EXHIBIT 10.1
STOCK PURCHASE AGREEMENT
By and Among
Workflow Management, Inc.
Premier Graphics, Inc.
and
The Stockholders Named Therein
made effective as of February 5, 1999
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into
this 5th day of February, 1999, by and among Workflow Management, Inc., a
Delaware corporation ("Buyer"), Premier Graphics, Inc., a South Carolina
corporation (the "Company"), and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, and ▇▇▇▇
▇. ▇▇▇▇▇ (each a "Stockholder" and collectively, the "Stockholders").
BACKGROUND
The Stockholders in the aggregate own all of the issued and outstanding
capital stock of the Company. This Agreement contemplates a transaction in which
the Buyer will purchase from the Stockholders, and the Stockholders will sell to
the Buyer, all of the outstanding capital stock of the Company (the "Stock") for
the cash consideration set forth herein.
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, agree as follows:
1. STOCK PURCHASE
1.1 Stock. Subject to the terms and conditions of this Agreement, at the
Closing (as defined below), the Stockholders will sell to Buyer, and Buyer will
purchase from the Stockholders, the Stock for the Purchase Price (as defined
below).
1.2 Purchase Price.
(a) For purposes of this Agreement, the "Purchase Price" shall be
the amounts payable to the Stockholders by Buyer as set forth below in this
Section 1.2(a), which shall be payable in installments pursuant to Section
453(b) of the Internal Revenue Code of 1986, as amended ("Code") in the
following manner:
(i) $7,500,000 of the Purchase Price shall be payable in cash
at Closing ("Cash Purchase Price"). The Cash Purchase Price, as so adjusted,
shall first be applied to satisfy the escrow obligations set forth in Section
1.4 and the balance shall be paid to the Stockholders in cash at Closing in
proportion to their respective holdings of Stock as set forth on Schedule
1.2(a)(i).
(ii) Certain payments shall be made to the Stockholders based
upon the "Adjusted EBITDA" of the Company, as specifically set forth in Section
1.7 hereof. For purposes of the Code, 4.71% of such payments shall be treated as
interest for income tax purposes, which is equal to the Applicable Federal Rate
for Mid-Term Annual obligations as published by the Internal Revenue Service for
February 1999 in Revenue Ruling 99 - 8.
(iii) Buyer represents to the Stockholders that Buyer has no
reason to believe that the Stockholders will suffer any adverse Tax consequences
("Incremental Taxes") in connection with the Section 338(h)(10) Election (as
defined in Section 5.1(c)(i)). If, however, it is ultimately determined
(pursuant to the procedures set forth in Section 5.1) that the Stockholders will
incur Incremental Taxes as a result of the 338(h)(10) Election, Buyer shall pay
to the Stockholders an additional amount ("338 Payment") equal to the
Incremental Taxes. Any 338 Payment, as finally determined in a manner consistent
with the allocation of Purchase Price (as provided in Section 5.1(c)(ii)), shall
be paid by the Buyer to the Stockholders (in proportion to their respective
holdings of Stock as set forth on Schedule 1.2(a)(i)) on the date that the
Section 338 Forms (as defined in Section 5.1(c)(i)) are filed pursuant to the
terms and conditions of Section 5.1(c).
(b) The Purchase Price has been calculated based upon several
factors including the assumption that the net worth of the Company, calculated
in accordance with generally accepted accounting principles ("GAAP")
consistently applied, is equal to or greater than $1,385,000 (the "Net Worth
Target") as of the Closing; provided, however, that notwithstanding anything in
GAAP to the contrary the Net Worth Target shall be calculated for purposes of
this Agreement after giving effect to any expenses incurred by the Company in
connection with the transactions contemplated by this Agreement. In addition,
notwithstanding anything in GAAP to the contrary, the Buyer acknowledges and
agrees that any amounts ultimately determined to be owed or payable by the
Company as a result of the litigation disclosed on Schedule 3.27(c) ("Contingent
Litigation Liability") shall not be given any effect for purposes of determining
the Net Worth Target or the Actual Company Net Worth
(c) If on the Closing Financial Certificate (as defined in Section
6.9), the Certified Closing Net Worth (as defined in Section 6.9) is less than
the Net Worth Target, the Cash Purchase Price to be delivered to the
Stockholders may, at Buyer's election, be reduced either (i) at the Closing, or
(ii) after completion of the Post-Closing Audit (as defined in Section 1.3), by
the difference between the Net Worth Target and the Certified Closing Net Worth
set forth on the Closing Financial Certificate.
1.3 Post-Closing Adjustment.
(a) The Cash Purchase Price shall be subject to adjustment after the
Closing Date as specified in this Section 1.3.
(b) Within one hundred twenty (120) days following the Closing Date,
Buyer, at its option, shall cause PriceWaterhouseCoopers ("Buyer's Accountant")
to audit the Company's books to determine the accuracy of the information set
forth on the Closing Financial Certificate (the "Post-Closing Audit"). The
parties acknowledge and agree that for purposes of determining the net worth of
the Company as of the Closing Date, (i) the value of the assets of the Company
shall, except with the prior written consent of Buyer, be calculated as provided
in the last paragraph of Section 6.9 and(ii) no effect shall be given to the
Contingent Litigation Liability. In the event that Buyer's Accountant determines
that the actual Company net worth as of the Closing Date was less than the
Certified Closing Net Worth, Buyer shall deliver a written notice (the
"Financial Adjustment Notice") to the Stockholders' Representative, as defined
in Section 1.6, setting forth (i) the determination made by Buyer's Accountant
of the actual Company net worth (the "Actual Company Net Worth"), (ii) the
amount of the Cash Purchase Price that would have been payable at Closing
pursuant to Section 1.2(c) had the Actual Company Net Worth been reflected on
the Closing Financial Certificate instead of the Certified Closing Net Worth,
and (iii) the amount by which the Cash Purchase Price would have been reduced at
Closing had the Actual Company Net Worth been used in the calculations pursuant
to Section 1.2(c) (the "Purchase Price Adjustment"). The Purchase Price
Adjustment shall take account of the reduction, if any, to the Cash Purchase
Price already taken pursuant to Section 1.2(c)(i).
(c) The Stockholders' Representative shall have thirty (30) days
from the receipt of the Financial Adjustment Notice to notify Buyer if the
Stockholders dispute such Financial Adjustment Notice. If Buyer has not received
notice of such a dispute within such thirty (30) day period, Buyer shall be
entitled to receive from the Stockholders (which may, at Buyer's sole
discretion, be from the Pledged Assets as defined in Section 1.4) the Purchase
Price Adjustment. If, however, the Stockholders' Representative has delivered
notice of such a dispute to Buyer within such thirty (30) day period, then
Deloitte & Touche (the "Independent Accounting Firm") shall review the Company's
books, Closing Financial Certificate and Financial Adjustment Notice (and
related information) to determine the amount, if any, of the Purchase Price
Adjustment. The Independent Accounting Firm shall be directed to consider only
those agreements, contracts, commitments or other documents (or summaries
thereof) that were either (i) delivered or made available to Buyer's Accountant
in connection with the transactions contemplated hereby, or (ii) reviewed by
Buyer's Accountant during the course of the Post-Closing Audit. The Independent
Accounting Firm shall make its determination of the Purchase Price Adjustment,
if any, within thirty (30) days of its selection. The determination of the
Independent Accounting Firm shall be final and binding on the parties hereto,
and upon such determination, Buyer shall be entitled to receive from the
Stockholders (which may, at Buyer's sole discretion, be from the Pledged Assets
as defined in Section 1.4) the Purchase Price Adjustment. The costs of the
Independent Accounting Firm shall be borne by the party (either Buyer or the
Stockholders as a group) whose determination of the Company's net worth at
Closing was further from the determination of the Independent Accounting Firm,
or equally by Buyer and the Stockholders in the event that the determination by
the Independent Accounting Firm is equidistant between the Certified Closing Net
Worth and the Actual Company Net Worth.
1.4 Pledged Assets.
(a) As collateral security for the payment of any Post-Closing
adjustment to the Cash Purchase Price under Section 1.3, or any indemnification
obligations of the Stockholders pursuant to Article 8, the Stockholders shall,
and by execution hereof do, transfer to ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, a Virginia
professional corporation ("Escrow Agent") $750,000, which equals 10% of the Cash
Purchase Price (the "Pledged Assets").
(b) The Pledged Assets shall be held by the Escrow Agent pursuant to
the terms and conditions set forth in the Escrow Agreement ("Escrow Agreement")
dated as of the date hereof by and among Buyer, the Company and the
Stockholders.
(c) The Pledged Assets shall be available to satisfy any
post-Closing adjustment to the Cash Purchase Price pursuant to Section 1.3 and
any indemnification obligations of the Stockholders pursuant to Article 8 until
June 5, 1999 (the "Release Date"). Promptly following the Release Date, subject
to the terms and conditions of the Escrow Agreement, the Escrow Agent shall
return or cause to be returned to the Stockholders the Pledged Assets (in
proportion to their respective holdings of Stock as set forth on Schedule
1.2(a)(i)), less Pledged Assets having an aggregate value equal to the amount of
(i) any post-Closing adjustment to the Cash Purchase Price under Section 1.3
(including any post-Closing adjustment to the Cash Purchase Price that is
subject to dispute under the terms and conditions of Section 1.3), (ii) any
pending claim for indemnification made by any Indemnified Party (as defined in
Article 8), and (iii) any indemnification obligations of the Stockholders
pursuant to Article 8.
1.5 Exchange of Certificates and Payment of Cash.
(a) Buyer to Provide Cash. In exchange for the Stock, Buyer shall
cause to be paid to the Stockholders by wire transfer the Cash Purchase Price,
as adjusted pursuant to Section 1.2 and Section 1.3 and subject to Section 1.4.
(b) Certificate Delivery Requirements. At the Closing, the
Stockholders shall deliver to Buyer the certificates (the "Certificates")
representing the Stock, duly endorsed in blank by the Stockholders, or
accompanied by blank stock powers duly executed by the Stockholders and with all
necessary transfer tax and other revenue stamps, acquired at the Stockholders'
expense, affixed and canceled. The Stockholders shall promptly cure any
deficiencies with respect to the endorsement of the Certificates or other
documents of conveyance with respect to the stock powers accompanying such
Certificates.
(c) No Further Ownership Rights in Capital Stock of the Company. All
cash to be delivered (including cash that constitutes Pledged Assets) upon the
surrender for exchange of shares of the Stock in accordance with the terms
hereof shall be deemed to have been delivered in full satisfaction of all rights
pertaining to such shares of Stock, and following the Closing, the Stockholders
shall have no further rights to, or ownership in, shares of capital stock of the
Company.
(d) Lost, Stolen or Destroyed Certificates. In the event any
certificates evidencing shares of the Stock shall have been lost, stolen or
destroyed, Buyer shall cause payment to be made in exchange for such lost,
stolen or destroyed certificates, upon the making of an affidavit of that fact
by the holder thereof, such cash as provided in Section 1.2; provided, however
that Buyer may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificates to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against Buyer with respect to the certificates alleged to
have been lost, stolen or destroyed.
(e) No Liability. Notwithstanding anything to the contrary in this
Section 1.5, none of the Company or any party hereto shall be liable to a holder
of shares of the Stock for any amount paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
1.6 Stockholders' Representative.
(a) Each Stockholder, by signing this Agreement, designates ▇▇▇▇
▇▇▇▇▇▇ or, in the event that ▇▇▇▇ ▇▇▇▇▇▇ is unable or unwilling to serve,
designates ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, to be the Stockholders' Representative for purposes
of this Agreement. The Stockholders shall be bound by any and all actions taken
by the Stockholders' Representative on their behalf.
(b) Buyer shall be entitled to rely upon any communication or
writings given or executed by the Stockholders' Representative. All
communications or writings to be sent to the Stockholders pursuant to this
Agreement may be addressed to the Stockholders' Representative and any
communication or writing so sent shall be deemed notice to all of the
Stockholders hereunder. The Stockholders hereby consent and agree that the
Stockholders' Representative is authorized to accept deliveries, including any
notice, on behalf of the Stockholders pursuant hereto.
(c) The Stockholders' Representative is hereby appointed and
constituted the true and lawful attorney-in-fact of each Stockholder, with full
power in his or her name and on his or her behalf to act according to the terms
of this Agreement in the absolute discretion of the Stockholders'
Representative; and in general to do all things and to perform all acts
including, without limitation, executing and delivering all agreements,
certificates, receipts, instructions and other instruments contemplated by or
deemed advisable in connection with Article 8 of this Agreement. This power of
attorney and all authority hereby conferred is granted subject to the interest
of the other Stockholders hereunder and in consideration of the mutual covenants
and agreements made herein, and shall be irrevocable and shall not be terminated
by any act of any Stockholder or by operation of law, whether by such
Stockholder's death or any other event.
1.7 Post-Closing Earn-Out.
(a) For (i) the period commencing the day after the Closing Date and
ending April 24, 1999 ("Initial Fiscal Period"), (ii) for each of Buyer's next
four (4) fiscal years following the Initial Fiscal Period, and (iii) the period
commencing April 27, 2003 and ending on the date that is five (5) years after
the Closing Date (such periods, whether or not constituting an entire fiscal
year, individually an "Annual Earn-out Period" for purposes of this Section
1.7), the Stockholders (as a group) shall be entitled to receive from the Buyer
forty percent (40%) of the annual Adjusted EBITDA (as defined herein) of the
Company for any Annual Earn-out Period, on the specific terms and conditions set
forth in this Section 1.7 (such payments the "Earn-out"). Any Earn-out due shall
be payable in cash within thirty (30) days after the last day of the Annual
Earn-out Period and shall be payable to the Stockholders in proportion to their
respective holdings of Stock as set forth on Schedule 1.2(a)(i).
(b) Adjusted EBITDA for any Annual Earn-out Period shall mean the
Company's earnings before interest, taxes, depreciation and amortization, as
adjusted to reflect add-backs of one time, non-recurring costs incurred by the
Company, as specifically agreed to by the Company and the Stockholders and
reflected on the Earn-out Statements (as defined below) ("Add-Backs"). In
determining Adjusted EBITDA, no effect shall be given to the results of
operations of any direct or indirect parent or subsidiary of the Company. Buyer
shall prepare a statement of Adjusted EBITDA for each Annual Earn-out Period,
including the Add-Backs (collectively, "Earn-out Statements"). Each Earn-out
Statement shall be delivered to the Stockholders' Representative no later than
thirty (30) days after the last day of each Annual Earn-out Period. The
Stockholders' Representative shall have thirty (30) days from the receipt of any
Earn-out Statement to notify the Buyer if it disputes such Earn-out Statement.
If the Stockholders' Representative has delivered notice of such a dispute
within such 30 day period, then Buyer and the Stockholders' Representative shall
meet to discuss resolution of such dispute. If within ten (10) business days
thereafter, the Buyer and the Stockholders' Representative are not able to
resolve such dispute, then Buyer and the Stockholders' Representative shall
designate the Independent Accounting Firm to resolve such dispute. The
Independent Accounting Firm shall review the Company's books and records and the
Earn-out Statements (and related information) to determine the amount, if any,
of the Earn-out. The Independent Accounting Firm shall be directed to consider
all agreements, contracts, commitments or other documents (or summaries thereof)
that it determines should be considered in accordance with GAAP and the terms of
this Agreement to make the determination of the Earn-out. The Independent
Accounting Firm shall make its determination of the Earn-out, if any, within
thirty (30) days of its selection. The determination of the Independent
Accounting Firm shall be final and binding on the parties hereto. If there is a
determination that the Stockholders are owed an Earn-out in excess of that paid
by Buyer for any particular Annual Earn-out Period, Buyer shall immediately pay
the difference between the Earn-out previously paid and the Earn-out owed to the
Stockholders. If there is a determination that the Buyer has paid an Earn-out in
excess of that which is due to the Stockholders for any particular Annual
Earn-out Period, then the Stockholders shall immediately refund such excess to
the Buyer. The costs of the Independent Accounting Firm shall be borne by the
party (either Buyer or the Stockholders as a group) whose determination of the
Earn-out was further from the determination of the Independent Accounting Firm,
or equally by Buyer and the Stockholders as a group in the event that the
determination by the Independent Accounting Firm is equidistant between the
determination of the Earn-out by the Buyer and Stockholders, respectively.
