STOCK PURCHASE AGREEMENT BETWEEN WEEKLY READER CORPORATION and PEARSON EDUCATION, INC. Dated as of June 22, 2005 SALE OF AMERICAN GUIDANCE SERVICE, INC.
Exhibit
10.1
BETWEEN
WEEKLY
READER CORPORATION
and
XXXXXXX
EDUCATION, INC.
Dated
as
of June 22, 2005
SALE
OF
AMERICAN GUIDANCE SERVICE, INC.
Table
of Contents
ARTICLE
I
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Purchase
and Sale of Shares; Closing
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SECTION 1.01. |
Purchase
and Sale of the Shares
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1 |
SECTION
1.02.
|
Closing
Date
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1 |
SECTION
1.03.
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Transactions
To Be Effected at the Closing
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1 |
SECTION
1.04.
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Purchase
Price Adjustment
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2 |
ARTICLE
II
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Representations
and Warranties Relating to Seller and the Shares
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SECTION
2.01.
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Organization,
Standing and Power
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7 |
SECTION
2.02.
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Authority;
Execution and Delivery; Enforceability
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7 |
SECTION
2.03.
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No
Conflicts; Consents
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7 |
SECTION
2.04.
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The
Shares
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8 |
ARTICLE
III
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Representations
and Warranties Relating to The Company
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SECTION
3.01.
|
Organization
and Standing; Books and Records
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8 |
SECTION
3.02.
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Capital
Stock of the Company and the Subsidiaries
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9 |
SECTION
3.03.
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No
Conflicts; Consents
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10 |
SECTION
3.04.
|
Financial
Statements
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10 |
SECTION
3.05.
|
Assets
Other than Real Property Interests, Intellectual Property and
Contracts
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11 |
SECTION
3.06.
|
Real
Property
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12 |
SECTION
3.07.
|
Intellectual
Property
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12 |
SECTION
3.08.
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Contracts
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14 |
SECTION
3.09.
|
Insurance
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17 |
SECTION
3.10.
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Taxes
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17 |
SECTION
3.11.
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Proceedings
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20 |
SECTION
3.12.
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Benefit
Plans
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20 |
SECTION
3.13.
|
Absence
of Changes or Events
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22 |
SECTION
3.14.
|
Compliance
with Applicable Laws
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22 |
SECTION
3.15.
|
Transactions
with Affiliates
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23 |
SECTION
3.16.
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Accounts;
Safe Deposit Boxes; Officers and Directors
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23 |
SECTION
3.17.
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Interests
in Assets
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23 |
ARTICLE
IV
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Representations
and Warranties of Purchaser
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i
SECTION
4.01.
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Organization,
Standing and Power
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24 |
SECTION
4.02.
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Authority;
Execution and Delivery; and Enforceability
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24 |
SECTION
4.03.
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No
Conflicts; Consents
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24 |
SECTION
4.04.
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Litigation
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25 |
SECTION
4.05.
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Securities
Act
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25 |
SECTION
4.06.
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Availability
of Funds
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25 |
ARTICLE
V
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Covenants
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SECTION
5.01.
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Covenants
Relating to Conduct of Business
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25 |
SECTION
5.02.
|
Access
to Information
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28 |
SECTION
5.03.
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Confidentiality
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28 |
SECTION
5.04.
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Commercially
Reasonable Efforts
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29 |
SECTION
5.05.
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Expenses;
Transfer Taxes
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30 |
SECTION
5.06.
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Brokers
or Finders
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31 |
SECTION
5.07.
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Tax
Matters
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31 |
SECTION
5.08.
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Supplemental
Disclosure
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32 |
SECTION
5.09.
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Post-Closing
Cooperation
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33 |
SECTION
5.10.
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Publicity
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33 |
SECTION
5.11.
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Records
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33 |
SECTION
5.12.
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Support
Services
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34 |
SECTION
5.13.
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Noncompetition;
Nonsolicitation
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34 |
ARTICLE
VI
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Conditions
Precedent
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SECTION
6.01.
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Conditions
to Each Party’s Obligation
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36 |
SECTION
6.02.
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Conditions
to Obligation of Purchaser
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37 |
SECTION
6.03.
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Conditions
to Obligation of Seller
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37 |
SECTION
6.04.
|
Frustration
of Closing Conditions
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38 |
ARTICLE
VII
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Employee
and Related Matters
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SECTION
7.01.
|
Continuation
of Employment; General Principles
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38 |
SECTION
7.02.
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Assumption of Liabilities | 39 |
SECTION
7.03.
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Credited Service | 39 |
SECTION
7.04.
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Continuation of Compensation and Benefits | 39 |
SECTION
7.05.
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U.S. Savings and Investment Plan | 40 |
SECTION
7.06.
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Welfare Plans | 41 |
SECTION
7.07.
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Severance Policies | 42 |
SECTION
7.08.
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Performance Bonuses | 43 |
SECTION
7.09.
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Vacation Benefits | 43 |
ii
SECTION
7.10.
|
Employment
and Other Agreements
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43 |
SECTION
7.11.
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Retention
Arrangements
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43 |
SECTION
7.12.
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No
Third-Party Beneficiaries
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43 |
ARTICLE
VIII
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Termination,
Amendment and Waiver
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SECTION
8.01.
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Termination
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44 |
SECTION
8.02.
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Effect
of Termination
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44 |
SECTION
8.03.
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Amendments
and Waivers
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45 |
ARTICLE
IX
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Indemnification
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SECTION
9.01.
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Tax
Indemnification
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45 |
SECTION
9.02.
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Other
Indemnification
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46 |
SECTION
9.03.
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Indemnification
Procedures
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46 |
SECTION
9.04.
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Limitations
on Indemnification
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49 |
SECTION
9.05.
|
Calculation
of Losses
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51 |
ARTICLE
X
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General
Provisions
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SECTION
10.01.
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No
Additional Representations; Survival of Representations
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51 |
SECTION
10.02.
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Assignment
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52 |
SECTION
10.03.
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No
Third-Party Beneficiaries
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52 |
SECTION
10.04.
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Notices
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52 |
SECTION
10.05.
|
Interpretation;
Exhibits and Schedules; Certain Definitions
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53 |
SECTION
10.06.
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Counterparts
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57 |
SECTION
10.07.
|
Entire
Agreement
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57 |
SECTION
10.08.
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Severability
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58 |
SECTION
10.09.
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Consent
to Jurisdiction
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58 |
SECTION
10.10.
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Governing
Law
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58 |
SECTION
10.11.
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Waiver
of Jury Trial
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58 |
SECTION
10.12.
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Specific
Performance
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58 |
Exhibits
Exhibit
A Form
of Transitional Services Agreement
Exhibit
B Form
of Legal Opinion of Faegre & Xxxxxx LLP
Exhibit
C Form
of Legal Opinion of Cravath, Swaine & Xxxxx LLP
Exhibit
D Form
of Legal Opinion of Xxxxxx, Xxxxx & Bockius
LLP
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iii
STOCK
PURCHASE AGREEMENT dated as of June 22, 2005 (this “Agreement”),
among
WEEKLY READER CORPORATION, a Delaware corporation (“Seller”),
and
Xxxxxxx Education, Inc., a Delaware corporation (“Purchaser”).
Purchaser
desires to purchase from Seller, and Seller desires to sell to Purchaser,
all
the issued and outstanding shares of Class A Common Stock, par value
$0.01
per share (the “Shares”),
of
American Guidance Service, Inc., a Minnesota corporation (the “Company”).
Certain
terms used in this Agreement are defined in Section 10.05(b).
Section 10.05(c) identifies other Sections of this Agreement in which
capitalized terms used in this Agreement are defined. Accordingly, the parties
hereby agree as follows:
ARTICLE
I
Purchase
and Sale of Shares; Closing
SECTION
1.01. Purchase
and Sale of the Shares.
On the
terms and subject to the conditions of this Agreement, at the Closing, Seller
shall sell, transfer and deliver to Purchaser, and Purchaser shall purchase
from
Seller, the Shares for an aggregate purchase price of $270,000,000 (the
“Purchase
Price”),
payable as set forth below in Section 1.02 and subject to adjustment
as
provided in Section 1.04. The purchase and sale of the Shares is referred
to in this Agreement as the “Acquisition”.
SECTION
1.02. Closing
Date.
The
closing of the Acquisition (the “Closing”)
shall
take place at the offices of Cravath, Swaine & Xxxxx LLP, 000 Xxxxxx
Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, at 10:00 a.m. on the
second
business day following the satisfaction (or, to the extent permitted, the
waiver) of the conditions set forth in Section 6.01, or, if on such
day any
condition set forth in Section 6.02 or 6.03 has not been satisfied
(or, to
the extent permitted, waived by the party entitled to the benefit thereof),
as
soon as practicable after all the conditions set forth in Article VI
have
been satisfied (or, to the extent permitted, waived by the parties entitled
to
the benefits thereof), or at such other place, time and date as shall be
agreed
between Seller and Purchaser. The date on which the Closing occurs is referred
to in this Agreement as the “Closing
Date”.
SECTION
1.03. Transactions
To Be Effected at the Closing.
At the
Closing:
(a)
Seller
shall deliver to Purchaser certificates representing the Shares, duly endorsed
in blank or accompanied by stock powers duly endorsed in blank in proper
form
for transfer; and
(b)
Purchaser
shall deliver to Seller payment, by wire transfer to a bank account designated
in writing by Seller (such designation to be made at least two business days
prior to the Closing Date), immediately available funds in an amount equal
to
the Purchase Price, plus or minus an estimate, prepared by Seller, in
consultation with Purchaser, and delivered to Purchaser at least five business
days prior to the Closing Date, of any adjustment to the Purchase Price under
clauses (i) or (ii) of Section 1.04(c) (the Purchase Price plus or
minus
such estimate of any adjustment under Section 1.04 being hereinafter
called
the “Closing
Date Amount”).
Prior
to delivery of such estimate, Purchaser shall be permitted to review the
working
papers relating to such estimate and Seller shall provide Purchaser reasonable
access to the personnel, properties, books and records of Seller relevant
for
such purpose.
SECTION
1.04. Purchase
Price Adjustment. (a)
(i)
Within
30 days after the Closing Date, Seller shall prepare and deliver to
Purchaser an unaudited consolidated balance sheet of the Company as of the
close
of business on the day immediately preceding the Closing Date and a statement
(the “Seller
Statement”)
setting forth Tangible Net Worth as of the close of business on the day
immediately preceding the Closing Date (“Closing
Tangible Net Worth”)
and
Accounts Receivable as of the close of business on the day immediately preceding
the Closing Date (“Closing
Accounts Receivable”),
together with a certificate of Seller that the Seller Statement has been
prepared in compliance with the requirements of this Section 1.04.
Purchaser shall assist, and shall cause the Company and the Subsidiaries
to
assist, Seller in the preparation of the Seller Statement and shall provide
Seller reasonable access to the personnel, properties, books and records
of the
Company and the Subsidiaries relevant for such purpose. Purchaser and
Purchaser’s independent auditors may participate in the preparation of the
Seller Statement; provided,
however,
that
Purchaser acknowledges that Seller shall have the primary responsibility
and
authority for preparing the Seller Statement.
(ii)
If the
Closing occurs prior to 11:59 p.m. on July 22, 2005, on or
prior to
August 15, 2005, Purchaser shall prepare and deliver to Seller a statement
(the “Purchaser
Statement”
and,
together with the Seller Statement, collectively the “Statements”
and
individually a “Statement”),
setting forth Accounts Receivable as of the close of business on July 29,
2005 (the “July
29 A/R Amount”),
together with a certificate of Purchaser that the Purchaser Statement has
been
prepared in compliance with the requirements of this Section 1.04. The parties
acknowledge that the July 29 A/R Amount set forth in the Purchaser Statement
may
be based on Purchaser’s assumption that the amount of the Closing Accounts
Receivable as reflected in the Company’s books and records on the Closing Date
or in the Seller Statement, as applicable, is correct and that in any Notice
of
Disagreement which may be delivered by the Purchaser pursuant to
paragraph (b) below, Purchaser may revise its calculation of the
July 29 A/R Amount to reflect the effect thereon of any disagreement
raised
by Purchaser with respect to the Closing Accounts Receivable as set forth
in the
Seller Statement. Seller and Seller’s independent auditors may participate in
the preparation of the Purchaser Statement; provided,
however,
that
Seller acknowledges that Purchaser shall have the primary responsibility
and
authority for preparing the Purchaser Statement.
2
(b)
During
the 30-day period following the later of the date of Purchaser’s receipt of the
Seller Statement and the date of Seller’s receipt of the Purchaser Statement
(such later date, the “Trigger
Date”),
each
party and its independent auditors shall be permitted to review the working
papers relating to the Statement prepared by the other party and each party
shall provide to the other party and its independent auditors reasonable
access
to its personnel, properties, books and records relevant for such purpose.
Each
Statement shall become final and binding upon the parties on the 30th day
following the Trigger Date, unless the party that received such Statement
gives
written notice of its disagreement with such Statement (a “Notice
of Disagreement”)
to the
party that prepared such Statement prior to such 30th day following the Trigger
Date. Any Notice of Disagreement shall (i) specify in reasonable detail
the
nature of any disagreement so asserted, (ii) only include disagreements
based on mathematical errors or (A) in the case of a disagreement
by
Purchaser with the Seller Statement, based on Closing Tangible Net Worth
or
Closing Accounts Receivable not being calculated in accordance with this
Section 1.04 (and Purchaser may revise its calculation of the July 29
A/R Amount set forth originally in the Purchaser Statement to reflect the
effect
thereon of any such disagreement with respect to the calculation of Closing
Accounts Receivable set forth in the Seller Statement), or (B) in
the case
of a disagreement by Seller with the Purchaser Statement, based on the July
29
A/R Amount not being calculated in accordance with this Section 1.04,
and
(iii) be accompanied by a certificate of such party that it has complied
with Section 1.04(e). If a Notice of Disagreement with respect to
either
Statement is received by the party that prepared such Statement in a timely
manner, then such Statement (as revised in accordance with this sentence)
shall
become final and binding upon Seller and Purchaser on the earlier of
(A) the date Seller and Purchaser resolve in writing any differences
they
have with respect to the matters specified in the Notice of Disagreement
and
(B) the date any disputed matters are finally resolved in writing
by the
Accounting Firm. During the 30-day period following the delivery of a Notice
of
Disagreement, Seller and Purchaser shall seek in good faith to resolve in
writing any differences that they may have with respect to the matters specified
in the Notice of Disagreement. During such period the party that prepared
the
relevant Statement and its auditors shall have access to the personnel,
properties, books and records of the party that delivered the Notice of
Disagreement and the working papers of such party (and, if they have
participated in such party’s preparation of the Notice of Disagreement, the
working papers of such party’s auditors prepared in connection with their review
of the Notice of Disagreement). At the end of such 30-day period, Seller
and
Purchaser shall submit to an independent accounting firm (the “Accounting
Firm”)
for
arbitration any and all matters that remain in dispute and were properly
included in the Notice of Disagreement. The Accounting Firm shall be
Ernst & Young LLP or, if such firm is unable or unwilling to act or has
at that time or at any time within the preceding twelve months had any not
insignificant retention by either Purchaser or Seller or their affiliates,
such
other nationally recognized independent public accounting firm as shall be
agreed upon by the parties hereto in writing (if the parties are unable to
agree, Seller and Purchaser shall each select a nationally recognized
independent public accounting firm and those two firms shall select a third
such
firm, in which event the “Accounting Firm” shall mean the third such firm).
Seller and Purchaser shall instruct the Accounting Firm to render its decision
by selecting either the position of Seller or Purchaser as to each
3
matter
submitted to the Accounting Firm, and the Accounting Firm shall not be
permitted
to reach a decision as to any matter other than the position of Seller
or
Purchaser. Seller and Purchaser agree to use reasonable efforts to cause
the
Accounting Firm to render a decision resolving the matters submitted to
the
Accounting Firm within 30 days following submission. Judgment may be entered
upon the determination of the Accounting Firm in any court having jurisdiction
over the party against which such determination is to be enforced. Except
as
provided in the next sentence, the cost of any arbitration (including the
fees
and expenses of the Accounting Firm and reasonable attorney fees and expenses
of
the parties) pursuant to this Section 1.04 shall be borne by Purchaser
and
Seller in inverse proportion as they may prevail on the value of the matters
determined by the Accounting Firm, which proportionate allocations shall
also be
determined by the Accounting Firm at the time the determination of the
Accounting Firm is rendered on the merits of the matters submitted to it.
The
fees and disbursements of Seller’s independent auditors incurred in connection
with their review of the Statements and preparation, review or resolution
of any
Notice of Disagreement shall be borne by Seller, and the fees and disbursements
of Purchaser’s independent auditors incurred in connection with their review of
the Statements and the preparation, review or resolution of any Notice
of
Disagreement shall be borne by Purchaser.
(c) The
Purchase
Price shall be (i) increased by the amount by which Closing Tangible
Net
Worth exceeds $27,661,000 (the “TNW Amount”), provided that the
Purchase Price shall not be increased by more than $3,750,000 pursuant to
this
clause (i), (ii) decreased by the amount by which Closing Tangible
Net
Worth is less than the TNW Amount, and (iii) if the Closing occurs
prior to
11:59 p.m. on July 22, 2005, increased by the Applicable Percentage
of
the amount by which the July 29 A/R Amount exceeds Closing Accounts Receivable,
provided that the Purchase Price shall not be increased by more than
$2,500,000 pursuant to this clause (iii) (the Purchase Price as so increased
or
decreased pursuant to clauses (i), (ii) and (iii) shall hereinafter
be
referred to as the “Adjusted Purchase Price”). If the Closing Date
Amount is less than the Adjusted Purchase Price, Purchaser shall, and if
the
Closing Date Amount is more than the Adjusted Purchase Price, Seller shall,
within 10 business days after the first date on which both Statements
have
become final and binding on the parties, make payment by wire transfer in
immediately available funds of the amount of such difference, together with
interest thereon at a rate equal to the rate of interest from time to time
announced publicly by Citibank, N.A. as its prime rate, calculated on the
basis
of the actual number of days elapsed divided by 365, from (x) the Closing
Date
to the date of payment, in the case of any such difference attributable to
the
difference between Seller’s estimate delivered prior to the Closing pursuant to
Section 1.03(b) of the adjustments set forth in clauses (i) and (ii)
of the
foregoing sentence and the final determination thereof, and (y) from
July 29, 2005 to the date of payment, in the case of any such
difference attributable to the adjustment set forth in clause (iii) of the
foregoing sentence.
(d) The
term
“Tangible Net Worth” means Total Tangible Assets minus Total Liabilities.
The term “Total Tangible Assets” means the consolidated total assets of
the Company and its consolidated subsidiaries after deducting consolidated
goodwill and other intangible assets, net, of the Company and its consolidated
subsidiaries, the term “Total Liabilities” means the consolidated total
liabilities of the Company and its
4
consolidated
subsidiaries, and the term “Accounts
Receivable”
means
the consolidated accounts receivable (net of allowance for doubtful accounts
and
sales returns) of the Company and its subsidiaries, in each case calculated
in
the same way, using the same methodologies, practices, accounting applications,
assumptions and method of applying estimates, as such line items on the
Audited
Balance Sheet (whether or not doing so is in accordance with United States
generally accepted accounting principles (“GAAP”)),
except that (i) amounts attributable to Income Taxes for the Pre-Closing
Tax
Period, cash and cash equivalents, indebtedness and other accounts payable
owing
to Seller or any of its affiliates, accounts receivable owing from Seller
or any
of its affiliates and amounts attributable to the Retention Program shall
be
excluded in determining Total Tangible Assets and Total Liabilities and
(ii) the
reserve for Pre-Closing Health Care Claims will equal $1,100,000 in determining
Total Liabilities. The accrued pension liability included in the Total
Liabilities set forth in the Statement shall be no less than the unfunded
Accumulated Benefit Obligation, within the meaning of Statement of Financial
Accounting Standards 87, as reflected in the Audited Balance Sheet plus
any
accruals for the net periodic benefits less any contributions made during
the
period from January 1, 2005 to the Closing Date, and such liability shall
not be
reduced by any unamortized or accumulated amounts. Solely for purposes
of
determining the July 29 A/R Amount, the allowance for doubtful accounts
and
sales returns used to calculate Closing Accounts Receivable shall be carried
forward without change to calculate the July 29 A/R Amount. The foregoing
principles are referred to in this Agreement as the “Balance
Sheet Principles”.
