1
Exhibit 2.2
ASSET PURCHASE AGREEMENT AND PLAN OF REORGANIZATION
---------------------------------------------------
This Asset Purchase Agreement and Plan of Reorganization ("Agreement")
is entered into as of the 30th day of April, 1998, by and among New Horizons
Computer Learning Center of Nashville, Inc., a Tennessee corporation ("Seller"),
Xxxxx Xxxxxxxxx, Xxxxxxx Xxxxxx, Xxxx X. Xxxxx and Xxxxxx X. Xxxxxx III, the
shareholders of Seller (the "Shareholders"), New Horizons Education Corporation,
a Delaware corporation ("Buyer"), and New Horizons Worldwide, Inc., a Delaware
corporation ("New Horizons").
RECITALS:
---------
A. Seller is engaged in the business of providing computer training
services to organizations and individuals in and around the Nashville, Tennessee
area as a franchisee of New Horizons Computer Learning Centers, Inc. (the
"Business").
B. The parties desire that Seller sell to Buyer and that Buyer purchase
from Seller substantially all of Seller's assets related to the Business upon
the terms hereinafter set forth.
C. The parties intend this transaction to qualify as a tax-free
triangular "Type C" corporate reorganization under Section 368(a)(1)(C) of the
Internal Revenue Code of 1986, as amended (the "Code").
AGREEMENTS:
-----------
In consideration of and in reliance upon the mutual representations,
warranties, covenants, obligations and agreements contained herein, the parties
agree as follows:
1. PURCHASE AND SALE OF ASSETS
1.1 PURCHASED ASSETS. Seller hereby sells to Buyer, free of all liens,
encumbrances, claims and other restrictions of any kind other than the Permitted
Encumbrances as defined in Section 4.6 hereof, and Buyer hereby purchases, all
of Seller's right, title, and interest in and to all of the properties, assets,
and rights owned, used, acquired for use, or arising or existing in connection
with the Business, whether tangible or intangible, and whether or not recorded
on Seller's books and records, as the same exist at the Closing (as defined
below), except for and excluding the Retained Assets provided for in Section 1.2
below ("Purchased Assets"). The Purchased Assets shall include, without
limitation, except to the extent same constitute a part of the Retained Assets
as set forth in Section 1.2 below, the following:
(a) The assets of Seller set forth on SCHEDULE 1.1;
(b) All of Seller's books and records, books of account, files,
invoices, accounting records, correspondence, advertising materials, customer
lists, supplier lists, catalogs, manuals and other records pertaining to the
future conduct of the Business, to any of the other Purchased Assets or to any
of the Assumed Liabilities ("Records");
2
(c) All software and software licenses, know-how, trade secrets,
patents, trademarks, trade names, copyrights (including applications for the
foregoing), and all goodwill relating to the Seller ("Intellectual Property");
(d) All permits and other governmental authorizations pertaining to
the Business, to the extent such authorizations may legally be assigned
("Government Licenses");
(e) All machinery, equipment, supplies, accessories, furniture,
furnishings, office equipment and supplies, fixtures, leasehold improvements and
other tangible personal property used or held for use in the conduct of the
Business ("Equipment");
(f) All computer training kits and manuals, course materials and
other properties of a similar type used or held for use in the conduct of
training courses for customers of the Business ("Inventory");
(g) All accounts and notes receivable, and other rights to receive
payment, from customers, employees or others arising from the conduct of the
Business ("Receivables");
(h) All prepayments, deposits, claims for refund and prepaid
expenses relating to the Business or any Transferred Asset or the Assumed
Liabilities ("Prepaid Items");
(i) All claims, choses in action and other rights against third
persons arising out of or relating to the Business or to any Transferred Asset
or the Assumed Liabilities, and all goodwill of the Business ("Other
Intangibles"); and
(j) All rights of Seller arising in connection with any of the
agreements and contracts listed on SCHEDULE 4.15 hereto ("Material Contracts"),
and all of the following contracts and agreements ("Ordinary Course of Business
Contracts"): telephone listings, utility agreements, routine maintenance
contracts, office equipment rental agreements, outstanding purchase orders for
goods and services acquired in the ordinary course of the Business, and club
membership agreements entered into the ordinary course of the Business (the
Material Contracts and Ordinary Course of Business Contracts being together
herein called the "Assigned Contracts").
1.2 RETAINED ASSETS. Seller shall retain, Buyer shall not purchase, and
there shall be excluded from the Purchased Assets, all right, title and interest
of the Seller in and to any of the following ("Retained Assets"):
(a) Rights of Seller arising under this Agreement;
(b) Seller's corporate minute books, stock records, and tax returns
or other similar corporate books and Records relating to the Business or to the
negotiation and consummation of the transactions provided for in this Agreement,
and those Records originals of which Seller is required to maintain under
applicable law;
2
3
(c) All Prepaid Items, Records, intangible rights and contract
rights relating to any Retained Assets or to any liability, indebtedness or
obligation of the Seller not comprising a part of the Assumed Liabilities (as
defined in Section 2.1 below);
(d) All Receivables due from any of those corporations and limited
liability companies owned by the Shareholders and identified on SCHEDULE 1.2(d)
hereto ("Shareholder Affiliates");
(e) All rights of Seller arising under any agreements and
contracts, other than the Assigned Contracts; and
(f) Any other assets of Seller that are set forth on SCHEDULE
1.2(f) hereto.
2. ASSUMPTION OF CERTAIN LIABILITIES OF SELLER
2.1 ASSUMED LIABILITIES. On the Closing Date, Buyer agrees to assume
and thereafter pay, perform and discharge, and hereby assumes the following
liabilities, obligations, undertakings and commitments of Seller related to the
Business as of the Closing Date (collectively, "Assumed Liabilities"):
(a) Seller's trade accounts payable and accrued liabilities and
expenses reflected on the March Balance Sheet (as defined in Section 4.3 below),
or thereafter incurred in the ordinary course of the Business consistent with
past practices, except for those items set forth on SCHEDULE 2.1(a) (such
liabilities being sometimes referred to herein as the "Assumed Balance Sheet
Liabilities");
(b) All liabilities, obligations, undertakings and commitments
existing in respect to any of the Prepaid Items;
(c) All liabilities, obligations, undertakings and commitments
arising under or pursuant to the Assigned Contracts;
(d) All liabilities, obligations, undertakings and commitments of a
type customarily arising in the ordinary course of the Business and not
otherwise expressly assumed pursuant to this Section 2.1;
(e) All liabilities, obligations, undertakings and commitments for
accrued vacation and benefits, to the extent reflected on the March Balance
Sheet or thereafter accruing in the ordinary course of the Business, consistent
with past practice, with respect to employees of the Seller who are hired by
Buyer or New Horizons after the Closing hereunder, and all obligations with
respect to such employees arising from the undertakings of Buyer or New Horizons
set forth in this Agreement; and
3
4
(f) All liabilities, obligations, undertakings and commitments
identified on SCHEDULE 2.1(f) hereto.
2.2 RETAINED LIABILITIES. Neither Buyer nor New Horizons shall assume,
nor be obligated to pay, perform or abide by, any liabilities, undertakings or
commitments of the Seller or Shareholders, other than the Assumed Liabilities
("Retained Liabilities). The fact that any such liability, undertaking or
commitment arose in the ordinary course of the Business shall not negate, limit
or restrict the rights of Buyer or New Horizons with respect to any breach by
Seller or Shareholders of any representation or warranty herein contained.
Without limitation and notwithstanding anything to the contrary set forth
herein, Seller and Shareholders acknowledge and agree that all liabilities
relating to pending or threatened litigation based on conditions existing or
events occurring prior to the Closing hereunder shall not be deemed to have
arisen in the ordinary course of the Business as conducted by the Seller and
are, therefore, Retained Liabilities.
3. CONSIDERATION AND PURCHASE PRICE
The consideration payable by Buyer and New Horizons for the Purchased
Assets shall consist of the following: (i) the Assumed Liabilities, (ii) the
consideration payable at Closing as set forth in Section 3.1 below ("Closing
Payment") as may be adjusted based on the Closing Balance Sheet, as set forth in
Section 3.2 below, and (iii) the consideration payable, if any, following the
Closing as set forth in Section 3.3 below ("Earn-Out").