(c) To the extent that the Company has a negative Adjusted EBITDA
during any Annual Earn-out Period (such amount an "Adjusted EBITDA Loss"), the
Adjusted EBITDA Loss shall be carried forward to the subsequent Annual Earn-out
Period(s) and aggregated with the Adjusted EBITDA (or Adjusted EBITDA Loss) for
such subsequent Annual Earn-out Period(s) for purposes of determining the
Earn-out, if any, due for such subsequent Annual Earn-out Period(s). All
Adjusted EBITDA Losses shall continue to be carried forward on an annual basis
until such time as Adjusted EBITDA is fully offset by the total amount of the
Adjusted EBITDA Losses. Any Adjusted EBITDA Losses will not effect prior
payments of Earn-outs for Annual Earn-out Periods in which the Company had a
positive Adjusted EBITDA.
(d) In the event that, after the date of this Agreement, the Company
is merged (or otherwise consolidated) into Buyer or any direct or indirect
subsidiary of Buyer (any such entity a "Merger Affiliate") such that the Company
is not the surviving corporation under applicable law, the Earn-out shall only
be payable with respect to the business and operations conducted by the Company
as of the date of this Agreement and without reference to the business and
operations of the Merger Affiliate. For purposes of calculating the Earn-out
payable under this Section 1.7 after a merger or other consolidation by the
Company and a Merger Affiliate, the Buyer shall cause such Merger Affiliate to
(i) conduct the Company's former business and operations as a division of the
Merger Affiliate ("Company Division") and (ii) maintain such financial reporting
systems as are necessary to accurately calculate the Adjusted EBITDA (or
Adjusted EBITDA Losses) of the Company Division. Without in any way limiting
Buyer's rights to enter into a transaction with a Merger Affiliate, Buyer
acknowledges that, based on the Buyer's and the Company's existing operations,
it is intended that all products sold or revenue generated from the Company's
operations in Columbia, South Carolina will be given full effect when
determining Adjusted EBITDA of the Company pursuant to this Section 1.7.
(e) Except as otherwise expressly agreed to by Buyer and the
Company, the Earn-out shall only be payable with respect to the business and
operations currently conducted by the Company (or by the Company Division) and
without reference to any other entity hereafter merged into or otherwise
consolidated with the Company. In the event that the Buyer causes any entity to
merge or otherwise consolidate into the Company such that the Company is the
surviving corporation under applicable law, the Company shall maintain such
financial reporting systems as are necessary to accurately calculate the
Adjusted EBITDA (or Adjusted EBITDA Losses) of the Company (or the Company
Division) without taking into account the results of any other operations of the
Company or any such other entity.
(f) Notwithstanding anything in this Section 1.7 to the contrary,
(i) Buyer shall have the right to reduce any amounts otherwise payable as an
Earn-out by the amount of any indemnification obligations of the Stockholders
under Article 8 and (ii) no effect will be given to the Contingent Litigation
Liability (whether or not ultimately paid by the Company) for purposes of
determining the Earn-outs due to the Stockholders under this Section 1.7.
(g) Any Earn-outs due pursuant to this Section 1.7 shall be payable
to the Stockholders in proportion to their respective holdings of Stock as set
forth on Schedule 1.2(a)(i).
1.8 Accounting Terms. Except as otherwise expressly provided herein or in
the Schedules, all accounting terms used in this Agreement shall be interpreted,
and all financial statements, Schedules, certificates and reports as to
financial matters required to be delivered hereunder shall be prepared, in
accordance with GAAP consistently applied.
2. CLOSING
The consummation of the transactions contemplated by this Agreement (the
"Closing") shall take place through the delivery of executed originals or
facsimile counterparts of all documents required hereunder on such date that all
conditions to Closing shall have been satisfied or waived, or at such other time
and date as Buyer, the Company and the Stockholders may mutually agree, which
date shall be referred to as the "Closing Date."
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
To induce Buyer to enter into this Agreement and consummate the
transactions contemplated hereby, each of the Company and the Stockholders,
jointly and severally, represents and warrants to Buyer as follows (for purposes
of this Agreement, the phrases "knowledge of the Company" or the "Company's
knowledge," or words of similar import, mean the knowledge of the Stockholders
and the directors and officers of the Company, including facts of which the
directors and officers, in the reasonably prudent exercise of their duties,
should be aware):
3.1 Due Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
own, operate and lease its properties and to carry on its business in the places
and in the manner as now conducted. Schedule 3.l hereto contains a list of all
jurisdictions in which the Company is authorized or qualified to do business.
The Company is in good standing as a foreign corporation in each jurisdiction in
which the character of the property owned, leased or operated by the Company, or
the nature of the business or activities conducted by the Company, makes such
qualification necessary. The Company has delivered to Buyer true, complete and
correct copies of the Articles of Incorporation and Bylaws of the Company. Such
Articles of Incorporation and Bylaws are collectively referred to as the
"Charter Documents." The Company is not in violation of any Charter Documents.
The minute books of the Company have been made available to Buyer (and have been
delivered, along with the Company's original stock ledger and corporate seal, to
Buyer) and are correct and, except as set forth in Schedule 3.1, complete in all
material respects.
3.2 Authorization; Validity. The Company has the full legal right,
corporate power and authority to enter into this Agreement and the transactions
contemplated hereby and to perform its obligations pursuant to the terms of this
Agreement. Each Stockholder has the full legal right and authority to enter into
this Agreement and the transactions contemplated hereby and to perform its
respective obligations pursuant to the terms of this Agreement. The execution
and delivery of this Agreement by the Company and the performance by the Company
of the transactions contemplated herein have been duly and validly authorized by
the Board of Directors of the Company and the Stockholders and this Agreement
has been duly and validly authorized by all necessary corporate action. This
Agreement is a legal, valid and binding obligation of the Company and each
Stockholder, enforceable in accordance with its terms.
3.3 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions contemplated hereby, and the
fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of, any of
the Charter Documents;
(b) conflict with, or result in a default (or would constitute a
default but for any requirement of notice or lapse of time or both) under, any
document, agreement or other instrument to which the Company or any Stockholder
is a party or by which the Company or any Stockholder is bound, or result in the
creation or imposition of any Lien (as defined in Section 3.4), on any of the
Company's properties pursuant to (i) any law or regulation to which the Company
or any Stockholder or any of their respective property is subject, or (ii) any
judgment, order or decree to which the Company or any Stockholder is bound or
any of their respective property is subject;
(c) result in termination or any impairment of any permit, license,
franchise, contractual right or other authorization of the Company; or
(d) violate any law, order, judgment, rule, regulation, decree or
ordinance to which the Company or any Stockholder is subject or by which the
Company or any Stockholder is bound including, without limitation, the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of ▇▇▇▇ (▇▇▇ "▇▇▇ ▇▇▇"), if
applicable, together with all rules and regulations promulgated thereunder.
3.4 Capital Stock of the Company. The authorized capital stock of the
Company consists of 1,000 shares of common stock, no par value, of which three
(3) shares are issued and outstanding and no shares of preferred stock. All of
the issued and outstanding shares of the capital stock of the Company have been
duly authorized and validly issued, are fully paid and nonassessable and are
owned of record and beneficially by the Stockholders in the amounts set forth in
Schedule 1.2(a)(i) free and clear of all Liens (defined below). All of the
issued and outstanding shares of the capital stock of the Company were offered,
issued, sold and delivered by the Company in compliance with all applicable
state and federal laws concerning the issuance of securities. Further, none of
such shares was issued in violation of any preemptive rights. There are no
voting agreements or voting trusts with respect to any of the outstanding shares
of the capital stock of the Company. For purposes of this Agreement, "Lien"
means any mortgage, security interest, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or otherwise), charge,
preference, priority or other security agreement, option, warrant, attachment,
right of first refusal, preemptive, conversion, put, call or other claim or
right, restriction on transfer (other than restrictions imposed by federal and
state securities laws), or preferential arrangement of any kind or nature
whatsoever (including any restriction on the transfer of any assets, any
conditional sale or other title retention agreement, any financing lease
involving substantially the same economic effect as any of the foregoing and the
filing of any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction).
3.5 Transactions in Capital Stock; Accounting Treatment. Except as set
forth in Schedule 3.5, no option, warrant, call, subscription right, conversion
right or other contract or commitment of any kind exists of any character,
written or oral, which may obligate the Company to issue, sell or otherwise
become outstanding any shares of capital stock. The Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. As a result of the transactions contemplated by
this Agreement, Buyer will be the record and beneficial owner of all outstanding
capital stock of the Company and rights to acquire capital stock of the Company.
3.6 Subsidiaries, Stock, and Notes.
(a) Except as set forth on Schedule 3.6(a), the Company has no
subsidiaries. For purposes of this Agreement, "subsidiaries" means any
corporation, partnership, limited liability company, association or other
business entity of which a person (as defined in Section 10.13) owns, directly
or indirectly, more than 50% of the voting securities thereof.
(b) Except as set forth on Schedule 3.6(b), the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, limited liability company, association or other
business entity, nor is the Company, directly or indirectly, a participant in
any joint venture, partnership or other noncorporate entity.
(c) Except as set forth on Schedule 3.6(c), there are no promissory
notes that have been issued to, or are held by, the Company.
3.7 Complete Copies of Materials. The Company has delivered to Buyer true
and complete copies of each agreement, contract, commitment or other document
(or summaries thereof) that is referred to in the Schedules.
3.8 Absence of Claims Against Company. No Stockholder has any claims
against the Company.
3.9 Company Financial Conditions.
(a) The Company's net worth as of the end of its most recent fiscal
year ending December 31, 1998 was not less than $ 1,610,451.
(b) The Company's sales for (i) its fiscal year ending December 31,
1997 were not less than $5,659,407, and (ii) its most recent fiscal year ending
December 31, 1998 were not less than $ 6,963,537.
(c) The Company's earnings before interest, taxes, depreciation and
amortization (after the addition of "add-backs" set forth on Schedule 3.9(c))
for its most recent fiscal year ending December 31, 1998 were not less than
$1,830,000.
(d) The sum of the Company's total outstanding long term and short
term indebtedness to (i) banks and (ii) all other financial institutions and
creditors (in each case including the current portions of such indebtedness, but
excluding amounts due to Stockholders, liabilities as of the Balance Sheet Date
as specified on the Company's unaudited balance sheet as of December 31, 1998
and included with the Company Financial Statements on Schedule 3.10 and
liabilities incurred by the Company in the ordinary course of business since the
Balance Sheet Date ("Accrued Liabilities"), trade payables and other accounts
payable incurred in the ordinary course of the Company's business consistent
with past practice) as of the Closing Date will not be more than $0.
For purposes of Section 3.9(a) and (c), calculation of amounts as of the Closing
shall be made in accordance with the last paragraph of Section 6.9.
3.10 Financial Statements. Schedule 3.10 includes (a) true, complete and
correct copies of the Company's reviewed statement of assets, liabilities and
stockholders' equity as of December 31, 1997 (the end of its most recent
completed fiscal year for which reviewed financial statements are available),
and reviewed statement of revenues, expenses, retained earnings and cash flows
for the year ended December 31, 1997 (collectively, the "Reviewed Financials")
and (b) true, complete and correct copies of the Company's unaudited balance
sheet (the "Interim Balance Sheet") as of December 31, 1998 (the "Balance Sheet
Date") and income statement and statement of cash flows for the 12-month period
then ended (collectively, the "Interim Financials," and together with the
Reviewed Financials, the "Company Financial Statements"). Except as noted on the
accountant's report accompanying the Reviewed Financials, the Company Financial
Statements have been prepared in accordance with GAAP consistently applied,
subject, in the case of the Interim Financials, to (i) the exceptions stated on
Schedule 3.10, and (ii) the omission of footnote information. Each statement of
assets, liabilities and stockholders' equity and each balance sheet included in
the Company Financial Statements presents fairly the financial condition of the
Company as of the date indicated thereon, and each of the statements of revenue,
expenses, retained earnings and cash flows and each income statement included in
the Company Financial Statements presents fairly the results of its operations
for the periods indicated thereon. Since the dates of the Company Financial
Statements, there have been no material changes in the Company's accounting
policies other than as requested by Buyer to conform the Company's accounting
policies to GAAP.
3.11 Liabilities and Obligations.
(a) The Company is not liable for or subject to any liabilities
except for:
(i) those liabilities reflected on the Interim Balance
Sheet and not previously paid or discharged;
(ii) those liabilities arising in the ordinary course of its
business consistent with past practice under any contract, commitment or
agreement specifically disclosed on any Schedule to this Agreement or not
required to be disclosed thereon because of the term or amount involved or
otherwise; and
(iii) those liabilities incurred since the Balance Sheet Date
in the ordinary course of business consistent with past practice, which
liabilities are not, individually or in the aggregate, material.
(b) The Company has delivered to Buyer, in the case of those
liabilities which are not fixed or are contested, a reasonable estimate of the
maximum amount which may be payable.
(c) Schedule 3.11(c) also includes 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 or existing
business, to which management of the Company has made any material expenditure
in the two-year period prior to the date of this Agreement, which if pursued by
the Company would require additional material expenditures of capital.
(d) For purposes of this Section 3.11, the term "liabilities" shall
include without limitation any direct or indirect liability, indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, either accrued, absolute, contingent, mature,
unmature or otherwise and whether known or unknown, fixed or unfixed, ▇▇▇▇▇▇ or
inchoate, liquidated or unliquidated, secured or unsecured. Schedule 3.11(d)
contains a complete list of all indebtedness of the Company.
3.12 Books and Records. The Company has made and kept books and records
and accounts, which, in reasonable detail, accurately and fairly reflect the
activities of the Company. The Company has not engaged in any transaction,
maintained any bank account, or used any corporate funds except for
transactions, bank accounts, and funds which have been and are reflected in its
normally maintained books and records.
3.13 Bank Accounts; Powers of Attorney. Schedule 3.13 sets forth a
complete and accurate list as of the date of this Agreement, of:
(a) the name of each financial institution in which the Company has
any account or safe deposit box;
(b) the names in which the accounts or boxes are held;
(c) the type of account;
(d) the name of each person authorized to draw thereon or have
access thereto; and
(e) the name of each person, corporation, firm or other entity
holding a general or special power of attorney from the Company and a
description of the terms of such power.
3.14 Accounts and Notes Receivable. The Company has delivered to Buyer a
complete and accurate list, as of a date not more than two (2) business days
prior to the date hereof, of the accounts and notes receivable of the Company
(including without limitation receivables from and advances to employees and the
Stockholders), which includes an aging of all accounts and notes receivable
showing amounts due in thirty (30) day aging categories (collectively, the
"Accounts Receivable"). On the Closing Date, the Company will deliver to Buyer a
complete and accurate list, as of a date not more than two (2) business days
prior to the Closing Date, of the Accounts Receivable. All Accounts Receivable
represent valid obligations arising from sales actually made or services
actually performed in the ordinary course of business. The Accounts Receivable
are current and collectible net of any respective reserves shown on the
Company's books and records (which reserves are adequate and calculated
consistent with past practice). Subject to such reserves, each of the Accounts
Receivable will be collected in full, without any set-off, within one hundred
twenty (120) days after the day on which it first became due and payable. There
is no contest, claim, or right of set-off, other than rebates and returns in the
ordinary course of business, under any contract with any obligor of an Account
Receivable relating to the amount or validity of such Account Receivable.
3.15 Permits. The Company owns or holds all licenses, franchises, permits
and other governmental authorizations, including without limitation permits,
titles (including without limitation motor vehicle titles and current
registrations), fuel permits, licenses and franchises necessary for the
continued operation of its business as it is currently being conducted (the
"Permits"). The Permits are valid, and the Company has not received any notice
that any governmental authority intends to modify, cancel, terminate or fail to
renew any Permit. No present or former officer, director, stockholder, or
employee of the Company or any affiliate thereof, or any other person, firm,
corporation or other entity, owns or has any proprietary, financial or other
interest (direct or indirect) in any Permits. The Company has conducted and is
conducting its business in compliance with the requirements, standards, criteria
and conditions set forth in the Permits and other applicable orders, approvals,
variances, rules and regulations and is not in violation of any of the
foregoing. The transactions contemplated by this Agreement will not result in a
default under, or a breach or violation of, or adversely affect the rights and
benefits afforded to the Company, by any Permit.
