EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
BY AND AMONG
HAIGHTS CROSS COMMUNICATIONS, INC.
AS "HCCI"
HAIGHTS CROSS OPERATING COMPANY
AS "HCOC"
TRIUMPH LEARNING, LLC
AS "BUYER"
AND
BUCKLE DOWN PUBLISHING COMPANY
AS "SELLER"
PROFILES CORPORATION
AS "STOCKHOLDER"
AND
▇▇▇▇▇▇▇ ▇▇▇▇
AS "FOUNDER"
DATED AS OF ▇▇▇▇▇ ▇, ▇▇▇▇
▇▇▇▇▇ PURCHASE AGREEMENT
TABLE OF CONTENTS
PAGE
----
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 Deposit.............................................................................................5
1.6 Calculation of Estimated Closing Adjustments........................................................6
1.7 Purchase Price and Payment..........................................................................7
1.8 Time and Place of Closing...........................................................................8
1.9 Post-Closing Adjustments............................................................................8
1.10 Further Assurances................................................................................11
1.11 Allocation of Purchase Price......................................................................11
1.12 Transfer Expenses, Costs and Taxes................................................................11
1.13 Use of Name.......................................................................................11
1.14 Customer and Marketing Research...................................................................12
1.15 Delivery of Records and Contracts.................................................................13
SECTION 2 - REPRESENTATIONS AND WARRANTIES OF SELLER, STOCKHOLDER AND FOUNDER...................................13
2.1 Making of Representations and Warranties...........................................................13
2.2 Organization.......................................................................................13
2.3 Subsidiaries.......................................................................................14
2.4 Capital Stock of Seller; Beneficial Ownership......................................................14
2.5 Authority of Seller................................................................................14
2.6 Leased Property; Liens; Condition of Properties....................................................15
2.7 Financial Statements...............................................................................16
2.8 Taxes..............................................................................................17
2.9 Accounts Receivable; Accounts Payable; Inventory...................................................18
2.10 Absence of Undisclosed Liabilities................................................................19
2.11 Absence of Certain Developments...................................................................19
2.12 Intellectual Property.............................................................................20
2.13 Certain Contracts and Arrangements................................................................21
2.14 Litigation........................................................................................22
2.15 Compliance with Laws..............................................................................22
2.16 Insurance Coverage................................................................................23
2.17 Approvals.........................................................................................23
2.18 Employee Benefit Programs; ERISA..................................................................23
2.19 Environmental Matters.............................................................................24
2.20 Employees; Labor Matters..........................................................................25
2.21 Customers and Distributors........................................................................25
2.22 Suppliers.........................................................................................26
2.23 Certain Payments..................................................................................26
2.24 Transactions with Affiliates......................................................................26
2.25 No Brokers or Finders.............................................................................26
2.26 Disclosures.......................................................................................26
2.27 Investment Representation.........................................................................27
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF FOUNDER...........................................................27
3.1 Making of Representations and Warranties...........................................................27
3.2 Authority of Founder...............................................................................27
3.3 Beneficial Ownership...............................................................................28
3.4 Certain Agreements.................................................................................28
3.5 No Brokers or Finders..............................................................................28
SECTION 4 - REPRESENTATIONS AND WARRANTIES OF BUYER, HCOC AND HCCI..............................................28
4.1 Making of Representations and Warranties...........................................................28
4.2 Organization.......................................................................................28
4.3 Authority..........................................................................................29
4.4 No Brokers or Finders..............................................................................29
4.5 Shares.............................................................................................29
4.6 SEC Filings; HCCI Financial Statements.............................................................30
4.7 Capitalization.....................................................................................30
4.8 Litigation.........................................................................................30
SECTION 5 - INTERIM COVENANTS OF SELLER, STOCKHOLDER AND FOUNDER................................................31
5.1 Conduct of Business................................................................................31
5.2 Access to Books and Records; Access to Employees...................................................31
5.3 Notice of Default..................................................................................31
5.4 Consummation of Agreement; Consents................................................................32
5.5 Financial Information..............................................................................32
5.6 Leased Real Property...............................................................................32
5.7 Cooperation of Seller..............................................................................33
5.8 No Solicitation of Other Offers....................................................................33
5.9 Confidentiality....................................................................................33
5.10 Relationship with ZAPS Learning Company...........................................................34
SECTION 6 - INTERIM COVENANTS OF BUYER, HCOC AND HCCI...........................................................34
6.1 Access to Information and Management...............................................................34
6.2 Notice of Default..................................................................................34
6.3 Consummation of Agreement..........................................................................35
6.4 Confidentiality....................................................................................35
SECTION 7 - CLOSING CONDITIONS..................................................................................35
7.1 Conditions to the Obligations of Buyer, HCOC and HCCI..............................................35
7.2 Conditions to Obligations of Seller................................................................39
ii
SECTION 8 - INDEMNIFICATION.....................................................................................41
8.1 Survival of Representations and Warranties.........................................................41
8.2 Indemnification by Seller, Stockholder and Founder.................................................42
8.3 Notice and Opportunity to Defend...................................................................42
8.4 Cooperation........................................................................................43
8.5 Indemnification Limits.............................................................................43
8.6 Payment of Claims..................................................................................44
SECTION 9 - TERMINATION.........................................................................................45
9.1 Termination........................................................................................45
9.2 Effect of Termination..............................................................................45
9.3 Right to Proceed...................................................................................46
9.4 Buyer Right to Specific Performance................................................................46
9.5 Waiver.............................................................................................46
SECTION 10 - POST-CLOSING RIGHTS AND OBLIGATIONS................................................................47
10.1 Collection of Assets..............................................................................47
10.2 Payment of Obligations............................................................................47
10.3 Assumed Liabilities...............................................................................47
10.4 Adjustment of Operating Expenses..................................................................47
10.5 Non-competition by Seller, Stockholder and Founder................................................48
10.6 Employees.........................................................................................49
10.7 Stock Restrictions................................................................................49
10.8 Transition Period Relating to ZAPS Inventory......................................................51
SECTION 11 - DEFINITIONS........................................................................................52
11.1 Certain Definitions...............................................................................52
SECTION 12 - MISCELLANEOUS......................................................................................53
12.1 Fees and Expenses.................................................................................53
12.2 Governing Law; Jurisdiction; Venue; Jury Waiver...................................................53
12.3 Notices...........................................................................................54
12.4 Entire Agreement..................................................................................55
12.5 Assignability; Binding Effect.....................................................................55
12.6 Captions and Gender...............................................................................55
12.7 Execution in Counterparts.........................................................................56
12.8 Amendments........................................................................................56
12.9 Publicity and Disclosures.........................................................................56
12.10 Bulk Sales Law...................................................................................56
iii
EXHIBITS
Exhibit A Form of Deposit Escrow Agreement
Exhibit B Terms of Series C Preferred Stock
Exhibit C Form of Indemnification Escrow Agreement
Exhibit D Form of ▇▇▇▇ of Sale and Assignment of Contracts and Leases
Exhibit E Form of Consulting Agreement
Exhibit F Form of Non-Solicit/Confidentiality Agreements
Exhibit G Form of Seller Legal Opinion
Exhibit H Form of Agreement of Assumption of Liabilities
Exhibit I Form of Buyer Legal Opinion
iv
SCHEDULES
Schedule 1.1(a) Accounts Receivable
Schedule 1.1(b) Personal Property
Schedule 1.1(d) Acquired Contracts
Schedule 1.1(k) Computer Equipment, Software and Licenses
Schedule 1.2 Excluded Assets
Schedule 1.11(a) Pro Forma Allocation
Schedule 2.2 Foreign Jurisdictions
Schedule 2.5(a) Required Actions
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) Financial Statements
Schedule 2.8(b) Sales Tax Jurisdictions
Schedule 2.8(e) Tax Authority Inquiries
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 2.9(b) Accounts Payable
Schedule 2.10 Certain Liabilities
Schedule 2.11 Certain Developments Since December 31, 2002
Schedule 2.12(a) Seller Patents, Seller Marks and Seller Copyrights
Schedule 2.12(b) Third-Party Software Used in the Business
Schedule 2.13 Certain Contracts
Schedule 2.14 Litigation, Proceedings and Investigations
Schedule 2.15 Required Regulatory Permits; Legal Compliance
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(b) Defaults; Required Consents
Schedule 3.4 Certain Agreements
Schedule 4.3 Defaults; Required Consents
Schedule 4.4 Brokers and Finders
Schedule 7.1(g)(vii) Employees Who Will Sign Employee Agreements
v
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered into
as of March 6, 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"), Triumph Learning, LLC, a
Delaware limited liability company and a wholly owned subsidiary of HCOC
("Buyer"), Profiles Corporation, an Iowa corporation ("Stockholder"), Buckle
Down Publishing Company, an Iowa corporation and a wholly owned subsidiary of
Stockholder ("Seller"), and ▇▇▇▇▇▇▇ ▇▇▇▇, the sole stockholder of Stockholder
("Founder"). 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, Stockholder
and Founder desire to sell substantially all of Seller's properties and assets
to Buyer; and
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;
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,
including, without limitation, those listed on Schedule 1.1(a) hereto (the
"Accounts Receivable");
(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;
(c) Leased Real Property. The leasehold interest of Seller
with respect to the office and warehouse location of Seller located at
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ (the "Office Lease");
(d) Contracts. Seller's contracts (including, without
limitation, author contracts and licenses), agreements, leases,
commitments, claims and rights, all as listed on Schedule 1.1(d) hereto
(the "Acquired Contracts");
(e) Inventory. All of Seller's inventory, wherever located and
whether in the possession of Seller or any customer or potential customer
or any supplier;
(f) Prepaids; Credits; Deposits. All prepaid expenses,
deposits and similar items;
(g) Third Party Claims and Rights. All rights and claims
against third parties, including without limitation, all rights under
express or implied warranties from suppliers;
(h) 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 and, to the extent
transferable and assignable, any rights to prospect lists used by Seller
that are owned by third parties;
(i) 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;
(j) 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;
(k) Computer Equipment and Software. All computer equipment
and computer software, including source code, whether completed or under
development, and software licenses, including, without limitation, those
listed on Schedule 1.1(k) hereto;
(l) Record Books. Seller's general ledger, and copies of
Seller's invoices, sales records, tax returns and other material business
records of Seller for all periods since January 1, 1998, including
financial statements, general ledgers, material repair and maintenance
records, material correspondence related to the operation of Seller's
business, Seller's Tax Returns, including material declarations, reports
or statements, and correspondence and materials related to Seller's state
sales Tax Returns;
2
(m) Other Intellectual Property. All right, title and interest
in and to all Seller Intellectual Property Assets (as defined herein)
(including, without limitation, exclusive rights to use "Buckle Down
Publishing" or any variants of any of the foregoing) and all goodwill
related thereto, and all other intangible assets and goodwill and other
intangibles;
(n) 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
(o) Other Assets. All other assets of Seller that are used or
usable in Seller's business.
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) Seller Cash. All cash and cash equivalents of Seller as of
the Closing;
(b) Rights Under this Agreement. The rights which accrue or
will accrue to Seller under this Agreement;
(c) Record Books. Seller's 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"), as well as a copy
of Seller's general ledger and originals of Seller's invoices, sales
records, tax returns and other material business records of Seller for all
periods since January 1, 1998, copies of which are to be provided to Buyer
under Section 1.1(l) above;
(d) Leased Assets. Any assets used by Seller which are owned
by third party vendors, all of which are leased under Acquired Contracts
listed on Schedule 1.1(d) or otherwise listed as an Excluded Asset on
Schedule 1.2;
(e) Third Party Claims and Rights. All rights and claims
against third parties relating to the Excluded Assets or the Excluded
Liabilities (as defined below); and
(f) Excluded Property. All of the assets and properties used
by Seller in its business that are not being sold, assigned, transferred
and delivered to Buyer hereunder, as listed on Schedule 1.2 hereto.
