<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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): December 20, 1995
AMERICAN EDUCATIONAL PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
COLORADO 0-16310 84-1012129
- --------------- ----------------------- -----------------
(State or other (Commission file number) (Employer Identi-
incorporation fication No.)
5350 Manhattan Circle, Suite 210, Boulder, Colorado 80303
-----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 543-0123
-------------------------------------------------------------------
3101 Iris Avenue, Suite 215, Boulder, Colorado 80301
------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 2: DISPOSITION OF ASSETS.
On December 20, 1995, American Educational Products, Inc. (the
"Company") completed the sale of substantially all of the assets of its wholly-
owned subsidiary, Summit Learning, Inc. ("Summit Learning") to Steck-Vaughn
Publishing Company, a Delaware corporation ("Steck-Vaughn").
The assets consisted of substantially all of the assets used by Summit
Learning in connection with its catalogue distribution business, including
inventory, accounts receivable, furniture, fixtures and equipment, mailing
lists, contracts and general intangible assets, including the trademarks "Summit
Learning" and "Young Explorers."
In consideration for the Summit Learning assets, Steck-Vaughn paid to
the Company, net of adjustments at closing for variances in inventory and
accounts receivable, approximately $4 million. The Company utilized the
proceeds of the sale to retire all outstanding accounts payable attributable to
the Summit Learning operations prior to closing and the reduction of the
outstanding balance on its revolving credit facility and term notes with its
primary lender.
The effective date of the sale was December 1, 1995.
Steck-Vaughn is a majority-owned subsidiary of National Education
Corporation whose common stock is traded on the NASDAQ National Market System.
Following the closing, the Company will continue to act as a holding
company for its remaining operating subsidiaries: Scott Resources, Inc.,
Hubbard Scientific, Inc. and Churchill Media.
ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Not applicable.
(b) PRO FORMA FINANCIAL INFORMATION
Included herewith is the Pro Forma Financial Information required
pursuant to Article 11 of Regulation SB.
(c) EXHIBITS
1.0 Asset Purchase Agreement dated as of December 20, 1995
- 2 -
<PAGE>
AMERICAN EDUCATIONAL PRODUCTS, INC.
PROFORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PROFORMA ADJUSTMENTS
--------------------
CONSOLIDATED, ASSETS AS
ASSETS AS REPORTED SOLD ADJUSTMENTS ADJUSTED
- ------ ------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash $362,000 $362,000
Restricted cash receivable $250,000 D. 250,000
Trade receivables, net 2,902,000 $1,330,000 1,572,000
Income tax refunds receivable 304,000 304,000
Inventories 3,736,000 943,000 2,793,000
Prepaid catalog cost 677,000 620,000 57,000
Other 423,000 8,000 415,000
------- ----- -------
TOTAL CURRENT ASSETS 8,404,000 2,901,000 250,000 5,753,000
PROPERTY AND EQUIPMENT, net 4,735,000 209,000 4,526,000
VIDEO LIBRARY, net 2,569,000 2,569,000
INTANGIBLE ASSETS, net 2,549,000 2,549,000
OTHER ASSETS 156,000 156,000
------- -------
TOTAL ASSETS $18,413,000 $3,110,000 $250,000 $15,553,000
---------- --------- ------- ----------
---------- --------- ------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable $3,963,000 ($3,043,000) A. $920,000
Current maturities of long term debt 1,086,000 1,086,000
Accounts payable 1,634,000 (817,000) B. 817,000
Accrued expenses 383,000 383,000
------- -------
TOTAL CURRENT LIABILITIES 7,066,000 (3,860,000) 3,206,000
LONG TERM DEBT, less current maturities 3,017,000 (200,000) A. 2,817,000
DEFERRED INCOME TAXES 558,000 450,000 C. 1,008,000
STOCKHOLDERS' EQUITY
Common stock and paid in capital 6,058,000 6,058,000
Retained earnings 1,714,000 750,000 C. 2,464,000
--------- ------- ---------
TOTAL STOCKHOLDERS' EQUITY 7,772,000 750,000 8,522,000
--------- ------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $18,413,000 ($2,860,000) $15,553,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
FOOTNOTES
---------
A. The Company's primary lender has reserved the right to use the
proceeds from sale to reduce certain borrowings under the
working capital line of credit and certain borrowings under
term notes in proportions and amounts to be determined by the
lender at a later date.
B. Proceeds from sale used to pay all accounts payable related to Summit
Learning.
C. Proforma gain on sale of $1,200,000 reduced by proforma deferred
income taxes at 37%.
D. A portion of the purchase price has been deferred pending
Steck-Vaughn's final due diligence regarding asset values. Such
amounts are expected to be received by the Company at various
times between January 31, 1996 and June 30, 1996.
<PAGE>
AMERICAN EDUCATIONAL PRODUCTS, INC.
PROFORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PROFORMA ADJUSTMENTS
--------------------
CONSOLIDATED, OPERATIONS AS
AS REPORTED SOLD ADJUSTMENTS ADJUSTED
------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
INCOME:
Net sales $15,563,000 $7,504,000 $875,000 A. $8,934,000
Cost of goods sold 8,771,000 4,220,000 472,000 A. 5,023,000
--------- --------- ------- ---------
Gross profit 6,792,000 3,284,000 403,000 3,911,000
OPERATING EXPENSES:
Catalog costs 2,048,000 1,887,000 0 161,000
Other marketing 2,002,000 382,000 0 1,620,000
--------- --------- - ---------
Total marketing 4,050,000 2,269,000 0 1,781,000
General and administrative 2,148,000 342,000 0 1,806,000
--------- ------- - ---------
Total Operating Expenses 6,198,000 2,611,000 0 3,587,000
--------- --------- - ---------
OPERATING INCOME 594,000 673,000 403,000 324,000
OTHER INCOME (EXPENSE):
Other income 68,000 0 50,000 B. 118,000
Interest expense (679,000) 0 290,000 C. (389,000)
------- - ------- -------
Net other income (expense) (611,000) 0 340,000 (271,000)
------- - ------- -------
INCOME (LOSS) BEFORE INCOME TAXES (17,000) 673,000 743,000 53,000
Income tax (expense) 6,000 (249,000) (275,000) (20,000)
----- ------- ------- -----
NET INCOME (LOSS) ($11,000) $424,000 $468,000 $33,000
------- ------- ------- -------
Earnings (loss) per common share ($0.00) $.01
----- ----
----- ----
Average number of common
shares outstanding 4,166,000 4,166,000
--------- ---------
--------- ---------
</TABLE>
FOOTNOTES
---------
A. Sales to Summit Learning from other divisions of American Educational
Products, previously eliminated in consolidation.
B. Rental income associated with lease of building to Steck-Vaughn.
C. Estimated interest savings after application of sale proceeds to
reduce certain borrowings.
<PAGE>
AMERICAN EDUCATIONAL PRODUCTS, INC.
PROFORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
PROFORMA ADJUSTMENTS
--------------------
CONSOLIDATED, OPERATIONS AS
AS REPORTED SOLD ADJUSTMENTS ADJUSTED
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INCOME:
Net sales $21,101,000 $10,094,000 $825,000 A. $11,832,000
Cost of goods sold 11,732,000 5,698,000 495,000 A. 6,529,000
---------- --------- ------- ---------
Gross profit 9,369,000 4,396,000 330,000 5,303,000
OPERATING EXPENSES:
Catalog costs 5,382,000 4,235,000 0 1,147,000
Other marketing 2,204,000 539,000 0 1,665,000
--------- ------- - ---------
Total marketing 7,586,000 4,774,000 0 2,812,000
General and administrative 4,012,000 674,000 0 3,338,000
--------- ------- - ---------
Total Operating Expenses 11,598,000 5,448,000 0 6,150,000
---------- --------- - ---------
OPERATING INCOME (2,229,000) (1,052,000) 330,000 (847,000)
OTHER INCOME (EXPENSE):
Other income 77,000 0 66,000 B. 143,000
Interest expense (661,000) 0 350,000 C. (311,000)
------- - ------- -------
Net other income (expense) (584,000) 0 416,000 (168,000)
------- - ------- -------
INCOME BEFORE INCOME TAXES (2,813,000) (1,052,000) 746,000 (1,015,000)
Income tax (expense) 955,000 358,000 (254,000) 343,000
------- ------- ------- -------
NET INCOME ($1,858,000) ($694,000) $492,000 ($672,000)
--------- ------- ------- --------
Earnings (loss) per common share ($0.46) ($0.17)
---- ----
---- ----
Average number of common
shares outstanding 4,060,000 4,060,000
--------- ---------
--------- ---------
</TABLE>
FOOTNOTES
---------
A. Sales to Summit Learning from other divisions of American Educational
Products, previously eliminated in consolidation.
B. Rental income associated with lease of building to Steck-Vaughn.
C. Estimated interest savings after application of sale proceeds to
reduce certain borrowings.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERICAN EDUCATIONAL PRODUCTS, INC.
Dated: December 27, 1996 By: /s/ Paul D. Whittle
---------------------- ---------------------------------------
Paul D. Whittle, President
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "AGREEMENT"), is made and entered into
as of the 20th day of December, 1995, by and between Steck-Vaughn Publishing
Corporation, a Delaware corporation ("SV"), on the one hand, and Summit
Learning, Inc., a Colorado corporation ("SELLER") and American Educational
Products, Inc., a Colorado corporation ("AEP"), on the other hand.
