EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
BY AND AMONG
PROSOFTTRAINING.COM,
DRAKE PERSONNEL (NEW ZEALAND) LIMITED,
and
COMPUTERPREP, INC.
Effective June 27, 2000
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made and entered into as of June 27,
2000, by and among ProsoftTraining.com, a Nevada corporation ("Buyer"), Drake
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Personnel (New Zealand) Limited, a corporation organized under the laws of the
Bahamas ("Parent"), and ComputerPREP, Inc., a Delaware corporation
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("ComputerPrep"). Parent and ComputerPrep are sometimes collectively referred
to herein as the "Selling Entities" and individually as a "Selling Entity".
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RECITALS
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A. ComputerPrep is engaged in the business of publishing and
reselling IT and other course materials and E-learning delivery engines and
content.
B. ComputerPrep is a wholly-owned subsidiary of Parent.
C. Buyer desires to acquire 100% of the outstanding stock of
ComputerPrep from Parent, and Parent desires to sell such shares, on the terms
and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
Section 1.1 Purchase and Sale. Subject to the terms and conditions set
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forth in this Agreement, at the Final Closing (as hereinafter defined), Parent
shall transfer to Buyer one hundred percent (100%) of the outstanding shares of
ComputerPrep common stock (the "ComputerPrep Shares"), in exchange for the
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Purchase Price.
Section 1.2 Purchase Price. The purchase price (the "Purchase Price") to
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be paid by Buyer to Parent for the ComputerPrep Shares shall consist of the
following:
(a) $15,029,840 in cash (the "Cash Purchase Price"), with $1,000,000
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held in escrow pursuant to Section 1.5;
(b) Shares of Common Stock of Buyer (the "Buyer Shares") having an
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Agreed-Upon Value, as determined pursuant to Section 1.3, equal to $15,000,000
(the "Stock Purchase Price"), with shares having an Agreed-Upon Value equal to
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$3,000,000 held in escrow pursuant to Section 1.6; and
(c) Two Warrants to purchase Buyer Common Stock in substantially the
form attached hereto as Exhibit A (the "Warrants") representing the right to
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purchase an aggregate of 600,000 shares of Buyer Common Stock. One Warrant shall
cover 300,000 shares with an
exercise price per share equal to 125% of the closing price (as calculated
pursuant to Section 1.3 below) of the Common Stock of Buyer on the Escrow
Closing Date (as hereinafter defined). The other Warrant shall cover 300,000
shares with an exercise price per share equal to 150% of the closing price (as
calculated pursuant to Section 1.3 below) of the Common Stock of Buyer on the
Escrow Closing Date. Each Warrant shall become exercisable at the rate of
100,000 shares every six (6) months after the Escrow Closing Date.
Section 1.3 Determining Agreed-Upon Value of Buyer Common Stock. For
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purposes of determining the value (the "Agreed-Upon Value") of the Buyer Shares
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to be delivered as payment of a portion of the Purchase Price pursuant to
Section 1.2, the Agreed-Upon Value per share shall be equal to the average of
the daily closing price of Buyer's Common Stock during the trading days
beginning on May 25, 2000 and ending on June 23, 2000. The closing price for
each day while such stock is listed on a national securities exchange, the
NASDAQ National Market, or the NASDAQ Smallcap Market shall be the last reported
sale price regular way or, in case there is no such reported sale on any day,
the mean between the reported closing bid and asked prices regular way on such
day, on the principal market on which the security is listed. If the principal
market for the security does not report last sales, then the closing price for
each day shall be the mean between the closing bid and asked prices in that
market as furnished by any member firm of the New York Stock Exchange selected
by Buyer.
Section 1.4 Payment of ComputerPrep Debt. Parent represents and warrants
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to Buyer that, prior to the date of this Agreement, all amounts owed on
indebtedness for borrowed money to Parent or any of its affiliates have been
paid or otherwise discharged as fully satisfied, and all amounts owed to
ComputerPrep's lender or any other financial institution have been repaid or
fully satisfied. Within ninety (90) days after the Escrow Closing Date, Grant
Thornton LLP, at Buyer's expense, will perform and complete an audit of the
ComputerPrep financial statements as of the Escrow Closing Date to, among other
things, verify such debts have been paid or discharged, to verify the amount of
CPC Sales (as defined below) and to complete a balance sheet of ComputerPrep as
of the Final Closing Date.
Section 1.5 Escrow of Cash Purchase Price. One Million Dollars
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($1,000,000) of the Cash Purchase Price (the "Cash Escrow Fund") will be
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delivered on the Final Closing Date on behalf of Parent to SunTrust Bank (the
"Escrow Agent") to be held pursuant to an Escrow Agreement in the form attached
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hereto as Exhibit B (the "Cash Escrow Agreement"), to be held in escrow in
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accordance with the terms and conditions of such Cash Escrow Agreement. The
parties agree within ten (10) business days to find and mutually agree on a
replacement escrow agent for SunTrust Bank which is either (i) a U.S. bank that
permits investments in offshore securities or (ii) a non-U.S. bank. The Cash
Escrow Agreement will be modified to permit investments in off-shore securities.
The Cash Escrow Fund may be used by Buyer to satisfy Parent's indemnification
obligations under this Agreement and to pay the costs required by any employment
agreement binding on ComputerPrep and in effect on the Escrow Closing Date or
required by law, in either case, with respect to any employee of ComputerPrep
whose employment is terminated within ninety (90) days of the Escrow Closing
Date, excluding any employee who voluntarily resigns or terminates his or her
employment and excluding any costs incurred as a result of a termination in
violation of any law, including without limitation the WARN Act or claims based
on age, sex, race or other discriminatory action (other than the payments
required by such law not resulting from such violation).
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Section 1.6 Equity Escrow Fund.
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(a) On the Final Closing Date, Buyer Shares having an Agreed-Upon
Value equal to Three Million Dollars ($3,000,000) (the "Escrow Shares") shall be
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deposited on behalf of Parent with the Escrow Agent to be held in a fund (the
"Equity Escrow Fund") pursuant to an Escrow Agreement in the form attached
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hereto as Exhibit C (the "Stock Escrow Agreement") to be held in escrow in
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accordance with the terms and conditions of such Stock Escrow Agreement.
(b) If the Master Distribution and License Agreement between
ComputerPrep and Wave Technologies, Inc. ("Wave") dated as of April 29, 1999
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(the "Wave Agreement") is not terminated prior to April 30, 2001 with an
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effective termination date prior to April 30, 2001, all assets in the Equity
Escrow Fund shall be distributed to Parent by May 15, 2001. For purposes of this
Agreement, the dollar value of A+ and Linux products sold by Buyer during the 12
months preceding the Escrow Closing Date shall be deemed to be $7,200 (the "PPC
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Sales"). The dollar value of A+ and Linux products sold by ComputerPrep during
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the 12 months preceding the Escrow Closing Date shall be as determined by the
audit provided for under Section 1.4 of this Agreement (the "CPC Sales"). (The
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amount of CPC Sales is estimated to be approximately $4,100,000 to $4,200,000).
If the Wave Agreement is terminated by Wave prior to April 30, 2001 and sales by
the Buyer and ComputerPrep, and the subsidiaries and affiliates of either of
them, of A+ and Linux products, whether from Wave, developed by ComputerPrep or
Buyer or their respective affiliates and subsidiaries or licensed from other
parties, for the twelve (12) months immediately following the Escrow Closing
Date do not exceed the aggregate amount of PPC Sales and CPC Sales by at least
twenty percent (20%), then the Purchase Price will be reduced by Two Dollars
($2.00) for every One Dollar ($1.00) shortfall, up to a maximum reduction of
$3,000,000; provided, however, no such reduction shall be effected to the extent
the Wave Agreement is cancelled as a direct result of Buyer's (or
ComputerPrep's, after the Final Closing Date) material breach of the Wave
Agreement, as a result of the Buyer (or ComputerPrep, after the Final Closing
Date) in fact taking any action under the Wave Agreement to cause Wave to
terminate the Wave Agreement, or as a result of the Buyer or ComputerPREP (after
the Final Closing Date) using less than best efforts to maximize the sales of A+
and Linux products for the twelve (12) months after the Escrow Closing.
(c) Any Purchase Price reduction pursuant to Section 1.6(b) shall be
satisfied by Buyer receiving property from the Equity Escrow Fund having a fair
market value equal to the amount of such reduction; provided, however, the value
of Escrow Shares at that time shall be determined as set forth in the Stock
Escrow Agreement.
Section 1.7 Incentive Warrants.
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(a) Buyer shall issue Parent additional warrants in substantially the
form attached hereto as Exhibit D (the "Incentive Warrants") based on sales of
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products of Buyer or ComputerPrep, or the affiliates and subsidiaries of either
of them, to Parent or to any subsidiary or affiliate of Parent during the period
August 1, 2000 through July 31, 2003 (the "Commitment Period"). The Incentive
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Warrants shall cover that number of shares of Common Stock of Buyer set forth in
Section 1.7(b) at an exercise price equal to $20.0625 per share. The Incentive
Warrants will be issued no later than September 30, 2003 and shall expire on
September 30, 2005.
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(b) The number of shares to be covered by the Incentive Warrants
shall be based on the amount of gross revenue received from Parent and its
affiliates and subsidiaries by Buyer and its affiliates and subsidiaries during
the Commitment Period on sales of products of Buyer or ComputerPrep as follows:
Aggregate Aggregate
Revenue Level Incentive Warrants
Achieved Issued
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$ 2,000,000 240,000 shares
$ 3,000,000 360,000 shares
$ 4,000,000 480,000 shares
$ 5,000,000 600,000 shares
$ 6,000,000 720,000 shares
$ 8,000,000 960,000 shares
$10,000,000 1,200,000 shares
$15,000,000 2,000,000 shares
(c) Buyer will enter into with Parent, or a subsidiary and affiliate
of Parent, a Standard Reseller Agreement and a Training Provider Agreement in
the forms attached hereto as Exhibit E-1 and Exhibit E-2, respectively.
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(d) The value of any Incentive Warrants issued under this Section 1.7
shall be deemed an upward adjustment to the Purchase Price, with such value to
be based, if possible, on the Black-Scholes methodology.
Section 1.8 Registration Rights. At the Escrow Closing, Buyer and Parent
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will enter into a Registration Rights Agreement in the form attached hereto as
Exhibit F covering the registration with the Securities and Exchange Commission
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of the Buyer Shares and the shares issuable under the Warrants and Incentive
Warrants.
Section 1.9 License Agreement. At the Escrow Closing, Buyer shall have
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entered into a nonexclusive United States license agreement with Pixion, Inc. on
terms substantially as set forth in Exhibit G providing for the license of the
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Pixion conference server product for a period of three (3) years (the "License
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Agreement").
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ARTICLE II
CLOSINGS
Section 2.1 Escrow Closing. The escrow closing of the transactions
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contemplated hereby (the "Escrow Closing") shall take place concurrently with
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the signing of this Agreement (the "Escrow Closing Date"). The Escrow Closing
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shall take place at the offices of ComputerPrep in Phoenix, Arizona, or at such
other location as the parties hereto agree. The parties agree that if any of
the documents to be delivered to the Closing Escrow Agent under Sections 2.2 and
2.3 are lost in transit, they will cooperate to replace such documents as soon
as possible.
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Section 2.2 Deliveries by Parent to Closing Escrow Agent. At the Escrow
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Closing, Parent shall deliver the following to SunTrust Bank (the "Closing
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Escrow Agent") to hold pursuant to the terms of the Closing Escrow Agreement
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attached hereto as Exhibit H:
(a) Certificates representing the ComputerPrep Shares being sold by
it under this Agreement, duly endorsed or accompanied by duly executed stock
powers;
(b) Certified copies of resolutions adopted by the Board of Directors
and shareholders of each of the Selling Entities authorizing the transactions
contemplated hereby;
(c) A certificate of the secretary of state of the state of
incorporation of ComputerPrep to the effect that ComputerPrep is a validly
existing corporation in good standing under the laws of the state of its
incorporation;
(d) A Stock Power for the Escrow Shares executed in blank by Parent
pursuant to the Stock Escrow Agreement;
(e) A legal opinion from Hodgson, Russ, Andrews, Woods & Goodyear,
LLP in substantially the form attached hereto as Exhibit I;
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(f) A legal opinion of Harry B. Sands & Co. covering certain legal
matters concerning Parent;
(g) Copies of the Closing Escrow Agreement, Cash Escrow Agreement,
Stock Escrow Agreement, Registration Rights Agreement, Standard Reseller
Agreement and Training Provider Agreement, each duly executed by Parent and
dated the Escrow Closing Date but, except for the Closing Escrow Agreement
(which will be effective as of signing), effective as of the Final Closing Date;
and
(h) Copies of the License Agreement duly executed by Pixion, Inc.
