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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 31, 1995
HOUGHTON MIFFLIN COMPANY
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(Exact name of registrant as specified in charter)
Massachusetts 1-5406 04-1456030
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
222 Berkeley Street, Boston, Massachusetts 02116
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 351-5000
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N/A
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(Former name or former address, if changed since last report).
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Item 2. Acquisition or Disposition of Assets.
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Houghton Mifflin Company (the "Company") completed the acquisition of
D.C. Heath and Company (the "Acquired Business") from Raytheon Company on
October 31, 1995.
The Acquired Business is a publisher of textbooks in areas including
modern languages, science, language arts, social studies, and mathematics
headquartered in Lexington, Massachusetts. The Acquired Business had revenues
of approximately $180 million in 1994. The purchase price was approximately
$455 million, not including transaction costs estimated at $10 million.
The Company's sources of capital to finance the foregoing acquisition
are approximately $100 million in cash and approximately $355 million from
borrowings under short-term credit facilities arranged through Morgan Guaranty
Trust Company of New York, and the private placement of short-term notes. The
Company intends to refinance all or part of such amount through the issuance of
debt securities.
Item 7. Financial Statements, Pro Forma Fianacial Information and Exhibits.
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(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED. At the time of
the filing of this Form 8-K, it is impracticable for the
Company to provide the pro forma financial statements required
by Rule 3-05(b) of Regulation S-X with respect to the
acquisition of D.C. Heath and Company. Such required
financial information will be filed by amendment under cover
of Form 8 not later than January 15, 1996, in accordance with
Item 7, paragraph (a)(4) of Form 8-K.
(b) PRO FORMA FINANCIAL INFORMATION. At the time of the filing of
this Form 8-K, it is impracticable for the Company to provide
the pro forma financial information required by Rule 11-01(c)
of Regulation S-X with respect to the acquisition of D.C.
Heath and Company. Such required financial information will
be filed by amendment under cover of Form 8 not later than
January 15, 1996, in accordance with Item 7, paragraph (b)(2)
of Form 8-K.
(c) EXHIBITS.
2. Stock and Asset Purchase Agreement dated as of
September 25, 1995 by and between Raytheon
Company and Houghton Mifflin Company (filed
herewith).
23. Consent of Ernst & Young LLP (to be filed by
amendment).
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized this 15th day of November, 1995.
HOUGHTON MIFFLIN COMPANY
By: /s/ James F. Stack
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James F. Stack
Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Accounting and Financial
Officer)
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<TABLE>
Exhibit Index
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<CAPTION>
Exhibit No. Exhibit Description Page No.
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<S> <C> <C>
2 Stock and Asset Purchase Agreement dated as of
September 25, 1995 by and between Raytheon
Company and Houghton Mifflin Company
(filed herewith).
</TABLE>
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Exhibit 2
STOCK AND ASSET PURCHASE AGREEMENT
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THIS STOCK AND ASSET PURCHASE AGREEMENT (this "Agreement") is dated as of
the 25th day of September, 1995, by and between RAYTHEON COMPANY, a Delaware
corporation (the "Seller"), and HOUGHTON MIFFLIN COMPANY, a Massachusetts
corporation (the "Buyer").
The Seller, through its D.C. Heath and Company division (the "Heath
Division"), and its subsidiary D.C. Heath, Canada, Ltd. ("Heath Canada"), is
engaged in the publication of textbooks and educational materials for the
school and college markets in the United States and Canada (the "Heath
Business"); and
The Seller desires to sell and the Buyer desires to purchase the Heath
Business.
In connection with the negotiation and preparation of this Agreement, the
Seller has prepared, and the Buyer has reviewed, a set of disclosure schedules,
dated the date hereof and delivered separately as one or more volumes (the
"Disclosure Schedule", with any reference in this Agreement to a Schedule being
a reference to the Disclosure Schedule).
In consideration of the mutual agreements and covenants herein contained,
the parties hereto agree as follows:
Article 1
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Purchase And Sale
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1.1. Acquired Assets. Subject to the terms and conditions set forth in
this Agreement, at the Closing referred to in Article 4 hereof, the Seller
shall sell, assign, transfer and deliver to the Buyer, and the Buyer shall
purchase, acquire and take assignment and delivery of, all of the properties,
assets and business of the Heath Business of every kind and description,
tangible and intangible, real, personal or mixed, and wherever located, in each
case with the exception of the Excluded Assets (as defined in Section 1.2) (all
of which assets are hereinafter referred to collectively as the "Acquired
Assets"), including, without limitation:
(a) All of the Seller's notes receivable and miscellaneous
receivables outstanding on the Closing Date, as reflected on the Closing
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Balance Sheet (as defined in Section 3.2), as finally adjusted pursuant
to Section 3.2;
(b) That portion of the Baseline Receivables (as defined in Article
13) outstanding at Closing owned by the Seller (and not by Heath Canada);
(c) All of the Seller's inventories held for use solely in the Heath
Business, including raw materials, work in process and finished goods
(the "Inventories"), as reflected on the Closing Balance Sheet (as
finally adjusted pursuant to Section 3.2);
(d) All of the Seller's prepaid expenses relating solely to the
Heath Business, as reflected on the Closing Balance Sheet (as finally
adjusted pursuant to Section 3.2);
(e) All of the Seller's rights:
(i) with respect to the real property owned by the Seller and
listed on Schedule 1.1(e)(i) hereto (the "Owned Real Property")
and, to the extent transferable, all of the Seller's rights under
any governmental permits and licenses related to the Owned Real
Property;
(ii) under the real property leases listed on Schedule
1.1(e)(ii) hereto (the "Real Property Leases") relating to the
real property described in the Real Property Leases (the "Leased
Real Property");
(iii) under the Spring Street Lease, referred to in Section
9.7, to be entered into for the Seller's facility at 125 Spring
Street, Lexington, Massachusetts (the "Heath Headquarters");
(iv) except as provided otherwise with respect to the Heath
Headquarters under the terms of the Spring Street Lease, any and
all fixtures, machinery, installations, equipment (including
laptops and other portable computers), furniture, tools, spare
parts, supplies, materials and other personal property owned by
the Seller, used in the Heath Business;
(f) All of the Seller's deferred charges relating solely to the
Heath Business, as reflected on the Closing Balance Sheet (as finally
adjusted pursuant to Section 3.2);
(g) All of the Seller's rights under all leases of personal property
used in connection with the Heath Business;
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(h) All of the Heath Business's good will and all of the Seller's
rights to use the name of Heath as all or part of a trade or corporate
name;
(i) All right, title and interest of Seller in and to all books and
other publications, published and unpublished, relating to the Heath
Business, including without limitation the list of publications attached
hereto as Schedule 1.1(i) (the "Works"); all titles, manuscripts,
composition, art work, and film relating to the Works; all sales support
and promotional materials, advertising materials and production, sales,
and marketing files relating to the Works; and all advances and other
rights and interests in and to the Works;
(j) All of the Seller's rights under all contracts and agreements
relating to the Heath Business, including without limitation joint
venture agreements, distribution agreements, license agreements,
agreements with authors, editors, contributors, and others with respect
to the Works, state and local adoption contracts relating to the Works,
work-for-hire contracts and development contracts relating to the Heath
Business;
(k) All of the Seller's rights under purchase orders outstanding on
the Closing Date and relating to the Heath Business;
(l) All of the Seller's rights with respect to trademarks, trade
names, titles, copyrights (registered and unregistered), subsidiary
rights to all editions of the Works and all components thereof (including
but not limited to pupil books and Teacher Editions), copyrights for
multimedia programs, designs, patents, colophons and licenses and
applications with respect to the foregoing, in each case used in
connection with the Heath Business;
(m) All of the Seller's rights with respect to all computer software
programs used in the Heath Business; and
(n) Subject to Section 11.12, all records of the Seller relating to
the Heath Business, including, without limitation, property records,
production records, purchasing and sales records, personnel and payroll
records, customer lists, accounting records and such other records as the
Buyer may reasonably require to conduct the Heath Business subsequent to
the Closing.
1.2. Excluded Assets. Notwithstanding the foregoing, the Seller is not
selling and the Buyer is not purchasing pursuant to this Agreement, and the
term "Acquired Assets" shall not include, any of the following assets (the
"Excluded Assets"):
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(a) any of the Seller's title to, interest in or rights with respect
to any real property other than the title to, interest in or rights
transferred to the Buyer pursuant to Section 1.1(e);
(b) any of the Seller's trade accounts receivable other than the
Baseline Receivables;
(c) any of the Seller's cash, marketable or other securities,
commercial paper and cash equivalents or other investments (other than
the Shares (as defined in Section 1.3)), on hand or in bank accounts, and
all of the Seller's bank accounts;
(d) any Support Assets; for purposes of this Agreement "Support
Assets" means assets (including computers and any software embodied in
such computers) of the Seller not located at the Heath Headquarters, the
Owned Real Property or the Leased Real Property used to provide support
or administrative functions on behalf of the Heath Business and any
communication or data network systems used in the Heath Business but not
used solely in the Heath Business. An example of these functions are the
support functions provided to the Heath Business and charged to the G&A
allocation charged to the Heath Business;
(e) any prepaid expenses of Seller relating to the Heath Business
that do not relate solely to the Heath Business and are not reflected on
the Closing Balance Sheet;
(f) any other assets of the Seller not used in the Heath Business;
(g) any rights to the tradename, trademark or corporate name
"Raytheon" and any derivations thereof, except to the extent of the
rights granted Buyer under Section 11.13; and
(h) (x) all corporate records of the Seller, and (y) all financial,
tax and other records and files of the Seller that (i) do not relate to
the Heath Business or (ii) relate to the Heath Business but do not
relate solely to the Heath Business.
1.3. Purchased Shares. Subject to the terms and conditions set forth in
this Agreement, at the Closing referred to in Article 4 hereof, the Seller
shall sell, assign, transfer and deliver to the Buyer, and the Buyer shall
purchase, acquire and take assignment and delivery of, 1,000 common shares in
the capital of Heath Canada (the "Shares"), constituting all of the issued and
outstanding shares in the capital stock of Heath Canada.
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Article 2
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Assumption of Certain Obligations
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2.1. Assumption of Liabilities. Upon the sale and purchase of the
Acquired Assets, Buyer shall assume and agree to pay or discharge when due in
accordance with their respective terms all liabilities of the Seller relating
to the Heath Business of any nature, fixed or contingent or known or unknown;
provided, however, that Buyer shall not assume and shall not pay the following
liabilities:
(a) Liabilities incurred by Seller in connection with this Agreement
and the transactions provided for herein, including, without limitation,
counsel and accountant's fees, and expenses pertaining to the performance
by Seller of its obligations hereunder;
(b) Liabilities for Indebtedness (as defined in Article 18);
(c) Except for those Taxes (as defined in Article 18) for which the
Buyer is responsible pursuant to Article 15 or Section 19.3, liabilities
for Taxes of Seller (whether relating to periods before or after the
transactions contemplated in this Agreement or incurred by Seller in
connection with this Agreement and the transactions provided for herein),
including those liabilities that remain the responsibility of the Seller
pursuant to Article 15 and any liability for Taxes arising out of the
inclusion of Seller in any group filing consolidated, combined or unitary
tax returns or arising out of any transferee liability;
(d) Except for all liabilities relating to the matters identified in
Schedule 5.9 under the headings "BOSTON GRAPHICS V. HEATH" and "Optical
Data Corporation," which the Buyer shall assume, all liabilities in
connection with or relating to the actions, suits, claims, proceedings,
demands, assessments and judgments referred to on Schedule 5.9, and all
costs, losses, liabilities, damages, deficiencies and expenses (whether
or not arising out of third-party claims) associated therewith,
including, without limitation, interest, penalties, reasonable attorneys'
and accountants' fees and all amounts paid in investigation, defense or
settlement of any of the foregoing;
(e) Those liabilities of Seller under its pension and health and
welfare benefit plans retained by it pursuant to Sections 11.2 through
11.5 hereof;
(f) Liabilities of Seller in respect of severance agreements,
arrangements or obligations with or to employees of Seller who are
offered employment by the Buyer in accordance with Section 11.1 but who
decline such offer ; and
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(g) All liabilities incurred in connection with "stay-put"
arrangements implemented in connection with the sale of the Heath
Business, including without limitation "stay-put" bonuses and special
compensation for certain persons employed by Seller.
The liabilities to be assumed by Buyer under this Agreement are hereinafter
sometimes referred to as the "Assumed Obligations" and the liabilities which
are not assumed by Buyer under this Agreement are hereinafter sometimes
referred to as the "Excluded Liabilities," which Excluded Liabilities Seller
covenants it shall pay, satisfy and discharge in full when due. The assumption
of said liabilities by any party hereunder shall not enlarge any rights of
third parties under contracts or arrangements with Buyer or Seller and nothing
herein shall prevent any party from contesting in good faith with any third
party any of said liabilities.
Article 3
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Purchase Price
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3.1. Purchase Price. At the Closing, the Buyer shall pay Four Hundred and
Fifty-Five Million Dollars ($455,000,000) to the Seller, as the aggregate
purchase price for the Acquired Assets and the Shares, subject to adjustment as
provided in Section 3.2 hereof (the "Purchase Price"), by wire transfer of same
day funds. The Purchase Price shall be allocated among the Acquired Assets and
the Shares in a manner to be agreed upon by Buyer and Seller prior to the
Closing, except that the Purchase Price allocated to property, plant and
equipment shall equal its book value on the Closing Balance Sheet. All
references to dollars herein are to United States dollars.
3.2. Purchase Price Adjustments.
(a) Included as Schedule 3.2(a) under the heading "Target" is an
unaudited projected consolidated balance sheet of the Heath Business at
September 30, 1995 (the "Target Balance Sheet"). The Target Balance
Sheet is a forecasted balance sheet prepared on a basis consistent with
the principles used to prepare the July Balance Sheet referred to in
Section 5.6, except that (i) the Target Balance Sheet is a forecast only,
(ii) no cash is reflected on the Target Balance Sheet, (iii) the amount
of trade accounts receivable of the Heath Business has been set at
$5,000,000, net of the entire reserve for product returns, (iv) the
Target Balance Sheet does not have an accrual for Income Taxes (as
defined in Article 18) payable by the Seller and (v) the intercompany
account referred to in the July Balance Sheet (the "Intercompany
Account") has been closed out. Attached as Schedule 3.2(b) is a
description of the Seller's accounting policies used to determine the
reserves
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set forth on the Target Balance Sheet for excess and obsolete inventory
and for product returns.
(b) Within forty-five (45) days after the Closing Date, the Seller
shall prepare and deliver to the Buyer an unaudited consolidated balance
sheet of the Heath Business as of the close of business on the day
immediately preceding the Closing Date (the "Closing Balance Sheet").
