Document:

Exhibit 10.4

 

 

PLEDGE AND
SECURITY AGREEMENT

 

 

dated as of
December 30, 2002

 

 

between

 

 

VERSAILLES
U.S. HOLDING INC.

AND THE OTHER GRANTORS PARTY HERETO

 

 

and

 

 

CANADIAN
IMPERIAL BANK OF COMMERCE,

 

as the Collateral Trustee

 

 

TABLE OF CONTENTS

 

	
  SECTION 1.

  	
  DEFINITIONS; GRANT OF SECURITY.

  
	
  1.1

  	
  General Definitions

  
	
  1.2

  	
  Definitions; Interpretation

  
	
  SECTION 2.

  	
  GRANT OF SECURITY AND CREATION OF COLLATERAL TRUST.

  
	
  2.1

  	
  Grant of Security

  
	
  2.2

  	
  Certain Limited Exclusions

  
	
  2.3

  	
  Control

  
	
  SECTION 3.

  	
  SECURITY FOR OBLIGATIONS; GRANTORS REMAIN LIABLE.

  
	
  3.1

  	
  Security for Obligations

  
	
  3.2

  	
  Continuing Liability Under Collateral

  
	
  SECTION 4.

  	
  REPRESENTATIONS AND WARRANTIES AND COVENANTS.

  
	
  4.1

  	
  Generally

  
	
  4.2

  	
  Equipment and Inventory

  
	
  4.3

  	
  Receivables

  
	
  4.4

  	
  Investment Related Property Generally

  
	
  4.5

  	
  Reserved

  
	
  4.6

  	
  Letter of Credit Rights

  
	
  4.7

  	
  Intellectual Property

  
	
  4.8

  	
  Commercial Tort Claims

  
	
  SECTION 5.

  	
  FURTHER ASSURANCES; ADDITIONAL GRANTORS.

  
	
  5.1

  	
  Further Assurances

  
	
  5.2

  	
  Additional Grantors

  
	
  SECTION 6.

  	
  COLLATERAL TRUSTEE APPOINTED ATTORNEY-IN-FACT.

  
	
  6.1

  	
  Power of Attorney

  
	
  6.2

  	
  No Duty on the Part of Collateral Trustee
  or Secured Parties

  
	
  SECTION 7.

  	
  REMEDIES.

  
	
  7.1

  	
  Generally

  
	
  7.2

  	
  Application of Proceeds

  
	
  7.3

  	
  Sales on Credit

  
	
  7.4

  	
  Investment Related Property

  
	
  7.5

  	
  Intellectual Property

  
	
  7.6

  	
  Cash Proceeds

  
	
  SECTION 8.

  	
  COLLATERAL TRUSTEE.

  
	
  8.1

  	
  Rights and Duties

  
	
  8.2

  	
  Successor

  
	
  SECTION 9.

  	
  CONTINUING SECURITY INTEREST; TRANSFER OF LOANS.

  
	
  SECTION 10.

  	
  STANDARD OF CARE- COLLATERAL TRUSTEE MAY PERFORM.

  
	
  SECTION 11.

  	
  INDEMNITY

  
	
  SECTION 12.

  	
  MISCELLANEOUS.

  
	
  12.1

  	
  Notice, Assignment, etc.

  

 

i

 

	
  SCHEDULE 4.1
  - GENERAL INFORMATION

  
	
   

  	
   

  
	
  SCHEDULE 42.
  - LOCATION OF EQUIPMENT AND INVENTORY

  
	
   

  	
   

  
	
  SCHEDULE 4.4
  - INVESTMENT RELATED PROPERTY

  
	
   

  	
   

  
	
  SCHEDULE 4.6
  - DESCRIPTION OF LETTERS OF CREDIT

  
	
   

  	
   

  
	
  SCHEDULE 4.7
  - INTELLECTUAL PROPERTY

  
	
   

  	
   

  
	
  SCHEDULE 4.8
  - COMMERCIAL TORT CLAIMS

  
	
   

  	
   

  
	
  EXHIBIT A -
  PLEDGE SUPPLEMENT

  

 

ii

 

This PLEDGE AND SECURITY AGREEMENT, dated as of
December 30, 2002 (this “Agreement”), between EACH OF THE UNDERSIGNED, whether
as an original signatory hereto or as an Additional Grantor (as herein defined)
(each, a “Grantor”),
and CANADIAN IMPERIAL BANK OF COMMERCE, as  Collateral Trustee for the Secured Parties (as herein
defined) (in such capacity as Collateral Trustee, the “Collateral Trustee”).

 

RECITALS:

 

WHEREAS,
reference is made to that certain Credit and Guaranty
Agreement, dated as of the date hereof (as it may be amended, restated,
supplemented or otherwise modified from time to time, the “Credit Agreement”), by and
among VERSAILLES
ACQUISITION CORPORATION (“Company”), VERSAILLES U.S. HOLDING INC. (“Holding”), the lenders party
thereto from time to time (the “Lenders”), CIBC WORLD MARKETS CORP. and GOLDMAN SACHS CREDIT PARTNERS L.P.
(“GSCP”), as Joint
Lead Arrangers and Joint Bookrunners, GSCP and DEUTSCHE BANK SECURITIES INC., as Co-Syndication Agents, and CANADIAN
IMPERIAL BANK OF COMMERCE, as
Administrative Agent and Collateral Trustee and FLEET SECURITIES INC., as Co-Documentation Agent;

 

WHEREAS,
subject to the terms and conditions of the Credit
Agreement, certain Grantors may enter into one or more Hedge Agreements (as
therein defined) with one or more Lender Counterparties;

 

WHEREAS,
in consideration of the extensions of credit and other
accommodations of Lenders and Lender Counterparties as set forth in the Credit
Agreement and the Hedge Agreements, respectively, each Grantor has agreed to
secure such Grantor’s obligations under the Credit Documents and the Hedge
Agreements with Lender Counterparties as set forth herein; and

 

NOW,
THEREFORE, in consideration of the premises and the
agreements, provisions and covenants herein contained, each Grantor and the
Collateral Trustee agree as follows:

 

SECTION 1.                            DEFINITIONS; GRANT OF
SECURITY.

 

1.1                               General Definitions.  In this
Agreement, the following terms shall have the following meanings:

 

“Account
Debtor” shall mean each Person who is obligated on a
Receivable or any Supporting Obligation related thereto.

 

“Accounts”
shall mean all “accounts” as defined in Article 9 of
the UCC.

 

“Agreement” shall
have the meaning set forth in the preamble.

 

“Additional
Grantors” shall have the meaning assigned in Section
5.3.

 

“Assigned
Agreements” shall mean all agreements and contracts to
which such Grantor is a party as of the date hereof, or to which such Grantor
becomes a party after the date hereof as each such agreement may be amended,
supplemented or otherwise modified from time to time.

 

“Bankruptcy
Code” shall mean Title 11 of the United States Code
entitled “Bankruptcy”, as now and hereafter in effect, or any successor
statute.

 

 

“Cash
Proceeds” shall have the meaning assigned in Section
7.6.

 

“Chattel
Paper” shall mean all “chattel paper” as defined in
Article 9 of the UCC, including, without limitation, “electronic chattel paper”
or “tangible chattel paper”, as each term is defined in Article 9 of the UCC.

 

“Collateral’
shall have the meaning assigned in Section 2.1.

 

“Collateral
Account” shall mean any account established by the
Collateral Trustee.

 

“Collateral
Records” shall mean books, records, ledger cards,
files, correspondence, customer lists, blueprints, technical specifications,
manuals, computer software, computer printouts, tapes, disks and related data
processing software and similar items that at any time evidence or contain
information relating to any of the Collateral or are otherwise necessary or
helpful in the collection thereof or realization thereupon.

 

“Collateral
Support” shall mean all property (real or personal)
assigned, hypothecated or otherwise securing any Collateral and shall include
any security agreement or other agreement granting a lien or security interest
in such real or personal property.

 

“Collateral
Trustee” shall have the meaning set forth in the
preamble.

 

“Commercial
Tort Claims” shall mean all “commercial tort claims”
as defined in Article 9 of the UCC, including, without limitation, all
commercial tort claims listed on Schedule 4.8 (as such schedule may be amended
or supplemented from time to time).

 

“Commodities
Accounts” shall mean all “commodity accounts” as defined
in Article 9 of the UCC.

 

“Company”
shall have the meaning set forth in the recitals.

 

“Controlled
Foreign Corporation” shall mean “controlled foreign
corporation” as defined in the Tax Code.

 

“Copyright
Licenses” shall mean any and all agreements providing
for the granting of any right in or to Copyrights (whether such Grantor is
licensee or licensor thereunder) including, without limitation, each agreement
referred to in Schedule 4.7(B) (as such schedule may be amended or supplemented
from time to time).

 

“Copyrights”
shall mean all United States, and foreign copyrights,
including but not limited to copyrights
in software and databases, whether registered or unregistered, and, with respect
to any and all of the foregoing: (i) all registrations and applications
therefor including, without limitation, the registrations and applications
referred to in Schedule 4.7 (A) (as such schedule may be amended or
supplemented from time to time), (ii) all extensions and renewals thereof,
(iii) all rights corresponding thereto throughout the world, (iv) all rights to
sue for past, present and future infringements thereof, and (v) all Proceeds of
the foregoing, including, without limitation, licenses, royalties, income,
payments, claims, damages and proceeds of suit.

 

“Credit
Agreement” shall have the meaning set forth in the
recitals.

 

“Documents” shall mean all “documents” as
defined in Article 9 of the UCC.

 

2

 

“Deposit
Accounts” shall mean all “deposit accounts” as defined
in Article 9 of the UCC.

 

“Equipment”
shall mean: (i) all “equipment” as defined in Article
9 of the UCC, (ii) all machinery, manufacturing equipment, data processing
equipment, computers, office equipment, furnishings, furniture, appliances, fixtures
and tools (in each case, regardless of whether characterized as equipment under
the UCC) and (iii) all accessions or additions thereto, all parts thereof,
whether or not at any time of determination incorporated or installed therein
or attached thereto, and all replacements therefor, wherever located, now or
hereafter existing, including any fixtures.

 

“ERISA” means the
Employee Retirement Income Security Act of 1974, as amended from time to time,
and any successor thereto.

 

“Event
of Default” shall mean an Event of Default as defined
in the Credit Agreement or an Event of Default as defined in the HM Indenture.

 

“Excluded
Property” shall mean the collective reference to (a)
any Lease, license, contract, rights, instrument or agreement to which any Grantor
is a party or any of its rights or interests thereunder if and for so long as
the grant of such security interest shall constitute or result in (i) the
abandonment, invalidation or unenforceability of any right, title or interest
of any Grantor therein or (ii) a breach or termination pursuant to the terms,
or a default under, any such Lease, license, contract, rights, instrument or
agreement or is prohibited by applicable law (other than to the extent that any
such term would be rendered ineffective pursuant to Sections 9-406, 9-408 or
9-409 of the UCC (or any successor provision or provisions) of any relevant
jurisdiction or any other applicable law provided however that such security
interest shall attach immediately at such time as the condition causing such
abandonment, invalidation or unenforceability shall be remedied and, to the
extent severable, shall attach immediately to any portion of such Lease,
license, contract, rights, instrument or agreement that does not result in any
of the consequences specified in (i) or (ii) above; (b) in any of the
outstanding capital stock of a Controlled Foreign Corporation in excess of 65%
of the voting power of all classes of capital stock of such Controlled Foreign
Corporation entitled to vote; provided that promptly following the amendment of
the Tax Code to allow the pledge of a greater percentage of the voting power of
capital stock in a Controlled Foreign Corporation without adverse tax
consequences, the Collateral shall include, and the security interest granted
by each Grantor shall attach to, such greater percentage of capital stock of
each Controlled Foreign Corporation; (c) all vehicles covered by a certificate
of title or ownership; and (d) any Letter of Credit Rights to the extent that
any Grantor is required by contract or law to apply the proceeds of a drawing
under a letter of credit for another specific purpose.

 

“Fixtures”
shall mean all “fixtures” as defined in Article 9 of
the UCC.

 

“General
Intangibles” (i) shall mean all “general intangibles”
as defined in Article 9 of the UCC and (ii) shall include, without limitation,
all interest rate or currency protection or hedging arrangements, all tax
refunds, all licenses, permits, concessions and authorizations, all Assigned
Agreements and all Intellectual Property (in each case, regardless of whether
characterized as general intangibles under the UCC).

 

“Goods” (i) shall
mean all “goods” as defined in Article 9 of the UCC and (ii) shall include,
without limitation, all Inventory and Equipment (in each case, regardless of
whether characterized as goods under the UCC).

 

“Grantors”
shall have the meaning set forth in the preamble.

 

3

 

“Instruments”
shall mean all “instruments” as defined in Article 9
of the UCC.

 

“Insurance”
shall mean all insurance policies covering any or all
of the Collateral (regardless of whether the Collateral Trustee is the loss
payee thereof).

 

“Intellectual
Property” shall mean, collectively, the Copyrights,
the Copyright Licenses, the Patents, the Patent Licenses, the Trademarks, the
Trademark Licenses, the Trade Secrets, and the Trade Secret Licenses.

 

“Inventory”
shall mean: (i) all “inventory” as defined in Article
9 of the UCC and (ii) all goods held for sale or lease or to be furnished under
contracts of service or so leased or furnished, all raw materials, work in
process, finished goods, and materials used or consumed in the manufacture,
packing, shipping, advertising, selling, leasing, furnishing or production of
such inventory or otherwise used or consumed in any Grantor’s business; all
goods in which any Grantor has an interest in mass or a joint or other interest
or right of any kind; and all goods which are returned to or repossessed by any
Grantor, all computer programs embedded in any goods and all accessions thereto
and products thereof (in each case, regardless of whether characterized as
inventory under the UCC).

 

“Investment
Accounts” shall mean the Collateral Account,
Securities Accounts, Commodities Accounts and Deposit Accounts.

 

“Investment
Related Property” shall mean: (i) all “investment
property” (as such term is defined in Article 9 of the UCC) and (ii) all of the
following (regardless of whether classified as investment property under the
UCC): all Pledged Equity Interests, Pledged Debt and certificates of deposit.

 

“Lender” shall have
the meaning set forth in the recitals.

 

“Letter
of Credit Right” shall mean “letter-of-credit right”
as defined in Article 9 of the UCC.

 

“Majority
Secured Parties” shall mean the holders of greater
than 50% of the aggregate principal amount of, and unpaid accrued interest on,
the Secured Obligations.

 

“Money” shall mean
“money” as defined in the UCC.

 

“Patent
Licenses” shall mean all agreements providing for the
granting of any right in or to Patents (whether such Grantor is licensee or
licensor thereunder) including, without limitation, each agreement referred to
in Schedule 4.7(D) (as such schedule may be amended or supplemented from time
to time).

 

“Patents” shall mean
all United States and foreign patents and certificates of invention, and
applications for any of the foregoing, including, but not limited to: (i) each
patent and patent application referred to in Schedule 4.7(C) hereto (as such
schedule may be amended or supplemented from time to time), (ii) all reissues,
divisions, continuations, continuations-in-part, extensions, renewals, and
reexaminations thereof, (ii) all rights corresponding thereto throughout the
world, (ii) all inventions and improvements described therein, (iv) all rights
to sue for past, present and future infringements thereof, and (v) all Proceeds
of the foregoing, including without limitation licenses, royalties, income,
payments, claims, damages, and proceeds of suit.

 

4

 

“Permitted
Sale” shall mean any sale, disposition transfer or
assignment of Collateral made in accordance with the terms of the Credit
Agreement.

 

“Pledged
Debt” shall mean all Indebtedness (in no event shall
include Accounts) owed to such Grantor, including, without limitation, all
Indebtedness described on Schedule 4.4.2 under the heading “Pledged Debt” (as
such schedule may be amended or supplemented from time to time), issued by the
obligors named therein, the instruments evidencing such Indebtedness, and all
interest, cash, instruments and other property or proceeds from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of such Indebtedness.

 

“Pledged
Equity Interests” shall mean all Pledged Stock,
Pledged LLC Interests, Pledged Partnership Interests and Pledged Trust
Interests.

 

“Pledged
LLC Interests” shall mean all interests in any limited
liability company including, without limitation, all limited liability company
interests listed on Schedule 4.4.1 under the heading “Pledged LLC Interests”
(as such schedule may be amended or supplemented from time to time) and the
certificates, if any, representing such limited liability company interests and
any interest of such Grantor on the books and records of such limited liability
company or on the books and records of any securities intermediary pertaining
to such interest and all dividends, distributions, cash, warrants, rights,
options, instruments, securities and other property or proceeds from time to
time received, receivable or otherwise distributed in respect of or in exchange
for any or all of such limited liability company interests.

 

“Pledged
Partnership Interests” shall mean all interests in any
general partnership, limited partnership, limited liability partnership or
other partnership including, without limitation, all partnership interests
listed on Schedule 4.4.1 under the heading “Pledged Partnership Interests” (as
such schedule may be amended or supplemented from time to time) and the
certificates, if any, representing such partnership interests and any interest
of such Grantor on the books and records of such partnership or on the books
and records of any securities intermediary pertaining to such interest and all
dividends, distributions, cash, warrants, rights, options, instruments,
securities and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of such partnership interests.

 

“Pledged
Trust Interests” shall mean all interests in a
Delaware business trust or other trust including, without limitation, all trust
interests listed on Schedule 4.4.1 under the heading “Pledged Trust Interests”
(as such schedule may be amended or supplemented from time to time) and the
certificates, if any, representing such trust interests and any interest of
such Grantor on the books and records of such trust or on the books and records
of any securities intermediary pertaining to such interest and all dividends,
distributions, cash, warrants, rights, options, instruments, securities and
other property or proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such trust
interests.

 

“Pledged
Stock” shall mean all shares of capital stock owned by
such Grantor, including, without limitation, all shares of capital stock
described on Schedule 4.4.1 under the heading “Pledged Stock” (as such schedule
may be amended or supplemented from time to time), and the certificates, if
any, representing such shares and any interest of such Grantor in the entries
on the books of the issuer of such shares or on the books of any securities
intermediary pertaining to such shares, and all dividends, distributions, cash,
warrants, rights, options, instruments, securities and other property or
proceeds from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such shares.

 

5

 

“Pledge
Supplement” shall mean any supplement to this
agreement in substantially the form of Exhibit A.

 

“Proceeds”
shall mean: (i) all “proceeds” as defined in Article 9
of the UCC, (ii) payments or distributions made with respect to any Investment
Related Property and (iii) whatever is receivable or received when
Collateral or proceeds are sold, exchanged, collected or otherwise disposed of,
whether such disposition is voluntary or involuntary.

 

“Receivables”
shall mean all rights to payment, whether or not
earned by performance, for goods or other property sold, leased, licensed,
assigned or otherwise disposed of, or services rendered or to be rendered,
including, without limitation all such rights constituting or evidenced by any
Account, Chattel Paper, Instrument, General Intangible or Investment Related
Property, together with all of Grantor’s rights, if any, in any goods or other
property giving rise to such right to payment and all Collateral Support and
Supporting Obligations related thereto.

 

“Record”
shall have the meaning specified in Article 9 of the
UCC.

 

“Secured
Obligations” shall have the meaning assigned in
Section 3.1.

 

“Secured
Parties” shall mean the Collateral Trustee, the Agents
(as such term is defined in the Credit Agreement), the Lenders and the Lender
Counterparties and shall include, without limitation, all former Lenders,
Lender Counterparties, Agents and Collateral Trustee to the extent that any
Obligations owing to such Persons were incurred while such Persons were
Lenders, Lender Counterparties, Agents or Collateral Trustee and such
Obligations have not been paid or satisfied in full.

 

“Securities
Accounts” shall mean all “securities accounts” as
defined in Article 8 of the UCC.

 

“Supporting
Obligation” shall mean all “supporting obligations” as
defined in Article 9 of the UCC.

 

“Tax
Code” shall mean the United States Internal Revenue
Code of 1986, as amended from time to time.

 

“Trademark
Licenses” shall mean any and all agreements providing
for the granting of any right in or to Trademarks (whether such Grantor is
licensee or licensor thereunder) including, without limitation, each agreement
referred to in Schedule 4.7(F) (as such schedule may be amended or supplemented
from time to time).

 

“Trademarks”
shall mean all United States, and foreign trademarks,
trade names, corporate names, company names, business names, fictitious
business names, Internet domain names, service marks, certification marks,
collective marks, logos, other source or business identifiers, designs and general
intangibles of a like nature, all registrations and applications for any of the
foregoing including, but not limited to: (i) the registrations and applications
referred to in Schedule 4.7(E) (as such schedule may be amended or supplemented
from time to time), (ii) all extensions or renewals of any of the foregoing,
(iii) all of the goodwill of the business connected with the use of and
symbolized by the foregoing, (iv) the right to sue for past, present and future
infringement or dilution of any of the foregoing or for any injury to goodwill,
and (v) all Proceeds of the foregoing, including, without limitation, licenses,
royalties, income, payments, claims, damages, and proceeds of suit.

 

6

 

“Trade
Secret Licenses” shall mean any and all agreements
providing for the granting of any right in or to Trade Secrets (whether such
Grantor is licensee or licensor thereunder) including, without limitation, each
agreement referred to in Schedule 4.7(G) (as such schedule may be amended or
supplemented from time to time).

 

“Trade
Secrets” shall mean all trade secrets and all other
confidential or proprietary information and know-how, whether or not such Trade
Secret has been reduced to a writing or other tangible form, including all
documents and things embodying, incorporating, or referring in any way to such
Trade Secret, including but not limited to: (i) the right to sue for past,
present and future misappropriation or other violation of any Trade Secret, and
(ii) all Proceeds of the foregoing, including, without limitation, licenses,
royalties, income, payments, claims, damages, and proceeds of suit.

 

“UCC” shall mean the
Uniform Commercial Code as in effect from time to time in the State of New York
or, when the context implies, the Uniform Commercial Code as in effect from
time to time in any other applicable jurisdiction.

 

“United
States” shall mean the United States of America.

 

1.2                               Definitions; Interpretation.  All capitalized terms used herein (including
the preamble and recitals hereto) and not otherwise defined herein shall have
the meanings ascribed thereto in the Credit Agreement or, if not defined
therein, in the UCC. References to “Sections,” “Exhibits” and “Schedules” shall
be to Sections, Exhibits and Schedules, as the case may be, of this Agreement
unless otherwise specifically provided. Section headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive
effect. Any of the terms defined herein may, unless the context otherwise
requires, be used in the singular or the plural, depending on the reference.
The use herein of the word “include” or “including”, when following any general
statement, term or matter, shall not be construed to limit such statement, term
or matter to the specific items or matters set forth immediately following such
word or to similar items or matters, whether or not nonlimiting language (such
as “without limitation” or “but not limited to” or words of similar import) is
used with reference thereto, but rather shall be deemed to refer to all other
items or matters that fall within the broadest possible scope of such general
statement, term or matter. All references herein to provisions of the UCC shall
include all successor provisions under any subsequent version or amendment to
any Article of the UCC.

 

SECTION 2.                            GRANT OF SECURITY AND
CREATION OF COLLATERAL TRUST.

 

2.1                               Grant of Security.  Each Grantor hereby grants to the Collateral Trustee a security
interest in and continuing lien on all of such Grantor’s right, title and
interest in, to and under all personal property of such Grantor including, but
not limited to the following, in each case whether now owned or existing or
hereafter acquired or arising and wherever located (all of which being
hereinafter collectively referred to as the “Collateral”):

 

(a)                                  Accounts;

 

(b)                                 Chattel Paper;

 

(c)                                  Documents;

 

(d)                                 General Intangibles;

 

(e)                                  Goods;

 

7

 

(f)                                    Instruments;

 

(g)                                 Insurance;

 

(h)                                 Intellectual Property;

 

(i)                                     Investment Related
Property;

 

(j)                                     Letter of Credit
Rights;

 

(k)                                  Money;

 

(l)                                     Receivables and
Receivable Records;

 

(m)                               Commercial Tort Claims;

 

(n)                                 Investment Accounts;

 

(o)                                 to the extent not
otherwise included above, all Collateral Records, Collateral Support and
Supporting Obligations relating to any of the foregoing; and

 

(p)                                 to the extent not
otherwise included above, all Proceeds, products, accessions, rents and profits
of or in respect of any of the foregoing.

 

2.2                               Certain Limited Exclusions.  Notwithstanding
anything herein to the contrary, in no event shall the security interest
granted under Section 2.1 hereof attach to any Excluded Property, and Excluded
Property shall not be subject to this Agreement.

 

2.3                               Control.  Notwithstanding any provisions of the
Credit Documents to the contrary, (a) the Grantors shall not be required to
enter control arrangements or provide control agreements with respect to, or
provide control of, any Investment Accounts or property or interests in
property contained therein, or cash or Permitted Investments and (b) the
Grantors shall not be required to maintain the Investment Accounts or other
property described in clause (a) with any Agent or any Lender and may maintain
them with any Person.

 

SECTION 3.                            SECURITY
FOR OBLIGATIONS; GRANTORS REMAIN LIABLE.

 

3.1                               Security for Obligations.  This
Agreement secures, and the Collateral is collateral security for, the prompt
and complete payment or performance in full when due, whether at stated
maturity, by required prepayment, declaration, acceleration, demand or
otherwise (including the payment of amounts that would become due but for the
operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11
U.S.C. §362(a) (and any successor provision thereof)), of all Obligations (the “Secured Obligations”).

 

3.2                               Continuing Liability Under Collateral.  Notwithstanding
anything herein to the contrary, (i) each Grantor shall remain liable for all
obligations under the Collateral and nothing contained herein is intended or
shall be a delegation of duties to the Collateral Trustee or any Secured Party
and (ii) each Grantor shall remain liable under each of the agreements included
in the Collateral, including, without limitation, any agreements relating to
Pledged Partnership Interests or Pledged LLC Interests, to perform all of the
obligations undertaken by it thereunder all in accordance with and pursuant to
the terms and provisions thereof and neither the Collateral Trustee nor any
Secured Party shall have any obligation 

 

8

 

or liability under any of
such agreements by reason of or arising out of this Agreement or any other
document related thereto nor shall the Collateral Trustee nor any Secured Party
have any obligation to make any inquiry as to the nature or sufficiency of any
payment received by it or have any obligation to take any action to collect or
enforce any rights under any agreement included in the Collateral, including,
without limitation, any agreements relating to Pledged Partnership Interests or
Pledged LLC Interests; and (iii) the exercise by the Collateral Trustee of any
of its rights hereunder shall not release any Grantor from any of its duties or
obligations under the contracts and agreements included in the Collateral.

 

SECTION 4.                            REPRESENTATIONS AND
WARRANTIES AND COVENANTS.

 

4.1                               Generally.

 

(a)                                  Representations
and Warranties.  Each Grantor hereby
represents and warrants as to itself and its property only that:

 

(i)                                     it
has indicated on Schedule 4.1(A)(as such schedule may be amended or
supplemented from time to time): (w) the type of organization of such Grantor,
(x) the jurisdiction of organization of such Grantor, and (y) its
organizational identification number and (z) the jurisdiction where the chief
executive office, and for the one-year period preceding the date hereof has
been, located.

 

(ii)                                  the
full legal name of such Grantor is as set forth on Schedule 4.1 (A) (as such
schedule may be amended or supplemented from time to time);

 

(iii)                               except
as provided on Schedule 4.1(B), it has not changed its name, jurisdiction of
organization, chief executive office or sole place of business or its corporate
structure in any way (e.g., by merger, consolidation, change in corporate form
or otherwise) within the past five (5) years;

 

(iv)                              upon
the filing of all UCC financing statements naming each Grantor as “debtor” and
the Collateral Trustee as “secured party” and describing the Collateral in the
filing offices set forth opposite such Grantor’s name on Schedule 4.1(C) hereof
(as such schedule may be amended or supplemented from time to time) and other
filings delivered by each Grantor, upon consent of the issuer with respect to
Letter of Credit Rights, and to the extent not subject to Article 9 of the UCC,
upon recordation of the security interests granted hereunder in Patents,
Trademarks and Copyrights in the applicable intellectual property registries,
including but not limited to the United States Patent and Trademark Office and
the United States Copyright Office, the security interests granted to the
Collateral Trustee hereunder in the Collateral other than Investment Accounts
constitute valid and perfected first priority Liens (subject in the case of
priority only to Permitted Liens and to the rights of the United States
government (including any agency or department thereof) with respect to United
States government Receivables) on all of the Collateral to the extent a Lien
can be perfected by a UCC filing, possession instruments or filing in the
United States Patent and Trademark Office and United States Copyright Office;

 

(v)                                 unless
otherwise provided herein, all material actions and consents, including all
filings, notices, registrations and recordings necessary or desirable for the
exercise by the Collateral Trustee of the voting or other rights provided for
in this Agreement or the exercise of remedies in respect of the material
Collateral have been made or obtained;

 

(vi)                              other
than the financing statements filed in favor of the Collateral Trustee, no
effective UCC financing statement, fixture filing or other instrument similar
in effect 

 

9

 

under any
applicable law covering all or any part of the Collateral is on file in any
filing or recording office except for (x) financing statements for which proper
termination statements have been delivered to the Collateral Trustee for filing
and (y) financing statements filed in connection with Permitted Liens;

 

(vii)                           none of
the Collateral constitutes, or is the Proceeds of, “farm products” (as defined
in the UCC); and

 

(viii)                        it does
not own any “as extracted collateral” (as defined in the UCC) or any timber to
be cut.

