1
SHARE PURCHASE AGREEMENT
DATED DECEMBER 7, 1998
BY AND AMONG
IDG BOOKS WORLDWIDE, INC.,
CLIFF'S NOTES, INC.,
AND
THE SHAREHOLDERS OF CLIFF'S NOTES, INC.
2
TABLE OF CONTENTS
PAGE
ARTICLE 1 DEFINITIONS................................................................1
1.1. DEFINITIONS................................................................1
ARTICLE 2 PURCHASE OF SHARES, PURCHASE PRICE, AND
RELATED MATTERS............................................................9
2.1. PURCHASE OF SHARES.........................................................9
2.2. CLOSING: EXCHANGE AND OTHER PAYMENTS; WIRING INSTRUCTIONS..................9
2.3. DETERMINATION OF PRELIMINARY NET BOOK VALUE...............................10
2.4. PURCHASE PRICE............................................................10
2.5. HOLDBACKS.................................................................10
2.6. CLOSING...................................................................10
2.7. POST-CLOSING PURCHASE PRICE ADJUSTMENT....................................10
ARTICLE 3 REPRESENTATIONS REGARDING CLIFFS..........................................11
3.1. EXISTENCE AND GOOD STANDING...............................................11
3.2. CAPITAL STOCK.............................................................11
3.3. AUTHORIZATION AND VALIDITY OF THIS AGREEMENT..............................12
3.4. AUDITED STATEMENTS; TRIAL BALANCE SHEET; DEBTS; ACCOUNTS RECEIVABLE.......12
3.5. ABSENCE OF CHANGES........................................................13
3.6. BOOKS AND RECORDS.........................................................15
3.7. SUBSIDIARIES..............................................................15
3.8. SCHEDULED ASSETS..........................................................15
3.9. TITLE TO ASSETS; NO ENCUMBRANCES..........................................17
3.10. OPERATING CONDITION.......................................................18
3.11. INSURANCE.................................................................18
3.12. PROPRIETARY PROPERTY......................................................18
3.13. THE WORKS.................................................................19
3.14. CONTRACTS AND LEASES......................................................19
3.15. INTERESTS IN AND RELATIONS WITH AUTHORS, CUSTOMERS, SUPPLIERS, ETC........20
3.16. REAL PROPERTY.............................................................20
3.17. EMPLOYMENT MATTERS........................................................21
3.18. EMPLOYEE BENEFIT PLANS....................................................22
3.19. NO CONFLICT OR DEFAULT....................................................25
3.20. GOVERNMENTAL CONSENTS AND APPROVALS; NO VIOLATIONS........................26
3.21. THIRD PARTY CONSENTS......................................................26
3.22. LITIGATION................................................................26
3.23. TAXES.....................................................................26
3.24. SOFTWARE MATTERS..........................................................28
3.25. COMPLIANCE WITH LAWS......................................................28
3.26. ENVIRONMENTAL LAWS AND REGULATIONS........................................28
3.27. BANK ACCOUNTS, POWERS OF ATTORNEY.........................................29
3.28. BROKER'S OR FINDER'S FEES.................................................29
3.29. ACCURACY OF DISCLOSURE....................................................29
ARTICLE 4 REPRESENTATIONS OF THE SHAREHOLDERS.......................................30
4.1. OWNERSHIP OF SHARES.......................................................30
(i)
3
4.2. AUTHORIZATION AND VALIDITY OF AGREEMENT...................................30
4.3. RESTRICTIVE DOCUMENTS.....................................................30
4.4. BROKER'S OR FINDER'S FEES.................................................30
4.5. CONTRACT PAYMENTS.........................................................30
4.6. SHAREHOLDER NOTES.........................................................31
ARTICLE 5 REPRESENTATIONS OF IDGB...................................................31
5.1. EXISTENCE AND GOOD STANDING; POWER AND AUTHORITY..........................31
5.2. RESTRICTIVE DOCUMENTS.....................................................31
5.3. PURCHASE FOR INVESTMENT...................................................31
5.4. EXISTENCE OF FINANCING....................................................31
5.5. BROKER'S OR FINDER'S FEES.................................................31
ARTICLE 6 TRANSACTIONS PRIOR TO THE CLOSING EFFECTIVE DATE
AND RELATED COVENANTS.....................................................32
6.1. PRESS RELEASE AND DISCLOSURE..............................................32
6.2. CONDUCT OF BUSINESS.......................................................32
6.3. EMPLOYEE MATTERS..........................................................34
6.4. EXCLUSIVE DEALING.........................................................36
6.5. DUE DILIGENCE EXAMINATION OF CLIFFS.......................................36
6.6. FURTHER ACTIONS AND THIRD PARTY CONSENTS..................................37
6.7. NOTIFICATION OF CERTAIN MATTERS...........................................37
ARTICLE 7 CONDITIONS PRECEDENT TO IDGB'S OBLIGATIONS................................38
7.1. CLIFFS' BOARD AND SHAREHOLDER APPROVALS...................................38
7.2. THIRD PARTY CONSENTS AND APPROVALS........................................38
7.3. ABSENCE OF GOVERNMENTAL OR OTHER OBJECTION................................38
7.4. TRUTH AND PERFORMANCE OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.......38
7.5. EVIDENCE OF TITLE.........................................................38
7.6. APPROVAL OF DOCUMENTATION.................................................39
7.7. LICENSES..................................................................39
7.8. GOOD STANDING AND OTHER CERTIFICATES......................................39
7.9. OPINION OF COUNSEL........................................................39
7.10. RESIGNATIONS..............................................................39
7.11. ACTIONS TO TERMINATE BENEFIT PLANS........................................39
7.12. EXCLUDED DEBT, SHAREHOLDER NOTES, AND FOUNDATION PAYMENT..................40
7.13. COVOLIK AGREEMENT.........................................................40
7.14. OFFICE/WAREHOUSE FACILITY LEASE...........................................40
7.15. ESCROW ACCOUNT AND AGREEMENT..............................................40
7.16. TERMINATION OF SHAREHOLDERS' AGREEMENT....................................41
7.17. PERMISSION AND RELEASE FOR USE OF NAME AND LIKENESS.......................41
7.18. NO MATERIAL ADVERSE EFFECT................................................41
ARTICLE 8 CONDITIONS PRECEDENT TO CLIFFS' AND THE
SHAREHOLDERS' OBLIGATIONS.................................................41
8.1. TRUTH OF REPRESENTATIONS AND WARRANTIES...................................41
8.2. THIRD PARTY CONSENTS; GOVERNMENTAL APPROVALS..............................41
8.3. PERFORMANCE OF AGREEMENTS.................................................42
8.4. APPROVAL OF DOCUMENTATION.................................................42
(ii)
4
ARTICLE 9 NOT-TO-COMPETE COVENANT; CONFIDENTIALITY..................................42
9.1. NON-COMPETITION...........................................................42
9.2. CONFIDENTIALITY...........................................................43
ARTICLE 10 TAX MATTERS...............................................................43
10.1. TAX PERIOD ENDING ON OR BEFORE THE CLOSING EFFECTIVE DATE.................43
10.2. TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING EFFECTIVE
DATE......................................................................44
10.3. COOPERATION ON TAX MATTERS................................................44
10.4. INDEMNIFICATION...........................................................45
ARTICLE 11 SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION..............................45
11.1. SURVIVAL OF REPRESENTATIONS...............................................45
11.2. INDEMNIFICATION...........................................................45
11.3. INDEMNIFICATION PROCEDURE.................................................48
ARTICLE 12 TERMINATION...............................................................49
12.1. TERMINATION...............................................................49
12.2. EFFECT OF TERMINATION.....................................................50
ARTICLE 13 GENERAL PROVISIONS........................................................50
13.1. EXPENSES..................................................................50
13.2. GOVERNING LAW, ATTORNEYS' FEES............................................50
13.3. TABLE OF CONTENTS; CAPTIONS...............................................51
13.4. NOTICES...................................................................51
13.5. NO ASSIGNMENT.............................................................52
13.6. COUNTERPARTS..............................................................52
13.7. ENTIRE AGREEMENT..........................................................52
13.8. AMENDMENTS................................................................52
13.9. SEVERABILITY..............................................................52
13.10. THIRD PARTY BENEFICIARIES.................................................53
EXHIBITS AND SCHEDULES
EXHIBITS
1.1(t) FOUNDATION ASSIGNMENT
1.1(ar) XXXXXXXXX ASSIGNMENT
6.6(b) PRINTER LETTER
7.9 OPINION OF CLIFFS' AND THE SHAREHOLDERS' COUNSEL
7.13 COVOLIK EMPLOYMENT AGREEMENT
7.14 AMENDMENT TO OFFICE LEASE
7.15 ESCROW AGREEMENT
7.17 XXXXXXXXX PERMISSION AND RELEASE AGREEMENT
SCHEDULES
1.1(g) BANK NOTES PAYABLE
1.1(t) CONTRACT PAYMENTS
1.1(ao) FOUNDATION PAYMENT
1.1(bv) SHAREHOLDER NOTES
2.1 SHAREHOLDERS AND SHARE OWNERSHIP
(iii)
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3.4(c) NO OTHER DEBTS OR OBLIGATIONS
3.5(d) MODIFICATIONS IN COMPENSATION OR BENEFITS
3.5(m) COMMENCEMENT, NOTICE OR THREAT OF LAWSUIT
3.8(a)(i) TRADEMARKS
3.8(b) THE WORKS
3.8(c) INVENTORY
3.8(d)(i) AUTHOR AND FREELANCE AGREEMENTS
3.8(d)(ii) SALES AND DISTRIBUTION AGREEMENTS
3.8(d)(iii) CUSTOMER AGREEMENTS
3.8(d)(iv) FOREIGN TRANSLATION AGREEMENTS
3.8(d)(v) SUBSIDIARY RIGHTS AGREEMENTS
3.8(d)(vi) PRINTING AND MANUFACTURING AGREEMENTS AND ARRANGEMENTS
3.8(d)(vii) COMMERCIAL SOFTWARE LICENSE AGREEMENTS
3.8(d)(viii) WEBSITE DEVELOPMENT AND HOSTING AGREEMENTS
3.8(d)(ix) ADVERTISING AGREEMENTS
3.8(d)(x) CONSULTING AGREEMENTS
3.8(e)(i) LESSEE LEASES AND SUBLEASES
3.8(e)(ii) LESSOR LEASES AND SUBLEASES
3.8(e)(iii) PERSONAL PROPERTY LEASES
3.8(f) PLATES AND FILM
3.8(g) EQUIPMENT/DEPRECIATION SCHEDULE
3.8(h) ART WORK
3.8(i) BUSINESS LICENSES
3.9 ENCUMBRANCES
3.11 INSURANCE POLICIES
3.14(a) CONTRACTS AND LEASES
3.14(b)(i) OBLIGATIONS OR PAYMENTS TO CLIFF'S IN EXCESS OF $25,000
3.14(b)(vii) AGREEMENTS CONTAINING PROVISIONS LIMITING CLIFF'S RIGHTS OR
FREEDOM TO COMPETE
3.14(b)(x) AGREEMENTS CONTAINING AGREEMENTS OR INSTRUMENTS RELATING TO THE
BORROWING OF MONEY OR EXTENSIONS OF CREDIT
3.17(a) EMPLOYEES
3.17(c) CONTRACTUAL OR OTHER OBLIGATIONS TO PROVIDE SEVERANCE PAYMENTS
3.18 EMPLOYEE BENEFIT PLANS
3.18(d) CURRENT INDIVIDUALS ELECTING COBRA
3.19 CONFLICTS/DEFAULTS
3.21 THIRD PARTY CONSENTS
3.22 LITIGATION
3.23(a) TAX RETURN EXCEPTIONS
3.23(c) AUDITS
3.23(c)(v) CLAIMS IN WRITING BY ANY TAX AUTHORITY
3.23(c)(viii) CERTAIN TAX ITEMS
3.27 BANK AND SAFE DEPOSIT LISTS, POWER OF ATTORNEY
3.28 INVESTMENT BANKER
3.29 INTERESTED PARTY TRANSACTIONS
6.3(b) SEVERANCE AMOUNTS
7.15(c) XXXXXX CLAIM INDEMNITY
11.2(b)(iii) EMPLOYEE BENEFITS INDEMNITY
(iv)
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SHARE PURCHASE AGREEMENT
This is a Share Purchase Agreement ("Agreement") dated as of December 7,
1998, by and among IDG Books Worldwide, Inc., a Delaware corporation ("IDGB"),
Cliff's Notes, Inc., a Nebraska corporation ("Cliffs"), and all of the
shareholders of Cliffs (the "Shareholders").
RECITALS
a. Cliffs owns and operates a publishing business which publishes and
sells print and electronic works and software products under the "Cliffs"
Imprints using the Proprietary Property;
b. The Shareholders collectively own all of the issued and outstanding
shares of capital stock of Cliffs;
c. The Shareholders desire to sell and IDGB desires to purchase, one
hundred percent (100%) of the outstanding shares of capital stock of Cliffs,
subject to the representations, warranties, and covenants of the parties set
forth in this Agreement.
In consideration of the premises and the mutual promises herein
made, and in consideration of the representations, warranties and covenants
herein contained, the parties agree as follows:
ARTICLE 1 - DEFINITIONS.
1.1. DEFINITIONS. Unless otherwise defined herein, all capitalized terms
in this Agreement have the meanings set forth in this Section 1.1.
a. "ACCOUNTANTS" means IDGB's certified public accountants,
Deloitte Touche, LLP.
b. "AFFILIATE" means a Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, another Person.
c. "AGREEMENT" means this Share Purchase Agreement and all
Exhibits and Schedules hereto, as the same may be amended.
d. "AUDITED STATEMENTS" has the meaning set forth in Section
3.4(a).
e. "AUTHOR ADVANCES" means cash advances against future
royalties payable, made by Cliffs under the Author Agreements.
f. "AUTHOR AGREEMENTS" has the meaning specified in Section
3.8(d)(i).
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g. "BANK NOTES PAYABLE" means all of Cliffs' notes payable and
outstanding principal and accrued and unpaid interest thereon as of the date
hereof (including the U.S. Bank note payable), as set forth on Schedule 1.1(g)
which schedule shall be updated as of the Closing Effective Date.
h. "BUSINESS" means Cliffs' business of creating, developing,
producing, marketing, selling, distributing, licensing, and otherwise publishing
the Works utilizing the Proprietary Property.
i. "CLAIM" has the meaning specified in Section 11.3.
j. "CLIFFS ACCOUNTING PRINCIPLES" OR "CAP" means GAAP, except
for the GAAP departures noted in the Reviewed Statements of Cliffs as of and for
the year ending June 30, 1998 and the absence of a bad debt reserve.
k. "CLIFFS" means Cliff's Notes, Inc., a Nebraska corporation.
l. "CLOSING" has the meaning specified in Section 2.6.
m. "CLOSING DATE BALANCE SHEET" means the unaudited balance
sheet of Cliffs reviewed by the Accountants pursuant to Section 2.7(a) as of the
Closing Effective Date.
n. "CLOSING DATE NET BOOK VALUE" means the amount, as reflected
on the Closing Date Balance Sheet, which is equal to Cliffs' total assets less
total liabilities, as determined in accordance with CAP as of the close of
business on the Closing Effective Date.
o. "CLOSING DATE NET BOOK VALUE DIFFERENTIAL" means the positive
amount, if any, by which the Closing Date Net Book Value is greater than
$5,000,000 or the negative amount, if any, by which the Closing Date Net Book
Value is less than $5,000,000. In calculating the Closing Date Net Book Value
Differential, the following items, to the extent, if at all, they are reflected
on the Closing Date Balance Sheet, shall be deducted from the liabilities or
added to the assets of Cliffs as is appropriate in accordance with CAP: (i) the
Contract Payments (the payment on account of, or any accrual for which, shall
not be reflected on the Closing Date Balance Sheet); (ii) the Severance Amounts
(the payment on account of, or any accrual for which, shall not be reflected on
the Closing Date Balance Sheet); (iii) the Foundation Payment (which shall be
reflected as an asset on the Closing Date Balance Sheet); (iv) the Excluded Debt
(which shall be deducted from the liabilities on the Closing Date Balance
Sheet); and (v) the Transaction Costs (if accrued shall be deducted from the
liabilities, and if paid shall be added to the cash shown, on
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the Closing Date Balance Sheet).
p. "CLOSING EFFECTIVE DATE" means the last day of the month
ending prior to the Closing.
q. "CLOSING PAYMENT" means the Preliminary Purchase Price less
$2,250,000.
r. "CODE" means the Internal Revenue Code of 1986, as amended,
and the rules and regulations promulgated thereunder from time to time.
s. "COBRA" means the requirements of Part 6 of Subtitle B of
Title I of ERISA and Code Section 4980B.
t. "CONTRACT PAYMENTS" means Cliffs' obligations for all
remaining and final payments under the employment agreements with Messrs.