The Closing Balance Sheet shall be prepared on the same basis as the July
Balance Sheet (including without limitation the accounting policies
described on Schedule 3.2(b)), except that the Closing Balance Sheet (i)
will not include any cash or cash equivalents of the Heath Division but
will include any cash or cash equivalents on hand at Heath Canada at
Closing, (ii) will include the Baseline Receivables and no other trade
accounts receivable of the Seller, (iii) will not have an accrual for
Income Taxes payable by the Seller and (iv) will reflect that the
Intercompany Account has been closed out.
(c) When the Seller delivers the Closing Balance Sheet, the Seller
shall also deliver a certificate (i) certifying that the Closing Balance
Sheet was prepared in accordance with paragraph (b) above, and (ii)
containing the Seller's calculations, based on the Closing Balance Sheet
(the "Seller's Proposed Calculations"), of the Net Assets as of the
Closing Date. As used in this Agreement "Net Assets" means (i) in the
case of the Heath Division, the Acquired Assets and Assumed Obligations
and (ii) in the case of Heath Canada, the assets and liabilities of Heath
Canada outstanding at Closing, other than any liability for Taxes for
which the Seller will be responsible pursuant to Article 15.
(d) Within thirty (30) days after receipt of the Closing Balance
Sheet and the accompanying certificate, the Buyer shall notify the Seller
of its agreement or disagreement with the Closing Balance Sheet and the
accuracy of any of the Seller's Proposed Calculations; provided, that the
Buyer may only dispute the Closing Balance Sheet and the Seller's
Proposed Calculations to the extent that they deviate from the
requirements of paragraphs (b) and (c) above. If the Buyer disputes any
such aspect of the Closing Balance Sheet or the amount of any of the
Seller's Proposed Calculations, then the Buyer shall have the right to
direct its independent accountants, at the Buyer's expense, to review and
test the Closing Balance Sheet. The Buyer's accountants shall complete
their review and test within thirty (30) days after the date the Buyer
disputes the Seller's Proposed Calculations. If the Buyer and its
independent accountants, after such review and test, still disagree with
the Seller's Proposed Calculations, and the Seller does not accept the
Buyer's proposed alternative calculations (the "Buyer's Proposed
Calculations"), then, within thirty (30) days after the date of the
Seller's rejection of the Buyer's Proposed Calculations, the Seller and
the Buyer shall select a third nationally recognized independent
accounting firm (the "Independent Accounting Firm")
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to resolve the remaining disputed items (the "Remaining Disputed Items")
by conducting its own review and test of the Closing Balance Sheet and
thereafter selecting either the Buyer's Proposed Calculation of the
Remaining Disputed Items or the Seller's Proposed Calculation of the
Remaining Disputed Items or an amount in between the two. The
Independent Accounting Firm shall be instructed (i) that the scope of its
review shall be limited solely to the Remaining Disputed Items, (ii)
that it shall accept the Closing Balance Sheet and the Seller's Proposed
Calculations except to the extent that they deviate from the requirements
of paragraph (b) above, and (iii) that it is to use every reasonable
effort to complete such assignment and deliver copies of such opinion
and, if required, a revised Closing Balance Sheet to the Buyer and the
Seller within thirty (30) days following the date such Remaining Disputed
Items are referred to it. The Buyer and the Seller agree that they shall
be bound by the determination of the Remaining Disputed Items by the
Independent Accounting Firm. The fees and expenses of the Independent
Accounting Firm shall be paid jointly by the Buyer and the Seller.
(e) Upon the determination pursuant to paragraph (d) of this Section
3.2 of the definitive Closing Balance Sheet and the Net Assets as of the
Closing Date, the Purchase Price shall be either (i) increased by the
amount, if any, by which the amount of Net Assets is greater than
$123,582,000 or (ii) decreased by the amount, if any, by which the amount
of Net Assets is less than $123,582,000 (the "Adjustment"). If the
Purchase Price is increased, the Buyer shall pay such amount to the
Seller, and if the Purchase Price is decreased the Seller shall pay such
amount to the Buyer. Any such payment shall be made in cash or same day
funds within ten (10) days after the determination of the Adjustment
pursuant to paragraph (d).
Article 4
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Closing
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4.1. Time and Place. The closing of the transfer and delivery of all
documents and instruments necessary to consummate the transactions contemplated
by this Agreement (the "Closing") shall be held at the offices of Bingham, Dana
& Gould, 150 Federal Street, Boston, Massachusetts, on the fifth business day
following completion of the regulatory approvals referred to in Section 7.1, or
at such other time or such other place as the Buyer and the Seller may agree.
The date on which the Closing is actually held hereunder is sometimes referred
to herein as the "Closing Date". The Closing will be deemed to be effective
for purposes of this Agreement as of the opening of business on the Closing
Date.
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4.2. Transactions at Closing. At the Closing:
(a) The Seller shall deliver to the Buyer certificates representing
the Shares, with duly executed stock powers attached.
(b) The Seller shall duly execute and deliver to the Buyer or its
nominee or nominees such deeds, bills of sale, certificates of title and
other instruments of assignment or transfer with respect to the Acquired
Assets as the Buyer may reasonably request and as may be necessary to
vest in the Buyer all of the Seller's title to the Acquired Assets.
(c) The Buyer shall deliver the Purchase Price by wire transfer to
the Seller.
(d) The Buyer shall duly execute and deliver to the Seller such
instruments of assumption with respect to the Assumed Obligations as the
Seller may reasonably request.
Article 5
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Representations And Warranties Of Seller
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The Seller represents and warrants to the Buyer as follows:
5.1. Incorporation; Authority. Each of the Seller and Heath Canada is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is incorporated and has all requisite
corporate power and authority to carry on the Heath Business as now conducted.
Heath Canada has delivered or made available to the Buyer copies of its
articles of incorporation and by-laws or other organizational documents, and
all amendments thereto.
5.2. Rights to Sell Acquired Assets and Shares; Approvals; Binding Effect.
The Seller has all requisite corporate power and authority to enter into this
Agreement, to perform all of its agreements and obligations hereunder in
accordance with its terms, and to sell and transfer to the Buyer all of the
Shares and Acquired Assets. This Agreement has been duly executed and
delivered by the Seller and constitutes the legal, valid and binding obligation
of the Seller, enforceable against the Seller in accordance with its terms,
except as such validity, binding effect or enforcement may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights generally or
by equitable principles relating to the availability of remedies.
5.3. Subsidiaries. Heath Canada does not have any Subsidiaries (as
defined in Article 18) and does not own or hold of record and/or beneficially
any shares of
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any class in the capital of any corporation or any ownership interest of any
kind of any other Person (as defined in Article 18).
5.4. Capitalization. The authorized capital of Heath Canada consists of
1,000 common shares, all of which are issued and outstanding on the date
hereof. All such outstanding shares of capital stock of Heath Canada are owned
by the Seller, are being sold by the Seller to the Buyer pursuant hereto and
are validly issued and outstanding, fully paid and non-assessable. Except for
this Agreement, there are no commitments for the purchase or sale of, and no
options, warrants or other rights to subscribe for or purchase, any shares of
Heath Canada.
5.5. Title to Assets and Shares. The Seller owns or has the right to
transfer all of the Acquired Assets. At and as of the Closing, the Seller will
convey to the Buyer good and marketable title to the Acquired Assets, and will
convey to the Buyer record and beneficial ownership of the Shares, in each case
free and clear of all Encumbrances (as defined in Article 18) except for
Permitted Encumbrances (as defined in Article 18).
5.6. Financial Statements. The Seller has furnished to the Buyer, and
attached as Schedule 5.6 hereto are, copies of (a) the unaudited balance sheets
of the Heath Business as of December 31, 1993 and 1994, and unaudited income
statements of the Heath Business for the years then ended, and (b) the
unaudited balance sheet of the Heath Business as of the Seller's fiscal month
end for July 1995 (the "July Balance Sheet"), and an income statement of the
Heath Business for the seven fiscal months ended on such date. Each of such
financial statements has been prepared in accordance with the Seller's internal
accounting principles, consistent with prior periods, except that in 1995 the
Heath Business began booking depository sales on a monthly basis, the Heath
Business effected a one-time reduction in the level of excess and obsolete
inventory reserves and the Heath Business changed its policy concerning
teachers editions from expense to inventory; each of such balance sheets fairly
presents in all material respects the financial condition of the Heath Business
as of its respective date; and each of such income statements fairly presents
in all material respects the results of operations of the Heath Business for
the period covered thereby.
5.7. Absence of Certain Changes. Except as set forth on Schedule 5.7,
from the date of the July Balance Sheet to the date of this Agreement the Heath
Business has operated only in the ordinary course and there has not been:
(a) except for changes resulting from the new accounting policies
described in Section 5.6, any change in the condition (financial or
otherwise), results of operations, assets, liabilities or business of the
Heath Business which, individually or in the aggregate, has had a
Material Adverse Effect (as defined in Article 18);
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(b) any acquisition or disposition by the Seller or Heath Canada
outside the ordinary course of business of any asset or property used
solely in the Heath Business;
(c) any damage, destruction or casualty loss to any asset of the
Seller or Heath Canada and relating to the Heath Business, whether or not
covered by insurance, which has had a Material Adverse Effect;
(d) any declaration, setting aside or payment of any dividend or any
other distributions (direct or indirect) in respect of the Shares;
(e) any direct or indirect redemption, purchase or other acquisition
of any Shares or any commitment for such issuance, redemption, purchase,
or other acquisition;
(f) any increase in (or commitment to increase) the compensation,
pension or other benefits payable or to become payable to any of the
officers, employees, agents or representatives of the Heath Business or
any bonus payments or arrangements made to or with any of them, that will
constitute an Assumed Obligation or an obligation of Heath Canada after
the Closing, other than (i) increases in total compensation amounting to
less than $20,000 individually or in base salary amounting to less than
$5,000 individually and in each case effected on a basis consistent with
the past practice of the Seller or Heath Canada and (ii) any increase
required under the terms of any of the benefit plans listed on Schedule
5.12 hereto or the incentive plans referred to in Section 11.10;
(g) any voluntary forgiveness or cancellation of any debt or claim
of the Heath Business in excess of $5,000 or any voluntary waiver of any
right of material value other than compromises of accounts receivable in
the ordinary course of business;
(h) the imposition of any Encumbrance on any of the assets of the
Heath Business except for Permitted Encumbrances;
(i) any lapse of any intellectual property right or termination of
any agreement under which the Seller (insofar as it relates to the Heath
Business) or Heath Canada has any right or license, the lapse or
termination of which singly or in the aggregate would have a Material
Adverse Effect;
(j) any lapse, termination or expiration of any contract or
agreement, including any joint venture agreement, distribution agreement,
license agreement, author contract, work-for-hire or development
contract, to which the Seller (insofar as it relates to the Heath
Business) or Heath Canada
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had been a party, the lapse, termination or expiration of which would
singly or in the aggregate result in a Material Adverse Effect; or
(k) any intercompany transactions relating to the Heath Business
with any Affiliate (as defined in Article 18) of the Seller, other than
Heath Canada, except (i) in the ordinary course operation of the Heath
Business or (ii) involving consideration or transfers in any one
transaction of not more than $10,000 and not more than $100,000 in the
aggregate.
5.8. Indebtedness. Except for Indebtedness (i) listed on Schedule 5.8
hereto, (ii) reflected or reserved against in the July Balance Sheet or (iii)
incurred after the date of the July Balance Sheet in the ordinary course
operation of the Heath Business, Heath Canada has no Indebtedness outstanding
at the date hereof. Heath Canada is not in default with respect to any
outstanding Indebtedness or any instrument relating thereto, except for any
defaults that singly or in the aggregate would not have a Material Adverse
Effect.
5.9. Litigation, Etc. As of the date of this Agreement no proceeding,
arbitration, action or suit is pending against the Seller (insofar as it
relates to the Heath Business) or Heath Canada except as set forth on Schedule
5.9 hereto. To the Seller's knowledge, as of the date of this Agreement no
proceeding, arbitration, action or suit is threatened against the Seller
(insofar as it relates to the Heath Business) or Heath Canada, except as set
forth on Schedule 5.9 hereto and except for any such proceeding, arbitration,
action, or suit that, singly or in the aggregate, would not have a Material
Adverse Effect. As of the date of this Agreement, neither the Seller (insofar
as it relates to the Heath Business) nor Heath Canada has received any written
notice from any governmental authority of any pending or threatened
governmental investigation relating to the Heath Business which, if concluded
with a determination adverse to the Heath Business, would have a Material
Adverse Effect.
5.10. Labor Relations. Except as set forth on Schedule 5.10, as of the
date of this Agreement there is no charge pending or, to the knowledge of the
Seller, threatened against the Seller or Heath Canada alleging, with respect to
any employee or employees of the Heath Business, any violation of any statute
or regulation relating to employment and employment practices, or any violation
of any collective bargaining agreement, any unlawful discrimination in
employment practices or any unfair labor practices before any court, agency, or
other judicial or arbitral body, except for any such violation that singly or
in the aggregate would not have a Material Adverse Effect. As of the date of
this Agreement, there is no labor strike, dispute, slow-down or work stoppage
actually pending or, to the Seller's knowledge, threatened against the Seller
(with respect to employees of the Heath Business) or Heath Canada. No
employees of the Heath Business are covered by any collective bargaining
agreement; as of the date of this Agreement no collective bargaining agreement
or other labor union agreement or agreement with organized labor for employees
of the Heath Business is currently being negotiated or pending
<PAGE> 13
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negotiation; and as of the date of this Agreement Seller is not obligated to
recognize any union as a collective bargaining representative of any employees
of the Heath Business, no petition for a representation election among any
employees of the Heath Business is pending and to the Seller's knowledge no
union is actively attempting to organize any employees of the Heath Business.
Except as set forth on SCHEDULE 5.10 hereto, there has been no material
concerted work stoppage with respect to the Heath Business during the last
three years.
5.11. Contracts. Except for contracts, commitments, plans, agreements and
licenses listed on Schedule 5.11(a), Schedule 5.12 or Schedule 11.10, as of the
date of this Agreement (or as of such other date set forth in Schedule
5.11(a)), neither the Seller (insofar as it relates to the Heath Business) nor
Heath Canada is a party to or otherwise bound by:
(a) except for any contract or agreement that will not constitute an
Assumed Obligation or an obligation of Heath Canada after the Closing, is
terminable at will without penalty or provides for less than $50,000 in
compensation per year, any employment or consulting contract or agreement
with any director, officer or employee of the Heath Business or any
arrangement relating to deferred compensation for any director, officer
or employee;
(b) except for any contract, lease or license that is an Excluded
Asset, any contract for the lease or sublease as lessee, lessor,
sublessee or sublessor of real or personal property of the Heath
Business, or any license of computer software used in the Heath Business
in a manner that is material to the operation of the Heath Business,
requiring payments in excess of $25,000 per year;
(c) except for purchase orders issued in the ordinary course of
business, any contract requiring payments in excess of $25,000 for the
purchase or sale of any personal property used in the Heath Business;
(d) any contract or agreement with any sales agent or distributor of
publications or multimedia products of the Heath Business that is
reasonably likely to require net payments in excess of $50,000 during
1996;
(e) any contract or agreement containing non-competition covenants
limiting the freedom of the Seller or Heath Canada to operate the Heath
Business;
(f) any partnership, joint venture or consortium agreement
representing more than $1,000,000 of the Heath Business' sales in 1994 or
that the Seller reasonably believes as of the date of this Agreement will
represent more than $1,000,000 of the Heath Business' sales in 1995;
<PAGE> 14
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(g) any author contracts, work-for-hire contracts or development
contracts relating solely to the Heath Business and requiring estimated
or actual annual payments in 1995 in excess of $100,000;
(h) any contract or agreement with a printer entered into outside
the ordinary course of business that is material to the Heath Business;
or
(i) any contract or agreement for guaranty, indemnity or suretyship
of Indebtedness of the Heath Business in excess of $100,000.