 

(b)                                 Covenants and
Agreements.  Each Grantor hereby
covenants and agrees that:

 

(i)                                     except
for Permitted Liens and the security interest created by this Agreement, it (x)
shall not create or suffer to exist any Lien upon or with respect to any of the
Collateral and (y) shall defend the Collateral against all Persons at any time
claiming any interest therein;

 

(ii)                                  it
shall not change such Grantor’s name, identity, corporate structure (e.g., by
merger, consolidation, change in corporate form or otherwise) type of
organization or jurisdiction of organization unless it shall have (a) notified
the Collateral Trustee in writing, by executing and delivering to the
Collateral Trustee a completed Pledge Supplement, substantially in the form of
Exhibit A attached hereto, together with all Supplements to Schedules thereto,
(i) at least five (5) days prior to any such change or establishment, in the
case of identifying such new proposed name, identity and/or jurisdiction of
organization and (ii) no later than thirty (30) days after any change or
establishment, in the case of identifying such new corporate structure, in each
case, providing such other information in connection therewith as the
Collateral Trustee may reasonably request and (b) taken all actions necessary
or advisable to maintain the continuous validity, perfection and the same or
better priority of the Collateral Trustee’s security interest in the Collateral
intended to be granted and agreed to hereby; and

 

(iii)                               it
shall not take or permit any action which could materially impair the
Collateral Trustee’s rights in the Collateral, except transactions expressly
permitted under the Credit Agreement.

 

4.2                               Equipment and Inventory.

 

(a)                                  Representations
and Warranties.  Each Grantor
represents and warrants, on the Closing Date as to itself and its property only
that:

 

(i)                                     all
of the Equipment and Inventory included in the Collateral is kept for the past
four (4) years only at the locations specified in Schedule 4.2 (as such
schedule may be amended or supplemented from time to time).

 

(b)                                 Covenants and
Agreements.  Each Grantor covenants
and agrees as to itself and its property only that:

 

(i)                                     it
shall keep satisfactory and accurate records of the Inventory in accordance
with its customary practice;

 

10

 

(ii)                                  it
shall not deliver any Document evidencing any Equipment and Inventory to any
Person other than the issuer of such Document to claim the Goods evidenced
therefor or the Collateral Trustee; and

 

(iii)                               if
any Equipment or Inventory is in possession or control of any third party, each
Grantor shall join with the Collateral Trustee in notifying the third party of
the Collateral Trustee’s security interest.

 

4.3                               Receivables.

 

(a)                                  Covenants and
Agreements:  Each Grantor hereby
covenants and agrees as to itself and its property only that:

 

(i)                                     it
shall keep and maintain at its own cost and expense satisfactory and complete
records of the Receivables in accordance with its customary practice.

 

(ii)                                  it
shall not amend, modify, terminate or waive any provision of any Receivable in
any manner which could reasonably be expected to have a Material Adverse
Effect;

 

(iii)                               after
the occurrence and during the continuance of an Event of Default, the
Collateral Trustee shall have the right at any time to notify, or require any
Grantor to notify, any Account Debtor of the Collateral Trustee’s security
interest in the Receivables and any Supporting Obligation and, in addition, at
any time following the occurrence and during the continuation of an Event of
Default, the Collateral Trustee may: (1) direct the Account Debtors under any
Receivables to make payment of all amounts due or to become due to such Grantor
thereunder directly to the Collateral Trustee; and (2) enforce, at the expense
of such Grantor, collection of any such Receivables and to adjust, settle or
compromise the amount or payment thereof, in the same manner and to the same
extent as such Grantor might have done. If the Collateral Trustee notifies any
Grantor that it has elected to collect the Receivables in accordance with the
preceding sentence, any payments of Receivables received by such Grantor shall
be forthwith deposited by such Grantor in the exact form received, duly
indorsed by such Grantor to the Collateral Trustee if required, in the
Collateral Account maintained under the sole dominion and control of the
Collateral Trustee, and until so turned over, all amounts and proceeds
(including checks and other instruments) received by such Grantor in respect of
the Receivables, any Supporting Obligation or Collateral Support shall be
received in trust for the benefit of the Collateral Trustee hereunder and shall
be segregated from other funds of such Grantor and such Grantor shall not
adjust, settle or compromise the amount or payment of any Receivable, or
release wholly or partly any Account Debtor or obligor thereof, or allow any
credit or discount thereon; and

 

(iv)                              it
shall use its best efforts to keep in full force and effect any Supporting
Obligation or Collateral Support relating to any Receivable.

 

(b)                                 Delivery and
Control of Receivables.  With
respect to any individual Receivable in excess of $500,000 that is evidenced
by, or constitutes, Chattel Paper or Instruments, each Grantor shall cause each
originally executed copy thereof to be delivered to the Collateral Trustee (or
its agent or designee) promptly appropriately indorsed to the Collateral
Trustee or indorsed in blank. With respect to any individual Receivable in
excess of $500,000 which would constitute “electronic chattel paper” under
Article 9 of the UCC, each Grantor shall promptly take all steps necessary to
give the Collateral Trustee control over such Receivables (within the meaning
of Section 9-105 of the UCC). Any Receivable not 

 

11

 

otherwise required to be delivered or subjected to the control of the
Collateral Trustee in accordance with this subsection (c) shall be delivered or
subjected to such control upon request of the Collateral Trustee.

 

4.4                               Investment Related Property
Generally.

 

(a)                                  Covenants and
Agreements.  Each Grantor hereby
covenants and agrees as to itself and its property only that:

 

(i)                                     in
the event it acquires rights in any Pledged Equity Interests or Pledged Debt
after the date hereof, it shall deliver to the Collateral Trustee a completed
Pledge Supplement, no more frequent than every 6 months substantially in the
form of Exhibit A attached hereto, together with all Supplements to Schedules
thereto, reflecting such new Pledged Equity Interests or Pledged Debt.
Notwithstanding the foregoing, it is understood and agreed that the security
interest of the Collateral Trustee shall attach to all Investment Related
Property immediately upon any Grantor’s acquisition of rights therein and shall
not be affected by the failure of any Grantor to deliver a supplement to
Schedule 4.4 as required hereby;

 

(ii)                                  except
as provided in the next sentence, in the event such Grantor receives any
dividends, interest or distributions on any Investment Related Property, or any
securities or other property upon the merger, consolidation, liquidation or
dissolution of any issuer of any Investment Related Property, then (a) such
dividends, interest or distributions and securities or other property shall be
included in the definition of Collateral without further action and (b) such
Grantor shall promptly take all steps, if any, necessary to ensure the
validity, perfection, priority and, if applicable, control of the Collateral
Trustee over such Investment Related Property (including, without limitation,
delivery thereof to the Collateral Trustee) and pending any such action such
Grantor shall be deemed to hold such dividends, interest, distributions,
securities or other property in trust for the benefit of the Collateral
Trustee. Notwithstanding the foregoing, so long as no Event of Default shall
have occurred and be continuing and the Collateral Agent shall not have
directed that dividends be turned over, the Collateral Trustee authorizes each
Grantor to retain all dividends and distributions paid;

 

(iii)                               each
Grantor consents to the grant by each other Grantor of a Security Interest in
all Investment Related Property to the Collateral Trustee.

 

(b)                                 Delivery and
Control.

 

(i)                                     Each
Grantor agrees that with respect to any Investment Related Property in which it
currently has rights it shall comply with the provisions of this Section
4.4.1(b) on or before the Credit Date and with respect to any Investment
Related Property hereafter acquired by such Grantor it shall comply with the
provisions of this Section 4.4.1(b) immediately upon acquiring rights therein,
in each case in form and substance satisfactory to the Collateral Trustee. With
respect to any Investment Related Property that is represented by a certificate
or that is an “instrument” having an individual principal amount in excess of
$500,000 (other than any Investment Related Property credited to a Securities
Account) it shall cause such certificate or instrument to be delivered to the
Collateral Trustee, indorsed in blank by an “effective indorsement” (as defined
in Section 8-107 of the UCC), regardless of whether such certificate
constitutes a “certificated security” for purposes of the UCC and in no event
shall any certificate or instrument evidencing any Investment Related Property
be delivered to or be in the possession of any Person other than a Grantor or
the Collateral Trustee.

 

12

 

(c)                                  Voting and
Distributions.

 

(i)                                     So
long as no Event of Default shall have occurred and be continuing:

 

(1)                                  each
Grantor shall be entitled to exercise or refrain from exercising any and all
voting and other consensual rights pertaining to the Investment Related
Property or any part thereof for any purpose not inconsistent with the terms of
this Agreement or the Credit Agreement; it being understood, however, that,
without limitation, neither the voting by such Grantor of any Pledged Stock
for, or such Grantor’s consent to, the election of directors (or similar
governing body) at a regularly scheduled annual or other meeting of
stockholders or with respect to incidental matters at any such meeting, nor
such Grantor’s consent to or approval of any action otherwise permitted under
this Agreement or the Credit Agreement, shall be deemed inconsistent with the
terms of this Agreement or the Credit Agreement within the meaning of this
Section 4.4(d)(i)(A), and no notice of any such voting or consent need be given
to the Collateral Trustee; and

 

(2)                                  the
Collateral Trustee shall promptly execute and deliver (or cause to be executed
and delivered) to each Grantor all proxies, and other instruments as such
Grantor may from time to time reasonably request for the purpose of enabling
such Grantor to exercise the voting and other consensual rights when and to the
extent which it is entitled to exercise pursuant to clause (A) above;

 

(3)                                  Upon
the occurrence and during the continuation of an Event of Default:

 

(A)                              all
rights of each Grantor to exercise or refrain from exercising the voting and
other consensual rights which it would otherwise be entitled to exercise
pursuant hereto shall cease and all such rights shall thereupon become vested
in the Collateral Trustee who shall thereupon have the sole right to exercise
such voting and other consensual rights; and

 

(B)                                in
order to permit the Collateral Trustee to exercise the voting and other
consensual rights which it may be entitled to exercise pursuant hereto and to
receive all dividends and other distributions which it may be entitled to
receive hereunder: (1) each Grantor shall promptly execute and deliver (or
cause to be executed and delivered) to the Collateral Trustee all proxies,
dividend payment orders and other instruments as the Collateral Trustee may
from time to time reasonably request and (2) the each Grantor acknowledges that
the Collateral Trustee may utilize the power of attorney set forth in Section
6.

 

4.4.1                     Pledged
Equity Interests

 

(a)                                  Representations
and Warranties.  Each Grantor hereby
represents and warrants, on the Closing Date and on each Credit Date, as to
itself and its property only that:

 

(i)                                     Schedule
4.4.1 (as such schedule may be amended or supplemented from time to time) sets
forth under the headings “Pledged Stock, “Pledged LLC Interests,” “Pledged
Partnership Interests” and “Pledged Trust Interests,” respectively, all of the
Pledged Stock, Pledged LLC Interests, Pledged Partnership Interests and Pledged
Trust Interests owned by any Grantor and such Pledged Equity Interests
constitute the percentage of issued and outstanding shares of stock, percentage
of membership interests, percentage of partnership interests or percentage of
beneficial interest of the respective issuers thereof indicated on such
Schedule;

 

13

 

(ii)                                  it
is the record and beneficial owner of the Pledged Equity Interests free of all
Liens, rights or claims of other Persons other than Permitted Liens and there
are no outstanding warrants, options or other rights to purchase, or
shareholder, voting trust or similar agreements outstanding with respect to, or
property that is convertible into, or that requires the issuance or sale of,
any Pledged Equity interests;

 

(iii)                               none
of the Pledged LLC Interests nor Pledged Partnership Interests are or represent
interests in issuers that: (a) are registered as investment companies, (b) are
dealt in or traded on securities exchanges or markets.

 

(b)                                 Covenants and
Agreements.  Each Grantor hereby
covenants and agrees as to itself and its property only that:

 

(i)                                     each
Grantor consents to the grant by each other Grantor of a security interest in
all Investment Related Property to the Collateral Trustee and, without limiting
the foregoing, consents to the transfer of any Pledged Partnership Interest and
any Pledged LLC Interest to the Collateral Trustee or its nominee following an
Event of Default and to the substitution of the Collateral Trustee or its
nominee as a partner in any partnership or as a member in any limited liability
company with all the rights and powers related thereto.

 

4.4.2                     Pledged
Debt

 

(a)                                  Representations
and Warranties.  Each Grantor hereby
represents and warrants, on the Closing Date as to itself and its property only
that:

 

(i)                                     Schedule
4.4.2 (as such schedule may be amended or supplemented from time to time) sets
forth under the heading “Pledged Debt” all of the Pledged Debt owned by any
Grantor;

 

(b)                                 Covenants and
Agreements.  Each Grantor hereby
covenants and agrees as to itself and its property only that:

 

(i)                                     it
shall notify the Collateral Trustee of any default under any Pledged Debt that
has caused, either in any individual case or in the aggregate, a Material
Adverse Effect.

 

4.4.3                     Reserved

 

4.5                               Reserved.

 

4.6                               Letter of Credit Rights.

 

(a)                                  Representations
and Warranties. Each Grantor hereby represents and warrants, on the Closing
Date and on each Credit Date, as to itself and its property only that:

 

(i)                                     all
material letters of credit to which such Grantor has rights is listed on
Schedule 4.6 (as such schedule may be amended or supplemented from time to
time) hereto; and

 

(ii)                                  it
has obtained the consent of each issuer of any material letter of credit to the
assignment of the proceeds of the letter of credit to the Collateral Trustee.

 

14

 

(b)                                 Covenants and
Agreements.  Each Grantor hereby
covenants and agrees that with respect to any material letter of credit
hereafter arising it shall obtain the consent of the issuer thereof to the
assignment of the proceeds of the letter of credit to the Collateral Trustee
and shall deliver to the Collateral Trustee a completed Pledge Supplement,
substantially in the form of Exhibit A attached hereto, together with all
Supplements to Schedules thereto.

 

4.7                               Intellectual Property.

 

(a)                                  Representations
and Warranties.  Except as disclosed
in Schedule 4.7(H) (as such schedule may be amended or supplemented from time
to time), each Grantor hereby represents and warrants, on the Closing Date and
on each Credit Date, as to itself and its property only that:

 

(i)                                     Schedule
4.7 (as such schedule may be amended or supplemented from time to time) sets
forth a true and complete list of (i) all United States, state and foreign
registrations of and applications for Patents and Trademarks owned by each
Grantor and (ii) registrations for certain Copyrights owned by each Grantor;

 

(ii)                                  it
owns or otherwise has the valid right to use all other Intellectual Property,
including the Intellectual Property on Schedule 4.7 (as such schedule may be
amended from time to time), used in or necessary to the conduct of its business,
free and clear of all Liens, claims, encumbrances and licenses, except for
Permitted Liens and the Patent Licenses, Copyright Licenses, Trademark Licenses
and Trade Secret Licenses;

 

(iii)                               all
Intellectual Property is subsisting and has not been adjudged invalid or
unenforceable, in whole or in part, and each Grantor has performed all
reasonable acts and has paid all renewal, maintenance, and other fees and taxes
required to maintain each and every registration and application of Copyrights,
Patents and Trademarks in full force and effect;

 

(iv)                              no
holding, decision, or judgment has been rendered in any action or proceeding
before any court or administrative authority challenging the validity of, such
Grantor’s right to register, or such Grantor’s rights to own or use, any
Intellectual Property and no such action or proceeding is pending or, to the
best of such Grantor’s knowledge, threatened, and, to the best of each
Grantor’s knowledge, all Intellectual Property is valid and enforceable;

 

(v)                                 all
registrations and applications for Copyrights, Patents and Trademarks are
recorded in the name of each Grantor, and none of the Trademarks, Patents,
Copyrights or Trade Secrets has been licensed by any Grantor to any affiliate
or third party, except in the ordinary course of business;

 

(vi)                              each
Grantor has been using as appropriate in the ordinary course of its business
appropriate statutory notice of registration in connection with its use of
registered Trademarks, proper marking practices in connection with the use of
Patents, and appropriate notice of copyright in connection with the publication
of Copyrights, in each case material to the business of such Grantor;

 

(vii)                           each
Grantor uses consistent standards of quality in the manufacture, distribution, and
sale of all products sold and in the provision of all services rendered under
or in connection with all material Trademarks and has taken all reasonable
action necessary to insure that all licensees of the material Trademarks owned
by such Grantor use such consistent standards of quality;

 

15

 

(viii)                        to the
best of each Grantor’s knowledge, the conduct of such Grantor’s business does
not infringe upon any trademark, patent, copyright, trade secret or similar
intellectual property right owned or controlled by a third party; no claim has
been made that the use of any Intellectual Property owned or, to the best of
each Grantor’s knowledge, used by Grantor (or any of its respective licensees)
violates the asserted rights of any third party;

 

(ix)                                to
the best of each Grantor’s knowledge, no third party is infringing upon or
otherwise violating any rights in any material Intellectual Property owned or
used by such Grantor, or any of its respective licensees; and

 

(x)                                   no
settlement or consents, covenants not to sue, nonassertion assurances, or
releases have been entered into by Grantor or to which Grantor is bound that
adversely effect Grantor’s rights to own or use any material Intellectual
Property.

 

(b)                                 Covenants and
Agreements.  Each Grantor hereby
covenants and agrees as follows:

 

(i)                                     it
shall not do any act or omit to do any reasonable act whereby any of the
Intellectual Property which is material to the business of the Grantor may
lapse, or become abandoned, dedicated to the public, or unenforceable, or which
would adversely affect the validity, grant, or enforceability of the security
interest granted therein except as permitted by the Credit Agreement;

 

(ii)                                  it
shall not, with respect to any Trademarks which are material to the business of
any Grantor, cease the use of any of such Trademarks or fail to maintain the
level of the quality of products sold and services rendered under any of such
Trademarks at a level at least substantially consistent with the quality of
such products and services as of the date hereof, and each Grantor shall take
all steps necessary to insure that licensees of such Trademarks use such
consistent standards of quality;

 

(iii)                               it
shall promptly notify the Collateral Trustee if it knows or has reason to know
that any item of the Intellectual Property that is material to the business of
any Grantor may become (a) abandoned or dedicated to the public or placed in
the public domain, (b) invalid or unenforceable, or (c) subject to any adverse
determination or development (including the institution of proceedings) in any
action or proceeding in the United States Patent and Trademark Office, the
United States Copyright Office, any state registry, any foreign counterpart of
the foregoing, or any court;

 

(iv)                              it
shall take all reasonable steps in the United States Patent and Trademark
Office, the United States Copyright Office, any state registry or any foreign
counterpart of the foregoing, to pursue any application and maintain any
registration of each Trademark, Patent, and Copyright owned by any Grantor and
material to its business which is now or shall become included in the
Intellectual Property including, but not limited to, those items on Schedule
4.7(A), (B) and (C) (as each may be amended or supplemented from time to time);

 

(v)                                 in
the event that any material Intellectual Property owned by or exclusively
licensed to any Grantor is infringed, misappropriated, or diluted by a third
party, such Grantor shall promptly take all reasonable actions to stop such
infringement, misappropriation, or dilution and protect its rights in such
Intellectual Property including, but not limited to, at such Grantor’s
discretion, the initiation of a suit for injunctive relief and to recover
damages;

 

16

 

(vi)                              it
shall quarterly report to the Collateral Trustee (i) the filing of any
application to register any material Intellectual Property with the United
States Patent and Trademark Office, or any state registry or foreign
counterpart of the foregoing (whether such application is filed by such Grantor
or through any agent, employee, licensee, or designee thereof) and (ii) the
registration of any Patents, Trademarks, and, to the extent practicable,
material Copyrights, by any such office, in each case by executing and
delivering to the Collateral Trustee a completed Pledge Supplement,
substantially in the form of Exhibit A attached hereto, together with all
Supplements to Schedules thereto;

 

(vii)                           it
shall, promptly upon the reasonable request of the Collateral Trustee, execute
and deliver to the Collateral Trustee any document required to acknowledge,
confirm, register, record, or perfect the Collateral Trustee’s interest in any
part of the Intellectual Property, whether now owned or hereafter acquired;

 

(viii)                        it shall
hereafter use commercially reasonable efforts so as not to permit the inclusion
in any contract to which it hereafter becomes a party of any provision that
could or might in any way materially impair or prevent the creation of a
security interest in, or the assignment of, such Grantor’s rights and interests
in any property included within the definitions of any Intellectual Property
acquired under such contracts;

 

(ix)                                it
shall take all steps reasonably necessary to protect the secrecy of all
material Trade Secrets, including, without limitation, entering into
confidentiality agreements with employees and labeling and restricting access
to secret information and documents;

 

(x)                                   it
shall continue to collect, in the ordinary course of business, at its own
expense, all amounts due or to become due to such Grantor in respect of the
Intellectual Property or any portion thereof. In connection with such
collections, each Grantor may take (and, at the Collateral Trustee’s reasonable
direction, shall take) such action as such Grantor or the Collateral Trustee
may deem reasonably necessary or advisable to enforce collection of such
amounts. Notwithstanding the foregoing, the Collateral Trustee shall have the
right at any time, to notify, or require any Grantor to notify, any obligors
with respect to any such amounts of the existence of the security interest
created hereby.

 

4.8                               Commercial Tort Claims.

 

(a)                                  Representations
and Warranties.  Each Grantor hereby
represents and warrants, on the Closing Date and on each Credit Date, as to
itself and its property only that Schedule 4.8 (as such schedule may be amended
or supplemented from time to time) sets forth all Commercial Tort Claims of
each Grantor in excess of $500,000 individually; and

 

(b)                                 Covenants and
Agreements.  Each Grantor hereby
covenants and agrees that with respect to any Commercial Tort Claim in excess
of $500,000 individually hereafter arising it shall deliver to the Collateral
Trustee a completed Pledge Supplement, substantially in the form of Exhibit A
attached hereto, together with all Supplements to Schedules thereto,
identifying such new Commercial Tort Claims.

 

17

 

SECTION 5.                            FURTHER
ASSURANCES; ADDITIONAL GRANTORS.

 

5.1                               Further Assurances.

 

(a)                                  Each Grantor agrees
that to the extent practicable from time to time, at the expense of such
Grantor, that it shall promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary, or that the
Collateral Trustee may reasonably request, in order to create and/or maintain
the validity, perfection or priority of and protect any security interest
granted hereby or to enable the Collateral Trustee to exercise and enforce its
rights and remedies hereunder with respect to any Collateral to the extent
required hereby. Without limiting the generality of the foregoing, each Grantor
shall:

 

(i)                                     file
such financing or continuation statements, or amendments thereto, and execute
and deliver such other agreements, instruments, endorsements, powers of
attorney or notices, as may be necessary or desirable, or as the Collateral
Trustee may reasonably request, in order to perfect and preserve the security
interests granted or purported to be granted hereby;

 

(ii)                                  take
all actions necessary to ensure the recordation of appropriate evidence of the
liens and security interest granted hereunder in the Intellectual Property with
any intellectual property registry in which said Intellectual Property is
registered or in which an application for registration is pending including,
without limitation, the United States Patent and Trademark Office, the United
States Copyright Office, the various Secretaries of State, and the foreign
counterparts on any of the foregoing; and

 

(iii)                               at
the Collateral Trustee’s request, appear in and defend any action or proceeding
that may affect such Grantor’s title to or the Collateral Trustee’s security
interest in all or any part of the Collateral.

 

(b)                                 Each Grantor hereby
authorizes the Collateral Trustee to file a Record or Records, including,
without limitation, financing or continuation statements, and amendments
thereto, in any jurisdictions and with any filing offices as the Collateral
Trustee may determine, in its sole discretion, are necessary or advisable to
perfect the security interest granted to the Collateral Trustee herein. Such
financing statements may describe the Collateral in the same manner as
described herein or may contain an indication or description of collateral that
describes such property in any other manner as the Collateral Trustee may
determine, in its sole discretion, is necessary, advisable or prudent to ensure
the perfection of the security interest in the Collateral granted to the
Collateral Trustee herein, including, without limitation, describing such
property as “all assets” or “all personal property, whether now owned or
hereafter acquired.” Each Grantor shall furnish to the Collateral Trustee from
time to time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as the
Collateral Trustee may reasonably request, all in reasonable detail.

 

(c)                                  Each Grantor hereby
authorizes the Collateral Trustee to modify this Agreement after obtaining such
Grantor’s approval of or signature to such modification by amending Schedule
4.7 (as such schedule may be amended or supplemented from time to time) to
include reference to any right, title or interest in any existing material
Intellectual Property or any material Intellectual Property acquired or
developed by any Grantor after the execution hereof or to delete any reference
to any right, title or interest in any Intellectual Property in which any
Grantor no longer has or claims any right, title or interest.

 

5.2                               Additional Grantors.  From time to time subsequent to the date hereof, additional
Persons may become parties hereto as additional Grantors (each, an “Additional
Grantor”), by executing a 

 

18

 

Counterpart
Agreement. Upon delivery of any such counterpart agreement to the Collateral
Trustee, notice of which is hereby waived by Grantors, each Additional Grantor
shall be a Grantor and shall be as fully a party hereto as if Additional
Grantor were an original signatory hereto. Each Grantor expressly agrees that
its obligations arising hereunder shall not be affected or diminished by the
addition or release of any other Grantor hereunder, nor by any election of Collateral
Trustee not to cause any Subsidiary of Company to become an Additional Grantor
hereunder. This Agreement shall be
fully effective as to any Grantor that is or becomes a party hereto
regardless of whether any other Person becomes or fails to become or ceases to
be a Grantor hereunder.

 

SECTION 6.                            COLLATERAL TRUSTEE
APPOINTED ATTORNEY-IN-FACT.

 

6.1                               Power
of Attorney.  Each Grantor
hereby irrevocably appoints the Collateral Trustee (such appointment being
coupled with an interest) during the continuation of an Event of Default as
such Grantor’s attorney-in-fact, with
full authority in the place and stead of such Grantor and in the name of
such Grantor, the Collateral Trustee or otherwise, from time to time in the
Collateral Trustee’s discretion to take any action and to execute any
instrument that the Collateral Trustee may deem reasonably necessary or
advisable to accomplish the purposes of this Agreement, including, without
limitation, the following:

 

(a)                                  upon the occurrence
and during the continuance of any Event of Default, to obtain and adjust
insurance required to be maintained by such Grantor or paid to the Collateral
Trustee pursuant to the Credit Agreement;

 

(b)                                 upon the occurrence
and during the continuance of any Event of Default, to ask for, demand,
collect, sue for, recover, compound, receive and give acquittance and receipts
for moneys due and to become due under or in respect of any of the Collateral;

 

(c)                                  upon the occurrence
and during the continuance of any Event of Default, to receive, endorse and
collect any drafts or other instruments, documents and chattel paper in
connection with clause (b) above;

 

(d)                                 upon the occurrence
and during the continuance of any Event of Default, to file any claims or take
any action or institute any proceedings that the Collateral Trustee may deem
necessary or desirable for the collection of any of the Collateral or otherwise
to enforce the rights of the Collateral Trustee with respect to any of the
Collateral;

 

(e)                                  to prepare, sign, and
file for recordation in any intellectual property registry, appropriate
evidence of the lien and security interest granted herein in the Intellectual
Property in the name of such Grantor as debtor;

 

(f)                                    to take or cause to
be taken all actions necessary to perform or comply or cause performance or
compliance with the terms of this Agreement, including, without limitation,
access to pay or discharge taxes or Liens (other than Permitted Liens) levied
or placed upon or threatened against the Collateral, the legality or validity thereof
and the amounts necessary to discharge the same to be determined by the
Collateral Trustee in its sole discretion, any such payments made by the
Collateral Trustee to become obligations of such Grantor to the Collateral
Trustee, due and payable immediately without demand; and

 

(g)                                 generally to sell,
transfer, pledge, make any agreement with respect to or otherwise deal with any
of the Collateral as fully and completely as though the Collateral Trustee were
the absolute owner thereof for all purposes, and to do, at the Collateral
Trustee’s option and such 

 

19

 

Grantor’s expense, at any time or from time to time, all acts and
things that the Collateral Trustee deems reasonably necessary to protect,
preserve or realize upon the Collateral and the Collateral Trustee’s security
interest therein in order to effect the intent of this Agreement, all as fully
and effectively as such Grantor might do.

