Exhibit 10(f)
* Confidential treatment has been granted for certain portions of this
exhibit. Omitted portions have been filed separately with the Commission.
OPTION AGREEMENT dated as of May 27,
1999 among GHS, INC., a Delaware
corporation ("GHS"), XXXXXXXX XXXXX
COMMUNICATION RESOURCES, INC., a
California corporation (d/b/a The
Learning Annex of San Francisco)
(the "SAN FRANCISCO LEARNING
ANNEX"), SGS COMMUNICATION
RESOURCES, INC., a California
corporation (d/b/a The Learning
Annex of Los Angeles) (the "LOS
ANGELES LEARNING ANNEX"), XXXXXXXX
XXXXX XXXXXXXX ENTERPRISES, INC., a
California corporation (d/b/a The
Learning Annex of San Diego) (the
"SAN DIEGO LEARNING ANNEX"), SGC
COMMUNICATION RESOURCES LLC, a
Delaware limited liability company
(d/b/a The Learning Annex of New
York) (the "NEW YORK LEARNING
ANNEX") and LEARNING ANNEX
INTERACTIVE LLC, a Delaware limited
liability company (the "DELAWARE
LEARNING ANNEX" and collectively
"THE LEARNING ANNEX") and the
shareholders and members, as
applicable, of The Learning Annex
listed on Schedule I attached hereto
(the "SHAREHOLDERS").
Pursuant to this Agreement, GHS shall have, among other things, the
right and option to acquire The Learning Annex on the terms and subject to the
conditions set forth in this Agreement (the "ACQUISITION"). In connection with
the proposed Acquisition, GHS, The Learning Annex and the Shareholders desire to
enter into certain other arrangements, on the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual benefits to be derived
from this Agreement and the representations, warranties, covenants, agreements
and promises contained herein, the parties hereby agree as follows:
1. OPTIONS.
(a) ALTERNATIVE A OPTION. Each Shareholder hereby grants
to GHS, and GHS shall have the irrevocable right and option (the "ALTERNATIVE A
OPTION") exercisable during the period beginning on the date hereof and ending
on September 1, 2004 (the "OPTION PERIOD"), upon compliance with the procedures
set forth in Section 6 hereof, to acquire 100% of the outstanding capital stock
and other interests of The Learning Annex and all options, warrants, rights,
calls, commitments, agreements or arrangements of any character to which the any
of the
Shareholders or The Learning Annex is a party or by which he, she, it or they is
or are bound calling for the issuance of shares of capital stock or other
interests of The Learning Annex or any securities convertible into or
exercisable or exchangeable for, or representing the right to purchase or
otherwise receive, directly or indirectly, any such capital stock or other
interests, or other arrangement to acquire, at any time or under any
circumstance, capital stock or other interests of The Learning Annex or any such
other securities (the "FULLY-DILUTED LEARNING ANNEX SECURITIES").
(b) ALTERNATIVE B OPTION. GHS may in its sole discretion,
during the Option Period, in lieu of exercising the Alternative A Option, elect
in compliance with the procedures set forth in Section 6 hereof, to consummate
an acquisition of The Learning Annex by way of (i) a statutory merger, (ii)
consolidation, (iii) purchase of all or substantially all of the assets of The
Learning Annex or (iv) purchase of the Fully-Diluted Learning Annex Securities
(each, an "ALTERNATIVE B OPTION" and together with the Alternative A Option, the
"OPTIONS"). It is hereby understood that GHS is under no obligation to elect to
consummate such an Alternative B Option and any election to do so shall be in
its sole discretion; PROVIDED, that the consummation of the Alternative B Option
shall, taken as a whole, be mutually beneficial to both parties from a tax
perspective and; PROVIDED FURTHER that notwithstanding the exercise of an
Alternative B Option, GHS may elect to exercise the Alternative A Option at any
time, in which case such exercise of the Alternative A Option shall effect the
termination of negotiations pursuant to the Alternative B Option and the
Alternative A Option shall immediately supersede in all respects the Alternative
B Option election.
(c) ELECTION NOT TO PROCEED WITH OPTION EXERCISE.
(i) NOTICE NOT TO PROCEED. At any time after the
exercise of either of the Options and prior to the consummation of the
closing under the applicable Option, GHS shall have the right and
option, without liability to any of the Shareholders, The Learning
Annex or any other third party, to elect not to proceed with a closing
by delivery to The Learning Annex of GHS's election not to proceed (the
"NOTICE NOT TO PROCEED").
(ii) If (A) GHS has no reasonable basis to elect
NOT to proceed with the consummation of the Acquisition, (B) The
Learning Annex and the Shareholders are ready, willing and able to
proceed with the consummation of the Acquisition and (C) GHS delivers
the Notice Not to Proceed for a reason outside of GHS' control, then
GHS shall be deemed for all purposes to have exercised the Options
hereunder and shall not thereafter have the right to exercise either of
the Options; PROVIDED, HOWEVER, that GHS shall have the one time right,
upon the payment of the Option Reset Expenses (as defined below), to be
deemed not to have exercised the Options hereunder and shall thereafter
have the right to exercise either of the Options for the term of this
Agreement on the terms and subject to the conditions set forth herein
(the "OPTION RESET").
(iii) In connection with the Option Reset, GHS
shall reimburse The Learning Annex for any reasonable fees of The
Learning Annex incurred directly and
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solely in connection with the transactions related to the exercise of
the Option prior to delivery of the Notice Not to Proceed, upon receipt
of reasonable documentation therefor (the "OPTION RESET EXPENSES").
2. OPTION PRICE; OPTION PERIOD.
(a) The price payable hereunder in consideration of the
Options (the "OPTIONS PRICE") shall be the dollar amount set forth below payable
on the date(s) set forth opposite such amounts (each an "OPTION PAYMENT DATE");
PROVIDED, that if GHS does not pay the applicable Options Price on any Option
Payment Date, The Learning Annex shall deliver notice of its intention to
terminate the Option (the "TERMINATION NOTICE") and GHS shall have 30 days after
delivery of the Termination Notice to deliver the Options Price:
OPTION PERIOD DOLLAR AMOUNT TIMING OF PAYMENT
------------- ------------- -----------------
From the date hereof until the first $75,000.00 Simultaneous with the execution and
anniversary of the date hereof ("YEAR delivery of the License Agreement
ONE"). (as defined below in Section 11(a))
From the first anniversary of the date $125,000.00 September 1, 2000
hereof until the second anniversary of
the date hereof ("YEAR TWO").
From the second anniversary of the $200,000.00 September 1, 2001
date hereof until the third
anniversary of the date hereof ("YEAR
THREE").
From the third anniversary of the date $500,000.00 September 1, 2002
hereof until the fourth anniversary of
the date hereof ("YEAR FOUR").
From the fourth anniversary of the $750,000.00 September 1, 2003
date hereof until the fifth
anniversary of the date hereof ("YEAR
FIVE").
3. PLEDGE OF SHARES. The Shareholders hereby pledge the Fully-Diluted
Learning Annex Securities to be held in trust by Xxxxx Xxxxxxx or another
mutually agreeable third party (the
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"AGENT") pursuant to an agreement in form and substance acceptable to GHS for
the purpose of securing the obligations of The Learning Annex and the
Shareholders hereunder (the "PLEDGE AGREEMENT"). As soon as practicable after
the date hereof, and in no event later than fifteen (15) days after the date
hereof, each Shareholder shall cause to be deposited with the Agent all stock
certificates or certificate of ownership of membership interests, as the case
may be, held by such Shareholder, together with a stock power or certificate of
assignment duly endorsed in blank for transfer on behalf of such Shareholder,
representing all of the shares of capital stock or membership interests of The
Learning Annex (the "OPTION SECURITIES") owned by such Shareholder (and
representing, in the aggregate, the Fully-Diluted Learning Company Securities).
4. EXERCISE PRICE.
(a) GENERAL. The exercise price to be paid upon exercise
by GHS of the Alternative A Option or the Alternative B Option (in each case,
the "EXERCISE PRICE") shall be as set forth below:
--------------------------------------------------------------------------------
Year Exercise Price
--------------------------------------------------------------------------------
Year One [*].
--------------------------------------------------------------------------------
Year Two [*]; PROVIDED, that if [*] (as
defined below) for fiscal year 1999
is less than [*], then the Purchase
Price in [*]shall be the product of
(A) [*] MULTIPLIED BY (B) [*]for
fiscal year 1999.
--------------------------------------------------------------------------------
Year Three [*] MULTIPLIED BY the prior calendar
year's [*].
--------------------------------------------------------------------------------
Year Four [*] MULTIPLIED BY the prior calendar
year's [*].
--------------------------------------------------------------------------------
Year Five [*] MULTIPLIED BY the prior calendar
year's [*].
--------------------------------------------------------------------------------
(b) EXERCISE PRICE ADJUSTMENT.