Section 2.3 Deliveries by Buyer to Closing Escrow Agent. At the Escrow
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Closing, Buyer shall deliver the following to the Closing Escrow Agent to hold
pursuant to the terms of the Closing Escrow Agreement:
(a) A wire transfer, bank cashiers or certified check in an amount
equal to the Cash Purchase Price;
(b) Two stock certificates representing the Buyer Shares, one
certificate representing the shares held in the Equity Escrow Fund and the other
representing the balance;
(c) Fully executed Warrants to purchase an aggregate of 600,000
shares of Buyer Common Stock;
(d) Certified copies of resolutions of the Board of Directors of
Buyer authorizing the transactions contemplated hereby;
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(e) A certificate of the Secretary of State of the State of Nevada to
the effect that Buyer is a validly existing corporation in good standing under
the laws of the State of Nevada.
(f) A legal opinion from Hewitt & McGuire, LLP in substantially the
form attached hereto as Exhibit J; and
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(g) Copies of the Closing Escrow Agreement, Cash Escrow Agreement,
Stock Escrow Agreement, License Agreement, Registration Rights Agreement,
Standard Reseller Agreement and Training Provider Agreement, each duly executed
by Buyer and dated the Escrow Closing Date but, except for the Closing Escrow
Agreement (which will be effective as of signing), effective as of the Final
Closing Date.
Section 2.4 Other Escrow Closing Deliveries. At the Escrow Closing:
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(a) Buyer shall deliver to Parent copies of the Management Agreement
in the form attached as Exhibit L (the "Management Agreement"), duly executed by
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Buyer; and
(b) Parent shall deliver to Buyer copies of the Management Agreement,
duly executed by Parent and ComputerPrep.
Section 2.5 Final Closing. The final closing of the transactions
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contemplated hereby (the "Final Closing") shall take place within two business
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days after the satisfaction of the condition set forth in Sections 6.3 and 7.2
(the "Final Closing Date") and shall take place by delivery pursuant to the
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terms of the Closing Escrow Agreement of the respective documents and
instruments held by the Closing Escrow Agent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLING ENTITIES
For purposes of this Article III, "Knowledge of the Selling Entities,"
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or words to a similar effect means the actual knowledge of William Dorman, Peter
Buswell, Robert Geiges, Karen Jensen and Diane Massa, after reasonable inquiry
or investigation. Parent represents and warrants that by virtue of their
positions with ComputerPrep or Parent, said individuals as a group are familiar
with the matters which are the subject of the following representations which
are limited to the knowledge of the Selling Entities. Each of the Selling
Entities, jointly and severally, represent and warrant to Buyer that, except as
disclosed in the disclosure schedule attached hereto (the "Sellers Disclosure
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Schedule"), as of the date of this Agreement:
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Section 3.1 Corporate Organization.
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(a) Each Selling Entity is a corporation duly organized, validly
existing and in good standing under the laws of the state or jurisdiction of its
incorporation set forth in Exhibit 3.1(a). Each Selling Entity has the
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corporate power and authority to own or lease its properties and assets and to
carry on its business as it is now being conducted, and is qualified to do
business in each jurisdiction in which the nature of the business conducted by
it or the character or location of the properties and assets owned or leased by
it makes such qualification necessary, except where the failure to be so
qualified (i) would not individually or in the
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aggregate have a Material Adverse Effect or (ii) would not adversely affect the
ability of such Selling Entity to consummate the transactions contemplated
hereby. For purposes of this Agreement, an action, event or occurrence has a
"Material Adverse Effect" if it has a material adverse effect on the assets,
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liabilities, business, financial condition or results of operations of
ComputerPrep and its subsidiaries or Buyer and its subsidiaries, as the case may
be. The copies of the Articles of Incorporation and Bylaws of ComputerPrep which
have previously been delivered to Buyer are true and correct copies of such
documents as in effect as of the date of this Agreement.
(b) Set forth in Section 3.1(b) of the Sellers Disclosure Schedule is
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a complete list of all subsidiaries of ComputerPrep ("ComputerPrep
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Subsidiaries"), setting forth for each (i) the date of incorporation or other
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organization, (ii) the number of shares of each class of capital stock or other
ownership interests in each ComputerPrep Subsidiary which are issued and
outstanding, (iii) the jurisdiction under which such ComputerPrep Subsidiary was
incorporated or organized, and (iv) the address of such ComputerPrep
Subsidiary's principal executive offices. Except as set forth in Section 3.1(b)
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of the Sellers Disclosure Schedule, ComputerPrep owns 100% of the outstanding
shares of capital stock (or other ownership interests) in each ComputerPrep
Subsidiary. Each ComputerPrep Subsidiary is duly organized, validly existing and
in good standing under the laws of the jurisdiction set forth in Section 3.1(b)
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of the Sellers Disclosure Schedule with respect to such ComputerPrep Subsidiary.
Each ComputerPrep Subsidiary has full lawful power and authority to own or lease
its properties and assets and to carry on its business as it is now being
conducted, and is qualified to do business in each jurisdiction in which the
nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such qualification necessary,
except where the failure to be so qualified would not individually or in the
aggregate have a Material Adverse Effect. The copies of the Articles of
Incorporation and Bylaws of each ComputerPrep Subsidiary which have previously
been made available to Buyer are true and correct copies of such documents as in
effect as of the date of this Agreement.
Section 3.2 Capitalization.
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(a) The authorized capital stock of ComputerPrep consists of 1,000
shares of ComputerPrep Common Stock, par value $1.00 per share. As of the date
hereof, there are 100 shares (and no others) of ComputerPrep Common Stock
outstanding, all of which are held by Parent. Except as set forth in Section
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3.2(a) of the Sellers Disclosure Schedule, all of the issued and outstanding
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shares of ComputerPrep Common Stock were duly authorized and validly issued and
are fully paid and nonassessable and are free of any liens or encumbrances
created by or resulting from the actions of ComputerPrep, and are not subject to
preemptive rights or rights of first refusal created by statute, the Articles of
Incorporation or Bylaws of ComputerPrep or any agreement to which ComputerPrep
is a party or by which it is bound. All outstanding shares of ComputerPrep
Common Stock were issued in compliance with all applicable federal and state
securities laws. Except as described in this Section 3.2 or reflected in Section
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3.2(a) of the Sellers Disclosure Schedule, neither ComputerPrep nor any
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ComputerPrep Subsidiary has or is bound by any outstanding subscriptions,
options, warrants, convertible securities, calls, commitments, agreements or
obligations of any character calling for the purchase, redemption or issuance of
any shares of ComputerPrep Common Stock or any other equity security of such
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entity or any securities representing the right to purchase or otherwise receive
any shares of ComputerPrep Common Stock or any other equity security of such
entity.
(b) Except as set forth in Section 3.2(b) of the Sellers Disclosure
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Schedule, ComputerPrep owns directly or indirectly each of the outstanding
shares of capital stock (or other ownership interests having by their terms
ordinary voting power to elect a majority of directors or others performing
similar functions) of each of the ComputerPrep Subsidiaries. All of the issued
and outstanding shares of capital stock of the ComputerPrep Subsidiaries
("Subsidiary Capital Stock") were duly authorized and validly issued and are
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fully paid and nonassessable and are free of any liens or encumbrances created
by or resulting from the actions of ComputerPrep or any ComputerPrep Subsidiary,
and are not subject to preemptive rights or rights of first refusal created by
statute, the Articles of Incorporation or Bylaws of ComputerPrep or any
ComputerPrep Subsidiary or any agreement to which ComputerPrep or any
ComputerPrep Subsidiary is a party or by which any of them may be bound.
Section 3.3 Authority; No Violation.
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(a) Each Selling Entity has full corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly approved by the Board of Directors and shareholders of
each Selling Entity. No other corporate proceedings on the part of any of the
Selling Entities are necessary to approve this Agreement and to consummate the
transactions contemplated hereby. This Agreement and all other agreements and
documents to be entered into in connection herewith have been duly and validly
executed and delivered by each Selling Entity and (assuming due authorization,
execution and delivery by Buyer) constitute valid and binding obligations of
each Selling Entity, enforceable against each Selling Entity, in accordance with
their respective terms, except as enforcement may be limited by general
principles of equity whether applied in a court of law or a court of equity and
by bankruptcy, insolvency and similar laws affecting creditors' rights and
remedies generally.
(b) Except as set forth in Section 3.3(b) of the Sellers Disclosure
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Schedule, neither the execution and delivery of this Agreement by each Selling
Entity, nor the consummation by each Selling Entity of the transactions
contemplated hereby, nor compliance by each Selling Entity with any of the terms
or provisions hereof, will (i) violate any provision of the Articles of
Incorporation or Bylaws or the constituent documents of any Selling Entity or
any ComputerPrep Subsidiary, or (ii) assuming that the consents and approvals
referred to in Section 3.4 hereof are duly obtained, (x) violate any statute,
code, ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to any Selling Entity or any ComputerPrep Subsidiary or any of their
respective properties or assets, or (y) violate, materially conflict with,
result in a material breach of any provision of or the loss of any material
benefit under, constitute a material default (or an event which, with notice or
lapse of time, or both, would constitute a material default) under, result in
the termination of or a right of termination or cancellation under, accelerate
the performance required by, or result in the creation of any lien, pledge,
security interest, charge or other encumbrance upon any of the properties or
assets of any Selling Entity or any ComputerPrep Subsidiary under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust, license, sublicense, lease, agreement or other
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instrument or obligation to which any Selling Entity or any ComputerPrep
Subsidiary is a party, or by which any Selling Entity or any ComputerPrep
Subsidiary or any of their respective properties or assets may be bound or
affected.
Section 3.4 Consents and Approvals. Except for such filings,
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authorizations or approvals as may be set forth in Section 3.4 of the Sellers
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Disclosure Schedule or the filings under the HSR Act, no consents or approvals
orders or authorizations of or filings or registrations with any court,
administrative agency or commission or other governmental or quasi-governmental
authority or instrumentality, whether in the United States of America or
otherwise (each a "Governmental Entity") or with any third party are necessary
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with respect to any Selling Entity in connection with (1) the execution and
delivery of this Agreement and (2) the consummation of the transactions
contemplated hereby.
Section 3.5 Financial Statements. Set forth in Section 3.5 of the
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Sellers Disclosure Schedule are true and correct copies of (a) audited
consolidated balance sheets of ComputerPrep and its Subsidiaries at September
30, 1997, September 25, 1998 and October 1, 1999, together with related audited
consolidated statements of operations, shareholders' equity and cash flows for
the fiscal years then ended, and (b) ComputerPrep's unaudited consolidated
balance sheet (the "Reference Balance Sheet") together with related unaudited
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consolidated statements of operations, shareholders' equity and cash flows as of
and for the eight (8) month period ended May 26, 2000 (the "Reference Balance
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Sheet Date") (collectively, the "Financial Statements"). Such Financial
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Statements have been prepared in accordance with generally accepted accounting
principles ("GAAP") (except that the unaudited Financial Statements do not
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contain all footnotes required by GAAP and are subject to normal year-end audit
adjustments that in the aggregate will not be material) applied on a consistent
basis throughout the periods indicated and with each other. The Financial
Statements fairly present the financial condition and operating results of
ComputerPrep in all material respects in accordance with GAAP as of the dates,
and for the periods indicated therein, subject to normal year-end audit
adjustments. The books and records of ComputerPrep have been for at least the
past three years, and are being, maintained in all material respects in
accordance with GAAP.
Section 3.6 Absence of Undisclosed Liabilities. Neither ComputerPrep nor
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any ComputerPrep Subsidiary has any material obligations or liabilities of any
nature (matured or unmatured, fixed or contingent, including without limitation
any obligations or liabilities as guarantor or indemnitor of any other person,
firm, partnership or corporation ("Person")) other than (i) those set forth or
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adequately provided for in the Reference Balance Sheet, (ii) those incurred in
the ordinary course of business and not required to be set forth in the
Reference Balance Sheet under GAAP, (iii) those incurred in the ordinary course
of business since the Reference Balance Sheet Date and consistent with past
practice, (iv) those set forth in Section 3.6 of the Sellers Disclosure
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Schedule, and (v) those incurred in connection with the execution of this
Agreement. As of the date hereof, neither ComputerPrep nor any ComputerPrep
Subsidiary has any outstanding indebtedness for borrowed money.