3.16 Real Property.
(a) For purposes of this Agreement, "Real Property" means all
interests in real property including, without limitation, fee estates,
leaseholds and subleaseholds, purchase options, easements, licenses, rights to
access, and rights of way, and all buildings and other improvements thereon,
owned or used by the Company, together with any additions thereto or
replacements thereof.
(b) Schedule 3.16(b) contains a complete and accurate description of
all Real Property leased to the Company (including street address, legal
description (where known), owner, and Company's use thereof) and, to the
Company's knowledge, any claims, liabilities, security interests, mortgages,
liens, pledges, conditions, charges, covenants, easements, restrictions,
encroachments, leases, or encumbrances of any nature thereon ("Encumbrances").
The Company does not own any Real Property. The Real Property listed on Schedule
3.16 includes all interests in real property necessary to conduct the business
and operations of the Company.
(c) Except as set forth in Schedule 3.16(c):
(i) The Company has good and valid rights of ingress and
egress to and from all Real Property from and to the public street systems for
all usual street, road and utility purposes.
(ii) All structures and all structural, mechanical and other
physical systems thereof that constitute part of the Real Property, including
but not limited to the walls, roofs and structural elements thereof and the
heating, ventilation, air conditioning, plumbing, electrical, mechanical, sewer,
waste water, storm water, paving and parking equipment, systems and facility
included therein, and other material items at the Real Property (collectively,
the "Tangible Assets"), are free of defects and in good operating condition and
repair. For purposes of this Section, a defect shall mean a condition relating
to the structures or any structural, mechanical or physical system which
requires an expenditure of more than $1,000 to correct. No maintenance or repair
to the Real Property, structures, facilities and improvements to the Real
Property ("Structure") or any Tangible Asset has been unreasonably deferred.
There is no water, chemical or gaseous seepage, diffusion or other intrusion
into said buildings, including any subterranean portions, that would impair
beneficial use of the Real Property, Structures or any Tangible Asset.
(iii) All water, sewer, gas, electric, telephone and drainage
facilities, and all other utilities required by any applicable law or by the use
and operation of the Real Property in the conduct of the Company's business are
installed to the property lines of the Real Property, are connected pursuant to
valid permits to municipal or public utility services or proper drainage
facilities, are fully operable and are adequate to service the Real Property in
the operation of the Company's business and to permit full compliance with the
requirements of all laws in the operation of such business. No fact or condition
exists which could result in the termination or material reduction of the
current access from the Real Property to existing roads or to sewer or other
utility services presently serving the Real Property.
(iv) The Real Property and all present uses and operations of
the Real Property comply with all applicable statutes, rules, regulations,
ordinances, orders, writs, injunctions, judgments, decrees, awards or
restrictions of any government entity having jurisdiction over any portion of
the Real Property (including, without limitation, applicable statutes, rules,
regulations, orders and restrictions relating to zoning, land use, safety,
health, employment and employment practices and access by the handicapped)
(collectively, "Laws"), covenants, conditions, restrictions, easements,
disposition agreements and similar matters affecting the Real Property. The
Company has obtained all approvals of governmental authorities (including
certificates of use and occupancy, licenses and permits) required in connection
with the construction, ownership, use, occupation and operation of the Real
Property.
(v) There are no pending or, to the Company's knowledge,
threatened condemnation, fire, health, safety, building, zoning or other land
use regulatory proceedings, lawsuits or administrative actions relating to any
portion of the Real Property or any other matters which do or may adversely
effect the current use, occupancy or value thereof, nor has the Company or any
of the Stockholders received notice of any pending or threatened special
assessment proceedings affecting any portion of the Real Property.
(vi) No portion of the Real Property or the Structures has
suffered any damage by fire or other casualty which has not heretofore been
completely repaired and restored to its original condition.
(vii) There are no parties other than the Company in
possession of any of the Real Property or any portion thereof, and there are no
leases, subleases, licenses, concessions or other agreements, written or oral,
granting to any party or parties the right of use or occupancy of any portion of
the Real Property or any portion thereof.
(viii) There are no outstanding options or rights of first
refusal to purchase the Real Property, or any portion thereof or interest
therein. The Company has not transferred any air rights or development rights
relating to the Real Property.
(ix) The Company is not a party to any service contracts or
other agreements relating to the use or operation of the Real Property.
(x) No portion of the Real Property is located in a wetlands
area, as defined by Laws, or in a designated or recognized flood plain, flood
plain district, flood hazard area or area of similar characterization. No
commercial use of any portion of the Real Property will violate any requirement
of the United States Corps of Engineers or Laws relating to wetlands areas.
(xi) All real property taxes and assessments that are due and
payable with respect to the Real Property have been paid or will be paid at or
prior to Closing.
(xii) All oral or written leases, subleases, licenses,
concession agreements or other use or occupancy agreements pursuant to which the
Company leases from any other party any real property, including all amendments,
renewals, extensions, modifications or supplements to any of the foregoing or
substitutions for any of the foregoing (collectively, the "Leases") are valid
and in full force and effect. The Company has provided Buyer with true and
complete copies of all of the Leases, all amendments, renewals, extensions,
modifications or supplements thereto, and all material correspondence related
thereto, including all correspondence pursuant to which any party to any of the
Leases declared a default thereunder or provided notice of the exercise of any
option granted to such party under such Lease. The Leases and the Company's
interests thereunder are free of all Liens.
(xiii) None of the Leases requires the consent or approval of
any party thereto in connection with the consummation of the transactions
contemplated hereby.
3.17 Personal Property.
(a) Schedule 3.17(a) sets forth a complete and accurate list of all
personal property included on the Interim Balance Sheet and all other personal
property owned or leased by the Company with a current book value in excess of
$5,000 both (i) as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date, including in each case true, complete and correct copies of leases
for material equipment and an indication as to which assets are currently owned,
or were formerly owned, by any Stockholder or business or personal affiliates of
any Stockholder or of the Company.
(b) The Company currently owns or leases all personal property and
other assets necessary to conduct the business and operations of the Company as
they are currently being conducted, free and clear of all Liens except for such
Liens as are set forth on Schedule 3.17(a).
(c) All of the trucks and other material, machinery and equipment of
the Company, including those listed on Schedule 3.17(a), are in good working
order and condition, ordinary wear and tear excepted. All leases set forth on
Schedule 3.17(a) are in full force and effect and constitute valid and binding
agreements of the Company, and the Company is not in breach of any of their
terms. All fixed assets used by the Company that are material to the operation
of its business are either owned by the Company or leased under an agreement
listed on Schedule 3.17(a).
3.18 Intellectual Property.
(a) The Company is the true and lawful owner of, or is licensed or
otherwise possesses legally enforceable rights to use, the registered and
unregistered Marks (as defined below) listed on Schedule 3.18(a). Such schedule
lists (i) all of the Marks registered in the United States Patent and Trademark
Office ("PTO") or the equivalent thereof in any state of the United States or in
any foreign country, and (ii) all of the unregistered Marks, that the Company
now owns or uses in connection with its business. Except with respect to those
Marks shown as licensed on Schedule 3.18(a), the Company owns all of the
registered and unregistered trademarks, service marks, and trade names that it
uses. The Marks listed on Schedule 3.18(a) will not cease to be valid rights of
the Company by reason of the execution, delivery and performance of this
Agreement or the consummation of the transactions contemplated hereby. For
purposes of this Section 3.18, the term "▇▇▇▇" shall mean all right, title and
interest in and to any United States or foreign trademarks, service marks and
trade names now held by the Company, including any registration or application
for registration of any trademarks and services marks in the PTO or the
equivalent thereof in any state of the United States or in any foreign country,
as well as any unregistered marks used by the Company, and any trade dress
(including logos, designs, company names, business names, fictitious names and
other business identifiers) used by the Company in the United States or any
foreign country.
(b) The Company is the true and lawful owner of, or is licensed or
otherwise possesses legally enforceable rights to use, all rights in the Patents
(as defined below) listed on Schedule 3.18(b)(i) and in the Copyright (as
defined below) registrations listed on Schedule 3.18(b)(ii). Such Patents and
Copyrights constitute all of the Patents and Copyrights that the Company now
owns or is licensed to use. The Company owns or is licensed to practice under
all patents and copyright registrations that the Company now owns or uses in
connection with its business. For purposes of this Section 3.18, the term
"Patent" shall mean any United States or foreign patent to which the Company has
title as of the date of this Agreement, as well as any application for a United
States or foreign patent made by the Company; the term "Copyright" shall mean
any United States or foreign copyright owned by the Company as of the date of
this Agreement, including any registration of copyrights, in the United States
Copyright Office or the equivalent thereof in any foreign county, as well as any
application for a United States or foreign copyright registration made by the
Company.
(c) The Company is the true and lawful owner of, or is licensed or
otherwise possesses legally enforceable rights to use, all rights in the trade
secrets, franchises, or similar rights (collectively, "Other Rights") listed on
Schedule 3.18(c). Those Other Rights constitute all of the Other Rights that the
Company now owns or is licensed to use. The Company owns or is licensed to
practice under all trade secrets, franchises or similar rights that it owns,
uses or practices under.
(d) The Marks, Patents, Copyrights, and Other Rights listed on
Schedules 3.18(a), 3.18(b)(i), 3.18(b)(ii), and 3.18(c) are referred to
collectively herein as the "Intellectual Property." The Intellectual Property
owned by the Company is referred to herein collectively as the "Company
Intellectual Property." All other Intellectual Property is referred to herein
collectively as the "Third Party Intellectual Property." Except as indicated on
Schedule 3.18(d), the Company has no obligations to compensate any person for
the use of any Intellectual Property nor has the Company granted to any person
any license, option or other rights to use in any manner any Intellectual
Property, whether requiring the payment of royalties or not.
(e) The Company is not, nor will it be as a result of the execution
and delivery of this Agreement or the performance of its obligations hereunder,
in violation of any Third Party Intellectual Property license, sublicense or
agreement described in Schedule 3.18(a), (b), or (c). No claims with respect to
the Company Intellectual Property or Third Party Intellectual Property are
currently pending or, to the knowledge of the Company, are threatened by any
person, nor, to the Company's knowledge, do any grounds for any claims exist:
(i) to the effect that the manufacture, sale, licensing or use of any product as
now used, sold or licensed or proposed for use, sale or license by the Company
infringes on any copyright, patent, trademark, service ▇▇▇▇ or trade secret;
(ii) against the use by the Company of any trademarks, trade names, trade
secrets, copyrights, patents, technology, know-how or computer software programs
and applications used in the Company's business as currently conducted by the
Company; (iii) challenging the ownership, validity or effectiveness of any of
the Company Intellectual Property or other trade secret material to the Company;
or (iv) challenging the Company's license or legally enforceable right to use of
the Third Party Intellectual Property. To the Company's knowledge, there is no
unauthorized use, infringement or misappropriation of any of the Company
Intellectual Property by any third party. Neither the Company nor any of its
subsidiaries (x) has been sued or charged in writing as a defendant in any
claim, suit, action or proceeding which involves a claim or infringement of
trade secrets, any patents, trademarks, service marks, or copyrights and which
has not been finally terminated or been informed or notified by any third party
that the Company may be engaged in such infringement or (y) has knowledge of any
infringement liability with respect to, or infringement by, the Company or any
of its subsidiaries of any trade secret, patent, trademark, service ▇▇▇▇, or
copyright of another.
3.19 Significant Customers; Material Contracts and Commitments.
(a) Schedule 3.19(a) sets forth a complete and accurate list of all
Significant Customers and Significant Suppliers. For purposes of this Agreement,
"Significant Customers" are the twenty (20) customers that have effected the
most purchases, in dollar terms, from the Company during each of the past four
(4) fiscal quarters, and "Significant Suppliers" are the twenty (20) suppliers
who supplied the largest amount by dollar volume of products or services to the
Company during the twelve (12) months ending on the Balance Sheet Date.
(b) Schedule 3.19(b) contains a complete and accurate list of all
contracts, commitments, leases, instruments, agreements, licenses or permits,
written or oral, to which the Company is a party or by which it or its
properties are bound (including without limitation contracts with Significant
Customers, joint venture or partnership agreements, contracts with any labor
organizations, employment agreements, consulting agreements, loan agreements,
indemnity or guaranty agreements, bonds, mortgages, options to purchase land,
liens, pledges or other security agreements) (i) to which the Company and any
affiliate of the Company or any officer, director or stockholder of the Company
are parties ("Related Party Agreements"); (ii) that may give rise to obligations
or liabilities exceeding, during the current term thereof, $10,000 or (iii) that
may generate revenues or income exceeding, during the current term thereof,
$10,000 (collectively with the Related Party Agreements, the "Material
Contracts"). The Company has delivered to Buyer true, complete and correct
copies of the Material Contracts.
(c) Except to the extent set forth on Schedule 3.19(c), (i) none of
the Company's Significant Customers has canceled or substantially reduced or, to
the knowledge of the Company, is currently attempting or threatening to cancel
or substantially reduce, any purchases from the Company, (ii) none of the
Company's Significant Suppliers has canceled or substantially reduced or, to the
knowledge of the Company, is currently attempting to cancel or substantially
reduce, the supply of products or services to the Company, (iii) the Company has
complied with all of its commitments and obligations and is not in default under
any of the Material Contracts, and no notice of default has been received with
respect to any thereof, and (iv) there are no Material Contracts that were not
negotiated at arm's length. The Company has not received any material customer
complaints concerning its products and/or services, nor has it had any of its
products returned by a purchaser thereof except for normal warranty returns
consistent with past history and those returns that would not result in a
reversal of any material revenue.
(d) Each Material Contract, except those terminated pursuant to
Section 5.5, is valid and binding on the Company and is in full force and effect
and is not subject to any default thereunder by any party obligated to the
Company pursuant thereto. The Company has obtained all necessary consents,
waivers and approvals of parties to any Material Contracts that are required in
connection with any of the transactions contemplated hereby, or are required by
any governmental agency or other third party or are advisable in order that any
such Material Contract remain in effect without modification after the
transactions contemplated by this Agreement and without giving rise to any right
to termination, cancellation or acceleration or loss of any right or benefit
("Third Party Consents"). All Third Party Consents are listed on Schedule
3.19(d).
(e) The Company is not a "women's business enterprise" ("WBE") or
"woman-owned business concern" as defined in 48 C.F.R. ss. 52.204-5, or a
"minority business enterprise" ("MBE") or "minority-owned business concern" as
defined in 48 C.F.R. ss. 52.219- 8, nor has it held itself out to be such to any
of its customers.
(f) The outstanding balance on all loans or credit agreements either
(i) between the Company and any person in which any of the Stockholders owns a
material interest, or (ii) guaranteed by the Company for the benefit of any
person in which any of the Stockholders owns a material interest, are set forth
in Schedule 3.19(f).
(g) The pledge, hypothecation or mortgage of all or substantially
all of the Company's assets (including, without limitation, a pledge of the
Company's contract rights under any Material Contract) will not, except as set
forth on Schedule 3.19(g), (i) result in the breach or violation of, (ii)
constitute a default under, (iii) create a right of termination under, or (iv)
result in the creation or imposition of (or the obligation to create or impose)
any lien upon any of the assets of the Company (other than a lien created
pursuant to the pledge, hypothecation or mortgage described at the start of this
Section 3.19(g)) pursuant to any of the terms and provisions of, any Material
Contract to which the Company is a party or by which the property of the Company
is bound.
3.20 Government Contracts.
(a) Except as set forth on Schedule 3.20, the Company is not a party
to any government contracts.
(b) The Company has not been suspended or debarred from bidding on
contracts or subcontracts for any agency or instrumentality of the United States
Government or any state or local government, nor, to the knowledge of the
Company, has any suspension or debarment action been threatened or commenced.