RECITALS
WHEREAS, Seller is engaged in the business (the "BUSINESS") of marketing,
selling and distributing educational products and materials through, among other
methods, direct mail catalogues;
WHEREAS, SV desires to buy, through the payment of cash and certain other
consideration, and Seller desires to sell, substantially all assets owned by
Seller, all on the terms and conditions set forth herein; and
WHEREAS, Seller is a wholly-owned subsidiary of AEP, and AEP, in order to
induce SV to enter into this Agreement and consummate the transactions
contemplated, hereby, has agreed to be a party to this Agreement and make
certain representations, warranties and indemnities as more fully set forth
below;
NOW, THEREFORE, based on the above premises and in consideration of the
mutual covenants and agreements contained herein, the parties agree as follows:
ARTICLE I
SALE AND PURCHASE OF ASSETS
1.1 ASSETS. On the terms and subject to the conditions of this
Agreement, on the Effective Date (as defined in Section 1.3), Seller shall sell
to SV, and SV shall purchase from Seller, the following assets (collectively,
the "ASSETS"), free and clear of any and all liens, charges, security interests,
options, claims or other encumbrances of any nature whatsoever ("LIENS AND
ENCUMBRANCES"), but not including the Excluded Assets (as defined in
Section 1.2.1 below):
1.1.1 ACCOUNTS RECEIVABLES. All "RECEIVABLES," which shall
consist of all accounts and notes receivable of Seller of every nature
whatsoever, but not including any receivable that has been outstanding for more
than one hundred eighty (180) days as of the Effective Date ("SELLER'S
RECEIVABLES");
1.1.2 INVENTORY. All inventories of Seller of every nature
whatsoever, including, without limitation, finished materials, work-in-process
and raw materials, spare and replacement parts, packaging materials and
miscellaneous supplies of Seller of every nature
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<PAGE>
whatsoever and wherever located, including without limitation at warehouses,
depositories, printers or any of Seller's facilities (the "INVENTORY"), other
than the Excluded Inventory, as defined in Section 2.7 below;
1.1.3 FURNITURE AND EQUIPMENT. All furniture, fixtures, equipment
and other tangible property used in Seller's Business (the "FURNITURE AND
EQUIPMENT") including, without limitation, office equipment and supplies,
computer systems (hardware and software), telephone systems, warehouse assembly,
storage, packaging and distribution equipment, and fixtures and tenant
improvements to the extent SV leases from AEP Seller's premises, all as set
forth on SCHEDULE 1.1.3 attached hereto;
1.1.4 PREPAID EXPENSES. All prepaid expenses of Seller of every
nature whatsoever, including, without limitation, lease advances and deposits,
royalty or contract advances or deposits, deposits and prepaid amounts for
teacher, customer and other mail order lists, and other similar types of
advances to suppliers, contractors, utilities and other persons and entities;
1.1.5 INTELLECTUAL PROPERTY. Any and all intellectual property of
Seller of every nature whatsoever, including without limitation (i) all patents,
trademarks, trade names (including, without limitation, the names "Summit
Learning" and "Young Explorers"), service marks and copyrights (whether
registered or unregistered), (ii) all registrations and applications therefor,
(iii) all licenses with respect thereto, (iv) all goodwill appurtenant thereto,
(v) all customer, "house," and prospect lists and databases, and (vi) all post-
Closing rights, claims or choses in action relating to or deriving from any of
the foregoing (collectively, the "INTELLECTUAL PROPERTY"), which Intellectual
Property is set forth on SCHEDULE 2.10.2 and 2.10.3 attached hereto;
1.1.6 DEVELOPMENT AND PROMOTIONAL ASSETS. All sales, marketing,
advertising and promotional materials of Seller of every nature whatsoever,
whether pre- or post-production or publication, including without limitation
manuscripts, catalogues, edited works-in-process, mechanicals, camera copy,
flats, plates, color separations, intermediate film, final plate-making film,
magnetic disks, artwork, photographs, transparencies, recording masters,
computer diskettes and digitized masters pertaining to Seller's catalogues or
the Business (the "DEVELOPMENT ASSETS"), and including without limitation those
Development Assets listed (with their location) on SCHEDULE 1.1.6 attached
hereto;
1.1.7 ASSIGNED CONTRACTS. Except for any Excluded Liabilities (as
defined in Section 1.2.2 hereof) and Excluded Contracts (as defined in Section
1.2.3 hereof), all Seller's right, title and interest in and to all contracts
arising from or entered into in connection with Seller's Business (the "ASSIGNED
CONTRACTS"), which Assigned Contracts shall consist of (i) all sales and
purchase orders, if any, for Seller's products entered into in the ordinary
course of business and on hand as of the Effective Date and (ii) oral and
written contracts, agreements, licenses and leases, if any, including without
limitation agreements with writers, artists, photographers, consultants and
collaborators, agreements for outside art and production work, agreements with
depositories for warehousing and order fulfillment, catalogue printing
- 2 -
<PAGE>
agreements, sales agreements, agreements with suppliers and vendors for the
acquisition or distribution of products, confidentiality, invention and similar
agreements with employees and consultants, and other agreements entered into in
Seller's ordinary course of business, to the extent such contracts, agreements,
licenses and leases are both set forth on SCHEDULE 1.1.7 hereto and are
designated in writing by SV as Assigned Contracts prior to the Closing Date
(collectively, the "ASSIGNED CONTRACTS");
1.1.8 BOOKS AND RECORDS. Subject to Section 5.3 below, all books
and records, files, documents, papers and agreements (including, without
limitation, information relating to customers, manufacturers, contractors,
suppliers and vendors) pertaining to the Assets or otherwise to Seller and the
Business (the "BOOKS AND RECORDS");
1.1.9 OTHER ASSETS. All other assets, tangible or intangible, of
Seller of every nature whatsoever, including, without limitation, all
transferable business licenses, permits and equivalent documents pertaining to
the Business, all computer programs (including Seller's rights, if any, to
object code, source code and documentation thereof or therefor), data bases and
software used by Seller in connection with the Business, and all technical,
marketing, promotional and other information, practices and procedures relating
to the business or operations of Seller, including, without limitation, research
and development, inventions, know-how, processes, ideas and trade secrets and
any documentation thereof and all claims and rights related thereto;
1.1.10 ACQUIRED ASSETS. All assets of like kind to those listed in
Sections 1.1.1 to 1.1.9 that have been acquired by Seller for use in connection
with the Business between the date hereof and the Effective Date; and
1.1.11 GOODWILL. All goodwill of Seller and the Business.
1.2 EXCLUSIONS.
1.2.1 EXCLUDED ASSETS. Notwithstanding anything to the contrary
herein, the Assets shall not include the following (the "EXCLUDED ASSETS"): any
Assets which have been disposed of, sold or consumed since the date hereof in
the ordinary course of business on a basis consistent with past practice, any
receivable that has been outstanding for more than one hundred eighty (180) days
as of the Effective Date, and the Excluded Inventory (as defined in Section 2.7
below).
1.2.2 EXCLUDED LIABILITIES. Except as specifically set forth in
this Agreement, SV shall not assume or accept any of Seller's liabilities.
Without limiting the generality of the foregoing, SV shall not assume or accept
any of the following liabilities (the "EXCLUDED LIABILITIES"):
(i) for taxes, whether federal, state, local or
foreign or assessments of any kind, including
interest, additions to tax or penalties
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<PAGE>
applicable thereto with respect to the operation
of the Business prior to the Effective Date;
(ii) arising out of any intercompany transactions
between Seller and AEP or any subsidiary thereof
or person or entity affiliated therewith;
(iii) arising out of any performance, nonperformance or
improper performance of the Assigned Contracts
prior to the Effective Date, including any
royalties and commissions payable on sales made
prior to the Effective Date;
(iv) for warranty claims made after the Effective Date
for service, repair, replacement and similar work
with respect to Assets sold, licensed or leased or
services provided prior to the Effective Date
(except as set forth in Section 4.7 hereof);
(v) for product liabilities arising with respect to
Assets sold, licensed or leased or services
provided prior to the Effective Date;
(vi) arising out of any alleged damage to the
environment or any liability for environmental
cleanup costs arising out of occurrences,
circumstances or actions commencing or in
existence prior to the Effective Date;
(vii) for any judicial or administrative action, suit,
proceeding or investigation, pending or threatened
on, or based on events occurring prior to, the
Effective Date, relating to Seller, AEP or the
Assets;
(viii) for noncompliance with or violations of any law,
rule, regulation, statute, ordinance, permit,
judgment, injunction, order, decree, license or
other governmental authorization or approval prior
to the Effective Date applicable to Seller, AEP,
the Business or the Assets;
(ix) for any agreements, contracts or arrangements
entered into prior to the Effective Date with
Seller's employees (except to the extent any such
agreement is an Assigned Contract);
(x) arising out of or related to any Excluded
Contracts either before or after the Effective
Date, except as specifically set forth herein;
- 4 -
<PAGE>
(xi) for any notes payable or other obligations of
Seller occurring prior to the Effective Date; and
(xii) for any trade liabilities of Seller.
1.2.3 EXCLUDED CONTRACTS. For purposes of this Agreement, the
term "EXCLUDED CONTRACTS" shall be those contracts, agreements, leases and
licenses that are not Assigned Contracts pursuant to Section 1.1.7 above.
Seller shall use its best efforts to terminate or give notice of termination
regarding each Excluded Contract on or before the Closing Date. In the event
that, following the Closing Date, Seller or SV discovers any additional
contract, agreement, lease or license that should have been listed on Schedule
1.1.7, then SV shall have the right, but not the obligation, to designate such
subsequent contract, agreement, lease or license as an Assigned Contract or an
Excluded Contract, and Seller shall take such action as is required under this
Section 1.2.3 or under Section 4.1.6, as appropriate.
1.3 CLOSING AND EFFECTIVE DATE.
1.3.1 TIME AND PLACE. The closing (the "CLOSING") of the
transactions contemplated under this Agreement (the "TRANSACTIONS") will take
place simultaneously in person or by facsimile at the principal offices of SV,
8701 North MoPac Expressway, Suite 200, Austin, Texas 78759, and at the
principal offices of AEP, 5350 Manhattan Circle, Suite 210, Boulder, Colorado
80303, on December 20, 1995, at 1:00 p.m. central standard time, or at such
other time and place as to which the parties agree in writing (the "CLOSING
DATE"), and the transaction shall be deemed effective, for accounting and other
purposes, as of 12:01 a.m. on December 1, 1995 (the "EFFECTIVE DATE").
1.3.2 TRANSFER.
(a) PURCHASE PRICE AND ASSETS. At the Closing, simultaneously
with the delivery by SV to Seller of the Purchase Price less the Holdback
Amount (as those terms are defined in, and in accordance with the provisions
of, Section 1.5), Seller shall deliver and transfer to SV (for delivery to a
wholly-owned subsidiary of SV) the Assets, free and clear of any and all
Liens and Encumbrances.
(b) SELLER DELIVERIES. In addition to that set forth in
Section 1.3.2(a), at the Closing, Seller shall execute and deliver to SV (i)
a Bill of Sale in the form attached hereto as EXHIBIT A, (ii) an Assignment
and Assumption Agreement in the form attached hereto as EXHIBIT B, (iii)
assignments of Intellectual Property in forms reasonably acceptable to SV
and Seller, (iv) an executed officer's certificate (from each of Seller and
AEP) in the form attached hereto as EXHIBIT C-1, (v) a Non-Competition
Agreement, also executed by AEP, in the form attached hereto as EXHIBIT F,
(vi) a good standing certificate (or the available equivalent thereof) from
the State of Colorado with respect to Seller and AEP and dated within ten
(10) days prior to the Closing Date, and (vii) such other bills of sale,
instruments of assignment and other appropriate documents as may be
reasonably requested by SV in order to carry out the Transactions. Seller
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<PAGE>
shall also cause its counsel, Neuman & Cobb, to issue and deliver its
opinion to SV in the form attached hereto as EXHIBIT E.
(c) SV DELIVERIES. In addition to that set forth in Section
1.3.2(a), at the Closing, SV shall execute and deliver to Seller (i) an
Assignment and Assumption Agreement in the form attached hereto as
EXHIBIT B, (ii) an executed officer's certificate in the form attached
hereto as EXHIBIT C-2, (iii) an executed lease in the form attached hereto
as EXHIBIT D, (iv) SV's counterpart of Seller's and AEP's Non-Competition
Agreement in the form attached hereto as EXHIBIT F and (v) such other
documents as may be reasonably requested by Seller in order to carry out the
Transactions.
1.4 ALLOCATION OF PURCHASE PRICE. SV and Seller agree that the Purchase
Price shall be allocated among the Purchased Assets in accordance with the
allocation set forth in SCHEDULE 1.4 hereto. SV and Seller agree that each will
report the federal, state and local income and other tax consequences of the
purchase and sale contemplated hereby in a manner consistent with such
allocation and that neither will take any position inconsistent therewith upon
examination of any tax return, in any refund claim, in any litigation, or
otherwise.
