EXHIBIT 10.21
MERGER AGREEMENT
This Merger Agreement (the "Agreement") is entered into as of this the 9th
day of April, 1998 by and among MASTER GRAPHICS, INC., a Tennessee corporation
(the "Buyer") and MASTER ACQUISITIONSUB, INC., a Tennessee corporation and a
wholly-owned Subsidiary of the Buyer (the "Transitory Subsidiary") on the one
hand, and ▇▇▇▇▇▇▇▇ PRINTING COMPANY, a Tennessee corporation (the "Company"),
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇., a resident of the State of Tennessee and ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇ III, a resident of the State of Tennessee, individually and not in his
capacity as the trustee of the Company's 401(k) and Employee Stock Ownership
Plan (collectively the "Shareholders") on the other hand. The Buyer, the
Transitory Subsidiary, the Company, and the Shareholders are referred to
collectively herein as the "Parties."
RECITALS
This Agreement contemplates a transaction in which the Buyer will acquire
all of the outstanding capital stock of the Company for cash and a promissory
note through a reverse subsidiary merger of the Transitory Subsidiary with and
into the Company.
AGREEMENT
Now, therefore, in consideration of the premises and the mutual promises
herein made, the representations, warranties, and covenants herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Parties agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings specified
or referred to in this Section 1:
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"Applicable Contract"--any Contract in existence as of the Effective Time
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(a) under which the Company has or may acquire any rights, (b) under which the
Company has or may become subject to any obligation or liability, or (c) by
which the Company or any of the assets owned or used by it is or may become
bound.
"Articles of Merger" -- as defined in Section 2.3.
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"Balance Sheet"--as defined in Section 3.4.
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"Breach"--a "Breach" of a representation, warranty, covenant, obligation,
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or other provision of this Agreement or any instrument delivered pursuant to
this Agreement will be deemed to have occurred if there is or has been (a) any
material inaccuracy in or breach of, or any material failure to perform or
comply with, such representation, warranty, covenant, obligation, or other
provision, or (b) any material claim (by any Person) or other occurrence or
circumstance that is or was materially inconsistent with such representation,
warranty, covenant, obligation, or other provision, and the term "Breach" means
any such material inaccuracy, breach, failure, claim, occurrence, or
circumstance.
"Buyer"--as defined in the preface of this Agreement.
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"Buyer Note"--as defined in Section 2.4(e).
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"Closing"--as defined in Section 2.2.
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"Code"--the Internal Revenue Code of 1986 or any successor law, and
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regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"Company"--as defined in the preface of this Agreement.
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"Company Share" -- any share of the common stock, $10.00 par value per
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share, of the Company.
"Company Shareholder" -- any Person who or which holds any Company Shares.
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"Consent"--any approval, consent, ratification, waiver, or other
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authorization (including any Governmental Authorization).
"Contract"--any agreement, contract, obligation, promise, or undertaking
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(other than this Agreement and the Exhibits and Schedules hereto) to which the
Company is a party (whether written or oral and whether express or implied)
that is legally binding which involves consideration in excess of $10,000.
"Damages"--as defined in Section 10.2.
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"Disclosure Schedule" -- as defined in Section 3.
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"Dissenting Share" means any Company Share which any shareholders who or
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which have exercised his or its dissenters rights under the Tennessee Business
Corporation Act holds of record.
"Effective Time" -- as defined in Section 2.4.
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"Encumbrance"--any charge, claim, condition, equitable interest, lien,
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option, pledge, security interest, right of first refusal, or restriction of any
kind, including any restriction on use, voting, transfer, receipt of income, or
exercise of any other attribute of ownership.
"Environment"--soil, land surface or subsurface strata, surface waters
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(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwater, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"Environmental, Health, and Safety Liabilities"--any cost, damages,
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expense, liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to:
(a) any environmental, health, or safety matters or conditions (including
on-site or off-site contamination, occupational safety and health, and
regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and response,
investigative, remedial, or inspection costs and expenses arising under
Environmental Law or Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or Occupational Safety
and Health Law for cleanup costs or corrective action, including any
investigation, cleanup, removal, containment, or other remediation or
response actions ("Cleanup") required by applicable Environmental Law or
Occupational Safety and Health Law (whether or not such Cleanup has been
required or requested by any Governmental Body or any other Person) and for
any natural resource damages; or
(d) any other compliance, corrective, investigative, or remedial measures
required under Environmental Law or Occupational Safety and Health Law.
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The terms "removal," "remedial," and "response action," include the types of
activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. (S) 9601 et seq., as amended
("CERCLA").
"Environmental Law"--any Legal Requirement that requires or relates to:
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(a) advising appropriate authorities, employees, and the public of intended
or actual releases of pollutants or hazardous substances or materials,
violations of discharge limits, or other prohibitions and of the
commencements of activities, such as resource extraction or construction,
that could have significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of pollutants
or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged, and used so
that they do not present unreasonable risks to human health or the
Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the transportation
of hazardous substances, pollutants, oil, or other potentially harmful
substances;
(g) cleaning up pollutants that have been released, preventing the threat
of release, or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups of them, for
damages done to their health or the Environment, or permitting self-
appointed representatives of the public interest to recover for injuries
done to public assets.
"ERISA"--the Employee Retirement Income Security Act of 1974 or any
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successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"Facilities"--any real property, leaseholds, or other interests currently
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or formerly owned or operated by the Company and any buildings, plants,
structures, or equipment (including motor vehicles, tank cars, and rolling
stock) currently or formerly owned or operated by the Company.
"GAAP"--generally accepted accounting principles, applied on a basis
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consistent with the basis on which the Balance Sheet and the other financial
statements referred to in Section 3.4(b) were prepared.
"Governmental Authorization"--any approval, consent, license, permit,
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waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"Governmental Body"--any:
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(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other government;
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(c) governmental or quasi-governmental authority of any nature (including
any governmental agency, branch, department, official, or entity and any
court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority
or power of any nature.
which exercises competent jurisdiction over the applicable party.
"Hazardous Activity"--the distribution, generation, handling, importing,
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management, manufacturing, processing, production, refinement, Release, storage,
transfer, transportation, treatment, or use (including any withdrawal or other
use of groundwater) of Hazardous Materials in, on, under, about, or from the
Facilities or any part thereof into the Environment, and any other act,
business, operation, or thing that increases the danger, or risk of danger, or
poses an unreasonable risk of harm to persons or property on or off the
Facilities, or that may affect the value of the Facilities or the Company.
"Hazardous Materials"--any waste or other substance that is listed,
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defined, designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any admixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos-containing materials.
"Intellectual Property Assets" --as defined in Section 3.22.
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"IRS"--the United States Internal Revenue Service or any successor agency,
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and, to the extent relevant, the United States Department of the Treasury.
"Knowledge"--an individual will be deemed to have "Knowledge" of a
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particular fact or other matter if:
(a) such individual is actually aware of such fact or other matter; or
(b) a prudent individual could be expected to discover or otherwise become aware
of such fact or other matter without the necessity of conducting an
investigation concerning the existence of such fact or other matter.
(c) anything in this Agreement (or any document instrument, Schedule, Exhibit or
similar item) to the contrary notwithstanding, no Knowledge of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
III shall, can or may be imputed in any manner to ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇.; and
likewise, no Knowledge of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇. shall, can or may be imputed in
any manner to ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ III.
"Legal Requirement"--any federal, state, local, municipal, foreign,
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international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"Merger" -- as defined in Section 2.1.
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"Merger Consideration" -- as defined in Section 2.4(e).
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"Occupational Safety and Health Law"--any Legal Requirement designed to
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provide safe and healthful working conditions and to reduce occupational safety
and health hazards, and any program, whether governmental or private (including
those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
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"Order"--any final, non-applicable award, decision, injunction, judgment,
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order, ruling, subpoena, or verdict entered, issued, made, or rendered by any
competent court, administrative agency, or other Governmental Body or by any
arbitrator.
"Ordinary Course of Business"--an action taken by a Person will be deemed
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to have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such Person and is
taken in the ordinary course of the normal day-to-day operations of such
Person;
(b) such action is not required to be authorized by the board of directors
of such Person (or by any Person or group of Persons exercising similar
authority); and
(c) such action is similar in nature and magnitude to actions customarily
taken, without any authorization by the board of directors (or by any
Person or group of Persons exercising similar authority), in the ordinary
course of the normal day-to-day operations of other Persons that are in the
same line of business as such Person.
"Organizational Documents"--(a) the articles or certificate of
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incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person; and (e) any amendment
to any of the foregoing.
"Person"--any individual, corporation (including any non-profit
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corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"Plan"--as defined in Section 3.13.
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"Premier"--as defined in Section 4.1.
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"Proceeding"--any action, arbitration, audit, hearing, investigation,
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litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"Related Person"--with respect to a particular individual:
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(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by such individual
or one or more members of such individual's Family;
(c) any Person in which such individual or members of such individual's
Family hold (individually or in the aggregate) a Material Interest; and
(d) any Person with respect to which such individual or one or more members
of such individual's Family serves as a director, officer, partner,
executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control
with such specified Person;
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(b) any Person that holds a Material Interest in such specified Person;
(c) each Person that serves as a director, officer, partner, executor, or
trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material Interest;
(e) any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause (b) or (c).
For purposes of this definition, (a) the "Family" of an individual includes (i)
the individual, (ii) the individual's spouse and former spouses, (iii) any other
natural person who is related to the individual or the individual's spouse
within the second degree, and (iv) any other natural person who resides with
such individual, and (b) "Material Interest" means direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934)
of voting securities or other voting interests representing at least 20% of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least 20% of the outstanding equity securities or
equity interests in a Person.
"Release"--any spilling, leaking, emitting, discharging, depositing,
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escaping, leaching, dumping, or other releasing into the Environment, whether
intentional or unintentional.
