ASSET PURCHASE AGREEMENT

 

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                                                                     EXHIBIT 2.1

 

                            ASSET PURCHASE AGREEMENT

 

                                  BY AND AMONG

 

                       HAIGHTS CROSS COMMUNICATIONS, INC.

                                     AS "HCCI"

 

                         HAIGHTS CROSS OPERATING COMPANY

                                    AS "HCOC"

 

                              TRIUMPH LEARNING, LLC

                                   AS "BUYER"

 

                                        AND

 

                         BUCKLE DOWN PUBLISHING COMPANY

                                   AS "SELLER"

 

                              PROFILES CORPORATION

                                AS "STOCKHOLDER"

 

                                        AND

 

                                  DOUGLAS PAUL

                                  AS "FOUNDER"

 

                            DATED AS OF MARCH 6, 2004

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                            ASSET PURCHASE AGREEMENT

 

                                 TABLE OF CONTENTS

 

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SECTION 1 -   PURCHASE AND SALE OF ASSETS..........................................................................1

         1.1   Sale of Assets......................................................................................1

         1.2   Excluded Assets.....................................................................................3

         1.3   Assumption of Liabilities...........................................................................4

         1.4   Excluded Liabilities................................................................................4

         1.5   Deposit.............................................................................................5

         1.6   Calculation of Estimated Closing Adjustments........................................................6

         1.7   Purchase Price and Payment..........................................................................7

         1.8   Time and Place of Closing...........................................................................8

         1.9   Post-Closing Adjustments............................................................................8

         1.10   Further Assurances................................................................................11

         1.11   Allocation of Purchase Price......................................................................11

          1.12   Transfer Expenses, Costs and Taxes................................................................11

         1.13   Use of Name.......................................................................................11

         1.14   Customer and Marketing Research...................................................................12

         1.15   Delivery of Records and Contracts.................................................................13

 

SECTION 2 -   REPRESENTATIONS AND WARRANTIES OF SELLER, STOCKHOLDER AND FOUNDER...................................13

         2.1   Making of Representations and Warranties...........................................................13

         2.2   Organization.......................................................................................13

         2.3   Subsidiaries.......................................................................................14

         2.4   Capital Stock of Seller; Beneficial Ownership......................................................14

         2.5   Authority of Seller................................................................................14

         2.6   Leased Property; Liens; Condition of Properties....................................................15

          2.7   Financial Statements...............................................................................16

         2.8   Taxes..............................................................................................17

         2.9   Accounts Receivable; Accounts Payable; Inventory...................................................18

         2.10   Absence of Undisclosed Liabilities................................................................19

         2.11   Absence of Certain Developments...................................................................19

         2.12   Intellectual Property.............................................................................20

         2.13   Certain Contracts and Arrangements................................................................21

         2.14   Litigation........................................................................................22

         2.15   Compliance with Laws..............................................................................22

         2.16   Insurance Coverage................................................................................23

         2.17   Approvals.........................................................................................23

         2.18   Employee Benefit Programs; ERISA..................................................................23

         2.19   Environmental Matters.............................................................................24

         2.20   Employees; Labor Matters..........................................................................25

         2.21   Customers and Distributors........................................................................25

</TABLE>

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         2.22   Suppliers.........................................................................................26

         2.23   Certain Payments..................................................................................26

         2.24   Transactions with Affiliates......................................................................26

         2.25   No Brokers or Finders.............................................................................26

         2.26   Disclosures.......................................................................................26

         2.27   Investment Representation.........................................................................27

 

SECTION 3 -   REPRESENTATIONS AND WARRANTIES OF FOUNDER...........................................................27

         3.1   Making of Representations and Warranties...........................................................27

         3.2   Authority of Founder...............................................................................27

         3.3   Beneficial Ownership...............................................................................28

         3.4   Certain Agreements.................................................................................28

         3.5   No Brokers or Finders..............................................................................28

 

SECTION 4 -   REPRESENTATIONS AND WARRANTIES OF BUYER, HCOC AND HCCI..............................................28

         4.1   Making of Representations and Warranties...........................................................28

         4.2   Organization.......................................................................................28

         4.3   Authority..........................................................................................29

         4.4   No Brokers or Finders..............................................................................29

         4.5   Shares.............................................................................................29

         4.6   SEC Filings; HCCI Financial Statements.............................................................30

         4.7   Capitalization.....................................................................................30

         4.8   Litigation.........................................................................................30

 

SECTION 5 -   INTERIM COVENANTS OF SELLER, STOCKHOLDER AND FOUNDER................................................31

         5.1   Conduct of Business................................................................................31

         5.2   Access to Books and Records; Access to Employees...................................................31

         5.3   Notice of Default..................................................................................31

         5.4   Consummation of Agreement; Consents................................................................32

         5.5   Financial Information..............................................................................32

         5.6   Leased Real Property...............................................................................32

         5.7   Cooperation of Seller..............................................................................33

         5.8   No Solicitation of Other Offers....................................................................33

         5.9   Confidentiality....................................................................................33

         5.10   Relationship with ZAPS Learning Company...........................................................34

 

SECTION 6 -   INTERIM COVENANTS OF BUYER, HCOC AND HCCI...........................................................34

         6.1   Access to Information and Management...............................................................34

         6.2   Notice of Default..................................................................................34

         6.3   Consummation of Agreement..........................................................................35

         6.4   Confidentiality....................................................................................35

 

SECTION 7 -   CLOSING CONDITIONS..................................................................................35

         7.1   Conditions to the Obligations of Buyer, HCOC and HCCI..............................................35

         7.2   Conditions to Obligations of Seller................................................................39

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                                       ii

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<S>       <C>                                                                                                       <C>

SECTION 8 -   INDEMNIFICATION.....................................................................................41

         8.1   Survival of Representations and Warranties.........................................................41

         8.2   Indemnification by Seller, Stockholder and Founder.................................................42

         8.3   Notice and Opportunity to Defend...................................................................42

         8.4   Cooperation........................................................................................43

         8.5   Indemnification Limits.............................................................................43

         8.6   Payment of Claims..................................................................................44

 

SECTION 9 -   TERMINATION.........................................................................................45

         9.1   Termination........................................................................................45

         9.2   Effect of Termination..............................................................................45

         9.3   Right to Proceed...................................................................................46

         9.4   Buyer Right to Specific Performance................................................................46

         9.5   Waiver.............................................................................................46

 

SECTION 10 -   POST-CLOSING RIGHTS AND OBLIGATIONS................................................................47

         10.1   Collection of Assets..............................................................................47

         10.2   Payment of Obligations............................................................................47

         10.3   Assumed Liabilities...............................................................................47

         10.4   Adjustment of Operating Expenses..................................................................47

         10.5   Non-competition by Seller, Stockholder and Founder................................................48

         10.6   Employees.........................................................................................49

         10.7   Stock Restrictions................................................................................49

         10.8   Transition Period Relating to ZAPS Inventory......................................................51

 

SECTION 11 -   DEFINITIONS........................................................................................52

         11.1   Certain Definitions...............................................................................52

 

SECTION 12 -   MISCELLANEOUS......................................................................................53

         12.1   Fees and Expenses.................................................................................53

          12.2   Governing Law; Jurisdiction; Venue; Jury Waiver...................................................53

         12.3   Notices...........................................................................................54

         12.4   Entire Agreement..................................................................................55

         12.5   Assignability; Binding Effect.....................................................................55

         12.6   Captions and Gender...............................................................................55

         12.7   Execution in Counterparts.........................................................................56

         12.8   Amendments........................................................................................56

         12.9   Publicity and Disclosures.........................................................................56

         12.10   Bulk Sales Law...................................................................................56

</TABLE>

 

 

                                      iii

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                                    EXHIBITS