1.5 PURCHASE PRICE. The purchase price (the "PURCHASE PRICE") for the
sale by Seller to SV of the Assets shall equal Five Million Dollars
($5,000,000), as adjusted in accordance with Section 1.5(c) below. Such
Purchase Price shall be delivered in accordance with the foregoing:
(a) CASH AT CLOSING. At the Closing, SV shall deliver to
Seller by wire transfer the Purchase Price (as adjusted pursuant to Section
1.5(c) below) less Three Hundred Thousand Dollars ($300,000) (the "HOLDBACK
AMOUNT"), which Holdback Amount is subject to adjustment and payment in
accordance with the following subsections. The parties hereto acknowledge
and agree that of the Holdback Amount, $250,000 shall be deemed the
"INVENTORY AND PAYABLES HOLDBACK" and $50,000 shall be deemed the
"RECEIVABLES HOLDBACK."
(b) CONSUMER CATALOGUE ADJUSTMENT. On or before January 31,
1996, SV shall deliver to Seller a statement, prepared in accordance with
Generally Accepted Accounting Principles and consistent with SV's past
accounting practices, setting forth the Gross Margin (as defined below in
this subsection) earned by SV between the Effective Date and December 31,
1995, on orders received and shipped within that period solely and directly
from the consumer catalogue portion of Seller's Business (the "CONSUMER
CATALOGUE BUSINESS"). Upon receipt by Seller of SV's determination of Gross
Margin, the Gross Margin shall be agreed to by the parties in accordance
with the procedure set forth in subsection (e) below. Following
determination of the Gross Margin, the Holdback Amount shall be increased by
the value of such Gross Margin. For purposes of this subsection, the "GROSS
MARGIN" shall equal the gross revenues earned by SV from the Consumer
Catalogue Business during the applicable time period, less SV's costs of
goods, freight, insurance, taxes and reasonably allocable expenses of
fulfilling such orders.
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<PAGE>
(c) ADJUSTMENT FOR EFFECTIVE DATE INVENTORY VALUE AND
RECEIVABLES VALUE. On or before the Closing Date, Seller and SV shall
jointly determine (1) a good faith estimate of the Inventory Value (as
defined in Section 2.7 below) as of the Effective Date and (2) the value of
the Receivables as of the Effective Date (the "RECEIVABLES VALUE"). In the
event that the parties are unable to agree on the estimated Effective Date
Inventory Value or the Receivables Value, final determination may be
submitted for resolution by arbitration in accordance with Section 10.10
hereof, at the election of either party. Upon determination of the
estimated Effective Date Inventory Value and the Receivables Value, the
Purchase Price shall be decreased or increased, as the case may be, by
(i) the amount by which the estimated Inventory Value is less or greater
than One Million Four Hundred Sixty-Seven Thousand Dollars ($1,467,000) and
(ii) the amount by which the Receivables Value is less than or greater than
One Million Three Hundred Six Thousand Dollars ($1,306,000).
(d) FINAL DETERMINATION OF EFFECTIVE DATE INVENTORY VALUE. On
or before January 31, 1996, Seller and SV, together with their respective
accountants and auditors, shall jointly determine the actual Inventory Value
as of the Effective Date; in the event that the parties are unable to agree
on the actual Effective Date Inventory Value, final determination may be
submitted for resolution by arbitration in accordance with Section 10.10
hereof, at the election of either party. Upon determination of the actual
Effective Date Inventory Value, the Purchase Price shall be decreased or
increased, as the case may be, by the amount by which the actual Inventory
Value is less or greater than the estimated Effective Date Inventory Value
determined as of the Closing Date (the "INVENTORY VALUE DIFFERENTIAL"). The
Holdback Amount shall be increased or decreased by the amount of the
Inventory Value Differential, and paid in accordance with subsection (h)
below; any decrease in excess of the Holdback Amount shall be promptly
refunded by Seller to Steck-Vaughn following the determination.
(e) DETERMINATION OF GROSS MARGIN. Following delivery, in
writing, of SV's determination of the Gross Margin, Seller shall have the
right to review (including discussions with SV's personnel relating to the
preparation of such accounting) the work papers of SV utilized in
determining the Gross Margin. The Gross Margin shall be binding on the
parties unless Seller presents to SV, within ten (10) business days after
Seller's receipt of SV's initial determination of the Gross Margin, written
notice of disagreement specifying the nature and extent of the disagreement.
In the event that, within ten (10) business days after the SV receives a
timely notice of disagreement, the parties are unable to resolve such
disagreement, the disagreement may, at the election of either party, be
submitted for resolution by arbitration in accordance with Section 10.10
hereof. The Gross Margin shall be deemed to be binding on the parties and a
final determination shall be deemed to occur upon: (i) Seller's failure to
deliver a notice of disagreement within ten (10) business days of its
receipt of the Gross Margin, (ii) SV's receipt of Seller's unconditional
written waiver of its right to provide notice of disagreement, (iii) written
resolution of any disagreement by mutual agreement of the parties, or (iv)
resolution of the disagreement in accordance with Section 10.10 below.
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(f) GUARANTY OF RECEIVABLES. As soon as practicable following
May 31, 1996, but in no event later than June 30, 1996, SV shall prepare and
deliver to Seller a schedule (the "RECEIVABLES SCHEDULE"), certified as to
accuracy by SV's chief financial officer, setting forth the amount of
Receivables collected and not collected by SV following the Closing Date,
including in such determination the amount, if any, of Seller's Receivables
collected by SV after the Closing Date. As to any and all uncollected
Receivables, the Receivables Schedule shall identify the customer, the
amount uncollected and the number of collection contacts made by SV in an
effort to recover same. In the event that the Receivables Schedule
certifies that SV has not collected at least ninety-five percent (95%) of
the Effective Date Receivables Value (including and giving credit for any
Seller's Receivables collected by SV) and at least ninety-five percent of
receivables from the Consumer Catalogue Business for the period from the
Effective Date until December 31, 1995 (to the extent such receivables were
considered in calculation of the Gross Margin) (the "CONSUMER CATALOGUE
RECEIVABLES"), then the Holdback Amount shall be reduced by (i) the amount
that the collected Receivables (including and giving credit for any Seller's
Receivables collected by SV) is less than ninety-five percent (95%) of the
Effective Date Receivables Value and (ii) the amount that the collected
Consumer Catalogue Receivables is less than ninety-five percent (95%) of
such Consumer Catalogue Receivables; any reduction of the Holdback Amount in
excess of the Holdback Amount shall be promptly paid by Seller to Steck-
Vaughn following such determination. Thereafter, to the extent SV
subsequently collects additional Receivables or Consumer Catalogue
Receivables (up to the ninety-five percent guaranty), SV shall, as
appropriate, reverse any reduction in the Holdback Amount or reimburse the
collected amount directly to Seller. SV shall assign to Seller any
Receivables remaining uncollected to the extent the Holdback Amount has been
reduced in accordance with the provisions of this Section 1.5(f). In
addition, from and after the time that SV has collected at least ninety-five
percent (95%) of the Effective Date Receivables Value (including and giving
credit for any Seller's Receivables collected by SV) and at least ninety-
five percent of the Consumer Catalogue Receivables, SV shall pay promptly to
Seller any revenue thereafter collected from Seller's Receivables.
(g) PAYMENT OF TRADE ACCOUNTS PAYABLE. At the Closing, Seller
shall have prepared checks for the payment of all outstanding trade accounts
payables of Seller as of the Effective Date, as certified in writing by the
Chief Financial Officer of Seller. Concurrently with the Closing, Seller
and SV shall jointly undertake to mail such checks in a manner reasonably
acceptable to SV, in satisfaction of all of Seller's trade accounts payable
not previously paid. Following the Closing Date, should SV discover at any
time or from time to time that there remains outstanding any unpaid trade
account payable or liability arising out of the operation of Seller's
Business prior to the Effective Date, which payable or liability otherwise
would be an Excluded Liability hereunder, SV shall provide Seller with
written notice of same and, if Seller fails to pay or otherwise satisfy such
outstanding payable or liability within fifteen (15) days following the date
of such notice, SV shall have the right, but not the obligation, to pay such
payable or liability. Any payment made by SV under this subsection shall be
first applied against and reduce the Holdback Amount; in the event that the
Holdback Amount has been
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exhausted or paid to Seller, then, within ten (10) business days following
receipt of written demand from SV, Seller shall reimburse to SV the amount
of any trade account payable or liability paid by SV under this Section
1.5(g).
(h) PAYMENT OF HOLDBACK AMOUNT. On or before January 31, 1996,
upon determination of the final Inventory Value and the Gross Margin, SV
shall pay to Seller by wire transfer that portion of the Holdback Amount
representing the Inventory and Payables Holdback, net of any Inventory Value
Differential or Gross Margin adjustment, and net of any Excluded Liabilities
paid by SV on behalf of Seller. On or before June 30, 1996, any Holdback
Amount not previously paid to Seller or exhausted from reduction in
accordance with the terms of this Section 1.5 or Section 9.3 below (the
"HOLDBACK REMAINDER") shall be paid by SV to Seller by wire transfer. In
addition, SV shall pay to Seller interest on the Holdback Remainder (but not
on any Holdback Amounts previously paid or reduced in accordance with this
Section 1.5) at the rate of two percentage points above the prime rate of
interest as charged by First Interstate Bank, N.A., or any successor
thereto, at the time of payment, and pro-rated for the period of time for
which the Holdback Remainder was outstanding.
1.6 LEASE OF PREMISES. From the Closing Date through December 31, 1997,
SV shall lease from AEP pursuant to the document attached as EXHIBIT D hereto
(the "LEASE") 14,100 square feet of office and warehouse space, along with all
furniture, fixtures, equipment and improvements thereon and therein (to the
extent not purchased by SV as Assets hereunder), at the premises that comprise
Seller's current office and warehouse space in Fort Collins, Colorado (the
"PREMISES"), on such terms and conditions as set forth in the Lease. Such terms
and conditions shall include the following: (i) SV shall have the right from
time to time to lease the other space in such premises at then prevailing market
rates, and, subject to SV's agreement to lease such space at then-prevailing
market rates, Seller shall exercise any termination right it may have with
respect to any tenant in the premises from time to time as necessary to provide
to SV the benefits of such right to lease, and (ii) SV shall have the option to
extend, on a year-to-year basis, the Lease, with each such extension at then-
prevailing market rates; however, such option shall not be binding on any
subsequent owner of the Premises, so long as such subsequent owner is not
controlled, controlling, under common control with, or otherwise an affiliate of
Seller or AEP.
