EXECUTION
AGREEMENT PLAN OF REORGINIZATION
BY AND AMONG
OREGON MICRO-IMAGING, INC.
DOCUNET INC.
AND
OMI ACQUISITION CORP.
Dated September 9, 1997
TABLE OF CONTENTS
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ARTICLE 1 - CERTAIN DEFINITIONS...................................................................................2
ARTICLE 2 - THE MERGER...........................................................................................11
2.1. Delivery and Filing of Articles of Merger.........................................................11
2.2. Effective Time of the Merger......................................................................11
2.3. Certificate of Incorporation, By-laws and Board of Directors of
Surviving Corporation.............................................................................11
2.4. Certain Information with Respect to the Capital Stock of the
Company, Purchaser and Newco......................................................................11
2.5. Effect of Merger..................................................................................12
2.6. Manner of Conversion..............................................................................12
2.7. Delivery of Shares................................................................................13
2.9. Delivery of Merger Consideration..................................................................18
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS...............................................................18
3.1. Organization; Qualification; Good Standing........................................................19
3.2. Authorization for Agreement.......................................................................19
3.3. Capitalization; Subsidiaries and Affiliates.......................................................20
3.4. Enforceability....................................................................................21
3.5. Matters Affecting Shares; Title to Shares.........................................................21
3.6. Predecessor Status; etc...........................................................................21
3.7. Spin-off by the Company...........................................................................21
3.8. Legal Proceedings.................................................................................21
3.9. Compliance with Laws..............................................................................22
3.10. Labor Matters.....................................................................................22
3.11. Employee Benefit Plans............................................................................23
3.12. Financial Statements..............................................................................25
3.13. Distributions.....................................................................................26
3.14. Absence of Undisclosed Liabilities................................................................26
3.15. Real Property.....................................................................................27
3.16. Tangible Personal Property........................................................................28
3.17. Contracts.........................................................................................29
3.18. Insurance.........................................................................................31
3.19. Proprietary Rights................................................................................31
3.20. Environmental Matters.............................................................................32
3.21. Permits...........................................................................................33
3.22. Regulatory Filings................................................................................33
3.23. Taxes and Tax Returns.............................................................................33
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3.24. Investment Portfolio.............................................................................35
3.25. Affiliate Transactions...........................................................................36
3.26. Accounts, Power of Attorney......................................................................36
3.27. Receivables......................................................................................36
3.28. Officers and Directors...........................................................................36
3.29. Corporate Records................................................................................37
3.30. Brokers or Finders...............................................................................37
3.31. Customers........................................................................................38
3.32. Investment Company...............................................................................38
3.33. Absence of Changes...............................................................................38
3.34. Accuracy and Completeness of Information.........................................................39
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND NEWCO...................................................40
4.1. Organization......................................................................................40
4.2. Authorization for Agreement.......................................................................40
4.3. Enforceability....................................................................................40
4.4. Litigation........................................................................................40
4.5. Registration Statement............................................................................40
4.6. Brokers or Finders................................................................................41
ARTICLE 5
COVENANTS...............................................................................................42
5.1. Good Faith........................................................................................42
5.2. Approvals.........................................................................................42
5.3. Cooperation; Access to Books and Records..........................................................42
5.4. Duty to Supplement................................................................................43
5.5. Information Required For Purchase Financing Transactions..........................................44
5.6. Performance of Conditions.........................................................................44
5.7. Conduct of Business...............................................................................45
5.8. Negative Covenants................................................................................46
5.9. Exclusive Negotiation.............................................................................48
5.10. Public Announcements..............................................................................49
5.11. Amendment of Schedules............................................................................49
5.12. Cooperation in Preparation of Registration Statement..............................................49
5.13. Examination of Final Financial Statement..........................................................50
5.13A.Audit Opinion.....................................................................................50
5.14. Lock-Up Agreements................................................................................50
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5.15. Compliance with the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976 (the
"▇▇▇▇-▇▇▇▇▇ Act")..............................................................................51
5.16. Transfer of Vehicles...........................................................................51
5.17. ...............................................................................................51
5.18. ...............................................................................................51
ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING.........................................................................53
6.1. Conditions Precedent to the Purchaser and Newco's Obligations.....................................53
6.2. Conditions Precedent to Company's and Sellers' Obligations........................................55
ARTICLE 7
CLOSING.................................................................................................58
ARTICLE 8
CONFIDENTIALITY AND COVENANT NOT TO COMPETE.............................................................59
8.1. Confidentiality...................................................................................59
8.2. Covenant Not To Compete...........................................................................60
8.3. Specific Enforcement; Extension of Period.........................................................61
8.4. Disclosure........................................................................................61
8.5. Interpretation....................................................................................61
8.6. Sellers' Acknowledgment...........................................................................62
ARTICLE 9
SURVIVAL................................................................................................62
9.1. Survival of Representations, Warranties, Covenants and Agreements.................................62
9.2. Intentionally Omitted.............................................................................63
9.3. Underwriter's Benefit.............................................................................63
ARTICLE 10
INDEMNIFICATION.........................................................................................63
10.1. Sellers' Indemnification.........................................................................63
10.1A No Indemnification of Projected Information......................................................64
10.3. Payment; Procedure for Indemnification...........................................................64
10.4. Equitable Contribution Under the Securities Act..................................................67
10.5. Exclusiveness of Indemnification.................................................................67
10.6. Limitations on Indemnification...................................................................67
10.7. Value of DocuNet Common Stock....................................................................68
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ARTICLE 11
TERMINATION AND REMEDIES................................................................................68
11.1. Termination......................................................................................68
11.2. Effect of Termination............................................................................69
ARTICLE 12
POST-CLOSING COVENANTS..................................................................................70
12.1. Maintenance and Access to Records................................................................70
12.2. Disclosure.......................................................................................70
12.3. Accounts Receivable..............................................................................70
12.4. Release of Liability.............................................................................70
ARTICLE 13
TRANSFER RESTRICTIONS...................................................................................71
13.1. Transfer Restrictions............................................................................71
ARTICLE 14
SECURITIES LAWS REPRESENTATIONS.........................................................................71
14.1. Compliance with Law..............................................................................72
14.2. Economic Risk; Sophistication....................................................................72
ARTICLE 15
REGISTRATION RIGHTS.....................................................................................73
15.1. Piggyback Registration Rights....................................................................73
15.2. Registration Procedures..........................................................................73
15.3. Underwriting Agreement...........................................................................73
15.4. Availability of Rule 144.........................................................................74
15.5. Survival.........................................................................................74
ARTICLE 16
MISCELLANEOUS...........................................................................................74
16.1. Notices..........................................................................................74
16.2. No Third Party Beneficiaries.....................................................................76
16.3. Schedules........................................................................................76
16.4. Expenses.........................................................................................76
16.5. Further Assurances...............................................................................76
16.6. Entire Agreement; Amendment......................................................................76
16.7. Section and Paragraph Titles.....................................................................77
16.8. Binding Effect...................................................................................77
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16.9. Counterparts....................................................................................77
16.10. Severability....................................................................................77
16.11. Governing Law...................................................................................77
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
the 9th day of September, 1997, by and among DOCUNET INC., a Pennsylvania
corporation ("Purchaser"), OMI ACQUISITION CORP., a Pennsylvania corporation
("Newco"), OREGON MICRO-IMAGING, INC., an Oregon corporation (the "Company"),
▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇ (individually, a "Seller", and together, the
"Sellers,").
WHEREAS, Newco is a corporation duly organized and existing under
the laws of the Commonwealth of Pennsylvania, having been incorporated
solely for the purpose of completing the transactions set forth
herein, and is a wholly-owned subsidiary of Purchaser, a corporation
organized and existing under the laws of the Commonwealth of
Pennsylvania;
WHEREAS, the respective Boards of Directors of Newco and the
Company (which together are hereinafter collectively referred to as
"Constituent Corporations") deem it advisable and in the best
interests of the Constituent Corporations and their respective
stockholders that the Company merge with and into Newco pursuant to
this Agreement and the applicable provisions of the laws of the
Commonwealth of Pennsylvania and the State of Oregon;
WHEREAS, Purchaser is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), with
each of the other Founding Companies (as defined herein) and their
respective stockholders in order to acquire additional document
management and related services companies;
WHEREAS, this Agreement, the Other Agreements and the Initial
Public Offering of DocuNet Common Stock (as defined herein) constitute
the "DocuNet Plan of Reorganization;"
WHEREAS, in consideration of the agreements of the Potential
Founding Companies (as defined herein) pursuant to the Other
Agreements, the Board of Directors of the Company has approved this
Agreement as part of the DocuNet Plan of Reorganization in order to
transfer the capital stock of the Company to Purchaser;
WHEREAS, the parties hereto intend for the merger transaction
contemplated herein to qualify as a reorganization under Section
368(a)(1)(A) and Section 368(a)(2)(D) of the Code.
IN CONSIDERATION of the foregoing and the mutual promises, covenants and
agreements contained in this Agreement, the parties, intending to be legally
bound, hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
herein specified, unless the context otherwise requires:
1.1. Accounts shall have the meaning set forth in Section 3.26.
1.2. Adverse Claims shall mean, with respect to any asset, any security
interests, liens, encumbrances, pledges, trusts, charges, proxies, conditional
sales, title retention agreements, rights under any Contracts, liabilities and
any other burdens of any nature whatsoever attached to or adversely affecting
such asset.
1.3. Affiliate shall mean: (i) any Person that directly or indirectly
through one or more intermediaries controls, is controlled by or under common
control with the Person specified; (ii) any director, officer, or Subsidiary of
the Person specified; and (iii) the spouse, parents, children, siblings,
mothers-in-law, fathers-in law, sons-in-law, daughters-in-law, bothers-in-law,
and sisters-in-law of the Person specified. For purposes of this definition and
without limitation to the previous sentence, (x) "control" of a Person means the
power, direct or indirect, to direct or cause the direction of management and
policies of such Person, whether through ownership of voting securities, by
contract or otherwise, and (y) any Person owning more than ten percent (10%) or
more of the voting securities or similar interests of another Person shall be
deemed to be an Affiliate of that Person.
1.4A. Accountants' CDA Report shall have the meaning set forth in Section
2.8(b).
1.4B. Adjusted Current Liabilities shall have the meaning set forth in
Section 2.8(b).
1.4. Affiliate Transaction shall have the meaning set forth in Section
3.25.
1.5. Articles of Merger shall mean those Articles or Certificates of Merger
with respect to the Merger substantially in the forms attached as Annex I hereto
or with such other changes therein as may be required by applicable state laws.
1.6. Balance Sheet Date shall mean July 31, 1997.
1.7A. Base Purchase Price shall have the meaning set forth in Section
2.8(a).
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1.7. Business shall mean the business of the Company or any of its
Subsidiaries as conducted as of the date hereof.
1.8. Capitalization Table shall mean the capitalization table set forth in
Section 2.7.
1.9. Cash Purchase Price shall have the meaning set forth in Section 2.9.
1.10. Claim Notice shall have the meaning set forth in Section 10.3(c).
1.11. Closing shall have the meaning set forth in Article 7.
1.12. [Intentionally omitted.]
1.13. Closing Date shall mean the date on which the Closing actually takes
place.
1.14. Closing Balance Sheet shall mean the balance sheet delivered by the
Company to the Purchaser as of the date immediately prior to the Closing Date in
accordance with Section 3.12(d).
1.15. Closing Debt Amount shall have the meaning set forth in Section
2.8(b).
1.16. Code shall mean the Internal Revenue Code of 1986 and the rules and
regulations promulgated thereunder, as amended and supplemented from time to
time, or any successors thereto.
1.17. Common Stock shall mean the common stock, no par value per share, of
the Company.
1.18. Company Balance Sheet shall have the meaning set forth in Section
3.14.
1.19. Confidential Information shall mean (i) with respect to any party to
this Agreement or any Affiliate of such party or any Potential Founding Company,
all financial, technical, commercial or other information, including but not
limited to information, materials, documents, financial reports, business plans
and marketing data that relate to the business, strategies or operations of the
parties hereto or a Potential Founding Company, disclosed or otherwise made
available by such party, such Affiliate or Potential Founding Company (the
"Discloser") to another party, affiliate or Potential Founding Company (the
"Recipient") in connection with the transactions contemplated by this Agreement
and (ii) each of the terms, conditions and other provisions contained in this
Agreement and in the agreements or documents to be delivered pursuant to this
Agreement. Notwithstanding the preceding sentence, the definition of
Confidential Information shall not include any information that (i) is in the
public domain at the time of disclosure to the Recipient or becomes part of the
public domain after such disclosure through no fault of the Recipient, (ii) is
possessed in writing by the Recipient at the
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time of disclosure to such Recipient, (iii) is contained in the Registration
Statement on Form S-1 to be filed by Purchaser in connection with the Initial
Public Offering or (iv) is disclosed to a party or Potential Founding Company by
any Person other than a party to this Agreement or a Potential Founding Company;
provided, that the party to whom such disclosure has been made does not have
actual knowledge that such Person is prohibited from disclosing such information
(either by reason of contractual, or legal or fiduciary duty or obligation). For
the purposes hereof, public domain shall not include disclosure of information
to a Potential Founding Company or (except as otherwise provided herein) to any
other person in connection with the transactions contemplated hereby.
1.20. Consents shall mean any consents, waivers, approvals, authorizations,
certifications or exemptions from any Person or under any Contract or
Requirement of Law, as applicable.
1.21. Constituent Corporations has the meaning set forth in the second
recital of this Agreement.
1.22. Contracts shall mean, with respect to any Person, any indentures,
indebtedness, contracts, leases, agreements, instruments, licenses, undertakings
and other commitments, whether written or oral, to which such Person is, or such
Person's properties are, bound.
1.23. Credit Acts shall mean (i) the Fair Debt Collection Practices Act, 16
U.S.C. ss.1692, et. seq., the Fair Credit Reporting Act, 16 U.S.C. ss.1681 et.
seq., and any other provision of the Consumer Credit Protection Act, in each
case, together with the rules and regulations promulgated thereunder, (ii) the
Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, 15 U.S.C.
ss.6101 et. seq., together with the rules and regulations promulgated
thereunder, (iii) the Telephone Consumer Protection Act of 1991, together with
the rules and regulations promulgated thereunder, and (iv) any Requirement of
Law of any jurisdiction relating to the subject matter covered by any of the
foregoing, all as amended and supplemented from time to time, or any successors
thereto.
1.23A. Debt shall have the meaning set forth in Section 2.8.
1.24. DocuNet Common Stock shall mean the common stock, no par value per
share, of DocuNet Inc.
1.25. Effective Time of the Merger shall mean the time as of which the
Merger becomes effective, which shall, in any case, occur on the Closing Date.
1.26. Employee Benefit Plan shall mean any deferred compensation, pension,
profit sharing, stock option, stock purchase, savings, group insurance or
retirement plan, and all vacation pay, severance pay, incentive compensation,
consulting, bonus and other employee benefit or fringe benefit plans or
arrangements maintained by the Company or any ERISA Affiliate
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(including, without limitation, health insurance, life insurance and other
benefit plans maintained for retirees) within the previous six plan years or
with respect to which contributions are or were (within such six year period)
made or required to be made by the Company or any ERISA Affiliate or with
respect to which the Company has any liability.
1.27. Environmental Laws shall mean all Requirements of Law relating to
pollution or protection of the environment (including, without limitation,
ambient air, surface water, groundwater, land, or surface or subsurface strata)
including, without limitation, Requirements of Law relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment and Requirements of Law relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of any of
the foregoing including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et. seq.
("CERCLA"), the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et.
seq., and the rules and regulations promulgated thereunder, all as amended and
supplemented from time to time, and together with any successors thereto. As
used in this Agreement, the term "hazardous substances" shall have the meaning
assigned to that term in CERCLA, and the rules and regulations promulgated
thereunder, as amended and supplemented from time to time, or any successors
thereto.
1.28. Escrow Amount shall have the meaning set forth in Section 2.9(c).
1.29. Escrow Agent shall mean the individual or entity named as the Escrow
Agent in the Escrow Agreement.
1.30. Escrow Agreement shall mean the Escrow Agreement between the Sellers,
the Purchaser and the Escrow Agent to hold the Escrow Amount pursuant to the
terms and conditions therein as referred to in Section 2.9, substantially in the
form attached hereto as Exhibit A.
1.31. ERISA shall mean the Employment Retirement Income Security Act of
1974 and the rules and regulations promulgated thereunder, as amended and
supplemented from time to time, or any successors thereto.
1.32. ERISA Affiliate shall mean any Person that is included with the
Company in a controlled group or affiliated service group under Sections 414(b),
(c), (m) or (o) of the Code.
1.33. Final Adjusted Working Capital Amount shall have the meaning set
forth in Section 2.8.
1.34. Final Debt Amount shall have the meaning set forth in Section 2.8(b).
1.35. Financial Statements shall have the meaning set forth in Section
3.12(a).
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1.36. Founding Companies shall mean those Potential Founding Companies that
enter into definitive acquisition or merger agreements or asset purchase
agreements with the Purchaser in anticipation of a simultaneous acquisition by
Purchaser and Initial Public Offering.
1.37. GAAP shall mean generally accepted accounting principles in the
United States set forth in the Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and in statements by the
Financial Accounting Standards Board or in such other statement by such other
entity as may be generally recognized as the successors for the aforementioned;
and shall also mean that the accounting principles observed in a current period
are comparable in all material respects to those applied in a preceding period
unless specific exemption is noted in the financial statements where a change of
accounting method, principle or presentation has occurred.
1.38. Governmental or Regulatory Authority shall mean any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the government of the United States or of any foreign country, any state or any
political subdivision of any such government (whether state, provincial, county,
city, municipal or otherwise).
1.39. Indemnifiable Losses shall mean all liabilities, obligations, claims,
demands, damages, penalties, settlements, causes of action, costs and expenses.
Indemnifiable Losses shall include, without limitation, the actual costs paid in
connection with an Indemnified Party's investigation and evaluation of any claim
or right asserted against such Indemnified Party and all reasonable attorneys',
experts' and accountants' fees, expenses and disbursements and court costs,
including, without limitation, those incurred in connection with the Indemnified
Party's enforcement of this Agreement and the indemnification provisions of
Article 10 of this Agreement.
1.40. Indemnified Party shall have the meaning set forth in Section
10.3(a).
1.41. Indemnifying Party shall have the meaning set forth in Section
10.3(a).
1.42. Indemnity Notice shall have the meaning set forth in Section 10.3(a).
1.43. Initial Public Offering shall mean the initial public offering of the
DocuNet Common Stock registered under the Securities Act.
1.44. Initial Public Offering Price shall mean the price to the public of
the DocuNet Common Stock sold in the Initial Public Offering.
1.45. Intellectual Property shall mean all patents, patent rights, patent
applications, registered trademarks and service marks, trademark rights,
trademark applications, service ▇▇▇▇ rights, service ▇▇▇▇ applications, trade
names, registered copyrights, copyright rights and all intellectual, industrial
or proprietary rights and trade secrets, technology and know-
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how relating to the Business, in each case together with any amendments,
modifications and supplements thereto.
1.46. Interim Financial Statements shall have the meaning set forth in
Section 3.12(b).
1.47. Inventory shall mean all inventory incremental or relating to, or
used in connection with the Business including, without limitation, all
supplies, work in process and finished goods.
1.48. IRS means the Internal Revenue Service or any successor organization
thereto.
1.49. Knowledge shall mean with respect to any representation, warranty or
statement of any party in this Agreement that is qualified by such party's
"knowledge," the actual knowledge of such party or of any officer or director of
such party, or (i) in the case of any such officer or director, that knowledge
that a reasonably prudent officer or director should have if such person duly
performed his or her duties as an officer or director of such party or any of
such party's Subsidiaries, or made reasonable and diligent inquiry and exercised
due diligence with respect thereto, of the matter to which such qualification
applies, and (ii) in the case of any of the Sellers, that knowledge that such
Seller should have if such Seller made reasonable and diligent inquiry and
exercised due diligence with respect thereto.
1.48A. Leases shall mean the leases of Real Property with the material
terms and conditions set forth on Exhibit D attached hereto.
1.50. Legal Proceeding shall mean any action, suit, arbitration, claim or
investigation by or before any Governmental or Regulatory Authority, any
arbitration or alternative dispute resolution panel, or any other legal,
administrative or other proceeding.
1.51. Material Adverse Effect shall mean an effect which is or would be
materially adverse to the Business and Properties (including Intellectual
Property), the prospects for the Business, or the condition (financial or
otherwise) or results of operation, of the Company.
1.52. Merger means the merger of the Company with and into Newco pursuant
to this Agreement and the applicable provisions of the laws of the Commonwealth
of Pennsylvania and other applicable state laws.
1.53. [Intentionally omitted.]
1.54. Newco Stock shall mean the common stock, $.01 par value per share, of
Newco.
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1.55. Order shall mean any judgment, order, writ, decree, injunction or
other determination whatsoever of any Governmental or Regulatory Authority or
any other entity or body whose finding, ruling or holding is legally binding or
is enforceable as a matter of right (in any case, whether preliminary or final).
1.56. PBGC means the Pension Benefit Guaranty Corporation or any successor
organization thereto.
1.57. Permits shall mean all licenses, permits, certificates of authority,
authorizations, approvals, registrations, franchises, rights, orders,
qualifications and similar rights or approvals granted or issued by any
Governmental or Regulatory Authority relating to the Business of the Company or
any of its Subsidiaries.
1.58. Person shall mean any natural person, corporation, general
partnership, limited partnership, limited liability company, proprietorship,
joint venture, trust, association, union, entity, or other form of business
organization or any Governmental or Regulatory Authority whatsoever.
1.59. Potential Founding Company shall mean any person or entity entering
into a letter of intent with the Purchaser, or its Affiliates, to participate in
the simultaneous acquisition by Purchaser and Initial Public Offering.
1.60. Pricing shall mean the determination by Purchaser and the
Underwriters of the public offering price of the shares of DocuNet Common Stock
in the Initial Public Offering.
1.59A. Pricing Date shall mean the date on which the Pricing takes place.
1.61. Property shall mean the Real Property, Intellectual Property and
Tangible Personal Property of the Company.
1.62. Purchase Price shall have the meaning set forth in Section 2.8.
1.63. Purchaser Financing Transaction shall mean the Initial Public
Offering, any other offering by the Purchaser or any of its Subsidiaries of any
securities, whether debt or equity, or any other financing or credit arrangement
sought by the Purchaser or any of its Subsidiaries.
1.64. [Intentionally omitted.]
1.62A. Purchaser's CDA Response Notice shall have the meaning set forth in
Section 2.8(b).
1.65. Real Property shall mean all real property leased to the Company or
any of its Subsidiaries.
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1.66. Receivables shall have the meaning set forth in Section 3.27.
1.67. Regulatory Approvals shall mean all Consents from all Governmental or
Regulatory Authorities.
1.68. Related Companies shall have the meaning set forth in Section 8.2(a).
1.69. Requirement of Law shall mean, with respect to any Person, such
Person's articles or certificate of incorporation, by-laws or other governing or
constitutive documents, if any, and any provision of law, statute, treaty, rule,
regulation, ordinance or pronouncement having the effect of law, or any Order,
to which, in each case, such Person or any of such Person's properties,
operations, business or assets is bound or subject.
1.70. Restricted Area shall have the meaning set forth in Section 8.2(a).
1.71. Restricted Business shall have the meaning set forth in Section
8.2(a).
1.72. Restricted Period shall mean, with respect to each Seller, the period
commencing on the Closing Date and ending on the later of (i) the first
anniversary of the date on which such Seller's employment with the Purchaser, if
any, expires, is not renewed, or is otherwise terminated, and (ii) the fifth
anniversary of the Closing Date, as such period may be extended pursuant to
Section 8.3(b); provided that the reference to "fifth anniversary" in this
clause (ii) shall be automatically changed to "fourth anniversary" if the
average closing price of the DocuNet Common Stock during any 20-trading day
period within the 60-day period prior to or following the date on which such
Seller's employment with the Purchaser terminates is less than 50% of the
Initial Public Offering Price (as adjusted proportionately for any stock splits,
stock dividends or reverse stock splits).
1.73. Securities Act shall mean the Securities Act of 1933 and the rules
and regulations promulgated thereunder, as amended and supplemented from time to
time, or any successors thereto.
1.74. [Intentionally omitted.]
1.75. Sellers' CDA Objection shall have the meaning set forth in Section
2.8(b).
1.76. Shares shall mean shares of Common Stock of the Company.
1.77. Stock Purchase Price shall have the meaning set forth in Section 2.9.
1.78. Surviving Corporation shall mean Newco as the surviving party in the
Merger.
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1.79. Subsidiary shall mean, with respect to any Person, any Person of
which securities or other ownership interests having ordinary voting power to
select a majority of the board of directors or other persons serving similar
functions are at the time directly or indirectly owned by such Person.
1.80. Tangible Personal Property shall have the meaning set forth in
Section 3.16.
1.81. Taxes shall mean (i) any tax, charge, fee, levy or other assessment
including, without limitation, any net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, payroll, employment,
social security, unemployment, excise, estimated, stamp, occupancy, occupation,
property or other similar taxes, including any interest or penalties thereon,
and additions to tax or additional amounts imposed by any federal, state, local
or foreign governmental authority, domestic or foreign (a "Taxing Authority") or
(ii) any liability for the payment of any taxes, interest, penalty, addition to
tax or like additional amount resulting from the application of Treasury
Regulation ss.1.1502-6 or comparable Requirement of Law.
1.82. Tax Returns shall mean any declaration, return, report, estimate,
information return, schedule, statements or other document filed or required to
be filed with, or when none is required to be filed with a Taxing Authority, the
statement or other document issued by, a Taxing Authority.