The
parties agree that the adjustments contemplated by this Section 1.04 are
intended to be based on Tangible Net Worth as of the close of business
on the
day immediately preceding the Closing Date and Accounts Receivable as of
the
close of business on each of the day immediately preceding the Closing
Date and
July 29, 2005, measured, in the case of Tangible Net Worth, using component
items calculated in the same way as such component items were calculated
on the
Audited Balance Sheet and, in the case of Accounts Receivables, calculated
in
the same way as Accounts Receivable are calculated on the Audited Balance
Sheet
(except that in the case of the July 29 A/R Amount, the allowance for doubtful
accounts and sales returns used to calculate Closing Accounts Receivable
shall
be carried forward without change to calculate the July 29 A/R Amount),
and,
accordingly, any items on or omissions from the Audited Balance Sheet that
are
based upon errors of fact or mathematical errors or that are not in accordance
with GAAP shall be carried forward for purposes of calculating Closing
Tangible
Net Worth, Closing Accounts Receivable and the July 29 A/R Amount. The
scope of
the disputes to be resolved by the Accounting Firm shall be limited to
whether
such calculation was done in accordance with the Balance Sheet Principles,
and
whether there were mathematical errors in the applicable Statement, and
the
Accounting Firm is not to make any other determination, including any
determination as to whether GAAP was followed for the Audited Balance Sheet
or
the applicable Statement or as to whether the TNW Amount is correct. Schedule
1.04(d) sets forth an illustrative calculation of Tangible Net Worth as
of
December 31, 2004.
The
term
“Applicable
Percentage”
means
the percentage set forth in the table below under the column heading “Applicable
Percentage” opposite the period or the date set forth in the table below during
or on which the Closing occurs:
5
Period
or Date
|
Applicable
Percentage
|
On
or prior to July 12, 2005
|
80%
|
July
13, 2005
|
75%
|
July
14, 2005
|
70%
|
July
15, 2005
|
65%
|
July
16, 2005
|
65%
|
July
17, 2005
|
65%
|
July
18, 2005
|
60%
|
July
19, 2005
|
55%
|
July
20, 2005
|
50%
|
July
21, 2005
|
45%
|
July
22, 2005
|
40%
|
July
23, 2005 and thereafter
|
0%
|
(e)
During
the period from and after Closing through the resolution of any adjustment
to
the Purchase Price contemplated by this Section 1.04, Purchaser shall
not,
and from the date hereof until Closing, Seller shall not (except (i) in
each case as required by GAAP and (ii) in the case of Purchaser, as required
by
Purchaser accounting policies and practices at the time, provided in the
case of
this clause (ii) that such actions do not make impossible or impracticable
the
calculation of any adjustment to the Purchase Price as contemplated by this
Section 1.04), take any action with respect to the accounting books and records
of the Company on which either Statement is to be based that are not consistent
with the Company’s past practices. Without limiting the generality of the
foregoing, during such periods no changes shall be made in any reserve or
other
account existing as of the date of the Audited Balance Sheet except as a
result
of events occurring after the date of the Audited Balance Sheet and, in such
event, only in a manner consistent with past practices and as required by
GAAP.
Purchaser shall cause the Company and the Subsidiaries to cooperate in the
preparation of the Seller Statement, including providing customary
certifications, including management representation letters, to Seller’s
independent auditors. If the Closing occurs prior to 11:59 p.m. on July 22,
2005, from the Closing to the close of business on July 29, 2005, Purchaser
shall cause Accounts Receivable management and collection to be conducted
in the
usual, regular and ordinary course in substantially the same manner as
previously conducted.
(f)
During
the period of time from and after the Closing Date through the resolution
of any
adjustment to the Purchase Price contemplated by this Section 1.04,
Purchaser shall afford, and shall cause the Company to afford, to Seller
and any
accountants, counsel or financial advisers retained by Seller in connection
with
any adjustment to the Purchase Price contemplated by this Section 1.04,
reasonable access during normal business hours to all the properties, books,
contracts, personnel and records of the Company and the Subsidiaries relevant
to
the adjustment contemplated by this Section 1.04.
6
ARTICLE
II
Representations
and Warranties
Relating
to Seller and the Shares
Except
as
set forth on the Disclosure Schedule attached hereto (the “Disclosure
Schedule”)
in
accordance with Section 10.05(a), Seller hereby represents and warrants
to
Purchaser as follows:
SECTION
2.01. Organization,
Standing and Power.
Seller
is duly organized, validly existing and in good standing under the laws of
the
State of Delaware and has full corporate power and authority and possesses
all
governmental franchises, licenses, permits, authorizations and approvals
necessary to enable it to own, lease or otherwise hold its properties and
assets, including the Shares, and to conduct its businesses as presently
conducted, other than such franchises, licenses, permits, authorizations
and
approvals the lack of which have not had and would not be reasonably likely
to
have a material adverse effect on the ability of Seller to consummate the
Acquisition (a “Seller
Material Adverse Effect”).
SECTION
2.02. Authority;
Execution and Delivery; Enforceability.
Seller
has full corporate power and authority to execute this Agreement and the
other
agreements and instruments to be executed and delivered in connection with
this
Agreement (the “Ancillary
Agreements”)
to
which it is, or is specified to be, a party and to consummate the Acquisition
and the other transactions contemplated hereby and thereby. The execution
and
delivery by Seller of this Agreement and the Ancillary Agreements to which
it
is, or is specified to be, a party and the consummation by Seller of the
Acquisition and the other transactions contemplated hereby and thereby have
been
duly authorized by all necessary corporate action. Seller has duly executed
and
delivered this Agreement and at or prior to the Closing will have duly executed
and delivered each Ancillary Agreement to which it is, or is specified to
be, a
party, and this Agreement constitutes, and each Ancillary Agreement to which
it
is, or is specified to be, a party will after the Closing constitute, its
legal,
valid and binding obligation, enforceable against it in accordance with its
terms.
SECTION
2.03. No
Conflicts; Consents.
Except
as set forth in Schedule 2.03, the execution and delivery by Seller
of this
Agreement do not, the execution and delivery by Seller of each Ancillary
Agreement to which it is, or is specified to be, a party will not, and the
consummation of the Acquisition and the other transactions contemplated hereby
and thereby and compliance by Seller with the terms hereof and thereof will
not
conflict with, or result in any violation of or default (with or without
notice
or lapse of time, or both) under, or give rise to a right of termination,
cancelation or acceleration of any obligation or to loss of a material benefit
under, or result in the creation of any Lien upon any of the properties or
assets of Seller under, any provision of (i) the certificate of
incorporation or by-laws of Seller, (ii) any contract, lease, license,
indenture or other agreement (a “Contract”)
to
which Seller is a party or by which any of its properties or assets is bound
or
(iii) any judgment, order or decree (“Judgment”)
or
statute, law, ordinance, rule or regulation or other pronouncement of a
7
Governmental
Entity having the effect of law (“Applicable
Law”)
applicable to Seller or its properties or assets, other than, in the case
of
clauses (ii) and (iii) above, any such items that have not had and would
not be
reasonably likely to have, individually or in the aggregate, a Seller Material
Adverse Effect. No material consent, approval, license, permit, order or
authorization (“Consent”)
of, or
registration, declaration or filing with, any Federal, state, local or
foreign
government or any court of competent jurisdiction, administrative agency
or
commission or other governmental authority or instrumentality, domestic
or
foreign (a “Governmental
Entity”),
is
required to be obtained or made by or with respect to Seller in connection
with
the execution, delivery and performance of this Agreement or any Ancillary
Agreement or the consummation of the Acquisition or the other transactions
contemplated hereby and thereby, other than (A) compliance with and filings
under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976 (the
“HSR
Act”),
(B)
compliance with and filings under Section 13(a) of the Securities Exchange
Act
of 1934 (the “Exchange
Act”),
(C)
filings of termination statements and mortgage releases in connection with
the
release by the lenders under the Credit Facilities of all Liens securing
the
Credit Facilities upon the Shares and the assets of the Company and the
Subsidiaries, and (D) those that may be required solely by reason of Purchaser’s
(as opposed to any other third party’s) participation in the Acquisition and the
other transactions contemplated hereby and by the Ancillary
Agreements.
SECTION
2.04. The
Shares.
Seller
has good and valid title to the Shares, free and clear of all Liens except
as
set forth in Schedule 2.04. Assuming Purchaser has the requisite power
and
authority to be the lawful owner of the Shares, upon delivery to Purchaser
at
the Closing of certificates representing the Shares, duly endorsed by Seller
for
transfer to Purchaser, and upon Seller’s receipt of the Closing Date Amount,
good and valid title to the Shares will pass to Purchaser, free and clear
of any
Liens, other than those arising from acts of Purchaser or its affiliates.
Other
than this Agreement, except as set forth in Schedule 2.04, the Shares
are
not subject to any voting trust agreement or other Contract restricting or
otherwise relating to the voting, dividend rights or disposition of such
Shares.
ARTICLE
III
Representations
and Warranties
Relating
to The Company
Except
as
set forth on the Disclosure Schedule in accordance with Section 10.05(a),
Seller hereby represents and warrants to Purchaser as follows:
SECTION
3.01. Organization
and Standing; Books and Records.
(a)
Schedule
3.01(a) sets forth a list of each subsidiary of the Company (each, a
“Subsidiary”).
Each
of the Company and the Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, which jurisdiction is set forth in Schedule 3.01(a).
Each of
the Company and the Subsidiaries has full corporate power and authority and
possesses all governmental franchises, licenses, permits, authorizations
and
approvals necessary to enable it to own, lease or otherwise hold its properties
and assets and to carry on its
8
business
as presently conducted, other than such franchises, licenses, permits,
authorizations and approvals the lack of which has not had and would not
be
reasonably likely to have, individually or in the aggregate, a Company Material
Adverse Effect. Each of the Company and the Subsidiaries is duly qualified
and
in good standing to do business as a foreign corporation in each jurisdiction
in
which the conduct or nature of its business or the ownership, leasing or
holding
of its properties makes such qualification necessary, except such jurisdictions
where the failure to be so qualified or in good standing would not be reasonably
likely to have, individually or in the aggregate, a Company Material Adverse
Effect. A list of the jurisdictions in which the Company and the Subsidiaries
are so qualified is set forth in Schedule 3.01(a).
(b)
The
Company has delivered to Purchaser true and complete copies of (i) the
certificate of incorporation and by-laws, each as amended to date, of the
Company and (ii) the comparable governing instruments, each as amended
to
date, of each Subsidiary.
SECTION
3.02. Capital
Stock of the Company and the Subsidiaries. (a)
The
authorized capital stock of the Company consists of (i) 10,000,000
shares
of Class A Common Stock, par value $.01 per share, of which 2,137,591
shares, constituting the Shares, are issued and outstanding, (ii) 1,000,000
shares of Class B Common Stock, par value $.01 per share, which are
unissued and (iii) 5,000,000 shares of Class C Common Stock,
par value
$.01 per share, which are unissued. Except for the Shares, there are no shares
of capital stock or other equity securities of the Company issued, reserved
for
issuance or outstanding. Schedule 3.02(i)
sets
forth for each Subsidiary the amount of its authorized capital stock or other
equity interests, the amount of its outstanding capital stock or other equity
interests and the record and beneficial owners of its outstanding capital
stock
or other equity interests. Except as set forth in Schedule 3.02(a),
there
are no shares of capital stock or other equity interests of any Subsidiary
issued, reserved for issuance or outstanding. The Shares are duly authorized,
validly issued, fully paid and nonassessable and not subject to or issued
in
violation of any purchase option, call option, right of first refusal,
preemptive right, subscription right or any similar right under any provision
of
the Minnesota Business Corporation Act, the certificate of incorporation
or
by-laws of the Company or any Contract to which the Company is a party or
otherwise bound. All the outstanding shares of capital stock or other equity
interests of each Subsidiary have been duly authorized and validly issued,
are
fully paid and nonassessable and are not subject to or issued in violation
of
any purchase option, call option, right of first refusal, preemptive right,
subscription right or any similar right under any provision of the Minnesota
Business Corporation Act, the Delaware General Corporation Law or any other
Applicable Law, the certificate of incorporation or by-laws (or comparable
governing instruments) of such Subsidiary or any Contract to which such
Subsidiary is a party or otherwise bound. The Company has good and valid
title
to all such shares and interests, free and clear, except as set forth in
Schedule 3.02(a), of all Liens. There are no outstanding bonds, debentures,
notes or other indebtedness of the Company or any Subsidiary having the right
to
vote (or convertible into, or exchangeable for, securities having the right
to
vote) on any matters on which holders of Shares or shares of capital stock
of or
other equity interests of any Subsidiary may vote (“Voting
Company Debt”).
There
are no outstanding options,
9
warrants,
rights, convertible or exchangeable securities, “phantom” stock rights, stock
appreciation rights, stock-based performance units or Contracts to which
the
Company or any Subsidiary is a party or by which any of them is bound (i)
obligating the Company or any Subsidiary to issue, deliver or sell, or
cause to
be issued, delivered or sold, additional shares of capital stock or other
equity
interests in, or any security convertible or exercisable for or exchangeable
into any capital stock of or other equity interest in, the Company or of
any
Subsidiary or any Voting Company Debt, (ii) obligating the Company or any
Subsidiary to issue, grant, extend or enter into any such option, warrant,
call,
right, security or Contract or (iii) that give any person the right to
receive
any economic benefit or right similar to or derived from the economic benefits
and rights occurring to holders of Shares or any such capital stock or
other
equity interests.
(b)
Except
for its interests in the Subsidiaries, the Company does not own, directly
or
indirectly, any capital stock, membership interest, partnership interest
or
other equity interest in any person.
SECTION
3.03. No
Conflicts; Consents.
The
execution and delivery by Seller of this Agreement do not, the execution
and
delivery by Seller of each Ancillary Agreement to which it is, or is specified
to be, a party will not, and the consummation of the Acquisition and the
other
transactions contemplated hereby and thereby and compliance by Seller with
the
terms hereof and thereof will not conflict with, or result in any violation
of
or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancelation or acceleration of any obligation
or
to loss of a material benefit under, or result in the creation of any Lien
upon
any of the properties or assets of the Company or any Subsidiary under, any
provision of (i) the certificate of incorporation or by-laws (or the comparable
governing instruments) of the Company or any Subsidiary, (ii) any Contract
to
which the Company or any Subsidiary is a party or by which any of their
respective properties or assets is bound or (iii) any Judgment or Applicable
Law
applicable to the Company or any Subsidiary or their respective properties
or
assets, other than, in the case of clauses (ii) and (iii) above, any
such
items that have not had and would not reasonably be likely to have, individually
or in the aggregate, a Company Material Adverse Effect. No material Consent
of,
or registration, declaration or filing with, any Governmental Entity is required
to be obtained or made by or with respect to the Company or any Subsidiary
in
connection with the execution, delivery and performance of this Agreement
or any
Ancillary Agreement or the consummation of the Acquisition or the other
transactions contemplated hereby and thereby, other than (A) compliance
with and filings under the HSR Act, (B) compliance with and filings
under
Section 13(a) of the Exchange Act, (C) filings of termination
statements and mortgage releases in connection with the release by the lenders
under the Credit Facilities of all Liens securing the Credit Facilities upon
the
Shares and the assets of the Company and the Subsidiaries, and (D) those
that may be required solely by reason of Purchaser’s (as opposed to any other
third party’s) participation in the Acquisition and the other transactions
contemplated hereby and by the Ancillary Agreements.
SECTION
3.04. Financial
Statements. (a)
Schedule
3.04(a) sets forth the audited consolidated balance sheet of the Company
as of
December 31, 2004 (the “Audited
Balance Sheet”)
and
the audited consolidated statements of income and cash
10
flows
of
the Company for the year ended December 31, 2004 together with the report
thereon from Deloitte & Touche LLP (such financial statements, the
“Audited
Financial Statements”).
The
Audited Financial Statements have been prepared in conformity with GAAP
consistently applied (except in each case as described in the notes thereto)
and
on that basis fairly present the consolidated financial condition, results
of
operations and cash flows of the Company as of and for the year ended December
31, 2004.
(b)
Schedule
3.04(b) sets forth the unaudited consolidated balance sheet of the Company
as of
March 31, 2005 (the “Unaudited
Balance Sheet”)
and
the unaudited consolidated statements of income and cash flows of the Company
for the three months ended March 31, 2005 (such financial statements,
the
“Unaudited
Financial Statements”).
The
Unaudited Financial Statements have been prepared in conformity with GAAP
consistently applied (except as described in the notes thereto) and on that
basis fairly presents (subject to normal, recurring year-end audit adjustments)
the consolidated financial condition and results of operations of the Company
as
of and for the three months ended March 31, 2005.
(c)
The
Company and the Subsidiaries do not have any liabilities or obligations of
a
nature required by GAAP to be reflected on a consolidated balance sheet of
the
Company or in the notes thereto that have had or would reasonably be likely
to
have, individually or in the aggregate, a Company Material Adverse Effect,
except (i) as disclosed, reflected or reserved against in the Audited
Balance Sheet and the notes thereto or in the Unaudited Balance Sheet,
(ii) for items set forth in Schedule 3.04(c) and (iii) for
liabilities
and obligations incurred in the ordinary course of business consistent with
past
practice since the date of the Unaudited Balance Sheet and not in violation
of
this Agreement.
(d)
The
Company and the Subsidiaries maintain accurate books and records reflecting
their respective material assets and liabilities and maintain proper and
adequate internal accounting controls which are intended to provide assurance
that: (i) material transactions are executed with management’s authorization;
(ii) material transactions are recorded as necessary to permit preparation
of
the consolidated financial statements of WRC Media Inc. (“Seller
Parent”)
and to
maintain accountability for Seller Parent’s consolidated assets; (iii) access to
Seller Parent’s material assets is permitted only in accordance with
management’s authorization; and (iv) the reporting of Seller Parent’s material
assets is compared with existing assets at regular intervals.
SECTION
3.05. Assets
Other than Real Property Interests, Intellectual Property and
Contracts. (a)
The
Company or a Subsidiary has good and valid title to all the assets reflected
on
the Unaudited Balance Sheet or thereafter acquired, other than those disposed
of
since the date of the Unaudited Balance Sheet in the ordinary course of business
consistent with past practice, in each case free and clear of all mortgages,
liens, security interests, easements, leases, subleases, rights of way, options
or encumbrances of any kind (collectively, “Liens”),
except (i) such Liens as are set forth in Schedule 3.05(a),
(ii) mechanics’, carriers’, workmen’s, repairmen’s or other like Liens
arising or incurred in the ordinary course of business, Liens arising under
original purchase price conditional sales contracts and equipment leases
with
third parties and Liens for Taxes that are not
11
due
and
payable or that may thereafter be paid without penalty and (iii) Liens
the
existence of which is referred to in the notes to the Audited Balance Sheet
(the
Liens described in clauses (ii) and (iii) above, together with the Liens
referred to in clause (ii) of Section 3.06, are referred to collectively
as
“Permitted
Liens”).
(b)
This
Section 3.05 does not relate to real property or interests in real
property, such items being the subject of Section 3.06, to Intellectual
Property, such items being the subject of Section 3.07, or to Contracts,
such items being the subject of Section 3.08.
SECTION
3.06. Real
Property.
Neither
the Company nor any of the Subsidiaries owns any real property or interests
in
real property in fee. Schedule 3.06 sets forth a complete list of all real
property and interests in real property leased by the Company or any Subsidiary
(individually, a “Leased
Property”,
and
the lease, sublease or other agreement pursuant to which it is occupied by
the
Company or the applicable Subsidiary, and all amendments thereto, individually,
a “Lease”).
The
Company or the applicable Subsidiary has good and valid title to the leasehold
estates in the Leased Property created by the Leases, subject to
(i) Permitted Liens, (ii) other imperfections of title or
encumbrances, if any, that do not materially impair, and could not reasonably
be
expected materially to impair, the continued use and operation of the assets
to
which they relate in the conduct of the business of the Company and the
Subsidiaries as presently conducted, (iii) subleases and similar agreements
also listed in Schedule 3.06 and (iv) Liens that have been placed
by any
developer, landlord or other third party on any Leased Property and
subordination or similar agreements relating thereto. Neither
the Company nor any Subsidiary has granted a Lien on its leasehold estate
in any
Leased Property, other than any Lien granted in such Lease to the landlord
thereunder for any rent which may become delinquent. True
and
complete copies of the Leases have been made available to Purchaser for review.
Except as set forth in Schedule 3.06, all of the Leases are valid, binding
and
in full force and effect in all material respects and are enforceable by
the
Company or the applicable Subsidiary in accordance with their terms subject,
as
to enforcement, to applicable bankruptcy, insolvency, moratorium, reorganization
or similar laws affecting creditors’ rights generally and to general equitable
principles. Except as set forth in Schedule 3.06 Seller, as of the date of
this
Agreement the Company and the Subsidiaries have performed all material
obligations required to be performed by them under the Leases and are not
in
material default under any Lease, and to the knowledge of Seller, no other
party
to any Lease is in material default thereunder. Each Leased Property is in
materially good condition and repair, ordinary wear and tear
excepted.