Section 3.7 Absence of Certain Changes or Events. Except as disclosed in
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Section 3.7 of the Sellers Disclosure Schedule, since the Reference Balance
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Sheet Date, each of ComputerPrep and each ComputerPrep Subsidiary has conducted
its business in the ordinary course consistent with past practice, and except as
contemplated by this Agreement, there has not
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occurred (i) any purchase or other acquisition of, sale, lease, disposition, or
other transfer of, or mortgage, pledge or subjection to any material encumbrance
or lien on, any material asset, tangible or intangible, of ComputerPrep or any
ComputerPrep Subsidiary, other than in the ordinary course of business; (ii) any
change in accounting methods or practices (including any change in depreciation
or amortization policies or rates) by ComputerPrep or any ComputerPrep
Subsidiary or any revaluation by ComputerPrep or any ComputerPrep Subsidiary of
any of its assets; (iii) any declaration, setting aside, or payment of a
dividend or other distribution with respect to the shares of ComputerPrep Common
Stock, or any split-up or other recapitalization in respect of ComputerPrep
Common Stock, or any direct or indirect redemption, purchase or other
acquisition by ComputerPrep of any shares of ComputerPrep Common Stock; (iv) any
material contract entered into by ComputerPrep or any ComputerPrep Subsidiary,
other than in the ordinary course of business and as provided to Buyer or
disclosed on Schedule 3.21, or any termination (except by its terms) of, or, to
the knowledge of the Selling Entities, default under, any material contract to
which ComputerPrep or any ComputerPrep Subsidiary is a party or by which it is
bound; (v) any amendment or change to the Articles of Incorporation or Bylaws of
ComputerPrep or the Articles of Incorporation or Bylaws of any ComputerPrep
Subsidiary; (vi) any material increase in the compensation or benefits payable
or to become payable by ComputerPrep or any ComputerPrep Subsidiary to any of
their respective officers, directors or employees other than in the ordinary
course of business; (vii) any issuance, transfer, sale or pledge by ComputerPrep
or any ComputerPrep Subsidiary of any equity securities or other securities or
of any commitment, option, right or privilege under which ComputerPrep or any
ComputerPrep Subsidiary is or may become obligated to issue any equity
securities or other securities; (viii) any loan made or agreed to be made by
ComputerPrep or any ComputerPrep Subsidiary, nor has ComputerPrep nor any
ComputerPrep Subsidiary become liable or agreed to become liable as a guarantor
with respect to any loan (other than loans between ComputerPrep and any
ComputerPrep Subsidiary or between ComputerPrep Subsidiaries and endorsements in
the ordinary course of business); (ix) any waiver or compromise by ComputerPrep
or any ComputerPrep Subsidiary of any right or rights or any payment, direct or
indirect, of any material debt, liability or other obligation, other than in the
ordinary course of business; (x) any sale, assignment, or transfer of any
patents, trademarks, copyrights, trade secrets or other intangible assets, other
than in the ordinary course of business; (xi) except for the transactions
contemplated by this Agreement, any actual or, to the knowledge of the Selling
Entities, threatened termination or loss of (a) any material contract, lease,
license or other agreement to which ComputerPrep or any ComputerPrep Subsidiary
was or is a party; (b) any material certificate, license or other authorization
required for the continued operation by ComputerPrep or any ComputerPrep
Subsidiary of any material portion of any of its business; or (c) any customer
or other revenue source, which termination or loss could reasonably be expected
to result in loss of revenues to ComputerPrep or any ComputerPrep Subsidiary in
excess of $25,000 per year, and no Selling Entity has knowledge of any event
(other than the transactions contemplated hereby, with respect to which
ComputerPrep has not received any written notice from any customer or other
revenue source of an intention to terminate any arrangement as a result of the
transactions contemplated hereby) which could reasonably be expected to result
in any such termination or loss; (xii) any resignation of employment of any key
officer or employee of ComputerPrep or any ComputerPrep Subsidiary, or to the
knowledge of the Selling Entities, any impending resignation of employment of
any such officer or employee; (xiii) any agreement by ComputerPrep or any
ComputerPrep Subsidiary to do any of the things described in the
10
preceding clauses (i) through (xii) (other than negotiations with Buyer and its
representatives regarding the transactions contemplated by this Agreement); or
(xiv) any other event or circumstance that has had or, to the knowledge of the
Selling Entities could reasonably be expected to have, a Material Adverse
Effect, other than events which affect ComputerPrep's industry in general and
which Buyer should be reasonably aware of.
Section 3.8 Legal Proceedings. Except as set forth in Section 3.8 of the
----------------- -----------
Sellers Disclosure Schedule, there are no legal actions, suits, arbitrations or
other legal, administrative or governmental proceedings or investigations
pending or, to the knowledge of any of the Selling Entities, threatened against
ComputerPrep or any ComputerPrep Subsidiary or any of their respective
properties, assets or business in which an unfavorable outcome, ruling or
finding would have a Material Adverse Effect and to the knowledge of the Selling
Entities there exist no facts which could reasonably be expected to result in
any such action, suit or other proceeding or which would challenge the validity
or propriety of the transactions contemplated by this Agreement. Neither
ComputerPrep nor any ComputerPrep Subsidiary is in default with respect to any
judgment, order or decree of any court or any governmental agency or
instrumentality which would have a Material Adverse Effect on ComputerPrep or
any ComputerPrep Subsidiary. The foregoing includes, without limiting the
generality thereof, pending or, to the knowledge of the Selling Entities,
threatened actions involving the Company's or any ComputerPrep Subsidiary's use
in connection with the Company's or any ComputerPrep Subsidiary's business of
any information or techniques allegedly proprietary to a former employee which
would have a Material Adverse Effect on ComputerPrep or any ComputerPrep
Subsidiary.
Section 3.9 Restrictions on Business Activities. Except as set forth in
-----------------------------------
Section 3.9 of the Sellers Disclosure Schedule, there is no judgment,
- -----------
injunction, order or decree binding upon ComputerPrep or any ComputerPrep
Subsidiary which has or could reasonably be expected to have the effect of
prohibiting or materially impairing any current business practice of
ComputerPrep or any ComputerPrep Subsidiary, any acquisition of property by
ComputerPrep or any ComputerPrep Subsidiary, the ability of ComputerPrep or any
ComputerPrep Subsidiary to compete with any other person or the conduct of
business by ComputerPrep or any ComputerPrep Subsidiary as currently conducted
by ComputerPrep or any ComputerPrep Subsidiary.
Section 3.10 Governmental Authorization. ComputerPrep and each
--------------------------
ComputerPrep Subsidiary have obtained each federal, state, county, local or
foreign governmental consent, license, permit, grant, or other authorization of
a Governmental Entity (i) pursuant to which ComputerPrep or any ComputerPrep
Subsidiary currently operates or holds any interest in any of its properties or
(ii) that is required for the operation of ComputerPrep's or any ComputerPrep
Subsidiary's business or the holding of any such interest ((i) and (ii) herein
collectively called the "ComputerPrep Authorizations"), and all of such
---------------------------
ComputerPrep Authorizations are in full force and effect, except where the
failure to obtain or have any such ComputerPrep Authorizations would not
reasonably be expected to have a Material Adverse Effect on ComputerPrep.
Section 3.11 Title and Condition of Personal Property. Each of
----------------------------------------
ComputerPrep and each ComputerPrep Subsidiary has good title to all personal
property owned by it and reflected in the Reference Balance Sheet or acquired
after the Reference Balance Sheet Date (other than property
11
sold or otherwise disposed of since the Balance Sheet Date in the ordinary
course of business), free and clear of all mortgages, liens, pledges, charges or
encumbrances of any kind or character or claims thereto, except (i) the lien of
current taxes not yet due and payable, (ii) such imperfections of title, liens
and easements as do not and will not materially detract from or interfere with
the use of the properties subject thereto or affected thereby, or otherwise
materially impair business operations involving such properties, (iii) liens
securing debt which is reflected on the Reference Balance Sheet, and (iv) as set
forth in Section 3.11 of the Sellers Disclosure Schedule. The personal property
------------
and equipment of ComputerPrep and each ComputerPrep Subsidiary that is used in
the operations of its business are in all material respects in good operating
condition and repair. All properties used in the operations of ComputerPrep and
each ComputerPrep Subsidiary are reflected in the Reference Balance Sheet to the
extent GAAP require the same to be reflected.
Section 3.12 Real and Leased Property. Neither ComputerPrep nor any
------------------------
ComputerPrep Subsidiary owns any fee simple interest in real property. Neither
ComputerPrep nor any ComputerPrep Subsidiary leases or subleases any real
property other than as set forth on Section 3.12 of the Sellers Disclosure
------------
Schedule. Section 3.12 of the Sellers Disclosure Schedule sets forth the street
------------
address of each parcel of real property leased or subleased by ComputerPrep or
any ComputerPrep Subsidiary (the "Leased Property"). The Selling Entities have
---------------
previously delivered to Buyer a true and complete copy of all of the lease and
sublease agreements, as amended to date (the "Leases"), relating to the Leased
------
Property, except for an oral agreement relating to the use of a portion of the
Leased Property by Assessment Solutions, Inc. ("ASI"). Each of ComputerPrep and
---
each ComputerPrep Subsidiary currently enjoys a peaceful and undisturbed
possession of the Leased Property held by it and not subleased to others. To
the knowledge of the Selling Entities, all improvements located within the
Leased Property (but excluding fixtures and structural portions of the
improvements) are in a state of good maintenance and repair and in a condition
adequate and suitable for the effective conduct therein of the business
conducted by ComputerPrep or any ComputerPrep Subsidiary. Except for Xerox
Corporation and ASI, to the knowledge of the Selling Entities, no person other
than ComputerPrep or any ComputerPrep Subsidiary has any right to use or occupy
any part of the Leased Property, whether pursuant to sublease, license or
otherwise. To the knowledge of the Selling Entities, the Leases are valid,
binding and in full force and effect. Except as set forth in Schedule 3.12, all
-------------
rent and other sums and charges payable thereunder are current, no written
notice of default or termination under any of the Leases is outstanding, no
termination event or condition or uncured material default on the part of
ComputerPrep or any ComputerPrep Subsidiary or, to the knowledge of the Selling
Entities, on the part of the landlord or sublandlord, as the case may be,
thereunder, exists under the Leases, and to the knowledge of the Selling
Entities, no event has occurred and no condition exists which, with the giving
of notice or the lapse of time or both, would constitute such a default or
termination event or condition. In the event that any of the Leases is a
sublease, ComputerPrep or a ComputerPrep Subsidiary, as the case may be, as
sublessee or sublessor, as the case may be, has obtained the required consent of
the prime landlord to such sublease, and to the knowledge of the Selling
Entities such prime lease is in full force and effect, there are no outstanding
uncured written notices of material default or termination, and to the knowledge
of the Selling Entities no right of ComputerPrep or any ComputerPrep Subsidiary
in any such sublease conflicts with such prime lease. All of the Leased
Property is used in the conduct of ComputerPrep's or a ComputerPrep Subsidiary's
business, except for the Leased Property used by Xerox Corporation and ASI.
12
Section 3.13 Intellectual Property.
---------------------
(a) Section 3.13(a) of the Sellers Disclosure Schedule sets forth a
---------------
list of all material foreign and domestic patents, patent applications, patent
rights, trademarks, service marks, trade names, brands and copyrights used by
ComputerPrep and each ComputerPrep Subsidiary in the operation of their
respective business or operations, other than desktop computer software
licenses.
(b) Except as set forth in Section 3.13(b) of the Sellers Disclosure
---------------
Schedule, ComputerPrep and each ComputerPrep Subsidiary owns or has the right to
use, pursuant to franchise, license, sublicense, contract, agreement, or
permission, all of the patents, patent rights, trademarks, trade names, service
marks, brands, copyrights, and any applications therefor, maskworks, net lists,
URLs, domain names, schematics, technology, know-how, trade secrets, inventory,
ideas, algorithms, processes, computer software programs or applications (in
both source code and object code form), and tangible or intangible proprietary
information or material (collectively, the "Intellectual Property") necessary
---------------------
for the conduct of its business as currently conducted by it, except where the
failure to own or have the right to use such Intellectual Property would not
have a Material Adverse Effect. Except as set forth in Section 3.13(b) of the
---------------
Sellers Disclosure Schedule, all applicable fees, royalties and other amounts
due and payable by ComputerPrep or any ComputerPrep Subsidiary to any person or
to ComputerPrep or any ComputerPrep Subsidiary by any person in respect of such
Intellectual Property have been paid, except where the failure to pay would not
have a Material Adverse Effect on ComputerPrep.
(c) Except for third party licenses listed in Section 3.13(c) of the
---------------
Sellers Disclosure Schedule, each of ComputerPrep and each ComputerPrep
Subsidiary is either the sole and exclusive owner of its Intellectual Property
including, but not limited to, those listed or described on the Sellers
Disclosure Schedule, or has the right to the use thereof for the material
covered thereby in connection with the services or products in respect to which
they have been or are now being used.
(d) Except as set forth in Section 3.13(d) of the Sellers Disclosure
---------------
Schedule, none of the Selling Entities (i) is the subject of any pending
litigation or, to the knowledge of the Selling Entities, any claim regarding
infringement of or misappropriation or misuse of any Intellectual Property of
ComputerPrep, (ii) has knowledge of any such infringement, whether or not
claimed by any other person, (iii) has knowledge of any unauthorized use,
disclosure, infringement or misappropriation by any other person of the
Intellectual Property of ComputerPrep or any ComputerPrep Subsidiary, and (iv)
has knowledge of any facts or circumstances which would reasonably lead
ComputerPrep to conclude that the continued operation and conduct of any aspect
of its or any ComputerPrep Subsidiary's business would result in any such
litigation or claim. To the knowledge of the Selling Entities, except as set
forth in Section 3.13(d) of the Sellers Disclosure Schedule, there is no other
---------------
person that is operating under or otherwise using any name confusingly similar
with any trade names, trademarks, service names, service marks, URLs, domain
names or logos included in the Intellectual Property owned by ComputerPrep or
any ComputerPrep Subsidiary. To the knowledge of the Selling Entities, no
Intellectual Property licensed by ComputerPrep or any ComputerPrep Subsidiary
from a third party is subject to any outstanding order, judgment, decree or
stipulation restricting the use thereof by ComputerPrep or any ComputerPrep
13
Subsidiary. Except as set forth in Section 3.13(d) of the Sellers Disclosure
---------------
Schedule, no Intellectual Property of ComputerPrep or any ComputerPrep
Subsidiary is subject to any outstanding order, judgment, decree or stipulation
restricting the use thereof by ComputerPrep or any ComputerPrep Subsidiary.