1.7 EMPLOYEE MATTERS. SV, in its sole discretion, may offer employment
to Seller's employees effective on the first business day following the
Effective Date. Attached hereto as SCHEDULE 1.7 is a listing of each employee
of Seller, along with each employee's title or position, base salary, and
entitlement to incentive compensation, commission or other performance-based
compensation. Seller employees who become employed by SV shall be entitled to
participate in SV's standard employment benefit package and 401(k) Retirement
Plan as in effect from time to time, and in accordance with SV's policies and
conditions of participation in effect from time to time. Except as set forth
above, all other obligations, commitments and liabilities with respect to
Seller's employees shall remain the sole responsibility of Seller, and Seller
shall fully indemnify SV with respect thereto.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
For purposes of this Article II, the phrase "MATERIALLY ADVERSE" means, with
respect to any event, circumstance, inaccuracy, error, obligation, breach,
default, liability, loss, damage or amount ("BREACHES"), that such Breaches
individually or in the aggregate have had, or in the future could reasonably be
expected to have (assuming that the Business is conducted as presently
conducted), a material adverse impact on the financial condition, results of
operations, properties, assets, liabilities or businesses of Seller or AEP. As
an inducement for SV to enter into this Agreement, each of Seller and AEP
represents and warrants that each of the following statements is true and
correct as of the date hereof, and will be true and correct as of the Effective
Date and the Closing Date, except as expressly set forth in the Disclosure
Schedule attached hereto as SCHEDULE 2, specifying by number the representation
qualified, PROVIDED that any specific disclosure made with reference to one or
more sections below shall be deemed disclosed with respect to each other section
as to which such disclosure is relevant provided that such relevance is clearly
apparent:
2.1 EXISTENCE AND RIGHTS. Each of Seller and AEP (i) is a corporation
duly organized and validly existing in good standing under the laws of the State
of Colorado and (ii) has the corporate power and authority, licenses and rights
to own its properties, to carry on its Business as now conducted and to make and
carry out the Transactions. Seller has no equity interests, direct or indirect,
in any partnership, joint venture, corporation or other business entity. The
copies of the Articles and Bylaws of Seller, which have been previously
delivered to SV, are complete and correct. Each of Seller and AEP is duly
qualified and in good standing in each jurisdiction in which the character of
its Business makes such qualification necessary, except for such jurisdictions
in which such party's failure to be so qualified would not be Materially
Adverse.
2.2 AGREEMENT AUTHORIZED. The execution, delivery and performance of
this Agreement and Transactions by each of Seller and AEP have been duly
authorized by all necessary corporate and other action and do not require notice
to, or the consent or approval of, any governmental or other regulatory
authority or any other person. This Agreement has been duly executed and
delivered by each of Seller and AEP and is a legal, valid and binding obligation
of each of Seller and AEP, enforceable against Seller and AEP in accordance with
its terms. The Bill of Sale, Assignment and Assumption Agreement and all other
agreements and documents contemplated hereunder (the "RELATED AGREEMENTS"), when
delivered at Closing, will have been duly executed and delivered by Seller and
AEP, as appropriate, and will be legal, valid and binding obligations of Seller
and AEP, enforceable against each of Seller and AEP in accordance with each of
their respective terms.
2.3 NO CONFLICT. The execution, delivery and performance by each of
Seller and AEP of this Agreement and the Related Agreements will not (i) modify,
breach or constitute grounds for the occurrence or declaration of a default
under or allow another party a right to terminate any agreement, indenture,
undertaking or other instrument to which Seller or AEP is a party or by which
they or any of the Assets may be bound or affected, except for any such
modification,
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breach or default which is not Materially Adverse; (ii) to the best of Seller's
and AEP's knowledge, violate any provision of law or any regulation or any
order, judgment, or decree of any court or other agency of government; (iii)
violate any provision of the Articles of Incorporation or Bylaws of Seller or of
AEP; or (iv) result in the creation or imposition of (or the obligation to
create or impose) any Lien or Encumbrance on any of the Assets.
2.4 TITLE. Seller has good, clear and marketable title to, or the legal
right to use without further payment, all of the Assets, in each case free and
clear of any and all Liens and Encumbrances, except as set forth in the
Disclosure Schedule. None of the Assets are located outside the United States.
Except as set forth in the Disclosure Schedule, no person has the power to
terminate any of the Assigned Contracts for any reason whatsoever, including,
without limitation, the exception of this Agreement or performance of the
Transactions.
2.5 FINANCIAL MATTERS. Prior to the date hereof, each of AEP and Seller
has delivered to SV, and SV acknowledges receipt of, Balance Sheets as of
December 31, 1993, December 31, 1994, and September 30, 1995 and Statement of
Operations for the years ended December 31, 1993, and December 31, 1994, and the
nine-month period ended September 30, 1995 (the "FINANCIAL STATEMENTS").
2.5.1 FINANCIAL CONDITION. The Financial Statements and all other
financial statements and historical data submitted in writing by Seller or AEP
to SV in connection with the Transactions: (i) are true and correct in all
material respects as of the date thereof, (ii) were prepared in accordance with
Generally Accepted Accounting Principles consistently applied and (iii) fairly
and accurately present the financial condition of Seller or AEP, as applicable,
as of the dates thereof and the results of the operations of Seller and AEP for
the periods covered thereby. Neither Seller nor AEP has knowledge of any
material liabilities or guarantees, matured or unmatured, contingent or
otherwise, as of the respective dates of the Financial Statements not accurately
reflected in the Financial Statements, and none have arisen since that time
except in the ordinary course of business, all of which are reflected in the
books and records of Seller and AEP. Any reserves established by Seller or AEP
in the Financial Statements were and continue to be adequate for all anticipated
losses and costs in excess of expected receipts.
2.5.2 RECEIVABLES. The Receivables arose in the ordinary course
of business consistent with past practices pursuant to contracts, agreements,
leases and licenses that are enforceable in accordance with their respective
terms. All conditions precedent to the obligations of the account debtors on
the Receivables due on or prior to the date hereof have been fully satisfied and
Seller has performed its obligations required on or prior to the date hereof
under each agreement, contract, license or lease pursuant to which any of the
Receivables were generated. None of such account debtors has any offset or
recoupment rights or has asserted any offset or recoupment rights with respect
to its obligation to pay any of the Receivables. Seller does not know of any
specific reason why any individual Receivable is not collectible in the ordinary
course of business. As of the Closing Date, neither Seller nor AEP has executed
any assignment of any of its rights with respect to the Receivables.
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2.5.3 NO UNDISCLOSED LIABILITIES. There are no outstanding
material claims, liabilities or obligations of any nature, whether absolute,
accrued, known or unknown, contingent or otherwise, other than: (i) liabilities
and obligations that are fully reflected, accrued or reserved against on the
Financial Statements, for which the reserves are appropriate and reasonable; or
(ii) other liabilities and obligations incurred since September 30, 1995, in the
ordinary course of business consistent with past practices, none of which are
material.
2.6 NO SUBSEQUENT CHANGES. Except for the Transactions, since September
30, 1995, each of Seller and AEP has conducted its Business in the ordinary
course and consistent with past practices. There has not been (i) any transfer,
lease or other disposition of any of the Assets or the acquisition of any assets
or properties, except in the ordinary course of business consistent with past
practices; (ii) any cancellation or compromise of any debt or claim, except in
the ordinary course of business consistent with past practices; (iii) any waiver
or release of any rights (other than rights related to Excluded Assets) under
any Assigned Contract or of value to Seller, except for any such waiver or
release which will not be Materially Adverse; (iv) any transfer or grant of any
rights under any Intellectual Property; (v) any damage to, or destruction or
loss of Assets (whether or not covered by insurance) in excess of $25,000; (vii)
any actual or threatened in writing cancellations by customers, suppliers or
manufacturers of any material Assigned Contract; (viii) any material change in
any accounting principle or method used by Seller or AEP for either income tax
or financial reporting purposes; (ix) any write-offs or write-downs of the
Inventory or the Receivables other than in the ordinary course of business
consistent with past practices; (x) any agreement to take any action described
in this Section 2.6; and (xi) any Materially Adverse change (whether or not
covered by insurance), or any occurrence or event which could reasonably be
expected to result in a Materially Adverse change.
2.7 INVENTORY. The Inventory consists of items of a quantity and quality
usable or salable in the ordinary course of business consistent with sales over
the last year. Seller is not under any material liability or obligation with
respect to the return of Inventory in the possession of other parties (whether
or not affiliated with Seller). Seller has not received written or oral notice
that it will experience in the foreseeable future any difficulty in obtaining,
in the desired quantity and quality and at a reasonable price and upon
reasonable terms and conditions, the finished goods, raw materials, services,
supplies or component products required for its Business. For purposes of this
Agreement, the term "INVENTORY VALUE" shall equal, as of the Effective Date, the
value of the Inventory, which value shall be based on and limited to vendors'
invoices for such inventory, as reduced for Inventory no longer appearing in
Seller's catalogues, for Inventory consisting of prior versions of products, and
for Inventory of which Seller has in excess of the number of units sold,
licensed or leased in the preceding one year period (collectively, the "EXCLUDED
INVENTORY").
2.8 PRODUCT LIABILITY. There are no statements, citations or decisions by
any governmental or regulatory body that any product marketed, distributed,
sold, license or leased at any time by Seller ("PRODUCT") is defective or fails
to meet in any material respect any standards promulgated by any such
governmental or regulatory body. There have been no recalls ordered by any such
governmental or regulatory body with respect to any Product. There
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is no (i) fact known to Seller relating to any Products that impose upon Seller
(or SV upon consummation of the Transactions) a duty to recall any Product or a
duty to warn its customers or any other consumer of a defect in any Product, or
(ii) latent or overt design, manufacturing or other defect known to Seller in
any Product.
2.9 INSURANCE. The Assets which are of an insurable character are insured
against loss or damage by fire and other risks, and Seller (or AEP on behalf of
Seller) has liability and worker's compensation insurance with independent
carriers, in each case to the extent and in the manner customary for companies
engaged similar business or owning similar assets.
2.10 INTELLECTUAL PROPERTY.
2.10.1 LICENSES. Seller has proper and effective licenses (which
cover all uses by Seller, and after the Effective Date, SV, and their respective
distributors and licensees) for the Business (as heretofore conducted by
Seller), for the duration granted by applicable law. True and complete copies of
all such licenses (as amended to date) have been delivered to SV. All costs,
expenses, royalties, payments and commissions required to be paid in connection
with the foregoing through the date hereof (and for the purposes of Section 5.1,
through the Effective Date) have been paid in full by Seller. Seller and its
distributors and licensees have (and after the Effective Date, SV will have)
proper and effective licenses or grants of authority to use the work product of
writers, artists, photographers, consultants and other persons connected with
the design, development, recording, programming, duplication, publication and
distribution of the Products and catalogues to the extent necessary for the
Business.
2.10.2 COPYRIGHTS. A true and complete listing of all of Seller's
copyrights, whether registered, unregistered or pending registration, which
comprise a portion of the Intellectual Property is set forth in SCHEDULE 2.10.2.
Good and sufficient copyright notice has been affixed to each piece of
copyrighted Intellectual Property.
2.10.3 TRADEMARKS. Seller owns only the Trademarks (whether
registered or under common law) set forth in SCHEDULE 2.10.3, and
has not granted any options, licenses or rights therein. Seller possesses (and
after the Effective Date, SV will possess) the license or right to use for the
duration granted by applicable law (and without the need for royalty or other
payments) all Trademarks necessary or used to conduct the Business.