Neither the Seller nor Heath Canada, or to the knowledge of the Seller,
any other party to any contract, agreement, lease or instrument listed on
Schedule 5.11(a) is, as of the date of this Agreement, in default in complying
with any provisions thereof, except for any such default that would not have a
Material Adverse Effect. Attached as Schedule 5.11(b) is a list of all royalty
payments made by the Heath Business for its most recent royalty period.
Attached as Schedule 5.11(c) is a list of all open commitments of the Heath
Business for unliquidated royalty advances as of September 22, 1995. Attached
as Schedule 5.11(d) is a purchase order line item listing of open commitments
in excess of $5,000 as of a current date for editorial and plant development.
5.12. Pensions and Benefits.
(a) Except as set forth on Schedule 5.12(a) hereto, as of the date
of this Agreement, the Seller does not maintain or have any obligation to
make contributions to, any employee benefit plan (an "ERISA Plan") within
the meaning of Section 3(3) of the United States Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or any other
retirement, profit sharing, stock option, stock bonus or other benefit
program (a "Non-ERISA Plan"), in either case, for the benefit of any
officers, employees or consultants of the Heath Business. The Seller has
heretofore delivered or made available to the Buyer copies or summaries
of each such ERISA Plan and Non-ERISA Plan and any associated funding
instruments and, with respect to any such ERISA Plan, the most recently
completed annual report (with any required attachments), the most recent
IRS determination letter, and any other advisory opinions or rulings
applicable to such Plan.
(b) Except as set forth on Schedule 5.12(b) hereto, Heath Canada
does not maintain or have any obligation to make contributions to any
employee health or welfare, retirement, profit sharing, stock option,
stock bonus or other benefit program for the benefit of any officers,
employees or consultants of Heath Canada (a "Canadian Plan"). The Seller
has previously delivered or made available to the Buyer copies or
summaries of each such Canadian Plan and any associated funding
instruments.
<PAGE> 15
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(c) To the Seller's knowledge, the Raytheon Company Pension Plan for
Salaried Employees and the Raytheon Company Pension Plan for Hourly
Employees (the "Seller's Retirement Plans") and the Retirement Plan for
Employees of D.C. Heath Canada, Ltd. (the "Canadian Retirement Plan")
have been maintained and operated in all material respects in accordance
with all federal, state, provincial and local laws applicable to such
plans, and the terms and conditions of the respective plan documents.
Except as set forth on Schedule 5.12(c) hereto, as of the date of this
Agreement no action, suit, proceeding or investigation is pending or, to
the knowledge of the Seller, threatened against any Canadian Plan, other
than routine claims for benefits.
(d) With respect to any ERISA Plan or Non-ERISA Plan, there has been
no (nor will there be any as a result of the transactions contemplated by
this Agreement) event or condition which presents a material risk of plan
termination or any other event that may cause Seller, Heath Canada or
Buyer to incur liability or have a lien imposed on its assets under the
Code, ERISA or any other applicable statute.
(e) To the Seller's knowledge, in connection with the Heath Business
no party has failed to comply with the continuation health care coverage
requirements of Section 4980B of the Code and Sections 601 through 607 of
ERISA in respect of the ERISA Plans.
5.13. Intellectual Property
(a) Except as described in Schedule 5.13, (i) Seller or Heath Canada
owns or licenses sufficient rights, title and interest in all material
copyright, trade secret, trademark, or other proprietary rights
(collectively, "Intellectual Property") required to conduct the Heath
Business as presently conducted; (ii) as of the date of this Agreement
there are no proceedings, arbitrations, actions or suits pending or to
the Seller's knowledge threatened, and no unresolved written claims
outstanding, which challenge the rights of Seller or Heath Canada in
respect thereof or charge the Seller or Heath Canada with infringement of
any adversely held Intellectual Property, except for any proceedings,
arbitrations, actions, suits or claims that singly or in the aggregate
will not have a Material Adverse Effect; and (iii) except for any of the
Excluded Assets to be made available to the Buyer pursuant to the Spring
Street Lease or Section 11.14, Seller and Heath Canada have the right to
use all customer lists, designs, manufacturing or other processes,
computer software, systems, data compilations, research results and other
information required for the operation of the Heath Business as presently
conducted.
(b) To the Seller's knowledge, as of the date of this Agreement
there exists no infringement by others of any of the Sellers or Heath
Canada's
<PAGE> 16
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Intellectual Property rights relating to the Heath Business, except for
any such infringement that singly or in the aggregate will not have a
Material Adverse Effect.
(c) To the Seller's knowledge, the Works do not contain any material
which infringes upon any copyright or other proprietary right of any
third party or which is libelous, an invasion of privacy or otherwise
unlawful, except for any such material that singly or in the aggregate
will not have a Material Adverse Effect. Neither Seller nor Heath Canada
is making unauthorized use of any confidential information or trade
secrets of any Person, including without limitation any former employer
of any past or present employee of Seller or Heath Canada, except for any
unauthorized uses that singly or in the aggregate will not have a
Material Adverse Effect. Except as set forth in Schedule 5.13, neither
the Seller (insofar as it relates to the Heath Business) nor Heath Canada
is violating any confidentiality agreement with any third party, and to
the Seller's knowledge none of their employees (with respect to the
Seller, insofar as it relates to the Heath Business) is violating any
such agreement, except for any violations that singly or in the aggregate
will not have a Material Adverse Effect.
5.14. Governmental Consent. Except for the approval required with respect
to the HSR Act (as defined in Section 7.1), consents to transfer required with
respect to book adoption contracts with governments or governmental agencies,
as set forth on Schedule 5.14, and for those other items set forth on Schedule
5.14, no consent, approval or authorization of or registration, designation,
declaration or filing with any governmental authority, on the part of the
Seller or Heath Canada, is required in connection with the consummation of any
of the transactions contemplated hereby, except for any approval,
authorization, registration, designation, declaration or filing that, if not
obtained or made, would not have a Material Adverse Effect, and would not
materially adversely affect the ability of the Seller to perform its
obligations under this Agreement.
5.15. Compliance With Laws, Etc. Except as set forth on Schedule 5.15
hereto, each of the Seller (insofar as it relates to the operation of the Heath
Business) and Heath Canada is in compliance with all laws, statutes,
governmental regulations and all judicial or administrative tribunal orders,
judgments, writs and injunctions applicable to it, except for any
non-compliance that would not have a Material Adverse Effect. Except as set
forth on Schedule 5.15, each of the Seller and Heath Canada has obtained all
permits, licenses, registrations, franchises, certifications and other
approvals (collectively, "Approvals") required from federal, state, provincial
or local authorities in order for Seller and Heath Canada to conduct the Heath
Business as presently conducted, except for those Approvals that if not
obtained would not result in a Material Adverse Effect.
<PAGE> 17
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5.16. Location of Inventories. Except for the Owned Real Property, Leased
Real Property and Heath Headquarters, Schedule 5.16 hereto specifies all
locations at which Inventories or inventories of Heath Canada, having an
aggregate value in excess of $100,000, are located as of the date of this
Agreement.
5.17. Customers and Suppliers. Schedule 5.17(a) hereto sets forth a list
of each paying account that represented more than 1% of gross school sales in
1994 or more than 1% of the gross college sales in 1994 of the Heath Business.
Schedule 5.17(b) sets forth a list of the ten largest suppliers of goods and
materials to the Heath Business in terms of purchases during the fiscal year
ended December 31, 1994, showing the approximate total purchases of the Heath
Business from each supplier during the fiscal year ended December 31, 1994.
Except as set forth in Schedule 5.17(b), as of the date of this Agreement there
has not been any material adverse change in the business relationship of the
Heath Business with any supplier named in such Schedule since January 1, 1995.
5.18. Environmental Matters.
(a) Except as set forth in Schedule 5.18 hereto, (i) the Owned Real
Property and the Leased Real Property and all improvements thereon are in
compliance with all applicable Environmental Laws, (ii) neither the
Seller (insofar as it relates to the Heath Business) or Heath Canada nor,
to the Seller's knowledge, any person using or occupying the Owned Real
Property or the Leased Real Property or any part thereof, is in violation
of any Environmental Laws, (iii) the Seller and Heath Canada hold, and
are in compliance with, all permits, licenses, and approvals required by
applicable Environmental Laws for all their operations and activities at
the Owned Real Property and the Leased Real Property, and all such
permits, licenses, and approvals were duly issued and are in full force
and effect, and (iv) neither the Seller nor Heath Canada has in the past
violated in connection with the Owned Real Property or Leased Real
Property, or has any liability under, any Environmental Law, except in
the case of clauses (i) to (iv) above for any non-compliance, violation
or liability of the types listed above that would not individually or in
the aggregate have a Material Adverse Effect.
(b) Except as set forth in Schedule 5.18 hereto, (i) neither the
Seller nor Heath Canada has at any time transported, or arranged for the
transport of, any Hazardous Material from the Owned Real Property or the
Leased Real Property or released or disposed of, or allowed the release
or disposal of, any Hazardous Materials on or at the Owned Real Property
or the Leased Real Property, except for any transportation, releases or
disposals that singly or in the aggregate will not have a Material
Adverse Effect, and (ii) to the Seller's knowledge, no Hazardous Material
is now or has been located, released, disposed of, stored on, or
transported at or from the Owned Real Property or the Leased Real
Property, except for any releases, disposals, storage or
<PAGE> 18
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transportation that singly or in the aggregate will not have a Material
Adverse Effect, and no underground storage tanks are or have been located
on the Owned Real Property.
(c) With respect to any Leased Real Property or Owned Real Property
or any real property currently owned or occupied by Heath Canada, any
current or former operations of the Seller or Heath Canada, or any waste
materials generated by the Seller or Heath Canada at any time, in each
case with respect to the Seller only in connection with the Heath
Business, the Seller and Heath Canada have not (i) entered into or been
subject to any consent decree or governmental agency order regarding
environmental matters, (ii) received any information request, notice,
demand, administrative inquiry, or formal or informal complaint or claim
from any party (including, without limitation, a governmental authority)
with respect to environmental matters, or (iii) been subject to or
threatened with any governmental or citizen enforcement or other action
regarding environmental matters, except for any of the above that would
not individually or in the aggregate have a Material Adverse Effect.
(d) For purposes of this Section 5.18, the term "Environmental Laws"
shall mean all federal, state, or local laws, regulations, rules,
ordinances, and by-laws relating to environmental matters, including,
without limitation, those relating to the release, discharge, emission,
generation, treatment, storage, or disposal of Hazardous Materials. For
purposes of this Section 5.18, the term "Hazardous Materials" shall mean
any oil, petroleum, asbestos or asbestos-containing material, pollutant,
contaminant, hazardous waste, or hazardous substance, as those terms are
defined under the Comprehensive Environmental Response, Compensation, and
Liability Act, as amended, 42 U.S.C. Section Section 9601 et seq., the
Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section
Section 6901 et seq., or any other Environmental Law.
5.19. No Defaults. The entering into of this Agreement, the performance
and compliance by the Seller with the terms hereof, and the consummation of all
the transactions contemplated hereby, will not either currently, or after
notice or lapse of time or both:
(a) result in a violation of any provision of the charter, by-laws
or other organizational documents of the Seller or Heath Canada; or
(b) result in a violation by the Seller or Heath Canada of any
statute, regulation, order, law, ordinance or restriction applicable to
the Seller or Heath Canada, other than any violation which singly or in
the aggregate would not have a Material Adverse Effect; or
<PAGE> 19
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(c) result in a violation by the Seller or Heath Canada of any
judgment, order or decree of any court or judicial or quasi-judicial
tribunal applicable to the Seller or Heath Canada, other than any
violation which singly or in the aggregate would not have a Material
Adverse Effect.
5.20. Brokers. Except for CS First Boston Corporation, whose fees and
expenses will be paid by the Seller, no finder, broker, agent or other
intermediary has worked for or on behalf of the Seller or Heath Canada in
connection with the negotiation or consummation of the transactions
contemplated hereby.
5.21. Real and Personal Property.
(a) Owned Real Property. All of the real property owned by Seller
and used in or necessary for the operation of the Heath Business is
identified on Schedule 1.1(e)(i) as "Owned Real Property". Seller hereby
makes the following representations and warranties with respect to the
Owned Real Property:
(i) Title and Description. Seller has good, clear, record
and marketable fee simple title to the Owned Real Property, free
and clear of all mortgages, deeds of trust, ground leases,
assessments, leases and tenancies, claims, covenants, conditions,
restrictions, easements, judgments or other encumbrances and free
of encroachments onto or off of the Owned Real Property, except
for Permitted Encumbrances (as defined in Article 18).
(ii) Compliance With Law; Governmental Approvals. Seller has
received no notice from any governmental authority of any
violation of any law, ordinance, regulation, license, permit or
authorization issued with respect to any of the Owned Real
Property that has not been corrected heretofore and the Owned Real
Property is now in compliance in all respects with all applicable
laws, ordinances, regulations, licenses, permits and
authorizations, except for any violations or non-compliance that
singly or in the aggregate would not have a Material Adverse
Effect. Seller has received no written notice of any pending or
threatened real estate tax deficiency or reassessment or
condemnation of all or any portion of any of the Owned Real
Property.
(b) Leased Real Property. All of the real property leased by Seller
as tenant or lessee and used in or necessary for the operation of the
Heath Business is identified on Schedule 1.1(e)(ii) as "Leased Real
Property." Seller hereby makes the following representations and
warranties with respect to the Leased Real Property:
<PAGE> 20
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(i) Leases. The copies of the leases of the Leased Real
Property (collectively, the "Leases") delivered by Seller to Buyer
and the information with respect to each of the Leases set forth
in Schedule 1.1(e)(ii) is complete, accurate, true and correct in
all material respects. With respect to each of the Leases:
(A) each of the Leases is in full force and effect and
has not been modified, amended, or altered, in writing or
otherwise; and
(B) neither the Seller or Heath Canada nor, to the
Seller's knowledge, the other party or parties thereto, is
in default under any of the Leases, except for those
defaults that singly or in the aggregate will not have a
Material Adverse Effect.