(i) The Exercise Price paid hereunder shall be
decreased, on a dollar-for-dollar basis, by (i) any and all payments
made by GHS, cumulatively, of the Options Price pursuant to Section 2
hereof and (ii) the Additional Shares Fair Market Value (as defined
below), in an amount no greater than [*], of the Additional Shares (as
defined in the License Agreement) issued by GHS to The Learning Annex
pursuant to the License Agreement.
(ii) "ADDITIONAL SHARES FAIR MARKET VALUE" means the fair
market value, as determined on the date two (2) days prior to the date
of the consummation of the
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Alternative A Option or the Alternative B Option, as the case may be,
in accordance with the terms of the License Agreement, of any
Additional Shares.
(c) PAYMENT IN CASH. Unless otherwise mutually agreed by
the parties, the Exercise Price shall be paid in cash or other immediately
available funds by wire transfer or certified check.
(d) [*]
5. AUDITOR'S REPORT; CALCULATION OF EBIDA.
(a) DELIVERY TO GHS OF AUDITOR'S REPORT. Within sixty
(60) days following the end of each Option Period, The Learning Annex shall
deliver to GHS reviewed financial statements for the prior Option Period
prepared in accordance with GAAP consistently applied (the "FINANCIAL
STATEMENTS") and the [*] (the "CALCULATION"), which Calculation and Financial
Statements shall be certified by Chaio and Xxxxx (the "ACCOUNTANTS") (the
"AUDITOR'S REPORT").
(b) REVIEW BY BUYER OF THE AUDITOR'S REPORT. Following
receipt of the Auditor's Report, GHS will be afforded a period of sixty (60)
calendar days (the "REVIEW PERIOD") to review the Auditor's Report. During such
Review Period, GHS and GHS's accountants will be afforded reasonable access to
any of The Learning Annex's employees and the records, work papers, trial
balances and similar materials prepared by The Learning Annex's Accountants and
The Learning Annex shall, and shall cause the Accountants to, cooperate and
provide assistance to such GHS Accountants in connection therewith. At or before
the end of the Review Period, GHS will either (i) accept the Auditor's Report in
its entirety, in which case the Calculation shall be deemed to be as set forth
in the Auditor's Report, or (ii) deliver to The Learning Annex and The Learning
Annex's Accountants a written notice in accordance with Section 6(c) disputing
the Calculation.
(c) DISPUTES. GHS shall notify the Learning Annex in
writing of each disputed item in the Accountant's Report that bears a
relationship to or is relevant to the determination of EBIDA prior to the
expiration of the Review Period, specifying the amount thereof in dispute, or a
reasonable estimation thereof, and setting forth the basis for such dispute. In
the event of such a dispute, GHS and The Learning Annex shall attempt to
reconcile in good faith their differences as to such items within twenty (20)
calendar days (the "RESOLUTION PERIOD") of The Learning Annex's receipt of such
notice, and any resolution by them as to any disputed amounts shall be final,
binding and conclusive on GHS and The Learning Annex. If GHS and The Learning
Annex are unable to reach a resolution with such effect within the Resolution
Period, GHS and The Learning Annex shall submit the items in the Accountant's
Report remaining in dispute for resolution to an independent accounting firm of
national reputation mutually appointed by GHS and The Learning Annex (the
"INDEPENDENT ACCOUNTING FIRM"), which shall, within thirty (30) calendar days of
such submission, determine and report to GHS and The Learning Annex its
resolution of such remaining disputed items, which shall be deemed to be
resolved as set forth in such report, and such report shall be final, binding
and conclusive on GHS and The Learning Annex. GHS and The Learning Annex shall
each pay fifty percent (50%) of the fees and disbursements of such Independent
Accounting Firm.
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(d) FAILURE TO DELIVER AUDITOR'S REPORT. If The Learning
Annex fails to deliver the certified Calculation and Financial Statements on or
before ninety (90) days following the end of any Option Period, then GHS shall
have the right to select an independent certified public accountant (the "GHS
ACCOUNTANT") (the fees and charges of which shall be borne by The Learning
Annex) to prepare a determination of such prior year's EBIDA (the "GHS
CALCULATION") (and the GHS Accountant will be afforded reasonable access to any
of The Learning Annex's employees and the records, work papers, trial balances
and similar materials prepared by The Learning Annex's Accountants and The
Learning Annex shall, and shall cause the Accountants to, cooperate and provide
assistance to such GHS Accountants in connection therewith) and the GHS
Calculation shall be the EBIDA for all calculations hereunder.
6. MECHANICS FOR EXERCISE.
(a) ALTERNATIVE A EXERCISE NOTICE. In the event that GHS
desires to exercise the Alternative A Option, it shall send to The Learning
Annex and to the Agent a written notice (such notice being herein referred to as
an "ALTERNATIVE A EXERCISE NOTICE" and the date of issuance of an Alternative A
Exercise Notice being herein referred to as the "ALTERNATIVE A NOTICE DATE")
indicating (i) that GHS is exercising the Alternative A Option, (ii) specifying
a place and date not earlier than five (5) Business Days and not later than
thirty (30) Business Days from the Alternative A Notice Date for the closing of
such purchase (the "ALTERNATIVE A OPTION CLOSING DATE"), (iii) the Exercise
Price to be paid hereunder and (iv) that, and instructing that, the Agent
deliver out of the pledge fund to GHS all shares of The Learning Annex held by
the Agent on the Alternative A Option Closing Date. GHS may require that, in
connection with the exercise of the Alternative A Option, in which case the
parties shall, in good faith negotiate and enter into definitive agreements
(which shall provide for, among other things, customary representations and
warranties (in addition to those representations and warranties the truth and
accuracy of which are being confirmed in accordance with Section 6(c) hereof),
covenants and indemnities and provide a closing date for consummation of the
transactions described therein) customary for transactions of this type.
(b) ALTERNATIVE B EXERCISE NOTICE. In the event that GHS
desires to exercise the Alternative B Option, it shall send to The Learning
Annex a written notice (such notice being herein referred to as an "ALTERNATIVE
B EXERCISE NOTICE" and the date of issuance of an Alternative B Exercise Notice
being herein referred to as the "ALTERNATIVE B NOTICE DATE") indicating that GHS
is exercising the Alternative B Option, and The Learning Annex and the
Shareholders shall as soon as practicable thereafter, and in any event within
thirty (30) days from the Alternative B Notice Date, in good faith negotiate and
enter into definitive agreements (which shall provide for, among other things,
customary representations and warranties (in addition to those representations
and warranties the truth and accuracy of which are being confirmed in accordance
with Section 6(c) hereof), covenants and indemnities and provide a closing date
for consummation of the transactions described therein) customary for
transactions of this type. GHS can elect to exercise the Alternative A Option at
any time during the Option Period, whether before or after the delivery of the
Alternative B Exercise Notice.
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(c) CLOSING. The Closing of the Acquisition shall occur
on the Alternative A Option Closing Date or on the date of the closing of the
Acquisition pursuant to exercise of the Alternative B Option (the "ALTERNATIVE B
OPTION CLOSING DATE"), against delivery of (i) certificates or other instruments
representing the Fully-Diluted Company Securities duly endorsed in blank and
otherwise in proper form for transfer free and clear of any liens or
Encumbrances, (ii) documents listed on ANNEX A and (iii) such other definitive
documents customary for transactions of the applicable type (including
representations, warranties and covenants customary for transactions of the
applicable type) and such other documents (including the documents listed on
ANNEX A) as the parties mutually agree (each of (i) through (iii) hereof being
collectively referred to as the "CLOSING Documents").
(d) EXECUTION AND DELIVERY OF FURTHER DOCUMENTS. Upon
receipt of the Alternative A Exercise Notice or the Alternative B Exercise
Notice, as the case may be, each party hereto will promptly and duly execute and
deliver such further documents, certificates and agreements and make such
further assurances for and take such further action reasonably requested by any
other party to this Agreement, in addition to the execution and delivery of the
Closing Documents, all as may be reasonably necessary to carry out more
effectively the intent and purpose of this Agreement and consummate the exercise
of the Options.
(e) If the form of transaction chosen for the Acquisition
permits an Internal Revenue Code (the "CODE") Section 338 election or a Code
Section 338(h)(10) election (or any successor or similar elections relating to
the establishment of the tax basis of the assets underlying the businesses
transferred to GHS) then, if and to the extent requested by GHS, the parties to
the Acquisition shall take all steps reasonably necessary to effect such
election(s); PROVIDED, that such election shall, taken as a whole, be mutually
beneficial from a tax perspective to the parties hereto.