3.1 CLOSING PAYMENT. At the Closing, Buyer and New Horizons shall
issue, pay and deliver to or for Seller:
(a) 136,364 shares of Common Stock, $.01 par value, of New Horizons
("New Horizons Stock") representing the quotient derived from dividing (i) One
Million Nine Hundred Fifty Thousand Dollars ($1,950,000) by (ii) the average
closing price per share of New Horizons Stock as quoted on the NASDAQ Trading
System for the 30 trading days ending on the second trading day prior to the
Closing Date, provided that the denominator shall not be more than $14.30 per
share, nor less than $11.70 per share;
(b) 6,993 shares of New Horizons Stock having an aggregate fair
market value per the foregoing calculation of One Hundred Thousand Dollars
($100,000) shall be deposited into an escrow account ("Escrow Account") with a
financial institution acceptable to Buyer and Seller ("Escrow Agent"), upon the
terms and conditions set forth in the escrow agreement attached hereto as
EXHIBIT A. The shares so deposited (the "Escrow") shall be held in the Escrow
Account pending final determination of the Balance Sheet Adjustment (as defined
and determined below), if any.
3.2 BALANCE SHEET ADJUSTMENT. (a) PREPARATION OF CLOSING BALANCE SHEET.
As soon as practicable after the Closing, Seller will cause its independent
accountants to prepare a balance
4
5
sheet as of April 30, 1998 (the "Closing Balance Sheet") reflecting all
Purchased Assets and Assumed Balance Sheet Liabilities. The Closing Balance
Sheet will be prepared in accordance with generally accepted accounting
principles ("GAAP") on an accrual basis and consistent with Seller's balance
sheet as of December 31, 1997, included as part of SCHEDULE 4.3(a) hereto.
Notwithstanding that such may not be consistent with the foregoing requirements,
the Closing Balance Sheet need not include (x) Inventories based on a physical
count, or (y) footnotes customarily required. Based on the Closing Balance
Sheet, Seller will also cause its independent accountants to prepare a written
calculation of the amount by which Net Working Capital (as defined below) is
greater or less than Two Hundred Nineteen Thousand Dollars ($219,000) ("Net
Working Capital Adjustment") and Net Worth (as defined below) is greater or less
than Four Hundred Forty-One Thousand Dollars ($441,000) ("Net Worth
Adjustment").
(b) BALANCE SHEET ADJUSTMENT. As used herein the "Balance Sheet
Adjustment" shall mean: (i) where the Net Working Capital Adjustment and Net
Worth Adjustment are both negative amounts, the most negative of such amounts;
(ii) where either the net Working Capital Adjustment or Net Worth Adjustment is
a positive amount and the other is a negative amount, the amount resulting from
netting such amounts if negative, otherwise zero; or (iii) where the Net Working
Capital Adjustment and Net Worth Adjustment are both positive amounts, zero.
(c) RESOLUTION OF DISPUTES. Seller will deliver to Buyer and New
Horizons the Closing Balance Sheet and the Balance Sheet Adjustment calculation
not later than May 31, 1998, together with a written certification that such
have been prepared and calculated in accordance herewith. Thereafter, Buyer's
Chief Financial Officer and Buyer's independent accountants will conduct a
review of these items, and Buyer will notify Seller in writing not later than
June 30, 1998, as to whether they are acceptable to Buyer. If Buyer objects to
the Balance Sheet Adjustment, Buyer's notification to Seller shall specify the
matters to which Buyer objects and the amount of the Balance Sheet Adjustment
which Buyer believes to be correct. If Buyer and Seller are able to resolve
their dispute within fifteen (15) days after Buyer's objection is delivered to
Seller, the Balance Sheet Adjustment so agreed upon will become final and
binding on the parties. If Buyer and Seller are unable to resolve their dispute
within fifteen (15) days after Buyer's objection is delivered to Seller, the
dispute will be resolved by Xxxxxx Xxxxxxxx & Co. (or, if such firm declines to
act, by a nationally recognized public accounting firm mutually agreed upon by
Buyer and Seller and, if Buyer and Seller are unable to so agree within five (5)
days after the end of the 15-day period, then Buyer and Seller shall each select
a firm and such firms shall jointly select a third firm to resolve the disputed
matters). The firm so selected is herein called the "Independent Accountants".
The Independent Accountants will be instructed to perform their services as
expeditiously as possible and the resolution of the Independent Accountants
shall be final and binding on the parties. The fees and expenses of the
Independent Accountants for the resolution of the dispute shall be shared by
Buyer and Seller in inverse proportion to the respective amounts of the disputed
matters which are resolved in its favor.
(d) PURCHASE PRICE ADJUSTMENT. If the Balance Sheet Adjustment is
not a negative amount, the Escrow shall be released in full to Seller, and the
consideration specified in Section 3.1(b) shall be deemed increased accordingly.
If the Balance Sheet Adjustment is a
5
6
negative amount, Seller will refund to Buyer the Balance Sheet Adjustment from
the shares in the Escrow or delivered at Closing (or a combination of both), and
the consideration specified in Section 3.1(a) and Section 3.1(b) shall be deemed
reduced accordingly. Any post-closing refund provided for under this Section
3.2(d) will be made not more than ten (10) business days after the Balance Sheet
Adjustment becomes final as contemplated by Section 3.2(c) hereof.
3.3 EARN-OUT. As additional consideration for the Purchased Assets,
Seller shall be entitled to receive (i) with respect to the twelve month period
ending April 30, 1999, an amount equal to three times the amount by which EBIT
from Buyer's operation of the Business, and all other businesses owned directly
or indirectly by New Horizons which are managed by either of Xxxxx Xxxxxxxxx or
Xxxxxx X. Xxxxxx, III, for such period exceeds One Million Three Hundred
Thousand Dollars ($1,300,000) ("Baseline EBIT"), if any, (ii) with respect to
the twelve month period ending April 30, 2000, an amount equal to three times
the amount by which EBIT from Buyer's operation of the Business for such period
exceeds Baseline EBIT, and (iii) with respect to the twelve month period ending
April 30, 2001, an amount equal to three times the amount by which EBIT from
Buyer's operation of the Business for such period exceeds the higher of the
Baseline EBIT and the average of the EBIT for the preceding two (2) twelve month
periods ("Earn Out Payments"). Any Earn Out Payments shall be paid within ninety
(90) days of the end of the twelve month period for which such Earn Out Payment
is earned by wire transfer of such Earn-Out Payment to an account designated by
Seller or to accounts designated by all of the Shareholders. Notwithstanding the
foregoing, (a) the period of time during which any Earn Out Payment may be
earned shall be extended by an amount of time equal to any periods of time
during which, due to FORCE MAJEURE, the Business is rendered incapable of
operating at substantially that level previously operated, and (b) the maximum
number of shares of New Horizons Stock which may be issued pursuant to this
Section 3.3 is 143,357 and the maximum number of such shares which may be issued
pursuant to this Agreement is 286,714. For purposes of this Section 3.3 only,
the "Fair Market Value" of the New Horizons Stock shall be determined by
reference to the average closing stock price per share on the securities
exchange or other market on which shares of New Horizon then traded for the
thirty (30) trading days preceding the date of issuance.
For purposes of this Section 3:
"EBIT" shall be the amount determined from Buyer's financial
statements for the Business prepared in accordance with GAAP, and consistent
with the New Horizons Methodology (as described on SCHEDULE 3.3), by adding to
the net income or loss of the Business (i) the total of all federal, state,
local and foreign tax expense with respect to income; (ii) the total of all
interest expense with respect to indebtedness for borrowed money (including
capitalized leases and purchase money financing) net of interest income; and
(iii) the amortization of all intangibles and the deduction of any costs
resulting from or attributable to the transactions contemplated by this
Agreement. In computing the net income or loss of the Business for such
purposes:
(A) The net income or loss of the Business will reflect net
revenues attributable to training provided by the Business to national or major
accounts which contract for services
6
7
with New Horizons or its affiliates, based on pricing rates which prevail from
time to time.
(B) No intercompany administrative, accounting or overhead charges
shall be made against the Business; PROVIDED that Buyer, New Horizons, or an
affiliate of either entity may charge to the Business the reasonable cost of
providing (i) services which replace those historically provided by Persons
directly employed in the Business, or (ii) services which are provided to the
Business which are in addition to those historically provided by New Horizons to
its franchisees.
(C) Royalties that would have been payable (in the absence of this
Agreement) by Seller to New Horizons Computer Learning Centers, Inc. under that
certain Franchise Agreement dated July 21, 1993 ("Franchise Agreement"), as well
as royalties that would have been payable related to the Seller's sale of
ancillary products under the agreements described on Schedule 3.3 (the
"Ancillary Agreements") shall be deducted from income.
(D) In determining the amount of revenues for which royalties would
have been payable by Seller under the Franchise Agreement or the Ancillary
Agreements, up to $50,000 of revenues related to consulting services described
on Schedule 3.3(D), provided by Seller or any of the Shareholders shall be
excluded.
"Net Working Capital" means those assets of the Business consisting
of "current assets" (as determined under GAAP) less those liabilities related to
the Business consisting of "current liabilities" (as determined under GAAP), but
excluding the Retained Assets and Retained Liabilities.
"Net Worth" means the assets of the Business less total liabilities
of the Business, determined in accordance with GAAP, but excluding the Retained
Assets and Retained Liabilities.
