
any person controlled by such officer, director, employee, or stockholder or his
or her immediate family. Except as set forth on Schedule 2.24, no stockholder,
director, officer or employee of Seller, or, to the knowledge of Seller, any of
their respective spouses or family members, owns, directly or indirectly, on an
individual or joint basis, any interest in, or serves as an officer, director or
manager or in another similar capacity of, any competitor, customer or supplier
of Seller, or any organization which has a material contract or arrangement with
Seller.
2.25 NO BROKERS OR FINDERS. No person has or will have, as a result of the
transactions contemplated by this Agreement, any right, interest or claim
against or upon Seller for any commission, fee or other compensation as a finder
or broker because of any act or omission by Seller.
2.26 PRIVACY OF CUSTOMER INFORMATION. Seller has not used and does not
currently use any of the customer information that it has received or currently
receives through its website or otherwise in an unlawful manner, or in a manner
violative of Seller's privacy policy or the privacy rights of its customers.
Seller has not collected any customer information through its website or
otherwise in an unlawful manner or in violation of its privacy policy. Seller
has commercially reasonable security measures in place to protect the customer
information it receives through its website or otherwise and which it stores in
its computer systems from illegal use by third parties or use by third parties
in a manner violative of the rights of privacy of its customers.
2.27 DISCLOSURES. Neither this Agreement and the Transaction Documents,
nor any other agreement, document or statement made by Seller and furnished by
Seller to Buyer in connection with the transactions contemplated hereby,
contains any untrue statement of a material fact or omits to state any material
fact necessary to make the statements contained herein or therein not misleading
in the light of the circumstances in which they were made.
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
3.1 MAKING OF REPRESENTATIONS AND WARRANTIES. As a material inducement to
Buyer, HCOC and HCCI to enter into this Agreement and consummate the
transactions contemplated hereby, each Stockholder, severally and not jointly,
hereby makes to Buyer, HCOC and HCCI the representations and warranties
contained in this Section 3.
3.2 AUTHORITY OF STOCKHOLDER.
(a) Such Stockholder has full right, capacity, authority and
power to enter into this Agreement and the Transaction Documents executed
and delivered by such Stockholder pursuant to this Agreement and to carry
out the transactions contemplated hereby and thereby.
(b) This Agreement and the Transaction Documents constitute,
or, when executed and delivered by such Stockholder, will constitute,
valid and binding
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obligations of such Stockholder enforceable in accordance with their
terms, except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors and subject to general principles of
equity. Except as set forth on Schedule 3.2, the execution, delivery and
performance by such Stockholder of this Agreement and each Transaction
Document: (i) do not and will not violate, conflict with or result in a
default (whether after the giving of notice, lapse of time or both) under
any material contract or obligation to which a Stockholder is a party or
by which he or his assets are bound, or cause the creation of any Claim
upon any of the Purchased Assets, (ii) do not and will not violate,
conflict with or result in a default (whether after the giving of notice,
lapse of time or both) under, any provision of any law, regulation or
rule, or any order of, or any restriction imposed by any court or other
governmental agency applicable to such Stockholder, except for those which
would not reasonably be expected to have a Material Adverse Effect on
Seller, (iii) require from such Stockholder any notice to, declaration or
filing with, or consent or approval of any governmental authority or other
third party, except those set forth under Section 7.1(e), or (iv)
accelerate any obligation under, or give rise to a right of termination
of, any agreement, permit, license or authorization to which such
Stockholder is a party or by which it is bound.
3.3 BENEFICIAL OWNERSHIP. Such Stockholder owns, beneficially and of
record, the outstanding shares of common stock of Seller, as listed on Schedule
3.3 hereto. Such Stockholder does not hold, and there are no outstanding,
subscriptions, options, warrants, commitments, preemptive rights, agreements,
arrangements or commitments of any kind relating to the issuance or sale of, or
outstanding securities convertible into or exercisable or exchangeable for,
capital stock of Seller.
3.4 NO BROKERS OR FINDERS. No person has or will have, as a result of the
transactions contemplated by this Agreement, any right, interest or claim
against or upon such Stockholder or Seller for any commission, fee or other
compensation as a finder or broker because of any act or omission by such
Stockholder.
SECTION 4 - REPRESENTATIONS AND WARRANTIES OF BUYER, HCOC AND HCCI
4.1 MAKING OF REPRESENTATIONS AND WARRANTIES. As a material inducement to
Seller to enter into this Agreement and consummate the transactions contemplated
hereby, Buyer, HCOC and HCCI, jointly and severally, hereby make to Seller the
representations and warranties contained in this Section 4.
4.2 ORGANIZATION. Each of HCCI, HCOC and Buyer is a corporation duly
organized, validly existing and in good standing under the laws of Delaware with
full corporate power to own or lease its properties and to conduct its business
in the manner and in the places where such properties are owned or leased or
such business is conducted by it.
4.3 AUTHORITY; NO CONFLICTS.
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(a) Each of HCCI, HCOC and Buyer have full right, authority
and power to enter into this Agreement and each Transaction Document
executed and delivered by it pursuant to this Agreement and to carry out
the transactions contemplated hereby and thereby. The execution, delivery
and performance by each of HCCI, HCOC and Buyer of this Agreement and each
such Transaction Document to which it is a party have been duly authorized
by all necessary corporate or limited liability company action of HCCI,
HCOC and Buyer, respectively, and no other action on the part of HCCI,
HCOC or Buyer is required in connection therewith.
(b) This Agreement and each Transaction Document executed and
delivered by HCCI, HCOC or Buyer pursuant to this Agreement constitute, or
when executed and delivered will constitute, valid and binding obligations
of HCCI, HCOC or Buyer, as applicable, enforceable in accordance with
their terms, except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the rights of creditors and subject to general principles
of equity. The execution, delivery and performance by HCCI, HCOC and Buyer
of this Agreement and each such Transaction Document: (i) do not and will
not violate any provision of the respective certificates of incorporation
or bylaws of HCCI and HCOC, or the certificate of formation or operating
agreement of Buyer, (ii) do not and will not violate, conflict with or
result in a default (whether after the giving of notice, lapse of time or
both) under, any provision of any law, regulation or rule, or any order
of, or any restriction imposed by any court or other governmental agency
applicable to it, or (iii) require from it any notice to, declaration or
filing with, or consent or approval of any governmental authority or other
third party.
4.4 NO BROKERS OR FINDERS. Except as set forth on Schedule 4.4, none of
HCCI, HCOC or Buyer has incurred or become liable for any broker's commission or
finder's fee relating to or in connection with the transactions contemplated by
this Agreement.
4.5 LITIGATION. There is no litigation or governmental proceeding or
investigation pending against or, to the knowledge of HCCI, HCOC or Buyer,
threatened against or affecting HCCI, HCOC or Buyer or any of their properties
before any court or arbitrator or any governmental agency or official which in
any manner challenges or seeks to prevent, enjoin, alter or materially delay any
of the transactions contemplated hereby.