"Representative"--with respect to a particular Person, any director,
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officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"Requisite Shareholder Approval" -- the affirmative vote of the holders of
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a majority of the Company Shares in favor of this Agreement and the Merger.
"Securities Act"--the Securities Act of 1933 or any successor law, and
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regulations and rules issued pursuant to that Act or any successor law.
"Special Meeting" -- as defined in Section 5.9.
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"Subsidiary"--with respect to any Person (the "Owner"), any corporation or
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other Person of which securities or other interests having the power to elect a
majority of that corporation's or other Person's board of directors or similar
governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred) are held by the Owner or one or more of its Subsidiaries; when
used without reference to a particular Person, "Subsidiary" means a Subsidiary
of the Company.
"Surviving Corporation" -- as defined in Section 2.1.
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"Tax"-- any federal, state, local or foreign income, gross receipts,
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license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Section 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty
or addition thereto, whether disputed or not.
"Tax Return"--any return (including any information return), report,
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statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment
of any Tax or in connection with the administration, implementation, or
enforcement of or compliance with any Legal Requirement relating to any Tax.
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"Threat of Release"--a substantial likelihood of a Release that may require
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action in order to prevent or mitigate damage to the Environment that may result
from such Release.
"Threatened"--a claim, Proceeding, dispute, action, or other matter will be
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deemed to have been "Threatened" if any actual demand or statement has been made
(orally or in writing) or any actual notice has been given (orally or in
writing), or if any other actual event has occurred or any other circumstances
exist (in conformity with the definition of "Knowledge"), that would lead a
prudent Person to conclude that such a claim, Proceeding, dispute, action, or
other matter is likely to be asserted, commenced, taken, or otherwise pursued in
the future.
"Transitory Subsidiary" -- as defined in the preface.
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2. BASIC TRANSACTION
2.1 THE MERGER
On and subject to the terms and conditions of this Agreement, the
Transitory Subsidiary will merge with and into the Company (the "Merger") at the
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Effective Time. The Company shall be the corporation surviving the Merger (the
"Surviving Corporation"). The Transitory Subsidiary shall enter into the
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Agreement and Plan of Merger (the "Agreement and Plan of Merger") in
substantially the form attached hereto as Exhibit 2.1 upon adoption of the
Agreement and Plan of Merger by the Board of Directors of the Transitory
Subsidiary and the satisfaction or waiver of the conditions precedent to the
Transitory Subsidiary's obligations set forth in this Agreement. The Company
shall enter into the Agreement and Plan of Merger upon adoption of the Agreement
and Plan of Merger by the Board of Directors of the Company, approval of this
Agreement and the Merger by the Requisite Shareholder Approval, and the
satisfaction or waiver of the conditions precedent to the Company's obligation
set forth in this Agreement.
2.2 THE CLOSING.
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Baker, Donelson, Bearman &
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▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, commencing at 9:00 a.m. local time on the second business day following
the satisfaction or waiver of all conditions to the obligations of the Parties
to consummate the transactions contemplated hereby (other than conditions with
respect to actions the respective Parties will take at the Closing itself) or
such other date as the Parties may mutually determine (the "Effective Time").
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2.3 ACTIONS AT THE CLOSING.
At the Closing, (i) the Company and the Shareholders, as applicable, shall
deliver to the Buyer and the Transitory Subsidiary the various certificates,
instruments, and documents referred to in Section 7.4 below, (ii) the Buyer and
the Transitory Subsidiary, as applicable, shall deliver to the Company the
various certificates, instruments, and documents referred to in Section 8.4
below, (iii) the Company and the Transitory Subsidiary shall file with the
Secretary of State of the State of Tennessee Articles of Merger in substantially
the form attached hereto as Exhibit 2.3 (the "Articles of Merger"), and (iv) the
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Buyer shall pay the Merger Consideration to the Company Shareholders and other
amounts to be paid pursuant to Section 8.4.
2.4 EFFECT OF THE MERGER
(a) General. The Merger shall become effective at the time (the
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"Effective Time") the Company and the Transitory Subsidiary file the Articles of
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Merger with the Secretary of State of the State of Tennessee. The Merger shall
have the effect set forth in the Tennessee Business Corporation Act. The
Surviving Corporation may, at any time after the Effective Time, take any action
(including executing and delivering any document) in the name and on behalf of
either the Company or the Transitory Subsidiary in order to carry out and
effectuate the transactions contemplated by this Agreement.
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(b) Charter. The Charter of the Surviving Corporation shall be amended
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and restated at and as of the Effective Time to read as did the Charter of the
Transitory Subsidiary immediately prior to the Effective Time (except that the
name of the Surviving Corporation will remain unchanged).
(c) Bylaws. The Bylaws of the Surviving Corporation shall be amended and
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restated at and as of the Effective Time to read as did the Bylaws of the
Transitory Subsidiary immediately prior to the Effective Time (except that the
name of the Surviving Corporation will remain unchanged).
(d) Directors and Officers. The directors and officers of the Transitory
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Subsidiary shall become the directors and officers of the Surviving Corporation
at and as of the Effective Time (retaining their respective positions and terms
of office).
(e) Conversion of Company Shares. At and as of the Effective Time, (A)
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each Company Share (other than any Dissenting Share) shall be converted into the
right to receive an amount (the "Merger Consideration") equal to $175.00 in cash
(without interest); provided however, that ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇. has agreed to
accept an interest bearing promissory note (the "Buyer Note") in the aggregate
principal amount of One Million Five Hundred Two Thousand Nine Hundred Forty-
eight Dollars ($1,502,948.00) in lieu of a portion of the cash consideration
which would otherwise be payable to him, and (B) each Dissenting Share shall be
converted into the right to receive payment from the Surviving Corporation with
respect thereto in accordance with the provisions of the Tennessee Business
Corporation Act; provided, however, that the Merger Consideration shall be
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subject to equitable adjustment in the event of any stock split, stock dividend,
reverse stock split, or other change in the number of Company Shares
outstanding. At the Effective Time, the Buyer shall pay to the holder of each
Dissenting Share an amount equal to $175.00 per share, which the Buyer and the
Company have determined is the "fair value" of a Company Share. No Company
Share shall be deemed to be outstanding or to have any rights other than those
set forth above in this Section 2.4(e) after the Effective Time. The Buyer Note
shall be in substantially the form attached hereto as Exhibit 2.4(e)(1) and
shall be personally guaranteed by ▇▇▇▇ ▇. ▇▇▇▇▇▇ pursuant to a guaranty
agreement in the form of Exhibit 2.4(e)(2).
(f) Conversion of Capital Stock of the Transitory Subsidiary. At and as
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of the Effective Time, each share of Common Stock, $.01 par value per share, of
the Transitory Subsidiary shall be converted into one share of Common Stock,
$10.00 par value per share, of the Surviving Corporation.
(g) Procedure for Payment. Immediately after the Effective Time, the
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Buyer will cause the Surviving Corporation to make full payment of the Merger
Consideration to the record holders of all of the issued and outstanding Company
Shares (other than any Dissenting Shares) upon the tendering of such Company
Shares for payment. No interest will accrue or be paid to the holder of any
outstanding Company Shares (other than any interest on the Buyer Note in
accordance with its terms). At the Effective Time, the Buyer shall pay to the
holder of each Dissenting Share an amount equal to $175.00 per share, which the
Buyer and the Company have determined is the "fair value" of a Company Share.
(h) Closing of Transfer Records. After the close of business on the
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Effective Time, transfers of Company Shares outstanding prior to the Effective
Time shall not be made on the stock transfer books of the Surviving Corporation.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS.
The Company and the Shareholders represent and warrant to the Buyer and the
Transitory Subsidiary that the statements contained in this Section 3 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Effective Time (as though made then and as though the
Effective Time were substituted for the date of this Agreement throughout this
Section 3), except as set forth in the disclosure schedule accompanying this
Agreement and initialed by the Parties (the "Disclosure Schedule"); provided,
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however, that any reference to the Knowledge of the Shareholders or words of
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similar import shall mean the Knowledge of each Shareholder severally and
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not jointly. The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this
Section 3.
3.1 ORGANIZATION AND GOOD STANDING
(a) The Company is a corporation duly organized, validly existing, and in
good standing under the laws of its jurisdiction of incorporation, with full
corporate power and authority to conduct its business as it is now being
conducted, to own or use the properties and assets that it purports to own or
use, and to perform all its material obligations under Applicable Contracts.
The Company is duly qualified to do business as a foreign corporation and is in
good standing under the laws of each state or other jurisdiction in which either
the ownership or use of the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification.
(b) The Company has delivered to the Buyer copies of the Organizational
Documents of the Company, as currently in effect.
3.2 AUTHORITY; NO CONFLICT
(a) The Company has full power and authority (including full corporate
power and authority) to execute and deliver this Agreement and to perform its
obligations hereunder; provided, however, that the Company cannot consummate the
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Merger unless and until it receives the Requisite Shareholder Approval. This
Agreement constitutes the legal, valid, and binding obligation of the Company
and the Shareholders, enforceable against the Company and the Shareholders in
accordance with its terms except to the extent that enforcement thereof may be
limited by applicable bankruptcy, reorganization, insolvency or moratorium laws,
or other laws affecting the enforcement of creditors' rights or by the
principles governing the availability of equitable remedies. Upon the execution
and delivery by Shareholders of the documents listed in Sections 7.4(d), 7.4(e),
7.4(f), and 7.4(g), such documents will constitute the legal, valid, and binding
obligations of the Shareholders who are a party thereto, enforceable against
such Shareholders in accordance with their respective terms except to the extent
that enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency or moratorium laws, or other laws affecting the
enforcement of creditors' rights or by the principles governing the availability
of equitable remedies. The Shareholders have the absolute and unrestricted
right, power, authority, and capacity to execute and deliver this Agreement and
the documents listed in Sections 7.4(d), 7.4(e), 7.4(f), and 7.4(g) and to
perform his obligations under this Agreement and such other documents.