 

6.2                               No Duty on the Part of Collateral Trustee or
Secured Parties.  The powers
conferred on the Collateral Trustee hereunder are solely to protect the
interests of the Secured Parties in the Collateral and shall not impose any
duty upon the Collateral Trustee or any Secured Party to exercise any such
powers. The Collateral Trustee and the Secured Parties shall be accountable
only for amounts that they actually receive as a result of the exercise of such
powers, and neither they nor any of their officers, directors, employees or
agents shall be responsible to any Grantor for any act or failure to act
hereunder, except for their own gross negligence or willful misconduct.

 

SECTION 7.                            REMEDIES.

 

7.1                               Generally.

 

(a)                                  If any Event of
Default shall have occurred and be continuing, the Collateral Trustee may
exercise in respect of the Collateral, in addition to all other rights and
remedies provided for herein or otherwise available to it at law or in equity,
all the rights and remedies of the Collateral Trustee on default under the UCC
(whether or not the UCC applies to the affected Collateral) to collect, enforce
or satisfy any Secured Obligations then owing, whether by acceleration or
otherwise, and also may pursue any of the following separately, successively or
simultaneously:

 

(i)                                     require
any Grantor to, and each Grantor hereby agrees that it shall at its expense and
promptly upon request of the Collateral Trustee forthwith, assemble all or part
of the Collateral as directed by the Collateral Trustee and make it available
to the Collateral Trustee at a place to be designated by the Collateral Trustee
that is reasonably convenient to both parties;

 

(ii)                                  enter
onto the property where any Collateral is located and take possession thereof
with or without judicial process;

 

(iii)                               prior
to the disposition of the Collateral, store, process, repair or recondition the
Collateral or otherwise prepare the Collateral for disposition in any manner to
the extent the Collateral Trustee deems appropriate; and

 

(iv)                              without
notice except as specified below or under the UCC, sell, assign, lease, license
(on an exclusive or nonexclusive basis) or otherwise dispose of the Collateral
or any part thereof in one or more parcels at public or private sale, at any of
the Collateral Trustee’s offices or elsewhere, for cash, on credit or for
future delivery, at such time or times and at such price or prices and upon
such other terms as the Collateral Trustee may deem commercially reasonable.

 

(b)                                 The Collateral Trustee
or any Secured Party may be the purchaser of any or all of the Collateral at
any public or private (to the extent to portion of the Collateral being
privately sold is of a kind that is customarily sold on a recognized market or
the subject of widely distributed standard price quotations) sale in accordance
with the UCC and the Collateral Trustee, as agent for and representative of the
Secured Parties, shall be entitled, at the direction of the Majority Secured
Parties, for the purpose of bidding and making settlement or payment of the
purchase price for all or any portion of the Collateral sold at any such sale
made in accordance with the UCC, to use and apply any of the Secured
Obligations (with the consent of the Majority Secured Parties) as a credit on
account of the purchase price for any 

 

20

 

Collateral payable by the Collateral Trustee at such sale. Each
purchaser at any such sale shall hold the property sold absolutely free from
any claim or right on the part of any Grantor, and each Grantor hereby waives
(to the extent permitted by applicable law) all rights of redemption, stay
and/or appraisal which it now has or may at any time in the future have under
any rule of law or statute now existing or hereafter enacted. Each Grantor
agrees that, to the extent notice of sale shall be required by law, at least
ten (10) days notice to such Grantor of the time and place of any public sale
or the time after which any private sale is to be made shall constitute
reasonable notification. The Collateral Trustee shall not be obligated to make
any sale of Collateral regardless of notice of sale having been given. The
Collateral Trustee may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned.
Each Grantor agrees that it would not be commercially unreasonable for the
Collateral Trustee to dispose of the Collateral or any portion thereof by using
Internet sites that provide for the auction of assets of the types included in
the Collateral or that have the reasonable capability of doing so, or that
match buyers and sellers of assets. Each Grantor hereby waives any claims
against the Collateral Trustee arising by reason of the fact that the price at
which any Collateral may have been sold at such a private sale was less than
the price which might have been obtained at a public sale, even if the
Collateral Trustee accepts the first offer received and does not offer such
Collateral to more than one offeree. If the proceeds of any sale or other
disposition of the Collateral are insufficient to pay all the Secured
Obligations, Grantors shall be liable for the deficiency and the reasonable
fees of any attorneys employed by the Collateral Trustee to collect such deficiency.
Each Grantor further agrees that a breach of any of the covenants contained in
this Section will cause irreparable injury to the Collateral Trustee, that the
Collateral Trustee has no adequate remedy at law in respect of such breach and,
as a consequence, that each and every covenant contained in this Section shall
be specifically enforceable against such Grantor, and such Grantor hereby
waives and agrees not to assert any defenses against an action for specific
performance of such covenants except for a defense that no default has occurred
giving rise to the Secured Obligations becoming due and payable prior to their
stated maturities. Nothing in this Section shall in any way alter the rights of
the Collateral Trustee hereunder.

 

(c)                                  The Collateral Trustee
may sell the Collateral without giving any warranties as to the Collateral. The
Collateral Trustee may specifically disclaim or modify any warranties of title
or the like. This procedure will not be considered to adversely effect the
commercial reasonableness of any sale of the Collateral.

 

(d)                                 If the Collateral
Trustee sells any of the Collateral on credit, the Secured Obligations will be
credited only with payments actually made by the purchaser and received by the
Collateral Trustee and applied to the indebtedness of the purchaser. In the
event the purchaser fails to pay for the Collateral, the Collateral Trustee may
resell the Collateral.

 

(e)                                  The Collateral
Trustee shall have no obligation to marshall any of the Collateral.

 

7.2                               Application of Proceeds.  Except as expressly provided elsewhere in
this Agreement, all proceeds received by the Collateral Trustee in respect of
any sale, any collection from, or other realization upon all or any part of the
Collateral shall be applied in full or in part by the Collateral Trustee
against, the Secured Obligations in the following order of priority: first,
to the payment of all costs and expenses of such sale, collection or other
realization, including reasonable compensation to the Collateral Trustee and
its agents and counsel, and all other expenses, liabilities and advances made
or incurred by the Collateral Trustee in connection therewith, and all amounts
for which the Collateral Trustee is entitled to indemnification hereunder (in
its capacity as the Collateral Trustee and not as a Lender) and all advances
made by the Collateral Trustee hereunder for the account of the applicable
Grantor, and to the payment of all costs and expenses paid or incurred by the
Collateral Trustee in connection with the exercise of any right or remedy
hereunder, all in accordance with the terms hereof; second, to the
extent of any excess of 

 

21

 

such
proceeds, to the payment of all other Secured Obligations for the ratable
benefit of the Secured Parties; and third, to the extent of any excess
of such proceeds, to the payment to or upon the order of such Grantor or to
whosoever may be lawfully entitled to receive the same or as a court of
competent jurisdiction may direct.

 

7.3                               Sales on Credit. 
If Collateral Trustee sells any of the Collateral upon credit, Grantor
will be credited only with payments actually made by purchaser and received by
Collateral Trustee and applied to indebtedness of the Purchaser. In the event
the purchaser fails to pay for the Collateral, Collateral Trustee may resell
the Collateral and Grantor shall be credited with proceeds of the sale.

 

7.4                               Investment Related Property.

 

(a)                                  Each Grantor
recognizes that, by reason of certain prohibitions contained in the Securities
Act and applicable state securities laws, the Collateral Trustee may be
compelled, with respect to any sale of all or any part of the Investment
Related Property conducted without prior registration or qualification of such
Investment Related Property under the Securities Act and/or such state
securities laws, to limit purchasers to those who will agree, among other
things, to acquire the Investment Related Property for their own account, for
investment and not with a view to the distribution or resale thereof. Each
Grantor acknowledges that any such private sale may be at prices and on terms
less favorable than those obtainable through a public sale without such
restrictions (including a public offering made pursuant to a registration
statement under the Securities Act) and, notwithstanding such circumstances,
each Grantor agrees that any such private sale shall be deemed to have been
made in a commercially reasonable manner and that the Collateral Trustee shall
have no obligation to engage in public sales and no obligation to delay the
sale of any Investment Related Property for the period of time necessary to
permit the issuer thereof to register it for a form of public sale requiring
registration under the Securities Act or under applicable state securities
laws, even if such issuer would, or should, agree to so register it. If the
Collateral Trustee determines to exercise its right to sell any or all of the
Investment Related Property, upon written request, each Grantor shall and shall
cause each issuer of any Pledged Stock to be sold hereunder, each partnership
and each limited liability company from time to time to furnish to the
Collateral Trustee all such information as the Collateral Trustee may request
in order to determine the number and nature of interest, shares or other
instruments included in the Investment Related Property which may be sold by
the Collateral Trustee in exempt transactions under the Securities Act and the
rules and regulations of the Securities and Exchange Commission thereunder, as
the same are from time to time in effect.

 

7.5                               Intellectual Property.

 

(a)                                  Anything contained
herein to the contrary notwithstanding, upon the occurrence and during the
continuation of an Event of Default:

 

(i)                                     the
Collateral Trustee shall have the right (but not the obligation) to bring suit
or otherwise commence any action or proceeding in the name of any Grantor, the
Collateral Trustee or otherwise, in the Collateral Trustee’s sole discretion,
to enforce any Intellectual Property, in which event such Grantor shall, at the
request of the Collateral Trustee, do any and all lawful acts and execute any
and all documents required by the Collateral Trustee in aid of such enforcement
and such Grantor shall promptly, upon demand, reimburse and indemnify the
Collateral Trustee as provided in Section 10 hereof in connection with the
exercise of its rights under this Section, and, to the extent that the
Collateral Trustee shall elect not to bring suit to enforce any Intellectual
Property as provided in this Section, each Grantor agrees to use all reasonable
measures, whether by action, suit, proceeding or otherwise, to prevent the
infringement or other violation of any of such Grantor’s rights in the
Intellectual Property by 

 

22

 

others and for
that purpose agrees to diligently maintain any action, suit or proceeding
against any Person so infringing as it believes necessary to prevent such
infringement or violation;

 

(ii)                                  upon
written demand from the Collateral Trustee, each Grantor shall grant, assign,
convey or otherwise transfer to the Collateral Trustee an absolute assignment
of all of such Grantor’s right, title and interest in and to the Intellectual
Property and shall execute and deliver to the Collateral Trustee such documents
as are necessary or appropriate to carry out the intent and purposes of this
Agreement;

 

(iii)                               each
Grantor agrees that such an assignment and/or recording shall be applied to
reduce the Secured Obligations outstanding only to the extent that the
Collateral Trustee (or any Secured Party) receives cash proceeds in respect of
the sale of, or other realization upon, the Intellectual Property;

 

(iv)                              within
fifteen (15) Business Days after written notice from the Collateral Trustee, each
Grantor shall make available to the Collateral Trustee, to the extent within
such Grantor’s power and authority, such personnel in such Grantor’s employ on
the date of such Event of Default as the Collateral Trustee may reasonably
designate, by name, title or job responsibility, to permit such Grantor to
continue, directly or indirectly, to produce, advertise and sell the products
and services sold or delivered by such Grantor under or in connection with the
Trademarks, Trademark Licenses, such persons to be available to perform their
prior functions on the Collateral Trustee’s behalf and to be compensated by the
Collateral Trustee at such Grantor’s expense on a per diem, pro-rata basis
consistent with the salary and benefit structure applicable to each as of the
date of such Event of Default; and

 

(v)                                 the
Collateral Trustee shall have the right to notify, or require each Grantor to
notify, any obligors with respect to amounts due or to become due to such
Grantor in respect of the Intellectual Property, of the existence of the
security interest created herein, to direct such obligors to make payment of
all such amounts directly to the Collateral Trustee, and, upon such
notification and at the expense of such Grantor, to enforce collection of any
such amounts and to adjust, settle or compromise the amount or payment thereof,
in the same manner and to the same extent as such Grantor might have done;

 

(1)                                  all
amounts and proceeds (including checks and other instruments) received by
Grantor in respect of amounts due to such Grantor in respect of the
Intellectual Property or any portion thereof shall be received in trust for the
benefit of the Collateral Trustee hereunder, shall be segregated from other
funds of such Grantor and shall be forthwith paid over or delivered to the
Collateral Trustee in the same form as so received (with any necessary
endorsement) to be held as cash Collateral and applied as provided by Section
7.6 hereof; and

 

(2)                                  Grantor
shall not unreasonably adjust, settle or compromise the amount or payment of
any such amount or release wholly or partly by any obligor with respect thereto
or allow any credit or discount thereon except as the same would be allowed in
the ordinary course of the Grantor’s business.

 

(b)                                 If (i) an Event of
Default shall have occurred and, by reason of cure, waiver, modification,
amendment or otherwise, no longer be continuing, (ii) no other Event of Default
shall have occurred and be continuing, (iii) an assignment or other transfer to
the Collateral Trustee of any rights, title and interests in and to the
Intellectual Property shall have been previously made and shall have become
absolute and effective, and (iv) the Secured Obligations shall not have become
immediately due 

 

23

 

and payable, upon the written request of any Grantor, the Collateral
Trustee shall promptly execute and deliver to such Grantor, at such Grantor’s
sole cost and expense, such assignments or other transfer as may be necessary
to reassign to such Grantor any such rights, title and interests as may have
been assigned to the Collateral Trustee as aforesaid, subject to any
disposition thereof that may have been made by the Collateral Trustee;
provided, after giving effect to such reassignment, the Collateral Trustee’s
security interest granted pursuant hereto, as well as all other rights and
remedies of the Collateral Trustee granted hereunder, shall continue to be in
full force and effect; and provided further, the rights, title and interests so
reassigned shall be free and clear of any other Liens granted by or on behalf
of the Collateral Trustee and the Secured Parties.

 

(c)                                  Solely for the
purpose of enabling the Collateral Trustee to exercise rights and remedies
under this Section 7 if an Event of Default shall have occurred and be
continuing and at such time as the Collateral Trustee shall be lawfully
entitled to exercise such rights and remedies, each Grantor hereby grants to
the Collateral Trustee, to the extent it has the right to do so, an irrevocable,
nonexclusive license (exercisable without payment of royalty or other
compensation to such Grantor), subject, in the case of Trademarks, to
sufficient rights to quality control and inspection in favor of such Grantor to
avoid the risk of invalidation of said Trademarks, to use, operate under,
license, or sublicense any Intellectual Property now owned or hereafter
acquired by such Grantor, and wherever the same may be located.

 

7.6                               Cash Proceeds.  If an Event of Default has occurred and is continuing, all proceeds
of any Collateral received by any Grantor consisting of cash, checks and other
near-cash items (collectively, “Cash
Proceeds”) shall be held by such Grantor in trust for the Collateral
Trustee, and shall, forthwith upon receipt by such Grantor and following a
request by the Collateral Agent, unless otherwise provided pursuant to Section
4.4(a)(ii), be turned over to the Collateral Trustee in the exact form received
by such Grantor (duly indorsed by such Grantor to the Collateral Trustee, if required)
and held by the Collateral Trustee in the Collateral Account. Any Cash Proceeds
received by the Collateral Trustee (whether from a Grantor or otherwise): (i)
if no Event of Default shall have occurred and be continuing, shall be promptly
returned to the applicable Grantor and (ii) if an Event of Default shall have
occurred and be continuing, may, in the sole discretion of the Collateral
Trustee, (A) be held by the Collateral Trustee for the ratable benefit of the
Secured Parties, as collateral security for the Secured Obligations (whether
matured or unmatured) and/or (B) then or at any time thereafter may be applied
by the Collateral Trustee against the Secured Obligations then due and owing.

 

SECTION 8.                            COLLATERAL
TRUSTEE.

 

8.1                               Rights and Duties.

 

(a)                                  The Collateral
Trustee may at any time request directions from the Majority Secured Parties as
to any course of action or other matter relating hereto. Directions given by
the Majority Secured Parties hereunder shall be binding on all Secured Parties
and their successors and assigns for all purposes and the Collateral Trustee
shall not be liable to any party by reason of the Collateral Trustee acting (or
not acting) in accordance with any directions given by the Majority Secured
Parties.

 

(b)                                 To the maximum extent
permitted by law, each Secured Party who is not a Majority Secured Party waives
any claim it might have against the Majority Secured Parties with respect to,
or arising out of or in connection with, any action or failure to act or any
error of judgment, negligence, mistake or oversight whatsoever on the part of
any Majority Secured Party or its directors, officers, employees, attorneys or
agents with respect to any exercise of rights or remedies under the Credit
Documents, other than any claims resulting from the gross negligence or willful
misconduct of any Majority Secured Party. No Majority Secured Party nor any of
its directors, officers, employees, attorneys or agents shall be (a) liable for
failure to demand, collect or realize upon any of the Collateral or for any 

 

24

 

delay in doing so or (b) under any obligation to sell or otherwise
dispose of any Collateral upon the request of any Grantor or any non-Majority
Secured Party or any other Person or to take any other action whatsoever with
regard to the Collateral or any part thereof.

 

(c)                                  In furtherance of the
foregoing provisions of this Section, each Secured Party, by its acceptance of
the benefits hereof, agrees that it shall have no right individually to realize
upon any of the Collateral hereunder, it being understood and agreed by such
Secured Party that all rights and remedies hereunder may be exercised solely by
the Collateral Trustee for the benefit of Secured Parties in accordance with the
terms of this Section.

 

8.2                               Successor.  The
Collateral Trustee may resign at any time by giving thirty (30) days’ prior
written notice thereof to Administrative Agent and the Grantors, and Collateral
Trustee may be removed at any time with or without cause by an instrument or
concurrent instruments in writing delivered to the Grantors and Collateral
Trustee signed by the Majority Secured Parties. Upon any such notice of
resignation or any such removal, the Majority Secured Parties shall have the
right, upon five (5) Business Days’ notice to the Collateral Trustee, following
receipt of the Grantors’ consent (which shall not be unreasonable withheld or
delayed and which shall not be required while an Event of Default under Section
8.1(a), (g) or (h) shall have occurred and be continuing), to appoint a
successor Collateral Trustee. Upon the acceptance of any appointment as
Collateral Trustee hereunder by a successor Collateral Trustee, that successor
Collateral Trustee under this Agreement shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring or
removed Collateral Trustee under this Agreement, and the retiring or removed
Collateral Trustee under this Agreement shall promptly (i) transfer to such
successor Collateral Trustee all sums, Securities and other items of Collateral
held hereunder, together with all records and other documents necessary or
appropriate in connection with the performance of the duties of the successor
Collateral Trustee under this Agreement, and (ii) execute and deliver to such
successor Collateral Trustee such amendments to financing statements, and take
such other actions, as may be necessary or appropriate in connection with the
assignment to such successor Collateral Trustee of the security interests
created hereunder, whereupon such retiring or removed Collateral Trustee shall
be discharged from its duties and obligations under this Agreement. After any
retiring or removed Collateral Trustee’s resignation or removal hereunder as
the Collateral Trustee, the provisions of this Agreement shall inure to its
benefit as to any actions taken or omitted to be taken by it under this
Agreement while it was the Collateral Trustee hereunder.

 

SECTION 9.                            CONTINUING
SECURITY INTEREST; TRANSFER OF LOANS.

 

This Agreement shall create a continuing
security interest in the Collateral and shall remain in full force and effect
until the payment in full of the Obligations, the cancellation or termination
of the Commitments and the cancellation or expiration of all outstanding
Letters of Credit, be binding upon each Grantor, its successors and assigns,
and inure, together with the rights and remedies of the Collateral Trustee
hereunder, to the benefit of the Collateral Trustee and its successors, transferees
and assigns, for the benefit and on behalf of the Secured Parties. Without
limiting the generality of the foregoing, any Secured Party may assign or
otherwise transfer any Secured Obligations held by it to any other Person
subject to and in compliance with the terms of the Credit Agreement, and such
other Person shall thereupon become vested with all the benefits in respect
thereof granted to the Secured Parties herein or otherwise. Upon the payment in
full of the Obligations, the cancellation or termination of the Commitments and
the cancellation or expiration of all Outstanding Letters of Credit, the
security interest granted hereby shall terminate hereunder and of record and
all rights to the Collateral shall revert to Grantors. Notwithstanding the foregoing,
the Collateral Trustee shall release, at the request of the applicable Grantor,
the security interest granted hereby on any Collateral described in Section
9.8(a)(i) of the Credit Agreement. Upon any such termination the Collateral
Trustee shall, at Grantors’ expense, 

 

25

 

execute and deliver to Grantors
such documents as Grantors shall reasonably request to evidence such
termination or release.

 

SECTION 10.                     STANDARD OF
CARE; COLLATERAL TRUSTEE MAY PERFORM.

 

The powers conferred on the Collateral
Trustee hereunder are solely to protect its interest, for the benefit and on
behalf of the Secured Parties, in the Collateral and shall not impose any duty
upon it to exercise any such powers. Except for the exercise of reasonable care
in the custody of any Collateral in its possession and the accounting for
moneys actually received by it hereunder, the Collateral Trustee shall have no
duty as to any Collateral or as to the taking of any necessary steps to preserve
rights against prior parties or any other rights pertaining to any Collateral.
The Collateral Trustee shall be deemed to have exercised reasonable care in the
custody and preservation of Collateral in its possession if such Collateral is
accorded treatment substantially equal to that which the Collateral Trustee
accords its own property. Neither the Collateral Trustee nor any of its
directors, officers, employees or agents shall be liable for failure to demand,
collect or realize upon all or any part of the Collateral or for any delay in
doing so or shall be under any obligation to sell or otherwise dispose of any
Collateral upon the request of any Grantor or otherwise. If any Grantor fails
to perform any agreement contained herein, the Collateral Trustee may itself
perform, or cause performance of, such agreement, and the expenses of the
Collateral Trustee incurred in connection therewith shall be payable by each
Grantor under Section 10.2 of the Credit Agreement.

 

SECTION 11.                     INDEMNITY

 

Unless an Event of Default shall have
occurred and be continuing, each Grantor shall be entitled to assume the
defense of any action for which indemnification is sought hereunder with
counsel or its choice at its expense (in which case the Company shall not
thereafter be responsible for the fees and expenses of any separate counsel
retained by an Indemnitee except as set forth below); provided, however, that such
counsel shall be reasonably satisfactory to each such Indemnitee.
Notwithstanding each Grantor’s election to assume the defense of such action,
each Indemnitee shall have the right to employ separate counsel and to
participate in the defense of such action, and such Grantor shall bear the
reasonable fees, costs and expenses of such separate counsel, if (i) the use of
counsel chosen by such Grantor to represent such Indemnitee would present such
counsel with a conflict of interest; (ii) the actual or potential defendants
in, or targets of, any such action include both such Grantor and such
Indemnitee and such Indemnitee shall have reasonably concluded that there may
be legal defenses available to it that are different from or additional to
those available to such Grantor (in which such Grantor shall not have the right
to assume the defense or such action on behalf of such Indemnitee), (iii) such
Grantor shall not have employed counsel reasonably satisfactory to such
Indemnitee to represent it within a reasonable time after notice of the
institution of such action; or (iv) such Grantor shall authorize such Indemnitee
to employ separate counsel at such Grantor’s expense. Each Grantor will not be
liable under this Agreement for any amount paid by an Indemnitee to settle any
claims or actions if the settlement is entered into without such Grantor’s
consent, which consent may not be withheld or delayed unless such settlement is
unreasonable in light of such claims or actions against, and defenses available
to, such Indemnitee.

 

SECTION 12.                     MISCELLANEOUS.

 

12.1                        Notice, Assignment, etc.

 

Any notice required or permitted to be given
under this Agreement shall be given in accordance with Section 10.1 of the
Credit Agreement. No failure or delay on the part of the Collateral Trustee in
the exercise of any power, right or privilege hereunder or any other Credit
Document or shall impair such power, right or privilege or be construed to be a
waiver of any default or acquiescence therein, nor shall 

 

26

 

any single or partial exercise
of any such power, right or privilege preclude other or further exercise
thereof or of any other power, right or privilege. All rights and remedies
existing under this Agreement and the other Credit Documents are cumulative to,
and not exclusive of, any rights or remedies otherwise available. In case any
provision in or obligation under this Agreement shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions or obligations, or of such provision or obligation in
any other jurisdiction, shall not in any way be affected or impaired thereby.
All covenants hereunder shall be given independent effect so that if a
particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or would otherwise be
within the limitations of, another covenant shall not avoid the occurrence of a
Default or an Event of Default if such action is taken or condition exists.
This Agreement shall be binding upon and inure to the benefit of the Collateral
Trustee and Grantors and their respective successors and assigns. No Grantor
shall, without the prior written consent of the Collateral Trustee given in accordance with the Credit
Agreement, assign any right, duty or obligation hereunder. This Agreement and
the other Credit Documents embody the entire agreement and understanding
between Grantors and the Collateral Trustee and supersede all prior agreements
and understandings between such parties relating to the subject matter hereof
and thereof. Accordingly, the Credit Documents may not be contradicted by
evidence of prior, contemporaneous or subsequent oral agreements of the
parties. There are no unwritten oral agreements between the parties. This
Agreement may be executed in one or more counterparts and by different parties
hereto in separate counterparts, each of which when so executed and delivered
shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument; signature pages may be detached
from multiple separate counterparts and attached to a single counterpart so
that all signature pages are physically attached to the same document.

 

THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO ITS CONFLICTS OF LAW PROVISIONS (OTHER THAN SECTION 5-1401 AND SECTION
5-1402 OF THE NEW YORK GENERAL OBLIGATION LAWS).

 

27

 

IN WITNESS WHEREOF, each Grantor and the
Collateral Trustee have caused this Agreement to be duly executed and delivered
by their respective officers thereunto duly authorized as of the date first
written above.

 

	
   

  	
  VERSAILLES U.S. HOLDING INC.,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jonathan Goodman

  	
   

  
	
   

  	
   

  	
  Name: Jonathan Goodman

  
	
   

  	
   

  	
  Title: President, Treasurer and Assistant Secretary

  

 

S-1

 

	
   

  	
  CANADIAN IMPERIAL BANK OF COMMERCE,

  as the Collateral Trustee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Deborah Strek

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Deborah Strek

  
	
   

  	
   

  	
  Title:

  	
  Managing Director

  
					

 

S-2Exhibit
10.5

 

Share Purchase Agreement

 

between

 

Vivendi Universal, S.A.,

 

Vivendi Communications North America, Inc.