 

Exhibit A          Form of Deposit Escrow Agreement

Exhibit B          Terms of Series C Preferred Stock

Exhibit C          Form of Indemnification Escrow Agreement

Exhibit D          Form of Bill of Sale and Assignment of Contracts and Leases

Exhibit E          Form of Consulting Agreement

Exhibit F          Form of Non-Solicit/Confidentiality Agreements

Exhibit G          Form of Seller Legal Opinion

Exhibit H          Form of Agreement of Assumption of Liabilities

Exhibit I          Form of Buyer Legal Opinion

 

 

                                       iv

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                                    SCHEDULES

 

Schedule 1.1(a)              Accounts Receivable

Schedule 1.1(b)              Personal Property

Schedule 1.1(d)              Acquired Contracts

Schedule 1.1(k)              Computer Equipment, Software and Licenses

Schedule 1.2                 Excluded Assets

Schedule 1.11(a)             Pro Forma Allocation

Schedule 2.2                 Foreign Jurisdictions

Schedule 2.5(a)              Required Actions

Schedule 2.5(b)              Defaults; Required Consents

Schedule 2.6(b)              Leased Real Property

Schedule 2.6(c)              Certain Matters Concerning the Leased Real Property

Schedule 2.6(e)              Claims on Purchased Assets

Schedule 2.7(a)              Financial Statements

Schedule 2.8(b)              Sales Tax Jurisdictions

Schedule 2.8(e)              Tax Authority Inquiries

Schedule 2.8(h)              Audits

Schedule 2.8(i)              Tax Sharing Agreements

Schedule 2.8(j)              Certain Tax Liabilities

Schedule 2.9(a)              Accounts Receivable from Affiliates

Schedule 2.9(b)              Accounts Payable

Schedule 2.10                 Certain Liabilities

Schedule 2.11                Certain Developments Since December 31, 2002

Schedule 2.12(a)             Seller Patents, Seller Marks and Seller Copyrights

Schedule 2.12(b)             Third-Party Software Used in the Business

Schedule 2.13                Certain Contracts

Schedule 2.14                Litigation, Proceedings and Investigations

Schedule 2.15                Required Regulatory Permits;   Legal Compliance

Schedule 2.16                Insurance Matters

Schedule 2.17                 Required Approvals

Schedule 2.18                Employee Benefit Programs

Schedule 2.19                Environmental Matters

Schedule 2.20(a)             List of Employees

Schedule 2.20(b)             Employment Matters

Schedule 2.21                List of Customers, Distributors and Partners

Schedule 2.22                List of Suppliers

Schedule 2.24                Affiliated Transactions

Schedule 3.2(b)              Defaults; Required Consents

Schedule 3.4                 Certain Agreements

Schedule 4.3                  Defaults; Required Consents

Schedule 4.4                 Brokers and Finders

Schedule 7.1(g)(vii)         Employees Who Will Sign Employee Agreements

 

 

                                       v

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                            ASSET PURCHASE AGREEMENT

 

      This ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered into

as of March 6, 2004 by and among Haights Cross Communications, Inc., a Delaware

corporation ("HCCI"), Haights Cross Operating Company, a Delaware corporation

and a wholly owned subsidiary of HCCI ("HCOC"), Triumph Learning, LLC, a

Delaware limited liability company and a wholly owned subsidiary of HCOC

("Buyer"), Profiles Corporation, an Iowa corporation ("Stockholder"), Buckle

Down Publishing Company, an Iowa corporation and a wholly owned subsidiary of

Stockholder ("Seller"), and Douglas Paul, the sole stockholder of Stockholder

("Founder"). Capitalized terms used herein and not defined where used shall have

the meanings given them in Section 11.

 

                                W I T N E S S E T H

 

      WHEREAS, subject to the terms and conditions hereof, Seller, Stockholder

and Founder desire to sell substantially all of Seller's properties and assets

to Buyer; and

 

      WHEREAS, subject to the terms and conditions hereof, Buyer desires to

purchase such properties and assets of Seller for the consideration specified

herein and the assumption by Buyer of certain liabilities and obligations of

Seller;

 

      NOW, THEREFORE, in order to consummate such purchase and sale and in

consideration of the mutual agreements set forth herein, the parties hereto

agree as follows:

 

                     SECTION 1 - PURCHASE AND SALE OF ASSETS

 

      1.1 SALE OF ASSETS. Subject to the provisions of this Agreement, Seller

agrees to sell, assign, transfer and deliver to Buyer and Buyer agrees to

purchase from Seller, at the Closing (as defined below), all legal and

beneficial right, title and interest of Seller in and to all of the assets and

properties of every kind used in or relating to the conduct of operating and

administering the business of Seller or otherwise owned or used by Seller, other

than the Excluded Assets (such assets and properties collectively, the

"Purchased Assets"), in each case free and clear of any and all mortgages,

liens, pledges, security interests, charges, encumbrances, claims, easements,

rights of way, covenants, conditions or restrictions or any other adverse

claims, rights or encumbrances of any kind or nature whatsoever ("Claims"). The

Purchased Assets shall include, without limitation, the following:

 

                  (a) Accounts Receivable. All of Seller's accounts receivable,

      including, without limitation, those listed on Schedule 1.1(a) hereto (the

      "Accounts Receivable");

 

                  (b) Equipment and Other Tangible Personal Property. All of

      Seller's office supplies, machinery, office equipment, furniture,

      furnishings, fixtures, tools,

<PAGE>

      instruments and other tangible personal property (collectively, the

      "Personal Property"), including, without limitation, the Personal Property

      listed on Schedule 1.1(b) hereto;

 

                  (c) Leased Real Property. The leasehold interest of Seller

      with respect to the office and warehouse location of Seller located at

      2308 Heinz Road, Iowa City, Iowa (the "Office Lease");

 

                  (d) Contracts. Seller's contracts (including, without

      limitation, author contracts and licenses), agreements, leases,

      commitments, claims and rights, all as listed on Schedule 1.1(d) hereto

      (the "Acquired Contracts");

 

                  (e) Inventory. All of Seller's inventory, wherever located and

      whether in the possession of Seller or any customer or potential customer

      or any supplier;

 

                   (f) Prepaids; Credits; Deposits. All prepaid expenses,

      deposits and similar items;

 

                  (g) Third Party Claims and Rights. All rights and claims

      against third parties, including without limitation, all rights under

      express or implied warranties from suppliers;

 

                  (h) Customers and Customer Lists. All of Seller's past and

      present lists of customers, lists of prospective customers, mailing lists,

      pending new business, and customer files and records and, to the extent

      transferable and assignable, any rights to prospect lists used by Seller

      that are owned by third parties;

 

                  (i) Marketing and Editorial Materials. All advertising,

      editorial, marketing, promotional and ancillary materials and sources,

      information pertaining to planned products or services (if any) and all

      rights related thereto, including, without limitation, any and all films,

      negatives and electronic files of books and publications;

 

                  (j) Permits and Licenses. All of Seller's Approvals (as

      defined in Section 2.17 below) which are assignable or otherwise

      transferable, together with, if any, all rights of renewal and amenities

      thereto;

 

                   (k) Computer Equipment and Software. All computer equipment

      and computer software, including source code, whether completed or under

      development, and software licenses, including, without limitation, those

      listed on Schedule 1.1(k) hereto;

 

                  (l) Record Books. Seller's general ledger, and copies of

      Seller's invoices, sales records, tax returns and other material business

      records of Seller for all periods since January 1, 1998, including

      financial statements, general ledgers, material repair and maintenance

      records, material correspondence related to the operation of Seller's

      business, Seller's Tax Returns, including material declarations, reports

      or statements, and correspondence and materials related to Seller's state

      sales Tax Returns;

 

 

                                       2

<PAGE>

                  (m) Other Intellectual Property. All right, title and interest

      in and to all Seller Intellectual Property Assets (as defined herein)

      (including, without limitation, exclusive rights to use "Buckle Down

      Publishing" or any variants of any of the foregoing) and all goodwill

      related thereto, and all other intangible assets and goodwill and other

       intangibles;

 

                  (n) Personnel Records. All of Seller's personnel files and

      records with respect to employees of Seller who become employees of Buyer

      following the Closing; and

 

                  (o) Other Assets. All other assets of Seller that are used or

      usable in Seller's business.