(b) Except as set forth in Section 3.2 of the Disclosure Schedule, neither
the execution and delivery of this Agreement nor the consummation or performance
of any of the transactions contemplated by this Agreement by the Company or the
Shareholders will, directly or indirectly (with or without notice or lapse of
time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of the Company, or (B) any
resolution adopted by the board of directors or the shareholders of the
Company;
(ii) to the Shareholders' Knowledge, contravene, conflict with, or result
in a violation of, or give any Governmental Body or other Person the right
to challenge any of the transactions contemplated by this Agreement or to
exercise any remedy or obtain any relief under, any Legal Requirement or
any Order to which the Company or the Shareholders, or any of the assets
owned or used by the Company, may be subject;
(iii) to the Shareholders' Knowledge, contravene, conflict with, or result
in a violation of any of the terms or requirements of, or give any
Governmental Body the right to revoke, withdraw, suspend, cancel,
terminate, or modify, any Governmental Authorization that is held by the
Company or that otherwise relates to the business of, or any of the assets
owned or used by, the Company;
(iv) cause any of the assets owned by the Company to be reassessed or
revalued by any taxing authority or other Governmental Body;
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(v) contravene, conflict with, or result in a violation or breach of
any provision of, or give any Person the right to declare a default or exercise
any remedy under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Applicable Contract; or
(vi) result in the imposition or creation of any Encumbrance upon or
with respect to any of the assets owned or used by the Company.
To the Shareholders' Knowledge, except as set forth in Section 3.2 of the
Disclosure Schedule, neither the Shareholders nor the Company is or will be
required to give any notice to or obtain any Consent from any Person in
connection with the execution and delivery of this Agreement or the consummation
or performance of any of the transactions contemplated by this Agreement, with
the exception of obtaining the Requisite Shareholders Approval and allowing the
participants of the Company's 401(k) and Employee Stock Ownership Plan (the
"ESOP") to direct or advise ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ III, as trustee of the ESOP,
regarding the vote of Company Shares owned by the ESOP.
3.3 CAPITALIZATION
The authorized equity securities of the Company consist of 100,000
shares of common stock, par value $10.00 per share, of which 33,923 shares are
issued and outstanding. The Shareholders and the ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇.
Charitable Remainder Trust are and will be on the Effective Time the record and
beneficial owners and holders of the 19,010 shares of common stock, free and
clear of all Encumbrances. No legend or other reference to any purported
Encumbrance appears upon any certificate representing equity securities of the
Company. All of the outstanding equity securities of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. None of the
outstanding equity securities or other securities of the Company was issued in
violation of the Securities Act or any other Legal Requirement. Except as set
forth in Section 3.3 of the Disclosure Schedule, the Company does not own, or
have any Contract to acquire, any equity securities or other securities of any
Person or any direct or indirect equity or ownership interest in any other
business. With the exception of rights of participants in the ESOP, there are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require the Company to issue, sell, or otherwise cause to become
outstanding any of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation, or similar rights with
respect to the Company.
3.4 FINANCIAL STATEMENTS
The Shareholders have previously delivered to the Buyer the audited
financial statements for the Company for the years ending June 30, 1996 and
1997, and the unaudited balance sheet and income statement of the Company as of
December 31, 1997 (the December 31, 1997 unaudited balance sheet shall
hereinafter be referred to as the "Balance Sheet"). Such unaudited financial
statements and notes fairly present the financial position and the results of
operations, changes in stockholders' equity, and cash flow of the Company at the
respective dates of and for the periods referred to in such financial
statements, all in accordance with GAAP. The financial statements referred to in
this Section 3.4 reflect the consistent application of such accounting
principles throughout the periods involved, except as disclosed in the notes to
such financial statements. To the Shareholders' Knowledge, no financial
statements of any Person other than the Company are required by GAAP to be
included in the financial statements of the Company. For periods of time after
December 31, 1997, the financial statements of the Company will include the
income, assets and liabilities formerly belonging to Digital Spectrum, LLC.
3.5 BOOKS AND RECORDS
Except as set forth in Section 3.5 of the Disclosure Schedule, the books
of account, minute books, stock record books, and other records of the Company,
all of which have been made available to the Buyer, are complete and correct in
all material respects and have been maintained in accordance with sound business
practices. Except as set forth in Section 3.5 of the Disclosure Schedule, the
minute books of the Company contain accurate and complete records of all formal
meetings held of, and material corporate action taken by, the stockholders, the
Boards of Directors, and committees of the Boards of Directors of the Company,
and no formal meeting of any such stockholders, Board of
10
Directors, or committee has been held for which minutes have not been prepared
and are not contained in such minute books. At the Closing, all of those books
and records will be in the possession of the Company.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES
Section 3.6 of the Disclosure Schedule, the financial statements and/or
the tax return schedules contain a complete and accurate list of all real
property, leaseholds, or other interests therein owned by the Company. The
Company owns (with good and marketable title in the case of real property,
subject only to the matters permitted by the following sentence) all the
properties and assets (whether real, personal, or mixed and whether tangible or
intangible) that it purports to own located in the facilities owned, leased or
operated by the Company or reflected as owned in the books and records of the
Company, including all of the properties and assets reflected in the Balance
Sheet (except for assets held under capitalized leases disclosed or not required
to be disclosed in Section 3.6 of the Disclosure Schedule and personal property
sold since the date of the Balance Sheet, as the case may be, in the Ordinary
Course of Business). All of the properties, leasehold interests and assets
purchased or otherwise acquired by the Company since the date of the Balance
Sheet (except for personal property and short-term investments acquired and sold
since the date of the Balance Sheet in the Ordinary Course of Business and
consistent with past practice) are listed in Section 3.6 of the Disclosure
Schedule. All material properties and assets reflected in the Balance Sheet are
free and clear of all Encumbrances and are not, in the case of real property,
subject to any rights of way, building use restrictions, exceptions, variances,
reservations, or limitations of any nature except, with respect to all such
properties and assets, (a) mortgages or security interests shown on the Balance
Sheet, as securing specified liabilities or obligations, with respect to which
no material default (or event that, with notice or lapse of time or both, would
constitute a default) exists, (b) mortgages or security interests incurred in
connection with the purchase of property or assets after the date of the Balance
Sheet (such mortgages and security interests being limited to the property or
assets so acquired), with respect to which no material default (or event that,
with notice or lapse of time or both, would constitute a material default)
exists, (c) liens for current taxes not yet due and payable, and (d) with
respect to real property, (i) minor imperfections of title, if any, none of
which is substantial in amount, materially detracts from the value or impairs
the existing use of the property subject thereto, or materially impairs the
operations of the Company, (ii) zoning laws and other land use restrictions that
do not materially impair the present use of the property subject thereto and
(iii) items reflected in and/or excepted in the title commitment obtained for
the real property. To the Shareholders' Knowledge, all buildings, plants, and
structures owned by the Company lie wholly within the boundaries of the real
property owned by the Company and do not encroach upon the property of, or
otherwise conflict with the property rights of, any other Person, except as may
be reflected in any title commitment obtained for the real property in
connection with this transaction.
3.7 CONDITION AND SUFFICIENCY OF ASSETS
To the Shareholders' Knowledge, except as disclosed in Section 3.7 of
the Disclosure Schedule, the buildings, plants, structures, and equipment of the
Company are structurally sound, are in good operating condition and repair, and
are adequate for the uses to which they are being put, and none of such
buildings, plants, structures, or equipment is in need of maintenance or repairs
except for ordinary, routine maintenance and repairs that are not material in
nature or cost.
3.8 ACCOUNTS RECEIVABLE
All accounts receivable of the Company that are reflected on the Balance
Sheet (the "Accounts Receivable") or on the accounting records of the Company as
of the Effective Time were incurred in the Ordinary Course of Business for bona
fide sales. Unless paid prior to the Effective Time, to the Shareholders'
Knowledge, the Accounts Receivable are or will be as of the Effective Time
collectible in accordance with the Company's historical collection percentage
and practices. To the Shareholders' Knowledge, there is no contest, claim, or
right of set-off, other than returns in the
11
Ordinary Course of Business, under any Contract with any obligor of an Accounts
Receivable relating to the amount or validity of such Accounts Receivable.
Section 3.8 of the Disclosure Schedule contains a complete and accurate list of
all Accounts Receivable as of the date of the Balance Sheet, which list sets
forth the aging of such Accounts Receivable.
3.9 INVENTORY
To the Shareholders' Knowledge, all inventory of the Company, whether or
not reflected in the Balance Sheet, consists of a quality and quantity usable
and salable in the Ordinary Course of Business, except for obsolete items and
items of below-standard quality, all of which have been (or will be in the
adjusting journal entries of the annual audit performed by the Company) written
off or written down to net realizable value in the Balance Sheet or on the
accounting records of the Company as of the Effective Time, as the case may be.
All inventories not written off have been priced at the lower of cost or net
realizable value on a first in, first out basis consistent with the Company's
past business practices. To the Shareholders' Knowledge, the quantities of each
item of inventory (whether raw materials, work-in-process, or finished goods)
are not excessive, but are reasonable in the present circumstances of the
Company.
3.10 NO UNDISCLOSED LIABILITIES
Except as set forth in Section 3.10 of the Disclosure Schedule, to the
Shareholders' Knowledge, the Company has no material liabilities or material
obligations of any nature except for (i) liabilities or obligations reflected or
reserved against in the Balance Sheet and (ii) any other liabilities incurred in
the Ordinary Course of Business since December 31, 1997 (none of which results
from, arises out of, relates to, is in the nature of, or was caused by any
breach of contract, breach of warranty, tort, infringement, or violation of
law).