Article 6
---------
Representations and Warranties of the Buyer
-------------------------------------------
The Buyer represents and warrants to the Seller as follows:
6.1. Organization and Standing of the Buyer. The Buyer is a corporation
duly organized, validly existing and in good standing under the laws of The
Commonwealth of Massachusetts. The Buyer has all required corporate power and
authority to enter into this Agreement, to perform all of its agreements and
obligations hereunder in accordance with its terms and to purchase the Acquired
Assets and the Shares from the Seller.
6.2. Corporate Approval; Binding Effect. The Buyer has obtained all
necessary authorizations and approvals from its Board of Directors and
shareholders required for the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. This Agreement has been
duly executed and delivered by the Buyer and constitutes the legal, valid and
binding obligation of the Buyer enforceable against the Buyer in accordance
with its terms, except as such validity, binding effect or enforcement may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally or by equitable principles relating to the availability of remedies.
6.3. Non-Contravention. The execution, delivery and performance by the
Buyer of this Agreement will not result in any violation of or be in conflict
with its Certificate of Incorporation or By-Laws, or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
it, or be in conflict with or constitute a default under any of the foregoing.
<PAGE> 21
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6.4. Government Consents, Etc. Except for the approvals referred to in
Section 5.14 and the notice contemplated in Section 7.2, no consent, approval
or authorization of or registration, designation, declaration or filing with
any governmental authority, federal or other, on the part of the Buyer is
required in connection with the purchase of the Acquired Assets and Shares
pursuant to this Agreement or the consummation of any other transaction
contemplated hereby.
6.5. Purchase for Investment. The Buyer is purchasing the Shares for
investment and not with a view to any public resale or other distribution
thereof. The Buyer acknowledges that it has received, or has had access to,
all information which it considers necessary or advisable to enable it to make
a decision concerning its purchase of the Shares.
6.6. Brokers. Except for Bear, Stearns & Co., Inc., whose fees and
expenses will be paid by the Buyer, no finder, broker, agent or other
intermediary has worked for or on behalf of the Buyer in connection with the
negotiation or consummation of the transactions contemplated hereby.
Article 7
---------
Certain Regulatory Approvals; Deferred Closing
----------------------------------------------
7.1. Hart-Scott-Rodino Act. As promptly as practicable, and in any event
within five (5) business days following the execution and delivery of this
Agreement by the parties, the Seller and the Buyer shall each prepare and file
any required notification and report form under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), in connection with the
transactions contemplated hereby; the Seller and the Buyer shall request early
termination of the waiting period thereunder; and the Seller and the Buyer
shall respond with reasonable diligence and dispatch to any request for
additional information made in response to such filings.
7.2. Investment Canada Act. As promptly as practicable, and in any event
within five (5) business days following the execution and delivery of this
Agreement by the parties, the Buyer will file notice of the proposed
acquisition of the Shares as required under the Investment Canada Act (Canada)
(the "Investment Canada Act"). The Seller will have a reasonable opportunity
to comment on the notice prior to its being filed. The Buyer shall respond
with reasonable diligence and dispatch to any request for additional
information made in response to such filings.
<PAGE> 22
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7.3. Deferred Canadian Closing.
(a) The Buyer and the Seller agree that, in the event that the
waiting period under the HSR Act has been terminated or waived, but the
Buyer or the Seller has not received either: (i) a notice from Investment
Canada advising that the purchase and sale of the Shares as contemplated
hereby is not reviewable under the Investment Canada Act; or (ii) a
notice from the minister under the Investment Canada Act that he is
satisfied (unless the minister is deemed to be satisfied) that the
purchase and sale of the Shares contemplated hereby is likely to be of
net benefit to Canada (either of (i) or (ii), the "Canadian Approval"),
then they will complete the transfer of the Acquired Assets and Assumed
Obligations at the time contemplated by Section 4.1 (the "First
Closing"), but will defer the transfer of the Shares until the fifth
business day after receipt of the Canadian Approval, or such other time
as the Buyer and Seller may agree (the "Second Closing"). At the First
Closing the Buyer shall pay the Purchase Price contemplated by Section
3.1 less the sum of $6,000,000. At the Second Closing the Buyer shall
pay the Seller $6,000,000 plus interest on such amount, at a rate equal
to LIBOR (as defined in Article 18) plus 4% from the First Closing to the
Second Closing.
(b) In the event of a deferred closing for the transfer of the
Shares, the Purchase Price will be adjusted as provided in Section 3.2 as
if the Shares had been transferred at the First Closing. In addition, at
the Second Closing the Seller will deliver the certificate referred to in
Section 9.10.
(c) In the event of a deferred closing for the transfer of the
Shares, the Seller will operate Heath Canada for the benefit of the Buyer
until the Second Closing. In order to implement the foregoing, at the
First Closing the Buyer and the Seller will enter into a Transitional
Services Agreement in the form of Exhibit A hereto (the "Transitional
Services Agreement").
Article 8
---------
Conduct Of Business Pending Closing
-----------------------------------
The Seller covenants and agrees that, from and after the date of this
Agreement and until the Closing, except as otherwise specifically consented to
or approved by the Buyer in writing:
8.1. Full Access. The Seller shall, and shall cause Heath Canada to,
afford to the Buyer and its authorized representatives such access during
normal business hours to all properties, books, records, contracts and
documents of the Heath Business as the Buyer shall reasonably request in
connection with its review of the Heath Business, and the Seller shall furnish
or cause to be furnished to the Buyer and
<PAGE> 23
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its authorized representatives all such information with respect to the Heath
Business as the Buyer may reasonably request. The foregoing access will
include cooperation required to perform any environmental studies. Any such
investigation shall be on reasonable prior notice and shall be carried out in
such a manner as to minimize any disruption of the Heath Business.
8.2. Carry on in Regular Course. Except as may be otherwise contemplated
by this Agreement or required by any of the documents listed in any Schedule to
this Agreement, the Seller shall, and shall cause Heath Canada to, carry on the
Heath Business in the ordinary course substantially in the same manner as
heretofore.
8.3. No Dividends, Issuances, Repurchases, Etc. Except as may be
contemplated by Section 11.7, the Seller shall not permit Heath Canada to
declare or pay any dividends on, or make any other distribution in respect of,
any shares of its capital stock, or to issue, purchase, redeem or acquire for
value any shares of its capital stock.
8.4. No General Increases. Except for any increase required under the
terms of any employment agreement or benefit plan referred to in Section 5.12
and any increase in compensation that will not constitute an Assumed Obligation
or an obligation of Heath Canada after the Closing, the Seller shall not, and
shall not permit Heath Canada to, (i) except for annual pay increases
consistent with past practice, grant any general or uniform increase in the
rates of pay of employees of the Heath Business, or (ii) grant any general,
uniform or individual increase in the benefits under any bonus or pension plan
or other contract or commitment for the benefit of any employee of the Heath
Business, or to increase the compensation payable or to become payable to
officers, key salaried employees or representatives of the Heath Business, or
(iii) increase any bonus, insurance, pension or other benefit plan, payment or
arrangement made to, for or with any such officers, key salaried employees or
representatives.
8.5. Sale of Capital Assets. Except as may be otherwise contemplated by
this Agreement, the Seller shall not, and shall not permit Heath Canada to,
sell or otherwise dispose of any capital assets of the Heath Business with a
book value in excess of $10,000.
8.6. Insurance. The Seller shall, and shall cause Heath Canada to,
maintain insurance coverage for the Heath Business comparable to the insurance
coverage currently in effect.
8.7. Preservation of Organization. Except as may be otherwise
contemplated by this Agreement, the Seller shall, and shall cause Heath Canada
to, use reasonable efforts under the applicable circumstances to keep the
organization and material business relationships of the Heath Business intact
in all material respects.
<PAGE> 24
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8.8. Advice of Change. The Seller shall advise the Buyer in writing,
promptly after becoming aware thereof, of any material adverse change in the
condition, operations or assets of the Heath Business.
8.9. No Shopping. Prior to any termination of this Agreement pursuant to
Article 16 hereof, the Seller shall not, and shall not permit Heath Canada to,
solicit or enter into any agreement with respect to the issuance or sale of any
capital stock of Heath Canada, or the sale of any substantial portion of the
Heath Business or of the Acquired Assets or any of the Shares, or any merger or
other business combination of the Seller (solely as it relates to the Heath
Business) or Heath Canada, to or with any Person other than the Buyer.
Article 9
---------
Conditions Precedent To Buyer's Obligations
-------------------------------------------
The obligation of the Buyer to consummate the Closing is subject to the
satisfaction prior to or at the Closing of each of the following conditions (to
the extent noncompliance is not waived in writing by the Buyer):
9.1. Representations and Warranties. The representations and warranties
made by the Seller in this Agreement shall have been correct in all material
respects when made and shall be correct in all material respects at and as of
the Closing ((a) except for such representations and warranties which are
qualified by their terms by a reference to materiality or to a Material Adverse
Effect, which representations and warranties as so qualified shall be correct
in all respects when made and shall be correct in all respects at and as of the
Closing and (b) except to the extent that such representations and warranties
are no longer correct due to the consummation prior to the Closing of
transactions not prohibited hereby).
9.2. Compliance with Agreement. The Seller shall have performed and
complied in all material respects with all of its obligations under this
Agreement to be performed or complied with by it prior to or at the Closing.
9.3. No Litigation. No restraining order or injunction shall prevent the
transactions contemplated by this Agreement and no action, suit or proceeding
shall be pending or threatened before any court or administrative body in which
it will be or is sought to restrain or prohibit or obtain damages or other
relief in connection with this Agreement or the consummation of the
transactions contemplated hereby.
9.4. Resignations of Directors. Effective as of the Closing Date, the
directors of Heath Canada shall have resigned their positions with Heath Canada
and shall have executed such appropriate documents with respect to the transfer
or
<PAGE> 25
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establishment of bank accounts, signing authority, etc., as the Buyer shall
have reasonably requested.
9.5. HSR Clearance. All required filings under the HSR Act shall have
been completed, and all applicable time limitations under the HSR Act shall
have expired or have been earlier terminated without a request for further
information by the relevant federal authorities under the HSR Act, or in the
event of such a request for further information, all applicable time
limitations under the HSR Act shall have expired without the objection of such
federal authorities.
9.6. Transitional Services Agreement. In the event that the Buyer and the
Seller defer the transfer of the Shares as contemplated by Section 7.3, the
Seller shall have entered into the Transitional Services Agreement, and the
Transitional Services Agreement shall be in full force and effect.
9.7. Lease of Heath Headquarters. The Seller shall have executed and
delivered to the Buyer a lease of the Heath Headquarters, in a form reasonably
satisfactory to Buyer and Seller (the "Spring Street Lease"), containing the
following terms:
(a) Such lease will allow usage of the space and all facilities by
the Buyer at the Heath Headquarters for the 60-day period immediately
following the Closing, with rent set at $1,700,000 (inclusive of those
services and utilities described on Schedule 9.7) on an annual basis
(i.e., rent for such 60-day period shall be $283,333); and
(b) such lease shall permit the Buyer to elect, by delivery of
written notice to the Seller within thirty (30) days after the Closing,
to remain in a portion of the Spring Street Lease representing
approximately 40% of the total space in the Heath Headquarters (which the
Buyer and the Seller contemplate will be on the first floor of the Heath
Headquarters), for a period to be specified in such notice and not to
exceed four (4) months after the expiration of the sixty (60) day period
referred to above; in the event the Buyer elects such an extension, (i)
the rent shall be reduced to $56,667 for each additional month of
occupancy, and shall continue to be inclusive of those services and
utilities described on Schedule 9.7 that are still applicable to Buyer's
remaining operations at the Heath Headquarters, and (ii) the Buyer and
the Seller shall cooperate to accommodate both the remaining operations
of the Buyer at the Heath Headquarters and the Seller's use of that
portion of the Heath Headquarters vacated by the Buyer.
9.8. No Material Change. There shall not have occurred any casualty loss
to any plant or equipment in excess of $5,000,000 that has caused or will cause
a Material Adverse Effect that is not adequately covered by insurance. The
Buyer agrees that the proceeds of any such insurance will constitute an
Acquired Asset.
<PAGE> 26
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There shall not have occurred any failure of the information systems (hardware
and software) currently used to manage the functions upon which the Heath
Business depends that has caused or will cause a Material Adverse Effect.
9.9. Certificate from Officers. Seller shall have delivered to Buyer a
certificate of the Heath Division's President and Chief Financial Officer dated
as of the Closing to the effect that the statements set forth in Sections 9.1
and 9.2 above are true and correct.
9.10. Canadian Tax Certificate. In the event the Shares are to be
transferred at the Closing and the Seller wishes to avoid any tax withholding
requirements, Seller shall have delivered to Buyer a certificate issued by the
minister of national revenue pursuant to Section 116 of the Income Tax Act
(Canada) in respect of the Shares, which certificate shall contain a limit of
not less than the Canadian dollar value of the Purchase Price allocated to
purchase of the Shares.
Article 10
----------
Conditions Precedent To Seller's Obligations
--------------------------------------------
The obligation of the Seller to consummate the Closing is subject to the
satisfaction at or prior to the Closing of each of the following conditions (to
the extent noncompliance is not waived in writing by the Seller):
10.1. Representations and Warranties. The representations and warranties
made by the Buyer in this Agreement shall have been correct in all material
respects when made and shall be correct in all material respects at and as of
the Closing.
10.2. Compliance with Agreement. The Buyer shall have performed and
complied in all material respects with all of its obligations under this
Agreement to be performed or complied with by it prior to or at the Closing.
10.3. No Litigation. No restraining order or injunction shall prevent the
transactions contemplated by this Agreement and no action, suit or proceeding
shall be pending or threatened before any court or administrative body in which
it will be or is sought to restrain or prohibit or obtain damages or other
relief in connection with this Agreement or the consummation of the
transactions contemplated hereby.
10.4. HSR Clearance. All required filings under the HSR Act shall have
been completed, and all applicable time limitations under the HSR Act shall
have expired or have been earlier terminated without a request for further
information by the relevant federal authorities under the HSR Act, or in the
event of such a request for further information, all applicable time
limitations under the HSR Act shall have expired without the objection of such
federal authorities.
<PAGE> 27
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10.5. Transitional Services Agreement. In the event that the Buyer and
the Seller defer the transfer of the Shares as contemplated by Section 7.3, the
Buyer shall have entered into the Transitional Services Agreement, and the
Transitional Services Agreement shall be in full force and effect.
10.6. Lease of Heath Headquarters. The Buyer shall have executed and
delivered to the Seller the Spring Street Lease.