Covolik and Lincoln, and consulting agreement with Xx. Xxxxxx, as set forth on
Schedule 1.1(t) as to each of Mr. Covolik, Lincoln and Slotin.
u. "CONTRACTS" has the meaning specified in Section 3.8(d).
v. "CONTROLLED GROUP" has the meaning set forth in Code Section
1563.
w. "COPYRIGHTS" means all copyrights throughout the world, under
U.S. and international laws, and includes without limitation all copyrights in
and to the Works (and source codes in any software contained therein, including
StudyWare), the Imprints, the Manuscripts, Cliffs' Website xxxxxxxxxx.xxx.,
promotional and marketing materials, catalogs and brochures, graphic design
materials, posters, characters, cartoons, and other copyrightable matter, all as
used in the Business.
x. "DAMAGES" has the meaning specified in Section 11.2.
y. "EMPLOYEE BENEFIT PLANS" means any (i) nonqualified deferred
compensation or retirement plan or arrangement, (ii) qualified defined
contribution or defined benefit retirement plan or arrangement which is an
Employee Pension Benefit Plan (including any Multiemployer Plan), (iii) Employee
Welfare Benefit Plan or fringe benefit or other retirement, bonus, or incentive
plan or program, or (iii) severance plan whether formal or informal and whether
deemed an Employee Pension Benefit Plan or Employee Welfare Benefit Plan.
z. "EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in
ERISA Section 3(2).
aa. "EMPLOYEES" has the meaning set forth in Section 6.3.
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bb. "EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in
ERISA Section 3(1).
cc. "ENCUMBRANCES" means all mortgages, pledges, liens,
encumbrances, security interests, equities, charges, and restrictions of any
nature, except for liens arising by operation of law for taxes not yet due and
payable.
dd. "ENVIRONMENTAL CLAIMS" means any administrative, regulatory
or judicial actions, suits, demands, demand letters, claims, liens, notices of
non-compliance or violation, investigations or proceedings relating in any way
to any Environmental Law or any permit issued under any such Law, including (i)
Environmental Claims by governmental or regulatory authorities for enforcement,
cleanup, removal, response, remedial or other actions or damages pursuant to any
Environmental law, and (ii) Environmental Claims by any third party seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the environment.
ee. "ENVIRONMENTAL LAW(S)" means any applicable federal, state
or local statute, law, rule, regulation, ordinance, code, policy or rule of
common law in effect and in each case as amended as of the Closing, and any
judicial or administrative interpretation thereof as of the Closing, including
any judicial or administrative order, consent decree or judgment, relating to
the environment, health, safety or Hazardous Materials, including the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, 42 U.S.C. Section 6901, et seq.; the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. Section 9601, et seq.; the Federal Water
Pollution Control Act, as amended, 33 U.S.C. Section 1251, et seq.; the Toxic
Substances Control Act, 15 U.S.C. Section 2601, et seq.; the Clean Air Act, 42
U.S.C. Section 7401, et seq.; the Safe Drinking Water Act, 42 U.S.C. Section
300f, et seq.; the Oil Pollution Act of 1990, 33 U.S.C. Section 2701, et seq.;
the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C., Section
651, et seq.; and their state and local counterparts and equivalents.
ff. "ERISA" has the meaning specified in Section 3.18.
gg. "ERISA AFFILIATE" means each entity which is treated as a
single employer with Seller for purposes of Code Section 414.
hh. "ESCROW ACCOUNT" means the escrow account established under
Section 7.15.
ii. "ESCROW AGENT" means U.S. Bank National Association.
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jj. "ESCROW AGREEMENT" means the agreement, in the form attached
hereto as Exhibit 1.1(aj), between the Escrow Agent, IDGB, and the Shareholders.
kk. "EXCLUDED DEBT" means the following as of the Closing
Effective Date (i) Bank Notes Payable, (ii) the Shareholder Notes, and (iii)
Cliffs' bank overdrafts (if any).
ll. "FIDUCIARY" has the meaning set forth in ERISA Section
3(21).
mm. "FOUNDATION" means Cliff's Charitable Foundation, a
non-profit corporation organized under Nebraska law.
nn. "FOUNDATION ASSIGNMENT" means the Foundation's quitclaim
assignment and release to Cliffs, in the form attached hereto as Exhibit
1.1(an).
oo. "FOUNDATION PAYMENT" means the amount paid by Cliffs to the
Foundation to effect the Foundation Assignment and terminate and otherwise
extinguish the Transfer Agreement, as such amount is set forth on Schedule
1.1(ao).
pp. "GAAP" means generally accepted accounting principles in the
United States, applied on a basis which is consistent with Cliffs' past
practices and policies throughout the periods indicated, and in cases where
Cliffs' past practices are inconsistent with generally accepted accounting
principles, generally accepted principles will apply.
qq. "HAZARDOUS MATERIALS" means (i) any petroleum or petroleum
products, radioactive materials, asbestos in any form, urea formaldehyde foam
insulation, transformers or other equipment that contain dielectric fluid
containing polychlorinated biphenyls, and radon gas, and (ii) any chemicals,
materials or substances defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials," "extremely hazardous
wastes," "restricted hazardous wastes," "toxic substances," "toxic pollutants"
or words of similar import, under any applicable Environmental Law.
rr. "XXXXXXXXX ASSIGNMENT" means the form of quitclaim
assignment attached hereto as Exhibit 1.1(ar), from Xxxxxxx Xxxxxxxxx to Cliffs.
ss. "HIPAA" means the Health Insurance Portability and
Accountability Act of 1996, as amended.
tt. [[INTENTIONALLY OMITTED.]]
uu. "IDGB" means IDG Books Worldwide, Inc., a Delaware
corporation.
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vv. "IMPRINT(S)" means the following imprints and brands owned
by Cliffs and used in the Business: Cliffs Notes, Cliffs Test Preparation
Guides, Cliffs Quick Reviews, Cliffs Advanced Placement Series, Cliffs Complete
Study Editions, Studyware, and Centennial Press (collectively, the "Imprints").
ww. "INDEMNIFIED PARTY" has the meaning specified in Section
11.3.
xx. "INDEMNIFYING PARTY" has the meaning specified in Section
11.3.
yy. "INDEMNITY HOLDBACK" has the meaning specified in Section
2.5.
zz. "INVENTORY" means all inventories of every kind and nature
and wheresoever situated, including without limitation all inventories of
completed (finished goods) and partially completed (works-in-process) books and
other literary works of or pertaining to the Business, all as determined in
accordance with CAP.
aaa. "LEASES" means the Lessor Leases, Lessee Leases, and
Personal Property Leases, collectively.
bbb. "LESSEE LEASES" has the meaning specified in Section
3.8(e)(i).
ccc. "LESSOR LEASES" has the meaning specified in Section
3.8(e)(ii).
ddd. "MANUSCRIPTS" means manuscripts or manuscripts in progress
created or to be created in connection with the Works, including all computer
files, notes, plates, film, negatives, bluelines, art board, laser generated
proofs, treatments and illustrations.
eee. "MATERIAL ADVERSE EFFECT" means a material adverse effect
on the assets, financial condition, results of operations, or prospects of the
Business taken as a whole, excluding seasonal effects, publishing industry
trends, and information which is publicly known.
fff. "PBGC" means the Pension Benefit Guaranty Corporation.
ggg. "PERSON" means any individual, partnership, joint venture,
corporation, limited liability company, trust, unincorporated association,
governmental authority, or other entity.
hhh. "POST-CLOSING PURCHASE PRICE ADJUSTMENT" has the
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meaning set forth in Section 2.7.
iii. "PRELIMINARY NET BOOK VALUE" means the Preliminary Net Book
Value of Cliffs determined in accordance with CAP, as determined under Section
2.3.
jjj. "PRELIMINARY NET BOOK VALUE DIFFERENTIAL" means the
positive amount, if any, by which the Preliminary Net Book Value is greater than
$5,000,000 or the negative amount, if any, by which the Preliminary Net Book
Value is less than $5,000,000. In calculating the Preliminary Net Book Value
Differential, the following items, to the extent, if at all, they are reflected
on the Trial Balance Sheet, shall be deducted from the liabilities or added to
the assets of Cliffs as is appropriate in accordance with CAP: (i) the Contract
Payments (the payment on account of, or any accrual for which, shall not be
reflected on the Closing Date Balance Sheet); (ii) the Severance Amounts (the
payment on account of, or any accrual for which, shall not be reflected on the
Closing Date Balance Sheet); (iii) the Foundation Payment (which shall be
reflected as an asset on the Closing Date Balance Sheet); (iv) the Excluded Debt
(which shall be deducted from the liabilities on the Closing Date Balance
Sheet); and (v) the Transaction Costs (if accrued shall be deducted from the
liabilities, and if paid shall be added to the cash shown, on the Closing Date
Balance Sheet).
kkk. "PRELIMINARY PURCHASE PRICE" has the meaning set forth in
Section 2.3.
lll. "PROHIBITED TRANSACTION" has the meaning set forth in ERISA
Section 406 and Code Section 4975.
mmm. "PROPRIETARY PROPERTY" means (i) all Trademarks,
Copyrights, any author or moral rights and waivers, trade secrets, patents,
inventions, industrial designs and designs, know-how, proprietary technology and
processes, and all goodwill relating to the foregoing, (ii) whether registered
or at common law, U.S. or international, and including any applications,
registrations, continuations in part, divisional applications, or analogous
rights, and (iii) all other intellectual and proprietary property, including the
Proprietary Property described on Schedule 3.8(a), all as used in the Business
throughout the world.
nnn. "PURCHASE PRICE" has the meaning set forth in Section 2.4.
ooo. "REAL PROPERTY" means any real property and improvements
previously or currently owned, leased, operated or occupied by Cliffs.
ppp. "RELATED PARTY" has the meaning set forth in Section 3.5(l)
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qqq. "REPORTABLE EVENT" has the meaning set forth in ERISA
Section 4043."
rrr. "SALES RETURNS ADJUSTMENT" means the (i) the dollar amount
of returns which Cliffs has notice of but has not yet received, processed and
expensed as of the Closing Effective Date, minus (ii) $100,000.
sss. "SCHEDULED ASSETS" has the meaning specified in Section
3.8.
ttt. "SEVERANCE AMOUNTS" means the severance amounts which may
be paid to certain Employees in accordance with Section 6.3.
uuu. "SEVERANCE AMOUNTS ADJUSTMENT" means the amount shown on
Schedule 6.3(b).
vvv. "SHAREHOLDER NOTES" means Cliffs' notes payable to the
Shareholders, with the outstanding principal balance and accrued and unpaid
interest thereon as of the date hereof as set forth on Schedule 1.1(bv).
Schedule 1.1(bv) shall be updated as of the Closing Effective Date and delivered
at Closing.
www. "SHAREHOLDERS AGREEMENT" means that certain Shareholders
Agreement dated July 31, 1983, as amended February 1, 1984, among Cliffs and the
Shareholders.
xxx. "SHAREHOLDERS' KNOWLEDGE" means the actual knowledge of
Xxxxxx X. Xxxxxxx, Xxxxxxx Xxxxxxx, J. Xxxxxxx Xxxxxxxx, or Xxxxx Xxx.
yyy. "SHAREHOLDER REPRESENTATIVES" means Xxxxxxx Xxxxxxxx and
Xxxxxx Xxxxxxx, or their successors as appointed in accordance with the Escrow
Agreement.
zzz. "SHARES" means the 44,925 shares of common stock of Cliffs,
all of which shares are owned by the Shareholders and represent one hundred
percent (100%) of the outstanding shares of common stock of Cliffs.
aaaa. "SPECIAL HOLDBACK" has the meaning set forth in Section
2.5.
bbbb. "TAXES" means all Federal, state, local and foreign taxes,
assessments (including assessments arising from federal or state audits),
duties, fees, levies or other governmental charges of any kind whatsoever, and
all estimated taxes, deficiency assessments, additions to tax, penalties and
interest.
cccc. "TRADEMARKS" means all trademarks, service marks, trade
names, trade dress, Internet domain names, business
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14
names, brand names, logos, proprietary icons, imprints, get-up, and line
extensions (if applicable), all as used in the Business.
dddd. "TRANSACTION COSTS" has the meaning set forth in Section
13.1.
eeee. "TRANSFER AGREEMENT" means that certain Agreement for
Transfer of Copyrights dated July 1, 1991, between the Foundation and Cliffs.
ffff. "TRIAL BALANCE SHEET" means the general ledger trial
balance sheet prepared in accordance with CAP (subject to the inclusion of the
Sales Returns Adjustment, if any) for the month-end as of the Closing Effective
Date (which shall include a physical inventory of the Inventory as of October
31, 1998 taken by Cliffs and observed by IDGB and updated to the date of the
Trial Balance Sheet), setting forth Cliffs' asset and liability accounts, and
the Sales Returns Adjustment (if any).
gggg. "TRIAL BALANCE SHEET DATE" means the date of the Trial
Balance Sheet, as determined under Section 1.1(cf) immediately above.
hhhh. "WORKS" means all of Cliffs' literary works and related
products published under the Imprints, under the Author Agreements or otherwise,
including original and revised editions, frontlist and backlist titles, and any
and all existing Works and works in progress, and regardless of whether such
Works are stored or published in print, electronic (including online), software,
or other media.
ARTICLE 2 - PURCHASE OF SHARES, PURCHASE PRICE, AND
RELATED MATTERS.
2.1. PURCHASE OF SHARES. IDGB agrees to purchase from each Shareholder
and each Shareholder agrees to sell, assign, transfer, and deliver to IDGB the
number of Shares set forth opposite the name of such Shareholder on Schedule
2.1.
2.2. CLOSING: EXCHANGE AND OTHER PAYMENTS; WIRING INSTRUCTIONS.
a. EXCHANGE. At the Closing, each Shareholder shall deliver or
cause to be delivered share certificates representing the Shares owned by such
Shareholder, duly endorsed and assigned for transfer to IDGB. IDGB shall deliver
to each Shareholder by wire transfer, the Shareholder's pro-rata share of the
Closing Payment. At the Closing, IDGB will also (i) make the Foundation Payment,
(ii) pay the holders of the Excluded Debt the full amount thereof, and (iii) pay
the holders of the Shareholder Notes the full amount thereof.
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15
b. WIRE TRANSFER. Not later than five (5) days prior to the date
of Closing, Cliffs shall provide IDGB with wire transfer instructions for
payments to (i) the Foundation as to the Foundation Payment, (ii) the holders of
the Excluded Debt, and (iii) the Shareholders and the holders of the Shareholder
Notes.
2.3. DETERMINATION OF PRELIMINARY NET BOOK VALUE. Prior to the Closing,
Cliffs will provide to IDGB a Trial Balance Sheet. Based on the Trial Balance
Sheet, the parties will determine the Preliminary Net Book Value Differential
and the Preliminary Purchase Price. The Preliminary Purchase Price shall equal
$12,652,930.00, plus the Preliminary Net Book Value Differential.
2.4. PURCHASE PRICE. The total purchase price for the Shares (the
"Purchase Price") shall equal $12,652,930.00, plus the Closing Date Net Book
Value Differential.
2.5. HOLDBACKS. IDGB shall hold back $1,750,000 (the "Indemnity
Holdback") and $500,000 (the "Special Holdback") and deposit the Indemnity
Holdback and the Special Holdback in the Escrow Account in accordance with the
Escrow Agreement.
2.6. CLOSING. Subject to the fulfillment of the conditions to Closing in
Articles 7 and 8 herein, the purchase and sale of the Shares (the "Closing")
shall take place at 10:00 a.m. at the offices of counsel to Cliffs and the
Shareholders, XxXxxxxxx, Will & Xxxxx, 000 Xxxx Xxxxxx Xxxxxx, Xxxxxxx, Xxxxxxxx
00000-0000, not later than December 18, 1998. The purchase, sale, and exchanges
referred to in Sections 2.1 and 2.2 shall be effective as of 12:00 midnight on
the Closing Effective Date.
2.7. POST-CLOSING PURCHASE PRICE ADJUSTMENT.
a. DETERMINATION OF CLOSING DATE NET BOOK VALUE. Within sixty
(60) days after the Closing Effective Date, the Accountants, at IDGB's expense,
will perform an audit of the Closing Date Balance Sheet prepared by Cliffs. Such
balance sheet will be prepared in accordance with CAP. The inventory balance
reported in the Closing Date Balance Sheet will reflect the October 31, 1998
balance that was subjected to a physical count by Cliffs, adjusted for inventory
activity from such date through the Closing Effective Date. Based on such
audited Closing Date Balance Sheet, the parties shall jointly determine the
Closing Date Net Book Value Differential.
b. INFORMATION SHARING; RESOLUTION OF DISPUTES.
(i) At the Shareholder Representatives' request, which shall be
within five (5) business days after the Accountants' delivery of the audited
Closing Date Balance Sheet, IDGB will cause Cliffs and/or the Accountants to
share their work papers and related materials used in performing the audit of
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16
the Closing Date Balance Sheet with the Shareholder Representatives. In the
event the Shareholder Representatives do not request Cliffs' and/or the
Accountants' work papers or related materials within five (5) business days
after the Accountants delivery of the audited Closing Date Balance Sheet, the
Closing Date Balance Sheet shall be final and binding on the parties.