SECTION 5 - INTERIM COVENANTS OF SELLER AND THE STOCKHOLDERS
Seller and the Stockholders, jointly and severally, hereby make the
covenants and agreements set forth in this Section 5.
5.1 CONDUCT OF BUSINESS. From the date of this Agreement through the
Closing Date (the "INTERIM PERIOD"), Seller shall, and each Stockholder shall
cause Seller to:
(a) Conduct its business only in the ordinary course
consistent with its past practices, including with respect to the
collection of accounts receivable, accounting
22
practices, and the maintenance of its relationships with employees, sales
representatives, Customers, Distributors and Suppliers;
(b) Use its best commercial efforts to preserve its business,
including, without limitation, by servicing all Customer needs,
maintaining the good will of Customers, Distributors, Suppliers, and
employees in a manner consistent with past practice, and performing all
maintenance and repairs on the Purchased Assets that are required or are
customary for the continued operation of its business;
(c) Subject to Section 5.11 below, not enter into any
transaction other than in the ordinary course of business consistent with
past practices, or any transaction that is not at arm's length with
Persons who are Affiliates of Seller or the Stockholders, and otherwise
not take any actions or effect any changes which, if taken or effected
prior to the date hereof, would have been required to be disclosed on
Schedule 2.11 hereof; and
(d) Maintain its marketing expenses at dollar amounts
consistent with its 2004 business plan.
(e) Maintain its overall product development expenses at
dollar amounts consistent with achieving 2004 product development expenses
of at least $2.4 million.
5.2 ACCESS TO BOOKS AND RECORDS; ACCESS TO CUSTOMERS AND EMPLOYEES. At
mutually agreeable times during the Interim Period, Seller shall permit Buyer
and its authorized representatives to have full access to all of Seller's
assets, properties, books, accounting, financial and statistical records
(including auditor work papers), corporate records and contracts provided that
such access shall be provided in a manner that will not unduly disrupt Seller's
business. Seller shall permit Buyer to have access to Seller's employees,
Distributors and Suppliers and independent contractors as determined by Seller
in its reasonable discretion, and other business files and information as Buyer
may from time to time reasonably request, provided that such access shall be
provided in a manner that will not unduly disrupt Seller's business. In
addition, Seller and Buyer shall work together to develop a mutually agreeable
customer survey, anonymous with respect to its source, for distribution to, and
completion by, Seller's Customers (the "CUSTOMER DUE DILIGENCE REVIEW");
provided, however, Buyer shall use no survey or other communication with
Seller's Customers unless ultimately approved by Seller, which approval shall
not be unreasonably withheld.
5.3 NOTICE OF DEFAULT. During the Interim Period, promptly upon the
occurrence of, or promptly upon Seller or any Stockholder becoming aware of the
impending or threatened occurrence of, any event which would cause or constitute
a breach, or would have caused or constituted a breach had such event occurred
or been known to Seller or a Stockholder prior to the date hereof, of any of the
representations, warranties or covenants of Seller or a Stockholder contained in
or referred to in this Agreement or in any Exhibit or Schedule referred to
herein, Seller and the Stockholders shall give detailed written notice thereof
to Buyer.
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5.4 CONSUMMATION OF AGREEMENT; CONSENTS. During the Interim Period, each
of Seller and the Stockholders shall use its, his or her best commercial efforts
to perform and fulfill all conditions and obligations to be performed and
fulfilled under this Agreement by it, to the end that the transactions
contemplated by this Agreement shall be fully carried out. In this regard, each
of Seller and the Stockholders will use its, his or her best commercial efforts
to obtain, prior to the Closing, all Approvals and other authorizations, waivers
and consents, if any, necessary to permit the consummation of the transactions
contemplated by this Agreement, including, without limitation, the consent of
(a) each landlord or lessor under any lease to be assumed by Buyer hereunder in
connection with its assignment from Seller to Buyer, and (b) the consent of each
other party to any Acquired Contract to be assigned to Buyer by Seller
hereunder, to the extent a consent is required by the terms thereof.
5.5 FINANCIAL INFORMATION.
(a) Seller will furnish Buyer with unaudited financial statements
for Seller's business for the month ended October 31, 2004 and for each
additional full monthly period ending prior to the Closing Date, as soon
as they become available. Seller will prepare each of the additional
financial statements on a basis consistent with the Unaudited Financial
Statements delivered pursuant to, and in compliance with the
representations set forth in, Section 2.7.
(b) Seller will use its best commercial efforts to have prepared and
delivered to Buyer, as promptly as possible, (i) audited balance sheets of
Seller as of December 31, 2003, 2002, 2001 and audited statements of
income, stockholder's equity (deficit) and cash flows of Seller for each
year in the three (3) year period ended December 31, 2003, prepared in
accordance with United States generally accepted accounting principles
consistently applied ("GAAP") (provided, that if the Closing Date occurs
in 2005, at Buyer's request, Seller shall also have prepared and delivered
to Buyer, as promptly as possible, an audited balance sheet as of December
31, 2004 and audited statements of income, stockholders' equity (deficit)
and cash flows of Seller for the fiscal year ending December 31, 2004,
prepared in accordance with GAAP), in each case accompanied by an
unqualified opinion of Seller's auditors (the "AUDITED FINANCIAL
STATEMENTS"); and (ii) statements of income, stockholders' equity
(deficit) and cash flows, prepared in accordance with GAAP, for the
three-month periods ended March 31, 2003 and 2004, the three-month and
six-month periods ended June 30, 2004, and the three-month and nine-month
periods ended September 30, 2003 and 2004, such statements to be reviewed
by Seller's auditors in accordance with Statement on Auditing Standards
(SAS) No. 100, Interim Financial Information (SAS No. 100) (the "QUARTERLY
REVIEWS").
5.6 LEASED REAL PROPERTY.
(a) Seller shall maintain the Leased Real Property in the same
condition as the same is in as of the date of this Agreement, subject only
to reasonable use and wear, and shall maintain in force fire and extended
coverage casualty insurance on the Leased Real Property; and
24
court or governmental body seeking to restrain or prohibit, or seeking
material damages or other material relief in connection with, the
execution and delivery of this Agreement or any of the agreements,
documents and instruments contemplated hereby, or the consummation of the
transactions contemplated hereby or thereby or which could reasonably be
expected to have an Material Adverse Effect on Seller, on the one hand, or
Buyer, HCOC and HCCI, on the other hand.
(d) HSR Act. The applicable waiting period under the HSR Act shall
have expired or been terminated.
(e) Closing Deliverables. At the Closing, Seller shall have received
the following:
(i) Certificates.