3
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
following liabilities of Seller and no other liabilities (collectively, the
"Assumed Liabilities"):
(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 as of the Closing Date and
which are listed on the Preliminary Closing Statement (as defined below)
or the Final Closing Statement (collectively, the "Current Liabilities");
and
(b) Liabilities Under Acquired Contracts. All of the
liabilities or obligations for payment or performance arising after the
Closing under the Acquired Contracts.
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, and Seller shall retain, pay and discharge, 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 limiting the
generality of the foregoing, all of the following:
(a) Liabilities Relating to this Agreement. Liabilities
incurred by Seller in connection with this Agreement and the transactions
provided for herein, including, without limitation, counsel and
accountant's fees, and expenses pertaining to the performance by Seller of
its obligations hereunder;
(b) Liabilities Relating to the Excluded Assets. Any
liabilities and obligations relating to or arising out of the Excluded
Assets;
(c) Contractual Liabilities. Any liabilities that arise prior
to the Closing Date (as defined below) 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;
(d) Tax Liabilities. Taxes of Seller, Stockholder or any of
their respective Affiliates (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, Stockholder or any of their respective
Affiliates, (ii) payroll Taxes due in respect of the operation of the
business of Seller prior
4
to the Closing to the extent withheld or collected by Seller as of the
Closing, (iii) state sales Taxes due in respect of the operation of the
business of Seller prior to the Closing, and (iv) Taxes arising out of the
inclusion of Seller, Stockholder or any of their respective Affiliates in
any group filing consolidated, combined or unitary tax returns or arising
out of any transferee liability;
(e) Debt Obligations. All obligations arising from the lending
of money by any Person to Seller;
(f) Certain Accrued Expenses. All of the liabilities or
obligations for accrued expenses of Seller relating to (i) amounts payable
to any employees of Seller in respect of bonuses earned as of the Closing
Date or any other non-recurring compensation plan of Seller, (ii) amounts
due for discretionary matches for employee contributions under Seller's
401(k) plan from January 1, 2004 through the Closing, which shall be
funded by Seller prior to the Closing in accordance with the terms of such
plan, (iii) any amounts payable to Stockholder or Founder, or (iv) any
amounts payable to any related Person or Affiliate of Stockholder or
Founder (other than compensation which is payable in the ordinary course
of business to Affiliates of Stockholder or Founder for services performed
for Seller pursuant to arrangements which are disclosed in the disclosure
schedules hereto, and which amounts are included on the Preliminary
Closing Statement); and
(g) Other Liabilities. Liabilities 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 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,
Stockholder or Founder on or prior to the Closing Date, or (iii) any
continuing business activities of Seller, Stockholder, Founder or any of
their respective Affiliates following the Closing Date.
1.5 DEPOSIT.
(a) Upon the execution and delivery of this Agreement, Buyer
will deliver or cause to be delivered to Mellon Trust of New England, N.A.
(the "Deposit Escrow Agent"), a cash deposit in the amount of One Hundred
Thousand Dollars ($100,000) (the "Deposit"), which Deposit is being held
by the Deposit Escrow Agent in accordance with the terms and conditions of
the Deposit Escrow Agreement between Seller, Buyer and the Deposit Escrow
Agent attached hereto as Exhibit A. Upon the execution and delivery of
this Agreement, the Deposit Escrow Agent shall continue to hold the
Deposit in accordance with the terms of the Deposit Escrow Agreement and
this Agreement.
5
(b) Subject to the terms and conditions of the Deposit Escrow
Agreement, the Deposit Escrow Agent shall deliver the Deposit, plus
accrued interest thereon, to:
(i) Buyer if this Agreement is terminated by Buyer under
Section 9.1(b) below;
(ii) Buyer if this Agreement is terminated by Buyer
under Section 9.1(d) below due to the failure of the conditions to
Closing set forth in Section 7.1(a) or Section 7.1(b) below;
(iii) Seller at the Closing; or
(iv) Subject to Section 9.2 hereof, Seller if this
Agreement is terminated for any other reason.
1.6 CALCULATION OF ESTIMATED CLOSING ADJUSTMENTS. No later than two (2)
business days prior to the Closing, Seller shall prepare and deliver to Buyer a
statement, subject to Buyer's reasonable approval (the "Preliminary Closing
Statement"), setting forth Seller's good faith estimate of Seller's Working
Capital (as defined below) as of the Closing Date ("Closing Working Capital").
The Cash Purchase Price (as defined in Section 1.7) shall be (i) increased on a
dollar-for-dollar basis by the amount by which Closing Working Capital is
greater than Target Working Capital (as defined below), or (ii) decreased on a
dollar-for-dollar basis by the amount by which Closing Working Capital is less
than Target Working Capital.
(a) For purposes of this Section 1.6, the following terms
shall have the following meanings:
(i) "Working Capital" shall mean an amount equal to
Seller's Current Assets less Seller's Current Liabilities (each as
defined below), each as determined in accordance with generally
accepted accounting principles ("GAAP") consistently applied;
provided, that Working Capital shall not reflect any adjustments to
Current Assets or Current Liabilities which have historically been
treated as year-end adjustments only and not reflected in interim
periods, the intent being that Working Capital shall be consistently
calculated with historical financial statements for interim periods
even if such interim periods may not reflect a 100% application of
GAAP ("Year-End Adjustments");
(ii) "Current Assets" shall mean Net Accounts Receivable
(as defined below), Net Inventory (as defined below), prepaid
expenses and other current assets used in the operation of Seller's
business (but excluding cash and cash equivalents), all as specified
on the Preliminary Closing Statement;
(iii) "Current Liabilities" shall mean the Current
Liabilities specified in Section 1.3(a) above, all as specified on
the Preliminary Closing Statement;
6
(iv) "Net Accounts Receivable" shall mean Seller's gross
accounts receivable less any (A) reserve for returns, (B) reserve
for bad debts, and (C) accounts receivable from Affiliates.
(v) "Net Inventory" shall mean Seller's gross inventory
less (A) any reserve for obsolescense, and (B) any inventory
consisting of ACT and SAT testing materials, which inventory shall
be subject to Section 5.10 below.
(vi) "Target Working Capital" shall mean the average
month-end Working Capital of Seller at March 31, 2003, March 31,
2002 and March 31, 2001.
1.7 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, Buyer, HCOC and/or HCCI will pay and/or issue and deliver, or cause
to be paid and/or issued and delivered, the following to Seller at the Closing:
(a) Buyer will pay to Seller at the Closing an amount in cash
equal to (i) $24,000,000 (the "Cash Purchase Price"), plus (ii) an amount
equal to the excess of the estimated Closing Working Capital over the
Target Working Capital, if any, or minus an amount equal to the excess of
Target Working Capital over the estimated Closing Working Capital, if any,
as determined under Section 1.6 above, and minus (iii) the Deposit and
accrued interest thereon (which shall be delivered to Seller by the
Deposit Escrow Agent under Section 1.5 above) (collectively, the "Closing
Cash Payment"), such Closing Cash Payment to be paid by wire transfer of
immediately available funds to Seller to an account designated in writing
by Seller at least two (2) business days prior to the Closing;
(b) HCCI will issue and deliver to Seller at the Closing 1,500
shares of HCCI's Series C Preferred Stock, par value $.001 per share,
which shall have an initial liquidation preference equal to $1,000 per
share and have the other rights, preferences and privileges as set forth
in Exhibit B attached hereto (the "Series C Preferred Stock"); and
(c) HCCI will issue in the name of Seller at Closing an
additional 2,000 shares of the Series C Preferred Stock (such shares,
together with any shares into which such Escrow Shares may be converted
during the escrow period, the "Escrow Shares"), which Escrow Shares will
be delivered to, and held by, Mellon Trust of New England, N.A., as escrow
agent ("Indemnification Escrow Agent"), to secure the indemnification
obligations of Seller under Section 8 hereof. Indemnification Escrow Agent
shall hold the Escrow Shares (or, as provided in the Indemnification
Escrow Agreement, any proceeds received upon the sale of any such Escrow
Shares) for a period of two years following the Closing Date in accordance
with the terms and conditions of the Indemnification Escrow Agreement
between Seller, Buyer, HCOC, HCCI and the Indemnification Escrow Agent, in
the form attached hereto as Exhibit C, which shall be
7
executed as of the Closing Date. At any time, Seller may replace all of
the Escrow Shares remaining in escrow at such time with cash or with cash
equivalents of a type reasonably acceptable to Escrow Agent and HCCI, any
such replacement to be effected strictly in accordance with the terms
provided in the Indemnification Escrow Agreement.
1.8 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 Meardon, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ PLC, Iowa City, Iowa, at 10:00 a.m.,
Central time, on (a) March 31, 2004, or (b) if earlier, on a date fixed by
mutual agreement of Buyer and Seller following the satisfaction or waiver of
each of the conditions to the Closing set forth in Section 7, but in any event
within five (5) business days of such satisfaction or waiver (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 by or as of the Closing
Date, then the party hereto for whose benefit such conditions have been imposed
may postpone such Closing Date by written notice to the other parties hereto
specifying the condition(s) not so satisfied until April 30, 2004 or such other
date fixed by mutual agreement of Buyer and Seller which is at least five (5)
business days after such condition or conditions shall have been satisfied or
waived, which date shall then become the Closing Date.
1.9 POST-CLOSING ADJUSTMENTS.
(a) Post-Closing Calculation of Closing Adjustments.
(i) Following the Closing, Buyer will prepare and
deliver to Seller a final statement (the "Final Closing Statement")
setting forth (A) the actual Closing Working Capital of Seller as of
immediately prior to the Closing (without giving effect to the
transactions contemplated hereby, but accounting for any changes in
facts and circumstances after the Closing affecting the
determination of Seller's assets and liabilities as of the Closing),
(B) the amount, if any, by which the estimated Closing Working
Capital adjusted for at the Closing differs from the actual Closing
Working Capital as finally determined by Buyer (the "Reconciliation
Amount"), and (C) the party to which the Reconciliation Amount
should be paid. The actual Closing Working Capital shall be
determined in accordance with GAAP consistently applied using the
same principles and methods previously employed by Seller and
approved by Buyer in determining the Target Working Capital and the
estimated Closing Working Capital. It is understood and agreed that
for purposes of determining Target Working Capital, estimated
Closing Working Capital and actual Closing Working Capital, that
Year-End Adjustments shall not be reflected, even in the event
Seller's or Buyer's independent auditors determine that such
adjustments would be mandatory in connection with the filing of
interim period financial statements with the Securities and Exchange
Commission (the "SEC"). Buyer shall cause the Final Closing
Statement to be delivered to Seller as soon as practicable following
the Closing, but not later than ninety (90) days thereafter. During
such ninety-day period, Seller shall cooperate with and reasonably
assist Buyer, and shall make available to Buyer the books, records,
personnel and properties of Seller (if not in
8
Buyer's possession) that Buyer reasonably requires in order to
prepare and deliver the Final Closing Statement.
(ii) Seller shall have thirty (30) days following
delivery of the Final Closing Statement (the "Objection Period") to
provide written notice to Buyer (the "Objection Notice") of any good
faith objection to any portion of such Final Closing Statement,
which objection shall be set forth with reasonable detail in such
Objection Notice. During the Objection Period, Seller and its
accountants will be permitted to examine the work papers and all
other materials used or generated by Buyer in connection with the
preparation of such Final Closing Statement and such other documents
as Seller may reasonably request in connection with its review of
such Final Closing Statement.