There is no valid basis for the Company's suspension or debarment from bidding
on contracts or subcontracts for any agency of the United States Government or
any state or local government.
(c) Except as set forth in Schedule 3.20, the Company has not been,
nor is it now being, audited or investigated by any government agency, or the
inspector general or auditor general or similar functionary of any agency or
instrumentality, nor, to the knowledge of the Company, has such audit or
investigation been threatened.
(d) The Company has no dispute pending before a contracting office
of, nor any current claim pending against, any agency or instrumentality of the
United States Government or any state or local government, relating to a
contract.
(e) The Company has not, with respect to any government contract,
received a cure notice advising the Company that it is or was in default or
would, if it failed to take remedial action, be in default under such contract.
(f) The Company has not submitted any inaccurate, untruthful, or
misleading cost or pricing data, certification, bid, proposal, report, claim, or
any other information relating to a contract to any agency or instrumentality of
the United States Government or any state or local government.
(g) No employee, agent, consultant, representative, or affiliate of
the Company is in receipt or possession of any competitor or government
proprietary or procurement sensitive information related to the Company's
business under circumstances where there is reason to believe that such receipt
or possession is unlawful or unauthorized.
(h) Each of the Company's government contracts has been issued,
awarded or novated to the Company in the Company's name.
3.21 Inventory. The inventory of the Company consists of raw materials and
supplies, manufactured and purchased parts, goods in process and finished goods,
all of which is merchantable and fit for the purposes for which it was procured
or manufactured, and none of which is slow-moving, obsolete, damaged, or
defective, subject to a GAAP reserve for inventory set forth on the face of the
Interim Balance Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Company.
3.22 Insurance. Schedule 3.22 sets forth a complete and accurate list, as
of the Balance Sheet Date, of all insurance policies carried by the Company and
the loss experience with respect to such policies for the past two (2) policy
years. The Company has delivered to Buyer true, complete and correct copies of
all current insurance policies, all of which are in full force and effect. All
premiums payable under all such policies have been paid and the Company is
otherwise in full compliance with the terms of such policies. Such policies of
insurance are of the type and in amounts customarily carried by persons
conducting businesses similar to that of the Company. To the knowledge of the
Company, there have been no threatened terminations of, or material premium
increases with respect to, any of such policies.
3.23 Environmental Matters.
(a) The Company and, to the Company's knowledge, any other person or
entity for whose conduct the Company is or may be held responsible, have no
liability under, have never violated, and are presently in compliance with any
and all environmental, health or safety-related laws, regulations, ordinances or
by-laws at the federal, state and local level (the "Environmental Laws")
applicable to the Real Property and any facilities and operations thereon,
except as listed in Schedule 3.23(a).
(b) To the Company's knowledge, there exist no conditions with
respect to the environment on or off the Real Property, whether or not yet
discovered, that could or do result in any damage, loss, cost, expense, claim,
demand, order or liability to or against the Company by any third party
including, without limitation, any condition resulting from the operation of the
Company's business and/or the operation of the business of any other property
owner or operator in the vicinity of the Real Property and/or any activity or
operation formerly conducted by any person or entity on or off the Real
Property, except as set forth in Schedule 3.23(b).
(c) The Company, and, to the Company's knowledge, any other person
or entity for whose conduct the Company is or may be held responsible, have not
generated, manufactured, refined, transported, treated, stored, handled,
disposed, transferred, produced, or processed any pollutant, toxic substance,
hazardous waste, hazardous material, hazardous substance, or oil as defined in
or pursuant to the Resource Conservation and Recovery Act, as amended, 42 U.S.C.
ss. 6901 et seq., the Comprehensive Environmental Response, Compensation, and
Liability Act, as amended, 42 U.S.C. ss. 9601 et seq., the Federal Clean Water
Act, as amended, 33 U.S.C. ss. 1251 et seq., or any other federal, state, or
local environmental law, regulation, ordinance, rule, or bylaw, whether existing
as of the date hereof, previously enforced, or subsequently enacted ("Hazardous
Material") or any solid waste at the Real Property, or at any other location,
except in compliance with all applicable Environmental Laws and except as listed
in Schedule 3.23(c).
(d) The Company has no knowledge of the releasing, spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, disposing, or dumping into the soil, surface waters, ground waters,
land, stream sediments, surface or subsurface strata, ambient air, sewer system,
or any environmental medium with respect to the Real Property ("Environmental
Condition") except as listed in Schedule 3.23(d).
(e) No Lien has been imposed on the Real Property by any
governmental entity at the federal, state, or local level in connection with the
presence on or off the Real Property of any Hazardous Material, except as listed
in Schedule 3.23(e).
(f) The Company has not, and, to the Company's knowledge, any other
person or entity for whose conduct the Company is or may be held responsible has
not, (i) entered into or been subject to any consent decree, compliance order,
or administrative order with respect to the Real Property or any facilities or
operations thereon; (ii) received notice under the citizen suit provision of any
of the Environmental Laws in connection with the Real Property or any facilities
or operations thereon; (iii) received any request for information, notice,
demand letter, administrative inquiry, or formal or informal compliant or claim
with respect to any Environmental Condition relating to the Real Property or any
facilities or operations thereon; or (iv) been subject to or threatened with any
governmental or citizen enforcement action with respect to the Real Property or
any facilities or operations thereon, except as set forth in Schedule 3.23(f);
and the Company, and any other person or entity for whose conduct it is or may
be held responsible, have no knowledge that any of the above will be
forthcoming.
(g) The Company has all permits necessary pursuant to Environmental
Laws for its activities and operations at the Real Property and for any past or
ongoing alterations or improvements at the Real Property, which permits are
listed in Schedule 3.23(g).
(h) To the Company's knowledge, none of the following exists at the
Real Property: (1) underground storage tanks, (2) asbestos-containing materials
in any form or condition, (3) materials or equipment containing polychlorinated
biphenyls, (4) lead paint, pipes or solder, or (5) landfills, surface
impoundments or disposal areas, except as listed in Schedule 3.23(h).
(i) The Company has provided to Buyer copies of all documents,
records and information in its possession or control or available to the Company
concerning Environmental Conditions relevant to the Real Property or any
facilities or operations thereon, whether generated by Company or others,
including, without limitation, environmental audits, environmental risk
assessments, or site assessments of the Real Property and/or any adjacent
property or other property in the vicinity of the Real Property owned or
operated by the Company or others, documentation regarding off-site disposal of
Hazardous Materials, spill control plans, and environmental agency reports and
correspondence. Furthermore, the Stockholders shall have an ongoing obligation
to immediately provide to Buyer copies of any additional such documents that
come into the possession or control of or become available to the Stockholders
subsequent to the date hereof.
(j) The Company has, at its sole cost and expense, taken or caused
to be taken all actions necessary to ensure that as of the Closing Date the Real
Property, all activities and operations thereon, and all alterations and
improvements thereto, comply with all applicable Environmental Laws and with any
and all agreements with governmental entities, court orders, and administrative
orders regarding Environmental Conditions.
3.24 Labor and Employment Matters. With respect to employees of
and service providers to the Company:
(a) the Company is and has been in compliance in all material
respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including
without limitation any such laws respecting employment discrimination, workers'
compensation, family and medical leave, the Immigration Reform and Control Act,
and occupational safety and health requirements, and has not and is not engaged
in any unfair labor practice;
(b) there is not now, nor within the past three (3) years has there
been, any unfair labor practice complaint against the Company pending or, to the
Company's knowledge, threatened, before the National Labor Relations Board or
any other comparable authority;
(c) there is not now, nor within the past three (3) years has there
been, any labor strike, slowdown or stoppage actually pending or, to the
Company's knowledge, threatened, against or directly affecting the Company;
(d) to the Company's knowledge, no labor representation organization
effort exists nor has there been any such activity within the past three (3)
years;
(e) no grievance or arbitration proceeding arising out of or under
collective bargaining agreements is pending and, to the Company's knowledge, no
claims therefor exist or have been threatened;
(f) the employees of the Company are not and have never been
represented by any labor union, and no collective bargaining agreement is
binding and in force against the Company or currently being negotiated by the
Company; and
(g) all persons classified by the Company as independent contractors
do satisfy and have satisfied the requirements of law to be so classified, and
the Company has fully and accurately reported their compensation on IRS Forms
1099 when required to do so.
3.25 Employee Benefit Plans.
(a) Definitions.
(i) "Benefit Arrangement" means any benefit arrangement,
obligation, custom, or practice, whether or not legally enforceable, to provide
benefits, other than salary, as compensation for services rendered, to present
or former directors, employees, agents, or independent contractors, other than
any obligation, arrangement, custom or practice that is an Employee Benefit
Plan, including, without limitation, employment agreements, severance
agreements, executive compensation arrangements, incentive programs or
arrangements, sick leave, vacation pay, severance pay policies, plant closing
benefits, salary continuation for disability, consulting, or other compensation
arrangements, workers' compensation, retirement, deferred compensation, bonus,
stock option or purchase, hospitalization, medical insurance, life insurance,
tuition reimbursement or scholarship programs, any plans subject to Section 125
of the Code, and any plans providing benefits or payments in the event of a
change of control, change in ownership, or sale of a substantial portion
(including all or substantially all) of the assets of any business or portion
thereof, in each case with respect to any present or former employees,
directors, or agents.
(ii) "Company Benefit Arrangement" means any Benefit
Arrangement sponsored or maintained by the Company or with respect to which the
Company has or may have any liability (whether actual, contingent, with respect
to any of its assets or otherwise) as of the Closing Date, in each case with
respect to any present or former directors, employees, or agents of the Company.
(iii) "Company Plan" means, as of the Closing Date, any
Employee Benefit Plan for which the Company is the "plan sponsor" (as defined in
Section 3(16)(B) of ERISA) or any Employee Benefit Plan maintained by the
Company or to which the Company is obligated to make payments, in each case with
respect to any present or former employees of the Company.
(iv) "Employee Benefit Plan" has the meaning given in Section
3(3) of ERISA.
(v) "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended, and all regulations and rules issued thereunder, or any
successor law.
(vi) "ERISA Affiliate" means any person that, together with
the Company, would be or was at any time treated as a single employer under
Section 414 of the Code or Section 4001 of ERISA and any general partnership of
which the Company is or has been a general partner.
(vii) "Multiemployer Plan" means any Employee Benefit Plan
described in Section 3(37) of ERISA.
(viii) "Qualified Plan" means any Employee Benefit Plan that
meets, purports to meet, or is intended to meet the requirements of Section
401(a) of the Code.
(ix) "Welfare Plan" means any Employee Benefit Plan described
in Section 3(1) of ERISA.
(b) Schedule 3.25(b) contains a complete and accurate list of all
Company Plans and Company Benefit Arrangements. Schedule 3.25(b) specifically
identifies all Company Plans (if any) that are Qualified Plans.
(c) With respect, as applicable, to Employee Benefit Plans and
Benefit Arrangements:
(i) true, correct, and complete copies of all the following
documents with respect to each Company Plan and Company Benefit Arrangement, to
the extent applicable, have been delivered to Buyer: (A) all documents
constituting the Company Plans and Company Benefit Arrangements, including but
not limited to, trust agreements, insurance policies, service agreements, and
formal and informal amendments thereto; (B) the most recent Forms 5500 or
5500C/R and any financial statements attached thereto and those for the prior
three (3) years; (C) the last Internal Revenue Service determination letter, the
last IRS determination letter that covered the qualification of the entire plan
(if different), and the materials submitted by the Company to obtain those
letters; (D) the most recent summary plan description; (E) the most recent
written descriptions of all non-written agreements relating to any such plan or
arrangement; (F) all reports submitted within the four (4) years preceding the
date of this Agreement by third-party administrators, actuaries, investment
managers, consultants, or other independent contractors; (G) all notices that
were given within the three (3) years preceding the date of this Agreement by
the IRS, Department of Labor, or any other governmental agency or entity with
respect to any plan or arrangement; and (H) employee manuals or handbooks
containing personnel or employee relations policies;
(ii) the Premier Graphics, Inc. Retirement Plan (the "Company
401(k) Plan") is the only Qualified Plan. The Company has never maintained or
contributed to another Qualified Plan. The Company 401(k) Plan qualifies under
Section 401(a) of the Code, and any trusts maintained pursuant thereto are
exempt from federal income taxation under Section 501 of the Code, and nothing
has occurred with respect to the design or operation of any Qualified Plans that
could cause the loss of such qualification or exemption or the imposition of any
liability, lien, penalty, or tax under ERISA or the Code;
(iii) the Company has never sponsored or maintained, had any
obligation to sponsor or maintain, or had any liability (whether actual or
contingent, with respect to any of its assets or otherwise) with respect to any
Employee Benefit Plan subject to Section 302 of ERISA or Section 412 of the Code
or Title IV of ERISA (including any Multiemployer Plan);
(iv) each Company Plan and each Company Benefit Arrangement
has been maintained in accordance with its constituent documents and with all
applicable provisions of the Code, ERISA and other laws, including federal and
state securities laws;
(v) there are no pending claims or lawsuits by, against, or
relating to any Employee Benefit Plans or Benefit Arrangements that are not
Company Plans or Company Benefit Arrangements that would, if successful, result
in liability of the Company or any Stockholder, and no claims or lawsuits have
been asserted, instituted or, to the knowledge of the Company, threatened by,
against, or relating to any Company Plan or Company Benefit Arrangement, against
the assets of any trust or other funding arrangement under any such Company
Plan, by or against the Company with respect to any Company Plan or Company
Benefit Arrangement, or by or against the plan administrator or any fiduciary of
any Company Plan or Company Benefit Arrangement, and the Company does not have
knowledge of any fact that could form the basis for any such claim or lawsuit.
The Company Plans and Company Benefit Arrangements are not presently under audit
or examination (nor has notice been received of a potential audit or
examination) by the IRS, the Department of Labor, or any other governmental
agency or entity, and no matters are pending with respect to the Company 401(k)
Plan under the IRS's Voluntary Compliance Resolution program, its Closing
Agreement Program, or other similar programs;
(vi) no Company Plan or Company Benefit Arrangement contains
any provision or is subject to any law that would prohibit the transactions
contemplated by this Agreement or that would give rise to any vesting of
benefits, severance, termination, or other payments or liabilities as a result
of the transactions contemplated by this Agreement;
(vii) with respect to each Company Plan, there has occurred no
non-exempt "prohibited transaction" (within the meaning of Section 4975 of the
Code) or transaction prohibited by Section 406 of ERISA or breach of any
fiduciary duty described in Section 404 of ERISA that would, if successful,
result in any liability for the Company or any Stockholder, officer, director,
or employee of the Company;
(viii) all reporting, disclosure, and notice requirements of
ERISA and the Code have been fully and completely satisfied with respect to each
Company Plan and each Company Benefit Arrangement;
(ix) all amendments and actions required to bring the Company
Benefit Plans into conformity with the applicable provisions of ERISA, the Code,
and other applicable laws have been made or taken except to the extent such
amendments or actions (A) are not required by law to be made or taken until
after the Closing Date and (B) are disclosed on Schedule 3.25(c);
(x) payment has been made of all amounts that the Company is
required to pay as contributions to the Company Benefit Plans as of the last day
of the most recent fiscal year of each of the plans ended before the date of
this Agreement; all benefits accrued under any unfunded Company Plan or Company
Benefit Arrangement will have been paid, accrued, or otherwise adequately
reserved in accordance with GAAP as of the Balance Sheet Date; and all monies
withheld from employee paychecks with respect to Company Plans have been
transferred to the appropriate plan within 30 days of such withholding;
(xi) the Company has not prepaid or prefunded any Welfare Plan
through a trust, reserve, premium stabilization, or similar account, nor does it
provide benefits through a voluntary employee beneficiary association as defined
in Section 501(c)(9);
(xii) no statement, either written or oral, has been made by
the Company to any person with regard to any Company Plan or Company Benefit
Arrangement that was not in accordance with the Company Plan or Company Benefit
Arrangement and that could have an adverse economic consequence to the Company;
(xiii) the Company has no liability (whether actual,
contingent, with respect to any of its assets or otherwise) with respect to any
Employee Benefit Plan or Benefit Arrangement that is not a Company Benefit
Arrangement or with respect to any Employee Benefit Plan sponsored or maintained
(or which has been or should have been sponsored or maintained) by any ERISA
Affiliate;
(xiv) all group health plans of the Company and its affiliates
have been operated in material compliance with the requirements of Sections
4980B (and its predecessor) and 5000 of the Code, and the Company has provided,
or will have provided before the Closing Date, to individuals entitled thereto
all required notices and coverage pursuant to Section 4980B with respect to any
"qualifying event" (as defined therein) occurring before or on the Closing Date;
(xv) no employee or former employee of the Company or
beneficiary of any such employee or former employee is, by reason of such
employee's or former employee's employment, entitled to receive any benefits,
including, without limitation, death or medical benefits (whether or not
insured) beyond retirement or other termination of employment as described in
Statement of Financial Accounting Standards No. 106, other than (i) death or
retirement benefits under a Qualified Plan, (ii) deferred compensation benefits
accrued as liabilities on the Interim Balance Sheet or (iii) continuation
coverage mandated under Section 4980B of the Code or other applicable law.