(A) A certificate executed on behalf of Buyer, HCOC and
HCCI, dated as of the Closing Date, certifying to Seller and the
Stockholders that the statements set forth in Section 7.2(a) are
true and correct as of the Closing.
(B) A certificate executed on behalf of Buyer, HCOC and
HCCI, dated as of the Closing Date, certifying to Seller and the
Stockholders that the resolutions by which the corporate action on
the part of Buyer, HCOC and HCCI necessary to approve this Agreement
and the transactions contemplated hereby were taken and that the
copies of the text of such resolutions are true, correct and
complete copies of such resolutions and that such resolutions were
duly adopted and have not been amended or rescinded.
(C) A certificate issued by the Secretary of State of
the State of Delaware certifying that each of Buyer, HCOC and HCCI
has legal existence and is in good standing (or comparable concept).
(ii) Indemnification Escrow Agreement. The Indemnification
Escrow Agreement, executed by Buyer, HCOC, HCCI and the Escrow Agent.
(iii) Agreement of Assumption of Liabilities. An executed copy
of the Agreement of Assumption of the Liabilities by Buyer in the
form of Exhibit F hereto (the "AGREEMENT OF ASSUMPTION OF THE
LIABILITIES").
(iv) Other Documentation. Any other supporting documents,
certificates or instruments as are reasonably requested by Seller.
(f) Merrimack Transaction. The closing of the transactions
contemplated by the Merrimack Purchase Agreement shall have occurred.
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SECTION 8 - INDEMNIFICATION
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
(a) All of the representations, warranties, covenants and agreements
made by each party in this Agreement or the other Transaction Documents
are material, shall be deemed to have been relied upon by the party or
parties to whom they are made (with all parties hereto reserving their
respective rights hereunder), and shall bind the parties' successors and
assigns, whether so expressed or not, and, except as otherwise provided in
this Agreement, all such representations, warranties, covenants and
agreements shall survive the Closing and inure to the benefit of the
parties and (subject to Section 12.5 below) their respective successors
and assigns, whether so expressed or not; provided, however, that
notwithstanding any provisions of this or any other agreement, document or
instrument to the contrary, the representations and warranties of the
parties hereunder shall, except as otherwise provided in this Agreement,
expire, terminate and be of no further force and effect after the second
(2nd) anniversary of the Closing Date (the "SURVIVAL PERIOD").
(b) Notwithstanding Section 8.1(a), the Survival Period shall not be
applicable to, and a claim for indemnification may be made by an
Indemnified Party (as defined below) at any time prior to the expiration
of the applicable statute of limitations in respect of, any and all
losses, judgments, assessments, liens, demands, taxes, settlements,
claims, fines, interest, penalties, obligations, liabilities, diminution
in value, damages, costs and expenses (including any and all reasonable
costs, fees and expenses (including reasonable attorneys' fees) incident
to any of the foregoing) ("LOSSES") asserted against or incurred or
sustained by any of the Indemnified Parties (as defined below), as the
same are incurred, arising out of, relating to, or resulting from, or in
whole or in part sustained in connection with (the following, "EXCLUDED
CLAIMS"):
(i) Seller's or the Stockholders' fraud;
(ii) Seller's or the Stockholders' intentional
misrepresentation or breach of warranties contained in this
Agreement or in any other Transaction Document;
(iii) Seller's or the Stockholders' failure to perform
covenants contained in this Agreement or in any other Transaction
Document;
(iv) Seller's or the Stockholders' misrepresentation or breach
of warranties contained in Sections 2.4, 2.5(a), 2.6(e), 2.19, 2.25,
3.2(a), 3.3 or 3.4; or
(v) any Excluded Liability (including, without limitation,
Taxes).
34
(c) The expiration of any representation or warranty as provided in
this Section 8.1 shall not affect the rights of an Indemnified Party in
respect of any claim made by such Indemnified Party in a writing received
by the party against whom such claim is made prior to the expiration of
the Survival Period provided herein.
8.2 INDEMNIFICATION BY SELLER AND THE STOCKHOLDERS. Seller and the
Stockholders, jointly and severally, except with respect to claims arising under
Section 3 in which case the Stockholders severally but not jointly, and their
respective successors, heirs and assigns (each, a "SELLER INDEMNIFYING PARTY"
and, collectively, the "SELLER INDEMNIFYING PARTIES"), hereby agree to
indemnify, defend and hold Buyer, HCOC and HCCI, each of their respective
directors, officers, members, shareholders, employees, affiliates, agents,
direct and indirect parent and subsidiary companies, representatives and
successors and assigns (each, a "BUYER INDEMNIFIED PARTY" and, collectively, the
"BUYER INDEMNIFIED PARTIES"), harmless from, against and in respect of, any and
all Losses asserted against or incurred or sustained by any of the Indemnified
Parties, as the same are incurred, arising out of, relating to, resulting from,
or in whole or in part sustained in connection with:
(a) any misrepresentation or breach of warranty by Seller or the
Stockholders contained in this Agreement or in any other Transaction
Document;
(b) the non-performance of any covenant, agreement or obligation to
be performed on the part of Seller or the Stockholders under this
Agreement or any other Transaction Document; or
(c) any Excluded Liability (including, without limitation, Taxes).
8.3 INDEMNIFICATION BY BUYER, HCOC AND HCCI. Buyer, HCOC and HCCI, jointly
and severally, and their successors and assigns (each, a "BUYER INDEMNIFYING
PARTY" and, collectively, the "BUYER INDEMNIFYING PARTIES") hereby agree to
indemnify, defend and hold Seller and its directors, officers and stockholders
(each, a "SELLER INDEMNIFIED PARTY" and, collectively, the "SELLER INDEMNIFIED
PARTIES"), harmless from, against and in respect of, any and all Losses asserted
against or incurred or sustained by any of the Seller Indemnified Parties, as
the same are incurred, arising out of, relating to, resulting from, or in whole
or in part sustained in connection with:
(a) any misrepresentation or breach of warranty by Buyer, HCOC or
HCCI contained in this Agreement or in any other Transaction Document;
(b) the non-performance of any covenant, agreement or obligation to
be performed on the part of Buyer, HCOC or HCCI under this Agreement or
any other Transaction Document;
(c) any Assumed Liability with respect to the period following the
Closing Date; or
(d) the operation of the business acquired by Buyer hereunder
following the Closing Date.