(ii) In the event that a dispute arises as to the Closing Date
Net Book Value Differential which the parties are unable to resolve among
themselves within ten (10) business days after the provision by Cliffs and/or
the Accountants of their work papers and related materials to the Shareholder
Representatives, the parties will engage Xxxxxx Xxxxxxxx LLP to review the
disputed information only and render a final accounting and determination of the
Closing Date Net Book Value Differential. Such determination shall be final and
binding on the parties. In the event Xxxxxx Xxxxxxxx LLP is so engaged, the
Shareholders shall bear one-half (1/2) and IDGB shall bear one-half (1/2) of
Xxxxxx Xxxxxxxx LLP's fees and costs.
c. PAYMENT OF POST-CLOSING PURCHASE PRICE ADJUSTMENT. If the
Purchase Price is greater than the Preliminary Purchase Price, IDGB will pay the
excess to the Shareholders pro rata. If the Purchase Price is less than the
Preliminary Purchase Price, then the Escrow Agent will distribute the excess out
of the Indemnity Holdback to IDGB pursuant to the Escrow Agreement. Any such
payments will be made within five (5) business days after the final
determination of the Closing Date Net Book Value Differential.
ARTICLE 3 - REPRESENTATIONS REGARDING CLIFFS.
Cliffs and the Shareholders hereby represent and warrant to IDGB,
subject to such exceptions as are disclosed with a description of the relevant
facts in the disclosure schedules (referencing the appropriate section number)
supplied by Cliffs to IDGB and dated as of the date hereof, as follows:
3.1. EXISTENCE AND GOOD STANDING. Cliffs is a corporation duly
organized, validly existing, and in good standing under the laws of the state of
Nebraska. Cliffs has the requisite corporate power and authority to own, lease,
and operate its properties and to carry on the Business as now conducted and as
presently proposed to be conducted. Cliffs is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the Business
makes such qualification or license required by law.
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17
3.2. CAPITAL STOCK.
a. CAPITAL STRUCTURE. Cliffs has total authorized capital of
250,000 shares of common stock. There are 44,925 shares of Cliffs' common stock
issued and outstanding, consisting of the Shares. There are 16,075 shares of
treasury stock. There are 189,000 shares of Cliffs' common stock authorized and
unissued. As of the Closing Effective Date, the number of shares of common stock
that are authorized, issued, and outstanding will be the same as the date
hereof.
b. OTHER. The Shares are duly authorized, validly issued, fully
paid, and nonassessable. The Shares have been issued in compliance with all
applicable federal and state securities laws. The Shares were not when issued
nor are they currently subject to any preemptive rights, except as otherwise
waived by any Persons entitled thereto at Closing, under statute, Cliffs'
Articles of Incorporation or Bylaws, or any agreement to which Cliffs is a party
or by which Cliffs is bound. Except for the Shareholders' Agreement, there are
no outstanding subscriptions, options, warrants, rights, calls, conversion or
exchange rights, rights of first refusal, contracts, commitments, proxies,
voting trusts or agreements, plans, or other agreements relating to the
purchase, issuance, sale, or voting of the Shares or any shares of Cliffs'
common stock, to which any of the Shareholders are parties or otherwise.
3.3. AUTHORIZATION AND VALIDITY OF THIS AGREEMENT.
Cliffs has the requisite corporate power and authority to execute and deliver,
and consummate the transactions contemplated by, this Agreement. The execution
and delivery of, and consummation of the transactions contemplated by, this
Agreement by Cliffs have been duly authorized and approved by its Board of
Directors and Shareholders and no other corporate action on the part of Cliffs
is necessary to consummate the transactions contemplated hereby. This Agreement
has been duly executed and delivered by Cliffs and, assuming due execution of
this Agreement by the other parties hereto, is a valid and binding obligation of
Cliffs enforceable against Cliffs in accordance with its terms, except to the
extent that its enforceability may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the
enforcement of creditors' rights generally and general equitable principles.
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18
3.4. AUDITED STATEMENTS; TRIAL BALANCE SHEET; DEBTS; ACCOUNTS
RECEIVABLE.
a. AUDITED STATEMENTS. Cliffs has furnished IDGB with the
following financial statements and Independent Accountants Audit Report thereon:
Balance Sheets as of June 30, 1998 and the related Statements of Operations,
Stockholders' Equity and Cash Flows for the years then ended, together with the
audit report of the Accountants (the "Audited Statements"). The Audited
Statements have been prepared in accordance with GAAP as of and applicable for
the fiscal year ending June 30, 1998, and the Audited Statements fairly present
the financial position and operating results of Cliffs as of the dates, and for
the periods, indicated therein.
b. GENERAL LEDGERS. All of Cliffs' general ledgers and related
documentation are located at Cliffs' principal corporate headquarters in
Lincoln, Nebraska. The general ledgers accurately reflect the underlying facts
and transactions in all material respects. Cliffs has provided IDGB with the
general ledger trial balances for the months ending July 30, August 31,
September 30, and October 31, 1998. Cliffs will also furnish IDGB with the
general ledger trial balances for all months ending prior to the Trial Balance
Sheet Date. The aforesaid trial balances, including the Trial Balance Sheet,
have been and will be prepared on a basis consistent with CAP and fairly
present, subject to the CAP exceptions to GAAP and the absence of footnotes, the
financial position and operating results of Cliffs as of the dates, and for the
periods, indicated therein.
c. NO OTHER DEBTS. Except as set forth on Schedule 3.4(c), there
are no debts, liabilities, or obligations with respect to Cliffs which are
required to be shown on a GAAP statement or to which Cliffs' assets are subject
which are required to be shown on a GAAP statement, whether liquidated,
unliquidated, accrued, absolute, contingent, or otherwise (whether or not
required to be reflected in the Audited Statements or the Trial Balance Sheet),
except for (i) those expressly set forth on the Audited Statements or the Trial
Balance Sheet, (ii) trade payables arising thereafter in the ordinary course of
business, (iii) return policy obligations, and (iv) liabilities specifically
disclosed in the schedules attached hereto, provided that this representation
shall not be deemed to be breached to the extent that any liability is reflected
on the Closing Date Balance Sheet as finally determined.
d. ACCOUNTS RECEIVABLE. The accounts receivable shown on the
Audited Statements and Trial Balance Sheet arose in the ordinary course of
business and have been collected or to the Shareholders' Knowledge are
collectible in the book amounts thereof, less the allowances for doubtful
accounts, if any, determined in accordance with CAP consistently applied and in
ac-
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19
cordance with the Cliffs' past practices. The accounts receivable of Cliffs
arising after the Trial Balance Sheet Date and before the Closing Effective Date
arose in the ordinary course of business (subject to stated terms of discount in
invoices) and have been collected or to the Shareholders' Knowledge are
collectible in the book amounts thereof, less an allowance for doubtful
accounts, if any, determined in accordance with GAAP consistently applied and in
accordance with Cliffs' past practices. None of the accounts receivable of
Cliffs is subject to any material claim of offset, recoupment, setoff, or
counter-claim, except for rights of return in accordance with Cliffs policies.
3.5. ABSENCE OF CHANGES. Since the date of the Audited Statements, there
has not been:
a. Any material (in excess of $2,500 for any single item)
damage, destruction or loss to any asset or property, tangible or intangible, of
Cliffs;
b. Any material transaction relating to or involving Cliffs
(other than the transactions contemplated herein) which was entered into, or
carried out by Cliffs other than in the ordinary and usual course of business;
c. Any change made by Cliffs in its accounting or tax practices
or procedures relating thereto, or any material change made by Cliffs in its
method of operating the Business;
d. Any increase in or modification of the compensation or
benefits payable or to become payable by Cliffs to any of its directors,
officers, or employees, including the declaration, payment or commitment or
obligation of any kind for Cliffs' payment of a bonus, additional salary or
other extra-ordinary compensation to any such Person(s);
e. Any sale, lease, or disposition of, or any agreement to sell,
lease, or dispose of any of Cliffs' assets, other than sales, leases or
dispositions in the usual and ordinary course of business and consistent with
past practices;
f. Any amendment, waiver, release, rescission, or termination of
any material agreement, license, or other instrument to which Cliffs is a party,
including any write-off or other compromise on any account receivable outside
the ordinary course of business;
g. Any adverse change in Cliffs' relationships with any
significant vendor(s) or customer(s) (except any conditions arising only from
the internal financial condition of any such vendor or customer);
h. Any sales or dispositions, or any discussions re-
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20
lating thereto, of the Proprietary Property;
i. Any purchase or lease or any agreements to purchase or lease
property or assets by Cliffs in excess of $10,000 individually, or in excess of
$25,000 in the aggregate;
j. Any issuance, redemption, repurchase, or other acquisition of
shares of capital stock of Cliffs, or any declaration, setting aside, or payment
of any dividend or other distribution (whether in cash, stock, or property) with
respect to the capital stock of Cliffs;
k. Any alteration of any term of any outstanding security of
Cliffs, including its capital stock, debt securities, promissory notes, or other
evidences of indebtedness;
l. Any loan by Cliffs to any officer, director, or any relative
of any officer or director (a "Related Party"), any loan by Cliffs to any other
Person, guaranteeing by Cliffs of any indebtedness (whether of a Related Party
or otherwise) as to any Person, or any renewal, extension, or alteration of any
terms of any of the foregoing;
m. Except as set forth on Schedule 3.5(m), commencement or
notice or threat of commencement of any lawsuit or similar proceeding by or
against any third party, including claim of wrongful discharge or other
employment related claim;
n. Amendments or changes to Cliffs' Articles of Incorporation,
Bylaws, or any other charter documents of Cliffs;
o. Negotiation or agreement by Cliffs or any officer or
employees thereof to do any of the things described in the preceding clauses
3.5(b) through 3.5(n) (other than negotiations with IDGB and its representatives
regarding the transactions contemplated by this Agreement); or
p. Any event or condition of any character which may reasonably
be expected to have a Material Adverse Effect.
3.6. BOOKS AND RECORDS. All of Cliffs corporate records and minute books
are located at Cliffs' principal corporate headquarters in Lincoln, Nebraska.
Copies of all of Cliffs' corporate records and minute books have been provided
to IDGB and its counsel. The corporate records of Cliffs accurately reflect the
underlying facts and transactions in all material respects. The minute books and
related corporate records of Cliffs contain accurate records of all material
corporate actions taken by the Shareholders and Board of Directors of Cliffs.
3.7. SUBSIDIARIES. Cliffs does not own, directly or indirectly, any
capital stock or other equity or proprietary interest in any corporation,
partnership, association, trust, joint ven-
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21
ture, or other entity.
3.8. SCHEDULED ASSETS. The purpose of this Section 3.8 is to accurately
set forth, via schedule, certain tangible and intangible assets of Cliffs which
are used in the operation of the Business which are not specifically identified
as separate line items or otherwise on the Audited Statements or Trial Balance
Sheet nor will such items be specifically identified in the Audited Statements.
The assets set forth in this Schedule 3.8 (the "Scheduled Assets") consist of
the following:
a. PROPRIETARY PROPERTY. The Trademarks and Copyrights, as set
forth on the following Schedules:
(i) The Trademarks, as set forth on Schedule 3.8(a)(i);
(ii) The Copyrights in and to the Works, as set forth on
Schedule 3.8(b).
b. WORKS. The Works, as currently offered for sale by Cliffs in
any channel or medium, including in Cliffs' Website, all as set forth on
Schedule 3.8(b). Schedule 3.8(b) sets forth, as to each such Work, its title,
name of author, first publication date, whether the Work is an original or
revised edition, ISBN, copyright owner, copyright registration date, and
copyright registration number.
c. INVENTORY. The Inventory as of October 31, 1998 is set forth
on Schedule 3.8(c).
d. CONTRACTS. The Contracts in effect on the date hereof, as
listed on Schedules 3.8(d)(i) through 3.8(d)(ix) (the "Contracts"), but subject
to the provisions of Section 3.14(b).
(i) All written agreements with authors, series editors,
and similar content providers ("Author Agreements"), and agreements with
illustrators, graphic artists, and voice talent ("Freelance Agreements")
(as to Author Agreements and Freelance Agreements whether on a
"work-made-for-hire" or royalty basis), and all other licenses and
permissions granted to Cliffs for use of graphic images, photographs and
other artwork for the Works, all as set forth on Schedule 3.8(d)(i).
Schedule 3.8(d)(i) also includes, for each Author Agreement, the title
of the Work, the author's name, Author's Advance, date of agreement, and
for each Freelance Agreement the name of the freelancer and date of such
agreement.
(ii) The domestic and international sales representative
and distribution agreements set forth on Schedule 3.8(d)(ii).
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22
(iii) All written agreements with Cliffs' customers,
other than purchase orders involving amounts of less than $2,500.00
annually, as set forth on Schedule 3.8(d)(iii).
(iv) All agreements pertaining to Cliffs' licenses (if
any) of foreign translation rights to the Works, including the agent
agreement relating to such rights, as set forth on Schedule 3.8(d)(iv).
(v) All other licenses and permissions granted by Cliffs
in respect of display or reproduction rights as to the Works, as set
forth on Schedule 3.8(d)(v).
(vi) All printing and other manufacturing agreements and
arrangements of Cliffs, whether oral or written, as set forth or
otherwise described on Schedule 3.8(d)(vi).
(vii) All commercial software licenses in force as of
the date hereof, under which Cliffs is a licensee, as set forth on
Schedule 3.8(d)(vii).
(viii) All Website development, Website hosting and
other agreements, as set forth on Schedule 3.8(d)(viii).
(ix) All advertising agency, public relations, and
similar agreements, as set forth on Schedule 3.8(d)(ix).
(x) All consulting agreements which are not cancelable,
without penalty, on less than ninety (90) days notice, as set forth on
Schedule 3.8(d)(x).
e. REAL AND PERSONAL PROPERTY LEASES.
(i) Schedule 3.8(e)(i) contains a list of all leases and
subleases to which Cliffs is a party under which it leases Real Property
from another ("Lessee Leases"). A true and complete copy of each such
Lessee Lease has been provided to IDGB.
(ii) Schedule 3.8(e)(ii) contains a list of all leases
or subleases to which Cliffs is a party and under which it leases Real
Property and is entitled to receive payments ("Lessor Leases").
(iii) Schedule 3.8(e)(iii) contains a list of all
personal property leases to which Cliffs is a party ("Personal Property
Leases").
f. PLATES, ETC. All plates, film, proofs, and similar items used
in conjunction with the Manuscripts in the production of the Works, as set forth
on Schedule 3.8(f). Sched-
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23
ule 3.8(f) shows the locations of such materials. All software and the equipment
used in the replication of Cliffs' software products are stored at Cliffs'
principal headquarters.
g. EQUIPMENT. All automobiles, furniture, fixtures, equipment,
computers, racks, forklifts, scales, office and warehouse equipment, and/or
other items of personal property, as set forth on Schedule 3.8(g) or otherwise
used in the operation of the Business. IDGB acknowledges and agrees that
Schedule 3.8(g) will contain a listing of assets which is the same as Cliffs'
"depreciation schedule."
h. ART WORK. The works of fine art, as listed on Schedule
3.8(h). The parties hereby agree that the art work shall be recorded on the
Closing Date Balance Sheet at $175,000. Additionally, in the event that any of
such art work is stolen, damaged, or misplaced between the date of this
Agreement and the date of Closing, the amounts attributable to such stolen,
damaged, or misplaced art work shall be remitted to IDGB out of the Indemnity
Holdback.
i. BUSINESS LICENSES. All business licenses used in the
Business, as set forth on Schedule 3.8(i).
3.9. TITLE TO ASSETS; NO ENCUMBRANCES. Cliffs is the sole and exclusive
legal and beneficial owner of all of its assets and properties, including
without limitation the Scheduled Assets. Cliffs is not a party to, or bound by,
any contract or obligation that requires it to sell or otherwise dispose of, or
limits or compromises its ability to use, its assets or properties. Except as
set forth on Schedule 3.9, Cliffs' assets and properties are not subject to any
Encumbrances. These warranties do not apply to the Proprietary Property, which
is the subject of Section 3.12.
3.10. OPERATING CONDITION. All of Cliffs tangible assets currently in
active use, including those tangible assets which are Scheduled Assets, are
suitable for the purposes for which they are used, are in good operating
condition and repair, free from known defects except for minor defects which do
not interfere with the continued use thereof. Each tangible asset of Cliffs has
been serviced and maintained in accordance with customary industry practices,
although IDGB acknowledges that from time to time some equipment may require
repair or maintenance.
3.11. INSURANCE. Schedule 3.11 lists all policies of general
comprehensive liability, property, fire and casualty, medical and health,
products liability, workers compensation, directors and officers liability, and
other forms of insurance owned or held by Cliffs (the "Insurance Policies"),
including name of carrier, policy number, annual premium, deductible, and
expiration/renewal dates. Cliffs has not been denied insurance by any insurance
carrier during the past five (5) years nor has any
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24
insurance policy been cancelled with regard to Cliffs or the Business. Cliffs
has not received (i) any notice of cancellation of any coverage described in
such Insurance Policies or refusal of coverage thereunder, or (ii) any other
indication that any such policies are no longer in full force and effect or that
the issuer of any such policies is no longer willing or able to perform its
obligations thereunder. There is no claim by Cliffs pending under any of such
policies as to which coverage has been questioned, denied, or disputed by the
underwriter. All premiums payable under all such policies have been paid, and to
the Shareholders' Knowledge Cliffs is in full compliance with the terms of such
policies, including without limitation the notice requirements of such policies.