(iii) Unless Seller timely delivers an Objection Notice
before the expiration of the Objection Period with respect to the
Final Closing Statement, the Final Closing Statement shall be deemed
to have been accepted and approved by Seller and shall thereafter be
final and binding upon Seller and Buyer for purposes of any
post-Closing adjustment pursuant to this Section 1.9. In addition,
to the extent any portion of the Final Closing Statement shall not
be expressly objected to in the Objection Notice, such portion shall
be deemed to have been accepted and approved by Seller and Buyer and
shall be final and binding upon Seller and Buyer for purposes of any
post-Closing adjustment pursuant to this Section 1.9. If Seller
timely delivers an Objection Notice before the expiration of the
Objection Period, then those aspects of the Final Closing Statement
objected to in the Objection Notice shall not thereafter be final
and binding until resolved in accordance with Section 1.9(b). If the
Objection Notice would result in a change in the amount of the
Reconciliation Amount to be paid, but otherwise would not change the
identity of the party required to pay such Reconciliation Amount,
then the portion of the Reconciliation Amount not in dispute shall
be immediately paid as provided in Section 1.9(c) below, and the
Objection Notice shall be deemed to apply only to that portion of
the Reconciliation Amount remaining in dispute.
(b) Resolution of Objections.
(i) Following receipt of any Objection Notice, Seller
and Buyer shall discuss in good faith the applicable objections set
forth therein for a period of thirty (30) days from such receipt and
shall, during such period, attempt to resolve the matter or matters
in dispute by mutual written agreement. If the parties reach such an
agreement, such agreement shall be confirmed in writing, the Final
Closing Statement shall be revised to reflect such agreement, and
such Final Closing Statement, as so revised, shall thereafter be
final and binding upon Seller and Buyer for purposes of any
post-Closing adjustment pursuant to this Section 1.9.
9
(ii) If Buyer and Seller are unable to reach a mutual
agreement in whole or in part in accordance with Section 1.9(b)(i)
during the thirty (30) day period referred to therein, then the Des
Moines, Iowa office of KPMG LLP (the "Accounting Firm") shall be
engaged to resolve those matters still in dispute with respect to
the Final Closing Statement. In connection with engaging the
Accounting Firm, each party agrees, if requested by the Accounting
Firm, to execute an engagement letter on terms reasonably
satisfactory to Seller and Buyer. The Accounting Firm shall make a
final and binding resolution of the disputes or disagreements
between Buyer and Seller with respect to the Final Closing
Statement. The Accounting Firm shall be instructed that, in making
its final and binding resolution, it must select a position with
respect to the Final Closing Statement that is (A) exactly the final
position of Buyer (as set forth in the Final Closing Statement), (B)
exactly the final position of Seller (as set forth in the Objection
Notice), or (C) between the final position of Buyer and the final
position of Seller, and that it must make its final and binding
resolution within thirty (30) days of its selection. In any event,
the Accounting Firm shall select such a position by applying the
principles and methods applied in preparing the Preliminary Closing
Statement and the Final Closing Statement. No appeal from such
determination shall be permitted.
(iii) The costs and expenses for the services of the
Accounting Firm (the "Accounting Firm Expenses") shall be borne as
follows: if the position selected by the Accounting Firm is exactly
the final position of either Buyer or Seller, the party whose
position was not selected shall pay the Accounting Firm Expenses; if
the position selected by the Accounting Firm is between the final
position of Buyer and Seller, the party whose position is closest to
the position selected by the Accounting Firm (the "Prevailing
Party") shall pay a percentage of the Accounting Firm Expenses
calculated by dividing the positive difference between the position
of the Prevailing Party and the position of the Accounting Firm by
the total positive difference between the position of the Prevailing
Party and the position of the non-Prevailing Party. The
non-Prevailing Party shall pay the remainder of the Accounting Firm
Expenses. Subject to the foregoing sentences regarding the
allocation of the Accounting Firm Expenses, all other fees and
expenses of Seller relating exclusively to matters described in this
Section 1.9 shall be borne by Seller, and all other fees and
expenses of Buyer relating exclusively to matters described in this
Section 1.9 shall be borne by Buyer. Seller and Buyer shall fully
cooperate with each other and with the Accounting Firm to resolve
any dispute.
(c) Reconciliation Amount and Payment.
(i) The Reconciliation Amount as finally determined
shall be paid to Buyer or Seller, as the case may be, promptly by
the party required to pay such Reconciliation Amount, but in no
event later than five (5) days following the final determination
thereof. Payment by either party of the Reconciliation
10
Amount shall be made in immediately available funds via wire
transfer to an account designated in writing by the party entitled
to receive such payment.
(ii) If the party required to pay the Reconciliation
Amount fails to make payment thereof in full within such five (5)
day period referred to above, the Reconciliation Amount so payable
shall bear interest at a rate per annum equal to the then-effective
prime rate of interest announced by the Wall Street Journal plus
three hundred basis points, which interest shall accrue from the
date such amount was due until the date such amount, plus such
accrued interest, is paid.
1.10 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.
1.11 ALLOCATION OF PURCHASE PRICE.
(a) Attached hereto as Schedule 1.11(a) is a pro forma
allocation of the consideration to be paid to Seller (and all other
capitalized costs) among the Purchased Assets to be sold (or deemed sold
for federal income tax purposes) by Seller to Buyer, as determined 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 state, local or foreign law, as appropriate).
Schedule 1.11(a) has been prepared based on the values of the Purchased
Assets at an assumed closing date of December 31, 2003.
(b) Buyer shall deliver a post-Closing allocation to Seller
within sixty (60) days after the Closing Date, which allocation will be
prepared consistently with Schedule 1.11(a), but shall be updated to the
extent necessary to reflect the valuation of the Purchased Assets as of
the actual Closing Date. Buyer, Seller and their respective Affiliates
shall report, act and file Tax Returns (as defined below) (including, but
not limited to, Internal Revenue Service Form 8594) in all respects
consistent with such post-Closing allocation, and neither Buyer, Seller
nor their respective Affiliates shall take any position for Tax purposes
which is inconsistent with such post-Closing allocation, unless required
to do so by applicable law.
1.12 TRANSFER EXPENSES, COSTS AND TAXES. Buyer and Seller shall bear
equally all transfer taxes, duties and other governmental charges applicable to
the transfer of the Purchased Assets in connection with this Agreement. Any
payment or reimbursement from Buyer to Seller or Seller to Buyer required under
this Section 1.12 shall be made within ten (10) business days after any such
valid request for payment or reimbursement.
1.13 USE OF NAME. Seller shall cease all use of the names "Buckle Down" or
"Buckle Down Publishing" (or any variant thereof), as well as any other Seller
Intellectual Property
11
Assets, as of the Closing and shall, contemporaneously with the Closing, take
all necessary action under Iowa law to change its corporate name to a name that
does not include the names "Buckle Down" or "Buckle Down Publishing" (or any
variant thereof).
1.14 CUSTOMER AND MARKETING RESEARCH.
(a) Prior to the date hereof, Seller has provided to the
Winter Group, a third party customer and marketing research firm engaged
by Buyer, information regarding Seller's customers, including its customer
lists, pursuant to the terms of a non-disclosure agreement executed by
Seller and the Winter Group. Buyer agrees that Buyer will not have access
to such customer lists unless and until the Closing occurs; provided,
however, that, without limitation, the foregoing shall not limit in any
way (i) Buyer's access to the work product and other results produced by
the Winter Group in the course of its engagement by Buyer, (ii) Buyer's
participation in any aspect of such research, including, without
limitation, attendance by Buyer or Seller and their respective
representatives at focus groups consisting of Seller's customers, (iii)
Buyer's access to information concerning Seller's customer file layout, or
(iv) any marketing data related to Seller's business (other than specific
customer names or other data which would allow customers of Seller to be
specifically identified), including, without limitation, information
concerning mailing campaign targets, content of mailings, frequency of
mailings, response rates (including inquiries and orders) and related
information, including number of pieces mailed and dollars spent by state
(collectively, the "Marketing Data").
(b) The parties hereto agree that all work product and other
results produced by the Winter Group in the course of its engagement by
Buyer shall be and remain the property of Buyer; provided, however, that
in the event the Closing does not occur, Buyer shall (i) provide to Seller
an itemized accounting of fees and expenses incurred by Buyer in
connection with its engagement of the Winter Group on that portion of the
Winter Group project that produced work product or other results directly
related and beneficial to Seller, other than work product or other results
relating to or reflecting any customer overlap analyses or any other work
related to any other publisher, and (ii) upon receipt from Seller of cash
in an amount equal to 50% of such fees and expenses, deliver or cause to
be delivered to Seller copies of the Winter Group's work product and other
results directly related to Seller, other than any work product or other
results relating to or reflecting any customer overlap analyses or any
other work related to any other publisher.
(c) The parties hereto agree that, in the event the Closing
does not occur:
(i) Seller may, in its sole discretion, negotiate with
the Winter Group for an edited summary report on the focus groups
conducted by the Winter Group, which edited summary report shall not
include any references to Buyer, Buyer's products or the operations
of other publishers; and
12
(ii) Buyer shall destroy all work product and
information received from the Winter Group related to the focus
groups conducted by the Winter Group in accordance with Section 6.4
hereof; provided, that Buyer may, in its sole discretion, negotiate
with the Winter Group to obtain an edited summary report on the
focus groups conducted by the Winter Group, which edited summary
report shall not include any references to Seller, Seller's products
or the operations of other publishers.
1.15 DELIVERY OF RECORDS AND CONTRACTS. Seller shall deliver to Buyer at
the premises of the business on the Closing Date all business records and other
data constituting part of the Purchased Assets; provided, that Seller may retain
copies of such business records and other data, and Seller shall take all
reasonably requisite steps to put Buyer in actual possession and operating
control of the Purchased Assets. After the Closing, Buyer shall, to the extent
available, use its reasonable efforts to retain the business records related to
the operation of Seller prior to the Closing in Iowa City, Iowa and afford to
Seller 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 Agreement and shall permit Seller, at
Seller's expense, to make extracts and copies therefrom to the extent reasonably
requested in connection with financial reporting and accounting, litigation, and
tax matters.
SECTION 2 - REPRESENTATIONS AND WARRANTIES OF SELLER, STOCKHOLDER AND FOUNDER
On or prior to the date hereof, Seller has delivered to Buyer the
schedules referenced in this Section 2 setting forth, among other things, items
of disclosure that are necessary or appropriate either 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 hereby, Seller, Stockholder and Founder, jointly and
severally, hereby make to Buyer, HCOC and HCCI the representations and
warranties contained in this Section 2.
2.2 ORGANIZATION. Each of Seller and Stockholder is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Iowa 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
13
be reasonably likely to have a Material Adverse Effect. 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, par value $1.00
per share, 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, by Stockholder, and all outstanding shares
of capital stock of Stockholder are held, beneficially and of record, by
Founder. 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. Each of Seller and Stockholder has full right,
authority and power to enter into this Agreement and the Transaction Documents
(as defined below) executed and delivered by Seller and Stockholder pursuant to
this Agreement and to carry out the transactions contemplated hereby and
thereby. Except as set forth on Schedule 2.5(a) hereto, the execution, delivery
and performance by each of Seller and Stockholder of this Agreement and each
such Transaction Document have been duly authorized by all necessary action of
Seller and Stockholder, as applicable, and their respective directors and
stockholders, and no other action on the part of Seller or Stockholder or their
respective directors and stockholders is required in connection therewith. For
purposes of this Agreement, "Transaction Documents" means the Deposit Escrow
Agreement, the Indemnification Escrow Agreement and the asset transfer and other
documents or agreements required to be executed and delivered in connection with
the Closing.