SECTION
3.07. Intellectual
Property. (a)
Schedule
3.07 sets forth a true and complete list of all material Intellectual Property,
used by the Company or any Subsidiary (the “Company
Intellectual Property”).
With
respect to any Company Intellectual Property that is registered by the Company
or any Subsidiary or subject to an application for registration filed by
the
Company or any Subsidiary (“Company-Owned
Intellectual Property”),
Schedule 3.07 sets forth a list of the owner, the title or xxxx, registration
or
application number, and the jurisdiction where registered or sought to be
registered. The Company or a Subsidiary is the owner or licensee of, and/or
has
the right
12
to
use in
the ordinary course of its business, without payment to any other person
in the
case of Company-Owned Intellectual Property (except as set forth in Schedule
3.07), all the Company Intellectual Property and the consummation of the
Acquisition and the other transactions contemplated hereby does not and
will not
conflict with, alter or impair any such rights.
(b)
Except
as
set forth on Schedule 3.07:
(i)
The
Company and the Subsidiaries are the sole owners of, and have all right,
title
and interest in and to, all of the Company-Owned Intellectual Property and
all
material unregistered Intellectual Property of the Company and the Subsidiaries,
free and clear of all Liens (other than Permitted Liens.
(ii)
All
material unexpired registrations and applications for the Company-Owned
Intellectual Property listed on Schedule 3.07 are valid and in full force
and
effect, as applicable; all necessary registration, maintenance and/or renewal
fees in connection therewith have been paid; all necessary documents and
certificates in connection therewith have been filed with the relevant agencies;
and all known material defects or errors in record title have been
corrected.
(iii)
There
are
no settlements, forbearances to xxx, consent judgments or orders, co-existence
agreements or similar obligations, other than license agreements entered
into in
the ordinary course of business, that restrict any rights of the Company
or the
Subsidiaries to use the Company Intellectual Property or restrict the business
of the Company and the Subsidiaries which were entered into or undertaken
to
accommodate the Intellectual Property rights of any other person.
(c)
The
Company and the Subsidiaries have taken reasonable security measures to protect
and preserve the confidentiality and value of their Confidential
Information.
(d)
The
Software used by the Company and the Subsidiaries for their internal operations
does not use any material amount of open source Software.
(e)
Except
(i) as set forth in Schedules 3.07 and 3.08, (ii) for nonexclusive licenses
to
end-users and permissions to quote issued in the ordinary course of business
and
(iii) for licenses between the Company and one or more Subsidiaries: (x)
neither
the Company nor any of the Subsidiaries has granted any material license
of any
kind relating to Company Intellectual Property or the marketing or distribution
thereof; (y) neither the Company nor any of the Subsidiaries is bound by
or a
party to any material Contract relating to the Intellectual Property of any
other person for the use of such Intellectual Property in the conduct of
the
business of the Company and the Subsidiaries, except for license agreements
relating to Software licensed to the Company or a Subsidiary in the ordinary
course of business, and works published under license as
13
opposed
to pursuant to a grant or assignment of rights; (z) to the knowledge of
Seller,
the conduct of the business of the Company and the Subsidiaries as presently
conducted does not violate, conflict with or infringe in any material respect
the Intellectual Property of any other person, and no person is engaging
in any
activity that infringes in any material respect any Company Intellectual
Property; (xx) no claims are pending against the Company or any Subsidiary
by
any person with respect to the ownership, validity, enforceability,
effectiveness or use in the business of the Company and the Subsidiaries
of any
Company Intellectual Property and (yy) during the past twelve months none
of
Seller, the Company or the Subsidiaries has received any written communication
alleging that the Company or any Subsidiary infringed any rights relating
to
Intellectual Property of any person.
(f)
To
the
knowledge of Seller, no product, service, publication or advertising, marketing
or promotional material of the Company or the Subsidiaries includes any
defamatory statement or material that violates any rights of publicity or
privacy of any person.
(g)
Definitions.
(i)
In
this
Agreement “Intellectual
Property”
means
any patent (including all reissues, divisions, continuations and extensions
thereof), patent application, patent right, trademark, trademark registration,
trademark application, service xxxx, service xxxx application, service xxxx
registration, trade dress, logo, trade name, business name, brand name,
copyright, copyright registration or domain name, including any goodwill
associated with any of the foregoing, Confidential Information, Software,
web
site content, database or any right to any of the foregoing.
(ii)
In
this
Agreement “Software”
means
all computer software of any nature whatsoever (including system software,
application software, utility software, web sites, security software,
programming software, middleware and firmware, modules and data files), in
object and/or source code form as applicable.
(iii)
In
this
Agreement “Confidential
Information”
means
confidential and proprietary information, trade secrets, know-how, discoveries
and inventions (whether patentable or unpatentable and whether or not reduced
to
practice), models, algorithms, processes and techniques, research and
development information, customer lists, supplier lists, ideas, technical
data,
designs, drawings and specifications, to the extent any or all of the foregoing
are not generally known in the industry.
SECTION
3.08. Contracts. (a)
Except
as
set forth in Schedule 3.08(a), neither the Company nor any Subsidiary
is a
party to or bound by any:
14
(i)
employment
agreement or consulting agreement with a natural person that in either case
has
an aggregate future liability in excess of $75,000 and is not terminable
by the
Company or a Subsidiary by notice of not more than 60 days for a cost
of
less than $75,000;
(ii)
collective
bargaining agreement or other contract with any labor organization, union
or
association;
(iii)
Contract
containing a covenant not to compete, or other covenant restricting the
development, manufacture, marketing or distribution of products and services
of
the Company or any Subsidiary, that limits the conduct of the business of
the
Company and its Subsidiaries as presently conducted (other than limitations
or
restrictions applicable to goods, services or rights to any Intellectual
Property procured pursuant to such Contract);
(iv)
Contract
with (A) Seller or any affiliate of Seller (other than the Company
or a
Subsidiary), (B) any person who since January 1, 2000 has been
an
officer, director or employee of the Company, a Subsidiary, Seller or any
affiliate of Seller (other than employment agreements or consulting agreements
with natural persons covered by clause (i) above) or (C) PRIMEDIA
Inc.;
(v)
lease,
sublease or similar Contract with any person (other than the Company or a
Subsidiary) under which the Company or a Subsidiary is a lessor or sublessor
of,
or makes available for use to any person (other than the Company or a
Subsidiary), (A) any Leased Property or (B) any portion of
any
premises otherwise occupied by the Company or a Subsidiary;
(vi)
lease,
sublease or similar Contract with any person (other than the Company or a
Subsidiary) under which (A) the Company or a Subsidiary is lessee
of, or
holds or uses, any machinery, equipment, vehicle or other tangible personal
property owned by any person or (B) the Company or a Subsidiary is
a lessor
or sublessor of, or makes available for use by any person, any tangible personal
property owned or leased by the Company or a Subsidiary, in any such case
which
has an aggregate future liability or receivable, as the case may be, in excess
of $250,000 (exclusive of any indemnity obligation) and is not terminable
by the
Company or a Subsidiary by notice of not more than 60 days for a cost
of
less than $100,000;
(vii)
(A)
continuing Contract for the future purchase of materials, supplies or equipment
(other than purchase contracts and orders for inventory in the ordinary course
of business consistent with past practice), (B) management, service,
consulting or other similar Contract or (C) advertising Contract,
in any
such case which has a minimum or
15
fixed
aggregate liability to any person (other than the Company or a Subsidiary)
over
the life of the Contract in excess of $100,000 and is not terminable by
the
Company or a Subsidiary by notice of not more than 60 days for a cost of
less
than $100,000;
(viii)
license,
sublicense, option or other agreement relating in whole or in part to the
Company Intellectual Property (including any license or other agreement under
which the Company or a Subsidiary is licensee or licensor of any Intellectual
Property) other than licenses, sublicenses, options and other agreements
entered
into in the ordinary course of business consistent with past
practice;
(ix)
Contract
under which the Company or a Subsidiary has borrowed any money from, or issued
any note, bond, debenture or other evidence of indebtedness for borrowed
money
to, any person (other than the Company or a Subsidiary) or any other note,
bond,
debenture or other evidence of indebtedness for borrowed money of the Company
or
a Subsidiary (other than in favor of the Company or a Subsidiary);
(x)
Contract
(including any so-called take-or-pay or keepwell agreements) under which
(A) any person other than the Company or a Subsidiary, has guaranteed
indebtedness, liabilities or obligations of the Company or a Subsidiary or
(B) the Company or a Subsidiary has guaranteed indebtedness, liabilities
or
obligations of any person, other than the Company or another Subsidiary (in
each
case other than endorsements for the purpose of collection in the ordinary
course of business);
(xi)
Contract
under which the Company or a Subsidiary has, directly or indirectly, made
any
advance, loan, extension of credit or capital contribution to, or other
investment in, any person (other than the Company or a Subsidiary and other
than
extensions of trade credit in the ordinary course of business), in any such
case
which, individually, is in excess of $100,000;
(xii)
material
Contract granting a Lien upon any Leased Property or any other asset, which
Lien
is not set forth in Schedule 3.05(a) or Schedule 3.06;
(xiii)
Contract
providing for indemnification of any person with respect to liabilities relating
to any former business of the Company, a Subsidiary or any predecessor person
(other than any Contract to purchase insurance for the benefit of any
person);
(xiv)
Contract
for the sale of any asset of the Company or a Subsidiary (other than inventory
sales in the ordinary course of business) or the grant of any preferential
rights to purchase any such asset or
16
requiring
the consent of any party to the transfer thereof, other than any such Contract
entered into in the ordinary course of business after the date of this
Agreement
and not in violation of this Agreement;
(xv)
Contract
providing for the services of any dealer, distributor, sales representative,
franchisee or similar representative involving the payment or receipt over
the
life of such Contract in excess of $100,000 by the Company or a Subsidiary;
or
(xvi)
joint
venture or partnership Contract (regardless of legal form).
(b)
All
Contracts listed in Schedule 3.08(a) (the “Company
Contracts”)
are
valid, binding and in full force and effect and are enforceable by the Company
or the applicable Subsidiary in accordance with their terms (subject to
applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and other laws affecting creditors’ rights generally, general
principles of equity and the discretion of courts in granting equitable
remedies), except to the extent any such Contract has expired pursuant to
its
terms and except for such failures to be valid, binding, in full force and
effect or enforceable that have not had and would not reasonably be likely
to
have, individually or in the aggregate, a Company Material Adverse Effect.
The
Company or the applicable Subsidiary has performed all obligations required
to
be performed by it to date under the Company Contracts, and it is not (with
or
without the lapse of time or the giving of notice, or both) in breach or
default
in any respect thereunder and, to the knowledge of Seller, no other party
to any
Company Contract is (with or without the lapse of time or the giving of notice,
or both) in breach or default in any respect thereunder, except for such
noncompliance, breaches and defaults that have not had and would not reasonably
be likely to have, individually or in the aggregate, a Company Material Adverse
Effect. Complete and correct copies of all material Company Contracts, together
with all modifications and amendments thereto, have been made available to
Purchaser.
SECTION
3.09. Insurance.
The
insurance policies maintained with respect to the Company and the Subsidiaries
and their respective assets and properties are set forth on Schedule 3.09.
All such policies are in full force and effect (other than those expiring
pursuant to their terms which have been replaced prior to expiration), all
premiums due and payable thereon have been paid (other than retroactive or
retrospective premium adjustments that are not yet, but may be, required
to be
paid with respect to any period ending prior to the Closing Date), and no
notice
of cancellation or termination has been received with respect to any such
policy
which has not been replaced prior to the date of such cancellation. Purchaser
acknowledges that all such insurance policies will terminate effective as
of the
close of business on the Closing Date and that such termination shall not
constitute a breach of this Section 3.09 or Section 5.01.
SECTION
3.10. Taxes. (a)
For
purposes of this Agreement:
“Code”
shall
mean the Internal Revenue Code of 1986, as amended.
17
“Income
Tax”
or
“Income
Taxes”
shall
mean all Taxes based upon, measured by, or calculated with respect to, (i)
gross
or net income or gross or net receipts or profits (including any capital
gains,
minimum taxes and any Taxes on items of tax preference, but not including
sales,
use, goods and services, real or personal property transfer or other similar
Taxes), (ii) multiple bases (including, but not limited to, corporate franchise,
doing business or occupation Taxes) if one or more of the bases upon which
such
Tax may be based upon, measured by, or calculated with respect to, is described
in clause (i) above or (iii) withholding taxes measured by, or calculated
with
respect to, any payments or distributions (other than wages).
“Post-Closing
Tax Period”
shall
mean any taxable period (or portion thereof) that begins on or after and
ends
after the Closing Date.
“Pre-Closing
Tax Period”
shall
mean all taxable periods (or portions thereof) beginning before and ending
on or
before the Closing Date.
“Tax”
or
“Taxes”
shall
mean all Federal, foreign, state, county, local, municipal and other taxes,
assessments, duties or similar charges of any kind whatsoever, including
all
corporate franchise, income, sales, use, ad valorem, receipts, value added,
profits, license, withholding, payroll, employment, excise, premium, property,
customs, net worth, capital gains, transfer, stamp, documentary, social
security, environmental, alternative minimum, occupation, recapture and other
taxes, and including all interest, penalties and additions imposed with respect
to such amounts, and all amounts payable pursuant to any Contract with respect
to Taxes.
“Tax
Return”
or
“Tax
Returns”
shall
mean all returns, declarations of estimated tax payments, reports, estimates,
information returns and statements, including any related or supporting
information with respect to any of the foregoing, filed or to be filed with
any
Taxing Authority in connection with the determination, assessment, collection
or
administration of any Taxes.
“Taxing
Authority”
shall
mean any domestic, foreign, federal, national, state, county or municipal
or
other local government, any subdivision, agency, commission or authority
thereof, or any quasi-governmental body exercising tax regulatory
authority.
(b)
(i)
The
Company and each Subsidiary, and any affiliated group, within the meaning
of
Section 1504 of the Code, and any affiliated, consolidated, combined, unitary
or
similar group for Tax purposes other than federal Income Tax purposes of
which
the Company or any Subsidiary is a member (any such group, for federal Income
Tax or other Tax purposes, an “Affiliated Group”), has filed or caused to be
filed in a timely manner (within any applicable extension periods) all material
Tax Returns required to be filed by the Code or by other applicable Tax laws,
(ii) all such Tax Returns are correct and complete in all material respects
to
the extent they relate to the Company and the Subsidiaries, (iii) all material
Taxes relating to the Company and the Subsidiaries with respect to taxable
periods covered by such material Tax Returns, and all other material Taxes
for
which the Company or any Subsidiary is liable, whether or not
18
reflected
on a Tax Return, have been timely paid in full or will be timely paid in
full by
the due date thereof and the provision for Taxes due (as opposed to any reserve
for deferred Taxes established to reflect temporary differences between book
and
Tax income) on the most recent audited financial statements for the Company
reflect an adequate reserve for all Taxes payable by the Company and the
Subsidiaries for all taxable periods and portions thereof through the date
of
such financial statements, (iv) there are no material Liens for Taxes with
respect to any of the assets or properties of the Company or any Subsidiary
and
(v) the Company and the Subsidiaries have withheld and paid all material
Taxes
required to have been withheld and paid in connection with amounts paid or
owing
to any employee, former employee, creditor, independent contractor, shareholder,
affiliate, customer, supplier or other third party.
(c)
As
of the
date hereof, no material Tax Return of the Company, any Subsidiary or any
Affiliated Group of which the Company or any Subsidiary is a member is under
audit or examination by any Taxing Authority, and no written or unwritten
notice
of such an audit or examination has been received by the Company or any
Subsidiary. No issues relating to Taxes were asserted in writing by any Taxing
Authority in any completed or current audit or examination that would reasonably
be expected to recur in a later taxable period. Neither the Company nor any
Subsidiary (or any Affiliated Group of which the Company or any Subsidiary
is a
member) has participated in a “reportable transaction” within the meaning of
Treasury Regulations Section 1.6011-4(b) or a “potentially abusive tax shelter”
within the meaning of Section 6112(b) of the Code.
(d)
Each
material deficiency resulting from any audit or examination relating to Taxes
of
the Company or any Subsidiary (including Taxes attributable to an Affiliated
Group) by any Taxing Authority has been timely paid. The relevant statute
of
limitations is closed with respect to the Federal Tax Returns of the
consolidated group of which the Company is a member for all years through
1999.
(e)
There
are
no outstanding agreements or waivers extending, or having the effect of
extending, the statutory period of limitation applicable to any material
Tax
Returns required to be filed with respect to any Affiliated Group of which
the
Company or any Subsidiary is a member.
(f)
Seller
is
not a “foreign person” within the meaning of Section 1445 of the Code. Neither
the Company nor any Subsidiary: (i) has made any payments, is obligated to
make
any payments, or is a party to any agreement that under certain circumstances
could require it to make any payments, that are not deductible under Section
280G of the Code; (ii) is a “United States real property holding corporation”
within the meaning of Section 897(c)(2) of the Code; (iii) has participated
in
or cooperated with an international boycott within the meaning of Section
999 of
the Code; (iv) is a party to any joint venture, partnership or other arrangement
that is treated as a partnership for federal Income Tax purposes; (v) has
received or is subject to any written ruling of a Taxing Authority related
to
Taxes or has entered into any written and legally binding agreement with
a
Taxing Authority relating to Taxes; or (vi) has waived any statute
of
limitations in respect of Taxes or agreed to any extension of time with respect
19
to
a Tax
assessment or deficiency. There are no accounting method changes, or proposed
or
threatened accounting method changes, of the Company or any Subsidiary that
could give rise to an adjustment under Section 481 of the Code for periods
after
the Closing Date. Neither the Company nor any Subsidiary has any liability
for
Taxes of any person or entity other than the Company or such Subsidiary
(w) as a result of the Company or any Subsidiary being a member of
an
Affiliated Group other than an Affiliated Group that includes the Seller
or
(x) as a transferee or successor.
SECTION
3.11. Proceedings.
Schedule
3.11 sets forth a list of each suit, action or proceeding (“Proceeding”)
that
is pending as of the date of this Agreement or, to the knowledge of Seller,
threatened in a writing received within two years prior to (and which threat
remains unresolved as of) the date of this Agreement and that (a) involves
a claim for more than $100,000, (b) seeks any material injunctive
relief
with respect to the business of the Company and the Subsidiaries or
(c) seeks any legal restraint on or prohibition against the transactions
contemplated by this Agreement. Neither the Company nor any Subsidiary is
a
party or subject to or in default under any material Judgment. Except as
set
forth in Schedule 3.11, as of the date hereof, there is no Proceeding
by
the Company or any Subsidiary pending against any other person.
SECTION
3.12. Benefit
Plans. (a)
Schedule 3.12(a)
contains a list of each bonus, pension, profit sharing, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock appreciation,
restricted stock, stock option, phantom stock, performance, retirement, thrift,
savings, stock bonus, cafeteria, paid time off, vacation, severance,
termination, retention, change of control, disability, death benefit,
hospitalization, medical or other welfare benefit or other plan or program,
whether written or oral, for the benefit of a single employee or more than
one
employee (a “Plan”),
including each “employee pension benefit plan” (as defined in Section 3(2) of
ERISA, whether or not subject to ERISA) (a “Pension
Plan”)
and
“employee welfare benefit plan” (as defined in Section 3(1) of ERISA, whether or
not subject to ERISA) (a “Welfare
Plan”),
in
each case maintained or contributed to, or required to be maintained or
contributed to, by the Company or any other person or entity that, together
with
the Company, is or was treated as a single employer under Section 414(b),
(c),
(m) or (o) of the Code (each, together with the Company, a “Commonly
Controlled Entity”),
for
the benefit of any present or former director, officer or employee of the
Company or any Subsidiary (all the foregoing being herein called “Benefit
Plans”).
Each
Benefit Plan maintained and sponsored solely by the Company and/or any
Subsidiary or expressly assumed by Purchaser pursuant to Applicable Law or
this
Agreement is referred to herein as a “Company
Benefit Plan”.
Each
Benefit Plan other than a Company Benefit Plan is referred to herein as a
“Seller
Benefit Plan”.