3.11 TAXES
(a) The Company has filed or caused to be filed (on a timely basis since
January 1, 1994) all Tax Returns that are or were required to be filed by it
pursuant to applicable Legal Requirements. The Shareholders have delivered or
made available to the Buyer copies of, and Section 3.11 of the Disclosure
Schedule contains a complete and accurate list of, all such Tax Returns relating
to income or franchise taxes filed since January 1, 1994. The Company has paid,
or made provision for the payment of, all Taxes that have or may have become due
pursuant to those Tax Returns or pursuant to any assessment received by the
Shareholders or the Company, except such Taxes, if any, as are listed in Section
3.11 of the Disclosure Schedule and are being contested in good faith and as to
which adequate reserves (determined in accordance with GAAP) have been provided
in the Balance Sheet.
(b) Section 3.11 of the Disclosure Schedule contains a complete and
accurate list of all audits for periods after December 31, 1994 of all such Tax
Returns, including a reasonably detailed description of the nature and outcome
of each audit. All deficiencies proposed as a result of such audits have been
paid, reserved against, settled, or, as described in Section 3.11 of the
Disclosure Schedule, are being contested in good faith by appropriate
proceedings. Section 3.11 of the Disclosure Schedule describes all adjustments
to the United States federal income Tax Returns filed by the Company for all
taxable years since 1994, and the resulting deficiencies proposed by the IRS.
Except as described in Section 3.11 of the Disclosure Schedule, neither the
Shareholders nor the Company have given or been requested to give waivers or
extensions (or is or would be subject to a waiver or extension given by any
other Person) of any statute of limitations relating to the payment of Taxes of
the Company or for which the Company may be liable.
(c) To the Shareholders' Knowledge, the charges, accruals, and reserves
with respect to Taxes on the books of the Company are adequate (determined in
accordance with GAAP) and are at least equal to the Company's liability for
Taxes. There exists no proposed tax assessment against the Company except as
disclosed in the Balance Sheet or in Section 3.11 of the Disclosure Schedule. No
consent to the application of Section 341(f)(2) of the Code has been filed with
respect to any property or assets held, acquired, or to be acquired by the
Company. All Taxes that the Company is or was required by Legal Requirements to
withhold or collect have been duly withheld or collected and, to the extent
required, have been paid to the proper Governmental Body or other Person. All
Tax Returns filed by (or that include on a consolidated basis) the Company are
true, correct, and complete.
12
(d) There is no tax sharing agreement that will require any payment by
the Company after the date of this Agreement.
3.12 NO MATERIAL ADVERSE CHANGE
Except as set forth in Section 3.12 of the Disclosure Schedule, since
the date of the Balance Sheet, to the Shareholders' Knowledge, there has not
been any material adverse change in the business, operations, properties,
prospects, assets, or condition of the Company, and to the Shareholders'
Knowledge, no event has occurred or circumstance exists that may result in such
a material adverse change.
3.13 EMPLOYEE BENEFITS
(a) Section 3.13 of the Disclosure Schedule sets forth a true and complete
list of all employment contracts, collective bargaining or other labor
agreements, pension, retirement, stock option, stock purchase, savings, profit-
sharing, deferred compensation, retainer, consultant, bonus, group insurance,
incentive, welfare or any other contracts, plans or arrangements providing for
employee compensation or benefits (the "Plans"), and all trust agreements
relating thereto, to which the Company is a party or to which the Company
contributes or by which it is bound. Copies of each of the foregoing have been
made available to Buyer. The only Plans which individually or collectively would
constitute an "employee pension benefit plan" as defined in Section 3(2) of
ERISA are identified in Section 3.13 of the Disclosure Schedule, and are
hereinafter referred to as the "Pension Plans." No Plan constitutes a "multi
employer plan" as defined in Section 4001(a)(3) of ERISA.
(b) The ESOP is qualified under Section 401(a) of the Code and the
trust forming a part thereof is exempt from tax pursuant to Section 501(a) of
the Code. Copies of all Internal Revenue Service determination letters and audit
reports relating to such Plan have been made available to the Buyer.
(c) Each Plan has been maintained in substantial compliance with the
requirements prescribed by any and all statutes, orders, rules and regulations,
including, but not limited to, ERISA and the Code, that are applicable to such
Plans. No Plan nor any trust created thereunder, nor any trustee or
administrator thereof, has engaged in a non-exempt "prohibited transaction" as
such term is defined in Section 4975 of the Code, which could subject such Plans
or any of them, any such trust, or any such trustee or administrator thereof, or
any party dealing with such employee benefit plans or any such trust, to any tax
or penalty on prohibited transactions imposed by such Section 4975.
(d) All contributions and payments accrued under each Plan, determined
in accordance with prior funding and accrual practices as adjusted to the extent
required to include proportional contribution and payment accruals for the
period from the last funding date to the Effective Time, will be discharged and
paid on or prior to the Effective Time except to the extent that any such amount
is recorded as a liability on the Balance Sheet. Except as set forth in Section
3.13 of the Disclosure Schedule, there has been no amendment to, written
interpretation or announcement (whether or not written) relating to, or change
in employee participation or coverage under any Plan that would increase
materially the expense of maintaining such Plan above the level of expense
incurred in respect thereof for the preceding fiscal year.
(e) Notwithstanding anything to the contrary contained in this
Agreement, no representation or warranty of the Shareholders or the Company
shall be breached or deemed to be breached in the event any Governmental Body
determines that the pass through of "dissenters rights" under Tennessee law to
any ESOP participants who perfect their dissenters rights in accordance with
Tennessee Law constitutes a non-exempt "prohibited transaction" under ERISA.
3.14 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS
(a) Except as set forth in Section 3.14 of the Disclosure Schedule, to
the Shareholders' Knowledge:
(i) the Company is, and at all times has been, in full compliance with
each Legal Requirement that is or was applicable to it or to the conduct
or operation of its business or the ownership or use of any of its
assets except
13
where the failure to be in compliance with any such Legal Requirements
will not have a material adverse effect on the Company;
(ii) no event has occurred or circumstance exists that (with or without
notice or lapse of time) (A) may constitute or result in a material
violation by the Company of, or a failure on the part of the Company to
comply with, any Legal Requirement, or (B) may give rise to any
obligation on the part of the Company to undertake, or to bear all or
any portion of the cost of, any remedial action of any material nature;
and
(iii) the Company has not received any notice or other communication
(whether oral or written) from any Governmental Body or any other Person
regarding (A) any actual, alleged, possible, or potential violation of,
or failure to comply with, any Legal Requirement, or (B) any actual,
alleged, possible, or potential obligation on the part of the Company to
undertake, or to bear all or any portion of the cost of, any remedial
action of any material nature.
(b) Section 3.14 of the Disclosure Schedule contains a complete and
accurate list of each Governmental Authorization that is held by the Company or
that otherwise relates to the business of, or to any of the assets owned or used
by, the Company. Each Governmental Authorization listed or required to be listed
in Section 3.14 of the Disclosure Schedule is valid and in full force and effect
except where the failure to have such Governmental Authorization in full force
and effect would not have a material adverse effect on the Company. Except as
set forth in Section 3.14 of the Disclosure Schedule:
(i) the Company is, and at all times has been, in full compliance with
all of the terms and requirements of each Governmental Authorization
identified or required to be identified in Section 3.14 of the
Disclosure Schedule except where the failure to have such Governmental
Authorization in full force and effect would not have a material adverse
effect on the Company;
(ii) no event has occurred or circumstance exists that may (with or
without notice or lapse of time) (A) constitute or result directly or
indirectly in a violation of or a failure to comply with any term or
requirement of any Governmental Authorization listed or required to be
listed in Section 3.14 of the Disclosure Schedule, or (B) result
directly or indirectly in the revocation, withdrawal, suspension,
cancellation, or termination of, or any modification to, any
Governmental Authorization listed or required to be listed in Section
3.14 of the Disclosure Schedule;
(iii) the Company has not received, at any time any notice or other
communication (whether oral or written) from any Governmental Body or
any other Person regarding (A) any actual, alleged, possible, or
potential material violation of or material failure to comply with any
material term or requirement of any Governmental Authorization which has
not been cured or remedied to the satisfaction of the Governmental Body
or Person, or (B) any actual, proposed, possible, or potential
revocation, withdrawal, suspension, cancellation, termination of, or
modification to any Governmental Authorization which has not been
withdrawn, resolved or cured; and
(iv) all applications required to have been filed for the renewal of
the Governmental Authorizations listed or required to be listed in
Section 3.14 of the Disclosure Schedule have been duly filed on a timely
basis with the appropriate Governmental Bodies, and all other filings
required to have been made with respect to such Governmental
Authorizations have been duly made on a timely basis with the
appropriate Governmental Bodies except where the failure to renew or
timely file such applications would not have a material adverse effect
on the Company.
To the Shareholders' Knowledge, the Governmental Authorizations listed
in Section 3.14 of the Disclosure Schedule collectively constitute all of the
Governmental Authorizations necessary to permit the Company to lawfully conduct
and operate its business in the manner it currently conducts and operates such
business and to permit the Company to own and use its assets in the manner in
which it currently owns and uses such assets.
14
3.15 LEGAL PROCEEDINGS; ORDERS
(a) Except as set forth in Section 3.15 of the Disclosure Schedule, to
the Knowledge of the Shareholders there is no pending Proceeding:
(i) that has been commenced by or against the Company or that
otherwise relates to or may affect the business of, or any of the assets
owned or used by, the Company; or
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the
transactions contemplated by this Agreement.
To the Knowledge of the Shareholders, (1) no such Proceeding has been
Threatened, and (2) no event has occurred or circumstance exists that may give
rise to or serve as a basis for the commencement of any such Proceeding. To the
Shareholders' Knowledge, the Proceedings listed in Section 3.15 of the
Disclosure Schedule will not have a material adverse effect on the business,
operations, assets, condition, or prospects of the Company.
(b) Except as set forth in Section 3.15 of the Disclosure Schedule, to
the Knowledge of the Shareholders:
(i) there is no Order to which the Company, or any of the assets owned
or used by the Company, is subject;
(ii) to the Knowledge of the Shareholders, no officer, director, agent,
or employee of the Company is subject to any Order that prohibits such
officer, director, agent, or employee from engaging in or continuing any
conduct, activity, or practice relating to the business of the Company.