 

and Versailles Acquisition Corporation

 

dated

 

November 4, 2002

 

 

TABLE OF CONTENTS

 

	
  ARTICLE I - DEFINITIONS
  AND TERMS

  
	
   

  
	
  1.1

  	
  Definitions

  
	
   

  	
   

  
	
  1.2

  	
  Other Definitional
  Provisions

  
	
   

  	
   

  
	
  1.3

  	
  References to Time

  
	
   

  	
   

  
	
  ARTICLE II - PURCHASE
  AND SALE OF HMC

  
	
   

  	
   

  
	
  2.1

  	
  Purchase
  and Sale of HMC

  
	
   

  	
   

  
	
  2.2

  	
  Purchase
  Price and Adjusted Purchase Price

  
	
   

  	
   

  
	
  2.3

  	
  Closing Payment

  
	
   

  	
   

  
	
  2.4

  	
  Determination
  and Payment of the Adjusted Purchase Price

  
	
   

  	
   

  
	
  2.5

  	
  Allocation
  of Cash Following the Reference Date; Related Party Payments

  
	
   

  	
   

  
	
  2.6

  	
  Related
  Party Payments

  
	
   

  	
   

  
	
  ARTICLE III - REPRESENTATIONS
  AND WARRANTIES OF SELLER

  
	
   

  	
   

  
	
  3.1

  	
  Organization

  
	
   

  	
   

  
	
  3.2

  	
  Capitalization;
  Subsidiaries

  
	
   

  	
   

  
	
  3.3

  	
  Authorization:
  Enforceability

  
	
   

  	
   

  
	
  3.4

  	
  Consents
  and Approvals

  
	
   

  	
   

  
	
  3.5

  	
  Non-Contravention

  
	
   

  	
   

  
	
  3.6

  	
  Financial
  Statements; Absence of Changes

  
	
   

  	
   

  
	
  3.7

  	
  No Undisclosed Liabilities

  
	
   

  	
   

  
	
  3.8

  	
  Litigation

  
	
   

  	
   

  
	
  3.9

  	
  Taxes

  
	
   

  	
   

  
	
  3.10

  	
  Employee Benefits;
  Labor Matters

  
	
   

  	
   

  
	
  3.11

  	
  Compliance with Laws;
  Permits

  

 

i

 

	
  3.12

  	
  Intellectual
  Property

  
	
   

  	
   

  
	
  3.13

  	
  Material
  Contracts

  
	
   

  	
   

  
	
  3.14

  	
  Real Property

  
	
   

  	
   

  
	
  3.15

  	
  Environmental
  Matters

  
	
   

  	
   

  
	
  3.16

  	
  Brokers

  
	
   

  	
   

  
	
  3.17

  	
  Assets

  
	
   

  	
   

  
	
  3.18

  	
  Suppliers; Customers;
  and Authors

  
	
   

  	
   

  
	
  3.19

  	
  No
  Other Representations or Warranties; Schedules

  
	
   

  	
   

  
	
  ARTICLE IV - REPRESENTATIONS
  AND WARRANTIES OF PURCHASER

  
	
   

  	
   

  
	
  4.1

  	
  Organization

  
	
   

  	
   

  
	
  4.2

  	
  Authorization;
  Enforceability

  
	
   

  	
   

  
	
  4.3

  	
  Consents
  and Approvals

  
	
   

  	
   

  
	
  4.4

  	
  Non-Contravention

  
	
   

  	
   

  
	
  4.5

  	
  Brokers

  
	
   

  	
   

  
	
  4.6

  	
  Purchase
  for Investment

  
	
   

  	
   

  
	
  4.7

  	
  Financial
  Capability

  
	
   

  	
   

  
	
  4.8

  	
  Litigation

  
	
   

  	
   

  
	
  4.9

  	
  Condition of the Companies

  
	
   

  	
   

  
	
  ARTICLE V - COVENANTS

  
	
   

  	
   

  
	
  5.1

  	
  Access

  
	
   

  	
   

  
	
  5.2

  	
  Seller Conduct of Business

  
	
   

  	
   

  
	
  5.3

  	
  Filings with
  Governmental Authorities

  
	
   

  	
   

  
	
  5.4

  	
  Announcements

  
	
   

  	
   

  
	
  5.5

  	
  Employee Matters

  

 

ii

 

	
  5.6

  	
  Preservation
  of Records

  
	
   

  	
   

  
	
  5.7

  	
  Use of Name

  
	
   

  	
   

  
	
  5.8

  	
  Commercially Reasonable
  Efforts

  
	
   

  	
   

  
	
  5.9

  	
  Non-Competition Agreement

  
	
   

  	
   

  
	
  5.10

  	
  No Solicitation

  
	
   

  	
   

  
	
  5.11

  	
  Transition
  Services

  
	
   

  	
   

  
	
  5.12

  	
  Cooperation
  in High Yield Offering and Debt Offer

  
	
   

  	
   

  
	
  5.13

  	
  Guarantee
  Obligations

  
	
   

  	
   

  
	
  5.14

  	
  Contacts with
  Suppliers and Customers

  
	
   

  	
   

  
	
  5.15

  	
  Supplementation of
  Schedules

  
	
   

  	
   

  
	
  5.16

  	
  Pension Funding

  
	
   

  	
   

  
	
  5.17

  	
  Delivery of
  Required Financial Statements

  
	
   

  	
   

  
	
  5.18

  	
  Certain
  Contracts

  
	
   

  	
   

  
	
  5.19

  	
  New
  Liens and Guarantees

  
	
   

  	
   

  
	
  ARTICLE VI - CONDITION
  TO CLOSING

  
	
   

  	
   

  
	
  6.1

  	
  Conditions
  to the Obligations of Purchaser and Seller

  
	
   

  	
   

  
	
  6.2

  	
  Conditions
  to the Obligations of Purchaser

  
	
   

  	
   

  
	
  6.3

  	
  Conditions to
  the Obligations of Seller

  
	
   

  	
   

  
	
  ARTICLE VII - TERMINATION

  
	
   

  	
   

  
	
  7.1

  	
  Termination

  
	
   

  	
   

  
	
  7.2

  	
  Effect
  of Termination

  
	
   

  	
   

  
	
  ARTICLE VIII - SURVIVAL; INDEMNIFICATiON

  
	
   

  	
   

  
	
  8.1

  	
  Obligations
  of Seller

  
	
   

  	
   

  
	
  8.2

  	
  Obligations of Purchaser

  

 

iii

 

	
  8.3

  	
  Procedure

  
	
   

  	
   

  
	
  8.4

  	
  Survival

  
	
   

  	
   

  
	
  8.5

  	
  Limitations on
  Seller’s Indemnification

  
	
   

  	
   

  
	
  8.6

  	
  Limitations
  on Purchaser’s Indemnification

  
	
   

  	
   

  
	
  8.7

  	
  Calculation
  of Losses

  
	
   

  	
   

  
	
  8.8

  	
  Exclusive Remedy

  
	
   

  	
   

  
	
  ARTICLE IX - TAX MATTERS

  
	
   

  	
   

  
	
  9.1

  	
  Indemnification
  Obligations With Respect to Taxes

  
	
   

  	
   

  
	
  9.2

  	
  Tax Returns and
  Payment Responsibility

  
	
   

  	
   

  
	
  9.3

  	
  Refunds

  
	
   

  	
   

  
	
  9.4

  	
  Contest
  Provisions

  
	
   

  	
   

  
	
  9.5

  	
  Tax
  Sharing Agreement

  
	
   

  	
   

  
	
  9.6

  	
  Assistance and Cooperation

  
	
   

  	
   

  
	
  9.7

  	
  Retention
  of Records

  
	
   

  	
   

  
	
  9.8

  	
  Survival

  
	
   

  	
   

  
	
  9.9

  	
  Other Provisions

  
	
   

  	
   

  
	
  9.10

  	
  Calculation of
  Indemnification Claims

  
	
   

  	
   

  
	
  9.11

  	
  Characterization of
  Payments

  
	
   

  	
   

  
	
  ARTICLE X - GENERAL PROVISIONS

  
	
   

  	
   

  
	
  10.1

  	
  Expenses

  
	
   

  	
   

  
	
  10.2

  	
  Governing Law

  
	
   

  	
   

  
	
  10.3

  	
  Notices

  
	
   

  	
   

  
	
  10.4

  	
  Entire Agreement

  
	
   

  	
   

  
	
  10.5

  	
  Amendments;
  Waivers

  

 

iv

 

	
  10.6

  	
  Headings;
  References

  
	
   

  	
   

  
	
  10.7

  	
  Counterparts

  
	
   

  	
   

  
	
  10.8

  	
  Parties in Interest;
  Assignment

  
	
   

  	
   

  
	
  10.9

  	
  Severability; Enforcement

  
	
   

  	
   

  
	
  10.10

  	
  Consent
  to Jurisdiction

  
	
   

  	
   

  
	
  10.11

  	
  Parent Agreements
  and Obligations

  
	
   

  	
   

  
	
  10.12

  	
  Further
  Assurances

  
	
   

  	
   

  
	
  10.13

  	
  Return
  of Information

  

 

v

 

EXECUTION
COPY

 

SHARE PURCHASE AGREEMENT

 

THIS SHARE
PURCHASE AGREEMENT (this “Agreement”) is entered into as of
                 ,
2002, among VIVENDI UNIVERSAL, S.A., a société
anonyme organized under the laws of France (“Parent”),
VIVENDI COMMUNICATIONS NORTH AMERICA, INC., a Delaware corporation (“Seller”),
and VERSAILLES ACQUISITION CORPORATION, a Delaware corporation (“Purchaser”).

 

W I T N
E S S E T H :

 

WHEREAS,
Seller, is the owner of 1,000 shares (the “Shares”) of Common Stock, par
value $1.00 per share, of Houghton Mifflin Company, a Massachusetts corporation
(“HMC”), which Shares constitute all of the outstanding shares of
capital stock of HMC; and

 

WHEREAS,
Seller desires to sell, transfer and deliver to Purchaser, and Purchaser
desires to purchase, directly or indirectly through a Subsidiary, from Seller,
all of the Shares, on the tern and subject to the conditions set forth herein;
and

 

WHEREAS,
Parent owns, directly or indirectly, 100% of the equity interests in Seller and
shall receive the economic benefits of the consideration to be paid to Seller
for the Shares upon completion of the transactions contemplated by this
Agreement, and as such Parent has agreed for the benefit of Purchaser to
unconditionally guarantee the prompt and complete performance by Seller of its
obligations under this Agreement.

 

NOW,
THEREFORE, in consideration of the representations, warranties, covenants and
agreements contained herein, the parties hereto agree as follows:

 

ARTICLE I -

 

DEFINITIONS AND TERMS

 

1.1                                 Definitions.

 

For purposes
of this Agreement, including the recitals hereto, the following terms shall
have the meanings set forth below:

 

“2002 Audit”
shall have the meaning set forth in Section 2.4(b).

 

“2002
Auditors” shall have the meaning set forth in Section 2.4(b).

 

“Accounting
Expert” shall have the meaning set forth in Section 2.4(c).

 

“Accounting
Principles” shall mean the accounting principles set forth in the notes to
the Financial Statements.

 

 

“Actual
Adjusted EBITDA” shall mean Adjusted EBITDA realized by the Companies for
the Reference Period, as finally determined in the Binding Adjustment Statement
in accordance with Section 2.4.

 

“Actual EBITDA
Difference” shall mean (i) Targeted EBITDA less $3,000,000 minus
(ii) Actual Adjusted EBITDA, provided that if Actual Adjusted EBITDA is
greater than or equal to $283,700,000, then the Actual EBITDA Difference shall
be zero; provided, further, that if Actual Adjusted EBITDA is
less than $273,700,000, then the Actual EBITDA Difference shall be deemed to be
$10,000,000.

 

“Actual
Level 1 EBITDA Based Decrease” shall have the meaning set forth in Section
2.2(b).

 

“Actual
Level 2 EBITDA Based Decrease” shall have the meaning set forth in Section
2.2(b).

 

“Actual Net
Indebtedness” shall mean the Net Indebtedness of the Companies as at the
Reference Date as finally determined in the Binding Adjustment Statement in
accordance with Section 2.4.

 

“Actual
Working Capital” shall mean the Working Capital of the Companies as at the
Reference Date, as finally determined in the Binding Adjustment Statement in
accordance with Section 2.4.

 

“Actual
Working Capital Variation” shall mean the difference between Estimated Working
Capital and Actual Working Capital.

 

“Adjusted
EBITDA” shall have the meaning set forth in Schedule 1.1(a).

 

“Adjusted
Purchase Price” shall have the meaning set forth in Section 2.2(a).

 

“Adjustment
Items” shall have the meaning set forth in Section 2.4(a).

 

“Adjustment
Statement” shall have the meaning set forth in Section 2.4(a).

 

“Affiliate”
shall mean, with respect to any specified Person, any other Person directly or
indirectly controlling, controlled by or under common control with such specified
Person.

 

“Agreed
Upon Adjustment Procedures” shall have the meaning set forth on Schedule
1.1(b).

 

“Agreement”
shall have the meaning set forth in the recitals to this Agreement.

 

“AMPS”
shall have the meaning set forth in Section 6.2(d).

 

“AMPS
Investment Agreement” shall have the meaning set forth in Section 6.2(d).

 

2

 

“AMPS
Transactions” shall mean all of the transactions under the AMPS Investment
Agreement, the HMC Loan Note, the HMC Note Purchase Agreement and all other
documents entered into in connection therewith or related thereto, including
all documents relating to the completion of the bid purchase mechanism
thereunder.

 

“Applicable
Laws” shall mean, with respect to any Person, all statutes, laws,
ordinances, rules, orders and regulations of any Governmental Authority
applicable to such Person and its business, properties and assets.

 

“Assets”
shall have the meaning set forth in Section 3.17.

 

“Audited
2001 Financial Statements” shall mean the financial statements described in
items (a) and (b) of Schedule 1.1(d).

 

“Audit
Period” shall have the meaning set forth in Section 2.4(b).

 

“Auditors”
shall mean Ernst & Young L.L.P.

 

“Authorized
Representative” shall mean (x) a directeur
general, (y) a director general
adjoint or (z) the directeur
financier of Parent duly authorized.

 

“Balance
Sheet” shall mean the unaudited consolidated balance sheet of HMC as of
December 31, 2001 included in the Unaudited 2001 Financial Statements.

 

“Benefit
Plans” shall mean all “employee benefit plans,” as defined in Section
3(3) of ERISA (including any employment, severance, change-in-control or
other similar agreements, programs or policies), which Seller, any of its
Affiliates or any Company maintains, is obligated to contribute to, or has
(currently or in the future) any liability with respect to, in which any
current or former employee, director or consultant of any Company participates.

 

“Binding
Adjustment Statement” shall have the meaning set forth in Section 2.4(c).

 

“Business
Day” shall mean a day other than a Saturday, Sunday or other day on which
banks located in New York, New York, Luxembourg-City, Luxembourg or Paris,
France are authorized or required by law to close.

 

“Business
Intellectual Property” shall have the meaning set forth in Section
3.12(a).

 

“Cap Amount”
shall have the meaning set forth in Section 8.5.

 

“Cash
Pooling Arrangements” shall have the meaning set forth in Section 2.5(a).

 

“Cash
Transfers Certificate” shall have the meaning set forth in Section
2.5(b).

 

“Closing”
shall mean the closing of the sale and purchase of the Shares.

 

“Closing
Date” shall mean the date on which the Closing occurs.

 

3

 

“Closing
Date Payment” shall have the meaning set forth in Section 2.3(a).

 

“Companies”
shall mean HMC and all of its Subsidiaries, as set forth on Schedule 3.2(b).

 

“Confidentiality
Agreements” shall mean, collectively, those certain Confidentiality
Agreements dated September 1, 2002 between Blackstone Management Partners IV
L.L.C. and Parent; dated September 1, 2002 between PAI Management and Parent;
dated September 3, 2002 between Bain Capital Ltd. and PAI Management; dated
September 4, 2002 between Apax Partners S.A. and Parent; and dated September 6,
2002 between Thomas H. Lee Partners LP and Parent.

 

“Contract”
shall mean any oral or written contract, agreement, indenture, note, bond,
mortgage, lease, license or other agreement.

 

“Credit
Facilities” shall mean the facilities, or term sheets in respect thereof,
entered into by Affiliates of Purchaser to facilitate the consummation of the
transactions set forth herein (copies of which are attached hereto as Exhibit
A2).

 

“Deductible
Amount” shall have the meaning set forth in Section 8.5.

 

“Dollars”
or “$” shall mean the currency of the United States of America.

 

“EBITDA”
shall have the meaning set forth in Schedule 1.1(a).

 

“Environmental
Law” shall mean any Applicable Law or rule of common law relating to the
protection of the environment.

 

“Equity
Commitment Letter” shall mean the equity commitment letter, an executed
copy of which is attached hereto as Exhibit A1.

 

“ERISA”
shall mean the Employee Retirement Income Security Act of 1974, as amended.

 

“Estimated
Adjusted EBITDA” shall mean Adjusted EBITDA realized by the Companies for
the Reference Period, as estimated by Seller in the Adjustment Statement.

 

“Estimated
EBITDA Difference” shall mean (i) Targeted EBITDA less $3,000,000 minus
(ii) Estimated Adjusted EBITDA; provided that if Estimated Adjusted
EBITDA is greater than or equal to $283,700,000, then the Estimated EB1TDA
Difference shall be zero; provided further, that if Estimated
Adjusted EBITDA is less than $273,700,000, then the Estimated EBITDA Difference
shall be deemed to be $10,000,000.

 

“Estimated
Level I EBITDA Based Decrease” shall have the meaning set forth in Section
2.3(a).

 

“Estimated
Level 2 EBITDA Based Decrease” shall have the meaning set forth in Section
2.3(a).

 

4

 

“Estimated
Net Indebtedness” shall mean the Net Indebtedness of the Companies as at
the Reference Date, as estimated by Seller in the Adjustment Statement.

 

“Estimated
Working Capital” shall mean $352,570,000.

 

“Estimated
Working Capital Variation” shall mean an estimate of the Actual Working
Capital Variation as determined in good faith by Seller.

 

“Final
Adjustment Items” shall have the meaning set forth in Section 2.4(c).

 

“Final
Reference Date Statements” shall have the meaning set forth in Section
2.4(c).

 

“GAAP”
shall mean generally accepted accounting principles in the United States.

 

“GAAS”
shall mean generally accepted auditing standards in the United States.

 

“Governmental
Authority” shall mean any government, court, agency or commission or other
governmental or regulatory body or authority.

 

“HMC”
shall have the meaning set forth in the recitals to this Agreement.

 

“HMC Loan
Note” shall mean that certain Loan Note (as it may be or have been amended
or otherwise modified) dated October 12, 2001, issued by HMC to BNP Paribas.

 

“HMC Note
Purchase Agreement” shall mean that certain Note Purchase Agreement (as it
may be or have been amended or otherwise modified) dated October 12, 2001
between HMC and BNP Paribas.

 

“HSR Act”
shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.

 

“Indebtedness”
shall mean, with respect to any Company at the Reference Date, without
duplication: (a) all indebtedness of such Company for borrowed money, (b) all
obligations of such Company for the deferred purchase price of property or
services (other than current trade payables incurred in the ordinary course of
such Company’s business), (c) all obligations of such Company evidenced by
notes, bonds, debentures or other similar instruments, (d) all indebtedness created
or arising under any conditional sale or other title retention agreement with
respect to property acquired by such Company (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (e) all obligations of
such Company that are required to be classified and accounted for as capital
leases on a balance sheet of such Company under GAAP in effect as of the
Reference Date, (f) the liquidation value of all redeemable preferred capital
stock of such Company, (g) all guarantee obligations of such Company in respect
of obligations of any other Person (other than another Company) of the kind
referred to in clauses (a) through (f) above, (h) all obligations of the kind
referred to in clauses (a) through (g) above secured by (or for which the
holder of such obligation has an existing right, contingent or otherwise, to be

 

5

 

secured by)
any lien on property (including accounts and contract rights) owned by such
Company, whether or not such Company has assumed or become liable for the
payment of such obligation, (i) liabilities for retention incentive payments,
retention bonuses and like payments in an amount equal to $25,000,000 and (j)
all obligations of such Company in respect of Swap Agreements, in each case
referred to in clauses (a) through (i) above including all accrued but unpaid
interest, penalties, premium, fees and expenses relating thereto), it being understood
that Indebtedness shall include the liquidation value of the AMPS, the
principal balance and accrued interest under the HMC Loan Note and all other
amounts outstanding under the AMPS Investment Agreement and the FMC Note
Purchase Agreement, except to the extent that such amounts are no longer
outstanding and owed by any Company on the Closing Date, and shall not include
any Intercompany Indebtedness. For purposes of this definition, “Swap
Agreement” shall mean any agreement with respect to any swap, forward,
future or derivative transaction or option or similar agreement involving, or
settled by reference to, one or more rates, currencies, commodities, equity or
debt instruments or securities, or economic, financial or pricing indices or
measures of economic, financial or pricing risk or value or any similar
transaction or any combination of these transactions. For purposes of this
definition, Indebtedness of any Companies which are less than 100% owned,
directly or indirectly, by Seller on the Reference Date (“Consolidated
Companies”) shall equal the product of (x) the sum of such obligations
multiplied by (y) the percentage ownership (expressed as a decimal rounded
upwards) of such Consolidated Company held, directly or indirectly, by Seller
on the Reference Date (such product “Proportionate Indebtedness”); provided,
however, that if any Company may be held liable for the Indebtedness of
a Consolidated Company in excess of the relevant Proportionate Indebtedness,
then 100% of such Consolidated Company’s Indebtedness shall be applied towards
the calculation of the aggregate Indebtedness of the Companies.

 

“Indemnified
Party” shall have the meaning set forth in Section 8.3(b).

 

“Indemnifying
Party” shall have the meaning set forth in Section 8.3(a).

 

“Intellectual
Property” shall mean any and all intellectual property rights of any
nature, including all rights under trademark, trade name, patent, trade secret,
copyright or any other statutory provision or common law doctrine,
copyrightable works, copyright registrations and applications, names and
likenesses, domain name registrations and unregistered trademarks.

 

“Intercompany
Indebtedness” shall mean all outstanding amounts of Indebtedness owed by
the Companies to Parent or any of its Affiliates (other than the Companies) as
of the Reference Date.

 

“IRC”
means the Internal Revenue Code of 1986, as amended.

 

“Judgment”
means any judgment, order, injunction, writ, decree, ruling or award of any
court, arbitrator or other Governmental Authority.

 

“Knowledge
of Seller” or any similar phrase means the actual knowledge of those
employees of Parent, Seller or the Companies identified on Schedule 1.1(c).

 

“Leased
Properties” shall have the meaning set forth in Section 3.14(b).

 

6

 

“Legal
Proceedings” shall mean any judicial, administrative or arbitral actions,
suits or proceedings (public or private), or governmental proceedings.

 

“Liens”
shall mean any lien, pledge, mortgage, deed of trust, security interest, claim,
charge, restriction, usufruct, as well as in respect of equity securities any
option, right of first refusal, pre-emption right, restriction on voting,
receipt of income, or exercise of any other attribute of ownership, other than
(x) restrictions imposed under Applicable Laws, (y) in respect of equity
securities, restrictions set forth in the organizational documents of the
issuer of such equity securities and (z) in respect of Intellectual Property,
any moral rights arising from the operation of Applicable Law and contractual
restrictions contained in any licenses granted by or to the Companies in the
ordinary course of business to the extent such contractual restrictions in the
aggregate do not materially restrict the ability of the Companies to conduct their
respective businesses as presently conducted.

 

“Losses”
shall have the meaning set forth in Section 8.1.

 

“Market
Disruption” shall have the meaning set forth in Section 2.3(b).

 

“Material
Adverse Effect” shall mean a material adverse effect on the assets,
business, condition (financial or otherwise), or results of operations of the
Companies (taken as a whole), other than those matters set forth on Schedule
1.1(f).

 

“Material
Contracts” shall have the meaning set forth in Section 3.13(a).

 

“Material Decision
or Action” shall have the meaning set forth in Section 5.2.

 

“McDougal
Littell” shall mean McDougal Littell Inc., a Subsidiary of HMC.

 

“Net
Indebtedness” shall mean, in respect of the Companies or any Company, as at
the Reference Date, the excess, if any, of (i) the aggregate Indebtedness of
such Company or Companies over (ii) the sum of (x) the amount of all
bank deposits as reflected in bank statements (less, without duplication, (A)
escrowed amounts or other restricted cash balances not available to repay
Indebtedness and (B) to the extent not included in clause (i) as Indebtedness,
the amounts of any unpaid checks, drafts and wire transfers issued on or prior
to such determination date) plus (y) the market value attributable to
readily salable securities held by such Person or Persons.

 

“Net
Intercompany Indebtedness” shall have the meaning set forth in Section
2.6.

 

“Owned
Properties” shall have the meaning set forth in Section 3.14(a).

 

“Parent”
shall have the meaning set forth in the recitals to this Agreement.

 

“Permits”
shall mean any licenses, franchises, permits, certificates or other
authorizations.

 

“Permitted
Exceptions” shall mean (i) all defects, exceptions, restrictions,
easements, rights of way and encumbrances disclosed in policies of title
insurance that have been

 

7

 

made available
to Purchaser, (ii) statutory Liens for current Taxes, assessments or other
governmental charges not yet delinquent or the amount or validity of which is being
contested in good faith by appropriate proceedings; (iii) mechanics’,
carriers’, workers’, repairers’ and similar Liens (including all privileges or
equivalent rights recognized by Applicable Law) arising or incurred in the
ordinary course of business; (iv) zoning, entitlement and other land use and
environmental regulations by any Governmental Authority; and (v) such other
imperfections in title, defects, exceptions, restrictions, easements, rights of
way and encumbrances, Liens and land use and environmental regulations that do
not materially detract from the value of or materially interfere with the
present use of any asset subject thereto or affected thereby.

 

“Person”
or “person” shall mean and include any individual, partnership, joint
venture, corporation, company, association, joint stock company, trust,
incorporated or unincorporated organization or similar entity.

 

“Property”
shall mean any Owned Property or Leased Property.

 

“Proposed
Reference Date Statements” shall have the meaning set forth in Section
2.4(a).

 

“Purchase
Price” shall have the meaning set forth in Section 2.2(a).

 

“Purchaser”
shall have the meaning set forth in the recitals to this Agreement.

 

“Purchaser
Indemnitees” shall have the meaning set forth in Section 8.1.

 

“Purchaser
Losses” shall have the meaning set forth in Section 8.5.

 

“Purchaser
Parent” shall mean Financiere Versailles S.à.r.l., a société à responsabilité limitée organized
and existing under the laws of the Grand Duchy of Luxembourg, the direct or
indirect parent of Purchaser.

 

“Purchaser
Plans” shall have the meaning set forth in Section 5.5(b).

 

“Regulation
S-X” shall mean Regulation S-X under the Securities Exchange Act of 1934,
as amended.

 

“Release
Letters” shall have the meaning set forth in Section 2.4(a).

 

“Reference
Date” shall mean September 30, 2002.

 

“Reference
Period” shall mean the nine-month period ending on the Reference Date.

 

“Required
Financial Statements” shall mean the financial statements described in Schedule
1.1(d).

 

“SAB 99”
shall mean the Securities and Exchange Commission Staff Accounting Bulletin No.
99, Materiality, dated August 12, 1999 (Release No. SAB 99).

 

8

 

“Securities
Act” shall mean the Securities Act of 1933, as amended, together with the
rules and regulations promulgated thereunder.

 

“Seller
Indemnitees” shall have the meaning set forth in Section 8.2.

 

“Seller
Losses” shall have the meaning set forth in Section 8.6.

 

“Seller
Marks” shall have the meaning set forth in Section 5.7.

 

“Senior
Managers” shall have the meaning set forth in Section 3.10(d).

 

“Significant
Participations” shall mean with respect to any Company, each Person of
which such Company owns, either directly or indirectly, 25% or more of the
stock or other equity interests the holders of which are generally entitled to
vote for the election of the board of directors or similar governing body of
such Person but which are not Subsidiaries of such Company.

 

“Specified
Liabilities” shall have the meaning set forth in Section 8.1(b).

 

“Straddle
Period” shall mean a taxable period that commences before and ends after
the Reference Date.

 

“Subsidiary”
shall mean, with respect to any Person, (i) each other Person of which such
Person owns, either directly or indirectly, 50% or more of the stock or other
equity interests the holders of which are generally entitled to vote for the
election of the board of directors or similar governing body of such other
Person and (ii) each partnership in which such Person or another Subsidiary of
such Person is the general partner or otherwise controls such partnership.

 

“Targeted
EBITDA” shall mean $286,700,000.

 

“Tax”
or “Taxes” shall mean all taxes, charges, fees, imposts, levies or other
assessments, including, without limitation, all net income, gross receipts,
capital, sales, use, ad valorem, value added, transfer, franchise, profits,
inventory, capital stock, license, withholding, payroll, employment, social
security, unemployment, charges by way of compulsory employer contributions to retirement,
health and disability, workers’ compensation or any other social benefits
provided for in any Applicable Law, excise, severance, stamp, occupation,
property and estimated taxes, customs duties, fees, assessments and charges of
any kind whatsoever, together with any interest and any penalties, fines,
additions to tax or additional amounts imposed by any taxing authority.

 

“Tax
Returns” shall mean all reports, returns, declaration forms and statements
filed or required to be filed with respect to Taxes including any amendments
thereto.

 

“Treasury
Regulations” shall mean the regulations promulgated by the United States
Department of the Treasury under the IRC.

 

9

 

“Unaudited
2001 Financial Statements” shall mean the unaudited consolidated balance
sheet of HMC as of December 31, 2001 and the unaudited consolidated profit and
loss statement and unaudited consolidated cash flow statement of HMC for the
period commencing on July 1, 2001 and ending on December 31, 2001 (together
with all accompanying notes and appendices) attached hereto as Exhibit B1.

 

“Unaudited
2002 Stub Financial Statements” shall mean the unaudited consolidated
balance sheet of HMC as of the Reference Date and the unaudited consolidated
profit and loss statement and unaudited consolidated cash flow statement for
HMC for the Reference Period (together with all accompanying notes and
appendices) attached hereto as Exhibit B2.

 

“Working
Capital” shall have the meaning set forth in Schedule 1.1(e).

 

“Works”
shall mean literary works (including all published or unpublished pupil books,
teacher editions, ancillary materials thereto, supplemental materials thereto,
and multimedia programs associated therewith) of the Companies, whether in
printed, audio (including audiotapes) or electronic format and all compilations
of the foregoing.

 

1.2                                 Other Definitional Provisions.

 

(a)                                  The
words “hereof,” “herein,” and “hereunder” and words of similar import, when
used in this Agreement, shall refer to this Agreement as a whole and not to any
particular provision of this Agreement.

 

(b)                                 The
terms defined in the singular shall have a comparable meaning when used in the
plural, and vice versa.

 

(c)                                  Whenever
the words “include,” “includes” or “including” are used in this Agreement, they
shall be deemed to be followed by the words “without limitation.”

 

1.3                                 References to Time.

 

All references
in this Agreement to times of the day shall be to the time in New York, New
York.

 

ARTICLE II -

 

PURCHASE AND SALE OF HMC

 

2.1                                 Purchase and Sale of HMC.

 

On the terms
and subject to the conditions set forth herein, Seller agrees to sell and
Purchaser agrees to purchase, or to cause a direct or indirect wholly-owned
Subsidiary to purchase, the Shares, free and clear of all Liens, other than
those created by Purchaser or its Affiliates.