Seller
has made available to Purchaser complete and correct copies of (i) each Benefit
Plan (or, in the case of any unwritten Benefit Plans, descriptions thereof),
(ii) the most recent annual report on Form 5500 (including all schedules
and
attachments thereto) filed with the Internal Revenue Service with respect
to
each Benefit Plan (if any such report was required by Applicable Law), (iii)
the
most recent summary plan description (or similar document) for each Benefit
Plan
for which such a summary plan description is required by Applicable Law or
was
otherwise provided to plan participants or beneficiaries, (iv) each trust
agreement and insurance or annuity contract or other funding or financing
arrangement relating to any
20
Benefit
Plan and (v) the most recent actuarial valuation report for each Company
Benefit
Plan that is a defined benefit pension plan.
(b)
Each
of
the WRC Media Inc. 401(k) plan (“Seller’s
401(k) Plan”)
and
each Company Benefit Plan has been administered in all material respects
in
accordance with its terms and is in compliance in all material respects with
the
applicable provisions of ERISA, the Code, all other Applicable Laws and the
terms of all applicable collective bargaining agreements. Except as has not
had
or could not reasonably be expected to have, individually or in the aggregate,
a
Company Material Adverse Effect, there are no investigations by any Governmental
Entity, termination proceedings or other claims (except routine claims for
benefits payable under the Company Benefit Plans or Seller’s 401(k) Plan) or
Proceedings against or involving any Company Benefit Plan or Seller’s 401(k)
Plan that could give rise to any liability.
(c)
There
has
been no application for waiver or waiver of the minimum funding standards
imposed by Section 412 of the Code with respect to any Company Benefit Plan
that
is a Pension Plan (a “Company
Pension Plan”).
No
Company Pension Plan has or had at any time during the current year an
“accumulated funding deficiency” within the meaning of Section 412(a) of the
Code.
(d)
Each
of
Seller’s 401(k) Plan and each Company Pension Plan intended to be qualified
under Section 401(a) of the Code, and the trust (if any) forming a part thereof,
(i) has received a determination letter from the Internal Revenue
Service
as to its qualification under Section 401(a) of the Code and to the effect
that
each such trust is exempt from taxation under Section 501(a) of the Code;
no
such determination letter has been revoked, and, to the knowledge of Seller
and
the Company, revocation has not been threatened; and (ii) has at all
times
during the past two years been so qualified. Seller has made available to
Purchaser a copy of the most recent determination letter received with respect
to Seller’s 401(k) Plan and each Company Pension Plan for which such a letter
has been issued.
(e)
Except
as
has not have and could not reasonably be expected to have, individually or
in
the aggregate, a Company Material Adverse Effect, no Commonly Controlled
Entity
has incurred or would be reasonably expected to incur any actual or contingent
liability to the Pension Benefit Guaranty Corporation (other than for the
payment of premiums not yet due) that has not been fully paid as of the date
hereof.
(f)
No
Commonly Controlled Entity is required to contribute to any “multiemployer plan”
(as defined in Section 4001(a)(3) of ERISA), no Benefit Plan is a multiemployer
plan, and no employee benefit plan (that would be treated as a Benefit Plan
if
it were still in existence) has been terminated within the six years prior
to
the date hereof, the liabilities of which have not been satisfied in
full.
(g)
No
Company Benefit Plan that is a Welfare Plan provides benefits after termination
of employment, except where the cost thereof is borne entirely by the former
employee (or his eligible dependents or beneficiaries) or as required by
Section
4980B(f) of the Code or any similar Applicable Law.
21
(h)
No
employee of the Company or any Subsidiary will be entitled to any additional
compensation, severance or other benefits or any acceleration of the time
of
payment or vesting of any compensation, severance or other benefits as a
result
of the transactions contemplated by this Agreement (alone or in combination
with
any other event). Neither the execution and delivery of this Agreement, nor
the
consummation of any transaction contemplated by this Agreement will trigger
any
funding (through a grantor trust or otherwise) of any compensation, severance
or
other benefits under any Company Benefit Plan.
(i)
Except
as
disclosed on Schedule 3.12(i), no Company Benefit Plan is described
in
Section 401(a)(1) of ERISA. The obligations under each such Company
Benefit
Plan described in Section 401(a)(1) of ERISA are fully funded by assets
that are held in the “rabbi” trusts that are identified on
Schedule 3.12(i).
SECTION
3.13. Absence
of Changes or Events.
Since
the date of the Unaudited Balance Sheet, there has not been any Company Material
Adverse Effect, nor has there been any event that would be reasonably likely
to
have, individually or in the aggregate, a Company Material Adverse Effect.
Purchaser acknowledges that there may have been or may be disruption to the
Company’s and the Subsidiaries’ business as a result of the announcement by
Seller of its intention to sell the Company or the execution of this Agreement
and the consummation of the transactions contemplated hereby, and Purchaser
acknowledges that such disruptions do not and shall not constitute a breach
of
this Section 3.13 or Section 5.01. Since the date of the Unaudited
Balance Sheet, the business of the Company and the Subsidiaries has been
conducted in the ordinary course and in substantially the same manner as
previously conducted. Since the date of the Unaudited Balance Sheet to the
date
of this Agreement, neither the Company nor any Subsidiary has taken any action
that, if taken after the date of this Agreement, would constitute a breach
of
Section 5.01.
SECTION
3.14. Compliance
with Applicable Laws. (a)
The
Company and the Subsidiaries are in compliance with all Applicable Laws,
except
for instances of noncompliance that have not had and would not reasonably
be
likely to have, individually or in the aggregate, a Company Material Adverse
Effect. None of Seller, the Company and the Subsidiaries has received any
written communication during the past twelve months from a Governmental Entity
that alleges that the Company or a Subsidiary is not in compliance in any
respect with any Applicable Law, which allegation if proven would reasonably
be
likely to have, individually or in the aggregate, a Company Material Adverse
Effect. The Company and the Subsidiaries are in material compliance with
all
governmental qualifications, registrations, licenses, permits, approvals,
consents or other authorizations from a Governmental Entity (“Permits”)
required for the operation of the businesses of the Company and the Subsidiaries
as currently conducted, except for any failures to be in compliance that
have
not had and would not be reasonably likely to have, individually or in the
aggregate, a Company Material Adverse Effect. This Section 3.14(a)
does not
relate to matters with respect to Taxes, which are the subject of
Section 3.10, or to environmental matters, which are the subject of
Section 3.14(b).
22
(b)
Except
for matters that would not reasonably be likely to have a Company Material
Adverse Effect, (i) the Company and the Subsidiaries are in compliance
with
Environmental Laws, (ii) the Company and the Subsidiaries hold, and
are in
compliance with, all material Permits required under Environmental Laws for
the
Company and the Subsidiaries to conduct their respective business operations,
(iii) the Company and the Subsidiaries have not entered into or agreed
to
any court decree or order, are not subject to any Judgment, and have not
received any written notices or complaints relating to compliance with, or
liability under, any Environmental Law, (iv) no releases of Hazardous
Materials have occurred at, from, in, to, on or under any property currently
or,
to Seller’s knowledge, formerly owned, operated or leased by the Company or any
Subsidiary or any current or, to Seller’s knowledge, former subsidiary thereof
which releases would be reasonably likely to result in liability to the Company
or any Subsidiary, and (v) neither the Company or any Subsidiary,
any
current or, to Seller’s knowledge, former subsidiary thereof, nor, to Seller’s
knowledge, any predecessor of any of the foregoing has transported or arranged
for the treatment, storage, disposal or transportation of any Hazardous
Materials to any off-site location which would be reasonably likely to result
in
liability to the Company or any Subsidiary. The term “Environmental
Laws”
means
all Applicable Laws or Judgments relating to the environment, preservation
or
reclamation of natural resources, the protection of human health or worker
health and safety, or the management, use, handling, generation, treatment,
storage, transportation, disposal, labeling, release, threatened release
of or
exposure of any Person to Hazardous Materials. The term “Hazardous
Materials”
means
(1) any radioactive materials or wastes, petroleum (including crude
oil or
any fraction thereof) or asbestos containing materials and (2) any
other
wastes, materials, chemicals or substances regulated pursuant to any
Environmental Law.
SECTION
3.15. Transactions
with Affiliates.
None of
the Contracts set forth in Schedule 3.08(a) between the Company or
any
Subsidiary, on the one hand, and Seller or any of its affiliates (other than
the
Company and the Subsidiaries), on the other hand, will continue in effect
subsequent to the Closing. After the Closing none of Seller, any affiliates
of
Seller (other than the Company and the Subsidiaries) or PRIMEDIA Inc. will
have
any material interest in any property (real or personal, tangible or intangible)
or Contract of the Company or any Subsidiary or used in or pertaining to
their
business.
SECTION
3.16. Accounts;
Safe Deposit Boxes; Officers and Directors.
Schedule 3.16 sets forth (i) a true and correct list of all
bank and
savings accounts, certificates of deposit and safe deposit boxes of the Company
and the Subsidiaries and those persons authorized to sign thereon, and
(ii) a true and correct list of all officers and directors of the
Company
and the Subsidiaries.
SECTION
3.17. Interests
in Assets.
Seller
and its affiliates, other than the Company and the Subsidiaries, do not own
any
asset used in the conduct of the businesses of the Company and the Subsidiaries,
except for assets used to provide corporate level services to the
Company.
23
ARTICLE
IV
Representations
and Warranties of Purchaser
Purchaser
hereby represents and warrants to Seller as follows:
SECTION
4.01. Organization,
Standing and Power.
Purchaser is duly organized, validly existing and in good standing under
the
laws of the jurisdiction in which it is organized and has full corporate
power
and authority and possesses all governmental franchises, licenses, permits,
authorizations and approvals necessary to enable it to own, lease or otherwise
hold its properties and assets and to carry on its business as presently
conducted, other than such franchises, licenses, permits, authorizations
and
approvals the lack of which have not had and would not reasonably be likely
to
have a material adverse effect on the ability of Purchaser to consummate
the
Acquisition (a “Purchaser
Material Adverse Effect”).
SECTION
4.02. Authority;
Execution and Delivery; and Enforceability.
Purchaser has full corporate power and authority to execute this Agreement
and
the Ancillary Agreements to which it is, or is specified to be, a party and
to
consummate the Acquisition and the other transactions contemplated hereby
and
thereby. The execution and delivery by Purchaser of this Agreement and the
Ancillary Agreements to which it is, or is specified to be, a party and the
consummation by Purchaser of the Acquisition and the other transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action. Purchaser has duly executed and delivered this Agreement
and
at or prior to the Closing will have duly executed and delivered each Ancillary
Agreement to which it is, or is specified to be, a party, and this Agreement
constitutes, and each Ancillary Agreement to which it is, or is specified
to be,
a party will after the Closing constitute, its legal, valid and binding
obligation, enforceable against it in accordance with its terms.
SECTION
4.03. No
Conflicts; Consents.
The
execution and delivery by Purchaser of this Agreement do not, the execution
and
delivery by Purchaser of each Ancillary Agreement to which it is, or is
specified to be, a party will not, and the consummation of the Acquisition
and
the other transactions contemplated hereby and thereby and compliance by
Purchaser with the terms hereof and thereof will not conflict with, or result
in
any violation of or default (with or without notice or lapse of time, or
both)
under, or give rise to a right of termination, cancellation or acceleration
of
any obligation or to loss of a material benefit under, or result in the creation
of any Lien upon any of the properties or assets of Purchaser or any of its
subsidiaries under, any provision of (i) the certificate of incorporation
or by-laws of Purchaser or any of its subsidiaries, (ii) any Contract
to
which Purchaser or any of its subsidiaries is a party or by which any of
their
respective properties or assets is bound or (iii) any Judgment or
Applicable Law applicable to Purchaser or any of its subsidiaries or their
respective properties or assets, other than, in the case of clauses (ii)
and
(iii) above, any such items that have not had and would not reasonably be
likely
to have a Purchaser Material Adverse Effect. No Consent of or registration,
declaration or filing with any Governmental Entity is required to be obtained
or
made by or with respect to Purchaser or any of its subsidiaries in connection
24
with
the
execution, delivery and performance of this Agreement or any Ancillary Agreement
or the consummation of the Acquisition or the other transactions contemplated
hereby and thereby, other than (A) compliance with and filings under
the
HSR Act, (B) compliance with and filings under Section 13(a)
of the
Exchange Act and (C) those that may be required solely by reason of
the
participation of Seller (as opposed to any other third party) in the Acquisition
and other transactions contemplated hereby and by the Ancillary
Agreements).
SECTION
4.04. Litigation.
There
are not any (a) outstanding Judgments against Purchaser or any of
its
subsidiaries, (b) Proceedings pending or, to the knowledge of Purchaser,
threatened against Purchaser or any of its subsidiaries or
(c) investigations by any Governmental Entity that are, to the knowledge
of
Purchaser, pending or threatened against Purchaser or any of its subsidiaries
that, in any case have had or would reasonably be likely to have a Purchaser
Material Adverse Effect.
SECTION
4.05. Securities
Act.
The
Shares purchased by Purchaser pursuant to this Agreement are being acquired
for
investment only and not with a view to any public distribution thereof, and
Purchaser shall not offer to sell or otherwise dispose of the Shares so acquired
by it in violation of any of the registration requirements of the Securities
Act.
SECTION
4.06. Availability
of Funds.
Purchaser has cash available or has existing borrowing facilities that are
sufficient to enable it to consummate the Acquisition. Any financing required
to
consummate the Acquisition is referred to in this Agreement as the “Financing”.
Purchaser does not have any reason to believe that any of the conditions
to the
Financing will not be satisfied or that the Financing will not be available
to
Purchaser on a timely basis to consummate the Acquisition.
ARTICLE
V
Covenants
SECTION
5.01. Covenants
Relating to Conduct of Business. (a)
Except
for matters set forth in Schedule 5.01 or otherwise contemplated by
the
terms of this Agreement, including any actions taken in furtherance of the
separation of the Company and the Subsidiaries from Seller and its other
affiliates, from the date of this Agreement to the Closing, Seller shall
cause
the businesses of the Company and the Subsidiaries to be conducted in the
usual,
regular and ordinary course in substantially the same manner as previously
conducted and, to the extent consistent therewith, use commercially reasonable
efforts to keep intact their respective businesses, keep available the services
of their current employees and preserve their relationships with customers,
suppliers, licensors, licensees, distributors and others with whom they deal
to
the end that their respective businesses shall not be materially impaired
at the
Closing; provided,
however,
that
Seller shall not be obligated to, directly or indirectly, provide any funds
to
the Company or any Subsidiary. In addition (and without limiting the generality
of the foregoing), except as set forth in Schedule 5.01 or otherwise
contemplated by the terms
25
of
this
Agreement, Seller shall not permit the Company or any Subsidiary to do any
of
the following without the prior written consent of Purchaser:
(i)
amend
its
certificate of incorporation, by-laws or comparable governing
instruments;
(ii)
declare
or pay any dividend or make any other distribution to its stockholders;
provided,
however,
that
(A) Purchaser acknowledges that the Company and the Subsidiaries do
not
maintain cash balances and, at or prior to the close of business on the day
immediately preceding the Closing Date, Seller will withdraw any cash balances
of the Company and the Subsidiaries and (B) dividends and distributions
may
continue to be made by the Subsidiaries to the Company;
(iii)
redeem
or
otherwise acquire any shares of its capital stock or issue any capital stock
or
any option, warrant or right relating thereto or any securities convertible
into
or exchangeable for any shares of capital stock; provided,
however,
that
any Subsidiary may redeem or otherwise acquire shares of its capital
stock;
(iv)
(A)
adopt
or amend in any material respect any Company Benefit Plan (or any plan that
would be a Company Benefit Plan if adopted) or (B) enter into, adopt, extend
(beyond the Closing Date), renew or amend any collective bargaining agreement
or
other Contract with any labor organization, union or association, except
in each
case as required by Applicable Law; provided
that
Seller may adopt or amend any Benefit Plan if the cost to Seller or its
subsidiaries (including the Company) and affiliates of providing the benefits
thereunder is not materially increased;
(v)
grant
to
any employee of the Company or any Subsidiary whose annual base salary exceeds
$100,000 annually as of the date hereof any increase in compensation or
benefits, except in the ordinary course of business and consistent with past
practice or as may be required under existing agreements or Applicable Law
and
except for any bonuses or other compensation in connection with the sale
of the
Company for which Seller shall be solely obligated;
(vi)
incur
or
assume any indebtedness for borrowed money or guarantee any such indebtedness,
other than under the revolving facility under the Credit Facilities, or incur
any other liabilities or obligations other than in the ordinary course of
business consistent with past practice;
(vii)
grant
any
Lien on any of its assets that would have been required to be set forth in
Schedule 3.05(a) or 3.06 if existing on the date of this
Agreement;
26
(viii)
pay,
loan
or advance any amount to, or sell, transfer or lease any of its assets to,
or
enter into any agreement or arrangement with, Seller or any of its affiliates,
except for (A) transactions among the Company and the Subsidiaries,
(B) dividends and distributions permitted under clause (ii)
above and
(C) intercompany transactions in the ordinary course of business consistent
with past practice;
(ix)
make
any
material change in any method of accounting or accounting practice or policy
other than those required by GAAP;
(x)
acquire
by merging or consolidating with, or by purchasing a substantial portion
of the
assets or capital stock of or other equity interests in, or by any other
manner,
any business or any corporation, partnership, association or other business
organization or division thereof or otherwise acquire any assets (other than
inventory or Intellectual Property) that are material;
(xi)
make
or
incur any capital expenditure that is not currently approved in writing or
budgeted and that, individually, is in excess of $250,000 or make or incur
any
such expenditures which, in the aggregate, are in excess of
$500,000;
(xii)
sell,
lease, license or otherwise dispose assets, except in the ordinary course
of
business and consistent with past practice;
(xiii)
enter
into any lease of real property or exercise any material option under any
lease,
except any renewals or extensions of existing leases in the ordinary course
of
business and consistent with past practice (after consulting with Purchaser),
or
demolish or materially alter any Leased Property, except as required by the
applicable Lease or Applicable Law;
(xiv)
modify,
amend, terminate or permit the lapse of any lease of, or reciprocal easement
agreement, operating agreement or other material agreement relating to, real
property (except modifications or amendments associated with renewals of
existing leases in the ordinary course of business and consistent with past
practice (after consultation with Purchaser) and except for the lapse of
any
lease set forth in Schedule 3.06 in accordance with its
terms);
(xv)
make,
revoke or change any Tax election, adopt or change any Tax accounting method
or
period, file any amended Tax Return or settle any Tax claim or assessment,
if
any such action could reasonably be expected to have the effect of materially
increasing the Tax liability of Purchaser, the Company or any Subsidiary
during
any Post-Closing Period; or
27
(xvi)
authorize
any of, or commit or agree to take, whether in writing or otherwise, to do
any
of, the foregoing actions.
(b)
Insurance.
Seller
shall keep, or cause to be kept, all insurance policies set forth in
Schedule 3.09 or suitable replacements therefor, in full force and
effect
through the close of business on the Closing Date. Any and all insurance
policies maintained with respect to the Company and the Subsidiaries and
their
respective assets and properties are owned and maintained by Seller and its
affiliates (other than the Company and the Subsidiaries), and none of Purchaser,
the Company or any Subsidiary will have any rights under any such insurance
policies from and after the Closing Date; provided,
however,
that
with respect to workers compensation, general liability and umbrella (to
the
extent relating to workers compensation and general liability coverage)
insurance coverage written on an “occurrence basis”, to the extent the Company
or a Subsidiary was an insured under such policies and the events giving
rise to
a claim under such policies occurred prior to 11:59 p.m. on the day immediately
preceding the Closing Date, Seller agrees to cooperate with Purchaser, the
Company and any Subsidiary in making claims under Seller’s insurance policies
with respect to such insurable events that occurred prior to 11:59 p.m. on
the
day immediately preceding the Closing Date, and shall remit any recoveries
relating thereto promptly to Purchaser. After the Closing, Seller agrees
to
cooperate with Purchaser, the Company and any Subsidiary in the submission
of
any claim by the Company or any Subsidiary under Seller Parent’s errors and
omissions, directors and officers and umbrella (to the extent relating to
errors
and omissions) insurance policies, to the extent that the events giving rise
to
such claim under such policies occurred prior to 11:59 p.m. on the
day
immediately preceding the Closing Date (it being understood that neither
Seller
Parent nor any of its affiliates shall be obligated to continue in effect
or
maintain policies providing such insurance) and Seller agrees to remit any
recoveries relating thereto promptly to Purchaser.
SECTION
5.02. Access
to Information.