Cliffs is not aware of any threatened termination of or material premium
increase with respect to any of such policies. Cliffs is not a payee under or
beneficiary of any fidelity, surety or completion bonds or similar instruments.
3.12. PROPRIETARY PROPERTY. Cliffs is the sole and exclusive owner of
all right, title, and interest in and to the Copyrights (except as to certain
Works set forth on Schedule 3.8(b)) and Trademarks throughout the world, and to
the Shareholders' Knowledge the other Proprietary Property. Other than the
Contracts, there are no outstanding options, licenses, or agreements of any kind
relating to the Proprietary Property. The Proprietary Property is not subject to
any Encumbrances. The Copyrights and Trademarks, and to the Shareholders'
Knowledge the other Proprietary Property, and the use thereof in the operation
of the Business do not infringe upon any copyright, trademark, trade secret, or
any other intellectual property or proprietary rights of any Person. There is
not pending or threatened any claim or litigation, and Cliffs and the
Shareholders are not aware of the basis for any such claim or litigation,
contesting the right of Cliffs to use any of the Proprietary Property. To the
Shareholders' Knowledge, no Person is engaging in any act which infringes on
Cliffs' ownership or use of, or exclusive right, title, and interest to, the
Proprietary Property. To the Shareholders' Knowledge, there is no state of facts
that casts doubt on the validity or enforceability of any of the Proprietary
Property.
3.13. THE WORKS. The Works set forth on Schedule 3.8(b) do not (i)
violate any copyright, trademark or any other intellectual property or
proprietary right of any Person, (ii) contain defamatory or unlawful statements,
or statements that violate any Person's or entity's privacy, publicity or
similar right, (iii) contain information, instructions, or content that
recommends unlawful activities or could reasonably cause injury to a Person or
property, or (iv) in any manner discriminate against any Person on the basis of
race, gender, age, religion, disability, or otherwise, other than as may exist
in the underlying literary work. All factual statements and data contained in
the Works are true and correct in all respects.
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25
3.14. CONTRACTS AND LEASES.
a. FULL FORCE AND EFFECT. The Contracts, the Leases, and all
other contracts, agreements, and leases to which Cliffs is a party or to which
it is subject (whether or not listed on Schedule 3.8) are in full force and
effect, all sums (including without limitation, Author Advances, royalties,
rent, lease, and finance payments) required to be paid by Cliffs and the other
parties thereunder have been timely paid, and there currently exists no breach
or event of default or event, condition or act by Cliffs, or to the
Shareholders' Knowledge the other party thereto, which with the giving of
notice, the lapse of time or the occurrence of another event or condition, is or
would become a breach or event of default thereunder, and Cliffs has not
received notice and is not otherwise aware of any such breach or event of
default thereunder.
b. NO OTHER COMMITMENTS. Except as set forth on Schedule 3.8 or
Schedule 3.14, there are no contracts or commitments, whether written or
unwritten, to which Cliffs is a party or to which it is subject which:
(i) involve obligations (contingent or otherwise) of, or
payments to, Cliffs in excess of $25,000 (or the transfer of property or
rights with a value in excess of $25,000 or which have a term extending
beyond twelve (12) months from the date of this Agreement;
(ii) involve any lease of personal property having a
value individually in excess of $10,000;
(iii) obligate Cliffs under any purchase order or
contract for the purchase of raw materials involving $10,000 or more;
(iv) contain provisions restricting the development,
manufacture, or distribution of Cliffs' products;
(v) to the Shareholders' Knowledge, relate to any aspect
of the Business in which any person who was or is an officer, director,
Shareholder or employee of Cliffs (or any person, firm, partnership,
trust, corporation, or other entity affiliated with such persons) has an
interest or serves as a director, officer, employee, or consultant;
(vi) involve any joint venture or partnership agreement
or arrangement which involve a sharing of profits;
(vii) involve any agreement containing provisions
limiting or purporting to limit the rights or freedom of Cliffs to
compete in any line of business or geographic area, or involve the
marketing or distribution of Cliffs'
- 20 -
26
products;
(viii) involve any agreement of indemnification (except
customary provisions in customer or vendor contracts) or guaranty;
(ix) establish any powers of attorney;
(x) involve any mortgages, loans, credit agreements,
security agreements, or other agreements or instruments relating to the
borrowing of money or extension of credit, or otherwise obligate Cliffs
to repay borrowed money; or
(xi) involve any other agreement, contract or commitment
which is material to Cliffs' taken as a whole.
3.15. INTERESTS IN AND RELATIONS WITH AUTHORS, CUSTOMERS, SUPPLIERS,
ETC. Cliffs generally maintains positive relations with its authors, customers,
lessors, suppliers, distributors, licensors and others with whom it does
business and to the Shareholders' Knowledge there is no material negative
circumstance or material adverse event which is not known to the general public
as to which Cliffs or the Shareholders are aware which would reasonably
jeopardize continuing to do business with any such Persons after the Closing.
3.16. REAL PROPERTY. Except for leasehold fixtures reflected in the
Audited Statements, Cliffs owns no Real Property.
3.17. EMPLOYMENT MATTERS.
a. EMPLOYEES. Schedule 3.17(a) lists the employees of Cliffs
(collectively, "Employees"), including his or her name, job title, weekly or
other rate of compensation, whether fixed or commission or a combination
thereof.
b. AT WILL NATURE OF RELATIONSHIP. The employment or service
relationship of each of the Employees is "at will". Except as set forth on
Schedule 3.17, Cliffs is not a party to any employment agreement, written or
unwritten, with any Employee or any other Person. Cliffs has made no promises,
representations, or guarantees to any of its Employees regarding their
employment which in any way has modified the "at will" nature of their
relationship.
c. NO NOTICE OR OTHER OBLIGATIONS. Cliffs does not have any
contractual or other obligation (i) to provide any particular form or period of
notice prior to termination, or (ii) except for the Contract Payments, to pay
any such Employees any severance or other termination payments in connection
with the termination of their employment relationship with Cliffs or as a result
of the transactions contemplated hereby. Cliffs does
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not owe and has not accrued any bonuses or vacation pay or retirement benefits
to any Employee or former Employee, other than as expressly set forth on the
payroll and other records delivered by Cliffs to IDGB prior to Closing.
d. COMPLIANCE WITH EMPLOYMENT LAWS. Cliffs is in compliance with
all federal, state or other applicable laws, rules and regulations, respecting
employment and employment practices, terms and conditions of employment,
discrimination, harassment, wages, hours and overtime rates, and the withholding
and payment of taxes from the compensation of employees, and all other laws and
regulations pertaining to employment and employee benefits. Cliffs has not, and
is not, engaged in any unfair labor practices. No unfair labor practice
complaint against Cliffs is pending before or has been threatened by any
governmental authority.
e. NO STRIKES. There is no labor strike, dispute, slowdown or
stoppage pending or threatened against or involving Cliffs. Cliffs is not a
party to any collective bargaining agreement and no collective bargaining
agreement is currently being negotiated by Cliffs.
f. NO CLAIMS. Except as set forth in Schedule 3.22, no claim,
action, proceeding, or investigation in respect of the employment of any
Employee is currently being asserted, or to the Shareholders' Knowledge,
threatened, against Cliffs. To the Shareholders' Knowledge, all of the Employees
are in compliance with their employment obligations to Cliffs and there exist no
grounds for the termination "for cause" thereof.
g. NO JUDGMENTS. Cliffs is not subject to any outstanding order,
writ, judgment, injunction, decision, award, compliance order, consent decree,
conciliation agreement, settlement agreement, affirmative action plan,
determination letter, or advisory of any court, governmental, regulatory, or
administrative authority or body, or arbitrator or arbitration panel, relating
to any employment matter.
3.18. EMPLOYEE BENEFIT PLANS.
a. EMPLOYEE BENEFIT PLANS. Schedule 3.18 lists each Employee
Benefit Plan that Cliffs maintains or to which Cliffs contributes or has any
obligation to contribute. Cliffs previously maintained the Cliffs Notes, Inc.
Pension Plan, which was terminated in 1990, and has not maintained any other
Employee Benefit Plans.
(i) Except as listed on Schedule 3.18, each such
Employee Benefit Plan (and each related trust, insurance contract, or
fund) is in material compliance in form and in operation in all respects
with applicable requirements of ERISA, the Code, and other applicable
laws. Each
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such Plan has been operated, and its benefits provided, in accordance
with its Plan documents in all material respects.
(ii) All required reports, notices and descriptions
(including Form 5500 Annual Reports, summary annual reports, notices of
determination letter requests, PBGC-1's, and summary plan descriptions)
have been timely filed and distributed appropriately with respect to
each such Employee Benefit Plan except as listed on Schedule 3.18. The
requirements of COBRA and HIPAA have been met with respect to each such
Employee Benefit Plan which is an Employee Welfare Benefit Plan except
as listed on Schedule 3.18.
(iii) All contributions (including all employer
contributions and employee salary reduction contributions) which are due
have been paid to each such Employee Benefit Plan which is an Employee
Pension Benefit Plan and all contributions for the period through the
date of Closing which are not yet due have been paid to each such
Employee Pension Benefit Plan or accrued and reflected as a liability on
the Closing Date Balance Sheet. All premiums or other payments for all
periods ending on or before the date of Closing have been paid with
respect to each such Employee Benefit Plan which is an Employee Welfare
Benefit Plan.
(iv) In the case of each such Employee Benefit Plan
which is an Employee Pension Benefit Plan which meets, or which is
intended to meet, the requirements of a "qualified plan" under Code
Section 401(a)
(a) Such plan has received a favorable
determination letter from the
Internal Revenue Service that it is
a "qualified plan";
(b) Since the receipt of such favorable
determination letter, such plan has
been amended to comply with all
applicable changes in statutes and
regulations to the extent the
remedial amendment period for such
changes has expired.
(c) Continued reliance on such
determination letter is permissible
through the Closing under Internal
Revenue Service rules and policies
with respect thereto; and
(d) Shareholders are not aware of any
facts or circumstances that could
result in the revocation of such
determination letter.
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29
Each determination letter received relates to the Plan as adopted by
Cliffs, and not merely to the form of a prototype plan or similar
instrument.
(v) The market value of assets under each such Employee
Benefit Plan which is an Employee Pension Benefit Plan (other than any
Multiemployer Plan) equals or exceeds the present value of all vested
and nonvested liabilities thereunder determined in accordance with PBGC
methods, factors, and assumptions applicable to an Employee Pension
Benefit Plan.
(vi) The Shareholders have delivered to IDGB correct and
complete copies of the plan documents and summary plan descriptions, the
most recent determination letter received from the Internal Revenue
Service, the most recent Form 5500 Annual Report, and all related trust
agreements, insurance contracts, and other funding agreements which
implement each Employee Benefit Plan listed on Schedule 3.18.
(vii) With respect to each Employee Welfare Benefit Plan
which has distributed any benefits taxable to recipients under pertinent
provisions of the Code, appropriate reporting, withholding, and payment
of applicable taxes have been made and paid by Cliffs.
(viii) No excess contributions have been made by Cliffs
to an Employee Pension Benefit Plan which would give rise to an
obligation for the reporting of, or payment of excise taxes with respect
to, such contributions.
(ix) There has been no return to Cliffs of contributions
made to any Employee Benefit Plan in violation of plan documents or
pertinent provisions of ERISA or the Code.
(x) True and correct schedules of all contributions and
benefits ever made for, or accrued to, all cur rent Cliffs employees
pertinent to calculations which might be required for benefit plan
purposes under the Code, such as but not limited to sections 401 or 415
thereof, or the data from which to compile them, will be available to
IDGB at or after the Closing. Each such Employee Benefit Plan which is
an Employee Pension Benefit Plan has complied in all material respects
with all such requirements for each applicable measuring year.
(xi) With respect to all Employee Benefit Plans ever
terminated by Cliffs, all assets of such Plans were distributed in
accordance with the Plan documents and applicable provisions of the Code
and ERISA, and Forms 5500 and similar reporting forms were filed through
the final period ending with the last distribution.
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30
(xii) With respect to the medical expense reimbursement
arrangement maintained by Cliffs, all benefits paid which were required
to be reported to the Internal Revenue Service as taxable income under
the requirements of Section 105(h) of the Code were properly and timely
reported.
b. NO TERMINATIONS OR REPORTABLE EVENTS. With respect to each
Employee Benefit Plan that Cliffs or any ERISA Affiliate maintains or ever has
maintained or to which any of them contributes, ever has contributed, or ever
has been required to contribute:
(i) No such Employee Benefit Plan which is an Employee
Pension Benefit Plan (other than any Multiemployer Plan) has been the
subject of a Reportable Event as to which notices would be required to
be filed with the PBGC. In the case of any such Employee Benefit Plan
that has been terminated, all required forms and information were filed
with the PBGC, PBGC approval for such termination was obtained or was
deemed to be obtained under applicable PBGC rules, and the plan was
qualified under Section 401(a) of the Code in all material respects at
all times through the date distribution of assets was completed. No
proceeding by the PBGC to terminate any such Employee Pension Benefit
Plan (other than any Multiemployer Plan) has been instituted or, to the
knowledge of any of the Shareholders and the directors and officers (and
employees with responsibility for employee benefits matters) of Cliffs,
threatened.
(ii) There have been no Prohibited Transactions with
respect to any such Employee Benefit Plan for which an exemption is not
available. No Fiduciary has any liability for breach of fiduciary duty
or any other failure to act or comply in connection with the
administration or investment of the assets of any such Employee Benefit
Plan. No action, suit, proceeding, hearing, or investigation with
respect to the administration or the investment of the assets of any
such Employee Benefit Plan (other than routine claims for benefits) is
pending or, to the knowledge of any of the Shareholders and the
directors and officers (and employees with responsibility for employee
benefits matters) of Cliffs, threatened. None of the Shareholders and
the directors and officers (and employees with responsibility for
employee benefits matters) of Cliffs has any knowledge of any basis for
any such action, suit, proceeding, hearing, or investigation.
(iii) Cliffs has not incurred, and none of the
Shareholders and the directors and officers (and employees with
responsibility for employee benefits matters) of Cliffs has any reason
to expect that Cliffs will incur, any liabil-
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31
ity to the PBGC (other than PBGC premium payments) or otherwise under
Title IV of ERISA (including any withdrawal liability as defined in
ERISA Section 4201) or under the Code with respect to any such Employee
Benefit Plan which is an Employee Pension Benefit Plan.
c. CONTROLLED GROUP. None of Cliffs and the other members of the
Controlled Group that includes Cliffs contributes to, ever has contributed to,
or ever has been required to contribute to any Multiemployer Plan or has any
liability (including withdrawal liability as defined in ERISA Section 4201)
under any Multiemployer Plan.
d. COBRA; NO OTHER CONTRIBUTIONS. As noted on Schedule 3.18,
Cliffs does not maintain, nor has it ever maintained or contributed to, nor was
it ever required to contribute to, any Employee Welfare Benefit Plan providing
medical, health, or life insurance or other welfare-type benefits for current or
future retired or terminated employees, their spouses, or their dependents
(other than in accordance with COBRA). Schedule 3.18(d) lists former employees
of Cliffs currently receiving COBRA benefits and their employment termination
dates.
3.19. NO CONFLICT OR DEFAULT. Except as set forth on Schedule 3.19,
neither the execution, delivery, or performance of this Agreement will (i)
conflict with or result in the breach of any term or provision of the Articles
of Incorporation or Bylaws of Cliffs, or of any agreement, contract, deed,
mortgage, order, judgment, decree, injunction, or legal obligation to which
Cliffs or any of the Shareholders is a party, or by which Cliffs' assets are
bound, or constitute a default (or an event which, with the lapse of time or the
giving of notice, or both, would constitute a default) thereunder, or (ii)
result in the creation or imposition of an Encumbrance on any of Cliffs' assets
or give to any Person any rights of termination, acceleration, or cancellation,
in or with respect to the Business or Cliffs'
assets.
3.20. GOVERNMENTAL CONSENTS AND APPROVALS; NO VIOLATIONS. The execution,
delivery, and performance of this Agreement by Cliffs and the Shareholders and
the consummation of the transactions contemplated hereby (i) will not violate
any law, statute, rule, regulation, order or decree of any governmental
authority by which Cliffs or the Shareholders are bound, and (ii) will not
require any filing with, or permit, consent or approval of, or the giving of any
notice to any governmental authority or any other Person.
3.21. THIRD PARTY CONSENTS. Except as set forth on Schedule 3.21, no
consent, approval, or authorization of any third party (private or governmental)
is required in connection with the execution, delivery or performance of this
Agreement by Cliffs or the Shareholders.
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32
3.22. LITIGATION. Except as set forth on Schedule 3.22, there is no
action, suit, proceeding at law or in equity, arbitration, or administrative or
other proceeding or investigation, pending or threatened, against or affecting
Cliffs or its assets or properties, and neither Cliffs nor the Shareholders know
of any valid basis for any such action, suit, proceeding or investigation.