Article 11
----------
Employees, Employee Benefits and Other Transitional Matters
-----------------------------------------------------------
11.1. Hiring Employees.
(a) The Buyer will offer employment as of the Closing Date (or, in
the case of employees within clause (iii), as of the date of their return
to active employment) to (i) all Heath Division employees on Seller's
active payroll on the Closing Date excluding those employees on a leave
of absence or long-term disability, (ii) all persons who are subject to
outstanding employment offers from the Heath Division at Closing and
(iii) any Heath Division employee not on Seller's active payroll on the
Closing Date on account of an approved leave of absence if such employee
returns to active employment with the Buyer immediately upon the
conclusion of any such leave of absence or within the period required by
applicable law. All such offers shall be for the same pay and comparable
benefits as those in effect at Closing. Such offers and the benefits to
be provided to the Assumed Employees shall recognize the date of hire and
time of service with the Seller for all purposes unless inconsistent with
another provision of this Article. All employees accepting such offers
are referred to in this Agreement as "Assumed Employees".
(b) The Buyer agrees that, for a period of 60 days after the Closing
Date, it will not cause any of the Assumed Employees hired by it to
suffer "employment loss" for purposes of the Worker Adjustment and
Retraining Notification Act, 29 U.S.C. [Section Section] 2101-2109, and
related regulations (the "WARN Act") if such employment loss could create
any liability for the Seller, unless the Buyer delivers notices under the
WARN Act in such a manner and at such a time that the Seller bears no
liability with respect thereto.
(c) Nothing in this Agreement shall be construed to (i) obligate
Buyer or any of its affiliates to continue in effect for any specific
period of time after the Closing Date any rate of pay or any bonus or
other
<PAGE> 28
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compensation program or any benefit program, plan or arrangement for the
Assumed Employees or (ii) restrict Buyer or any of its affiliates from
changing any rate of pay or bonus or other compensation program or
amending, modifying or terminating any benefit program, plan or
arrangement under which the Assumed Employees become eligible as of the
Closing Date.
11.2. Welfare Benefit Plans -- U.S.
(a) Liabilities Generally. Except as expressly provided otherwise
in this Article 11, the Seller shall have and retain exclusive liability
and responsibility for providing any and all benefits due and payable to
or in respect of participants and other beneficiaries under any ERISA
Plan or Non-ERISA Plan (other than a Canadian Plan) in accordance with
the terms of such plans and applicable law including, without limitation,
(i) all benefits of any kind for former or current employees of Seller
who are not Assumed Employees; (ii) all benefit claims which are incurred
by the Company's employees and former employees prior to the Closing Date
under all ERISA Plans and Non-ERISA Plans (as defined in Section 5.12(a))
maintained by the Seller, including claims incurred before the Closing
Date and not yet reported; (iii) medical coverage (to the extent
provided) for individuals disabled or retired as of the Closing Date;
(iv) benefits to all individuals entitled to benefits required to be
provided by the continuation health care coverage requirements of Section
4980B of the Code and Sections 601 through 607 of ERISA as of the Closing
Date; and (v) continuation of benefit coverage for surviving spouses of
employees (to the extent provided) who die prior to the Closing Date. In
the case of health care plans maintained by the Seller, a claim shall be
deemed to have been incurred when services have been rendered by the
health care provider.
(b) Medical Benefits. Commencing as of the Closing Date, the Buyer
shall provide the Assumed Employees and dependents and beneficiaries
thereof (the "Eligible Individuals") medical and dental benefit coverage,
in each case reasonably comparable in the aggregate to the coverage
provided to active employees by Seller's comparable benefit plan and
without application of any exclusion for a pre-existing condition (other
than conditions excluded as of the Closing Date as pre-existing
conditions under Seller's medical and dental coverage) and taking into
account, for purposes of any annual co-payment, deductible and limitation
on benefits, the payments made under Seller's comparable benefit plan in
respect of the Eligible Individuals for otherwise eligible medical and
dental services in the current calendar year through the Closing Date.
The Buyer shall also provide Eligible Individuals with other welfare
benefit plan coverages of a kind comparable to, and under terms and
conditions similar to the terms and conditions of, those welfare benefit
plan coverages extended to other active employees of the Buyer
<PAGE> 29
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employed at geographically proximate locations (or generally, if the
Buyer does not currently employ anyone at the same or a nearby location).
11.3. Welfare Benefit Plans -- Canada.
(a) Liabilities Generally. Except as expressly provided otherwise
in this Article 11, Heath Canada shall have and retain exclusive
liability and responsibility for providing any and all benefits due and
payable to or in respect of participants and other beneficiaries under
any Canadian Benefit Plan in accordance with the terms of such plans and
applicable law.
(b) As of the Closing, the Buyer will replace with comparable
benefits those benefits offered by the Seller to employees of Heath
Canada and their dependents and beneficiaries (as set forth in Schedule
5.12). All such benefits to be provided shall recognize the date of hire
and time of service with Heath Canada for all purposes.
11.4. Investment Plans. The Seller will retain all liability and
responsibility for the disposition of interests under the Raytheon Savings and
Investment Plan (the "RAYSIP Plan") and the Raytheon Stock Ownership Plan (the
"RAYSOP Plan" and, together with the RAYSIP Plan, the "Investment Plans") with
respect to those employees (or their beneficiaries) of the Heath Business who,
as of the Closing Date, are participants in either of the Investment Plans. No
such participant will be eligible to make any contributions to the RAYSIP Plan,
and neither Heath Canada nor the Seller will be obligated to make any
contribution with respect to any such participant in either Investment Plan,
with respect to compensation earned by such employees on or after the Closing
Date. The Seller agrees that it will cause the accounts in RAYSIP of all such
participants to be fully vested as of the Closing Date.
11.5. U.S. Pension Plans.
(a) The Assumed Employees shall be eligible to participate in a
defined benefit pension plan maintained by Buyer ("Buyer's Pension Plan")
subsequent to Closing with credit for plan eligibility and vesting
purposes which includes their service prior to the Closing Date with
Seller or Heath Canada. Contingent upon transfer of assets described in
this Section 11.5, such Assumed Employees shall be entitled to an initial
accrued benefit as of the Closing Date under Buyer's Pension Plan not
less than each such Assumed Employee's accrued benefit under the Seller's
Retirement Plans as of the Closing Date.
(b) As promptly as practicable after the Closing Date, the Seller
shall take such action as may be required to cause the trusts or other
investment funds forming a part of the applicable Seller's Retirement
Plan to transfer in cash to the trust forming a part of Buyer's Pension
Plan an amount
<PAGE> 30
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equal to the sum of (1) the accumulated benefit obligation arising
under the applicable Seller's Retirement Plan as of the Closing Date
attributable to the accrued benefits under such Seller's Retirement Plan
of the Assumed Employees, and (2) an amount of interest on the amount
described in clause (1), computed from the Closing Date to the date of
the transfer at the interest rate assumed in the computation of such
accumulated benefit obligation; provided, however, that in no event shall
the total amount transferred be less than the amount required by Sections
401(a)(12) and 414(1) of the Code. For this purpose, "accumulated
benefit obligation" shall be determined by Seller in accordance with
generally accepted accounting principles on a basis consistent with the
Seller's past practices with respect to the applicable Seller's
Retirement Plan. The calculation of the amounts to be transferred under
this Section 11.5(b) shall be reviewed and consented to by an actuary
designated by Buyer, which consent shall not be unreasonably withheld, in
advance of the actual transfer from Seller's Retirement Plans.
Buyer and Seller shall take such actions as may be required by
Section 6058 of the Code to ensure that the IRS receives proper notice of
the transfer of assets from Seller's Retirement Plans to Buyer's Pension
Plan, and such other actions as may be required pursuant to Section
414(l) of the Code.
(c) From and after the Closing Date, Buyer shall assume and be
responsible for as part of the Assumed Obligations and shall timely pay
any and all benefits accrued as of the Closing Date in respect of any
Assumed Employee under the terms of Seller's Excess Benefit Plan, listed
in Schedule 5.12, as in effect on the Closing Date. The Seller shall
have and retain exclusive liability and responsibility under all other
nonqualified deferred compensation or supplemental retirement obligations
of Seller with respect to the Assumed Employees.
(d) The Buyer represents that Buyer's Pension Plan (i) has been
determined by the Internal Revenue Service to qualify under Section 401
of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii)
nothing has occurred since the last such determination which would
adversely affect the qualified status of Buyer's Pension Plan under
Section 401 of the Code. The Buyer hereby agrees to and does hereby
indemnify and hold Seller, Seller's Retirement Plans, and Seller's Excess
Benefit Plan harmless from and with respect to any and all claims,
liabilities, losses, damages, costs and expenses (including without
limitation the reasonable fees and disbursements of counsel) arising out
of any (A) failure of Buyer's Retirement Plan to pay the persons entitled
thereto the accrued benefits assumed by Buyer's Retirement Plan pursuant
to paragraph (a) above or (B) failure of Buyer (or any excess benefit
plan of Buyer) to pay the liabilities for benefits assumed pursuant to
paragraph (c) above or (C) failure of Buyer's Pension Plan to be
qualified under Section 401(a) of the Code or (D) any failure of any
excess
<PAGE> 31
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benefit plan of Buyer to qualify as "a plan which is unfunded and is
maintained by an employer primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated
employees" within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1)
of ERISA. The indemnification procedures set out in Section 14.3 of this
Agreement shall apply for purposes of the foregoing indemnity.
(e) The Seller represents that (i) Seller's Retirement Plans have
been determined by the Internal Revenue Service to qualify under Section
401 of the Code, and (ii) nothing has occurred since the last such
determination which would adversely affect the qualified status of
Seller's Retirement Plans under Section 401 of the Code. The Seller
hereby agrees to and does hereby indemnify and hold Buyer and Buyer's
Pension Plan harmless from and with respect to any and all claims,
liabilities, losses, damages, costs and expenses (including without
limitation the reasonable fees and disbursements of counsel) arising out
of any (A) failure of Seller's Retirement Plans to be qualified under
Section 401(a) of the Code, or (B) any failure of Seller's Excess Benefit
Plan to qualify as "a plan which is unfunded and is maintained by an
employer primarily for the purpose of providing deferred compensation for
a select group of management or highly compensated employees" within the
meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. The
indemnification procedures set out in Section 14.3 of this Agreement
shall apply for purposes of the foregoing indemnity.
11.6. Tuition Reimbursement; Loan Programs. Schedule 11.6 hereto
describes the Seller's tuition reimbursement program offered to employees of
the Heath Business and a list of loans made by the Seller to employees of the
Heath Business in order to permit them to purchase computers. The Buyer agrees
that it will (i) maintain all of the Seller's commitments in effect at the
Closing for tuition reimbursement with respect to the Heath Business and (ii)
permit the applicable employees to repay their computer loans according to
their terms.
11.7. Intercompany Account. As previously disclosed to the Buyer, the
Seller maintains the Intercompany Account pursuant to which, among other
things, the Seller advances funds to the Heath Business and the Heath Business
repays such advances. As of the Closing the Seller will close out the
Intercompany Account and it will settle all other outstanding transactions
between Heath Canada and the Seller or any other Subsidiary of the Seller.
11.8. Third Party Consents.
(a) To the extent that any agreement constituting part of the
Acquired Assets is not capable of being transferred by the Seller to the
Buyer pursuant to this Agreement without the consent, approval or waiver
of a third Person, and such consent is not obtained prior to the Closing,
or if such
<PAGE> 32
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transfer or attempted transfer would constitute a breach thereof or
a violation of any law, rule or regulation in the absence of obtaining
such an approval, nothing in this Agreement will constitute a transfer
or an attempted transfer thereof. Each of the Buyer and the Seller
shall use reasonable efforts to identify all such Acquired Assets.
Buyer and Seller shall cooperate in using reasonable efforts to obtain
all such approvals.
(b) In the event that such consents, approvals and waivers referred
to in paragraph (a) are not obtained then the Seller and the Buyer will
each use reasonable efforts to (i) provide to the Buyer the benefits and
burdens of any such agreement, (ii) cooperate in any reasonable and
lawful arrangement designed to provide such benefits and burdens to the
Buyer without incurring any obligation to any other Person other than to
provide such benefits to the Buyer, including without limitation the
appointment of the Buyer as the agent of the Seller for purposes of such
agreement, and (iii) enforce, at the request of the Buyer for the
account of the Buyer, any rights of the Seller arising from any such
agreement. Without limiting the generality of the foregoing, at the
request of the Buyer the Seller will enter into a distribution or
similar agreement in mutually satisfactory form to implement the
foregoing. Any such agreement will be terminable upon request of the
Buyer.
11.9. Canadian Bank Line. As noted in Schedule 5.8, Heath Canada has a
line of credit with Royal Bank of Canada. At the request of the Buyer, to be
made at least ten (10) days prior to the Closing, the Seller will either (i)
cause Heath Canada to pay the line of credit in full prior to the Closing or
(ii) cause Heath Canada to leave the line of credit in place, in which case the
amount outstanding at Closing will be reflected in the Net Assets calculation
set forth in Section 3.2. In addition, the Buyer will replace any guaranty of
the Seller outstanding with respect to this line of credit.
11.10. Incentive Plans. Attached as Schedule 11.10 is a description of
the Seller's internal sales and marketing and editorial incentive plans (the
"Incentive Plans"). The Buyer agrees to assume as part of the Assumed
Obligations the Seller's obligations under the Incentive Plans.
11.11. [Intentionally Omitted.]
11.12. Access to Books and Records.
(a) The Buyer agrees to cooperate with and to make available to the
Seller such documents, books, records or information relating to the
Heath Business as the Seller may reasonably require after the Closing.
The Seller agrees to cooperate with and to make available to the Buyer
such documents, books, records or information relating to the Heath
Business, not constituting part of the Acquired Assets, as reasonably
requested by the Buyer.
<PAGE> 33
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(b) The Buyer agrees to preserve and protect all books, records,
files and data referred to in paragraph (a) above for a period of six (6)
years after the Closing Date.
(c) The Buyer agrees not to destroy any files or records which are
subject to this Section 11.12 (i) for the period described in clause (b)
of this Section 11.12, and (ii) thereafter, without giving at least
thirty (30) days' notice to the Seller. Upon receipt of such notice, the
Seller may (A) cause to be delivered to it the files or records intended
to be destroyed, at the Seller's expense, or (B) notify the Buyer that
the Seller will pay the cost of storing and maintaining such files or
records (including any necessary costs of moving such files or records to
a location under control of the Seller).
(d) As soon as practicable after the Closing Date, Buyer shall
receive from Seller (i) such pertinent data or information as Buyer may
reasonably require to determine the Assumed Employees' accrued benefits
under Seller's Retirement Plans, (ii) such information concerning each
Assumed Employee's period of employment with Seller as Buyer may
reasonably require to determine service for eligibility and benefit
accrual purposes, and (iii) such information concerning each Assumed
Employee's benefit utilization under welfare benefit plans as Buyer may
reasonably require to comply with Sections 11.2 and 11.3 of this
Agreement.