1.83. Trade Accounts Receivable shall mean, as of the applicable date, the
Company's trade accounts receivable associated with the Business.
1.84. Transfer Taxes shall mean any applicable documentary, sales, use,
filing, transfer and similar Taxes payable as a result of the transactions
contemplated by this Agreement.
1.85. Underwriter shall have the meaning set forth for that term in Section
2(a)(11) of the Securities Act.
1.86. Unliquidated Indemnity Notice shall have the meaning set forth in
Section 10.3(b).
1.87. [Intentionally omitted.]
1.84A. Value shall have the meaning set forth in Section 2.8(b).
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ARTICLE 2
THE MERGER
2.1. Delivery and Filing of Articles of Merger. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and filed
with the Secretary of State of the Commonwealth of Pennsylvania and the
Secretary of State of the State of Oregon and stamped receipt copies of each
such filing to be delivered to Purchaser on or before the Closing Date.
2.2. Effective Time of the Merger. At the Effective Time of the Merger, the
Company shall be merged with and into Newco in accordance with the Articles of
Merger, the separate existence of the Company shall cease, Newco shall be the
surviving party in the Merger and Newco is sometimes hereinafter referred to as
the Surviving Corporation. The Merger will be effected in a single transaction.
2.3. Certificate of Incorporation, By-laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of Newco then in effect shall be
the Certificate of Incorporation of the Surviving Corporation until changed
as provided by law;
(ii) the By-laws of Newco then in effect shall become the By- laws of
the Surviving Corporation; and subsequent to the Effective Time of the
Merger, such Bylaws shall be the By-laws of the Surviving Corporation until
they shall thereafter be duly amended;
(iii) the Board of Directors of the Surviving Corporation shall
consist of the following persons: ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇▇ and S. ▇▇▇▇▇ ▇▇▇▇▇. The Board of Directors of the Surviving
Corporation shall hold office subject to the provisions of the laws of the
Commonwealth of Pennsylvania and of the Certificate of Incorporation and
By-laws of the Surviving Corporation; and
(iv) the officers of the Surviving Corporation shall be the persons
set forth on Schedule 2.3 hereto, each of such officers to serve, subject
to the provisions of the Certificate of Incorporation and By-laws of the
Surviving Corporation, until his or her successor is duly elected and
qualified.
2.4. Certain Information with Respect to the Capital Stock of the Company,
Purchaser and Newco. The respective designations and numbers of outstanding
shares and voting rights of each class of outstanding capital stock of the
Company, Purchaser and Newco as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the Company is as set forth on Schedule 2.4 hereto;
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(ii) immediately prior to the Closing Date, the authorized capital
stock of Purchaser will consist of 40 million shares of DocuNet Common
Stock, of which the number of issued and outstanding shares will be set
forth in the Registration Statement, and 10 million shares of preferred
stock, no par value, of which no shares will be issued and outstanding;
(iii) as of the date of this Agreement, the authorized capital stock
of Newco consists of 1,000 shares of Newco Stock, of which one hundred
(100) shares are issued and outstanding.
2.5. Effect of Merger. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the Pennsylvania
Business Corporation Law and the law of the State of Oregon. Except as herein
specifically set forth, the identity, existence, purposes, powers, objects,
franchises, privileges, rights and immunities of the Company shall continue
unaffected and unimpaired by the Merger and the corporate franchises, existence
and rights of the Company shall be merged with and into the Newco, and Newco, as
the Surviving Corporation, shall be fully vested therewith. At the Effective
Time of the Merger, the separate existence of the Company shall cease and, in
accordance with the terms of this Agreement, the Surviving Corporation shall
possess all the rights, privileges, immunities and franchises, of a public, as
well as of a private, nature, and all property, real, personal and mixed, and
all debts due on whatever account, including subscriptions to shares, and all
taxes, including those due and owing and those accrued, and all other choses in
action, and all and every other interest of or belonging to or due to the
Company and Newco shall be taken and deemed to be transferred to, and vested in,
the Surviving Corporation without further act or deed; and all property, rights
and privileges, powers and franchises and all and every other interest shall be
thereafter as effectually the property of the Surviving Corporation as they were
of the Company and Newco; and the title to any real estate, or interest therein,
whether by deed or otherwise, under the laws of the state of incorporation
vested in the Company and Newco, shall not revert or be in any way impaired by
reason of the Merger. Except as otherwise provided herein, the Surviving
Corporation shall thenceforth be responsible and liable for all the liabilities
and obligations of the Company and Newco and any claim existing, or action or
proceeding pending, by or against the Company or Newco may be prosecuted as if
the Merger had not taken place, or the Surviving Corporation may be substituted
in their place. Neither the rights of creditors nor any liens upon the property
of the Company or Newco shall be impaired by the Merger, and all debts,
liabilities and duties of the Company and Newco shall attach to the Surviving
Corporation, and may be enforced against the Surviving Corporation to the same
extent as if said debts, liabilities and duties had been incurred or contracted
by such Surviving Corporation.
2.6. Manner of Conversion. The manner of converting the shares of (i)
outstanding capital stock of the Company ("Company Stock") and (ii) Newco Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) DocuNet Common Stock and (y) common stock of
the Surviving Corporation, respectively, shall be as follows:
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As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) the right to receive the
number of shares of DocuNet Common Stock provided in Section 2.9 hereof
with respect to such holder and (2) the right to receive the amount of cash
provided in Section 2.9 hereof with respect to such holder (collectively,
the "Merger Consideration");
(ii) all shares of Company Stock that are held by the Company as
treasury stock shall be canceled and retired and no shares of DocuNet
Common Stock or other consideration shall be delivered or paid in exchange
therefor; and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time of the Merger, shall, by virtue of the Merger
and without any action on the part of Purchaser, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation immediately
after the Effective Time of the Merger.
All DocuNet Common Stock received by the Sellers pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 13
and 14 hereof, have the same rights as all the other shares of outstanding
DocuNet Common Stock. All voting rights of such DocuNet Common Stock received by
the Sellers shall be fully exercisable by the Sellers and the Sellers shall not
be deprived nor restricted in exercising those rights.
2.7. Delivery of Shares. The Sellers shall deliver to Purchaser at the
Closing the certificates representing Company Stock in the amount set forth
opposite their name (with the appropriate pro rata percentage of aggregate
Shares outstanding indicated) on the Capitalization Table on Schedule 2.7
attached hereto, duly endorsed in blank by the Sellers, or accompanied by blank
stock powers, and with all necessary transfer tax and other revenue stamps,
acquired at the Sellers' expense, affixed and canceled. The Sellers agree
promptly to cure any deficiencies with respect to the endorsement of the stock
certificates or other documents of conveyance with respect to such Company Stock
or with respect to the stock powers accompanying any Company Stock.
2.8. Merger Consideration. As full consideration for the Merger and the
Common Stock, the Purchaser shall pay and deliver or cause to be paid and
delivered to the Sellers, in the manner set forth in this Section 2, the Merger
Consideration consisting of the Base Purchase Price (as hereinafter defined),
less the Debt Adjustment (as hereinafter defined), the Working Capital
Adjustment (as hereinafter defined) and the Net Book Value of Assets and
Liabilities Adjustment (as hereinafter defined), on the terms and conditions set
forth below (the "Purchase Price"):
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(a) Base Purchase Price. The Base Purchase Price shall be Three
Million dollars ($3,000,000) (the "Base Purchase Price"), subject to
adjustments as set forth herein .
(b) Debt Adjustment. The Base Purchase Price shall be reduced, at
Closing, by $1.00 for each $1.00 that the Company's Debt (as hereinafter
defined) reflected on the Company's Closing Balance Sheet exceeds $100,000
(the "Closing Debt Amount"). The Company's Debt shall mean all of the
Company's liabilities, contingent or otherwise, except Adjusted Current
Liabilities and Deferred Income Taxes appearing as a liability, in
accordance with GAAP. Notwithstanding the foregoing, there shall be no
reduction for up to $15,000 of such Debt that relates to a capitalized
lease for a van. The Company's Adjusted Current Liabilities shall mean all
of the Company's liabilities which would be classified as current
liabilities in accordance with GAAP, except current amounts of principal,
interest or penalties due and owing: (i) under promissory notes or lines of
credit to lending institutions; (ii) to an employee or an Affiliate of the
Company, or the Sellers; (iii) to a lessor under a capital lease; or (iv)
on account of Taxes or earned insurance premiums. Promptly following the
Closing and in order to verify the accuracy of the adjustment made at
Closing, the Purchaser agrees to cause the internal accounting staff and
the independent certified public accountant of the Purchaser (the
"Accountants") to verify the Closing Debt Amount. The Accountants shall
issue a report as to their determination of the Closing Debt Amount (the
"Accountants' CDA Report") promptly after their determination of such
amount and the Purchaser shall deliver the Accountants' CDA Report to the
Sellers not later than sixty (60) days following the Closing Date. The
determination of the Closing Debt Amount by the Accountants shall be
conclusive and binding upon the parties hereto unless the Sellers shall
object to the Accountants' CDA Report within fifteen (15) days following
their receipt of the Accountants' CDA Report. The Sellers' objection, if
any, to the Accountants' CDA Report (the "Sellers' CDA Objection") shall
set forth in reasonable detail the Seller's objection(s) to the
Accountants' CDA Report and the Sellers' calculation of the Closing Debt
Amount. Within ten (10) days after receipt of the Sellers' CDA Objection,
the Purchaser will notify the Sellers whether it accepts or disputes the
Sellers' adjustments, if any, which notification shall set forth in
reasonable detail the adjustments made by the Sellers which the Purchaser
continues to dispute (the "Purchaser's CDA Response Notice"). If the
Sellers do not object to the Accountants' CDA Report, or if the Purchaser
agrees to accept the Sellers' adjustments to the Accountants' CDA Report,
then the adjustment based on the then final Closing Debt Amount (the "Final
Debt Amount"), if any, shall be paid by the Sellers to the Purchaser in
immediately available funds within five (5) business days of such
acceptance. If such amount is not received by Purchaser within such time
period, it shall be paid from the Escrow Amount pursuant to the Escrow
Agreement and the Sellers shall be obligated to replenish the Escrow Amount
by depositing with the Escrow Agent upon such payment either cash in a like
amount or a number of shares of DocuNet Common Stock having an aggregate
Value (as defined below) equal to such amount. The term "Value" in respect
of a share of DocuNet Common Stock shall mean the lower of the Initial
Public Offering Price and the average closing price of the DocuNet Common
Stock during the 20 trading-
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day period ending immediately prior to the applicable payment date. If the
Sellers object to the Accountants' CDA Report as set forth above and the
Purchaser does not accept the Sellers' proposed adjustments, then an
independent accounting firm mutually satisfactory to the Sellers and the
Purchaser shall be engaged to determine the amount of the Closing Debt
Amount and the Final Debt Amount, based upon the calculations of the
independent accountants, and any adjustments of Base Purchase Price based
on the amount determined as provided above shall be paid to the Purchaser
in immediately available funds within five (5) business days of the
determination of such amount by such accounting firm. If such amount is not
received by Purchaser within such time period, such amount shall be paid
from the Escrow Amount pursuant to the Escrow Agreement and the Sellers
shall be obligated to replenish the Escrow Amount by depositing with the
Escrow Agent upon such payment either cash in a like amount or a number of
shares of DocuNet Common Stock having an aggregate Value equal to such
amount. The parties hereto agree to cooperate fully with such independent
accountants at their own cost and expense, including, but not limited to,
providing such independent accountants with access to, and copies of, all
books and records that they shall reasonably request. The Purchaser and the
Sellers shall each bear one-half of all of the costs and expenses of such
independent accounting firm, and if the parties hereto are unable to agree
upon an independent accounting firm, the Sellers and the Purchaser will
request that one be designated by the President of the Philadelphia office
of the American Arbitration Association.
(c) Working Capital Adjustment. The Base Purchase Price shall be
further reduced, at Closing, by $1.00 for each $1.00 that the Company's
Adjusted Working Capital (as hereinafter defined) is less than $400,000 on
the Closing Date (the "Closing Adjusted Working Capital Amount"). The
Company's Adjusted Working Capital shall mean the Company's current assets,
less: (i) the portion of trade receivables that are more than 100 days past
the original invoice date; (ii) an aggregate amount of Inventory exceeding
$450,000; (iii) promissory notes or other amounts due from employees or
Affiliates of the Company; and (iv) the Adjusted Current Liabilities,
calculated pursuant to GAAP. Promptly following the Closing and in order to
verify the accuracy of the adjustment made at the Closing, the Purchaser
agrees to cause the Accountants to verify the amount of the Closing
Adjusted Working Capital Amount. The Accountants shall issue a report as to
their determination of the Closing Adjusted Working Capital Amount (the
"Accountants' CAWCA Report") promptly after their determination of such
amount and the Purchaser shall deliver the Accountants' CAWCA Report to the
Sellers no later than sixty (60) days following the Closing Date. The
determination of the Closing Adjusted Working Capital Amount by the
Accountants shall be conclusive and binding upon the parties hereto unless
the Sellers shall object to the Accountants' CAWCA Report within fifteen
(15) days following their receipt of the Accountants' CAWCA Report. The
Sellers' objection, if any, to the Accountants' CAWCA Report (the "Sellers'
CAWCA Objection") shall set forth in reasonable detail the Sellers'
objection(s) to the Accountants' CAWCA Report and the Sellers' calculation
of the Closing Adjusted Working Capital Amount. Within ten (10) days after
receipt of the Sellers' CAWCA Objection, the Purchaser will notify the
Sellers whether it accepts or disputes the Sellers' adjustments, if
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any, which notification shall set forth in reasonable detail the
adjustments made by the Sellers which the Purchaser continues to dispute
(the "Purchaser's CAWCA Response Notice"). If the Sellers do not object to
the Accountants' CAWCA Report, or if the Purchaser agrees to accept the
Sellers' adjustments to the Accountants' CAWCA Report, then the adjustment
based on the then final Closing Adjusted Working Capital Amount (the "Final
Adjusted Working Capital Amount"), if any, shall be paid by the Sellers to
the Purchaser in immediately available funds within five (5) business days
of such acceptance. If such amount is not received by Purchaser within such
time period, such amount shall be paid from the Escrow Amount pursuant to
the Escrow Agreement and the Sellers shall be obligated to replenish the
Escrow Amount by depositing with the Escrow Agent upon such payment either
cash in a like amount or a number of shares of DocuNet Common Stock having
an aggregate Value (as defined below) equal to such amount. If the Sellers
object to the Accountants' CAWCA Report as set forth above and the
Purchaser does not accept the Sellers' proposed adjustments, then an
independent accounting firm mutually satisfactory to the Sellers and the
Purchaser shall be engaged to determine the amount of the Closing Adjusted
Working Capital Amount and the Final Adjusted Working Capital Amount, based
upon the calculations of the independent accountants, and any adjustments
of Base Purchase Price based on the amount determined as provided above
shall be paid to the Purchaser in immediately available funds within five
(5) business days of the determination of such amount by such accounting
firm. If such amount is not received by Purchaser within such time period,
such amount shall be paid from the Escrow Amount pursuant to the Escrow
Agreement and the Sellers shall be obligated to replenish the Escrow Amount
by depositing with the Escrow Agent upon such payment either cash in a like
amount or a number of shares of DocuNet Common Stock having an aggregate
Value equal to such amount. The parties hereto agree to cooperate fully
with such independent accountants at their own cost and expense, including,
but not limited to, providing such independent accountants with access to,
and copies of, all books and records that they shall reasonably request.
The Purchaser and the Sellers shall each bear one-half of all of the costs
and expenses of such independent accounting firm, and if the parties hereto
are unable to agree upon an independent accounting firm, the Sellers and
Purchaser will request that one be designated by the President of the
Philadelphia office of the American Arbitration Association.
(d) Net Book Value of Assets and Liabilities Adjustment. The Base
Purchase Price shall be further reduced, at Closing, by $1.00 for each
$1.00 that the Net Book Value of the Company's Acquired Assets and
Liabilities, as reflected on the Closing Balance Sheet, is less than
$775,000 on the Closing Date (the "Closing Net Book Value Amount"). The Net
Book Value of the Company's Acquired Assets and Liabilities shall mean the
tangible assets of the Company, less Adjusted Current Liabilities,
calculated pursuant to GAAP. Promptly following the Closing, and in order
to verify the accuracy of the adjustment made at the Closing, the Purchaser
agrees to cause the Accountants to verify the amount of the Closing Net
Book Value Amount. The Accountants shall issue a report as to their
determination of the Closing Net Book Value Amount (the "Accountants' CNBVA
Report") promptly after their determination of such amount and
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the Purchaser shall deliver the Accountants' CNBVA Report to the Sellers
not later than sixty (60) days following the Closing Date. The
determination of the Closing Net Book Value Amount by the Accountants shall
be conclusive and binding upon the parties hereto unless the Sellers shall
object to the Accountants' CNBVA Report within fifteen (15) days following
their receipt of the Accountants' CNBVA Report. The Sellers' objection, if
any, to the Accountants' CNBVA Report (the "Sellers' CNBVA Objection")
shall set forth in reasonable detail the Sellers' objection(s) to the
Accountants' CNBVA Report and the Sellers' calculation of the Closing Net
Book Value Amount. Within ten (10) days after receipt of the Sellers' CNBVA
Objection, the Purchaser will notify the Sellers whether it accepts or
disputes the Sellers' adjustments, if any, which notification shall set
forth in reasonable detail the adjustments made by the Sellers which the
Purchaser continues to dispute (the "Purchaser's CNBVA Response Notice").
If the Sellers do not object to the Accountants' CNBVA Report, or if the
Purchaser agrees to accept the Sellers' adjustments to the Accountants'
CNBVA Report, then the adjustment based on the then final Closing Net Book
Value Amount (the "Final Net Book Value Amount"), if any, shall be paid by
the Sellers to the Purchaser in immediately available funds within five (5)
business days of such acceptance. If such amount is not received by
Purchaser within such time period, such amount shall be paid from the
Escrow Amount pursuant to the Escrow Agreement and the Sellers shall be
obligated to replenish the Escrow Amount by depositing with the Escrow
Agent upon such payment either cash in a like amount or a number of shares
of DocuNet Common Stock having an aggregate Value (as defined below) equal
to such amount. If the Sellers object to the Accountants' CNBVA Report as
set forth above and the Purchaser does not accept the Sellers' proposed
adjustments, then an independent accounting firm mutually satisfactory to
the Sellers and the Purchaser shall be engaged to determine the amount of
the Closing Net Book Value Amount and the Final Net Book Value Amount,
based upon the calculations of the independent accountants, and any
adjustments of Base Purchase Price based on the amount determined as
provided above shall be paid to the Purchaser in immediately available
funds within five (5) business days of the determination of such amount by
such accounting firm. If such amount is not received by Purchaser within
such time period, such amount shall be paid from the Escrow Amount pursuant
to the Escrow Agreement and the Sellers shall be obligated to replenish the
Escrow Amount by depositing with the Escrow Agent upon such payment either
cash in a like amount or a number of shares of DocuNet Common Stock having
an aggregate Value equal to such amount. The parties hereto agree to
cooperate fully with such independent accountants at their own cost and
expense, including, but not limited to, providing such independent
accountants with access to, and copies of, all books and records that they
shall reasonably request. The Purchaser and the Sellers shall each bear
one-half of all of the costs and expenses of such independent accounting
firm, and if the parties hereto are unable to agree upon an independent
accounting firm, the Sellers and Purchaser will request that one be
designated by the President of the Philadelphia office of the American
Arbitration Association.
(e) Multiple Adjustments. Notwithstanding anything herein to the
contrary, if a payment is due from the Sellers to Purchaser on account of
the Working Capital
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Adjustment and the Net Book Value of Assets and Liabilities Adjustment, the
Sellers shall only be obligated to pay the greater of the two adjustment
amounts to Purchaser.
2.9. Delivery of Merger Consideration. On the Closing Date the Sellers, who
are the holders of all outstanding certificates representing shares of Company
Stock, shall, upon surrender of such certificates, receive the Merger
Consideration payable as follows:
(a) Stock Purchase Price. Subject to Section 2.3(c), a number of
shares of DocuNet Common Stock, equal to (i) $1,530,000 (the "Stock
Purchase Price") divided by (ii) the Initial Public Offering Price, shall
be issued at Closing to Sellers in the individual amount for each Seller as
indicated on Schedule 2.4 attached hereto.
(b) Cash Purchase Price. An aggregate amount equal to The Base
Purchase Price less (i) the Stock Purchase Price and (ii) the reductions,
if any, to be made at Closing pursuant to Section 2.8(b), 2.8(c), 2.8(d)
and 2.8(e), shall be payable at the Closing in cash to the Sellers ("Cash
Purchase Price"). The specific amount of the Cash Purchase Price shall be
payable to each of the Sellers by a wire transfer to accounts to be
designated by the Sellers in writing not less than three (3) business days
prior to the Closing, such method of payment to be determined in the sole
discretion of Purchaser, in the individual amount for each Seller set forth
on Schedule 2.4 attached hereto.
(c) Delivery into Escrow. Notwithstanding the foregoing, a number of
shares of DocuNet Common Stock having a Value equal to (i) $150,000 divided
by (ii) the Initial Public Offering Price, shall be delivered at Closing to
the Escrow Agent pursuant to the Escrow Agreement (the "Escrow Amount"), in
the individual amount for each Seller as indicated on Schedule 2.4 attached
hereto. The Escrow Amount shall be available to fund (but shall not be the
sole source of funding) any obligations of the Sellers under this Agreement
pursuant to the terms of the Escrow Agreement; provided, however, if the
amount of cash plus the value of the shares of DocuNet Common Stock (valued
at the Initial Public Offering Price) in the Escrow Amount falls below
$150,000 (the "Threshold Value") due to payment from the Escrow Amount
pursuant to Section 2.8 hereof, the Sellers shall contribute additional
cash or shares of DocuNet Common Stock to the Escrow Amount in an amount
necessary so that the amount of cash plus the value of the shares of Common
Stock (valued at the Initial Public Offering Price) in the Escrow Account
would equal the Threshold Value.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS
Except as set forth on the Disclosure Schedule delivered by the Company and
Sellers to the Purchaser on the date hereof (the "Disclosure Schedule"), the
section numbers of which are numbered to correspond to the section numbers of
this Agreement to which they refer, the Company and the Sellers hereby, jointly
and severally, represent and warrant to the Purchaser and Newco as follows:
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3.1. Organization; Qualification; Good Standing.
(a) The Company and each of its Subsidiaries (i) are corporations duly
incorporated and validly existing under the laws of the state of their
respective incorporation or organization, (ii) have the power and authority to
own and operate their respective properties and assets and to transact their
respective Businesses and (iii) except as set forth on the Disclosure Schedule,
are duly qualified and authorized to do business and are in good standing in all
jurisdictions where the failure to be duly qualified, authorized and in good
standing would have a Material Adverse Effect upon their respective Businesses,
prospects, operations, results of operations, assets, liabilities or condition
(financial or otherwise). Listed in the Disclosure Schedule is a true and
complete list of all jurisdictions in which the Company or any of its
Subsidiaries is qualified to do business.
(b) There is no Legal Proceeding or Order pending or, to the knowledge of
the Company or any of the Sellers, threatened against or affecting the Company
or any of its Subsidiaries revoking, limiting or curtailing, or seeking to
revoke, limit or curtail the Company's or any of its Subsidiaries' power,
authority or qualification to own, lease or operate their respective properties
or assets or to transact their respective Businesses.
(c) True and complete copies of the Company's and each of its Subsidiaries'
articles or certificate of incorporation, bylaws and other constitutive
documents are attached as part of the Disclosure Schedule. Except as set forth
in the Disclosure Schedule, the minute books of the Company and each of its
Subsidiaries, as heretofore made available to the Purchaser and Newco are
correct and complete in all material respects.
3.2. Authorization for Agreement.
(a) The Company. The Company's execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby by the
Company: (i) are within the Company's corporate powers and duly authorized by
all necessary corporate and shareholder action on the part of the Company and
(ii) do not (A) require any action by or in respect of, or filing with, any
Governmental or Regulatory Authority, (B) except as set forth on the Disclosure
Schedule, contravene, violate or constitute, with or without the passage of time
or the giving of notice or both, a breach or default under, any Requirement of
Law applicable to the Company or any of its properties or any Contract to which
the Company or any of its properties is bound or subject or (C) result in the
creation of any Adverse Claim on any of the Shares.
(b) Individual Sellers. Each Seller's execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
by each of the Sellers (i) are within the powers and authority of each of the
Sellers and (ii) do not (A) require any action by or in respect of, or filing
with, any Governmental or Regulatory Authority, (B) except as set forth in the
Disclosure Schedule, contravene, violate or constitute, with or without the
passage of time or the giving of notice or both, a breach or default under, any
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Requirement of Law applicable any of them or any of their respective properties
or any Contract to which any of them or any of their respective properties is
bound or subject or (C) result in the creation of any Adverse Claim on any of
the Shares.
3.3. Capitalization; Subsidiaries and Affiliates.
(a) The Company. The authorized capital stock of the Company consists of
500 shares of a single class of common stock, having no par value per share, of
which 405 shares are issued and outstanding. All of the Shares are collectively
owned by the Sellers as set forth in the Capitalization Table. The Company does
not have any other authorized class or classes of securities of any kind,
whether debt or equity. All of the Shares are validly issued, fully paid and
non-assessable and have not been issued in violation of applicable securities
laws or of any preemptive rights or other rights to subscribe for, purchase or
otherwise acquire securities. The Company does not hold any shares of its
capital stock in its treasury or otherwise, and no shares of the Company's
capital stock are reserved by the Company for issuance.