(f) EXTENSION OF OPTION PERIOD. If the closing of the
Acquisition pursuant to the Alternative A Option or the Alternative B Option
cannot be consummated, by reason of any applicable Order (as defined below), the
period of time that otherwise would run pursuant to Section 6(a)(ii) or Section
6(b), as applicable, shall run instead from the date on which such restriction
on consummation has expired or been terminated (the "TOLLING PERIOD"); and
PROVIDED FURTHER, without limiting the foregoing, that if, in the reasonable
opinion of GHS, prior notification to or approval of any regulatory agency is
required in connection with the Acquisition, The Learning Annex, GHS or one or
more of the Shareholders, as the case may be, shall promptly file the required
notice or application for approval and shall expeditiously process the same and
the period of time that otherwise would run pursuant to this sentence shall run
instead from the date on which any required notification periods have expired or
been terminated or such approvals have been obtained and any requisite waiting
period or periods shall have passed. Anything contained herein to the contrary
notwithstanding, if (A) the Tolling Period continues for more than ninety (90)
days and (B) the next Option Period has begun, then the Exercise Price shall be
recalculated on the terms set forth in Section 4 hereof; PROVIDED that GHS shall
not be required to make any additional Options Payment for the next Option
Period.
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(g) DEFINITION OF ORDER. As used herein, "ORDER" shall
mean any orders, judgments, injunctions, decrees and other legislative,
administrative or judicial restrictions (including the Federal securities laws
and regulations thereunder and the rules of all such regulatory organizations
including those which The Learning Annex is subject to).
7. REPRESENTATIONS AND WARRANTIES OF THE LEARNING ANNEX. The Learning Annex
hereby represents and warrants to GHS as follows:
(a) ORGANIZATION. The (i) San Francisco Learning Annex is
a corporation duly organized, validly existing and in good standing under the
laws of the State of California, (ii) Los Angeles Learning Annex is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California, (iii) San Diego Learning Annex is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California, (iv) New York Learning Annex is a limited liability company duly
organized, validly existing and in good standing under the laws of the state of
Delaware and (v) Delaware Learning Annex is a limited liability company duly
organized, validly existing and in good standing under the laws of the state of
Delaware, and, in each case, has all requisite corporate power and authority to
own, lease and operate the assets used in its business, to carry on its business
as presently conducted and as proposed to be conducted, to enter into this
Agreement, to perform its obligations hereunder, and to consummate the
transactions contemplated hereby.
(b) QUALIFICATION; GOOD STANDING. The Delaware Learning
Annex is qualified to do business as a foreign corporation in the State of New
York. The Learning Annex is qualified to do business as a foreign corporation in
any other jurisdiction in which it is required to be so qualified.
(c) CORPORATE AUTHORIZATION; ENFORCEABILITY. The Learning
Annex has taken all corporate action (including all action required of its Board
of Directors, managers and Shareholders or members, as applicable) necessary to
authorize its execution and delivery of this Agreement, its performance of its
obligations hereunder, and its consummation of the Acquisition contemplated
hereby. This Agreement has been executed and delivered by officers of The
Learning Annex in accordance with such authorization. This Agreement constitutes
a valid and binding obligation of The Learning Annex, enforceable in accordance
with its terms, subject to applicable bankruptcy, reorganization, insolvency,
moratorium, and similar laws affecting creditors' rights generally and to
general principles of equity.
(d) AUTHORIZATION OF SHARES OF CAPITAL STOCK. The Option
Securities, when issued, were duly authorized by all requisite corporate action
of The Learning Annex and when issued, sold and delivered by The Learning Annex
the Option Securities were validly issued and outstanding, fully paid and
nonassessable with no personal liability attaching to the ownership thereof, and
not subject to preemptive or any similar rights of the shareholders of The
Learning Annex or others.
(e) NO CONFLICT. The execution and delivery by The
Learning Annex of this Agreement, its consummation of the Acquisition
contemplated hereby, and its compliance with the provisions hereof, will not (a)
violate or conflict with its certificate of incorporation,
8
certificate of formation, by-laws or operating agreement, as applicable, (b)
violate, conflict with, or give rise to any right of termination, cancellation,
rescission or acceleration under any material agreement, lease, security,
license, permit, or instrument to which The Learning Annex is a party, or to
which it or any of its assets is subject, (c) result in the imposition of any
security interests, mortgages, liens, pledges, guarantees, charges, easements,
reservations, restrictions, rights of way, options, rights of first refusal and
all other encumbrances, whether or not relating to the extension of credit or
the borrowing of money (an "ENCUMBRANCE") on any asset of The Learning Annex,
(d) violate or conflict with any Laws, or (e) require any consent, approval or
other action of, notice to, or filing with any entity or person (governmental or
private), except for those that have been obtained or made. "Laws" means all
laws, rules, regulations, ordinances, orders, judgments, injunctions, decrees
and other legislative, administrative or judicial restrictions.
(f) NO CONSENT OR APPROVAL REQUIRED. No authorization,
consent, approval or other order of, or declaration to or filing with, any
governmental agency or body or other person or entity is required for the valid
authorization, execution and delivery by The Learning Annex of this Agreement,
or for the consummation of the Acquisition contemplated hereby or, if required,
the same has been obtained or effected.
(g) CAPITALIZATION. The capitalization of The Learning
Annex upon the signing hereof shall consist of (A) 10,000 shares of common
stock, no par value, of the San Diego Learning Annex, of which 200 shares are
validly issued and outstanding, fully paid and nonassessable, (B) 10,000 shares
of common stock, no par value, of the Los Angeles Learning Annex, of which 200
shares are validly issued and outstanding, fully paid and nonassessable, (C)
10,000 shares of common stock, no par value, of the San Francisco Learning
Annex, of which 1,000 shares are validly issued and outstanding, fully paid and
nonassessable, (D) membership interests in respect of 100% of the outstanding
equity of the Delaware Learning Annex, all of which are validly issued and
outstanding, fully paid and nonassessable and (E) membership interests in
respect of 100% of the outstanding equity of the New York Learning Annex, all of
which are validly issued and outstanding, fully paid and nonassessable. The
Option Securities listed on SCHEDULE I hereto constitute all of the capital
stock of The Learning Annex. As of the date hereof there are no (i) outstanding
warrants, options, agreements, convertible securities or other commitments or
instruments pursuant to which The Learning Annex is or may become obligated to
issue or sell any shares of capital stock or other securities of The Learning
Annex, (ii) preemptive or similar rights to purchase or otherwise acquire shares
of capital stock of The Learning Annex pursuant to any provision of law, the
Certificate of Incorporation, By-laws, Certificate of Formation or Operating
Agreement, as the case may be, of The Learning Annex or any agreement to which
The Learning Annex is party or otherwise or (iii) obligation (contingent or
otherwise) of The Learning Annex to purchase, redeem or otherwise acquire any
shares of its capital stock or any interest therein or to pay any dividend or
make any other distribution in respect thereof. There are no voting trusts,
voting agreements, proxies, first refusal rights, first offer rights, co-sale
rights, options, transfer restrictions or other agreements, instruments or
understandings (whether written or oral, formal or informal) with respect to the
voting, transfer or disposition of capital stock of The Learning Annex to which
The Learning Annex is a party or by which it is bound, or, to the best knowledge
of The Learning Annex, among or between any persons other than The Learning
Annex..
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(h) LITIGATION, ETC. Other than the current proceeding
against the Seminar Center which is described no Schedule 7(h) and which shall
not result in a Liability in excess of $100,000, there are no (i) actions,
suits, claims, investigations or legal or administrative or arbitration
proceedings (collectively, "ACTIONS") pending, or to the best knowledge of The
Learning Annex, threatened against The Learning Annex nor, to the best knowledge
of The Learning Annex, any basis therefor, whether at law or in equity, or
before or by any Federal, state, local, municipal, foreign or other governmental
court, department, commission, board, bureau, agency or instrumentality
("GOVERNMENTAL AUTHORITY"), (ii) judgments, decrees, injunctions or orders of
any Governmental Authority or arbitrator against The Learning Annex or (iii)
disputes with students, teachers, customers or vendors with an amount in
dispute, individually or in the aggregate, greater than $25,000. There are no
Actions pending or, to the best knowledge of The Learning Annex, threatened,
nor, to the best knowledge of The Learning Annex, any basis therefor, with
respect to (A) the current or future employment by, or association with, The
Learning Annex, of any of the present officers or employees of or consultants to
The Learning Annex (collectively, the "DESIGNATED PERSONS") or (B) the use, in
connection with any business presently conducted or proposed to be conducted by
The Learning Annex, of any information, techniques or processes presently
utilized or proposed to be utilized by The Learning Annex or any of the
Designated Persons, that The Learning Annex or any of the Designated Persons are
or would be prohibited from using as the result of a violation or breach of, or
conflict with any agreements or arrangements between any Designated Person and
any other person, or any legal considerations applicable to unfair competition,
trade secrets or confidential or proprietary information. The Learning Annex has
delivered to GHS all material documents and correspondence relating to such
matters referred to in this Section 7(h) (including, in the case of clause (iii)
of the first sentence of this Section 7(h), any correspondence evidencing
material customer dissatisfaction with The Learning Annex or its products or
services).