(c) Except as set forth in Section 3.15 of the Disclosure Schedule, to
the Knowledge of the Shareholders:
(i) the Company is, and at all times has been, in full compliance with
all of the terms and requirements of each Order to which it, or any of
the assets owned or used by it, is or has been subject;
(ii) no event has occurred or circumstance exists that may constitute
or result in (with or without notice or lapse of time) a material
violation of or failure to comply with any term or requirement of any
Order to which the Company, or any of the assets owned or used by the
Company, is subject; and
(iii) the Company has not received at any time any notice or other
communication (whether oral or written) from any Governmental Body or
any other Person regarding any actual, alleged, possible, or potential
material violation of, or failure to comply with, any material term or
requirement of any Order to which the Company, or any of the assets
owned or used by the Company, is or has been subject.
3.16 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Section 3.16 of the Disclosure Schedule, since
the date of the Balance Sheet, the Company has conducted its business only in
the Ordinary Course of Business and there has not been any:
(a) change in the Company's authorized or issued capital stock; grant
of any stock option or right to purchase shares of capital stock of the Company;
issuance of any security convertible into such capital stock; grant of any
registration rights; purchase, redemption, retirement, or other acquisition by
the Company of any shares of any such capital stock; or declaration or payment
of any dividend or other distribution or payment in respect of shares of capital
stock;
(b) amendment to the Organizational Documents of the Company;
15
(c) payment or increase by the Company (except in the Ordinary Course
of Business, including the disposition of the shareholders' receivable balance
which shall occur on or before the Effective Time) of any bonuses, salaries, or
other compensation to any shareholder, director, officer, or employee or entry
into any employment, severance, or similar Contract with any director, officer,
or employee; provided, however, that the Company shall allow ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
▇▇. to remove his split dollar life insurance, have the Company waive any
obligation or ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇. to the Company with respect to the split
dollar insurance, and otherwise end the split dollar insurance plans with no
further obligation to the Company;
(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any employees of the
Company;
(e) damage to or destruction or loss of any asset or property of the
Company, whether or not covered by insurance, materially and adversely affecting
the properties, assets, business, financial condition, or prospects of the
Company, taken as a whole;
(f) entry into, termination of, or receipt of notice of termination of
(i) any license, distributorship, dealer, sales representative, joint venture,
credit, or similar agreement, or (ii) any Contract or transaction involving a
total remaining commitment by or to the Company of at least $25,000;
(g) sale (other than sales of inventory in the Ordinary Course of
Business), lease, or other disposition of any asset or property of the Company
or mortgage, pledge, or imposition of any lien or other encumbrance on any
material asset or property of the Company, including the sale, lease, or other
disposition of any of the Intellectual Property Assets;
(h) cancellation or waiver of any claims or rights with a value to the
Company in excess of $25,000;
(i) material change in the accounting methods used by the Company; or
(j) agreement, whether oral or written, by the Company to do any of the
foregoing.
3.17 CONTRACTS; NO DEFAULTS
(a) Section 3.17(a) of the Disclosure Schedule contains a complete and
accurate list, and the Shareholders have made available to the Buyer true and
complete copies, of:
(i) each Applicable Contract that involves performance of services or
delivery of goods or materials by the Company of an amount or value in
excess of $10,000 which were not purchase orders received in the
Ordinary Course of Business;
(ii) each Applicable Contract that was not entered into in the Ordinary
Course of Business and that involves expenditures or receipts of the
Company in excess of $10,000;
(iii) each lease, rental or occupancy agreement, license, installment
and conditional sale agreement, and other Applicable Contract affecting
the ownership of, leasing of, title to, use of, or any leasehold or
other interest in, any real or personal property (except personal
property leases and installment and conditional sales agreements having
a value per item or aggregate payments of less than $10,000 and with
terms of less than one year);
(iv) each licensing agreement or other Applicable Contract with respect
to patents, trademarks, copyrights, or other intellectual property,
including agreements with current or former employees, consultants, or
contractors regarding the appropriation or the non-disclosure of any of
the Intellectual Property Assets that is used in and is material to the
business of the Company;
16
(v) each collective bargaining agreement and other Applicable
Contract to or with any labor union or other employee representative of
a group of employees;
(vi) each joint venture, partnership, and other Applicable Contract
(however named) involving a sharing of profits, losses, costs, or
liabilities by the Company with any other Person;
(vii) each Applicable Contract containing covenants that in any way
purport to restrict the business activity of the Company or any
Affiliate of the Company or limit the freedom of the Company or any
Affiliate of the Company to engage in any line of business or to compete
with any Person;
(viii) each Applicable Contract providing for payments to or by any
Person based on sales, purchases, or profits, other than direct payments
for goods in excess of $10,000.00;
(ix) each power of attorney that is currently effective and
outstanding;
(x) each Applicable Contract entered into other than in the Ordinary
Course of Business that contains or provides for an express undertaking
by the Company to be responsible for consequential damages;
(xi) each Applicable Contract for capital expenditures in excess of
$10,000;
(xii) each written warranty, guaranty, and or other similar undertaking
with respect to contractual performance extended by the Company other
than in the Ordinary Course of Business; and
(xiii) each amendment, supplement, and modification whether oral or
written in respect of any of the foregoing.
(b) To the Shareholders' Knowledge, except as set forth in Section
3.17(b) of the Disclosure Schedule:
(i) Neither the Shareholders nor any Related Person of the
Shareholders has or may acquire any rights under, and neither the
Shareholders nor any Related Person of the Shareholders have or may
become subject to any obligation or liability under, any Contract (other
than this Agreement) that relates to the business of, or any of the
assets owned or used by, the Company; and
(ii) No officer, director, agent, employee, consultant, or contractor
of the Company is bound by any Contract that purports to limit the
ability of such officer, director, agent, employee, consultant, or
contractor to (A) engage in or continue any conduct, activity, or
practice relating to the business of the Company, or (B) assign to the
Company or to any other Person any rights to any invention, improvement,
or discovery.
(c) Except as set forth in Section 3.17(c) of the Disclosure
Schedule, to the Knowledge of the Shareholders, each Contract identified or
required to be identified in Section 3.17(a) of the Disclosure Schedule is in
full force and effect and is valid and enforceable in accordance with its terms
except as may be limited by applicable bankruptcy, reorganization, insolvency or
moratorium laws, or other laws affecting the enforcement of creditor's rights or
by the principles governing the availability of equitable remedies.
(d) Except as set forth in Section 3.17(d) of the Disclosure Schedule
to the Knowledge of the Shareholders:
(i) the Company is, and at all times has been, in material compliance
with all applicable terms and requirements of each Contract under which
the Company has or had any obligation or liability or by which the
Company or any of the assets owned or used by the Company is or was
bound, except where the failure to comply does not have a material
adverse effect on the business, assets or prospects of the Company;
17
(ii) each other Person that has or had any obligation or liability
under any Contract under which the Company has or had any rights is, and
at all times has been, in material compliance with all applicable terms
and requirements of such Contract except where the failure to comply
does not have a material adverse effect on the business, assets or
prospects of the Company;
(iii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) may contravene, conflict with, or
result in a material violation or breach of, or give the Company or
other Person the right to declare a default or exercise any remedy
under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Applicable Contract for amounts in excess of
$10,000; and
(iv) the Company has not given to or received from any other Person at
any time any notice or other communication (whether oral or written)
regarding any actual, alleged, possible or potential material violation
or breach of, or default under, any Contract.
(e) To the Knowledge of the Shareholders, there are no renegotiations
of, attempts to renegotiate, or outstanding rights to renegotiate any material
amounts paid or payable to the Company under current or completed Contracts with
any Person and, to the Knowledge of the Shareholders, no such Person has made
written demand for such renegotiation.
(f) The Contracts relating to the sale, design, manufacture, or
provision of products or services by the Company have been entered into in the
Ordinary Course of Business and have been entered into without the commission of
any act alone or in concert with any other Person, or any consideration having
been paid or promised, that is or would be in violation of any Legal
Requirement.
3.18 INSURANCE
(a) The Shareholders have made available to the Buyer as part of its
due diligence:
(i) true and complete copies of all policies of insurance to which the
Company is a party or under which the Company, or any director of the Company,
is or has been covered at any time within the three years preceding the date of
this Agreement; and
(ii) true and complete copies of all pending applications for policies
of insurance.
(b) Section 3.18(b) of the Disclosure Schedule describes:
(i) any self-insurance arrangement by or affecting the Company,
including any reserves established thereunder;
(ii) any contract or arrangement, other than a policy of insurance, for
the transfer or sharing of any risk by the Company; and
(iii) all obligations of the Company to third parties with respect to
insurance (including such obligations under leases and service
agreements) and identifies the policy under which such coverage is
provided.
(c) Section 3.18(c) of the Disclosure Schedule sets forth, by year,
for the current policy year and each of the three preceding policy years:
(i) a summary of the loss experience under each policy;
(ii) a statement describing each claim under an insurance policy for an
amount in excess of $10,000, which sets forth:
18
(A) the name of the claimant;
(B) a description of the policy by insurer, type of insurance,
and period of coverage; and
(C) the amount and a brief description of the claim; and
(iii) a statement describing the loss experience for all claims that
were self-insured, including the number and aggregate cost of such
claims.
(d) Except as set forth on Section 3.18(d) of the Disclosure Schedule:
(i) Neither the Shareholders nor the Company has received (A) any
refusal of coverage or any notice that a defense will be afforded with
reservation of rights, or (B) any notice of cancellation or any other
indication that any insurance policy is no longer in full force or
effect or will not be renewed or that the issuer of any policy is not
willing or able to perform its obligations thereunder.
(ii) The Company has paid all premiums due, and to the Shareholders'
Knowledge, the Company has otherwise performed all of its respective
obligations, under each policy to which the Company is a party or that
provides coverage to the Company or any director thereof.