(b) Subsidiaries. Attached as part of the Disclosure Schedule is a complete
and accurate list of all the Company's Subsidiaries, showing the percentage of
Company's ownership or control of, as well as the identity of any other owners
and the percentage of each such other owner's ownership of, the outstanding
capital stock of, or other ownership interest in, each Subsidiary. The
authorized capital stock of each Subsidiary currently consists of a single class
of common stock, the number of authorized shares and par value of which are set
forth opposite each such Subsidiary's name in the Disclosure Schedule. No
Subsidiary has any other authorized class or classes of securities of any kind,
whether debt or equity. All of the outstanding capital stock of each Subsidiary
has been validly issued, is fully paid and nonassessable, is free of any Adverse
Claims, and has not been issued in violation of applicable securities laws or of
any preemptive rights or other rights to subscribe for, purchase or otherwise
acquire securities. No Subsidiary holds any shares of its capital stock in its
treasury or otherwise, and no shares of any Subsidiary's capital stock are
reserved by such Subsidiary for issuance. Except as set forth in the Disclosure
Schedule, neither the Company nor any Subsidiary owns or controls, directly or
indirectly, any debt, equity or other financial or ownership interest in any
other Person.
(c) Affiliates. Included in the Disclosure Schedule is a complete and
accurate list of all Persons (other than the Sellers or any of the Persons
described in the first sentence of Section 1.3, subpart (iii)) that are
Affiliates of the Company, detailing the nature of the relationship between the
Company and each such Person that causes such Person to be an Affiliate of the
Company.
(d) No Acquisitions. Since the Balance Sheet Date, neither the Company nor
any of its Subsidiaries has acquired, or agreed to acquire, whether by merger or
consolidation, by purchase of equity interests or assets, or otherwise, any
business or any other Person, or otherwise acquired, or agreed to acquire, any
assets that are material, either individually or in the aggregate, to the
Company and its Subsidiaries taken as a whole.
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(e) No Other Securities. There are (i) no outstanding subscriptions,
warrants, options, rights, agreements, convertible securities or other
commitments or instruments pursuant to which the Company or any of its
Subsidiaries is or may become obligated to issue, sell, repurchase or redeem any
shares of capital stock or other securities, whether debt or equity, of the
Company or any of its Subsidiaries and (ii) no preemptive, contractual or
similar rights to purchase or otherwise acquire shares of capital stock of the
Company or of any of its Subsidiaries pursuant to any Requirement of Law
applicable to the Company or any such Subsidiary, as applicable, or any Contract
to which the Company or any such Subsidiary is a party or may otherwise be bound
or subject.
3.4. Enforceability. This Agreement has been duly executed and delivered by
the Company and each of the Sellers and constitutes the legal, valid and binding
obligation of the Company and each of the Sellers, enforceable against each of
them in accordance with its terms.
3.5. Matters Affecting Shares; Title to Shares. Each Seller has full legal
and beneficial title to his or her Shares and has full power, right and
authority to sell and deliver such Shares in accordance with this Agreement,
free of any Adverse Claims. There are no existing agreements, subscriptions,
options, warrants, calls, commitments, conversion rights or other rights of any
character to purchase or otherwise acquire from any Seller at any time, or upon
the happening of any event, any of the Shares.
3.6. Predecessor Status; etc. Included in the Disclosure Schedule is a
listing of all names of all predecessor companies for the past five years of the
Company, including the names of any entities from whom the Company previously
acquired material assets outside the ordinary course of business. Except as
disclosed in the Disclosure Schedule, the Company has not been a subsidiary or
division of another corporation or a part of an acquisition which was later
rescinded.
3.7. Spin-off by the Company. Except as set forth in the Disclosure
Schedule, there has not been any sale, spin-off or split-up of material assets
or subsidiaries of the Company or any other Affiliate, other than in the
ordinary course of business, within the preceding two years.
3.8. Legal Proceedings.
(a) Sellers. There is no Legal Proceeding or Order pending against, or to
the knowledge of any Seller, threatened against or affecting, any Seller or any
of his or her properties or otherwise, that could adversely affect or restrict
the ability of any Seller to consummate fully the transactions contemplated by
this Agreement or that in any manner could draw into question the validity of
this Agreement. None of the Sellers has knowledge of any fact, event, condition
or circumstance that could reasonably be expected to give rise to the
commencement of any Legal Proceeding or the entering of any Order against any of
the Sellers that could adversely affect or restrict the ability of any Seller to
consummate fully the transactions contemplated by this Agreement or that in any
manner could draw into question the validity of this Agreement.
-21-
(b) The Company and Subsidiaries. The Disclosure Schedule completely and
accurately lists and fully describes all Orders outstanding against the Company
or any of its Subsidiaries. In addition, the Disclosure Schedule completely and
accurately lists and fully describes each pending, and, to the Company's or any
of the Seller's knowledge, each threatened, Legal Proceeding that has been
commenced, brought or asserted by (i) the Company or any of its Subsidiaries, as
the case may be, against any Person or (ii) any Person against the Company or
any of its Subsidiaries, as the case may be. Neither the Company nor any of the
Sellers have knowledge of the existence of any fact, event, condition or
circumstance that could reasonably be expected to give rise to the commencement
of any Legal Proceeding or the entering of any Order against either the Company
or any of its Subsidiaries by any Person.
3.9. Compliance with Laws. Each of the Company and its Subsidiaries is
operating in compliance with all Requirements of Law applicable to it or any of
its respective properties or to which the Company or any of its Subsidiaries or
any of their respective properties is bound or subject including, without
limitation, the Credit Acts. Except as set forth in the Disclosure Schedule,
since January 1, 1992, neither the Company or any of its Subsidiaries nor any of
the Sellers has received any notice from any Person concerning alleged
violations of, or the occurrence of any events or conditions resulting in
alleged noncompliance with, any Requirement of Law applicable to the Company or
any of its Subsidiaries or any of their respective properties or to which the
Company or any of its Subsidiaries or any of their respective properties is
bound or subject including, without limitation, any of the Credit Acts. None of
the Company, any of the Sellers, any of their respective Affiliates (other than
a Person who is an Affiliate solely by virtue of clause (iii) of the definition
thereof), or any of such Affiliates' respective Affiliates (other than a Person
who is an Affiliate solely by virtue of clause (iii) of the definition thereof)
has made any illegal kickback, bribe, gift or political contribution to or on
behalf of any customer, or to any officer, director, employee of any customer,
or to any other Person.
3.10. Labor Matters.
(a) Included in the Disclosure Schedule is a complete and accurate list of
all consulting or similar Contracts to which the Company or any of its
Subsidiaries is a party or may otherwise be bound or subject, and the
compensation to which each consultant is entitled under its respective Contract.
The Company and the Sellers have delivered or caused to be delivered to the
Purchaser and Newco true and complete copies of all such Contracts, each of
which is included in the Disclosure Schedule. Since the Balance Sheet Date,
neither the Company nor any of its Subsidiaries has increased the compensation
payable to its consultants or the rate of compensation payable to its
consultants. To the knowledge of the Company and the Sellers, no individuals
retained by the Company or any of its Subsidiaries as an independent contractor
or consultant would be reclassified by the IRS, the U.S. Department of Labor or
any other Governmental or Regulatory Authority as an employee of the Company or
of any of its Subsidiaries for any purpose whatsoever.
(b) Included in the Disclosure Schedule is a complete and accurate list of
the name of each employee of the Company and of each of its Subsidiaries,
together with such
-22-
employee's position or function, the rate of hourly, monthly or annual
compensation (as the case may be) paid or to be paid to such employee in 1995,
1996 and, to the extent known, 1997, any accrued sick leave or pay or vacation
and any incentive or bonus arrangement with respect to any such employee. Except
as is set forth in the Disclosure Schedule, since the Balance Sheet Date,
neither the Company nor any of its Subsidiaries has increased the compensation
payable to its employees or the rate of compensation payable to its employees.
The Disclosure Schedule also identifies those employees with whom the Company or
any of its Subsidiaries has entered into an employment Contract or a Contract
obligating the Company or any such Subsidiary to pay severance or similar
payments to any employee. The Company and the Sellers have delivered or caused
to be delivered to the Purchaser and Newco true and complete copies of such
Contracts, all of which are attached to the Disclosure Schedule.
(c) To the knowledge of the Company or any of the Sellers, there are no
threatened or contemplated attempts to organize for collective bargaining
purposes any of the employees of the Company or any of its Subsidiaries. Neither
the Company nor any of its Subsidiaries is a party to or bound by any collective
bargaining agreement and no collective bargaining agreement covering any of such
employees is currently being negotiated.
(d) Except as set forth in the Disclosure Schedule, there is no, and since
January 1, 1992 there has been no, work stoppage, strike, slowdown, picketing or
other labor disturbance or controversy by or with respect to any of the
employees of the Company or any of its Subsidiaries. Except as set forth in the
Disclosure Schedule, in addition, no dispute with or claim against the Company
relating to any labor or employment matter including, without limitation
employment practices, discrimination, terms and conditions of employment, or
wages and hours, is outstanding or, to either of the Company or the Sellers'
knowledge, is threatened. Except as set forth in the Disclosure Schedule, there
is no claim or petition pending before, and at no time since January 1, 1992 has
there been, any claim or petition made to, any Governmental or Regulatory
Authority including, without limitation, the National Labor Relations Board or
the Equal Employment Opportunity Commission against the Company or any of its
Subsidiaries with respect to any labor or employment matter.
3.11. Employee Benefit Plans.
(a) The Disclosure Schedule sets forth a complete and accurate list and
description of each Employee Benefit Plan (except that such disclosure shall
only include those items in subparagraph (ii) of the definition of Employee
Benefit Plan for the last three years). With respect to each Employee Benefit
Plan, the Company and the Sellers have delivered or caused to be delivered to
the Purchaser and Newco true and complete copies of (i) the plan document, trust
agreement and any other document governing such Employee Benefit Plan, (ii) the
summary plan description, (iii) all Form 5500 annual reports and attachments,
and (iv) the most recent IRS determination letter, if any, for such plan.
(b) Each of the Employee Benefit Plans has been operated and administered
in compliance with their respective terms and all applicable Requirements of Law
-23-
including, without limitation, ERISA and the Code. The Company has not incurred
any "accumulated funding deficiency" within the meaning of ERISA or incurred any
liability to the PBGC in connection with any Employee Benefit Plan (or other
class of benefits that the PBGC has elected to insure).
(c) Each Employee Benefit Plan that is intended to be tax qualified under
the Code is identified as such on the Disclosure Schedule attached to this
Agreement. Each such Employee Benefit Plan has received, or the Company has
applied for or will in a timely manner apply for, a favorable determination
letter from the IRS stating that such Employee Benefit Plan meets the
requirements of the Code and that any trust or trusts associated therewith are
tax exempt under the Code.
(d) The Company does not maintain any "defined benefit plan" covering
employees of the Company or any of its Subsidiaries within the meaning of
Section 3(35) of ERISA subject to Title IV of ERISA or any "Multiemployer Plan"
within the meaning of Section 401(a)(3) of ERISA.
(e) All contributions and payments of insurance premiums required to be
made with respect to the Employee Benefit Plans including, without limitation,
the payment of the applicable premiums on any insurance Contract funding an
Employee Benefit Plan, have been fully paid in such a manner as not to cause any
interest, penalties or other amounts that have not been satisfied or discharged
to be assessed against the Company or any of its Subsidiaries with respect
thereto.
(f) The Company has complied with the reporting and disclosure requirements
of ERISA applicable to the Employee Benefit Plans and the continuation coverage
requirements of the Code and ERISA applicable to any of the Employee Benefit
Plans.
(g) There has been no "prohibited transaction" or "reportable event" within
the meaning of the Code or ERISA within the last sixty (60) months, or breach of
fiduciary duty with respect to any of the Employee Benefit Plans that could
subject the Purchaser, the Company or any of their respective Subsidiaries to
any tax, penalty or other liability under the Code or ERISA.
(h) No Employee Benefit Plan has been terminated within the past sixty (60)
months. There are no Legal Proceedings or claims with respect to any of the
Employee Benefit Plans (other than routine claims for benefits from eligible
participants or beneficiaries in the normal and ordinary course of business)
pending or, to the knowledge of the Company or any of the Sellers threatened,
and to the knowledge of the Company or any of the Sellers, there are no facts,
events, conditions or circumstances that could give rise to any such Legal
Proceeding or claim (other than routine claims for benefits from eligible
participants or beneficiaries in the normal and ordinary course).
-24-
(i) Neither the Company or any ERISA Affiliate has ever sponsored,
maintained or contributed to, or been obligated to contribute to, any employee
benefit plan subject to Title IV of ERISA or the minimum funding requirements of
Code Section 412.
(j) No Employee Benefit Plan provides post retirement medical benefits,
post retirement death benefits or any post retirement welfare benefits of any
fund whatsoever.
(k) There are no current or former employees of the Company or any of its
Subsidiaries who are on leave of absence under either of the Uniformed Services
Employment or Reemployment Rights Act or the Family Medical Leave Act.
(l) None of the Company, any of its Subsidiaries, or any of their
respective officers, directors or significant employees (as such term is defined
in Regulation S-K of the Securities Act), or any other Person has made any
statement or communication or provided any materials to any employee or former
employee of the Company of any of its Subsidiaries that provides for or could be
construed as a contract, agreement or commitment by the Purchaser or any of its
Affiliates to provide for any pension, welfare, or other employee benefit or
fringe benefit plan or arrangement to any such employee or former employee,
whether before or after retirement or separation or otherwise.
(m) The execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement will not result in any increase
in or acceleration of any obligation or liability under any Employee Benefit
Plan or to any employee or former employee of the Company or any of its
Subsidiaries.
3.12. Financial Statements.
(a) The Company and the Sellers have delivered or caused to be delivered to
the Purchaser and Newco a copy of the Company's consolidated balance sheets as
of October 31, 1995 and 1996 and July 31, 1997 and the related statements of
operations, shareholders' equity and cash flows for the years or periods then
ended, together with all proper exhibits, schedules and notes thereto
(collectively, the "Financial Statements"). A true and complete copy of the
Financial Statements is attached to the Disclosure Schedule. The Financial
Statements have been prepared in accordance with GAAP consistently applied
throughout the periods involved (except for changes required or permitted by
GAAP and noted thereon) and fairly represent the financial position of the
Company and its Subsidiaries as of the date of such Financial Statements and the
results of operations and changes in shareholders' equity and cash flows for the
periods covered thereby.
(b) [Intentionally Omitted.]
(c) Since the Balance Sheet Date, (i) the Company and each of its
Subsidiaries have operated, and each of the Sellers has caused the Company and
each of its
-25-
Subsidiaries to operate, their respective Businesses in the normal and ordinary
course in a manner consistent with past practices, (ii) there has been no
development, event, condition, or circumstance that has had, or could reasonably
be expected to have, a Material Adverse Effect upon the Company or any of its
Subsidiaries, except as disclosed on the Disclosure Schedule, (iv) neither the
Company nor any of its Subsidiaries has made or committed to make any capital
expenditure or capital addition or betterments in excess of an aggregate of
$10,000; and (v) neither the Company nor any of its Subsidiaries has made any
gift or contribution (charitable or otherwise) to any Person (other than gifts
made since the Balance Sheet Date which, in the aggregate, do not exceed
$5,000).
(d) On the Closing Date, the Company and the Sellers will also deliver or
caused to be delivered to the Purchaser and Newco a true and complete copy of
the Closing Balance Sheet. The Closing Balance Sheet will be in accordance with
the books and records of the Company and its Subsidiaries, all of which have
been maintained in accordance with good business practice and in the normal and
ordinary course of business, and will be prepared in accordance with GAAP
applied on a consistent basis (except for the absence of notes and subject to
normal year-end audit adjustments).
3.13. Distributions. The Disclosure Schedule completely and accurately
lists and fully describes (i) all dividends, distributions, redemptions or
payments declared, accrued, accumulated or made in respect to any of the
Company's or any of its Subsidiaries' securities, whether debt or equity
(including, without limitation, the Shares), since January 1, 1992, (ii) any
other amounts paid or distributed since January 1, 1992 or required to be paid
or distributed to any Person in respect of any ownership, indebtedness or other
economic interest in the Company or any of its Subsidiaries, and (iii) any other
amounts to which any Person is entitled to receive pursuant to any dividend or
distribution right in respect of any such interest.
3.14. Absence of Undisclosed Liabilities. Except as and to the extent
reflected on, or fully reserved against in, the balance sheet of the Company and
its Subsidiaries at July 31, 1997 including, without limitation, all notes
thereto, prepared in accordance with GAAP (the "Company Balance Sheet"), neither
the Company nor any of its Subsidiaries has any liabilities or obligations,
whether direct or indirect, matured or unmatured, contingent or otherwise,
except for liabilities or obligations that were incurred consistently with past
business practice in or as a result of the normal and ordinary course of
business since July 31, 1997.
3.15. Real Property.
(a) Neither the Company nor any of its Subsidiaries owns any real property.
The Disclosure Schedule contains a complete and accurate list of all the
locations of all Real Property leased by the Company or any of the Subsidiaries
and the name and address of the lessor and, if a Person different than such
lessor, the manager thereof. The Company and the Sellers have delivered or
caused to be delivered to the Purchaser and Newco true and complete copies of
all Contracts relating to Real Property (including, without limitation, all
leases and all management, service, supply, security, maintenance and similar
Contracts, and all attornment
-26-
Contracts, subordination Contracts or similar Contracts, and all other Contracts
affecting or relating to the use and quiet and peaceful enjoyment of the Real
Property) to which the Company or any of its Subsidiaries is a party or is
otherwise bound or subject, and, in each case, all amendments thereof, which
relate to or affect any of the Real Property. Except for the leases pertaining
to the Real Property identified in and attached to the Disclosure Schedule, none
of the Sellers, the Company or any of its Subsidiaries is a party to any
Contract that commits or purports to commit the Company or any of its
Subsidiaries to purchase or otherwise acquire or lease any real property
including, without limitation, the Real Property.
(b) Each Contract relating to or affecting the Real Property (i) is in full
force and effect, (ii) affords the Company or such Subsidiary, as the case may
be, peaceful, undisturbed and exclusive possession of the applicable Real
Property, (iii) is free of all Adverse Claims, and (iv) constitutes a valid and
binding obligation of, and is enforceable in accordance with its terms against,
the respective parties thereto.
(c) The Company and each of its Subsidiaries has performed the obligations
required to be performed by it to date under all Contracts relating to or
affecting the Real Property and is not in default or breach thereof. In
addition, no party to any such Contract (i) has provided any notice to the
Company or any of its Subsidiaries of its intent to terminate or not renew any
such Contract, (ii) to the knowledge of the Company and the Sellers, has
threatened to terminate or not renew any such Contract or (iii) is, to the
knowledge of the Company and the Sellers, in breach or default under any
provision thereof, and, to the knowledge of the Company and the Sellers, no
event or condition has occurred, whether with or without the passage of time or
the giving of notice, or both, that would constitute such a breach or default.
(d) The Real Property is (i) in good condition and repair and there has
been no damage, destruction or loss to any of the Real Property that remains
unremedied to date (ordinary wear and tear excepted) and (ii) suitable to carry
out each of the Company's and its Subsidiaries' respective Business as conducted
thereon.
(e) There are no condemnation, appropriation or other proceedings involving
any taking of the Real Property pending, or to the knowledge of the Company or
any of the Sellers, threatened, against any of the Real Property.
(f) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Real Property, (ii) result in or give to any Person
any additional rights or entitlement to increased, additional, accelerated or
guaranteed rent or payments under any such Contract or (iii) result in the
creation or imposition of any Adverse Claim upon the Company or any of its
Subsidiaries or any of their respective assets under the terms of any such
Contract.
-27-
(g) The Disclosure Schedule indicates a summary description of all plans or
projects involving the opening of new operations, expansion of any existing
operations or the acquisition of any Real Property, the lease of Real Property
or acquisition of new businesses, with respect to which the Company or any
Subsidiary has made any expenditure in the two-years prior to the date of this
Agreement in excess of $10,000, or which if pursued by the Company would require
additional expenditures of capital in excess of $10,000.
3.16. Tangible Personal Property.
(a) The Company and each of its Subsidiaries owns or leases all such
properties as are presently used in the conduct of their respective Businesses
and operations. The Company and the Sellers have delivered or caused to be
delivered to the Purchaser and Newco true and complete copies of all material
Contracts (including, without limitation, leases and service, supply,
maintenance and similar Contracts) to which the Company and any of its
Subsidiaries is a party or is otherwise bound or subject, and all amendments
thereto, which relate to or affect any of the tangible personal property owned,
possessed or used by the Company or any of its Subsidiaries (the "Tangible
Personal Property"). A complete and accurate list of all such Contracts is set
forth in, and true and complete copies of such Contracts are attached to, the
Disclosure Schedule. Except (i) for those assets disposed of in the normal and
ordinary course of business since the Balance Sheet Date, (ii) with respect to
Tangible Personal Property that is leased or rented by the Company or any of its
Subsidiaries, and (iii) as otherwise set forth on the Disclosure Schedule, the
Company and each such Subsidiary, as the case may be, has good and valid title
to all of its Tangible Personal Property, including all items of Tangible
Personal Property reflected on the Company Balance Sheet, free of all Adverse
Claims.
(b) Since the Balance Sheet Date, neither the Company nor any of its
Subsidiaries has incurred or suffered any material physical damage, destruction,
theft or loss of their respective tangible items of material personal property,
whether owned or leased. All material Tangible Personal Property including,
without limitation, all computer hardware and software (including all operating
and application systems), is in good working order, condition and repair and
suitable to carry out each of the Company's and its Subsidiaries' respective
Businesses as conducted therewith.
(c) Each Contract relating to or affecting the Tangible Personal Property
(i) is in full force and effect, (ii) affords the Company or such Subsidiary, as
the case may be, peaceful, undisturbed and exclusive possession of the
applicable Tangible Personal Property, (iii) is free of all Adverse Claims and
(iv) constitutes a valid and binding obligation of, and is enforceable in
accordance with its terms against, the respective parties thereto.
(d) The Company and each of its Subsidiaries has performed the obligations
required to be performed by it to date under all Contracts relating to or
affecting the Tangible Personal Property and is not in default or breach
thereof. In addition, no party to any such Contract (i) has provided any notice
to the Company or any of its Subsidiaries of its intent to terminate or not
renew any such Contract, (ii) to the knowledge of the Company and the Sellers,
-28-
has threatened to terminate or not renew any such Contract or (iii) is, to the
knowledge of the Company and the Sellers, in breach or default under any
provision thereof, and, to the knowledge of the Company and the Sellers, no
event or condition has occurred, whether with or without the passage of time or
the giving of notice, or both, that would constitute such a breach or default.
(e) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Tangible Personal Property, (ii) result in or give
to any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed rent or payments under any such Contract or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
such Contract.
3.17. Contracts.
(a) Attached to the Disclosure Schedule is a complete and accurate list of
each Contract described below to which either the Company or any of its
Subsidiaries or any of their respective properties is party or is otherwise
bound or subject:
(i) each Contract with the Company's or any of its Subsidiaries', as
applicable, customers (but only if such customers are among the Company's
twenty-five highest, in terms of dollar value of purchases, for the
nine-month period ending on the Balance Sheet Date), dealers, brokers,
value added resellers or vendors (but only if such vendors are among the
Company's twenty-five highest, in terms of dollar value of sales, for the
nine-month period ending on the Balance Sheet Date);
(ii) any Contract that creates a partnership or a joint venture or
arrangement that involves a sharing of profits (whether through equity
ownership, Contract or otherwise) with any other Person;
(iii) any Contract that purports to or has the effect of limiting
either the Company's or any such Subsidiaries' right to engage in, or
compete with any Person in, any business;
(iv) any Contract involving a pledge or encumbering of either
Company's or any of its Subsidiaries' assets or the incurrence by either
Company or any of its Subsidiaries of liabilities (other than liabilities
to render services to customers in the ordinary course of business) in any
one transaction or series of related transactions in excess of $10,000, or
that extend beyond one year from the date of this Agreement;
(v) any material Contract pursuant to which either the Company or any
of its Subsidiaries has created, incurred, assumed or guaranteed any
indebtedness other than for trade indebtedness incurred in the normal and
ordinary course of the Business;
-29-
(vi) any Contract not made in the normal and ordinary course of the
applicable Company's or Subsidiary's Business; and
(vii) any Contract that either (y) does not fit within one of the
foregoing categories described in (i) through (vi) above or (z) is not
otherwise identified in the Disclosure Schedule and that would be required
by Item 601(b)(10) of Regulation S-K promulgated under the Securities Act
to be attached as an exhibit to any registration statement on Form S-1
filed by either the Company or any of its Subsidiaries under the Act if the
Company were to file such a registration statement under the Act on the
date on which this representation and warranty is made.
(b) Each material Contract to which the Company or any of its Subsidiaries
or any of their respective properties is a party or is otherwise bound or
subject (i) is valid and binding on each of the parties thereto in accordance
with its terms, (ii) was made in the normal and ordinary course of the Business
and (iii) contains no provision or covenant prohibiting or limiting the ability
of the Company or any Subsidiary to operate their respective Businesses.