(i) INTELLECTUAL PROPERTY
(i) The Learning Annex has good and valid title
to, and owns free and clear of all Encumbrances, has the exclusive
right to use, sell, transfer, license (or sublicense), transmit,
broadcast, deliver (electronically or otherwise) and dispose of, and
has the right to bring actions for the infringement of, all
Intellectual Property Rights necessary or required for the conduct of
its business as currently conducted and as proposed to be conducted
(collectively, the "COMPANY RIGHTS").
(ii) The execution, delivery and performance of
this Agreement, the License Agreement and the Pledge Agreement and the
consummation of the transactions contemplated hereby, will not breach,
violate or conflict with any instrument or agreement governing any
Company Rights, will not cause the forfeiture or termination or give
rise to a right of forfeiture or termination of any Company Right or in
any way impair the right of The Learning Annex to use, sell, license
(or sublicense), transmit, broadcast, deliver (electronically or
otherwise) or dispose of, or to bring any action for the infringement
of, any Company Right or portion thereof.
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(iii) There are no royalties, honoraria, fees or
other payments payable by The Learning Annex to any person by reason of
the ownership, use, license (or sublicense), transmission, broadcast,
delivery (electronically or otherwise), sale, or disposition of The
Learning Annex Rights, other than sales commissions and other
instructor fees paid in the ordinary course of business.
(iv) All works that were created, prepared or
delivered by consultants, independent contractors or other third
parties for or on behalf of The Learning Annex (including any materials
and elements created, prepared or delivered by such parties in
connection therewith) (A) are and shall constitute "works made for
hire" specially ordered or commissioned by The Learning Annex within
the meaning of United States' copyright law, or (B) all right, title
and interest therein (including any materials and elements created,
prepared or delivered by such parties in connection therewith) have
been assigned to The Learning Annex.
(v) Except for the agreement between Hay House
and Xxxxxxxx/Xxxxx Communication Resources, Inc., dba The Learning
Annex dated August 31, 1994, as amended (the "HAY HOUSE AGREEMENT"), no
licenses or rights have been granted by The Learning Annex, or by any
employee, consultant, officer, director, agent or affiliate of The
Learning Annex or by anyone other than the foregoing, to distribute the
source code of, or to use source code to create Derivative Works, of,
any product currently marketed by, commercially available from or under
development by The Learning Annex for which The Learning Annex
possesses the source code. As used herein, "DERIVATIVE WORK" shall mean
a work that is based upon one or more preexisting works, such as a
revision, enhancement, modification, abridgment, condensation,
expansion or any other form in which such preexisting works may be
recast, transformed or adapted, and which, if prepared without
authorization of the owner of the copyright in such preexisting work,
would constitute a copyright infringement. For purposes herein, a
"DERIVATIVE WORK" shall also include any compilation that incorporates
such a preexisting work as well as translations from one type of code
to another.
(vi) Except for the Hay House Agreement, no
person has any marketing rights to any of the Intellectual Property
Rights of The Learning Annex (excluding Intellectual Property Rights
licensed to The Learning Annex by third parties).
(vii) Section 7(i)(viii) of The Learning Annex
Disclosure Schedule contains a true and complete list of all (A) of The
Learning Annex's patents, patent applications, trademarks, trademark
applications, trade names, service marks, service xxxx applications,
copyrights, copyright registrations and copyright applications and
Internet domain names and applications therefor and (B) other filings
and formal actions made or taken pursuant to Federal, state, local and
foreign laws by The Learning Annex to perfect or protect its interest
therein.
(viii) Section 7(i)(ix) of The Learning Annex
Disclosure Schedule contains a true and complete list of all options,
licenses or other agreements of any kind by which Intellectual Property
Rights have been granted to The Learning Annex from, or granted by The
Learning Annex to, any other person.
11
(ix) As used herein, the term "Intellectual
Property Rights" shall mean all industrial and intellectual property
rights, including, without limitation, patents, patent applications,
patent rights, trademarks, trademark applications, trade names, service
marks, service xxxx applications, copyrights, copyright registrations,
copyright applications, franchises, licenses, databases, "URL's" and
Internet domain names and applications therefor (and all interest
therein), computer programs and other computer software (including, but
not limited to, the Software), user interfaces, know-how, trade
secrets, customer lists, proprietary technology, processes and
formulae, source code, object code, algorithms, architecture,
structure, display screens, layouts, development tools, instructions,
templates, marketing materials, inventions, trade dress, logos and
designs and all documentation and media constituting, describing or
relating to the foregoing.
(j) TITLE TO ASSETS, PROPERTIES AND RIGHTS AND RELATED
MATTERS. Except as set forth on Schedule 7(j) of The Learning Annex Disclosure
Schedule, The Learning Annex has good and valid title to, or good and valid
licenses or leasehold interests in, all assets, properties and interests in
properties, real, personal or mixed, necessary for the conduct of the business
as conducted or as proposed to be conducted, free and clear of all Encumbrances,
of any kind or character, except for (i) those Encumbrances set forth in Section
7(j) of The Learning Annex Disclosure Schedule, (ii) liens for current taxes not
yet due and payable and (iii) statutory mechanics and materialmen's liens. The
assets, properties and interests in properties of The Learning Annex are in good
operating condition and repair in all material respects. The Learning Annex does
not own or lease any personal and/or mixed property.
(k) ABSENCE OF UNDISCLOSED LIABILITIES.
(i) At the Balance Sheet Date, with respect to
the Balance Sheet, The Learning Annex had no material Liability (as
defined below) required to be set forth on the Balance Sheet or the
Interim Financial Information, respectively, in order for the Balance
Sheet or the Interim Financial Information, respectively, to fairly
present the financial condition of The Learning Annex at the dates
thereof in accordance with GAAP, which was not provided for or
disclosed thereon.
(ii) All liability reserves established by The
Learning Annex and set forth on the Balance Sheet or the Interim
Financial Information, respectively, were adequate, in all material
respects, for all such Liabilities at the respective dates thereof.
(iii) As used herein the term "LIABILITY" shall
mean any liability or obligation of any nature (whether known or
unknown, matured or unmatured, fixed or contingent, secured or
unsecured, accrued, absolute or otherwise).
(l) FINANCIAL STATEMENTS.
(i) The Learning Annex has previously delivered
to GHS the following financial statements (collectively, "THE LEARNING
ANNEX FINANCIAL STATEMENTS"):
12
(1) the financial information and
calculations concerning The Learning Annex set forth in
Section 7(l) of The Learning Annex Disclosure Schedule as at
March 31, 1999 or April 30, 1999, as applicable (the "INTERIM
FINANCIAL INFORMATION"; and the date thereof being the
"INTERIM FINANCIAL INFORMATION DATE"); and
(2) the balance sheets of The Learning Annex
as at December 31, 1998 (the "BALANCE SHEET"; and the date
thereof being the "BALANCE SHEET DATE"), 1997 and 1996,
respectively, and the related statements of income, cash flow
and shareholders' equity for the respective years then ended
(including complete footnotes thereto), certified by The
Learning Annex Accountants, and accompanied by a copy of such
auditor's report.
(ii) The Learning Annex Financial Statements (A)
are in accordance with the books and records of The Learning Annex, (B)
fairly present the financial condition of The Learning Annex as at the
respective dates indicated and the results of operations of The
Learning Annex for the respective periods indicated and (C) have been
prepared in accordance with generally accepted accounting principles
consistently applied, except as indicated therein and, in the case of
Interim Financial Statements, for the absence of complete footnote
disclosure as required by GAAP and subject, in the case of the Interim
Financial Statements, to changes resulting from normal year-end audit
adjustments, which adjustments shall not in any event be material
individually or in the aggregate.
(m) ABSENCE OF CHANGES. Except as set forth in Section
7(m) of The Learning Annex Disclosure Schedule, since the Balance Sheet Date,
The Learning Annex has been operated in the ordinary course, consistent with
past practice, and there has not been any material adverse change in the
business, assets, properties, Liabilities, operations, results of operations,
condition (financial or otherwise), prospects or affairs (a "MATERIAL ADVERSE
CHANGE") of The Learning Annex, in each case in an amount, individually or in
the aggregate, greater than $25,000.
(n) AGREEMENTS. Schedule 7(n) hereto sets forth a true
and complete list of all contracts, agreements, instruments, understandings or
arrangements to The Learning Annex is a party or by which it is bound (i) that
involve liabilities or obligations of, or payments by or to The Learning Annex
or otherwise have a value in excess of $50,000, (ii) that involve the license to
or from The Learning Annex of any intellectual property rights (other than
licenses of, or licenses arising from purchases of, "off-the-shelf" or other
standard products), (iii) between it and any of its officers, directors,
employees, consultants (or any of their respective family members) or (iv) that
restricts The Learning Annex from engaging in any aspect of its business or
competing in any line of business in any geographic area. To the best knowledge
of The Learning Annex, it is not in default under any agreements with any third
parties.