11.13. Use of Raytheon Name. The Buyer agrees that promptly after the
Closing Date it will cease, and will cause Heath Canada to cease, using any
references to the Seller or any of its Affiliates (other than Heath Canada),
including any such use in connection with the use of existing supplies of
labels, signs, letterhead and other printed materials, except that the Buyer
and Heath Canada may use up existing stocks of such materials so long as they
are stickered so as to indicate that the Heath Business is no longer
affiliated with the Seller; provided, however, that the Buyer may use up
existing stock of marketing materials without stickering them so long as such
material is identified as coming from the Buyer.
11.14. Certain Services. For a reasonable period of time after the
Closing, at the request of the Buyer the Seller will provide services of the
kind described on Schedule 11.14 hereto, all at the cost and expense of the
Buyer.
Article 12
----------
Noncompetition
--------------
The Seller agrees that for a period of three (3) years after the Closing
Date (the "Restricted Period"), none of the Seller or any Subsidiary of the
Seller ("Selling
<PAGE> 34
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Group"), will engage directly or indirectly in competition with the Buyer or
any Affiliate of the Buyer, whether individually or as a consultant, partner,
owner or stockholder owning more than five percent (5%) of a corporation, in
the business of publishing textbooks and educational materials developed
primarily for the school and college markets in the United States and Canada
(the "Restricted Business"). Notwithstanding the foregoing, nothing herein
shall prohibit any member of the Selling Group from (a) owning, directly or
indirectly, less than fifteen percent (15%) of any class of securities listed
on a national securities exchange or traded publicly in the over-the-counter
market, (b) directly or indirectly acquiring a business which engages in the
Restricted Business if such business is 25% or less (measured by net revenues)
of a larger business so acquired by such member of the Selling Group, or (c)
acquiring a business which engages in the Restricted Business if such business
is more than 25% (measured by net revenues) of a larger business so acquired by
such member of the Selling Group, provided that such member of the Selling
Group places such competitive business for sale promptly after its acquisition
and uses reasonable commercial efforts to complete such sale within the
Restricted Period, (d) continuing to produce and sell training materials to the
Department of Defense and (e) in the case of the Seller's E-Systems Subsidiary,
the continued development and marketing of its English as a second language
programs ("ESL Programs"); provided, that in the event that any member of the
Selling Group wishes to market such ESL Programs during the Restricted Period
to the school and college markets, the Seller will provide the Buyer the first
opportunity to negotiate commercially reasonable terms pursuant to which the
Buyer will market such ESL Programs to such markets on an exclusive basis, and
the Seller will not enter into any such arrangement with any third party
without giving the Buyer notice and thirty days to match the terms of any such
arrangement. In addition to the foregoing, at no time in the future will any
member of the Selling Group represent to any Person that the Seller still owns
or operates the Heath Business or is the successor in interest of the Heath
Business.
It is recognized by the parties hereto that damages for breaches of
covenants of the nature contained in this Article 12 are difficult if not
impossible precisely to prove; therefore, it is agreed that this agreement not
to compete shall be enforceable by mandatory injunction, in addition to any
other remedy available to the Buyer under this Agreement or at law or equity.
If any of the restrictions contained in this Article 12 shall be deemed to be
unenforceable by reason of the extent, duration or geographical scope or other
provisions hereof, then the parties hereto contemplate that the court shall
reduce such extent, duration, geographical scope or other provision hereof and
enforce this Article 12 in its reduced form for all purposes in the manner
contemplated hereby.
<PAGE> 35
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Article 13
----------
Accounts Receivable and Product Returns
---------------------------------------
13.1. Certain Definitions. As used in this Article 13 and elsewhere in
this Agreement, the following terms have the following meanings:
(a) "Baseline Receivables" means trade accounts receivable of the
Heath Business outstanding at Closing totaling $5,000,000, calculated net
of all reserves for product returns relating to all trade accounts
receivable of the Heath Business at Closing, consisting of (i) all trade
accounts receivables of Heath Canada outstanding at Closing and (ii)
trade accounts receivable of the Heath Division outstanding at Closing
and mutually designated by Seller and Buyer, up to the balance of
$5,000,000; and
(b) "Seller Receivables" means all trade accounts receivable of the
Seller relating to the Heath Business and outstanding at Closing,
identified as part of the accounting procedures referred to in Section
3.2(d), other than any Baseline Receivables.
13.2. Collection by the Buyer.
(a) During the period beginning on the Closing Date the Buyer will
collect all the Seller Receivables. The Buyer will provide such
information relating to the Seller Receivables and the Buyer's collection
efforts as the Seller may reasonably request from time to time, and will
in any event deliver to Seller, at least once per month, a reasonably
detailed report of collections. The Buyer will collect and manage the
Seller Receivables in good faith and on a basis consistent with the past
practice of the Heath Business. The Seller will reimburse the Buyer for
any direct costs incurred in connection with the collection of the Seller
Receivables. Any such reimbursement shall be made promptly by the Seller
after receipt of appropriate supporting documentation. The Seller will
designate a single representative to act as liaison with the Buyer and to
monitor the Buyer's collection efforts pursuant to this Article 13.
(b) All cash, checks or other property which the Buyer shall receive
in respect of the Seller Receivables shall be held by the Buyer separate
and apart from its own property and delivered, in the form received, to
the Seller promptly (and no less often than weekly).
13.3. Application of Receipts. All payments received by the Buyer from
any of its customers obligated in respect of any Seller Receivable shall be
applied to the applicable Seller Receivables on a basis consistent with the
past practice of the Heath Business.
<PAGE> 36
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13.4. Product Returns. The Buyer will be responsible for receiving
product returns occurring after the Closing, including product returns relating
to sales that generated Seller Receivables. The Buyer will accept or reject
such returns and grant the applicable customer a credit or provide a refund on
a basis consistent with the past practice of the Heath Business. Until the
termination of the Buyer's obligations pursuant to Section 13.5, the Buyer will
provide the Seller a monthly report of all such product returns in reasonable
detail. The Buyer shall make a payment to the Seller equal to the total credit
for any product returns that reduce the balance of the Seller Receivables.
These payments will be made on a monthly basis.
13.5. Termination of Payments. The Buyer's obligation to remit
collections with respect to Seller Receivables and to make payments to Seller
in connection with product returns shall terminate once the Seller has received
an amount equal to the face amount of the Seller Receivables outstanding at
Closing less the total amount of Seller Receivables written off as
uncollectible with the concurrence of the Seller's liaison referred to in
Section 13.2.
13.6. Collection by the Seller. If the Seller has not received payment
from the Buyer in the full amount referred to in Section 13.5 within six (6)
months after the Closing Date, thereafter the Seller shall have the right to
collect all outstanding Seller Receivables in its own name. The Buyer will
provide reasonable cooperation to the Seller in connection with the Seller's
collection efforts. The Buyer shall remain responsible for product returns,
and shall continue to remit payments and a monthly report to the Seller, as
provided in Section 13.4. At such time as the Seller has received payment in
full of the amount referred to in Section 13.5, either pursuant to Section
13.2(b), Section 13.4 or from collections pursuant to this Section 13.6, the
Seller's right to collect the Seller Receivables shall terminate, and
thereafter the Buyer shall have the right to collect any outstanding Seller
Receivables and retain any amounts received thereon.
13.7. Buyer's Acknowledgments. The Buyer acknowledges that it is
acquiring the Baseline Receivables from the Seller without representation or
warranty of any kind. The Buyer accepts all of the risk and responsibility for
the collection and collectibility of the Baseline Receivables. The Buyer
acknowledges that one of the Assumed Obligations is the Seller's liability for
any returns of publications and other products previously sold in connection
with the Heath Business. Similarly, the Buyer acknowledges that in purchasing
the Shares it has accepted the risk that Heath Canada will experience product
returns after the Closing related to pre-Closing sales.
13.8. Access to Books and Records. The Buyer agrees that the Seller shall
be entitled to visit the various offices of the Buyer related to the Heath
Business and to review the Buyer's books and records relating to the Heath
Business, all as required to monitor the Buyer's compliance with this Article
13 or in connection with any collection by the Seller pursuant to Section 13.6.
<PAGE> 37
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Article 14
----------
Indemnity
---------
14.1. Indemnification by the Seller.
(a) The Seller agrees to indemnify and hold the Buyer (and its
directors, officers and employees) harmless from and with respect to any
and all claims, liabilities, losses, damages, costs and expenses
(including without limitation the reasonable fees and disbursements of
counsel, accountants, consultants and engineers), net of insurance
proceeds received (collectively, "LOSSES"), arising out of any breach by
the Seller, or out of any condition that constitutes or results in a
breach by the Seller, of any representation or warranty, covenant,
obligation or undertaking made by the Seller in this Agreement.
(b) No action or claim for Losses pursuant to this Section 14.1 may
be brought or made unless such action or claim (a "Claim") has been
specified in reasonable detail in a written notice from the Buyer to the
Seller on or before March 31, 1997.
(c) The Buyer shall not be entitled to indemnification under this
Section 14.1 unless the cumulative amount of Losses arising from Claims
asserted under Section 14.1 exceeds $2,000,000, and then only to the
extent of such excess. In addition, in no event shall the aggregate
liability of the Seller for Losses under this Section 14.1 exceed
$30,000,000.
14.2. Indemnification by the Buyer. The Buyer agrees to indemnify and
hold the Seller (and its directors, officers and employees) harmless from and
with respect to any and all Losses arising out of (a) any breach by the Buyer,
or any condition that constitutes or results in a breach by the Buyer, of any
representation or warranty, covenant, obligation or undertaking made by the
Buyer in this Agreement (including the assumption referred to in Article 3), or
(b) the operation of the Heath Business or the use of the Acquired Assets in
the operation thereof after the Closing Date.
14.3. Indemnification Procedures for Third Party Claims.
(a) In the event that any party hereto (an "Indemnified Party")
desires to make a claim against another party hereto (the "Indemnifying
Party", which term shall include all Indemnifying Parties if there be
more than one) in connection with any action, suit, proceeding or demand
at any time instituted against or made upon it for which it may seek
indemnification
<PAGE> 38
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hereunder (a "Third-Party Claim"), the Indemnified Party shall promptly
notify the Indemnifying Party of such Third-Party Claim and of its claims
of indemnification with respect thereto; provided, however, that the
failure to provide such notice shall not release the Indemnifying Party
from any obligation under this Article 14 except to the extent such
Indemnifying Party is prejudiced by such failure. Upon receipt of such
notice from the Indemnified Party, the Indemnifying Party shall be
entitled to participate in the defense of such Third-Party Claim, and
assume the defense of such Third-Party Claim, and in the case of such an
assumption the Indemnifying Party shall have the authority to negotiate,
compromise and settle such Third-Party Claim; provided, that the
Indemnifying Party shall not be entitled to settle any such
Third-Party Claim without the consent of the Indemnified Party unless as
part of such settlement the Indemnified Party is released from all
liability with respect to such Third-Party Claim.
(b) The Indemnified Party shall retain the right to employ its own
counsel and to participate in the defense of any Third-Party Claim, the
defense of which has been assumed by an Indemnifying Party pursuant
hereto, but the claimant shall bear and shall be solely responsible for
its own costs and expenses in connection with such participation.
14.4. Scope of Indemnity. Except as provided in Article 15, each of the
Seller and the Buyer acknowledges that, except for equitable relief, including
specific performance, its sole and inclusive remedy with respect to any and all
claims relating to breaches of representations, warranties and covenants shall
be pursuant to the indemnification provisions of this Article 14, except with
respect to any claim arising out of or based upon any of the following matters:
(a) fraud or intentional misrepresentation;
(b) all claims asserted by Buyer relative to any Excluded
Liabilities, including Taxes; and
(c) any failure by Seller to perform and discharge any of the
Excluded Liabilities as set forth in this Agreement.
14.5. Waiver of Statutory Claims. The Buyer hereby waives and releases
the Seller from any and all Losses, known or unknown, it may have under CERCLA
(as defined in Article 18) or any other statutes relating to environmental
matters now or hereafter in effect or any other statute if the assertion of a
right under such statute would circumvent the intended effect of Section 14.4.
The Seller hereby waives and releases the Buyer from any and all Losses, known
or unknown, it may have under CERCLA or any other statutes relating to
environmental matters now or hereafter in effect or any other statute if the
assertion of a right under such statute would circumvent the intended effect of
Section 14.4.
<PAGE> 39
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Article 15
----------
Tax Matters
-----------
15.1. Taxes of the Seller.
(a) Except as provided in paragraph (b) below, the Seller shall
remain responsible for all Taxes (as defined in Article 18) of the Seller
payable in connection with the operation of the Heath Business prior to
the Closing. The Seller shall also remain responsible for the filing of
all related Tax Returns (as defined in Article 18).
(b) With respect to any real property, ad valorem or similar Taxes
of the Seller relating to the Heath Business and attributable to periods
before and after the Closing, the Seller shall be responsible for that
portion of such Taxes attributable to the period prior to the Closing and
the Buyer shall be responsible for Taxes attributable to that period
commencing on and after the Closing.
15.2. Income Taxes of Heath Canada.
(a) The Seller shall be responsible for all Income Taxes (as defined
in Article 18) of Heath Canada attributable to any Tax period ending on
or prior to the Closing Date. The Seller shall prepare (or cause to be
prepared) and file (or cause to be filed) on a timely basis any Tax
Returns of Heath Canada for Tax periods ending on or prior to the Closing
Date. Such Tax Returns shall be prepared on a basis consistent with the
past practice of Heath Canada to the extent such practice is consistent
with all applicable federal, state, provincial, local and foreign tax
laws, rules and regulations. The Buyer shall pay (or cause to be paid)
all Taxes shown to be due on such Tax Returns. To the extent that the
total amount so paid by the Buyer or Heath Canada with respect to such
Tax Returns exceeds any reserve for Income Taxes of Heath Canada set
forth on the Closing Balance Sheet, the Seller shall be liable for and
shall reimburse the Buyer for such excess amount within five (5) business
days after receipt of notice of the payment by the Buyer.
(b) The Seller shall be entitled to all refunds of Income Taxes of
the type and for the Tax periods referred to in paragraph (a) above,
except with respect to any Tax Return for which the Buyer has paid a
portion of the relevant Income Taxes as provided in paragraph (a) above,
in which case the Buyer shall be entitled to a PRO RATA portion of such
refund based on the proportion of applicable Income Taxes paid by the
Buyer.
<PAGE> 40
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15.3. Non-Income Taxes of Heath Canada.
(a) The Seller shall be responsible for all Non-Income Taxes (as
defined in Article 18) of Heath Canada attributable to the period prior
to the Closing, except to the extent of any reserve for Non-Income Taxes
set forth on the Closing Balance Sheet.