 

      1.2 EXCLUDED ASSETS. Notwithstanding Section 1.1 to the contrary, Seller

is not selling, and Buyer is not purchasing, any of the following assets owned

by Seller, all of which shall be retained by Seller and shall not constitute

Purchased Assets (the "Excluded Assets"):

 

                  (a) Seller Cash. All cash and cash equivalents of Seller as of

      the Closing;

 

                  (b) Rights Under this Agreement. The rights which accrue or

      will accrue to Seller under this Agreement;

 

                  (c) Record Books. Seller's stock record books, record books

      containing minutes of meetings of directors and stockholders and such

      other records as have to do exclusively with Seller's organization or

      capitalization (collectively, the "Corporate Records"), as well as a copy

      of Seller's general ledger and originals of Seller's invoices, sales

      records, tax returns and other material business records of Seller for all

      periods since January 1, 1998, copies of which are to be provided to Buyer

      under Section 1.1(l) above;

 

                  (d) Leased Assets. Any assets used by Seller which are owned

      by third party vendors, all of which are leased under Acquired Contracts

      listed on Schedule 1.1(d) or otherwise listed as an Excluded Asset on

      Schedule 1.2;

 

                  (e) Third Party Claims and Rights. All rights and claims

      against third parties relating to the Excluded Assets or the Excluded

      Liabilities (as defined below); and

 

                  (f) Excluded Property. All of the assets and properties used

      by Seller in its business that are not being sold, assigned, transferred

      and delivered to Buyer hereunder, as listed on Schedule 1.2 hereto.

 

 

                                       3

<PAGE>

      1.3 ASSUMPTION OF LIABILITIES. Subject to Section 1.4, upon the sale and

purchase of the Purchased Assets, Buyer shall assume and agree to pay or

discharge when due or perform in accordance with their respective terms only the

following liabilities of Seller and no other liabilities (collectively, the

"Assumed Liabilities"):

 

                  (a) Current Liabilities. All of the liabilities or obligations

       for trade accounts payable, accrued expenses and other current liabilities

      which have been incurred by Seller in the ordinary course of business in

      accordance with the terms of this Agreement as of the Closing Date and

      which are listed on the Preliminary Closing Statement (as defined below)

      or the Final Closing Statement (collectively, the "Current Liabilities");

      and

 

                  (b) Liabilities Under Acquired Contracts. All of the

      liabilities or obligations for payment or performance arising after the

      Closing under the Acquired Contracts.

 

      The assumption of the Assumed Liabilities by Buyer shall not enlarge any

rights of third parties under contracts or arrangements with Buyer or Seller and

nothing herein shall prevent any party from contesting in good faith with any

third party any of such Assumed Liabilities.

 

      1.4 EXCLUDED LIABILITIES. Except for the Assumed Liabilities, Buyer shall

not assume or be bound by, and Seller shall retain, pay and discharge, all

obligations or liabilities of Seller of any kind or nature, known or unknown,

accrued, absolute, contingent or otherwise, whatsoever (the "Excluded

Liabilities"), which Excluded Liabilities shall include, without limiting the

generality of the foregoing, all of the following:

 

                  (a) Liabilities Relating to this Agreement. Liabilities

      incurred by Seller in connection with this Agreement and the transactions

      provided for herein, including, without limitation, counsel and

      accountant's fees, and expenses pertaining to the performance by Seller of

      its obligations hereunder;

 

                  (b) Liabilities Relating to the Excluded Assets. Any

      liabilities and obligations relating to or arising out of the Excluded

      Assets;

 

                  (c) Contractual Liabilities. Any liabilities that arise prior

      to the Closing Date (as defined below) in connection with any breach of,

      or any penalty payments Seller is required to make in connection with the

      provisions of, any agreement to which it is a party, including with

      respect to any Acquired Contract;

 

                  (d) Tax Liabilities. Taxes of Seller, Stockholder or any of

      their respective Affiliates (whether relating to periods before or after

      the transactions contemplated in this Agreement or incurred by Seller in

      connection with this Agreement and the transactions provided for herein),

      including, without limitation, any liability for (i) corporate income or

      franchise Taxes of Seller, Stockholder or any of their respective

      Affiliates, (ii) payroll Taxes due in respect of the operation of the

      business of Seller prior

 

 

                                       4

<PAGE>

      to the Closing to the extent withheld or collected by Seller as of the

      Closing, (iii) state sales Taxes due in respect of the operation of the

      business of Seller prior to the Closing, and (iv) Taxes arising out of the

      inclusion of Seller, Stockholder or any of their respective Affiliates in

      any group filing consolidated, combined or unitary tax returns or arising

      out of any transferee liability;

 

                  (e) Debt Obligations. All obligations arising from the lending

      of money by any Person to Seller;

 

                  (f) Certain Accrued Expenses. All of the liabilities or

      obligations for accrued expenses of Seller relating to (i) amounts payable

      to any employees of Seller in respect of bonuses earned as of the Closing

      Date or any other non-recurring compensation plan of Seller, (ii) amounts

      due for discretionary matches for employee contributions under Seller's

      401(k) plan from January 1, 2004 through the Closing, which shall be

      funded by Seller prior to the Closing in accordance with the terms of such

      plan, (iii) any amounts payable to Stockholder or Founder, or (iv) any

      amounts payable to any related Person or Affiliate of Stockholder or

      Founder (other than compensation which is payable in the ordinary course

      of business to Affiliates of Stockholder or Founder for services performed

      for Seller pursuant to arrangements which are disclosed in the disclosure

      schedules hereto, and which amounts are included on the Preliminary

      Closing Statement); and

 

                  (g) Other Liabilities. Liabilities in connection with or

      relating to all actions, suits, claims, proceedings, demands, assessments

      and judgments, costs, losses, liabilities, damages, deficiencies and

      expenses (whether or not arising out of third-party claims), including,

      without limitation, interest, penalties, reasonable attorneys' and

      accountants' fees and all amounts paid in investigation, defense or

      settlement of any of the foregoing, which Liabilities relate to (i) the

      use or ownership of the Purchased Assets or the operation of Seller's

      business prior to the Closing Date, (ii) any actions taken by Seller,

      Stockholder or Founder on or prior to the Closing Date, or (iii) any

      continuing business activities of Seller, Stockholder, Founder or any of

      their respective Affiliates following the Closing Date.

 

      1.5 DEPOSIT.

 

                  (a) Upon the execution and delivery of this Agreement, Buyer

      will deliver or cause to be delivered to Mellon Trust of New England, N.A.

      (the "Deposit Escrow Agent"), a cash deposit in the amount of One Hundred

      Thousand Dollars ($100,000) (the "Deposit"), which Deposit is being held

      by the Deposit Escrow Agent in accordance with the terms and conditions of

      the Deposit Escrow Agreement between Seller, Buyer and the Deposit Escrow

      Agent attached hereto as Exhibit A. Upon the execution and delivery of

      this Agreement, the Deposit Escrow Agent shall continue to hold the

      Deposit in accordance with the terms of the Deposit Escrow Agreement and

      this Agreement.