Seller
shall, and shall cause the Company and the Subsidiaries to, afford to Purchaser
and its accountants, counsel and other representatives reasonable access,
upon
reasonable notice, during normal business hours during the period prior to
the
Closing, to the management, employees, properties, books, Contracts, Tax
Returns
and records of the Company and the Subsidiaries, and, during such period
shall
furnish promptly to Purchaser any information concerning the Company or a
Subsidiary as Purchaser may reasonably request; provided,
however,
that
such access does not unreasonably disrupt the normal operations of the Company
and the Subsidiaries. During the period commencing on the date of this Agreement
and ending at the time of the Closing, Seller shall inform, without
representation or warranty, Purchaser of the commencement of any Proceeding
or
receipt of written notice of any threat of a Proceeding which, had such
Proceeding been commenced or written notice been received prior to the date
of
this Agreement, would have been required to be disclosed on Schedule
3.11.
SECTION
5.03. Confidentiality. (a)
Purchaser
acknowledges that the information being provided to it in connection with
the
Acquisition and the consummation of the other transactions contemplated hereby
is subject to the terms of a confidentiality agreement between Purchaser
and WRC
Media Inc. dated January 21,
28
2005
(the
“Confidentiality
Agreement”),
the
terms of which are incorporated herein by reference. Effective upon, and
only
upon, the Closing, the Confidentiality Agreement shall terminate with respect
to
information relating solely to the Company and the Subsidiaries; provided,
however,
that
Purchaser acknowledges that any and all other information provided to it
by
Seller, its affiliates or their representatives concerning Seller and its
affiliates (other than the Company and the Subsidiaries) shall remain subject
to
the terms and conditions of the Confidentiality Agreement after the Closing
Date.
(b)
From
and
after the Closing Date until the date that is the second anniversary of
the
Closing Date, Seller shall, and shall cause its affiliates to, keep confidential
any information relating to the Company or any Subsidiary except for any
such
information that (i) is available to the public on the Closing Date, (ii)
thereafter becomes available to the public other than as a result of a
disclosure by Seller or any of its affiliates, or (iii) is or becomes available
to Seller or any of its affiliates on a non-confidential basis from a source
other than the Company or any of its affiliates, provided that such source
is
not known by Seller to bound by a confidentiality agreement with or other
obligation of secrecy to the Company or any of its affiliates.
Should
Seller or any affiliate thereof be required to disclose any such information
in
response to legal or administrative process, it shall inform Purchaser
in
writing of such request or obligation as soon as possible and, if possible,
before any information is disclosed, so that a protective order or other
appropriate remedy may be obtained by Purchaser. If Seller or any
affiliate thereof is obligated to make such disclosure, it may make such
disclosure only to the extent to which it is so obligated, but not further
or
otherwise.
(c)
At
the
Closing, Seller shall assign, or cause to be assigned, to Purchaser all
confidentiality, nondisclosure or similar agreements executed by or on behalf
of
Seller or any affiliate thereof in connection with the possible sale of the
Company, to the extent that (A) the Company is not a party to such
agreements and (B) such agreements are assignable to Purchaser.
SECTION
5.04. Commercially
Reasonable Efforts. (a)
On
the
terms and subject to the conditions of this Agreement, each party shall use
its
commercially reasonable efforts to cause the Closing to occur, including
(i) taking all reasonable actions necessary to comply promptly with
all
legal requirements that may be imposed on it or any of its affiliates with
respect to the Closing and (ii) in the case of Seller, using commercially
reasonable efforts to cause the conditions set forth in Sections 6.01(c)
and 6.03(d) to be satisfied.
(b)
Each
of
Seller and Purchaser shall as promptly as practicable, but in no event later
than ten business days following the execution and delivery of this Agreement,
file with the United States Federal Trade Commission (the “FTC”)
and
the United States Department of Justice (the “DOJ”)
the
notification and report form, if any, required for the transactions contemplated
hereby and any supplemental information requested in connection therewith
pursuant to the HSR Act. Any such notification and report form and supplemental
information shall be in substantial compliance with the requirements of the
HSR
Act. Each of Seller and Purchaser shall furnish to the other
29
such
necessary information and reasonable assistance as the other may request
in
connection with its preparation of any filing or submission that is necessary
under the HSR Act. Seller and Purchaser shall keep each other apprised
of the
status of any communications with, and any inquiries or requests for additional
information from, the FTC and the DOJ and shall comply promptly with any
such
inquiry or request and shall promptly provide any supplemental information
requested in connection with the filings made hereunder pursuant to the
HSR Act.
Any such supplemental information shall be in substantial compliance with
the
requirements of the HSR Act. Each party shall use its commercially reasonable
efforts to obtain any clearance required under the HSR Act for the consummation
of the transactions contemplated by this Agreement. For purposes of this
Section
5.04, the “commercially reasonable efforts” of Purchaser shall include (i)
opposing any motion or action for a temporary, preliminary or permanent
injunction against the Acquisition and (ii) entering into a consent decree
containing Purchaser’s agreement to hold separate and divest (pursuant to terms
required by any Governmental Entity) the products and assets of the Company
and
the Subsidiaries or Purchaser and its affiliates, as the case may be, as
required by any Governmental Entity; provided, however, that
Purchaser’s obligations in such regard shall not preclude Purchaser from seeking
in good faith to negotiate the terms of any such consent decree so as to
minimize any adverse impact to the business of the Company or Purchaser
or
both.
(c)
Purchaser
acknowledges that consents and waivers with respect to the transactions
contemplated by this Agreement and the Ancillary Agreements may be required
from
parties to Contracts to which the Company or any of the Subsidiaries is a
party,
including certain of the Contracts listed on the Disclosure Schedule or with
respect to other assets and that such consents and waivers have not been
obtained. Purchaser agrees that Seller shall not have any liability whatsoever
to Purchaser arising out of or relating to the failure to obtain any consents
or
waivers that may be required in connection with the transactions contemplated
by
this Agreement or the Ancillary Agreements or because of the termination
of any
Contract as a result thereof. Purchaser further agrees that no representation,
warranty or covenant of Seller contained herein shall be breached or deemed
breached, and no condition shall be deemed not satisfied, as a result of
(a) the failure to obtain any such consent or waiver, (b) any
such
termination or (c) any lawsuit, action, proceeding or investigation
commenced or threatened by or on behalf of any person arising out of or relating
to the failure to obtain any such consent or any such termination.
Notwithstanding that any such consent is not obtained prior to the Closing,
the
Closing shall take place on the terms set forth herein. The provisions of
this
Section 5.04 do not modify the representations and warranties contained
in
Sections 2.03 or 3.03, nor do they limit the applicability of the condition
set
forth in Section 6.02(a).
SECTION
5.05. Expenses;
Transfer Taxes. (a)
Whether
or not the Closing takes place, and except as set forth in
Sections 5.09(b), all costs and expenses incurred in connection with
this
Agreement and the Ancillary Agreements and the transactions contemplated
hereby
and thereby shall be paid by the party incurring such expense, including
all
costs and expenses incurred pursuant to Sections 1.04 (except as provided
in Section 1.04(b)), and, in the event the Closing takes place, all such
out-of-pocket costs and expenses incurred by the Company shall be paid or
reimbursed by Seller.
30
(b)
All
Transfer Taxes applicable to the transfer of the Shares shall be shared equally
by Seller and Purchaser. Each party shall use reasonable efforts to avail
itself
of any available exemptions from any such Taxes, and to cooperate with the
other
parties in providing any information and documentation that may be necessary
to
obtain such exemptions.
SECTION
5.06. Brokers
or Finders.
Each of
Purchaser and Seller represents, as to itself and its affiliates, that no
agent,
broker, investment banker or other firm or person is or will be entitled
to any
broker’s or finder’s fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement, except, as to
Seller, Xxxxxxx, Xxxxx & Co., whose fees and expenses will be paid by
Seller.
SECTION
5.07. Tax
Matters. (a)
Return
Filings.
For any
taxable period of the Company or any Subsidiary that ends on or before the
Closing Date, Seller shall be responsible for timely preparing and filing
with
the appropriate authorities all Federal Income Tax Returns (including amended
Returns required to be filed as a result of examination adjustments) and
all
other Tax Returns with respect to Income Taxes for which the Company or any
Subsidiary is a member of an Affiliated Group, each of which shall be prepared
in a manner consistent with past practice except to the extent required by
law,
and shall pay all Taxes due with respect to such Tax Returns (including as
a
result of an audit or examination of any such Tax Return). Purchaser shall
be
responsible for preparing and filing with the appropriate authorities all
other
Tax Returns of the Company or any Subsidiary and shall pay all Taxes due
with
respect to all other such Tax Returns.
(b)
Straddle
Period.
For any
taxable period of the Company or any Subsidiary that includes, but does not
end
on, the Closing Date (the “Straddle
Period”),
Purchaser shall timely file and prepare with the appropriate authorities
all Tax
Returns required to be filed, with the consultation of the Seller, and shall
pay
all Taxes due with respect to such Tax Returns; provided, however, that Seller
shall reimburse Purchaser for any amount owed by Seller with respect to a
Pre-Closing Tax Period covered by such Tax Returns (as determined in accordance
with Section 9.01(d)), such reimbursement to be made by Seller to Purchaser
not
later than five business days before the due date (including any extension
thereof) for payment of Taxes with respect to such Tax Return (or, if later,
five business days after receipt of a copy of such Tax Return, in final draft
form, from Purchaser).
(c)
Cooperation.
Seller
and Purchaser shall reasonably cooperate, and shall cause their respective
affiliates, officers, employees, agents, auditors and representatives reasonably
to cooperate, in preparing and filing all Tax Returns, including maintaining
and
making available to each other all records necessary in connection with Taxes
and in resolving all disputes and audits with respect to all taxable periods
relating to Taxes. Seller and its affiliates, on the one hand, and Purchaser
and
its affiliates (including the Company and the Subsidiaries), on the other
hand,
will need access, from time to time, after the Closing Date, to certain
accounting and Tax records and information held by the Company and the
Subsidiaries, on the one hand, or the Seller or
31
its
affiliates, on the other hand, to the extent such records and information
pertain to the Company and the Subsidiaries and relate to events occurring
prior
to the Closing Date. Therefore, each of the Seller and Purchaser shall (or
the
Purchaser shall cause the Company and Subsidiaries to) (i) use its reasonable
best efforts to properly retain and maintain such records until such time
as
each party agrees that such retention and maintenance is no longer necessary
and
(ii) allow each party and its agents and representatives (and agents or
representatives of any of its affiliates), at times and dates mutually
acceptable to the parties, to inspect, review and make copies of such records
as
each party may deem necessary or appropriate from time to time, such activities
to be conducted during normal business hours and at the other party’s expense.
Each such party shall make its employees available on a mutually convenient
basis to provide explanations of any documents or information provided
hereunder.
(d)
Refunds
and Credits.
Any
refund or credit of Federal Income Taxes of the Company or any Subsidiary,
or of
any other Tax, for any taxable period ending on or before the Closing Date
shall
be for the account of the Seller. Any other refund or credit of any other
Tax is
for the account of the Purchaser. Following the Closing, the Company and
the
Subsidiaries shall make an election under Section 172(b)(3) of the Code (or
any
comparable provision under state or local laws) to forego the carryback of
net
operating losses of the Company or the Subsidiaries to any Pre-Closing Tax
Period.
(e)
Tax
Sharing Agreements.
Seller
shall cause the provisions of any Tax sharing agreement between (i) Seller
or
any of its affiliates (other than the Company and the Subsidiaries) and (ii)
the
Company or any Subsidiary to be terminated on or before the Closing Date.
After
the Closing Date, no party shall have any rights or obligations under any
such
Tax sharing agreement.
(f)
338
Elections.
Purchaser and Seller shall not make an election under Section 338(h)(10)
of the
Code (or any comparable election under state or local Tax laws). Purchaser
shall
not make an election under Section 338(g) of the Code (or any comparable
election under state or local Tax laws).
(g)
Closing
Date.
On the
Closing Date, and subject to the transactions contemplated by this Agreement,
Purchaser shall cause the Company and each Subsidiary to conduct its business
in
the ordinary course in substantially the same manner as presently conducted
and
on the Closing Date shall not permit the Company or any Subsidiary to effect
any
extraordinary transactions (other than any such transactions expressly required
by Applicable Law or expressly contemplated by this Agreement) that could
result
in Tax liability to the Company or any Subsidiary in excess of Tax liability
associated with the conduct of its business in the ordinary course.
SECTION
5.08. Supplemental
Disclosure.
Seller
shall have the continuing obligation until the Closing promptly to supplement
or
amend the Schedules with respect to any matter hereafter arising or discovered
that, if existing or known at the date of this Agreement, would have been
required to be set forth or described in the Schedules; provided,
however,
that
for the purpose of the rights and obligations of the parties under this
Agreement (including satisfaction of the condition set forth in Section
32
6.02(a)),
any such supplemental or amended Schedule shall not be deemed to have been
disclosed as of the date of this Agreement or as of the Closing Date unless
so
agreed in writing by Purchaser.
SECTION
5.09. Post-Closing
Cooperation. (a)
After
the Closing, upon reasonable written notice, Seller and Purchaser shall
(i) furnish or cause to be furnished to each other and their affiliates
and
their respective employees, counsel, auditors and representatives access,
during
normal business hours, to such information and assistance relating to the
Company and the Subsidiaries (to the extent within the control of such party)
as
is reasonably necessary for financial reporting and accounting matters, (ii)
cooperate in good faith and use commercially reasonable efforts to effect
the
transition of customers, suppliers and owners of Intellectual Property used
by
or licensed to the Company or any Subsidiary (it being understood that Seller
maintains little, if any, relationship with such customers, suppliers and
owners
of Intellectual Property), (iii) cooperate in good faith and use commercially
reasonable efforts to provide to Purchaser and the Company the benefits of
the
indemnity respecting environmental matters set forth in that certain Redemption,
Stock Purchase and Recapitalization Agreement dated as of August 13, 1999
between PRIMEDIA Inc. and WRC Media Inc. (then known as EAC II Inc.), and
(iv) execute and deliver to such other party such other instruments
of
sale, transfer, conveyance, assignment and confirmation, and take such other
actions, as may be reasonably requested by the other party in furtherance
of the
transactions contemplated hereby.
(b)
Each
party shall reimburse the other for reasonable out-of-pocket costs and expenses
incurred in assisting the other pursuant to this Section 5.09. Neither
party shall be required by this Section 5.09 to take any action that
would
unreasonably interfere with the conduct of its business or unreasonably disrupt
its normal operations (or, in the case of Purchaser, those of the Company
and
the Subsidiaries).
SECTION
5.10. Publicity.
From the
date hereof through the Closing Date, no public release or announcement
concerning the transactions contemplated hereby shall be issued by any party
without the prior consent of the other party (which consent shall not be
unreasonably withheld), except as such release or announcement may be required
by law or the rules or regulations of any securities exchange, in which case
the
party required to make the release or announcement shall allow the other
party
reasonable time to comment on such release or announcement in advance of
such
issuance; provided,
however,
that
each of Seller and Purchaser may make internal announcements to their
respective, and their respective affiliates’, employees that are consistent with
the parties’ prior public disclosures regarding the transactions contemplated
hereby.
SECTION
5.11. Records.
On the
Closing Date, Seller shall deliver or cause to be delivered to Purchaser
all
material agreements, documents, books, records and files, including records
and
files stored on computer disks or tapes or any other storage medium
(collectively, “Records”),
if
any, in the possession of Seller relating to the business and operations
of the
Company and the Subsidiaries to the extent not then in the possession of
the
Company and the Subsidiaries, subject to the following exceptions:
33
(i)
Purchaser
recognizes that certain Records may contain information relating to the Company
and the Subsidiaries and may relate to subsidiaries, divisions, businesses
or
affiliates of Seller other than the Company and the Subsidiaries, and that
Seller may retain such Records and shall provide copies of the relevant portions
thereof to Purchaser;
(ii)
Seller
may retain all Records prepared in connection with the sale of the Shares,
including bids received from other parties and analyses relating to the Company
and the Subsidiaries; and
(iii)
Seller
may retain any Tax Returns, and Purchaser shall be provided with copies of
such
Tax Returns that relate to the Company’s and the Subsidiaries’ separate Tax
Returns or separate Tax liability.
SECTION
5.12. Support
Services.
Seller
and certain of its affiliates (other than the Company and the Subsidiaries)
provide the Company and the Subsidiaries with certain support services,
including cash management, credit and accounts receivable, payroll and human
resources, legal, tax and benefit plan administration. Purchaser acknowledges
that all such support services will be terminated as of the Closing Date.
The
Company provides Seller and its affiliates (other than the Company and its
Subsidiaries) with certain support services that will continue to be provided
following the Closing Date pursuant to the Transitional Services Agreement
between Seller and the Company to be dated as of the Closing Date in the
form
attached hereto as Exhibit A (the “Transitional
Services Agreement”).
SECTION
5.13. Noncompetition;
Nonsolicitation. (a)
Seller
covenants and agrees that, commencing on the Closing Date and ending on the
fifth anniversary thereof, it shall not, directly or indirectly through Seller
Parent or any subsidiary of Seller Parent, engage in the Restricted Business
in
the United States. Notwithstanding the foregoing, (x) this Section
5.13(a)
shall not restrict Seller Parent or any of its subsidiaries from (i) acquiring
any business or person that is engaged, directly or indirectly, in the
Restricted Business in the United States, provided
that (A)
at the time of such acquisition, the Restricted Business in the United States
of
such business or person accounts for less than 10% of such business’s or
person’s consolidated annual revenues and (B) such acquisition is not undertaken
for the primary purpose of evading Seller’s obligations under this Section
5.13(a), or (ii) owning less than 5% of any class of stock of a person
engaged, directly or indirectly, in the Restricted Business in the United
States
and (y) upon and after the consummation of any disposition of all
or
substantially all the assets or capital stock of Seller Parent, any of its
subsidiaries or any of their businesses to an unaffiliated third party, this
Section 5.13(a) shall not apply to, restrict or have any remaining
effect
with respect to Seller Parent (if disposed of pursuant to such disposition),
such subsidiary or such business, provided
that
following such disposition none of Xxxx Xxxxx, Xxxxx X. Xxxxx or Xxxxxxx
X.
Xxxxxx are employed by the acquirer of, or by, Seller Parent (if disposed
of
pursuant to such disposition), such subsidiary or such business.
34
(b)
For
purposes of this Agreement:
“Permitted
Business”
means
any of the following activities that WRC Media Inc. and its subsidiaries
may
engage in:
(i)
selling
Restricted Texts published by third parties;
(ii)
selling
Restricted Tests published by third parties;
(iii)
publishing
assessment tests and related test administration manuals of any kind other
than
Restricted Tests;
(iv)
publishing
textbooks and supplemental materials of any kind other than Restricted
Texts;
(v)
publishing
electronic textbooks and supplemental materials of any kind;
(vi)
publishing
at-grade-level textbooks, assessment tests, related test administration manuals
and supplemental materials and other at-grade-level materials of any
kind;
(vii)
publishing
electronic individualized one-on-one special education assessment tests and
other electronic assessment tests of any kind and related test administration
manuals;
(viii)
publishing
English language learning textbooks, assessment tests, related test
administration manuals and supplemental materials and other English language
learning materials of any kind; and
(ix)
publishing
formative or group assessment tests of any kind and related test administration
manuals.
“Restricted
Business”
means
publishing Restricted Tests or Restricted Texts, but does not include any
Permitted Business.
“Restricted
Tests”
means
paper-based individualized one-on-one special education assessment tests
and
related test administration manuals that are of the same type as any of the
following tests published by the Company as of the date of this Agreement:
KeyMath, CASL, WRMT, Vineland, DIAL, GFTA, PPVT, BASC or Xxxxxxx products
(K-Products).
“Restricted
Texts”
means
paper-based low readability level textbooks for the secondary school market
in
the following subject areas: mathematics, reading/language arts, social studies,
science and health and science.
(c)
Seller
covenants and agrees that, during the period commencing on the Closing Date
and
ending on the date that is 18 months following the Closing Date, it shall
35
not,
directly or indirectly through Seller Parent or any subsidiary of Seller
Parent,
employ, engage as a consultant or seek to employ or engage as a consultant
any
individual who as of the time of the Closing was an employee of the Company
earning a salary plus commissions in excess of $50,000 per annum; provided,
however,
that
the foregoing shall not prohibit (i) Seller, Seller Parent or any
subsidiary of Seller Parent from employing, engaging as a consultant or seeking
to employ or engage as a consultant any such individual at any time that
such
individual is not employed by the Company, Purchaser or any of their respective
subsidiaries and (ii) any general solicitation of employment not targeted
at the Company or any such individual.