(iii) The Company has given notice to the insurer of all material claims
that may be insured thereby.
3.19 ENVIRONMENTAL MATTERS
Except as set forth in Section 3.19 of the Disclosure Schedule:
(a) To the Knowledge of the Shareholders, the Company is, and at all
times has been, in full compliance with, and has not been and is not in
violation of or liable under, any Environmental Law other than disclosed on the
Phase I audit provided to the Buyer by the Shareholders in connection with this
Agreement. To the Knowledge of the Shareholders there is no basis to expect, nor
has any other Person for whose conduct the Shareholders are or may be held to be
responsible received, any actual or Threatened order, notice, or other
communication from (i) any Governmental Body or private citizen acting in the
public interest, or (ii) the current or prior owner or operator of any
Facilities, of any actual or potential violation or failure to comply with any
Environmental Law, or of any actual or Threatened obligation to undertake or
bear the cost of any Environmental, Health, and Safety Liabilities with respect
to any of the Facilities or any other properties or assets (whether real,
personal, or mixed) in which the Company has had an interest, or with respect to
any property or Facility at or to which Hazardous Materials were generated,
manufactured, refined, transferred, imported, used, or processed by the
Shareholders, the Company, or any other Person for whose conduct they are or may
be held responsible, or from which Hazardous Materials have been transported,
treated, stored, handled, transferred, disposed, recycled, or received. To the
Shareholders' Knowledge, no material adverse change in the environmental
conditions of the real estate and improvements has occurred since the date on
which the respective reports were made.
(b) There are no pending or, to the Knowledge of the Shareholders,
Threatened claims, Encumbrances, or other restrictions of any nature, resulting
from any Environmental, Health, and Safety Liabilities or arising under or
pursuant to any Environmental Law, with respect to or affecting any of the
Facilities or any other properties and assets (whether real, personal, or mixed)
in which the Shareholders or the Company have or had an interest.
(c) The Shareholders have no Knowledge of any basis to expect, nor has
the Company or to the Knowledge of the Shareholders, any other Person for whose
conduct the Company may be held responsible, received, any citation, directive,
inquiry, notice, Order, summons, warning, or other communication that relates to
Hazardous Activity, Hazardous Materials, or any alleged, actual, or potential
violation or failure to comply with any Environmental Law,
19
or of any alleged, actual, or potential obligation to undertake or bear the cost
of any Environmental, Health, and Safety Liabilities with respect to any of the
Facilities or any other properties or assets (whether real, personal, or mixed)
in which the Shareholders or the Company had an interest, or with respect to any
property or facility to which Hazardous Materials generated, manufactured,
refined, transferred, imported, used, or processed by the Shareholders, the
Company, or any other Person for whose conduct they are or may be held
responsible, have been transported, treated, stored, handled, transferred,
disposed, recycled, or received.
(d) To the Knowledge of the Shareholders, neither the Shareholders nor
the Company, or any other Person for whose conduct they are or may be held
responsible, has any Environmental, Health, and Safety Liabilities with respect
to the Facilities or, to the Knowledge of the Shareholders, with respect to any
other properties and assets (whether real, personal, or mixed) in which the
Shareholders or the Company (or any predecessor), has or had an interest, or at
any property geologically or hydro logically adjoining the Facilities or any
such other property or assets.
(e) To the Knowledge of the Shareholders, except in compliance with all
applicable Environmental Laws, there are no Hazardous Materials present on or in
the Environment at the Facilities, including any Hazardous Materials contained
in barrels, above or underground storage tanks, landfills, land deposits, dumps,
equipment (whether moveable or fixed) or other containers, either temporary or
permanent, and deposited or located in land, water, sumps, or any other part of
the Facilities, or incorporated into any structure therein or thereon. Neither
the Shareholders, the Company, nor any other Person for whose conduct the
Company may be held responsible, or to the Knowledge of the Shareholders and the
Company, any other Person, has permitted or conducted, or is aware of, any
Hazardous Activity conducted with respect to the Facilities or any other
properties or assets (whether real, personal, or mixed) in which the
Shareholders or the Company has or had an interest except in full compliance
with all applicable Environmental Laws. With respect to asbestos or asbestos
containing materials, the mere presence of such materials shall not constitute a
breach of this Section 3.19 unless the mere presence of the same constitutes
noncompliance with applicable Environmental Laws.
(f) To the Knowledge of the Shareholders and the Company, there has
been no Release or Threat of Release, of any Hazardous Materials at or from the
Facilities in which the Shareholders or the Company has or had an interest in a
quantity or manner that violates applicable Environmental Laws.
(g) The Shareholders have delivered to the Buyer true and complete
copies and results of any reports, studies, analyses, tests, or monitoring
possessed or initiated by the Shareholders or the Company pertaining to
Hazardous Materials or Hazardous Activities in, on, or under the Facilities, or
concerning compliance by the Shareholder, the Company, or any other Person for
whose conduct they are or may be held responsible, with Environmental Laws.
(h) The disclosure of any matter in Section 3.19 of the Disclosure
Schedule shall not constitute an admission that such matter is a violation of
any applicable Environmental Laws.
3.20 EMPLOYEES
(a) Section 3.20(a) of the Disclosure Schedule contains a complete and
accurate list of the following information for each employee or director of the
Company, including each employee on leave of absence or layoff status: employer;
name; job title; current compensation paid or payable and any change in
compensation since January 1, 1997; vacation accrued; and service credited for
purposes of vesting and eligibility to participate under the Company's pension,
retirement, profit-sharing, thrift-savings, deferred compensation, stock bonus,
stock option, cash bonus, employee stock ownership (including investment credit
or payroll stock ownership), severance pay, insurance, medical, welfare, or
vacation plan, other Employee Pension Benefit Plan or Employee Welfare Benefit
Plan, or any other employee benefit plan.
(b) To the Knowledge of the Shareholders, no employee or director of
the Company is a party to, or is otherwise bound by, any agreement or
arrangement, including any confidentiality, noncompetition, or proprietary
rights agreement, between such employee or director and any other Person
("Proprietary Rights Agreement") that in any way
20
adversely affects or will affect (i) the performance of his duties as an
employee or director of the Company, or (ii) the ability of the Company to
conduct its business, including any Proprietary Rights Agreement with the
Shareholders or the Company by any such employee or director. To the
Shareholders' Knowledge, except for those employees set forth on Section 3.20(b)
of the Disclosure Schedule, no director, officer, or other key employee of the
Company intends to terminate his or her employment with the Company.
(c) Section 3.20(a) of the Disclosure Schedule also contains a complete
and accurate list of the following information for each retired employee or
director of the Company, or their dependents, receiving benefits or scheduled to
receive benefits in the future: name, pension benefit, pension option election,
retiree medical insurance coverage, retiree life insurance coverage, and other
benefits.
3.21 LABOR RELATIONS; COMPLIANCE
Since January 1, 1994, the Company has not been nor is currently a
party to any collective bargaining or other labor Contract. Since January 1,
1997, there has not been, there is not presently pending or existing, and to the
Shareholders' Knowledge, there is not Threatened, (a) any strike, slowdown,
picketing, or work stoppage, (b) any Proceeding against or affecting the Company
relating to the alleged violation of any Legal Requirement pertaining to labor
relations or employment matters, including any charge or complaint filed by an
employee or union with the National Labor Relations Board, the Equal Employment
Opportunity Commission, or any comparable Governmental Body, organizational
activity, or other labor or employment dispute against or affecting the Company
or their premises, or (c) any application for certification of a collective
bargaining agent. To the Shareholders' Knowledge, no event has occurred or
circumstance exists that could provide the basis for any work stoppage or other
labor dispute. There is no lockout of any employees by the Company, and no such
action is contemplated by the Company. To Shareholders' Knowledge, the Company
has complied in all respects with all Legal Requirements relating to employment,
equal employment opportunity, nondiscrimination, immigration, wages, hours,
benefits, collective bargaining, the payment of social security and similar
taxes, occupational safety and health, and plant closing. To Shareholders'
Knowledge, the Company is not liable for the payment of any compensation,
damages, taxes, fines, penalties, or other amounts, however designated, for
failure to comply with any of the foregoing Legal Requirements.
3.22 INTELLECTUAL PROPERTY
(a) The term "Intellectual Property Assets" includes:
(i) the name ▇▇▇▇▇▇▇▇ Printing, all fictional business names, trading
names, registered and unregistered trademarks, service marks, and
applications (collectively, "Marks");
(ii) all copyrights in both published works and unpublished works
(collectively, "Copyrights");
(iii) all know-how, trade secrets, confidential information, customer
lists, software, technical information, data, process technology,
plans, drawings, and blue prints (collectively, "Trade Secrets") owned,
used, or licensed by the Company as licensee or licensor.
(b) The Company (i) has not made any filing with any governmental
agency or taken any other unusual action to obtain or protect its ownership or
use of any Intellectual Property Assets, (ii) is not obliged to make future
payments principally for its ownership or use of any Intellectual Property
Assets, (iii) has not received any notice that its use of any Intellectual
Property Assets infringes on the rights of any other person, or (iv) upon the
consummation of the transactions contemplated hereunder will not be in violation
of any contracts or agreements relating to the use of any Intellectual Property
Assets.
3.23 CERTAIN PAYMENTS
21
To the Shareholders' Knowledge, since January 1, 1992, neither the
Company nor any director, officer, agent, or employee of the Company, or to the
Shareholders' Knowledge, any other Person associated with or acting for or on
behalf of the Company, has directly or indirectly made any illegal contribution,
gift, bribe, rebate, payoff, influence payment, kickback, or other payment to
any Person, private or public, regardless of form, whether in money, property,
or services to obtain favorable treatment in securing business or to pay for
favorable treatment for business secured.
3.24 DISCLOSURE
(a) To the Shareholders' Knowledge, no representation or warranty of
the Shareholders in this Agreement omits to state a material fact necessary to
make the statements herein or therein, in light of the circumstances in which
they were made, not misleading.