Cliffs is not presently subject to any judgment, order or decree entered in any
lawsuit or other judicial or administrative proceeding.
3.23. TAXES.
a. TAX RETURNS. Except as set forth on Schedule 3.23(a), Cliffs
has timely filed or caused to be timely filed with the appropriate taxing
authorities all returns, statements, forms and reports for Taxes ("Tax Returns")
that are required to be filed by, or with respect to, Cliffs on or prior to the
Closing. Cliffs is not currently the beneficiary of any extension of time within
which to file a Tax Return. Cliffs has provided IDGB with copies of all Tax
Returns since the fiscal year ending June 30, 1995. The Tax Returns have
accurately reflected in all material respects all liability for Taxes of Cliffs
for the periods covered thereby.
b. PAYMENT OF TAXES. All Taxes of Cliffs for all taxable years
ending on or prior to June 30, 1998 showing or otherwise due, have been timely
paid. With respect to the taxable year beginning July 1, 1998, all Taxes on net
income earned prior to the Trial Balance Sheet Date have been timely paid or
accrued and adequately disclosed and fully provided for as a liability on the
Trial Balance Sheet.
c. OTHER TAX MATTERS.
(i) Except as set forth on Schedule 3.23(c), Cliffs has
not been the subject of an audit or other examination of Taxes by the
tax authorities of any nation, state or locality nor has it received any
written notices nor, to the Shareholders' Knowledge any oral notices,
from any taxing authority relating to any issue which could affect the
Tax liability of Cliffs.
(ii) Cliffs has not (a) entered into an agreement or
waiver or been requested to enter into an agreement or waiver extending
any statute of limitations relating to the payment or collection of
Taxes of Cliffs, (b) applied for nor received a ruling or determination
from a taxing authority regarding a past or prospective transaction of
Cliffs, and (c) is not presently contesting the Tax liability of Cliffs
before any court, tribunal or agency.
(iii) All Taxes which Cliffs is (or was) required by law
to withhold or collect have been duly withheld or
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33
collected, and have been timely paid over to the proper authorities to
the extent due and payable.
(iv) There are no written or otherwise binding tax
sharing, allocation, indemnification or similar agreements or
arrangements in effect as between Cliffs or any predecessor or affiliate
of Cliffs or any other party under which IDGB or Cliffs could be liable
for any Taxes or other claims of any party.
(v) No claim in writing and to the Shareholders'
Knowledge no other claim, has ever been made by any authority in a
jurisdiction where Cliffs does not file Tax Returns that it is or may be
subject to taxation in that jurisdiction.
(vi) No officer or director, and to the Shareholders'
Knowledge no employee responsible for tax matters of Cliffs, expects or
has any basis to believe that any authority may assess any additional
taxes for any period for which Returns have been filed. There is no
dispute or claim concerning any liability for Taxes of Cliffs either (a)
claimed or raised by any authority in writing, or (b) as to which any of
the shareholders, directors, officers and employees responsible for tax
matters of Cliffs has knowledge based on personal contact with any agent
of such authority.
(vii) Cliffs has not filed a consent under Code Section
341(f) concerning collapsible corporations. Cliffs has not made any
payment, nor it is obligated to make payment, nor is it a party to any
agreement which could obligate it to make any payment, that would not be
deductible under Code Section 280G. Cliffs has not been a United States
real property holding corporation within the meaning of Code Section
897(c)(2). Cliffs has not been a member of an affiliated group filing a
consolidated federal income tax return, nor does have Cliffs have any
liability for Taxes of any Person under Treas. Reg. Section 1.1502-6 (or
any similar provision of state, local or foreign law), as a transferee
or successor, by contract, or otherwise.
(viii) Schedule 3.23(c)(viii) sets forth, as of the most
recent practicable date, (a) the basis of Cliffs in its assets, and (b)
the amount of any net operating loss, net capital loss, unused
investment or other credit, unused foreign tax credit, and excess
charitable contribution of Cliffs.
3.24. SOFTWARE MATTERS. Cliffs has procured all necessary licenses (type
and quantity) to operate and use all of the software and operating systems that
it uses in the operation of the Business, including all necessary end-user
licenses to operate
- 28 -
34
such software and systems that are installed on the computers listed on Schedule
3.8(g).
3.25. COMPLIANCE WITH LAWS. Cliffs has complied and is in compliance in
all material respects with all applicable judicial or administrative decisions
known to Cliffs and all federal, state, and local laws, statutes, licensing
requirements, rules, and regulations applicable to the Business, including
zoning laws, rules, and regulations. Cliffs has been granted all licenses,
permits, authorizations, and approvals from federal, state, local, and foreign
governmental authorities necessary to carry on the Business as currently
conducted, all of which are currently valid and in full force and effect. All
such licenses, permits, authorizations, consents and approvals will be effective
as of the Closing, and valid and in full force and effect to the same extent as
if the transactions contemplated hereby had not occurred. There is no order
issued, investigation, or proceeding pending or threatened, with respect to any
violation of or conflict with any law, statute, rule, or regulation by Cliffs
relating to the operation of the Business.
3.26. ENVIRONMENTAL LAWS AND REGULATIONS.
a. HAZARDOUS MATERIALS. Hazardous Materials have not been
generated, used, treated or stored on or released or disposed on any Cliffs'
Real Property, except for such Hazardous Materials that have been used or stored
in the ordinary course of the business of Cliffs and in compliance with all
applicable Environmental Laws.
b. GENERAL COMPLIANCE. Cliffs has complied with and is in
compliance with all Environmental Laws and the requirements of permits issued
under such Environmental Laws with respect to any Cliffs' Real Property.
c. NO CLAIMS. During the period that Cliffs or, to the
Shareholders' Knowledge any of Cliffs' predecessors, have occupied any Cliffs'
Real Property (through and including the Closing), there have been no
Environmental Claims pending or threatened against Cliffs or any Cliffs' Real
Property.
d. NO CIRCUMSTANCES GIVING RISE TO CLAIMS. During the period
that Cliffs, or to the Shareholders' Knowledge any of Cliffs' predecessors, have
occupied Cliffs' Real Property (through and including the Closing), there have
been no facts, circumstances, conditions or occurrences on any Cliffs' Real
Property that could reasonably be anticipated (i) to form the basis of an
Environmental Claim against Cliffs, any Cliffs' Real Property or any assets of
Cliffs, or (ii) to cause such Cliffs' Real Property or assets of Cliffs to be
subject to any restrictions on the ownership, occupancy, use or transferability
of such Cliffs' Real Property under any Environmental Law.
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35
e. NO TANKS. During the period that Cliffs, or to the
Shareholders' Knowledge any of Cliffs' predecessors, have occupied Cliffs' Real
Property (through and including the Closing), there have been no underground
storage tanks (without respect to the substance stored therein) located on any
Cliffs' Property.
3.27. BANK ACCOUNTS, POWERS OF ATTORNEY. Set forth on Schedule 3.27 is
an accurate and complete list showing (i) the name and address of each bank in
which Cliffs has an account or safe deposit box, the number of any such account
or any such box and the names of all persons authorized to draw thereon or to
have access thereto, and (ii) the names of all persons, if any, holding powers
of attorney from Cliffs.
3.28. BROKER'S OR FINDER'S FEES. Except as set forth in Schedule 3.28,
no agent, broker, person or firm acting on behalf of Cliffs, or the Shareholders
is, or will be, entitled to any commission or broker's or finder's fees from any
of the parties hereto, or from any Person controlling, controlled by or under
common control with any of the parties hereto, in connection with any of the
transactions contemplated by this Agreement.
3.29. ACCURACY OF DISCLOSURE. All of the representations and warranties
in this Agreement, including the Schedules and Exhibits to this Agreement, are
true and accurate in all respects. There is no fact known to any officer,
director or Shareholder of Cliffs which is, or which any officer, director, or
Shareholder of Cliffs has reason to believe could result in, a Material Adverse
Effect, which has not been set forth in this Agreement, or in any Schedule,
Exhibit, or certificate delivered pursuant to this Agreement. Notwithstanding
the foregoing, no representations or warranties are made regarding any
statements contained in any private memoranda or regarding any projections
furnished by Cliffs to IDGB.
ARTICLE 4 REPRESENTATIONS OF THE SHAREHOLDERS.
The Shareholders, each in his or her individual capacity and for his or
her own account, represent and warrant to IDGB as follows:
4.1. OWNERSHIP OF SHARES. The Shareholders, individually, are the sole,
exclusive, direct and lawful owners of the number of Shares listed opposite
their names on Schedule 2.1, free and clear of all Encumbrances. The
Shareholders have the full right, power, and legal authority to execute, deliver
and perform this Agreement. The Shareholders have the full right, power, and
legal authority to sell, assign, transfer, and convey the Shares owned by each
of them pursuant to this Agreement, and the delivery to IDGB of the Shares
pursuant to this Agreement will transfer to IDGB good title to the Shares free
and clear of all Encumbrances. No Shareholder is a party to any option, warrant,
pur-
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36
chase right, or other contract or commitment that requires such Shareholder to
sell, transfer, or otherwise dispose of any capital stock of Cliffs (other than
this Agreement).
4.2. AUTHORIZATION AND VALIDITY OF AGREEMENT. The Shareholders have the
requisite power and legal authority to execute and deliver, and consummate the
transactions contemplated by, this Agreement. This Agreement has been duly
executed and delivered by the Shareholders and, assuming the due execution of
this Agreement by the other parties hereto, is a valid and binding obligation of
the Shareholders, enforceable against the Shareholders in accordance with its
terms, except to the extent that its enforceability may be subject to applicable
bankruptcy, insolvency, reorganization and similar laws affecting the
enforcement of creditors' rights generally and general equitable principles.
4.3. RESTRICTIVE DOCUMENTS. None of the Shareholders is a party or
subject to any agreement, mortgage, lien, or other instrument, or any order,
law, rule, regulation, judgment or decree which would prevent consummation by
any of them of the transactions contemplated by this Agreement. None of the
Shareholders is a party to any voting trust, proxy, or other agreement or
understanding with respect to the voting of any capital stock of Cliffs.
4.4. BROKER'S OR FINDER'S FEES. Except as set forth on Schedule 3.28, no
agent, broker, person or firm acting on behalf of Cliffs or the Shareholders is,
or will be, entitled to any commission or broker's or finder's fees from any of
the parties hereto, in connection with any of the transactions contemplated by
this Agreement.
4.5. CONTRACT PAYMENTS. By their execution of this Agreement, each of
Xxxxxxx Xxxxxxx and Xxxxxx X. Xxxxxxx hereby represents, warrants, and agrees,
for his individual account, that (i) Schedule 1.1(t) contains the true and
correct amount of all Contract Payments due or to become due to him, and (ii)
that upon payment of such amount, IDGB's and Cliffs' obligations to him with
regard to severance will be paid, satisfied, and released in full.
4.6. SHAREHOLDER NOTES. By their execution of this Agreement, Cliffs and
the Shareholders hereby represent, warrant, and agree that (i) Schedule 1.1(bv)
is true and correct in all respects, and (ii) upon payment of the amounts set
forth on Schedule 1.1(bv) plus all interest which accrues thereon between the
date hereof and the Closing in accordance with the terms of the Shareholder
Notes, the Shareholder Notes will be, and will be deemed to be, paid and
satisfied in full and the Shareholder Notes will be thereby automatically
cancelled and of no further force or effect.
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37
ARTICLE 5 REPRESENTATIONS OF IDGB.
IDGB represents and warrants to the Shareholders as follows:
5.1. EXISTENCE AND GOOD STANDING; POWER AND AUTHORITY. IDGB is a
corporation duly incorporated, validly existing, and in good standing under the
laws of the state of Delaware. IDGB has the requisite corporate power and
authority to execute and deliver, and consummate the transactions contemplated
by, this Agreement. This Agreement has been duly authorized and approved by all
necessary corporate action on the part of IDGB and is a valid and binding
obligation of IDGB enforceable against IDGB in accordance with its terms, except
to the extent that its enforceability may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the
enforcement of creditors' rights generally and general equitable principles.
5.2. RESTRICTIVE DOCUMENTS. IDGB is not a party to or subject to any
agreement, mortgage, lien, or other instrument, or any order, law, rule,
regulation, judgment or decree, which would prevent IDGB's consummation of the
transactions contemplated by this Agreement.
5.3. PURCHASE FOR INVESTMENT. IDGB is acquiring the Shares for its own
account for investment only and not with a view toward any resale or
distribution thereof; provided, that the disposition of the Shares subsequent to
the Closing will at all times remain within the sole control and discretion of
IDGB.
5.4. EXISTENCE OF FINANCING. IDGB has sufficient committed financing to
consummate its purchase of the Shares in accordance with Article 2 herein.
5.5. BROKER'S OR FINDER'S FEES. No agent, broker, person or firm acting
on behalf of IDGB is or will be entitled to any commission or broker's or
finder's fees from IDGB in connection with any of the transactions contemplated
by this Agreement.
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38
ARTICLE 6 TRANSACTIONS PRIOR TO THE CLOSING EFFECTIVE DATE
AND RELATED COVENANTS.
6.1. PRESS RELEASE AND DISCLOSURE. Upon the execution of this Agreement
by the parties hereto, IDGB and Cliffs will jointly prepare, mutually approve,
and issue a press release concerning the general transactions contemplated by
this Agreement. Additionally, in accordance with the rules and regulations of
the Securities and Exchange Commission and such other securities regulatory
agencies to which IDGB is subject, IDGB will be authorized to prepare and make
such filings at any time as are required by such rules and regulations. Except
as otherwise set forth in this Section 6.1, none of the parties hereto, whether
before or after the Closing, will issue any press release, respond to any press
query, or make any other public statement connected with or arising out of this
Agreement or the matters contained herein, without obtaining the prior written
approval of IDGB and Cliffs; provided, however, that the foregoing shall not
prevent or otherwise restrict IDGB from issuing press releases, responding to
press queries, and making other public announcements about Cliffs after the
Closing.
6.2. CONDUCT OF BUSINESS. Prior to the Closing, Cliffs will conduct its
operations in the ordinary course of business consistent with past practices;
use best efforts to preserve intact its business organization, keep available
the services of its officers and employees; and use best efforts consistent with
its operation of the Business in the past to maintain its relationships and
goodwill with authors, licensors, vendors, suppliers, distributors, customers,
landlords, employees, agents, and any other Person having business relationships
with it; pay its debts and Taxes when due; and confer with and timely provide
material information to IDGB concerning the operations and finances of the
Business (including as to any potential Sales Returns Adjustment) and the
transition of the Business as contemplated by this Agreement. Without limitation
to the preceding sentence, prior to the Closing, without IDGB's prior written
consent Cliffs will not:
(i) amend its Articles of Incorporation or By-Laws;
(ii) pay bonuses to or increase any compensation of any
director, officer, or employee;
(iii) hire any employees;
(iv) adopt or increase any profit sharing, bonus,
deferred compensation, savings, insurance, pension, retirement or other
employee benefit plan, or grant any severance or other termination
payments except as expressly provided for in this Agreement;
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39
(v) enter into or amend, outside of the ordinary course
of business, including any Author Agreements under any circumstance, or
otherwise violate the terms of, any contract or commitment, including
any of the Contracts or Leases;
(vi) enter into any agreement pursuant to which any
party is granted marketing, distribution or similar rights of any type
or scope with respect to Cliffs' products;
(vii) increase its indebtedness or otherwise borrow
money, other than for working capital purposes in the ordinary course of
business under Cliffs' existing line of credit;
(viii) declare or pay any dividends in respect of its
capital stock or redeem or otherwise purchase any of its capital stock;
(ix) issue, sell or repurchase any shares of capital
stock or any other securities, or issue any securities convertible into,
or options, warrants or rights to purchase shares of its capital stock
or other securities;
(x) make any change in accounting methods or practices;
(xi) sell, lease or otherwise dispose of any asset,
except for Inventory in the ordinary course of business;
(xii) make any capital expenditure or commitments
therefor;
(xiii) revalue any of its assets, including without
limitation writing down the value of inventory or writing off as
uncollectible any notes or accounts receivable, except in the ordinary
course of business consistent with past practices;
(xiv) exclusive of the claim described in Section 7.19,
pay, discharge or satisfy, in an amount in excess of $5,000, any claim,
liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) other than the payment, discharge or
satisfaction in the ordinary course of business of liabilities reflected
or reserved against in the Audited Statements or Trial Balance Sheet;
(xv) make or change any material election in respect of
Taxes, settle any claim or assessment in respect
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40
of Taxes, or consent to any extension or waiver of the limitation period
applicable to any claim or assessment in respect of Taxes;
(xvi) commence any litigation; or
(xvii) agree in writing to do any of the foregoing.
6.3. EMPLOYEE MATTERS.
a. RESPONSIBILITY FOR EMPLOYEES. Prior to the Closing, Cliffs
shall be solely responsible (financially and otherwise) for the continued
employment and terminations (if any) in the ordinary course of business of the
Employees. After the Closing, IDGB shall be solely responsible (financially and
otherwise) for the continued employment and terminations of the Employees,
including the payment of any wages, commissions, and other monies due to any
Employees upon the termination of their employment.
x. XXXXXXXXX AMOUNTS ADJUSTMENT.