(c) No party to any material Contract to which the Company or any of its
Subsidiaries or any of their respective properties is a party or is otherwise
bound or subject (i) has provided any notice to the Company or any of its
Subsidiaries of its intent to terminate or withdraw its participation in any
such Contract, (ii) has, to the knowledge of the Company and the Sellers,
threatened to terminate or withdraw from participation in any such Contract or
(iii) is, to the knowledge of the Company and the Sellers, in breach or default
under any provision thereof, and, to the knowledge of the Company and the
Sellers, no event or condition has occurred, whether with or without the passage
of time or the giving of notice, or both, that would constitute such a breach or
default.
(d) Except as set forth in the Disclosure Schedule, no Consent of any party
to any material Contract to which the Company or any of its Subsidiaries or any
of their respective properties is a party or is otherwise bound or subject is
required in connection with the transactions contemplated by this Agreement.
(e) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any material
Contract to which the Company or any of its Subsidiaries or any of their
respective properties is a party or is otherwise bound or subject, (ii) result
in or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under any such Contract or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
such Contract.
3.18. Insurance. Attached to the Disclosure Schedule is a complete and
accurate list of all insurance policies held by the Company and by each of its
Subsidiaries identifying all of
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the following for each such policy: (i) the type of insurance; (ii) the insurer;
(iii) the policy number; (iv) the applicable policy limits, (v) the applicable
periodic premium; and (vi) the expiration date. Each such insurance policy is
valid and binding and is and has been in effect since the date of its issuance.
All premiums due thereunder have been paid, and neither the Company nor any of
its Subsidiaries has received any notice of any increase in premiums or of any
cancellation, non-renewal or termination in respect of any such policy. None of
the Company or any of its Subsidiaries are in default under any such policy in
any respect. To the knowledge of the Company or any of the Sellers, no such
insurer is the subject of insolvency proceedings. Neither the Company nor the
Person to whom any such insurance policy has been issued has received notice
that any insurer under any policy referred to in the Disclosure Schedule is
denying liability with respect to a claim thereunder or defending under a
reservation of rights clause. Each of the Company and its Subsidiaries has
notified its insurance carriers of all litigation and claims and facts which
could reasonably be expected to give rise to a claim, all of which are disclosed
in the Disclosure Schedule (including worker's compensation claims). The
liability insurance maintained by the Company is and has at all times prior to
the date of this Agreement been on an "occurrence" basis.
3.19. Proprietary Rights.
(a) Attached to the Disclosure Schedule is a complete and accurate list and
full description of each item of the Company's and each of its Subsidiaries
Intellectual Property together with, in the case of registered Intellectual
Property: the (i) applicable registration number; (ii) filing, registration,
issue or application date; (iii) record owner; (iv) country; (v) title or
description; and (vi) remaining life. In addition, the Disclosure Schedule
identifies whether each item of Intellectual Property is owned by the Company or
any of its Subsidiaries or possessed and used by the Company or such Subsidiary
under any Contract. The Intellectual Property constitutes valid and enforceable
rights and does not infringe or conflict with the rights of any other Person;
provided that to the extent the foregoing relates to Intellectual Property used
but not owned by the Company, such representation and warranty is given solely
to the knowledge of the Company and the Sellers.
(b) There is neither pending, nor to the Company's or any of the Sellers'
knowledge, threatened, any Legal Proceeding against the Company or any of its
Subsidiaries contesting the validity or right of the Company or any such
Subsidiary to use any of the Intellectual Property, and neither the Company nor
any such Subsidiary has received any notice of infringement upon or conflict
with any asserted right of others nor, to the Company's or any of the Sellers'
knowledge, is there a basis for such a notice. To the Company's and all of the
Sellers' knowledge, no Person is infringing the Company's or any of its
Subsidiaries rights to the Intellectual Property.
(c) Except as otherwise provided in the Disclosure Schedule, neither the
Company nor any of its Subsidiaries has any obligation to compensate others for
the use of any Intellectual Property. In addition, except as otherwise provided
on the Disclosure Schedule,
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neither the Company nor any of its Subsidiaries has granted any license or other
right to use, in any manner, any of the Intellectual Property, whether or not
requiring the payment of royalties.
(d) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Intellectual Property, (ii) result in or give to
any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments under any such Contract or (iii) result in
the creation or imposition of any Adverse Claim upon the Company or any of its
Subsidiaries or any of their respective assets under the terms of any such
Contract.
3.20. Environmental Matters.
(a) The Company and each of its Subsidiaries, and the operation of each of
their respective Businesses is and has been in compliance with all applicable
Environmental Laws.
(b) There have occurred no and there are no events, conditions,
circumstances, activities, practices, incidents, or actions on the part of, or
caused by, the Company (or, to the knowledge of the Company and the Sellers,
caused by a third party) that may give rise to any common law or statutory
liability, or otherwise form the basis of any Legal Proceeding, Order or action
involving or relating to the Company or any of its Subsidiaries, based upon or
related to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substance or wastes.
(c) To the knowledge of the Company and the Sellers, there is no asbestos
contained in or forming a part of any building, structure or improvement
comprising a part of any of the Real Property. To the knowledge of the Company
and the Sellers, there are no polychlorinated biphenyls (PCBs) present, in use
or stored on any of the Real Property. To the knowledge of the Company and the
Sellers, no radon gas or the presence of radioactive decay products of radon are
present on, or underground at any of the Real Property at levels beyond the
minimum safe levels for such gas or products prescribed by applicable
Environmental Laws.
3.21. Permits.
(a) The Company, each of its Subsidiaries, and each of their respective
employees, independent contractors and agents has obtained and holds in full
force, and the Disclosure Schedule sets forth a complete and accurate list of,
all Permits that are necessary or advisable for the operation of their
respective Businesses. Neither the Company, any of its Subsidiaries nor any such
employee, independent contractor or agent is in noncompliance with the terms of
any such Permit.
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(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
acceleration or modification in or with respect to any such Permit, (ii) result
in or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under any such Permit or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
Permit.
(c) Except as set forth in the Disclosure Schedule, there is no Order
outstanding against the Company or any of its Subsidiaries, nor is there now
pending, or to the Company's or any of the Sellers' knowledge, threatened, any
Legal Proceeding, which could adversely affect any Permit required to be
obtained and maintained by the Company or any of its Subsidiaries.
3.22. Regulatory Filings. The Company and each of its Subsidiaries has
filed all registrations, filings, reports, or submissions that are required by
any Requirement of Law. All such filings were made in compliance with applicable
Requirements of Law when filed and no deficiencies have been asserted by any
Governmental or Regulatory Authority with respect to such filings and
submissions that have not been finally resolved.
3.23. Taxes and Tax Returns.
(a) The Company and each of its Subsidiaries has duly and timely filed all
Tax Returns. Each such Tax Return is true, accurate and complete. The Company
and each of its Subsidiaries has paid in full all Taxes for the period covered
by such Tax Return. All Taxes not yet due and payable have been withheld or
reserved for or, to the extent that they relate to periods on or prior to the
date of the Company Balance Sheet, are reflected as a liability thereon.
(b) The Company and each of its Subsidiaries has complied with all
applicable Requirements of Law relating to the payment and withholding of Taxes
(including, without limitation, withholding of Taxes pursuant to Section 1441
and 1442 of the Code, or similar provisions under any foreign Requirements of
Law) and have, within the time and in the manner prescribed by applicable
Requirements of Law, withheld from employee wages and paid over, in a timely
manner, to the proper Taxing Authorities all amounts required to be so withheld
and paid over under applicable law.
(c) No deficiency for any Taxes has been asserted or assessed against the
Company or any of its Subsidiaries that has not been resolved and paid in full
or fully reserved for and identified on the Company Balance Sheet and, to the
knowledge of the Company and the Sellers, no deficiency for any Taxes has been
proposed that has not been fully reserved for and identified on the Company
Balance Sheet. Neither the Company nor any of its Subsidiaries has received any
outstanding and unresolved notices from the IRS or any other Taxing Authority of
any proposed examination or of any proposed change in reported information
relating to the Company or any such Subsidiary. Except as set forth in the
Disclosure Schedule (which sets forth
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the nature of the proceeding, the type of Tax Return, the deficiencies proposed
or assessed and the amount thereof, and the taxable year in question), no Legal
Proceeding or audit or similar foreign proceedings is pending with regard to any
of the Company's or any of its Subsidiaries' Taxes or Tax Returns.
(d) No waiver or comparable consent given by the Company or any of its
Subsidiaries regarding the application of the statute of limitations with
respect to any Taxes or Tax Returns is outstanding, nor, to the knowledge of the
Company and the Sellers, is any request for any such waiver or consent pending.
(e) There are no liens or encumbrances of any kind for Taxes upon any
assets or properties of the Company or any of its Subsidiaries other than for
Taxes not yet due and payable.
(f) Neither the Company nor any of its Subsidiaries has requested any
extension of time within which to file any Tax Return, which Tax Return has not
since been filed.
(g) Neither the Company nor any of its Subsidiaries is a party to any
Contract providing for the allocation or sharing of Taxes. Neither of the
Company nor any of its Subsidiaries has made any election under Section 341(f)
of the Code.
(h) Neither the Company nor any of its Subsidiaries has agreed to
make, nor is any of them required to make, any adjustment under Section 481(a)
of the Code for any period ending after the Closing Date by reason of a change
in accounting method or otherwise and neither the Company nor any of its
Subsidiaries has any knowledge that the IRS has proposed such adjustment or
change in accounting method.
(i) None of the assets of the Company or any of its Subsidiaries is
required to be treated as owned by any other person pursuant to the "safe harbor
lease" provisions of former Section 168(f)(8) of the Code.
(j) Neither the Company nor any of its Subsidiaries is a party to any
venture, partnership, Contract or arrangement under which it could be treated as
a partner for federal income tax purposes.
(k) Neither the Company nor any of its Subsidiaries has a permanent
establishment located in any tax jurisdiction other than the United States, nor
are any of them liable for the payment of Taxes levied by any jurisdiction
located outside the United States.
(l) Other than in respect of a period for which a Tax is not yet due, no
state of facts exists or has existed that would constitute grounds for the
assessment of any Tax liability with respect to a period that has not been
audited by the IRS or any other Taxing Authority.
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(m) No power of attorney has been granted by the Company or any of its
Subsidiaries with respect to any matter relating to Taxes that is currently in
force.
(n) Neither the Company nor any of its Subsidiaries is or has been a United
States real property holding company (as defined in Section 897(c)(2) of the
Code) during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code.
(o) Neither the Company nor any of its Subsidiaries is a party to any
Contract or arrangement that would result in the payment of any "excess
parachute payment" within the meaning of Section 280G of the Code.
(p) All transactions that could give rise to an understatement of federal
income tax (within the meaning of Section 6662 of the Code or any predecessor
provision thereof) have been adequately disclosed on the Tax Returns required in
accordance with Section 6662(d)(2)(B) of the Code or any predecessor provision
thereto.
(q) No election under Code ss.338 (or any predecessory provisions) has been
made by or with respect to the Company or any of its Subsidiaries or any of
their respective assets or properties.
(r) No indebtedness of the Company or any of its Subsidiaries is "corporate
acquisition indebtedness" within the meaning of Code ss.279(b).
3.24. Investment Portfolio. Except as set forth in the Disclosure Schedule
attached to this Agreement, the Company's and each of its Subsidiaries'
investment portfolio consists solely of investments in one or more of the
following: (i) interest bearing deposit accounts (including certificates of
deposit) that are insured by the Federal Deposit Insurance Corporation, (ii)
direct obligations of the United States of America with a maturity not greater
than one year, (iii) short term money market funds or (iv) commercial paper of
any corporation organized under the laws of any State of the United States or
any bank organized or licensed to conduct a banking business under the laws of
the United States or any State thereof having the highest short-term rating
given by ▇▇▇▇▇'▇ Investor's Services, Inc. and Standard and Poor's Corporation.
3.25. Affiliate Transactions. The Disclosure Schedule lists and fully
describes each Contract, transaction or series of transactions, whether written
or oral (other than for the compensation arrangements described in the
Disclosure Schedule under Section numbers 3.10, 3.11 and 3.28, pursuant to which
the Company or any of its Subsidiaries is, or, at any time during the previous
five (5) years has been, a party or otherwise bound with any Affiliate of any
Seller, the Company, any Subsidiary of the Company (an "Affiliate Transaction").
Each Affiliate Transaction has been entered into the normal and ordinary course
of the Business.
3.26. Accounts, Power of Attorney. The Disclosure Schedule completely and
accurately states the names and addresses of each bank, financial institution,
fund, investment or
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money manager, brokerage house and similar institution in which the Company or
any of its Subsidiaries maintains any account (whether checking, savings,
investment, trust or otherwise), lock box or safe deposit box (collectively, the
"Accounts"), and the account numbers and name of the Persons having authority to
affect transactions with respect thereto or other access thereto. The Disclosure
Schedule also sets forth the name of each person, corporation, firm or other
entity holding a general or special power of attorney from the Company or any
Subsidiary and a description of the terms of such power.
3.27. Receivables. Except as set forth in the Disclosure Schedule, since
the Balance Sheet Date, neither the Company nor any of its Subsidiaries has
written-off, nor under GAAP is it appropriate to write off, any accounts
receivable, notes receivable or other miscellaneous receivables owing to the
Company or any of its Subsidiaries (the "Receivables"). All Receivables
currently owing to the Company or any of its Subsidiaries are completely and
accurately listed and aged in the Disclosure Schedule attached to this
Agreement. The Receivables arose from bona fide transactions in the normal and
ordinary course of business and reflect credit terms consistent with past
practice. The Company and each of its Subsidiaries has good and valid title to
their respective Receivables, free of all Adverse Claims. Neither the Company
nor any of its Subsidiaries has sold, factored, securitized, or consummated any
similar transaction with respect to any of its Receivables. Subject to proper
reserves taken into account in accordance with GAAP as reflected on the
Disclosure Schedule, each Receivable is fully collectable in the normal and
ordinary course of business (i.e. without resort to litigation or assignment to
a collection agency), and are not subject to any dispute, counterclaim, defense,
set-off or Adverse Claim.
3.28. Officers and Directors.
(a) The Disclosure Schedule accurately and completely lists the names of
the Company's and each of its Subsidiaries' respective directors, executive
officers, and any of their respective significant employees (as such term is
defined in Regulation S-K under the Securities Act) and the compensation payable
to each of them to serve as such.
(b) Except as set forth on the Disclosure Schedule attached to this
Agreement, none of the Sellers or any of the current directors, current
executive officers or current significant employees (as such term is defined in
Section 3.28(a)) of either the Company or any of its Subsidiaries has, within
the past five (5) years:
(i) (x) filed or had filed against him or her a petition under the
Federal bankruptcy laws or any state insolvency or similar law, or (y) had
a receiver, conservator, fiscal agent or similar officer appointed by a
court for the business, property or assets of such individual, or any
partnership in which he or she was a general partner or any other Person of
which he or she was a director or an executive officer or had a position
having similar powers and authority at or within two (2) years of the date
of such filing;
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(ii) been convicted of, or pled guilty or no contest to, any crime
(other than traffic offenses and other minor offenses);
(iii) been named as a subject of any criminal Legal Proceeding (other
than for traffic offenses and other minor offenses);
(iv) been the subject of any Order or sanction relating to an alleged
violation of, or otherwise found by any Governmental or Regulatory
Authority to have violated: (x) any Requirement of Law relating to
securities or commodities, (y) any Requirement of Law respecting financial
institutions, insurance companies, or fiduciary duties owed to any Person,
(z) any Requirement of Law prohibiting fraud (including, without
limitation, mail fraud or wire fraud);
(v) been the subject of any Order enjoining or otherwise prohibiting
him or her from engaging in any type of business activity; or
(vi) been the subject of any Order or sanction by (x) a self-
regulatory organization (as defined in Section 3(a)(26) of the Exchange
Act), (y) a contract market designated pursuant to Section 5 of the
Commodity Exchange Act, as amended, or (z) any substantially equivalent
foreign authority or organization.
3.29. Corporate Records. The Company's and each of its Subsidiaries'
corporate books and records, minutes of the meetings of the stockholders or
directors, stock books, corporate seal (if any) and any other similar books and
records are complete and accurate.
3.30. Brokers or Finders. Except as set forth in the Disclosure Schedule,
neither the Company, any of its Subsidiaries nor any of the Sellers has engaged
the services of any broker or finder with respect to the transactions
contemplated by this Agreement, and no Person has or will have, as a result of
the consummation of the transaction contemplated by this Agreement, any right,
interest or valid claim against or upon the Purchaser or Newco for any
commission, fee or other compensation as a finder or broker thereof on account
of any action on the part of the Company, its Subsidiaries or the Sellers.
Without degradation to any of the foregoing, the Company, its Subsidiaries and
the Sellers are solely responsible for the payment of the commissions, fees and
other compensation payable to the Person having any such right, interest or
claim on account of any action on the part of the Company, its Subsidiaries or
the Sellers, including, without limitation, the Persons identified on the
Disclosure Schedule.
3.31. Customers. The Disclosure Schedule accurately and completely lists
the names of the twenty-five largest customers (in terms of dollar value of
purchases) of the Company and each of its Subsidiaries and details the Company's
and each such Subsidiary's total revenue attributable to each such customer for
the 1995, 1996 and 1997 fiscal years and the current fiscal year to date. Except
as set forth in the Disclosure Schedule, there has been no adverse change in the
Company's or any of its Subsidiaries' business relationship with any such
customer that, in the aggregate, would have a Material Adverse Effect upon the
Company or any such Subsidiary.
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3.32. Investment Company. Neither the Company nor any of its Subsidiaries
is an "investment company" within the meaning of the Investment Company Act of
1940 and the rules and regulations promulgated thereunder, as amended from time
to time, or any successors thereto.
3.33. Absence of Changes. Since the Balance Sheet Date, except as set forth
in the Disclosure Schedule there has not been with respect to the Company and
any Subsidiary:
(i) any event or circumstance (either singly or in the aggregate)
which would constitute a Material Adverse Effect;
(ii) any change in its authorized capital, or securities outstanding,
or ownership interests or any grant of any options, warrants, calls,
conversion rights or commitments;
(iii) any declaration or payment of any dividend or distribution in
respect of its capital stock or any direct or indirect redemption, purchase
or other acquisition of any of its capital stock, except any declaration of
dividends payable by any Subsidiary to the Company;
(iv) any increase in the compensation, bonus, sales commissions or fee
arrangement payable or to become payable by it to any of its respective
officers, directors, stockholders, employees, consultants or agents, except
for ordinary and customary bonuses and salary increases for employees in
accordance with past practice;
(v) any work interruptions, labor grievances or claims filed, or any
similar event or condition of any character that would have a Material
Adverse Effect;
(vi) any distribution, sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of any of its respective
business to any person, including, without limitation, the Sellers and
their affiliates, other than distributions, sales or transfers in the
ordinary course of business to persons other than the Sellers and their
affiliates;
(vii) any cancellation, or agreement to cancel, any material
indebtedness or other material obligation owing to it, including without
limitation any indebtedness or obligation of any Sellers or any affiliate
thereof, other than the negotiation and adjustment of bills in the course
of good faith disputes with customers in a manner consistent with past
practice;
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(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of its assets, property
or rights or requiring consent of any party to the transfer and assignment
of any such assets, property or rights;
(ix) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, rights or assets outside of the
ordinary course of business;
(x) any waiver of any of its material rights or claims;
(xi) any transaction by them outside the ordinary course of their
respective businesses; or
(xii) any cancellation or termination of a material Contract.
3.34. Accuracy and Completeness of Information. To the knowledge of the
Company and the Sellers, all information furnished, to be furnished or caused to
be furnished to the Purchaser and Newco by the Company or any of the Sellers
with respect to the Sellers, the Company or any of its Subsidiaries for the
purposes of or in connection with this Agreement, or any transaction
contemplated by this Agreement is or, if furnished after the date of this
Agreement, shall be true and complete in all material respects and does not,
and, if furnished after the date of this Agreement, shall not, contain any
untrue statement of material fact or fail to state any material fact necessary
to make such information not misleading.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND NEWCO
The Purchaser and Newco hereby, jointly and severally, represent and
warrant to the Sellers and the Company as follows:
4.1. Organization. The Purchaser and Newco each are corporations duly
incorporated, validly existing and in good standing under the laws of the state
of its incorporation, (ii) has the power and authority to own and operate its
properties and assets and to transact its business as currently conducted and
(iii) is duly qualified and authorized to do business and is in good standing in
all jurisdictions where the failure to be duly qualified, authorized and in good
standing would have a Material Adverse Effect upon the Purchaser's or Newco's,
as the case may be, businesses, prospects, operations, results of operations,
assets, liabilities or condition (financial or otherwise).
4.2. Authorization for Agreement. The execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
by the Purchaser and Newco (i) are within the Purchaser's and Newco's corporate
powers and duly authorized by all necessary corporate action on the part of the
Purchaser and Newco and (ii) do not (A) require any action by or in respect of,
or filing with, any governmental body, agency or official, except as set forth
in this Agreement or (B) contravene, violate or constitute, whether with or
without the passage of time or the giving of notice or both, a breach or a
default under, any Requirement of Law applicable to the Purchaser, Newco or any
of their properties or any Contract to which they or any of their properties are
bound, except filings and approvals in connection with the Initial Public
Offering.
4.3. Enforceability. This Agreement has been duly executed and delivered by
the Purchaser and Newco and constitutes the legal, valid and binding obligation
of the Purchaser and Newco, enforceable against the Purchaser and Newco in
accordance with its terms.
4.4. Litigation. There is no Legal Proceeding or Order pending against or,
to the knowledge of the Purchaser or Newco, threatened against or affecting, the
Purchaser, Newco or any of its properties or otherwise that could adversely
affect or restrict the ability of the Purchaser or Newco to consummate fully the
transactions contemplated by this Agreement or that in any manner draws into
question the validity of this Agreement.
4.5. Registration Statement. The Registration Statement on Form S-1 and any
amendment thereto which is filed with the Securities and Exchange Commission in
connection with the Initial Public Offering will have been prepared in all
material respects in compliance with the requirements of the Securities Act and
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein; provided, however, that insofar as
the foregoing relates to information in the Registration Statement that relates
to the Company, the Sellers or any of the other Founding Companies, such
representation and warranty shall be deemed based on the knowledge of the
Purchaser.
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4.6. Brokers or Finders. The Purchaser has not engaged the services of any
broker or finder with respect to the transactions contemplated by this
Agreement, and no Person has or will have, as a result of the consummation of
the transaction contemplated by this Agreement, any right, interest or valid
claim against or upon the Sellers for any commission, fee or other compensation
as a finder or broker thereof on account of any action on the part of the
Purchaser. Without degradation to any of the foregoing, the Purchaser is solely
responsible for the payment of the commissions, fees and other compensation
payable to any Person having any such right, interest or claim on account of any
action on the part of the Purchaser.
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ARTICLE 5
COVENANTS
5.1. Good Faith. Each of the Company, the Sellers, Newco and the Purchaser
shall perform each and every of their respective obligations under this
Agreement and shall perform the transactions contemplated by this Agreement in
good faith and in a commercially reasonable manner.
5.2. Approvals. Each of the Company, the Sellers, Newco and the Purchaser
shall use their respective commercially reasonable best efforts to obtain all
Regulatory Approvals and Consents from such other third parties including,
without limitation, Consents required under any Contract or any Requirement of
Law, that are necessary or advisable in connection with the consummation of the
transactions contemplated by this Agreement. Each of the Sellers shall use his
or its commercially reasonable best efforts to cause the Company and all of its
Subsidiaries to cooperate with the Purchaser to the fullest extent practicable
in seeking to obtain all such Regulatory Approvals and Consents, and shall
provide, and shall cause the Company and all Subsidiaries to provide, such
information and communications to all Governmental or Regulatory Authorities as
they or the Purchaser may request from time to time in connection therewith.
Nothing contained herein shall require either of the Company, Newco or the
Purchaser to amend the provisions of this Agreement, to pay or cause any of
their respective Affiliates to pay any money, or to provide or cause any of
their respective Affiliates to provide any guaranty to obtain any such
Regulatory Approvals or Consents.
5.3. Cooperation; Access to Books and Records.
(a) The Company will, and each of the Sellers will and will cause the
Company and each of its Subsidiaries to, cooperate with Newco and the Purchaser
in connection with the transactions contemplated by this Agreement and any
Purchaser Financing Transaction, including, without limitation, cooperating in
the determination of which Regulatory Approvals and Consents are required or
advisable to be obtained prior to the Closing Date. Until the Closing Date, the
Company will, and each of the Sellers will and will cause the Company and each
of its Subsidiaries to, afford to the Purchaser, Newco and their agents, legal
advisors, accountants, auditors, commercial and investment banking advisors and
other authorized representatives, agents and advisors reasonable access to all
of the properties and books and records of the Company or any of its
Subsidiaries (including those in the possession or control or their accountants,
attorneys and any other third party), as the case may be, for the purpose of
permitting the Purchaser and Newco to make such investigation and examination of
the business and properties of the Company and any of its Subsidiaries as the
Purchaser or Newco, in their discretion, shall deem necessary, appropriate or
desirable. Any such investigation, access and examination shall be conducted
upon reasonable prior notice under the circumstances. The Company will, and each
of the Sellers will cause the Company and each of its Subsidiaries to, cause
each of their respective directors, officers, employees and representatives,
including, without limitation, their respective counsel and accountants, to
cooperate fully with the Purchaser and Newco in connection with such
investigation, access and examination. The results of such
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investigation and examination is for the Purchaser and Newco's sole benefit, and
shall not (i) impair or reduce any representation or warranty made by the
Company or the Sellers in this Agreement, (ii) relieve the Company or any Seller
from its or his or her obligations with respect to such representations and
warranties (including, without limitation, the Sellers' obligations under
Article 10), or (iii) mitigate the Company's and the Sellers' obligations to
otherwise disclose all material facts to the Purchaser and Newco with respect to
the Company, each of its Subsidiaries and their respective Businesses.