(d) Schedule 3.25(d) sets forth certain experience ratings and loss
run information with respect to the Company's workers' compensation policy.
(e) Schedule 3.25(e) hereto sets forth an accurate list, as of the
date hereof, of all employees of the Company who may earn more than $50,000 in
1999, all officers and all directors, and lists all employment agreements with
such employees, officers and directors and the rate of compensation (and the
portions thereof attributable to salary, bonus, and other compensation
respectively) of each such person as of (a) the Balance Sheet Date and (b) the
date hereof.
(f) The Company has not declared or paid any bonus compensation in
contemplation of the transactions contemplated by this Agreement.
3.26 Taxes.
(a) (i) The Company has timely filed all Tax Returns due on or
before the Closing Date, and all such Tax Returns are true, correct, and
complete in all respects.
(ii) The Company has paid in full on a timely basis all Taxes
owed by it, whether or not shown on any Tax Return.
(iii) The amount of the Company's liability for unpaid Taxes
as of the Balance Sheet Date did not exceed the amount of the current liability
accruals for Taxes (excluding reserves for deferred Taxes) shown on the Interim
Balance Sheet, and the amount of the Company's liability for unpaid Taxes for
all periods or portions thereof ending on or before the Closing Date will not
exceed the amount of the current liability accruals for Taxes (excluding
reserves for deferred Taxes) as such accruals are reflected on the books and
records of the Company on the Closing Date.
(iv) Except as set forth on Schedule 3.26, there are no
ongoing examinations or claims against the Company for Taxes, and no notice of
any audit, examination, or claim for Taxes, whether pending or threatened, has
been received.
(v) The Company has a taxable year ended on December 31, in
each year commencing 1991.
(vi) The Company currently utilizes the accrual method of
accounting for income Tax purposes and such method of accounting has not changed
since the date of the Company's incorporation. The Company has not agreed to,
and is not and will not be required to, make any adjustments under Code Section
481(a) as a result of a change in accounting methods.
(vii) The Company has withheld and paid over to the proper
governmental authorities all Taxes required to have been withheld and paid over,
and complied with all information reporting and backup withholding requirements,
including maintenance of required records with respect thereto, in connection
with amounts paid to any employee, independent contractor, creditor, or other
third party.
(viii) Copies of (A) any Tax examinations, (B) extensions of
statutory limitations for the collection or assessment of Taxes and (C) the Tax
Returns of the Company for the last fiscal year have been delivered to Buyer.
(ix) There are (and as of immediately following the Closing
there will be) no Liens on the assets of the Company relating to or attributable
to Taxes.
(x) To the Company's knowledge, there is no basis for the
assertion of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of the Company or otherwise
have an adverse effect on the Company or its business.
(xi) None of the Company's assets are treated as "tax exempt
use property" within the meaning of Section 168(h) of the Code.
(xii) There are no contracts, agreements, plans or
arrangements, including but not limited to the provisions of this Agreement,
covering any employee or former employee of the Company that, individually or
collectively, could give rise to the payment of any amount (or portion thereof)
that would not be deductible pursuant to Sections 280G, 404 or 162 of the Code.
(xiii) The Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply
to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by the Company.
(xiv) The Company is not, and has not been at any time, a
party to a tax sharing, tax indemnity or tax allocation agreement, and the
Company has not assumed the tax liability of any other person under contract.
(xv) The Company is not, and has not been at any time, a
"United States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
(xvi) The Company's tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal income tax
deductions is accurately reflected on the Company's tax books and records.
(xvii) The Company has not been a member of an affiliated
group filing a consolidated federal income Tax Return and does not have any
liability for the Taxes of another person under Treas. Reg. ss. 1.1502-6 (or any
similar provision of state, local or foreign law), as a transferee or successor,
by contract or otherwise.
(b) (i) The Company has, since its date of incorporation, been an S
Corporation within the meaning of Section 1361 of the Code.
(ii) The Company does not have a net recognizable built-in
gain within the meaning of Section 1374 of the Code.
(c) For purposes of this Agreement:
(i) the term "Tax" shall include any tax or similar
governmental charge, impost or levy (including without limitation income taxes,
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipts
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
property taxes, withholding taxes, payroll taxes, minimum taxes or windfall
profit taxes) together with any related penalties, fines, additions to tax or
interest imposed by the United States or any state, county, local or foreign
government or subdivision or agency thereof; and
(ii) the term "Tax Return" shall mean any return (including
any information return), report, statement, schedule, notice, form, estimate, or
declaration of estimated tax relating to or required to be filed with any
governmental authority in connection with the determination, assessment,
collection or payment of any Tax.
3.27 Conformity with Law; Litigation.
(a) The Company has not violated any law or regulation or any order
of any court or federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
it.
(b) No Stockholder has, at any time: (i) committed any criminal act
(except for minor traffic violations); (ii) engaged in acts of fraud,
dishonesty, gross negligence or moral turpitude; (iii) filed for personal
bankruptcy; or (iv) been an officer, director, manager, trustee or controlling
shareholder of a company that filed for bankruptcy or Chapter 11 protection.
(c) Except as set forth on Schedule 3.27(c), there are no claims,
actions, suits or proceedings, pending or, to the knowledge of the Company,
threatened against or affecting the Company at law or in equity, or before or by
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received. There are no judgments, orders, injunctions, decrees,
stipulations or awards (whether rendered by a court or administrative agency or
by arbitration) against the Company or against any of its properties or
business.
3.28 Relations with Governments. The Company has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office, nor has it otherwise taken any action that
would cause the Company to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
3.29 Absence of Changes. Since the Balance Sheet Date, the Company has
conducted its business in the ordinary course and, except as contemplated herein
or as set forth on Schedule 3.29, there has not been:
(a) any change, by itself or together with other changes, that has
affected adversely, or is likely to affect adversely, the business, operations,
affairs, prospects, properties, assets, profits or condition (financial or
otherwise) of the Company;
(b) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of the Company;
(c) any change in the authorized capital of the Company or in its
outstanding securities or any change in its ownership interests or any grant of
any options, warrants, calls, conversion rights or commitments;
(d) except for such payments or distributions to the Stockholders as
will not cause the Company's Certified Closing Net Worth to be less than the Net
Worth Target (any such payment or distribution a "Permitted Distribution"), any
declaration or payment of any dividend or distribution in respect of the capital
stock, or any direct or indirect redemption, purchase or other acquisition of
any of the capital stock of the Company;
(e) any increase in the compensation, bonus, sales commissions or
fee arrangements payable or to become payable by the Company to any of its
officers, directors, Stockholders, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in accordance
with past practice, nor has the Company entered into or amended any Company
Benefit Arrangement, Company Plan, employment, severance or other agreement
relating to compensation or fringe benefits;
(f) any work interruptions, labor grievances or claims filed, or any
similar event or condition of any character, materially adversely affecting the
business or future prospects of the Company;
(g) except for any Permitted Distribution, any sale or transfer, or
any agreement to sell or transfer, any material assets, property or rights of
the Company to any person, including without limitation the Stockholders and
their affiliates;
(h) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of the Stockholders and their affiliates, provided
that the Company may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice;
(i) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of the Company or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(j) 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 of the Company;
(k) any waiver of any material rights or claims of the Company;
(l) any breach, amendment or termination of any material contract,
agreement, license, permit or other right to which the Company is a party;
(m) except for any Permitted Distribution, any transaction by the
Company outside the ordinary course of business;
(n) any capital commitment by the Company, either individually or in
the aggregate, exceeding $5,000;
(o) any change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company or the
revaluation by the Company of any of its assets;
(p) any creation or assumption by the Company of any mortgage,
pledge, security interest or lien or other encumbrance on any asset (other than
liens arising under existing lease financing arrangements which are not material
and liens for Taxes not yet due and payable);
(q) any entry into, amendment of, relinquishment, termination or
non- renewal by the Company of any contract, lease transaction, commitment or
other right or obligation requiring aggregate payments by the Company in excess
of $5,000;
(r) any loan by the Company to any person or entity, incurring by
the Company of any indebtedness, guaranteeing by the Company of any
indebtedness, issuance or sale of any debt securities of the Company or
guaranteeing of any debt securities of others;
(s) the commencement or notice or, to the knowledge of the Company,
threat of commencement, of any lawsuit or proceeding against, or investigation
of, the Company or any of its affairs; or
(t) negotiation or agreement by the Company or any officer or
employee thereof to do any of the things described in the preceding clauses (a)
through (s) (other than negotiations with Buyer and its representatives
regarding the transactions contemplated by this Agreement).
3.30 Disclosure. All written agreements, lists, schedules, instruments,
exhibits, documents, certificates, reports, statements and other writings
furnished to Buyer pursuant hereto or in connection with this Agreement or the
transactions contemplated hereby, are and will be complete and accurate in all
material respects. No representation or warranty by the Stockholders or the
Company contained in this Agreement, in the Schedules attached hereto or in any
certificate furnished or to be furnished by the Stockholders or the Company to
Buyer in connection herewith or pursuant hereto contains or will contain any
untrue statement of a material fact or omits or will omit to state any material
fact necessary in order to make any statement contained herein or therein not
misleading. There is no fact known to any Stockholder that has specific
application to such Stockholder or the Company (other than general economic or
industry conditions) and that materially adversely affects or, as far as such
Stockholder can reasonably foresee, materially threatens, the assets, business,
prospects, financial condition, or results of operations of the Company that has
not been set forth in this Agreement or any Schedule hereto.
3.31 Predecessor Status; Etc. Schedule 3.31 sets forth a listing of all
legal names, trade names, fictitious names or other names (including, without
limitation, any names of divisions or operations) of the Company and all of its
predecessor companies during the five-year period immediately preceding the
Closing, including without limitation the names of any entities from whom the
Company has acquired material assets. During the five (5) year period
immediately preceding the Closing, the Company has operated only under the names
set forth on Schedule 3.31 in the jurisdiction or jurisdictions set forth on
Schedule 3.31 and has not been a subsidiary or division of another corporation
or a part of an acquisition which was later rescinded.
3.32 Location of Chief Executive Offices. Schedule 3.32 sets forth the
location of the Company's chief executive offices.
3.33 Location of Equipment and Inventory. All inventory and equipment held
on the date hereof by the Company is located at one of the locations shown on
Schedule 3.33. For purposes of this Agreement, (a) the term "inventory" shall
mean any inventory of whatever nature owned by the Company as of the date
hereof, and, in any event, shall include, but shall not be limited to, all
merchandise, inventory and goods wherever located, together with all goods,
supplies, incidentals, packaging materials and any other items used or usable in
manufacturing, processing, packaging or shipping the same; in all stages of
production -- from raw materials through work-in-process to finished goods; and
(b) the term "equipment" shall mean any "equipment" of any nature owned by the
Company as of the date hereof, and, in any event, shall include, but shall not
be limited to, all machinery, equipment, furnishings, fixtures and vehicles
owned by the Company as of the date hereof, wherever located, together with all
attachments, components, parts, equipment and accessories installed thereon or
affixed thereto.
3.34 Year 2000 Compliance. To the extent the Company may not be Year 2000
Compliant and Ready (as defined below) at any time prior to June 30, 1999, the
Company has no reason to believe that such status will result in a material
adverse affect on the Company's business, operations, affairs, prospects,
properties, assets, existing and potential liabilities, obligations, profits or
condition (financial or otherwise). In addition, the Company has no reason to
believe that its respective vendors, suppliers and customers are not Year 2000
Compliant and Ready where the failure to be Year 2000 Compliant and Ready would
have a material adverse affect on the business, operations, affairs, prospects,
properties, assets, existing and potential liabilities, obligations, profits or
condition (financial or otherwise) of the Company. For purposes of this
Agreement, the term "Year 2000 Compliant and Ready," with respect to any person,
means that the hardware and software systems and components (including without
limitation imbedded microchips) owned, licensed or used by such person in
connection with its business operations will (without any additional cost or the
need for human intervention) (i) accurately process information involving any
and all dates before, during and/or after January 1, 2000, including without
limitation recognizing and processing input, providing output, storing
information and performing date-related calculations, all without creating any
ambiguity as to the century and without any other error or malfunction, (ii)
operate accurately without material interruption or malfunction on and in
respect of any and all dates before, during and/or after January 1, 2000 and
(iii) where applicable, respond to and process two digit year input without
creating any ambiguity as to the century.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
To induce the Company and the Stockholders to enter into this Agreement
and consummate the transactions contemplated hereby, Buyer represents and
warrants to the Company and the Stockholders as follows:
4.1 Due Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and is
duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted.
4.2 Authorization; Validity of Obligations. The representative of Buyer
executing this Agreement has all requisite corporate power and authority to
enter into and bind Buyer to the terms of this Agreement. Buyer has the full
legal right, power and corporate authority to enter into this Agreement and the
transactions contemplated hereby. The execution and delivery of this Agreement
by Buyer and the performance by Buyer of the transactions contemplated herein
has been duly and validly authorized by the Board of Directors of Buyer and this
Agreement has been duly and validly authorized by all necessary corporate
action. This Agreement is a legal, valid and binding obligation of Buyer
enforceable in accordance with its terms.
4.3 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions herein contemplated hereby and
the fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of
the Buyer's Certificate of Incorporation or Bylaws;
(b) conflict with, or result in a default (or would constitute a
default but for a requirement of notice or lapse of time or both) under any
document, agreement or other instrument to which Buyer is a party, or result in
the creation or imposition of any lien, charge or encumbrance on any of Buyer's
properties pursuant to (i) any law or regulation to which Buyer or any of its
property is subject, or (ii) any judgment, order or decree to which Buyer is
bound or any of its property is subject;
(c) result in termination or any impairment of any material permit,
license, franchise, contractual right or other authorization of Buyer; or
(d) violate any law, order, judgment, rule, regulation, decree or
ordinance to which Buyer is subject, or by which Buyer is bound (including,
without limitation, the HSR Act, if applicable, together with all rules and
regulations promulgated thereunder).
5. COVENANTS
5.1 Tax Matters.
(a) The following provisions shall govern the allocation of
responsibility as between the Company, on the one hand, and the Stockholders, on
the other, for certain tax matters following the Closing Date:
(i) Stockholders shall prepare or cause to be prepared and
file or cause to be filed, within the time and in the manner provided by law,
all Tax Returns of the Company for all periods ending on or before the Closing
Date that are due after the Closing Date. Stockholders shall pay to the Company
on or before the due date of such Tax Returns the amount of all Taxes shown as
due on such Tax Returns to the extent that such Taxes are not reflected in the
current liability accruals for Taxes (excluding reserves for deferred Taxes)
shown on the Company's books and records as of the Closing Date. Such Tax
Returns shall be prepared and filed in accordance with applicable law and in a
manner consistent with past practices and shall be subject to review and
approval by Buyer. To the extent reasonably requested by the Stockholders or
required by law, Buyer and the Company shall participate in the filing of any
Tax Returns filed pursuant to this paragraph.