(i) IDGB will pay the amounts set forth on Schedule
6.3(b) (the "Severance Amounts") allocated for those Employees who (w)
are no longer in Cliffs' or IDGB's employ on the one (1) year
anniversary of the date of Closing, and (y) did not voluntarily resign
their employment positions within such one (1) year period other than
pursuant to separation agreements. For such Employees, the Severance
Amounts shall be payable in two installments (the ratio of which shall
be determined by IDGB in its sole discretion), as follows: (y) at the
time that such individuals, respectively, become no longer employed by
Cliffs, and (z) upon and only upon such Employees who are no longer
employed providing IDGB with a signed and binding release of IDGB and
Cliffs in a form acceptable to IDGB. Nothing in this Agreement shall be
construed as creating any employment contracts or other obligations on
the part of IDGB or Cliffs with the Employees.
(ii) Notwithstanding the provisions of Section
6.3(b)(i), IDGB will be permitted to retain and not pay any portion of
the Severance Amounts by reason of (x) an Employee's failure to provide
the release described in sub-section (i) of this Section 6.3(b), or (y)
an Employee in the course of his or her employment duties committing an
act of gross neglect or intentional wrongdoing, or otherwise taking any
action or making a legal claim, which in IDGB's commercially reasonable
business judgment has damaged or will be reasonably likely to cause
damage, including incurring of attorneys' fees and expenses to defend
any such claim, to Cliffs or IDGB. Additionally, the parties ac-
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knowledge and agree that IDGB may, in its discretion, determine to
retain certain Employees who have Severance Amounts allocated to them on
Schedule 6.3(b) and not retain other Employees (whether or not they are
listed on Schedule 6.3(b)) who do not have Severance Amounts allocated
to them. In such circumstances, IDGB shall be permitted to utilize the
Severance Amounts that are allocated to those Employees who are so
retained, in order to pay severance (determined in the same manner as
the Severance Amounts) to Employees who are not so retained and do not
have Severance Amounts allocated to them. At the end of the fourteen
(14) month period described in Section 6.3(b)(iii), the payments
described in the foregoing sentence shall be "netted out" and IDGB shall
absorb any overage and remit to the Shareholders any excess of the
Severance Amounts so available for this purpose over those amounts
needed to provide severance to such Employees not so retained.
(iii) Subject to the provisions of Section 6.2(b)(ii),
not later than fourteen (14) months after the date of Closing IDGB shall
return to the Shareholders any portions of the Severance Amounts
Adjustment as set forth on Schedule 6.3(b) allocated to those Employees
who are employed by Cliffs on the one (1) year anniversary of the date
of Closing, with interest thereon at six percent (6%) per annum.
c. CONTRACT PAYMENTS. IDGB will make or cause Cliffs to make the
Contract Payments to Messrs. Covolik, Lincoln, and Slotin as and when they come
due after the Closing.
d. COBRA AND INSURANCE MATTERS. IDGB shall take such actions as
are required by law to cause either Cliffs or IDGB, in IDGB's sole and absolute
discretion, to provide COBRA coverage for the Employees. IDGB shall take such
actions as are necessary and appropriate to provide continued medical and health
coverage for the Employees under, in IDGB's sole and absolute discretion,
existing (as of the date hereof or after the Closing) medical and health plans
of either Cliffs or of IDGB as either of such plans may be modified from time to
time. The Shareholders shall have no responsibility for providing COBRA coverage
for any period beginning on or after the Closing.
e. BENEFIT PLANS. Cliffs shall terminate and timely take all
other legal actions that are necessary to lawfully terminate the Employee
Pension Benefit Plans prior to and as a condition to the Closing, including
adopting all necessary corporate resolutions. Cliffs shall timely provide the
beneficiaries thereof with the requisite statutory notices. IDGB shall cause
Cliffs to apply to the IRS for favorable determination letters with respect to
the termination of the Employee Pension Benefit Plans, and shall be responsible
for winding up the affairs of such plans. Except as IDGB specifically agrees
herein as to all
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42
other Employee Benefit Plans, IDGB shall have no responsibilities with respect
to the Employee Benefit Plans. Without limitation to the foregoing and except
for the Contract Payments, IDGB shall not assume any employment contracts of
whatever nature or any obligations arising out of any employment contracts,
express or implied, oral or written, individual or collective, between Cliffs
and any of Cliffs' employees.
f. NO ASSUMPTION OF AUTO LEASES. Neither Cliffs or IDGB will
assume or have any liability, responsibility or other obligations to make
payments under the automobile leases for Xxxxxxx Xxxxxxxxx or Xxxx Xxxxxxx.
These leases will be assumed by Messrs. Xxxxxxxxx and Lincoln personally and
Cliffs shall not have any further obligations or liabilities thereunder not
later than the Closing.
g. INFORMATION TO EMPLOYEES. Cliffs and IDGB agree that they
will cooperate and work together to timely provide the Employees with general
information about IDGB's acquisition of the Business and the transition thereof,
provided, however, that the terms of Section 9.2 shall apply to any such
information. After the Employees are so informed, IDGB's representatives shall
have reasonable access to speak with the Employees on an individual or group
basis during normal working hours as reasonably coordinated with Cliffs.
h. WAIVER BY CERTAIN SHAREHOLDERS OF COBRA BENEFITS. By their
execution of this Agreement, notwithstanding anything to the contrary contained
herein, Xxxxxxx Xxxxxxxxx, Xxxx Xxxxxxxxx, and Xxxxxxx Xxxxxxx do hereby agree
that upon any termination of Cliffs' current health insurance policy, they will
terminate any COBRA election they may have made, and they hereby waive all
further rights to participate thereafter in any health benefit program of any
kind that may be maintained by IDGB, Cliffs, or any Controlled Group member
(within the meaning of Section 414 of the Internal Revenue Code) of either IDGB
or Cliffs.
6.4. EXCLUSIVE DEALING. After the date hereof and through the Closing
and subject to the termination provisions of this Agreement in Xxxxxxx 00, xxxx
of the Shareholders, Cliffs or any officer or director of Cliffs will take any,
and Cliffs will instruct its directors, officers, investment banker, and other
representatives not to take any, action to directly or indirectly encourage,
initiate or engage in discussions or negotiations with, or provide any
information to, written or otherwise, to any Person, other than IDGB, concerning
any purchase of any capital stock of Cliffs or any merger, sale of substantial
assets, or similar transaction involving Cliffs or the Shares. Cliffs will
immediately notify IDGB of any inquiries or proposals, and the terms thereof, it
receives concerning any merger, sale of substantial assets, or similar proposed
transaction involving Cliffs or the Shares.
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43
6.5. DUE DILIGENCE EXAMINATION OF CLIFFS. Prior to the Closing, IDGB and
its representatives are and will be authorized to review the properties, books
and records of Cliffs and their financial and legal condition. Cliffs will cause
the officers of Cliffs to furnish IDGB with such financial, legal and operating
data and other information with respect to the Business and properties of Cliffs
as IDGB will from time to time reasonably request. Such examination will not
affect the representations and warranties made by Cliffs or the Shareholders in
this Agreement or the remedies of IDGB for breaches of those representations and
warranties.
6.6. FURTHER ACTIONS AND THIRD PARTY CONSENTS.
a. GENERAL. Each of Cliffs, the Shareholders, and IDGB will
cooperate and use their respective best efforts to take, or cause to be taken,
all appropriate actions, and to make, or cause to be made, all necessary or
appropriate filings under applicable laws and regulations and to obtain, whether
governmental or private, all licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental authorities and
parties to the Contracts, Leases and all other contracts and leases to which
Cliffs is a party or by which it is bound, as are necessary to consummate the
transactions contemplated by the Agreement and preserve for Cliffs and IDGB all
rights of, and benefits thereunder.
b. PRINTING FIRMS. Prior to the Closing commencing immediately
upon execution of this Agreement, Cliffs shall contact each of the firms that
provide printing and related manufacturing services for it and use best efforts
to obtain letters from such firms to the President of Cliffs in substantially
the form attached hereto as Exhibit 6.6(b) and provide IDGB with such letters
upon receipt thereof.
6.7. NOTIFICATION OF CERTAIN MATTERS. IDGB will give prompt notice to
Cliffs, and Cliffs will give prompt notice to IDGB, after obtaining knowledge of
(i) the occurrence, or nonoccurrence, of any event that would be reasonably
likely to cause (x) any representation or warranty contained in this Agreement
and made by it to be untrue or inaccurate in any material respect at any time
from the date of this Agreement to the Closing Effective Date such that the
conditions set forth in Section 7.4 or 8.1, as the case may be, would not be
satisfied as a result thereof, (ii) any failure of IDGB or Cliffs, as the case
may be, to comply with or satisfy in any material respect, any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement such that the conditions set forth in Section 7.4 or Section 8.1, as
the case may be, would not be satisfied as a result thereof, or (iii) any notice
or other communication from any third party alleging that the consent of such
third party is or may be required in connection with the transactions
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44
contemplated by this Agreement (except as set forth on Schedule 3.21.
Notwithstanding the foregoing but subject to the provisions of Section 12.1(f),
the delivery of any notice pursuant to this Section 6.7 will not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
ARTICLE 7 CONDITIONS PRECEDENT TO IDGB'S OBLIGATIONS.
The obligations of IDGB to purchase the Shares and to otherwise
consummate the transactions contemplated by this Agreement are conditioned upon
the satisfaction, at or prior to the Closing, of the following conditions:
7.1. CLIFFS' BOARD AND SHAREHOLDER APPROVALS. Cliffs' Board of Directors
and Shareholders will have taken all necessary and required corporate actions to
unanimously approve this transaction, consent to the terms, conditions,
covenants and requirements contained in this Agreement, and authorize the
execution, delivery, and performance of the same. Certified copies of the
directors' and Shareholders' resolutions will be delivered to IDGB.
7.2. THIRD PARTY CONSENTS AND APPROVALS. All consents, approvals or
waivers, if any, set forth on Schedules 3.20 and 3.21 or required in connection
with the consummation of the transactions contemplated by this Agreement will
have been obtained except non-material consents expressly noted therein. All of
the consents, approvals, authorizations, exemptions and waivers from
governmental agencies that will be required in order to enable the parties to
consummate the transactions contemplated hereby will have been obtained.
7.3. ABSENCE OF GOVERNMENTAL OR OTHER OBJECTION. No action or
proceedings will have been instituted or threatened before a court or other
governmental body, by any public authority or by any private individual
challenging the transactions contemplated by this Agreement or attempting to
restrain or prohibit any of the transactions contemplated hereby. No injunction
shall have been issued restraining the consummation of the transactions
contemplated hereby.
7.4. TRUTH AND PERFORMANCE OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. The representations and warranties and related Schedules (as updated
after the date hereof by Cliffs and the Shareholders with the express prior
written consent of IDGB and with no obligation to accept any proposed updates),
and agreements of Cliffs and the Shareholders contained in this Agreement will
be true, accurate, and correct on and as of the Closing with the same effect as
though such representations and warranties had been made on and as of such date,
and all obligations required to be performed hereunder will be performed. IDGB
will have received a certificate signed by Cliffs and each of the Shareholders
certifying that (i) all such representations and warranties
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45
of Cliffs and the Shareholders are true, accurate and correct as of the Closing,
(ii) all obligations of Cliffs and the Shareholders hereunder have been
performed, and (iii) the conditions to Closing set forth in Article 8 have been
fulfilled.
7.5. EVIDENCE OF TITLE. IDGB will have received evidence, at or prior to
the Closing, satisfactory to it of Cliffs' title to all of its assets and
properties, the Shareholders' title to all of the Shares, and of the
Shareholders' rights to fully convey all of the Shares free and clear of all
Encumbrances. The Shareholders will deliver such documentation as IDGB shall
reasonably request to transfer to IDGB, all of the Shareholders' right, title
and interest in and to the Shares.
7.6. APPROVAL OF DOCUMENTATION. The form and substance of all
certificates, instruments, opinions, and other documents delivered or to be
delivered to IDGB under this Agreement shall be satisfactory to IDGB and its
counsel in all reasonable respects and IDGB shall have received all such
counterpart originals or certified or other copies of such documents as it may
reasonably request.
7.7. LICENSES. IDGB will have received all licenses and permits, if any,
from all appropriate governmental authorities to operate the Business in the
same manner as Cliffs operated the Business prior to the Closing.
7.8. GOOD STANDING AND OTHER CERTIFICATES. IDGB will have received (a)
copies of the Articles of Incorporation of Cliffs, as amended, certified by the
Secretary of State of Nebraska, (b) By-laws of Cliffs, as amended, certified by
the Secretary of Cliffs, (c) a certificate from the Nebraska Secretary of State
to the effect that Cliffs is in good standing as of a date as close to the
Closing as is reasonably practicable, (d) a certificate from the Secretary of
State or other appropriate official in each state in which Cliffs is qualified
to do business to the effect that Cliffs is in good standing in such state as of
a date as close to the Closing as is reasonably practicable, and (e) a
certificate as to the tax status of Cliffs from the appropriate official in the
state of Nebraska and in each state in which Cliffs is qualified to do business
as of a date as close to the Closing as is reasonably practicable.
7.9. OPINION OF COUNSEL. Cliffs will have furnished IDGB with opinions
of counsel, dated as of the date of Closing, in substantially the form of
Exhibit 7.9.
7.10. RESIGNATIONS AND ELECTIONS. All directors and officers of Cliffs
will have submitted their resignations from such positions effective at the
Closing.
7.11. ACTIONS TO TERMINATE BENEFIT PLANS. Cliffs will have taken all
corporate action and timely provided all prior notices
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46
to participating employees in order to terminate (i) its Money Purchase Plan so
that such termination is effective no later than December 30, 1998, and (ii) its
401(k) Retirement Plan so that such termination is effective prior to the
Closing. Cliffs shall provide IDGB with evidence of such terminations.
7.12. EXCLUDED DEBT, SHAREHOLDER NOTES, AND FOUNDATION PAYMENT. Cliffs
and the Shareholders, as the case may be, will deliver to IDGB the following:
a. EXCLUDED DEBT PAYOFF LETTERS. A payoff letter from each of
Cliffs' note holders and other creditors holding Bank Notes Payable, stating
that upon payment of the amounts set forth therein Cliffs' obligations to such
note holders and creditors will be paid and satisfied in full. As to any Bank
Notes Payable which is secured by the imposition of Encumbrances on Cliffs
assets or properties, the payoff letters must either (i) be accompanied by the
necessary instruments and statements under applicable law (i.e., UCC-2 or UCC-3
Termination Statements) in order to terminate and extinguish such Encumbrances
upon the filing and recording of such instruments, or (ii) include statements
and agreements reasonably satisfactory to IDGB providing that such Encumbrances
will be released upon payment of the Excluded Debt and that such note holders
will provide all documentation (including the UCC-2 or UCC-3 Termination
Statements as applicable).
b. SHAREHOLDER NOTES. The Shareholders shall deliver all of the
Shareholder Notes, marked "paid in full and cancelled."
c. PAYMENT TO FOUNDATION. As of the Closing, Cliffs will have
satisfied any and all obligations to make payments to the Foundation. The
Foundation will have delivered to IDGB the Foundation Assignment, in the form
attached hereto as Exhibit 1.1(ao).
7.13. COVOLIK AGREEMENT. IDGB and Mr. Covolik will have entered into a
one-year employment agreement in the form attached hereto as Exhibit 7.13.
7.14. OFFICE/WAREHOUSE FACILITY LEASE. An amendment to the Lessee Lease
for the premises located at 0000 Xxxxx 00xx Xxxxxx, Xxxxxxx, Xxxxxxxx, in the
form set forth on Exhibit 7.14, will be executed effective as of the Closing
Effective Date. In principle, such amendment will provide for a renewal of such
Lessee Lease from the Closing Effective Date to June 30, 1999, with two
additional three-month renewals at IDGB's option, with triple net rent of
$11,000 per month.
7.15. ESCROW ACCOUNT AND AGREEMENT.
a. GENERAL. IDGB, Cliffs and the Shareholders will
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47
have established an escrow account ("Escrow Account") with the Escrow Agent, and
will have executed an escrow agreement in the form attached as Exhibit 7.15 (the
"Escrow Agreement"). The Escrow Account will be the depository for the Indemnity
Holdback and the Special Holdback.
b. INDEMNITY HOLDBACK. The Indemnity Holdback will be disbursed
in accordance with the Escrow Agreement.
c. SPECIAL HOLDBACK. The Special Holdback will be disbursed in
accordance with Schedule 7.15(c).
7.16. TERMINATION OF SHAREHOLDERS' AGREEMENT. The Shareholders Agreement
will have been terminated in all respects and be of no further force or effect.
By their execution of this Agreement, Cliffs and the Shareholders do hereby
agree that effective with the Closing the Shareholders' Agreement shall
automatically, without further action or signature on the part of Cliffs, the
Shareholders or otherwise, be terminated and of no further force or effect.