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8.4 NOTICE AND OPPORTUNITY TO DEFEND. Promptly after the receipt by any
Buyer Indemnified Party or any Seller Indemnified Party, as the case may be
(hereafter referred to as the "INDEMNIFIED PARTY"), of notice of any claim or
the commencement of any action or proceeding by a third party, the Indemnified
Party will, if a claim with respect thereto is to be made against Seller or any
Stockholder, Buyer, HCOC or HCCI, as the case may be, hereunder (the party or
parties against which the claim is to be made, an "INDEMNIFYING PERSON" and,
together, the "INDEMNIFYING PERSONS") pursuant to Section 8.2 or Section 8.3
give each of the Indemnifying Persons written notice of such claim or the
commencement of such action or proceeding, provided that failure of the
Indemnified Party to give reasonably prompt notice of any claim or claims shall
not release, waive or otherwise affect the obligations under this Section 8 of
the Indemnifying Persons with respect thereto except and only to the extent that
they can demonstrate actual loss or material prejudice as a result of such
failure. The Indemnifying Persons, acting together, may elect to defend against
such claim or defend such action or proceeding, at their sole cost and expense,
and in such event the Indemnified Party shall, at its sole expense, have the
right to participate in (but not control) the defense through counsel chosen by
the Indemnified Party; provided, however, that the Indemnifying Persons' right
to defend any such action or claim shall be conditioned upon such Indemnifying
Persons providing the Indemnified Party with written notice to the effect that
such Indemnifying Persons would be liable under the provisions hereof for
indemnity in the amount of such claim if such claim were valid and that the
Indemnifying Persons shall be fully responsible (with no reservation of rights)
for all liabilities relating to such claim and that it will provide absolute
indemnification (whether or not otherwise required hereunder) to the Indemnified
Party with respect to such claim; provided, further, that the assumption of
defense of any such matters by the Indemnifying Persons shall relate solely to
the claim, liability or expense that is subject or potentially subject to
indemnification; and further provided, that prior to such assumption of defense,
the Indemnifying Persons shall provide the Indemnified Persons with evidence
reasonably acceptable to the Indemnified Party that the Indemnifying Persons
will have the financial resources to defend the claim, liability or expense and
to pay and perform any liability or obligation which may arise out of or in any
way relate to such claim, liability or expense or the facts giving rise thereto.
If the Indemnifying Persons (a) are in good faith so defending, or (b) are not
given the opportunity to so defend pursuant to the preceding sentence, as the
case may be, the Indemnified Party shall not compromise or settle any such
claim, action or proceeding without the prior written consent of each of the
Indemnifying Persons, which consent shall not be unreasonably withheld or
delayed. If the Indemnifying Persons cannot or do not so elect to defend or do
not continue to do so in good faith in accordance with the terms of this Section
8.4, the Indemnified Party may defend such claim or defend such action or
proceeding in such manner as the Indemnified Party may deem appropriate,
including, but not limited to, settling such claim or action or proceeding
(after giving notice of the same to each of the Indemnifying Persons) on such
terms as the Indemnified Party may reasonably deem appropriate, and the
Indemnifying Persons shall assist and cooperate fully with such defense as
reasonably requested by the Indemnified Party and shall promptly indemnify and
hold harmless (including against all reasonable attorneys' fees) the Indemnified
Party in accordance with the provisions of Section 8.2 or Section 8.3, as
applicable.
8.5 COOPERATION. Each party hereto shall cooperate in the defense of any
third party claim, action or proceeding that is subject to indemnification under
this Section 8. Should any
36
expense be involved (other than a nominal expense) in giving such cooperation,
the Indemnifying Persons shall defray and pay in full all such expense.
8.6 INDEMNIFICATION LIMITS. Notwithstanding anything to the contrary
contained in this Agreement:
(a) No indemnification under Section 8.2(a) shall be made by any
Seller Indemnifying Party, nor shall any Seller Indemnifying Person have
any liability under Section 8.2(a) with respect to any claim or claims for
indemnification made by Buyer Indemnified Parties, unless the aggregate
amount of Losses subject to indemnification pursuant to Section 8.2(a) in
respect of such claim or claims shall exceed $100,000 (the "SELLER
INDEMNIFICATION THRESHOLD"), whereupon the full amount of such Losses in
excess of the Seller Indemnification Threshold in respect of such claims
shall be recoverable by the Buyer Indemnified Parties in accordance with
the terms hereof; and the aggregate amount required to be paid by all
Seller Indemnifying Parties in respect of all claims for indemnification
made by Buyer Indemnified Parties pursuant to Section 8.2(a) shall in no
event exceed $12,500,000 (the "SELLER INDEMNIFICATION CAP") and none of
the Seller Indemnifying Parties shall have any liability to any Buyer
Indemnified Party for, and such Buyer Indemnified Parties shall have no
right to recover from any Seller Indemnifying Party any amount of, Losses
which exceed (and from and after the time such Losses exceed) the Seller
Indemnification Cap; provided, however, that no limitation pursuant to
this Section 8.6(a) shall apply in respect of claims for indemnification
made by Buyer Indemnified Persons pursuant to Section 8.2(a) for Losses
arising out of, relating to, or resulting from, or in whole or in part
sustained in connection with, any Excluded Claims.
(b) No indemnification under Section 8.3(c) shall be made by any
Buyer Indemnifying Party, nor shall any Buyer Indemnifying Party have any
liability under Section 8.3(c) with respect to any claim or claims for
indemnification made by Seller Indemnified Parties, unless the aggregate
amount of Losses subject to indemnification pursuant to Section 8.3(c) in
respect of such claim or claims shall exceed $100,000 (the "BUYER
INDEMNIFICATION THRESHOLD"), whereupon the full amount of such Losses in
excess of the Buyer Indemnification Threshold in respect of such claims
shall be recoverable by the Seller Indemnified Parties in accordance with
the terms hereof; and the aggregate amount required to be paid by all
Buyer Indemnifying Parties in respect of all claims for indemnification
made by Seller Indemnified Parties pursuant to Section 8.3(c) shall in no
event exceed the value of the Assumed Liabilities as determined as of the
Closing Date (the "BUYER INDEMNIFICATION CAP") and none of the Buyer
Indemnifying Parties shall have any liability to any Seller Indemnified
Party for, and such Seller Indemnified Parties shall have no right to
recover from any Buyer Indemnifying Party any amount of, Losses which
exceed (and from and after the time such Losses exceed) the Buyer
Indemnification Cap.
(c) The amount of any Losses for which a claim or claims for
indemnification pursuant to Section 8.2 or Section 8.3 are made by an
Indemnified Party shall be deemed to be reduced to the extent insurance
proceeds are actually received by
37
the Indemnified Parties to cover such Losses (net of any increase in
premiums or other expenses incurred to obtain such proceeds).
8.7 PAYMENT OF CLAIMS. In the event that a Buyer Indemnified Party
sustains or incurs Losses for which it is entitled to be indemnified by Seller
or the Stockholders under this Agreement, such Buyer Indemnified Party shall be
entitled (in addition to collecting directly from the Seller or a Stockholder)
to receive the amount of such Losses from the Escrow Amount. Notwithstanding the
foregoing, it is understood and agreed that amounts for which a Buyer
Indemnified Party is entitled to indemnification hereunder shall be paid first
by delivery of cash from the Escrow Amount held pursuant to the Indemnification
Escrow Agreement, to the extent thereof, and thereafter shall be paid by the
Seller and Stockholders (subject to the limitations otherwise set forth herein).