(ii) Except as set forth in Section 5.1(a)(v) with respect to
income Tax Returns for the Company for 1999, the Company shall prepare or cause
to be prepared and file or cause to be filed any Tax Returns for Tax periods
which begin before the Closing Date and end after the Closing Date. The
Stockholders shall pay to the Company within fifteen (15) days after the date on
which Taxes are paid with respect to such periods an amount equal to the portion
of such Taxes which relates to the portion of such taxable period ending on the
Closing Date to the extent such Taxes are not reflected in the current liability
accruals for Taxes (excluding reserves for deferred Taxes) shown on the
Company's books and records as of the Closing Date. For purposes of this Section
5.1, in the case of any Taxes that are imposed on a periodic basis and are
payable for a Taxable period that includes (but does not end on) the Closing
Date, the portion of such Tax which relates to the portion of such Taxable
period ending on the Closing Date shall (x) in the case of any Taxes other than
Taxes based upon or related to income or receipts, be deemed to be the amount of
such Tax for the entire Taxable period multiplied by a fraction the numerator of
which is the number of days in the Taxable period ending on the Closing Date and
the denominator of which is the number of days in the entire Taxable period, and
(y) in the case of any Tax based upon or related to income or receipts be deemed
equal to the amount which would be payable if the relevant Taxable period ended
on the Closing Date. Any credits relating to a Taxable period that begins before
and ends after the Closing Date shall be taken into account as though the
relevant Taxable period ended on the Closing Date. All determinations necessary
to give effect to the foregoing allocations shall be made in a manner consistent
with prior practice of the Company.
(iii) Buyer and the Company on one hand and Stockholders on
the other hand shall (A) cooperate fully, as reasonably requested, in connection
with the preparation and filing of Tax Returns pursuant to this Section 5.1 and
any audit, litigation or other proceeding with respect to Taxes; (B) make
available to the other, as reasonably requested, all information, records or
documents with respect to Tax matters pertinent to the Company for all periods
ending prior to or including the Closing Date; and (C) preserve information,
records or documents relating to Tax matters pertinent to the Company that are
in their possession or under their control until the expiration of any
applicable statute of limitations or extensions thereof.
(iv) The Stockholders shall timely pay all transfer,
documentary, sales, use, stamp, registration and other Taxes and fees arising
from or relating to the transactions contemplated by this Agreement, and the
Stockholders shall, at their own expense, file all necessary Tax Returns and
other documentation with respect to all such transfer, documentary, sales, use,
stamp, registration, and other Taxes and fees. If required by applicable law,
Buyer and the Company will join in the execution of any such Tax Returns and
other documentation.
(v) The Stockholders and Buyer agree that the Buyer's purchase
of the capital stock of the Company is controlled by Section 1362(e)(6)(D) of
the Code and Treasury Regulation ss. 1362-3(b)(3) wherein the 1999 calendar tax
year of the Company will be treated as two taxable years for income Tax purposes
and items of income, loss, deduction or credit shall be assigned to the two
short taxable years in accordance with the Company's normal method of accounting
under Treasury Regulation ss. 1.1362-3(b)(3) on a "per books" method. The
Stockholders and the Company shall file income Tax Returns for the 1999 calendar
tax year in a manner consistent with the foregoing.
(b) The Company shall, prior to the Closing, maintain its status as
an S Corporation for federal and state income tax purposes. The Company and the
Stockholders will not revoke the Company's election to be taxed as an S
corporation within the meaning of Sections 1361 and 1362 of the Code. The
Company and the Stockholders will not take or allow any action to be taken
(other than the sale of the Stock pursuant to this Agreement) that would result
in the termination of the Company's status as a validly electing S corporation
within the meaning of Sections 1361 and 1362 of the Code.
(c) The parties agree as follows with respect to Section 338(h)(10)
of the Code:
(i) At the Buyer's option, the Company and Stockholders will
join with Buyer in making a timely election under Section 338(h)(10) of the Code
(and any corresponding election under state, local, and foreign tax law) with
respect to the purchase and sale of the Stock hereunder (a "Section 338(h)(10)
Election"). Stockholders will include any income, gain, loss, deduction, or
other tax item resulting from the Section 338(h)(10) Election on their Tax
Returns to the extent permitted by applicable law. Buyer and Stockholders shall
cooperate fully with each other in the making of such election. In particular,
Buyer shall be responsible for the preparation and filing of all Tax Returns and
forms (the "Section 338 Forms") required under applicable tax law to be filed in
connection with making the Section 338 (h)(10) Election. Stockholders shall
deliver to Buyer, within 90 days prior to the date the Section 338 Forms are
required to be filed, such documents and other forms as reasonably requested by
Buyer to properly complete the Section 338 Forms.
(ii) Buyer and Stockholders shall allocate the Purchase Price
in the manner required by Section 338 of the Code and the Treasury Regulations
promulgated thereunder. Such allocation shall be used for purposes of
determining the modified aggregate deemed sales price under Treasury Regulations
and in reporting the deemed sale of assets of the Company in connection with the
Section 338(h)(10) Election.
(iii) Buyer shall initially prepare a completed set of IRS
Forms 8023-A (and any comparable forms required to be filed under state, local
or foreign tax law) and any additional data or materials required to be attached
to Form 8023-A pursuant to the Treasury Regulations promulgated under Section
338 of the Code. Buyer shall deliver said forms to Stockholders for review no
later than 45 days prior to the date the Section 338 Forms are required to be
filed. In the event the Stockholders object to the manner in which the Section
338 Forms have been prepared, the Stockholders' Representative shall notify
Buyer within 10 days of receipt of the Section 338 Forms of such objection, and
the parties shall endeavor within the next 15 days in good faith to resolve such
dispute. If the parties are unable to resolve such dispute within said 15 day
period, Buyer and the Stockholders' Representative shall submit such dispute to
an independent accounting firm of recognized national standing (the "Allocation
Arbiter") selected by Buyer and the Stockholders' Representative, which firm
shall not be the regular accounting firm of Buyer or the Stockholders. Promptly,
but not later than 15 days after its acceptance of appointment hereunder, the
Allocation Arbiter will determine (based solely on presentations of Buyer and
the Stockholders' Representative and not by independent review) only those
matters in dispute and will render a written report as to the disputed matters
and the resulting preparation of the Section 338 Forms shall be conclusive and
binding upon the parties.
(iv) No new elections with respect to Taxes, or any changes in
current elections with respect to Taxes, affecting the Company after the Section
338(h)(10) Election shall be made after the date of this Agreement without the
prior written consent of the Buyer and the Stockholders' Representative.
(d) Buyer and Stockholders agree as follows with respect to the
allocation of income Tax liabilities:
(i) Stockholders shall be responsible for all federal income
Taxes attributable to the Company for periods ending on or before the Closing
Date (including any Tax resulting from the Section 338(h)(10) Election). Buyer
shall be responsible for all federal income Taxes of the Company for periods
ending after the Closing Date.
(ii) Stockholders shall be liable for any state, local, or
foreign Tax attributable to an election under state, local, or foreign law
similar to the election available under Section 338(h)(10) of the Code. Further,
if a state, local or foreign jurisdiction does not have provisions similar to
the election available under Section 338(h)(10) of the Code, Stockholders will
be liable for any Tax imposed on the Company by such state, local and/or foreign
jurisdiction resulting from the transactions contemplated by this Agreement.
Finally, Stockholders will be liable for nonfederal income Taxes of the Company
ending on or before the Closing Date, and the Buyer and Company will be liable
for nonfederal income Taxes of the Company for periods ending after the Closing
Date.
5.2 Accounts Receivable. In the event that all Accounts Receivable are not
collected in full (net of reserves specified in Section 3.14) within one hundred
twenty (120) days after the Closing then, at the request of the Company or
Buyer, the Stockholders shall pay (based on their percentage ownership of the
Company immediately prior to the Closing Date) the Company an amount equal to
the Accounts Receivable not so collected, and upon receipt of such payment the
Company shall assign to the Stockholders making the payment all rights with
respect to the uncollected Accounts Receivable giving rise to the payment and
shall also thereafter promptly remit any excess collections received by it with
respect to such assigned Accounts Receivable. If and when the amount
subsequently collected by Stockholders with respect to the assigned Accounts
Receivable equals (a) the payment made therefor plus (b) the costs and expenses
reasonably incurred by the Stockholders in the collection of such assigned
Accounts Receivable, the Stockholders shall reassign to the Company all of such
assigned Accounts Receivable as have not been collected in full by the
Stockholders and shall also thereafter promptly remit any excess collections
received by them. Upon the written request of the Company, the Stockholders
shall provide it with a status report concerning the collection of assigned
Accounts Receivable.
5.3 Removal of Shareholder Guaranties. Within one hundred twenty (120)
days of the Closing Date, Buyer shall use its best efforts to cause to be
removed, canceled or otherwise extinguished those guaranties given by the
Stockholders to certain third parties that are specifically identified on
Schedule 5.3.
5.4 Employee Benefit Plans. If reasonably requested by Buyer, the Company
shall terminate any Company Plan or Company Benefit Arrangement substantially
contemporaneously with the Closing. The Stockholders acknowledge that any
contributions to be made by the Company to the Company 401(k) Plan with respect
to the period beginning January 1, 1999 and ending on the Closing Date(or any
other pre-Closing period) for which cash is not distributed to the Company
401(k) Plan prior to Closing shall be accrued on the Company's books as of the
Closing and shall be given full effect by the Buyer's Accountant when
determining the Actual Company Net Worth pursuant to Section 1.3.
5.5 Related Party Agreements. The Company and/or the Stockholders, as the
case may be, shall terminate any Related Party Agreements which Buyer requests
the Company or Stockholders to terminate.
5.6 Cooperation.
(a) The Company, Stockholders, and Buyer shall each deliver or cause
to be delivered to the other on the Closing Date, and at such other times and
places as shall be reasonably agreed to, such instruments as the other may
reasonably request for the purpose of carrying out this Agreement. In connection
therewith, if required, the president or chief financial officer of the Company
shall execute any documentation reasonably required by Buyer's independent
public accountants (in connection with such accountant's audit of the Company)
or the Nasdaq National Market.
(b) The Stockholders and the Company shall cooperate and use their
reasonable efforts to have the present officers, directors and employees of the
Company cooperate with Buyer on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any
filing obligations, actions, proceedings, arrangements or disputes of any nature
with respect to matters pertaining to all periods prior to the Closing Date.
(c) Each party hereto shall cooperate in obtaining all consents and
approvals required under this Agreement to effect the transactions contemplated
hereby.
5.7 Access to Information; Confidentiality; Public Disclosure.
(a) Between the date of this Agreement and the Closing Date, the
Company will afford to the officers and authorized representatives of Buyer
access to (i) all of the sites, properties, books and records of the Company and
(ii) such additional financial and operating data and other information as to
the business and properties of the Company as Buyer may from time to time
reasonably request, including without limitation, access upon reasonable request
to the Company's employees, customers, vendors, suppliers and creditors for due
diligence inquiry. No information or knowledge obtained in any investigation
pursuant to this Section 5.7 shall affect or be deemed to modify any
representation or warranty contained in this Agreement or the conditions to the
obligations of the parties to consummate the transactions contemplated herein.
(b) Buyer recognizes and acknowledges that it had in the past,
currently has, and in the future may possibly have, access to certain
confidential information of the Company, such as lists of customers, operational
policies, and pricing and cost policies that are valuable, special and unique
assets of the Company's business. Buyer agrees that, unless there is a Closing,
it will not disclose confidential information with respect to the Company to any
person, firm, corporation, association or other entity for any purpose or reason
whatsoever, except to authorized representatives of the Company and to counsel
and other advisers, provided that such advisers (other than counsel) agree to
the confidentiality provisions of this Section 5.7(b), unless (i) such
information becomes known to the public generally through no fault of Buyer,
(ii) disclosure is required by law or the order of any governmental authority
under color of law, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party, provided, that prior to disclosing any information pursuant to
clause (i), (ii) or (iii) above, Buyer shall give prior written notice thereof
to the Company and provide the Company with the opportunity to contest such
disclosure and shall cooperate with efforts to prevent such disclosure.
(c) Prior to the Closing Date, neither the Company nor any
Stockholder shall make any disclosure (whether or not in response to an inquiry)
of the subject matter of this Agreement unless previously approved by Buyer in
writing. Buyer agrees to keep the Company and the Stockholders apprised in
advance of any disclosure of the subject matter of this Agreement by Buyer prior
to the Closing Date.
5.8 Conduct of Business Pending Closing. Between the date hereof and the
Closing Date, the Company will (except as requested or agreed by Buyer):
(a) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(b) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present, ordinary
wear and tear excepted;
(c) perform all of its obligations under agreements relating to or
affecting its respective assets, properties or rights;
(d) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(e) use all commercially reasonable efforts to maintain and preserve
its business organization intact, retain its present officers and key employees
and maintain its relationships with suppliers, vendors, customers, creditors and
others having business relations with it;
(f) maintain compliance with all permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities;
(g) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments; and
(h) maintain present salaries and commission levels for all
officers, directors, employees, agents, representatives and independent
contractors, except for ordinary and customary bonuses and salary increases for
employees (other than employees who are also Stockholders) in accordance with
past practice.
5.9 Prohibited Activities. Between the date hereof and the Closing Date,
the Company will not, without the prior written consent of Buyer:
(a) make any change in its Articles of Incorporation or Bylaws,
or authorize or propose the same;
(b) issue, deliver or sell, authorize or propose the issuance,
delivery or sale of any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind, or authorize or propose
any change in its equity capitalization, or issue or authorize the issuance of
any debt securities;
(c) except for any Permitted Distribution, declare or pay any
dividend, or make any distribution (whether in cash, stock or property) in
respect of its stock whether now or hereafter outstanding, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or purchase, redeem or otherwise acquire or retire for value any
shares of its stock;
(d) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures, or guarantee any indebtedness,
except in the ordinary course of business and consistent with past practice in
an amount in excess of $5,000, including contracts to provide services to
customers;
(e) increase the compensation payable or to become payable to any
officer, director, Stockholder, employee, agent, representative or independent
contractor; make any bonus or management fee payment to any such person; make
any loans or advances; adopt or amend any Company Plan or Company Benefit
Arrangement; or grant any severance or termination pay;
(f) create or assume any mortgage, pledge or other lien or
encumbrance upon any assets or properties whether now owned or hereafter
acquired;
(g) except for any Permitted Distribution, sell, assign, lease,
pledge or otherwise transfer or dispose of any property or equipment except in
the ordinary course of business consistent with past practice;
(h) acquire or negotiate for the acquisition of (by merger,
consolidation, purchase of a substantial portion of assets or otherwise) any
business or the start-up of any new business, or otherwise acquire or agree to
acquire any assets that are material, individually or in the aggregate, to the
Company;
(i) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(j) waive any material rights or claims of the Company, provided
that the Company may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice;
(k) commit a breach of or amend or terminate any material agreement,
permit, license or other right;
(l) enter into any other transaction (i) that is not negotiated at
arm's length with a third party not affiliated with the Company or any officer,
director or Stockholder of the Company or (ii) except for any Permitted
Distribution, outside the ordinary course of business consistent with past
practice or (iii) prohibited hereunder;
(m) commence a lawsuit other than for routine collection of bills;
(n) revalue any of its assets, including without limitation, writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business consistent with past practice;
(o) make any tax election other than in the ordinary course of
business and consistent with past practice, change any tax election, adopt any
tax accounting method other than in the ordinary course of business and
consistent with past practice, change any tax accounting method, file any Tax
Return (other than any estimated tax returns, payroll tax returns or sales tax
returns) or any amendment to a Tax Return, enter into any closing agreement,
settle any tax claim or assessment, or consent to any tax claim or assessment,
without the prior written consent of Buyer; or
(p) take, or agree (in writing or otherwise) to take, any of the
actions described in Sections 5.9(a) through (o) above, or any action which
would make any of the representations and warranties of the Company and the
Stockholders contained in this Agreement untrue or result in any of the
conditions set forth in Articles 6 and 7 not being satisfied.