(o) DISCLOSURE. Neither Section 7 of this Agreement
(including The Learning Annex Disclosure Schedule) nor any document, written
information, statement, financial statement, certificate or exhibit furnished or
to be furnished to GHS by or on behalf of The Learning Annex or any
securityholder pursuant hereto or in connection with the transactions
13
contemplated hereby, contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary in order to make
the statements or facts contained herein and therein not misleading in light of
the circumstances under which they were made. There is no fact which materially
adversely affects, or in the future may, insofar as can be reasonably foreseen
by The Learning Annex, materially adversely affect, the business, operations,
affairs, prospects, condition, properties or assets of The Learning Annex which
has not been set forth in this Agreement or in the Closing Documents.
8. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. Each of the
Shareholders, severally (and not jointly) represents and warrants to GHS with
respect to himself, herself or itself as follows:
(a) TITLE; ABSENCE OF CERTAIN AGREEMENTS. Such
Shareholder is the lawful and record and beneficial owner of (i) the Option
Securities and (ii) all options, warrants, rights, calls, commitments,
agreements or arrangements of any character to which such Shareholder is a party
or by which he, she, or it is bound calling for the issuance of shares of
capital stock of The Learning Annex or any securities convertible into or
exercisable or exchangeable for, or representing the right to purchase or
otherwise receive, directly or indirectly, any such capital stock, or other
arrangement to acquire, at any time or under any circumstance, capital stock of
The Learning Annex (the "COMMON EQUIVALENTS") or any such other securities in
each case set forth opposite the name of such Shareholder on SCHEDULE I attached
hereto, with the full power and authority to vote such Option Securities and
transfer and otherwise dispose of such Option Securities and Common Equivalents
and any and all rights and benefits incident to the ownership thereof, free and
clear of all Encumbrances, and there are no voting trusts, voting agreements,
proxies, first refusal rights, first offer rights, co-sale rights, options,
transfer restrictions or other agreements, instruments or understandings
(whether written or oral, formal or informal) between such Shareholder and The
Learning Annex and/or any other Shareholder or any other person with respect to
the voting, transfer or disposition of Option Securities or any other matter
relating to Option Securities. The Option Securities set forth opposite the name
of such Shareholder are the only shares of capital stock of The Learning Annex
held by such Shareholder.
(b) ORGANIZATION, GOOD STANDING AND POWER. In the case of
any Shareholder that is not a natural person, such Shareholder is duly organized
or formed and validly existing under the laws of the jurisdiction of its
incorporation or formation and has the corporate or other organizational power
and authority under such laws to enter into this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
(c) AUTHORITY - GENERAL. Such Shareholder has full and
absolute power and authority to enter into this Agreement and the Pledge
Agreement and, and has, in the case of a Shareholder that is not a natural
person, been duly authorized by all requisite action on the part of such
Shareholder; and this Agreement and the Pledge Agreement have been duly executed
and delivered by such Shareholder, and each is the valid and binding obligation
of such Shareholder, enforceable against such Shareholder in accordance with its
terms. Neither the execution, delivery and performance of this Agreement or the
Pledge Agreement, nor the consummation of the transactions contemplated hereby
or thereby nor compliance by such Shareholder with any of
14
the provisions hereof or thereof will (i) (A) conflict with, (B) result in any
violations of, (C) cause a default under (with or without due notice, lapse of
time or both), (D) give rise to any right of termination, amendment,
cancellation or acceleration of any obligation contained in or the loss of any
material benefit under or (E) result in the creation of any Encumbrance upon or
against any assets, rights or property of GHS, under any term, condition or
provision of (x) any agreement or instrument to which such Shareholder is a
party, or by which such Shareholder or, to the best knowledge of such
Shareholder, any of his or its properties, assets or rights may be bound, (y)
any law, statute, rule, regulation, order, writ, injunction, decree, permit,
concession, license or franchise of any Governmental Authority applicable to
such Shareholder or, to the best knowledge of such Shareholder, any of his or
its properties, assets or rights or (z) in the case of any Shareholder that is
not a natural person, such Shareholder's Charter or by-laws, as amended through
the date hereof, which conflict, breach, default or violation or other event
would prevent the consummation of the transactions contemplated by this
Agreement or the Pledge Agreement. No permit, authorization, consent or approval
of or by, or any notification of or filing with, any Governmental Authority or
other person is required in connection with the execution, delivery and
performance by such Shareholder of this Agreement, or the Pledge Agreement or
the consummation by such Shareholder of the transactions contemplated hereby or
thereby.
9. REPRESENTATIONS AND WARRANTIES OF GHS. GHS represents and warrants to
The Learning Annex and Shareholders as follows:
(a) ORGANIZATION. GHS is a corporation, duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite power and authority to enter into this Agreement, to
perform its obligations hereunder, and to consummate the Acquisition
contemplated thereby.
(b) AUTHORIZATION. GHS has taken all corporate action
necessary to authorize its execution and delivery of this Agreement, its
performance of its obligations hereunder, and its consummation of the
Acquisition contemplated hereby. This Agreement has been executed and delivered
by an officer of GHS in accordance with such authorization. This Agreement
constitutes a valid and binding obligation of GHS, enforceable in accordance
with its terms, subject to bankruptcy, reorganization, insolvency, moratorium,
and similar laws affecting creditors' rights generally and to general principles
of equity.
(c) NO CONFLICT. The execution and delivery by GHS of
this Agreement, its consummation of the Acquisition contemplated hereby, and its
compliance with the provisions hereof, will not (a) violate or conflict with its
Certificate of Incorporation or By-laws, (b) violate, conflict with, or give
rise to any right of termination, cancellation, rescission or acceleration under
any agreement, lease, security, license, permit, or instrument to which GHS is a
party, or to which it or any of its assets is subject, (c) violate or conflict
with any Laws, or (d) require any consent, approval or other action of, notice
to, or filing with any entity or person (governmental or private), except for
those that have been obtained or made.
10. OPERATION OF THE BUSINESS; FINANCIAL INFORMATION.
15
(a) OPERATION OF BUSINESS. During the Option Period, The
Learning Annex will operate its business as now operated and only in the normal
and ordinary course and, consistent with such operation, will use its best
efforts to preserve intact its present business organization, to keep available
the services of its officers and employees and to maintain satisfactory
relationships with licensors, franchisees, licensees, suppliers, contractors,
distributors, customers and other persons having business dealings with it.
Without limiting the generality of the foregoing, during the Option Period The
Learning Annex shall not without the prior written consent of GHS, in each case
other than in the ordinary course of business, take or cause to occur any of the
following actions or transactions;
(i) The sale, lease, license, transfer,
Encumbrance, pledge or other disposition of The Learning Annex's
material assets, involving more than $50,000 in any one transaction (or
series of related transactions);
(ii) any declaration, setting aside or payment of
any dividend or other distribution of any assets of any kind whatsoever
with respect to any shares of the capital stock of The Learning Annex,
or any direct or indirect redemption, purchase or other acquisition of
any such shares of the capital stock of The Learning Annex (other than
(1) any cash dividends and (2) the payment or disposition, by dividend
or otherwise, of (A) the payments of the Options Price pursuant to this
Agreement, (B) the Shares and (C) so long as Xxxxxx Xxxxxxxx or Xxxx
Xxxxx are full time employees of The Learning Annex, the license fees
paid by GHS to the Learning Annex pursuant to the License Agreement);
(iii) any stock split, reverse stock split,
combination, reclassification or recapitalization of any capital stock
of The Learning Annex, or any issuance of any other security in respect
of or in exchange for, any shares of capital stock of The Learning
Annex;
(iv) any increase in or modification to or
acceleration of any benefits payable or to become payable under any
bonus, pension, severance, insurance or other benefit plan, payment or
arrangement (including, but not limited to, the granting of stock
options, restricted stock awards or stock appreciation rights) made to,
for or with any officer, key employee, consultant or agent of The
Learning Annex;
(v) any loan, advance or capital contribution to
or investment in (or series of related loans, advances or capital
contributions to or investments in) any person in each case in excess
of $50,000 or the engagement in any transaction with any employee,
officer, director or securityholder, other than advances to employees
in the ordinary course of business for travel and similar business
expenses;
(vi) any change in the accounting methods or
practices followed The Learning Annex or any change in depreciation or
amortization policies or rates theretofore adopted;
(vii) any acceleration or decceleration of payment
of accounts payable or collection of accounts receivable other than in
a manner consistent with past practice;
16
(viii) any incurrence, refinancing or alteration of
material terms by The Learning Annex of indebtedness for borrowed money
in excess of $150,000 in the aggregate (or the guaranty by The Learning
Annex of any such indebtedness);
(ix) conducting operations or entering into
transactions materially inconsistent with the annual business plan in
effect at the time or material changes in the strategic direction of
the business or scope of the business or entering into any material
joint venture outside the ordinary course of business;
(x) any amendments or changes in The Learning
Annex's Charter or by-laws.