Claims against the Escrow Amount shall be made in accordance with the terms of
the Indemnification Escrow Agreement. In the event that a Seller Indemnified
Party sustains or incurs Losses for which it is entitled to be indemnified by
Buyer, HCOC or HCCI under this Agreement, such Seller Indemnified Party shall be
entitled to collect directly from Buyer, HCOC or HCCI.
SECTION 9 - TERMINATION
9.1 TERMINATION. At any time prior to the Closing, this Agreement may be
terminated:
(a) by mutual consent of each of the parties hereto;
(b) by Buyer, HCOC and HCCI if there has been fraud, a material
misrepresentation or breach of warranty, or a material breach of covenant,
by Seller or any Stockholder, which, in the case of any such
misrepresentation or breach, has not been cured within twenty (20) days
after the giving of written notice by Buyer, HCOC and HCCI to Seller and
the Stockholders specifying such misrepresentation or breach;
(c) by Seller and the Stockholders if there has been fraud, a
material misrepresentation or breach of warranty, or a material breach of
covenant, by Buyer, HCOC or HCCI, which, in the case of any such
misrepresentation or breach, has not been cured within twenty (20) days
after the giving of written notice by Seller and the Stockholders to
Buyer, HCOC and HCCI specifying such misrepresentation or breach;
(d) by Buyer, HCOC and HCCI if the conditions specified in Section
7.1 have not been satisfied or waived at or prior to the Closing (except
for any such conditions that are intended to be satisfied at the Closing);
(e) by Seller and the Stockholders if the conditions specified in
Section 7.2 have not been satisfied or waived at or prior to the Closing
Date (except for any such conditions that are intended to be satisfied at
the Closing);
(f) by either party if the Closing shall not have occurred on or
before March 31, 2005, unless the failure of the Closing to occur by such
date shall be due to the
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failure of the party seeking to terminate this Agreement to perform or
observe the covenants and agreements of such party set forth herein.
9.2 EFFECT OF TERMINATION. If this Agreement is terminated prior to the
Closing pursuant to the provisions of Sections 9.1(a), (d), (e), or (f) all
obligations of the parties hereunder shall terminate without liability of any
party to any other party, except for the provisions of (a) Section 5.9 and
Section 6.4 relating to certain confidentiality obligations, (b) Section 12.9
relating to publicity and disclosures, (d) Section 12.1 relating to expenses,
(e) Section 12.3 relating to notices, and (f) this Section 9. If this Agreement
is terminated prior to the Closing pursuant to Sections 9.1(b) or (c), then the
party who committed such fraud or made such material misrepresentation or breach
of warranty or breach of covenant shall be liable to the other parties hereto
for, and shall indemnify such other parties against, all damages sustained by
such other parties as a result of such termination.
9.3 RIGHT TO PROCEED. Notwithstanding anything in this Agreement to the
contrary, if any of the conditions specified in Section 7.1 have not been
satisfied, Buyer, HCOC and HCCI shall have the right to proceed with the
transactions contemplated hereby without waiving any of their respective rights
hereunder. If any of the conditions specified in Section 7.2 have not been
satisfied, Seller and Stockholder shall have the right to proceed with the
transactions contemplated hereby without waiving any of their respective rights
hereunder.
9.4 BUYER'S RIGHT TO SPECIFIC PERFORMANCE. Notwithstanding anything to the
contrary contained in this Agreement, it is specifically understood and agreed
that any material breach by Seller and the Stockholders of its and their
obligation to sell, assign, and transfer the Purchased Assets to Buyer will
result in irreparable injury to Buyer, HCOC and HCCI, that the remedies
available to Buyer, HCOC and HCCI at law alone will be an inadequate remedy for
such breach, and that, in addition to any other legal or equitable remedies
which Buyer, HCOC and HCCI may have, Buyer, HCOC and HCCI may enforce their
rights by an action for specific performance and Seller and the Stockholders
expressly waive the defense that a remedy in damages will be adequate.
9.5 SELLER'S RIGHT TO LIQUIDATED DAMAGES. Notwithstanding anything to the
contrary contained in this Agreement, it is specifically understood and agreed
that if, and only if, this Agreement is terminated by Seller and the
Stockholders pursuant to Section 9.1(c) above at a time when none of Seller nor
any Stockholder has breached (or continues to breach) in any material respect
any of its, his or her obligations hereunder, Buyer, HCOC or HCCI shall pay to
Seller an amount equal to $350,000. Seller and the Stockholders acknowledge and
agree that any payment by Buyer, HCOC or HCCI pursuant to this Section 9.5 shall
constitute liquidated damages (the adequacy of which is hereby acknowledged by
Seller and Stockholder) and shall be the sole and exclusive remedy of Seller and
the Stockholders in the event of such termination. The parties further
acknowledge that such liquidated damages are not in the manner of a penalty, but
rather are to compensate Seller and the Stockholders for the time, expense,
effort and lost business opportunities incurred in connection with the
transaction contemplated hereby, the exact value of which the parties agree is
difficult to determine.
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9.6 WAIVER. Seller and the Stockholders may extend the time for the
performance of any of the obligations or other acts of Buyer, HCOC or HCCI
hereunder, waive any inaccuracies in the representations and warranties of
Buyer, HCOC or HCCI contained herein or in any document delivered pursuant
hereto, or waive compliance by Buyer, HCOC or HCCI with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid if set
forth in an instrument in writing signed by Seller. Buyer, HCOC or HCCI may
extend the time for the performance of any of the obligations or other acts of
Seller or the Stockholders hereunder, waive any inaccuracies in the
representations and warranties of Seller or the Stockholders contained herein or
in any document delivered pursuant hereto, or waive compliance by Seller or the
Stockholders with any of the agreements or conditions contained herein. Any such
extension or waiver shall be valid if set forth in an instrument in writing
signed by Buyer, HCOC or HCCI.
SECTION 10 - POST-CLOSING RIGHTS AND OBLIGATIONS
10.1 COLLECTION OF ASSETS. Subsequent to the Closing, Buyer shall have the
right and authority to collect all receivables and other items transferred and
assigned to it by Seller hereunder and to endorse with the name of Seller any
checks received on account of such receivables or other items, and Seller agrees
that it will promptly transfer or deliver to Buyer, from time to time, any cash,
credit card payments or other property that Seller may receive with respect to
the Purchased Assets other than payments to which Seller is entitled pursuant to
this Agreement.
10.2 PAYMENT OF OBLIGATIONS. Seller shall duly and timely pay and perform
all of the Excluded Liabilities in the ordinary course of business as they
become due, except for such liabilities contested in good faith by Seller.