5.10 Exclusivity. None of the Stockholders, the Company, or any agent,
officer, director or any representative of the Company or any Stockholder will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Closing or the termination of this Agreement in
accordance with its terms, directly or indirectly: (a) solicit, encourage or
initiate the submission of proposals or offers from any person for, (b) engage
in any discussions pertaining to, or (c) furnish any information to any person
other than Buyer relating to, any acquisition or purchase of all or a material
amount of the assets of, or any equity interest in, the Company or a merger,
consolidation or business combination of the Company. In addition to the
foregoing, if the Company or any Stockholder receives any unsolicited offer or
proposal, or has actual knowledge of any unsolicited offer or proposal, relating
to any of the above, the Company or such Stockholder shall immediately notify
Buyer thereof, including the identity of the party making such offer or proposal
and the specific terms of such offer or proposal.
5.11 Notification of Certain Matters. Each party hereto shall give prompt
notice to the other parties hereto of (a) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of it contained herein to be untrue or inaccurate in
any material respect at or prior to the Closing and (b) any material failure of
such party to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by such party hereunder. The delivery of any notice
pursuant to this Section 5.11 shall not, without the express written consent of
the other parties be deemed to (x) modify the representations or warranties
hereunder of the party delivering such notice, (y) modify the conditions set
forth in Articles 6 and 7, or (z) limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
5.12 Notice to Bargaining Agents. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, if requested
by Buyer, and shall provide Buyer with proof that any required notice has been
sent.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligation of Buyer to effect the transactions contemplated by this
Agreement is subject to the satisfaction or waiver, at or before the Closing
Date, of the following conditions and deliveries:
6.1 Representations and Warranties; Performance of Obligations. All of the
representations and warranties of the Stockholders and the Company contained in
this Agreement shall be true, correct and complete on and as of the Closing Date
with the same effect as though such representations and warranties had been made
on and as of such date; all of the terms, covenants, agreements and conditions
of this Agreement to be complied with, performed or satisfied by the Company and
the Stockholders on or before the Closing Date shall have been duly complied
with, performed or satisfied; and a certificate to the foregoing effects dated
the Closing Date and signed on behalf of the Company and by each of the
Stockholders shall have been delivered to Buyer.
6.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
Buyer's proposed acquisition of the Company, or limiting or restricting Buyer's
conduct or operation of the business of the Company (or its own business)
following the transactions contemplated by this Agreement shall be in effect,
nor shall any proceeding brought by an administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, seeking
any of the foregoing be pending. There shall be no action, suit, claim or
proceeding of any nature pending or threatened against Buyer or the Company,
their respective properties or any of their officers or directors, that could
materially and adversely affect the business, assets, liabilities, financial
condition, results of operations or prospects of the Company. A certificate to
the foregoing effects dated the Closing Date and signed on behalf of the Company
and the Stockholders shall have been delivered to Buyer.
6.3 No Material Adverse Change. There shall have been no material adverse
changes in the business, operations, affairs, prospects, properties, assets,
existing and potential liabilities, obligations, profits or condition (financial
or otherwise) of the Company, taken as a whole, since the Balance Sheet Date;
and Buyer shall have received a certificate signed by the Company and each
Stockholder dated the Closing Date to such effect.
6.4 Consents and Approvals. All necessary consents of, and filings with,
any governmental authority or agency or third party, relating to the
consummation by the Company and the Stockholders of the transactions
contemplated hereby, shall have been obtained and made. Any waiting period
applicable to the consummation of the transactions contemplated by this
Agreement under the HSR Act shall have expired or been terminated, and no action
by the Department of Justice or Federal Trade Commission challenging or seeking
to enjoin the consummation of the transactions contemplated hereby shall be
pending.
6.5 Opinion of Counsel. Buyer shall have received an opinion from counsel
to the Company and the Stockholders, dated the Closing Date, in a form
reasonably satisfactory to Buyer.
6.6 Charter Documents. Buyer shall have received (a) a copy of the
Articles of Incorporation of the Company certified by an appropriate authority
in the state of its incorporation and (b) a copy of the Bylaws of the Company
certified by the Secretary of the Company, and such documents shall be in form
and substance reasonably acceptable to Buyer.
6.7 Quarterly Financial Statements. Buyer shall have received from the
Company completed quarterly financial statements in a form reasonably
satisfactory to Buyer.
6.8 Due Diligence Review. The Company shall have made such deliveries as
are called for by this Agreement. Buyer shall be fully satisfied in its sole
discretion with the results of its review of all of the Schedules, whether
delivered before or after the execution hereof, and such deliveries, and its
review of, and other due diligence investigations with respect to, the business,
operations, affairs, prospects, properties, assets, existing and potential
liabilities, obligations, profits and condition (financial or otherwise) of the
Company.
6.9 Delivery of Closing Financial Certificate. Buyer shall have received a
certificate (the "Closing Financial Certificate"), dated as of the Closing Date,
signed on behalf of the Company and by each of the Stockholders, setting forth:
(a) the net worth of the Company as of the last day of its most
recent fiscal year;
(b) the net worth of the Company as of the Closing Date (the
"Certified Closing Net Worth"), it being acknowledged that Buyer's rights and
remedies with respect to the Certified Closing Net Worth are set forth in
Article I of this Agreement;
(c) the sales of the Company for the fiscal year ending December 31,
1997;
(d) the sales of the Company for the fiscal year ending December 31,
1998;
(e) the earnings of the Company before interest, taxes, depreciation
and amortization (after the addition of "add-backs" set forth on Schedule
3.9(c)) for the most recent fiscal year preceding the Closing Date;
(f) the sum of the Company's total outstanding long term and short
term indebtedness to (i) banks and (ii) all other financial institutions and
creditors (in each case including the current portion of such indebtedness, but
excluding amounts due to Stockholders, Accrued Liabilities, trade payables and
other accounts payable incurred in the ordinary course of the Company's business
consistent with past practice) as of the Closing Date.
The parties acknowledge and agree that for purposes of determining the Certified
Closing Net Worth, the Company shall not take account of any increase in
intangible assets (including without limitation goodwill, franchises and
intellectual property) accounted for after December 31, 1997. In addition, the
Certified Closing Net Worth shall be calculated after giving effect to any
expenses incurred by the Company in connection with the transactions
contemplated by this Agreement.
6.10 FIRPTA Compliance. Each of the Stockholders shall have delivered to
Buyer a properly executed statement in a form reasonably acceptable to Buyer for
purposes of satisfying Buyer's obligations under Treas. Reg. ss. 1.1445-2(b).
6.11 Employment Agreements. Each of ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇
▇▇▇▇▇ shall have entered into an employment agreement with the Company in a form
reasonably satisfactory to Buyer.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY
The obligation of the Stockholders and the Company to effect the
transactions contemplated by this Agreement are subject to the satisfaction or
waiver, at or before the Closing Date, of the following conditions and
deliveries:
7.1 Representations and Warranties; Performance of Obligations. All of the
representations and warranties of Buyer contained in this Agreement shall be
true, correct and complete on and as of the Closing Date with the same effect as
though such representations and warranties had been made as of such date; all of
the terms, covenants, agreements and conditions of this Agreement to be complied
with, performed or satisfied by Buyer on or before the Closing Date shall have
been duly complied with, performed or satisfied; and a certificate to the
foregoing effects dated the Closing Date and signed by the President or any Vice
President of Buyer shall have been delivered to the Company and the
Stockholders.
7.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
Buyer's proposed acquisition of the Company, or limiting or restricting Buyer's
conduct or operation of the business of the Company (or its own business)
following the transactions contemplated by this Agreement shall be in effect,
nor shall any proceeding brought by an administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, seeking
any of the foregoing be pending; and a certificate to the foregoing effects
dated the Closing Date and signed by the President or any Vice President of
Buyer shall have been delivered to the Company and the Stockholders.
7.3 Consents and Approvals. All necessary consents of, and filings with,
any governmental authority or agency or third party relating to the consummation
by Buyer of the transactions contemplated herein, shall have been obtained and
made. Any waiting period applicable to the consummation of the transactions
contemplated by this Agreement under the HSR Act shall have expired or been
terminated, and no action by the Department of Justice or Federal Trade
Commission challenging or seeking to enjoin the consummation of the transactions
contemplated hereby shall be pending.
7.4 Employment Agreements. The Company and each of ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇ shall have entered into an employment agreement with the
Company in a form reasonably satisfactory to each of them.
8. INDEMNIFICATION
8.1 General Indemnification by the Stockholders. Each Stockholder, jointly
and severally, covenants and agrees to indemnify, defend, protect and hold
harmless Buyer and the Company and their respective officers, directors,
employees, stockholders, assigns, successors and affiliates (individually, an
"Indemnified Party" and collectively, "Indemnified Parties") from, against and
in respect of:
(a) all liabilities, losses, claims, damages, punitive damages,
causes of action, lawsuits, administrative proceedings (including informal
proceedings), investigations, audits, demands, assessments, adjustments,
judgments, settlement payments, deficiencies, penalties, fines, interest
(including interest from the date of such damages) and costs and expenses
(including without limitation reasonable attorneys' fees and disbursements of
every kind, nature and description) (collectively, "Damages") suffered,
sustained, incurred or paid by the Indemnified Parties in connection with,
resulting from or arising out of, directly or indirectly:
(i) any breach of any representation or warranty of the
Stockholders or the Company set forth in this Agreement or any Schedule or
certificate, delivered by or on behalf of any Stockholder or the Company in
connection herewith; or
(ii) any nonfulfillment of any covenant or agreement by the
Stockholders or, prior to the Closing Date, the Company, under this Agreement;
or
(iii) the business, operations or assets of the Company prior
to the Closing Date or the actions or omissions of the Company's directors,
officers, stockholders, employees or agents prior to the Closing Date, other
than Damages arising from matters expressly disclosed in the Company Financial
Statements, this Agreement or the Schedules to this Agreement; or
(iv) the matters disclosed on Schedules 3.23 (environmental
matters), 3.25 (employee benefit plans), and 3.26 (taxes); and
(b) any and all Damages incident to any of the foregoing or to the
enforcement of this Section 8.1.
8.2 Limitation and Expiration. Notwithstanding the above:
(a) there shall be no liability for indemnification under Section
8.1 unless, and solely to the extent that, the aggregate amount of Damages
exceeds $65,000 (the "Indemnification Threshold"); provided, however, that the
Indemnification Threshold shall not apply to (i) adjustments to the Cash
Purchase Price as set forth in Sections 1.2 and 1.3; (ii) Damages arising out of
any breaches of the covenants of the Stockholders set forth in this Agreement or
representations and warranties made in Sections 3.4 (capital stock of the
Company), 3.5 (transactions in capital stock; accounting treatment), 3.19
(significant customers; material contracts and commitments), 3.23 (environmental
matters), 3.25 (employee benefit plans), 3.26 (taxes), 3.27 (conformity with
law; litigation), or (iii) Damages described in Section 8.1(a)(iv);
(b) the aggregate amount of the Stockholders' liability under this
Article 8 shall not exceed the Purchase Price; provided, however, that the
Stockholders' liability for Damages arising out of any breaches of the
representations made in Sections 3.23 (environmental matters), 3.25 (employee
benefit plans) or 3.26 (taxes) or Damages described in Section 8.1(a)(ii) or
(iv) shall not be subject to such limitation and shall not count toward the
limitation described in the first clause of this Section 8.2(b);
(c) the indemnification obligations under this Article 8, or under
any certificate or writing furnished in connection herewith, shall terminate at
the date that is the later of clause (i) or (ii) of this Section 8.2(c):
(i) (1) except as to representations, warranties, and
covenants specified in clause (i)(2) of this Section 8.2(c), the third
anniversary of the Closing Date, or
(2) with respect to representations and warranties
contained in Sections 3.23 (environmental matters), 3.25 (employee benefit
plans), 3.26 (taxes), and the indemnification set forth in Section 8.1(a)(ii),
(iii) or (iv), on (A) the date that is six (6) months after the expiration of
the longest applicable federal or state statute of limitation (including
extensions thereof), or (B) if there is no applicable statute of limitation, (x)
ten (10) years after the Closing Date if the Claim is related to the cost of
investigating, containing, removing, or remediating a release of Hazardous
Material into the environment, or (y) five (5) years after the Closing Date for
any other Claim covered by clause (i)(2)(B) of this Section 8.2(c); or
(ii) the final resolution of claims or demands pending as of
the relevant dates described in clause (i) of this Section 8.2(c) (such claims
referred to as "Pending Claims").
8.3 Indemnification Procedures All claims or demands for indemnification
under this Article 8 ("Claims") shall be asserted and resolved as follows:
(a) In the event that any Indemnified Party has a Claim against any
party obligated to provide indemnification pursuant to Section 8.1 hereof (the
"Indemnifying Party") which does not involve a Claim being asserted against or
sought to be collected by a third party, the Indemnified Party shall with
reasonable promptness notify the Stockholders' Representative of such Claim,
specifying the nature of such Claim and the amount or the estimated amount
thereof to the extent then feasible (the "Claim Notice"). If the Stockholders'
Representative does not notify the Indemnified Party within thirty (30) days
after the date of delivery of the Claim Notice that the Indemnifying Party
disputes such Claim, with a detailed statement of the basis of such position,
the amount of such Claim shall be conclusively deemed a liability of the
Indemnifying Party hereunder. In case an objection is made in writing in
accordance with this Section 8.3(a), the Indemnified Party shall respond in a
written statement to the objection within thirty (30) days and, for sixty (60)
days thereafter, attempt in good faith to agree upon the rights of the
respective parties with respect to each of such Claims (and, if the parties
should so agree, a memorandum setting forth such agreement shall be prepared and
signed by both parties).
(b) (i) In the event that any Claim for which the Indemnifying Party
would be liable to an Indemnified Party hereunder is asserted against an
Indemnified Party by a third party (a "Third Party Claim"), the Indemnified
Party shall deliver a Claim Notice to the Stockholders' Representative. The
Stockholders' Representative shall have thirty (30) days from the date of
delivery of the Claim Notice to notify the Indemnified Party (A) whether the
Indemnifying Party disputes liability to the Indemnified Party hereunder with
respect to the Third Party Claim, and, if so, the basis for such a dispute, and
(B) if such party does not dispute liability, whether or not the Indemnifying
Party desires, at the sole cost and expense of the Indemnifying Party, to defend
against the Third Party Claim, provided that the Indemnified Party is hereby
authorized (but not obligated) to file any motion, answer or other pleading and
to take any other action which the Indemnified Party shall deem necessary or
appropriate to protect the Indemnified Party's interests.
(ii) In the event that Stockholders' Representative timely
notifies the Indemnified Party that the Indemnifying Party does not dispute the
Indemnifying Party's obligation to indemnify with respect to the Third Party
Claim, the Indemnifying Party shall defend the Indemnified Party against such
Third Party Claim by appropriate proceedings, provided that, unless the
Indemnified Party otherwise agrees in writing, the Indemnifying Party may not
settle any Third Party Claim (in whole or in part) if such settlement does not
include a complete and unconditional release of the Indemnified Party. If the
Indemnified Party desires to participate in, but not control, any such defense
or settlement the Indemnified Party may do so at its sole cost and expense. If
the Indemnifying Party elects not to defend the Indemnified Party against a
Third Party Claim, whether by failure of such party to give the Indemnified
Party timely notice as provided herein or otherwise, then the Indemnified Party,
without waiving any rights against such party, may settle or defend against such
Third Party Claim in the Indemnified Party's sole discretion and the Indemnified
Party shall be entitled to recover from the Indemnifying Party the amount of any
settlement or judgment and, on an ongoing basis, all indemnifiable costs and
expenses of the Indemnified Party with respect thereto, including interest from
the date such costs and expenses were incurred.
(iii) If at any time, in the reasonable opinion of the
Indemnified Party, notice of which shall be given in writing to the
Stockholders' Representative, any Third Party Claim seeks material prospective
relief which could have an adverse effect on any Indemnified Party or the
Company or any subsidiary, the Indemnified Party shall have the right to control
or assume (as the case may be) the defense of any such Third Party Claim and the
amount of any judgment or settlement and the reasonable costs and expenses of
defense shall be included as part of the indemnification obligations of the
Indemnifying Party hereunder. If the Indemnified Party elects to exercise such
right, the Indemnifying Party shall have the right to participate in, but not
control, the defense of such Third Party Claim at the sole cost and expense of
the Indemnifying Party.