(b) No notice given pursuant to Section 5.5 will contain any untrue
statement or omit to state a material fact necessary to make the statements
therein or in this Agreement, in light of the circumstances in which they were
made, not misleading.
(c) Disclosure of or reference to any matter on any exhibit, schedule
or attachment to this Agreement shall be deemed to be disclosure of such matter
for all purposes of this Agreement.
3.25 RELATIONSHIPS WITH RELATED PERSONS
To the Shareholders' Knowledge, except as set forth on Section 3.25 of
the Disclosure Schedule, neither the Shareholders nor any Related Person of the
Shareholders or of the Company has owned (of record or as a beneficial owner) an
equity interest or any other financial or profit interest in, a Person that has
(i) had business dealings or a material financial interest in any transaction
with the Company other than business dealings or transactions conducted in the
Ordinary Course of Business with the Company at substantially prevailing market
prices and on substantially prevailing market terms, or (ii) engaged in
competition with the Company with respect to any line of the products or
services of the Company (a "Competing Business") in any market presently served
by the Company except for less than one percent of the outstanding capital stock
of any Competing Business that is publicly traded on any recognized exchange or
in the over-the-counter market. Except as set forth in Section 3.25 of the
Disclosure Schedule, neither the Shareholders nor to the Knowledge of the
Shareholders any Related Person of the Shareholders or of the Company is a party
to any Contract with, or has any claim or right against, the Company.
3.26 BROKERS OR FINDERS
Neither the Company nor the Shareholders and his agents have incurred
any obligation or liability, contingent or otherwise, for brokerage or finders'
fees or agents' commissions or other similar payment in connection with this
Agreement.
3.27 GUARANTIES
Except as set forth in Section 3.27 of the Disclosure Schedule, the
Company is not a guarantor and otherwise is not liable for any liability or
obligation (including indebtedness) of any other Person.
3.28 POWERS OF ATTORNEY
There are no outstanding powers of attorney executed by the Company,
except as may be contained in financing documents or security agreements listed
in Section 3.28 of the Disclosure Schedule.
3.29 INVESTMENT
22
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇. (i) understands that the Buyer Note has not
been, and will not be, registered under the Securities Act, or under any state
securities laws, and is being offered and sold in reliance upon federal and
state exemptions for transactions not involving a public offering, (ii) is
acquiring the Buyer Note solely for his own account for investment purposes, and
not with a view to the distribution thereof, (iii) is a sophisticated investor
with knowledge and experience in business and financial matters, (iv) has had
the opportunity to obtain information about the Buyer as desired in order to
evaluate the merits and the risks inherent in holding the Buyer Note, and (v) is
able to bear the economic risk and lack of liquidity inherent in holding the
Buyer Note.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Each of the Buyer and the Transitory Subsidiary represents and warrants
to the Company that the statements contained in this Section 4 are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Effective Time (as though made then and as though the Effective Time were
substituted for the date of this Agreement throughout this Section 4), except as
set forth in the Disclosure Schedule. The Disclosure Schedule will be arranged
in paragraphs corresponding to the numbered and lettered paragraphs contained in
this Section 4.
4.1 ORGANIZATION AND GOOD STANDING
Each of the Buyer, Premier Graphics, Inc., a Delaware corporation
("Premier"), and the Transitory Subsidiary is a corporation duly organized,
validly existing, and in good standing under the laws of its respective
jurisdiction of incorporation with full corporate power and authority to conduct
its business as it is now being conducted, to own or use the properties and
assets that it purports to own or use, and to perform all its obligations under
Applicable Contracts. Each of the Buyers, Premier and the Transitory Subsidiary
is duly qualified to do business as a foreign corporation and is in good
standing under the laws of each state or other jurisdiction in which either the
ownership or use of the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification.
4.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding obligation
of the Buyer and Transitory Subsidiary, enforceable against the Buyer and
Transitory Subsidiary in accordance with its terms except to the extent that
enforcement thereof may be limited by applicable bankruptcy, reorganization,
insolvency or moratorium laws, or other laws affecting the enforcement of
creditors' rights or by principles governing the availability of equitable
remedies generally. Upon execution and delivery of the agreements which are
attached hereto as Exhibits, each of such agreements will constitute the legal,
valid and binding obligation of the Buyer, the Transitory Subsidiary or Premier,
as applicable, enforceable against such parties in accordance with its terms,
except to the extent that enforcement thereof may be limited by applicable
bankruptcy, reorganization, insolvency or moratorium laws, or other laws
affecting the enforcement of creditors' rights or by principles governing the
availability of equitable remedies generally. Each of the Buyer, the Transitory
Subsidiary and Premier has the absolute and unrestricted right, power, and
authority to execute and deliver this Agreement and each agreement attached
hereto to which it is a party and to perform its obligations under this
Agreement and the agreements attached hereto as Exhibits.
(b) Except as set forth in Section 4.2 of the Disclosure Schedule,
neither the execution and delivery of this Agreement by the Buyer or the
Transitory Subsidiary, nor the consummation or performance of any of the
transactions contemplated by this Agreement by the Buyer, Premier or the
Transitory Subsidiary, will give any Person the right to prevent, delay, or
otherwise interfere with any of the transactions contemplated by this Agreement
pursuant to:
(i) any provision of the Buyer's, Premier's or the Transitory
Subsidiary's Organizational Documents;
(ii) any resolution adopted by the board of directors or the
stockholders of Buyer, Premier or the Transitory Subsidiary;
23
(iii) any Legal Requirement or Order to which the Buyer, Premier or the
Transitory Subsidiary may be subject; or
(iv) any Contract to which the Buyer, Premier or the Transitory
Subsidiary is a party or by which the Buyer, Premier or the Transitory
Subsidiary may be bound.
Except as set forth in Section 4.2 of the Disclosure Schedule, the Buyer is not
and will not be required to obtain any Consent from any Person in connection
with the execution and delivery of this Agreement or the consummation or
performance of any of the transactions contemplated by this Agreement.
4.3 CERTAIN PROCEEDINGS
There is no pending Proceeding that has been commenced against the Buyer,
Premier or the Transitory Subsidiary and that challenges, or may have the effect
of preventing, delaying, making illegal, or otherwise interfering with, any of
the transactions contemplated by this Agreement. To the Buyer's Knowledge, no
such Proceeding has been Threatened.
4.4 BROKERS OR FINDERS
Neither the Buyer, Premier nor the Transitory Subsidiary nor any of
their respective officers or agents have incurred any obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this Agreement and will indemnify
and hold the Company and the Shareholders harmless from any such payment alleged
to be due by or through the Buyer, Premier or the Transitory Subsidiary as a
result of the action of the Buyer, Premier, the Transitory Subsidiary, or any of
their respective officers or agents.
4.5 COMPANY INFORMATION
The Buyer has requested all information that it believes is material to
its decision to consummate the Merger. The Buyer has received from the
Shareholders or the Company information responsive to each of its requests. The
Buyer has not relied on any representation that is not set forth in the
Agreement. As of the date of this Agreement, the Buyer does not have Knowledge
of any Breach committed by the Company or the Shareholders of any
representation, warranty, covenant of agreement contained in this Agreement.
4.6 FINANCIAL COVENANT
The Buyer has the financial ability to pay all amounts due under the
Buyer Notes as and when such amounts become due and payable. Prior to the
Effective Time, the Buyer will provide to ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇., audited
financial statements of the Buyer for the period ended December 31, 1997. The
Buyer will continue to provide to ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇. financial statements on
a quarterly basis until such time as all amounts due under the Buyer Note have
been paid.
4.7 EMPLOYEE BENEFITS
From and after the Effective Time, the Buyer and the Surviving
Corporation shall be solely responsible for the form and maintenance of the
Plans in compliance with Applicable Laws. The Buyer and the Surviving
Corporation shall be solely responsible for any act or omission of the Buyer or
the Surviving Corporation which occurs after the Effective Time and results in a
retroactive disqualification of the ESOP.
5. COVENANTS OF THE COMPANY AND THE SHAREHOLDERS PRIOR TO EFFECTIVE TIME
5.1 ACCESS AND INVESTIGATION
24
Between the date of this Agreement and the Effective Time, the
Shareholders will, and will cause the Company and its Representatives to, (a)
afford the Buyer and its Representatives and prospective lenders and their
Representatives (collectively, "Buyer's Advisors") full and free access to the
Company's personnel, properties (including subsurface testing), contracts, books
and records, and other documents and data, (b) furnish the Buyer and the Buyer's
Advisors with copies of all such contracts, books and records, and other
existing documents and data as the Buyer may reasonably request, and (c) furnish
the Buyer and the Buyer's Advisors with such additional financial, operating,
and other data and information as the Buyer may reasonably request.
5.2 OPERATION OF THE BUSINESS OF THE COMPANY
Between the date of this Agreement and the Effective Time, the
Shareholders will, and will cause the Company to:
(a) conduct the business of the Company only in the Ordinary Course of
Business; provided, however, the Buyer acknowledges that (i) the ESOP may be
converted into a 401(k) plan prior to the Effective Time; (ii) the indebtedness
of the ESOP may be repaid prior to the Effective Time; and (iii) the payment of
fees incurred in connection with this Agreement and the transactions
contemplated hereby;
(b) use their Best Efforts to preserve intact the current business
organization of the Company, keep available the services of the current
officers, employees, and agents of the Company, and maintain the relations and
good will with suppliers, customers, landlords, creditors, employees, agents,
and others having business relationships with the Company;
(c) confer with the Buyer concerning operational matters of a material
nature; and
(d) otherwise report periodically to the Buyer concerning the status of
the business, operations, and finances of the Company.
5.3 NEGATIVE COVENANT
Except as otherwise expressly permitted by this Agreement, between the
date of this Agreement and the Effective Time, the Shareholders will not, and
will cause the Company not to, without the prior consent of the Buyer, take any
affirmative action, or fail to take any reasonable action within their or its
control, as a result of which any of the changes or events listed in Section
3.16 is likely to occur.