 

 

                                       5

<PAGE>

                  (b) Subject to the terms and conditions of the Deposit Escrow

      Agreement, the Deposit Escrow Agent shall deliver the Deposit, plus

      accrued interest thereon, to:

 

                        (i) Buyer if this Agreement is terminated by Buyer under

            Section 9.1(b) below;

 

                        (ii) Buyer if this Agreement is terminated by Buyer

            under Section 9.1(d) below due to the failure of the conditions to

            Closing set forth in Section 7.1(a) or Section 7.1(b) below;

 

                         (iii) Seller at the Closing; or

 

                        (iv) Subject to Section 9.2 hereof, Seller if this

            Agreement is terminated for any other reason.

 

      1.6 CALCULATION OF ESTIMATED CLOSING ADJUSTMENTS. No later than two (2)

business days prior to the Closing, Seller shall prepare and deliver to Buyer a

statement, subject to Buyer's reasonable approval (the "Preliminary Closing

Statement"), setting forth Seller's good faith estimate of Seller's Working

Capital (as defined below) as of the Closing Date ("Closing Working Capital").

The Cash Purchase Price (as defined in Section 1.7) shall be (i) increased on a

dollar-for-dollar basis by the amount by which Closing Working Capital is

greater than Target Working Capital (as defined below), or (ii) decreased on a

dollar-for-dollar basis by the amount by which Closing Working Capital is less

than Target Working Capital.

 

                  (a) For purposes of this Section 1.6, the following terms

      shall have the following meanings:

 

                        (i) "Working Capital" shall mean an amount equal to

            Seller's Current Assets less Seller's Current Liabilities (each as

            defined below), each as determined in accordance with generally

            accepted accounting principles ("GAAP") consistently applied;

            provided, that Working Capital shall not reflect any adjustments to

            Current Assets or Current Liabilities which have historically been

            treated as year-end adjustments only and not reflected in interim

            periods, the intent being that Working Capital shall be consistently

            calculated with historical financial statements for interim periods

            even if such interim periods may not reflect a 100% application of

            GAAP ("Year-End Adjustments");

 

                        (ii) "Current Assets" shall mean Net Accounts Receivable

            (as defined below), Net Inventory (as defined below), prepaid

            expenses and other current assets used in the operation of Seller's

            business (but excluding cash and cash equivalents), all as specified

            on the Preliminary Closing Statement;

 

                        (iii) "Current Liabilities" shall mean the Current

             Liabilities specified in Section 1.3(a) above, all as specified on

            the Preliminary Closing Statement;

 

 

                                       6

<PAGE>

                        (iv) "Net Accounts Receivable" shall mean Seller's gross

             accounts receivable less any (A) reserve for returns, (B) reserve

            for bad debts, and (C) accounts receivable from Affiliates.

 

                        (v) "Net Inventory" shall mean Seller's gross inventory

            less (A) any reserve for obsolescense, and (B) any inventory

            consisting of ACT and SAT testing materials, which inventory shall

            be subject to Section 5.10 below.

 

                        (vi) "Target Working Capital" shall mean the average

            month-end Working Capital of Seller at March 31, 2003, March 31,

            2002 and March 31, 2001.

 

      1.7 PURCHASE PRICE AND PAYMENT. In consideration of the sale by Seller to

Buyer of the Purchased Assets, and upon the assumption by Buyer of the Assumed

Liabilities, Buyer, HCOC and/or HCCI will pay and/or issue and deliver, or cause

to be paid and/or issued and delivered, the following to Seller at the Closing:

 

                  (a) Buyer will pay to Seller at the Closing an amount in cash

      equal to (i) $24,000,000 (the "Cash Purchase Price"), plus (ii) an amount

      equal to the excess of the estimated Closing Working Capital over the

      Target Working Capital, if any, or minus an amount equal to the excess of

      Target Working Capital over the estimated Closing Working Capital, if any,

      as determined under Section 1.6 above, and minus (iii) the Deposit and

      accrued interest thereon (which shall be delivered to Seller by the

      Deposit Escrow Agent under Section 1.5 above) (collectively, the "Closing

      Cash Payment"), such Closing Cash Payment to be paid by wire transfer of

      immediately available funds to Seller to an account designated in writing

      by Seller at least two (2) business days prior to the Closing;

 

                   (b) HCCI will issue and deliver to Seller at the Closing 1,500

      shares of HCCI's Series C Preferred Stock, par value $.001 per share,

      which shall have an initial liquidation preference equal to $1,000 per

      share and have the other rights, preferences and privileges as set forth

      in Exhibit B attached hereto (the "Series C Preferred Stock"); and

 

                  (c) HCCI will issue in the name of Seller at Closing an

      additional 2,000 shares of the Series C Preferred Stock (such shares,

      together with any shares into which such Escrow Shares may be converted

      during the escrow period, the "Escrow Shares"), which Escrow Shares will

      be delivered to, and held by, Mellon Trust of New England, N.A., as escrow

      agent ("Indemnification Escrow Agent"), to secure the indemnification

      obligations of Seller under Section 8 hereof. Indemnification Escrow Agent

      shall hold the Escrow Shares (or, as provided in the Indemnification

      Escrow Agreement, any proceeds received upon the sale of any such Escrow

      Shares) for a period of two years following the Closing Date in accordance

      with the terms and conditions of the Indemnification Escrow Agreement

      between Seller, Buyer, HCOC, HCCI and the Indemnification Escrow Agent, in

      the form attached hereto as Exhibit C, which shall be

 

 

                                       7

<PAGE>

      executed as of the Closing Date. At any time, Seller may replace all of

      the Escrow Shares remaining in escrow at such time with cash or with cash

      equivalents of a type reasonably acceptable to Escrow Agent and HCCI, any

      such replacement to be effected strictly in accordance with the terms

      provided in the Indemnification Escrow Agreement.

 

      1.8 TIME AND PLACE OF CLOSING. The closing of the purchase and sale

provided for in this Agreement (herein called the "Closing") shall be held at

the offices of Meardon, Sueppel & Downer PLC, Iowa City, Iowa, at 10:00 a.m.,

Central time, on (a) March 31, 2004, or (b) if earlier, on a date fixed by

mutual agreement of Buyer and Seller following the satisfaction or waiver of

each of the conditions to the Closing set forth in Section 7, but in any event

within five (5) business days of such satisfaction or waiver (the "Closing

Date"); provided, however, that if any of the conditions set forth in Section

7.1 or Section 7.2 have not been satisfied or waived by or as of the Closing

Date, then the party hereto for whose benefit such conditions have been imposed

may postpone such Closing Date by written notice to the other parties hereto

specifying the condition(s) not so satisfied until April 30, 2004 or such other

date fixed by mutual agreement of Buyer and Seller which is at least five (5)

business days after such condition or conditions shall have been satisfied or

waived, which date shall then become the Closing Date.

 

      1.9 POST-CLOSING ADJUSTMENTS.

 

                  (a) Post-Closing Calculation of Closing Adjustments.