(b) The Purchaser will cooperate with the Company and Sellers in connection
with the transactions contemplated by this Agreement and any Purchaser Financing
Transaction, including, without limitation, cooperating in the determination of
which Regulatory Approvals and Consents are required or advisable to be obtained
prior to the Closing Date. Until the Closing Date, the Purchaser will afford to
the Company, Sellers and their agents, legal advisors and accountants reasonable
access to all of the properties and books and records of the Purchaser
(including those in the possession or control or their accountants, attorneys
and any other third party), as the case may be, for the purpose of permitting
the Company and Sellers to make such investigation and examination of the
business and properties of the Purchaser and any of its Subsidiaries as the
Company and Sellers, in their discretion, shall deem necessary, appropriate, or
desirable. Any such investigation, access and examination shall be conducted
upon reasonable prior notice under the circumstances. Purchaser will cause each
of its directors, officers, employees and representatives, including, without
limitation, its counsel and accountants, to cooperate fully with the Company and
Sellers, in connection with such investigation, access and examination. The
results of such investigation and examination is for the Company's and Sellers'
sole benefit, and shall not (i) impair or reduce any representation or warranty
made by the Purchaser in this Agreement, (ii) relieve the Purchaser from its
obligations with respect to such representations and warranties (including,
without limitation, the Purchaser's obligations under Article 10), or (iii)
mitigate the Purchaser's obligations to otherwise disclose all material facts to
the Company and the Sellers with respect to the Purchaser.
5.4. Duty to Supplement.
(a) Promptly upon the Company's or any Seller's discovery of the occurrence
of any development, event, circumstance or condition that, individually or in
the aggregate, may have a Material Adverse Effect upon the Shares, or the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of the Company or any of its Subsidiaries,
the Sellers shall, and shall cause the Company or the applicable Subsidiary to,
as the case may be, notify the Purchaser and Newco of such development, event,
circumstance or condition. In the event that the Purchaser or Newco receives
such notice or otherwise discovers the fact of any such development, event,
circumstance or condition, the Purchaser or Newco shall be entitled, in its sole
discretion, to terminate this Agreement within ten (10) days after so
discovering without further obligation or liability upon the delivery of written
notice to the Sellers to that effect; provided, however, that before Purchaser
or Newco may exercise its termination right, it must afford the Company and
Sellers the opportunity to cure the matter giving rise to the termination right
(but for no longer than five
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days following the date Purchaser or Newco notifies the Company or Seller of its
intent to terminate) unless, in the judgement of the managing underwriter of the
Initial Public Offering, any such cure period might adversely affect the Initial
Public Offering.
(b) Promptly upon the Company's or any Seller's discovery of any fact,
event, condition or circumstance that causes any representation or warranty made
by the Company or the Sellers to the Purchaser and Newco in this Agreement to
become untrue or inaccurate at any time after the date of this Agreement, the
Sellers shall, and shall cause the Company and its Subsidiaries to, notify the
Purchaser of such fact, event, condition or circumstance.
5.5. Information Required For Purchase Financing Transactions. The Company
shall and shall cause its Subsidiaries to, and each of the Sellers shall and
shall cause the Company and its respective Subsidiaries to, furnish the
Purchaser and Newco with the following information:
(a) the Company's audited consolidated balance sheet as of July 31, 1997
and the related statements of operations, shareholders' equity and cash flows
for the nine months then ended, together with all proper exhibits, schedules and
notes thereto, audited by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP, all of which shall be prepared in
accordance with GAAP consistently applied with prior periods and shall present
fairly the financial position of the Company and its Subsidiaries for the year
then ended and the results of operations and changes in shareholders' equity and
cash flows for the period covered thereby;
(b) any unaudited interim financial statements requested by the Purchaser,
Newco or any Underwriter to be included in any registration statement,
prospectus, document or other item, or any amendment or supplement thereof,
relating to any Purchaser Financing Transaction, all of which shall (i) be in
accordance with the books and records of the Company maintained in accordance
with good business practice and in the normal and ordinary course of business,
(ii) be prepared in accordance with GAAP applied on a consistent basis (except
for the absence of notes and subject to normal year-end audit adjustments),
(iii) present fairly the financial position of the Company and its Subsidiaries
as of the date thereof and the results of operations and changes in
shareholders' equity and cash flows for the periods covered thereby, and (iv)
include comparable interim financial statements for the prior year period; and
(c) such other written information with respect to themselves as the
Purchaser, Newco or any Underwriter may reasonably deem necessary, desirable or
appropriate in connection with any Purchaser Financing Transaction or the
preparation of any registration statement, prospectus, document or other item
relating thereto.
5.6. Performance of Conditions. The Company, each of the Sellers, Newco and
the Purchaser shall, and each of the Sellers shall cause the Company and each of
its Subsidiaries to, take all reasonable steps necessary or appropriate and use
all commercially reasonable efforts to effect as promptly as practicable the
fulfillment of the conditions required to be obtained that
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are necessary or advisable for the Sellers, Newco and the Purchaser to
consummate the transactions contemplated by this Agreement including, without
limitation, all conditions precedent set forth in Article 6.
5.7. Conduct of Business. During the period of time from and after the date
of this Agreement to the Closing Date, the Company shall, and each of the
Sellers shall cause the Company and each of its Subsidiaries to, operate their
respective Businesses in the normal and ordinary course in a manner consistent
with past practice including, without limitation, to do the following:
(a) to carry on the Company's and each such Subsidiary's Business in
substantially the same manner as it has heretofore and not introduce any
material new method of management, operation or accounting;
(b) to maintain the Company's and each such Subsidiary's corporate
existence and all Permits, bonds, franchises and qualifications to do
business;
(c) to comply with all Requirements of Law;
(d) to use its commercially reasonable best efforts to preserve intact
the Company's and each such Subsidiary's business relationships with its
agents, customers, employees, creditors and others with whom the Company or
each such Subsidiary has a business relationship;
(e) to preserve the Company's and each such Subsidiary's assets,
properties and rights (including, without limitation, those held under
leases, the Intellectual Property and Accounts) necessary or advisable to
the profitable conduct of their respective Businesses;
(f) to pay when due all Taxes lawfully levied or assessed against the
Company or any such Subsidiary, as the case may be, before any penalty or
interest accrues on any unpaid portion thereof and to file all Tax Returns
when due (including after applicable extensions); provided that no such
payment shall be required which is being contested in good faith and by
proper proceedings and for which appropriate reserves as may be required by
GAAP have been established;
(g) to maintain in full force and effect all policies of insurance
adequate (both in terms of coverage and amount of coverage) to insure
against risks as are customarily and prudently insured against by companies
of established repute engaged in the same or a similar business;
(h) to perform all material obligations under all Contracts to which
the Company or any such Subsidiary is a party or by which it or its
properties are bound or subject;
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(i) to maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments over Ten Thousand Dollars
($10,000), without the knowledge and consent of the Purchaser, which
consent shall not be unreasonably withheld; and
(j) to collect accounts receivable in a manner consistent with past
practices.
5.8. Negative Covenants. During the period from and after the date of this
Agreement until the Closing Date, the Company shall not, and each of the Sellers
shall not cause the Company or any of its Subsidiaries to do, and shall not
permit the Company or any such Subsidiary to do, directly or indirectly, any of
the following without the express prior written consent of the Purchaser, which
consent shall not be unreasonably withheld.
(a) make or adopt any changes to or otherwise alter the Company's or
any such Subsidiary's certificate or articles of incorporation, by-laws or
any other governing or constitutive documents;
(b) purchase or enter into any Contract or commitment to purchase or
lease any real property;
(c) grant any salary increase or permit any advance to any director,
officer or employee or enter into any new, or amend or otherwise alter, any
Employee Benefit Plan, or any employment or consulting Contract, or any
Contract providing for the payment of severance;
(d) other than in the ordinary course of business, make any borrowings
or otherwise create, incur, assume or guaranty any indebtedness (except for
the endorsement of negotiable instruments for deposit or collection or
similar transactions in the normal and ordinary course of the Business),
issue any commercial paper or refinance any existing borrowings or
indebtedness; provided that no borrowings may be made without Purchaser's
consent which include prepayment penalties or restrictions on prepayment;
(e) enter into any Permit other than in the normal and ordinary course
of business;
(f) enter into any Contract, other than in the ordinary course of the
Business; provided that any Contract permitted to be entered into pursuant
to this Section 5.8(f) shall not (i) involve a pledge of or encumbrance on
any of the Company's or any of its Subsidiaries' assets or the incurrence
by the Company or any of its Subsidiaries of liabilities (other than in the
performance of services for customers in the ordinary course of business)
in any one transaction or series of related transactions in excess of Ten
Thousand Dollars ($10,000) and cause the aggregate commitment under all
such new Contracts to exceed One Hundred Thousand Dollars ($100,000), or
(ii) involve a term of more than one (1) year;
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(g) make, or enter into any commitment to make, any contribution
(charitable or otherwise) to any Person;
(h) form any subsidiary or issue, grant, sell, redeem, subdivide,
combine, change or purchase any of the Company's or any of its Subsidiary's
shares, notes or other securities, whether debt or equity, or make any
Contract or commitments to do so;
(i) enter into any transaction with any Affiliate of any Seller, the
Company or any of its Subsidiaries including, without limitation the
purchase, sale or exchange of property with, the rendering of any service
to, or the making of any loans to, any such Affiliate;
(j) declare or pay any dividend, distribution or payment in respect
of, or make any payment on account of, or set apart assets for a sinking or
other analogous fund for, the purchase, redemption, defeasance, retirement
or other acquisition of, any of the Company's or obligations of the Company
or any of its Subsidiaries, or pay any royalty or management fee;
(k) pay any royalty or management fee;
(l) grant or issue any subscription, warrant, option or other right to
acquire any of the Company's or any of its Subsidiaries' securities,
whether debt or equity, and whether by conversion or otherwise, or make any
commitment to do so;
(m) merge or consolidate, or agree to merge or consolidate, with or
into any other Person or acquire or agree to acquire or be acquired by any
Person;
(n) sell, lease, exchange, mortgage, pledge, hypothecate, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
hypothecate, transfer or otherwise dispose of, any of the Company's or any
of such Subsidiaries assets having an aggregate fair market value in excess
of $10,000 or more, except for the disposition of obsolete or worn-out
assets in the normal and ordinary course of business;
(o) (i) change any of its methods of accounting in effect as at the
Balance Sheet Date, or (ii) make or rescind any express or deemed election
relating to Taxes, or change any of its methods of reporting income or
deductions for income tax purposes from those employed in the preparation
of income Tax Returns for the taxable year ended October 31, 1996, except,
in either case, as may be required by any applicable Requirement of Law,
the IRS or GAAP;
(p) enter into any Contract or make any commitment to make any capital
expenditures or capital additions or betterments in excess of an aggregate
of $10,000;
(q) cause or permit the Company or any such Subsidiary to (i)
terminate any Employee Benefit Plan, (ii) permit any "prohibited
transaction" involving any Employee Benefit Plan, (iii) fail to pay to any
Employee Benefit Plan any contribution which it is
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obligated to pay under the terms of such Employee Benefit Plan, whether or
not such failure to pay would result in an "accumulated funding deficiency"
or (iv) allow or suffer to exist any occurrence of a "reportable event" or
any other event or condition, which presents a material risk of termination
by the PBGC of any Employee Benefit Plan. As used in this Agreement, the
terms "accumulated funding deficiency" and "reportable event" shall have
the respective meanings assigned to them in ERISA, and the term "prohibited
transaction" shall have the meaning assigned to it in the Code and ERISA;
(r) enter into any transaction or conduct any operations not in the
normal and ordinary course of business;
(s) enter into any Contract or make any commitment to do any of the
foregoing; or
(t) waive any material rights or claims of the Company.
5.9. Exclusive Negotiation. Neither the Company nor any of the Sellers
shall: (i) provide any information about the Company or any of its Subsidiaries
or any of their respective Businesses to any Person (other than the Purchaser,
Newco, a Potential Founding Company or their representatives) with a view to
sell, exchange or dispose or solicit an offer for the acquisition of any of the
Shares or any material interest in the Company, any of its Subsidiaries or their
respective Businesses; (ii) solicit or accept any other offers for the sale,
exchange or other disposition of the Shares or any material interest in the
Company, its Subsidiaries or their respective Businesses; (iii) negotiate or
discuss with any Person (other than the Purchaser or any of its representatives)
the possible sale, exchange or other disposition of the Shares or any material
interest in the Company, any of its Subsidiaries or their respective Businesses;
or (iv) sell, exchange or otherwise dispose of any of the Shares or any material
interest in the Company, any of its Subsidiaries or any of their respective
Businesses, in any of the foregoing cases, whether by equity sale, merger,
consolidation, equity exchange, sale of assets or otherwise. The Company shall,
and each of the Sellers shall and shall cause the Company and each of its
Subsidiaries to, advise the Purchaser or Newco promptly of their or its receipt
of any written offer or written proposal concerning the Shares, the Company, any
of its Subsidiaries, any part of their respective Businesses or any material
interest therein, and the terms thereof.
5.10. Public Announcements. Prior to the Closing, neither the Company nor
the Sellers shall issue any public report, statement, press release or similar
item or make any other public disclosure with respect to the execution or
substance of this Agreement prior to the consultation with and approval of the
Purchaser. In addition, prior to Closing, before Purchaser issues a public
statement that refers to the Company or the Sellers (other than in the
Registration Statement) Purchaser will endeavor to consult with Sellers to the
extent time permits. Nothing contained herein shall restrict the ability of the
Company or Sellers from contacting a third party in order to obtain a Consent to
the transactions contemplated hereby.
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5.11. Amendment of Schedules. Each party hereto agrees that, with respect
to the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing to supplement
or amend promptly the Disclosure Schedule or any other Schedules hereto with
respect to any matter hereafter arising or discovered which, if existing or
known at the date of this Agreement, would have been required to be set forth or
described in the Schedules, provided that no amendment or supplement to the
Disclosure Schedule prepared by the Company that constitutes or reflects an
event or occurrence that would have a Material Adverse Effect shall be effective
unless the Purchaser consents to such amendment or supplement. For all purposes
of this Agreement, including without limitation for purposes of determining
whether the conditions set forth in Sections 6 and 7 have been fulfilled, the
Schedules hereto shall be deemed to be the Schedules as amended or supplemented
pursuant to this Section 5.11. Except as otherwise provided herein, no amendment
of or supplement to a Schedule shall be made later than 24 hours prior to the
anticipated effectiveness of the Registration Statement in connection with the
Initial Public Offering (the "Registration Statement").
5.12. Cooperation in Preparation of Registration Statement.
(a) The Company and Sellers shall furnish or cause to be furnished to the
Purchaser, Newco and the underwriters of the Initial Public Offering (the
"Underwriters") all of the information concerning the Company or the Sellers
reasonably requested by the Purchaser, Newco and the Underwriters, and will
cooperate with the Purchaser and the Underwriters in the preparation of, any
registration statement (or similar document) relating to the Purchaser Financing
Transaction and the prospectus (or similar document) included therein (including
audited financial statements, prepared in accordance with generally accepted
accounting principles). The Company and the Sellers agree promptly to advise the
Purchaser if at any time during the period in which a prospectus relating to the
Purchaser Financing Transaction is required to be delivered under the Securities
Act, any information contained in the prospectus concerning the Company or the
Sellers becomes incorrect or incomplete in any material respect, and to provide
the information needed to correct such inaccuracy. The Purchaser agrees to use
its commercially reasonable best efforts to prepare and file the Registration
Statement as promptly as practicable, to furnish the Seller with a copy thereof
and each amendment thereto in substantially the form in which it is to be filed
as promptly as practicable prior to such filing (it being understood that
neither the Seller nor the Shareholder has any obligation to review the same
other than with respect to information regarding the Company or the Sellers) and
to diligently seek to cause the Registration Statement to be declared effective
and the Initial Public Offering to be completed. The Purchaser agrees that
neither the Seller nor the Shareholder shall have any responsibility for pro
forma adjustments that may be made to the Financial Statements.
(b) The Company and each of the Sellers acknowledge and agree (i) that,
prior to the execution and delivery of a definitive underwriting agreement, the
Underwriters have made no firm commitment, binding agreement, or promise or
other assurance of any kind, whether express or implied, oral or written, that
the Registration Statement will become effective or that the Initial Public
Offering pursuant thereto will occur at a particular price or within a
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particular range of prices or occur at all, (ii) that none of the prospective
Underwriters of the Purchaser's common stock, in the Initial Public Offering nor
any officers, directors, agents or representatives of such Underwriters shall
have any liability to the Sellers, the Company or any other person affiliated or
associated with the Company for any failure of the Registration Statement to
become effective, the Initial Public Offering to occur at a particular price or
within a particular range of prices or occur at all, and (iii) the decision of
the Sellers to enter into this Agreement and, if applicable, to vote in favor of
or consent to the transactions contemplated hereby, has been or will be made
independent of, and without reliance upon, any statements, opinions or other
communications of, or due diligence investigation which have been or will be
made or performed by any prospective Underwriter, relative to the Purchaser or
the prospective Initial Public Offering. The Sellers acknowledge that shares of
DocuNet Common Stock received as a part of the Purchase Price, if any, will not
be issued pursuant to the Registration Statement; and, therefore, the
Underwriters shall have no obligation to the Sellers with respect to any
disclosure contained in the Registration Statement and no Seller may assert any
claim against the Underwriters relating to the Registration Statement on account
thereof.
5.13. Examination of Final Financial Statement. The Company shall provide
to Purchaser prior to the Closing Date unaudited consolidated balance sheets of
the Company for each month and fiscal quarter end between the date of this
Agreement and the Closing Date, and unaudited consolidated statements of income,
cash flows and retained earnings of the Company for such subsequent months and
fiscal quarters. In addition, the Company shall prepare and deliver to Purchaser
at Closing the Closing Balance Sheet. Such financial statements, which shall be
deemed to be Financial Statements (as defined herein), shall have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated (except for the absence of
notes and subject to normal year end adjustments). Such financial statements
shall present fairly the results of operations of the Subsidiaries for the
periods indicated thereon.
5.13A. Audit Opinion. The parties acknowledge that the Financial Statements
identified in Section 3.12(a) have been reviewed by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP in
anticipation of rendering its unqualified opinion thereon prior to consummation
of the Initial Public Offering.
5.14. Lock-Up Agreements. In connection with the Initial Public Offering,
for good and valuable consideration, the Company and each Seller hereby
irrevocably agree that for a period of 180 days after the date of the
effectiveness (the "Effective Date") of the Registration Statement, as the same
may be amended, not to (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of
(except pursuant to the Escrow Agreement), directly or indirectly, any shares of
DocuNet Common Stock or any securities convertible into or exercisable or
exchangeable for shares of DocuNet Common Stock, or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the DocuNet Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of DocuNet Common Stock or such other securities, in cash or otherwise without
the prior written consent of the Underwriters.
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Neither the Company nor the Sellers, without the prior written consent of the
Underwriters, shall exercise any demand, mandatory, piggyback, optional or any
other registration rights, if any such rights exist, for a period of 180 days
from the Effective Date. The Company and each Seller agree that the foregoing
shall be binding upon their transferees, successors, assigns, heirs and personal
representatives and shall benefit and be enforceable by the underwriters in the
Initial Public Offering. In furtherance of the foregoing, the Purchaser and its
transfer agent, are hereby authorized to decline to make any transfer of
securities if such transfer would constitute a violation or breach of this
Section 5.15.
5.15. Compliance with the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of
1976 (the "▇▇▇▇-▇▇▇▇▇ Act"). All parties to this Agreement hereby recognize that
one or more filings under the ▇▇▇▇-▇▇▇▇▇ Act may be required in connection with
the transactions contemplated herein. If it is determined by the parties to this
Agreement that filings under the ▇▇▇▇-▇▇▇▇▇ Act are required, then: (i) each of
the parties hereto agrees to cooperate and use its best efforts to comply with
the ▇▇▇▇-▇▇▇▇▇ Act; (ii) such compliance by the Sellers and the Company shall be
deemed a condition precedent in addition to the conditions precedent set forth
in Article 6 of this Agreement, and such compliance by Purchaser and Newco shall
be deemed a condition precedent in addition to the conditions precedent set
forth in Article 6 of this Agreement; and (iii) the parties agree to cooperate
and use their best efforts to cause all filings required under the ▇▇▇▇-▇▇▇▇▇
Act to be made. If filings under the ▇▇▇▇-▇▇▇▇▇ Act are required, the costs and
expenses thereof (including filing fees) shall be borne by Purchaser or Newco.
The obligation of each party to consummate the transactions contemplated by this
Agreement is subject to the expiration or termination of the waiting period
under the ▇▇▇▇-▇▇▇▇▇ Act, if applicable.
5.16. Transfer of Vehicles. The Sellers and the Company hereby acknowledge
and agree that the Company will transfer the vehicles listed on the Disclosure
Schedule to the Sellers prior to the Pricing Date and that Sellers will, at the
time of such transfer, assume all outstanding liabilities of the Company in
connection with such vehicles.
5.17. Leases. Sellers and the Purchaser shall enter into the Leases prior
to Closing.
5.18. Foreign Qualification. The Company shall become qualified to do
business as a foreign corporation in the State of Washington.
5.19. Reorganization Status. No party to this Agreement shall undertake any
actions not contemplated by this Agreement that would cause the merger to fail
as a reorginization as defined under Section 368(a)(1)(A) and Section
368(a)(2)(D) of the Code.
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ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING
6.1. Conditions Precedent to the Purchaser and Newco's Obligations. The
Purchaser and Newco's obligation to consummate the transactions contemplated by
this Agreement is subject to the satisfaction of, or waiver in writing by the
Purchaser or Newco of, prior to or at the Closing, each and every of the
following conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties of the Company and the Sellers contained in this Agreement shall
be true and correct in all material respects on and as of the Closing Date
with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date, except for those
representations and warranties which by their terms relate to an earlier
date, which representations and warranties shall be true and correct in all
material respects with regard to such earlier date. The Company and each of
the Sellers shall deliver to the Purchaser and Newco a certificate dated
the Closing Date, certifying that all of the Company's and the Sellers'
representations and warranties contained in this Agreement are true and
correct on and as of the Closing Date as though such representations and
warranties had been made on and as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Company and each of
the Sellers shall have performed and complied in all material respects with
each and every covenant, agreement and condition required by this Agreement
to be performed or satisfied by the Company and each of the Sellers, as the
case may be, at or prior to the Closing Date. The Company and each of the
Sellers shall deliver to the Purchaser and Newco a certificate, dated the
Closing Date, certifying that the Company and the Sellers have fully
performed and complied in all material respects with all the duties,
obligations and conditions required by this Agreement to be performed and
complied with by them at or prior to the Closing Date.
(c) Delivery of Documents. The Company and each of the Sellers shall
have delivered to the Purchaser and Newco all documents, certificates,
instruments and items (including, without limitation, certificates
representing the Shares) required to be delivered by him or it at or prior
to the Closing Date pursuant to this Agreement.
(d) Consents. All proceedings, if any, to have been taken and all
Consents including, without limitation, all Regulatory Approvals, necessary
or advisable in connection with the transactions contemplated by this
Agreement shall have been taken or obtained.
(e) Financing. The Registration Statement on Form S-1 relating to the
Initial Public Offering shall have been declared effective by the
Securities and Exchange Commission and the closing of the sale of DocuNet
Common Stock to the Underwriters in the Initial Public Offering shall have
occurred simultaneously with the Closing Date hereunder.
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(f) Satisfaction of Liabilities. The Company and each of its
Subsidiaries shall have satisfied and discharged all of their Debt except
for: (i) Debt for which an adjustment to the Base Purchase Price has been
made under Section 2.2(b) and (ii) Debt which constitutes an Adjusted
Current Liability.
(g) Closing Balance Sheet The Company shall have delivered to the
Purchaser a true and complete copy of the Closing Balance Sheet, together
with a certificate dated the Closing Date, signed by the Company's chief
financial officer that the Closing Balance Sheet is in accordance with the
Books and Records and with GAAP applied on a consistent basis (except for
the absence of notes and subject to normal year-end audit adjustments) and
presents fairly the financial position of the Company as of the Closing
Date.
(h) No Material Adverse Change. From and after the date of this
Agreement, there shall not have occurred or be threatened any development,
event, circumstance or condition that could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect upon
the Shares, or the business, prospects, operations, results of operations,
assets, liabilities or condition (financial or otherwise) of the Company or
any of its Subsidiaries.
(i) No Legal Proceeding Affecting Closing. There shall not have been
instituted and there shall not be pending or threatened any Legal
Proceeding, and no Order shall have been entered (i) imposing or seeking to
impose limitations on the ability of the Purchaser or Newco to consummate
the Merger; (ii) imposing or seeking to impose limitations on the ability
of the Purchaser or Newco's to combine and operate the business, operations
and assets of the Company or any of the Company's Subsidiaries with the
Purchaser or Newco's business, operations and assets; (iii) imposing or
seeking to impose other sanctions, damages or liabilities arising out of
the transactions contemplated by this Agreement on the Purchaser, Newco or
any of the Purchaser's or Newco's directors, officers or employees; (iv)
requiring or seeking to require divestiture by the Purchaser or Newco of
all or any material portion of the business, assets or property of the
Company or any of its Subsidiaries; or (v) restraining, enjoining or
prohibiting or seeking to restrain, enjoin or prohibit the consummation of
transactions contemplated by this Agreement.