3.4 TAX-FREE REORGANIZATION OF SELLER. Seller and the Shareholders
intend for this transaction to qualify as a tax-free triangular "type C"
corporate reorganization under Section 368(a)(1)(C) of the Code. In this regard,
Seller and Shareholders have separately resolved to dissolve following the
Closing and to distribute to the Shareholders all of the New Horizons Stock
which is due Seller under this Agreement, along with any remaining property of
Seller.
4. REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDERS.
Seller and the Shareholders hereby jointly and severally represent and
warrant to Buyer as follows:
4.1 ORGANIZATION, AUTHORITY AND CAPACITY. Seller is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Tennessee, is in good standing as a foreign corporation qualified to do
business in such other states where the nature of the Business conducted or the
character of the assets owned requires such qualification, and
7
8
has full corporate power and authority to own, lease and operate its assets and
properties and, carry on the Business as and where such assets and properties
are now owned or leased and as such Business is presently being conducted.
Seller and the Shareholders have full power, authority, and legal capacity to
execute, deliver, and perform this Agreement in accordance with its terms, and
such execution, delivery and performance has been approved by all requisite
corporate action by Seller. This Agreement has been duly executed and delivered
by Seller and the Shareholders and constitutes the legal, valid and binding
obligation of Seller and the Shareholders, enforceable against Seller and the
Shareholders in accordance with its terms.
4.2 NO CONSENTS OR CONFLICTS. Except as set forth on SCHEDULE 4.2: (a)
no consent of, or filing with, any governmental authority or third party is
required in connection with the execution, delivery or performance of this
Agreement or any of the other agreements, instruments or documents to be
delivered by or on behalf of Seller or the Shareholders in connection herewith;
and (b) neither the execution or delivery nor the performance of this Agreement
or any of the other agreements, instruments or documents to be delivered by or
on behalf of Seller or the Shareholders in connection herewith conflicts with,
violates or results in any breach of: (i) any judgment, decree, order, statute,
rule or regulation applicable to Seller or the Shareholders, (ii) any material
agreement or instrument to which Seller or the Shareholders is a party or by
which Seller or any of its assets is bound, or (iii) any provision of the
Articles of Incorporation or the By-Laws of Seller.
4.3 FINANCIAL STATEMENTS. (a) Seller has previously delivered to Buyer
Seller's financial statements for the years ended December 31, 1996 and 1997
("Historical Financial Statements"), and for the three (3) month period ended
at, and as of, March 31, 1998, including its balance sheet as of March 31, 1998
(the "March Balance Sheet") (all of the foregoing described financial
statements, along with the March Balance Sheet, are hereinafter referred to as
the "Seller Prepared Financial Statements" and copies are included in SCHEDULE
4.3(a) hereto).
(b) The Seller Prepared Financial Statements present fairly
Seller's financial position as of the dates indicated and results of operations
for the periods indicated, on an accrual basis, consistently applied, except as
may be indicated therein or in the notes thereto, or as indicated on SCHEDULE
4.3(b) hereto.
(c) Included at SCHEDULE 4.3(c) hereto is Seller's March Balance
Sheet, and Seller's income statement for the three (3) month and twelve (12)
month periods then ended, adjusted to reflect the New Horizons Methodology (the
"Adjusted Financial Statements"), and such Adjusted Financial Statements fairly
present the financial position of Seller as of March 31, 1998 and the results of
its operations for the three (3) months and twelve (12) months then ended on
such date.
4.4 NO LIABILITIES. Seller has no liabilities or obligations of any
kind. (accrued, absolute, contingent, known, unknown or otherwise) except (i) as
reflected on the March Balance Sheet, (ii) as incurred in the ordinary course of
the Business consistent with the requirements of Section 4.5 of this Agreement,
(iii) for the payment, performance and observance of obligations
8
9
arising under the Assumed Contracts, and (iv) as set forth on SCHEDULE 4.4 or on
any other Schedule to this Agreement.
4.5 NO CHANGES. Except as set forth on SCHEDULE 4.5, since the date of
the March Balance Sheet, Seller has operated the Business only in the ordinary
course, consistent with past practice, and there has not been any material
adverse change, or any event, fact or circumstance which might reasonably be
expected to result in a material adverse change, in the assets, liabilities,
operating performance, business relationships, or prospects of the Business,
and, without limiting the generality of the foregoing, since the date of the
March Balance Sheet, there has not been with respect to the Business any:
(a) waiver, release, cancellation or compromise of any debts owed
to it or claims or rights against others exceeding $10,000 in the aggregate;
(b) sale, disposition or subjection to any lien of any assets other
than sales or dispositions of Inventory in the ordinary course of business, and
other than replacements of assets made in the ordinary course of the Business;
(c) unusual or novel method of transacting the Business engaged in
by Seller or any change in Seller's accounting procedures or practices (except
as required by Buyer) or its financial structure;
(d) any increase in salaries, bonuses or benefits paid or payable
to employees, other than increases made on the anniversary dates of employment
of employees, which increases have all been consistent with past practices; or
(e) any material damage, destruction or loss to or of the tangible
assets of Seller.
4.6 TITLE TO PURCHASED ASSETS. Except for the Permitted Encumbrances as
defined hereinbelow, Seller owns all of the Purchased Assets free and clear of
all liens, claims, encumbrances and other restrictions or limitations of any
kind whatsoever affecting the ability to use or transfer the Purchased Assets;
and, except for the Permitted Encumbrances, all such liens, claims, encumbrances
or other restrictions or limitations shall be fully released and canceled at the
Closing. The term "Permitted Encumbrances" means and includes: (i) as to any of
the Purchased Assets covered by a lease identified among the Assumed Contracts,
the terms and conditions set forth in any such Assumed Contract; (ii) liens for
ad valorem real and personal property taxes not yet due and payable, (iii) minor
imperfections in title and encumbrances, if any, which (x) do not detract from
the value of the asset subject thereto, (y) do not interfere with the present or
continued use of such asset subject thereto, and (z) have arisen in the ordinary
course of the Business, (iv) any requirement that Seller obtain third party
consents or approvals identified pursuant to Section 4.2 which Buyer agrees at
Closing to waive or relinquish, and (v) those identified on SCHEDULE 4.6 hereto.
9
10
4.7 OWNERSHIP OF SELLER. The Shareholders own beneficially and of
record, free and clear of all liens and encumbrances, all of the issued and
outstanding capital stock of Seller.
4.8 ASSETS OWNED. Except for the Retained Assets, the Purchased Assets
comprise all of those assets which are used or useful in the operation of the
Business in the ordinary course as presently conducted and constitute
substantially all of the properties of Seller as provided for in Section
368(a)(1)(C) of the Code, the regulations thereunder and Revenue Procedure
77-37, 1977-2 C.B. 568.
4.9 COMPLIANCE WITH LAWS. Except as set forth on SCHEDULE 4.9, Seller
has conducted the Business in compliance with all applicable laws, regulations
or orders of any jurisdiction or governmental authority, including, without
limitation, those pertaining to, environmental protection, occupational health
or safety, employee benefits, or employment practices. Except as set forth on
SCHEDULE 4.9, Seller has all permits, registrations and licenses necessary to
conduct the Business, and all of Seller's employees utilized in connection with
the Business have obtained all required permits, registrations, and licenses
required in connection with their duties rendered on behalf of Seller or the
Business. All such permits and licenses are in full force and effect, and no
proceeding is pending or, to the knowledge of Seller, threatened, to revoke or
limit any of them.
4.10 NO LITIGATION. Except as set forth on SCHEDULE 4.10, there is no
(a) claim, litigation, investigation or proceeding pending or, to the knowledge
of Seller, threatened against Seller; or (b) pending or, to the knowledge of
Seller, threatened controversies, grievances or claims by any employee or former
employee of Seller with respect to their employment, compensation, benefits or
working conditions.
4.11 CONDITION. Except as set forth on SCHEDULE 4.11, all items of
tangible property included among the Purchased Assets (a) are in good operating
condition, normal wear and tear excepted, (b ) neither require nor are
reasonably expected to require any special or extraordinary expenditures to
remain in such condition beyond normal maintenance, and (c) are capable of being
used for their intended purposes in the ordinary course of the Business
consistent with past practice.
4.12 TAXES. All tax returns, reports and declarations (hereinafter,
collectively, "Tax Returns") required by any governmental authority to be filed
in connection with the properties, Business, income, expenses, net worth and
franchises of Seller have been timely filed by either Seller or the
Shareholders. All taxes, assessments, levies, duties, tariffs and related fees,
penalties or interest due from Seller or Shareholders in connection with the
Business ("Taxes") have been paid by either Seller or the Shareholders, other
than taxes which are not yet due or which, if due, are not yet delinquent or are
being contested in good faith, and for which in all cases reserves have been
established on the March Balance Sheet. There are no Tax claims, audits or
proceedings pending in connection with the properties, Business, income,
expenses, net worth and franchises of Seller, and, to the knowledge of Seller,
there are no such threatened claims, audits or proceedings.