 

                         (i) Following the Closing, Buyer will prepare and

            deliver to Seller a final statement (the "Final Closing Statement")

            setting forth (A) the actual Closing Working Capital of Seller as of

            immediately prior to the Closing (without giving effect to the

            transactions contemplated hereby, but accounting for any changes in

            facts and circumstances after the Closing affecting the

            determination of Seller's assets and liabilities as of the Closing),

            (B) the amount, if any, by which the estimated Closing Working

            Capital adjusted for at the Closing differs from the actual Closing

            Working Capital as finally determined by Buyer (the "Reconciliation

            Amount"), and (C) the party to which the Reconciliation Amount

            should be paid. The actual Closing Working Capital shall be

            determined in accordance with GAAP consistently applied using the

            same principles and methods previously employed by Seller and

            approved by Buyer in determining the Target Working Capital and the

            estimated Closing Working Capital. It is understood and agreed that

            for purposes of determining Target Working Capital, estimated

            Closing Working Capital and actual Closing Working Capital, that

            Year-End Adjustments shall not be reflected, even in the event

            Seller's or Buyer's independent auditors determine that such

            adjustments would be mandatory in connection with the filing of

            interim period financial statements with the Securities and Exchange

            Commission (the "SEC"). Buyer shall cause the Final Closing

            Statement to be delivered to Seller as soon as practicable following

            the Closing, but not later than ninety (90) days thereafter. During

            such ninety-day period, Seller shall cooperate with and reasonably

            assist Buyer, and shall make available to Buyer the books, records,

            personnel and properties of Seller (if not in

 

 

                                       8

<PAGE>

            Buyer's possession) that Buyer reasonably requires in order to

            prepare and deliver the Final Closing Statement.

 

                        (ii) Seller shall have thirty (30) days following

            delivery of the Final Closing Statement (the "Objection Period") to

            provide written notice to Buyer (the "Objection Notice") of any good

            faith objection to any portion of such Final Closing Statement,

            which objection shall be set forth with reasonable detail in such

            Objection Notice. During the Objection Period, Seller and its

            accountants will be permitted to examine the work papers and all

            other materials used or generated by Buyer in connection with the

            preparation of such Final Closing Statement and such other documents

            as Seller may reasonably request in connection with its review of

            such Final Closing Statement.

 

                        (iii) Unless Seller timely delivers an Objection Notice

            before the expiration of the Objection Period with respect to the

            Final Closing Statement, the Final Closing Statement shall be deemed

            to have been accepted and approved by Seller and shall thereafter be

            final and binding upon Seller and Buyer for purposes of any

            post-Closing adjustment pursuant to this Section 1.9. In addition,

            to the extent any portion of the Final Closing Statement shall not

            be expressly objected to in the Objection Notice, such portion shall

            be deemed to have been accepted and approved by Seller and Buyer and

             shall be final and binding upon Seller and Buyer for purposes of any

            post-Closing adjustment pursuant to this Section 1.9. If Seller

            timely delivers an Objection Notice before the expiration of the

            Objection Period, then those aspects of the Final Closing Statement

            objected to in the Objection Notice shall not thereafter be final

            and binding until resolved in accordance with Section 1.9(b). If the

            Objection Notice would result in a change in the amount of the

            Reconciliation Amount to be paid, but otherwise would not change the

            identity of the party required to pay such Reconciliation Amount,

            then the portion of the Reconciliation Amount not in dispute shall

            be immediately paid as provided in Section 1.9(c) below, and the

            Objection Notice shall be deemed to apply only to that portion of

            the Reconciliation Amount remaining in dispute.

 

                  (b) Resolution of Objections.

 

                        (i) Following receipt of any Objection Notice, Seller

            and Buyer shall discuss in good faith the applicable objections set

            forth therein for a period of thirty (30) days from such receipt and

            shall, during such period, attempt to resolve the matter or matters

            in dispute by mutual written agreement. If the parties reach such an

            agreement, such agreement shall be confirmed in writing, the Final

             Closing Statement shall be revised to reflect such agreement, and

            such Final Closing Statement, as so revised, shall thereafter be

            final and binding upon Seller and Buyer for purposes of any

            post-Closing adjustment pursuant to this Section 1.9.

 

 

                                       9

 

 

<PAGE>

                        (ii) If Buyer and Seller are unable to reach a mutual

            agreement in whole or in part in accordance with Section 1.9(b)(i)

            during the thirty (30) day period referred to therein, then the Des

            Moines, Iowa office of KPMG LLP (the "Accounting Firm") shall be

            engaged to resolve those matters still in dispute with respect to

            the Final Closing Statement. In connection with engaging the

            Accounting Firm, each party agrees, if requested by the Accounting

            Firm, to execute an engagement letter on terms reasonably

            satisfactory to Seller and Buyer. The Accounting Firm shall make a

            final and binding resolution of the disputes or disagreements

            between Buyer and Seller with respect to the Final Closing

            Statement. The Accounting Firm shall be instructed that, in making

            its final and binding resolution, it must select a position with

            respect to the Final Closing Statement that is (A) exactly the final

            position of Buyer (as set forth in the Final Closing Statement), (B)

            exactly the final position of Seller (as set forth in the Objection

            Notice), or (C) between the final position of Buyer and the final

            position of Seller, and that it must make its final and binding

            resolution within thirty (30) days of its selection. In any event,

            the Accounting Firm shall select such a position by applying the

            principles and methods applied in preparing the Preliminary Closing

            Statement and the Final Closing Statement. No appeal from such

             determination shall be permitted.

 

                        (iii) The costs and expenses for the services of the

            Accounting Firm (the "Accounting Firm Expenses") shall be borne as

            follows: if the position selected by the Accounting Firm is exactly

            the final position of either Buyer or Seller, the party whose

            position was not selected shall pay the Accounting Firm Expenses; if

            the position selected by the Accounting Firm is between the final

             position of Buyer and Seller, the party whose position is closest to

            the position selected by the Accounting Firm (the "Prevailing

            Party") shall pay a percentage of the Accounting Firm Expenses

            calculated by dividing the positive difference between the position

            of the Prevailing Party and the position of the Accounting Firm by

            the total positive difference between the position of the Prevailing

            Party and the position of the non-Prevailing Party. The

            non-Prevailing Party shall pay the remainder of the Accounting Firm

            Expenses. Subject to the foregoing sentences regarding the

            allocation of the Accounting Firm Expenses, all other fees and

             expenses of Seller relating exclusively to matters described in this

            Section 1.9 shall be borne by Seller, and all other fees and

            expenses of Buyer relating exclusively to matters described in this

            Section 1.9 shall be borne by Buyer. Seller and Buyer shall fully

            cooperate with each other and with the Accounting Firm to resolve

            any dispute.

 

                  (c) Reconciliation Amount and Payment.

 

                        (i) The Reconciliation Amount as finally determined

            shall be paid to Buyer or Seller, as the case may be, promptly by

            the party required to pay such Reconciliation Amount, but in no

            event later than five (5) days following the final determination

            thereof. Payment by either party of the Reconciliation

 

 

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<PAGE>

            Amount shall be made in immediately available funds via wire

            transfer to an account designated in writing by the party entitled

            to receive such payment.

 

                        (ii) If the party required to pay the Reconciliation

            Amount fails to make payment thereof in full within such five (5)

            day period referred to above, the Reconciliation Amount so payable

            shall bear interest at a rate per annum equal to the then-effective

            prime rate of interest announced by the Wall Street Journal plus

            three hundred basis points, which interest shall accrue from the

            date such amount was due until the date such amount, plus such

            accrued interest, is paid.

 

      1.10 FURTHER ASSURANCES. Each party from time to time after the Closing at

the request of any other party and without further consideration shall execute

and deliver further instruments of transfer and assignment and take such other

action as such other party may reasonably require to more effectively carry out

the terms and conditions of, and the transactions contemplated by, this

Agreement.

 

      1.11 ALLOCATION OF PURCHASE PRICE.

 

                  (a) Attached hereto as Schedule 1.11(a) is a pro forma

      allocation of the consideration to be paid to Seller (and all other

      capitalized costs) among the Purchased Assets to be sold (or deemed sold

      for federal income tax purposes) by Seller to Buyer, as determined in

      accordance with Section 1060 of the Internal Revenue Code of 1986, as

      amended (the "Code") and the Treasury regulations thereunder (and any

      similar provision of state, local or foreign law, as appropriate).

      Schedule 1.11(a) has been prepared based on the values of the Purchased

      Assets at an assumed closing date of December 31, 2003.