2.10.4 NON-INFRINGEMENT AND LITIGATION. Except as disclosed in the
Disclosure Schedule, Seller (i) is not violating, infringing on or otherwise
acting adversely with respect to, any intellectual property or any right of
privacy of any party (whether or not an affiliate) in the operations of the
Business, (ii) has not received any notice from any third party and does not
know of any third party who has asserted any claim concerning such an
infringement, violation or adverse acts, or (iii) does not know of any
reasonable basis for any such claims by a third party. To Seller's best
knowledge, no person or entity is violating, infringing on or otherwise acting
adversely with respect to any of the Intellectual Property.
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2.11 ASSIGNED CONTRACTS. Except for sales or orders for Seller's products
with an invoice price per order of $5,000 or less, SCHEDULE 1.1.7 lists all
Assigned Contracts. True and complete copies of all such Assigned Contracts (as
amended to date) have been delivered to SV. All Assigned Contracts are fully
executed, have been performed to the extent required on or prior to the date
hereof in all material respects, are in full force and effect enforceable in
accordance with their respective terms. Seller does not have any outstanding
Assigned Contract which will either result in any material loss upon completion
or performance thereof after allowance for general and administrative, selling
and distribution expenses or otherwise be Materially Adverse. Seller is not in
default under any Assigned Contract, and no defaults (not subsequently cured) by
Seller have been alleged thereunder, nor does Seller know of any reasonable
basis for any claim of default by it or any other party to any Assigned Contract
now or in the future, except for defaults which are not Materially Adverse.
Seller is not restricted by agreement from carrying on the Business or any other
line of business anywhere in the world, and none of its employees are bound by
any contract or restriction which affects the employee or Seller in a Materially
Adverse way.
2.12 LITIGATION. There is no litigation, governmental investigation,
arbitration or other proceedings (formal or informal) pending or, to Seller's
best knowledge, threatened, against or affecting Seller, AEP with respect to
Seller, or the Assets; neither Seller nor AEP knows of any reasonable basis for
any litigation, governmental investigation, arbitration or other proceedings
(formal or informal). Seller is not a party or otherwise subject to any order,
writ, injunction, decree or demand of any court or other governmental,
regulatory or administrative agency or entity.
2.13 COMPLIANCE WITH LAWS. The business and operations of Seller and AEP
are and have been in compliance with all laws, except where the failure to so
comply would not be Materially Adverse. Seller has all permits, licenses,
orders, authorizations, registrations, approvals and other analogous instruments
(each of which is in full force and effect and can be transferred without any
consent or filing), and Seller has made all filings and registrations and the
like, which are necessary or proper to conduct the Business, except where the
failure to maintain such permits and other instruments or to make such filings
and registrations is not Materially Adverse.
2.14 FURNITURE AND EQUIPMENT. Attached hereto as SCHEDULE 1.1.3 is a
listing of all Furniture and Equipment owned or used by Seller in the Business.
All such Furniture and Equipment are in operating condition and are adequate and
sufficient for the operation of the Business as currently conducted.
2.15 ASSETS. Except to the assets of AEP used in connection with the
provision of accounting services for Seller, the Assets constitute all of the
assets and properties used in connection with the Business as of the date
hereof, except as to the Excluded Assets and the assets sold, licensed, leased,
disposed of or consumed in the ordinary course of business prior to the
Effective Date. No other entity or person controlled by, controlling or under
common control with Seller or AEP holds any assets used in or necessary for the
operation of the Business as currently conducted.
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2.16 NO OTHER ACQUISITION AGREEMENT. Neither Seller nor AEP is a party to
any agreement, contract, license, lease or other arrangement, formal or
informal, written or oral, with any entity other than SV concerning a merger,
consolidation, asset or stock acquisition, disposition or other business
acquisition or business combination transaction involving Seller.
2.17 COMMISSIONS. Other than Kirkpatrick Pettis and Dain Bosworth,
neither Seller, AEP nor any of their respective officers, directors, agents,
employees or stockholders have employed or incurred any liability to any broker,
finder or agent for any brokerage fees, finder's fees, commissions or other
similar payments with respect to this Agreement and the Transactions. Seller
shall be solely responsible and liable for any compensation or commission
payable to Kirkpatrick Pettis or Dain Bosworth in connection with this Agreement
and the Transactions, and Seller and AEP shall defend, indemnify and hold
harmless SV and its affiliates from and against any and all brokerage fees,
finder's fees, commissions or other similar payments incurred by Seller or AEP.
2.18 ACCURACY OF INFORMATION FURNISHED. No statement or information
contained in any schedule, certificate or other document or information
furnished, or to be furnished, in writing by or on behalf of Seller or AEP or SV
contains or will contain any untrue statement of a material fact. Neither Seller
nor AEP is aware of any facts or circumstances not fully disclosed in this
Agreement or the schedules hereto which should be disclosed to SV in order to
make any of the representations or warranties made by Seller or AEP herein not
misleading in any material respect.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SV
As an inducement for Seller and AEP to enter into this Agreement, SV hereby
represents and warrants that each of the following statements is true and
correct as of the date hereof, and will be true and correct as of the Effective
Date:
3.1 EXISTENCE AND RIGHTS. SV (i) is a corporation duly organized and
validly existing in good standing under the laws of the State of Delaware and
(ii) has the corporate power and authority, licenses and rights to own its
properties, to carry on its business as now conducted and to make and carry out
the Transactions. SV is or will be duly qualified and in good standing in each
jurisdiction in which the character of the Business as proposed to be conducted
by SV makes such qualification necessary, except for such jurisdictions in which
SV's failure to be so qualified would not have a material adverse effect on SV.
3.2 AGREEMENT AUTHORIZED. The execution, delivery and performance of
this Agreement and the Transactions by SV have been duly authorized by all
necessary corporate and other action and do not require notice to, or the
consent or approval of, any governmental or other regulatory authority or any
other person. This Agreement has been duly executed and delivered by SV and is a
legal, valid and binding obligation of SV, enforceable against it in accordance
with its terms. The Related Agreements, when delivered at Closing, will have
been
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duly executed and delivered by SV and will be legal, valid and binding
obligations of SV, enforceable against it in accordance with each of their
respective terms.
3.3 NO CONFLICT. The execution, delivery and performance by SV of this
Agreement and the Related Agreements will not (i) modify, breach or constitute
grounds for the occurrence or declaration of a default under or allow another
party a right to terminate any agreement, indenture, undertaking or other
instrument to which SV is a party or by which they or any of the Assets may be
bound or affected, except for any such modification, breach or default which
would not have a material adverse effect, individually or in the aggregate, on
the condition (financial or otherwise), results of operations, properties,
assets, liabilities, businesses or prospects of SV; (ii) violate any provision
of law or any regulation or any order, judgment, or decree of any court or
other agency of governments; (iii) violate any provision of the Certificate of
Incorporation or Bylaws of SV.
3.4 COMMISSIONS. Neither SV nor any of its officers, directors, agents,
employees or shareholders have employed or incurred any liability to any broker,
finder or agent for any brokerage fees, finder's fees, commissions or other
similar payments with respect to this Agreement or the Transactions.
3.5 ACCURACY OF INFORMATION FURNISHED. No statement or information
contained in any schedule, certificate or other document or information
furnished, or to be furnished, in writing by or on behalf of SV to Seller
contains or will contain any untrue statement of a material fact. SV is not
aware of any facts or circumstances not fully disclosed in this Agreement which
should be disclosed to Seller in order to make any of the representations or
warranties made by SV herein not misleading in any material respect.
ARTICLE IV
COVENANTS OF SELLER AND AEP
4.1 CONDUCT PRIOR TO EFFECTIVE DATE. Seller and AEP agree, jointly and
severally, that between the date of this Agreement and the Closing Date,
unless SV shall otherwise consent in writing or except as expressly
contemplated by this Agreement, Seller shall:
4.1.1 ORDINARY COURSE. Conduct the Business only in the ordinary
course of business consistent with past practices.
4.1.2 GOODWILL. Use its best efforts in good faith to preserve the
goodwill of customers, contractors, manufacturers, suppliers, authors, artists
and others having business relations with Seller.
4.1.3 MAINTENANCE OF ASSETS. Maintain all of the Assets in a
condition comparable to their current condition, except for reasonable wear and
tear and for Assets disposed of, sold, license, leased or consumed in the
ordinary course of business consistent with past practices.
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4.1.4 INSURANCE. Maintain in full force and effect all policies
of insurance with respect to the Business now in effect and shall give all
notices and present all claims under all such policies in a timely fashion.
4.1.5 SALE OR ACQUISITION OF ASSETS. Not dispose, sell, transfer
or create any Lien or Encumbrance on any of the Assets or acquire any Assets
except in the ordinary course of business consistent with past practices.
4.1.6 ASSIGNED CONTRACTS. Not amend any Assigned Contract, except
to effect order changes requested by customers or otherwise in the ordinary
course of business consistent with past practices.
4.1.7 WAIVER OF RIGHTS. Not amend, terminate, waive or release
any material rights (other than rights related to Excluded Assets) under
Assigned Contract or of value to Seller; PROVIDED, HOWEVER, that no such
amendment, termination, waiver or release shall have a material adverse effect
on the Assets.
4.1.8 ASSETS ADJUSTMENTS. Other than adjustments related to
Excluded Assets, not write-off or write-up any Assets onto its books, or reverse
any write-off of Assets on its books, relating to Seller, except in the ordinary
course of business consistent with past practices; PROVIDED, HOWEVER, that no
such adjustment shall be Materially Adverse.
4.1.9 MATERIAL AGREEMENTS. Promptly notify SV prior to entering
into any agreement, contract, license, lease or other arrangement for property
or equipment or any material agreement, contract, license, lease or other
arrangement.
4.1.10 ADVERSE EFFECT. Promptly advise SV orally and in writing of
any Materially Adverse change that comes to Seller's attention.
4.2 REPRESENTATIONS TRUE. Each of Seller and AEP will use its best
efforts to ensure that all of the representations and warranties of Seller and
AEP set forth in this Agreement to be true and correct from the date hereof
through the Closing Date. From the date hereof through the Closing Date, each
of Seller and AEP shall deliver to SV immediately upon discovery or access
thereto any information (i) as may be reasonably required to update the
information set forth on the Disclosure Schedule or the other schedules attached
hereto or (ii) that otherwise amends, updates or conflicts with any of the
matters discussed in the representations or warranties set forth in Article II.
Notwithstanding anything to the contrary contained in this Agreement, the
delivery of any information pursuant to this Section 4.2 shall not limit or
otherwise affect the remedies available hereunder to SV.
4.3 ACCESS. Until the Closing Date, each of Seller and AEP will (i) upon
reasonable prior notice permit SV and its authorized representatives to have
access during normal business hours to all contracts, books and records and
documents relevant to the Transactions, and to make extracts from and copies of
such contracts, books and records and documents, (ii) furnish to SV or its
authorized representatives such other information with respect to the business
or
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properties of Seller as SV may from time to time reasonably request, (iii)
otherwise reasonably cooperate with and assist SV and its authorized
representatives in connection with their investigation, (iv) upon the request of
SV, deliver to such party true and correct copies of any documents requested and
(v) confer with SV to keep it informed with respect to operational matters of a
material nature and to report on the general status of the Business.