(j) Secretary's Certificate. The Company shall have delivered to the
Purchaser a certificate or certificates dated as of the Closing Date and
signed on its behalf by its Secretary to the effect that (i)(A) the copy of
the Company's articles or certificate of incorporation attached to the
certificate is true, correct and complete, (B) no amendment to such
articles or certificate of incorporation has occurred since the date of the
last amendment annexed (such date to be specified), (C) a true and correct
copy of the Company's bylaws as in effect on the date thereof and at all
times since the adoption of the resolution referred to in (D) is annexed to
such certificate, (D) the resolutions by the Company's board of directors
authorizing the actions taken in connection with the Merger, including as
applicable, without limitation, the execution, delivery and performance of
this Agreement were duly adopted and continue in force and effect (a copy
of such resolutions to be annexed to such certificate); (ii) setting forth
the
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Company's incumbent officers and including specimen signatures on such
certificate or certificates as their genuine signatures; and (iii) the
Company is in good standing in all jurisdictions where the ownership or
lease of property or the conduct of its business requires it to qualify to
do business, except for those jurisdictions where the failure to be duly
qualified, authorized and in good standing would not have a Material
Adverse Effect upon the business, prospects, operations, results of
operations, assets, liabilities or condition (financial or otherwise) on
the Company. The certification referred to above in (iii) shall attach
certificates of existence certified by the Secretaries of State or other
appropriate officials of such states, dated as of a date not more than a
five (5) days prior to the Closing Date.
(k) Opinion of Counsel of Sellers. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ &
▇▇▇▇▇, LLP, counsel for the Company and the Sellers, shall have delivered
to the Purchaser and Newco their favorable opinion, dated the Closing Date,
as to the matters covered in Schedule 6.1(k). In rendering such opinion,
counsel may rely to the extent recited therein on certificates of public
officials and of officers of the Sellers as to matters of fact, and as to
any matter which involves other than federal or Oregon law, such counsel
may rely upon the opinion of local counsel reasonably satisfactory to the
Purchaser and its counsel.
(l) Termination of Related Party Agreements. All existing agreements
between the Company and the Sellers, Affiliates of the Company or Sellers,
other than those, if any, set forth on Schedule 6.1(l), shall have been
canceled.
(m) Employment Agreements. Each of the persons listed on Schedule
6.1(m) shall have entered into an employment agreement (collectively, the
"Employment Agreements") with the Purchaser substantially in the form of
Exhibit C attached hereto.
(n) Repayment of Indebtedness. Prior to the Closing Date, the Sellers
shall have repaid the Company (including the Subsidiaries) in full all
amounts owing by the Sellers or employees of the Company to the Company
(including the Subsidiaries).
(o) FIRPTA Certificate. Each Seller shall have delivered to the
Purchaser a certificate to the effect that he is not a foreign person
pursuant to Section 1.1445-2(b) of the Treasury regulations.
(p) Insurance. The Purchaser and Newco shall be named as an additional
named insured on all of the Company's insurance policies as of the Closing
Date.
(q) Escrow Agreement. Each Seller and the Company shall have executed
the Escrow Agreement substantially in the form of Exhibit A attached
hereto.
6.2. Conditions Precedent to Company's and Sellers' Obligations. The
Company's and Sellers' obligations to consummate the transactions contemplated
by this Agreement are subject to the satisfaction of, or waiver in writing by
the Sellers of, prior to or at the Closing, each and every of the following
conditions precedent:
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(a) Representations and Warranties. Each of the representations and
warranties of the Purchaser and Newco contained in this Agreement shall be
true and correct in all material respects on and as of the date of the
Closing Date with the same force as though such representations and
warranties had been made on and as of the Closing Date, except for those
representations and warranties that by their terms relate to an earlier
date, which representations and warranties shall be true and correct in all
material respects with regard to such earlier date. The Purchaser and Newco
shall each deliver to the Sellers a certificate executed by a duly
authorized officer of the Purchaser and Newco, respectively, and dated as
of the Closing Date, certifying that all of its representations and
warranties contained in this Agreement are true and correct on and as of
the Closing Date as though such representations and warranties had been
made on and as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Purchaser and Newco
shall each have performed and complied in all material respects with each
and every covenant, agreement and condition required by this Agreement to
be performed or satisfied by them at or prior to the Closing Date. The
Purchaser and Newco shall each deliver to the Sellers a certificate, dated
the Closing Date, certifying that each of them has fully performed and
complied in all material respects with all the duties, obligations and
conditions required by this Agreement to be performed and complied with by
it at or prior to the Closing Date.
(c) Delivery of Documents. The Purchaser and Newco shall have
delivered to the Sellers all documents, certificates, instruments and items
required to be delivered by them at or prior to the Closing.
(d) No Legal Proceeding Affecting Closing. There shall not have been
instituted and there shall not be pending or threatened any Legal
Proceeding, and no Order shall have been entered (i) imposing or seeking to
impose limitations on the ability of the Sellers to consummate the Merger;
(ii) imposing or seeking to impose other sanctions, damages or liabilities
arising out of the transactions contemplated by this Agreement on the
Company or any of its Subsidiaries or any of their respective directors,
officers or employees or on any of the Sellers; or (iii) restraining,
enjoining or prohibiting or seeking to restrain, enjoin or prohibit the
consummation of transactions contemplated by this Agreement.
(e) Escrow Agreement. The Purchaser shall have executed the Escrow
Agreement substantially in the form of Exhibit A attached hereto.
(f) Employment Agreements. The Purchaser shall have entered into the
Employment Agreements with each of the persons listed on Schedule 6.1(m)
substantially in the form of Exhibit C attached hereto.
(g) Secretary's Certificate. The Purchaser and Newco shall each have
delivered to the Sellers a certificate or certificates dated as of the
Closing Date and signed on its behalf by its Secretary to the effect that
(i)(A) the copy of the Purchaser's or Newco's, as the case may be, articles
or certificate of incorporation attached to the certificate is true,
correct and
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complete, (B) no amendment to such articles or certificate of incorporation
has occurred since the date of the last amendment annexed (such date to be
specified), (C) a true and correct copy of the Such entity's bylaws as in
effect on the date thereof and at all times since the adoption of the
resolution referred to in (D) is annexed to such certificate, (D) the
resolutions by the entity's board of directors authorizing the actions
taken in connection with the Merger, including as applicable, without
limitation, the execution, delivery and performance of this Agreement were
duly adopted and continue in force and effect (a copy of such resolutions
to be annexed to such certificate) and (ii) setting forth the incumbent
officers of the entity and including specimen signatures on such
certificate or certificates of such officers executing this Agreement on
behalf of the Such entity as their genuine signatures.
(h) Financing. The registration statement on Form S-1 relating to the
Initial Public Offering shall have been declared effective by the
Securities and Exchange Commission and the closing of the sale of DocuNet
Common Stock to the Underwriters in the Initial Public Offering shall have
occurred simultaneously with the Closing Date hereunder.
(i) Opinion of Counsel of Purchaser. Pepper, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP,
counsel for Purchaser, shall have delivered to the Company and Sellers
their favorable opinion, dated the Closing Date, as to the matters covered
in Schedule 6.2(i). In rendering such opinion, counsel may rely to the
extent recited therein on certificates of public officials and of officers
of Purchaser as to matters of fact, and such opinion may be limited to
federal laws and the laws of the Commonwealth of Pennsylvania.
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ARTICLE 7
CLOSING
At or prior to the Pricing, the parties shall take all administrative
actions necessary to prepare to (i) effect the Merger (including, if permitted
by applicable state law, the filing with the appropriate state authorities of
the Articles of Merger which shall become effective at the Effective Time of the
Merger) and (ii) effect the conversion and delivery of Shares referred to in
Section 2.9 hereof and payment of consideration for the Shares; provided, that
such actions shall not include the actual completion of the Merger or the
conversion and delivery of the shares and certified check(s) referred to in
Section 2 hereof, each of which actions shall only be taken upon the Closing
Date as herein provided. In the event that there is no Closing Date and this
Agreement terminates, Purchaser hereby covenants and agrees to do all things
required by Pennsylvania law and all things which counsel for the Company advise
Purchaser are required by applicable laws of the State of Oregon in order to
rescind the merger effected by the filing of the Articles of Merger as described
in this Section. The taking of the actions described in clauses (i) and (ii)
above shall take place on the Pricing Date at the offices of Pepper, ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇ LLP, 3000 Two ▇▇▇▇▇ Square, ▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇. On the Closing Date (x) the Articles of Merger shall be or shall have
been filed with the appropriate state authorities so that they shall be or, as
of 8:00 a.m. EASTERN STANDARD TIME on the Closing Date, shall become effective
and the Merger shall thereby be effected, (y) all transactions contemplated by
this Agreement, including the conversion and delivery of shares, the delivery of
a certified check or checks in an amount equal to the cash portion of the
consideration which the Sellers shall be entitled to receive pursuant to the
Merger referred to in Section 2 hereof and (z) the closing with respect to the
Initial Public Offering shall occur and be deemed to be completed. The date on
which the actions described in the preceding clauses (x), (y) and (z) occurs
shall be referred to as the "Closing Date." Except as otherwise provided in
Section 11 hereof, during the period from the Pricing Date to the Closing Date,
this Agreement may only be terminated by the parties if the underwriting
agreement in respect of the Initial Public Offering is terminated pursuant to
the terms thereof.
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ARTICLE 8
CONFIDENTIALITY AND COVENANT NOT TO COMPETE
8.1. Confidentiality.
(a) Each party to this Agreement shall use Confidential Information only in
connection with the transactions contemplated hereby (including the Initial
Public Offering) and shall not disclose any Confidential Information about any
other party to any Person unless the party desiring to disclose such
Confidential Information receives the prior written consent of the party about
whom such Confidential Information pertains, except (i) to any party's
directors, officers, employees, agents, advisors and representatives who have a
need to know such Confidential Information for the performance of their duties
as employees, agents or representatives, (ii) to the extent strictly necessary
to obtain any Consents including, without limitation, any Regulatory Approvals,
that may be required or advisable to consummate the transactions contemplated by
this Agreement, (iii) to enforce such party's rights and remedies under this
Agreement, (iv) with respect to disclosures that are compelled by any
Requirement of Law or pursuant to any Legal Proceeding; provided, that the party
compelled to disclose Confidential Information pertaining to any other party
shall notify such other party thereof and use his or its commercially reasonable
efforts to cooperate with such other party to obtain a protective order or other
similar determination with respect to such Confidential Information; (v) made to
any party's legal counsel, independent auditors, investment bankers or financial
advisors under an obligation of confidentiality; (vi) to other Founding
Companies or Potential Founding Companies; or (vii) as otherwise permitted by
Section 5.10 of this Agreement.
(b) In the event that the transactions contemplated by this Agreement are
not consummated in accordance with the terms of this Agreement, each party
shall, upon the request of the other party, return to the other party or destroy
all Confidential Information and any copies thereof previously delivered by such
requesting party, except to the extent that such party deems such Confidential
Information necessary or desirable to enforce his or its rights under this
Agreement.
(c) The obligation of confidentiality contained in this Section 8.1 shall,
(i) from and after the date of this Agreement, supersede all of the obligations
contained in that certain letter agreement among the Purchaser, the Company and
the Sellers dated June 19, 1997, and (ii) survive the termination of this
Agreement, or the Closing, as applicable, for a period of two years after the
date of such termination or the Closing Date, respectively; provided, that, if
the Closing shall occur, then the Purchaser's obligation of confidentiality
shall terminate upon the Closing.
(d) The parties hereto acknowledge and agree that they may become aware of
potential acquisition targets of the Purchaser, including but not limited to the
Potential Founding Companies (collectively, the "Purchaser Targets"), in the
course of discussions with the Purchaser or a Potential Founding Company.
Accordingly, the parties hereto each agree not to directly or indirectly seek to
acquire or merge with, or pursue or respond to, with an intent to
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acquire or merge with, any Purchaser Targets until the later of 300 days after
the date of this Agreement or 180 days after termination of this Agreement.
(e) The Purchaser will cause each of the Founding Companies other than the
Company to enter into a provision similar to this Section 8.1 requiring each
such Founding Company to keep confidential any information obtained by such
Founding Company.
8.2. Covenant Not To Compete. As a material inducement to the Purchaser's
and Newco's consummation of the Merger, each of the Sellers shall not, during
the Restricted Period, do any of the following, directly or indirectly, without
the prior written consent of the Purchaser in its sole discretion:
(a) compete, directly or indirectly, with the Purchaser, the Surviving
Corporation or the Company or any of their respective Affiliates or
Subsidiaries, or any of their respective successors or assigns, whether now
existing or hereafter created or acquired (collectively, the "Related
Companies"), or otherwise engage or participate, directly or indirectly, in
any business conducted by Purchaser or a Subsidiary (the "Restricted
Business") within any geographic area located within the United States of
America, its possessions or territories (the "Restricted Area");
(b) become interested (whether as owner, stockholder, lender, partner,
co-venturer, director, officer, employee, agent, consultant or otherwise),
directly or indirectly, in any Person that engages in the Restricted
Business within the Restricted Area; provided, that nothing contained in
this Section 8.2(b) shall prohibit any Seller from owing, as a passive
investor, not more than five percent (5%) of the outstanding securities of
any class of any publicly-traded securities of any publicly held Company
listed on a well-recognized national securities exchange or on an
interdealer quotation system of the National Association of Securities
Dealers, Inc; or
(c) solicit, call on, divert, take away, influence, induce or attempt
to do any of the foregoing, in each case within the Restricted Area, with
respect to the Purchaser's, the Surviving Corporation's, the Company's or
any of their respective Related Companies' (A) customers or distributors or
prospective customers or distributors (wherever located) with respect to
goods or services that are competitive with those of the Purchaser, the
Company, or any of their respective Related Companies, (B) suppliers or
vendors or prospective suppliers or vendors (wherever located) to supply
materials, resources or services to be used in connection with goods or
services that are competitive with those of the Purchaser, the Surviving
Corporation, the Company or any of their respective Related Companies, (C)
distributors, consultants, agents, or independent contractors to terminate
or modify any contract, arrangement or relationship with the Purchaser, the
Surviving Corporation, the Company or any of their respective Related
Companies or (D) employees (other than family members) to leave the employ
of the Purchaser, the Surviving Corporation, the Company or any of their
respective Related Companies.
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8.3. Specific Enforcement; Extension of Period.
(a) Each of the Sellers acknowledge that any breach or threatened breach by
him or her of any provision of Sections 8.1 or 8.2 will cause continuing and
irreparable injury to the Purchaser, the Surviving Corporation, the Company and
their respective Related Companies for which monetary damages would not be an
adequate remedy. Accordingly, the Purchaser, the Surviving Corporation, the
Company and any of their respective Related Companies shall be entitled to
injunctive relief from a court of competent jurisdiction, including specific
performance, with respect to any such breach or threatened breach. In connection
therewith, none of the Sellers shall, in any action or proceeding to so enforce
any provision of this Article 8, assert the claim or defense that an adequate
remedy at law exists or that injunctive relief is not appropriate under the
circumstances. The rights and remedies of the Purchaser, the Surviving
Corporation, the Company and any of their respective Related Companies set forth
in this Section 8.3 are in addition to any other rights or remedies to which the
Purchaser, the Company or any of their respective Related Companies may be
entitled, whether existing under this Agreement, at law or in equity, all of
which shall be cumulative.
(b) The periods of time set forth in this Article 8 shall not include, and
shall be deemed extended by, any time required for litigation to enforce the
relevant covenant periods. The term "time required for litigation" as used in
this Section 8.3(b) shall mean the period of time from the earlier of the
applicable Seller's first breach of the provisions of Sections 8.1 or 8.2 or
service of process upon the such Seller through the expiration of all appeals
related to such litigation.
8.4. Disclosure. Each of the Sellers acknowledges that the Purchaser, the
Company or any of their respective Related Companies may provide a copy of this
Agreement or any portion of this Agreement to any Person with, through or on
behalf of which any of the Sellers may, directly or indirectly, breach or
threaten to breach any of the provisions of Section 8.2.
8.5. Interpretation. It is the desire and intent of the Purchaser, Newco
and the Sellers that the provisions of this Article 8 shall be enforceable to
the fullest extent permissible under applicable law and public policy.
Accordingly, if any provision of this Article 8 shall be determined to be
invalid, unenforceable or illegal for any reason, then the validity and
enforceability of all of the remaining provisions of this Article 8 shall not be
affected thereby. If any particular provision of this Article 8 shall be
adjudicated to be invalid or unenforceable, then such provision shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such amendment to apply only to the operation of such provision
in the particular jurisdiction in which such adjudication is made; provided
that, if any provision contained in this Article 8 shall be adjudicated to be
invalid or unenforceable because such provision is held to be excessively broad
as to duration, geographic scope, activity or subject, then such provision shall
be deemed amended by limiting and reducing it so as to be valid and enforceable
to the maximum extent compatible with the applicable laws and public policy of
such
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jurisdiction, such amendment only to apply with respect to the operation of such
provision in the applicable jurisdiction in which the adjudication is made.
8.6. Sellers' Acknowledgment. Each of the Sellers acknowledges that he or
she has carefully read and considered the provisions of this Article 8. Each of
the Sellers acknowledges and understands that the restrictions contained in this
Article 8 may limit his ability to earn a livelihood in a business similar to
that of the Purchaser, Newco, the Company or any of their respective Related
Companies, but he nevertheless believes that he has received and will receive
sufficient consideration and other benefits to justify such restrictions. Each
of the Sellers also acknowledges and understands that these restrictions are
reasonably necessary to protect the Purchaser's, the Surviving Corporation's,
the Company's and their respective Related Companies' interests, and each Seller
does not believe that such restrictions will prevent him from earning a living
in businesses that are not competitive with those of the Purchaser, the Company
or any of their respective Related Companies during the term of such
restrictions in the Restricted Area.
ARTICLE 9
SURVIVAL
9.1. Survival of Representations, Warranties, Covenants and Agreements.
Subject to the last three (3) sentences of this Section 9.1, the representations
and warranties of the Sellers, the Company and the Purchaser contained in this
Agreement shall survive until the second anniversary of the Closing Date, except
that the representations and warranties set forth in each of Section 3.11,
Section 3.20, Section 3.23 and Section 3.28 shall survive until the expiration
of the statute of limitations applicable to the subject matter addressed
thereunder. The covenants and agreements of the Sellers, the Company, and of the
Purchaser contained in this Agreement will survive the Closing until, by their
own respective terms, they have been fully performed. Any breach of a
representation, warranty, covenant or agreement that would otherwise terminate
in accordance with this Article 9 will continue to survive if an Indemnity
Notice, an Unliquidated Indemnity Notice or a Claim Notice (as applicable) shall
have been given in good faith based on facts reasonably expected to establish a
valid claim under Article 10 on or prior to the date on which such
representation, warranty, covenant or agreement would have otherwise terminated,
until the related claim for indemnification has been satisfied or otherwise
resolved as provided in Article 10. Any representation or warranty contained in
this Agreement made by any party or any written information furnished by any
party that was made by such party fraudulently or with intent to defraud or
mislead or with gross negligence shall indefinitely survive the Closing. Any
representation or warranty made by the Sellers or the Company in this Agreement
or any written information furnished or caused to be furnished by any of the
Sellers or the Company to the Purchaser that is incorporated in, or is the basis
for omitting information from, the Registration Statement, prospectus or other
document, or any amendment or supplement thereof in connection with any
Purchaser Financing Transaction shall survive until the expiration of all
applicable statutes of limitations regarding claims brought by investors in such
Purchaser Financing Transaction alleging material misstatements or omissions in
such documents.
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9.2. Intentionally Omitted.
9.3. Underwriter's Benefit. The Sellers' and the Company's representations
and warranties and covenants contained in this Agreement or any document,
instrument, certificate or other item furnished or to be furnished to the
Purchaser pursuant hereto or thereto or in connection with the transactions
contemplated by this Agreement shall run to the benefit of any Underwriter of
the Purchaser's common stock subject to the Initial Public Offering in addition
to the benefit of the Purchaser. Accordingly, any such Underwriter, and each
person, if any, who controls any such Underwriter within the meaning of the
Securities Act or the Securities Exchange Act of 1934, as amended, and the rules
and regulations of the Commission thereunder, shall be (i) an intended
beneficiary of this Agreement and (ii) deemed to be an Indemnified Party for the
purposes of the indemnification provided for in Article 10.
ARTICLE 10
INDEMNIFICATION
10.1. Sellers' Indemnification. From and after the Closing Date, each of
the Sellers shall, jointly and severally, indemnify and hold harmless the
Purchaser, Newco, the Surviving Corporation, and the Company and any of their
respective Subsidiaries, and each Person who controls (within the meaning of the
Securities Act) the Purchaser, Newco, the Surviving Corporation or, after the
Closing Date, the Company or any of its Subsidiaries, and each of their
respective directors, officers, employees, agents, successors and assigns and
legal representatives, from and against all Indemnifiable Losses that may be
imposed upon, incurred by or asserted against any of them resulting from,
related to, or arising out of (i) any misrepresentation, breach of any warranty
or non-fulfillment of any covenant to be performed by the Company or any of the
Sellers under this Agreement or any document, instrument, certificate or other
item required or to be furnished to the Purchaser pursuant hereto or thereto or
in connection with the transactions contemplated by this Agreement; (ii) any
untrue statement of any material fact contained in any registration statement,
prospectus, document or other item, or any amendment or supplement thereof,
prepared, filed, distributed or executed in connection with any Purchaser
Financing Transaction, or any omission to state in any such registration
statement, prospectus, document, item, amendment or supplement a material fact
required to be stated therein or necessary to make the statements therein not
misleading, that is based upon any misrepresentation or breach of any warranty
made by the Company or any of the Sellers pursuant to this Agreement or upon any
untrue statement or omission contained in any written information furnished or
caused to be furnished by any of the Sellers to the Purchaser or Newco (provided
that the Sellers and the Company hereby acknowledge that the information
concerning the Sellers and the Company provided by them for use in the
Registration Statement shall be deemed to be provided to the Purchaser and Newco
for the purposes hereof); (iii) any liability or obligation of any of the
Sellers, the Company or any of its Subsidiaries other than Debt for which an
adjustment to the Base Purchase Price has been made under Section 2.8(b) and
Debt which does not constitute an Adjusted Current Liability; (iv) any liability
for payment of Taxes that accrued or relate to the period of time prior to the
Closing Date; (v) any non-compliance with applicable
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Requirements of Law relating to bulk sales, bulk transfers and the like or to
fraudulent conveyances, fraudulent transfers, preferential transfers and the
like; (vi) any action, claim or demand by any holder of the Company's
securities, whether debt or equity, in such holder's capacity as such, whether
now existing or hereafter arising or incurred; (vii) any non-compliance with the
Worker Adjustment and Retraining Act, 29 U.S.C. ss.2101, et. seq., as amended,
and the rules and regulations promulgated thereunder and any similar Requirement
of Law; and (viii) any Legal Proceeding or Order arising out of any of the
foregoing even though such Legal Proceeding or Order may not be filed, become
final, or come to light until after the Closing Date.
10.1A No Indemnification of Projected Information. Notwithstanding any
possible interpretation of Paragraph 10.1 or any other provision of this
Agreement, the failure of the Surviving Company or any successor to achieve
after the Closing Date any projected financial information, including, without
limitation, sales of software and costs of software development, in and of
itself shall not result in an Indemnifiable Loss to Purchaser, Newco, or the
Surviving Company.
10.2. Purchaser's Indemnification. From and after the Closing Date, the
Purchaser, Newco, and the Surviving Corporation shall indemnify and hold
harmless the Sellers and each of their respective legal representatives,
successors and assigns from and against all Indemnifiable Losses imposed upon,
incurred by or asserted against, the Sellers resulting from, related to, or
arising out of: (i) any misrepresentation, breach of any warranty or
non-fulfillment of any covenant to be performed by the Purchaser or Newco under
this Agreement or any document, instrument, certificate or other item furnished
or to be furnished to the Sellers pursuant hereto or thereto or in connection
with the transactions contemplated by this Agreement; (ii) any Debt for which an
adjustment to the Base Purchase Price has been made under Section 2.8(b) and any
Adjusted Current Liabilities; (iii) any untrue statement of any material fact
contained in any registration statement, prospectus, document or other item, or
any amendment or supplement thereof, prepared, filed, distributed or executed in
connection with any Purchaser Financing Transaction, or any omission to state in
any such registration statement, prospectus, document, item, amendment or
supplement a material fact required to be stated therein or necessary to make
the statements therein not misleading, that is based upon any misrepresentation
or breach of any warranty made by the Purchaser or Newco pursuant to this
Agreement or upon any untrue statement or omission contained in any information
furnished or caused to be furnished by the Purchaser or Newco; and (iv) any
Legal Proceeding or Order arising out of any of the foregoing even though such
Legal Proceeding or Order may not be filed, become final, or come to light until
after the Closing Date.
10.3. Payment; Procedure for Indemnification.
(a) In the event that the Person seeking indemnification under this Article
10 (the "Indemnified Party") shall suffer an Indemnifiable Loss, he, she or it
shall, within fourteen (14) days after obtaining Knowledge of the incurrence of
any such Indemnifiable Loss, give written notice to the party from whom
indemnification under this Article 10 is sought (the "Indemnifying Party") of
the amount of the Indemnifiable Loss, together with reasonably
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sufficient information to enable the Indemnifying Party to determine the
accuracy and nature of the claimed Indemnifiable Loss (the "Indemnity Notice").