10.3 ASSUMED LIABILITIES. After the Closing, Buyer shall duly and timely
pay and perform all of the Assumed Liabilities in the ordinary course of
business as they become due.
10.4 ADJUSTMENT OF OPERATING EXPENSES. All operating expenses of Seller's
business, including, but not limited to, rent, real estate taxes, payroll
expenses, payroll taxes, employee bonuses, equipment maintenance contracts,
utilities expenses, and postage expenses, shall, except as otherwise expressly
provided herein, be adjusted and allocated between Seller and Buyer to the
extent necessary in order that all such expenses attributable to the operation
of Seller's business prior to the Closing Date (regardless of the date of order
or invoice) shall be for the account of, and paid by, Seller, and all such
expenses attributable to the operation of Seller's business from, after and
including the Closing Date (regardless of the date of order or invoice) shall be
for the account of, and paid by, Buyer.
(a) To the extent not inconsistent with the express provisions of
this Agreement, the allocations made pursuant to this Section 10.4 shall
be made in accordance with Seller's historical financial and accounting
practices, policies and procedures.
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(b) For purposes of making the adjustments pursuant to this Section
10.4, within 45 days following the Closing Date, or such earlier or later
date as shall be mutually agreed to by Buyer and Seller, Buyer and Seller
shall agree on an itemized list (the "ADJUSTMENT LIST") of all sums to be
credited to or charged against the account of Buyer, with a brief
explanation in reasonable detail thereof. Such list shall show the net
amount credited to or charged against the account of Buyer. If the
Adjustment Amount is a credit to the account of Buyer, Seller shall pay
such amount to Buyer; and if the Adjustment Amount is a charge to the
account of Buyer, Buyer shall pay such amount to Seller. Payment of the
Adjustment Amount shall be made not later than 15 business days following
the completion of the Adjustment List.
(c) In the event that Seller and Buyer cannot agree on the
Adjustment List, any disputed items shall be submitted for resolution to a
mutually agreed upon accounting firm.
(d) The Adjustment List, as finally determined, shall be final,
conclusive, and binding on the parties hereto for purposes of determining
the Adjustment Amount to be paid pursuant to this Section 10.4.
10.5 NON-COMPETITION BY SELLER.
(a) Seller covenants and agrees that, during the period commencing
on the Closing Date and ending on the date which is five (5) years after
the Closing Date, it will not, without the express written consent of
HCCI, directly or indirectly (through any subsidiary, affiliate or
controlled entity of the Seller) (collectively, the "SELLER ENTITIES," and
individually, a "SELLER ENTITY"), whether as owner, partner, shareholder,
consultant, agent, co-venturer or otherwise, and Seller and each
Stockholder will cause each Seller Entity not to, anywhere in the United
States: (i) engage or participate in, assist in any manner or in any
capacity, or have any interest in or make any loan to any person, firm,
corporation or business that engages in any activity that is directly
competitive with the Company Business (as defined below), or (ii) hire or
engage or attempt to hire or engage for or on behalf of Seller, any Seller
Entity or any such competitor, any officer or employee of HCCI or any
direct or indirect subsidiary of HCCI (collectively, the "COMPANY
ENTITIES," and, individually, a "COMPANY ENTITY"), or any former officer
or employee of any Company Entity or any Seller Entity who was employed by
any Company Entity or any Seller Entity at any time within the twelve (12)
month period prior to the date of such hiring or attempt to hire, (iii)
encourage, for or on behalf of such Seller, any Seller Entity or any such
competitor, any such officer or employee or any such former officer or
employee to terminate his or her relationship or employment with any
Company Entity, (iv) solicit, for or on behalf of such Seller, any Seller
Entity or any such competitor, any customer of any Company Entity who was
a customer of any Company Entity or Seller within the twelve (12) month
period prior to the date of such solicitation, and (iv) diverting to any
Person any customer or business opportunity of any Company Entity. For
purposes of this Agreement, "Company Business" shall mean the business of
developing and publishing education products which are sold to schools,
libraries and consumers.
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(b) It is the intention of the parties that if any of the
restrictions or covenants contained herein is held by a court of competent
jurisdiction to cover a geographic area or to be for a length of time
which is not permitted by applicable law, or is in any way construed to be
too broad or to any extent invalid, such provision shall not be construed
to be null, void and of no effect, but to the extent such provision would
be valid or enforceable under applicable law, a court of competent
jurisdiction shall construe and interpret or reform this Section to
provide for a covenant having the maximum enforceable geographic area,
time period and other provisions (not greater than those contained herein)
as shall be valid and enforceable under such applicable law.
10.6 EMPLOYEES.
(a) Buyer shall, on the Closing Date and subject to the prospective
employees satisfying all reasonable hiring requirements of Buyer, offer to
hire substantially all employees of Seller at positions with comparable
levels of responsibility and compensation (including bonus opportunity) as
such employees held prior to the Closing. Such employees will be at-will
employees of Buyer (and as such, such employees may be discharged at any
time without liability hereunder) subject to such terms and conditions of
employment as Buyer may determine. Other than with respect to Assumed
Liabilities specifically assumed hereunder, Buyer shall not be liable, and
Seller shall remain exclusively liable, for all obligations and
liabilities, including, without limitation, accrued vacation pay (subject
to the roll-over option described in this Section 10.6(a)) and sick pay,
that may arise or have arisen from the employment of employees with, or
the termination of their employment by, Seller prior to the Closing Date.
Seller agrees to pay all such obligations or liabilities or promptly
reimburse Buyer in the event that Buyer assumes such obligations or
liabilities failing payment by Seller. Employees hired by Buyer shall (i)
have the option to roll-over and be credited with, under HCCI's vacation
plan, any accrued and unused vacation time which such employees would be
entitled, under Seller's policies, to roll over into calendar year 2005;
(ii) be credited with the full amount of time of service as an employee of
Seller for all applicable purposes under HCCI's employee benefit plans,
including, without limitation, HCCI's vacation plan and 401(k) plan, (iii)
receive employee benefits on a basis consistent with employees at other
subsidiaries of HCCI, and (iv) be eligible to receive a bonus for fiscal
year 2005 in accordance with the bonus plan attached as Schedule 10.6
hereto.
(b) To the extent assignable, Seller shall assign (and shall obtain
the necessary consents to assign) to Buyer as of the Closing, and Buyer
shall accept the assignment of, Seller's Employee Plans related to the
provision of health, dental and related benefits to Seller's employees as
specified on Schedule 2.18.
SECTION 11 - DEFINITIONS
11.1 CERTAIN DEFINITIONS. For purposes of this Agreement, capitalized
terms are generally defined in the Agreement where they are first used. The
following terms which are not so defined shall have the following meanings:
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(a) "Affiliate" of a Person means (i) with respect to a Person, any
member of such Person's family (including any child, step-child, parent,
step-parent, spouse, sibling, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law or sister-in-law); (ii) with respect to an
entity, any officer, director, manager, member, stockholder, partner or
investor in such entity or of or in any affiliate of such entity; and
(iii) with respect to a Person or entity, any Person or entity which
directly or indirectly controls, is controlled by, or is under common
control with such Person or entity.