(e) Except as set forth in Section 3.13(e) of the Sellers Disclosure
---------------
Schedule, to the knowledge of the Selling Entities, other than pursuant to
confidentiality or similar agreements, no material trade secrets included in the
Intellectual Property of ComputerPrep have been disclosed by ComputerPrep to any
person other than employees, agents and representatives of the Selling Entities.
ComputerPrep has taken such reasonable measures as is appropriate to protect all
of its trade secrets, including securing valid written assignments during the
last two years from all consultants and employees who contributed to the
creation or development of Intellectual Property of the rights to such
contributions that ComputerPrep or a ComputerPrep Subsidiary does not already
own by operation of law.
Section 3.14 Taxes.
-----
(a) Except as set forth in Section 3.14(a) of the Sellers Disclosure
---------------
Schedule, each of ComputerPrep and each ComputerPrep Subsidiary has duly filed
all material Tax Returns (as hereinafter defined) required to be filed at or
prior to the Escrow Closing Date, and such Tax Returns were true and correct in
all material respects, except where failure to do so would not have a Material
Adverse Effect and ComputerPrep or such ComputerPrep Subsidiary paid in full or
made adequate provision in the financial statements of ComputerPrep (in
accordance with GAAP) for all material Taxes (as hereinafter defined) shown to
be due on such Tax Returns except where failure to do so would not have a
Material Adverse Effect. The federal income Tax Returns of ComputerPrep are and
have been prepared and filed on a consolidated basis with certain other related
corporations for federal income tax purposes. Except as set forth in Section
-------
3.14(a) of the Sellers Disclosure Schedule, as of the date hereof (i) neither
- -------
ComputerPrep nor any ComputerPrep Subsidiary has requested any extension of time
within which to file any Tax Returns in respect of any fiscal year which have
not since been filed and no request for waivers of the time to assess any Taxes
are pending or outstanding, (ii) no claim for Taxes has become a lien against
the property of ComputerPrep or any ComputerPrep Subsidiary or is being asserted
against ComputerPrep or any ComputerPrep Subsidiary other than liens for Taxes
not yet due and payable, (iii) to the knowledge of the Selling Entities no audit
of any Tax Return of ComputerPrep or any ComputerPrep Subsidiary is being
conducted by a Tax authority, (iv) no extension of the statute of limitations on
the assessment of any Taxes has been granted to ComputerPrep or any ComputerPrep
Subsidiary and is currently in effect, and (v) there is no agreement, contract
or arrangement to which ComputerPrep or any ComputerPrep Subsidiary is a party
that may result in the payment of any amount that would not be deductible by
reason of Sections 280G or 404 of the Code. Neither ComputerPrep nor any
ComputerPrep Subsidiary has agreed or been required to include any adjustment in
taxable income for any Tax period (or portion thereof) pursuant to Section 481
of the Code or any comparable provision under state or foreign Tax laws as a
result of transactions, events or accounting methods employed prior to the
Escrow Closing Date.
(b) For the purposes of this Agreement, "Taxes" shall mean all taxes,
-----
charges, fees, levies, penalties or other assessments imposed by any United
States federal, state, local or
14
foreign taxing authority, including, but not limited to income, excise,
property, sales, transfer, franchise, payroll, withholding, social security or
other taxes, including any interest, penalties or additions attributable
thereto. For purposes of this Agreement, "Tax Return" shall mean any return,
----------
report, information return or other document (including any related or
supporting information) filed or required to be filed with a Governmental Entity
with respect to Taxes.
Section 3.15 Environmental Matters.
---------------------
(a) The following terms shall be defined as follows:
(i) "Environmental and Safety Laws" shall mean any federal,
-----------------------------
state, local or foreign laws, ordinances, codes, regulations, rules,
policies and orders that are intended to assure the protection of the
environment, or that classify, regulate, call for the remediation of,
require reporting with respect to, or list or define air, water,
groundwater, solid waste, hazardous or toxic substances, materials, wastes,
pollutants or contaminants, or which are intended to assure the safety of
employees, workers or other persons, including the public.
(ii) "Property" shall mean all real property leased or owned by
--------
ComputerPrep or any ComputerPrep Subsidiary either currently or in the
past.
(iii) "Facilities" shall mean all buildings and improvements on
----------
the Property of ComputerPrep or any ComputerPrep Subsidiary.
(b) (i) Neither ComputerPrep nor any ComputerPrep Subsidiary has
received written notice during the past two years of any noncompliance of the
Facilities or its past or present operations with Environmental and Safety Laws;
(ii) no written notices, administrative actions or suits are pending or, to the
knowledge of the Selling Entities, threatened relating to a violation of any
Environmental and Safety Laws; and (iii) to the knowledge of the Selling
Entities, neither ComputerPrep nor any ComputerPrep Subsidiary is in violation
of any Environmental and Safety Law except where the violation would not
reasonably be expected to have a Material Adverse Effect on ComputerPrep.
Section 3.16 Major Customers and Suppliers. Section 3.16 of the Sellers
----------------------------- ------------
Disclosure Schedule lists (i) the top 25 customers (by revenue based on an
aggregate of fiscal 1998, 1999 and first two quarters of 2000) of ComputerPrep
in each of the following categories: (A) Corporate; (B) Education, and (C)
Learning Centers; and (ii) all suppliers of goods or services to ComputerPrep by
which ComputerPrep was billed over $25,000 for the last twelve months.
Section 3.17 List of Accounts. Set forth in Section 3.17 of the Sellers
---------------- ------------
Disclosure Schedule is: (a) the name and address of each bank or other
institution in which ComputerPrep or any ComputerPrep Subsidiary maintains an
account (cash, securities or other) or safe deposit box; (b) the name, phone
number and telefax number of the contact person at such bank or institution and
(c) the account number of the relevant account, a description of the type of
account and a list of the authorized signatories on such account.
15
Section 3.18 Employment Agreements. Section 3.18 of the Sellers
--------------------- ------------
Disclosure Schedule contains the names, start dates (where available), contract
dates, job descriptions, and annual salary rates of all officers, directors and
employees of ComputerPrep or any ComputerPrep Subsidiary. Section 3.18 of the
------------
Sellers Disclosure Schedule contains a list of all material employee policies,
employee manuals or other written statements of rules or policies as to hiring
practices and procedures, working conditions, vacation and sick leave, a
complete copy of each of which has been made available to Buyer. To the
knowledge of the Selling Entities, except as set forth in Section 3.18 of the
------------
Sellers Disclosure Schedule, there are no employment, consulting, severance or
indemnification arrangements, agreements or understandings between ComputerPrep
or any ComputerPrep Subsidiary and any officer, director, consultant or employee
including, without limitation, any contracts to employ executive officers, any
severance, change in control or similar arrangements with any officers or
employees of ComputerPrep or any ComputerPrep Subsidiary that will result in any
obligation (absolute or contingent) of ComputerPrep or any ComputerPrep
Subsidiary to make any payment to any officer or employee of ComputerPrep or any
ComputerPrep Subsidiary following either the consummation of the transactions
contemplated hereby, termination of employment, or both ("ComputerPrep
------------
Employment Agreements").
- ---------------------
Section 3.19 Employment Benefit Plans.
------------------------
(a) Section 3.19(a) of the Sellers Disclosure Schedule lists, with
---------------
respect to ComputerPrep, (i) all material employee benefit plans (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) currently maintained, sponsored or contributed to or required to be
contributed to by ComputerPrep, (ii) each loan by ComputerPrep to a non-officer
employee in excess of $10,000, loans by ComputerPrep to officers and directors
and any stock option, stock purchase, phantom stock, stock appreciation right,
supplemental retirement, severance, sabbatical, medical, dental, vision care,
disability, employee relocation, cafeteria benefit (Code section 125) or
dependent care (Code Section 129), life insurance or accident insurance plans,
programs or arrangements, (iii) all bonus, pension, profit sharing, savings,
deferred compensation or incentive plans, programs or arrangements, (iv) other
fringe or employee benefit plans, programs or arrangements that apply to senior
management of ComputerPrep and that do not generally apply to all employees, and
(v) any current or former employment or executive compensation or severance
agreements, written or otherwise, as to which unsatisfied obligations of
ComputerPrep of greater than $10,000 remain for the benefit of, or relating to,
any present or former employee, consultant or director of ComputerPrep
(together, the "ComputerPrep Employee Plans").
(b) Except as disclosed in Section 3.19(b) of the Sellers Disclosure
---------------
Schedule, the Selling Entities have, with respect to any ComputerPrep Employee
Plan intended to be qualified under Section 401(a) of the Code, either obtained
from the Internal Revenue Service a favorable determination letter as to its
qualified status under the Code, including all amendments to the Code effected
by the Tax Reform Act of 1986 and subsequent legislation, or applied to the
Internal Revenue Service for such a determination letter prior to the expiration
of the requisite period under applicable Treasury Regulations or Internal
Revenue Service pronouncements in which to apply for such determination letter
and to make any amendments necessary to obtain a favorable determination. The
Selling Entities have also furnished Buyer with the most recent Internal Revenue
Service determination letter issued with respect to each such ComputerPrep
16
Employee Plan, if any, and nothing has occurred since the issuance of each such
letter which could reasonably be expected to cause the loss of the tax-qualified
status of any ComputerPrep Employee Plan intended to be subject to Code Section
401(a).
(c) Except as disclosed in Section 3.19(c) of the Sellers Disclosure
---------------
Schedule, (i) none of the ComputerPrep Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person; (ii) none of
ComputerPrep, or any trade or business (whether or not incorporated) which is
treated as a single employer with ComputerPrep (an "ERISA Affiliate") has
---------------
engaged in a "prohibited transaction," as such term is defined in Section 406 of
ERISA and Section 4975 of the Code, and, to the knowledge of the Selling
Entities, no other party has engaged in a "prohibited transaction" with respect
to any ComputerPrep Employee Plan, for which no exemption exists; (iii) each
ComputerPrep Employee Plan has been administered substantially in accordance
with its terms and in substantial compliance with the requirements prescribed by
any applicable statutes, rules and regulations (including applicable provisions
of ERISA and the Code), and ComputerPrep and each ERISA Affiliate have performed
substantially all material obligations required to be performed by them under,
are not in any material respect in default under or violation of, and have no
knowledge of any material default or violation by any other party to, any of the
ComputerPrep Employee Plans; (iv) to the knowledge of the Selling Entities,
neither ComputerPrep nor any ERISA Affiliate is subject to any liability or
penalty under Sections 4976 through 4980 of the Code or Title I of ERISA with
respect to any of the ComputerPrep Employee Plans, other than obligations for
the payment of benefits in the normal operation of the Plan; (v) all material
contributions required to be made by ComputerPrep and each ERISA Affiliate to
any ComputerPrep Employee Plan have been made on a timely basis and any accruals
required by GAAP for contributions to each ComputerPrep Employee Plan for the
current plan years are reflected on the financial statements of ComputerPrep;
(vi) with respect to each ComputerPrep Employee Plan, no "reportable event"
within the meaning of Section 4043 of ERISA (excluding any such event for which
the thirty (30) day notice requirement has been waived under the regulations to
Section 4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 of
ERISA has occurred with respect to any ComputerPrep Employee Plan subject to
Title IV of ERISA; (vii) none of ComputerPrep nor any ERISA Affiliate has
incurred any liability under Title IV of ERISA or Section 412 of the Code and
(viii) no ComputerPrep Employee Plan which is subject to Title IV or ERISA has
an "unfunded benefit liability" within the meaning of Section 4001(a)(18) of
ERISA. With respect to each ComputerPrep Employee Plan subject to ERISA as
either an employee pension plan within the meaning of Section 3(2) of ERISA or
an employee welfare benefit plan within the meaning of Section 3(1) of ERISA,
ComputerPrep or an ERISA Affiliate has prepared in good faith and timely filed
all requisite governmental reports (which were true and correct as of the date
filed) and has properly and timely filed and distributed or posted all notices
and reports to employees required to be filed, distributed or posted with
respect to each such ComputerPrep Employee Plan, except where the failure to so
file, distribute or post would not have a Material Adverse Effect. Except as
disclosed in Section 3.19(c) of the Sellers Disclosure Schedule, no suit,
---------------
administrative proceeding, action or other litigation has been brought, or to
the knowledge of the Selling Entities is threatened, against or with respect to
any such ComputerPrep Employee Plan, including any audit or inquiry by the IRS
or United States Department of Labor. Neither ComputerPrep nor any ERISA
Affiliate has any liability (including current or potential withdrawal
liability) with respect to any "multiemployer plan" as such term is defined in
Section 3(37) of ERISA. Each ComputerPrep Employee Plan can be amended,
terminated or otherwise
17
discontinued after Final Closing in accordance with its terms without material
liability (other than expenses typically incurred in a termination event). The
consummation of the transactions contemplated by this Agreement will not entitle
any current or former employee of ComputerPrep or any ERISA Affiliate to
severance benefits or any other payment, except as provided by this Agreement or
the schedules attached hereto.