The failure of any Indemnified Party to give the Indemnifying Party the
Indemnity Notice shall not release the Indemnifying Party of liability under
this Article 10; provided, however that the Indemnifying Party shall not be
liable for Indemnifiable Losses incurred by the Indemnified Party that would not
have been incurred but for the delay in the delivery of, or the failure to
deliver, the Indemnity Notice. Within thirty (30) days after the receipt by the
Indemnifying Party of the Indemnity Notice, the Indemnifying Party shall either
(i) pay to the Indemnified Party an amount equal to the Indemnifiable Loss or
(ii) object to such claim, in which case the Indemnifying Party shall give
written notice to the Indemnified Party of such objection together with the
reasons therefor, it being understood that the failure of the Indemnifying Party
to so object shall preclude the Indemnifying Party from asserting any claim,
defense or counterclaim relating to the Indemnifying Party's failure to pay any
Indemnifiable Loss. The Indemnifying Party's objection shall not relieve the
Indemnifying Party from its obligations under this Article 10. In the event, in
and of itself, that the parties are unable to resolve the subject of the
Indemnity Notice, the issue shall be submitted for determination to a neutral
third party designated by the President of the Philadelphia office of the
American Arbitration Association.
(b) In the event that any Indemnified Party shall have reasonable grounds
to believe that an Indemnifiable Loss may be incurred, such Indemnified Party
shall, within fourteen (14) days after obtaining sufficient information to
articulate such grounds, give written notice to the applicable Indemnifying
Party thereof, together with such information as is reasonably sufficient to
describe the potential or contingent claim to the extent then feasible (an
"Unliquidated Indemnity Notice"). The failure of an Indemnified Party to give
the Indemnifying Party the Unliquidated Indemnity Notice shall not release the
Indemnifying Party of liability under this Article 10; provided, however that
the Indemnifying Party shall not be liable for Indemnifiable Losses incurred by
the Indemnified Party that would not have been incurred but for the delay in the
delivery of, or the failure to deliver, the Unliquidated Indemnity Notice.
Within sixty (60) days after the amount of such claim shall be finalized,
resolved, or liquidated, the Indemnified Party shall give the Indemnifying Party
an Indemnity Notice, and the Indemnifying Party's obligations under this Article
10 with respect to such Indemnity Notice shall apply.
(c) In the event the facts giving rise to the claim for indemnification
under this Article 10 shall involve any action or threatened claim or demand by
any third party against the Indemnified Party, the Indemnified Party, within the
earlier of, as applicable, ten (10) days after receiving notice of the filing of
a lawsuit or sixty (60) days after receiving notice of the existence of a claim
or demand giving rise to the claim for indemnification (which shall include a
notice from any Governmental Authority of an intent to audit with respect to
Taxes), shall send written notice of such claim to the Indemnifying Party (the
"Claim Notice"). The failure of the Indemnified Party to give the Indemnifying
Party the Claim Notice shall not release the Indemnifying Party of liability
under this Article 10; provided, however, that the Indemnifying Party shall not
be liable for Indemnifiable Losses incurred by the Indemnified Party that would
not have been incurred but for the delay in the delivery of, or the failure to
deliver, the Claim Notice. Subject to the provision contained in the third
sentence immediately following this sentence, and
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except for claims resulting from, relating to or arising out of any Purchaser
Financing Transaction or the provisions of Section 3.23, the Indemnifying Party
shall be entitled to defend such claim in the name of the Indemnified Party at
its own expense and through counsel of its own choosing; provided, that if the
applicable claim or demand is against, or if the defendants in any such Legal
Proceeding shall include, both the Indemnified Party and the Indemnifying Party
and the Indemnified Party reasonably concludes that there are defenses available
to it that are different or additional to those available to the Indemnifying
Party or if the interests of the Indemnified Party may be reasonably deemed to
conflict with those of the Indemnifying Party, then the Indemnified Party shall
have the right to select separate counsel and to assume the Indemnified Party's
defense of such claim, demand or Legal Proceeding, with the reasonable fees,
expenses and disbursements of such counsel to be reimbursed by the Indemnifying
Party as incurred. The Indemnifying Party shall give the Indemnified Party
notice in writing within ten (10) days after receiving the Claim Notice from the
Indemnified Party in the event of litigation, or otherwise within thirty (30)
days, of its intent to do so. In the case of any claim resulting from, relating
to or arising out of any Purchaser Financing Transaction or the provisions of
Section 3.23, the Purchaser shall have right to control the defense thereof at
the Indemnifying Party's expense. Whenever the Indemnifying Party is entitled to
defend any claim hereunder, the Indemnified Party may elect, by notice in
writing to the Indemnifying Party, to continue to participate through its own
counsel, at its expense, but the Indemnifying Party shall have the right to
control the defense of the claim or the litigation; provided, that the
Indemnifying Party retains counsel reasonably satisfactory to the Indemnified
Party and pursuant to an arrangement satisfactory to the Indemnified Party;
otherwise, the Indemnified Party shall have the right to control the defense of
the claim or the litigation. Notwithstanding any other provision contained in
this Agreement, the party controlling the defense of the claim or the litigation
shall not settle any such claim or litigation without the written consent of the
other party; provided, that if the Indemnified Party is controlling the defense
of the claim or the litigation and shall have, in good faith, negotiated a
settlement thereof, which proposed settlement contains terms that are reasonable
under the circumstances, then the Indemnifying Party shall not withhold or delay
the giving of such consent (and in the event the Indemnifying Party and
Indemnified Party are unable to agree as to whether the proposed settlement
terms are reasonable, the Indemnifying Party and Indemnified Party will request
that the disagreement be resolved by a neutral third party designated by the
President of the Philadelphia office of the American Arbitration Association).
In the event that the Indemnifying Party is controlling the defense of the claim
or the litigation and shall have negotiated a settlement thereof, which proposed
settlement is substantively final and unconditional as to the parties thereto
(other than the consent of the Indemnified Party required under this Section
10.3(c)) and contains an unconditional release of the Indemnified Party and does
not include the taking of any actions by, or the imposition of any restrictions
on the part of, the Indemnified Party and the Indemnified Party shall refuse to
consent to such settlement, the liability of the Indemnifying Party under this
Article 10, upon the ultimate disposition of such litigation or claim, shall be
limited to the amount of the proposed settlement; provided, however, that in the
event the proposed settlement shall require that the Indemnified Party make an
admission of liability, a confession of judgment, or shall contain any other
non-financial obligation which, in the reasonable judgment of the Indemnified
Party, renders such settlement unacceptable, then the Indemnified Party's
failure to consent shall not give rise to the limitation of Indemnifying Party's
liability as provided for in
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this Section 10.3(c), and the Indemnifying Party shall continue to be liable to
the full extent of such litigation or claim and provided further, that
notwithstanding any provision to the contrary, no Indemnifiable Losses with
respect to Taxes shall be settled without the prior written consent of the
Purchaser, which shall not be unreasonably withheld.
10.4. Equitable Contribution Under the Securities Act. To provide for just
and equitable contribution to joint liability under the Securities Act in any
case in which the Purchaser, Newco, the Surviving Corporation, and the Company,
or any controlling Person of the Purchaser or the Company (within the meaning of
the Securities Act) makes a claim for indemnification pursuant to Section
10.1(ii) but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that Section 10.1(ii) provides
for indemnification in such case, then, the Purchaser, Newco, the Surviving
Corporation, the Company, each controlling Person and each of the Sellers will
contribute to the aggregate Indemnifiable Losses to which the Purchaser, the
Surviving Corporation, the Company or any such controlling Person may be subject
(after contribution from others) as is appropriate to reflect the relative fault
of the Purchaser, Newco, the Surviving Corporation, the Company, such
controlling Person and such Seller in connection with the statements or
omissions which resulted in such Indemnifiable Losses, as well as the relative
benefit received by the Purchaser, Newco, the Surviving Corporation, the
Company, such controlling Person and such Seller as a result of the issuance of
the securities to which such Indemnifiable Losses relate, it being understood
that the parties acknowledge that the overriding equitable consideration to be
given effect in connection with this provision is the ability of one party or
the other to correct the statement or omission which resulted in such
Indemnifiable Losses, and that it would not be just and equitable if
contribution pursuant hereto were to be determined by pro rata allocation or by
any other method of allocation which does not take into consideration the
foregoing equitable considerations; provided, however, that, in any such case,
no Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) will be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
10.5. Exclusiveness of Indemnification. The indemnification rights of the
parties under this Article 10 are exclusive of other rights and remedies that
the parties may have under this Agreement (but for this provision), at law or in
equity or otherwise.
10.6. Limitations on Indemnification. Purchaser, Newco, the Surviving
Corporation, the Company, and the other Persons or entities indemnified pursuant
to Section 10.1 shall not assert any claim for indemnification hereunder against
the Sellers until such time as, the aggregate of all claims which such persons
may have against the Sellers shall exceed (the "Indemnification Threshold"),
whereupon such claims shall be indemnified in full. Sellers shall not assert any
claim for indemnification hereunder against Purchaser, Newco, the Surviving
Corporation or the Company until such time as the aggregate of all claims which
Sellers may have against Purchaser or the Company shall exceed $30,000,
whereupon such claims shall be indemnified in full. The limitation or assertion
of claims for indemnification contained in this
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paragraph shall apply only to claims based upon inaccuracies in, or breaches of,
representations and warranties contained in this Agreement or any document,
instrument, certificate or other item required to be furnished pursuant to this
Agreement or in connection with the transaction contemplated by this Agreement.
No person shall be entitled to indemnification under this Article 10 if and
to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Seller shall be liable
under this Article 10 or otherwise for an amount which exceeds the amount of
proceeds received by such Seller in connection with the transactions
contemplated herein. For purposes of the foregoing limitation, the DocuNet
Common Stock shall be valued at the Initial Public Offering Price.
No claim under this Article 10 shall be made unless an Indemnity Notice, an
Unliquidated Indemnity Notice or a Claim Notice (as applicable) has been given
prior to the applicable survival period.
10.7. Value of DocuNet Common Stock. Any shares of DocuNet Common Stock
used to satisfy an Indemnity Claim shall be valued at the lower of the Initial
Public Offering Price and the Value as of the date such shares are so used.
ARTICLE 11
TERMINATION AND REMEDIES
11.1. Termination. This Agreement may be terminated, and the transactions
contemplated by this Agreement may be abandoned:
(a) at any time before the Closing, by the mutual written agreement
among the Company, the Sellers, Newco and the Purchaser;
(b) at any time before the Closing, by the Purchaser pursuant to
Section 5.4(a), or if any of the Company's or any of the Sellers'
representations or warranties contained in this Agreement were materially
incorrect when made or become materially incorrect;
(c) at any time before the Closing, by the Sellers holding a majority
of the Shares if any of the Purchaser's or Newco's representations or
warranties contained in this Agreement were materially incorrect when made
or become materially incorrect;
(d) at any time before the Closing, by the Sellers holding a majority
of the Shares, on the one hand, or by the Purchaser, on the other hand,
upon any material breach by such other party's covenants or agreements
contained in this Agreement and the failure of such
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other party to cure such breach, if curable, within ten (10) days after
written notice thereof is given by the non-breaching party to the breaching
party; or
(e) at any time after the date which is 270 days after the date of
this Agreement, by the Sellers holding a majority of the Shares, on the one
hand, or by the Purchaser on the other hand, upon notification to the
non-terminating party by the terminating party if the Closing shall not
have occurred on or before such date and such failure to consummate is not
caused by a breach of this Agreement by the terminating party.
11.2. Effect of Termination.
(a) Subject to Section 11.2(b) of this Agreement, if this Agreement is
validly terminated pursuant to Section 11.1, then this Agreement shall forthwith
become void, and, subject to such Section 11.2(b), there shall be no liability
under this Agreement on the part of the Company, any of the Sellers, Newco or
the Purchaser and all rights and obligations of each party to this Agreement
shall cease; provided, that (i) the provisions with respect to expenses in
Section 16.4 shall indefinitely survive any such termination, (ii) the
provisions with respect to confidentiality of Section 8.1 shall survive any such
termination until it, by its own terms, is no longer operative; (iii) the
provisions with respect to exclusivity of negotiations of Section 5.10 shall
survive for 180 days after such termination, but only if the termination is made
by Purchaser pursuant to Section 11.1(b) or Section 11.1(d); and (iv) this
Section 11.2 shall indefinitely survive such termination.
(b) If this Agreement is validly terminated as a result of a
misrepresentation or a breach of any warranty made by any party to this
Agreement or as a result of a material breach by a party of any of such party's
covenants or agreements contained in this Agreement, or, if all conditions to
the obligations of a party at Closing contained in Article 6 of this Agreement
have been satisfied (or waived by the party entitled to waive such conditions)
and such party does not proceed with the Closing, then any and all rights and
remedies available to the non-breaching parties, whether under this Agreement,
at law or in equity or otherwise shall be preserved and shall survive the
termination of this Agreement.
ARTICLE 12
POST-CLOSING COVENANTS
12.1. Maintenance and Access to Records. For a period of three (3) years
after the Closing Date, the Purchaser shall, or shall cause the Surviving
Corporation and each of its Subsidiaries to, maintain all books and records
maintained by the Surviving Corporation or any such Subsidiary on or prior to
the Closing Date and shall permit the Sellers or their respective
representatives and agents access to all such books and records, and to the
Surviving Corporation's and its Subsidiaries' employees and auditors for the
purpose of obtaining information relating to periods on or prior to the Closing
Date, upon reasonable notice by the Sellers and on terms not disruptive to the
business, operation or employees of the Purchaser, the
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Surviving Corporation or any of their respective Subsidiaries, to assist the
Sellers in (i) completing any tax or regulatory filings or financial statements
required or appropriate to be made by the Sellers after the Closing Date or in
completing any other reasonable and customary business objective, (ii)
prosecuting or defending on behalf of the Sellers, the Company or any of its
Subsidiaries any litigation controlled by the Sellers or (iii) complying with
requests made of any of the Sellers by any Taxing Authority or any Governmental
or Regulatory Authority conducting an audit, investigation or inquiry relating
to the Company's or any of its Subsidiaries' activities during periods prior to
the Closing Date. Each of the Sellers will hold all information provided to them
pursuant to this Section 12.1 (and any information derived therefrom) in
confidence to the same extent as required by Section 8.1 of this Agreement with
respect to Confidential Information.
12.2. Disclosure. If, subsequent to the effective date of the registration
statement relating to the Initial Public Offering and prior to the 25th day
after the date of the final prospectus of Purchaser utilized in connection with
the Initial Public Offering, the Company or the Sellers become aware of any fact
or circumstance which would change (or, if after the Closing Date, would have
changed) a representation or warranty of Company or Sellers in this Agreement or
would affect any document delivered pursuant hereto in any material respect, the
Company and the Sellers shall promptly give notice of such fact or circumstance
to Purchaser.
12.3. Accounts Receivable. In the event that the Company or the Sellers
makes a payment after the Closing Date to Purchaser in full satisfaction of an
uncollected Receivable, Purchaser will assign its rights to such Receivable to
the Company or the Sellers, as applicable.
12.4. Release of Liability. The Purchaser shall use its best commercial
efforts to release Sellers from all liability under the Key Bank debt; to the
extent not released Purchaser shall repay all outstanding amounts under such
debt.
ARTICLE 13
TRANSFER RESTRICTIONS
13.1. Transfer Restrictions. Except for transfers to immediate family
members who agree to be bound by the restrictions set forth in this Section 13.1
(or trusts for the benefit of the Sellers or family members, the trustees of
which so agree), for a period of one year from the Closing, except pursuant to
Section 15 hereof, none of the Sellers shall (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint, or otherwise dispose of (a) any
shares of DocuNet Common Stock received by the Sellers pursuant to this
Agreement, or (b) any interest (including, without limitation, an option to buy
or sell) in any such shares of DocuNet Common Stock, in whole or in part, and no
such attempted transfer shall be treated as effective for any purpose; or (ii)
engage in any transaction, whether or not with respect to any shares of DocuNet
Common Stock or any interest therein, the intent or effect of which is to reduce
the risk of owning the shares of DocuNet Common Stock acquired pursuant to this
Agreement (including, by way of example and not limitation, engaging in put,
call, short-sale, straddle or similar market transactions). The certificates
evidencing the DocuNet Common Stock delivered to the Sellers
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pursuant to Section 2 of this Agreement will bear a legend substantially in the
form set forth below and containing such other information as the Purchaser may
deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER
SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE FIRST
ANNIVERSARY OF CLOSING DATE. UPON THE WRITTEN REQUEST OF THE
HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
ARTICLE 14
SECURITIES LAWS REPRESENTATIONS
The Sellers acknowledge that the shares of DocuNet Common Stock to be
delivered to the Sellers pursuant to this Agreement have not been and will not
be registered under the Securities Act or any other state securities laws, and
therefore may not be resold without compliance with the Securities Act. The
DocuNet Common Stock to be acquired by such Sellers pursuant to this Agreement
is being acquired solely for their own respective accounts, for investment
purposes only, and with no present intention of distributing, selling or
otherwise disposing of it in connection with a distribution.
14.1. Compliance with Law. The Sellers covenant, warrant and represent that
none of the shares of DocuNet Common Stock issued to such Sellers will be
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the Securities Act, the rules and regulations of the Securities and Exchange
Commission and applicable state securities laws. All the DocuNet Common Stock
shall bear the following legend in addition to any other legends required under
this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"1933 ACT") OR ANY STATE SECURITIES OR BLUE SKY LAWS. SUCH SHARES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
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NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE
1933 ACT AND ANY STATE SECURITIES OR BLUE SKY LAWS, UNLESS, IN
THE OPINION (WHICH SHALL BE IN FORM AND SUBSTANCE SATISFACTORY TO
THE CORPORATION) OF COUNSEL SATISFACTORY TO THE CORPORATION, SUCH
REGISTRATION IS NOT REQUIRED.
14.2. Economic Risk; Sophistication. The Sellers party hereto are able to
bear the economic risk of an investment in the DocuNet Common Stock acquired
pursuant to this Agreement and can afford to sustain a total loss of such
investment and have such knowledge and experience in financial and business
matters that they are capable of evaluating the merits and risks of the proposed
investment in the DocuNet Common Stock. The Sellers party hereto or their
respective purchaser representatives have had an adequate opportunity to ask
questions and receive answers from the officers of the Purchaser concerning any
and all matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of the Purchaser, the plans for the operations of the business of
the Purchaser, the business, operations and financial condition of the Founding
Companies, and any plans for additional acquisitions and the like. The Sellers
acknowledge receipt and review of the draft Registration Statement attached
hereto as Schedule 14.2 for informational purposes and subject to the
limitations of Section 5.12(b). The Sellers acknowledge that such draft is
subject to completion and subject to change, and Sellers acknowledge that they
or their respective purchaser representatives have had an adequate opportunity
to ask questions and receive answers from the officers of the Purchaser
pertaining thereto.
ARTICLE 15
REGISTRATION RIGHTS
15.1. Piggyback Registration Rights. Subject to Sections 5.14 and 15.5, at
any time following the Closing, whenever the Purchaser proposes to register any
DocuNet Common Stock for its own or others' account under the Securities Act for
a public offering, other than (i) any shelf registration of the DocuNet Common
Stock; (ii) registrations of shares to be used solely as consideration for
acquisitions of additional businesses by the Purchaser and (iii) registrations
relating to employee benefit plans, the Purchaser shall give each of the Sellers
prompt written notice of its intent to do so. Upon the written request of any of
the Sellers given within 30 days after receipt of such notice, Purchaser shall
cause to be included in such registration all of the DocuNet Common Stock which
any such Seller requests. However, if the Purchaser is advised in writing in
good faith by any managing underwriter of an underwritten offering of the
securities being offered pursuant to any registration statement under this
Section 15.1 that the number of shares to be sold by persons other than the
Purchaser is greater than the number of such shares which can be offered without
adversely affecting the offering, the Purchaser may reduce pro rata the number
of shares offered for the accounts of such persons
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(based upon the number of shares held by such persons) to a number deemed
satisfactory by such managing underwriter or such managing underwriter can
eliminate the participation of all such persons in the offering, provided that,
for each such offering made by the Purchaser after the Initial Public Offering,
a reduction shall be made first by reducing the number of shares to be sold by
persons other than the Purchaser, the Sellers, the Founding Companies, the
stockholders of the Founding Companies and other stockholders (the "Other
Stockholders") of the Company immediately prior to the Initial Public Offering,
and thereafter, if a further reduction is required, by reducing the number of
shares to be sold by the Sellers, the Founding Companies, the stockholders of
the Founding Companies and the Other Stockholders, pro rata based upon the
number of shares held by such persons.
15.2. Registration Procedures. All expenses incurred in connection with the
registrations under this Article 15 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts) shall be borne by the Purchaser. In connection with
registrations under Section 15.1, the Purchaser shall (i) prepare and file with
the Securities and Exchange Commission as soon as reasonably practicable, a
registration statement with respect to the DocuNet Common Stock and use its best
efforts to cause such registration to promptly become and remain effective for a
period of at least 90 days (or such shorter period during which holders shall
have sold all DocuNet Common Stock which they requested to be registered); (ii)
use its best efforts to register and qualify the DocuNet Common Stock covered by
such registration statement under applicable state securities laws as the
holders shall reasonably request for the distribution for the DocuNet Common
Stock; and (iii) take such other actions as are reasonable and necessary to
comply with the requirements of the Securities Act and the regulations
thereunder.
15.3. Underwriting Agreement. In connection with each registration pursuant
to Section 15.1 covering an underwritten registration public offering, the
Purchaser and each participating holder agree to enter into a written agreement
with the managing underwriters in such form and containing such provisions as
are customary in the securities business for such an arrangement between such
managing underwriters and companies of the Purchaser's size and investment
stature, including indemnification and the prohibition of sales or transfers of
such holders' common stock for an applicable lock-up period.
15.4. Availability of Rule 144. The Purchaser shall not be obligated to
register shares of DocuNet Common Stock held by any Seller at any time when the
resale provisions of Rule 144(k) (or any similar or successor Seller provision)
promulgated under the Securities Act are available to such Seller.
15.5. Survival. The provisions of this Article 15 shall survive the Closing
until December 31, 1999.
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ARTICLE 16
MISCELLANEOUS
16.1. Notices. All notices required to be given to any of the parties of
this Agreement shall be in writing and shall be deemed to have been sufficiently
given, subject to the further provisions of this Section 16.1, for all purposes
when presented personally to such party or sent by certified or registered mail,
return receipt requested, with proper postage prepaid, or any national overnight
delivery service, with proper charges prepaid, to such party at its address set
forth below:
(a) If to the Company (prior to the Closing Date):
Oregon Micro-Imaging, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Hershner, Hunter, ▇▇▇▇▇▇▇,
▇▇▇▇▇ & ▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
(b) If to any of the following Sellers:
(i) If to ▇▇▇▇ ▇▇▇▇▇▇▇:
▇▇▇▇ ▇▇▇▇▇▇▇
c/o Oregon Micro-Imaging, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(ii) If to ▇▇▇▇ ▇▇▇▇▇▇▇:
▇▇▇▇ ▇▇▇▇▇▇▇
c/o Oregon Micro-Imaging, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
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with a copy to:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Hershner, Hunter, ▇▇▇▇▇▇▇,
▇▇▇▇▇ & ▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
P.O. Box 1475
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
(c) If to Newco or the Purchaser:
DocuNet Inc.
▇▇▇ ▇▇▇▇▇▇'▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇
with a copy to:
Pepper, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ & ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esquire
Such notice shall be deemed to be received when delivered if delivered
personally, the next business day after the date sent if sent by a national
overnight delivery service, or three (3) business days after the date mailed if
mailed by certified or registered mail. Any notice of any change in such address
shall also be given in the manner set forth above. Whenever the giving of notice
is required, the giving of such notice may be waived in writing by the party
entitled to receive such notice.
16.2. No Third Party Beneficiaries. Except as is otherwise provided herein,
this Agreement is not intended to, and does not, create any rights in or confer
any benefits upon anyone other than the parties hereto.
16.3. Schedules. All schedules attached to this Agreement are incorporated
by reference into this Agreement for all purposes.
16.4. Expenses. The parties to this Agreement shall pay their own expenses
incident to the preparation, negotiation and execution of this Agreement
including, without limitation, all fees and costs and expenses of their
respective accountants and legal counsel. The parties acknowledge that all fees
and expenses of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP incurred in auditing the Company's financial
statements in connection with the transactions contemplated hereby shall be
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the responsibility of Purchaser, provided that, notwithstanding the foregoing,
Sellers shall be responsible to pay $10,000 of such fees and expenses.
16.5. Further Assurances. The Sellers, the Surviving Corporation and the
Purchaser shall, at his, her or its own expense, from time to time upon the
request of the other, execute and deliver, or cause to be executed and
delivered, at such times as may reasonably be requested by the Purchaser, the
Surviving Corporation or the Sellers, such other documents, certificates and
instruments and take such actions as the Purchaser, the Surviving Corporation or
the Sellers deem reasonably necessary to consummate more fully the transactions
contemplated by this Agreement. In addition, the Sellers shall (i) provide or
cause to be provided such written information with respect to themselves or the
Company, (ii) execute and deliver or cause to be executed and delivered such
other documents, certificates or instruments, and (iii) take or cause to be
taken such actions, in each of the foregoing cases, as the Purchaser, the
Surviving Corporation, any Underwriter or any auditor reasonably deems necessary
or desirable to complete any audit of the Company's financial statements or in
connection with any Purchaser Financing Transaction; provided, that none of the
Sellers shall be required to execute any guaranty of any indebtedness or
instrument of indebtedness obtained by the Purchaser or any of its Subsidiaries.