10
11
4.13 EMPLOYEE BENEFITS. All employee benefit plans (as such term is
defined in Section 3(3) of ERISA) and all other employee benefit programs or
arrangements of any type (collectively, the "Plans") maintained by Seller or to
which Seller contributes are listed on SCHEDULE 4.13, and, except as disclosed
on said SCHEDULE 4.13, such Plans comply, in all material respects, with all
applicable provisions of any laws, rules or regulations, including, without
limitation, the Internal Revenue Code of 1986, as amended ("Code") and ERISA,
and have so complied during all prior periods during which any such provisions
are applicable. Except as disclosed on said SCHEDULE 4.13, Seller (i) has
complied in all material respects with the provisions of ERISA applicable to
Seller as an employer, plan sponsor, plan administrator or fiduciary of any such
Plan, (ii) has administered the Plans in accordance with their terms and (iii)
with respect to any Plan maintained by Seller or to which Seller contributes,
has made all contributions required of it by any law (including, without
limitation, ERISA) or contract and no unfunded liability exists with respect to
any Plan.
4.14 CUSTOMERS. Except as set forth on SCHEDULE 4.14, no customer of
the Business accounting for more than Three Hundred Thousand Dollars ($300,000)
in revenues during 1997 has canceled or otherwise terminated, or, to the
knowledge of Seller, made any threat to cancel or otherwise terminate, its
relationship with Seller or to materially decrease its purchases from Seller.
4.15 CONTRACTS. Except as set forth on SCHEDULE 4.15, neither Seller
nor, to the knowledge of Seller, any other party to any Assigned Contract set
forth on SCHEDULE 4.15 has breached any obligation under any such Assigned
Contract.
4.16 CONFLICTS. Except as set forth on SCHEDULE 4.16, neither the
Shareholders, nor any other person or entity controlled by or under common
control with Seller or the Shareholders, has any direct or indirect interest in
any business enterprise which does business with Seller or competes with Seller
in any manner.
4.17 ABSENCE OF CERTAIN BUSINESS PRACTICES. Except as set forth on
SCHEDULE 4.17, Seller and Shareholders have not, and to the knowledge of Seller
no employee or agent of Seller, or any other person acting on its behalf has,
directly or indirectly, given or agreed to give any gift or similar benefit to
any customer, supplier, governmental employee or other person which (i) might
subject Seller to any damage or penalty in any civil, criminal or governmental
litigation or proceeding, (ii) if not given in the past, might have had an
adverse effect on the Purchased Assets or the Business, or (iii) if not
continued in the future, might adversely affect the Purchased Assets, the
Business or the prospects of the Business.
4.18 BROKERS AND FINDERS. Except as set forth on SCHEDULE 4.18, no
broker, finder or other person or entity acting in a similar capacity has
participated on behalf of Seller or the Shareholders in bringing about the
transactions contemplated herein, rendered any services with respect hereto, or
been in any way involved herewith.
4.19 INVESTMENT MATTERS. Seller is acquiring the New Horizons Stock for
investment
11
12
purposes, for its own account and not with a view to distribution or resale
thereof or to divide its participation with others; provided, however, Seller
may elect to transfer the New Horizons Stock to the Shareholders, each of whom
hereby confirms that he will thereby acquire the New Horizons Stock for
investment purposes, for his own account and not with a view to distribution or
resale thereof or to divide his participation with others. Seller is an
"accredited investor" as defined in Regulation D, 17 C.F.R. Section 230.501(a),
under the Securities Act of 1933, as amended (the "Act"). Seller and each of the
Shareholders have knowledge and experience in financial and business matters
such that they are capable of evaluating the merits and risks of an investment
in the New Horizons Stock. Seller and the Shareholders acknowledge that they
have received and have reviewed (a) New Horizons' Proxy Statement dated Xxxxx 0,
0000, (x) New Horizons' Annual Report on Form 10-K for the year ended December
31, 1997, and (c) all other material and relevant information concerning New
Horizons, which New Horizons has furnished in accordance with the rules of the
Securities and Exchange Commission ("SEC"), and have had the opportunity to ask
questions of, receive answers from and obtain additional information from New
Horizons concerning the business and financial condition of New Horizons.
Seller and the Shareholders understand, acknowledge and agree that,
except as otherwise provided in Sections 9.5 and 9.6 of this Agreement: (i) none
of the New Horizons Stock will be registered under the Act and that all of the
New Horizons Stock will constitute "restricted securities" as defined in Rule
144 under the Act; (ii) the New Horizons Stock must be held indefinitely unless
it is registered under the Act or an exemption from registration is available;
(iii) neither New Horizons nor Buyer is under any obligation or has made any
commitment to provide any such registration or to take such steps as are
necessary to permit sale without registration pursuant to Rule 144 under the Act
or otherwise; (iv) at such time as the New Horizons Stock may be disposed of in
routine sales without registration in reliance on Rule 144 under the Act, such
disposition can be made only in limited amounts in accordance with all of the
terms and conditions of Rule 144; (v) if the Rule 144 exemption is not
available, compliance with some other exemption from registration will be
required; (vi) all certificates evidencing the New Horizons Stock will bear an
appropriate legend concerning restrictions on transfer; and (vii) the transfer
agent and registrar of Buyer will be advised by appropriate "stop-transfer"
instructions of the foregoing restrictions and instructed to advise Buyer of any
proposed transfer of certificate(s) evidencing the New Horizons Stock.
4.20 SOFTWARE NON-INFRINGEMENT.
(a) Except as set forth below in Section 4.20(b), all software used
in connection with the Business has been developed by third parties and licensed
to the Business by such third parties ("Third Party Software") pursuant to valid
license agreements, which agreements are fully paid and in full force and
effect. Seller is not aware of any pending or threatened claims against or
demands upon Seller or Shareholders alleging that the Third Party Software
infringes upon the rights of any third party.
(b) Seller utilizes student evaluation software ("Owned
Software") which was developed by employees of Seller's affiliated company, New
Horizons Computer Learning Center
12
13
of Nashville, Inc. ("Nashville Affiliate"). To the best of Seller's knowledge
the Owned Software is owned by the Nashville Affiliate and Seller has the right
to use the same with the approval of the Nashville Affiliate without the payment
to any other person of any royalty or other sums.
4.21 NO MISREPRESENTATIONS. No representation or warranty made by
Seller or the Shareholders in this Agreement, the Schedules or Exhibits hereto,
or any certificate or document delivered to Buyer contains any untrue statement
of a material fact or omits to state a fact necessary to make the statements and
facts contained therein or herein, in light of the circumstances under which
they are made, not false or misleading. Copies of all documents included in the
Exhibits or Schedules hereto are complete and accurate copies of such documents.
4.22 KNOWLEDGE DEFINED. For purposes of this Section 4, "to the
knowledge of Seller" or words of similar import shall mean (i) the actual
knowledge of any Shareholder or any executive officer (including, but not
limited to, Seller's Chief Executive Officer, Chief Operating Officer,
President, or Secretary) or member of the board of directors of Seller, and (ii)
the knowledge any of such persons would have had after making a reasonable
investigation and review of Seller's books and records and other relevant
documentation.
5. REPRESENTATIONS AND WARRANTIES OF BUYER AND NEW HORIZONS.
Buyer and New Horizons jointly and severally represent and warrant to
Seller and the Shareholders as follows:
5.1 ORGANIZATION AND AUTHORITY. Buyer and New Horizons are validly
existing corporations in good standing under the laws of the State of Delaware,
and have full corporate power and authority to execute, deliver and perform this
Agreement. This Agreement and the transactions contemplated by this Agreement,
have been authorized by all necessary corporate action of Buyer and New
Horizons. This Agreement has been duly executed and delivered by Buyer and New
Horizons and constitutes the legal, valid and binding obligation of Buyer and
New Horizons, enforceable against Buyer and New Horizons in accordance with its
terms.
5.2 NO CONSENTS OR CONFLICTS. No consent of, or filing with, any
governmental authority or third party is required in connection with the
execution, delivery or performance of this Agreement by Buyer or New Horizons.
Neither the execution or delivery nor the performance of this Agreement or any
of the other agreements, instruments or documents to be delivered by or on
behalf of Buyer or New Horizons in connection herewith conflicts with, violates
or results in any breach of: (i) any judgment, decree, order, statute, rule or
regulation applicable to Buyer, (ii) any material agreement to which Buyer or
New Horizons is a party or by which either of them is bound, or (iii) any
provision of the Articles of Incorporation or the By-Laws of Buyer or New
Horizons.