(a) This Agreement and the Transaction Documents constitute,
or, when executed and delivered by each of Seller and Stockholder, will
constitute, valid and binding obligations of Seller and Stockholder
enforceable against Seller and Stockholder 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
each of Seller and 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 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, except for those which would not reasonably be expected to have a
Material Adverse Effect, 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, except for
14
those which would not reasonably be expected to have a Material Adverse
Effect, (iii) require from it any notice to, declaration or filing with,
or consent or approval of any governmental authority or other third party,
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 property subject to the
Office Lease (the "Leased Real Property"), subject only to the right of
reversion of the landlord or lessor under the Office Lease, and, except as
set forth in the Office Lease, 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 Office Lease is in full force and effect and has
not been modified, amended, or altered, in writing or otherwise;
(ii) all obligations of the landlord or lessor under the
Office Lease which have accrued have been performed, and no landlord
or lessor is in default under the Office Lease; and
(iii) all obligations of Seller, and any other tenant or
lessee under the Office Lease, which have accrued have been
performed, and no tenant or lessee is in default under the Office
Lease, and 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), 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.
(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 no such violation on the part
of Seller now exists which could have an adverse effect on the operation
or value of the Leased Real Property. To the knowledge of Seller, (i) all
15
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 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. All of the Purchased
Assets which are tangible personal property are in good working condition
and repair, ordinary wear and tear excepted. The Purchased Assets
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) Seller has delivered to Buyer the following financial
statements (the "Financial Statements"):
(i) Audited balance sheets of Seller as of December 31,
2003, 2002, 2001, 2000 and 1999 and audited statements of income,
stockholder's equity (deficit) and cash flows of Seller for each
year in the five (5) year period ended December 31, 2003, in each
case accompanied by an unqualified opinion of Seller's auditors.
(ii) An unaudited balance sheet of Seller as of January
31, 2004 (the "Base Balance Sheet") and unaudited statements of
income, stockholder's equity (deficit) and cash flows for the one
(1) month period then ended, which will be certified by Seller's
chief executive officer as and when requested.
(iii) The Financial Statements, including the Base
Balance Sheet, are attached hereto as Schedule 2.7(a).
(b) The Financial Statements have been prepared in accordance
with GAAP applied consistently during the periods covered thereby, are
consistent in all material respects with the books and records of the
Company, and present fairly the financial condition of Seller at the dates
of such statements and the results of its
16
operations for the periods covered thereby (subject to the absence of
footnotes and normal year-end adjustments in the case of the unaudited
financial statements).
2.8 TAXES.
(a) Seller (including any predecessor thereto) has paid all
material 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 (collectively, "Taxes") required
to be paid by it through the date hereof.
(b) All material Taxes and other assessments and levies, that
Seller is required to withhold or collect have been withheld and collected
and have been paid over to the proper governmental authorities when due.
Schedule 2.8(b) lists each state or other jurisdiction with respect to
which Seller withholds or collects sales or use taxes.
(c) To Seller's knowledge, 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. 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 has asserted in writing or, to the knowledge of
Seller, is threatening to assert against Seller any deficiency or claim
for additional Taxes.
(e) Except as set forth in Schedule 2.8(e) attached hereto, 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.
(g) There are no material 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, no such
audit is in progress and
17
Seller has not been notified by any Tax authority that any such audit is
contemplated or pending.
(i) Except as set forth on Schedule 2.8(i), Seller is not a
party to any Tax allocation, Tax sharing or similar agreement.
(j) 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.
(l) Seller has elected to be treated as a qualified subchapter
S subsidiary of Stockholder pursuant to Internal Revenue Code Section
1361(b)(3)(A) and as a result is treated as a division of Stockholder for
federal and state income tax return filing requirements. "Tax Returns" as
used in this Section 2.8 shall not include any income tax returns filed by
Stockholder or Founder which include reporting of information for Seller
as a result of making the qualified subchapter S election.
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 or will be at the Closing valid and
enforceable claims, subject to no setoff or counterclaim and, except to
the extent of any reserve for bad debts disclosed in the Financial
Statements, are 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). Based on Seller's
historical operating results, any reserve reflected in Seller's Financial
Statements is adequate to account for any Accounts Receivable which may
later be written off.
(b) Except as set forth on Schedule 2.9(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, 2002, 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. The values of the
inventories stated in the Base Balance Sheet reflect the normal inventory
valuation policies of Seller and were
18
determined in accordance with GAAP applied consistently during the periods
covered thereby. Since December 31, 2002, no inventory items have been
sold or disposed of except through sales in the ordinary course of
business.
2.10 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on Schedule
2.10 or incurred as a result of or arising out of the transactions contemplated
by this Agreement, Seller does not have any liability or obligation of any
nature, whether accrued, absolute, contingent or otherwise, asserted or
unasserted, known or unknown, in any case which has, or is reasonably likely to
have, a Material Adverse Effect. 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, 2002, except as
set forth on Schedule 2.11 attached hereto, 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) with respect to any third parties who are not Affiliates
of Seller, no waiver of any valuable right of Seller or cancellation of
any material debt or claim held by Seller;
(c) 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;
(d) no loss, destruction or damage to any property of Seller,
whether or not insured, having an effect in excess of $25,000 in the
aggregate;
(e) 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;
(f) 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;
(g) no change in accounting methods or practices of Seller,
including any changes in its revenue recognition or accrual and reserve
policies and practices;
(h) no reduction in any accrued expenses or other liabilities,
except for payments related to the liability for which the accrual was
originally established;
19
(i) other than with respect to any purchase orders, 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 $25,000;
(j) 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 the Business ("Seller
Patents"), Marks owned by Seller or otherwise used in the 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) Neither Seller's business nor any Seller
Intellectual Property Asset infringes or conflicts with any Third
Party Right;
(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;
20
(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), 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 contracts or agreements (i) involving a potential
commitment or payment by Seller to another Person or group of affiliated
Persons in excess of $25,000 in the aggregate in any year, or (ii) which
are otherwise material and not entered into in the ordinary course of
business;
(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;
(g) any redemption or purchase agreements relating to Seller's
capital stock or other agreements affecting or relating to the capital
stock of Seller;
(h) any pension, profit sharing, bonus, retirement, severance
or equity incentive plans;
21
(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 contract with any governmental entity; or
(m) 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. 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.
2.15 COMPLIANCE WITH LAWS.
(a) 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
22
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.
(b) Except as set forth on Schedule 2.15 hereto, the business
of Seller as currently conducted does not require any permits, licenses,
certifications or registrations by any department of education or other
regulatory authority. All such permits, licenses, certifications,
registrations and other rights and privileges are in full force and effect
and, to the knowledge of Seller, no suspension or cancellation of any of
them is threatened, and none of such permits, licenses, certifications,
registrations or other rights and privileges will be affected by the
consummation of the transactions contemplated by this Agreement. Except as
set forth on Schedule 2.15, Seller has never entered into or been subject
to any judgment, consent decree, compliance order or administrative order
with respect to any aspect of the business, affairs, properties or assets
of Seller or received any request for information, notice, demand letter,
administrative inquiry or formal or informal complaint or claim from any
regulatory agency with respect to any aspect of the business, affairs,
properties or assets of Seller.
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 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 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 and remain in full force and
effect upon Buyer's purchase of the Purchased Assets. In addition, no
governmental, fire, life, safety or other inspection is required in connection
with the transfer of the Leased Real Property.
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
23
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 Schedule 2.18 attached hereto, is terminable in
the discretion of Seller without liability to Seller upon or following such
termination. No such plan or program has engaged in any non-exempt "prohibited
transaction" as defined in Section 406 of ERISA or Section 4975 of the Code or
has incurred any "accumulated funding deficiency" as defined in Section 302 of
ERISA, nor has any reportable event as defined in Section 4043(b) of ERISA
occurred with respect to any such plan or program. Seller has never maintained,
sponsored or contributed to any plan which is subject to Title IV of ERISA or
Section 412 of the Code. At no time has Seller contributed to or been obligated
to contribute to any "multi-employer plan" as defined in Section 3(37) of ERISA.
With respect to each Employee Plan, all required filings, including all filings
required to be made with the United States Department of Labor and Internal
Revenue Service, have been timely filed. Each Employee Plan that has been
intended to qualify under Section 401(a) of the Code has received a favorable
determination or approval letter from the IRS and has, in fact, been so
qualified from the effective date of such Employee Plan through the Closing
Date. Each Employee Plan has complied, in all material respects, with the
applicable notification and other applicable requirements of the Consolidated
Omnibus Budget Reconciliation Act of 1985.
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 Seller, 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
24
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 excess of $5,000. In each
case such Schedule includes the current job title and aggregate annual
compensation of each such individual.
(b) Seller employs approximately 39 full-time employees and 6
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) attached hereto, 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 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 AND DISTRIBUTORS. Schedule 2.21 sets forth a true and
complete list of each account of Seller which accounted for revenues of Seller
greater than $25,000 during any of the fiscal years ended December 31, 2001,
2002 and 2003, showing with respect to each the amount paid by such account to
Seller in each such fiscal year (the "Customers" and "Distributors",
respectively), it being understood that Seller shall not be required to provide
Buyer with the specific names of any such Customer or Distributor until Closing.
Seller's relationships with its Customers and Distributors are good commercial
working relationships. No Customer or Distributor has provided Seller with
written notice that such Customer or Distributor has any plan or intention to
terminate, to cancel or otherwise materially and adversely
25
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,
2001, 2002 and 2003, 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 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
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 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
and any present or former stockholder, director, officer or employee of Seller,
or to the knowledge of Seller, any member 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 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.
26
2.27 INVESTMENT REPRESENTATION.
(a) Each of Seller, Stockholder and Founder is an "accredited
investor" as defined in Regulation D under the Securities Act of 1933, as
amended (the "Securities Act").
(b) Each of Seller, Stockholder and Founder understands that the
shares of Series C Preferred Stock to be issued hereunder have not been
registered under the Securities Act or under the securities laws of any
state or other jurisdiction and are being offered and issued in reliance
upon exemptions for private offerings, and that HCCI is under no
obligation to register such shares, and each of Seller, Stockholder and
Founder further understands that Seller is acquiring the shares of Series
C Preferred Stock without being furnished any offering literature or
prospectus other than HCCI's latest reports or other filings as filed with
the SEC under the Securities Act and/or the Securities Exchange Act of
1934, as amended (the "Exchange Act").
(c) Each of Seller, Stockholder and Founder represents that the
shares of Series C Preferred Stock to be issued hereunder to Seller are
being acquired solely for Seller's own account, for investment and not
with a view to or for the resale, distribution, subdivision, or
fractionalization thereof, and Seller has no present plans to enter into
any contract, undertaking, agreement, or arrangement relating thereto.
Each of Seller, Stockholder and Founder acknowledges and is aware that the
shares of Series C Preferred Stock to be issued hereunder cannot be resold
unless they are registered under the Securities Act and qualified under
any applicable securities law of any state or other jurisdiction, or an
exemption from such registration or qualification is available, and
further acknowledges that the certificates evidencing the shares of Series
C Preferred Stock shall be issued with an appropriate legend to the
foregoing effect.
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF FOUNDER
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, Founder hereby makes to Buyer, HCOC and HCCI
the representations and warranties contained in this Section 3.