4.4 PERMITS AND CONSENTS. Each of Seller and AEP will make all filings
with governmental bodies and other regulatory authorities and use reasonable
efforts to obtain all permits, approvals, authorizations and consents of all
third parties necessary for each of them to consummate the Transactions without
being in violation of any law or otherwise adversely affecting any of the
Assets.
4.5 TERMINATION OR RELEASE OF SECURITY INTERESTS; CONSENT OF LENDER.
Except as set forth in the Disclosure Schedule, Seller will use its best efforts
to obtain the termination or release of all security interests in any and all of
the Assets on or before the Closing Date, including without limitation
termination of security interests held by Seller's and AEP's primary lender,
Colorado National Bank ("CNB").
4.6 INVENTORY CONTROL. Seller shall record any additions to or depletion
of its Inventory in accordance with prior practices and maintain accurate
records thereof.
4.7 PRODUCT RETURNS; REPAIRS; WARRANTIES. After the Effective Date, SV,
in accordance with reasonable business practices, shall determine whether to
accept returns of products sold by Seller, to supply replacement products, to
repair products or to perform any warranty work with respect to the products,
including with respect to products sold, licensed, leased, shipped or
distributed by Seller prior to the Effective Date, or sold as part of the
Consumer Catalogue Business from and after the Effective Date until December 31,
1995 (as provided in Section 1.5(b) above). To the extent that SV incurs any
costs in excess of an aggregate of Twenty-Five Thousand Dollars ($25,000) (the
"COST AND EXPENSE LIMIT") in connection with such returns, replacements, repairs
or warranties with respect to any products sold, licensed, leased, shipped or
distributed by Seller prior to the Effective Date or from and after the
Effective Date until December 31, 1995 for Consumer Catalogue Business sales,
aggregated with SV's costs and expenses under Section 4.8 below, Seller shall
promptly indemnify SV for any such costs in excess of the Cost and Expense
Limit.
4.8 ASSIGNMENT OF ASSIGNED AGREEMENTS. Promptly following execution of
this Agreement, and continuing after the Effective Date, Seller shall use its
best efforts, at Seller's sole cost and expense, to cause assignment to SV of
all Assigned Contracts that, by their terms or by law, may not be assigned or
transferred to SV without the consent (written or otherwise) of any party to
such Assigned Contract. In the event that Seller is unable to cause assignment
of any such Assigned Contract, Seller will use its best efforts to arrange for
SV to gain the benefits of such Assigned Contract in exchange for the
performance by SV of Seller's obligations under the Assigned Contract. Any cost
or expense incurred by SV in obtaining assignment of Assigned Contracts shall be
credited against the Cost and Expense Limit, and Seller shall
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promptly indemnify SV for all the aggregate of all costs and expenses incurred
by SV under Sections 4.7 and 4.8 in excess of the Cost and Expense Limit.
4.9 TRANSFER, ASSIGNMENT AND REGISTRATION OF INTELLECTUAL PROPERTY.
Promptly following execution of this Agreement, and continuing after the
Effective Date, Seller shall use its best efforts, at its sole cost and expense,
to cause transfer and assignment to SV of all right, title and interest in and
to all Intellectual Property and to file and pursue a petition for cancellation
of the mark SUMMIT LEARNING, federal registration number 1,629,015, held by
Summit Learning Systems, Inc., Nashville, Tennessee. Seller shall use
commercially reasonable efforts to prosecute such petition until the earlier of
(a) final, non-appealable resolution of such petition by a court or
administrative body of competent jurisdiction, (b) settlement of such petition
in a manner that allows SV to use without challenge from Summit Learning
Systems, Inc. (and any assignee, transferee or successor thereto), such mark in
the manners in which the mark has been used by Seller prior to the date hereof
or (c) assumption in writing by SV of Seller's obligation to pursue such
petition (and SV shall have the right to assume such obligation at any time on
written notice from SV to Seller). Prior to entering into any settlement in
accordance with subclause (b) of the prior sentence, Seller shall notify SV of
the proposed settlement, and SV shall have the right, in its sole discretion, to
assume Seller's obligation to pursue of such petition, in lieu of entering into
a settlement with Summit Learning Systems, Inc. In addition to the foregoing,
promptly following execution of this Agreement, and continuing after the
Effective Date, Seller shall use its best efforts to cooperate with and assist
SV to (i) cause copyright registrations to be filed with the United States
Library of Congress for all Assets for which Seller holds unregistered
copyrights (if any) and (ii) cause such affidavits of use and other documents to
be filed with the United States Patent and Trademark Office as necessary to
preserve and perfect SV's right, title and interest in and to all Intellectual
Property that are trademarks, tradenames or service marks.
4.10 NON-SOLICITATION. During the term of this Agreement, neither Seller
nor AEP, nor their respective officers, employees, representatives or agents,
shall, directly or indirectly, solicit or participate in discussions or
negotiations with, provide any nonpublic information concerning the Business,
properties or Assets of Seller or the transactions contemplated hereby to, or
cooperate with any corporation, partnership, person or other entity or group
concerning any merger, sale of substantial assets, sale of a substantial equity
interest or similar transaction involving Seller or the Assets.
4.11 SALE OF AEP PRODUCTS. Subject to SV's covenants set forth in Section
5.5 below, for a period of five (5) years from and after the Effective Date (the
"PRODUCT PURCHASE PERIOD"), AEP, on behalf of itself, its subsidiaries and
affiliates, hereby agrees to sell, from time to time upon demand of SV,
educational products, materials and goods proprietary to or manufactured by AEP,
its subsidiaries or affiliates (the "AEP PRODUCTS"), for resale or distribution
by SV. AEP shall sell the AEP Products to SV during the Product Purchase Period
for a price equal to the lesser of fifty percent (50%) of the suggested retail
price for the Products, or the lowest price offered to any dealer, reseller or
distributor of such Products.
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4.12 TRANSFER OF BUSINESS RELATIONSHIPS. From and after the Closing Date,
each of Seller and AEP shall use its best efforts to cause Seller's suppliers,
vendors and third-party product providers to transfer their business
relationship from Seller or AEP to SV and to continue to do business with SV on
terms at least as favorable as those on which such suppliers, vendors and third-
party product providers conducted business with Seller and AEP prior to the
Closing Date.
4.13 MERGER OR DISSOLUTION OF SELLER. Within thirty (30) days following
the later of (i) filing on behalf of Seller of its federal tax return covering
its operations prior to the Effective Date (which filing shall occur on or
before the original due date for such return, without extension), and (ii) the
first to occur of resolution of the petition for cancellation in accordance with
Section 4.9 above or assumption by SV of Seller's obligations under such
Section, AEP shall cause Seller to be either merged up into AEP or liquidated
and dissolved (making appropriate allowances and reserves for Seller's
obligations and liabilities then in existence or that may arise post-liquidation
or dissolution). Notwithstanding any merger, liquidation or dissolution, AEP
shall be and remain liable to SV for all of Seller's post-Closing obligations
and liabilities hereunder.
4.14 CANCELLATION OF DEBT. At the Closing, but effective as of the
Effective Date, AEP shall cancel and forgive all debt and other obligations owed
by Seller to AEP.
ARTICLE V
COVENANTS OF SV
5.1 REPRESENTATIONS TRUE. SV will use its best efforts to ensure that
all of its representations and warranties set forth in this Agreement to be true
and correct from the date hereof through the Effective Date. From the date
hereof through the Effective Date, SV shall deliver to Seller immediately upon
either SV's discovery or access thereto, any information that otherwise amends,
updates or conflicts with any of the matters discussed in the representations or
warranties set forth in Article III. Notwithstanding anything to the contrary
contained in this Agreement, the delivery of any information pursuant to this
Section 5.1 shall not limit or otherwise affect the remedies available hereunder
to Seller.
5.2 PERMITS. SV will make all filings with governmental bodies and other
regulatory authorities and use all reasonable efforts to obtain all permits,
approvals, authorizations and consents of all third parties, necessary for SV to
consummate the Transactions without being in violation of any law.
5.3 ACCESS TO BOOKS AND RECORDS AFTER EFFECTIVE DATE. SV shall maintain
for a period of five (5) years all original Books and Records. After the
Effective Date, SV shall provide Seller, during ordinary business hours and upon
reasonable notice, with access to the original Books and Records for review and
copying. If, during or at the end of such period, SV proposes to dispose of any
of such original documents, SV shall first offer to deliver the same to Seller
at Seller's expense.
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5.4 POST-CLOSING SALE OF EXCLUDED INVENTORY. As of the Effective Date,
any Excluded Inventory, as jointly agreed to by SV and Seller, shall be
transferred to SV on consignment to be sold for a period of three years
following the Effective Date following exhaustion of current product Inventory
purchased by SV hereunder. SV shall use its commercially reasonable efforts to
sell such Excluded Inventory. Upon receipt of revenues following the sale of
any item of Excluded Inventory, SV shall pay to Seller Seller's cost from its
third-party supplier for such item, but not to exceed the amount actually
received by SV. Following expiration of such three-year period, any remaining
Excluded Inventory shall, at the election of Seller, either be returned to
Seller at Seller's sole cost and expense or destroyed by SV. In the event that
Seller elects to have such Excluded Inventory returned to Seller, Seller
covenants and agrees not to use such Excluded Inventory in any manner that would
violate Seller's Non-Competition Agreement with SV. Seller may assign to AEP at
any time its right to payments and to return of unsold Excluded Inventory.
5.5 PURCHASE OF AEP PRODUCTS. During the Product Purchase Period, SV
covenants and agrees, with respect to catalogues developed through the Business
purchased by SV hereunder, to devote substantially similar catalogue space as is
currently devoted by Seller to AEP Products, as long as such Products continue
to produce gross sales and margins reasonably acceptable to SV, in its
reasonable determination. In the event that SV determines to replace any AEP
Product in a catalogue with a lesser-priced product similar in form and
function, but produced by a third party, SV shall notify AEP, and provide AEP
ten (10) days in which to meet the price offered by the third party, in which
case SV shall continue to carry the AEP Product, rather than the third party's
product. In the event AEP fails to meet or better the price of the third party
product provider, SV may carry the product produced by the third party, and
cease carrying the AEP Product. AEP's and Seller's sole and exclusive remedy
for breach by SV of any provision of this Section 5.5 shall be the immediate
termination of the Product Purchase Period and AEP's future obligations under
Section 4.11 above.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF SV
The obligations of SV to consummate this Agreement and the Transactions are
subject to the fulfillment, prior to or as of the Closing Date, of the following
conditions, each of which may be waived by SV in writing:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Seller and AEP contained in this Agreement or in any certificate or document
delivered to SV pursuant hereto shall be true and correct on and as of the
Closing Date as though made at and as of that date (except where such
representation and warranty is made as of a date specifically set forth
therein), and each of Seller and AEP shall have delivered to SV a certificate to
such effect.
6.2 COVENANTS. Seller and AEP shall have in all material respects
performed and complied with all terms, agreements, covenants and conditions of
this Agreement to be performed or complied with by them at the Closing Date.
Each of Seller and AEP shall have delivered to SV an officer's certificate to
such effect.