16.6. Entire Agreement; Amendment. This Agreement and any other documents,
instruments or other writings delivered or to be delivered pursuant to this
Agreement constitute the entire agreement among the parties with respect to the
subject matter of this Agreement and supersede all prior agreements,
understandings, and negotiations, whether written or oral, with respect to the
subject matter of this Agreement. None of the terms and provisions contained in
this Agreement can be changed without a writing signed by all parties hereto.
16.7. Section and Paragraph Titles. The section and paragraph titles used
in this Agreement are for convenience only and are not intended to define or
limit the contents or substance of any such section or paragraph.
16.8. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of each of the parties to this Agreement and their respective heirs,
personal representatives, and successors and permitted assigns. Neither the
Company, any of the Sellers nor the Purchaser shall have the right to assign
this Agreement without the prior written consent of the others, except that
Purchaser or Newco may assign its rights and obligations under this Agreement
prior to the Closing to any wholly-owned Subsidiary of the Purchaser or Newco;
provided that the DocuNet Common Stock to be issued in payment of a portion of
the purchase price shall be registered under Section 12 of the Securities
Exchange Act of 1934 at the time it is issued.
16.9. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute one and the same
instrument.
-75-
16.10. Severability. Any provision of this Agreement (other than those
contained in Article 8 of this Agreement, in which case, Section 8.5 of this
Agreement shall govern with respect to the invalidity, unenforceability, or
illegality of any such provision) that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such provision, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
16.11. Governing Law. This Agreement shall be governed and construed as to
its validity, interpretation and effect by the laws of the Commonwealth of
Pennsylvania notwithstanding the choice of law rules of Pennsylvania or any
other jurisdiction.
[Signature Page Follows]
-76-
IN WITNESS WHEREOF, each of the Sellers, the Purchaser and the Company have
caused this Agreement to be duly executed as of the date first written above.
DOCUNET INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
____________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chairman of the Board of Directors
and Chief Executive Officer
OMI ACQUISITION CORP.
By: /s/ S. ▇▇▇▇▇ ▇▇▇▇▇
____________________________
S. ▇▇▇▇▇ ▇▇▇▇▇
President
OREGON MICRO-IMAGING, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
_____________________________
▇▇▇▇ ▇▇▇▇▇▇▇
President
Witness: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
_______________________ _______________________________
▇▇▇▇ ▇▇▇▇▇▇▇, Individually
Witness: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
_______________________ _______________________________
▇▇▇▇ ▇▇▇▇▇▇▇, Individually
-77-
Schedule 6.1(k)
_______________ _, 1997
DocuNet Inc.
▇▇▇ ▇▇▇▇▇▇'▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
We have acted as counsel to Oregon Micro-Imaging, Inc., an Oregon
corporation (the "Company"), in connection with the transactions contemplated by
that certain Stock Purchase Agreement dated as of _________________ , 1997 (the
"Purchase Agreement"), among the Company, DocuNet Inc., a Pennsylvania
corporation (the "Purchaser"), and ▇▇▇▇ Sernasko and ▇▇▇▇ Seluasko
("Stockholders"). This opinion is finished to you pursuant to Section 6.1 (k) of
the Purchase Agreement.
In connection with rendering this opinion, we have examined the Purchase
Agreement and the Escrow Agreement (collectively the "Transaction Documents").
We have also examined the Articles of Incorporation and Bylaws of the Company.
We have also made such examinations of laws, certificates of public officials,
instruments, documents, and corporate records and have made such other
investigations as we have deemed necessary in connection with the opinions
hereinafter set forth. In such examination we have assumed (i) the genuineness
of all signatures on certificates and documents other than those signed by the
Company and the Stockholders, (ii) the accuracy, completeness and authenticity
of all records and documents submitted to us as originals, (iii) the conformity
to the original of all documents submitted to us as certified, conformed or
photostatic copies, and (iv) the legal capacity of all natural persons who are
parties to the Transaction Documents.
Capitalized terms used herein and not otherwise defined herein have the
meanings set forth in the Purchase Agreement.
Our opinion is limited to the laws of the State of Oregon and the federal
laws of the United States and we do not purport to express any opinion herein
with respect to the laws of any other state or jurisdiction.
We note that the Transaction Documents contain clauses selecting
Pennsylvania law as governing law For purposes of this opinion, we have assumed,
with your permission. that such clauses selected Oregon law, without regard for
principles of choice of law, and that such documents are being executed and
delivered and will be performed in, and that the applicable property is and Will
be held in, the State of Oregon.
This Opinion also assumes:
1. that Purchaser has satisfied all necessary legal requirements applicable
to it and has all necessary corporate authority to enter unto the Transaction
Documents and to consummate the transactions contemplated therein;
2. that the Purchaser has negotiated the Transaction Documents and will
exercise its rights and remedies thereunder and under applicable law in good
faith with fair dealing and in a commercially reasonably manner;
3. that the Purchaser does not have knowledge of any defense against the
enforcement of the Transaction Documents;
4. that there has not been any mutual mistake of fact or misunderstanding,
fraud, duress, or undue influence; and
5. that there are no agreements or understandings among the parties,
written or oral, and there is no usage of trade or course of prior dealing among
the parries that would in either case define, supplement, or qualify any terms
of the Transaction Documents.
Based on the foregoing and subject to the qualifications set forth herein,
it is our opinion that:
1. The Company is a corporation duly organized and validly existing under
the laws of the State of Oregon and has all necessary corporate power and
authority to enter into the Transaction Documents and to consummate the
transactions contemplated thereby to the extent that it is a party thereto.
2 The execution, delivery and performance of the Transaction Documents have
been duly authorized by all requisite corporate action on the part of the
Company.
3. The Transaction Documents have been duly and validly executed by the
Company and the Stockholders and constitute the legal, valid and binding
obligations of the Company and the Stockholders, respectively, to the extent
that it is a party thereto, and are enforceable against them in accordance with
their respective terns, to the extent that they are parties thereto.
4. Neither the execution and the delivery of the Transaction Documents, nor
the consummation of the transactions contemplated thereby, violate the Articles
of Incorporation or Bylaws of the Company.
This opinion is provided to you as a legal opinion only, and not as a
guaranty or warranty of the matters discussed herein. and no other opinion is to
be implied or inferred.
Nothing contained in this opinion shall be deemed to constitute a waiver of
the attorney-client privilege between this firm and the Company or the
Shareholders, except as to the matters specifically set forth herein.
All of the opinions set forth in this letter are further subject to: (i)
the effect of any applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other laws affecting or relating to creditors' rights,
(ii) as to any covenants not to compete, the unenforceability of, or limitation
on, certain provisions when such provisions are found unreasonable in scope,
(iii) the requirement that, to the extent that provisions of the Transaction
Documents and any other documents delivered in connection therewith permit the
parties to make certain determinations, such determinations may be subject to a
requirement that they be made on a reasonable basis and in good faith, (iv) the
effect of general principles of equity, equitable defenses and the discretion of
the court regarding the enforcement of remedies (regardless of whether
considered in a proceeding in equity or at law), and (v) the unenforceability of
or limitation on the enforceability of certain provisions, including without
limitation indemnification provisions, when such provisions are found to be
contrary to public policy.
This opinion Is rendered as of the date hereof and we assume no obligation
to modify, update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention, or any changes in laws
which may hereafter occur.
Our opinion, as expressed herein, is solely for the benefit of the
addressees in connection with the transaction described herein. and unless we
give our prior written consent, neither our opinion nor this opinion letter may
be quoted in whole or in part or be relied upon by any other person.
Schedule 6.l(l)
Related Party Agreements
------------------------
None.
Schedule 6.1(m)
▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇
Schedule 6.2(i)
[__________________] __, 1997
[NAME AND ADDRESS]
Ladies and Gentlemen:
We have acted as counsel to DocuNet Inc., a Pennsylvania corporation (the
"Purchaser"), in connection with the transactions contemplated by that certain
[Purchase Agreement] dated as of _________________ , 1997 (the "Purchase
Agreement"), among the Purchaser, _____________, a _____________ corporation
(the "Seller"), and _______ ("Stockholders"). This opinion is furnished to you
pursuant to Section ________ of the Purchase Agreement.
In connection with rendering this opinion, we have examined the Purchase
Agreement and the Escrow Agreement (collectively the "Transaction Documents").
We have also examined the Articles of Incorporation and Bylaws of the Purchaser.
we have also made such examinations of laws, certificates of public officials,
instruments, documents, and corporate records and have made such other
investigations as we have deemed necessary in connection with the opinions
hereinafter set forth, In such examination we have assumed (i) the genuineness
of all signatures on certificates and documents other than those signed by the
Purchaser, (ii) the accuracy, completeness and authenticity of all records and
documents submitted to us as originals, (iii) the conformity to the original of
all documents submitted to us as certified, conformed or photostatic copies, and
(iv) the legal capacity of all natural persons who are parties to the
Transaction Documents.
Capitalized terms used herein and not otherwise defined herein have the
meanings set forth in the Purchase Agreement.
Our opinion is limited to the laws of the Commonwealth of Pennsylvania and
the federal laws of the United States and we do not purport to express any
opinion herein with respect to the laws of any other state or jurisdiction.
Based on the Foregoing and subject to the assumptions and qualifications
set forth herein, it is our opinion that:
1. The Purchaser is a corporation duly organized, validly existing and
presently subsisting under the laws of the Commonwealth of Pennsylvania and has
all necessary corporate power and authority to enter into the Transaction
Documents and to consummate the transactions contemplated thereby.
2. The execution, delivery and performance of the Transaction Documents
have been duly authorized by all requisite corporate action on the part of the
Purchaser.
3. The Transaction Documents have been duly and validly executed by the
Purchaser and constitute the legal, valid and binding obligations of the
Purchaser enforceable against it in accordance with their respective terms.
4. Neither the execution and the delivery of the Transaction Documents, nor
the consummation of the transactions contemplated thereby, violate the Articles
of Incorporation or Bylaws of the Purchaser.
All of the opinions set forth in this letter are further subject to: (i)
the effect of any applicable bankruptcy, insolvency, reorganization, Fraudulent
conveyance, moratorium or other laws affecting or relating to creditors' rights,
(ii) as to any covenants not to compete, the unenforceability of, or limitation
on, certain provisions when such provisions are found unreasonable in scope,
(iii) the requirement that, to the extent that provisions of the Transaction
Documents and any other documents delivered in connection therewith permit the
parties to make certain determinations, such determinations may be subject to a
requirement that they be made on a reasonable basis and in good faith, (iv) the
effect of general principles of equity, equitable defenses and the discretion of
the court regarding the enforcement of remedies (regardless of whether
considered in a proceeding in equity or at law), and (v) the unenforceability of
or limitation on the enforceability of certain provisions, including without
limitation indemnification provisions, when such provisions are found to be
contrary to public policy.
This opinion is rendered as of the date hereof and we assume no obligation
to modify, update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention, or any changes in laws
which may hereafter occur.
Our opinion, as expressed herein, is solely for the benefit of the
addressees, their successors and assigns. and unless we give our prior written
consent, neither our opinion nor this opinion letter may be quoted in whole or
in part or be relied upon by any other person.
PEPPER, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
--------------------------------
A Partner
EXHIBIT A
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") dated as of this ____ day of
______, 1997, by and among ▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇ (collectively
"Sellers," and each, a "Seller"), DocuNet Inc., a Pennsylvania corporation
("Purchaser") and ______ (the "Escrow Agent"). The Purchaser, the Sellers and
the Escrow Agent are sometimes collectively referred to herein as the "Parties"
and individually as a "Party."
W I T N E S S E T H :
WHEREAS, pursuant to the Purchase Agreement (as hereinafter defined),
it is a condition to the consummation of the transactions contemplated thereby
that at the Closing, this Escrow Agreement be entered into by the Parties.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, and of other good and valuable
consideration, the Parties, intending to be legally bound, hereby agree as
follows:
1. Definitions. All defined or capitalized terms used in this
Agreement will have the meanings set forth in the Purchase Agreement unless such
terms are defined herein or unless the context clearly indicates to the
contrary.
(a) Common Stock shall mean the common stock, $ ____ par value,
of the Purchaser.
(b) Market Price shall mean the average closing price of Common
Stock during the twenty (20) day trading period immediately preceding the Price
Determination Date.
(c) Price Determination Date shall mean any date on which (i)
payment of an Indemnity Amount (as hereinafter defined) is made, (ii) payment of
a Covered Amount (as hereinafter defined) is made or (iii) an additional deposit
of Common Stock to restore the Combined Value (as hereinafter defined) to the
Threshold Value is made.
(d) Purchase Agreement shall mean that certain Stock Purchase
Agreement, Asset Purchase Agreement or Agreement and Plan of Reorganization, as
the case may be, between the Seller and the Purchaser.
(e) Purchase Price shall mean the amount payable by the Purchaser
pursuant to Article 2 of the Purchase Agreement.
(f) Share Value shall mean the lesser of (i) the Initial Public
Offering Price or (ii) the Market Price.
2. Appointment of Escrow Agent. The Purchaser and the Sellers hereby
appoint the Escrow Agent as the escrow agent for the purposes set forth herein
and the Escrow Agent hereby accepts such appointment on the terms herein
provided. The Escrow Agent hereby acknowledges receipt from the other Parties of
an executed copy of the Purchase Agreement.
-1-
3. Deposit of Escrow Account. Pursuant to Article 2 of the Purchase
Agreement, there is being deposited into an account (the "Escrow Account")
maintained by the Escrow Agent either (i) a number of shares of Common Stock
valued at the Initial Public Offering Price, (ii) cash or (iii) a combination of
Common Stock and cash comprising part of the Purchase Price equal to $150,000,
(the "Threshold Value"). The Escrow Account will be held, invested, reinvested
and disbursed by Escrow Agent in accordance with the terms hereof.
4. Additional Deposits. In the event that the combined (i) value of
any shares of Common Stock (valued at the Initial Public Offering Price) which
may be on deposit in the Escrow Account and (ii) the amount of cash which may be
on deposit in the Escrow Account ("Cash Value") (collectively, the "Combined
Value") falls below the Threshold Value, due to payment from the Escrow Account
pursuant to a Purchase Price adjustment pursuant to Article 2 of the Purchase
Agreement, the Sellers shall, within one (1) business day, deposit additional
shares of Common Stock or cash, as the case may be, to the Escrow Account in an
amount such that the Combined Value in the Escrow Account equals the Threshold
Value.
5. Pledge of Common Stock; Restriction on Transferability.
(a) In the event that the Escrow Account includes shares of
Common Stock, each Seller hereby pledges for the benefit of the Purchaser, and
grants the Purchaser a security interest in, such deposited Common Stock. In
addition, each Seller depositing Common Stock in the Escrow Account has also
delivered to the Escrow Agent stock powers endorsed in blank with respect to the
deposited Common Stock registered in the name of each Seller. The Escrow Agent
shall hold all such deposited Common Stock, not as an agent of each Seller, but
rather as a pledgeholder.
If blank stock powers with respect to any Common Stock deposited
into the Escrow Account and registered to a Seller are delivered by the Escrow
Agent to the Purchaser, such Seller shall promptly deliver to the Escrow Agent
stock powers endorsed in blank with respect to the remaining Common Stock on
deposit in the Escrow Account (together with stock powers with respect thereto
endorsed in blank), pledged to the Purchaser.
(b) In the event that the Escrow Account includes shares of
Common Stock, each such certificate representing Common Stock on deposit therein
shall have the following legend noted conspicuously thereon:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A LIEN IN FAVOR OF THE ISSUER PURSUANT TO THAT CERTAIN ESCROW
AGREEMENT DATED ________ ___, 1997 BY AND AMONG THE PURCHASER,
CERTAIN PERSONS, AND ___________ AS ESCROW AGENT. THIS
CERTIFICATE IS SUBJECT TO RESTRICTIONS ON TRANSFER UNTIL
RELEASED FROM SUCH RESTRICTIONS IN ACCORDANCE WITH THE TERMS
OF SUCH ESCROW AGREEMENT.
(c) Up until any disbursement of any shares of Common Stock
deposited into the Escrow Account, Sellers shall be entitled to vote said shares
in any meeting of shareholders, and shall be entitled to all dividends paid
thereon.
-2-
6. Purpose of the Escrow Account.
(a) Adjustments to Purchase Price. To the extent provided in
Article 2 of the Purchase Agreement, the Parties have specified a mechanism for
the final determination of the Purchase Price of the Company (the "Purchase
Price Provision"). The amounts that may be payable by the Sellers to the
Purchaser under the Purchase Price Provision are herein called the "Covered
Amounts." One purpose of the Escrow Account is, to the extent herein provided,
to provide a source of funds for the payment of the Covered Amounts.
(b) Indemnification. The Escrow Account further serves to secure
the indemnification obligations of the Sellers under Article 10 of the Purchase
Agreement (the "Indemnification Provision"). The amounts that may be payable to
the Purchaser under the Indemnification Provision are herein called the
"Indemnity Amounts."
7. Application of Escrow Account. The Escrow Account will be
retained by the Escrow Agent and shall be distributed as follows:
(a) Adjustments to Purchase Price. Upon the final determination
of the Purchase Price pursuant to Article 2 of the Purchase Agreement, the
Sellers and the Purchaser shall give a joint written notice to the Escrow Agent
indicating whether and to what extent the Escrow Account is to be disbursed to
the Purchaser and on receipt of such joint instructions, the Escrow Agent shall
disburse the Escrow Account in accordance with such instructions. The Sellers
and the Purchaser agree to cause the Escrow Account to be disbursed so as to
give effect to the final determination of the Purchase Price pursuant to Article
2 of the Purchase Agreement.
(b) Indemnification. In the event the Purchaser suffers an
Indemnifiable Loss and is entitled to payment of an Indemnity Amount, the
Sellers and Purchaser shall give a joint written notice to the Escrow Agent
directing that a combination of cash and Common Stock (valued at the Share
Value) equal to the Indemnity Amount be disbursed from the Escrow Account and on
receipt of such joint instructions, the Escrow Agent shall so disburse such
Indemnity Amount.
8. Investment of Escrow Account. As soon as possible after its
receipt of the Escrow Account, the Escrow Agent shall invest any cash deposited
in the Escrow Account (the "Cash Investment") as set forth on Exhibit "A"
attached hereto, or as otherwise directed in writing from time to time by the
Sellers. All income earned on the Cash Investment will be owned by the Sellers
and shall be distributed at least once every 365 days. The Escrow Agent will not
be liable or responsible for any loss resulting from any investment or
reinvestment made as provided in this Agreement at the written direction of the
Sellers.
9. Liability of the Escrow Agent. The duties of the Escrow Agent
hereunder will be limited to the observance of the express provisions of this
Agreement. The Escrow Agent will not make any payment or disbursement from or
out of the Escrow Account except as provided by this Agreement. The Escrow Agent
may rely upon and act upon any instrument received by it pursuant to the
provisions of this Agreement which it reasonably believes to be in conformity
with the requirements of this Agreement. The Escrow Agent agrees to use the same
degree of care and skill as is customary for an escrow agent in similar
circumstances. The Escrow Agent will not be liable for any action taken or not
taken by it under the terms hereof in the absence of breach of its obligations
hereunder or gross negligence or willful misconduct on its part.
-3-
In receiving the amounts deposited into the Escrow Account, the Escrow
Agent acts only as a depository for the Purchaser and the Sellers and assumes no
responsibility except pursuant to the provisions of this Agreement. No
withdrawals shall be permitted from the Escrow Account except as provided herein
or as required by law or court order.
All of the terms and conditions in connection with the Escrow Agent's
duties and responsibilities, and the rights of the Purchaser and the Sellers or
anyone else, with respect to the Escrow Account, are contained solely in this
Agreement and in any signature card required by the Escrow Agent pertaining to
the Escrow Account, and the Escrow Agent is not expected or required to be
familiar with the provisions of any other agreement, and shall not be charged
with any responsibility or liability in connection with the observance of the
provisions of any such other agreement.
The Escrow Agent may act or refrain from acting in respect of any
matter referred to herein in full reliance upon and by and with the advice of
counsel which may be selected by it, and shall be fully protected in so acting
or in refraining from acting upon the advice of such counsel.
Except as herein expressly provided, none of the provisions of this
Agreement shall require the Escrow Agent to expend or risk its own funds or
otherwise incur financial liability or expense in the performance of any of its
duties hereunder.
The Escrow Agent is hereby authorized to comply with and obey all
orders, judgements, decrees or writs entered or issued by any court, and in the
event the Escrow Agent obeys or complies with any such order, judgment, decree
or writ of any court, in whole or in part, it shall not be liable to any of the
Parties hereto, nor to any other person or entity, by reason of such compliance,
notwithstanding that it shall be determined that any such order, judgment,
decree or writ be entered without jurisdiction or be invalid for any reason or
be subsequently reversed, modified, annulled or vacated.
Should any controversy arise between the Purchaser and the Sellers or
between the Sellers, the Purchaser and any other person or entity with respect
to this Agreement, or with respect to the ownership of or the right to receive
any sums from the Escrow Account, the Escrow Agent shall have the right to
institute a ▇▇▇▇ of interpleader in any court of competent jurisdiction to
determine the rights of the Parties.
The Purchaser and the Sellers agree that the Escrow Agent is acting
solely as an escrow agent hereunder and not as a trustee, and that the Escrow
Agent has no fiduciary duties, obligations or liabilities under this Agreement.
10. Indemnification of the Escrow Agent. The Sellers and the
Purchaser will indemnify and hold the Escrow Agent harmless from and against any
and all losses, costs, damages or expenses (including reasonable attorneys'
fees) the Escrow Agent may sustain by reason of its service as escrow agent
hereunder, except to the extent such loss, cost, damage or expense (including
reasonable attorneys' fees) was incurred solely by reason of such acts or
omissions for which the Escrow Agent is liable or responsible under Section 9
hereunder.
11. Fees of Escrow Agent. All fees, if any, of the Escrow Agent for
service as escrow agent hereunder shall be paid by the Purchaser.
-4-
12. Designations. The Sellers and the Purchaser may each, by notice
to the Escrow Agent, designate one or more persons who will execute notices and
from whom the Escrow Agent may take instructions hereunder or to whom the Escrow
Agent may give notices. Such designations may be changed from time to time upon
notice to Escrow Agent from the respective parties. The Escrow Agent will be
entitled to rely conclusively on any action taken by such persons or their
respective successor designees.
13. Resignation of the Escrow Agent. The Escrow Agent may resign as
escrow agent by giving each of the Parties not less than thirty (30) days' prior
written notice of the effective date of such resignation. If on or prior to the
effective date of such resignation the Escrow Agent has not received joint
written instructions from the parties hereto, it will thereupon deposit the
Escrow Account into the registry of a court of competent jurisdiction. The
Parties intend that a substitute escrow agent will be appointed to fulfill the
duties of the Escrow Agent hereunder for the remaining term of this Agreement in
the event of the Escrow Agent's resignation, and if the Purchaser and the
Sellers cannot agree on a substitute escrow agent, they will use their best
efforts to derive a procedure to appoint a substitute escrow agent.
14. Notices. All notices, requests, instructions and demands which
may be given by any party hereto to any other party in the course of the
transactions herein contemplated will be given to each party hereto, will be in
writing, will be delivered by posting in the United States mail, certified mail,
return receipt requested, addressed to the respective parties as set forth
below, and will be deemed given when actually received.
A. If to Purchaser:
DocuNet Inc.
▇▇▇ ▇▇▇▇▇▇'▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
With a copy to:
Pepper, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ & ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esquire
B. If to any of the Sellers, to their attention:
c/o Oregon Micro-Imaging, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
With a copy to:
Hershner, Hunter, ▇▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esquire
-5-
C. If to the Escrow Agent:
With a copy to:
Copies of any notices sent by the Escrow Agent shall be sent to all
other parties hereto.
15. Binding Effect. This Agreement will be binding upon and inure to
the benefit of the parties hereto and their respective representatives,
successors and assigns.
16. Amendment and Termination. This Agreement may be amended or
canceled by and upon written notice to the Escrow Agent at any time given
jointly by the Purchaser and the Sellers, but the duties and responsibilities of
the Escrow Agent may not be increased without its consent.
17. Applicable Law. This Agreement will be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
19. Captions and Paragraph Headings. Captions and paragraph headings
used herein are for convenience only and are not part of this Agreement and will
not be used in construing it.
20. Term. The escrow established by this Agreement shall continue
until the earlier of (i) the mutual agreement of the Parties or (ii) one hundred
eighty (180) days following the Closing whereupon all amounts and shares of
Common Stock then on deposit in the Escrow Account shall be paid and delivered
to the Sellers; provided, however, that in the event there is an asserted but
unresolved claim ("Claim") pursuant to Article 2 or Article 10 of the Purchase
Agreement on such 180th day, then any combination of cash and Common Stock
(valued at the Share Value) equal, in combination, to the amount of any and all
such Claims shall remain in the Escrow Account. Such cash and/or Common Stock so
remaining in the Escrow Account shall remain subject to this Agreement until the
final resolution of the applicable Claim(s) that required the retention of such
cash and/or Common Stock; provided, however, that in all events all Common Stock
held in the Escrow Account shall be distributed to the Sellers within five (5)
years from the Closing and, to the extent such Common Stock is distributed,
Sellers shall replenish the Escrow Account with cash in a like amount, valued at
the Share Value.
-6-
IN WITNESS WHEREOF, the parties hereto have hereunto caused this
Agreement to be executed by their respective officers hereunto duly authorized,
as of the day and year first above written.
DOCUNET INC.
By:_____________________________________
Name:
Title:
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[ESCROW AGENT]
By:_____________________________________
Name:
Title:
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