 

10

 

2.2                                 Purchase Price and Adjusted
Purchase Price.

 

(a)                                  The
aggregate consideration to be paid for the Shares shall be $1,659,050,000 (the
“Purchase Price” and, as such Purchase Price may be adjusted in
accordance with the following provisions of this Section 2.2, the “Adjusted
Purchase Price”).

 

(b)                                 The
Adjusted Purchase Price shall be equal to the Purchase Price:

 

(i)                                     decreased
by the Actual Net Indebtedness,

 

(ii)                                  either
decreased by the Actual Working Capital Variation, if positive, or increased by
the Actual Working Capital Variation, if negative, and

 

(iii)                               decreased
either by (x) 9.4 times the Actual EBITDA Difference (an “Actual
Level 1 EBITDA Based Decrease”) or (y) if Actual Adjusted EBITDA is less
than $261,700,000, an amount equal to the sum of (I) the Actual Level 1 EBITDA
Based Decrease and (II) 9.4 times the difference of $261,700,000 minus
Actual Adjusted EBITDA (an “Actual Level 2 EBITDA Based Decrease”).

 

2.3                                 Closing Payment.

 

(a)                                  At
the Closing, Purchaser shall make a payment equal to the Purchase Price (i)
decreased by the Estimated Net Indebtedness (ii) either decreased by the
Estimated Working Capital Variation, if positive, or increased by the Estimated
Working Capital Variation, if negative and (iii) decreased by either (x) 9.4 times
the Estimated EBITDA Difference (an “Estimated Level 1 EBITDA Based Decrease”)
or (y) if Estimated Adjusted EBITDA is less than $261,700,000, an amount equal
to the sum of (I) the Estimated Level 1 EBITDA Based Decrease and (11) 9.4 times
the difference of $261,700,000 minus Estimated Adjusted EBITDA (an “Estimated
Level 2 EBITDA Based Decrease”), by wire transfer of immediately available
funds to the bank account designated in writing to Purchaser by Seller not less
than two (2) Business Days prior to the Closing (the “Closing Date Payment”).

 

(b)                                 The
Closing shall take place at the offices of Simpson Thacher & Bartlett, 425
Lexington Avenue, New York, New York 10017 at 9:00 am., on a Business Day not
more than five (5) Business Days following the satisfaction of the conditions
to Closing set forth in Article VI (or waiver by the party entitled to
waive such condition) unless another date, time or place is agreed to by the
parties hereto; provided, however, that there is no material
disruption to any New York or other major international financial markets on
such Business Day (a “Market Disruption”) (it being agreed that
Purchaser shall have the right to postpone the Closing one or more times until
a date not later than five (5) Business Days following the originally scheduled
Closing Date in the event of any Market Disruption on such originally proposed
Closing Date or any later proposed Closing Date). At the Closing, the
transactions described on Schedule 2.3(b) shall take place.

 

2.4                                 Determination and Payment of the
Adjusted Purchase Price.

 

(a)                                  Prior
to the date hereof Seller has caused to be commenced, and after the date hereof
Seller shall cause to be continued, the preparation of (x) a consolidated
balance sheet

 

11

 

for HMC as of the Reference Date, (y) a
consolidated profit and loss statement and a consolidated statement of cash
flows of HMC for the nine-month period commencing on January 1, 2002 and ending
on the Reference Date (inclusive) and footnotes thereto (collectively, the “Proposed
Reference Date Statements”) in accordance with GAAP and on the basis of the
Accounting Principles interpreted and applied in a manner consistent with the
past practice of HMC since the date of its acquisition by Seller (other than
the fact that such financial statements will be prepared on a stand-alone basis
and will follow the materiality guidance provided in SAB 99 as applicable to
HMC and its Subsidiaries taken as a whole) and the Agreed Upon Adjustment
Procedures, in each case, reviewed by the Auditors in accordance with Statement
of Auditing Standards No. 71, Interim Financial Information, together with (z) a
certificate duly executed by an Authorized Representative setting forth
Seller’s calculation of the Estimated Net Indebtedness, the Estimated Working
Capital Variation and the Estimated Adjusted EBITDA (the “Adjustment Items”)
and reasonably detailed supporting documentation (such statement, the “Adjustment
Statement”). As promptly as practicable in accordance with the terms of Section
5.17, Seller shall deliver the Proposed Reference Date Statements and the
Adjustment Statement to Purchaser. After the Closing Date and during any
resolution period, Purchaser will (x) provide Seller and its representatives
with full access during normal business hours and upon reasonable prior notice
to the books and records and relevant personnel of Purchaser and the Companies
and the Auditors and the 2002 Auditors (as defined below) in order for Seller
to prepare and resolve any dispute related to the Proposed Reference Date
Statements and the Adjustment Statement and (y) subject to the execution of
customary auditors’ confidentiality and liability release undertakings for the
benefit of the Auditors and the 2002 Auditors (“Release Letters”), cause
the Auditors and the 2002 Auditors to provide Seller with all accounting books
and records, detailed work papers, schedules or additional documents prepared,
used or otherwise generated by the Auditors and the 2002 Auditors in connection
with the preparation and resolution of any dispute related to the Proposed
Reference Date Statements, the Adjustment Statement, the Adjustment Items and
the Rollback.

 

(b)                                 Following
the Closing, in connection with the preparation of the audit of the
consolidated financial statements of HMC and its Subsidiaries as of and for the
year ended December 31, 2002 (the “2002 Audit”), Purchaser and the independent
accountants selected by Purchaser or the Companies (after the Closing) to
perform the 2002 Audit (the “2002 Auditors”) shall review and perform
related audit procedures with respect to the Adjustment Items and the
Adjustment Statement in conjunction with the audit procedures performed for the
2002 Audit. Purchaser and the 2002 Auditors shall complete such review and
procedures and the 2002 Audit no later than April 30, 2003 or, if the Closing
occurs after December 31, 2002, the date 120 days following the Closing (the “Audit
Period”) and, on the basis of such review and procedures and the 2002
Audit, if Purchaser disagrees with the determination of the Adjustment Items
described in the Adjustment Statement as determined in accordance with Section
2.4(a) Purchaser shall notify Seller in writing of such disagreement within
the Audit Period, which notice will describe the nature of any such
disagreement in reasonable detail, identify the specific items involved and the
amount (or an estimate thereof) of each such disagreement and provide
reasonable supporting documentation for each such disagreement. After the end
of the Audit Period, Purchaser may not introduce additional disagreements with
respect to any item in the Adjustment Statement and any item not so identified
will be deemed to be agreed to by Purchaser and will be final and binding upon
the parties. Similarly, a disagreement by Purchaser does not provide any right
to Seller to introduce any changes to the Adjustment Statement not directly
related to the disputed item or

 

12

 

items. Any particular item deducted in
calculating an adjustment based on Net Indebtedness may not be deducted in
calculating an adjustment based on Working Capital and vice versa.

 

(c)                                  Purchaser
and Seller shall negotiate in good faith to resolve any disagreement with
respect to the Adjustment Statement, and any resolution agreed to in writing
will be final and binding upon the parties and their successors and assigns. If
the parties do not resolve all disagreements properly identified by Purchaser
pursuant to Section 2.4(b) within twenty (20) days after delivery to
Seller of written notice of such disagreement, then the disputed matters will
be referred for final determination to the Boston, Massachusetts office of
Deloitte & Touche. If Deloitte & Touche is unable or unwilling to
accept its mandate, the parties shall refer the disputed matters for final
determination to an independent accountant to be mutually agreed upon by the parties
(Deloitte & Touche or such other independent accountant, as the case may
be, the “Accounting Expert”). The Accounting Expert shall consider only
those items and amounts set forth in the Adjustment Statement as to which the
parties have disagreed within the time periods and on the terms specified above
and must resolve the matter in accordance with Applicable Law and the terms and
provisions of this Agreement. The Accounting Expert shall deliver to the
parties, as promptly as practicable, and in any event within thirty (30) days
after its appointment, a written report setting forth the resolution of any
such disagreement determined in accordance with the terms of this Agreement.
The fees, expenses and costs of the Accounting Expert shall be borne as it may
direct (based upon the relative extent to which Purchaser’s and Seller’s
respective positions are upheld in the final determination of the Accounting
Expert), it being understood, however, that the costs which the respective
parties incur for legal and accounting assistance will be borne by the party
who incurs such costs. The Adjustment Statement as finally agreed or determined
in accordance with the foregoing provisions of this Section 2.4 is
referred to herein as the “Binding Adjustment Statement.” The Proposed
Reference Date Statements as finally agreed and/or determined to be modified in
accordance with the foregoing provisions of this Section 2.4 are
hereinafter referred to herein as the “Final Reference Date Statements.”
The Adjustment Items as finally agreed or determined in accordance with the
foregoing provisions of this Section 2.4 is referred to herein as the “Final
Adjustment Items.” The determination of the Final Adjustment Items in
accordance with this Section 2.4, including the Accounting Expert
report, shall be non-appealable, final and binding upon Purchaser, Parent and
Seller to the fullest extent permitted by Applicable law (absent manifest
error) for the purposes hereof and shall be enforceable in any court of
competent jurisdiction. Upon determination of the Final Adjustment Items, the
Adjusted Purchase Price shall be calculated.

 

(d)                                 As
promptly as practicable and no later than five (5) Business Days after the
agreement or determination of the Final Adjustment Items in accordance with the
foregoing provisions of this Section 2.4:

 

(i)                                     Purchaser
shall pay or cause an Affiliate of Purchaser to pay to Seller an amount equal
to the excess of the Adjusted Purchase Price over the Closing Date
Payment; or

 

(ii)                                  Seller
shall pay to Purchaser or the Affiliate of Purchaser designated by Purchaser an
amount equal to the excess of the Closing Date Payment over the Adjusted
Purchase Price.

 

13

 

(e)                                  Any
amounts payable under Section 2.4(d) shall be increased by an amount
equal to the interest which would have been borne on such amounts payable had
the aggregate amount thereof been invested at an annual rate equal to 5% per
annum from the Closing Date through the payment date thereof (without further action
being required); it being understood that this provision does not entitle the
paying party to make late payment.

 

2.5                                 Allocation of Cash Following the
Reference Date; Related Party Payments.

 

(a)                                  Seller
and Purchaser agree that, upon the Closing, all cash generated by the Companies
as from October 1, 2002 (inclusive) (as determined in accordance with Section
2.5(b)), excluding the cash proceeds of the sale of Sunburst Technology
Corporation, shall accrue for the benefit of Purchaser in the manner set forth
in Section 2.5(b). Without limiting the foregoing, Seller shall not
permit the Companies to make any cash payments of any kind or otherwise
distribute any cash to Parent or any of its Affiliates other than the
Companies, except for the net cash proceeds of the sale of Sunburst Technology
Corporation and, pursuant to (x) readily identifiable payments made under
written lawful cash pooling arrangements presently existing in Seller’s group
(“Cash Pooling Arrangements”), or (y) pursuant to the Contracts for
goods and services listed on Schedule 2.5(a) in accordance with the
terms thereof.

 

(b)                                 Seller
and Purchaser agree that at the Closing, Seller shall pay to Purchaser on
behalf, and for the account, of the Companies an amount calculated for each
currency in which payments were made under the Cash Pooling Arrangements
between the Companies and Parent and its Affiliates (other than the Companies)
equal to the excess, if positive, of (x) the aggregate amount of all cash
payments denominated in such currency made by each of the Companies to Parent
or any of its Affiliates (other than the Companies) from October 1, 2002
(inclusive) through three (3) Business Days prior to the Closing Date pursuant
to Cash Pooling Arrangements over (y) the aggregate amount of all cash
payments denominated in such currency made by Parent or any of its Affiliates
(other than the Companies) to each such Company from October 1, 2002
(inclusive) through the Closing Date pursuant to Cash Pooling Arrangements; or
if such excess is negative, Purchaser shall pay such excess to Seller on
behalf, and for the account, of Parent or the relevant Affiliates (other than
the Companies), as the case may be. For purposes of this Section 2.5(b),
Seller shall three (3) Business Days prior to the Closing Date (x) cease all
payments under Cash Pooling Arrangements and (y) deliver to Purchaser a
certificate duly executed by an Authorized Representative setting forth the
balance of cash payments made by each of the Companies, on the one hand, and
Parent and its Affiliates (other than the Companies), on the other hand,
pursuant to Cash Pooling Arrangements after the Reference Date through the
Closing Date, together with detailed information in respect of all such
payments (the “Cash Transfers Certificate”). If, after the Closing Date,
Seller or Purchaser becomes aware of any error or errors in the Cash Transfers
Certificate, the net result of which resulted in an under-payment or
over-payment of cash at Closing pursuant to this Section 2.5, then,
within three (3) Business Days of the determination and agreement between the
parties of the amount of the under-payment or over-payment, the party who
under-paid shall pay the amount of the under-payment to the other party or the
party who was over-paid shall pay the amount of the over-payment to the other
party, as the case may be, to an account notified by the receiving party to the
paying party. Each of Seller and Purchaser shall provide such information and
documents reasonably requested by the other with a view to resolving any
disagreement with respect to whether and to what extent an over-payment or
under-payment exists.

 

14

 

2.6                                 Related Party Payments.

 

Except as
otherwise provided in this Agreement and except for (x) the Contracts set forth
on Schedule 2.5(a) and (y) the Cash Pooling Arrangements which shall be
settled pursuant to Section 2.5(b), at the Closing, all Intercompany
Indebtedness and all liabilities and obligations of Seller and its Affiliates
(other than the Companies) to the Companies shall be offset against each other
and the net amount of Intercompany Indebtedness remaining after such offsetting
(“Net Intercompany Indebtedness”) shall be cancelled and treated as a
contribution to the capital of HMC. At the Closing, Seller shall deliver, or
cause its applicable Affiliate to deliver, to Purchaser written evidence
satisfactory to Purchaser executed by Seller or such Affiliate confirming that
the Companies have been irrevocably released from all further obligations to
pay such Intercompany Indebtedness (subject to the exceptions above in this Section
2.6).

 

ARTICLE III
-

 

REPRESENTATIONS AND WARRANTIES OF
SELLER

 

Seller hereby
represents and warrants to Purchaser, as of the date hereof and as of the Closing
Date, as follows:

 

3.1                                 Organization.

 

Each of
Parent, Seller and HMC (x) is a corporation duly organized, validly existing
and, to the extent applicable, in good standing under the laws of its
jurisdiction of incorporation, (y) has all requisite power and authority to own
and operate its respective assets and properties and to conduct its business as
currently conducted and (z) is duly qualified to do business and has all
requisite power and authority to own and operate its assets and properties and
to carry on its business as currently conducted except where the failure to be
so qualified, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect. Parent has previously made
available to Purchaser true, correct and complete copies of the certificate of
incorporation and bylaws (or equivalent organizational documents under
Applicable Law), together with all amendments to the date hereof, of HMC and no
resolution has been adopted providing for the amendment of any such
organizational documents (which is not reflected in such organizational
documents) or for the dissolution or winding-up of HMC.

 

3.2                                 Capitalization; Subsidiaries.

 

(a)                                  The
authorized capital stock of HMC consists of 1,000 shares of Common Stock, par value
$1.00 per share. Except as set forth on Schedule 3.2(a), the Shares
constitute the only shares of capital stock of HMC issued and outstanding.
Except as set forth on Schedule 3.2(a), all of the Shares are duly
authorized, validly issued, fully paid and non-assessable and are owned, of
record and beneficially, by Seller, free and clear of all Liens. Other than
pursuant to this Agreement or as set forth in Schedule 3.2(a), there is
no existing option, warrant, call, right, commitment or other agreement of any
character to which Parent or any of its Subsidiaries, is a party requiring, and
there are no securities of Parent or any of its Subsidiaries outstanding which
upon conversion or exchange or exercise would require, the issuance, sale,
purchase, redemption

 

15

 

or transfer of any additional shares of
capital stock or other securities of HMC or other securities convertible into,
exchangeable or exercisable for or evidencing the right to subscribe for or purchase
shares of capital stock or other securities of HMC. Except as set forth in Schedule
3.2(a), neither Parent nor any of its Subsidiaries is a party to any voting
trust or to any other agreement relating to the Shares or the issuance, sale,
purchase, redemption, transfer or other disposition of the capital stock of
HMC. Upon transfer of the Shares to Purchaser (or its designated Subsidiary) in
accordance with the terms of Article 11 hereof, Purchaser (or its relevant
designated Subsidiary) will have good and marketable title to the Shares, free
and clear of all liens, other than those created by Purchaser or its
Affiliates.

 

(b)                                 Schedule
3.2(b) sets forth the name of each Company (other than HMC) and Significant
Participation and the jurisdiction in which it is incorporated or organized
and, if not a wholly-owned Subsidiary of Seller, the percentage owned directly
or indirectly by Seller.

 

(i)                                     Except
as set forth on Schedule 3.2(b), all of the issued and outstanding
shares of capital stock or equity interests of each such Company, and all of
the outstanding shares of capital stock or equity interests of each Significant
Participation owned by the Companies, are duly authorized, validly issued,
fully paid and non-assessable and are owned as set forth on Schedule 3.2(b)
free and clear of all Liens. Except as set forth on Schedule 3.2(b),
there is no existing option, warrant, call, right, commitment or other
agreement of any character to which Parent or any of its Subsidiaries,
including any Company, is a party requiring, and there are no securities of any
Company outstanding which upon conversion or exchange or exercise would
require, the issuance, sale, purchase, redemption or transfer of any additional
shares of capital stock or other securities of any Company or other securities
convertible into, exchangeable or exercisable for or evidencing the right to
subscribe for or purchase shares of capital stock or other securities of such
Company. Except as set forth on Schedule 3.2(b), neither Parent nor any
of its Subsidiaries is a party to any voting trust or to any other agreement
relating to the issuance, sale, purchase, redemption, transfer or other
disposition of the capital stock of any Company or Significant Participation.

 

(ii)                                  Each
such Company (x) is duly organized, validly existing and, where applicable, in
good standing under the laws of its jurisdiction of incorporation or
organization, (y) has all requisite power and authority to own and operate its
assets and properties and to conduct its business as currently conducted and
(z) is duly qualified to do business and has all requisite power and authority
to own and operate its assets and properties and to carry on its business as
currently conducted except where the failure to be so qualified, individually
or in the aggregate, would not reasonably be expected to have a Material
Adverse Effect.

 

(c)                                  None
of the Companies holds, directly or indirectly, equity interests or voting
rights in any Person representing more than 5% of the equity interests or
voting rights in such Person except for interests in other Companies or
Significant Participations disclosed on Schedule 3.2(b). Except as set
forth on Schedule 3.2(c), no Company has any obligation, contingent or
otherwise, to fund or participate in the debts of any of the foregoing entities
and organizations.

 

16

 

3.3                                 Authorization: Enforceability.

 

Each of Parent
and Seller has the requisite power and authority to execute and deliver this
Agreement, to perform its obligations under this Agreement and to consummate
the transactions contemplated by this Agreement. The execution, delivery and
performance by Parent and Seller of this Agreement and the consummation by each
such Person of the transactions contemplated by this Agreement have been duly
authorized by all necessary action (corporate or other) of such Person,
including in the case of Parent in the manner required by Article L225-35 of
the French Code du Commerce. This
Agreement has been duly and validly executed and delivered by Parent and Seller
and (assuming the due authorization, execution and delivery by Purchaser)
constitutes a legal, valid and binding obligation of each of Parent and Seller,
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors’ rights and remedies generally. Each of Parent and Seller is able to
pay its debts as they fall due and is not, and will not be on the Closing Date,
insolvent under Applicable Laws.

 

3.4                                 Consents and Approvals.

 

Except for (x)
the clearance of the filing of a premerger notification and report form under
the HSR Act or expiration of the waiting period under the HSR Act and (y) those
consents, approvals or authorizations of, or registrations, declarations or
filings with any Governmental Authority listed on Schedule 3.4(a)
(collectively “Competition Approvals”), the execution, delivery and
performance by Parent or Seller of this Agreement and the consummation by
Parent or Seller of the transactions contemplated by this Agreement do not
require the consent, approval or authorization of, or registration, declaration
or filing with, any Governmental Authority by virtue of any Applicable Laws
intended to prohibit, restrict or regulate actions having the purpose or effect
of monopolization of trade or restraint of trade except where failure to obtain
such consent, approval or authorization would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. Except as
set forth in Schedule 3.4(b) and Competition Approvals (collectively,
the “Required Approvals”), no consent, approval or authorization of, or
registration, declaration or filing with, any Governmental Authority is
required by Parent, Seller or any Company in connection with the execution,
delivery and performance by Parent or Seller of this Agreement and the
consummation by Parent or Seller of the transactions contemplated by this
Agreement, except for such consents, approvals, authorizations, registrations,
declarations and filings, the failure of which to be obtained or made would
not, individually or in the aggregate, reasonably be expected to (x) have a
material adverse effect on Seller’s ability to perform its obligations under
this Agreement or to consummate the transactions contemplated hereby or (y)
have a Material Adverse Effect.

 

3.5                                 Non-Contravention.

 

The execution,
delivery and performance by Parent and Seller of this Agreement, and the
consummation of the transactions contemplated hereby, do not and will not (i)
violate any provision of (x) the statuts
of Parent or (y) the certificate of incorporation, bylaws or other equivalent
organizational documents of Seller or any Company; (ii) subject to obtaining
the consents and approvals referred to in Schedule 3.5, conflict with,
or result in the breach of, or

 

17

 

constitute a
default under, or result in the termination, cancellation, acceleration or
modification (whether after the filing of notice or the lapse of time or both)
of any right or obligation of any of the Companies under, any Material
Contract; (iii) subject to the exceptions set forth in Section 3.4,
violate any Applicable law or judgment, decree or order of any Governmental
Authority to which Seller or any Company is subject; or (iv) result in the
creation of any lien upon any properties or assets of any Company, other than,
in the case of clauses (ii), (iii) and (iv), any conflict, breach, default,
termination, cancellation, acceleration, violation or Lien that would not,
individually or in the aggregate (in the case of liens, with other exceptions
described in Schedule 3.5), have a Material Adverse Effect.

 

3.6                                 Financial Statements; Absence of
Changes.

 

(a)                                  Except
as set forth on Schedule 3.6(a), each of the Unaudited 2001 Financial
Statements and the Unaudited 2002 Stub Financial Statements have been prepared
in accordance with GAAP in a manner consistent with the past practice of HMC
since the date of the acquisition by Seller (following the Accounting
Principles applied consistently throughout the period presented) and present
fairly, in all material respects in accordance with GAAP, the consolidated
financial condition and consolidated results of operations of HMC as of the
date thereof and for the period to which they relate, except as set forth on Schedule
3.6(a) and except that the Unaudited 2001 Financial Statements and the
Unaudited 2002 Stub Financial Statements do not include footnotes, except with respect
to the basis of preparation.

 

(b)                                 The
Final Reference Date Statements (i) will have been prepared in accordance with
GAAP in a manner consistent with the past practice of HMC since the date of the
acquisition by Seller (other than the fact that such financial statements will
be prepared on a stand-alone basis and follow the materiality guidance provided
in SAB 99 as applicable to HMC and its Subsidiaries taken as a whole), applied
in accordance with, and following the Accounting Principles and the Agreed Upon
Adjustment Procedures applied consistently throughout the period presented,
(ii) will have been prepared in accordance with Regulation S-X (with respect to
an offering of debt securities), (iii) present fairly, in all material respects
in accordance with GAAP, the consolidated financial position and consolidated
results of operations of HMC as at the Reference Date and for the nine-month
period commencing January 1. 2002 and ending on the Reference Date (inclusive)
and (iv) have been reviewed in accordance with Statement of Auditing Standards
No. 71, Interim Financial Information. The Audited 2001 Financial Statements
(i) will have been prepared in accordance with GAAP in a manner consistent with
the past practice of HMC since the date of the acquisition by Seller (other
than the fact that such financial statements will be prepared on a stand-alone
basis and follow the materiality guidance provided in SAB 99 applicable to HMC
and its Subsidiaries taken as a whole) following the Accounting Principles
applied consistently throughout the period presented, (ii) will have been
prepared in accordance with Regulation S-X (with respect to an offering of debt
securities), (iii) present fairly, in all material respects, the consolidated
financial position and consolidated results of operations of HMC as at June 30,
2001 and for the period commencing January 1, 2001 and ending on June 30, 2001
(inclusive), (iv) present fairly, in all material respects, the consolidated
financial position and consolidated results of operations of HMC as at December
31, 2001 and for the period commencing July 1, 2001 and ending on December 31,
2001 (inclusive), and (v) will have been audited in accordance with GAAS.

 

18

 

(c)                                  Except
as set forth on Schedule 3.6(c), the Companies have no off-balance sheet
obligations in excess of $1,000,000, individually.

 

(d)                                 Except
as set forth on Schedule 3.6(d), since December 31, 2001, the Companies
have conducted their respective businesses only in the ordinary course and
through the Reference Date have made capital expenditures for both tangible
assets and “Plate” expenditures of not less than $28,700,000 for tangible
assets and $80,800,000 for “Plate” expenditures. Except as set forth on Schedule
3.6(d), since December 31, 2001, there has not been (x) any event or change
that, individually or in the aggregate with any other event or change, has had
or would reasonably be expected to have a Material Adverse Effect, (y) any
termination of any state or local adoption contract material to the Companies
taken as a whole or agreement with any Governmental Authority in the United
States (including the States of California, Texas and Florida) material to the
Companies taken as a whole or (z) any decision or action of any Company (other
than in compliance with Section 5.2):

 

(i)                                     (x)
to declare, set aside or make any non-cash distributions in respect of any of
its capital stock or (y) to purchase, redeem or otherwise acquire, directly or
indirectly, any shares of capital stock or any other securities of it or any of
its Subsidiaries or any rights, war ants or options to acquire any such shares
or other securities;

 

(ii)                                  to
acquire, license or agree to acquire or license by merging or consolidating
with, or by purchasing or licensing assets of, or by any other manner, any
business, division or Person or any equivalent interest therein;

 

(iii)                               to
sell, lease, sell and leaseback, mortgage or otherwise to encumber or subject
to any Lien (other than any Permitted Exceptions) or otherwise to dispose of
any of its material properties or assets (including securitizations), or to
license out any of its material properties or assets other than in the ordinary
course of business consistent with past practice;

 

(iv)                              (x)
to pay, discharge, settle or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise) or Legal Proceedings for payments in excess of $1,000,000 other than
in the ordinary course of business consistent with past practice or (y) to
waive the benefits of, agree to modify in any manner detrimental to it,
terminate, release any Person from or fail to enforce any material
confidentiality, standstill or similar agreement;

 

(v)                                 except
insofar as (x) may be required by a change in generally accepted accounting
principles in its jurisdiction or (y) it would not be reflected in the
consolidation of the financial results of the Companies, to make any changes in
accounting methods, principles or practices; or

 

(vi)                              (x)
to make or rescind, or permit to be made or rescinded, any material tax
election, (y) to change any of its material methods of reporting income or
deductions for Tax purposes except as required by Applicable Law or (z) to
issue a waiver to extend the period of limitations for the payment or
assessment of any material Tax.

 

19

 

(e)                                  Since
the Reference Date there have not been any Material Decisions or Actions other
than those set forth on Schedule 3.6(e) or taken with the prior written
consent of Purchaser.

 

(f)                                    Since
the Reference Date, Parent has implemented and maintained a tracking system for
the Cash Pooling Arrangements adequate to identify and categorize cash payments
made by the Companies to Parent and its Affiliates (other than the Companies)
and by Parent and its Affiliates (other than the Companies) to the Companies in
the manner required to determine the calculations contemplated by Section
2.5(a).

 

3.7                                 No Undisclosed Liabilities.

 

Except as set
forth on Schedule 3.7, the Companies do not have any Indebtedness,
obligations or liabilities of any kind (absolute, contingent, accrued or
otherwise) that would have been required to be reflected in, reserved against
or otherwise described in the Balance Sheet (if such Indebtedness, obligations
or liabilities had been in existence as of December 31, 2001) or any notes
thereto under GAAP in consideration of materiality requirements contained
therein (“Liabilities”), other than Liabilities for less than $1,000,000
individually or which were incurred in the ordinary course of business
consistent with past practice, in each case, since December 31, 2001, and
liabilities under this Agreement.

 

3.8                                 Litigation.

 

Except as set
forth in Schedule 3.8, there is no Legal Proceeding pending by or
against any Company or, to the Knowledge of Seller, threatened that,
individually or when aggregated with other Legal Proceedings based on
substantially the same facts and circumstances, would reasonably be expected to
result in (a) a claim for damages in excess of $1,000,000, (b) injunctive
relief which would restrict in any respect that is material to the Companies
taken as a whole, or significantly increase the cost of the conduct of the
business by the Companies or (c) injunctive relief preventing the transactions
contemplated by this Agreement. None of the Companies is in default in any
material respect under any Judgment that is material to the Companies taken as
a whole (a “Material Company Judgment”) and no Company has taken, or
failed to take, any action that would constitute or result in a violation of
any term or requirement of any Material Company Judgment. The full amount of
all applicable financial compensation (including applicable interest thereon)
required to be paid under each Material Company Judgment has either been paid
in full by the Companies or will be fully reflected, to the extent required
under GAAP, in provisions reflected in the Final Reference Date Financial
Statements.