(b) INFORMATION RIGHTS. During the Option Period The
Learning Annex shall provide GHS with the following information:
(i) GENERAL. The Learning Annex will permit GHS
on reasonable notice to visit and inspect during normal business hours
any of the properties of The Learning Annex and to examine its books
and records, and to discuss with its officers the business and affairs
of The Learning Annex, at such reasonable times as such persons may
desire without disruption of The Learning Annex's normal business and
affairs for any reasonable purpose relating to its investment in The
Learning Annex.
(ii) QUARTERLY STATEMENTS. As soon as available,
but not later than sixty (60) days after the end of each quarterly
accounting period commencing with the quarterly period ending on June
30, 1999, an unaudited consolidated financial report of The Learning
Annex, prepared in accordance with generally accepted accounting
principles consistently applied, except that such financial statements
shall not include footnotes and shall be subject to normal year-end
audit adjustments, including, with respect to such quarterly accounting
period, the following:
(1) A profit and loss statement for such
quarterly accounting period and on a cumulative basis for the
fiscal year to date;
(2) A balance sheet as at the last day of
such quarterly accounting period;
(3) A statement of cash flow for such
quarterly accounting period on a cumulative basis for the
fiscal year to date; and
(4) A comparison between the actual figures
for such quarterly accounting period and on a cumulative basis
for the fiscal year to date, the comparable figures (with
respect to clauses (1) and (2) only) for the prior period of
year (if any),
certified by the chief executive officer and chief financial officer of
the Corporation as being prepared in accordance with generally accepted
accounting principles (except with
17
respect to footnote disclosure and subject to normal year-end audit
adjustments) consistently applied and accompanied by a statement
showing the number of shares of each class and series of capital stock,
and securities convertible into or exercisable for shares of capital
stock.
(iii) ANNUAL REPORTS. As soon as available, but not later
than 90 days after the end of each fiscal year of The Learning Annex,
reviewed financial statements of The Learning Annex, which shall
include a statement of cash flows and statement of operations for such
fiscal year and a balance sheet as at the last day thereof, each
prepared in accordance with generally accepted accounting principles,
consistently applied, and accompanied by the report of Chaio and Xxxxx
or another accounting firm reasonably acceptable to GHS. The
Corporation shall maintain a system of accounting sufficient to enable
its independent certified public accountants to render the report
referred to in this Section 7(k).
(c) MATERIAL EVENTS. The Learning Annex shall promptly
notify GHS in writing (i) if there has been or is likely to be a Material
Adverse Change, (ii) if there has been any event which adversely impacts or
could reasonably be expected to adversely impact the integrity and value of the
Options or (iii) if The Learning Annex has entered into any business
relationship that could infringe upon the nature and scope of the contemplated
Options.
11. COVENANTS.
(a) LICENSE AGREEMENT. On or before the date hereof, GHS
and The Learning Annex shall have executed and delivered an exclusive online
marketing and licensing agreement in the form attached hereto as EXHIBIT B (the
"LICENSE AGREEMENT").
(b) NO-SHOP.
(i) Subject to the ability of The Learning Annex
to consummate a Corporate Transaction on the terms and subject to the
conditions set forth in Section 11(c) hereof, from the date of this
Agreement until the earlier of (i) the termination of this Agreement in
accordance with its terms or (ii) the closing of the Acquisition
pursuant to the exercise of either of the Options, The Learning Annex
shall not, nor shall it authorize or permit any of its respective
officers, directors, employees, members, representatives, Shareholders,
agents or affiliates, directly or indirectly, to (A) solicit, initiate
or encourage or take any action to facilitate or encourage any
inquiries or the making of any proposal that constitutes, an
Acquisition Proposal or (B) participate or engage in discussions or
negotiations with, or provide any information to, any person or entity
concerning an Acquisition Proposal or which might reasonably be
expected to result in an Acquisition Proposal. The Learning Annex shall
immediately cease and cause to be terminated and shall cause its
affiliates and its or their respective officers, directors, employees,
members, Shareholders, representatives or agents, to terminate all
existing discussions or negotiations with any persons or entities
conducted heretofore with respect to, or that could reasonably be
expected to lead to, an Acquisition Proposal and hereby agree to
immediately disclose to GHS the existence and terms of any written or
oral offer
18
to The Learning Annex or any Shareholder of an Acquisition Proposal, or
any representative acting on its, his, her or their behalf, including
copies of any relevant written materials.
(ii) For purposes of this Agreement, the term
"ACQUISITION PROPOSAL" shall mean any inquiry, proposal or offer from
any person (other than GHS) relating to any (i) merger or consolidation
of The Learning Annex into or with another corporation or other entity,
(ii) the sale, transfer, license or other disposition of all or
substantially all of the properties or of The Learning Annex, (iii) the
sale, transfer or other disposition of capital stock of The Learning
Annex, in each case under circumstances in which the holders of the
outstanding capital stock of The Learning Annex immediately prior to
such merger, consolidation or sale, own less than a majority (by voting
power) of outstanding capital stock of The Learning Annex or the
surviving or resulting corporation or acquirer, as the case may be,
immediately following such merger, consolidation or sale, (iv) any
investment in, or any debt or equity financing of either The Learning
Annex, (v) the Internet (as such term is defined in the License
Agreement) distribution of content or services of The Learning Annex or
(vi) any other transaction the consummation of which could reasonably
be expected to impede, interfere with, prevent or materially delay the
consummation of the transactions contemplated hereby or which would
reasonably be expected to dilute materially the benefits to GHS of the
transactions contemplated hereby (each a "CORPORATE TRANSACTION").
(c) RIGHT OF FIRST REFUSAL.
(i) On and after the third anniversary of the
date hereof, if The Learning Annex proposes to seek or seeks parties to
enter into a Corporate Transaction or takes any action incident
thereto, The Learning Annex shall so notify GHS in writing (the
"SHOPPING NOTICE") prior to contacting or negotiating with any other
party and shall provide GHS and its affiliates the first and exclusive
option, for a period of 30 days after such notice is delivered, to
negotiate the terms and conditions upon which GHS may propose at its
option and in its discretion to consummate a Corporate Transaction
(other than pursuant to the exercise of the Option). The Shopping
Notice shall include (A) all relevant terms of the proposed Corporate
Transaction and (B) a list of parties proposed to be involved in such
proposed Corporate Transaction.
(ii) If GHS elects not to make a proposal to The
Learning Annex to enter into a Corporate Transaction and if GHS has not
exercised the Option within one hundred and twenty (120) days of
delivery of the Shopping Notice, then The Learning Annex shall have the
right to actively solicit Acquisition Proposals (but not consummate any
Corporate Transaction (other than pursuant to the exercise of the
Option)) for sixty (60) days (the "SHOPPING PERIOD") at a price and on
terms and conditions no more favorable to the purchaser(s) than the
price, terms and conditions set forth in the Shopping Notice.
19
(iii) The Learning Annex shall keep GHS regularly
informed and updated as to the status of its search for Acquisition
Proposals, discussions and/or negotiations, if any, with third parties
for any Corporate Transaction. If during the Shopping Period The
Learning Annex negotiates all of the material terms of a BONA FIDE
Corporate Transaction with a third party (the "CORPORATE TRANSACTION
PROPOSAL"), then GHS shall immediately thereupon notify GHS in writing
thereof and GHS shall have the right and option (the "RIGHT OF FIRST
REFUSAL") for thirty (30) days after receipt of the such written notice
to elect to (A) consummate an Acquisition pursuant to the exercise of
the Option on the terms set forth in Section 4 hereof or (B) consummate
the Corporate Transaction on terms and conditions no less favorable to
GHS than the terms and conditions set forth in the Corporate
Transaction Proposal; PROVIDED, that if the Corporate Transaction
Proposal provides for the third party to provide capital stock or other
securities or other non-cash consideration as consideration in the
Corporate Transaction, GHS shall be entitled to provide capital stock
or other securities or other non-cash consideration of GHS or (C)
deliver a notice to The Learning Annex that GHS elects not to exercise
its Right of First Refusal.
(iv) If (A) GHS elects not to exercise its Right
of First Refusal and (B) The Learning Annex consummates the Corporate
Transaction, then The Learning Annex shall reimburse GHS in cash
simultaneous with the closing of the Corporate Transaction an amount
equal to the last payment made by GHS in respect of the Options Price.
(d) FUTURE SHAREHOLDERS.