3.2 AUTHORITY OF FOUNDER.
(a) Founder has full right, capacity, authority and power to enter
into this Agreement and the Transaction Documents executed and delivered
by Founder 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 Founder, will constitute, valid and binding
obligations of
27
Founder 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(b), the execution, delivery and performance by Founder 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 contract or obligation to which
Founder is a party or by which he or his assets are bound, except for
those which would not reasonably be expected to have a Material Adverse
Effect, 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 Founder, except for those which would not reasonably be expected to
have a Material Adverse Effect, (iii) require from Founder any notice to,
declaration or filing with, or consent or approval of any governmental
authority or other third party, or (iv) accelerate any obligation under,
or give rise to a right of termination of, any agreement, permit, license
or authorization to which Founder is a party or by which it is bound.
3.3 BENEFICIAL OWNERSHIP. All outstanding shares of capital stock of
Stockholder are held, beneficially and of record, by Founder.
3.4 CERTAIN AGREEMENTS. Except as set forth on Schedule 3.4, neither
Founder, nor his spouse 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.
3.5 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 Founder, Stockholder or Seller for any commission, fee or other
compensation as a finder or broker because of any act or omission by Founder.
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 and HCOC 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. Buyer is a limited liability
28
company duly organized, validly existing and in good standing under the laws of
Delaware with full limited liability company 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. 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. 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. Except as set forth on Schedule 4.3
hereto, the execution, delivery and performance by HCCI, HCOC and Buyer of this
Agreement and each such Transaction Document:
(a) 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;
(b) do not and will not violate any laws of the United States or of
any state or any other jurisdiction applicable to HCCI, HCOC or Buyer or
require HCCI, HCOC or Buyer to obtain any approval, consent or waiver of,
or make any filing with, any person or entity (governmental or otherwise)
which has not been obtained or made; and
(c) do not and will not result in a breach of, constitute a default
under, accelerate any obligation under, or give rise to a right of
termination of any indenture, loan or credit agreement, or any other
agreement, mortgage, lease, permit, order, judgment or decree to which
HCCI, HCOC or Buyer is a party and which is material to the business and
financial condition of Buyer and its parent and affiliated organizations
on a consolidated basis.
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 SHARES. The shares of Series C Preferred Stock to be issued to Seller
pursuant to this Agreement will be, when issued and delivered to Seller in
accordance with this Agreement, duly authorized, validly issued, fully paid and
non-assessable and free and clear of any Claims,
29
subject to the restrictions imposed herein or by the agreements contemplated
hereby, on the certificate or certificates therefor, or by the Securities Act or
other applicable securities laws.
4.6 SEC FILINGS; HCCI FINANCIAL STATEMENTS.
(a) HCCI has filed a Registration Statement on Form S-4 under the
Securities Act, which has become effective, and has timely filed all
forms, reports, and documents required to be filed by HCCI with the SEC
since the date of the effectiveness of such registration statement, if any
(collectively the "HCCI SEC Reports"). As of their respective filing
dates, the HCCI SEC Reports (i) complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may
be, and the rules and regulations of the SEC thereunder applicable to such
HCCI SEC Reports, and (ii) did not at the time they were filed (or if
amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading.
(b) Each of the consolidated financial statements of HCCI
(including, in each case, the notes thereto) included in the HCCI SEC
reports (i) was prepared in accordance with GAAP applied on a consistent
basis throughout the periods indicated (except as may be indicated in the
notes thereto or, in the case of unaudited statements, as may be permitted
by the SEC); and (ii) fairly presented in all material respects the
consolidated financial position of HCCI and its subsidiaries as at the
respective dates thereof and the consolidated results of HCCI and its
subsidiaries' operations and cash flows for the periods indicated
(subject, in the case of unaudited financial statements, to normal audit
adjustments).
4.7 CAPITALIZATION. The authorized capital stock of HCCI consists of
30,000,000 shares of common stock, $.001 par value per share, 30,000 shares of
Series A Preferred Stock, par value $.001 per share, 6,000,000 shares of Series
B Senior Preferred Stock, par value $.001 per share, and 3,970,000 shares of
undesignated preferred stock, par value $.001 per share. Following the
consummation of the transactions contemplated hereby, the authorized capital
stock of HCCI will also consist of 3,500 shares of the Series C Preferred Stock,
which shall be designated from the available shares of undesignated preferred
stock. HCOC owns all of the outstanding equity interests of Buyer and HCCI owns
all of the outstanding capital stock of HCOC.
4.8 LITIGATION. There is no action, suit or proceeding pending or, to the
knowledge of HCCI, HCOC or Buyer, threatened against HCCI, HCOC or Buyer which
would prevent or hinder the consummation of the transactions contemplated by
this Agreement.
30
SECTION 5 - INTERIM COVENANTS OF SELLER, STOCKHOLDER AND FOUNDER
Seller, Stockholder and Founder, jointly and severally, hereby make the
covenants and agreements set forth in this Section 5.
5.1 CONDUCT OF BUSINESS. Between the date of this Agreement and the
Closing Date (the "Interim Period"), Seller shall, and Stockholder and Founder
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 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, and performing all maintenance and repairs on the Purchased
Assets that are required or are customary for the continued operation of
its business;
(c) 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, Stockholder or
Founder, 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 overall product development and marketing efforts
at dollar amounts phased consistently with 2003 levels.
5.2 ACCESS TO BOOKS AND RECORDS; ACCESS TO EMPLOYEES.
(a) At all reasonable times during the Interim Period, Seller shall
permit Buyer and its authorized representatives to have full access to (i)
all of Seller's assets, properties, books, accounting, financial and
statistical records, corporate records, contracts, and other business
files and information as Buyer may from time to time reasonably request,
including, without limitation, the Marketing Data, and (ii) all of
Seller's employees and independent contractors, and will cause such
employees and independent contractors to cooperate fully with Buyer in
connection with Buyer's due diligence review of Seller and its business.
(b) In connection with the access provided to Buyer under Section
5.2(a) above, Buyer acknowledges and agrees that such access shall be
provided by Seller in a manner that will not unduly disrupt Seller's
business.
5.3 NOTICE OF DEFAULT. During the Interim Period, promptly upon the
occurrence of, or promptly upon Seller, Stockholder or Founder becoming aware of
the impending or threatened occurrence of, any event which would cause or
constitute a breach, or would have caused or
31
constituted a breach had such event occurred or been known to Seller prior to
the date hereof, of any of the representations, warranties or covenants of
Seller, Stockholder or Founder contained in or referred to in this Agreement or
in any Exhibit or Schedule referred to herein, Seller, Stockholder or Founder
shall give detailed written notice thereof to Buyer.
5.4 CONSUMMATION OF AGREEMENT; CONSENTS. During the Interim Period, each
of Seller, Stockholder and Founder shall use its 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,
Stockholder and Founder will use its 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 cause to be prepared and delivered to Buyer
unaudited financial statements for Seller's business for the month ended
February 29, 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 monthly financial statements on a basis consistent
with the unaudited monthly financial information attached to Schedule
2.7(a).
(b) Seller will cause to be prepared and delivered to HCCI
statements of income, stockholder's equity (deficit) and cash flows for
Seller for the three-month period ended March 31, 2003, the six-month
period ended June 30, 2003 and the nine-month period ended September 30,
2003 (the "2003 Quarterly Statements"), such statements to be reviewed by
McGladrey & ▇▇▇▇▇▇ LLP, Seller's certified public accountants, in
accordance with Statement on Auditing Standards (SAS) No. 100, Interim
Financial Information.
(c) Seller will cause to be furnished to HCCI a letter from
McGladrey & ▇▇▇▇▇▇ LLP agreeing to provide to HCCI, upon request, a
consent to the inclusion of its opinion regarding Seller's Financial
Statements in any registration statement or other report to be filed by
HCCI or its subsidiaries with the SEC for so long as such a consent may be
required under the rules and regulations of the SEC.
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
32
use and wear, and shall maintain in force fire and extended coverage
casualty insurance on the Leased Real Property; and
(b) Seller shall not (i) enter into any leases affecting the Leased
Real Property or any portion thereof, (ii) modify, amend, cancel,
terminate, extend or change the terms of the Office Lease, or (iii) apply
any security deposit currently held, if any, in each case without the
prior written consent of Buyer.
5.7 COOPERATION OF SELLER. Each of Seller, Stockholder and Founder shall
cooperate with all reasonable requests of Buyer and Buyer's counsel in
connection with the consummation of the transactions contemplated hereby, and
shall use its 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.
5.8 NO SOLICITATION OF OTHER OFFERS. From the date of execution hereof
through the earlier of the Closing Date or termination of this Agreement
pursuant to Section 9.1, neither Seller, Stockholder, Founder nor any of their
representatives, will, directly or indirectly, through any officer, director,
representative, affiliate or agent, (a) solicit, initiate, encourage or assist
in the submission of any inquiries, proposals or offers from any corporation,
partnership, person or other entity or group relating to any form of
recapitalization transaction involving Seller or any sale (whether of assets or
stock), merger, consolidation, business combination, spin-off, liquidation or
similar transaction involving Seller (each an "Acquisition Proposal"); (b)
participate in any discussion or negotiation regarding an Acquisition Proposal
or furnish to any person or entity any information concerning Seller, the fact
that Seller is engaged in discussions with Buyer, HCOC and HCCI, or the
transaction contemplated hereby; or (c) otherwise cooperate in any way with, or
assist or participate in, facilitate or encourage any effort or attempt by any
other person to make or enter into an Acquisition Proposal.
5.9 CONFIDENTIALITY. Seller, Stockholder and Founder agree that, unless
and until the Closing has been consummated, it and its officers, directors,
agents, and representatives will hold in strict confidence, and will not use,
any confidential or proprietary data or information obtained from Buyer, HCOC or
HCCI with respect to Buyer's, HCOC's or HCCI's business or financial condition
except for the purpose of evaluating, negotiating, and completing the
transactions contemplated hereby. Information which (a) is already in Seller's,
Stockholder's or Founder's possession, provided that such information is not
known by Seller, Stockholder or Founder to be subject to another confidentiality
agreement with Buyer, HCOC or HCCI or other obligation of secrecy, (b) becomes
generally available to the public other than as a result of a disclosure by
Seller, Stockholder or Founder, or (c) becomes available to Seller, Stockholder
or Founder on a non-confidential basis from a source other than Buyer, HCOC or
HCCI, provided that such source is not known by Seller, Stockholder or Founder
to be bound by a confidentiality agreement with Buyer, HCOC or HCCI or other
obligation of secrecy, shall not be deemed confidential or proprietary
information for purposes of this Section. If the transaction contemplated by
this Agreement is not consummated, Seller, Stockholder and Founder will return
to Buyer, HCOC and HCCI (or certify that it has destroyed) all copies of such
data and information, including, but not limited to, financial information,
customer lists, business and
33
corporate records, worksheets, test reports, tax returns, lists,
memoranda, and other documents prepared by or made available to such
parties in connection with the transactions contemplated hereby. In the
event this Agreement is terminated pursuant to Section 9.1 hereof,
Seller's, Stockholder's and Founder's obligation of confidentiality and
non-use with respect to such information of Buyer, HCOC and HCCI shall
expire and be of no further force and effect on the date which is the
later of the first anniversary of the termination of this Agreement or
December 23, 2005.