5.3 ACCURACY OF PUBLIC DISCLOSURES. Buyer and New Horizons have
previously furnished to Seller and the Shareholders New Horizons' (a) Proxy
Statement dated Xxxxx 0, 0000,
00
00
(x) Annual Report on Form 10-K for the year ended December 31, 1997, and (c) all
other material and relevant information concerning New Horizons. As of their
respective dates such reports and statements did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
5.4 NEW HORIZONS STOCK. The shares of New Horizons Stock issued or to
be issued pursuant to this Agreement have been duly authorized and, when issued,
will be validly issued, fully paid and nonassessable.
5.5 BROKERS AND FINDERS. No broker, finder or other person or entity
acting in a similar capacity has participated on behalf of Buyer in bringing
about the transactions contemplated herein, rendered any services with respect
thereto or been in any way involved therewith, except The Nassau Group, Inc.,
the fees and expenses of which shall be borne exclusively by Buyer and New
Horizons.
5.6 LITIGATION. There are no claims, actions, suits, proceedings or
investigations pending or, to the knowledge of Buyer or New Horizons, threatened
before any court, arbitrator or governmental or regulatory agency, which seek to
restrain, enjoin or otherwise prevent the consummation of the transactions
contemplated by this Agreement.
6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the parties set forth in Sections
4 and 5 hereof will survive the Closing, regardless of any investigation made by
any party hereto, for a period of eighteen (18) months from the Closing Date,
except that the representations and warranties contained in Sections 4.1, 4.2,
4.6, 4.7, 4.9, 4.12, 4.13, 4.19, 5.1, 5.2, 5.4 and 5.5 will survive for the
applicable statute of limitations (including extensions).
7. CLOSING.
The consummation of the transactions contemplated by this Agreement
(the "Closing") will take place simultaneously with the execution and delivery
of this Agreement by all of the parties hereto as of the date hereof (the
"Closing Date"), at the offices of Seller's Counsel or at such other place or in
such other manner as the parties may agree in writing, and shall be effective as
of the opening of business on such date.
7.1 SELLER'S CLOSING DELIVERIES. Shareholders and Seller shall deliver
or cause to be delivered the following items in connection with the Closing,
each of which shall be in form and substance acceptable to Buyer and its
counsel:
(a) CONSENTS. The consent to the transactions contemplated by this
Agreement
14
15
of any third party whose consent is required for the consummation of such
transactions by Seller or Shareholders;
(b) BOARD AND SHAREHOLDER APPROVAL. Certified copies of the
resolutions of Seller's Board of Directors and Shareholders approving the
consummation of the transactions contemplated by this Agreement;
(c) TRANSFER INSTRUMENTS. Bills of sale, assignments and other
transfer instruments sufficient to convey, transfer, and assign to Buyer, and to
effectively and legally vest in Buyer, all of Seller's right, title and interest
in and to the Purchased Assets;
(d) FRANCHISE AGREEMENT. A written cancellation of and waiver of
claims by Seller under Seller's Franchise Agreement with New Horizons Computer
Learning Centers, Inc. (f/k/a New Horizons Franchising, Inc.);
(e) EMPLOYMENT AGREEMENTS. Employment Agreements between Buyer and
each of Xxxxx Xxxxxxxxx and Xxxxxx X. Xxxxxx, III, substantially in the form and
content shown on Exhibits B-1 and B-2 hereto to be effective from and after the
Closing Date;
(f) ESCROW AGREEMENT. The Escrow Agreement provided for in Section
3.1(c);
(g) NAME CHANGE. An amendment to the articles of incorporation or
charter of Seller changing its name so as to exclude therefrom any reference to
the name "New Horizons," "New Horizons Computer Learning Center" and all
variations thereof, which amendment the Buyer may cause to be recorded in all
public offices wherein same is required to effect a change in the name of the
Seller; and
(h) OTHER DELIVERIES. Such other instruments and documents as may
be reasonably required of Seller or Shareholders in order to give effect to the
transactions contemplated by this Agreement.
7.2 BUYER'S CLOSING DELIVERIES. New Horizons and Buyer shall deliver or
cause to be delivered the following items in connection with the Closing, each
of which shall be in form and substance acceptable to Seller, Shareholders and
their counsel.
(a) EMPLOYMENT AGREEMENTS. Employment Agreements between Buyer and
each of Xxxxx Xxxxxxxxx and Xxxxxx X. Xxxxxx, III, substantially in the form and
content shown on Exhibits B-1 and B-2 hereto to be effective from and after the
Closing Date, with the Buyer's obligations to pay compensation guaranteed by New
Horizons;
(b) CONSENTS. The consent to the transactions contemplated by this
Agreement of any third party whose consent is required for the consummation of
such transactions by Buyer or New Horizons;
15
16
(c) BOARD APPROVALS. Certified copies of the resolutions of the
Board of Directors of Buyer and New Horizons approving the consummation of the
transactions contemplated by this Agreement;
(d) PURCHASE PRICE. The shares of New Horizons Stock provided for
in Sections 3.1(a) and (b);
(e) ASSUMPTION AGREEMENT. The agreement of Buyer and New Horizons
to assume, and to pay, perform and abide by, all obligations comprising the
Assumed Liabilities;
(f) ESCROW AGREEMENT. The Escrow Agreement provided for in Section
3.1(c); and
(g) OTHER DELIVERIES. Such other instruments and documents as may
be reasonably required of Buyer or New Horizons in order to give effect to the
transactions contemplated by this Agreement.
8. RESTRICTIVE COVENANTS
8.1 CONFIDENTIALITY. Without the prior written consent of Buyer, Seller
and Shareholders shall at all times hold in strictest confidence the terms of
this Agreement and any and all non-public information concerning the Business,
Buyer or any of Buyer's affiliated companies except to the extent disclosure of
such information is required by legal process or applicable law (in which case,
if the disclosure is required in connection with a judicial or quasi- judicial
proceeding, Seller and Shareholders shall notify Buyer thereof and give Buyer an
opportunity to oppose such disclosure) or in connection with a proceeding
arising out of or relating to this Agreement.
8.2 NON-COMPETITION. Seller and Shareholders shall not, for a period of
five (5) years following the Closing, without the prior written consent of
Buyer, engage or invest, directly or indirectly, in any form of business
activity or organization that is competitive with the Business in any area where
Buyer, any affiliate of Buyer, including New Horizons Computer Learning Centers,
Inc., or any franchisee of Buyer or any affiliate of Buyer has conducted such
business; provided, however, that any of Seller or the Shareholders (or any
entity in which Shareholders, directly or indirectly, own an interest) may,
without regard to location, (A) own, directly or indirectly, securities of any
publicly traded enterprise which do not represent a beneficial ownership of more
than five percent (5%) of any class of securities of such enterprise, (B) own
and operate any business which is a franchisee or licensee of Buyer or of any
affiliate of Buyer (including New Horizons Computer Learning Centers, Inc.) and
(C) own and operate businesses of the character now conducted by the Shareholder
Affiliates as described on SCHEDULE 8.2 hereto.
8.3 NON-INTERFERENCE.
16
17
(a) BY SELLER AND SHAREHOLDERS. Seller and Shareholders shall not,
for a period of five (5) years following the Closing, without the prior written
consent of Buyer, directly or indirectly induce or attempt to induce any
employee, agent, consultant, representative, supplier, or customer of Buyer or
any of its affiliated companies to terminate its relationship with Buyer or such
affiliate, or otherwise interfere with a relationship between Buyer or such an
affiliate and any of their employees, agents, consultants, representatives,
suppliers, or customers. Notwithstanding the foregoing, the contemporaneous
employment of Xxxxx Xxxxxxxxx and Xxxxxx X. Xxxxxx, III by Buyer (or its
affiliates) and the Shareholder Affiliates or any entity hereafter organized for
purposes of owning and/or operating businesses of a character permitted to be
owned and operated under Subsections (B) and (C) of Section 8.2 shall not be
deemed in contravention hereof.
(b) BY BUYER, NEW HORIZONS AND THEIR AFFILIATES. Buyer and New
Horizons shall not, and shall not permit any of their affiliates, for a period
of five (5) years following the Closing, without the prior written consent of
the Shareholders, to directly or indirectly induce or attempt to induce any
employee, agent, consultant, representative, supplier, or customer of the
businesses owned by the Shareholders which are conducted as a franchisee of New
Horizons Computer Learning Centers, Inc. to terminate its relationship with any
such franchisee, or otherwise interfere with a relationship between such
franchisee and any of their employees, agents, consultants, representatives,
suppliers, or customers.
8.4 ADEQUATE CONSIDERATION. Seller and Shareholders acknowledge and
agree that the obligations of Buyer hereunder constitute adequate consideration
for their obligations under this Section 8.