 

                  (b) Buyer shall deliver a post-Closing allocation to Seller

      within sixty (60) days after the Closing Date, which allocation will be

      prepared consistently with Schedule 1.11(a), but shall be updated to the

      extent necessary to reflect the valuation of the Purchased Assets as of

      the actual Closing Date. Buyer, Seller and their respective Affiliates

      shall report, act and file Tax Returns (as defined below) (including, but

      not limited to, Internal Revenue Service Form 8594) in all respects

      consistent with such post-Closing allocation, and neither Buyer, Seller

      nor their respective Affiliates shall take any position for Tax purposes

      which is inconsistent with such post-Closing allocation, unless required

      to do so by applicable law.

 

      1.12 TRANSFER EXPENSES, COSTS AND TAXES. Buyer and Seller shall bear

equally all transfer taxes, duties and other governmental charges applicable to

the transfer of the Purchased Assets in connection with this Agreement. Any

payment or reimbursement from Buyer to Seller or Seller to Buyer required under

this Section 1.12 shall be made within ten (10) business days after any such

valid request for payment or reimbursement.

 

      1.13 USE OF NAME. Seller shall cease all use of the names "Buckle Down" or

"Buckle Down Publishing" (or any variant thereof), as well as any other Seller

Intellectual Property

 

 

                                       11

<PAGE>

Assets, as of the Closing and shall, contemporaneously with the Closing, take

all necessary action under Iowa law to change its corporate name to a name that

does not include the names "Buckle Down" or "Buckle Down Publishing" (or any

variant thereof).

 

      1.14 CUSTOMER AND MARKETING RESEARCH.

 

                  (a) Prior to the date hereof, Seller has provided to the

      Winter Group, a third party customer and marketing research firm engaged

      by Buyer, information regarding Seller's customers, including its customer

      lists, pursuant to the terms of a non-disclosure agreement executed by

      Seller and the Winter Group. Buyer agrees that Buyer will not have access

      to such customer lists unless and until the Closing occurs; provided,

      however, that, without limitation, the foregoing shall not limit in any

      way (i) Buyer's access to the work product and other results produced by

      the Winter Group in the course of its engagement by Buyer, (ii) Buyer's

      participation in any aspect of such research, including, without

      limitation, attendance by Buyer or Seller and their respective

      representatives at focus groups consisting of Seller's customers, (iii)

      Buyer's access to information concerning Seller's customer file layout, or

      (iv) any marketing data related to Seller's business (other than specific

      customer names or other data which would allow customers of Seller to be

      specifically identified), including, without limitation, information

      concerning mailing campaign targets, content of mailings, frequency of

      mailings, response rates (including inquiries and orders) and related

      information, including number of pieces mailed and dollars spent by state

      (collectively, the "Marketing Data").

 

                  (b) The parties hereto agree that all work product and other

      results produced by the Winter Group in the course of its engagement by

      Buyer shall be and remain the property of Buyer; provided, however, that

      in the event the Closing does not occur, Buyer shall (i) provide to Seller

      an itemized accounting of fees and expenses incurred by Buyer in

      connection with its engagement of the Winter Group on that portion of the

      Winter Group project that produced work product or other results directly

      related and beneficial to Seller, other than work product or other results

      relating to or reflecting any customer overlap analyses or any other work

      related to any other publisher, and (ii) upon receipt from Seller of cash

      in an amount equal to 50% of such fees and expenses, deliver or cause to

      be delivered to Seller copies of the Winter Group's work product and other

      results directly related to Seller, other than any work product or other

      results relating to or reflecting any customer overlap analyses or any

      other work related to any other publisher.

 

                  (c) The parties hereto agree that, in the event the Closing

      does not occur:

 

                        (i) Seller may, in its sole discretion, negotiate with

            the Winter Group for an edited summary report on the focus groups

            conducted by the Winter Group, which edited summary report shall not

            include any references to Buyer, Buyer's products or the operations

            of other publishers; and

 

 

                                       12

<PAGE>

                        (ii) Buyer shall destroy all work product and

            information received from the Winter Group related to the focus

            groups conducted by the Winter Group in accordance with Section 6.4

            hereof; provided, that Buyer may, in its sole discretion, negotiate

            with the Winter Group to obtain an edited summary report on the

            focus groups conducted by the Winter Group, which edited summary

            report shall not include any references to Seller, Seller's products

            or the operations of other publishers.

 

      1.15 DELIVERY OF RECORDS AND CONTRACTS. Seller shall deliver to Buyer at

the premises of the business on the Closing Date all business records and other

data constituting part of the Purchased Assets; provided, that Seller may retain

copies of such business records and other data, and Seller shall take all

reasonably requisite steps to put Buyer in actual possession and operating

control of the Purchased Assets. After the Closing, Buyer shall, to the extent

available, use its reasonable efforts to retain the business records related to

the operation of Seller prior to the Closing in Iowa City, Iowa and afford to

Seller and its accountants and attorneys reasonable access, during normal

business hours and upon reasonable advance notice, to the books and records of

Seller delivered to Buyer under this Agreement and shall permit Seller, at

Seller's expense, to make extracts and copies therefrom to the extent reasonably

requested in connection with financial reporting and accounting, litigation, and

tax matters.

 

  SECTION 2 - REPRESENTATIONS AND WARRANTIES OF SELLER, STOCKHOLDER AND FOUNDER

 

      On or prior to the date hereof, Seller has delivered to Buyer the

schedules referenced in this Section 2 setting forth, among other things, items

of disclosure that are necessary or appropriate either in response to an express

disclosure requirement contained in a provision hereof or as an exception to one

or more representations or warranties contained in this Section 2. Capitalized

terms used in the schedules but not defined therein shall have the meanings

assigned to such terms in this Agreement.

 

      2.1 MAKING OF REPRESENTATIONS AND WARRANTIES. As a material inducement to

Buyer, HCOC and HCCI to enter into this Agreement and consummate the

transactions contemplated hereby, Seller, Stockholder and Founder, jointly and

severally, hereby make to Buyer, HCOC and HCCI the representations and

warranties contained in this Section 2.

 

      2.2 ORGANIZATION. Each of Seller and Stockholder is a corporation duly

incorporated, validly existing and in good standing under the laws of the State

of Iowa with full corporate power and authority to own or lease its properties

and to conduct its business in the manner and in the places where such

properties are owned or leased or such business is currently conducted. Seller

is duly licensed or qualified to do business as a foreign corporation in each

jurisdiction listed on Schedule 2.2 hereto, which jurisdictions are the only

jurisdictions wherein the character of its property, or the nature of the

activities presently conducted by it, makes such qualification necessary, except

any such jurisdiction where the failure to be so licensed or qualified would not

 

 

                                       13

<PAGE>

be reasonably likely to have a Material Adverse Effect. Seller is not in

violation or conflict with any provisions of its articles of incorporation or

bylaws.

 

      2.3 SUBSIDIARIES. Seller does not own or control, directly or indirectly,

any interest in any other Person.

 

      2.4 CAPITAL STOCK OF SELLER; BENEFICIAL OWNERSHIP. The authorized capital

stock of Seller consists of 1,000,000 shares of common stock, par value $1.00

per share, of which 100,000 shares have been duly and validly issued and are

fully paid and non-assessable. All outstanding shares of common stock of Seller

are held, beneficially and of record, by Stockholder, and all outstanding shares

of capital stock of Stockholder are held, beneficially and of record, by

Founder. There are no outstanding subscriptions, options, warrants, commitments,

preemptive rights, agreements, arrangements or commitments of any kind relating

to the issuance or sale of, or outstanding securities convertible into or

exercisable or exchangeable for, capital stock of Seller.