(b) The Buyer shall prepare (or cause to be prepared) and file (or
cause to be filed) on a timely basis any Tax Returns for Non-Income Taxes
of Heath Canada that are due (including all applicable extensions) after
the Closing Date. Such Tax Returns shall be prepared on a basis
consistent with the past practice of Heath Canada to the extent such
practice is consistent with all applicable federal, state, provincial,
local and foreign Tax laws, rules and regulations. The Buyer shall pay
(or cause to be paid) all Non-Income Taxes shown to be due on such Tax
Returns. The Seller shall be liable for and shall reimburse the Buyer
for that portion of such Taxes for which the Seller is responsible under
paragraph (a) above. Any such reimbursement shall occur within five (5)
business days of receipt of notice of payment by the Buyer.
(c) With respect to any Tax period that begins before but ends after
the Closing Date, the respective allocation between the Seller and the
Buyer for Non-Income Taxes of Heath Canada shall be based PRO RATA on the
number of days in the applicable Tax period prior to the Closing Date as
compared to the number of days in the Tax period on or after the Closing
Date, or based on some other method determined by the Buyer and the
Seller to be more appropriate.
(d) The Seller shall be entitled to all refunds of Non-Income Taxes
of the type and for the Tax periods referred to in paragraph (a) above,
except with respect to any Tax Return for which the Buyer has paid a
portion of the relevant Non-Income Taxes as provided in paragraph (b)
above, in which case the Buyer shall be entitled to a PRO RATA portion of
such refund based on the proportion of applicable Non-Income Taxes paid
by the Buyer.
15.4. Cooperation on Tax Matters; Conduct of Proceedings.
(a) The Buyer and the Seller shall cooperate fully, as and to the
extent reasonably requested by the other party, in connection with the
preparation and filing of Tax Returns pursuant to this Article 15 and any
audit, litigation or other proceeding with respect to Taxes. Such
cooperation shall include the retention and (upon the other party's
request) the provision of records and information which are reasonably
relevant to such preparation and filing and to any audit, litigation or
other proceeding relating thereto and making employees available on a
mutually convenient basis to provide additional information and
explanation of any material provided hereunder.
<PAGE> 41
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Prior to filing any Tax Returns of Heath Canada for which the Seller has
agreed to indemnify the Buyer pursuant to this Article 15, the Buyer
shall provide the Seller with a reasonable opportunity to review the
applicable Tax Returns and obtain the prior consent of the Seller to the
filing of such Tax Returns.
(b) The Seller shall be responsible for defending any audit,
litigation or other proceeding with respect to any Taxes of the Seller
and Heath Canada for which the Seller is wholly or partially responsible
for payment pursuant to this Article 15 and shall have the exclusive
authority to negotiate, compromise and settle any such audit, litigation
or other proceeding; provided that the Seller may not settle any such
matter without the Buyer's consent, not to be unreasonably withheld, if
the Buyer or Heath Canada will be responsible for payment of any portion
of such settlement. The Seller shall keep the Buyer reasonably informed
as to the progress of any such audit, litigation or other proceeding with
respect to Taxes of Heath Canada. If, as a result of any such audit,
litigation or proceeding Heath Canada is assessed any additional Taxes,
within five (5) business days after receipt by Heath Canada of notice of
assessment, the Seller shall reimburse Heath Canada for that portion of
such Taxes for which the Seller is responsible under this Article 15.
15.5. Certain Restrictions.
(a) The Buyer agrees that it will give the Seller notice of any
election it makes under Section 338 of the Code with respect to its
acquisition of the Shares (a "Section 338 Election"). The Buyer agrees
to reimburse the Seller for any increase in Taxes payable by the Seller
(including any loss of tax benefits, such as the recharacterization of
gain from capital to ordinary) resulting from the Buyer making a Section
338 Election, including an additional amount that, when added to the
increase in Taxes as a result of the Section 338 Election, will result in
an amount to the Seller, after Taxes, that will equal the additional cost
to the Seller of the Section 338 Election.
(b) The Buyer agrees that, in the event that the transfer of the
Shares occurs prior to December 31, 1995 it will reimburse Seller for any
increased tax liabilities to Seller resulting from Buyer causing or
permitting Heath Canada to take or cause to be taken, any of the
following actions in respect of Heath Canada: (i) the payment of an
actual or constructive dividend; (ii) a sale of stock subject to Section
304 of the Code; (iii) the triggering of a deemed dividend under Section
956 or 956A of the Code; (iv) a reorganization of Heath Canada; (v) a
change in accounting method; and (vi) any action in respect of Heath
Canada (except in the ordinary course of business) that would increase
the amount included in Seller's gross income
<PAGE> 42
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under Section 951 of the Code for the Seller's taxable year ending
December 31, 1995.
15.6. Scope of Article 15.
(a) Notwithstanding the provisions of Article 14, the provisions of
this Article 15 (and not Article 14) shall govern the allocation of
responsibility between the Seller and the Buyer for Taxes of the Heath
Business.
(b) Claims under this Article 15 may be made by the Buyer and the
Seller at any time prior to the expiration of the statute of limitations
applicable to the Tax matter to which the Claim relates.
Article 16
----------
Termination
-----------
This Agreement may be terminated by either the Buyer or the Seller in
writing, without liability to the terminating party on account of such
termination (provided the terminating party is not otherwise in default or in
breach of this Agreement), if the Closing shall not have occurred on or before
December 31, 1995 other than as a consequence of the intentional breach or the
intentional default by the terminating party. This Agreement may be terminated
at any time prior to the Closing by mutual written consent of the Seller and
the Buyer. In the event of the termination and abandonment of this Agreement
by the Seller or the Buyer, as herein provided, written notice thereof shall be
given to the other party and this Agreement shall terminate without any further
action of the parties hereto. If this Agreement is terminated as provided
herein: (i) each party will redeliver all documents, work papers and other
material of the other party or parties relating to the transactions
contemplated hereby including such memoranda, notes, lists, records or other
documents compiled or derived from such material, whether so obtained before or
after the execution hereof, to the party furnishing the same; (ii) all
information received by any party hereto with respect to the business of the
other parties or their affiliated companies shall remain subject to the terms
of the Confidentiality Agreement (as defined in Article 17); and (iii) no party
shall have any liability or further obligation to any other party to this
Agreement except as provided by this Article 16, and except that any
termination of this Agreement pursuant to the first sentence of this Article 16
shall not relieve a defaulting or breaching party from any liability to the
other party hereto. In addition, the provisions of Article 19 shall survive
any termination of this Agreement.
<PAGE> 43
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Article 17
----------
Confidentiality
---------------
Any and all information disclosed by the Buyer to the Seller or by the
Seller or Heath Canada to the Buyer as a result of the negotiations leading to
the execution of this Agreement, or in furtherance thereof, which information
was not already known to the Seller or to the Buyer, as the case may be, shall
be subject to the Confidentiality Agreement between the Buyer and the Seller
(the "Confidentiality Agreement"), all of the provisions of which are
incorporated into this Article 17 by this reference.
Article 18
----------
Definitions
-----------
As used herein the following terms not otherwise defined have the
following respective meanings:
"Affiliate" means, with respect to any specified Person, any other Person
that directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified Person. As used
in this definition the term "Control" (including the terms "controlled by" and
"under common control with") means, with respect to the relationship between or
among two or more Persons, the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the affairs or
management of a Person, whether through the ownership of voting securities, as
trustee or executor, by contract or otherwise, including, without limitation,
the ownership, directly or indirectly, of securities having the power to elect
a majority of the board of directors or similar body governing the affairs of
such Person.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
"Encumbrance" means all liens, security interests, pledges, charges,
mortgages, conditional sales agreements, title retention agreements and other
encumbrances.
"Income Taxes" means any Taxes based upon or related to income, including
any Taxes calculated in whole or in part based upon net revenues, and, in
respect of Heath Canada, including the capital tax levied under part I.3 of
the Income Tax Act (Canada) and all Canadian provincial taxes.
<PAGE> 44
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"Indebtedness" as applied to any Person, means all indebtedness of such
Person to any other Person for borrowed money, whether current or funded, or
secured or unsecured and all such Indebtedness of any other Person which is
directly or indirectly guaranteed by such Person or which such Person has
agreed (contingently or otherwise) to purchase or otherwise acquire or in
respect of which it has otherwise assured against loss.
"Knowledge of the Seller" or "to the Seller's Knowledge" means and is
limited to the actual knowledge of the following persons: Albert Bursma, Jr.,
Peter D'Angelo, David Dwelley, John J. Haney, Loren A. Korte, Robert Ross,
Bruce E. Zimmerli, Robert J. Lain, William J. Grace, David V. Serbun, Mary P.
Hunter, Michael T. Odea, John Atkocaitis, Thomas J. Flaherty, Michael J. Finn,
Richard J. McCrossan, John C. Porter, Thomas F. Delano and Joseph D'Avignon.
"LIBOR" means, with respect to any payment to be made pursuant to this
Agreement, the average (rounded to the nearest 1/16th) of the rates per annum
offered by three major banks in London, on the second business day in London
preceding the date of payment, for 90 day dollar deposits in an amount as near
as practicable to the principal amount of the payment in question.
"Material Adverse Effect" means any material adverse effect on the
operations, assets or financial condition of the Heath Business taken as a
whole.
"Non-Income Taxes" means any Taxes other than Income Taxes.
"Permitted Encumbrances" means Encumbrances that (i) arise out of Taxes
not in default and payable without penalty or interest or the validity of which
is being contested in good faith by appropriate proceedings, (ii) are
mechanics', carriers', workers', repairmen's, or other similar liens that do
not, individually or in the aggregate, have a Material Adverse Effect, (iii) in
connection with any agreement or instrument constituting part of the Acquired
Assets, relate to restrictions on transfer embodied in the terms of such
agreement or instrument or (iv) with respect to the Owned Real Property,
consist of easements, rights of way, zoning restrictions, restrictions on the
use of real property and effects and irregularities in the title thereto, and
other minor liens or encumbrances, none of which interferes materially with the
use of the Owned Real Property in the ordinary course operation of the Heath
Business or materially affects the value of the Owned Real Property.
"Person" means any corporation, association, partnership, organization,
business, individual, government or political subdivision thereof or
governmental agency.
"Subsidiary" with respect to any Person, means any corporation a majority
(by number of votes) of the outstanding shares of any class or classes of which
shall at the time be owned (directly or indirectly) of record or beneficially
by such Person or
<PAGE> 45
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by a Subsidiary of such Person, if the holders of the shares of such class or
classes (A) are ordinarily, in the absence of contingencies, entitled to vote
for the election of a majority of the directors (or persons performing
similar functions) of the issuer thereof, even though the right so to vote has
been suspended by the happening of such a contingency, or (B) are at the time
entitled, as such holders, to vote for the election of a majority of the
directors (or persons performing similar functions) of the issuer thereof,
whether or not the right so to vote exists by reason of the happening of a
contingency.
"Tax" Any federal, state, provincial, local, or foreign income, gross
receipts, franchise, estimated, alternative minimum, add-on minimum, sales,
use, transfer, registration, value added, goods and services, excise, natural
resources, severance, stamp, occupation, premium, windfall profit,
environmental, customs, duties, real property, personal property, capital
stock, intangibles, social security, unemployment, disability, payroll,
license, employee, health or other tax, withholdings or other governmental
charges or levies, of any kind whatsoever, including any interest, penalties,
or additions to tax in respect of the foregoing.
"Tax Return" Any return, declaration, report, claim for refund,
information return, or other document (including any related or supporting
estimates, elections, schedules, statements, or information) filed or required
to be filed in connection with the determination, assessment, or collection of
any Tax or the administration of any laws, regulations, or administrative
requirements relating to any Tax.
Article 19
----------
General
-------
19.1. Survival of Representations and Warranties. Each of the
representations and warranties of the parties hereto contained in this
Agreement shall survive the Closing and shall expire on March 31, 1997.
19.2. Arbitration. All disputes or claims arising under or in any way
relating to this Agreement shall be settled by arbitration in Boston,
Massachusetts before a panel of three arbitrators (with one designated by the
Buyer and one by the Seller, and the third arbitrator designated by the first
two) pursuant to the commercial arbitration rules of the American Arbitration
Association. The arbitrators shall be selected as prescribed above, but if
they do not so agree within 30 days after the date of the notice referred to
above, the selection shall be made pursuant to the rules from the panels of
arbitrators maintained by such Association. Any award rendered by the
arbitrators shall be conclusive and binding upon the parties hereto. However,
no arbitrator shall have the power to award punitive or multiple damages.
This provision for arbitration shall be specifically enforceable by the
parties and the decision of the arbitrators in accordance herewith shall be
final and binding and there
<PAGE> 46
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shall be no right of appeal therefrom. Each party shall pay its own expenses
of arbitration and the expenses of the arbitrators shall be equally shared;
provided, however, that if in the opinion of the arbitrators any claim for
indemnification or any defense or objection thereto was unreasonable, the
arbitrators may assess, as part of the award, all or any part of the
arbitration expenses of the other party (including reasonable attorneys' fees)
and of the arbitrators against the party raising such unreasonable claim,
defense or objection.
19.3. Expenses; Certain Taxes. Each party shall pay its own expenses and
costs incidental to the preparation of this Agreement and to the consummation
of the transactions contemplated hereby. All transfer and sales taxes payable
with respect to the sale of the Acquired Assets and the Shares to the Buyer
shall be borne by the Buyer.
19.4. Assigns. This Agreement may not be assigned in whole or in part by
either party hereto without the prior written consent of the other party,
except that (i) Buyer may assign this Agreement to a Subsidiary of Buyer and
(ii) Buyer may assign its right to acquire the Shares to a Subsidiary of Buyer
for the allocated price referred to in Section 7.3. However, no such
assignment shall relieve the Buyer from its obligations under this Agreement.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, successors and permitted assigns.
19.5. Entire Agreement, Etc. This Agreement (including the Schedules and
Exhibits and the Confidentiality Agreement) contains the entire understanding
of the parties, supersedes all prior agreements and understandings relating to
the subject matter hereof and shall not be amended except by a written
instrument hereafter signed by each of the parties hereto. EXCEPT AS SET FORTH
IN ARTICLE 5, SELLER MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR
IMPLIED, WITH RESPECT TO THE SALE OF THE ACQUIRED ASSETS OR SHARES HEREUNDER OR
THE HEATH BUSINESS.
19.6. Waiver of Certain Damages. EACH OF THE SELLER AND THE BUYER TO THE
FULLEST EXTENT PERMITTED BY LAW, IRREVOCABLY WAIVES ANY RIGHTS THAT THEY MAY
HAVE TO PUNITIVE OR MULTIPLE DAMAGES BASED UPON, OR ARISING OUT OF, THIS
AGREEMENT OR ANY COURSE OR CONDUCT, COURSE OF DEALING, STATEMENTS OR ACTIONS OF
ANY OF THEM RELATING THERETO.
19.7. Construction. The language used in this Agreement will be deemed to
be the language chosen by the parties to express their mutual intent, and no
rule of strict construction will be applied against any party.
<PAGE> 47
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19.8. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws (and not the choice-of-law
rules) of The Commonwealth of Massachusetts.