(d)
The
parties hereto recognize that Applicable Laws and public policies of various
jurisdictions may differ as to the validity and enforceability of covenants
similar to those set forth in this Section 5.13. It is the intention of the
parties hereto that the provisions of this Section 5.13 be enforced to the
fullest extent permissible under Applicable Laws and policies of each
jurisdiction in which enforcement may be sought, and that the unenforceability
(or the modification to conform to such laws or policies) of any provisions
of
this Section 5.13 shall not render unenforceable, or impair, the remainder
of
the provisions of this Section 5.13. Accordingly, if at the time of enforcement
of any provision of this Section 5.13 a court of competent jurisdiction holds
that the restrictions stated herein are unreasonable under circumstances
then
existing, the parties hereto agree that the maximum period, scope or geographic
area reasonable under such circumstances will be substituted for the stated
period, scope or geographical area and that such court shall be allowed to
revise the restrictions contained herein to cover the maximum period, scope
and
geographical area permitted by Applicable Law and public policy.
ARTICLE
VI
Conditions
Precedent
SECTION
6.01. Conditions
to Each Party’s Obligation.
The
obligation of Purchaser to purchase and pay for the Shares and the obligation
of
Seller to sell the Shares to Purchaser is subject to the satisfaction or
waiver
on or prior to the Closing of the following conditions:
(a)
HSR
Act.
The
waiting period under the HSR Act shall have expired or been
terminated.
(b)
No
Injunctions or Restraints.
No
Applicable Law or Injunction enacted, entered, promulgated, enforced or issued
by any Governmental Entity or other legal restraint or prohibition preventing
the consummation of the Acquisition shall be in effect.
(c)
Termination
of Guarantees.
The
guarantees by the Company and the Subsidiaries of the Credit Facilities and
the
12.75% Senior Subordinated Notes due 2009 of Seller Parent and certain of
its
affiliates shall have been terminated and all Liens
36
securing
the Credit Facilities upon the Shares and the assets of the Company and the
Subsidiaries shall have been terminated.
SECTION
6.02. Conditions
to Obligation of Purchaser.
The
obligation of Purchaser to purchase and pay for the Shares is subject to
the
satisfaction (or waiver by Purchaser) on or prior to the Closing Date of
the
following conditions:
(a)
Representations
and Warranties.
The
representations and warranties of Seller in this Agreement that are qualified
as
to materiality, Seller Material Adverse Effect or Company Material Adverse
Effect shall be true and correct, and those not so qualified shall be true
and
correct in all material respects, as of the date hereof and as of the Closing
Date as though made on the Closing Date, except to the extent such
representations and warranties expressly relate to an earlier date (in which
case such representations and warranties qualified as to materiality, Seller
Material Adverse Effect or Company Material Adverse Effect shall be true
and
correct, and those not so qualified shall be true and correct in all material
respects, on and as of such earlier date). Purchaser shall have received
a
certificate signed by an authorized officer of Seller to such
effect.
(b)
Performance
of Obligations of Seller.
Seller
shall have performed or complied in all material respects with all obligations
and covenants required by this Agreement to be performed or complied with
by
Seller by the time of the Closing, and Purchaser shall have received a
certificate signed by an authorized officer of Seller to such
effect.
(c)
FIRPTA
Certificate.
Seller
shall have delivered to Purchaser at the Closing a certificate, in form and
substance reasonably satisfactory to Purchaser, certifying that the Acquisition
is exempt from withholding pursuant to the Foreign Investment in Real Property
Tax Act.
(d)
Resignations.
Seller
shall have delivered to Purchaser written resignations (including customary
releases) of the directors of the Company and the Subsidiaries.
(e)
Legal
Opinions.
Purchaser shall have received an opinion of Faegre & Xxxxxx LLP with
respect to the matters set forth on Exhibit B and an opinion of Cravath,
Swaine & Xxxxx LLP with respect to the matters set forth on
Exhibit C.
SECTION
6.03. Conditions
to Obligation of Seller.
The
obligation of Seller to sell the Shares is subject to the satisfaction (or
waiver by Seller) on or prior to the Closing Date of the following
conditions:
(a)
Representations
and Warranties.
The
representations and warranties of Purchaser made in this Agreement that are
qualified as to materiality or Purchaser Material Effect shall be true and
correct, and those not so qualified shall be true and correct in all material
respects, as of the date hereof and as of the Closing Date as though made
on the
Closing Date, except to the extent such representations and warranties expressly
relate to an earlier date (in which case such representations and warranties
37
qualified
as to materiality or Purchaser Material Effect shall be true and correct,
and
those not so qualified shall be true and correct in all material respects,
on
and as of such earlier date). Seller shall have received a certificate signed
by
an authorized officer of Purchaser to such effect.
(b)
Performance
of Obligations of Purchaser.
Purchaser shall have performed or complied in all material respects with
all
obligations and covenants required by this Agreement to be performed or complied
with by Purchaser by the time of the Closing, and Seller shall have received
a
certificate signed by an authorized officer of Purchaser to such
effect.
(c)
Legal
Opinion.
Seller
shall have received an opinion of Xxxxxx, Xxxxx & Bockius LLP with
respect to the matters set forth on Exhibit D.
(d)
Refinancing.
The
requisite holders of Seller Parent’s 15% Senior Preferred Stock Due 2011 and the
12.75% Senior Subordinated Notes Due 2009 of Seller Parent and certain of
its
affiliates, and the requisite lenders under the Credit Facilities, shall
have
consented to the Acquisition and related transactions or, in lieu thereof,
the
applicable instruments or indebtedness shall have been redeemed, repurchased,
refinanced, defeased, retired or canceled so that any restriction on
consummating the Acquisition and related transactions pursuant to the terms
thereof no longer apply.
(e)
Transitional
Services Agreement.
Each of
the Company and Seller shall have executed and delivered the Transitional
Services Agreement.
SECTION
6.04. Frustration
of Closing Conditions.
Neither
Purchaser nor Seller may rely on the failure of any condition set forth in
this
Article VI to be satisfied if such failure was caused by such party’s
failure to act in good faith or to use its commercially reasonable efforts
to
cause the Closing to occur, as required by Section 5.04.
ARTICLE
VII
Employee
and Related Matters
SECTION
7.01. Continuation
of Employment; General Principles.
There
shall be continuity of employment for all employees of the Company or any
Subsidiary as of the Closing (each, a “Transferred
Employee”),
including, for greater certainty, any employees then on short-term disability
or
otherwise on a leave of absence but excluding any such employee who is receiving
long-term disability benefits immediately prior to the Closing (“LTD
Employee”);
provided, however, that Purchaser shall cause the Company or its Subsidiaries
to
offer to re-employ any LTD Employee effective as of the date he or she presents
himself or herself to Purchaser or its subsidiaries for active employment
following the Closing Date to the same extent the Company and its Subsidiaries
would be required in accordance with Applicable Law to re-employ such LTD
Employee prior to the Closing. Upon an LTD Employee’s commencing employment with
the Company or its Subsidiaries following the Closing, such LTD
38
Employee
shall be deemed a Transferred Employee. Except as otherwise provided in this
Article VII, all Transferred Employees shall cease to accrue benefits
under
and participate as active participants in all Seller Benefit Plans as of
11:59
PM on the day immediately preceding the Closing Date and the Company and
each
Subsidiary shall withdraw as participating employers from each Seller Benefit
Plan as of 11:59 PM on the day immediately preceding the Closing Date. Nothing
herein shall be construed as a representation or guarantee by Seller that
any
individual employee of the Company or any Subsidiary will continue in employment
with the Company, any Subsidiary or Purchaser following the Closing. Nothing
in
this Article VII shall be construed as requiring Purchaser to continue
the
employment of any specific person.
SECTION
7.02. Assumption
of Liabilities.
Except
as specifically provided in this Agreement, effective as of the Closing,
Purchaser shall cause the Company and its Subsidiaries to remain solely
responsible for all employment and employee benefit-related liabilities,
obligations and commitments that are payable from or after the Closing,
regardless or whether such liabilities, obligations and commitments arise
before, on or after the Closing Date, and that relate to any current or former
employee of the Company or any Subsidiary (or any dependent or beneficiary
thereof) (the “Covered
Employee Liabilities”),
provided that Seller shall retain, and the Covered Employee Liabilities shall
not include, employee benefit-related liabilities and obligations arising
under
any Plan that is not a Company Benefit Plan, except (a) as provided
in
Sections 7.05, 7.06(b), 7.06(d), 7.06(f), 7.08 or 7.09 or (b) as
otherwise expressly provided in this Article VII (such liabilities
and
obligations retained by Seller, the “Seller
Plan Liabilities”).
SECTION
7.03. Credited
Service.
Purchaser shall credit or cause to be credited, as service with Purchaser
or its
affiliates, service accrued by Transferred Employees with, or otherwise
recognized for benefit plan purposes by, Seller, the Company and their
subsidiaries and affiliates as of the Closing (the “Pre-Closing
Service”)
for
all purposes (other than for benefit accrual purposes under any defined benefit
pension plan of Purchaser or its subsidiaries and affiliates) under the benefit
plans, programs, policies and arrangements (including under any applicable
pension, 401(k), savings, medical, dental, life insurance, vacation and
insurance, severance or separation pay plans) of Purchaser and its subsidiaries
and affiliates, provided that Purchaser shall also give or cause to be given
credit for Pre-Closing Service for benefit accrual purposes under any defined
benefit pension plan that is a Company Benefit Plan or any plan to which
accrued
benefits under any such Company Benefit Plan are transferred (it being
understood that nothing in this Section 7.03 shall require Purchaser
or its
affiliates to continue to maintain any such defined benefit pension plan
or to
offer any post-employment health and insurance plan to Transferred
Employees).
SECTION
7.04. Continuation
of Compensation and Benefits.
Without
limiting the generality of Section 7.01, for not less than the period commencing
on the Closing Date and ending December 31, 2006 (the “Continuation
Period”),
Purchaser shall maintain and provide, and, where applicable, shall cause
the
Company and the Subsidiaries to maintain and provide: (i) a base salary
to
each Transferred Employee at a rate not less than the rate in effect for
such
Transferred Employee immediately prior to
39
the
Closing; (ii) subject to Section 7.08, bonus and other incentive
compensation opportunities to each Transferred Employee that are no less
favorable in the aggregate than those provided to similarly situated employees
of Purchaser and its subsidiaries; (iii) employee benefits to each
Transferred Employee that are no less favorable in the aggregate than those
provided to such Transferred Employee immediately prior to the Closing, without
regard to any defined benefit pension benefits provided prior to the Closing,
and (iv) equity or equity-based rights to each Transferred Employee
that
are no less favorable in the aggregate than those provided to similarly situated
employees of Purchaser and its subsidiaries. The preceding sentence shall
apply
to each Transferred Employee only for so long as he or she remains employed
with
Purchaser or its affiliates.
SECTION
7.05. U.S.
Savings and Investment Plan. (a)
Without
limiting the generality of Section 7.04, effective as of the Closing, Purchaser
or an affiliate thereof shall have in effect a profit-sharing plan that includes
a qualified cash or deferred arrangement within the meaning of Section 401(k)
of
the Code (the “Purchaser’s
401(k) Plan”)
intended to be qualified pursuant to Section 401(a) of the Code, which will
provide during the Continuation Period a matching contribution rate to
Transferred Employees who immediately prior to the Closing are participants
or
who would be permitted during the Continuation Period to become participants
in
Seller’s 401(k) Plan that, subject to Applicable Law, is at least as favorable
as the matching contribution rate provided by Seller’s 401(k) Plan immediately
prior to the Closing. Each Transferred Employee participating in Seller’s 401(k)
Plan immediately prior to the Closing shall become a participant in the
Purchaser’s 401(k) Plan as of the Closing and each Transferred Employee who
would have become eligible during the Continuation Period to participate
in
Seller’s 401(k) Plan shall become a participant in Purchaser’s 401(k) Plan at
such time as he or she would have become eligible to participate in Seller’s
401(k) Plan.
(b)
Upon
presentation to Seller of (i) an Internal Revenue Service letter of
determination that Purchaser’s 401(k) Plan meets the requirements for
qualification under Section 401(a) of the Code and (ii) a certificate,
in
form and substance reasonably satisfactory to Seller, certifying that
(A) the aforementioned letter of determination has not been revoked
and
(B) to the knowledge of Purchaser, no event has occurred or is reasonably
expected to occur that would cause Purchaser’s 401(k) Plan to cease to satisfy
the requirements of Section 401(a) of the Code or cause the trust
forming a
part thereof to cease to satisfy the requirements of Section 501(a) of the
Code,
as soon as practicable after the Closing, Seller shall cause to be transferred
to Purchaser’s 401(k) Plan an amount equal to the account balances of the
Transferred Employees, whether or not vested. Such transfer shall be made
in
cash, based on the value of such account balance as of the close of business
on
the day prior to such transfer, except that promissory notes evidencing
outstanding loan balances under Seller’s 401(k) Plan shall be transferred in
kind. Seller shall debit the account of each Transferred Employee under Seller’s
401(k) Plan by the amount transferred to Purchaser’s 401(k) Plan, and Purchaser
shall allocate the amounts transferred to Purchaser’s 401(k) Plan to the
accounts of the Transferred Employees by crediting such accounts in relative
proportion to the amount debited from the Transferred Employee’s accounts under
Seller’s 401(k) Plan.
40
(c)
Following
such transfer, Purchaser and/or Purchaser’s 401(k) Plan shall assume all
liabilities and obligations of Seller and its subsidiaries and affiliates
under
Seller’s 401(k) Plan with respect to Transferred Employees and their
beneficiaries, to the extent assets equal to such liabilities are so
transferred.
SECTION
7.06. Welfare
Plans. (a)
Without
limiting the generality of Section 7.04, effective as of the Closing, Purchaser
shall enroll each of the Transferred Employees and their eligible dependents
who
are enrolled immediately prior to the Closing in the plans and programs
maintained or contributed to by Seller and its affiliates that provide medical,
dental, vision, disability, life insurance and other welfare benefits with
respect to Transferred Employees (collectively, the “Seller’s
Welfare Plans”)
in
plans and programs that provide such benefits that are maintained or contributed
to by Purchaser (collectively, the “Purchaser’s
Welfare Plans”).
Any
and all waiting periods and pre-existing conditions, exclusions and
actively-at-work requirements shall be waived under Purchaser’s Welfare Plans
with respect to the Transferred Employees and their eligible dependents (to
the
extent such conditions, exclusions and requirements were waived or satisfied
as
of immediately prior to the Closing under the corresponding Seller’s Welfare
Plan). In addition, Purchaser shall cause Purchaser’s Welfare Plans to recognize
any out-of-pocket medical and dental expenses incurred by each of the
Transferred Employees and their eligible dependents prior to the Closing
and
during the calendar year in which the Closing Date occurs for purposes of
satisfying any applicable deductibles and out-of-pockets maximums under
Purchaser’s Welfare Plans. During the Continuation Period, the participation
cost to a Transferred Employee under Purchaser’s Welfare Plans shall be not more
than the participation cost to similarly situated employees of Purchaser
and its
subsidiaries and affiliates.
(b)
Without
limiting the generality of Section 7.04, effective as of the Closing, Purchaser
shall have in effect a health care and dependent care flexible spending
reimbursement account plan (the “Purchaser’s
Reimbursement Plan”),
which
gives full effect to, and continues in effect, salary reduction elections
made
by Transferred Employees under Seller’s health and dependent care reimbursement
account plans (“Seller’s
Reimbursement Plan”).
As
soon as practicable after the Closing, (i) Seller shall pay to Purchaser
in
cash the amount, if any, by which aggregate contributions made by Transferred
Employees to Seller’s Reimbursement Plan for the year in which the Closing
occurs exceeded the aggregate benefits provided to Transferred Employees
as of
the Closing; or (ii) Purchaser shall pay to Seller in cash the amount,
if
any, by which aggregate benefits provided to Transferred Employees under
Seller’s Reimbursement Plan for the year in which the Closing occurs exceeded
the aggregate contributions made by Transferred Employees as of the Closing.
From and after the Closing, Purchaser shall assume and be solely responsible
for
all claims made by Transferred Employees under Seller’s Reimbursement Plan,
whether incurred prior to, on or after the Closing Date, that have not been
paid
in full prior to the Closing Date.
(c)
Effective
as of the Closing, Seller or an affiliate thereof shall retain all
responsibilities and obligations with respect to (i) each “qualified
beneficiary” (as defined in Section 607 of ERISA) in respect of a
Transferred Employee who has elected or is eligible to elect continuation
coverage as such term is defined under Section 602 of
41
ERISA
in
respect of “qualifying events” (as defined in Section 603 of ERISA)
occurring prior to the Closing and (ii) each former employee of the
Company
and the Subsidiaries (other than Transferred Employees) and his or her qualified
beneficiaries.
(d)
For
the
avoidance of doubt, Purchaser and its affiliates shall remain solely liable
for
all liabilities, obligations and commitments with respect to the provision
of
short-term disability benefits in respect of Transferred Employees attributable
to an injury or similar event that occurred prior to Closing; provided,
however,
that,
in the event any such Transferred Employee does not return to active employment
with Purchaser and its affiliates and would otherwise be eligible to receive
long-term disability benefits under the terms of a Seller Benefit Plan had
he or
she remained employed by Seller or its affiliates attributable to any such
injury or similar event that occurred prior to Closing, Seller shall retain
the
liability to provide such long-term disability benefits to such Transferred
Employee from and after such time, if any, as such Transferred Employee in
fact
becomes eligible to commence receiving such long-term disability
benefits.
(e)
Seller
shall remain solely liable for all liabilities, obligations and commitments
with
respect to all workers compensation claims of Transferred Employees solely
to
the extent that any such claims are attributable to an injury or condition
that
was incurred prior to Closing, and Purchaser shall assume and be solely liable
for all liabilities, obligations and commitments with respect to all workers
compensation claims of Transferred Employees to the extent that any such
claims
are attributable to an injury or condition that was incurred from and after
Closing.
(f)
Seller
shall be solely responsible for claims under Seller Benefit Plans for health
care (including dental and vision care) that are incurred prior to the Closing
Date by Transferred Employees and/or their dependents (“Pre-Closing
Health Care Claims”),
and
Purchaser shall be solely responsible for claims for health care (including
dental and vision care) that are incurred on or after the Closing Date by
Transferred Employees and/or their dependents; provided,
however,
that
Purchaser shall, within 15 Business Days of demand therefor by Seller
accompanied by a statement specifying in reasonable detail the claims for
which
reimbursement is sought, reimburse and pay to Seller the amount of Pre-Closing
Health Care Claims paid by Seller following the Closing; provided
further,
however,
that
Purchaser shall not be obligated to reimburse Seller for Pre-Closing Health
Care
Claims in excess of $1,100,000 in the aggregate. For purposes of the foregoing,
a medical/dental/vision claim shall be considered incurred when the
medical/dental/vision services are rendered or medical/dental/vision supplies
or
drugs are provided, and not when the condition arose; provided
that
claims relating to a hospital confinement that commences prior to the Closing
Date and continues thereafter shall be treated as incurred prior to the Closing
Date. From the date hereof until Closing, Seller shall cause Pre-Closing
Health
Care Claims to be processed and paid in the usual, regular and ordinary course
in substantially the same manner as previously conducted.
SECTION
7.07. Severance
Policies.
Without
limiting the generality of Section 7.04, Purchaser shall cause the Company
and
its Subsidiaries to retain and maintain without amendment for the benefit
of
Transferred Employees who are
42
terminated
from employment during the Continuation Period the Company’s Change of Control
Severance Plan (a correct and complete copy of which has been provided to
Purchaser) as in effect immediately prior to the Closing.
SECTION
7.08. Performance
Bonuses.
Purchaser shall assume responsibility with respect to, and shall make any
and
all payments required to be made to Transferred Employees pursuant to, the
WRC
Media Inc. Executive Incentive Compensation Plan (the “Seller’s
Incentive Plan”)
(a
correct and complete copy of which has been provided to Purchaser) that relate
to performance periods in which the Closing Date occurs and that end on or
before December 31, 2005. Purchaser agrees to calculate and make such
payments pursuant to the terms and conditions of Seller’s Incentive Plan and on
or before March 31, 2006. With respect to the Seller’s Incentive Plan for
the 2005 calendar year, (i) following the Closing, any requirement that a
Transferred Employee remain employed with Seller and its affiliates as of
December 31, 2005 in order to receive any applicable bonus or similar payment
shall be replaced with a requirement that the Transferred Employee remain
employed with Purchaser and its affiliates as of December 31, 2005 in order
to
receive any applicable bonus or similar payment and (ii) with respect to
the
2005 calendar year any applicable performance criteria that relate to the
performance of Seller or any subsidiary, division, business unit or other
measuring grouping other than the Company and its Subsidiaries shall receive
a
weighting of 0% (and thus be disregarded), and the performance criteria that
relate to the performance of the Company and its Subsidiaries shall be weighted
100%.