(i) ISSUANCE BY THE LEARNING ANNEX. The Learning
Annex hereby covenants that it shall not issue or sell any capital
stock of The Learning Annex or any options, warrants, rights, calls,
commitments, agreements or arrangements of any character calling for
the issuance of shares of capital stock of The Learning Annex or any
securities convertible into or exercisable or exchangeable for, or
representing the right to purchase or otherwise receive, directly or
indirectly, any such capital stock, or other arrangement to acquire, at
any time or under any circumstance, capital stock of The Learning Annex
or any such other securities which The Learning Annex is or may become
obligated to issue or sell any shares of capital stock or other
securities of The Learning Annex to any person (a "FUTURE ISSUANCE")
unless such person shall have, as a condition to such Future Issuance,
executed a counterpart to this Agreement and the Pledge Agreement,
agreeing to be bound by and obligated in accordance with this Agreement
and the Pledge Agreement as if he, she or it were a Shareholder.
(ii) TRANSFER BY EXISTING SHAREHOLDER. Each of
the Shareholders hereby covenants and agrees that he, she or it shall
not sell, transfer or otherwise dispose (a "TRANSFER") of any Option
Securities or any other capital stock ("OTHER SHARES" and, together
with the Option Securities, the "SECURITIES") of The Learning Annex now
owned or ever owned by such Shareholder to any person (a "TRANSFEREE")
unless such Transferee shall have, as a condition to such Transfer,
executed a counterpart to this Agreement and
20
the Pledge Agreement, agreeing to be bound by and obligated in
accordance with this Agreement and the Pledge Agreement as if he, she
or it were a Shareholder.
(iii) RESTRICTIVE LEGEND. Each certificate for the
Securities and each certificate for any such Securities issued to
subsequent transferees or pursuant to a Future Issuance shall be
stamped or otherwise imprinted with a legend in substantially the
following form:
"THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO THE CONDITIONS SPECIFIED IN THE
OPTION AGREEMENT AMONG GHS, INC., THE LEARNING ANNEX AND THE
SHAREHOLDERS (AS DEFINED THEREIN), AND NO TRANSFER OF THESE
SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS
HAVE BEEN FULFILLED. UPON THE FULFILLMENT OF ALL APPLICABLE
CONDITIONS, GHS, INC. HAS AGREED TO DELIVER TO THE HOLDER
HEREOF A NEW CERTIFICATE, NOT BEARING THIS LEGEND, FOR THE
SECURITIES REPRESENTED HEREBY REGISTERED IN THE NAME OF THE
HOLDER HEREOF."
(e) SHAREHOLDERS' BEST EFFORTS. Each of the Shareholders
hereby covenants and agrees that he, she or it shall use his, her or its best
efforts to ensure that the Learning Annex abides by, observes and performs his,
her or its obligations hereunder, and the Shareholders and The Learning Annex
hereby agree that they shall not sell their Shares except in accordance with
Section 11 hereto.
(f) CONFIDENTIALITY. The parties hereto hereby covenant
and agree that without the express written consent of GHS on the one hand and
The Learning Annex on the other hand, neither The Learning Annex nor any
Shareholder, nor GHS, shall disclose the existence of this Agreement or any
agreements referenced herein or attached hereto, nor any of the terms hereof or
thereof, to any third party except: (i) as required by law; (ii) to such party's
attorneys, accountants, other advisors, officers, employees, directors and
equityholders, as applicable, in order to facilitate the consummation of the
Acquisition and the fulfillment of such party's obligations hereunder or
thereunder, provided that any such third party agrees to be bound by the
confidentiality provisions hereof.
(g) NO JOINT VENTURE. Neither party shall make any
warranties or representations, or assume or create any obligations, on the other
party's behalf except as may be expressly permitted hereunder or in writing by
such other party. Each party shall be solely responsible for the actions of all
its respective employees, agents and representatives.
(h) ACCESS TO INFORMATION. Upon the exercise of either of
the Options, The Learning Annex shall afford to the officers, employees,
accountants, counsel and other representatives of GHS, reasonable access, during
the period prior to the date of the closing of the Acquisition, to all its
properties, books, contracts, commitments and records and, during such period,
and The Learning Annex shall furnish promptly to GHS all information concerning
its
21
business, properties and personnel as GHS may reasonably request, and The
Learning Annex shall make available to GHS the appropriate individuals for
discussion of The Learning Annex's business, properties and personnel as GHS may
reasonably request. No investigation pursuant to this Section 11(g) shall affect
any representations or warranties of The Learning Annex herein or the conditions
to the obligations of the parties hereto.
(i) RETENTION OF KEY EMPLOYEES. The Learning Annex hereby
covenants and agrees that it shall use best efforts from the date hereof until
the Closing Date to retain all key employees of The Learning Annex, including,
without limitation, Xxxxx Xxxxxxxx and Xxxx Xxxxx. The Learning Annex shall
promptly, and in any event within 48 hours, notify GHS in writing if any The
Learning Annex key employee on the date hereof ceases to be an employee of The
Learning Annex, or if any The Learning Annex key employee on the date hereof
informs any officer of The Learning Annex that he or she will terminate his or
her employment or engagement with The Learning Annex.
12. SURVIVAL; INDEMNIFICATION.
(a) SURVIVAL. The covenants, representations and
warranties and agreements of the parties hereto contained in this Agreement and
in the Closing Documents shall survive (i) for the term of this Agreement or
(ii) if the Options are exercised and the closing of the Acquisition pursuant
thereto is consummated, then for three (3) years after the closing date of such
Acquisition.
(b) THE LEARNING ANNEX AND SHAREHOLDERS INDEMNITY. The
Learning Annex and the Shareholders hereby jointly and severally indemnify GHS
against and agree to hold GHS harmless from any and all damage, loss, liability
and expense (including, without limitation, reasonable expenses of investigation
and reasonable attorneys' fees and expenses in connection with any action, suit
or proceeding, including any action, suit or proceeding to enforce this
indemnity) ("DAMAGES") incurred or suffered by GHS arising out of any
misrepresentation or breach of representation, warranty (or any facts or
circumstances constituting such breach), covenant or agreement made or to be
performed by The Learning Annex or the Shareholders pursuant to this Agreement,
the Closing Documents or other closing documents executed and delivered in
connection therewith. The Shareholders shall not have any right of contribution
against The Learning Annex in connection with this Section 12.
(c) GHS INDEMNITY. GHS hereby indemnifies The Learning
Annex and each of the Shareholders against and agrees to hold each of them
harmless from any and all Damages incurred or suffered by The Learning Annex or
each of the Shareholders arising out of any misrepresentation or breach of
representation, warranty (or any facts or circumstances constituting such
breach), covenant or agreement made or to be performed by GHS pursuant to this
Agreement, Closing Documents or other documents delivered in connection
therewith.
(d) PROCEDURES. If any third party shall assert any claim
against a GHS, The Learning Annex or a Shareholder, as the case may be, which,
if successful, would entitle the such person to indemnification under Section
12(a) or (b), as the case may be, such person (the "INDEMNIFIED PARTY") shall
give a notice of such claim to the party from whom it intends to seek
22
indemnification (the "INDEMNIFYING PARTY") and the Indemnified Party shall have
the right to assume the defense. If the Indemnified Party does assume such
defense, the Indemnifying Person shall indemnify and hold the Indemnified Party
harmless from and against any and all losses, damages and liabilities caused by
or arising out of any settlement or judgment of such claim and the Indemnifying
Person may not claim that it does not have an indemnification obligation with
respect thereto. In addition, the Indemnifying Party shall have the right to
participate in the defense of such claim at its expense, in which case (i) the
Indemnified Party shall cooperate in providing information to and consulting
with the Indemnifying Party about the claim; and (ii) the Indemnified Party
shall not consent to the entry of judgment or enter into any settlement without
the prior written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. If the Indemnified Party does not assume the
defense of any such claim, the Indemnifying Party may defend against or settle
such claim in such manner and on such terms as it in good xxxxx xxxxx
appropriate and shall be entitled to indemnification in respect thereof in
accordance with Section 12(a) or (b), as the case may be.
13. EXPIRATION OR TERMINATION. In the event that the Option shall not have
been exercised on or prior to the end of the Option Period, the Option shall
automatically expire and terminate and no party hereunder shall have any rights
or obligations with respect thereto.
14. MISCELLANEOUS PROVISIONS.
(a) ENTIRE AGREEMENT. This Agreement (including the
Exhibits attached hereto) and the Pledge Agreement and License Agreement contain
the entire agreement among the parties hereto with respect to the transactions
contemplated hereby and supersede all prior agreements or understandings,
written or oral, among the parties with respect thereto.
(b) DESCRIPTIVE HEADINGS. Descriptive headings are for
convenience only and shall not control or affect the meaning or construction of
any provision of this Agreement.
(c) NOTICES. All notices or other communications which
are required or permitted hereunder shall be in writing and sufficient if
delivered personally, sent by nationally-recognized overnight courier or by
registered or certified mail, postage prepaid, return receipt requested or by
telecopier, addressed as follows:
(i) if to GHS, to:
GHS, Inc.
0000 Xxxxxxxx Xxxxxxxxx
Xxxxxxxxx, XX 00000
Attention:
Telecopier (000) 000-0000;
23
with copies to:
Xxxxxx, Xxxxxxxxxx & Xxxxxxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxxxxxx, Esq.