7.17. PERMISSION AND RELEASE FOR USE OF NAME AND LIKENESS. Xxxxxxx
Xxxxxxxxx will have provided IDGB with (i) the executed Permission and Release
in the form attached hereto as Exhibit 7.17, granting the right to Cliffs and
IDGB to use his name, likeness, voice, image, and facsimile signature for
promotional purposes in perpetuity, and (ii) the Xxxxxxxxx Assignment.
7.18. NO MATERIAL ADVERSE EFFECT. Since the date hereof, there shall
have been no condition, event or occurrence or the absence of a condition, event
or occurrence that has resulted in a Material Adverse Effect on Cliffs, nor to
the Shareholders' Knowledge shall there exist any condition, event or occurrence
that would reasonably be expected to prospectively result in a Material Adverse
Effect on Cliffs, including, without limitation, a deterioration in the
Business, and IDGB shall have received a certificate by the President of Cliffs,
dated the Closing, to such effect.
ARTICLE 8 CONDITIONS PRECEDENT TO CLIFFS' AND THE
SHAREHOLDERS' OBLIGATIONS.
The obligations of Cliffs and the Shareholders to effect the
transactions contemplated by this Agreement at the Closing are conditioned upon
the satisfaction or waiver, at or prior to the Closing, of the following
conditions:
8.1. TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of IDGB contained in this Agreement will be true and correct on and
as of the Closing with the same effect as though such representations and
warranties had been made on and as of such date, and IDGB has delivered to the
Shareholders a certificate by the President of IDGB, dated the Clos-
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48
ing, to such effect.
8.2. THIRD PARTY CONSENTS; GOVERNMENTAL APPROVALS. All consents,
approvals or waivers, if any, required in connection with the consummation of
the transactions contemplated by this Agreement have been received. All of the
consents, approvals, authorizations, exemptions and waivers from government
agencies that will be required in order to permit the consummation of the
transactions contemplated hereby have been obtained. All applicable time periods
under the HSR Act will have expired or have been terminated.
8.3. PERFORMANCE OF AGREEMENTS. All of the agreements of IDGB to be
performed on or prior to the Closing pursuant to the terms of this Agreement has
been duly performed in all material respects, and IDGB will have delivered to
the Shareholders an officer's certificate, dated the Closing, to such effect.
8.4. APPROVAL OF DOCUMENTATION. The form and substance of all
certificates, instruments, and other documents delivered or to be delivered to
the Shareholders under this Agreement will be satisfactory to the Shareholders
and their counsel in all reasonable respects and the Shareholders will have
received all such counterpart originals or certified or other copies of such
documents as they may reasonably request.
ARTICLE 9 NOT-TO-COMPETE COVENANT; CONFIDENTIALITY.
9.1. NON-COMPETITION.
a. COVENANT. Each of Xxxxxxx Xxxxxxxxx, Xxxx Xxxxxxxxx, J.
Xxxxxxx Xxxxxxxx, Xxxxx Xxxxxxxxx, Xxxxxx X. Xxxxxxx, Xxxxxxx Xxxxxxx, Xxxxxx
Xxxxxxxxx, and Xxxxx (Xxxxxxxxx) Xxxxx agrees that from and after the Closing
Effective Date and until the fifth (5th) anniversary thereof (thirty (30) months
after the date of Closing in the case of Messrs. Lincoln and Covolik), such
Shareholder will not (x) serve as an employee, officer, director or advisor of,
invest in or lend monies to, directly or indirectly engage in, own, manage,
control, operate, or consult with, any Person that publishes or develops
products which directly or indirectly compete with Cliffs' products, including
products that have a similar form of pedagogy, e.g., short reference products
that help the reader learn about other products and whether or not related to
literature, anywhere in the world, except for investments in public companies of
up to 5% of total ownership or (y) offer employment to or otherwise solicit the
services of Employees for so long as they are employed by IDGB or Cliffs.
(i) For purposes of clarity, the parties acknowledge and
agree that (x) Xxxxx Xxxxxxxxx' business, known as the "J & L Xxx
Company", which engages in the publication of books of local (Lincoln),
regional (Midwest), and related
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49
historical interests, and (y) Xxxxx (Xxxxxxxxx) Xxxxx'x writing work on
an update of Web-Teaching, A Guide to Designing Interactive Teaching for
the World Wide Web, shall not be a breach of this Section 9.1(a).
(ii) It shall not be a breach of this Section 9.1(a) for
Xxxxxxx Xxxxxxx to (x) engage in the business of publishing test
preparation products, or (y) consult with, advise, be employed by, or
provide services to a separate division or line of a business of a
Person that otherwise competes with Cliffs' products provided that (i)
the division or line which Xx. Xxxxxxx consults with, advises, is
employed by, or provides services to does not compete with Cliffs'
products, (ii) Xx. Xxxxxxx is not indirectly advising or working on
behalf of or providing services to the competitive lines or divisions of
the Person, (iii) Xx. Xxxxxxx does not either actively refer business to
the competitive lines or divisions or encourage customers to purchase
products from the competitive lines or divisions, (iv) such Person does
not publicize, promote, or advertise in any way that Xx. Xxxxxxx is the
former President of Cliffs, (v) Xx. Xxxxxxx informs IDGB's Chief
Financial Officer, in writing, of any association such as described
above in this clause (y), and (vi) Xx. Xxxxxxx informs such Person in
writing of the restrictions set forth in this Section 9.1 and provides
IDGB with a copy of such writing.
b. PARTIAL INVALIDITY. In the event that any provision or part
of this Section 9.1 is held by any court or tribunal to be overly broad, the
remaining portions of this Section 9.1 will not be affected or impaired thereby
and will remain in full force and effect to the fullest extent permitted by law.
9.2. CONFIDENTIALITY. The parties agree to maintain the confidentiality
of the terms and provisions of this Agreement, except to the extent required by
law (including the rules and regulations of the Securities and Exchange
Commission). Each Shareholder agrees, covenants and acknowledges that from and
after the Closing, it will not, disclose, give, sell, use or otherwise divulge
any confidential, trade secret, or otherwise proprietary information relating to
Cliffs; provided that if such Shareholder is, based upon the advice of legal
counsel, legally compelled (by deposition, interrogatory, request for documents,
subpoena, civil investigative demand or regulatory examination) to disclose any
such information, such Shareholder may so disclose any such information but only
to the limited extent as is required. In such event such Shareholder will give
prior written notice to IDGB so that IDGB may seek any protective order and/or
take any other appropriate action to prevent or otherwise limit the disclosure
thereof.
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50
ARTICLE 10 TAX MATTERS.
10.1. TAX PERIOD ENDING ON OR BEFORE THE CLOSING EFFECTIVE DATE. The
Shareholders have the exclusive authority and obligation to cause to be prepared
and timely filed all Tax Returns of Cliffs that are due on or prior to the
Closing Effective Date. If Cliffs or IDGB is required to pay any Tax required to
be shown on any such Tax Return following Closing, the Shareholders shall
reimburse IDGB for such payment by IDGB or Cliffs of such Taxes, to the extent
such Taxes are not reflected in a reserve for the same (rather than any reserve
for Taxes established to reflect timing differences between book and tax income)
shown on the Audited Statements.
10.2. TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING
EFFECTIVE DATE. IDGB shall cause to be prepared and filed any Returns of Cliffs
for any Tax period which begins before the Closing Effective Date and ends after
the Closing Effective Date. The Shareholders shall pay to IDGB within fifteen
(15) days after the date on which Taxes are paid with respect to such periods an
amount equal to the portion of such Taxes which relates to the portion of such
taxable period ending on the Closing Effective Date to the extent such Taxes are
not reflected in the reserve for tax liability (rather than any reserve for
deferred Taxes established to reflect timing differences between book and tax
income) shown on the Audited Statements. At IDGB's discretion, this amount may
be disbursed from the Indemnity Holdback. For purposes of this Section 10.2, in
the case of any Taxes that are imposed on a periodic basis and are payable for a
taxable period that includes (but does not end on) the Closing Effective Date,
the portion of such Tax which relates to the portion of such taxable period on
the Closing Effective Date shall (x) in the case of any Taxes other than Taxes
based upon or related to income or receipts, be deemed to be the amount of such
Taxes for the entire taxable period multiplied by a fraction the numerator of
which is the number of days in the taxable period ending on the Closing
Effective Date, and the denominator of which is the number of days in the entire
taxable period, and (y) in the case of any Tax based upon or related to income
or receipts, be deemed equal to the amount which would be payable as though the
relevant taxable period ended on the Closing Effective Date. Any credits
relating to a taxable period that begins before and ends after the Closing
Effective Date shall be taken into account as though the relevant taxable period
ended on the Closing Effective Date.
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51
10.3. COOPERATION ON TAX MATTERS.
a. TAX RETURNS. IDGB, Cliffs and the Shareholders shall
cooperate fully as and to the extent reasonably requested by the other party in
connection with the filing of Tax Returns pursuant to this Section and any
audit, litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other party's request) the provision
of records and information which are reasonably relevant to any such audit,
litigation or other proceeding. Cliffs and the Shareholders agree (i) to retain
all books and records with respect to tax matters pertinent to Cliffs relating
to any taxable period beginning before the Closing Effective Date until the
expiration of the statute of limitations (and, to the extent notified by IDGB or
the Shareholders, any extension thereof) of the respective taxable periods, and
(ii) to give the other party reasonable written notice prior to transferring or
discarding any such books and records and, if the party so requests, Cliffs or
the Shareholders, as the case may be, shall allow the other party to take
possession of such books and records.
b. GOVERNMENTAL DOCUMENTATION. IDGB and the Shareholders further
agree, upon request, to use their best efforts to obtain any certificate or
other document from any governmental authority or any other Person as may be
necessary to mitigate, reduce or eliminate the Tax that would be imposed
(including, but not limited to, with respect to the transactions contemplated
hereby).
10.4. INDEMNIFICATION. The Shareholders, jointly and severally, agree to
indemnify, defend and hold harmless IDGB, its Affiliates (including Cliffs
following the Closing) and the successors to the foregoing (and their respective
shareholders, officers, directors, employees and agents) on an after-tax basis
against (i) all Taxes, losses, claims and expenses resulting from, arising out
of, or incurred with respect to, any claims that may be asserted by any party
based upon, attributable to, or resulting from the failure of any representation
or warranty made pursuant to Section 3.23 to be true and correct, and (ii) all
Taxes imposed on or asserted against Cliffs for which the Shareholders are
responsible under the preceding provisions hereof.
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ARTICLE 11 SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION.
11.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The respective
representations and warranties of Cliffs, the Shareholders, and IDGB contained
in this Agreement shall survive the Closing for a period of one (1) year after
the date of Closing, except for (i) the representations and warranties of Cliffs
contained in Sections 3.17, 3.18, and 3.23, which shall survive for the
applicable statutes of limitation, (ii) the indemnity contained in Section 3.26,
which shall survive for a period of two (2) years after the date of Closing, and
(iii) the representations and warranties of Cliffs in Sections 3.1, 3.2, 3.3 and
3.7, and the Shareholders in Article 4, which shall survive indefinitely.
11.2. INDEMNIFICATION.
a. INDEMNIFICATION OF IDGB. Prior to the Closing, Cliffs and the
Shareholders, and after the Closing, the Shareholders, jointly and severally,
agree to indemnify, defend and hold harmless IDGB (and Cliffs after the Closing)
from and against any and all claims, damages, liabilities, losses, costs and
expenses, including, without limitation, reasonable attorneys' fees and costs,
interest, penalties, any and all reasonable expenses incurred in investigating,
preparing and defending against any litigation, commenced or threatened, any
claim whatsoever and any and all amounts paid in settlement of any claim or
litigation (collectively "Damages") incurred or suffered by IDGB, its officers,
directors, employees, or Affiliates (including Cliffs following the Closing
Effective Date) (for purposes of this Section 11.2 only, collectively "IDGB") as
a result of, or arising from the breach of any representation, warranty or
covenant made by Cliffs or the Shareholders in this Agreement. IDGB's right to
indemnity hereunder shall first be satisfied by offsetting any such Damages
against the Indemnity Holdback then remaining in the Escrow Account in
accordance with the terms of the Escrow Agreement and thereafter jointly and
severally by the Shareholders.
b. FURTHER INDEMNIFICATION OF IDGB AND CLIFFS.
(i) Prior to and after the Closing, each of the
Shareholders hereby agrees to indemnify, defend and hold harmless IDGB
for all Damages incurred or suffered by IDGB as a result of, or arising
from, the breach of any representation, warranty or covenant made by
such Shareholder in Article 4 of this Agreement.
(ii) Prior to and after the Closing, each of the
Shareholders, jointly and severally, hereby agrees to indemnify, defend
and hold harmless IDGB, and after the Closing IDGB and Cliffs, for all
Damages incurred or suffered by
- 47 -
53
IDGB or Cliffs as a result of, or arising from the Claim in the manner
of and to the extent described on Schedule 7.15(c).
(iii) Prior to and after the Closing, each of the
Shareholders, jointly and severally, hereby agrees to indemnify, defend
and hold harmless IDGB, and after the Closing IDGB and Cliffs, for all
Damages incurred or suffered by IDGB or Cliffs as a result of, or
arising from any of the items described on Schedule 11.2(b)(iii).
c. INDEMNIFICATION OF THE SHAREHOLDERS. IDGB hereby agrees to
indemnify and hold the Shareholders harmless from Damages incurred or suffered
as a result of, or arising from, the breach of any representation, warranty or
covenant of IDGB in this Agreement.
d. FURTHER INDEMNIFICATION OF THE SHAREHOLDERS. Subject to
Cliffs and the Shareholders representations and warranties in Section 3.17, IDGB
hereby agrees to indemnify and hold the Shareholders harmless from all Claims
(if any) arising solely from the termination of the Employees.
e. NOTICE OF CLAIMS. An Indemnified Party (as defined below)
will not be entitled to indemnification pursuant to the terms of this Agreement
if the notice of a Claim (as defined below), whether by the other party or as a
result of a third party Claim, is not delivered to the Indemnifying Party (as
defined below) (i) in the case of Claims between the parties twenty (20) days,
and (ii) in the case of Claims arising from third parties within sixty (60)
days, after the period described in Section 11.1 which sets forth the
survivability of the representation or warranty upon which such Claim is based,
notwithstanding anything contained in this Agreement to the contrary.
f. BASKETS. Notwithstanding anything to the contrary contained
herein, the Shareholders shall not be liable pursuant to Section 11.2(a),
Section 11.2(b)(i), or Section 11.2(b)(iii), and IDGB shall not be liable
pursuant to Section 11.2(c), for Damages incurred by the Indemnified Party, as
follows:
(a) in the case of any single Claim, not until such
Claim exceeds $25,000 in Damages, and then starting with $0 in Damages
without regard to the $25,000 threshold, and
(b) in the case of multiple Claims involving Damages of
less than $25,000, individually, not until the aggregate of such Claims
exceed $100,000, and then starting with $100,001.00 in Damages.
For purposes of clarity, the Shareholders' obligations under
- 48 -
54
Sections 10.4 and 11.2(b)(ii) shall not be subject to the provisions of this
Section 11.2(f).
g. NET OF TAXES AND INSURANCE. All Damages which are recoverable
under this Agreement shall be (i) net of any tax benefit realized by the
Indemnified Party (determined on the basis of an effective tax rate of 39%), and
(ii) net of any actual insurance recovery by the Indemnified Party. With regard
to clause (ii) of this Section 11.2(g), the parties agree that (x) if Cliffs or
the Shareholders are the Indemnifying Party, and Cliffs has, or but for IDGB
causing Cliffs to cancel a particular Insurance Policy would have had, an
Insurance Policy in effect or which otherwise provides coverage for the Claim in
question, any Damage recovery by IDGB shall be determined net of such actual
coverage received, and (y) IDGB shall not be required to seek coverage under its
own insurance policies for any Claims of IDGB hereunder.
h. MAXIMUM LIABILITY; NO CONSEQUENTIAL DAMAGES. In no event will
the maximum liability of the Shareholders under the provisions of this Section
11 exceed $7,500,000. In no event, except for a Claim arising by reason of a
breach of the representations and warranties in Section 3.12, will any party
hereto be liable for any special, consequential, indirect or punitive damages.
i. EXCLUSIVE REMEDY. Following the Closing, the indemnification
obligations under this Article 11 shall be the exclusive remedy of the parties
for any breach of a party's representation or warranty in this Agreement.