SECTION
7.09. Vacation
Benefits.
Purchaser shall cause the Company and the Subsidiaries to assume and honor,
and
permit the Transferred Employees to fully utilize, all vacation days accrued
but
not yet taken by Transferred Employees as of the Closing, including historical
accruals of vacation under the policy set forth in Schedule 7.09.
SECTION
7.10. Employment
and Other Agreements.
Effective as of the Closing, Purchaser shall cause the Company or the
Subsidiaries to remain solely responsible for all liabilities and obligations
with respect to all employment agreements and supplemental benefit agreements
which have been entered into between a Transferred Employee, on the one hand,
and the Company and its subsidiaries and affiliates, on the other
hand.
SECTION
7.11. Retention
Arrangements.
Purchaser shall cause the Company and the Subsidiaries to retain sole
responsibility for and honor without amendment the terms of the Company’s
retention program (the “Retention
Program”)
(a
correct and complete copy of which has been provided to Purchaser) as in
effect
immediately prior to the Closing.
SECTION
7.12. No
Third-Party Beneficiaries.
This
Article VII is for the sole benefit of the parties hereto and their permitted
assigns and nothing in this Article VII expressed or implied shall
give or
be construed to give to any person (including any current or former employee),
other than the parties hereto and such assigns, any legal or equitable rights
hereunder.
43
ARTICLE
VIII
Termination,
Amendment and Waiver
SECTION
8.01. Termination.
(a)
Notwithstanding
anything to the contrary in this Agreement, this Agreement may be terminated
and
the Acquisition and the other transactions contemplated by this Agreement
abandoned at any time prior to the Closing:
(i)
by
mutual
written consent of Seller and Purchaser;
(ii)
by
Seller
if any of the conditions set forth in Sections 6.01 or 6.03 shall
have
become incapable of fulfillment, and shall not have been waived by
Seller;
(iii)
by
Purchaser if any of the conditions set forth in Sections 6.01 or 6.02 shall
have
become incapable of fulfillment, and shall not have been waived by Purchaser;
or
(iv)
by
Seller
or Purchaser, if the Closing does not occur on or prior to July 31,
2005;
provided,
however,
that
the party seeking termination pursuant to clause (ii), (iii) or (iv)
is not
then in material breach of any of its representations, warranties, covenants
or
agreements contained in this Agreement.
(b)
In
the
event of termination by Seller or Purchaser pursuant to this Section 8.01,
written notice thereof shall forthwith be given to the other and the
transactions contemplated by this Agreement shall be terminated, without
further
action by any party. If the transactions contemplated by this Agreement are
terminated as provided herein:
(i)
Purchaser
shall return all documents and other material received from Seller or the
Company relating to the transactions contemplated hereby, whether so obtained
before or after the execution hereof, to Seller; and
(ii)
all
confidential information received by Purchaser with respect to the business
of
the Company and the Subsidiaries shall be treated in accordance with the
Confidentiality Agreement, which shall remain in full force and effect
notwithstanding the termination of this Agreement.
SECTION
8.02. Effect
of Termination.
If this
Agreement is terminated and the transactions contemplated hereby are abandoned
as described in Section 8.01, this Agreement shall become null and
void and
of no further force and effect, except for the provisions of
(i) Section 5.03(a) relating to the obligation of Purchaser
to keep
confidential certain information and data obtained by it,
(ii) Section 5.05 relating to
44
certain
expenses, (iii) Section 5.06 relating to finder’s fees and broker’s fees,
(iv) Section 5.10 relating to publicity and (v) Section 8.01
and this Section 8.02. Nothing in this Section 8.02 shall be deemed
to
release any party from any liability for any breach by such party of the
terms
and provisions of this Agreement or to impair the right of any party to compel
specific performance by any other party of its obligations under this
Agreement.
SECTION
8.03. Amendments
and Waivers.
This
Agreement may not be amended except by an instrument in writing signed on
behalf
of each of the parties hereto. By an instrument in writing Purchaser, on
the one
hand, or Seller, on the other hand, may waive compliance by the other with
any
term or provision of this Agreement that such other party was or is obligated
to
comply with or perform.
ARTICLE
IX
Indemnification
SECTION
9.01. Tax
Indemnification. (a)
Seller
shall indemnify the Purchaser Indemnitees against and hold them harmless
from
any Losses attributable to Income Taxes (i) imposed on Seller or any other
member of an Affiliated Group, other than the Company or any Subsidiary,
for any
Tax period, (ii) imposed on the Company or any Subsidiary under Treasury
Regulation 1.1502-6 (or any similar provision of state, local, foreign or
other
law) by reason of the Company or any Subsidiaries being included in any
affiliated group at any time on or before the Closing Date, (iii) imposed
on or
payable by the Company or any Subsidiary with respect to any Tax period or
portion thereof that ends on or before the Closing Date or (iv) for
any
Straddle Period but only for that portion of the Straddle Period relating
to the
Pre-Closing Tax Period as computed in accordance with Section 9.01(d).
Payment by Seller of any amount due to a Purchaser Indemnitee under this
Section
9.01(a) (other than payments the timing of which is provided for under Section
5.07(b)) shall be made within twenty days following written notice by the
Indemnified Party that payment of such amounts to the appropriate Tax Authority
is due by the Indemnified Party; provided, that Seller shall not be required
to
make any payment earlier than two business days before it is due to the
appropriate Taxing Authority. In the case of a Tax that is contested in
accordance with the provisions of Section 9.03(c), payment of the Tax to
the
appropriate Tax Authority will not be considered to be due earlier than the
date
that a final determination to such effect is made by such Taxing Authority
or a
court or liability for such Tax is otherwise conclusively settled or
compromised.
(b)
Seller
shall indemnify the Purchaser Indemnitees against and hold them harmless
from
any Losses attributable to withholding or employment Taxes with respect to
wages
(including resulting from the erroneous classification of an employee as
an
independent contractor) for any Tax period or portion thereof that ends on
or
before the Closing Date, provided that this paragraph (b) shall only apply
to
the extent that such Taxes exceed in the aggregate $100,000 after which Seller
shall be liable for all Losses in excess of such amount.
45
(c)
Purchaser
shall indemnify the Seller Indemnitees against and hold them harmless from
any
Losses attributable to: (i) all liability for Taxes of the Company and the
Subsidiaries for any taxable period ending after the Closing Date (except
to the
extent such taxable period began before the Closing Date, in which case the
indemnity under this Section 9.01(c) shall cover only that portion of any
such
Taxes that are not for the Pre-Closing Tax Period, as computed in accordance
with Section 9.01(d)) and (ii) all liability for Taxes attributable
to
any action taken after the Closing on the Closing Date outside of the ordinary
course of business by Purchaser, any of its affiliates (including the Company
or
any Subsidiary), or any transferee of Purchaser or any of its affiliates
(other
than expressly required by applicable law or by this Agreement).
(d)
Straddle
Period.
In the
case of any Straddle Period, (i) real, personal and intangible property Taxes
(“Property
Taxes”)
of the
Company and Subsidiaries for the Pre-Closing Tax Period shall be allocated
to
the Pre-Closing Tax Period on a pro rata daily basis, and (ii) the Taxes
of the
Company and Subsidiaries (other than Property Taxes) for the Pre-Closing
Tax
Period shall be computed as if such taxable period ended as of the close
of
business on the day immediately preceding the Closing Date.
SECTION
9.02. Other
Indemnification. (a)
Seller
shall indemnify Purchaser and its affiliates, shareholders and subsidiaries
(including, following the Closing, the Company and the Subsidiaries) and
their
respective officers, directors, employees and agents (collectively the
“Purchaser
Indemnitees”)
against and hold them harmless from any and all damages, fines, fees, penalties,
deficiencies, losses and expenses, including all interest, court costs and
reasonable fees and expenses of attorneys, accountants and other experts
and
other expenses of litigation or other proceedings or of any claim, default
or
assessment or pursuit of rights to indemnification (collectively, “Losses”),
suffered, incurred or sustained by any of them or to which any of them becomes
subject, to the extent resulting from, arising out of or relating to
(i) any breach of any representation or warranty of Seller contained
in
this Agreement, (ii) any breach of any covenant or agreement of Seller
contained in this Agreement, (iii) any employee benefit obligations
retained by Seller or any of its affiliates (other than the Company and the
Subsidiaries) pursuant to Article VII and (iv) the failure of the
Shares to
be validly issued and outstanding as of the Closing Date.
(b)
Purchaser
shall indemnify Seller and its affiliates, shareholders and subsidiaries
and
their respective officers, directors, employees and agents (collectively,
the
“Seller
Indemnitees”)
against and hold them harmless from any and all Losses suffered, incurred
or
sustained by any of them or to which any of them becomes subject, to the
extent
resulting from, arising out of or relating to (i) any breach of any
representation of Purchaser contained in this Agreement, (ii) any
breach of
any covenant or agreement of Purchaser contained in this Agreement and
(iii) any employee benefit obligations assumed or retained by Purchaser
or
required to be assumed or retained by the Company or any Subsidiary pursuant
to
Article VII.
SECTION
9.03. Indemnification
Procedures. (a)
Procedures
Relating to Indemnification of Third Party Claims.
If any
party (the “Indemnified
Party”)
receives written notice of the commencement of any action or proceeding or
the
assertion of any
46
claim
by
a third party or the imposition of any penalty or assessment (in each case
other
than with respect to Taxes) for which indemnity may be sought under
Section 9.02 (a “Third
Party Claim”)
or
such Indemnified Party has a reasonable basis to believe that there are grounds
for a Third Party Claim to be asserted against it, and such Indemnified Party
intends to seek indemnity pursuant to this Article IX, the Indemnified
Party shall promptly provide the other party (the “Indemnifying
Party”)
with
written notice of such Third Party Claim, stating the nature, basis and the
amount thereof, to the extent known, along with copies of any relevant documents
evidencing such Third Party Claim and the basis for indemnification sought.
Failure of the Indemnified Party to give such notice will not relieve the
Indemnifying Party from liability on account of this indemnification, except
if
and to the extent that the Indemnifying Party is actually prejudiced thereby.
The Indemnifying Party will have 60 days from receipt of any such notice
of a
Third Party Claim to give notice to assume the defense thereof. If notice
to the
effect set forth in the immediately preceding sentence is given by the
Indemnifying Party, the Indemnifying Party will have the right to assume
the
defense of the Indemnified Party against the Third Party Claim with counsel
of
its choice. At any time prior to the Indemnifying Party’s delivery of any notice
to assume the defense of a Third Party Claim, the Indemnified Party may file
any
motion, answer or other pleadings or take any other action that the Indemnified
Party reasonably believes to be necessary or appropriate to avoid a default
judgment. So long as the Indemnifying Party has assumed the defense of the
Third
Party Claim in accordance herewith, (i) the Indemnified Party may
retain
separate co-counsel at its sole cost and expense and participate in the defense
of the Third Party Claim, (ii) the Indemnified Party will not file
any
papers or consent to the entry of any judgment or enter into any settlement
with
respect to the Third Party Claim without the prior written consent of the
Indemnifying Party and (iii) the Indemnifying Party will not (A) admit
to any wrongdoing or (B) consent to the entry of any judgment or enter
into
any settlement with respect to the Third Party Claim, in each case, without
the
prior written consent of the Indemnified Party (which consent shall not be
unreasonably withheld or delayed). The parties will use their commercially
reasonable efforts to minimize Losses from Third Party Claims and will act
in
good faith in responding to, defending against, settling or otherwise dealing
with such claims. The parties will also cooperate in any such defense and
give
each other reasonable access to all information relevant thereto. Whether
or not
the Indemnifying Party has assumed the defense, such Indemnifying Party will
not
be obligated to indemnify the Indemnified Party hereunder for any settlement
entered into or any judgment that was consented to without the Indemnifying
Party’s prior written consent.
(b)
Procedures
for Non-Third Party Claims.
The
Indemnified Party will notify the Indemnifying Party in writing promptly
of its
discovery of any matter that does not involve a Third Party Claim being asserted
against or sought to be collected from the Indemnified Party, giving rise
to the
claim of indemnity pursuant hereto. The failure so to notify the Indemnifying
Party shall not relieve the Indemnifying Party from liability on account
of this
indemnification, except only to the extent that the Indemnifying Party is
actually prejudiced thereby. The Indemnifying Party will have 60 days from
receipt of any such notice to give notice of dispute of the claim to the
Indemnified Party. The Indemnified Party will reasonably cooperate and assist
the Indemnifying Party in determining the validity of any claim for indemnity
by
the Indemnified Party and in
47
otherwise
resolving such matters. Such assistance and cooperation will include providing
reasonable access to and copies of information, records and documents relating
to such matters, furnishing employees to assist in the investigation, defense
and resolution of such matters and providing legal and business assistance
with
respect to such matters.
(c)
Procedures
Relating to Indemnification of Tax Claims. (i)
If
one
party is responsible for the payment of Taxes pursuant to Sections 9.01 or
9.02
of this Agreement (the “Tax
Indemnifying Party”),
and
the other party to this Agreement (the “Tax
Indemnified Party”)
receives a notice of deficiency, proposed adjustment, adjustment, assessment,
audit, examination, suit, dispute or other claim (a “Tax
Claim”)
with
respect (in whole or in part) to such Taxes, the Tax Indemnified Party shall
promptly notify the Tax Indemnifying Party in writing of such Tax Claim.
No
failure or delay on the part of the Tax Indemnified Party to give notice
to the
Tax Indemnifying Party shall reduce or otherwise affect the obligations or
liabilities of the Tax Indemnifying Party pursuant to this Agreement, except
to
the extent that such failure or delay shall have adversely affected the Tax
Indemnifying Party’s ability to defend against any liability or claim for Taxes
that the Tax Indemnifying Party is obligated to pay hereunder.
(ii)
The
Tax
Indemnifying Party shall assume and control the applicable audit or examination
and the defense of a Tax Claim involving any Taxes for which it has an
obligation to indemnify the Tax Indemnified Party pursuant to Sections 9.01
or
9.02 of this Agreement. The preceding sentence shall not apply to the extent
the
Tax Indemnifying Party has potential liability of less than 50% of the total
potential liability of such Tax Claim. The party controlling the applicable
audit or examination and the defense of the Tax Claim shall be referred to
herein as the “Controlling Party” and the other party shall be referred to
herein as the “Non-Controlling Party.” The Non-Controlling Party and its
affiliates agree to cooperate with the Controlling Party in pursuing such
contest, including execution of any powers of attorney in favor of the
Controlling Party. Notwithstanding anything in this Agreement to the contrary,
the Controlling Party shall keep the Non-Controlling Party informed of all
material developments and events relating to such Tax Claim and the
Non-Controlling Party, at its own cost and expense and with its own counsel,
shall have the right to participate in (but not control) the applicable audit
or
examination and defense of such Tax Claim. The Controlling Party shall not
settle or otherwise compromise any Tax Claim if such settlement or compromise
could reasonably be expected to have the effect of materially increasing
the Tax
liability of the Non-Controlling Party without the consent of the
Non-Controlling Party, such consent not to be unreasonably
withheld.
If
Controlling Party elects not to assume and control the applicable audit or
examination and the defense of a Tax Claim, the Non-Controlling Party may
pursue
contest of or settle or otherwise compromise such Tax Claim, at Controlling
Party’s sole expense.
Notwithstanding
the foregoing, in no case shall any Non-Controlling Party settle or otherwise
compromise (or extend the statute of limitations for) any Tax Claim without
the
Controlling Party’s prior written consent. Further, in no case shall any Tax
Indemnified Party settle or otherwise compromise (or extend the statute of
limitations
48
for)
any
Tax Claim for which the Tax Indemnifying Party will have an obligation to
indemnify without the Tax Indemnifying Party’s prior written consent. Neither
party shall settle a Tax Claim relating solely to Income Taxes of the
Non-Controlling Party or any of its subsidiaries for a Straddle Period without
the other party’s prior written consent.
Whether
or not the Non-Controlling Party chooses to participate in the defense of
any
Tax Claim, all of the parties hereto shall cooperate in the defense
thereof.
SECTION
9.04. Limitations
on Indemnification. (a)
The
aggregate liability of Seller pursuant to clauses (i) and (ii) of
Section 9.02(a) (in the case of clause (ii) of Section 9.02(a),
only with respect to breaches of covenants or agreements contained in Sections
5.01, 5.02 or 5.04 that occur prior to the Closing) and the aggregate liability
of Purchaser pursuant to clauses (i) and (ii) of Section 9.02(b)
(in the case of clause (ii) of Section 9.02(b), only with respect
to
breaches of covenants or agreements contained in Sections 5.01, 5.02 or 5.04
that occur prior to Closing) (such clauses of Sections 9.02(a) and
9.02(b)
as so qualified in the case of clause (ii) of each such Section,
collectively, the “Limited
Indemnity Provisions”)
for
claims for indemnification asserted in a notice delivered pursuant to Section
9.03
(i)
prior
to
the date that is six months after the Closing Date, shall not exceed 20%
of the
Purchase Price,
(ii)
on
or
after the date that is six months after the Closing Date and prior to the
date
that is nine months after the Closing Date, shall not exceed, taken together
with the aggregate liability of such party pursuant to the Limited Indemnity
Provisions for claims asserted in notices delivered prior to the date that
is
six months after the Closing Date, 10% of the Purchase Price, and
(iii)
on
or
after the date that is nine months after the Closing Date and prior to the
date
that is twelve months after the Closing Date (or, in the case of a claim
with
respect to a breach of any representation and warranty contained in
Section 3.10, prior to the date that is 60 days following the
expiration of the applicable statute of limitations), shall not exceed, taken
together with the aggregate liability of such party pursuant to the Limited
Indemnity Provisions for claims asserted in notices delivered prior to the
date
that is nine months after the Closing Date, 5% of the Purchase
Price;
provided,
further,
that in
no event shall the aggregate liability of Seller or Purchaser for claims
for
indemnification pursuant to the Limited Indemnity Provisions exceed 20% of
the
Purchase Price no matter when the notices asserting the claims therefor are
delivered. For purposes of determining the limitation under the foregoing
sentence applicable to any claim for indemnification, a notice of such claim
shall not be deemed delivered unless such notice states in reasonable detail
the
basis of such claim.
49
(b)
Neither
Seller nor Purchaser shall have any liability for any claim for indemnification
pursuant to the Limited Indemnity Provisions unless such claim is asserted
in a
notice (stating in reasonable detail the basis of such claim) delivered pursuant
to Section 9.03 prior to the date that is twelve months after the
Closing
Date or, in the case of a claim with respect to a breach of any representation
and warranty contained in Section 3.10, prior to the date that is
60 days
following the expiration of the applicable statute of limitations. Seller
shall
not have any liability for any claim for indemnification pursuant to clause
(iv)
of Section 9.02(a) unless such claim is asserted in a notice (stating in
reasonable detail the basis of such claim) delivered pursuant to
Section 9.03 prior to the date that is sixty months after the Closing
Date.
(c)
Neither
Seller nor Purchaser shall be required to indemnify or hold harmless any
person
with respect to any claim for indemnification pursuant to the Limited Indemnity
Provisions (x) unless and until the aggregate Losses of the Purchaser
Indemnities, in the case of Seller, or the Seller Indemnitees, in the case
of
Purchaser, in respect of all such claims exceed $5,000,000, after which such
party shall be liable for all Losses in excess of such amount, and (y) for
any
individual items (or group of substantially related items) where the loss
relating thereto is less than $100,000 and such items (or group of substantially
related items) shall not be aggregated for purposes of the immediately preceding
clause (x).
(d)
Except
as
otherwise specifically provided in this Agreement or in any Ancillary Agreement,
Purchaser acknowledges that its sole and exclusive remedy with respect to
any
and all claims relating to this Agreement and the Ancillary Agreements, the
Acquisition and the other transactions contemplated hereby and thereby, the
Company or any Subsidiary and its assets and liabilities (other than claims
of,
or causes of action arising from, fraud, or actions seeking specific performance
of Section 5.03(b) or Section 5.13) shall be pursuant to the
indemnification provisions set forth in this Article IX. In furtherance
of
the foregoing, Purchaser hereby waives, from and after the Closing, to the
fullest extent permitted under applicable law, any and all rights, claims
and
causes of action (other than claims of, or causes of action arising from,
fraud,
or actions seeking specific performance of Section 5.03(b) or
Section 5.13) it may have against Seller arising under or based upon
this
Agreement, any Ancillary Agreement, any document or certificate delivered
in
connection herewith, any Applicable Law (including any relating to environmental
matters), common law or otherwise (except pursuant to the indemnification
provisions set forth in this Article IX).