5.10 RELATIONSHIP WITH ZAPS LEARNING COMPANY. Seller, Stockholder and
Founder hereby agree that prior to the Closing Date:
(a) Seller will take all necessary steps to remove all references to
ZAPS Learning Company, an Iowa corporation ("ZAPS"), in its marketing
literature, as and to the extent such marketing literature is revised and
reprinted prior to such date;
(b) Seller will remove all references to the ACT and SAT from all
web sites to be transferred to Buyer upon the Closing;
(c) Stockholder and Owner will cause ZAPS to purchase from Seller
all inventory held by Seller consisting of ACT and SAT materials, at
Seller's cost, and to remove such inventory from the premises occupied by
Seller, other than an amount of such inventory reasonably believed by
Seller to be necessary for Buyer to fulfill orders therefor during the
Transition Period (as defined in Section 10.8) (the "Remaining
Inventory");
(d) Seller will provide to ZAPS relevant information concerning the
history and details of any specific ACT or SAT marketing efforts,
including copies of any mailing lists used specifically for any such ACT
or SAT marketing efforts; and
(e) Seller will terminate its existing agreement with ZAPS, such
termination to be effective as of the Closing Date.
SECTION 6 - INTERIM COVENANTS OF BUYER, HCOC AND HCCI
Buyer, HCOC and HCCI, jointly and severally, hereby make the covenants and
agreements set forth in this Section 6.
6.1 ACCESS TO INFORMATION AND MANAGEMENT. HCCI will make available to
Seller (if not otherwise reasonably accessible via ▇▇▇▇▇) all HCCI SEC Reports
and, subject to applicable law, will make appropriate senior executives
available to discuss such registration statements and reports with Seller and
Stockholder or their designee as reasonably requested.
6.2 NOTICE OF DEFAULT. During the Interim Period, promptly upon the
occurrence of, or promptly upon Buyer, HCOC or HCCI becoming aware of the
impending or threatened occurrence of, any event which would cause or constitute
a breach, or would have caused or
34
constituted a breach had such event occurred or been known to Buyer, HCOC or
HCCI prior to the date hereof, of any of the representations, warranties or
covenants of Buyer, HCOC or HCCI contained in or referred to in this Agreement
or in any Exhibit or Schedule referred to herein, Buyer, HCOC or HCCI shall give
detailed written notice thereof to Seller.
6.3 CONSUMMATION OF AGREEMENT. During the Interim Period, each of Buyer,
HCOC and HCCI shall use its 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 Buyer, HCOC and HCCI will use its
best commercial efforts to obtain, prior to the Closing, all authorizations,
waivers and consents from their senior lenders necessary to permit the payment
of the Cash Purchase Price.
6.4 CONFIDENTIALITY. Each of Buyer, HCOC and HCCI agree that, unless and
until the Closing has been consummated, it and its officers, directors, agents,
and representatives will hold in strict confidence, and will not use, any
confidential or proprietary data or information obtained from Seller with
respect to Seller's business or financial condition except for the purpose of
evaluating, negotiating, and completing the transactions contemplated hereby.
Information which (a) is already in Buyer's, HCOC's or HCCI's possession,
provided that such information is not known by Buyer, HCOC or HCCI to be subject
to another confidentiality agreement with Seller or other obligation of secrecy,
(b) becomes generally available to the public other than as a result of a
disclosure by Buyer, HCOC or HCCI, or (c) becomes available to Buyer, HCOC or
HCCI on a non-confidential basis from a source other than Seller, Stockholder or
Founder, provided that such source is not known by Buyer, HCOC or HCCI to be
bound by a confidentiality agreement with Seller or other obligation of secrecy,
shall not be deemed confidential or proprietary information for purposes of this
Section. If the transaction contemplated by this Agreement is not consummated,
Buyer, HCOC and HCCI will return to Seller (or certify that it has destroyed)
all copies of such data and information, including, but not limited to,
financial information, customer lists, business and corporate records,
worksheets, test reports, tax returns, lists, memoranda, and other documents
prepared by or made available to Buyer, HCOC and HCCI in connection with the
transactions contemplated hereby. In the event this Agreement is terminated
pursuant to Section 9.1 hereof, Buyer's, HCOC's and HCCI's obligation of
confidentiality and non-use with respect to such information of Seller shall
expire and be of no further force and effect on the date which is the later of
the first anniversary of the termination of this Agreement or December 23, 2005.
SECTION 7 - CLOSING CONDITIONS
7.1 CONDITIONS TO THE OBLIGATIONS OF BUYER, HCOC AND HCCI. The obligations
of Buyer, HCOC or HCCI under this Agreement are subject to the fulfillment (or
the waiver by Buyer), prior to or on the Closing Date, of the following
conditions:
(a) Representations; Warranties; Covenants. Each of the
representations and warranties of Seller, Stockholder and Founder shall be
true and
35
correct in all material respects (except as to any such representations
and warranties that are qualified by "materiality," "Material Adverse
Effect," to the "knowledge" of a party, or words of similar import, which
representations and warranties, after giving effect to any such
qualifications, shall be true and correct in all respects) on and as of
the Closing Date as though given on and as of such date; and Seller,
Stockholder and Founder shall, on or before the Closing Date, have
performed all of their respective obligations hereunder that by the terms
hereof are to be performed on or before the Closing Date.
(b) Material Adverse Change. Since the execution of the Agreement,
there shall have occurred no material adverse change in the condition
(financial or other) of the Purchased Assets or the business, goodwill or
business prospects represented thereby.
(c) Approvals. All Approvals listed on Schedule 2.17 shall have been
transferred to Buyer (to the extent transferable) and Buyer shall have
obtained all Approvals necessary to operate the Business.
(d) No Litigation. No judgment, injunction, order or decree
enjoining or prohibiting any of the parties to this Agreement or any of
the agreements, documents and instruments contemplated hereby, from
consummating the transactions contemplated hereby or thereby, shall have
been entered and no suit, action or proceeding shall be pending or
threatened at any time prior to or on the date of the Closing before or by
any 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. In the context of this section,
upon the Closing, Buyer waives any claim(s) it may have, whether or not
previously articulated, against Seller, Stockholder, Founder or any
Affiliate of Seller, Stockholder or Founder, with respect to any matters
involving Buyer that are listed on Schedule 2.14 hereto.
(e) Completion of Due Diligence Investigation. Buyer, HCOC and HCCI
shall have received access to the information, employees and independent
contractors described in Section 5.2 above sufficient to complete its due
diligence investigation of Seller, the results of such investigation to be
satisfactory to Buyer, HCOC and HCCI in their sole discretion.
(f) Consents and Release of Claims.
(i) Seller shall have made all filings with and notifications
of governmental authorities, regulatory agencies and other entities
required to be made by Seller in connection with the execution and
delivery of this Agreement, the performance of the transactions
contemplated hereby and the continued operation of the business of
Seller by Buyer subsequent to the Closing.
36
(ii) Seller and Buyer shall have received all authorizations,
waivers, consents and permits, in form and substance reasonably
satisfactory to Buyer, from all third parties, including, without
limitation, (A) applicable governmental authorities, (B) regulatory
agencies, (C) landlords and lessors, (D) lenders, and (E) contract
parties, required to permit the continuation of the business of
Seller as currently conducted, the transfer of the Purchased Assets
and the consummation of the transactions contemplated by this
Agreement.
(iii) All Claims encumbering the Purchased Assets shall have
been released to the satisfaction of Buyer, except for Claims in
connection with liabilities specifically assumed pursuant to Section
1.3.
(g) Closing Deliverables. At the Closing, Buyer shall have received the
following:
(i) Certificates.
(A) A certificate executed by Seller's chief executive
officer, on behalf of Seller, Stockholder's chief executive
officer, on behalf of Stockholder, and Founder, dated as of
the Closing Date, certifying to Buyer, HCOC and HCCI that the
statements set forth in Section 7.1(a) and (b) are true and
correct as of the Closing.
(B) A certificate executed by Seller's secretary, on
behalf of Seller, dated as of the Closing Date, certifying to
Buyer, HCOC and HCCI that (1) the resolutions by which the
corporate action on the part of Seller, Stockholder and their
respective stockholders 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, and (2) that the copies of the articles of
incorporation and bylaws of Seller provided to Buyer are true
and correct copies thereof and that such documents have not
been amended and are in full force and effect as of the
Closing.
(C) A certificate issued by (1) the Secretary of State
of the State of Iowa certifying that Seller has legal
existence and is in good standing (or comparable concept), and
(ii) the Secretary of State of each jurisdiction in which each
of Seller has qualified (or is required to be so qualified) to
do business in such jurisdiction certifying that Seller is
duly qualified to do business and is in good standing (or
comparable concept) as a foreign corporation in such
jurisdiction.
(ii) Indemnification Escrow Agreement. The Indemnification
Escrow Agreement, executed by Seller, Stockholder and the Escrow
Agent.
37
(iii) Transfer of Purchased Assets. Good and sufficient
instruments of transfer transferring to Buyer or any of its
designees all of its right, title and interest in all the Purchased
Assets, including, without limitation, (1) a ▇▇▇▇ of sale and
instrument of general assignment of contracts and leases in the form
of Exhibit D hereto, and (2) such other instruments (to be prepared
by Buyer) as Buyer deems necessary for the proper transfer to Buyer
of all registered Seller Intellectual Property Assets and domain
names, in each case executed by Seller and Stockholder, as
appropriate.
(iv) Consulting Agreement. A consulting agreement, in the form
of Exhibit E hereto, executed by ▇▇▇▇▇▇▇ ▇▇▇▇ (the "Consulting
Agreement").
(v) Financial Information. The 2003 Quarterly Statements
reviewed by McGladrey & ▇▇▇▇▇▇ LLP in accordance with Statement on
Auditing Standards No. 100, Interim Financial Information.
(vi) Accountants Consent. A letter from McGladrey & ▇▇▇▇▇▇ LLP
agreeing to provide to HCCI, upon request, a consent to the
inclusion of its opinion regarding Seller's Financial Statements in
any registration statement or other report to be filed by HCCI or
its subsidiaries with the SEC for so long as such a consent may be
required under the rules and regulations of the SEC.
(vii) Employee Agreements. Employee
non-solicitation/confidentiality agreements, in the form of Exhibit
F hereto, executed by each of the persons named on Schedule
7.1(g)(vii) hereto.
(viii) Legal Opinion. A legal opinion from Meardon, ▇▇▇▇▇▇▇ &
▇▇▇▇▇▇, PLC, counsel to Seller, Stockholder and Founder, in
substantially the form of Exhibit G hereto.
(ix) UCC Terminations. UCC-3 termination statements providing
for the release and termination of all Claims on the Purchased
Assets.
(x) Landlord Consent. In connection with the assumption of the
Office Lease, a document evidencing the landlord's consent to the
assignment of the Office Lease to Buyer.
(xi) Proof of Legal Name. Delivery of proof of filing of the
legal name change of Seller with the Iowa Secretary of State.
(xii) Termination of Certain Contracts. Delivery of evidence
satisfactory to Buyer of the termination of (1) the agreement
between Seller and ArtView, Inc. referred to on Schedule 2.24, and
(2) the agreement between Seller and ZAPS referred to on Schedule
2.24 and in Section 5.10.
38
(xiii) Conditional Assignment to Lenders. A consent from
Seller, Stockholder and Founder (to be prepared and delivered by
Buyer) to the conditional assignment by HCCI, HCOC and Buyer to
HCOC's senior lenders, as collateral to secure all of HCOC's and its
subsidiaries indebtedness, obligations and liabilities to such
senior lenders, of all of HCCI's, HCOC's and Buyer's rights, title
and interest in, to and under this Agreement (together with all
claims, monies, rights, powers, privileges, remedies, options,
deposits and benefits of each of them hereunder, including, without
limitation, all indemnity claims hereunder, together with full power
and authority in the name of HCCI, HCOC and Buyer to enforce,
collect, receive or receipt for any of the foregoing).
(h) Other Documentation. Any other supporting documents,
certificates or instruments as are reasonably requested by Buyer.