8.5 REMEDIES. Seller and Shareholders acknowledge that a breach of any
of the provisions of this Section 8 will result in irreparable damage to Buyer
for which there will be no adequate remedy at law, and agree that Buyer, in
addition to its rights at law, will be entitled to injunctive and other
equitable relief to enforce such provisions, without having to post any bond.
8.6 REFORMATION. In the event any provision of this Section 8 shall be
determined to be unenforceable or invalid, such provision shall be enforceable
in part to the fullest extent permitted by law, such invalidity or
unenforceability shall not otherwise affect any other provision of this
Agreement or any similar agreement, and this Agreement shall otherwise remain in
full force and effect.
8.7 TERMINATION OF RESTRICTIONS. In the event that Buyer or New
Horizons should fail to make any Earn Out Payments required as set forth in
Section 3.3 hereof, then Seller and the Shareholders shall be relieved of their
obligations with respect to their undertakings set forth in Section 8.2 or
8.3(a) hereof. In addition, in the event that Buyer or New Horizons should
terminate the employment of either of Xxxxx Xxxxxxxxx or Xxxxxx X. Xxxxxx III
without Cause (as defined in their respective Employment Agreements) then either
Xxxxx Xxxxxxxxx or Xxxxxx X. Xxxxxx III as the case may be, shall be relieved of
any further obligations or liabilities with
17
18
respect to their undertakings set forth in Section 8.2 or 8.3(a) hereof.
9. POST-CLOSING AGREEMENTS; FURTHER ASSURANCES
9.1 LICENSES AND PERMITS. As of the Closing, Buyer may not have all
required licenses, permits and other governmental or vendor authorizations
necessary for it to take title to all of the Purchased Assets and to hereafter
operate all aspects of the Business. Seller agrees to cooperate with Buyer in
timely obtaining such licenses, permits and other governmental and vendor
authorizations, and further agrees that Buyer may operate the Business under the
authority of any of Seller's licenses, permits or other governmental
authorizations of the type that Buyer has not yet obtained, PROVIDED, that such
operation does not violate applicable laws or regulations, and that Buyer and
New Horizons jointly and severally indemnify and hold Seller harmless against
any and all costs, liability, loss, damage or deficiency resulting from Seller's
performance of these obligations.
9.2 FURTHER ASSURANCES. The parties hereto agree to execute and deliver
to any other party any and all documents and instruments, and do and perform
such acts, in addition to those expressly provided for herein, as may be
necessary or appropriate to carry out or evidence the transactions contemplated
by this Agreement, whether before, at or after the Closing. Except as otherwise
provided in transfer documents executed in connection with the Closing
hereunder, this Agreement will not constitute an agreement to assign any
contract or claim or any right or benefit arising thereunder or resulting
therefrom if an attempted assignment thereof, without the consent of a third
party thereto, would constitute a breach thereof or in any way affect the rights
of Buyer thereunder. Seller and the Shareholders shall use their best efforts to
obtain the consent of the other party to any of the foregoing contracts or
claims to the assignment thereof to Buyer in all cases that such consent is
required for assignment or transfer.
9.3 EMPLOYEES OF SELLER; "COBRA" NOTICES.
(a) NOTIFICATIONS. Seller shall, within fourteen (14) days after
the Closing Date, provide such notices of continuation health coverage as are
required to be provided to any of Seller's employees, former employees, or the
beneficiaries or dependents of such employees or former employees, under Part 6
of Subtitle B of Title I of ERISA or Section 4980B(f) of the Code, in such form
as Seller and Buyer shall jointly prepare consistent with applicable law;
(b) OFFER OF EMPLOYMENT. Without committing to future employment or
compensation and benefit levels, such employees designated by Xxxxx Xxxxxxxxx as
being qualified will be offered employment at will with the Buyer at its
operations in Nashville, Tennessee with compensation and benefits initially
consistent with those presently provided such persons by Seller, except for the
"match" contributed by Seller for the accounts of Seller's employees who
participate in Seller's 401(k) Plan. Further, for purposes of determining such
employees' vacation benefits, and vesting under any employee benefits plans (to
the extent permitted by the terms of any such plans) such persons shall be
entitled to prior service credit
18
19
for the time of their employment with Seller.
9.4 OPERATION OF THE BUSINESS BY BUYER. During the period commencing on
the Closing Date and ending upon payment of the last Earn-Out Payment
contemplated by Section 3.3, Buyer covenants and agrees as follows:
(a) Buyer shall cause separate and distinct books and records for
the Business to be maintained and for the Business to be continued in Nashville,
Tennessee. Except as provided for in Section 9.5 below, the only business in
which Buyer shall engage is the operation of the Business and the operation of
any other business acquired from any "New Horizons Computer Learning Center"
licensee which is owned by the Shareholders.
(b) Buyer shall deliver or cause to be delivered to Shareholders
within twenty (20) days after the end of each calendar month copies of the
balance sheet of the Business as of that date and of the statements of income
for the year-to-date then ended. Further, within ninety (90) days following the
end of each fiscal year following the Closing, Buyer shall deliver or cause to
be delivered to Shareholders the unaudited financial statements of the Buyer,
together with a certification of Buyer's chief financial officer that the EBIT
derived by Buyer from the Business in accordance with the requirements of this
Agreement.
(c) Other than as prohibited in the computation of EBIT, all
charges to the Business for services provided by any of the Buyer, New Horizons
or any of their affiliates shall be at prices and on terms no less favorable to
the Business than those obtainable from third parties.
(d) Buyer acknowledges that a material inducement to Seller and
Shareholders is the undertaking of Buyer to retain the services of Xxxxx
Xxxxxxxxx and Xxxxxx X. Xxxxxx, III for and during the period of the Earn-Out as
set forth in Section 3.3 of this Agreement. The purpose hereof is to give Seller
and Shareholders assurance that decisions affecting the Business, as conducted
by Buyer, will, to the extent practicable and otherwise compatible with Buyers
and New Horizon's operations and strategic plans, be reflective of the business
philosophy and judgment possessed by Xxxxx Xxxxxxxxx and Xxxxxx X. Xxxxxx, III.
Accordingly, while Seller and Shareholders recognize and agree that Buyer
possesses ultimate authority to direct the Business, Buyer agrees that it will
direct and operate the Business with a view to developing a consensus with such
persons on matters which materially affect the Business, its earnings and
prospects. While the Buyer retains authority to discharge and regulate
compensation of employees who are not covered by employment agreements, neither
Buyer nor New Horizons shall, nor shall permit any of their affiliates to,
relocate to other operations conducted by such persons any of the persons
employed in connection with the Business unless Xxxxx Xxxxxxxxx and Xxxxxx X.
Xxxxxx, III shall approve thereof.
9.5 DISPOSITION OF NEW HORIZONS STOCK. Seller and Shareholders agree
that, except for a transfer of the New Horizons Stock by Seller to the
Shareholders, as contemplated in Section 4.19 of this Agreement, they will not
sell, transfer, pledge or otherwise dispose of the
19
20
New Horizons Stock prior to the expiration of the twenty-four (24) month period
following the Closing; provided, however, that Seller and each Shareholder may
sell, transfer or otherwise dispose of up to fifty percent (50%) of the shares
of New Horizons Stock received hereunder after that date which is twelve (12)
months following the Closing. In connection with any such permitted disposition,
New Horizons agrees to provide the Seller and each Shareholder with such
information, and to make or cause to be made such filings, as may be required in
order to enable such Seller or Shareholder to dispose of the New Horizons Stock
pursuant to the Rule 144 exemption promulgated pursuant to the Act.