(b) "Control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly, or as trustee
or executor, of the power to direct or cause the direction of the
management policies of a Person, whether through the ownership of stock,
as trustee or executor, by contract or credit arrangement or otherwise;
(c) "Copyrights" means, collectively, copyrights in both published
and unpublished works, including without limitation all compilations,
databases and computer programs, manuals and other documentation and all
copyright registrations and applications, and all derivatives,
translations, adaptations and combinations of the above.
(d) "Intellectual Property Assets" means, collectively, Patents,
Marks, Copyrights, Trade Secrets and any goodwill, franchises, licenses,
permits, consents, approvals, and claims of infringement against third
parties.
(e) "knowledge of Seller" means the actual knowledge, after due
inquiry, taking into account such Person's relationship and position with
respect to the Seller, of each Stockholder and any Persons at Seller
holding the title(s) of "director," "vice president," "senior vice
president," "executive vice president," "president," "chief financial
officer," "chief operations officer," "chief executive officer,"
"chairman," or such Persons holding equivalent responsibilities regardless
of the title.
(f) "Marks" means, collectively, trade names, trade dress, logos,
packaging design, slogans, Internet domain names, registered and
unregistered trademarks and service marks and related registrations and
applications for registration.
(g) "Material Adverse Effect" means a material adverse effect on the
assets, properties, business, condition (financial or other) or prospects
of the applicable party.
(h) "Patents" means, collectively, patents, patent applications,
patent rights, and inventions and discoveries and invention disclosures
(whether or not patented).
(i) "Person" means an individual, corporation, limited liability
company, partnership, association, trust, any unincorporated organization
or any other entity.
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(j) "Product Development Expenses" means all of Seller's costs and
expenses arising out of or related to product development, including,
without limitation, all salaries and expenses of Seller's employees
engaged in product development activities, all costs and expenses
(including, without limitation, rent) related to Seller's Austin, Texas
location, and all costs and expenses of Seller's consultants and
independent contractors engaged in product development activities for
Seller.
(k) "Seller Intellectual Property Assets" means all Intellectual
Property Assets owned by Seller or used in Seller's business. "Seller
Intellectual Property Assets" includes, without limitation, Seller
Patents, Seller Marks, Seller Copyrights and Seller Trade Secrets.
(l) "Trade Secrets" means, collectively, know-how, trade secrets,
confidential or proprietary information, research in progress, algorithms,
data, designs, processes, formulae, drawings, schematics, blueprints, flow
charts, models, strategies, prototypes, techniques, Beta testing
procedures and Beta testing results.
SECTION 12 - MISCELLANEOUS
12.1 FEES AND EXPENSES. Each of the parties will bear its own expenses in
connection with the negotiation and the consummation of the transactions
contemplated by this Agreement, and no expenses of Seller relating in any way to
the purchase and sale of the Purchased Assets hereunder and the transactions
contemplated hereby, including, without limitation legal, accounting or other
professional expenses of Seller and the Stockholders, shall be charged to or
paid by or included in any of the Assumed Liabilities; provided, however, that
(a) Buyer and Seller shall each pay 50% of any fees and expenses incurred by
Seller in connection with the preparation and delivery of the Audited Financial
Statements, and (b)Buyer shall pay any fees and expenses incurred by Seller in
connection with the preparation and delivery of (i) the Quarterly Reviews, and
(ii) any audit relating to the fiscal year ending December 31, 2004.
12.2 GOVERNING LAW; JURISDICTION; VENUE.
(a) This Agreement shall be construed under and governed by the
internal laws of the State of New Hampshire without regard to its conflict
of laws provisions.
(b) TO THE EXTENT THAT EITHER PARTY SEEKS JUDICIAL INTERVENTION IN
RESPECT OF ANY DISPUTES, CLAIMS, OR CONTROVERSIES ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENTS OR THE
NEGOTIATION, VALIDITY OR PERFORMANCE HEREOF AND THEREOF OR THE
TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY, EACH OF THE PARTIES HERETO
HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ALL STATE AND FEDERAL
COURTS LOCATED IN MANCHESTER, NEW HAMPSHIRE, AS WELL AS TO THE
JURISDICTION OF ALL COURTS TO WHICH AN APPEAL MAY BE
44
TAKEN FROM SUCH COURTS, FOR THE PURPOSE OF ANY SUIT, ACTION OR OTHER
PROCEEDING ARISING OUT OF, OR IN CONNECTION WITH, THIS AGREEMENT OR THE
TRANSACTION DOCUMENTS. EXCEPT AS PROVIDED IN SECTION 12.11(d) HEREOF, EACH
PARTY HEREBY EXPRESSLY WAIVES ANY AND ALL RIGHTS TO BRING ANY SUIT, ACTION
OR OTHER PROCEEDING IN OR BEFORE ANY COURT OR TRIBUNAL OTHER THAN THE
COURTS DESCRIBED ABOVE.
(c) EACH OF THE PARTIES HERETO HEREBY EXPRESSLY WAIVES ANY AND ALL
OBJECTIONS IT MAY HAVE TO VENUE, INCLUDING, WITHOUT LIMITATION, THE
INCONVENIENCE OF SUCH FORUM, IN ANY OF THE COURTS DESCRIBED IN SECTION
12.2(b) HEREOF. IN ADDITION, EACH OF THE PARTIES CONSENTS TO THE SERVICE
OF PROCESS BY PERSONAL SERVICE OR ANY MANNER IN WHICH NOTICES MAY BE
DELIVERED HEREUNDER IN ACCORDANCE WITH SECTION 12.3 HEREOF.
12.3 NOTICES. Any notice, request, demand or other communication required
or permitted hereunder shall be in writing and shall be deemed to have been
given if delivered or sent by facsimile transmission, upon receipt, or if sent
by registered or certified mail, upon the sooner of the date on which receipt is
acknowledged or the expiration of three (3) days after deposit in United States
post office facilities properly addressed with postage prepaid. All notices to a
party will be sent to the addresses set forth below or to such other address or
person as such party may designate by notice to each other party hereunder:
TO BUYER, HCOC or HCCI: c/o Haights Cross Communications, Inc.
▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Chief Financial Officer
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇, Procter LLP
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
TO SELLER OR THE STOCKHOLDERS:
Prior to the Closing: c/o Options Publishing, Inc.
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇ ▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
45
After the Closing: c/o ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
c/o ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
With a copy to: ▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.A.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Any notice given hereunder may be given on behalf of any party by his counsel or
other authorized representatives.