 

3.9                                 Taxes.

 

(a)                                  Except
as set forth on Schedule 3.9(a), (i) all material Tax Returns required
to have been filed by or with respect to the Companies have been timely filed
(taking into account any extension of time to file granted to or obtained on
behalf of Seller or the Companies) and are accurate and complete in all
material respects, (ii) all material Taxes due and payable, whether or not
shown to be payable on such Tax Returns (other than Taxes being contested in
good faith and for which adequate reserve has been made in the Financial

 

20

 

Statements, excluding any reserve for
deferred Taxes established to reflect timing differences between book and Tax
income) have been or will be timely paid and (iii) no deficiency for any material
amount of Tax has been asserted or assessed by a taxing authority against any
of the Companies.

 

(b)                                 Except
as set forth on Schedule 3.9(b), there are no material audits or
investigations by any taxing authority of any Company in progress.

 

(c)                                  Except
as set forth on Schedule 3.9(c), no Company is a party to any tax
sharing or similar agreement or arrangement (whether or not written) pursuant
to which it will have any obligation to make any payments after the Closing
and, to the Knowledge of Seller, no Company has become liable for the Taxes of
any Person (other than any of the Companies) under Treasury Regulation
§1.1502-6 (or any similar provision of state, local, or foreign law giving rise
to or imposing joint and several liability for Taxes), as a transferee or
successor, or otherwise.

 

(d)                                 Except
as set forth on Schedule 3.9(d), there are no liens for Taxes (other
than Taxes not yet due and payable) upon any of the assets of any of the
Companies material to the Companies as a whole.

 

(e)                                  Except
as set forth on Schedule 3.9(e), none of the Companies has waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency.

 

(f)                                    Except
as set forth on Schedule 3.9(f), none of the Companies has executed or
entered into any agreement with any Governmental Authority relating to the
liability of such Company in respect of any Tax.

 

(g)                                 Parent
has made available to Purchaser true and correct copies of all material income
Tax Returns of the Companies (or, in the case of Tax Returns filed for an
affiliated group, the portion of such consolidated Tax Returns relating to the
Companies) relating to the taxable periods ending after January 1, 2000.

 

(h)                                 Except
as set forth on Schedule 3.9(h), none of the Companies is, or has been
considered to be, a U.S. Real Property Holding Company for purposes of Section
897(c) of the 1RC.

 

3.10                           Employee Benefits; Labor Matters.

 

(a)                                  Schedule
3.10(a) sets forth a complete and correct list, as of the date hereof, of
all material Benefit Plans. With respect to each material Benefit Plan, a
complete and correct copy of each of the following documents (if applicable)
has been provided or made available to Purchaser: (1) the most recent plan
document or agreement and all amendments thereto, (ii) the most recent summary
plan description and all related summaries of material modifications and (iii)
the most recent actuarial valuation reports for all Benefit Plans for which
such reports are prepared in the ordinary course and updated calculations with
respect to such plans as of September 30, 2002. Except as set forth in Schedule
3.10(a), none of the Benefit Plans is, or in the last five years has been,
subject to Section 4063, 4064 or 4202 of ERISA and

 

21

 

none of the Companies nor any member of their
“Controlled Group” (defined as any organization which is a member of a
controlled group of organizations within the meaning of Sections 414(b), (c),
(m) or (o) of the IRC) has incurred any withdrawal liability under Title N of
ERISA which remains unsatisfied. To the Knowledge of Seller, no condition
exists that could reasonably be expected to cause any of the Companies, either
directly or by reason of their affiliation with any member of their Controlled
Group, to be subject to any material Tax, fine, Lien, penalty or other
liability imposed by ERISA, the IRC or any other Applicable Laws. All
contributions required to have been made by the Companies under any Benefit
Plan to any trusts established thereunder or in connection therewith have been
made by the due date therefor (including any legally permitted extensions).
Each of the Benefit Plans has been maintained in accordance with its terms in
all material respects.

 

(b)                                 Since
January 1, 2002, no Company has been the subject of any strikes, work
stoppages, slowdowns, lockouts, grievances or other labor disputes and none are
pending or, to the Knowledge of Seller, overtly threatened against or involving
any Company, in any such case, that, individually or in the aggregate, has had
or would reasonably be expected to have a Material Adverse Effect.

 

(c)                                  Except
as set forth on Schedule 3.10(c), no provision exists under any Benefit
Plans or any employment agreement entered into by the Companies that, as a
result of the execution of this Agreement or the consummation of the
transactions contemplated by this Agreement (whether alone or in connection
with a subsequent event), could reasonably be expected to result in (i) any
payment to, or provision of any other right or benefit to, any current or
former employee, director or consultant of any Company or (ii) any increase in
or acceleration of, any payment, other right or benefit to any such individual
and no such payment, provision, increase or acceleration constitutes,
individually or in the aggregate, an “excess parachute payment” within the
meaning of Section 280G of the IRC.

 

(d)                                 Purchaser
has previously been provided a list of the top twenty-five (25) employees of
the Companies, taken together, collectively, in terms of gross cash
remuneration paid in the year ended December 31, 2001 (collectively “Senior
Managers”). Seller has separately provided Purchaser with the amount of
such gross cash remuneration and the bonus calculation formula used to
determine such gross cash remuneration in respect of each Senior Manager. Since
December 31, 2001, except as set forth on Schedule 3.10(d) none of the
Companies have paid or agreed to pay any bonuses or made or agreed to make any
increase in the rate of base compensation or other remuneration (other than in
the ordinary course and consistent with past practice) of any of its Senior
Managers. The Companies are current in all payments for amounts due to Senior
Managers.

 

(e)                                  Parent
has complied in all respects with employee consultation or notification
requirements under United Kingdom or French law required in connection with the
entering into of this Agreement and performance of the transactions
contemplated herein.

 

(f)                                    As
of January 1, 2002, the HMC tax-qualified defined benefit plan had an unfunded
accrued liability of $19,200,000, based upon the plan’s terms, actuarial
assumptions and the then current market value of the plan assets. As of the
Reference Date, the HMC tax-qualified defined benefit plan had an unfunded
accrued liability of $48,300,000, based upon the

 

22

 

plan’s terms, actuarial assumptions and the
then current market value of the plan assets. As of the Reference Date, on a
‘projected benefit obligation’ basis, determined in accordance with Financial
Accounting Standard 87, the HMC tax-qualified defined benefit plan has an
unfunded liability of $72,865,000. As of the Reference Date, the HMC
non-qualified retirement plans have an accrued liability of $8,425,000,
partially offset by assets held by a rabbi trust.

 

(g)                                 Schedule
3.10(g) sets forth a complete and correct list of all material Benefit
Plans (including all agreements, programs, policies and other written
arrangements under which any current or former employee, director or consultant
of any of the Companies has any present or future right to payments made by, or
benefits sponsored or maintained by, any of the Companies) maintained outside
the jurisdiction of the United States by any Company or to which any Company is
obligated to contribute, or has any other present or contingent liability, for
current or former employees of the Companies, except for any such plans
required to be maintained under Applicable Laws. Each of these Benefit Plans
has been maintained in compliance with its terms and all Applicable Laws in all
material respects.

 

3.11                           Compliance with Laws; Permits.

 

Except as set
forth on Schedule 3.11, each Company (other than any dormant or
immaterial Company) is in compliance with all Applicable Laws, except where the
failure to so comply would not be material to the Companies as a whole. All
Permits that are material to the Companies taken as a whole that are required
for the Companies to operate their respective businesses (each, a “Material
Company Permit”) have been issued to and are held by the applicable
Company, are valid and in full force and effect (and shall remain valid and in
full force and effect following the Closing) and, except as set forth in Schedule
3.11, no Legal Proceedings are pending, or to the Knowledge of Seller,
threatened against any Company before any Governmental Authority with respect
to any Material Company Permit which if adversely determined, would,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.

 

3.12                           Intellectual Property.

 

(a)                                  Except
as set forth on Schedule 3.12(a), the Companies own or possess valid,
subsisting and enforceable licenses or other rights to use all Intellectual
Property used in their respective businesses that is material to the Companies
taken as a whole (“Business Intellectual Property”) free and clear of
any material liens. No other Person has any claim of ownership or other
material interest with respect to the owned Business Intellectual Property
other than (x) moral rights arising under operation of Applicable Law or (y)
pursuant to Contracts to which a Company is a party, and the Business
Intellectual Property is not the subject of any challenge which, if adversely
determined, would, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect. To the Knowledge of Seller, no Person is
currently violating or infringing upon any of the Companies’ rights in the
Business Intellectual Property in any respect that is material to the Companies
taken as a whole. The Companies are not materially infringing upon any material
Intellectual Property of any other Person.

 

23

 

(b)                                 Except
as set forth on Schedule 3.12(b), nothing contained in any of the Works
published prior to the date hereof, and no publication, distribution, sale or
other act of the Companies prior to the date hereof with respect to the Works,
defames any Person or gives rise to a similar legal cause of action by any
Person involving potential damages in excess of $1,000,000 or which, if
adversely determined, would, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.

 

(c)                                  The
Companies have the right to publish, distribute and sell all of the Works that
are material to the Companies taken as a whole published prior to the date
hereof, and underlying material therein, in the form they were published as of
the date hereof. Except as set forth on Schedule 3.12(c), no author or
other licensor of any Works published or accepted prior to the date hereof is
owed advances or “tail” or similar lump sum payments upon termination of
publication in excess of $300,000.

 

3.13                           Material Contracts.

 

(a)                                  Schedule
3.13(a) sets forth all of the following Contracts to which any Company is a
party or by which any Company is bound (collectively, together with all
material written state or local adoption contracts or agreements with any
Governmental Authority in the United States (it being agreed that all written
adoption contracts or agreements with the States of California, Texas and
Florida shall be deemed material for purposes hereof), the “Material
Contracts”):

 

(i)                                     Contracts
with Parent or any Affiliate of Parent that shall survive the Closing (other
than Contracts with any Company or Contracts for goods and services made in the
ordinary course of business on terms generally available to similarly situated
non-affiliated parties);

 

(ii)                                  any
Contract for the sale of any of the assets of any Company, other than in the
ordinary course of business, in which the amount involved exceeds $10,000,000;

 

(iii)                               Contracts
relating to any merger, amalgamation or consolidation or reorganization
involving any Company and any other Person, or the acquisition by any Company
of any operating business or the capital stock of any other Person, in each
case, in which the amount involved exceeds $10,000,000;

 

(iv)                              Contracts
relating to Indebtedness involving amounts in excess of $5,000,000;

 

(v)                                 any
other Contracts that involve, in each case, the expenditure of more than
$10,000,000 on an annual basis that are not terminable by a Company without
penalty on less than one hundred and eighty (180) days’ notice;

 

(vi)                              all
joint venture, partnership or shareholders’ agreements pursuant to which third
parties benefit from any rights relating to the Shares or the equity of any
Company (other than rights provided to other holders of equity in the Companies
under Applicable Laws);

 

24

 

(vii)                           Contracts
restricting the Companies from engaging in or competing in any line of business
in a manner that would be material to the Companies taken as a whole; and

 

(viii)                        Contracts
for the purchase of equity securities issued by, or significant assets of, any
Person containing earn-out or other deferred payment obligations (whether
absolute, contingent, accrued or otherwise) of the Companies or any “put”
arrangements which could result in any payment obligations (whether absolute,
contingent, accrued or otherwise) by any of the Companies.

 

(b)                                 Except
as set forth on Schedule 3.13(b), each of the Material Contracts is in
full force and effect and is a legal, valid and binding obligation of the
relevant Company and, to the Knowledge of Seller, the other parties thereto,
enforceable against it and such other parties in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting creditors’ rights and remedies generally and subject, as
to enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity). Except as set forth
on Schedule 3.13(b), no Company has received any written notice that it
is in default in any material respect under any Material Contract, nor, to the
Knowledge of Seller, is any other party to any Material Contract in default
thereunder in any material respect. To the Knowledge of Seller, as of the date
hereof, no other party to any Material Contract has notified any Company that
it intends to terminate such Material Contract.

 

3.14                           Real Property.

 

(a)                                  Schedule
3.14(a) sets forth a complete list of all material real property owned by
any of the Companies (the “Owned Properties”). Except as set forth on Schedule
3.14(a), each of the Companies has good and valid fee title to the Owned
Properties, free and clear of all Liens, other than Permitted Exceptions.

 

(b)                                 Schedule
3.14(b) sets forth a complete list of all material leases, subleases or other
agreements (collectively, the “Leased Properties”) under which the
Companies use or occupy or have the right to use or occupy, now or in the
future, any real property, other than leases or subleases entered into with
other Companies wholly-owned, directly or indirectly, by Seller. Except as set
forth on Schedule 3.14(b), the Companies have and own valid leasehold
estates in all real property leased thereby, free and clear of all Liens, other
than Permitted Exceptions. To the Knowledge of Seller, none of the Companies
has received any written notice of any default or event that with notice or
lapse of time, or both, would constitute a default by any of the Companies
under any Leased Property except such defaults that, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect.

 

3.15                           Environmental Matters.

 

Except as
disclosed on Schedule 3.15, and except, in each case, for conditions
that, individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect, (i) each Company is in compliance with all
Environmental Laws, which compliance includes obtaining, maintaining and
complying with any and all Permits required by

 

25

 

Environmental
Laws; (ii) there are no claims or proceedings pending or, to the Knowledge of
Seller, threatened against any Company alleging the violation of or potential
liability under any Environmental Law; and (iii) to the Knowledge of Seller, no
facts, circumstances or conditions currently exist at any Property that would
reasonably be expected to result in a Company incurring liabilities under
Environmental Laws.

 

3.16                           Brokers.

 

Except for
Clinvest, Credit Suisse First Boston and Schroder Salomon Smith Barney, whose
fees will be paid by Parent or its Affiliates, no broker, finder or investment
banker is entitled to any brokerage, finder’s or other fee or commission from
Parent or its Affiliates (including the Companies) in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Parent or any of its Affiliates.

 

3.17                           Assets.

 

The
properties, tangible or intangible assets (other than Intellectual Property),
Contracts and rights (collectively “Assets”) and Business Intellectual
Property of the Companies are together with (x) the Seller Names, (y) any
Assets or services that shall be the subject of the transitional services
agreement contemplated by Section 5.11 and (z) any services currently
provided to the Companies that Purchaser elects not to be the subject of the
transitional services agreement sufficient to operate the respective businesses
of the Companies as presently operated in all material respects. Except as set
forth on Schedule 3.17(a), as of the date hereof the Companies own or
have licenses or valid rights to use and at the Closing the Companies shall own
or have licenses or valid rights to use all material Assets of the Companies
free and clear of any material Liens other than Permitted Exceptions. Immediately
following the Closing, Parent and its Affiliates will not hold any material
Assets, rights to Business Intellectual Property or in the Works used in
connection with the operation of the respective businesses of the Companies,
except for the Seller Names, the Assets or services that shall be the subject
of such transition services agreement described in Schedule 3.17(a), and
any services currently provided to the Companies that Purchaser elects not to
be the subject of the transitional services agreement. The cost to the
Companies of the services described in Schedule 5.11 and the insurance
coverage provided to the Companies by Parent and its Affiliates for the
Reference Period did not exceed $5,600,000 in the aggregate.

 

3.18                           Suppliers; Customers; and Authors.

 

Except as set
forth on Schedule 3.18, since January 1, 2002, no customer or supplier
material to the Companies taken as a whole or key author or licensor of Works
has terminated or changed significantly and adversely, or notified the Companies
in writing that it intends to terminate or change significantly and adversely,
its business relationship with the Companies. To the Knowledge of Seller,
except as set forth on Schedule 3.18, no circumstances exist which would
prevent the continuance of such relationships on substantially the same terms
and conditions as have been the case during such period except where the
failure to maintain such relationships substantially on such terms and
conditions would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.

 

26

 

3.19                           No Other Representations or
Warranties; Schedules.

 

Except for the
representations and warranties contained in this Article III (as
modified by the Schedules hereto), neither Seller nor any other Person makes
any other express or implied representation or warranty with respect to the
Companies or the transactions contemplated by this Agreement, and Seller
disclaims any other representations or warranties, whether made by Seller, any
Affiliate of Seller or any of their respective officers, directors, employees,
agents or representatives. Notwithstanding the foregoing, with respect to
matters relating to compliance with any Environmental Laws, neither Seller nor
any other Person makes any representation or warranty other than as set forth
in Section 3.15. No officer, director, employee, agent or representative
of Seller or any of the Companies shall have any liability or responsibility
for any representations or warranties contained in this Agreement. The
disclosure of any matter or item in any schedule hereto shall not be deemed to
constitute an acknowledgment that any such matter is required to be disclosed
or is material to the representations and warranties set forth in the Agreement
or that such matter would result in a Material Adverse Effect No representation
or warranty of Seller contained herein shall be deemed untrue or incorrect, and
Seller shall not be deemed to have breached a representation or warranty, as a
consequence of the existence of any fact, circumstance or event that is fairly
disclosed in the Schedules in respect of another representation or warranty
contained in this Agreement if the relevance of such disclosure to the representation
or warranty in question is readily apparent from the text of such disclosure.

 

ARTICLE IV -

 

REPRESENTATIONS AND WARRANTIES OF
PURCHASER

 

Purchaser
hereby represents and warrants to Seller, unless otherwise specifically set
forth herein, as of the date hereof and, as of the Closing Date, as follows:

 

4.1                                 Organization.

 

Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware.

 

4.2                                 Authorization; Enforceability.

 

Purchaser has
the requisite corporate power and authority to execute and deliver this
Agreement, to perform its obligations under this Agreement and to consummate
the transactions contemplated by this Agreement. The execution, delivery and
performance by Purchaser of this Agreement and the consummation by Purchaser of
the transactions contemplated by this Agreement have been duly authorized by
all necessary action (corporate or other) on the part of Purchaser. This
Agreement has been duly and validly executed and delivered by Purchaser, and
(assuming the due authorization, execution and delivery by Parent and Seller)
this Agreement constitutes a legal, valid and binding obligation of Purchaser,
enforceable against Purchaser in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors’ rights and remedies generally.

 

27

 

4.3                                 Consents and Approvals.

 

Except as set
forth on Schedule 4.3 and assuming the accuracy of the representation
set forth in Section 3.4, no consent, approval or authorization of, or
registration, declaration or filing with, any Governmental Authority is
required by Purchaser in connection with the execution, delivery and
performance by Purchaser of this Agreement and the consummation by Purchaser of
the transactions contemplated by this Agreement, except (i) for the Required
Approvals and (ii) for such other consents, approvals, orders, authorizations,
registrations, declarations and filings, the failure of which to be obtained or
made would not, individually or in the aggregate, reasonably be expected to
have a material adverse effect on Purchaser’s ability to perform its
obligations under this Agreement or to consummate the transactions contemplated
hereby. Purchaser obtained clearance required under the HSR Act prior to the
execution and delivery of this Agreement.

 

4.4                                 Non-Contravention.

 

The execution,
delivery and performance by Purchaser of this Agreement, and the consummation
by Purchaser of the transactions contemplated hereby, do not and will not (i)
violate any provision of the certificate of incorporation or the bylaws of
Purchaser; (ii) conflict with, or result in the breach of, or constitute a
default under, or result in the termination, cancellation, acceleration or
modification (whether after the filing of notice or the lapse of time or both)
of any material Contract of Purchaser; or (iii) subject to the exceptions set
forth in Section 4.3, violate any Applicable Law or judgment, decree or
order of any Governmental Authority to which Purchaser or any of its assets is
subject.

 

4.5                                 Brokers.

 

Except for
Goldman Sachs International, Morgan Stanley and Lehman Brothers International
(Europe) Ltd., whose fees will be paid by Purchaser or an Affiliate thereof, no
broker, finder or investment banker is entitled to any brokerage, finder’s or
other fee or commission from Purchaser in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of Purchaser.

 

4.6                                 Purchase for Investment.

 

Purchaser is
acquiring the Shares for investment and not with a view toward, or for the
purpose of, the resale or distribution thereof. Purchaser acknowledges that the
sale of the Shares hereunder has not been registered under the Securities Act
and that the Shares may not be sold, transferred, offered for sale, pledged,
hypothecated or otherwise disposed of without registration under the Securities
Act, pursuant to an exemption therefrom or in a transaction not subject
thereto.

 

4.7                                 Financial Capability.

 

Purchaser
Parent has received the Equity Commitment Letter and pursuant thereto has
agreed to fund, directly or indirectly, Purchaser with the equity proceeds
referred to in the Equity Commitment Letter on to the Closing Date. Purchaser
has obtained the Credit Facilities which collectively provide commitments (as
described therein) for an aggregate amount

 

28

 

sufficient to
pay the Purchase Price and any costs and expenses incurred by Purchaser in
connection with the transactions contemplated by this Agreement. Purchaser has
not incurred any obligation, commitment, restriction or liability of any kind,
absolute or contingent, present or future, which would impair or adversely
affect such resources and capabilities. Purchaser is not aware of any reason to
believe that the financing described in this Section 4.7 will not be available
to consummate the Closing.

 

4.8                                 Litigation.

 

There are no
Legal Proceedings pending or threatened against Purchaser or its Affiliates
that could reasonably be expected to prohibit or adversely affect the ability
of the Purchaser to enter into this Agreement or consummate the transactions
contemplated hereby.

 

4.9                                 Condition of the Companies.

 

Any claims
Purchaser may have for breach of representation or warranty under this
Agreement shall be based solely on the representations and warranties of Parent
and Seller set forth in Article III hereof (as modified by the Schedules
hereto). Purchaser further represents that neither Seller nor any of the
Companies nor any other Person has made any representation or warranty, express
or implied, in this Agreement or otherwise as to (x) the accuracy or
completeness of any information regarding any of the Companies or the Shares
not set forth in this Agreement or (y) matters relating to compliance with
Environmental Laws applicable to the Companies other than the representations
and warranties set forth in Section 3.15 hereof. Neither Seller nor any
other Person will have or be subject to any liability to Purchaser or any other
Person resulting from the distribution to Purchaser or its representatives or
Purchaser’s use of, any such information, including any confidential memoranda
distributed on behalf of Seller relating to the Companies or other publication
provided to Purchaser or its representatives, or any other document or
information provided to Purchaser or its representatives in connection with the
sale of the Companies.

 

ARTICLE V -

 

COVENANTS

 

5.1                                 Access.

 

Seller shall,
and shall cause the Companies to, permit Purchaser and its officers, employees,
accountants, counsel, financial advisors, financing sources and other
representatives to have reasonable access, during normal business hours and
upon reasonable advance notice, to the properties, books, records and personnel
and Auditors of the Companies, and shall furnish, or cause to be furnished, to
Purchaser, all other information concerning the Companies that is available as
Purchaser may reasonably request. In connection with such access, Purchaser’s
representatives shall cooperate with Seller’s and the Companies’
representatives and shall use their reasonable best efforts to minimize any
disruption of the businesses of the Companies. Notwithstanding the foregoing,
such access to the Companies’ financial executives, personnel involved in the
preparation of the Required Financial Statements and the Auditors and the
furnishing of information relating to the Required Financial Statements shall
require the prior

 

29

 

consent of
Seller, which consent shall not be unreasonably withheld or delayed (provided
that the parties hereto acknowledge and agree that it would not be unreasonable
for Seller to withhold or delay such consent to the extent that such access or
furnishing of information would reasonably be expected to delay the production
of the Required Financial Statements). To the extent consistent with the prior
sentence, Seller shall use its commercially reasonable efforts to provide
Purchaser access to the Required Financial Statements in reasonably definitive
draft form, subject to the delivery by Purchaser of Release Letters to the
Auditors, from time to time prior to the delivery to Purchaser of such Required
Financial Statements. Purchaser agrees to abide by the terms of the
Confidentiality Agreement with respect to such access and any information
furnished to it or its representatives pursuant to this Section 5.1.

 

5.2                                 Seller Conduct of Business.

 

Prior to the
Closing, except (x) as set forth on Schedule 5.2, (y) as expressly
permitted by this Agreement or (z) as required by Applicable Law, Seller shall
cause the Companies to conduct their respective businesses only in the ordinary
course consistent with past practice. Prior to the Closing, Seller shall not,
and shall cause the Companies not to take any Material Decision or Action
without the prior written consent of Purchaser. “Material Decision or Action”
shall mean any decision or action by any Company:

 

(i)                                     (x)
to declare, set aside or pay any dividends on, or make any other distributions
(whether in cash, stock, property or otherwise) in respect of any of its
capital stock other than cash distributions through Cash Pooling Arrangements,
(y) to split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, or (z) to purchase, redeem or
otherwise acquire, directly or indirectly, any shares of capital stock or any
other securities of it or any of its Subsidiaries or any rights, warrants or
options to acquire any such shares or other securities;

 

(ii)                                  to
issue, deliver, sell, pledge or otherwise encumber or to subject to any Lien (x)
any shares of its capital stock, (y) any other voting securities, or (z) any
securities convertible into, or any rights, warrants or options to acquire, any
such shares, voting securities or convertible securities;

 

(iii)                               to
amend its articles of incorporation, by-laws or other comparable organizational
documents;

 

(iv)                              to
acquire, license or agree to acquire or license (x) by merging or consolidating
with, or by purchasing or licensing assets of, or by any other manner, any
business, division or Person or any interest therein or (y) any assets for
consideration, individually, in excess of $2,000,000 or, in the aggregate, in
excess of $10,000,000 other than in the ordinary course of its business
operations consistent with past practice;

 

(v)                                 to
sell, lease, sell and leaseback, mortgage or otherwise to encumber or subject
to any lien (other than any Permitted Exceptions) or otherwise to dispose of
any of its properties or assets (including securitizations), other than in the
ordinary course of business consistent with past practice involving payments of
less than $2,000,000 individually or

 

30

 

$10,000,000 in the aggregate, pursuant to
rights given to Persons described in Schedule 3.5, or to license out any
of its properties or assets other than in the ordinary course of business;

 

(vi)                              to
repurchase, prepay or incur any indebtedness for borrowed money or guarantee
any such indebtedness of another Person (other than a Company), to issue or
sell any debt securities or warrants or other rights to acquire any debt
securities of it or of any of its Subsidiaries (other than a Company), to
guarantee any debt securities of another person (other than a Company), to
enter into any “keep well” or other agreement to maintain the creditworthiness
of another person (other than a Company) or to enter into any arrangement
having the economic effect of any of the foregoing;

 

(vii)                           to make
any loans, advances or capital contributions to, or investments in, any other
Person (other than a Company), other than advances or loans to employees,
authors, trade creditors or customers in the ordinary course of business
consistent with past practice;

 

(viii)                        (x) to
pay, discharge, settle or satisfy any material claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise) or Legal
Proceedings for payments in excess of $1,000,000 other than the payment,
discharge, settlement or satisfaction, in the ordinary course of business
consistent with past practice or in accordance with the terms of liabilities
recognized or disclosed in the Financial Statements or in respect of any
Judgment, or (y) to waive the benefits of, agree to modify . in any manner
detrimental to the Companies, terminate, release any Person from or fail to
enforce any material confidentiality, standstill or similar agreement to which
it or any of its Subsidiaries is a party or of which it or any of its
Subsidiaries is a beneficiary;

 

(ix)                                except
as required in order to comply with Applicable Laws and except for labor
agreements negotiated in the ordinary course of business consistent with past
practice, (x) to establish, enter into or adopt any employee pension plan or
employee benefit plan (within the meaning of Sections 3(2) and 3(3)
of ERISA), (y) to amend or terminate, to change any actuarial or other
assumption used to calculate funding obligations with respect to, or to change
the manner in which contributions are made or the basis on which such
contributions are determined under any of the Benefit Plans, or (z) to take any
action to accelerate any rights or benefits, or to make any material
determinations under any of the Benefit Plans;

 

(x)                                   (x)
other than in the ordinary course of business consistent with past practice for
employees other than executive officers of any of the Companies, to enter into
employment agreements, or to materially increase the compensation, bonuses,
royalties, commissions, or other benefits of any current or former director,
consultant, officer, developer, author, illustrator, publisher, editor or other
employee, (y) to grant any current or former director, consultant, officer,
developer, author, illustrator, publisher, editor or other employee or
independent contractor any material increase in severance or termination pay,
or (z) otherwise to enter into any retention, severance or change of control
agreement with any current or former director, consultant, officer, developer,
author, illustrator, publisher, editor or other employee or independent
contractor,

 

31

 

(xi)                                to
transfer or license to any Person (other than the Companies) or otherwise
extend, amend or modify or allow to revert, lapse or expire any material
Business Intellectual Property in a manner detrimental to the Companies other
than in the ordinary course of business consistent with past practice;

 

(xii)                             to
obtain, through acquisition, lease, sublease or otherwise, any real property
for use as an office, warehouse or similar facility, other than in the ordinary
course of business consistent with past practice;

 

(xiii)                          to
increase the headcount of full-time, permanent employees by an amount
inconsistent with past practice;

 

(xiv)                         except
insofar as may be required by a change in generally accepted accounting
principles in its jurisdiction, to make any changes in accounting methods,
principles or practices;

 

(xv)                            (w) to
make or rescind, or permit to be made or rescinded, any material tax election,
(x) to change any of its material methods of reporting income or deductions for
Tax purposes except as required by Applicable Law, (y) to compromise, or to
permit to be compromised, any material Tax liability or (z) to issue a waiver
to extend the period of limitations for the payment or assessment of any material
Tax; or

 

(xvi)                         to
authorize, or to commit, resolve or agree to take, any of the foregoing
actions.