9.6 REGISTRATION RIGHTS.
9.6.1 REGISTRATION RIGHTS. Subject to the limitations set forth in
Section 9.6.2 hereof, in the event that (i) New Horizons files or causes to be
filed a registration statement ("Registration Statement") under the Securities
Act in connection with the proposed offer and sale for cash by it or by Xxxxxx
Xxx Xxxxx, Xx. and Xxxxxx X. Xxxxx of shares of New Horizons Stock (the
"Registration"), other than a registration on Form S-4 or Form S-8 promulgated
under the Securities Act or any successor or similar form, and (ii) the sale of
the New Horizons Stock issued to the Shareholders remains restricted pursuant to
Rule 144 of the Securities Act, or by the terms of this Agreement, New Horizons
will give written notice of its or their intention to effect the Registration to
each of the Shareholders. Upon written request from any one or more of the
Shareholders to New Horizons within 15 days after the mailing of any such notice
from New Horizons regarding the Registration, New Horizons shall use its best
efforts to cause the shares of New Horizons Stock as to which such registration
has been requested to be included in the Registration. For purposes of this
Agreement, and subject to New Horizon's rights under Subsection 9.6.2 hereof,
New Horizons shall be deemed to have used its best efforts to satisfy its
obligations under this Section 9.6 if it: (i) prepares and files with the
Securities and Exchange Commission a Registration Statement with respect to the
New Horizons Stock for which registration has been properly requested and to use
its best efforts to cause such Registration Statement to become and remain
effective for such period as may be necessary to permit the Shareholders to
dispose of the shares of New Horizons Stock covered thereby; provided, however,
that New Horizons not need file any such Registration Statement (or cause same
to become or remain effective) after the date that such shares of New Horizons
Stock are freely tradable without restriction under the Act by the Shareholders
pursuant to Rule 144(k) promulgated thereunder and under the terms of this
Agreement (the "Registration Expiration Date") (ii) prepares and files with the
Securities and Exchange Commission such amendments and supplements to the
Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by the
Registration Statement, (iii) furnishes to the Shareholders such numbers of
copies of a prospectus in conformity with the requirements of the Act, and such
other documents as the Shareholders may reasonably request in order to
facilitate the disposition of the New Horizons Stock owned by the Shareholders;
and (iv) uses its best efforts to register and qualify the securities covered by
the Registration Statement under such other securities or Blue Sky law of such
jurisdictions as shall be reasonably appropriate for the distribution of the
securities covered by the Registration Statement, provided that New Horizons
20
21
shall not be required in connection therewith or as a condition thereto to
qualify to do business or to file a general consent to service of process in any
such states or jurisdictions. Nothing contained herein shall be construed to
confer any rights upon the Shareholders to make an underwritten offering of
their New Horizons Stock or to include their New Horizons Stock in any
registration statement that includes securities to be issued by New Horizons for
its own account that does not include shares of New Horizons Stock.
9.6.2 LIMITATIONS ON REGISTRATION RIGHTS. Notwithstanding the
provisions of Subsection 9.6.1 of this Agreement: (i) the maximum number of
shares of New Horizons Stock that may be included in any Registration Statement
shall be determined by New Horizons, in its reasonable discretion; (ii) New
Horizons shall not be obligated to include the Shareholders in more than two
Registrations pursuant to this Agreement; and (iii) New Horizons may postpone
for up to six months the filing or effectiveness of any Registration Statement
if (A) New Horizons determines, in its reasonable discretion, that such
registration would have an adverse effect upon any pending or proposed
transaction which is or may become material to New Horizons and its subsidiaries
and affiliates, taken as a whole, (B) in order to complete any registration,
distribution or lock-up period in connection with any underwritten offering of
any of New Horizons' securities, or (C) if consistent with New Horizon's
business purposes, to delay the disclosure to the public of any material event.
9.6.3 LOCK-UP AGREEMENTS. The Shareholders agree that, if New
Horizons or the managing underwriter(s) of any underwritten offering of New
Horizons' securities so requests, the Shareholders will not, without the prior
written consent of New Horizons or such underwriter(s), effect any sale,
transfer or other disposition of any of the shares of New Horizons Stock,
including sales pursuant to a Registration Statement or under Rule 144, during
the 10-day period prior to, and during the 180-day period commencing on, the
effective date of such underwritten registration (or during such shorter period
or periods as such underwriter(s) may in writing permit).
9.6.4 SHAREHOLDER'S OBLIGATION TO FURNISH INFORMATION. It shall be
a condition precedent to the obligations of New Horizons to take any action
pursuant to Subsection 9.6.1 hereof that the Shareholders shall furnish to New
Horizons such information regarding the Shareholders, the New Horizons Stock
held by them, and the intended method of disposition of such securities as New
Horizons shall reasonably request and as shall be required in connection with
the actions to be taken by New Horizons.
9.6.5 EXPENSES OF REGISTRATION. All expenses incurred in connection
with the Registrations pursuant to Subsection 9.6.1 (excluding underwriters'
discounts and commissions and brokerage or dealer commissions), including
without limitation all registration and qualification fees, costs of complying
with applicable blue sky and other securities laws, printers' and accounting
fees, and fees and disbursements of counsel for New Horizons shall be borne by
New Horizons; provided, however, that New Horizons shall not be required to pay
for any such expenses if the Shareholders subsequently withdraw the New Horizons
Stock from said Registration.
21
22
9.6.6 DELAY OF REGISTRATION. The Shareholders shall not have any
right to take any action to restrain, enjoin or otherwise delay the Registration
Statement as the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 9.6.
9.6.7 INDEMNIFICATION. If any shares of New Horizons Stock owned by
the Shareholders are included in a registration statement under this Section
9.6:
9.6.7.1 INDEMNIFICATION OF SHAREHOLDERS. To the extent
permitted by law, New Horizons will indemnify and hold harmless the Shareholders
requesting or joining in the Registration Statement against any losses, claims,
damages or liabilities, joint or several, to which they may become subject under
the Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based on any untrue or alleged
untrue statement of any material fact contained in such Registration Statement,
including any prospectus contained therein or any amendments or supplements
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or arise out of any violation by New
Horizons of any rule or regulation promulgated under the Act applicable to New
Horizons and relating to action or inaction required by New Horizons in
connection with any such registration; and will reimburse the Shareholders for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this Subsection
9.6.7.1 shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of New Horizons (which consent shall not be unreasonably withheld) nor shall New
Horizons be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
connection with such registration statement, any prospectus, or amendments or
supplements thereto, in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by the
Shareholders. It is expressly understood among the parties to this Agreement
that in no event shall New Horizons be obligated to agree to indemnify, in any
respect, any underwriter, broker, dealer or other entity or person effecting the
sale, purchasing or otherwise distributing any of the New Horizons Stock.
9.6.7.2 INDEMNIFICATION OF NEW HORIZONS. To the extent
permitted by law, the Shareholders will indemnify and hold harmless New
Horizons, each of its directors, each of its officers who have signed the
Registration Statement, each person, if any, who controls New Horizons within
the meaning of the Act, and each agent for New Horizons (within the meaning of
the Act) against any losses, claims, damages or liabilities to which New
Horizons or any such directors, officer, controlling person or agent may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, including any prospectus contained therein or any
amendments or supplements thereto, or arise out of or are based upon the
omissions or alleged omission to state
22
23
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in the Registration Statement, prospectus, or amendments or supplements thereof,
in reliance upon and in conformity with written information furnished by the
Shareholders for use in connection with such registration; and the Shareholders
will reimburse any legal or other expenses reasonably incurred by New Horizons
or any such director, officer, controlling person or agent in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this Subsection
9.6.7.2 shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Shareholders (which consent shall not be unreasonably withheld).
9.6.8 TRANSFER OF REGISTRATION RIGHTS. The registration rights of
the Shareholders under this Section 9.6 may not be transferred to any third
party, except that such rights may be transferred to an estate, trust, or heir,
upon the death of a Shareholder.
9.6.9 REPORTS UNDER EXCHANGE ACT. With a view to making available
to the Shareholders the benefits of Rule 144 promulgated under the Act and any
other rule or regulation of the Securities and Exchange Commission that may at
any time permit the Shareholders to sell securities of New Horizons to the
public without registration, New Horizons agrees to use its best efforts to (i)
make and keep public information available, as those terms are understood and
defined in Rule 144, (ii) file with the Securities and Exchange Commission in a
timely manner all reports and other documents required of New Horizons under the
Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act") and
(iii) furnish to each Shareholder, so long as such Shareholder owns any of the
New Horizons Stock, a written statement by New Horizons that it has complied
with the reporting requirements of Rule 144 and of the Act and the Exchange Act,
a copy of the most recent annual or quarterly report of New Horizons, and such
other reports and documents so filed by New Horizons as may be reasonably
requested in availing the Shareholder of any rule or regulation of the
Securities and Exchange Commission permitting the selling of any such securities
without registration.
9.7 POST CLOSING TRANSFER. Seller and Shareholders acknowledge that
Buyer intends to transfer the Purchased Assets to a wholly-owned subsidiary of
Buyer shortly after the Closing. Accordingly, all references to operation of the
Business after such transfer shall be deemed to refer to such subsidiary.
10. INDEMNIFICATION
10.1 INDEMNITY BY SELLER AND SHAREHOLDERS. Seller and the Shareholders
jointly and severally agree to indemnify and hold Buyer and New Horizons
harmless from and against (a) any and all loss, damage, liability or deficiency
resulting from or arising out of any inaccuracy in or breach of any
representation, warranty, covenant, or obligation made or incurred by Seller or
the Shareholders herein, (b) any claim (including, without limitation, under any
bulk transfer
23
24
or similar laws) by a third party against Buyer or New Horizons with respect to
any Retained Liabilities ("Third Party Claim"), and (c) any and all costs and
expenses (including reasonable attorneys' and accountants' fees) related to any
of the foregoing. Unless otherwise agreed in writing by Buyer or New Horizons,
all amounts payable by Seller or Shareholders pursuant to this Section 10.1
shall be payable in cash; provided that Seller and Shareholders may tender a
combination of cash and shares of New Horizons Stock proportionate to the
portion of the Purchase Price which each comprises (with any shares of New
Horizons Stock valued for such purposes at the average closing price of such
shares for the thirty (30) trading days preceding the date of their tender to
the Buyer or New Horizons).