19.9. Notices. All notices, requests, payments, instructions or other
documents to be given hereunder shall be in writing or by written
telecommunication, and shall be deemed to have been duly given if delivered
personally or if mailed by certified mail, return receipt requested, postage
prepaid, or sent by written telecommunication, as follows:
If to the Seller, to:
Raytheon Company
141 Spring Street
Lexington, Massachusetts 02173
Attention: Joseph D'Avignon, Esq.
with a copy sent contemporaneously to:
John R. Utzschneider, Esq.
Bingham, Dana & Gould
150 Federal Street
Boston, Massachusetts 02110
If to the Buyer, to:
Houghton Mifflin Company
222 Berkeley Street
Boston, Massachusetts 02116
Attention: Paul D. Weaver, General Counsel
with a copy sent contemporaneously to:
Goodwin, Procter & Hoar
Exchange Place
Boston, Massachusetts 02109
Attention: Richard A. Soden, Esq.
19.10. Counterparts. This Agreement may be executed by the parties in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument.
<PAGE> 48
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19.11. Section Headings. All enumerated subdivisions of this Agreement
are herein referred to as "section" or "subsection." The headings of
sections or subsections are for reference only and shall not limit or control
the meaning thereof.
19.12. Public Statements or Releases. The parties hereto each agree that
prior to the Closing no party to this Agreement shall make, issue or release
any public announcement, statement or acknowledgment of the existence of, or
reveal the status of, this Agreement or the transactions provided for herein,
without first obtaining the consent of the other party hereto. Nothing
contained in this Section 19.12 shall prevent any party from making such public
announcements as such party may consider necessary in order to satisfy such
party's legal obligations, provided that such disclosing party shall to the
extent practicable give prior notice to the other party of the contents of, and
requirement for, such disclosure.
19.13. Disclosure in Schedules. For purposes of this Agreement, with
respect to any matter that is clearly disclosed in any portion of the
Disclosure Schedule in such a way as to make its relevance to the information
called for by another Section of this Agreement readily apparent, such matter
shall be deemed to have been included in the Disclosure Schedule in response to
such other Section, notwithstanding the omission of any appropriate
cross-reference thereto.
19.14. Dollars. All references herein to "$" or "dollars" are to U.S.
dollars.
<PAGE> 49
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as an instrument under seal as of the day and year first above written.
RAYTHEON COMPANY
/s/ David S. Dwelley
By:__________________________________
David S. Dwelley
Name:_____________________________
Vice President, Strategic
Business Development
Title:____________________________
HOUGHTON MIFFLIN COMPANY
/s/ Nader F. Darehshori
By:__________________________________
Nader F. Darehshori
Name:_____________________________
Chairman, President and
Chief Executive Officer
Title:____________________________
<PAGE> 50
Exhibit A to Stock and
Asset Purchase Agreement
------------------------
TRANSITIONAL SERVICES AGREEMENT
THIS TRANSITIONAL SERVICES AGREEMENT ("Agreement") entered into as of this
____ day of _________, 1995, by and between Raytheon Company, a Delaware
corporation ("Raytheon"), and Houghton Mifflin Company, a Massachusetts
corporation (the "Buyer"). Raytheon and the Buyer are from time to time herein
referred to as the "Parties".
WHEREAS, pursuant to a Stock and Asset Purchase Agreement, dated as of
September 25, 1995 (the "Purchase Agreement"), Raytheon has agreed to sell, and
the Buyer has agreed to purchase, Raytheon's D.C. Heath and Company business,
including the shares of common stock (the "Shares") of D.C. Heath, Canada, Ltd.
("HEATH CANADA");
WHEREAS, as contemplated by Section 7.3 of the Purchase Agreement, as of
the date hereof all conditions to closing under the Purchase Agreement have
been satisfied or waived, but the Buyer has yet to receive the approval
required under the Investment Canada Act with respect to the Shares; and
WHEREAS, as contemplated by Section 7.3 of the Purchase Agreement,
Raytheon and the Buyer wish to enter into this Agreement in order to establish
the terms and conditions under which Raytheon will operate Heath Canada for the
benefit of the Buyer until the Shares are transferred to the Buyer as provided
in Section 7.3 of the Purchase Agreement (with the period from today to such
date referred to as the "Transition Period");
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:
1. Services.
1.1. During the Transition Period, Raytheon agrees to operate the business
of Heath Canada for the benefit of the Buyer. Unless otherwise directed by the
Buyer, Raytheon will cause Heath Canada to operate its business in the ordinary
course substantially in the same manner as heretofore. In addition, during the
Transition Period Raytheon agrees to provide Heath Canada with administrative
and support services as reasonably requested from time to time by the Buyer and
to continue in place those health and welfare benefits plans currently offered
by
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Raytheon to employees of Heath Canada. The foregoing obligations of Raytheon
are referred to in this Agreement as the "Services".
1.2. Manner of Performance. Raytheon shall make all reasonable efforts to
perform all Services in substantially the same manner as presently performed by
it. The Buyer shall direct Raytheon as to the type, scope and level of
Services it requires, and Raytheon shall provide the Services in accordance
with the Buyer's directions. From time to time, and upon reasonable notice,
the Buyer may direct Raytheon to modify or cease all or part of the Services it
provides hereunder; and Raytheon shall thereafter modify or cease such Services
in accordance with the Buyer's direction.
2. Other Obligations of the Parties.
2.1. New Contracts. No new contracts or change orders to existing
contracts of Heath Canada will be accepted, prepared or negotiated by Raytheon
or Heath Canada without the prior approval of the Buyer. All new orders shall
be made in accordance with the terms and conditions from time to time
determined by the Buyer, and the Buyer shall possess the sole and absolute
discretion to decide whether or not to permit Heath Canada to accept or request
any new order.
2.2. Product Returns and Credits. Raytheon will cause Heath Canada to
accept product returns and grant the applicable customer a credit or provide a
refund on a basis consistent with Heath Canada's past practice.
2.3. Employees.
2.3.1. Employer. Raytheon is entering into this Agreement and will render
Services as an independent contractor. The Buyer shall not be considered the
employer or joint employer of Raytheon employees. Raytheon shall be solely
responsible for determining and enforcing labor policies concerning its work
force, including without limitation, the hiring, firing, discipline and
supervision of all its employees.
2.3.2. Raytheon Employee Expenses and Liabilities. Raytheon shall pay all
wages (including such incentive pay as the Buyer may request Raytheon to make
to selected employees), benefits, taxes, expenses, fees and all other costs
related to the employees necessary for the Services provided by Raytheon to the
Buyer hereunder.
2.3.3. Work. Raytheon shall use reasonable efforts to retain and/or hire
the persons required to permit Raytheon to perform fully its duties and
obligations hereunder. Raytheon shall use reasonable efforts to fulfill its
duties and obligations hereunder unless Raytheon is unable to do so because of
the Buyer's actions or decisions.
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2.4. Dividends. During the Transition Period Raytheon shall not permit
Heath Canada to declare or pay any dividends on, or make any other distribution
in respect of, any shares of its capital stock, or to issue, purchase, redeem
or acquire for value any shares of its capital stock.
2.5. Buyer Representative. The Buyer shall designate a single
representative to act as liaison with Raytheon and to monitor the performance
by Raytheon of its obligations under this Agreement (the "Buyer
Representative"). The Buyer shall cause the Buyer Representative to be
available at all times during normal business hours and, to the extent
requested by the Buyer, Raytheon shall cause Heath Canada to provide office
space to the Buyer Representative at its headquarters. Any consent or decision
made by the Buyer Representative shall be binding on the Buyer.
2.6. Reports. Raytheon shall furnish the Buyer with those current sales,
production, inventory, materials and other reports which it heretofore has
normally produced with respect to the operation of Heath Canada, as well as
such additional reports as are reasonably requested by the Buyer.
2.7. Access to Operations. Raytheon shall cause Heath Canada to provide
the Buyer with access to its offices during normal business hours.
3. Compensation.
3.1. Amount. The Buyer shall pay or reimburse Raytheon an amount equal to
Raytheon's direct and indirect labor, materials, applicable overhead costs and
other costs and charges (excluding normal depreciation and amortization but
including any other intercompany charges consistent with past practices)
reasonably incurred by Raytheon in connection with the Services, excluding any
profit thereon.
3.2. Manner of Payment. Within twenty days of the close of each fiscal
month during the Transition Period, Raytheon and the Buyer shall settle all
open accounts arising from the transactions described in this and any other
section of this Agreement. Thereafter, such settlements shall continue monthly
or at such other intervals as the parties may agree.
4. Compliance With Laws, Etc. Neither of the Parties shall violate, or
cause to be violated, any law, regulation, or the terms of any contract or
agreement, in the course of performance of this Agreement. During the term of
this Agreement, Raytheon and its employees shall not cause the Buyer and the
Buyer and its employees shall not cause and will not direct Raytheon or Heath
Canada or their employees to violate any law, regulation or other legal
obligation. Further, neither party hereto nor their employees shall do any act
or follow any direction that will cause them to violate any law, regulation or
other legal obligation.
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5. Indemnification. Except as may otherwise be expressly provided in the
Purchase Agreement, each Party shall indemnify and hold harmless the other from
and against any and all causes of action or claims arising from any breach by
the indemnifying party of this Agreement, or from the violation by the
indemnifying party of any applicable law, regulation, or the terms of any
contract.
6. Insurance. During the Transition Period Raytheon shall cause Heath
Canada to maintain the insurance currently in place or equivalent insurance.
Raytheon and the Buyer shall each maintain statutory workers' compensation
insurance (covering their respective employees), employer liability insurance
and other insurance in such amounts as are usual and customary for each.
Raytheon's insurance programs include significant deductibles and retention
amounts and any losses charged or accrued against such items shall be included
in or accrued for in the Costs.
7. Term. This Agreement shall expire at the end of the Transition Period,
unless extended by mutual agreement of the Parties.
8. Miscellaneous.
8.1. Arbitration. All disputes or claims arising under or in any way
relating to this Agreement shall be settled by arbitration in Boston,
Massachusetts before a panel of three arbitrators (with one designated by the
Buyer and one by Raytheon, and the third arbitrator designated by the first
two) pursuant to the commercial arbitration rules of the American Arbitration
Association. The arbitrators shall be selected as prescribed above, but if
they do not so agree within 30 days after the date of the notice referred to
above, the selection shall be made pursuant to the rules from the panels of
arbitrators maintained by such Association. Any award rendered by the
arbitrators shall be conclusive and binding upon the parties hereto. However,
no arbitrator shall have the power to award incidental, consequential or
special (including punitive or multiple) damages. This provision for
arbitration shall be specifically enforceable by the parties and the decision
of the arbitrators in accordance herewith shall be final and binding and there
shall be no right of appeal therefrom. Each party shall pay its own expenses
of arbitration and the expenses of the arbitrators shall be equally shared;
provided, however, that if in the opinion of the arbitrators any claim for
indemnification or any defense or objection thereto was unreasonable, the
arbitrators may assess, as part of the award, all or any part of the
arbitration expenses of the other party (including reasonable attorneys' fees)
and of the arbitrators against the party raising such unreasonable claim,
defense or objection.
8.2. Assigns. This Agreement may not be assigned in whole or in part by
either party hereto without the prior written consent of the other party,
except that the
<PAGE> 54
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Buyer may assign this Agreement to any of its subsidiaries but no such
assignment shall relieve the Buyer of its obligations under this Agreement.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, successors and permitted assigns.
8.3. Entire Agreement, Etc. This Agreement and the Purchase Agreement
(including the Schedules and Exhibits thereto and the Confidentiality Agreement
referred to therein) contains the entire understanding of the Parties,
supersedes all prior agreements and understandings relating to the subject
matter hereof and shall not be amended except by a written instrument hereafter
signed by each of the parties hereto.
8.4. Waiver of Certain Damages. EACH OF RAYTHEON AND THE BUYER TO THE
FULLEST EXTENT PERMITTED BY LAW, IRREVOCABLY WAIVES ANY RIGHTS THAT THEY MAY
HAVE TO INCIDENTAL, CONSEQUENTIAL OR SPECIAL (INCLUDING PUNITIVE OR MULTIPLE)
DAMAGES BASED UPON, OR ARISING OUT OF, THIS AGREEMENT OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS OR ACTIONS OF ANY OF THEM RELATING THERETO.
8.5. Construction. The language used in this Agreement will be deemed to
be the language chosen by the Parties to express their mutual intent, and no
rule of strict construction will be applied against any party.
8.6. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws (and not the choice-of-law rules)
of The Commonwealth of Massachusetts.
8.7. Notices. All notices, requests, payments, instructions or other
documents to be given hereunder shall be in writing or by written
telecommunication, and shall be deemed to have been duly given if delivered
personally or if mailed by certified mail, return receipt requested, postage
prepaid, or sent by written telecommunication, as follows:
If to Raytheon, to:
Raytheon Company
141 Spring Street
Lexington, Massachusetts 02173
Attention: Joseph D'Avignon, Esq.
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with a copy sent contemporaneously to:
John R. Utzschneider, Esq.
Bingham, Dana & Gould
150 Federal Street
Boston, Massachusetts 02110
If to the Buyer, to:
Houghton Mifflin Company
222 Berkeley Street
Boston, Massachusetts 02116
Attention: Paul D. Weaver, Esq.,
General Counsel
with a copy sent contemporaneously to:
Goodwin, Procter & Hoar
Exchange Place
Boston, Massachusetts 02109
Attention: Richard A. Soden, Esq.
8.8. Counterparts. This Agreement may be executed by the parties in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument.
8.9. Section Headings. All enumerated subdivisions of this Agreement are
herein referred to as "section" or "subsection." The headings of sections or
subsections are for reference only and shall not limit or control the meaning
thereof.
8.10. Public Statements or Releases. The Parties hereto each agree that
prior to the end of the Transition Period no party to this Agreement shall
make, issue or release any public announcement, statement or acknowledgment of
the existence of, or reveal the status of, this Agreement or the transactions
provided for herein, without first obtaining the consent of the other party
hereto. Nothing contained in this Section 8.10 shall prevent either Party from
making such public announcements as such Party may consider necessary in order
to satisfy such Party's legal obligations, provided that such disclosing Party
shall to the extent practicable give prior notice to the other party of the
contents of, and requirement for, such disclosure.
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8.11. Force Majeure. If either of the Parties is prevented from
performing its obligations hereunder due to force majeure such as wars, civil
riots, strikes, labor controversies, fires, acts of God, governmental
restrictions, or other circumstances beyond its control, the party prevented
from performing by such event shall promptly notify the other party of the
impossibility of performing this Agreement, in which event such performance
shall be excused and no compensation or damages shall be attributable to such
nonperformance.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date and year first above written.
RAYTHEON COMPANY
By:__________________________________
Title:_______________________________
HOUGHTON MIFFLIN COMPANY
By:__________________________________
Title:_______________________________