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6.3 RELATED AGREEMENTS. Each of the Related Agreements shall have been
executed and delivered by the parties thereto.
6.4 TERMINATION OF SECURITY INTERESTS; BANK COVENANTS. Except for those
items set forth in the Disclosure Schedule and specifically initialled by SV, at
or prior to the Closing Date, Seller shall provide termination statements,
terminating any third parties' security interests in any of the Assets,
including without limitation those security interests held by CNB. In addition,
CNB shall execute a binding covenant in favor of SV, pursuant to which CNB shall
agree (i) in the event of a subsequent bankruptcy by Seller or AEP, CNB shall
not assert or support that consummation of the transactions contemplated by this
Agreement, including without limitation transfer by Seller of the Assets for the
consideration set forth herein, was for less than fair and equivalent value and
consideration.
6.5 CONSENTS OBTAINED. Each party shall have obtained all consents and
approvals from and shall have completed all declarations, filings and
registrations with, government agencies and third parties that are required for
the execution, delivery and performance of this Agreement by such party, except
where the failure to obtain such consents or approvals is a result of a breach
by SV.
6.6 APPROVAL OF BOARD. The Board of Directors of SV shall have approved
this Agreement and the Transactions.
6.7 NO MATERIAL ADVERSE CHANGE. From September 30, 1995, until the
Closing Date, there shall have been no change (whether or not covered by
insurance) that is Materially Adverse, including without limitation any
materially adverse change in Seller's financial condition.
6.8 MATERIAL LIMITATION. No statute, rule, regulation, executive order,
or final decree or preliminary or permanent injunction shall have been enacted,
entered, or promulgated which (i) would impose any material limitation on the
ability of SV effectively to exercise full rights of ownership, or rights as the
case may be, with respect to any material Asset, or (ii) effect any changes in
the regulatory framework (including any adoption procedures) for the sale and
distribution of products to educational institutions in the United States,
Canada or the United Kingdom that would be Materially Adverse.
6.9 DUE DILIGENCE. SV shall have completed its due diligence review of
Seller, AEP, the Assets and the Business (including diligence of Seller's
principal product providers), and shall have identified no Materially Adverse
circumstances or fact as a result thereof.
6.10 LEGAL ACTIONS OR PROCEEDINGS. Except for those items set forth in
the Disclosure Schedule and specifically initialled by SV, no legal action or
proceeding shall have been instituted or threatened by any governmental agency
or third party seeking to restrain, prohibit, invalidate or otherwise affect the
consummation of the Transactions, and no legal action or proceeding shall have
been instituted or threatened by any private party seeking material monetary
awards from SV in connection with the Transactions.
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6.11 ALL PROCEEDINGS TO BE SATISFACTORY. All corporate and other
proceedings to be taken by each of Seller and AEP in connection with the
Transactions and all documents incident thereto shall be reasonably satisfactory
in form and substance to SV, and SV shall have received all such certified or
other copies of such documents as it may reasonably request.
6.12 OPINION OF COUNSEL. SV shall have received an opinion, dated as the
closing date, from Neuman & Cobb substantially in the form of EXHIBIT E attached
hereto.
6.13 NON-COMPETITION AGREEMENT. SV, on the one hand, and Seller and AEP,
on the other hand, shall have entered into an agreement pursuant to which Seller
and AEP shall covenant and agree not to compete with SV or its affiliates in the
United States and certain other territories where SV intends to market Seller's
products (as specified in such agreement) for a period of five years following
the Effective Date, which agreement shall be in the form of the Non-Competition
Agreement attached hereto as EXHIBIT F.
6.14 FAIRNESS OPINION. Seller and AEP shall deliver to SV a true and
correct copy of Dain Bosworth's executed, issued and delivered opinion,
addressed to Seller, AEP and AEP's stockholders, that the transactions
contemplated by this Agreement, and the consideration to be paid by SV to Seller
in exchange for purchase by SV of the Assets hereunder, are fair to Seller, AEP
and AEP's stockholders (the "FAIRNESS OPINION").
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
The obligations of Seller to consummate this Agreement and the Transactions
are subject to the fulfillment, prior to or at the Closing Date, of the
following conditions, each of which may be waived by Seller in writing:
7.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of SV contained in this Agreement or in any certificate or document delivered to
Seller pursuant hereto shall be true and correct on and as of the Closing Date
as though made at and as of that date (except where such representation and
warranty is made as of a date specifically set forth therein), and SV shall have
delivered to Seller a certificate to such effect.
7.2 COVENANTS. SV shall have in all material respects performed and
complied with all terms, agreements, covenants and conditions of this Agreement
to be performed or complied with by them at the Closing Date. SV shall have
delivered to Seller a certificate to such effect.
7.3 RELATED AGREEMENTS. Each of the Related Agreements to which SV is a
party shall have been executed and delivered by SV.
7.4 CONSENTS OBTAINED. Each party shall have obtained all consents and
approvals from and shall have completed all declarations, filings and
registrations with, government agencies and third parties that are required for
the execution, delivery and performance of this
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Agreement by such party, except where the failure to obtain such consents or
approvals is a result of a breach by Seller or AEP.
7.5 LEGAL ACTIONS OR PROCEEDINGS. No legal action or proceeding shall
have been instituted or threatened by any governmental agency or third party
seeking to restrain, prohibit, invalidate or otherwise affect the consummation
of the Transactions, and no legal action or proceeding shall have been
instituted or threatened by any private party seeking material monetary awards
from Seller in connection with the Transactions.
7.6 ALL PROCEEDINGS TO BE SATISFACTORY. All corporate and other
proceedings to be taken by SV in connection with the Transactions and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Seller, and Seller shall have received all such certified or other
copies of such documents as it may reasonably request.
7.7 FAIRNESS OPINION. Dain Bosworth shall have executed, issued and
delivered the Fairness Opinion to Seller and AEP.
ARTICLE VIII
TERMINATION
8.1 TERMINATION. This Agreement may be terminated at any time on or
prior to the Closing Date as follows:
(a) INJUNCTION. By AEP, Seller or SV if any court of competent
jurisdiction in the United States shall have issued an order (other than a
temporary restraining order), decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the Transactions and such
order, decree, ruling or other action shall have become final and
non-appealable.
(b) MUTUAL AGREEMENT. By mutual agreement of Seller, AEP and
SV.
(c) TERMINATION DATE. By AEP, Seller or SV if the Closing Date
shall not have occurred on or before December 31, 1995 (provided that the
right to terminate this Agreement pursuant to this subsection shall not be
available to a party or its affiliate who has materially breached any
representation, warranty or covenant of this Agreement).
(d) MATERIAL BREACH. By Seller upon a material breach of any
representation, warranty or covenant of this Agreement by SV, and by SV upon
a material breach of any representation, warranty or covenant of this
Agreement by Seller or AEP; but only if such remains uncured for a period of
ten (10) business days after receipt of written notice of such breach from
the nonbreaching party.
8.2 EFFECTS OF TERMINATION. If this Agreement is terminated pursuant to
this Article VIII, all obligations of the parties hereunder shall terminate
without further liability of any party
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to any other party; however, nothing contained in this Section 8.2 shall relieve
any party of liability for any breach of this Agreement which occurred prior to
the date of termination of this Agreement.
8.3 RIGHTS TO PROCEED. Notwithstanding anything contained in this
Agreement to the contrary, if any of the conditions specified in Article VI have
not been satisfied, SV shall have the right to proceed with the Transactions
without waiving any of its rights hereunder; and if any of the conditions
specified in Article VII have not been satisfied, Seller shall have the right to
proceed with the Transactions without waiving any of its rights hereunder.
8.4 SPECIFIC PERFORMANCE. The Assets are uniquely suited for the
purposes and needs of SV. If Seller or AEP should breach any of its
representations, warranties or covenants under this Agreement, the parties each
acknowledge that the remedy at law would be inadequate to compensate SV.
Accordingly, SV, in addition to any other available rights or remedies, may at
its sole option sue in equity for specific performance, and each of Seller and
AEP expressly waives the defense that a remedy in damages will be adequate.
ARTICLE IX
INDEMNIFICATION
9.1 INDEMNIFICATION. SV, on the one hand, and Seller and AEP, jointly
and severally on the other hand, each agree to indemnify and hold the other
(including their affiliates, officers, directors, employees and agents) harmless
from and against any and all costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses and court costs incident to any claim,
suit, action, investigation or other proceeding), damages and losses, net of any
tax adjustments, settlements, reductions or other effects which actually result
from the loss and its payment ("LOSSES") arising out of or resulting from a
breach of any representation, warranty or covenant made by, or obligation or
agreement of, the other party to this Agreement. Each of Seller and AEP,
jointly and severally, agrees to indemnify and hold SV (including its
affiliates, officers, directors, employees and agents) harmless from and against
any and all Losses arising out of or resulting from any liabilities or
obligations or commitments of any nature of Seller or AEP to the extent arising
out of transactions entered into, actions taken, events occurring or facts or
circumstances existing prior to the Effective Date, other than obligations
expressly assumed by SV pursuant to this Agreement. SV agrees to indemnify and
hold Seller and AEP (including their affiliates, officers, directors, employees
and agents) harmless from and against any and all Losses arising out the
Business acquired by SV after the Effective Date, to the extent arising out of
transactions entered into, actions taken or events occurring after the Effective
Date, and including without limitation those arising from the Assigned
Contracts, but not including without limitation those arising from the Excluded
Contracts, Excluded Assets or Excluded Liabilities. Seller's and AEP's
indemnification of SV shall specifically include, without limitation, any Losses
arising out of (i) taxes (including, without limitation, payroll and social
security taxes), (ii) employment (including, without limitation, unfair labor
practices and the Employee Retirement Income Security Act), (iii) noncompliance
(including, without limitation, environmental noncompliance) with laws, rules,
regulations, statutes, ordinances, permits, judgments, injunctions, orders,
decrees, licenses or other governmental authorizations
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or approvals applicable to the Business prior to the Effective Date and (iv) the
operations of Seller and AEP prior to the Effective Date.
9.2 PROCEDURE FOR INDEMNIFICATION.
9.2.1 The provisions of this Section 9.2 shall govern any claim
for indemnification by SV or by Seller or AEP pursuant to Section 9.1 (each such
party an "INDEMNITEE") against the party or parties agreeing to provide
indemnification hereunder (the "INDEMNITOR").
9.2.2 The Indemnitee shall promptly give notice hereunder to the
Indemnitor, after obtaining notice of any claim as to which recovery may be
sought against the Indemnitor, and, if such indemnity shall arise from the claim
of a third party, the Indemnitee shall consent to the Indemnitor assuming the
defense of any such claim; PROVIDED that the Indemnitee shall not be required to
permit the Indemnitor to assume the defense of any third party claim (x) which,
if not first paid, discharged or otherwise complied with, would result in a
material interruption or cessation of the conduct of the business of the
Indemnitee, or (y) if the Indemnitee, reasonably concludes that there may be a
conflict of interest between the Indemnitor, on the one hand, and the
Indemnitee, on the other hand, in the conduct of the defense of such action.