7.2 CONDITIONS TO OBLIGATIONS OF SELLER. Seller's obligations under this
Agreement are subject to the fulfillment (or waiver by Seller), prior to or at
the Closing, of the following conditions:
(a) Representations, Warranties, Covenants. Each of the
representations and warranties of Buyer, HCOC and HCCI shall be true and
correct in all material respects (except as to any such representations
and warranties that are qualified by "materiality," "Material Adverse
Effect," to the "knowledge" of a party, or words of similar import, which
representations and warranties, after giving effect to such
qualifications, shall be true and correct in all respects) on and as of
the Closing Date as though made on and as of such date; and Buyer shall
have performed all of its obligations hereunder which by the terms hereof
are to be performed on or before the Closing Date.
(b) Consideration. At the Closing, Buyer shall deliver (i) the
Closing Cash Payment to Seller, and (ii) certificates representing the
shares of Series C Preferred Stock to Seller and to Indemnification Escrow
Agent, all as specified in Section 1.7 hereto.
(c) No Litigation. No judgment, injunction, order or decree
enjoining or prohibiting any of the parties to this Agreement or any of
the agreements, documents and instruments contemplated hereby, from
consummating the transactions contemplated hereby or thereby, shall have
been entered and no suit, action or proceeding shall be pending or
threatened at any time prior to or on the date of the Closing before or by
any 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.
39
(d) 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
Stockholder that the statements set forth in Section 7.1(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
Stockholder that (1) 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, and (2) that the copies of
the certificate of incorporation and bylaws of HCCI provided
to Buyer are true and correct copies thereof and that such
documents have not been amended and are in full force and
effect as of the Closing.
(C) A certificate issued by (1) the Secretary of State
of the State of Delaware certifying that Buyer has legal
existence and is in good standing (or comparable concept), and
(2) the Secretary of State of the State of Delaware certifying
the certificate of designations of the Series C Preferred
Stock.
(ii) Indemnification Escrow Agreement. The Indemnification Escrow
Agreement, executed by Buyer, HCCI and Indemnification 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 H hereto (the "Agreement of Assumption of the Liabilities").
(iv) Legal Opinion. A legal opinion from ▇▇▇▇▇▇▇ Procter LLP,
counsel to HCCI, HCOC and Buyer, in substantially the form of Exhibit I
hereto.
(e) Other Documentation. Any other supporting documents, certificates or
instruments as are reasonably requested by Seller.
40
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 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, Stockholder's or Founder's fraud;
(ii) Seller's, Stockholder's or Founder's intentional
misrepresentation or breach of warranties contained in this Agreement or
in any other Transaction Document;
(iii) Seller's, Stockholder's or Founder's failure to perform
covenants contained in this Agreement or in any other Transaction
Document;
(iv) Seller's, Stockholder's or Founder's misrepresentation or
breach of warranties contained in Sections 2.4, 2.5(a), 2.6(e), 2.25,
3.2(a), 3.3 or 3.5; or
(v) any Excluded Liability (including, without limitation, Taxes).
41
(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, STOCKHOLDER AND FOUNDER. Seller,
Stockholder and Founder , jointly and severally, 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 (the "Indemnified Parties" and each an "Indemnified Party"), 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,
Stockholder or Founder 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, Stockholder or Founder under this
Agreement or any other Transaction Document; or
(c) any Excluded Liability (including, without limitation, Taxes).
8.3 NOTICE AND OPPORTUNITY TO DEFEND. Promptly after the receipt by any
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, Stockholder or Founder hereunder (each of
Seller, Stockholder and Founder, an "Indemnifying Person" and, together, the
"Indemnifying Persons") pursuant to Section 8.2 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
42
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 8.3, 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, as
applicable.
8.4 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 expense be involved (other than a nominal expense) in
giving such cooperation, the Indemnifying Persons shall defray and pay in full
all such expense.
8.5 INDEMNIFICATION LIMITS. Notwithstanding anything to the contrary
contained in this Agreement:
(a) No indemnification under Section 8.2(a) shall be made by Seller,
Stockholder or Founder, nor shall Seller, Stockholder or Founder have any
liability under Section 8.2(a), with respect to any claim or claims for
indemnification made by Indemnified Persons, unless the aggregate amount
of Losses subject to indemnification pursuant to Section 8.2 in respect of
such claim or claims shall exceed $50,000 (the "Indemnification
Threshold"), whereupon the full amount of such Losses in respect of such
claims shall be recoverable in accordance with the terms hereof;
(b) The aggregate amount required to be paid by Seller, Stockholder
and Founder in respect of all claims for indemnification made by
Indemnified Persons pursuant to Section 8.2 shall in no event exceed
$24,000,000 (the "Indemnification Cap") and none of Seller, Stockholder or
Founder shall have any liability to any Indemnified Party for, and such
Indemnified Parties shall have no right to recover from Seller,
Stockholder or Founder, any amount of Losses which exceeds (and from and
after the time such Losses exceed) such amount; provided, however, that no
limitation pursuant to this Section 8.5 shall apply in respect of claims
for indemnification made by Indemnified
43
Persons pursuant to Section 8.2 for Losses arising out of, relating to, or
resulting from, or in whole or in part sustained in connection with any
Excluded Liabilities.
(c) The amount of any Losses for which a claim or claims for
indemnification pursuant to Section 8.2 are made by an Indemnified Party
shall be deemed to be reduced to the extent insurance proceeds are
actually received by the Indemnified Parties to cover such Losses (net of
any increase in premiums or other expenses incurred to obtain such
proceeds).
8.6 PAYMENT OF CLAIMS.
(a) In the event that an Indemnified Party sustains or incurs Losses
for which it is entitled to be indemnified by Seller, Stockholder or
Founder under this Agreement, such Indemnified Party shall be entitled (in
addition to collecting directly from the Seller, Stockholder or Founder)
to receive Escrow Shares or cash held pursuant to the Indemnification
Escrow Agreement having a value equal to the amount of such Losses.
Notwithstanding the foregoing, it is understood and agreed that amounts
for which an Indemnified Party is entitled to indemnification hereunder
shall be paid first by delivery of Escrow Shares or cash held pursuant to
the Indemnification Escrow Agreement, to the extent thereof, and
thereafter shall be paid by Seller, Stockholder or Founder (subject to the
limitations otherwise set forth herein). Claims for Escrow Shares or cash
held pursuant to the Indemnification Escrow Agreement shall be made in
accordance with the terms of the Indemnification Escrow Agreement.
(b) For purposes of this Section 8.6, in the event the Indemnified
Party is to receive Escrow Shares in connection with any such claim, the
number of Escrow Shares to be received shall be calculated as follows:
(i) If the Escrow Shares to be received are shares of Series C
Preferred Stock, the number of Escrow Shares to be received shall be
equal to the number obtained by dividing (A) the amount of such
Losses, by (B) $1,000 (with the result to be rounded up or down to
the nearest whole share); and
(ii) If the Escrow Shares to be received are shares of HCCI
Common Stock issued in connection with the conversion of the Series
C Preferred Stock upon an initial public offering of HCCI (an
"IPO"), the number of Escrow Shares to be received shall be equal to
the number obtained by dividing (A) the amount of such Losses, by
(B) the average closing price per share of such HCCI Common Stock on
the Nasdaq National Market (or such other national securities
exchange on which such shares are traded) over the fifteen (15)
trading days ending on the trading day prior to the date such shares
are received by HCCI.
(c) The parties acknowledge that following an IPO and the conversion
of the Series C Preferred Stock to HCCI Common Stock, the Escrow Shares
held pursuant to the Indemnification Escrow Agreement may be sold in
compliance with such
44
agreement and applicable securities laws, with the proceeds of such sale
to be retained in such escrow in accordance with the terms of such
agreement.
SECTION 9 - TERMINATION
9.1 TERMINATION. At any time prior to the Closing Date, 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, Stockholder, or Founder;
(c) by Seller, Stockholder and Founder if there has been a material
misrepresentation or breach of warranty, or a material breach of covenant,
by Buyer, HCOC or HCCI;
(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 Date;
(e) by Seller, Stockholder and Founder if the conditions specified
in Section 7.2 have not been satisfied or waived at or prior to the
Closing Date;
(f) by either party if the Closing shall not have occurred on or
before April 30, 2004 (or such later date as is mutually agreed to by the
parties), unless the failure of the Closing to occur by such date shall be
due to the failure of the party seeking to terminate this Agreement to
perform or observe the covenants and agreements of such party, or to
satisfy the conditions to be satisfied by such party, set forth herein.
9.2 EFFECT OF TERMINATION.
(a) All obligations of the parties hereunder shall cease upon any
termination of this Agreement pursuant to Section 9.1, provided, however,
that, with respect to any such termination, the provisions of this Section
9, Section 1.5, Section 1.14, Section 5.9, Section 6.4, Section 12.1 and
Section 12.2 hereof shall survive any termination of this Agreement, and
nothing herein shall relieve any party from liability for any breach of
any such Sections.
(b) Upon any termination of this Agreement pursuant to Section 9.1,
nothing herein shall relieve Seller, Stockholder or Founder from any
liability to Buyer, HCOC or HCCI for any misrepresentation or breach of
warranty by Seller, Stockholder or Founder, any breach of covenant by
Seller, Stockholder or Founder, or any failure to satisfy any condition
required to be satisfied by Seller, Stockholder or Founder herein.
45
(c) Prior to the Closing, in connection with any
misrepresentation or breach of warranty by Buyer, HCOC or HCCI, any breach
of covenant by Buyer, HCOC or HCCI, or any failure to satisfy any
condition required to be satisfied by Buyer, HCOC or HCCI herein, the sole
and exclusive remedy of Seller, Stockholder and Founder against any of
Buyer, HCOC and HCCI shall be to terminate this Agreement under the
provisions of Section 9.1 above and to receive the Deposit referred to in
Section 1.5 above, which Deposit, with respect to such termination, shall
constitute liquidated damages (the adequacy of which is hereby
acknowledged by the parties to this Agreement) and the sole liability of
Buyer, HCOC and HCC..
(d) The parties shall have the rights to proceed as further
set forth in Section 9.3 below.
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 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 of its 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
each of Seller, Stockholder and Founder expressly waives the defense that a
remedy in damages will be adequate.
9.5 WAIVER. Seller 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,
Stockholder or Founder hereunder, waive any inaccuracies in the representations
and warranties of Seller, Stockholder or Founder contained herein or in any
document delivered pursuant hereto, or waive compliance by Seller, Stockholder
or Founder 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.
46
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.
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, 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 on or
before the date preceding 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.
(b) For purposes of making the adjustments pursuant to this
Section 10.4, within 90 days following the Closing Date, or within 30 days
following delivery of the Final Closing Statement provided under Section
1.9(a)(i) above, 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.
47
(c) In the event that Seller and Buyer cannot agree on the
Adjustment List, any disputed items shall be resolved by the Accounting
Firm in the manner provided in Section 1.9(b) of this Agreement.
(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, STOCKHOLDER AND FOUNDER.
(a) Each of Seller, Stockholder and Founder, individually,
agree and covenant that it shall not, for a period of five years from the
Closing, anywhere within the United States (including Puerto Rico),
directly or indirectly, participate in any enterprise that operates a
business that competes, directly or indirectly, with the Business. For
purposes of this Section 10.5, the term "Business" shall relate to and be
limited to the publishing, marketing and/or selling of electronic, print
or in-person professional development program products that prepare
students in second through 12th grade for any state criterion-referenced,
nationally normed or any other similar assessment or test or any other
non-basal supplemental products in any format that remediate skills that
students need to master to perform well on such state tests and
assessments. For purposes of this Section 10.5, the term "Business" shall
not relate to any electronic, print, or in-person professional development
program products that prepare students for the ACT, SAT, LSAT, GRE, TOEFL,
MCAT, PSAT or any similar tests or assessments and any non-basal
supplemental products in any format that remediate skills that students
need to master to perform well on such tests or assessments. Furthermore,
for purposes of this Section 10.5, the term "Business" shall not relate to
the writing of textbooks or speaking at educational conferences if such
textbooks are not written or such speeches are not given, directly or
indirectly, in furtherance of the publishing, marketing or selling of
products which are competitive with the Business.