11.3. INDEMNIFICATION PROCEDURE.
a. CLAIMS BETWEEN THE PARTIES. Any party to this Agreement
seeking indemnification pursuant to this Agreement (the "Indemnified Party")
from any other party to this Agreement (the "Indemnifying Party") with respect
to Damages (the "Claim"), which Claim does not involve a Claim against the
Indemnified Party by a third party, will promptly notify the Indemnifying Party
(and the Escrow Agent if such Claim will be satisfied from the Escrow Account)
of the existence of the Claim, and set forth in reasonable detail the facts and
circumstances pertaining thereto and the basis for the Indemnified Party's right
to indemnification. If within thirty (30) days after receipt of notice of a
Claim the parties are unable to completely resolve such Claim after making all
commercially reasonable good faith efforts to do so, then the parties, may, if
they so mutually agree, either submit the dispute to mediation, binding
arbitration, or litigation. All such dispute resolution techniques shall be
subject to the jurisdiction, choice of law, and venue provisions contained in
Section 13.2.
b. THIRD PARTY CLAIMS. If any third party notifies
- 49 -
55
an Indemnified Party of any matter which may give rise to a Claim under this
Agreement, then the Indemnified Party will promptly forward such notice to each
Indemnifying Party; provided, however, that no delay on the part of the
Indemnified Party in forwarding notice to any Indemnifying Party will relieve
the Indemnifying Party from any liability or obligation hereunder unless the
Indemnifying Party is materially prejudiced by such failure to give notice, and
then solely to the extent the Indemnifying Party is so prejudiced by such
failure. In the event that any Indemnifying Party receives notice of a Claim
from an Indemnified Party and agrees to indemnify such Claim and is assuming the
defense thereof then, within thirty (30) days of receipt of such notice, the
Indemnifying Party will in writing acknowledge its obligations hereunder and
identify its choice of counsel that will defend the Indemnified Party against
the Claim, which choice will be reasonably satisfactory to the Indemnified Party
and provided that:
(i) the Indemnified Party may retain separate co-counsel
at its sole cost and expense (except that the Indemnifying Party will be
responsible for the fees and expenses of the separate co-counsel (1) to
the extent that the Indemnified Party reasonably concludes based upon
advice of counsel that a conflict of interest exists between the
Indemnified Party and Indemnifying Party or (2) the named parties to any
such action (including any impleaded parties) include both the
Indemnified Party and the Indemnifying Party and the Indemnified Party
has been advised by counsel that there may be one or more legal defenses
available to the Indemnified Party which are not available to the
Indemnifying Party, or available to the Indemnifying Party but the
assertion of which would be adverse to the interest of the Indemnified
Party);
(ii) the Indemnified Party will not consent to the entry
of any judgment or enter into any settlement with respect to the matter
without the written consent of the Indemnifying Party (not to be
withheld unreasonably); and
(iii) the Indemnifying Party will not consent to the
entry of any judgment or enter into any settlement which does not
include a provision whereby the plaintiff or claimant in the matter
releases the Indemnified Party from all liability with respect thereto,
without the written consent of the Indemnified Party (not to be withheld
unreasonably).
c. FAILURE TO NOTIFY OF CLAIM. If no Indemnifying Party notifies
the Indemnified Party within thirty (30) days after the Indemnified Party has
given notice of the Claim of an Indemnifying Party'(s) intent to defend such
Claim, then the Indemnified Party may defend against, or enter into any
settlement with respect to the Claim in any manner it reasonably may deem
appropriate, without prejudice to any of its rights hereunder.
- 50 -
56
d. REIMBURSEMENT. The Indemnified Party will be entitled to
reimbursement of reasonable expenses, included Damages, with respect to any
Claim (including, without limitation, the cost of defense, preparation and
investigation relating to such Claim) as such expenses are incurred by the
Indemnified Party.
ARTICLE 12 TERMINATION.
12.1. TERMINATION. This Agreement may be terminated at any time prior to
the Closing:
a. MUTUAL AGREEMENT. By the mutual written consent of IDGB,
Cliffs, and the Shareholders.
b. IDGB. By IDGB, if there has been a violation or breach by
Cliffs or the Shareholders of any covenant, representation or warranty contained
in this Agreement or if any condition precedent to the obligations of IDGB
pursuant to Article 7 to close the transactions contemplated by this Agreement
has not been satisfied and such violation, breach, or failure of condition
precedent has not been waived by IDGB.
c. CLIFFS OR THE SHAREHOLDERS. By Cliffs or the Shareholders, if
there has been a violation or breach by IDGB of any covenant, representation or
warranty contained in this Agreement or if any condition to the obligation of
Cliffs or the Shareholders pursuant to Article 8 to close the transactions
contemplated by this Agreement has not been satisfied and such violation,
breach, or failure of condition precedent has not been waived by Cliffs or the
Shareholders.
d. EXPIRATION DATE. By either IDGB, Cliffs or the Shareholders,
if the transactions contemplated hereby have not been consummated by December
18, 1998; provided, however, that (i) neither IDGB nor Cliffs nor the
Shareholders will be entitled to terminate this Agreement pursuant to this
Section 12.1(d) if such party's breach of this Agreement has prevented the
consummation of the transactions contemplated hereby.
e. THIRD PARTY INTERVENTION. By either IDGB, Cliffs or the
Shareholders, if the consummation of the transactions contemplated hereby are
prevented by a permanent injunction or other court order.
f. NO CLAIM FOR BREACH. Subject to the last sentence of Section
12.2, in the event of a breach of any representation, warranty or covenant
herein between the date of this Agreement and the date of Closing, which breach
would entitle the party for whose benefit such representation, warranty or
covenant was made to terminate this Agreement under the provisions of this
Section 12, and such party determines not to terminate this Agreement and to
waive such breach, such party shall not be enti-
- 51 -
57
tled, after the Closing, to bring a Claim for Damages against the breaching
party under Section 11 by reason of such breach.
12.2. EFFECT OF TERMINATION. In the event that this Agreement is
terminated under Section 12.1, all further obligations of the parties under this
Agreement (other than pursuant to Section 13.1 which will continue in full force
and effect) will terminate without further liability or obligation of either
party to the other party hereunder. Notwithstanding anything to the contrary
contained herein, no party will be released from liability hereunder if this
Agreement is terminated and the transactions abandoned by reason of (a) willful
failure of such party to have performed its obligations hereunder, or (b) any
knowing misrepresentation or warranty made by such party of any matter set forth
herein.
ARTICLE 13 GENERAL PROVISIONS.
13.1. EXPENSES. IDGB will pay its own expenses relating to the
transactions contemplated by this Agreement, including without limitation the
fees and expenses of its counsel and financial advisors. Cliffs will pay the
first $100,000 (the "Transaction Costs") of its and the Shareholders' expenses
relating to the transactions contemplated by this Agreement, including, without
limitation, the fees and expenses of Cliffs' and the Shareholders' counsel and
financial advisors. All expenses in excess of the Transaction Costs incurred by
Cliffs or the Shareholders in connection with the transactions contemplated by
this Agreement, including without limitation investment banking fees, will be
paid by the Shareholders (and not Cliffs).
13.2. GOVERNING LAW, ATTORNEYS' FEES. Any and all claims or disputes
arising out of or relating to this Agreement will be governed by and construed
in accordance with California law without regard to conflicts or choice of law
rules or principles. Any litigation or arbitration between the parties that
arises out of or relates to this Agreement will be prosecuted or instituted only
in a court or tribunal situated in San Francisco, California and the parties
hereby consent to such personal jurisdiction and venue. The prevailing party in
any such litigation or arbitration will be entitled to recover his, her or its
reasonable attorneys' fees and costs, in addition to all other recovery and
relief.
13.3. TABLE OF CONTENTS; CAPTIONS. The table of contents and article and
section captions used herein are for reference purposes only, and will not in
any way affect the meaning or interpretation of this Agreement.
13.4. NOTICES. Any notice or other communication required or permitted
under this Agreement will be sufficiently given if (i) delivered in person, (ii)
sent by telecopy, (ii) sent by registered or certified mail, postage prepaid, or
(iv) sent by over-
- 52 -
58
night express courier, addressed as follows:
If to IDGB: IDG Books Worldwide, Inc.
000 Xxxx Xxxxxxxxx Xxxx., Xxxxx 000
Xxxxxx Xxxx, Xxxxxxxxxx 00000
Attn: Chief Financial Officer
Telecopier No.: 000-000-0000
with a copy to: Isaacson, Rosenbaum, Xxxxx & Xxxx, P.C.
000 00xx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
Attn: Xxx X. Xxxxxxx
Telecopier No.: 000-000-0000
If to Cliffs: Cliff's Notes, Inc.
0000 Xxxxx 00xx Xxxxxx, X.X.
Xxxxxxx, Xxxxxxxx 00000
Attn: President
Telecopier No.: 402-420-8118
with a copy to: XxXxxxxxx, Will & Xxxxx
000 Xxxx Xxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000-0000
Attn: Xxxx Xxxxx
Telecopier No.: 000-000-0000
If to the Shareholders to:
Xxxxxx X. Xxxxxxx
c/o Cliff's Notes, Inc.
0000 Xxxxx 00xx Xxxxxx, X.X.
Xxxxxxx, Xxxxxxxx 00000
Xxxxxxx Xxxxxxxx
0000 Xxxxxxxx Xxxx
Xxxxxxx, Xxxxxxxx 00000
with a copy to: XxXxxxxxx, Will & Xxxxx
000 Xxxx Xxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000-0000
Attn: Xxxx Xxxxx
Telecopier No.: 000-000-0000
or such other address or number as will be furnished in writing by any such
party, and such notice or communication will be deemed to have been given (i) as
of the date so delivered in person, (ii) one (1) day after sending by telecopy
with customary confirmation, (iii) three (3) days after mailing by certified or
registered mail, or (iv) one (1) day after sending via overnight express
courier.
13.5. NO ASSIGNMENT. Except for Affiliates of IDGB, this Agreement may
not be transferred, assigned, pledged or hypothe-
- 53 -
59
cated by any party hereto, other than by operation of law. This Agreement will
be binding upon and will inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, successors and assigns.
13.6. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which taken together will constitute one and the same
instrument.
13.7. ENTIRE AGREEMENT. This Agreement contains the entire understanding
of the parties hereto with respect to the subject matter contained herein. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to such subject matter.
13.8. AMENDMENTS. This Agreement may not be changed orally, but only by
an agreement in writing signed by IDGB, the Shareholders, and (with respect to
any amendments prior to the Closing) Cliffs.
13.9. SEVERABILITY. In the event that any provision in this Agreement is
held by any court or tribunal to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions hereof will
not in any way be affected or impaired thereby.
13.10. THIRD PARTY BENEFICIARIES. Each party hereto intends that this
Agreement will not benefit or create any right or cause of action in or on
behalf of any Person other than the parties hereto.
By their respective corporate and individual signatures set forth below,
the parties have signed this Agreement on the dates set forth below, to be
effective as of December 7, 1998.
IDG BOOKS WORLDWIDE, INC., a Delaware
corporation
Date: , 1998
--------- ----------------------------------------------
Xxxxxx X. Xxxxxxxxx, President and Publisher
CLIFF'S NOTES, INC., a Nebraska corporation
Date: , 1998
--------- ----------------------------------------------
Xxxxxx X. Xxxxxxx, President
- 54 -
60
SHAREHOLDERS
Date: , 1998
--------- ----------------------------------------------
Xxxxxxx Xxxxxxxxx
Date: , 1998
--------- ----------------------------------------------
Xxxx Xxxxxxxxx
Date: , 1998
--------- ----------------------------------------------
J. Xxxxxxx Xxxxxxxx
Date: , 1998
--------- ----------------------------------------------
Xxxxxx X. Xxxxxxx
Date: , 1998
--------- ----------------------------------------------
Xxxxxx X. Xxxxxxxx
Date: , 1998
--------- ----------------------------------------------
Xxxxx (Xxxxxxxxx) Xxxxx
Date: , 1998
--------- ----------------------------------------------
Xxxxx Xxxxxxxxx
Date: , 1998
--------- ----------------------------------------------
Xxxxxx Xxxxxxxxx
Date: , 1998
--------- ----------------------------------------------
Xxxxxxx Xxxxxxx
Date: , 1998
--------- ----------------------------------------------
Xxx (Xxxxxxxxx) Xxxxxx
Date: , 1998
--------- ----------------------------------------------
Xxxx Xxxxx
- 55 -
61
CLOSING AMENDMENT TO SHARE PURCHASE AGREEMENT
This is a Closing Amendment dated December 18, 1998 ("Closing Amendment")
to the Share Purchase Agreement ("Agreement") dated as of December 7, 1998, by
and among IDG Books Worldwide, Inc., a Delaware corporation ("IDGB"), Cliff's
Notes, Inc., a Nebraska corporation ("Cliffs"), and all of the shareholders of
Cliffs (the "Shareholders").
WHEREAS, the parties desire to amend the Agreement in the manner
hereinafter set forth:
NOW THEREFORE, the parties agree as follows:
1. Section 1.1j. of the Agreement is amended to read as follows:
"j. "Cliffs Accounting Principles" or "CAP" means GAAP, except
for (i) the GAAP departures noted in the Reviewed Statements of
Cliffs as of and for the year ending June 30, 1998, (ii) the absence
of a bad debt reserve, (iii) deferred income tax credits (account
000-000-00 in Cliff's books) shall be recorded as $53,750 on the
Closing Date Balance Sheet, (iv) investments -- art and collectibles
(account 000-000-00 in Cliff's books) shall be recorded as $175,000
on the Closing Date Balance Sheet, and (v) other -- miscellaneous
(account 000-000-00 in Cliff's books) shall be recorded as $5,000 on
the Closing Date Balance Sheet."
2. Section 1.1m. of the Agreement is amended to read as follows:
"m. "Closing Date Balance Sheet" means the audited balance sheet
of Cliffs audited by the Accountants pursuant to Section 2.7(a) as of
the Closing Effective Date."
3. Section 1.1 bj. of the Agreement is amended to read as follows:
"bj. "Preliminary Net Book Value Differential" means the
positive amount, if any, by which the Preliminary Net Book Value is
greater than $5,000,000 or the negative amount, if any, by which the
Preliminary Net Book Value is less than $5,000,000. In calculating
the Preliminary Net Book Value Differential, the following items, to
the extent, if at all, they are reflected on the Trial Balance Sheet,
shall be deducted from the liabilities or added to the assets of
Cliffs as is appropriate in accordance with CAP: (i) the Contract
Payments (the payment on account of, or any accrual for which, shall
not be reflected on the Trial Balance Sheet); (ii) the Severance
Amounts (the payment on account of, or any accrual for which, shall
not be reflected on the Trial Balance Sheet); (iii) the Foundation
Payment (which shall be reflected as an asset on the Trial Balance
Sheet); (iv) the Excluded Debt (which shall be deducted from the
liabilities on the Trial Balance Sheet); and (v) the Transaction
Costs (if accrued shall be deducted from the liabilities, and if paid
shall be added to the cash shown, on the Trial Balance Sheet)."
4. Section 2.2 of the Agreement is amended to read as follows:
"2.2. Closing: Exchange and Other Payments; Wiring
Instructions.
a. Exchange. At the Closing, such Shareholder shall deliver or
cause to be delivered share certificates representing the Shares
owned by such Shareholder, duly endorsed and assigned for transfer to
IDGB. IDGB shall deliver to each Shareholder
62
by wire transfer, the Shareholder's pro-rata share of the Closing
Payment. At the Closing, IDGB will also (i) make the Foundation
Payment and (ii) pay the holders of the Excluded Debt the full
amount thereof.
b. Wire Transfer. Not later than five (5) days prior to
the date of Closing, Cliffs shall provide IDGB with wire transfer
instructions for payments to (i) the Foundation as to the
Foundation Payment, (ii) the holders of the Excluded Debt, and
(iii) the Shareholders."
4. Section 2.3 of the Agreement is amended to read as follows:
"2.3. Determination of Preliminary Net Book Value. Prior to the
Closing, Cliffs will provide to IDGB a Trial Balance Sheet. Based
on the Trial Balance Sheet, the parties will determine the
Preliminary Net Book Value Differential and the Preliminary
Purchase Price. The Preliminary Purchase Price shall equal
$12,663,585, plus the Preliminary Net Book Value Differential."
5. Section 2.4 of the Purchase Agreement is amended to read as
follows:
"2.4. Purchase Price. The total purchase price for the Shares
(the "Purchase Price") shall equal $12,663,585 plus the Closing
Date Net Book Value Differential."
6. Except as amended hereby, the Agreement remains in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Closing Amendment
this 18th day of December, 1998.
IDG BOOKS WORLDWIDE, INC.,
---------------------------------------
Xxxxx X. Xxxxxxxx, Vice President
CLIFF'S NOTES, INC., a Nebraska corporation
By:
------------------------------------
Xxxxxx X. Xxxxxxx, President
SHAREHOLDERS
Xxxxxxx X. Xxxxxxxxx*
Xxxx X. Xxxxxxxxx*
---------------------------------------
J. Xxxxxxx Xxxxxxxx
63
----------------------------------------------------
Xxxxxx X. Xxxxxxx
Xxxxxx X. Xxxxxxxx*
Xxxxx X. Xxxxx*
Xxxxx X. Xxxxxxxxx*
Xxxxxx X. Xxxxxxxxx*
Estate of Xxxxxx X. Xxxxxxxxx
By Xxxxxx X. Xxxxxxxxx, not individually
but as Personal Representative*
Xxxxxxx X. Xxxxxxx*
Xxxxxxxx X. Xxxxxx*
Xxxx X. Xxxxx*
----------------------------------------------------
*By Xxxxxx X. Xxxxxxx as their co-attorney in fact
----------------------------------------------------
By J. Xxxxxxx Xxxxxxxx as their co-attorney in fact