(d) With respect to each ComputerPrep Employee Plan, ComputerPrep has
complied in all material respects with (i) the applicable health care
continuation and notice provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") and the proposed regulations thereunder,
(ii) the applicable requirements of the Family Leave Act of 1993 and the
regulations thereunder and (iii) the applicable requirements of the Health
Insurance Portability and Accountability Act of 1996.
(e) Except as set forth in Section 3.19(e) of the Sellers Disclosure
---------------
Schedule, consummation of the transactions contemplated by this Agreement will
not entitle any current or former employee of ComputerPrep or any other ERISA
Affiliate to severance benefits or any other payment, except for vesting, or
increase the amount of compensation due any such employee or service provider.
(f) Except as disclosed in Section 3.19(f) of the Sellers Disclosure
---------------
Schedule, there has been no amendment to, written interpretation or announcement
(whether or not written) by ComputerPrep or other ERISA Affiliate relating to,
or change in participation or coverage under, any ComputerPrep Employee Plan
which would materially increase the expense of maintaining such Plan above the
level of expense incurred with respect to that Plan for the most recent fiscal
year included in ComputerPrep's financial statements, other than increases
resulting from premium increases or the employment of additional employees, in
each case in the ordinary course of business.
Section 3.20 Labor Matters. Except as set forth in Section 3.20 of the
------------- ------------
Sellers Disclosure Schedule, (a) neither ComputerPrep nor any ComputerPrep
Subsidiary is a party to or otherwise bound by any collective bargaining
agreement or other labor union contract and to the knowledge of the Selling
Entities currently there are no organizational campaigns, petitions or other
unionization activities seeking recognition of a collective bargaining unit
which could affect ComputerPrep or such ComputerPrep Subsidiary; (b) there are
no controversies, strikes, slowdowns, work stoppages or labor disturbances
pending or to the knowledge of the Selling Entities threatened between
ComputerPrep, any ComputerPrep Subsidiary and any of their respective employees,
and neither ComputerPrep nor any ComputerPrep Subsidiary has experienced any
such controversy, strike, slowdown, work stoppage or labor disturbances within
the past three years; (c) neither ComputerPrep nor any ComputerPrep Subsidiary
has ever been a party to any collective bargaining or union contract; (d) there
are no pending claims against ComputerPrep or any ComputerPrep Subsidiary under
any workers' compensation plan or policy or for long-term disability; (e) to the
knowledge of the Selling Entities, neither ComputerPrep nor any ComputerPrep
Subsidiary has any obligations under COBRA with respect to any former employees
or qualifying beneficiaries thereunder; (f) each of ComputerPrep and each
ComputerPrep Subsidiary is currently in material compliance with all applicable
laws relating to the employment of labor, including those related to wages,
hours, collective bargaining and the payment and withholding of taxes and other
sums as required by the appropriate Governmental
18
Entity and has withheld and paid to the appropriate Governmental Entity or is
holding for payment not yet due to such Governmental Entity all amounts required
to be withheld from employees of ComputerPrep or any ComputerPrep Subsidiary and
is not liable for any arrears of wages, taxes, penalties or other sums for
failure to comply with any of the foregoing; (g) each of ComputerPrep and each
ComputerPrep Subsidiary has paid in full to all their respective employees or
adequately accrued for in accordance with GAAP all wages, salaries, commissions,
bonuses, benefits and other compensation due to or on behalf of such employees,
including all compensation owing and due for over-time work; (h) there is no
claim with respect to payment of wages, salary or overtime pay that has been
asserted or is now pending or to the knowledge of the Selling Entities
threatened before any Governmental Entity with respect to any Persons currently
or formerly employed by ComputerPrep or any ComputerPrep Subsidiary; (i) neither
ComputerPrep nor any ComputerPrep Subsidiary is a party to, or otherwise bound
by, any consent decree with, or citation by, any Governmental Entity relating to
employees or employment practices; (j) there is no charge or proceeding with
respect to a violation of any occupational safety or health standards that has
been asserted or is now pending or to the knowledge of the Selling Entities
threatened with respect to ComputerPrep or any ComputerPrep Subsidiary; (k) to
the knowledge of the Selling Entities, there is no charge of discrimination in
employment or employment practices, for any reason, including, without
limitation, age, gender, race, religion or other legally protected category,
which has been asserted or is now pending or threatened before the United States
Equal Employment Opportunity Commission, or any other Governmental Entity in any
jurisdiction in which ComputerPrep or any ComputerPrep Subsidiary has employed
or currently employs any Person; (l) to the knowledge of the Selling Entities
each of ComputerPrep and each ComputerPrep Subsidiary is in compliance in all
material respects with the requirements of the Americans With Disabilities Act
and any similar law of any Government Entity to the extent it is primarily
responsible for such compliance; and (m) each of ComputerPrep and each
ComputerPrep Subsidiary to which it is applicable is in compliance with the
requirements of the Workers Adjustment and Retraining Notification Act ("WARN")
----
and each has no liabilities pursuant to WARN.
Except as set forth in Section 3.20 of the Sellers Disclosure
------------
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
severance benefits or any other payment (including, without limitation,
severance, unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any current or former director or employee of ComputerPrep or
any ComputerPrep Subsidiary or any other ERISA Affiliate, (ii) increase any
benefits otherwise payable by ComputerPrep or any ComputerPrep Subsidiary or
(iii) result in the acceleration of the time of payment or vesting of any such
benefits, or any options or warrants to purchase ComputerPrep capital stock, or
any increase in the amount of compensation of benefits due any such person.
Section 3.21 Contracts and Commitments. Section 3.21 of the Sellers
------------------------- ------------
Disclosure Schedule contains a complete and accurate list of all contracts and
agreements (including, without limitation, oral and informal arrangements, but
excluding agreements between ComputerPrep and any ComputerPrep Subsidiary or
among ComputerPrep Subsidiaries and excluding ComputerPrep's 401(k) Plan) of the
following categories to which ComputerPrep or any ComputerPrep Subsidiary is a
party or by which it is bound as of the date of this Agreement: (a) contracts
or arrangements involving the payment of amounts in excess of $25,000 per year;
19
(b) contracts to effect any merger of ComputerPrep or any ComputerPrep
subsidiary; (c) guaranties of any obligation for borrowed money or otherwise,
other than endorsements made for collection; (d) contracts which prohibit
ComputerPrep from freely engaging in business anywhere in the world; and (e) any
joint venture or partnership contract or arrangement or other agreement
involving the sharing of profits or expenses.
True copies of the written contracts identified in Section 3.21 of the
------------
Sellers Disclosure Schedule have been made available to Buyer.
Section 3.22 Absence of Breaches or Defaults. Neither ComputerPrep nor
-------------------------------
any ComputerPrep Subsidiary is and, to the knowledge of the Selling Entities, no
other party is, in default under, or in breach or violation of, any contract to
which ComputerPrep or any ComputerPrep Subsidiary is a party, including, without
limitation, those identified on Section 3.21 of the Sellers Disclosure Schedule
------------
and, to the knowledge of the Selling Entities, no event has occurred which, with
the giving of notice or passage of time or both would constitute a default under
any contract identified on Section 3.21 of the ComputerPrep Disclosure Schedule,
------------
except in each case set forth above for defaults, breaches, violations or events
which, individually or in the aggregate, would not have a Material Adverse
Effect on ComputerPrep or any ComputerPrep Subsidiary. To the knowledge of the
Selling Entities, other than contracts which have terminated or expired in
accordance with their terms, each of the contracts identified on Section 3.21 of
------------
the ComputerPrep Disclosure Schedule is valid, binding and enforceable in
accordance with its terms (subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general equitable
principles (whether considered on a proceeding in equity or at law)) and is in
full force and effect, and assuming all consents required by the terms thereof
or applicable law have been obtained, such contracts will continue to be valid,
binding and enforceable in accordance with their respective terms and in full
force and effect immediately following the consummation of the transactions
contemplated hereby, in each case except where the failure to be valid, binding,
enforceable and in full force and effort would not, individually or in the
aggregate, have a Material Adverse Effect on ComputerPrep. No event has
occurred which either entitles, or would, on notice or lapse of time or both,
entitle the holder of any indebtedness for borrowed money affecting ComputerPrep
or any ComputerPrep Subsidiary (except for the execution or consummation of this
Agreement) to accelerate, or which does accelerate, the maturity of any
indebtedness for borrowed money affecting ComputerPrep or any ComputerPrep
Subsidiary, except as set forth in Section 3.22 of the Sellers Disclosure
------------
Schedule.
Section 3.23 Interested Party Transactions. Except as set forth in
-----------------------------
Section 3.23 of the Sellers Disclosure Schedule, neither ComputerPrep nor any
- ------------
ComputerPrep Subsidiary is indebted to any director, officer, employee or agent
of ComputerPrep or any ComputerPrep Subsidiary (except for amounts due as normal
salaries and bonuses and in reimbursement of ordinary expenses), and no such
person is indebted to ComputerPrep or any ComputerPrep Subsidiary. Except as
set forth in Section 3.23 of the Sellers Disclosure Schedule, no affiliate of
------------
ComputerPrep or any ComputerPrep Subsidiary has any interest in any material
property (whether real, personal, or mixed and whether tangible or intangible)
used in or pertaining to ComputerPrep or any ComputerPrep Subsidiary.
20
Section 3.24 Compliance With Applicable Law. Each of ComputerPrep and
------------------------------
each ComputerPrep Subsidiary holds all governmental licenses, franchises,
permits and authorizations which (a) are necessary for it to engage in the
business currently conducted by it and (b) if not possessed by ComputerPrep or
such ComputerPrep Subsidiary would have a Material Adverse Effect. To the
knowledge of the Selling Entities, each of ComputerPrep and each ComputerPrep
Subsidiary has complied with and is not in default in any respect under any,
applicable law, statute, order, rule, regulation, policy and/or guideline of any
Governmental Entity relating to ComputerPrep or such ComputerPrep Subsidiary
except where the failure to do so would not have a Material Adverse Effect, and
the Selling Entities have not received written notice within the past two years
of any violations of any of the above.
Section 3.25 Insurance. Section 3.25 of the Sellers Disclosure Schedule
--------- ------------
sets forth a true and complete list of all insurance policies providing
insurance coverage of any nature to ComputerPrep and each ComputerPrep
Subsidiary.
Section 3.26 Brokers. Neither Selling Entity nor any of their respective
-------
officers or directors has employed any broker or finder or incurred any
liability for any broker's fees, commissions or finder's fees in connection with
any of the transactions contemplated by this Agreement.
Section 3.27 Minute Books. The minute books of ComputerPrep and each
------------
ComputerPrep Subsidiary made available to Buyer contain a summary of all of
their records of meetings of directors and shareholders or actions by written
consent since the time of incorporation of ComputerPrep and each ComputerPrep
Subsidiary through the date of this Agreement.
Section 3.28 Accounts and Notes Receivable. Subject to any reserves set
-----------------------------
forth on the Reference Balance Sheet, the accounts receivable and the notes
receivable shown on the Reference Balance Sheet represent and will represent
bona fide claims arising in the ordinary course of business against debtors for
sales and other charges, and are not subject to discount except for normal cash
and immaterial trade discounts. Subject to any reserves set forth on the
Reference Balance Sheet, such accounts receivable and notes receivable are
collectible by ComputerPrep or the appropriate ComputerPrep Subsidiary in the
ordinary course of business. The amount carried for doubtful accounts and
allowances disclosed in the Reference Balance Sheet is sufficient to provide for
any losses which may be sustained on realization of the accounts receivable and
notes receivable.
Section 3.29 Employee Nondisclosure and Assignment of Inventions
---------------------------------------------------
Agreements. Except as set forth in Section 3.29 of the Sellers Disclosure
- ---------- ------------
Schedule, for at least the past two years each employee of ComputerPrep and each
ComputerPrep Subsidiary who has access to confidential information has executed
and delivered to the Company the standard employee confidentiality and
assignment of inventions agreement in the form previously delivered to Buyer.
Section 3.30 Certain Payments. Since January 1, 1995, to the knowledge of
----------------
the Selling Entities, none of ComputerPrep, any ComputerPrep Subsidiary, nor any
officer, agent or employee of ComputerPrep or any ComputerPrep Subsidiary or, to
the knowledge of the Selling
21
Entities, any other person affiliated with or acting on behalf of ComputerPrep
or any ComputerPrep Subsidiary has directly or indirectly (a) made any
contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other
payment in violation of any applicable law, rule or regulation to any person,
private or public, regardless of form, whether in money, property, or services
(i) to obtain favorable treatment in securing business, (ii) to pay for
favorable treatment for business secured, or (iii) to obtain special concessions
or for special concessions already obtained, for or in respect of ComputerPrep
or any ComputerPrep Subsidiary, or (b) established or maintained any fund or
material asset that has not been recorded in the books and records of the
Company.