12.4 ENTIRE AGREEMENT. This Agreement, including the Schedules and
Exhibits referred to herein and the other writings specifically identified
herein or contemplated hereby, is complete, reflects the entire agreement of the
parties with respect to its subject matter, and supersedes all previous written
or oral negotiations, commitments and writings. No promises, representations,
understandings, warranties and agreements have been made by any of the parties
hereto except as referred to herein or in such Schedules and Exhibits or in such
other writings; and all inducements to the making of this Agreement relied upon
by either party hereto have been expressed herein or in such Schedules or
Exhibits or in such other writings.
12.5 ASSIGNABILITY; BINDING EFFECT. This Agreement may not be assigned by
any party without the prior written consent of the other parties; provided, that
Buyer, HCOC and/or HCCI shall be permitted, without the consent of Seller or any
Stockholder, to assign its rights hereunder to any wholly-owned subsidiary of
Buyer, HCOC or HCCI now existing or hereafter formed or to any senior lender of
Buyer, HCOC and/or HCCI. Subject to the foregoing, this Agreement shall be
binding upon and enforceable by, and shall inure to the benefit of, the parties
hereto and their respective successors and permitted assigns.
12.6 CAPTIONS AND GENDER. The captions in this Agreement are for
convenience only and shall not affect the construction or interpretation of any
term or provision hereof. The use in this Agreement of the masculine pronoun in
reference to a party hereto shall be deemed to include the feminine or neuter,
as the context may require.
12.7 EXECUTION IN COUNTERPARTS. For the convenience of the parties and to
facilitate execution, this Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one (1) and the same document.
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12.8 AMENDMENTS. This Agreement may not be amended or modified, nor may
compliance with any condition or covenant set forth herein be waived, except by
a writing duly and validly executed by each party hereto, or in the case of a
waiver, the party waiving compliance.
12.9 PUBLICITY AND DISCLOSURES. Prior to the Closing, no press releases or
public disclosure, either written or oral, of the transactions contemplated by
this Agreement, shall be made by a party to this Agreement without the prior
knowledge and written consent of Buyer and Seller, except as may be required by
applicable laws, rules and regulations (including, without limitation, the
United States federal securities laws and the rules and regulations promulgated
thereunder).
12.10 BULK SALES LAW. Buyer hereby waives compliance with the provisions
of any applicable bulk sales law and Seller agrees to hold Buyer harmless from
all claims made by creditors with respect to non-compliance with any bulk sales
law.
12.11 DISPUTE RESOLUTION.
(a) All disputes, claims, or controversies arising out of or
relating to this Agreement or any other Transaction Documents or the
negotiation, validity or performance hereof and thereof or the
transactions contemplated hereby and thereby that are not resolved by
mutual agreement shall be resolved solely and exclusively by binding
arbitration to be conducted in Manchester, New Hampshire before a single
arbitrator (the "ARBITRATOR") and shall be conducted in accordance with
the J.A.M.S./Endispute Comprehensive Arbitration Rules and Procedures (the
"J.A.M.S. RULES") unless specifically modified herein.
(b) The parties covenant and agree that the arbitration hearing
shall commence within one hundred eighty (180) days of the date on which a
written demand for arbitration is filed by any party hereto. In connection
with the arbitration proceeding, the Arbitrator shall have the power to
order the production of documents by each party and any third-party
witnesses. In addition, each party may take up to three depositions as of
right, and the Arbitrator may in his or her discretion allow additional
depositions upon good cause shown by the moving party. However, the
Arbitrator shall not have the power to order the answering of
interrogatories or the response to requests for admission. In connection
with any arbitration, each party shall provide to the other, no later than
seven (7) business days before the date of the arbitration hearing, the
identity of all persons that may testify at the arbitration hearing and a
copy of all documents that may be introduced at the arbitration hearing or
considered or used by a party's witness or expert. The Arbitrator's
decision and award shall be made and delivered within two hundred forty
(240) days of the selection of the Arbitrator. The Arbitrator's decision
shall set forth a reasoned basis for any award of damages or finding of
liability. The Arbitrator shall not have power to award damages in excess
of actual compensatory damages and shall not multiply actual damages or
award punitive damages or any other damages that are specifically excluded
under this Agreement, and each party hereby irrevocably waives any claim
to such damages.
47
(c) The parties covenant and agree that they will participate in the
arbitration in good faith and that they will, except as provided below,
(i) bear their own attorneys' fees, costs and expenses in connection with
the arbitration, and (ii) share equally in the fees and expenses charged
by the Arbitrator. The Arbitrator may in his or her discretion assess
costs and expenses (including the reasonable legal fees and expenses of
the prevailing party) against any party to a proceeding. Any party
unsuccessfully refusing to comply with an order of the Arbitrators shall
be liable for costs and expenses, including attorneys' fees, incurred by
the other party in enforcing the award. This Section 12.11 applies equally
to requests for temporary, preliminary or permanent injunctive relief,
except that in the case of temporary or preliminary injunctive relief any
party may proceed in court without prior arbitration for the purpose of
avoiding immediate and irreparable harm, to enforce its rights under the
provisions of Section 5.9 or Section 6.4, or to enforce its rights under
the provisions of Section 10.5.
(d) Each of the parties hereto (a) hereby irrevocably submits to the
jurisdiction of any United States District Court of competent jurisdiction
for the purpose of enforcing the award or decision in any such proceeding,
(b) hereby waives, and agrees not to assert, by way of motion, as a
defense, or otherwise, in any such suit, action or proceeding, any claim
that it is not subject personally to the jurisdiction of the above-named
courts, that its property is exempt or immune from attachment or execution
(except as protected by applicable law), that the suit, action or
proceeding is brought in an inconvenient forum, that the venue of the
suit, action or proceeding is improper or that this Agreement or the
subject matter hereof may not be enforced in or by such court, and hereby
waives and agrees not to seek any review by any court of any other
jurisdiction which may be called upon to grant an enforcement of the
judgment of any such court. Each of the parties hereto hereby consents to
service of process by registered mail at the address to which notices are
to be given. Each of the parties hereto agrees that its or his submission
to jurisdiction and its or his consent to service of process by mail is
made for the express benefit of the other parties hereto. Final judgment
against any party hereto in any such action, suit or proceeding may be
enforced in other jurisdictions by suit, action or proceeding on the
judgment, or in any other manner provided by or pursuant to the laws of
such other jurisdiction.
[SIGNATURE PAGES TO FOLLOW]
48
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as of the date set forth above by their duly authorized
representatives.
HCCI:
HAIGHTS CROSS COMMUNICATIONS, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chief Executive Officer and President
HCOC:
HAIGHTS CROSS OPERATING COMPANY
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chief Executive Officer and President
BUYER:
OPI ACQUISITION CO., INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
SELLER:
OPTIONS PUBLISHING, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: President
STOCKHOLDERS:
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
/s/ ▇▇▇ ▇▇▇▇▇▇
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