 

5.3                                 Filings with Governmental
Authorities.

 

(a)                                  Seller
and Purchaser shall (to the extent not already made), as promptly as
practicable, but in no event later than five (5) Business Days following the
execution and delivery of this Agreement, make all filings or submissions as
are required under (i) the HSR Act, (ii) all other Competition Approvals and
(iii) any other applicable Governmental Authority required to consummate the
transactions contemplated herein. Seller and Purchaser shall furnish to each
other’s counsel such necessary information and reasonable assistance as the
other may request in connection with its preparation of any such filing or
submission.

 

(b)                                 Seller
and Purchaser shall use their respective best efforts to obtain (and maintain
if previously obtained) any clearance required under the HSR Act and other
Competition Approvals for the consummation of the transactions contemplated by
this Agreement and shall promptly inform the other of the existence and of the
status of any communications with, and any inquiries or requests for additional
information from, all Governmental Authorities and, after communication with
the other party where practicable, shall promptly make an appropriate response
in compliance with any such inquiry or request.

 

(c)                                  Seller
and Purchaser shall take any action reasonably necessary to vigorously defend,
lift, mitigate and rescind the effect of any Legal Proceeding adversely
affecting this Agreement or the transactions contemplated hereby, including,
without limitation, promptly appealing any adverse court or administrative
order or injunction.

 

32

 

5.4                                 Announcements.

 

Neither Parent
(or any of its Affiliates) nor Purchaser (or any of its Affiliates) will issue
any press release or otherwise make any written public statement with respect
to this Agreement or any of the transactions contemplated hereby without the
prior consent of the other (which consent shall not be unreasonably withheld).

 

5.5                                 Employee Matters.

 

(a)                                  Subject
to Section 5.5(c) below, Purchaser shall provide, or cause to be
provided, for a period of one (1) year following the Closing Date or for such
longer period of time required by Applicable Laws, to the employees of the
Companies who remain employed with the Companies at the time of the Closing (“Company
Employees”), current compensation (including salary, wages and
opportunities for commissions, bonuses, incentive pay, overtime and premium
pay), employee benefits, location of employment and a position of employment
that are, in the aggregate, substantially comparable to those provided to such
Company Employees immediately prior to the date hereof; provided that
Purchaser shall not have any obligation to issue, or adopt any plans or
arrangements providing for the issuance of, equity securities, warrants,
options or other rights in respect of any equity securities of any entity or
any securities convertible or exchangeable into such shares, equity securities
or capital interests pursuant to any such plans or arrangements; provided,
further, that no Benefit Plans existing as at the Closing providing for
any such issuance shall be taken into account in determining whether
compensation and employee benefits are comparable in the aggregate.

 

(b)                                 To
the extent that Purchaser does not continue any of the Benefit Plans as in
effect at the Closing, for purposes of eligibility and vesting (but not benefit
accrual) under any replacement employee benefit plans (including vacation and
other paid time off and similar programs) the Purchaser establishes to provide
benefits to the Company Employees (the “Purchaser Plans”), Purchaser
shall credit each Company Employee with his or her years of service with the
Seller and any predecessor entities, to the same extent as such Company
Employee was entitled immediately prior to the Closing to credit for such
service under any similar Benefit Plan such Purchaser Plan replaces. The Purchaser
Plans shall not deny Company Employees coverage on the basis of pre-existing
conditions if such denial would not have been available under the Benefit Plans
and, if applicable, shall credit such Company Employees for any deductibles and
out-of-pocket expenses paid in the year in which the Closing Date occurs upon
the Company Employees’ initial participation in the Purchaser Plans during the
year in which the Closing Date occurs.

 

(c)                                  Nothing
contained in this Section 5.5 or elsewhere in this Agreement shall be
construed to prevent the termination of employment of any individual Company
Employee at any time or any change in the employee benefits available to any
individual Company Employee or the amendment or termination of any particular
Employee Benefit Plan to the extent expressly permitted by its terms as in
effect immediately prior to the Closing.

 

33

 

5.6                                 Preservation of Records.

 

Purchaser
agrees that it shall, at its own expense, preserve and keep the records held by
it relating to the Companies existing at the Closing Date that could reasonably
be required after the Closing by Seller for six (6) years following the Closing
Date. In addition, Purchaser shall make such records available to Seller as may
be reasonably required by Seller in connection with, among other things, any
insurance claim, Legal Proceeding or governmental investigation relating to the
Companies.

 

5.7                                 Use of Name.

 

Purchaser
agrees that it shall cause the Companies to (i) as soon as practicable after
the Closing Date and in any event within one hundred eighty (180) days
following the Closing Date, cease to make any use of the name “Vivendi,”
“Vivendi Universal,” “Vivendi Universal Publishing,” “VU” or “VUP” or any
service marks, trademarks, trade names, identifying symbols, logos, emblems,
signs or insignia containing or comprising the foregoing, including any name or
mark confusingly similar thereto (collectively, the “Seller Marks”),
(ii) immediately after the Closing, cease to hold itself out as having any
current or ongoing affiliation with Parent or its Affiliates following the
Closing and (iii) as promptly as practicable after the Closing, in the case of
any Company whose name includes a Seller Mark, change its name to a name that
does not include a Seller Mark and make any necessary legal filings with the
appropriate Governmental Authority to effect such change. In furtherance
thereof, as promptly as practicable but in no event later than one hundred
eighty (180) days following the Closing Date, Purchaser shall cause the
Companies to remove, strike over or otherwise obliterate all Seller Marks from
all materials owned by any Company and used or displayed publicly including,
without limitation, any vehicles, business cards, stationery, packaging
materials, displays, signs, promotional materials and other materials.

 

5.8                                 Commercially Reasonable Efforts.

 

Except with
respect to those matters described in Section 5.3, and except when the
terms of this Agreement provide for a different standard of conduct, in which
case, such standard shall apply, subject to the terms and conditions herein
provided, each of the parties hereto agrees to use all commercially reasonable
efforts to take, or cause to be taken, all action, and to do, or cause to be
done as promptly as practicable, all things necessary, proper and advisable
under Applicable Laws to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement.

 

5.9                                 Non-Competition Agreement.

 

(a)                                  During
the period beginning on the Closing Date and ending on the second anniversary
thereof (the “Restricted Period”), neither Parent nor any of its
Affiliates shall, directly or indirectly, engage in any business or activity
that is competitive with the Companies in the United States or Canada (a “Restricted
Business”); provided that no business or activity shall be deemed a
Restricted Business unless the annual competitive sales of such business or
activity exceed 2096 of the annual revenues generated by the Companies in that
business or activity in the relevant geographic areas; and provided, further,
that neither Parent nor its

 

34

 

Affiliates shall be prevented from (i)
continuing the conduct of a business or activity it engaged in prior to the
Closing in a manner consistent with past practice as such business may evolve
or expand (including through acquisitions); (ii) acquiring as an investment in
the ordinary course of business (including investments by any trust of any of
its pension plans) any securities listed or publicly traded on any
internationally recognized securities market to the extent that such
acquisitions do not result in such Person owning in the aggregate 5% or more of
any class of such securities; or (iii) acquiring (through merger, stock
purchase or sale of all or substantially all of the assets or otherwise)
ownership of or any equity interest in any Person so long as the annual
revenues of such Person from any Restricted Business are not more than 15% of
such Person’s total annual revenues (based on the most recent full fiscal year
revenues of such Person).

 

(b)                                 During
the Restricted Period, neither Parent nor any of its Affiliates shall, directly
or indirectly, (i) solicit, endeavor to entice away from the Companies or
otherwise directly interfere with the relationship of the Companies with any
management level employee of the Companies or (ii) endeavor to entice away from
the Companies or otherwise directly interfere with the relationship of the
Companies with any consultant or author retained by the Companies; it being
understood that the foregoing restriction shall not prohibit Parent or its
Affiliates from soliciting or employing any person who responds to a general,
public solicitation for employment.

 

(c)                                  Without
limiting the generality of clause (a) above, Purchaser acknowledges and agrees
that, during the Restricted Period, Parent and its Affiliates shall be entitled
to acquire, directly or indirectly, control of any Person (an “Acquired
Company”) engaged, directly or indirectly, in the Restricted Business if,
and to the extent that, Parent shall, and shall cause its relevant Affiliates
to, divest or cause the Acquired Company to divest the Restricted Business by
not later than twelve (12) months following such acquisition.

 

5.10                           No Solicitation.

 

Prior to the
Closing, Parent shall not, and shall not permit any of its Affiliates,
including Seller and the Companies, and their respective directors, officers,
employees, representatives or agents to, do any of the following, directly or
indirectly: (i) discuss, negotiate, undertake, authorize, assist, participate
in, recommend, propose or enter into any transaction involving a merger,
consolidation, business combination, purchase or disposition of any capital
stock of or other equity interest in or any material portion of the assets of
any of the Companies, other than the transactions contemplated by this
Agreement (an “Acquisition Transaction”), (ii) solicit, conduct any
discussions or negotiations with respect to, or otherwise facilitate or
encourage any submissions of proposals or offers in respect of an Acquisition
Transaction, (iii) furnish or cause to be furnished to any Person any
information concerning any of the Companies in connection with an Acquisition
Transaction, or (iv) otherwise assist or participate in, facilitate or
encourage, any effort or attempt by any other Person to do or seek any of the
foregoing.

 

5.11                           Transition Services.

 

Pursuant to a
transition services agreement, the terms and conditions of which are to be
agreed upon by Parent and Purchaser, Parent and its Affiliates shall continue
providing the

 

35

 

services
utilized by the Companies set forth on Schedule 5.11 for a period not to
exceed one (1) year at a cost to the Companies equal to the fair market value
for such services to be mutually agreed by Parent and Purchaser in good faith.

 

5.12                           Cooperation in High Yield Offering
and Debt Offer.

 

Parent and its
Affiliates shall, and Parent and Seller shall cause HMC to, provide such
cooperation and assistance as may be reasonably requested by Purchaser in
connection with (i) the arrangement of any. high yield offering to be
consummated by Purchaser or one or several of its Affiliates, including
reasonable assistance in connection with the preparation of offering memoranda
and similar documents and (ii) the preparation of an offer to purchase all (or
any portion) of HMC’s 7 1/8% Notes due April 1, 2004, HMC’s 7% Notes due March
1, 2006 and HMC’s 7.20% Notes due March 15, 2011 (collectively, the “Notes”)
on terms and conditions to be determined by Purchaser (the “Debt Offer”),
including the forms of the dealer-manager agreement, the related letter of
transmittal and all other information and documents required in connection
therewith (the “Debt Offer Documents”); in each case, to the extent that
(a) Purchaser shall reimburse Parent for any out-of-pocket expenses reasonably
incurred by it or its Affiliates in providing such cooperation and assistance
and documented by invoices in reasonably sufficient detail with copies of
relevant backup invoices for such expenses and (b) such cooperation and
assistance would not reasonably be expected to delay the production of the
Required Financial Statements. Parent and Seller shall request, to the extent
reasonably required, that the Auditors consent to the inclusion in any offering
memoranda (in connection with such high yield offering) and/or in any Debt
Offer Documents (in connection with the Debt Offer) of any financial statements
or reports prepared by them to the extent required. Notwithstanding anything to
the contrary in the foregoing provisions of this Section 5.12, HMC shall
not be required to commence the Debt Offer prior to the Closing.

 

5.13                           Guarantee Obligations.

 

Schedule 5.13
sets forth all guarantees and comfort letters provided by Parent and its
Affiliates (other than the Companies) (each a “Parent Guarantor”) as
security for the performance by the Companies of obligations under Contracts
entered into in the ordinary course of their respective businesses. If Seller
obtains, prior to the Closing, the consent of the beneficiaries to such
guarantees and comfort letters to enable Purchaser to substitute itself or an
Affiliate thereof for each Parent Guarantor under such guarantees and comfort
letters following the Closing (pursuant to documentation in customary form and
on terms reasonably satisfactory to Purchaser and no more onerous to Purchaser
than those presently applicable to the Parent Guarantor), on the Closing Date,
Purchaser shall deliver to Seller duly signed copies of such documentation (if
any). To the extent that Seller is not able to obtain such consents prior to
the Closing, Seller shall maintain such guarantees and comfort letters after
the Closing, and at the Closing, Purchaser shall indemnify Seller for any
Losses arising out of such guarantees or comfort letters, as the case may be.

 

36

 

5.14                           Contacts with Suppliers and
Customers.

 

Notwithstanding
anything to the contrary contained herein, prior to the Closing, Purchaser
shall not contact any authors of, suppliers to, or customers of, the Companies
without the prior written consent of Seller, which may not be unreasonably
withheld.

 

5.15                           Supplementation of Schedules.

 

From time to
time prior to the Closing, Seller shall have the right to supplement or amend Schedules
3.6(d) (with respect to matters in clause (y)), 3.8, 3.9(b), 3.12(b),
3.13(a), 3.14(a) and 3.14(b), with respect to any matter
arising after the delivery of such Schedules pursuant to this Agreement that,
if existing at, or occurring on, the date of this Agreement, would have been
required to be set forth or described in such Schedules. No such supplement or
amendment shall have any effect on the satisfaction of the condition to closing
set forth in Section 6.2(a); provided, however, if the Closing occurs,
Purchaser shall be deemed to have waived any right or claim, including pursuant
to Article VIII hereof, with respect to any such matter fairly disclosed
in such supplement or amendment.

 

5.16                           Pension Funding.

 

Purchaser
shall be responsible for all funding of pension benefit obligations subsequent
to the date hereof whether such funding is required prior to the Closing (in
which case Seller shall fund such amounts and Purchaser shall reimburse such
amounts at the Closing) or subsequent to the Closing. Nothing contained in this
Agreement, however, shall be construed or interpreted as limiting Purchaser’s ability
to amend or terminate any plan at any time or to maintain any specific plan for
any period of time.

 

5.17                           Delivery of Required Financial
Statements.

 

Seller shall
use its best efforts to deliver to Purchaser the Required Financial Statements
by December 23, 2002.

 

5.18                           Certain Contracts.

 

Seller shall
cause the Contract described in item 5 of Schedule 2.5(a) to be
terminated at or prior to Closing, with no liability or obligation (actual or
contingent) on the part of any Company remaining thereunder.

 

5.19                           New Liens and Guarantees.

 

Seller shall
provide to Purchaser copies of all the security agreements, pledge agreements
and other documents representing the Liens described in item 2 of Schedule
3.2(a), item 16 of Schedule 3.2(b), item 1(d) of Schedule 3.12(a),
item 3 of Schedule 3.14(a), item 33 of Schedule 3.14(b), item 1
of Schedule 3.17(a) and the guarantees described in item 12 of Schedule
3.7 to the extent that such Liens and guarantees are created (such liens
and guarantees, collectively, the “New Liens and Guarantees” and such
documents, collectively, the “New Liens and Guarantees Documents”),
promptly after the New Liens and Guarantees Documents are executed and
delivered. Seller shall ensure, at Parent’s or Affiliates’ (other than the
Companies)

 

37

 

sole cost and
expense, that the terms of the New Liens and Guarantees are such that, upon the
Closing, all of the New Liens and Guarantees will be unconditionally released,
satisfied or otherwise discharged and thereupon the New Liens and Guarantees
Documents will no longer have any force or effect on the Companies, the Shares
or any shares in or assets of any of the Companies and none of the Companies
will have any remaining obligations or liabilities thereunder. The foregoing
provisions of this Section 5.19 apply to any liens or guarantees that may be
granted pursuant to the terms and conditions of any of the documents described
in item (a), (b) or (c) of Schedule 3.13(4).

 

ARTICLE VI -

 

CONDITION TO CLOSING

 

6.1                                 Conditions to the Obligations of
Purchaser and Seller.

 

The respective
obligation of each party to effect the Closing is subject to the condition that
there is not in effect any order, judgment, injunction or decree of any
Governmental Authority of competent jurisdiction restraining, enjoining or
otherwise prohibiting the consummation of the transactions contemplated by this
Agreement; provided, however, this clause shall not be a
condition to the obligation of any party whose failure to fulfill any material
obligation under this Agreement shall have been the cause of, or shall have
resulted in, the failure of such condition.

 

6.2                                 Conditions to the Obligations
of Purchaser.

 

The obligation
of Purchaser to effect the Closing is further subject to the satisfaction of
the following conditions, any or all of which may be waived on or prior to the
Closing Date in whole or in part by Purchaser.

 

(a)                                  The
representations and warranties made by Seller in this Agreement shall be true
and correct at and as of the Closing Date with the same force and effect as
though made at and as of the Closing Date (except to the extent that any
representation or warranty is made as of a specific date, in which case such
representation or warranty shall be true and correct as of such date); provided,
however, that in the event of a breach of a representation or warranty
other than a representation or warranty qualified by Material Adverse Effect,
the condition set forth in this Section 6.2(a) shall be deemed satisfied
unless the effect of all such breaches of representations and warranties taken
together results in a Material Adverse Effect;

 

(b)                                 Seller
shall have performed in all material respects all obligations required to be
performed by it under this Agreement prior to the Closing Date.

 

(c)                                  Purchaser
shall have received from Seller the Required Financial Statements;

 

(d)                                 Parent
shall have secured, at its sole cost and expense (including the payment of any
premium), the completion of the “bid purchase” mechanism for the auction market
preferred securities (“AMPS”) described in that certain Investment
Agreement (as it may be or have been amended or otherwise modified, the “AMPS
Investment Agreement”), dated 

 

38

 

October 12. 2001, by and among HMC and
McDougal Littell for the benefit of BNP Paribas and the repurchase or
cancellation of the HMC Loan Note. Notwithstanding the foregoing, Purchaser
acknowledges that EMC shall pay, and Parent shall not be responsible for,
amounts representing regular or scheduled dividends and interest on the AMPS
and HMC Loan Note, respectively, accrued or payable subsequent to the Reference
Date; and

 

(e)                                  Seller
shall have delivered to Purchaser all documents, instruments and other evidence
in form and substance reasonably satisfactory to Purchaser providing that,
immediately upon the Closing, all of the New Liens and Guarantees will be
unconditionally released, satisfied or otherwise discharged and that thereupon
the New Liens and Guarantees Documents will no longer have any force or effect
on the Companies and that none of the Companies will have any remaining
obligations or liabilities thereunder.

 

6.3                                 Conditions to the Obligations of
Seller.

 

The obligation
of Seller to effect the Closing is further subject to the satisfaction of the
following conditions, any or all of which may be waived on or prior to the
Closing Date in whole or in part by Seller:

 

(a)                                  The
representations and warranties made by Purchaser in this Agreement shall be
true and correct in all material respects (except for representations and
warranties qualified by materiality which shall be true and correct) at and as
of the Closing Date with the same force and effect as though made at and as of
the Closing Date (except to the extent that any representation or warranty is
made as of a specific date, in which case such representation or warranty shall
be true and correct as of such date).

 

(b)                                 Purchaser
shall have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date.

 

ARTICLE VII -

 

TERMINATION

 

7.1                                 Termination.

 

This Agreement
may be terminated at any time prior to the Closing:

 

(a)                                  by
Seller or Purchaser if the Closing shall not have occurred by January 20, 2003;
provided, however, that the right to terminate this Agreement
under this Section 7.1(a) shall not be available to any party whose
failure to fulfill any material obligation under this Agreement shall have been
the cause of, or shall have resulted in, the failure of the Closing to occur on
or prior to such date;

 

(b)                                 by
Seller within three (3) Business Days after delivery of the Proposed Reference
Date Statements and the Adjustment Statement to Purchaser if the Adjustment
Items would result in an Estimated Level 2 EBITDA Based Decrease; or

 

(c)                                  by
the mutual written consent of Seller and the Purchaser.

 

39

 

7.2                                 Effect of Termination.

 

In the event
of termination of this Agreement as provided in Section 7.1, this
Agreement shall forthwith become void and there shall be no liability on the
part of any party hereto in respect of the obligations to sell and purchase the
Shares except (a) the Confidentiality Agreement, (b) Sections 5.4, 10.1,
10.2, 10.3, 10.10 and this Section 7.2 shall
survive the termination, (c) nothing herein shall relieve either party from
liability for any breach of this Agreement, (d) in the event Seller terminates
this Agreement pursuant to Section 7.1(b), Seller shall reimburse Purchaser
for Purchaser’s out-of-pocket expenses incurred in connection with the
execution of this Agreement and the consummation of the transactions
contemplated hereby in an amount not to exceed $32,500,000 within two (2)
Business Days after Purchaser notifies Seller of the amount of such expenses
following termination of this Agreement, to an account previously notified to
Seller by Purchaser for this purpose, and (e) in the event Purchaser terminates
this Agreement pursuant to Section 7.1(a) and the condition in Section
6.2(c) has not been satisfied (unless the failure of such condition to be
satisfied is substantially due to causes or events that are primarily beyond
the control of Seller), Seller shall reimburse Purchaser for Purchaser’s
out-of-pocket expenses incurred in connection with the execution of this
Agreement and the consummation of the transactions contemplated hereby in an
amount not to exceed $15,000,000 within two (2) Business Days after Purchaser
notifies Seller of the amount of such expenses and delivers to Seller invoices
in reasonably sufficient detail with copies of relevant backup invoices for
such expenses following termination of this Agreement, to an account previously
notified to Seller by Purchaser for this purpose, and, in the case of clauses
(d) and (e) Seller shall indemnify Purchaser and its Affiliates for any costs
and expenses incurred by any of them in connection with the enforcement of this
provision.

 

ARTICLE VIII -

 

SURVIVAL; INDEMNIFICATION

 

8.1                                 Obligations of Seller.

 

Subject to the
other provisions of this Article VIII, and, except as otherwise provided
by Article IX (which shall be the sole indemnification provisions
related to the subject matter thereof), from and after the Closing, Seller
shall indemnify and hold harmless Purchaser and its Affiliates (including the
Companies) and each of their respective officers, directors, employees and
agents (“Purchaser Indemnitees”), without duplication, from and against
any and all losses, claims, costs, damages, expenses or liabilities, including
reasonable legal fees and expenses incurred in the defense of claims (“Losses”),
imposed on or otherwise incurred or suffered by Purchaser Indemnitees as a
result of, or based upon or arising from:

 

(a)                                  any
breach or inaccuracy of the representations, warranties, covenants or
agreements made by Parent or Seller in Article III, Article V or
this Article VIII (without giving effect to any supplements or
modifications to the Schedules); and

 

(b)                                 those
matters identified in Schedule 8.1(b) (for which Seller shall indemnify
and hold harmless the Purchaser Indemnitees without regard to the limitations
of Sections 8.5 or 8.7 hereof) (“Specified Liabilities”).

 

40

 

8.2                                 Obligations of Purchaser.

 

Subject to the
other provisions of this Article VIII, and, except as otherwise provided
by Article IX, from and after the Closing, Purchaser shall indemnify and
hold harmless Seller and its Affiliates and their respective officers,
directors, employees and agents (“Seller Indemnitees”) from and against
any and all Losses imposed on or otherwise incurred or suffered by Seller
Indemnitees:

 

(a)                                  as
a result of, or based upon or arising from any material breach of any of the
representations, warranties, covenants or agreements made by Purchaser in Article
IV or Article V; or

 

(b)                                 as
a direct result of and based exclusively upon any actions or decisions taken by
Purchaser or the Companies in the conduct of their respective businesses after
the Closing Date.

 

8.3                                 Procedure.

 

(a)                                  Except
as otherwise provided by Article IX, any party seeking indemnification
with respect to any Loss or potential Loss arising from a claim in respect of
which payment may be sought under Section 8.1 or 8.2 hereof
(regardless of any limitations provided in Section 8.5 hereof) shall
give written notice to the party required to provide indemnity hereunder (the “Indemnifying
Party”). Written notice to the Indemnifying Party of the existence of an
indemnifiable claim shall be given by the Indemnified Party within fifteen (15)
days after its becoming aware of the claim giving rise to Loss or potential
Loss or the assertion of liability from the third party (but the failure or
delay of such party seeking indemnification to give such notice shall not limit
its rights to such indemnification except to the extent the Indemnifying Party
is actually prejudiced by such failure or delay).

 

(b)                                 Except
as otherwise provided by Article IX, if any claim, demand or liability
is asserted by any third party against any Person entitled to indemnification
hereunder (the “Indemnified Party”), the Indemnifying Party shall be
entitled to defend any actions or proceedings brought against the Indemnified
Party in respect of matters embraced by the indemnity. If the Indemnifying
Party fails to assume the defense of any such matter within thirty (30) days
after request by the Indemnified Party to assume such defense, the Indemnified
Party may assume control of the defense of the claim. In all cases, the party
without the right to control the defense of the indemnifiable claim may
participate in the defense at its own expense. Notwithstanding anything in this
Section 8.3 to the contrary, neither the Indemnifying Party nor the
Indemnified Party shall, without the written consent of the other party, settle
or compromise any indemnifiable claim or permit a default or consent to entry
of any judgment unless the claimant and such party provide to such other party
an unqualified release from all liability in respect of the indemnifiable
claim. Notwithstanding the foregoing, if a settlement offer solely for money
damages is made by the applicable third party claimant, and the Indemnifying
Party notifies the Indemnified Party in writing of the Indemnifying Party’s
willingness to accept the settlement offer and, subject to the applicable
limitations of Sections 8.5, 8.6, 8.7 and 8.8, pay
the amount called for by such offer, and the Indemnified Party declines to
accept such offer, the Indemnified Party may continue to contest such indemnifiable
claim, free of any participation by

 

41

 

the Indemnifying Party, and the amount of any
ultimate liability with respect to such indemnifiable claim that the
Indemnifying Party has an obligation to pay hereunder shall be limited to the
lesser of (A) the amount of the settlement offer that the Indemnified Party
declined to accept plus the Losses of the Indemnified Party relating to such
indemnifiable claim through the date of its rejection of the settlement offer
or (B) the aggregate Losses of the Indemnified Party with respect to such
indemnifiable claim If the Indemnifying Party makes any payment on any
indemnifiable claim, the Indemnifying Party shall be subrogated, to the extent
of such payment, to all rights and remedies of the Indemnified Party to any
insurance benefits or other claims of the Indemnified Party with respect to
such indemnifiable claim.

 

8.4                                 Survival.

 

For purposes
of this Article VIII, except as otherwise provided by Article IX,
the representations and warranties made by the parties hereto in Article III
and Article IV of this Agreement shall expire on June 30, 2004;
provided, that (i) the representations and warranties made by Seller in Sections
3.2 and 3.3 in respect of title to Shares and the shares of the
Companies shall not expire, (ii) the representations and warranties made by
Seller in Section 3.12 shall expire on the date that is three (3) years
from the Closing Date, (iii) the representations and warranties made by Seller
in Section 3.15 shall expire on the date which is five (5) years from
the Closing Date and (iv) the representations and warranties made by Seller in Section
3.10 shall expire on the date that is sixty (60) days following the
expiration of the applicable statute of limitations. Except as otherwise
provided by Article IX, no claim for Losses subject to indemnification
under this Article VIII shall be brought or made with respect to claims
for Losses resulting from a breach of any representation or warranty contained
in this Agreement after the expiration of the relevant survival period set
forth above; provided, however, that any claim made after the
Closing with reasonable specificity by the party seeking indemnification to the
party from which indemnification is sought within the relevant survival period
set forth above shall survive (and be subject to indemnification) until it is
finally and fully resolved.