Telecopier: (000) 000-0000; and
(ii) if to The Learning Annex, to:
Xxxxxxxx/Xxxxx Communication Resources, Inc.
000 Xxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxxxxxxx, XX 00000
Attn: Xxxxxxx Xxxxxxxx
Telecopier: (000) 000-0000
with copies to:
Xxxxx Xxxxxxx
Delta Tower
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Telecopier: (000) 000-0000
(iii) if to the Shareholders, to their respective
addresses set forth on SCHEDULE I, attached hereto, or to such other
address as the party to whom notice is to be given may have furnished
to the other party in writing in accordance herewith. All such notices
or communications shall be deemed to be delivered and received (a) in
the case of personal delivery or telecopy, on the date of such
delivery, (b) in the case of nationally-recognized overnight courier,
on the next business day after the date when sent and (c) in the case
of mailing, on the third business day following the date on which the
piece of mail containing such communication was posted.
(d) COUNTERPARTS. This Agreement may be executed in any
number of counterparts by original or facsimile signature, each such counterpart
shall be an original instrument, and all such counterparts together shall
constitute one and the same agreement.
(e) GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of California applicable
to contracts made and to be performed wholly therein, without reference to the
principals of conflicts of law.
(f) BENEFITS OF AGREEMENT. All the terms and provisions
of this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors
24
and permitted assigns; PROVIDED, HOWEVER, that this Agreement shall not be
assignable by The Learning Annex or the Shareholders, whether by operation of
law or otherwise, without the express written consent of GHS. Any attempted
assignment, pledge, hypothecation or other disposition of such Option contrary
to the provisions hereof shall be null and void and without effect.
(g) PRONOUNS. As used herein, all pronouns shall include
the masculine, feminine, neuter, singular and plural thereof whenever the
context and facts require such construction.
(h) ATTORNEYS' FEES. In the event of a claim by a party
to this Agreement against another party to this Agreement, arising under this
Agreement, the prevailing party in a disposition of such claim by a court of
competent jurisdiction or by arbitration shall be paid by the other party the
reasonable and actual out-of-pocket attorneys' fees and expenses incurred by the
prevailing party with respect thereto.
(i) SPECIFIC PERFORMANCE. The transactions contemplated
hereby are unique and the parties acknowledge that the breach or threatened
breach of the provisions hereof may cause irreparable harm to GHS for which an
award of monetary damages would be inadequate. Accordingly, in addition to and
not in limitation of any other remedies available for a breach or threatened
breach by a party hereto, GHS shall be entitled to an injunction restraining the
breaching party from continuing such breach or threatened breach or specific
performance.
(j) AGENCY. Xxxxxxx Xxxxxxxx as Chief Executive Officer
of XXXXXXXX XXXXX COMMUNICATIONS RESOURCES, INC. (the "THE LEARNING ANNEX
AGENT") is hereby designated and shall act on behalf of all The Learning Annex
entities identified in the caption to this Agreement on any matter in connection
with this Agreement and any matters contemplated hereby and is hereby authorized
to bind all such entities in respect thereof. Accordingly, GHS shall only be
required to interact with or in any respect deal with The Learning Annex Agent
in any matter involving The Learning Annex Agent or any of such Learning Annex
entities (including without limitation, the giving of notice, consents or
approvals hereunder or any amendment, modification waiver of any term, condition
or provision of this Agreement or to the other agreements and exhibits
contemplated hereby).
(k) AMENDMENT, MODIFICATION AND WAIVER. This Agreement
shall not be altered or otherwise amended except pursuant to an instrument in
writing signed by each of the parties hereto; PROVIDED, HOWEVER, that any party
to this Agreement may waive in writing any obligation owed to it by any other
party under this Agreement. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
25
IN WITNESS WHEREOF, each of the parties hereto has caused this
Option Agreement to be executed on its behalf as of the date first above
written.
GHS, INC.
By: /s/ Xxxx Xxxx
------------------------------------------
Name: Xxxx Xxxx
Title: President
THE LEARNING ANNEX:
XXXXXXXX/XXXXX COMMUNICATION SGS COMMUNICATION RESOURCES,
RESOURCES, INC., INC.,
a California corporation a California corporation
By: /s/ Xxxxxxx Xxxxxxxx By: /s/ Xxxxxxx Xxxxxxxx
------------------------------- ------------------------------------------
Name: Xxxxxxx Xxxxxxxx Name: Xxxxxxx Xxxxxxxx
Title: C.E.O. Title: C.E.O.
By: /s/ Xxxx Xxxxx By: /s/ Xxxx Xxxxx
------------------------------- ------------------------------------------
Name: Xxxx Xxxxx Name: Xxxx Xxxxx
Title: President Title: President
XXXXXXXX XXXXX XXXXXXXX SGC COMMUNICATION RESOURCES,
ENTERPRISES, INC., a California LLC,
corporation a Delaware limited liability company
By: /s/ Xxxxxxx Xxxxxxxx By: /s/ Xxxxxxx Xxxxxxxx
------------------------------- ------------------------------------------
Name: Xxxxxxx Xxxxxxxx Name: Xxxxxxx Xxxxxxxx
Title: C.E.O. Title: C.E.O.
By: /s/ Xxxx Xxxxx By: /s/ Xxxx Xxxxx
------------------------------- ------------------------------------------
Name: Xxxx Xxxxx Name: Xxxx Xxxxx
Title: President Title: President
LEARNING ANNEX INTERACTIVE
LLC,
A Delaware limited liability company
By: /s/ Xxxxxxx Xxxxxxxx
-------------------------------
Name: Xxxxxxx Xxxxxxxx
Title: C.E.O.
By: /s/ Xxxx Xxxxx
-------------------------------
Name: Xxxx Xxxxx
Title: President
SIGNATURE PAGE TO OPTION AGREEMENT
DATED AS OF MAY 26, 1999 (THE "AGREEMENT"), AMONG
THE LEARNING ANNEX
AND THE OTHER PARTIES TO THE AGREEMENT
The undersigned hereby executes and delivers the Agreement,
authorizes this signature page to be attached to a counterpart of the Agreement,
and agrees to be bound by the Agreement; and this Signature Page together with
the Signature Pages of GHS, Inc., The Learning Annex (as defined therein) and
the other parties to the Agreement shall constitute counterpart copies of the
Agreement in accordance with the terms of the Agreement.
SHAREHOLDERS:
---------------------------------------------
XXXXXXX XXXXXXXX
---------------------------------------------
XXXX XXXXX
SCHEDULE I
--------------------------------------------------------------------------------
COMPANY NAME/
Shareholder or Member Name Option Securities
--------------------------------------------------------------------------------
XXXXXXXX/XXXXX/XXXXXXXX
ENTERPRISES, INC., a California
Corporation
--------------------------------------------------------------------------------
Xxxxxxx Xxxxxxxx 100 shares common stock
--------------------------------------------------------------------------------
Xxxx Xxxxx 100 shares common stock
--------------------------------------------------------------------------------
SGS COMMUNICATION RESOURCES,
INC., a California corporation
--------------------------------------------------------------------------------
Xxxxxxx Xxxxxxxx 100 shares common stock
--------------------------------------------------------------------------------
Xxxx Xxxxx 100 shares common stock
--------------------------------------------------------------------------------
XXXXXXXX/XXXXX COMMUNICATION
RESOURCES, INC., a California corporation
--------------------------------------------------------------------------------
Xxxxxxx Xxxxxxxx 500 shares common stock
--------------------------------------------------------------------------------
Xxxx Xxxxx 500 shares common stock
--------------------------------------------------------------------------------
LEARNING ANNEX INTERACTIVE,
LLC, a Delaware limited liability company
--------------------------------------------------------------------------------
Xxxxxxx Xxxxxxxx 50% of membership interests
--------------------------------------------------------------------------------
Xxxx Xxxxx 50% of membership interests
--------------------------------------------------------------------------------
SGS COMMUNICATION RESOURCES,
LLC, a Delaware limited liability company
--------------------------------------------------------------------------------
Xxxxxxx Xxxxxxxx 50% of membership interests
--------------------------------------------------------------------------------
Xxxx Xxxxx 50% of membership interests
--------------------------------------------------------------------------------
ANNEX A
CLOSING DOCUMENTS
1. Certificate of The Learning Annex confirming the representations and
warranties of The Learning Annex and the disclosure schedule, and
including updated financial statement for purposes of Section 7.
2. Certificate of each Shareholder confirming the representations and
warranties of such Shareholder.
3. Recent Good standing certificate of The Learning Annex and all
subsidiaries and affiliates thereof together with any bring-down
certificates.
4. Certificate of the Secretary of The Learning Annex as to incumbency.
5. Such certificates, instruments and documents customary in transactions
of this type as are mutually agreed upon by the parties.