Section 3.31 Intercompany Payables. As of the date of this Agreement, the
---------------------
accounts payable of ComputerPrep owing to Parent or its affiliates, net of the
accounts receivable of ComputerPrep from Parent or its affiliates, is no greater
than $12,000.
Section 3.32 Representations Complete. None of the representations or
------------------------
warranties made by the Selling Entities herein or in any Schedule hereto,
including the Sellers Disclosure Schedule, or certificate furnished by the
Selling Entities at the Escrow Closing pursuant to this Agreement, contains any
untrue statement of a material fact, or omits to state any material fact
necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which made, not misleading. All
representations and warranties of the Selling Entities are made herein or in the
Schedules hereto or certificates furnished pursuant hereto at the Escrow
Closing, and there are no implied representations or warranties.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF BUYER
Buyer hereby represents and warrants to each of the Selling Entities
that, except as set forth in the disclosure schedule attached hereto (the "Buyer
-----
Disclosure Schedule"):
- -------------------
Section 4.1 Corporate Organization. Buyer is a corporation duly
----------------------
organized, validly existing and in good standing under the laws of the State of
Nevada. Buyer has the corporate power and authority to own or lease its
properties and assets and to carry on its businesses as they are now being
conducted, and is duly qualified to do business in each jurisdiction in which
the nature of the business conducted by it or the character or location of the
properties and assets owned or leased by them makes such qualification
necessary, except where the failure to be so qualified (i) would not
individually or in the aggregate have a Material Adverse Effect or (ii) would
not adversely affect the ability of Buyer to consummate the transactions
contemplated hereby. The copies of the Certificate of Incorporation and Bylaws
of Buyer which have previously been made available to the Selling Entities are
true and correct copies of such documents as in effect as of the date of this
Agreement.
Section 4.2 Authority; No Violation.
-----------------------
(a) Buyer has the requisite corporate power and authority to execute
and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The Board of Directors of Buyer
has unanimously approved this
22
Agreement and all transactions contemplated. No other corporate proceedings on
the part of Buyer are necessary to approve this Agreement and to consummate the
transactions contemplated hereby. This Agreement and all other agreements and
documents to be entered into in connection herewith have been duly and validly
executed and delivered by Buyer and (assuming due authorization, execution and
delivery by the Selling Entities) constitute valid and binding obligations of
Buyer, enforceable against it in accordance with their terms, except as
enforcement may be limited by general principles of equity whether applied in a
court of law or a court of equity and by bankruptcy, insolvency and similar laws
affecting creditors' rights and remedies generally.
(b) Except as set forth in Section 4.2(b) of the Buyer Disclosure
--------------
Schedule, neither the execution and delivery of this Agreement by Buyer, nor the
consummation by Buyer of the transactions contemplated hereby, nor compliance by
Buyer with any of the terms or provisions hereof, will (i) violate any provision
of the Certificate of Incorporation or Bylaws of Buyer, or (ii) assuming that
the consents and approvals referred to in Section 4.4 hereof are duly obtained,
(x) violate any statute, code, ordinance, rule, regulation, judgment, order,
writ, decree or injunction applicable to Buyer or any of its properties or
assets, or (y) violate, conflict with, result in a breach of any provision of or
the loss of any benefit under, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, result in
the termination of or a right of termination or cancellation under, accelerate
the performance required by, or result in the creation of any lien, pledge,
security interest, charge or other encumbrance upon any of the properties or
assets of Buyer under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Buyer is a party, or by which it or any of its
properties or assets may be bound or affected.
Section 4.3 Subsidiaries. Section 4.3 of the Buyer Disclosure Schedule
------------ -----------
sets forth a list of all entities in which Buyer has an equity interest
("Subsidiaries"). Except as set forth in Section 4.3 of the Buyer Disclosure
------------ -----------
Schedule, Buyer owns directly or indirectly all of the outstanding shares of
capital stock (or other ownership interests having by their terms ordinary
voting power to elect a majority of directors or others performing similar
functions) of each of such Subsidiaries.
Section 4.4 Consents and Approvals. Neither the execution and delivery
----------------------
of this Agreement by Buyer nor the consummation of the transactions contemplated
hereby will require any action or consent or approval of, or review by, or
registration or filing by Buyer or any of its affiliates with, any third party
or any Governmental Entity, other than (i) registrations or other actions
required under federal and state securities laws as are contemplated by this
Agreement or (ii) consents or approvals of any Governmental Entity set forth in
Section 4.4 to the Buyer Disclosure Schedule, except for those which would not,
- -----------
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Buyer and its Subsidiaries taken as a whole or a Material
Adverse Effect on the ability of the parties to consummate the transactions
contemplated hereby.
Section 4.5 Financial Information and SEC Reports. Since January 1,
-------------------------------------
1997, Buyer has timely filed all forms, reports and documents with the
Securities and Exchange Commission required to be filed by it under the
Securities Exchange Act of 1934, as amended ("Exchange
23
Act") through the date hereof (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements and schedules
thereto and documents (other than exhibits) incorporated by reference therein,
being referred to herein collectively as the "SEC Reports"). Buyer has delivered
or made available to Parent true and complete copies of the SEC Reports, except
for such exhibits and incorporated documents. Such SEC Reports, at the time
filed, complied in all material respects with the requirements of the Exchange
Act and the rules and regulations of the Securities and Exchange Commission
thereunder applicable to such SEC Reports. None of the SEC Reports, including
without limitation, any financial statements or schedules included therein,
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading. There have been no
material adverse changes in Buyer's business, properties, results of operations
or condition (financial or otherwise) since the date of Buyer's most recent
Annual Report on Form 10-K for the fiscal year ended July 31, 1999 which have
not been disclosed in Buyer's SEC Reports or to Parent in writing. The audited
and unaudited consolidated balance sheets of Buyer contained in the SEC Reports,
and the related consolidated statements of income, changes in stockholders'
equity and changes in cash flows for the periods then ended, including the
footnotes thereto, except as indicated therein, (i) complied in all material
respects with applicable accounting requirements and the published rules and
regulations of the Securities and Exchange Commission with respect thereto and
(ii) have been prepared in accordance with GAAP consistently applied throughout
the periods indicated, except that the unaudited financial statements do not
contain notes and may be subject to normal audit adjustments and normal annual
adjustments. Such financial statements fairly present the financial condition of
Buyer at the dates indicated and the consolidated results of operations and cash
flows for the periods then ended. Since July 31, 1999, except as disclosed in
the SEC Reports, there has been no material adverse change in the assets or
liabilities, or in the business or condition, financial or otherwise, or in the
results of operations, of Buyer except in the ordinary course of business.
Section 4.6 Issuance of Shares. All shares of Common Stock to be issued
------------------
to Parent pursuant to this Agreement will, when issued pursuant to the terms of
this Agreement, be duly authorized, validly issued, fully paid and
nonassessable.
Section 4.7 Brokers. Neither Buyer nor any of its officers or directors
-------
has employed any broker or finder or incurred any liability for any broker's
fees, commissions or finder's fees in connection with any of the transactions
contemplated by this Agreement.
Section 4.8 Vote Required. No approval of the stockholders of Buyer is
-------------
necessary to approve this Agreement and the transactions contemplated hereby.
Section 4.9 Representations Complete. None of the representations or
------------------------
warranties made by Buyer herein or in any Schedule hereto, including the Buyer
Disclosure Schedule, or certificate furnished by the Parent pursuant to this
Agreement, contains any untrue statement of a material fact, or omits to state
any material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
24
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 Public Disclosure. Unless otherwise permitted by this
-----------------
Agreement, Parent and Buyer shall consult with each other before issuing any
press release or otherwise making any public statement or making any other
public (or non-confidential) disclosure (whether or not in response to an
inquiry) regarding the terms of this Agreement and the transactions contemplated
hereby, and neither shall issue any such press release or make any such
statement or disclosure without the prior approval of the other (which approval
shall not be unreasonably withheld), except as may be required by law.
Section 5.2 HSR Act; Transfer Taxes. Buyer and Parent shall use their
-----------------------
best efforts to file as soon as practicable notifications under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") in
-------
connection with the transactions contemplated hereby, and to respond as promptly
as practicable to any inquiries received from the Federal Trade Commission and
the Antitrust Division of the Department of Justice for additional information
or documentation and to respond as promptly as practicable to all inquiries and
requests received from any State Attorney General or other governmental
authority in connection with antitrust matters. Buyer shall be responsible for
paying the $45,000 filing fee in connection with the filings under the HSR Act.
Buyer shall also be responsible for any transfer taxes related to the transfer
of the ComputerPrep Shares under this Agreement.
Section 5.3 Consents; Cooperation.
---------------------
(a) Each of Parent and Buyer shall promptly apply for or otherwise
seek, and use its best efforts to obtain, all consents and approvals required to
be obtained by it for the consummation of the transaction contemplated by this
Agreement (including, but not limited to, filings under the HSR Act), and shall
use commercially reasonable efforts to obtain all necessary consents, waivers
and approvals under any of its material contracts in connection with this
Agreement for the assignment thereof or otherwise; provided, however, the
Selling Entities shall not be obligated to obtain the consents listed on
Schedule 3.4 as a condition to closing or otherwise. The parties hereto will
- ------------
consult and cooperate with one another, and consider in good faith the views of
one another, in connection with any analyses, appearances, presentations,
memoranda, briefs, arguments, opinions and proposals made or submitted by or on
behalf of any party hereto in connection with proceedings under or relating to
any other federal or state antitrust or fair trade law.
(b) Notwithstanding anything to the contrary in Section 5.3(a),
neither Parent nor Buyer or any of their respective subsidiaries shall be
required to divest any of their respective businesses, product lines or assets,
or to take or agree to take any other action or agree to any limitation.
Section 5.4 Legal Requirements. Each of Parent and Buyer will, and will
------------------
cause their respective subsidiaries to, take all reasonable actions necessary to
comply promptly with all legal requirements which have been or which may be
imposed on them with respect to the consummation of the transactions
contemplated by this Agreement and will promptly cooperate with and furnish
information to any party hereto necessary in connection with any such
25
requirements imposed upon such other party in connection with the consummation
of the transactions contemplated by this Agreement and will take all reasonable
actions necessary to obtain (and will cooperate with the other parties hereto in
obtaining) any consent, approval, order or authorization of, or any
registration, declaration or filing with, any Governmental Entity or other
person, required to be obtained or made in connection with the taking of any
action contemplated by this Agreement.
Section 5.5 Blue Sky Laws. Buyer shall take such steps as may be
-------------
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of the Buyer Shares in connection with this
Agreement. Parent shall use its best efforts to assist Buyer as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable in connection with the issuance of Buyer Shares in
connection with this Agreement.
Section 5.6 Best Efforts and Further Assurances. Each of the parties to
-----------------------------------
this Agreement shall use its best efforts to effectuate the transactions
contemplated hereby and to fulfill and cause to be fulfilled the conditions to
the Final Closing under this Agreement and to fulfill or cause to be fulfilled
any agreements or covenants to occur after the Final Closing. Each party
hereto, at the reasonable request of another party hereto, shall execute and
deliver such other instruments and do and perform such other acts and things as
may be necessary or desirable for effecting completely the consummation of this
Agreement and the transactions contemplated hereby.
Section 5.7 Covenant of Non-Competition. Parent agrees that, for a period
----------------------------
of three (3) years from and after the Final Closing Date, neither it nor any of
its affiliates will, anywhere within the United States, directly or indirectly,
solicit any of the top 75 customers of ComputerPrep, as listed on Schedule 5.7,
in each of the categories of Learning Centers, Education and Corporate, for
purposes of selling IT coursebooks or other IT courseware in print or CD format
(excluding any product sold by Discoverware, Inc.), without the prior written
permission of Buyer. The parties agree that if a customer listed on Schedule
5.7 is a division of a multidivisional entity, the restrictions set forth in
this Section 5.7 shall be limited to that division and its geographic area. In
the event that the provisions of this Section 5.7 should ever be deemed to
exceed the time, geographic, product or other limitations permitted by
applicable law then such provisions shall be deemed reformed to the maximum
time, geographic, product or other limitations permitted by applicable law.
Parent specifically acknowledges and agrees that the foregoing restrictions are
reasonable and necessary to protect the legitimate interests of Buyer and that
Buyer would not have entered into this Agreement in the absence of such
restrictions, that any violation of such restrictions will result in irreparable
injury to Buyer and that the remedy at law for any breach of the foregoing
restrictions will be inadequate, and that, in the event of any such breach,
Buyer, in addition to any other remedy available to it, shall be entitled to
seek temporary and permanent injunctive relief without the necessity of proving
actual damages.