Failure by the Indemnitor to notify the Indemnitee of its election to defend any
such claim or action within fourteen (14) days of the date of notice from the
Indemnitee shall be deemed to constitute its consent to the Indemnitee's
assumption of such defense. If the Indemnitor assumes the defense of such claim
or litigation resulting therefrom, the obligations of the Indemnitor hereunder
as to such claim shall include taking all steps necessary in the defense or
settlement of such claim or litigation resulting therefrom including the
retention of counsel, which counsel must be to the Indemnitee's reasonable
satisfaction, and holding the indemnitee harmless from and against any and all
Damage resulting from, arising out of, or incurred with respect to any
settlement approved by the Indemnitor or any judgment in connection with such
claim or litigation resulting therefrom. The Indemnitor shall not, in the
defense of such claim or litigation, (i) consent to the entry of any judgment
(other than a judgment of dismissal on the merits without costs) except with the
written consent of the Indemnitee, which consent shall not be unreasonably
withheld or (ii) enter into any settlement (except with the written consent of
the Indemnitee, which consent shall not be unreasonably withheld), unless the
Indemnitee is released and held harmless from and against any and all Losses
resulting from, arising out of or incurred with respect to such judgment or
settlement.
9.2.3 If the Indemnitor shall not assume the defense of any such
claim by a third party or litigation resulting therefrom, the Indemnitee may
defend against such claim or litigation in such manner as it deems appropriate,
and the Indemnitee may settle such claim or litigation on such terms as it may
deem appropriate and the Indemnitor shall promptly reimburse the Indemnitee for
the amount of such settlement and for all Losses incurred by the Indemnitee in
connection with the defense against or settlement of such claim or litigation.
9.3 OFFSET AGAINST HOLDBACK AMOUNT. Any amount determined to be owed by
Seller or AEP to SV pursuant to this Article IX pursuant to the entry of a final
judgment from which
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all appellate rights have been exhausted or expired by the passage of time or by
virtue of a voluntary settlement agreement to which Seller or AEP, as the case
may be, is a party, or by virtue of the entry of findings by an arbitrator
pursuant to the provisions of Section 10.10.2, whether or not judgment has been
entered by a court of competent jurisdiction on the basis thereof, shall be
satisfied first by offset against the Holdback Amount, if any, to the extent not
yet exhausted or paid to Seller.
ARTICLE X
MISCELLANEOUS
10.1 ANNOUNCEMENTS. Except to the extent required by law, neither SV,
Seller nor AEP shall make, nor cause to be made, any news releases or other
public announcements pertaining to the Transactions prior to the Closing Date
without first consulting the other party and attempting to formulate a mutually
satisfactory arrangement for such disclosure.
10.2 COOPERATION. Each party hereto agrees, both before and after the
Effective Date, to execute any and all further documents and writings and
perform such other reasonable actions which may be or become necessary or
expedient to effectuate and carry out the Transactions (which shall not include
any obligation to make payments).
10.3 BULK TRANSFER LAWS. If SV requests, Seller will comply with any
applicable bulk transfer laws. If SV does not so request, SV and Seller each
hereby waives compliance with any applicable bulk transfer laws in connection
with the sale of the Assets hereunder and Seller hereby agrees to indemnify SV
against and hold SV harmless from any and all damages and liabilities (including
reasonable attorneys' fees) relating to or resulting from such non-compliance.
10.4 COMPLETE AGREEMENT: MODIFICATIONS. This Agreement, and any documents
referred to herein or executed contemporaneously herewith, constitute the
parties' entire agreement with respect to the subject matter hereof and
supersede all agreements, representations, warranties, statements, promises and
understandings, whether oral or written, with respect to the subject matter
hereof, other than the Nondisclosure Agreement between AEP and SV effective
March 16, 1995, which Nondisclosure Agreement remains in full force and effect
and binds each of SV and Seller, as a subsidiary of AEP. This Agreement may not
be amended, altered or modified except by a writing signed by SV, Seller and
AEP.
10.5 EXPENSES. The parties hereto will each pay all of their own expenses
incurred in connection with the authorization, preparation, execution and
performance of this Agreement and the Transactions, including, without
limitation, all fees and expenses of their respective agents, representatives,
counsel and accountants.
10.6 REMEDIES NOT EXCLUSIVE: NO TERMINATION. No remedy conferred by any
of the specific provisions of this Agreement is intended to be exclusive of any
other remedy, and each and every remedy will be cumulative and will be in
addition to every other remedy given hereunder or now or hereafter existing at
law or in equity or by statute or otherwise. The
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election of any one or more remedies will not constitute a waiver of the right
to pursue other available remedies.
10.7 NOTICES. All notices or other communications required or permitted
hereunder shall be in writing and shall be given or made by personal delivery,
by a nationally recognized courier service for overnight delivery, by facsimile
(with a confirming copy by regular mail) or by registered or certified mail,
postage prepaid, return receipt requested, addressed
if to Seller or AEP, at:
5350 Manhattan Circle, Suite 210
Boulder, Colorado 80303
Attention: Mr. Paul D. Whittle, President and Chief
Executive Officer
Facsimile: (303) 543-0003
with a copy to:
Clifford L. Neuman, Esq.
Neuman & Cobb
1507 Pine St.
Boulder, Colorado 80302
Facsimile: (303) 449-1045
if to SV, at:
8701 North MoPac Expressway, Suite 200
Austin, Texas 78759
Attention: Roy E. Mayers, President
Facsimile: (512) 795-3397
with a copy to:
National Education Corporation
18400 Von Karman Avenue
Irvine, California 92715
Attention: Philip C. Maynard, General Counsel
Facsimile: (714) 474-9494
or at such other place as the party to whom such notice of communication is to
be addressed may have designated to the other parties by notice conforming to
this Section 10.7. Notices shall be deemed effective and received (i) on the
actual receipt in the case of hand delivery or facsimile, (ii) on the next
business day after deposit in the case of notices by nationally recognized
overnight courier services, or (iii) on the third business day after the date of
mailing in the manner set forth herein. As used herein, notice to a party shall
include concurrent notice to that party's counsel as set forth herein.
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10.8 THIRD-PARTY BENEFITS. None of the provisions of this Agreement will
be for the benefit of, or enforceable by, any third-party beneficiary.
10.9 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the substantive laws of the State of Texas without giving effect
to the conflicts of law or choice of law provisions thereof.
10.10 DISPUTE RESOLUTION AND ARBITRATION.
10.10.1 NEGOTIATION BETWEEN EXECUTIVES. The parties shall attempt
in good faith to resolve any dispute arising out or relating to this Agreement
promptly by negotiation between executives who have authority to settle the
controversy and who are at a higher level of management than the persons with
direct responsibility for administration of this contract. Any party may give
the other party written notice of any dispute not resolved in the normal course
of business. Within 15 days after delivery of the notice the receiving party
shall submit to the other a written response. The notice and the response shall
include (i) a statement of each party's position and a summary of arguments
supporting that position, and (ii) the name and title of the executive who
represents that party and of any other person who will accompany the executive.
Within 10 days after delivery of the receiving party's response, the executives
of both parties shall meet at a mutually acceptable time and place, and
thereafter as often as they reasonably deem necessary, to attempt to resolve the
dispute. All reasonable requests for information made by one party to the other
will be honored. If the matter has not been resolved within 45 days of the
disputing party's notice, or if the parties fail to meet within 10 days, either
party may initiate arbitration of the controversy or claim as provided
hereinafter. All negotiations pursuant to this clause are confidential and
shall be treated as compromise and settlement negotiations for purposes of the
Federal Rules of Evidence, the Evidence Code of the State of Texas and other
states' rules and codes of evidence.
10.10.2 ARBITRATION. Any dispute arising out of or relating to this
Agreement or the breach, termination or the validity thereof, which has not been
resolved by the nonbinding meet and confer provisions provided in Section 10.2.1
shall be settled by arbitration in accordance with the then-current End Dispute-
Judicial Arbitration and Mediation Services (JAMS) rules for arbitration of
business disputes by a sole arbitrator who shall be a former superior court or
appellate court judge or justice with significant experience in resolving
business disputes. Judgment upon the award rendered by the arbitrator may be
entered by any court having jurisdiction thereof. The place of arbitration
shall be Austin, Texas. THE ARBITRATOR IS NOT EMPOWERED TO AWARD DAMAGES IN
EXCESS OF COMPENSATORY DAMAGES (INCLUDING REASONABLE ATTORNEYS' FEES AND EXPERT
WITNESS FEES) AND EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT TO RECOVER SUCH
DAMAGES (INCLUDING, WITHOUT LIMITATION, PUNITIVE DAMAGES), IN ANY FORUM. The
arbitrator may award equitable relief in those circumstances where monetary
damages would be inadequate. The arbitrator shall be required to follow the
applicable law as set forth in the governing law section of this Agreement.
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10.11 WAIVERS STRICTLY CONSTRUED. With regard to any power, remedy or
right provided herein or otherwise available to any party hereunder (i) no
waiver or extension of time will be effective unless expressly contained in a
writing signed by the waiving party; and (ii) no alteration, modification or
impairment will be implied by reason of any previous waiver, extension of time,
delay or omission in exercise, or other indulgence.
10.12 ILLEGALITY. Nothing herein contained shall be construed to require
the performance by either party of any act contrary to law. In the event of any
conflict between any provision hereof and any law or governmental regulation,
the latter shall prevail, but in such event the affected provisions of this
Agreement shall be curtailed only to the extent necessary to bring them within
the requirement of such law or regulation requirement.
10.13 SUCCESSORS AND ASSIGNS. Neither this Agreement nor any of the rights
hereunder shall be assignable by SV, on the one hand, or Seller or AEP, on the
other hand, without the prior written consent of the other party, except that,
after the Effective Date, SV shall have the right to assign its post-Effective
Date rights under this Agreement to any party including, without limitation, to
any affiliate of SV. Except as set forth in the preceding sentence, this
Agreement shall inure to the benefit of and shall be binding on the parties, and
their respective successors and permitted assigns.
10.14 RULES OF CONSTRUCTION.
10.14.1 HEADINGS. The Article and Section headings in this
Agreement are inserted only as a matter of convenience, and in no way define,
limit, or extend or interpret the scope of this Agreement or of any particular
Article or Section.
10.14.2 TENSE AND CASE. Throughout this Agreement, as the context
may require, references to any word used in one tense or case shall include all
other appropriate tenses or cases.
10.14.3 SEVERABILITY. The validity, legality or enforceability of
the remainder of this Agreement will not be affected even if one or more of the
provisions of this Agreement is held to be invalid, illegal or unenforceable in
any respect.
10.14.4 AGREEMENT NEGOTIATED. The parties hereto are sophisticated
and have been represented by lawyers throughout this transaction who have
carefully negotiated the provisions hereof.
10.15 COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
SUMMIT LEARNING, INC. STECK-VAUGHN PUBLISHING
CORPORATION
By: /s/ Paul D. Whittle By: /s/ Roy Mayers
------------------------- ---------------------------
Its: President Its: President and CEO
------------------------- ---------------------------
AMERICAN EDUCATIONAL PRODUCTS, INC.
By: /s/ Paul D. Whittle
-------------------
Its: President
-------------------
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