(b) In furtherance of the covenants set forth in Section
10.5(a), none of Seller, Stockholder or Founder will solicit, for or on
behalf of any Person, any customer of Buyer with respect to any products
which are competitive with the Business, or divert to any Person any
customer of Buyer with respect to any products which are competitive with
the Business.
(c) Following the Closing, none of Seller, Stockholder or
Founder shall recruit, solicit or induce (or in any way assist another
Person in recruiting, soliciting or inducing) any employee or consultant
of Buyer (or any person who was such an employee or consultant within six
(6) months prior to such attempted recruitment, solicitation or
inducement) to terminate his or her employment or other relationship with
Buyer or to become employed or engaged by any other person or entity.
(d) 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
48
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. Buyer shall, as of the Closing Date, offer to hire
substantially all employees of Seller, and shall use its reasonable efforts to
employ such employees at positions with comparable levels of responsibility and
compensation to the positions held by such employees with Seller, subject to
Buyer's existing organizational structure and pay scale and subject to the
prospective employees satisfying all hiring requirements of Buyer. 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
Current Liabilities expressly set forth on the Final Closing Statement, Buyer
shall not be liable, and Seller shall remain exclusively liable, for all
obligations and liabilities, including, without limitation, accrued vacation pay
and sick pay, that may arise or have arisen from the employment of employees
with, or the termination of their employment by, Seller on or 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. It is expressly agreed that the
provisions of this Section 10.6 are not intended to be for the benefit of or
otherwise enforceable by any third Person, including, without limitation, any
employee of Seller or Buyer, or any collective bargaining unit or employee
organization.
10.7 STOCK RESTRICTIONS.
(a) Seller, Stockholder and Founder hereby agree that none of
the shares of Series C Preferred Stock acquired by Seller shall be sold,
assigned, transferred, pledged, hypothecated, given away or in any other
manner disposed of or encumbered, whether voluntarily or by operation of
law, unless such transfer is in compliance with all applicable securities
laws (including, without limitation, the Securities Act), and such
disposition is in accordance with the terms and conditions of this Section
10.7. In connection with any transfer of such shares, HCCI may require
Seller or any Permitted Transferee (as defined below) to provide at
Seller's or such Permitted Transferee's own expense an opinion of Seller's
or such Permitted Transferee's counsel addressed to HCCI, which opinion
shall be reasonably satisfactory to HCCI, that such transfer is in
compliance with all foreign, federal and state securities laws (including,
without limitation, the Securities Act). Any attempted disposition of the
shares of Series C Preferred Stock not in accordance with the terms and
conditions of this Section 10.7 below shall be null and void, and HCCI
shall not reflect on its records any change in record ownership of any of
such shares as a result of any such disposition, shall otherwise refuse to
recognize any such disposition and shall not in any way give effect to any
such disposition of any such shares. Subject to the foregoing general
provisions, the shares of
49
Series C Preferred Stock may be transferred pursuant to the following
specific terms and conditions:
(i) Seller may sell, assign, transfer or give away any
or all of the shares of Series C Preferred Stock to Permitted
Transferees; provided, however, that following such sale,
assignment, or other transfer, such shares of Series C Preferred
Stock shall continue to be subject to the terms of this Section 10.7
and such Permitted Transferee(s) shall, as a condition to any such
transfer, deliver a written acknowledgment to that effect to HCCI.
(ii) Upon the death of any Permitted Transferee, shares
of Series C Preferred Stock then held by such Permitted Transferee
at the time of such death and any such shares acquired thereafter by
such Permitted Transferee's legal representative shall be subject to
the provisions of this Section 10.7, and such Permitted Transferee's
estate, executors, administrators, personal representatives, heirs,
legatees and distributees shall be obligated to hold such shares of
Series C Preferred Stock under the terms of this Section 10.7.
(iii) For purposes of this Section 10.7, the term
"Permitted Transferee" shall mean Stockholder, Founder, or Founder's
spouse, children (natural or adopted), stepchildren or a trust for
their sole benefit of which Founder is the settlor, or any private
foundation or charitable remainder trust designated by Stockholder
or Founder; provided, however, that any such trust does not require
or permit distribution of any of the shares of Series C Preferred
Stock except as provided in this Agreement. Upon the death of
Founder (or a Permitted Transferee to whom shares have been
transferred hereunder), the term Permitted Transferees shall also
include Founder's (or such deceased Permitted Transferee's) estate,
executions, administrations, personal representations, heirs,
legatees and distributees, as the case may be.
(iv) This Section 10.7(a) shall be in effect for a
period of two years following the Closing Date.
(b) In connection with a public offering by HCCI of HCCI
Common Stock, each of Seller, Stockholder and Founder, and any Permitted
Transferees thereof, if requested in good faith by HCCI and the managing
underwriter of such offering, shall execute a lockup agreement pursuant to
which each shall agree not to, directly or indirectly, offer, sell,
pledge, contract to sell (including any short sale), grant any option to
purchase or otherwise dispose of any shares of HCCI Common Stock held by
him, her or it (except for any securities sold pursuant to such
registration statement) or enter into any Hedging Transaction (as defined
below) relating to any shares of HCCI Common Stock for a period not to
exceed 180 days following the effective date of the registration statement
relating to an initial public offering or 90 days following the effective
date of the registration statement relating to any subsequent public
offering; provided, that Seller, Stockholder an/or Founder shall be
obligated to execute such a lockup agreement only if,
50
and to the extent, the executive officers of HCCI execute similar
agreements of the same duration with respect to any HCCI Common Stock held
by them following the consummation of the applicable offering . For
purposes of this Section 10.7(b), "Hedging Transaction" means any short
sale (whether or not against the box) or any purchase, sale or grant of
any right (including without limitation, any put or call option) with
respect to any security (other than a broad-based market basket or index)
that includes, relates to or derives any significant part of its value
from the HCCI Common Stock.
(c) In the event that HCCI consummates an initial public
offering of the HCCI Common Stock and becomes subject to the reporting
requirements of Section 13 of the Securities ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇, as
amended, HCCI shall use its commercially reasonable efforts to take such
actions as may be required as a condition to the availability of Rule 144
under the Securities Act. HCCI shall furnish to Seller, within fifteen
(15) days of a written request, a written statement executed by HCCI as to
the steps it has taken to comply with the current public information
requirement of Rule 144 such successor rules.
10.8 TRANSITION PERIOD RELATING TO ZAPS INVENTORY.
(a) During the period beginning on the Closing Date and ending
on the date which is 90 days following the Closing Date or the date upon
which all Remaining Inventory has been shipped, whichever is earlier (the
"Transition Period"):
(i) Subject to Section 10.8(c) below, if Buyer receives
any orders that are for ZAPS products only, Buyer will promptly
forward such orders to ZAPS for fulfillment, billing and collection
of revenue.
(ii) If Buyer receives any orders that are for both ZAPS
products and Buyer's products, then, with respect to any such order,
(A) Buyer will accept and fulfill the ZAPS portion of such order out
of the Remaining Inventory, (B) ▇▇▇▇ the customer and collect all
amounts receivable for the ZAPS portion of such order, and (C) remit
to ZAPS an amount equal to 15% of all cash collected on the ZAPS
portion of such order.
(b) If any Remaining Inventory has not been sold as of June
30, 2004, then, within five days thereafter, Stockholder and Owner will
cause ZAPS to purchase from Buyer all such inventory, at original cost,
and shall remove such inventory from the premises occupied by Buyer.
(c) Following the Closing, in the event Buyer receives any
orders that are for ZAPS' ACT and SAT products only, Buyer will promptly
forward such orders to ZAPS for fulfillment, billing and collection of
revenue. By no later than the fifteenth day of the calendar month
following the calendar month in which any cash is received by ZAPS in
connection with such orders, ZAPS will pay to Buyer, in cash, an amount
equal
51
to 15% of all cash collected with respect to such orders during the
immediately preceding calendar month.
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:
(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) "HCCI Common Stock" means the common stock, $0.001 par
value per share, of HCCI, and any other shares of stock issued or issuable
with respect thereto (whether by way of a stock dividend or stock split or
in exchange for or in replacement of or upon conversion of such shares or
otherwise in connection with a combination of shares, recapitalization,
merger, consolidation or other corporate reorganization).
(e) "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.
(f) "knowledge of Seller" means the knowledge, after due
inquiry, of Founder, Stockholder, and any Persons at Stockholder or Seller
holding the title(s) of "director," "manager," "vice president," "senior
vice president," "executive vice president," "president," "chief financial
officer," "controller," "chief operations officer,"
52
"chief executive officer," "chairman," or such Persons holding equivalent
responsibilities regardless of the title.
(g) "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.
(h) "Material Adverse Effect" means a material adverse effect
on the assets, properties, business, condition (financial or other) or
prospects of the applicable party.
(i) "Patents" means, collectively, patents, patent
applications, patent rights, and inventions and discoveries and invention
disclosures (whether or not patented).
(j) "Person" means an individual, corporation, limited
liability company, partnership, association, trust, any unincorporated
organization or any other entity;
(k) "Seller Intellectual Property Assets" means all
Intellectual Property Assets owned by Seller or used in the 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, Stockholder or Founder, shall be charged to or
paid by or included in any of the Assumed Liabilities.
12.2 GOVERNING LAW; JURISDICTION; VENUE; JURY WAIVER.
(a) This Agreement shall be construed under and governed by
the internal laws of the State of Iowa 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
53
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 THE
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF IOWA, AS WELL AS
TO THE JURISDICTION OF ALL COURTS TO WHICH AN APPEAL MAY BE TAKEN FROM THE
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF IOWA, FOR THE
PURPOSE OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF, OR IN
CONNECTION WITH, THIS AGREEMENT OR THE TRANSACTION DOCUMENTS. 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.
(d) THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING, WHETHER GROUNDED IN
CONTRACT, TORT OR OTHERWISE, RELATING TO THIS AGREEMENT OR ANY OTHER
TRANSACTION DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
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
With a copy to: ▇▇▇▇▇▇▇, Procter LLP
Exchange Place
Boston, MA 02109
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇, P.C.
54
TO SELLER, STOCKHOLDER AND FOUNDER:
Prior to the Closing: c/o Buckle Down Publishing Company
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇
After the Closing c/o ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
With a copy to: Meardon, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ PLC
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
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, including, without limitation,
that certain Letter of Intent for the Acquisition of the Assets of Buckle Down
Publishing Company, dated December 23, 2003, by and between Seller and HCCI. 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
HCCI, HCOC or Buyer shall be permitted, without the consent of Seller,
Stockholder or Founder, to assign its rights hereunder to any wholly-owned
subsidiary of HCOC or Buyer now existing or formed hereafter. 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.
55
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.
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
Securities Act, the Exchange Act 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.
[SIGNATURE PAGES TO FOLLOW]
56
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/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chairman and Chief Executive Officer
HCOC:
HAIGHTS CROSS OPERATING COMPANY
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chairman and Chief Executive Officer
BUYER:
TRIUMPH LEARNING, LLC
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chairman
SELLER:
BUCKLE DOWN PUBLISHING COMPANY
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇
Title: President
STOCKHOLDER:
PROFILES CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇
Title: President
FOUNDER:
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇
----------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