Section 5.8 Tax Related Matters. Parent shall prepare or cause to be
--------------------
prepared and file or cause to be filed all income Tax Returns for ComputerPrep
and any ComputerPrep Subsidiaries for all taxable periods ending on or prior to
the Final Closing which are filed after the Final Closing. Buyer shall prepare
or cause to be prepared and file or cause to be filed all
26
other Tax Returns (other than income Tax Returns) of ComputerPrep and any
ComputerPrep Subsidiaries for all periods ending on or prior to the Final
Closing which are filed after the Final Closing and all periods beginning before
the Final Closing and ending after the Final Closing. Buyer, Parent and
ComputerPrep shall cooperate with each other fully in connection with the filing
of Tax Returns pursuant to this Section and any audit, litigation or other
proceeding with respect to Taxes. Buyer, Parent and ComputerPrep agree to
furnish or cause to be furnished to each other as promptly as practicable all
information (including access to books and records) and assistance, including
making employees available on a mutually convenient basis to provide additional
information and explanations of the material provided, as is reasonably
necessary for the filing of Tax Returns pursuant to this Section. Buyer, Parent
and ComputerPrep agree to retain all books and records with respect to Tax
matters pertinent to ComputerPrep and any ComputerPrep Subsidiaries relating to
any taxable period beginning before the Final Closing until the expiration of
the statute of limitations of the respective taxable periods and to abide by all
record retention agreements entered into with any taxing authority. Because
ComputerPrep and any ComputerPrep Subsidiaries will become members of Buyer's
consolidated group for federal income tax purposes as of the Final Closing, the
parties agree that the taxable year of ComputerPrep and any ComputerPrep
Subsidiaries shall close as of the Final Closing.
Section 5.9 Collection of Accounts Receivable. Buyer agrees to use
----------------------------------
reasonable efforts to collect the accounts receivable of ComputerPrep existing
on the Escrow Closing Date (the "Closing Receivables"). Buyer agrees that any
-------------------
Closing Receivables which have not been collected by Buyer within 180 days of
the Escrow Closing Date shall be assigned at that time by Buyer to Parent.
Buyer also agrees to provide Parent a monthly report during that 180-day period
on the aging of the Closing Receivables. Any uncollected Closing Receivables
which are not assigned by Buyer to Parent pursuant to this Section shall not be
eligible to be the basis for an indemnification claim by Buyer pursuant to
Article IX.
Section 5.10 Retirement Plan. The parties agree that, effective as of the
----------------
Final Closing, ComputerPrep will no longer be the "adopting employer" with
respect to the Drake Employee Savings Plan and that salary deferrals of
employees of ComputerPrep relating to compensation paid after Final Closing will
not be contributed to the Drake Employee Savings Plan. ComputerPrep and Drake
Office Overload, Inc., sponsor of the Drake Employee Savings Plan, shall execute
and deliver such instruments and do and perform such acts as may be necessary or
desirable to accomplish the intent of the preceding sentence.
Section 5.11 Contracts With Parent. The parties agree that each of the
----------------------
arm's length contracts between Parent, its affiliates and subsidiaries, and
ComputerPrep which were negotiated in good faith shall be amended after the
Escrow Closing Date so as (i) to extend each such agreement for at least three
years from the Final Closing Date, (ii) to cover all products and services of
ComputerPREP, Buyer and their respective subsidiaries and affiliates, (iii) to
cover the United Kingdom, Switzerland, Australia, New Zealand, Malaysia, Hong
Kong, Singapore, the United States, Canada and South Africa, and (iv) to include
a provision that such contract will automatically be extended after that initial
period for additional one-year terms unless either party gives a notice of
termination at least 90 days prior to the scheduled termination date for such
contract. Any contracts which were not negotiated at arm's length will be
mutually renegotiated in good faith by the parties.
27
Section 5.12 ASI License Agreement. As soon as practicable after the
----------------------
Escrow Closing Date, Parent shall cause ASI to enter into a nonexclusive United
States license agreement with Buyer for the license of the web@ssessor program
-----------
for a period of three (3) years on terms to be mutually agreed upon.
ARTICLE VI
CONDITIONS TO BUYER'S OBLIGATIONS
The obligation of Buyer to consummate the transactions provided for
hereby is also subject to the satisfaction or waiver by Buyer at or prior to the
Final Closing Date of the following conditions:
Section 6.1 Injunctions or Restraints on Conduct of Business. No
------------------------------------------------
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision prohibiting the Final Closing shall be in effect, nor shall
any proceeding brought by an administrative agency or commission or other
Governmental Entity, domestic or foreign, seeking the foregoing be pending.
Section 6.2 Resignation of Officers and Directors. Such members of the
--------------------------------------
boards of directors and such officers of ComputerPrep as are designated in
writing by Buyer prior to the Final Closing shall have tendered, effective at
the Final Closing, their resignations as such officers and directors.
Section 6.3 HSR Act. The waiting period applicable to the consummation of
--------
the transactions contemplated by this Agreement shall have expired or been
terminated.
Section 6.4 Delivery of Books and Records. Parent shall have delivered to
------------------------------
Buyer physical possession of (i) the original minute books, stock books and
corporate seals of ComputerPrep and (ii) all books and records, tangible
personal property, assets, permits, policies, contracts, plans, leases or other
instruments owned by or pertaining to ComputerPrep that are in possession of any
of the Selling Entities.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE SELLING ENTITIES
The obligation of the Selling Entities to consummate the transactions
provided for hereby is also subject to the satisfaction or waiver by the Selling
Entities at or prior to the Final Closing Date of the following conditions:
Section 7.1 Injunctions or Restraints on Conduct of Business. No
------------------------------------------------
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision prohibiting the Final Closing shall be in effect, nor shall
any proceeding brought by an administrative agency or commission or other
Governmental Entity, domestic or foreign, seeking the foregoing be pending.
28
Section 7.2 HSR Act. The waiting period applicable to the consummation of
--------
the transactions contemplated by this Agreement shall have expired or been
terminated.
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.1 Termination. This Agreement may be terminated at any time
------------
prior to the Final Closing Date:
(a) by mutual consent of the Buyer and Parent in a written instrument;
(b) by either Parent or Buyer upon written notice to the other party if any
Governmental Entity of competent jurisdiction shall have issued a final
nonappealable order enjoining or otherwise prohibiting the transactions
contemplated hereby; or
(c) by either Parent or Buyer if the Final Closing shall not have been
consummated on or before August 3, 2000 unless the failure of the Final Closing
to occur by such date shall be due to the failure of the party seeking to
terminate this Agreement to perform or observe the covenants and agreements of
such party set forth herein.
Section 8.2 Effect of Termination. In the event of termination of this
----------------------
Agreement by either the Selling Entities or Buyer as provided in Section 8.1,
this Agreement shall forthwith become void and have no effect except that (i)
each of Sections 5.1, 8.2, 10.1, 10.2, 10.3, 10.4, 10.5, 10.8 and 10.9 shall
survive any termination of this Agreement and (ii) notwithstanding anything to
the contrary contained in this Agreement, no party shall be relieved or released
from any liabilities or damages arising out of its willful breach of any
provision of this Agreement.
Section 8.3 Amendment. This Agreement may not be amended except by an
----------
instrument in writing signed on behalf of each of the parties hereto.
Section 8.4 Extension; Waiver. At any time prior to the Final Closing
------------------
Date, each of the parties hereto may, to the extent legally allowed, (a) extend
the time for the performance of any of the obligations or other acts of the
other party hereto, (b) waive any inaccuracies in the representations and
warranties of the other party contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions of the other party contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth in
a written instrument signed on behalf of such party, but such extension or
waiver or failure to insist on strict compliance with an obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
ARTICLE IX
INDEMNITY
Section 9.1 Survival of Representations and Covenants. All
------------------------------------------
representations and warranties of the parties contained in this Agreement or
expressly incorporated herein by reference shall survive the Final Closing
hereunder and any investigation made by or on behalf of any party hereto until
the second anniversary of the Final Closing Date, except for (i) the
29
representations and warranties set forth in Section 3.14 which shall survive
until all tax liabilities of ComputerPrep are decided by final determination of
the Internal Revenue Service, judicial decision or upon expiration of the
statute of limitations, taking in account any waiver or extension of such
applicable statute of limitations and (ii) the representations and warranties
set forth in Sections 3.1, 3.3, 3.15 and 3.19, which shall survive indefinitely.
A claim for indemnification under this Article IX for breach of a representation
or warranty may be brought at any time provided that the representation or
warranty on which such claim is based continues to survive at the time a
Certificate relating to such claim has been delivered in accordance with Section
9.4 hereof and if such Certificate is delivered within such period all rights to
indemnification with respect to such claim shall continue in force and effect.
All covenants and obligations of the parties under this Agreement shall survive
until performed in full.
Section 9.2 Indemnification.
----------------
(a) By Parent. Subject to Sections 9.3 and 9.5 below, Parent agrees to
---------
indemnify and hold Buyer, and their respective subsidiaries, affiliates,
officers, directors and employees harmless from and against any and all damages,
costs, expenses, liabilities, causes of action, or claims (including reasonable
attorneys' fees and costs) (collectively, "Losses") incurred by any of them as a
------
result of (i) the failure of any representation or warranty made by the Selling
Entities in this Agreement to be true and correct as of the Escrow Closing Date
or (ii) the breach by any of the Selling Entities of any of their respective
covenants or agreements set forth in this Agreement.
(b) By Buyer. Subject to Section 9.3 below, Buyer agrees to indemnify and
--------
hold Parent and employees of Parent harmless from and against any and all Losses
incurred by any of them as a result of (i) the failure of any representation or
warranty made by Buyer in this Agreement to be true and correct as of the Escrow
Closing Date or (ii) the breach by Buyer of any of its covenants or agreements
set forth in this Agreement.
Section 9.3 Determination of Losses. All Losses hereunder shall be
------------------------
determined net of any (i) Third Party Awards (as defined in this paragraph) and
(ii) Tax Benefits (as defined in this paragraph). As used herein, "Third Party
-----------
Awards" shall mean any actual recoveries from third parties by the party seeking
- ------
indemnification hereunder (the "Indemnified Party") (including, without
-----------------
limitation, from insurance and third party indemnifications) in connection with
the claim for which such party is also potentially liable. As used herein, "Tax
---
Benefits" shall mean the present value of any permanent tax related loss,
- --------
deduction or credits which Parent's regular auditors determine, in their sole
judgment, is proper or allowable under applicable law (computed after taking
into account any indemnification payment made, including taxes thereon) in
connection with a claim for which the Indemnified Party is potentially liable.
Section 9.4 Indemnification Procedures.
---------------------------
(a) Certificate. As soon as practicable after the incurrence of a Loss or
-----------
Losses by an Indemnified Party, including, without limitation, any claim by a
third party described in Section 9.4(c) hereof, which might give rise to
indemnification hereunder, the Indemnified Party shall deliver to the
Indemnifying Party a certificate (the "Certificate"), which Certificate shall:
-----------
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(i) state that the Indemnified Party has paid or properly accrued
Losses, or anticipates that it will incur liability for Losses; and
(ii) specify in reasonable detail each individual item of Loss
included in the amount so stated, the date such item was paid or properly
accrued, the basis for any anticipated liability and the nature of the
misrepresentation, breach of warranty or breach of covenant or claim to
which each such item is related and the computation of the amount to which
such Indemnified Party claims to be entitled hereunder.
(b) Denial of Obligations to Indemnify. In case the Indemnifying Party
----------------------------------
shall object to the indemnification of an Indemnified Party in respect of any
claim or claims specified in any Certificate, the Indemnifying Party shall,
within 30 days after receipt by the Indemnifying Party of such Certificate,
deliver to the Indemnified Party a written notice to such effect. The
Indemnifying Party and the Indemnified Party shall, within the 30-day period
beginning on the date of receipt by the Indemnified Party of such written
objection, attempt in good faith to agree upon the rights of the respective
parties with respect to each of such claims to which the Indemnifying Party
shall have so objected. If the Indemnified Party and the Indemnifying Party
succeed in reaching agreement on their respective rights with respect to any
such claims, the Indemnified Party and the Indemnifying Party shall promptly
prepare and sign a memorandum setting forth such agreement. Should the
Indemnified Party and the Indemnifying Party be unable to agree as to any
particular item or items or amount or amounts, then the Indemnified Party and
the Indemnifying Party shall immediately submit such dispute to a court of
competent jurisdiction.