(c) Nothing herein shall be deemed to prevent the Indemnified Party
from making a Claim, and an Indemnified Party may make a Claim hereunder, for
potential or contingent Damages provided the Claim Notice sets forth the
specific basis for any such potential or contingent claim or demand to the
extent then feasible and the Indemnified Party has reasonable grounds to believe
that such Claim may be made.
(d) Subject to the provisions of Section 8.2, the Indemnified
Party's failure to give reasonably prompt notice as required by this Section 8.3
of any actual, threatened or possible claim or demand which may give rise to a
right of indemnification hereunder shall not relieve the Indemnifying Party of
any liability which the Indemnifying Party may have to the Indemnified Party
unless the failure to give such notice materially and adversely prejudiced the
Indemnifying Party.
(e) The parties will make appropriate adjustments for any Tax
benefits, Tax detriments or insurance proceeds in determining the amount of any
indemnification obligation under this Article 8, provided that no Indemnified
Party shall be obligated to continue pursuing any payment pursuant to the terms
of any insurance policy.
8.4 Survival of Representations Warranties and Covenants. All
representations, warranties and covenants made by the Company, the Stockholders,
and Buyer in or pursuant to this Agreement or in any document delivered pursuant
hereto shall be deemed to have been made on the date of this Agreement (except
as otherwise provided herein) and, if a Closing occurs, as of the Closing Date.
The representations of the Company and the Stockholders will survive the Closing
and will remain in effect until, and will expire upon, the termination of the
indemnification obligations as provided in Section 8.2. The representations of
Buyer will survive the Closing and will remain in effect until, and will expire
upon the third anniversary of the Closing Date.
8.5 Exclusive Remedies . Absent fraud, the foregoing indemnification
provisions are in lieu of, and not in addition to, any statutory, equitable or
common law remedy Buyer may have for breach of any representation, warranty or
covenant.
8.6 Right to Set Off. Buyer shall have the right, but not the obligation,
to set off, in whole or in part, against the Pledged Assets or any Earn-out,
amounts finally determined under Section 8.3 to be owed to Buyer by the
Stockholders under Section 8.1 hereof.
9. NONCOMPETITION
9.1 Prohibited Activities. Each Stockholder acknowledges that during the
course of his or her ownership of the Stock, he or she developed relationships
on behalf of and acquired proprietary and confidential information about the
Company, including, but not limited to, its customers, vendors, prices, sales
strategies and other information, some of which may be regarded and treated by
the Company and Buyer as trade secrets. In order to protect the Company's and/or
Buyer's critical interest in these relationships and information, Stockholders
covenant that they will not, for a period of three (3) years following the
Closing Date, for any reason whatsoever, directly or indirectly, for himself or
herself or on behalf of or in conjunction with any other person, persons,
partnership, corporation, or business of whatever nature:
(a) engage, as an officer, director, shareholder, owner, partner,
member, joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or adviser, or as a sales representative, in
any business selling any products or services in direct competition with the
Company, within 50 miles of any locations where the Company both has an office
and conducts business ("Territory"). As used in this subsection, "competition"
shall mean engaging, directly or indirectly, for himself or any other person or
entity, in (i) any facet of the business of the Company in which such
Stockholder was engaged in prior to the Closing Date or (ii) any facet of the
business of the Company about which Stockholder acquired proprietary or
confidential information during the course of his or her ownership of the Stock;
(b) hire or join with in a competitive business capacity, any
employee of the Company within the Territory;
(c) solicit or accept business which competes with the business of
the Company from any person who is, on the Closing Date, or that has been,
within one (1) year prior to the Closing Date, a customer of the Company; or
(d) acquire or enter into any agreement to acquire any prospective
acquisition candidate that was, to the knowledge of such Stockholder, either
called upon by the Company as a prospective acquisition candidate or was the
subject of an acquisition analysis by the Company within 3 years prior to the
Closing Date. Each Stockholder, to the extent lacking the knowledge described in
the preceding sentence, shall immediately cease all contact with such
prospective acquisition candidate upon being informed that the Company had
called upon such candidate or made an acquisition analysis thereof.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit the Stockholders from acquiring as an investment not more than one
percent (1%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter.
9.2 Confidentiality. Each Stockholder recognizes that by reason of his or
her ownership of the Stock and his or her employment by the Company, he or she
has acquired confidential information and trade secrets concerning the operation
of the Company, the use or disclosure of which could cause the Company or its
affiliates or subsidiaries substantial loss and damages that could not be
readily calculated and for which no remedy at law would be adequate.
Accordingly, each Stockholder covenants and agrees with the Company and Buyer
that he or she will not at any time, except in performance of Stockholders'
obligations to the Company or with the prior written consent of the Company
pursuant to authority granted by a resolution of the Board of Directors of the
Company, directly or indirectly, disclose any secret or confidential information
that he or she may learn or has learned by reason of his or her ownership of the
Company or his or her employment by the Company, or any of its subsidiaries and
affiliates, or use any such information in a manner detrimental to the interests
of the Company or Buyer, unless (i) such information becomes known to the public
generally through no fault of any Stockholder, (ii) disclosure is required by
law or the order of any governmental authority under color of law, or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party, provided,
that prior to disclosing any information pursuant to clause (i), (ii) or (iii)
above, the Stockholder (as applicable) shall give prior written notice thereof
to Buyer and provide Buyer with the opportunity to contest such disclosure and
shall cooperate with efforts to prevent such disclosure. The term "confidential
information" includes, without limitation, information not previously disclosed
to the public or to the trade by the Company's or Buyer's management with
respect to the Company's or Buyer's, or any of their affiliates' or
subsidiaries', products, facilities, and methods, trade secrets and other
intellectual property, software, source code, systems, procedures, manuals,
confidential reports, product price lists, customer lists, financial information
(including the revenues, costs, or profits associated with any of the Company's
products), business plans, prospects, or opportunities but shall exclude any
information already in the public domain.
9.3 Damages. Because of the difficulty of measuring economic losses to
Buyer as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Buyer for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by Buyer in the event of breach by such Stockholder, by
injunctions and restraining orders.
9.4 Reasonable Restraint. The parties agree that the foregoing covenants
in this Article 9 impose a reasonable restraint on each Stockholder in light of
the activities and business of Buyer on the date of the execution of this
Agreement, assuming the completion of the transactions contemplated hereby.
9.5 Severability; Reformation. The covenants in this Article 9 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
9.6 Independent Covenant. All of the covenants in this Article 9 shall be
construed as an agreement independent of any other provision in this Agreement,
and the existence of any claim or cause of action of any Stockholder against
Buyer, whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by Buyer of such covenants. The parties expressly
acknowledge that the terms and conditions of this Article 9 are independent of
the terms and conditions of any other agreements including, but not limited to,
any employment agreements entered into in connection with this Agreement. It is
specifically agreed that the period of three (3) years stated at the beginning
of this Article 9 during which the agreements and covenants of each Stockholder
made in this Article 9 shall be effective, shall be computed by excluding from
such computation any time during which any Stockholder is found by a court of
competent jurisdiction to have been in violation of any provision of this
Article 9. The covenants contained in Article 9 shall not be affected by any
breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
9.7 Materiality. The Company and each Stockholder hereby agree that the
covenants set forth in this Article 9 are a material and substantial part of the
transactions contemplated by this Agreement, supported by adequate
consideration.
10. GENERAL
10.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date solely:
(a) by mutual consent of the Board of Directors of Buyer and
the board of directors of the Company; or
(b) by the Stockholders and the Company as a group, on the one hand,
or by Buyer, on the other hand, if the Closing shall not have occurred on or
before February 28, 1999, provided that the right to terminate this Agreement
under this Section 10.1(b) shall not be available to either party (with the
Stockholders and the Company deemed to be a single party for this purpose) whose
material misrepresentation, breach of warranty or failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before such date; or
(c) by the Stockholders and the Company as a group, on the one hand,
or by Buyer, on the other hand, if there is or has been a material breach,
failure to fulfill or default on the part of the other party (with the
Stockholders and the Company deemed to be a single party for this purpose) of
any of the representations and warranties contained herein or in the due and
timely performance and satisfaction of any of the covenants, agreements or
conditions contained herein, and the curing of such default shall not have been
made or shall not reasonably be expected to occur before the Closing Date; or
(d) by the Stockholders and the Company as a group, on the one hand,
or by Buyer, on the other hand, if there shall be a final nonappealable order of
a federal or state court in effect preventing consummation of the transactions
contemplated by this Agreement; or there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the transactions contemplated by this Agreement by any
governmental entity which would make the consummation of the transactions
contemplated by this Agreement illegal.
10.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 10.1, this Agreement shall forthwith become
ineffective, and there shall be no liability or obligation on the part of any
party hereto or its officers, directors or stockholders. Notwithstanding the
foregoing sentence, (i) the provisions of Articles 10 and 8, and Sections 5.7(b)
and 9.2, shall remain in full force and effect and survive any termination of
this Agreement; (ii) each party shall remain liable for any breach of this
Agreement prior to its termination; and (iii) in the event of termination of
this Agreement pursuant to Section 10.1(c) above, then notwithstanding the
provisions of Section 10.7 below, the breaching party (with the Stockholders and
the Company deemed to be a single party for purposes of this Article 10), shall
be liable to the other party to the extent of the expenses incurred by such
other party in connection with this Agreement and the transactions contemplated
hereby, as well as any damages in accordance with applicable law.
10.3 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
Buyer, and the heirs and legal representatives of the Stockholders.
Notwithstanding anything in the foregoing to the contrary, Buyer may assign any
of its rights or obligations under this Agreement to any direct or indirect
subsidiary of Buyer in its sole and absolute discretion and without the consent
of the Company or the Stockholders; provided, however that in the event of such
assignment Buyer shall continue to be liable to the Stockholders for the payment
of the Purchase Price.
10.4 Entire Agreement; Amendment; Waiver. This Agreement sets forth the
entire understanding of the parties hereto with respect to the transactions
contemplated hereby. Each of the Schedules to this Agreement is incorporated
herein by this reference and expressly made a part hereof. Any and all previous
agreements and understandings between or among the parties regarding the subject
matter hereof, whether written or oral, are superseded by this Agreement. This
Agreement shall not be amended or modified except by a written instrument duly
executed by each of the parties hereto, or in accordance with Section 9.5. Any
extension or waiver by any party of any provision hereto shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
10.5 Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original, and all of
which counterparts taken together shall constitute but one and the same
instrument.
10.6 Brokers and Agents. Buyer represents and warrants to the Company and
the Stockholders (as a group) that it has not employed any broker or agent in
connection with the transactions contemplated by this Agreement and agrees to
indemnify the Stockholders against all losses, damages or expenses relating to
or arising out of claims for fees or commissions of any broker or agent employed
or alleged to have been employed by Buyer. The Company and each Stockholder (as
a group) have engaged Geneva Corporate Finance, Inc. ("Geneva") on their behalf
as a broker and the Stockholders (and not the Company) shall be responsible for
any fees, commissions or other payments owed to Geneva as a result of this
Agreement (or otherwise). The Company and the Stockholders represent that they
have not employed any broker or agent other than Geneva in connection with the
transactions contemplated by this Agreement. The Stockholders agree to indemnify
the Buyer against all losses, damages or expenses relating to or arising out of
claims for fees or commissions of Geneva or any other broker or agent alleged to
have been employed by the Stockholders or the Company.
10.7 Expenses. Buyer has and will pay the fees, expenses and disbursements
of Buyer and its agents, representatives, accountants and counsel incurred in
connection with the subject matter of this Agreement. The Stockholders (and not
the Company) have and will pay the fees, expenses and disbursements of the
Stockholders, the Company, and their agents, representatives, financial
advisers, accountants and counsel incurred in connection with the subject matter
of this Agreement.
10.8 Specific Performance; Remedies. Each party hereto acknowledges that
the other parties will be irreparably harmed and that there will be no adequate
remedy at law for any violation by any of them of any of the covenants or
agreements contained in this Agreement, including without limitation, the
confidentiality obligations set forth in Section 5.7(b) and the noncompetition
provisions set forth in Article 9. It is accordingly agreed that, in addition to
any other remedies which may be available upon the breach of any such covenants
or agreements, each party hereto shall have the right to obtain injunctive
relief to restrain a breach or threatened breach of, or otherwise to obtain
specific performance of, the other parties, covenants and agreements contained
in this Agreement.
10.9 Notices. Any notice, request, claim, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given if delivered personally or sent by
telefax (with confirmation of receipt), by registered or certified mail, postage
prepaid, or by recognized courier service, as follows:
If to Buyer or the Company to:
Workflow Management, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Vice President and General Counsel
(Telefax: (▇▇▇) ▇▇▇-▇▇▇▇)
with a required copy to:
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C.
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇ ▇. ▇▇▇▇▇, ▇▇, Esq. and T. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇., Esq.
(Telefax: (▇▇▇) ▇▇▇-▇▇▇▇)
If to any Stockholder to the Stockholders' Representative:
▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(Telefax: (▇▇▇) ▇▇▇-▇▇▇▇)
with a required copy to:
▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(Telefax: (▇▇▇) ▇▇▇-▇▇▇▇)
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so delivered, telefaxed, mailed or
dispatched and, if given by any other means, shall be deemed given only when
actually received by the addressees.
10.10 Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of Delaware. Any disputes
arising out of, in connection with or with respect to this Agreement, the
subject matter hereof, the performance or non-performance of any obligation
hereunder, or any of the transactions contemplated hereby shall be adjudicated
in a court of competent civil jurisdiction sitting in the City of Wilmington,
Delaware and nowhere else. Each of the parties hereto hereby irrevocably submits
to the jurisdiction of such court for the purposes of any suit, civil action or
other proceeding arising out of, in connection with or with respect to this
Agreement, the subject matter hereof, the performance or non-performance of any
obligation hereunder, or any of the transactions contemplated hereby
(collectively, "Suit"). Each of the parties hereto hereby waives and agrees not
to assert by way of motion, as a defense or otherwise in any such Suit, any
claim that it is not subject to the jurisdiction of the above courts, that such
Suit is brought in an inconvenient forum, or that the venue of such Suit is
improper.
10.11 Severability. If any provision of this Agreement or the application
thereof to any person or circumstances is held invalid or unenforceable in any
jurisdiction, the remainder hereof, and the application of such provision to
such person or circumstances in any other jurisdiction, shall not be affected
thereby, and to this end the provisions of this Agreement shall be severable.
The preceding sentence is in addition to and not in place of the severability
provisions in Section 9.5.
10.12 Absence of Third Party Beneficiary Rights. No provision of this
Agreement is intended, nor will any provision be interpreted, to provide or to
create any third party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, shareholder, employee or partner of any party
hereto or any other person or entity.
10.13 Mutual Drafting. This Agreement is the mutual product of the parties
hereto, and each provision hereof has been subject to the mutual consultation,
negotiation and agreement of each of the parties, and shall not be construed for
or against any party hereto. As used in this Agreement, the term "person" shall
mean an individual, corporation, partnership, limited liability company,
association, trust or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
10.14 Further Representations. Each party to this Agreement acknowledges
and represents that it has been represented by its own legal counsel in
connection with the transactions contemplated by this Agreement, with the
opportunity to seek advice as to its legal rights from such counsel. Each party
further represents that it is being independently advised as to the tax
consequences of the transactions contemplated by this Agreement and is not
relying on any representation or statements made by the other party as to such
tax consequences.
[Execution Page Following]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
WORKFLOW MANAGEMENT, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇,
Vice President and General Counsel
PREMIER GRAPHICS, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
STOCKHOLDERS:
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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▇▇▇▇ ▇▇▇▇▇▇, individually
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇, individually
/s/ ▇▇▇▇ ▇▇▇▇▇
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▇▇▇▇ ▇▇▇▇▇, individually