 

8.5                                 Limitations on Seller’s
Indemnification.

 

Except as
otherwise provided by Article IX, Seller’s obligation to indemnify
pursuant to this Article VIII for breaches of its representations and
warranties is subject to the limitations in this Section 8.5. Except for
Losses arising under Section 3.2 or Section 3.3 in respect of
title to Shares and the shares of the Companies, no indemnification shall be
made for breaches of its representations and warranties unless and until the
aggregate amount of Losses sustained by Purchaser Indemnitees under Section
8.1 of this Agreement (“Purchaser Losses”) exceeds $20,000,000 (the
“Deductible Amount”), in which event Seller will be required to pay only
the amount of such Purchaser Losses in excess of the Deductible Amount. In no
event shall the aggregate indemnification to be paid by Seller under Section
8.1 for breaches of its representations and warranties exceed 10% of the
Purchase Price (the “Cap Amount”); provided that such limitation
shall not apply to claims based upon a breach of representations or warranties
in Sections 3.1, 3.2, and 3.3 in respect of title to the
Shares and the shares of the Companies. Notwithstanding the foregoing, Seller
shall not be obligated to provide indemnification with respect to any claim
that could be made under Section 8.1 for breaches of its representations
and warranties (other than any Losses arising under Section 3.2 or Section
3.3 in respect of title to Shares and the shares of the Companies) if the
entire amount of Losses

 

42

 

relating to
such claim and claims arising out of the same events or series of related
events under this Agreement is or is reasonably expected to be less than
$1,000,000 (it being agreed that, in respect of any representation or warranty
containing a qualification therein as to materiality or Material Adverse Effect,
once the existence of a breach or inaccuracy of any such representation or
warranty has been established while giving effect to such qualification, the
amount of Losses under this sentence related thereto shall be construed without
giving effect to any such qualification).

 

8.6                                 Limitations on Purchaser’s
Indemnification.

 

Except as
otherwise provided by Article IX, Purchaser’s obligations to indemnify
pursuant to this Article VIII for breaches of its representation and
warranties are subject to the limitations in this Section 8.6. No
indemnification shall be made for breaches of its representations and
warranties unless the aggregate amount of Losses sustained by Seller
Indemnitees under Section 8.2 (such amount, “Seller Losses”)
exceeds the Deductible Amount, in which event Purchaser will be required to pay
only the amount of such Seller Losses in excess of the Deductible Amount. In no
event shall the aggregate indemnification to be paid by Purchaser or its
Affiliates under Section 8.2 for breaches of its representations and
warranties exceed the Cap Amount; provided that such limitation shall
not apply to claims based upon a breach of representations or warranties in Sections
4.2 and 4.7. Notwithstanding the foregoing, Purchaser shall not be
obligated to provide indemnification for breaches of its representations and
warranties with respect to any individual claim or series of related claims
that could be made under Section 8.2 if the entire amount of Losses
relating to such claim and claims arising out of substantially the same facts
under this Agreement is or is reasonably expected to be, less than $1,000,000.

 

8.7                                 Calculation of Losses.

 

(a)                                  The
amount of any Losses for which indemnification is provided under Section 8.1
or 8.2 shall be net of any amounts actually recovered by the Indemnified
Party under insurance policies with respect to such Losses (net of any Tax or
expenses incurred in connection with such recovery) and adjusted in accordance
with Section 9.10, and characterized in accordance with Section 9.11.

 

(b)                                 Purchaser
shall not make any claim for indemnification under this Article VIII in
respect of any matter that is taken into account in the calculation of the
Adjusted Purchase Price.

 

(c)                                  Purchaser
acknowledges that the EBITDA multiplier used in determining the Adjusted
Purchase Price or a similar measure shall not be binding upon any court for the
purposes of calculating the Losses payable by Seller to Purchaser under this Article
VIII for losses of future revenue, income or profits and the parties agree
that a court shall be entitled to determine Losses through any manner available
under Applicable Law.

 

(d)                                 No
party (or any of its Affiliates) shall, in any event, be liable to any other
party (or any of its Affiliates) for any indirect or unforeseeable damages of
such other party (or any of its Affiliates).

 

43

 

(e)                                  The
Indemnified Party shall use its commercially reasonable efforts (and if the
Purchaser is the Indemnified Party, it shall cause the Companies to use their
commercially reasonable efforts) to mitigate any Losses resulting from any
matters giving rise to a claim under this Article VIII or Article IX.

 

8.8                                 Exclusive Remedy.

 

Except as
otherwise provided by Article IX, the sole and exclusive remedy for any
breach or inaccuracy, or alleged breach or inaccuracy, of any representation
and warranty made by Seller or Purchaser or any other person or entity
whatsoever (other than in the case of fraud or willful breach) shall be
indemnification in accordance with this Article VIII. The sole and
exclusive remedy for any breach of a pre-closing covenant set forth in this
Agreement (other than in the case of fraud or willful breach) shall be
indemnification.

 

ARTICLE IX -

 

TAX MATTERS

 

9.1                                 Indemnification Obligations With
Respect to Taxes.

 

(a)                                  Seller
shall be responsible for, and shall indemnify, defend and hold harmless,
without duplication, Purchaser Indemnitees from and against any Loss
attributable to (i) all Taxes of the Companies that are due with respect to
periods ending on or prior to the Reference Date; (ii) all Taxes of the
Companies that are due with respect to any Straddle Period to the extent
attributable to the portion of the Straddle Period ending at the close of
business on the Reference Date; (iii) all Taxes of any member of an affiliated,
consolidated, combined or unitary group of which any of the Companies (or any
predecessor of any of them) is or was a member on or prior to the Closing Date,
including pursuant to Treasury Regulation § 1.1502-6 or any analogous or
similar state, local, or foreign law or regulation; (iv) any and all Taxes of
any other Person imposed on any of the Companies, pursuant to any Tax sharing
agreement or similar arrangement entered into on or prior to the Closing Date,
or as a transferee or successor, by contract or otherwise with respect to any
tax period ending on or prior to the Closing Date; (v) any breach of any
representation or warranty in Section 3.9; (vi) except as provided in Section
9.2(d), any and all Taxes of any Person resulting from, arising out of or
in connection with the sale of the Shares; and (vii) any and all Taxes of any
of the Companies accruing during the period beginning after the Reference Date
and ending on the Closing Date and attributable to actions taken solely by or
at the sole request or sole initiative of Seller (including the sale of
Sunburst Technology Corporation or any similar or related transaction and the
AMPS Transactions), other than Taxes arising from the ordinary course of the
Company’s trade or business; provided, that Seller shall be liable under this Section
9.1(a) only to the extent that the aggregate amount of Taxes covered by
this Section 9.1(a) exceeds the aggregate amount, if any, in respect of
Taxes that has been taken into account in determining the Adjusted Purchase
Price.

 

(b)                                 Purchaser
will be responsible for, and will indemnify, defend, and hold harmless Seller
Indemnitees from and against any Loss attributable to all Taxes (i) of any of
the Companies with respect to periods beginning after the Reference Date, and
(ii) of any of the Companies that are due with respect to any Straddle Period
to the extent attributable to the

 

44

 

portion of the Straddle Period beginning on
the day after the Reference Date; provided, however, that nothing in this Section
9.1(b) shall require Purchaser to indemnify Seller Indemnitees for any
Taxes of any of the Companies accruing during the period beginning after the
Reference Date and ending on the Closing Date and attributable to actions taken
solely by or at the sole request or sole initiative of the Seller, other than
Taxes arising from the ordinary course of the Companies’ trade or business.

 

(c)                                  For
purposes of this Article IX, whenever it is necessary to determine the
liability for Taxes of any of the Companies for a Straddle Period, the
determination of the Taxes for the portion of the Straddle Period ending on and
including, and the portion of the Straddle Period beginning after, the
Reference Date will be determined by assuming that the Straddle Period
consisted of two taxable years or periods, one which ended at the close of the
Reference Date and the other which began at the beginning of the day following
the Reference Date, and items of income, gain, deduction, loss or credit, and
state and local apportionment factors of the Companies for the Straddle Period
will be allocated between such two taxable years or periods on a “closing of
the books basis” by assuming that the books of the Companies were closed at the
close of the Reference Date. However, exemptions, allowances or deductions that
are calculated on an annual basis, such as the deduction for depreciation, will
be apportioned ratably between such periods on a daily basis.

 

9.2                                 Tax Returns and Payment
Responsibility.

 

(a)                                  Seller
shall be responsible for, and shall cause to be prepared and duly and timely
filed, all Tax Returns of the Companies with respect to the taxable year during
which the Closing occurs that are due before the Closing Date and shall pay or
cause to be paid all Taxes due in respect of the period prior to and including
the Reference Date in such Tax Returns. Seller shall be responsible for, and
shall cause to be prepared and duly and timely filed, all Tax Returns that are
prepared on a consolidated, unitary, or combined basis with Seller or any of
its Subsidiaries other than the Companies and that include any of the Companies
for all taxable periods of such Companies ending on or before the Closing Date.
Seller shall pay any Taxes due in respect of the period prior to and including
the Reference Date reflected in the Tax Returns referred to in the preceding
sentence. Purchaser shall pay to Seller any Taxes for which Purchaser is
responsible pursuant to Section 9.l(b)(i) or (ii), but which are
payable with Tax Returns that are filed by Seller pursuant to this Section
9.2(a) at least five (5) Business Days prior to the due date for the
payment of such Taxes. Purchaser shall be responsible for and shall cause to be
prepared and duly and timely filed all Tax Returns with respect to the
Companies that are due after the Closing Date, other than those that are the
responsibility of Seller pursuant to this paragraph, and shall pay any Taxes
due in respect of the period after the Reference Date reflected in those Tax
Returns. The Seller shall pay to Purchaser any Taxes for which Seller is
responsible pursuant to Section 9.1(a), but which are payable with the
Tax Returns to be filed by Purchaser pursuant to this Section 9.2(a), at
least five (5) Business Days prior to the due date for the payment of such
Taxes.

 

(b)                                 All
Tax Returns that are to be prepared and filed by the parties pursuant to the
preceding paragraph and that relate to Taxes for which Seller is liable under Section
9.1(a) or Taxes for which Purchaser is liable under Section 9.1(b)(i)
or (ii) shall be prepared in a manner that is consistent with past
practice. Such Tax Returns shall be submitted to the other party not

 

45

 

later than fifteen (15) Business Days prior
to the due date for filing of such Tax Return (or if such due date is within
forty-five (45) days following the Reference Date, as promptly as practicable
following the Reference Date); provided, however, that with respect to any Tax
Returns relating to periods for which a consolidated, unitary or combined
income Tax Return of Seller will include the operations of any of the
Companies, Seller shall instead submit to Purchaser separate pro forma Tax
Returns relating to the Companies with respect to such period, together with
any further information reasonably required by Purchaser in connection with the
computation of any Tax liability of any of the Companies with respect to such
period. Such other party shall have the right to review such Tax Returns. If
such other party, within ten (10) Business Days after delivery of any such Tax
Return, notifies the party preparing such Tax Return that it objects to any of
the items in such Tax Return, the parties shall attempt in good faith to
resolve the dispute and, if they are unable to do so, the disputed items will
be resolved (within a reasonable time, taking into account the deadline for
filing such Tax Return) by an internationally recognized independent accounting
firm chosen by both Purchaser and Seller. Upon resolution of all such items,
the relevant Tax Return will be filed on that basis. The costs, fees and
expenses of such accounting firm will be borne equally by Purchaser and Seller.

 

(c)                                  None
of the parties shall (and shall not cause or permit the Companies to)
materially amend, refile or otherwise materially modify (or grant an extension
of any statute of limitation with respect to) any Straddle Period Tax Return of
the Companies or any Tax Return of the Companies for any period ending on or
before the Reference Date without the prior written consent of the other party,
which consent may not be unreasonably withheld.

 

(d)                                 All
sales, use, transfer and other similar Taxes relating to the transactions
contemplated by this Agreement, including any stock or asset transfer stamp
Taxes will be borne by Purchaser.

 

9.3                                 Refunds.

 

Any refunds of
Taxes (including credits and offsets and any interest related to such refund,
credit or offset) shall be for the account of and be paid to the party who has
responsibility for such Taxes pursuant to Section 9.1 of this Agreement,
provided that (a) any refund that arises from the carry-back of any tax
attribute arising in a taxable period (or portion thereof) following the
Reference Date into a taxable period ending on or prior to the Closing Date
shall be for the account of Purchaser and (b) any refunds (including credits
and offsets and any interest related to such refund, credit or offset) that
have been taken into account in determining the Adjusted Purchase Price shall
be for the account of Purchaser.

 

9.4                                 Contest Provisions.

 

(a)                                  In
the event (i) Seller or its Affiliates or (ii) Purchaser or its Affiliates
receive notice of any pending or threatened Tax audits or assessments or other
disputes concerning Taxes with respect to which the other party may incur
liability under this Article IX, the party in receipt of such notice
shall promptly notify the other party of such matter in writing, provided that
failure to comply with this provision will not affect a party’s right to
indemnification hereunder unless such failure materially adversely affects the
other party’s ability to defend or challenge such Tax audits or assessments.

 

46

 

(b)                                 Seller
shall have the sole right at its own expense to represent the interests of the
Companies in any Tax audit or Legal Proceedings relating to any Tax for any
taxable period ending on or before the Reference Date and to employ counsel of
its choice at its expense, provided that Seller shall not be entitled to
settle, either administratively or after the commencement of Legal Proceedings,
any claim regarding Taxes that would adversely affect the liability of
Purchaser for any Taxes for which it is liable under Section 9.1(b) or
which could adversely affect any of the Companies for any portion of a Straddle
Period beginning after the Reference Date or any Tax period beginning after the
Reference Date, without Purchaser’s prior written consent, which consent shall
not be unreasonably withheld and shall not be required to the extent that
Seller has indemnified Purchaser, to Purchaser’s reasonable satisfaction,
against the effects of such settlement. Purchaser shall have the sole right at its
own expense to represent the interests of the Companies in any Tax audit or
Legal Proceedings relating to any Tax for any taxable period beginning after
the Reference Date and to employ counsel of its choice at its expense, provided
that Purchaser shall not be entitled to settle, either administratively or
after the commencement of Legal Proceedings, any claim regarding Taxes that
would adversely affect the liability of Seller for any Taxes for which it is
liable under Section 9.1(a) or which could adversely affect any of the
Companies for any portion of a Straddle Period beginning before the Reference
Date or any Tax period ending before the Reference Date, without Seller’s prior
written consent, which consent shall not be unreasonably withheld and shall not
be required to the extent that Purchaser has indemnified Seller, to Seller’s
reasonable satisfaction, against the effects of such settlement Except with
respect to any Tax audit or Legal Proceedings relating to a consolidated,
unitary or combined income Tax Return of Seller which includes the operation of
any of the Companies, Seller and Purchaser shall jointly represent (at their
joint expense) the interests of the Companies in any Tax audit or Legal
Proceedings relating to any Taxes for any Straddle Period. Neither party shall
be entitled to settle, either administratively or after the commencement of
Legal Proceedings, any claim regarding such Taxes without the prior written
consent of the other party, which consent shall not be unreasonable withheld.
If, however, a settlement is offered by the relevant taxing authority on terms
acceptable to one of the parties, but not acceptable to the other party, such
other party may continue to pursue such contest under its control and its
expense, provided that the first party’s indemnity obligation with respect to
such Taxes shall be limited to the amount it would have had to pay had the
proposed settlement been accepted when offered. With respect to any proceedings
regarding Taxes for which Seller is liable under Section 9.1(a) or for
which Purchaser is liable under Section 9.1(b)(ii), the party without
the right to control the Legal Proceedings may participate in the Legal
Proceedings at its own expense.

 

9.5                                 Tax Sharing Agreement.

 

Any Tax
allocation or sharing agreement or arrangement, whether or not written, that
may have been entered into by Seller, or any of its Affiliates, on the one
hand, and any of the Companies, on the other hand, shall be terminated as to
the Companies as of the Closing Date, and none of the parties to this Agreement
shall have any obligation or responsibility with respect to such Tax allocation
or sharing agreement or arrangement.

 

47

 

9.6                                 Assistance and Cooperation.

 

After the
Closing Date, Seller, on the one hand, and Purchaser, on the other hand, shall
(and shall cause their respective Affiliates to), at the expense of the party
requesting such action: (a) assist the other party in preparing and filing any
Tax Returns or reports which such other party is responsible for preparing and
filing in accordance with this Article; (b) cooperate fully in preparing for
any audits of, or disputes with taxing authorities regarding, any Tax Returns
of any of the Companies; (c) make available to the other and to any taxing
authority as reasonably requested all information, records, and documents
relating to Taxes of any of the Companies (provided that with respect to any
Tax Returns relating to periods for which a consolidated, unitary or combined income
Tax Return of Seller will include the operations of any of the Companies,
Seller need only make available to Purchaser separate pro forma Tax Returns
relating to the Companies, together with any further information reasonably
required by Purchaser in connection with the computation of any Tax liability
of any of the Companies with respect to such period); and (d) furnish the other
with copies of all correspondence received from any taxing authority in
connection with any Tax audit or information request with respect to any Tax
Returns of any of the Companies with respect to Taxes the subject of Section
9.1(a) or 9.1(b)(i) or (ii).

 

9.7                                 Retention of Records.

 

Seller and
Purchaser (including the Companies) shall preserve all information, records or
documents relating to liabilities for Taxes of the Companies until the seventh
anniversary of the due date (including extensions thereof) with respect to such
Taxes, provided that neither party shall dispose of any of the foregoing items
without first offering such items to the other party.

 

9.8                                 Survival.

 

All
representations in Section 3.9 and any claims pursuant to this Article
IX shall survive until two months after the expiration of any applicable
statute of limitations (including extensions thereof) with respect to the
assessment of the Taxes the subject of such representation or claim.

 

9.9                                 Other Provisions.

 

The provisions
of this Article IX (and not Article VIII) will exclusively govern
all indemnity claims with respect to Tax matters (i) of the Companies and (ii)
relating to the purchase of the Shares pursuant to this Agreement and, for the
avoidance of doubt, any limitations under Article VIII on a party’s
indemnification obligations shall not apply to any indemnification under this Article
IX.

 

9.10                           Calculation of Indemnification
Claims.

 

If the amount
of any Loss or Tax for which indemnification is provided under Article VIII
or this Article IX (an “Indemnity Claim”) gives rise to a
currently realizable Tax Benefit (as defined below) to the Indemnified Party
making the claim, then the indemnity claim shall be (i) increased to take
account of any net Tax cost incurred by the Indemnified Party

 

48

 

arising from
the receipt of indemnity payments hereunder (grossed up for such increase) and
(ii) reduced to take account of any net Tax benefit realized by the Indemnified
Party arising from the incurrence or payment of any such Loss or Tax. To the
extent such Indemnity Claim does not give rise to a currently realizable Tax
benefit, if the amount with respect to which any Indemnity Claim is made gives
rise to a subsequently realized Tax benefit to the Indemnified Party that made
the claim, such Indemnified Party shall refund to the Indemnifying Party the
amount of such Tax benefit (with and including any gross-up payment made
pursuant to this Section 9.10 with respect to such Tax benefit) when, as
and if realized (it being understood that such Indemnified Party shall use its
reasonable efforts to realize such Tax benefit). For purposes of this Section
9.10 a “Tax benefit” means an amount by which the Tax liability of the
party (or group of corporations including the party) is actually reduced
(including by deduction, reduction of income by virtue of increased tax basis
or otherwise, entitlement to refund, credit or otherwise) plus any related
interest received from the relevant taxing authority. In computing the amount
of any such Tax cost or Tax benefit, the Indemnified Party shall be deemed to
recognize all other items of income, gain, loss, deduction or credit before
recognizing any item arising from the receipt of any indemnity payment
hereunder or the incurrence or payment of any indemnified Loss or Tax. For
purposes of this Section 9.10, a Tax benefit is “currently realizable”
to the extent that such Tax benefit can be realized in the current taxable
period or year or in any tax return with respect thereto (including through a
carryback to a prior taxable period) or in any taxable period or year prior to
the date of the Indemnity Claim. The amount of any increase, reduction or
payment hereunder shall be adjusted to reflect any final determination (which
shall include the execution of Form 870-AD or successor form) with respect to
the Indemnified Party’s liability for Taxes, and payments between the parties
to this Agreement to reflect such adjustment shall be made if necessary. Any
indemnity payment under Article VIII or this Article IX shall be
treated as an adjustment to the value of the asset upon which the underlying
claim was based, unless a final determination (which shall include the
execution of a Form 870-AD or successor form) with respect to the Indemnified
Party or any of its Affiliates causes any such payment not to be treated as an
adjustment to the value of the asset for United States federal income tax
purposes.

 

9.11                           Characterization of Payments.

 

Except as
otherwise required by Applicable Law, all indemnity payments under Article
VIII and under this Article IX will be treated as an adjustment to
the Purchase Price paid for the Shares for tax purposes.

 

ARTICLE X -

 

GENERAL PROVISIONS

 

10.1                           Expenses.

 

Except as
otherwise provided in Section 7.2(d) or elsewhere in this Agreement,
each of the parties hereto shall pay the fees and expenses of its respective counsel,
accountants and other experts and shall pay all other costs and expenses
incurred by it in connection with the negotiation, preparation and execution of
this Agreement and the consummation of the

 

49

 

transactions
contemplated hereby and in no event shall any Company be liable for any such
fees or expenses.

 

10.2                           Governing Law.

 

This Agreement
shall be governed by, and construed in accordance with, the laws of the State
of New York.

 

10.3                           Notices.

 

All notices
and other communications under this Agreement shall be in writing and shall be
deemed given (a) when delivered personally, (b) on the third Business Day after
being mailed by certified mail, return receipt requested, (c) the next Business
Day after delivery to a recognized overnight courier, or (d) upon transmission
and confirmation of receipt by a facsimile operator if sent by facsimile (and
shall also be transmitted by facsimile to the Persons receiving copies
thereof), to the parties at the following addresses or facsimile numbers (or to
such other address and facsimile number as a party may have specified by notice
given to the other party pursuant to this provision):

 

If to Parent or Seller,
to:

 

Vivendi Universal, S.A.

42 avenue de Friedland 

75380 Paris Cedex 08 

France

Attention:  General Counsel 

Facsimile:  33 171 71 11 79

 

with a copy to:

 

Weil, Gotshal &
Manges LLP

767 Fifth Avenue 

New York, NY 10153 

Attention:  Akiko Mikumo 

Facsimile:  (212) 310-8007

 

If to Purchaser, to:

 

Versailles Acquisition
Corporation 

c/o Thomas H. Lee Partners, L.P. 

75 State Street

Suite 2600

Boston, MA 02109 

Attention:  Scott M. Sperling 

Facsimile:  (617) 227-3514

 

and

 

50

 

c/o Bain Capital, LLC 

111 Huntington Avenue 

Boston, MA 02199 

Attention:  Mark Nunnelly 

Facsimile:  (617) 516-2010

 

with a copy to:

 

Simpson Thacher &
Bartlett 

CityPoint

One Ropemaker Street 

London EC2Y 9HU

Attention:  Michael 0. Wolfson 

Facsimile:  44 (0)20 7275 6502

 

10.4                           Entire Agreement.

 

This
Agreement, together with all schedules, exhibits, annexes, certificates,
instruments and agreements delivered pursuant hereto and the Confidentiality
Agreement contain the entire understanding of the parties hereto and thereto
with respect to the subject matter contained herein and therein, and supersede
and cancel all prior agreements, negotiations, correspondence, undertakings and
communications of the parties, oral or written, respecting such subject matter.
There are no restrictions, promises, representations, warranties, agreements or
undertakings of any party hereto with respect to the transactions contemplated
by this Agreement other than those set forth herein or made hereunder or under
the Confidentiality Agreement.

 

10.5                           Amendments; Waivers.

 

This Agreement
can be amended, supplemented or changed only by written instrument signed by
the parties to this Agreement. Any provision hereof can be waived only by
written instrument making specific reference to this Agreement signed by the party
against whom enforcement of any such waiver is sought.

 

10.6                           Headings; References.

 

The article,
section and paragraph headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. All references herein to “Articles,” “Sections,” “Schedules” or
“Exhibits” shall be deemed to be references to Articles or Sections hereof or
Exhibits hereto unless otherwise indicated.

 

10.7                           Counterparts.

 

This Agreement
may be executed in one or more counterparts and each counterpart shall be
deemed to be an original, but all of which shall constitute one and the same
original.

 

51

 

10.8                           Parties in Interest; Assignment.

 

Neither this
Agreement nor any of the rights, interest or obligations hereunder shall be
assigned by any of the parties hereto without the prior written consent of the
other parties. Subject to the preceding sentence, this Agreement shall inure to
the benefit of and be binding upon Parent, Seller and Purchaser and shall inure
to the sole benefit of Seller and Purchaser and their respective successors and
permitted assigns. Notwithstanding the foregoing, each of Parent and Seller
acknowledges and agrees that (i) Purchaser may at any time prior to the Closing
assign all or a portion of its rights hereunder to one or more wholly-owned
Affiliates of Purchaser (provided that Purchaser remains jointly and severally
liable in the manner of Parent’s obligations pursuant to Section 10.11
below for the performance by each such Affiliate of its obligations hereunder)
and (ii) Purchaser will be able to delegate or otherwise assign or transfer its
rights to receive indemnification under this Agreement for the benefit of any
direct or indirect lender having financed or refinanced all or part of the
transactions contemplated hereby. Except as described above, nothing in this
Agreement, express or implied, is intended to confer upon any other Person any
rights or remedies under or by reason of this Agreement.

 

10.9                           Severability; Enforcement.

 

The invalidity
or unenforceability of any provision of this Agreement shall not affect the
validity or unenforceability of any other provisions of this Agreement, which
shall remain in full force and effect.

 

10.10                     Consent to Jurisdiction.

 

The parties
hereto irrevocably submit to the exclusive jurisdiction of federal court in the
Borough of Manhattan, New York, New York, United States of America, in any suit
or proceeding based on or arising under this agreement, and irrevocably agree
that any and all claims in respect of such suit or proceeding shall be brought
or otherwise commenced in and may be determined in any such court. To the
fullest extent permitted by Applicable Laws and subject to the preceding sentence,
each party hereto: (i) expressly and irrevocably consents and submits to the
jurisdiction of each such court in connection with any such legal proceeding,
(ii) irrevocably consents to service of process in any such proceeding in any
manner permitted by the Governing Law and agrees that service of process by
registered or certified mail, return receipt requested, at is address specified
pursuant to Section 10.3 is reasonably calculated to give actual notice;
(iii) irrevocably agrees that each federal court located in the Borough of
Manhattan, New York, New York, shall be deemed to be a convenient forum and
(iv) irrevocably waives and agrees not to assert (by way of motion, as a
defense or otherwise) in any such legal proceeding commenced in any federal or
state court in the Borough of Manhattan, New York, New York, any claim that
such party is not subject personally to the jurisdiction of such court, that
such legal proceeding has been brought in an inconvenient forum, that the venue
of such proceeding is improper or that this Agreement or the subject matter
hereof of thereof may not be enforced in any such court.

 

52

 

10.11                     Parent Agreements and Obligations.

 

(a)                                  Parent
hereby agrees to be jointly and severally liable for the prompt and complete
performance of Seller’s obligations under this Agreement, but subject to the
same limitations on Seller’s obligations hereunder, including its (x)
indemnification obligations under Articles VIII and IX, as if Parent
had delivered the representations of Seller set forth in Article III on
a joint and several basis, and (y) contingent payment obligations under Article
II hereof. Parent’s obligations are unconditional irrespective of any
circumstances which might otherwise constitute, by operation of law, a
discharge of a guarantor and it shall not be necessary for Purchaser to
institute or exhaust any remedies or causes of action against Seller or any
other Person as a condition to the obligations of Parent hereunder.

 

(b)                                 Parent
hereby irrevocably waives any right to receive a formal notification or to
request that any other formalities or protest be accomplished and expressly
undertakes not to exercise, and waives to the fullest extent lawful, any rights
that it may have under Articles 2021 (bénéfice
de discussion), 2026 (bénéfice
de division), 2032 and 2039 of the French Code
Civil.

 

(c)                                  Notwithstanding
the terms of Sections 10.2 and 10.10, the parties agree that this
Section 10.11 shall be governed by, and construed in accordance with,
the laws of the Republic of France and may be enforced in any court of
competent jurisdiction in France.

 

10.12                     Further Assurances.

 

Each of the
parties shall execute such documents and other papers and take such further
actions as may be reasonably required or desirable to carry out the provisions
hereof and the transactions contemplated hereby, including any assignment
instruments contemplated by Section 10.8 hereof.

 

10.13                     Return of Information.

 

If for any
reason whatsoever the transactions contemplated by this Agreement are not
consummated, Purchaser shall promptly return to Seller all books and records
furnished by Seller, any of the Companies or any of their respective
Affiliates, agents, employees or representatives (including all copies,
summaries and abstracts, if any, thereof).

 

53

 

IN WITNESS
WHEREOF, the parties have executed or caused this Agreement to be executed as
of the date first written above.

 

	
   

  	
  VIVENDI UNIVERSAL, S.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  VIVENDI COMMUNICATIONS NORTH AMERICA, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  VERSAILLES ACQUISITION CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  

 

54

 

 

IN WITNESS
WHEREOF, the parties have executed or caused this Agreement to be executed as
of the date first written above.

 

	
   

  	
  VIVENDI UNIVERSAL, S.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  VIVENDI COMMUNICATIONS NORTH AMERICA, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  VERSAILLES ACQUISITION CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  

 

 

55

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