(c) Third Party Claims. As soon as practicable after receipt by an
------------------
Indemnified Party of notice of any claim or the commencement of any action by
any third party, the Indemnified Party shall, if a claim in respect thereof is
to be made by it under this Article IX, notify the Indemnifying Party in writing
of the claim or the commencement of that action. If any such claim or action
shall be brought against an Indemnified Party, and it shall notify the
Indemnifying Party thereof, the Indemnifying Party shall be entitled to
participate therein, and, to the extent that it wishes, to assume the defense
thereof with counsel reasonably satisfactory to the Indemnified Party. After
notice from the Indemnifying Party to the Indemnified Party of its election to
assume the defense of such claim or action, the Indemnifying Party shall not be
liable to the Indemnified Party under this Article IX for any legal or other
expenses subsequently incurred by the Indemnified Party in connection with the
defense thereof other than reasonable costs of investigation; provided, however,
-------- -------
any Indemnified Party shall have the right to employ separate counsel in any
such claim or action and to participate in the defense thereof but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party
unless (i) the employment thereof has been specifically authorized by the
Indemnifying Party in writing, (ii) such Indemnified Party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
Indemnifying Party and in the reasonable judgment of such counsel it is
advisable for such Indemnified Party to employ separate counsel or (iii) the
Indemnifying Party has failed to assume the defense of such claim or action and
employ counsel reasonably satisfactory to the Indemnified Party, in which case,
if such Indemnified Party notifies the Indemnifying Party in writing that it
elects to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense of such claim
or action on
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behalf of such Indemnified Party, it being understood, however, that the
Indemnifying Party shall not, in connection with any one such claim or action or
separate but substantially similar or related claims or actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for all such Indemnified Parties, which firm shall be
designated in writing by such Indemnified Parties. Each Indemnified Party, as a
condition of the indemnity agreements contained herein, shall use its best
efforts to cooperate with the Indemnifying Party in the defense of any such
claim or action. The Indemnifying Party shall not be liable for any settlement
of any such claim or action effected without its written consent (which consent
shall not be unreasonably withheld), but if settled with its written consent or
if there be a final judgment or arbitration in favor of the plaintiff in any
such claim or action, the Indemnifying Party agrees to indemnify and hold
harmless any Indemnified Party from and against any loss or liability by reason
of such settlement or judgment or arbitration.
(d) Agreed Claims. Claims for Losses specified in any Certificate to which
-------------
an Indemnifying Party shall not object in writing within thirty (30) days of
receipt of such Certificate, claims for Losses covered by a memorandum of
agreement of the nature described in Section 9.4(b) hereof, claims for Losses
the validity and amount of which have been the subject of final judicial
determination or settlement as contemplated by Section 9.4(b) and/or Section
9.4(c) hereof are hereinafter referred to, collectively as "Agreed Claims".
-------------
Within ten (10) days of the determination of the amount of any Agreed Claims for
which Buyer is entitled to indemnification hereunder, (i) Parent shall pay Buyer
an amount equal to the Agreed Claim by wire transfer in immediately available
funds to the bank account or accounts designated in writing by Buyer not less
than two days prior to such payment, or (ii) if Parent fails to make such
payment, or if otherwise directed to do so by Parent, Buyer shall take an amount
equal to the Agreed Claim out of the Cash Holdback Fund. Within ten (10) days
of the determination of the amount of any Agreed Claims for which Parent is
entitled to indemnification hereunder, Buyer shall pay Parent an amount equal to
the Agreed Claim by wire transfer in immediately available funds to the bank
account or accounts designated in writing by Parent not less than two days prior
to such payment.
(e) Subrogation of Indemnifying Party. If the Indemnified Party receives
---------------------------------
payment or other indemnification from an Indemnifying Party hereunder, the
Indemnifying Party shall be subrogated to the extent of such payment or
indemnification to all rights in respect of the subject matter of such claim to
which the Indemnified Party may be entitled, to institute appropriate action for
the recovery thereof, and the Indemnified Party agrees reasonably to assist and
cooperate with the Indemnifying Party at no expense to the Indemnified Party in
enforcing such rights.
Section 9.5 Limitations on Indemnification.
-------------------------------
(a) No amount shall be payable in indemnification under this Article IX
unless the aggregate amount of claims for which the Indemnified Party is
entitled to indemnification exceeds One Hundred Thousand Dollars ($100,000) (the
"Minimum Amount"); provided, however, the Minimum Amount shall not apply to any
--------------
Claim based on fraud; and provided, further, on the nine-month anniversary of
the Final Closing, the Minimum Amount shall be increased to One Million Dollars
($1,000,000). In the event that the claims exceed the
32
Minimum Amount, the Indemnified Party shall be entitled to seek indemnifications
only for the aggregate amount of the claims which exceed the Minimum Amount.
(b) In the absence of fraud, no Indemnifying Party's liability under this
Article IX shall exceed in the aggregate Five Million Dollars ($5,000,000) (the
"Indemnification Cap").
-------------------
(c) Buyer agrees that, after Parent has obtained, or Buyer has obtained
pursuant to Section 9.6(iii), the Representation and Warranties Insurance (as
defined below), and after Buyer has recovered from Parent in Agreed Claims an
amount equal to One Million Dollars ($1,000,000) less the Minimum Amount, Buyer
shall only seek recovery from the insurer under the Representation and
Warranties Insurance.
Section 9.6 Representations and Warranties Insurance. Parent, at its sole
-----------------------------------------
expense, shall obtain and pay for representations and warranties liability
insurance ("Representation and Warranties Insurance") providing liability
coverage to Buyer of $7,500,000, with a $1,000,000 deductible, for any breach of
any representation of warranty made by the Selling Entities in this Agreement;
provided, however, (i) Parent shall not be required to expend more than $425,000
to obtain such Representations and Warranties Insurance; (ii) if $7,500,000 of
coverage is not reasonably obtainable for $425,000, Parent's obligation under
this Section 9.6 shall be to obtain only that amount of coverage which can be
reasonably obtained for $425,000; (iii) if Parent cannot obtain such Insurance
on terms reasonably acceptable to it, Parent shall reimburse Buyer for Buyer's
costs, up to $425,000, in obtaining such Representations and Warranties
Insurance, provided Buyer agrees to use reasonable efforts to get the best terms
available at that time; and (iv) if neither Parent nor Buyer obtain
Representations and Warranties Insurance, then the Indemnification Cap shall be
reduced to Two Million Dollars ($2,000,000) on the second anniversary of the
Final Closing Date.
Section 9.7 Tax Treatment of Indemnity Payments. The parties agree to
------------------------------------
treat any indemnity payment made pursuant to this Article IX as an adjustment to
the aggregate purchase price for federal, state, local and foreign income tax
purposes.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Expenses. All costs and expenses incurred in connection with
---------
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such costs and expenses.
Section 10.2 Notices. All notices and other communications hereunder shall
--------
be in writing and shall either be delivered personally, telecopied (with
confirmation), mailed by registered or certified mail (return receipt requested)
or delivered by an express courier (with confirmation) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
33
(a) If to Buyer to:
Prosofttraining.com
3001 Bee Caves Rd., Suite 100
Austin, Texas 78746
Fax: (512) 328-5239
Attention: Jerrell M. Baird
Chief Executive Officer
With a copy to:
Hewitt & McGuire, LLP
19900 MacArthur Blvd., Suite 1050
Irvine, CA 92612
Attention: William L. Twomey, Esq.
Fax: (949) 798-0511
(b) If to the Parent to:
Drake Personnel Limited
c/o Harry B. Sands & Co.
50 Shirley Street
Nassau, Bahamas
Fax: (___) ____-_______
Attention:
With a copy to:
Hodgson, Russ, Andrews, Woods & Goodyear, LLP
One M&T Plaza
Suite 2000
Buffalo, NY 14203
Attention: Ward Hinkle, Esq.
David M. Stark, Esq.
Fax: (716) 849-0349
Notices shall be deemed received upon the earliest of actual receipt, confirmed
facsimile or three (3) days following mailing pursuant to this Section.
Section 10.3 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
(WITHOUT REFERENCE TO CONFLICT OF LAW PRINCIPLES).
Section 10.4 Attorneys' Fees. In the event any action in law or equity,
----------------
arbitration or other proceeding is brought for the enforcement of this Agreement
or in connection with any of the provisions of this Agreement, the prevailing
party or parties shall be entitled to its attorneys' fees and other costs
reasonably incurred in such action or proceeding.
34
Section 10.5 Severability. If any term or other provision of this
-------------
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in a mutually acceptable
manner to the fullest extent permitted by applicable law in order that the
transactions contemplated hereby may be consummated as originally contemplated
to the fullest extent possible.
Section 10.6 Assignment; Binding Effect; Benefit. Neither this Agreement
------------------------------------
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties hereto. Subject to the preceding
sentence, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
Notwithstanding anything contained in this Agreement to the contrary, nothing in
this Agreement, expressed or implied, is intended to confer on any person other
than the parties hereto or their respective successors and permitted assigns any
rights or remedies under or by reason of this Agreement.
Section 10.7 Headings. The descriptive headings contained in this
---------
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
Section 10.8 Entire Agreement. This Agreement (including the Exhibits,
-----------------
Schedules, the Buyer Disclosure Schedule and the Sellers Disclosure Schedule)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings among the
parties with respect thereto. No addition to or modification of any provision
of this Agreement shall be binding upon any party hereto unless made in writing
and signed by all parties hereto.
Section 10.9 Arbitration.
------------
(i) Any dispute, controversy or claim arising out of, relating to
or in connection with this Agreement, including, without limitation, any
dispute regarding its validity or termination or the performance or breach
thereof, shall be finally settled by arbitration administrated by the
American Arbitration Association (the "AAA"). The arbitration shall be
conducted in accordance with the Commercial Arbitration Rules of the AAA,
in effect at the time of the arbitration, except as they may be modified
herein or by agreement of the parties to the arbitration.
(ii) The place of arbitration shall be Austin, Texas and the law of
New York shall be applied.
(iii) The arbitration shall be conducted by three arbitrators.
Each party shall appoint an arbitrator and the two arbitrators shall
appoint the third arbitrator.
35
(iv) The award rendered by the arbitrators shall be final and
binding on the parties to the arbitration. Judgment on the award may be
entered in any court of competent jurisdiction.
(v) To initiate arbitration, a party shall send a notice demanding
arbitration to the other party in the manner specified in Section 10.2.
(vi) The arbitrators must reach a decision within one hundred
twenty (120) days after the appointment of the third arbitrator.
(vii) Any two of the arbitrators are empowered at any time to: (i)
dismiss any dispute, controversy or claim submitted for arbitration; (ii)
issue injunctions against any party; (iii) issue sanctions against any
party; (iv) compel disclosure of documents or submissions of
interrogatories or depositions; and (v) determine the relevance or
pertinence of any document or person to the dispute, controversy, or claim
submitted for arbitration.
(viii) Each party shall pay its own attorney fees and costs of
arbitration, the fees and expenses of the arbitrator it selects and one-
half of the fees and expenses of the third arbitrator and one-half of the
fee and expenses of the AAA.
(ix) In no event shall either party be liable to the other party
for special, incidental or consequential damages, including without
limitation, lost profits.
Section 10.10 Counterparts; Facsimile Signatures. This Agreement may be
-----------------------------------
executed in two or more counterparts, and by the different parties hereto in
separate counterparts, each of which when executed shall be deemed to be an
original but all of which taken together shall constitute one and the same
agreement. This Agreement may be executed by the parties delivering facsimile
copies of executed signature pages and the same shall be fully effective to
cause this Agreement to be fully binding and enforceable in accordance with its
terms. Without limiting the effectiveness of this Agreement upon its execution
by facsimile signature pages, each of the parties hereto agrees to deliver to
each other executed originals of this Agreement within three (3) business days
after transmission of such facsimile signature pages.
Section 10.11 Disclosure Schedules. Any fact or item disclosed in either
---------------------
Sellers Disclosure Schedule or Buyer Disclosure Schedule with respect to a
particular representation or warranty shall also be deemed to be disclosed with
respect to any other representation and warranty provided that the relevance of
such fact or item to such other representation and warranty shall be reasonably
evident from such disclosure.
[Remainder of this page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their respective officers thereunto duly
authorized, all as of the date first written above.
"BUYER"
PROSOFTTRAINING.COM, a Nevada corporation
By:_______________________________________
Name:_____________________________________
Title:____________________________________
"PARENT"
DRAKE PERSONNEL (NEW ZEALAND) LIMITED, a
corporation organized under the laws of
the Bahamas
By:_______________________________________
Name:_____________________________________
Title:____________________________________
"COMPUTERPREP"
COMPUTERPREP, INC., a Delaware corporation
By:_______________________________________
Name:_____________________________________
Title:____________________________________
EXHIBITS AND SCHEDULES
- ----------------------
Exhibit A Form of Warrant
Exhibit B Escrow Agreement (Cash Escrow)
Exhibit C Escrow Agreement (Stock Escrow)
Exhibit D Form of Incentive Warrant
Exhibit E-1 Standard Reseller Agreement
Exhibit E-2 Training Provider Agreement
Exhibit F Registration Rights Agreement
Exhibit G Pixion License Agreement
Exhibit H Closing Escrow Agreement
Exhibit I Form of Opinion of counsel to Selling Entities
Exhibit J Form of Opinion of counsel to Buyer
Exhibit K Form of Opinion of Harry B. Sands & Co.
Exhibit L Management Agreement
Schedule 1.7 Participating Drake Subsidiaries for Computing Incremental Revenue
Schedule 5.7 ComputerPrep Customers
Schedule 5.11 Drake Contracts to be Extended