 

      2.5 AUTHORITY OF SELLER. Each of Seller and Stockholder has full right,

authority and power to enter into this Agreement and the Transaction Documents

(as defined below) executed and delivered by Seller and Stockholder pursuant to

this Agreement and to carry out the transactions contemplated hereby and

thereby. Except as set forth on Schedule 2.5(a) hereto, the execution, delivery

and performance by each of Seller and Stockholder of this Agreement and each

such Transaction Document have been duly authorized by all necessary action of

Seller and Stockholder, as applicable, and their respective directors and

stockholders, and no other action on the part of Seller or Stockholder or their

respective directors and stockholders is required in connection therewith. For

purposes of this Agreement, "Transaction Documents" means the Deposit Escrow

Agreement, the Indemnification Escrow Agreement and the asset transfer and other

documents or agreements required to be executed and delivered in connection with

the Closing.

 

                  (a) This Agreement and the Transaction Documents constitute,

      or, when executed and delivered by each of Seller and Stockholder, will

      constitute, valid and binding obligations of Seller and Stockholder

      enforceable against Seller and Stockholder in accordance with their terms,

      except as the enforcement thereof may be limited by applicable bankruptcy,

      insolvency, reorganization, moratorium or similar laws affecting the

      rights of creditors and subject to general principles of equity. Except as

      set forth on Schedule 2.5(b), the execution, delivery and performance by

      each of Seller and Stockholder of this Agreement and each Transaction

      Document: (i) do not and will not violate, conflict with or result in a

      default (whether after the giving of notice, lapse of time or both) under

      any contract or obligation to which it is a party or by which it or its

      assets are bound, or any provision of its articles of incorporation or

      bylaws, except for those which would not reasonably be expected to have a

      Material Adverse Effect, or cause the creation of any Claim upon any of

      the Purchased Assets, (ii) do not and will not violate, conflict with or

      result in a default (whether after the giving of notice, lapse of time or

      both) under, any provision of any law, regulation or rule, or any order

      of, or any restriction imposed by any court or other governmental agency

      applicable to it, except for

 

 

                                       14

<PAGE>

      those which would not reasonably be expected to have a Material Adverse

      Effect, (iii) require from it any notice to, declaration or filing with,

      or consent or approval of any governmental authority or other third party,

      or (iv) accelerate any obligation under, or give rise to a right of

      termination of, any agreement, permit, license or authorization to which

      it is a party or by which it is bound.

 

      2.6 LEASED PROPERTY; LIENS; CONDITION OF PROPERTIES..

 

                  (a) Seller does not own any real property.

 

                  (b) Except as set forth on Schedule 2.6(b) hereto, Seller has

      a valid and enforceable leasehold interest in the property subject to the

      Office Lease (the "Leased Real Property"), subject only to the right of

      reversion of the landlord or lessor under the Office Lease, and, except as

      set forth in the Office Lease, free and clear of all other prior or

      subordinate interests or other Claims. Except as otherwise set forth on

      Schedule 2.6(b):

 

                        (i) the Office Lease is in full force and effect and has

            not been modified, amended, or altered, in writing or otherwise;

 

                        (ii) all obligations of the landlord or lessor under the

            Office Lease which have accrued have been performed, and no landlord

            or lessor is in default under the Office Lease; and

 

                        (iii) all obligations of Seller, and any other tenant or

            lessee under the Office Lease, which have accrued have been

            performed, and no tenant or lessee is in default under the Office

            Lease, and no circumstance presently exists which, with notice or

            the passage of time, or both, would give rise to a default by any

            tenant or lessee.

 

                  (c) Except as set forth in Schedule 2.6(c), there are no

      material defects in the physical condition of any improvements

      constituting a part of the Leased Real Property, including, without

      limitation, structural elements, mechanical systems, roofs, or parking and

      loading areas, and all of such improvements are in good operating

      condition and repair and have been well maintained. To the knowledge of

      Seller, all water, sewer, gas, electric, telephone, drainage, and other

       utilities required by law or necessary for the current or planned

      operation of the Leased Real Property have been installed and connected

      pursuant to valid permits, and such utilities are sufficient to service

      the Leased Real Property.

 

                  (d) Seller has not received a notice from any governmental

      authority of any violation of any law, ordinance, regulation, license,

      permit, or authorization issued with respect to the Leased Real Property

      that has not been corrected heretofore, and no such violation on the part

      of Seller now exists which could have an adverse effect on the operation

      or value of the Leased Real Property. To the knowledge of Seller, (i) all

 

 

                                        15

<PAGE>

      improvements constituting a part of the Leased Real Property are in

      compliance, in all material respects, with all applicable laws,

      ordinances, regulations, licenses, permits, and authorizations, and there

      are presently in effect all licenses, permits, and authorizations required

      by law, ordinance, or regulation, (ii) the transfer of the Leased Real

      Property to Buyer shall include all rights to the use of any off-site

      facilities necessary to ensure compliance with all such laws, ordinances,

      codes, and regulations, and (iii) there is at least the minimum access

      required by applicable subdivision or similar law to the Leased Real

      Property. There is no pending, and Seller has not received a notice of any

      threatened, real estate tax deficiency or reassessment or condemnation of

      all or any portion of any of the Leased Real Property.

 

                  (e) Seller has good and marketable title to all of the

      Purchased Assets. Except to the extent described on Schedule 2.6(e)

      attached hereto, all of the Purchased Assets are free and clear of

      restrictions on or conditions to transfer or assignment, and free and

      clear of Claims. All of the Purchased Assets are in good operating

      condition (ordinary wear and tear excepted) and are sufficient for the

      conduct of Seller's business as currently conducted. All of the Purchased

      Assets which are tangible personal property are in good working condition

       and repair, ordinary wear and tear excepted. The Purchased Assets

      constitute all of the assets of Seller used or useable in the operation of

      Seller's business, other than the Excluded Assets.

 

      2.7 FINANCIAL STATEMENTS.

 

                   (a) Seller has delivered to Buyer the following financial

      statements (the "Financial Statements"):

 

                        (i) Audited balance sheets of Seller as of December 31,

            2003, 2002, 2001, 2000 and 1999 and audited statements of income,

            stockholder's equity (deficit) and cash flows of Seller for each

            year in the five (5) year period ended December 31, 2003, in each

            case accompanied by an unqualified opinion of Seller's auditors.

 

                         (ii) An unaudited balance sheet of Seller as of January

            31, 2004 (the "Base Balance Sheet") and unaudited statements of

            income, stockholder's equity (deficit) and cash flows for the one

            (1) month period then ended, which will be certified by Seller's

            chief executive officer as and when requested.

 

                        (iii) The Financial Statements, including the Base

            Balance Sheet, are attached hereto as Schedule 2.7(a).

 

                   (b) The Financial Statements have been prepared in accordance

      with GAAP applied consistently during the periods covered thereby, are

      consistent in all material respects with the books and records of the

      Company, and present fairly the financial condition of Seller at the dates

      of such statements and the results of its

 

 

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      operations for the periods covered thereby (subject to the absence of

      footnotes and normal year-end adjustments in the case of the unaudited

      financial statements).

 

      2.8 TAXES.

 

                  (a) Seller (including any predecessor thereto) has paid all

      material federal, state, local, foreign or other taxes, including, without

       limitation, income taxes, estimated taxes, excise taxes, sales taxes, use

      taxes, gross receipts taxes, franchise taxes, employment and payroll

      related taxes, withholding taxes, stamp taxes, transfer and property

      taxes, or other tax of any kind whatsoever, whether or not measured in

      whole or in part by net income, including any interest, penalty, or

      addition thereto, whether disputed or not (collectively, "Taxes") required

      to be paid by it through the date hereof.

 

                   (b) All material Taxes and other assessments and levies, that

      Seller is required to withhold or collect have been withheld and collected

      and have been paid over to the proper governmental authorities when due.