10.2 INDEMNITY BY BUYER AND NEW HORIZONS. Buyer and New Horizons
jointly and severally agree to indemnify and hold Seller and the Shareholders
harmless from and against (a) any and all loss, damage, liability or deficiency
resulting from or arising out of any inaccuracy in or breach of any
representation, warranty, covenant, or obligation made or incurred by Buyer or
New Horizons herein, (b) any claim by a third party upon Seller or any
Shareholder with respect to any Assumed Liabilities ("Third Party Claim"), and
(c) any and all costs and expenses (including reasonable attorneys' and
accountants' fees) related to any of the foregoing. Unless otherwise agreed in
writing by all of the Shareholders, all amounts payable by Buyer or New Horizons
pursuant to this Section 10.2 shall be payable in cash.
10.3 THIRD PARTY CLAIMS. If any legal proceedings shall be instituted
or any claim is asserted by any third party in respect of which any party hereto
may be entitled to indemnity hereunder, the party asserting such right to
indemnity shall give the party from whom indemnity is sought prompt written
notice thereof. A delay in giving notice shall only relieve the recipient of
liability to the extent the recipient suffers actual prejudice because of the
delay.
(a) DEFENSE OF CLAIM. The party from whom indemnity is sought shall
have the right, at its option and expense, to participate in the defense of such
a proceeding or claim, but not to control the defense, negotiation or settlement
thereof, which control shall at all times rest with the party asserting such
right to indemnity, unless the proceeding or claim involves only money damages
and the party from whom indemnity is sought (i) irrevocably acknowledges in
writing complete responsibility for and agrees to indemnify the party asserting
such right to indemnity, and (ii) furnishes satisfactory evidence of the
financial ability to indemnify the party asserting such right to indemnity, in
which case the party from whom indemnity is sought may assume such control
through counsel of its choice and at its expense, but the party asserting such
right to indemnity shall continue to have the right to be represented, at its
own expense, by counsel of its choice in connection with the defense of such a
proceeding or claim.
(b) AUTHORITY TO SETTLE. The party entitled to control the defense
of the Third Party Claim as set forth above shall have complete authority to
effect a settlement for monetary damages, and any such settlement or judgment
entered in any proceeding resulting from such Third Party Claim shall be deemed
to have been consented to by, and shall be binding on, the parties hereto;
provided that (i) such settlement shall not prejudice the right of the party
from whom indemnity is sought to contest the right of the other to
indemnification under this
24
25
Agreement, and (ii) if the party from whom indemnity is sought has assumed
control of the defense of such a proceeding or claim and has effected a
settlement thereof, then such settlement shall not be binding on the party
asserting such right to indemnity unless (aa) such party asserting the right to
indemnity has consented to such settlement or (bb) such settlement includes as
an unconditional term thereof the giving by the claimant to the party asserting
such right to indemnity a release from all liability in respect of the
proceeding or claim. The parties hereto agree to cooperate fully with each other
in connection with the defense, negotiation or settlement of any such proceeding
or claim.
10.4 LIMITATIONS ON INDEMNIFICATION
(a) THRESHOLD AMOUNT. Notwithstanding the provisions of
Section 10.1 hereof, any claim or claims for indemnity against the Seller or any
Shareholder resulting from or arising out of any inaccuracy in or breach of any
representation or warranty given by Seller or Shareholders hereunder (other than
those arising solely as a result of the inaccuracy in any representations and
warranties provided for in Sections 4.6 or 4.12) shall not be actionable until
the aggregate loss incurred by Buyer or New Horizons shall with respect to all
such claims exceeds Twenty-Five Thousand Dollars ($25,000) and then only to the
extent the loss arising from any claim or claims exceeds such amount.
(b) LIMITATIONS ON AMOUNT. Absent actual fraud, the Seller and
Shareholders will not be liable to Buyer or New Horizons (or their successors
and assigns) in respect to any loss, cost, damage or expense resulting from or
arising out of any inaccuracy in or breach of any representation or warranty
given by Seller or Shareholders hereunder, for an amount which, in the
aggregate, exceeds fifty percent (50%) of the amount of the Purchase Price.
11. MISCELLANEOUS
11.1 AMENDMENTS; BINDING EFFECT. This Agreement (including each
Schedule and Exhibit hereto) may not be amended or modified except by a document
in writing signed by all parties hereto. This Agreement and the rights and
obligations of each party hereunder shall be binding upon and shall inure to the
benefit of the respective successors and permitted assigns of each of the
parties hereto, but neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any party hereto without the prior
written consent of the other parties; provided, however, that Buyer may assign
this Agreement and its rights, interests and obligations hereunder to its parent
companies or to any of its wholly-owned subsidiaries or affiliates without the
prior written consent of the other parties hereto (provided that such assignment
shall not relieve Buyer or the assignees from the obligations undertaken herein,
including those set forth in Section 9.4 hereof). In the event of any permitted
assignment, the parties hereto shall not be relieved from any undertakings set
forth herein or arising pursuant hereto.
11.2 NOTICES. All notices or other communications required or permitted
to be given
25
26
hereunder shall be in writing and shall be deemed to be effectively served and
delivered (a) when delivered to the person entitled to such notice at the
address of such person provided for herein; (b) when given by facsimile (with
confirmation of receipt and a copy mailed by first-class U.S. mail); (c) one (1)
business day following deposit with a recognized national air courier service
providing overnight delivery; or (d) three (3) business days after being
deposited in the United States mail in a sealed envelope, postage prepaid,
return receipt requested to the appropriate party at the address (or such other
address for a party as shall be specified by notice given pursuant hereto) for
such person shown on SCHEDULE 11.2 hereto.
11.3 ENTIRE AGREEMENT. This Agreement, together with each Schedule and
Exhibit hereto, sets forth the exclusive statement of the agreement among the
parties concerning the subject matter hereof, and there are no agreements or
understandings between or among any of the parties hereto concerning such
subject matter other than as set forth herein. All prior written or verbal
agreements are merged herein.
11.4 HEADINGS. The headings to the various provisions of this Agreement
are for reference purposes only and shall not be construed as affecting the
meaning or interpretation of this Agreement.
11.5 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same document.
11.6 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Tennessee without regard to any
conflict of laws provisions.
11.7 COSTS OF DISPUTE RESOLUTION. Subject to the provisions of 3.2(c)
hereof, in the event any party hereto shall initiate any suit, action or other
legal proceeding to declare or enforce any right created by or pursuant to this
Agreement, the prevailing party (as determined by court order or decision) shall
be entitled to recover from the other party to such proceeding the prevailing
party's reasonable out-of-pocket costs and expenses directly resulting
therefrom, including, but not limited to, reasonable attorney and accounting
fees.
11.8 PUBLIC ANNOUNCEMENTS. No party hereto shall issue any press
release or otherwise make any public statements or announcement with respect to
this Agreement or the transactions contemplated hereby, except as may be
mutually agreed or as may be required by law (in which event the other parties
hereto shall be given an opportunity to review and comment on the content of
such announcement). Seller and Shareholders hereby acknowledge that New Horizons
must file a Form 8-K with the Securities and Exchange Commission with respect to
the transactions contemplated by this Agreement, including a copy of this
Agreement, and sentence shall not be applicable thereto.
[Signature Page Follows]
26
27
IN WITNESS WHEREOF, the parties have executed this Asset Purchase
Agreement on the date first written above.
"SELLER" NEW HORIZONS COMPUTER LEARNING
CENTER OF NASHVILLE, INC.
(Tennessee Corporation)
By: /s/ Xxxxx Xxxxxxxxx
---------------------------------
Title: President
------------------------------
"SHAREHOLDERS"
/s/ Xxxxx Xxxxxxxxx /s/ Xxxxxxx Xxxxxx
------------------------------------- -------------------------------------
Xxxxx Xxxxxxxxx Xxxxxxx Xxxxxx
/s/ Xxxx X. Xxxxx /s/ Xxxxxx X. Xxxxxx, III
------------------------------------- -------------------------------------
Xxxx X. Xxxxx Xxxxxx X. Xxxxxx, III
"BUYER" NEW HORIZONS EDUCATION
CORPORATION
(Delaware Corporation)
By: /s/ Xxxxxx X. Xxxxxxx
---------------------------------
Title:
------------------------------
"NEW HORIZONS" NEW HORIZONS WORLDWIDE, INC.
By: /s/ Xxxxxx X. Xxxxxxx
---------------------------------
Title: President & Chief Operating Officer
------------------------------
27