(e)
Neither
party hereto shall be liable to the other for any special, incidental,
consequential or punitive damages (including loss of profits, loss of use,
damage to goodwill or loss of business) claimed by such other party resulting
from such first party’s breach of its representations, warranties, covenants or
agreements hereunder. In no event shall Seller be obligated to indemnify
the
Purchaser Indemnitees or any other person with respect to any matter to the
extent that such matter was reflected in the calculation of the adjustment
to
the Closing Date Amount, if any, pursuant to Section 1.04(c).
50
SECTION
9.05. Calculation
of Losses.
The
amount of any Losses for which indemnification is provided under this Article
IX
shall be computed net of any insurance proceeds received by the Indemnified
Party in connection with such Losses. If the amount with respect to which
any
claim is made under this Article IX (an “Indemnity
Claim”)
gives
rise to the party making the claim an actual Tax Benefit (as defined below),
the
indemnity payment shall be reduced by the amount of the Tax Benefit available
to
the party making the claim. To the extent such Indemnity Claim does not give
rise to an actual Tax Benefit, if the amount with respect to which any Indemnity
Claim is made gives rise to a Tax Benefit that is realized within five years
of
the close of the taxable year that includes the year of the Loss subject
to this
Section 9.05 to the party that made the claim, such party shall refund to
the
Indemnifying Party the amount of such Tax Benefit when, as and if realized.
For
the purposes of this Agreement, any subsequently realized Tax Benefit shall
be
treated as though it were a reduction in the amount of the initial Indemnity
Claim, and the liabilities of the parties shall be redetermined as though
both
occurred at or prior to the time of the indemnity payment. For purposes of
this
Section 9.05, a “Tax
Benefit”
means
an amount by which the Income Tax
liability of the party (or group of corporations including the party) is
reduced
(including, without limitation, by deduction, reduction of income by virtue
of
increased tax basis or otherwise, entitlement to refund, credit or otherwise)
plus any related interest received from the relevant Taxing Authority. Where
a
party has other losses, deductions, credits or items available to it, the
determination
of any Tax Benefit shall be calculated by comparing the Income Tax
liability of the Indemnified Party, computed without regard to any losses,
deductions, credits or items relating to the Indemnity Claim, to the
Income Tax
liability of the Indemnified Party, computed after taking into account any
losses, deductions, credits or items relating to the Indemnity
Claim.
In the
event that there should be a determination disallowing the Tax Benefit, the
Indemnifying Party shall be liable to refund to the Indemnified Party the
amount
of any related reduction previously allowed or payments previously made to
the
Indemnifying Party pursuant to this Section 9.05. The amount of the refunded
reduction or payment shall be deemed a payment under this Section 9.05 and
thus
shall be paid subject to any applicable reductions under this Section 9.05.
Any
indemnity payment under this Agreement shall be treated as an adjustment
to the
Purchase Price for Tax purposes, unless a final determination (which shall
include the execution of a Form 870-AD or successor form) with respect to
the
Indemnified Party or any of its affiliates causes any such payment not to
be
treated as an adjustment to the Purchase Price for United States Federal
income
purposes.
ARTICLE
X
General
Provisions
SECTION
10.01. No
Additional Representations; Survival of Representations. (a)
Purchaser
acknowledges that (i) none of Seller, the Company or any other person
has
made any representation or warranty, expressed or implied, as to the Company
or
any Subsidiary or the accuracy or completeness of any information regarding
the
Company and the Subsidiaries furnished or made available to Purchaser and
its
representatives, except as expressly set forth in this Agreement,
(ii) Purchaser has not relied on any representation or warranty from
Seller
or any other person in
51
determining
to enter into this Agreement, except as expressly set forth in this Agreement,
and (iii) none of Seller or any other person shall have or be subject to
any
liability to Purchaser or any other person resulting from the distribution
to
Purchaser, or Purchaser’s use of, any such information, including the Project
Learning Data Pack prepared by Xxxxxxx Xxxxx & Co. dated December 2004
and any information, documents or material made available to Purchaser in
any
virtual or physical “data rooms”, management presentations or in any other form
in expectation of the transactions contemplated hereby.
(b)
The
representations and warranties contained in this Agreement shall survive
in full
force and effect solely for the purpose of indemnification under Article
IX
until the first anniversary of the Closing Date (except that the representations
and warranties contained in Section 3.10 shall survive solely for the purpose
of
indemnification under Article IX for 60 days following the expiration
of
the applicable statute of limitations); provided,
however,
that if
a claim for indemnification under a representation or warranty stating in
reasonable detail the basis of such claim is delivered to the applicable
Indemnifying Party prior to the first anniversary of the Closing Date (or,
in
the case of a claim with respect to a breach of any representation and warranty
in Section 3.10, prior to the date that is 60 days following the expiration
of the applicable statute of limitations), such representation and warranty
shall continue to survive solely for the purposes of such claim until such
claim
has been satisfied or resolved.
SECTION
10.02. Assignment.
This
Agreement and the rights and obligations hereunder shall not be assignable
or
transferable by any party without the prior written consent of the other
parties
hereto, except that rights under this Agreement shall be assignable by Purchaser
in whole or in part to one or more of its subsidiaries (provided that (i)
no
such assignment shall release Purchaser from its obligations hereunder and
(ii) such assignment shall only be effective to the extent the assignee
remains a subsidiary of Purchaser). Any attempted assignment in violation
of
this Section 10.02 shall be void.
SECTION
10.03. No
Third-Party Beneficiaries.
This
Agreement is for the sole benefit of the parties hereto and their permitted
assigns and nothing herein expressed or implied shall give or be construed
to
give to any person, other than the parties hereto and such assigns, any legal
or
equitable rights hereunder.
SECTION
10.04. Notices.
All
notices or other communications required or permitted to be given hereunder
shall be in writing and shall be delivered by hand or sent by facsimile or
sent,
postage prepaid, by registered, certified or express mail or overnight courier
service and shall be deemed given when so delivered by hand or confirmed
facsimile, or if mailed, three days after mailing (one business day in the
case
of express mail or overnight courier service), as follows:
(i) if
to
Purchaser,
c/o
Pearson
Inc.
0000
Xxxxxx xx xxx
Xxxxxxxx
Xxx
Xxxx, XX
00000
52
Attention:
Xxxxxxx X. Xxxxxxx
Facsimile:
(000) 000-0000
with
a
copy to:
Xxxxxx,
Xxxxx & Bockius LLP
000
Xxxx
Xxxxxx
Xxx
Xxxx,
XX 00000
Attention:
Xxxxxxx X. Xxxxxx, Xx., Esq.
Facsimile:
(000) 000-0000
(ii) if
to
Seller,
Weekly
Reader Corporation
c/o
Ripplewood Holdings L.L.C.
Xxx
Xxxxxxxxxxx Xxxxx, 00xx
Xxxxx
Xxx
Xxxx,
XX 00000
Attention:
Xxxxxxxxxxx Xxxxxxxxx
Facsimile: (000)
000-0000
with
a
copy to:
Cravath,
Swaine & Xxxxx LLP
Worldwide
Plaza
000
Xxxxxx Xxxxxx
Xxx
Xxxx,
XX 00000
Attention: Xxxxx
X.
Xxxxxx, Esq.
Facsimile: (000)
000-0000
SECTION
10.05. Interpretation;
Exhibits and Schedules; Certain Definitions. (a)
The
headings contained in this Agreement, in any Exhibit or Schedule hereto and
in
the table of contents to this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
Any
matter set forth in any provision, subprovision, section or subsection of
the
Disclosure Schedule shall be deemed set forth in other provisions,
subprovisions, sections or subsections of the Disclosure Schedule to the
extent
relevant and reasonably apparent. For purposes of determining whether any
representation and warranty has been breached, any items not set forth in
the
Disclosure Schedule shall not be aggregated with items set forth in the
53
Disclosure
Schedule when determining if such items not set forth in the Disclosure Schedule
have had or would be reasonably likely to have, individually or in the
aggregate, a Seller Material Adverse Effect or a Company Material Adverse
Effect. All Exhibits and Schedules annexed hereto or referred to herein are
hereby incorporated in and made a part of this Agreement as if set forth
in full
herein. Any capitalized terms used in any Schedule or Exhibit but not otherwise
defined therein, shall have the meaning as defined in this Agreement. When
a
reference is made in this Agreement to a Section, Article, Exhibit or Schedule,
such reference shall be to a Section or Article of, or an Exhibit or Schedule
to, this Agreement unless otherwise indicated.
(b)
For
all
purposes hereof:
“affiliate”
of any
person means another person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with,
such first person.
“Company
Material Adverse Effect”
means
any change or event that has a material and adverse effect on the business,
financial condition or results of operations of the Company and the
Subsidiaries, taken as a whole; provided,
however,
that
none of the following, either alone or in combination, shall be considered
in
determining whether there has been a “Company Material Adverse Effect”: (i) any
change relating to United States or foreign economies in general or the
Company’s and the Subsidiaries’ industries in general which, in each such case,
does not disproportionately affect the Company and the Subsidiaries, taken
as a
whole, or (ii) any disruption to the Company’s and the Subsidiaries’ business as
a result of the announcement by Seller of its intention to sell the Company
or
the execution of this Agreement and the consummation of the transactions
contemplated hereby.
“Credit
Facilities”
means,
collectively, (i) the credit facilities governed by the Credit Agreement,
dated as of March 29, 2004, among Seller, CompassLearning, Inc., WRC
Media
Inc., Credit Suisse First Boston, Bank of America, N.A. and General Electric
Capital Corporation and (ii) the credit facilities governed by the Second
Lien
Credit Agreement, dated as of March 29, 2004, among Seller,
CompassLearning, Inc., WRC Media Inc., Credit Suisse First Boston, Bank of
America, N.A. and General Electric Capital Corporation.
“including”
means
including, without limitation.
“knowledge
of Seller”
means
the actual knowledge of Xxxxx X. Xxxxx, Xxxxxxx Xxxx, Xxxxx Xxxxxxxxxx, Xxx
Xxxxxx and Xxxx Xxxxxxx.
“person”
means
any individual, firm, corporation, partnership, limited liability company,
trust, joint venture, Governmental Entity or other entity.
“subsidiary”
of any
person means another person, an amount of the voting securities, other voting
ownership or voting partnership interests of which is sufficient to elect
at
least a majority of its Board of Directors or other governing body (or, if
there
are
54
no
such
voting interests, 50% or more of the equity interests of which) is owned
directly or indirectly by such first person or by another subsidiary of such
first person.
(c)
The
following terms have the meanings given such terms in the sections set forth
below:
Term
|
Section
|
“Accounting
Firm”
|
1.04(b)
|
“Accounts
Receivable”
|
1.04(d)
|
“Acquisition”
|
1.01
|
“Adjusted
Purchase Price”
|
1.04(c)
|
“Agreement”
|
Preamble
|
“Affiliated
Group”
|
3.10(b)
|
“Ancillary
Agreements”
|
2.02
|
“Applicable
Law”
|
2.03
|
“Applicable
Percentage”
|
1.04(d)
|
“Audited
Financial Statements”
|
3.04(a)
|
“Audited
Balance Sheet”
|
3.04(a)
|
“Balance
Sheet Principles”
|
1.04(d)
|
“Benefit
Plans”
|
3.12(a)
|
“Closing”
|
1.02
|
“Closing
Accounts Receivable”
|
1.04(a)
|
“Closing
Date”
|
1.02
|
“Closing
Date Amount”
|
1.03(b)
|
“Closing
Tangible Net Worth”
|
1.04(a)
|
“Code”
|
3.10(a)
|
“Commonly
Controlled Entity”
|
3.12(a)
|
“Company”
|
Recitals
|
“Company
Benefit Plan”
|
3.12(a)
|
“Company
Contracts”
|
3.08(b)
|
“Company
Intellectual Property”
|
3.07(a)
|
“Company-Owned
Intellectual Property”
|
3.07(a)
|
“Company
Pension Plan”
|
3.12(c)
|
“Confidential
Information”
|
3.07(g)
|
“Confidentiality
Agreement”
|
5.03(a)
|
“Consent”
|
2.03
|
“Continuation
Period”
|
7.04
|
“Contract”
|
2.03
|
“Controlling
Party”
|
9.03(c)
|
“Covered
Employee Liabilities”
|
7.02
|
“Disclosure
Schedule”
|
Article
II
|
“DOJ”
|
5.04(b)
|
“Environmental
Laws”
|
3.14(b)
|
“Exchange
Act”
|
2.03
|
“Financing”
|
4.06
|
“FTC”
|
5.04(b)
|
55
“GAAP”
|
1.04(d)
|
“Governmental
Entity”
|
2.03
|
“Hazardous
Materials”
|
3.14(b)
|
“HSR
Act”
|
2.03
|
“Income
Tax”
|
3.10(a)
|
“Indemnified
Party”
|
9.03(a)
|
“Indemnifying
Party”
|
9.03(a)
|
“Indemnity
Claim”
|
9.05
|
“Intellectual
Property”
|
3.07(g)
|
“Judgment”
|
2.03
|
“July
A/R Amount”
|
1.04(a)
|
“Lease”
|
3.06
|
“Leased
Property”
|
3.06
|
“Liens”
|
3.05(a)
|
“Limited
Indemnity Provisions”
|
9.04(a)
|
“Losses”
|
9.02(a)
|
“Non-Controlling
Party”
|
9.03(c)
|
“Notice
of Disagreement”
|
1.04(b)
|
“Plan”
|
3.12(a)
|
“Pension
Plan”
|
3.12(a)
|
“Permits”
|
3.14(a)
|
“Permitted
Business”
|
5.13(b)
|
“Permitted
Liens”
|
3.05(a)
|
“Post-Closing
Tax Period”
|
3.10(a)
|
“Pre-Closing
Health Care Claims”
|
7.05(f)
|
“Pre-Closing
Service”
|
7.03
|
“Pre-Closing
Tax Period”
|
3.10(a)
|
“Proceeding”
|
3.11
|
“Property
Taxes”
|
9.01(d)
|
“Purchase
Price”
|
1.01
|
“Purchaser”
|
Preamble
|
“Purchaser
Indemnitees”
|
9.02(a)
|
“Purchaser
Material Adverse Effect”
|
4.01
|
“Purchaser
Statement”
|
1.04(a)
|
“Purchaser’s
Reimbursement Plans”
|
7.06(b)
|
“Purchaser’s
Severance Policies”
|
7.07
|
“Purchaser’s
Welfare Plans”
|
7.06(a)
|
“Purchaser’s
401(k) Plan”
|
7.05(a)
|
“Records”
|
5.11
|
“Restricted
Business”
|
5.13(b)
|
“Restricted
Tests”
|
5.13(b)
|
“Restricted
Texts”
|
5.13(b)
|
“Retention
Program”
|
7.11
|
“Seller”
|
Preamble
|
“Seller
Benefit Plan”
|
3.12(a)
|
“Seller
Indemnitees”
|
9.02(b)
|
56
“Seller
Material Adverse Effect”
|
2.01
|
“Seller
Parent”
|
3.04(d)
|
“Seller
Plan Liabilities”
|
7.02
|
“Seller
Statement”
|
1.04(a)
|
“Seller’s
Incentive Plans”
|
7.08
|
“Seller’s
Reimbursement Plan”
|
7.06(b)
|
“Seller’s
401(k) Plan”
|
3.12(b)
|
“Seller’s
Welfare Plans”
|
7.06(a)
|
“Shares”
|
Recitals
|
“Software”
|
3.07(g)
|
“Statement”
|
1.04(a)
|
“Straddle
Period”
|
5.07(b)
|
“Subsidiary”
|
3.01(a)
|
“Tax”
|
3.10(a)
|
“Tax
Benefit”
|
9.05
|
“Tax
Claim”
|
9.03(c)
|
“Tax
Indemnified Party”
|
9.03(c)
|
“Tax
Indemnifying Party”
|
9.03(c)
|
“Tax
Return”
|
3.10(a)
|
“Taxing
Authority”
|
3.10(a)
|
“Tangible
Net Worth”
|
1.04(d)
|
“Third
Party Claim”
|
9.03(a)
|
“TNW
Amount”
|
1.04(c)
|
“Total
Liabilities”
|
1.04(d)
|
“Total
Tangible Assets”
|
1.04(d)
|
“Transferred
Employee”
|
7.01
|
“Transitional
Services Agreement”
|
5.12
|
“Trigger
Date”
|
1.04(b)
|
“Unaudited
Balance Sheet”
|
3.04(b)
|
“Unaudited
Financial Statements”
|
3.04(b)
|
“Voting
Company Debt”
|
3.02(a)
|
“Welfare
Plan”
|
3.12(a)
|
SECTION
10.06. Counterparts.
This
Agreement may be executed in one or more counterparts, all of which shall be
considered one and the same agreement, and shall become effective when one
or
more such counterparts have been signed by each of the parties and delivered
to
the other parties.
SECTION
10.07. Entire
Agreement.
This
Agreement, the Ancillary Agreements and the Confidentiality Agreement, along
with the Schedules and Exhibits thereto, contain the entire agreement and
understanding among the parties hereto with respect to the subject matter hereof
and supersede all prior agreements and understandings relating to such subject
matter. None of the parties shall be liable or bound to any other party in
any
manner by any representations, warranties or covenants relating to such subject
matter except as specifically set forth herein or in the Ancillary Agreements
or
the Confidentiality Agreement.
57
SECTION
10.08. Severability.
If any
provision of this Agreement (or any portion thereof) or the application of
any
such provision (or any portion thereof) to any person or circumstance shall
be
held invalid, illegal or unenforceable in any respect by a court of competent
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision hereof (or the remaining portion thereof) or the application
of such provision to any other persons or circumstances.
SECTION
10.09. Consent
to Jurisdiction.
Each
party irrevocably submits to the exclusive jurisdiction of (a) the Supreme
Court of the State of New York, New York County, and (b) the United
States
District Court for the Southern District of New York, for the purposes of any
suit, action or other proceeding arising out of this Agreement, any Ancillary
Agreement or any transaction contemplated hereby or thereby. Each party agrees
to commence any such action, suit or proceeding either in the United States
District Court for the Southern District of New York or if such suit, action
or
other proceeding may not be brought in such court for jurisdictional reasons,
in
the Supreme Court of the State of New York, New York County. Each party further
agrees that service of any process, summons, notice or document by U.S.
registered mail to such party’s respective address set forth above shall be
effective service of process for any action, suit or proceeding in New York
with
respect to any matters to which it has submitted to jurisdiction in this
Section 10.09. Each party irrevocably and unconditionally waives any
objection to the laying of venue of any action, suit or proceeding arising
out
of this Agreement, any Ancillary Agreement or the transactions contemplated
hereby and thereby in (i) the Supreme Court of the State of New York,
New
York County, or (ii) the United States District Court for the Southern
District of New York, and hereby and thereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum.
SECTION
10.10. Governing
Law.
This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of New York applicable to agreements made and to be performed
entirely within such State, without regard to the conflicts of law principles
of
such State, except to the extent that the Minnesota Business Corporation Act
is
mandatorily applicable.
SECTION
10.11. Waiver
of Jury Trial.
Each
party hereby waives, to the fullest extent permitted by applicable law, any
right it may have to a trial by jury in respect to any litigation directly
or
indirectly arising out of, under or in connection with this Agreement, any
Ancillary Agreement or any transaction contemplated hereby or thereby. Each
party (a) certifies that no representative, agent or attorney of any
other
party has represented, expressly or otherwise, that such other party would
not,
in the event of litigation, seek to enforce the foregoing waiver and
(b) acknowledges that it and the other parties hereto have been induced
to
enter into this Agreement and the Ancillary Agreements, as applicable, by,
among
other things, the mutual waivers and certifications in this
Section 10.11.
SECTION
10.12. Specific
Performance.
The parties hereto agree that irreparable damage would occur in the
event
that any provision contained in Section 5.03
58
or 5.13 was not performed in accordance with the terms
thereof
and that the parties hereto shall be entitled to specific performance of
the
terms thereof in addition to any other remedy available to them at law
or in
equity.
59
IN
WITNESS WHEREOF, Seller and
Purchaser have duly executed this Agreement as of the date first written
above.
WEEKLY
READER CORPORATION,
|
|
by
|
/s/ |
Name:
Xxxxxxx Xxxx
|
|
Title:
Executive Vice President,
Operations
|
XXXXXXX
EDUCATION, INC.,
|
|
by
|
/s/ |
Name:
Xxxxxx Xxxxxxx
|
|
Title:
|
The
undersigned irrevocably and
unconditionally guarantees, as a primary obligor and not merely as a
surety, all
monetary (including indemnification) obligations of Purchaser under this
Agreement.
XXXXXXX,
INC.,
|
|
by
|
/s/ |
Name:
Xxxxxx Xxxxxxx
|
|
Title:
|