      Schedule 2.8(b) lists each state or other jurisdiction with respect to

      which Seller withholds or collects sales or use taxes.

 

                  (c) To Seller's knowledge, Seller (including any predecessor

      thereto) has, in accordance with applicable law, timely and properly filed

      all federal, state, local and foreign tax returns, declarations, reports,

      claims for refund, information returns or statements relating to Taxes

      (collectively, "Tax Returns") required to be filed by it through the date

      hereof. All such Tax Returns were correct and complete in all material

      respects. Seller is not currently the beneficiary of any extension of time

      within which to file any Tax Return.

 

                  (d) Neither the Internal Revenue Service nor any other

      governmental authority has asserted in writing or, to the knowledge of

      Seller, is threatening to assert against Seller any deficiency or claim

      for additional Taxes.

 

                  (e) Except as set forth in Schedule 2.8(e) attached hereto, no

      claim has ever been made in writing by an authority in a jurisdiction

      where Seller (including any predecessor thereto) does not file Tax Returns

      that Seller (including any predecessor thereto) is or may be subject to

      taxation by that jurisdiction.

 

                  (f) Seller has not waived any statute of limitations in

      respect of Taxes or agreed to any extension of time with respect to a Tax

      assessment or deficiency.

 

                  (g) There are no material Claims encumbering any of the assets

      of Seller that arose in connection with any failure (or alleged failure)

      to pay any Taxes (except where such Claims arise as a matter of law prior

      to the due date for paying the related Taxes).

 

                  (h) Except as set forth on Schedule 2.8(h) attached hereto,

      there has never been any audit of any Tax Return filed by Seller, no such

      audit is in progress and

 

 

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      Seller has not been notified by any Tax authority that any such audit is

      contemplated or pending.

 

                  (i) Except as set forth on Schedule 2.8(i), Seller is not a

      party to any Tax allocation, Tax sharing or similar agreement.

 

                  (j) Except as set forth on Schedule 2.8(j), Seller (including

      any predecessor thereto) (i) is not and has not been a member of an

      affiliated group filing a consolidated federal income Tax Return, (ii)

      does not have any liability for the Taxes of any other Person under

      Treasury Regulations Section 1.1502-6 (or any similar provision of state,

      local or foreign law), and (iii) does not have any liability for the Taxes

      of any other Person as a transferee or successor, by contract, or

      otherwise.

 

                  (k) Seller is not a United States real property holding

      corporation within the meaning of the Code.

 

                  (l) Seller has elected to be treated as a qualified subchapter

       S subsidiary of Stockholder pursuant to Internal Revenue Code Section

      1361(b)(3)(A) and as a result is treated as a division of Stockholder for

      federal and state income tax return filing requirements. "Tax Returns" as

      used in this Section 2.8 shall not include any income tax returns filed by

      Stockholder or Founder which include reporting of information for Seller

      as a result of making the qualified subchapter S election.

 

      2.9 ACCOUNTS RECEIVABLE; ACCOUNTS PAYABLE; INVENTORY.

 

                  (a) All of the accounts receivable of Seller (including,

      without limitation, the Accounts Receivable) were incurred in the ordinary

      course of business of Seller and are or will be at the Closing valid and

      enforceable claims, subject to no setoff or counterclaim and, except to

      the extent of any reserve for bad debts disclosed in the Financial

      Statements, are collectible in accordance with their terms. Seller has no

      accounts or loans receivable from any person, firm or corporation which is

      affiliated with Seller or from any director, officer or employee of

      Seller, except as disclosed on Schedule 2.9(a). Based on Seller's

      historical operating results, any reserve reflected in Seller's Financial

      Statements is adequate to account for any Accounts Receivable which may

      later be written off.

 

                  (b) Except as set forth on Schedule 2.9(b), all accounts

      payable of Seller arose in bona fide arm's length transactions in the

      ordinary course of business and no such account payable or note payable is

      delinquent by more than thirty (30) days in its payment. Since December

      31, 2002, Seller has paid its accounts payable in the ordinary course of

       its business and in a manner consistent with its past practices.

 

                  (c) All of Seller's inventory items are of a quality and

      quantity salable in the ordinary course of its business. The values of the

      inventories stated in the Base Balance Sheet reflect the normal inventory

      valuation policies of Seller and were

 

 

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<PAGE>

      determined in accordance with GAAP applied consistently during the periods

      covered thereby. Since December 31, 2002, no inventory items have been

      sold or disposed of except through sales in the ordinary course of

      business.

 

      2.10 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on Schedule

2.10 or incurred as a result of or arising out of the transactions contemplated

by this Agreement, Seller does not have any liability or obligation of any

nature, whether accrued, absolute, contingent or otherwise, asserted or

unasserted, known or unknown, in any case which has, or is reasonably likely to

have, a Material Adverse Effect. Except as set forth on Schedule 2.10, Seller

has not assumed, guaranteed, endorsed or otherwise become directly or

contingently liable on or for any indebtedness of any other person.

 

      2.11 ABSENCE OF CERTAIN DEVELOPMENTS. Since December 31, 2002, except as

set forth on Schedule 2.11 attached hereto, Seller has conducted its business

only in the ordinary course consistent with past practice and there has been:

 

                  (a) no material adverse change in the condition (financial or

      otherwise) of Seller or in the assets, liabilities, business or prospects

      of Seller;

 

                  (b) with respect to any third parties who are not Affiliates

      of Seller, no waiver of any valuable right of Seller or cancellation of

      any material debt or claim held by Seller;

 

                  (c) no increase in the compensation paid or payable to any

      officer, director, employee or agent of Seller, other than normal merit

      increases made in the ordinary course of business consistent with Seller's

      past practices;

 

                  (d) no loss, destruction or damage to any property of Seller,

      whether or not insured, having an effect in excess of $25,000 in the

      aggregate;

 

                  (e) no labor dispute involving Seller and no change in the

      personnel of Seller or the terms and conditions of their employment other

      than in the ordinary course of business;

 

                  (f) no acquisition or disposition of any assets (or any

      contract or arrangement therefore), including any Seller Intellectual

      Property Assets, nor any other transaction by Seller, in each case other

      than for fair value in the ordinary course of business;

 

                   (g) no change in accounting methods or practices of Seller,

      including any changes in its revenue recognition or accrual and reserve

      policies and practices;

 

                  (h) no reduction in any accrued expenses or other liabilities,

      except for payments related to the liability for which the accrual was

      originally established;

 

 

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<PAGE>

                  (i) other than with respect to any purchase orders, no

      amendment or termination of any contract or agreement to which Seller is a

      party or by which it is bound which is expected or estimated to result, or

      actually results, in a loss of revenues to Seller in excess of $25,000;

 

                  (j) no commitment (contingent or otherwise) to do any of the

      foregoing.

 

      2.12 INTELLECTUAL PROPERTY.

 

                  (a) Schedule 2.12(a) contains a complete and accurate list of

      all Patents owned by Seller or otherwise used in the Business ("Seller

      Patents"), Marks owned by Seller or otherwise used in the Business

      ("Seller Marks") and Copyrights owned by Seller or otherwise used in and,

      in either case, material to Seller's business ("Seller Copyrights").

      Except as set forth on Schedule 2.12(a):

 

                        (i) Seller exclusively owns or possesses adequate and

            enforceable rights to use, without payment to a third party, all of

            the Intellectual Property Assets necessary for the operation of its

             business, free and clear of all Claims;

 

                        (ii) All Seller Patents, Seller Marks and Seller

            Copyrights which are issued by or registered with, as applicable,

            the U.S. Patent and Trademark Office, the U.S. Copyright Office or

            in any similar office or agency anywh