5.4 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement, the
Shareholders will, and will cause the Company to, make all filings required by
Legal Requirements to be made by them in order to consummate the transactions
contemplated by this Agreement. Between the date of this Agreement and the
Effective Time, the Shareholders will, and will cause the Company to, (a)
cooperate with the Buyer with respect to all filings that the Buyer elects to
make or is required by Legal Requirements (with the exception of obtaining an
Individual Prohibited Transaction Exemption from the United States Department of
Justice) to make in connection with the transactions contemplated by this
Agreement, and (b) cooperate with the Buyer in obtaining all consents identified
in Section 4.2 of the Disclosure Schedule.
5.5 NOTIFICATION
Between the date of this Agreement and the Effective Time, the
Shareholders will promptly notify the Buyer in writing if the Shareholders or
the Company becomes aware of any fact or condition that causes or constitutes a
Breach of any of the Company's or the Shareholders' representations and
warranties as of the date of this Agreement, or if the
25
Shareholders or the Company becomes aware of the occurrence after the date of
this Agreement of any fact or condition that would (except as expressly
contemplated by this Agreement) cause or constitute a Breach of any such
representation or warranty had such representation or warranty been made as of
the time of occurrence or discovery of such fact or condition. During the same
period, the Shareholders will promptly notify the Buyer of the occurrence of any
Breach of any covenant of the Shareholders in this Section 5 or of the
occurrence of any event that may make the satisfaction of the conditions in
Section 7 impossible or unlikely.
5.6 PAYMENT OF INDEBTEDNESS BY RELATED PERSONS
Except as expressly provided in this Agreement, the Shareholders will
cause all indebtedness, with the exception of indebtedness related to split
dollar life insurance policies, owed to the Company by the Shareholders or any
Related Person of the Shareholders to be paid in full prior to Closing.
5.7 NO NEGOTIATION
Except as required in the exercise of their fiduciary duty as directors
of the Company, until such time, if any, as this Agreement is terminated
pursuant to Section 9, the Shareholders will not, and will cause the Company and
each of their Representatives not to, directly or indirectly solicit, initiate,
or encourage any inquiries or proposals from, discuss or negotiate with, provide
any non-public information to, or consider the merits of any unsolicited
inquiries or proposals from, any Person (other than the Buyer) relating to any
transaction involving the sale of the business or assets (other than in the
Ordinary Course of Business) of the Company, or any of the capital stock of the
Company, or any merger, consolidation, business combination, or similar
transaction involving the Company.
5.8 BEST EFFORTS
Between the date of this Agreement and the Effective Time, the
Shareholders will use their Best Efforts to cause the conditions in Sections 7
and 8 to be satisfied.
5.9 SPECIAL SHAREHOLDERS MEETING
The Company will call a special meeting of its shareholders (the
"Special Meeting"), as soon as practicable in order that the shareholders may
consider and vote upon the adoption of this Agreement and the approval of the
Merger in accordance with the Tennessee Business Corporation Act. The notice for
the Special Meeting shall comply in all respects with Sections ▇▇-▇▇-▇▇▇ and 48-
23-201 of the Tennessee Code Annotated and the Bylaws of the Company and contain
(i) the affirmative recommendation of the board of directors of the Company in
favor of the adoption of the Agreement and the approval of the Merger; provided,
--------
however, that no director or officer of the Company shall be required to violate
-------
fiduciary duty or other requirement imposed by law in connection therewith; and
(ii) a copy of Sections ▇▇-▇▇-▇▇▇ through ▇▇-▇▇-▇▇▇, inclusive, of the Tennessee
Code Annotated.
6. COVENANTS OF BUYER PRIOR TO EFFECTIVE TIME
6.1 APPROVALS OF GOVERNMENTAL BODIES
As promptly as practicable after the date of this Agreement, the Buyer
will, and will cause each of its Related Persons to, make all filings required
by Legal Requirements to be made by them to consummate the transactions
contemplated by this Agreement. Between the date of this Agreement and the
Effective Time, the Buyer will, and will cause each Related Person to, cooperate
with the Shareholders with respect to all filings that the Company is required
by Legal Requirements to make in connection with the transactions contemplated
by this Agreement, and (ii) cooperate with the Company in obtaining all consents
identified in Section 3.2 of the Disclosure Schedule; provided that this
Agreement will not require the Buyer to dispose of or make any change in any
portion of its business or to incur any other burden to obtain a Governmental
Authorization.
26
6.2 BEST EFFORTS
Except as set forth in the proviso to Section 6.1, between the date of
this Agreement and the Effective Time, the Buyer will use its Best Efforts to
cause the conditions in Sections 7 and 8 to be satisfied.
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
The obligation of each of the Buyer and the Transitory Subsidiary to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions(any of which may be
waived by the Buyer, in whole or in part):
7.1 ACCURACY OF REPRESENTATIONS
(a) All of the Company's and the Shareholders' representations and
warranties in this Agreement (considered collectively), and each of these
representations and warranties (considered individually), must have been
accurate in all material respects as of the date of this Agreement, and must be
accurate in all material respects as of the Effective Time as if made on the
Effective Time.
7.2 COMPANY AND SHAREHOLDERS PERFORMANCE
(a) All of the covenants and obligations that either the Company or the
Shareholders are required to perform or to comply with pursuant to this
Agreement at or prior to the Closing (considered collectively), and each of
these covenants and obligations (considered individually), must have been duly
performed and complied with in all material respects.
(b) Each document required to be delivered pursuant to Section 7.4 must
have been delivered, and each of the other covenants and obligations in Section
5.1 through Section 5.9, inclusive, must have been performed and complied with
in all respects.
7.3 CONSENTS
Each of the Consents set forth in Section 3.2 of the Disclosure
Schedule, must have been obtained and must be in full force and effect.
7.4 DELIVERIES AT CLOSING BY THE COMPANY AND THE SHAREHOLDERS
The Shareholders or the Company, as applicable, shall execute and
deliver to the Buyer prior to or at the Closing:
(a) certified resolutions of the directors and shareholders of the
Company authorizing the execution and delivery of the Agreement, approving the
Merger, and authorizing the execution and delivery of all documents and the
consummation of all transactions contemplated by this Agreement;
(b) the Articles of Merger;
(c) the Agreement and Plan of Merger;
(d)[intentionally omitted]
(e) a noncompetition agreement in substantially the form attached
hereto as Exhibit 7.4(e), executed by the ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ III;
27
(f) employment agreements in substantially the form attached hereto as
Exhibit 7.4(f) executed by the appropriate parties;
(g) a certificate executed by the Shareholders representing and
warranting to the Buyer that each of the Shareholders' representations and
warranties in this Agreement was accurate in all respects as of the date of this
Agreement and is accurate in all respects as of the Effective Time as if made on
the Effective Time.
(h) opinions of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ & Manner, P.C. and ▇▇▇▇▇▇,
▇▇▇▇▇▇ & ▇▇▇▇, P.C., dated as of Effective Time, in form and substance mutually
agreeable to the Parties and their respective counsel;
(i) the consulting agreement in substantially the form attached hereto
as Exhibit 7.4(i);
(j) the option agreements in substantially the form attached hereto as
Exhibit 7.4(j);
(k) the warrant agreements in substantially the form attached hereto as
Exhibit 7.4(k)
(l) such other documents as Buyer may reasonably request for the
purpose of (i) enabling its counsel to provide the opinion referred to in
Section 8.4, (ii) evidencing the accuracy of any of the Company's or the
Shareholders' representations and warranties, (iii) evidencing the performance
by the Company or the Shareholders of, or the compliance by the Company or the
Shareholders with, any covenant or obligation required to be performed or
complied with by the Company or the Shareholders, (iv) evidencing the
satisfaction of any condition referred to in this Section 7, or (v) otherwise
facilitating the consummation or performance of any of the transactions
contemplated by this Agreement.
7.5 NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced or
Threatened against the Buyer, or against any Person affiliated with the Buyer,
any Proceeding (a) involving any challenge to, or seeking damages or other
relief in connection with, any of the transactions contemplated by this
Agreement, or (b) that may have the effect of preventing, delaying, making
illegal, or otherwise interfering with any of the transactions contemplated by
this Agreement.
7.6 NO PROHIBITION
Neither the consummation nor the performance of any of the transactions
contemplated by this Agreement will, directly or indirectly (with or without
notice or lapse of time), materially contravene, or conflict with, or result in
a material violation of, or cause the Buyer or any Person affiliated with the
Buyer to suffer any material adverse consequence under, (a) any applicable Legal
Requirement or Order, or (b) any Legal Requirement or Order that has been
published, introduced, or otherwise proposed by or before any Governmental Body.
7.7 SHAREHOLDER APPROVAL
This Agreement and the Merger shall have received the Requisite
Shareholder Approval.
8.CONDITIONS PRECEDENT TO THE COMPANY'S AND THE SHAREHOLDERS' OBLIGATION TO
CLOSE
The obligation of the Company and the Shareholders to consummate the
transactions to be performed by it in connection with the Closing is subject to
satisfaction of the following conditions (any of which may be waived by the
Company and the Shareholders, in whole or in part):
8.1 ACCURACY OF REPRESENTATIONS
28
All of the Buyer's and the Transitory Subsidiary's representations and
warranties in this Agreement (considered collectively), and each of these
representations and warranties (considered individually), must have been
accurate in all material respects as of the date of this Agreement and must be
accurate in all material respects as of the Effective Time as if made on the
Effective Time.
8.2 BUYER AND TRANSITORY SUBSIDIARY PERFORMANCE
(a) All of the covenants and obligations that either the Buyer or the
Transitory Subsidiary is required to perform or to comply with pursuant to this
Agreement at or prior to the Closing (considered collectively), and each of
these covenants and obligations (considered individually), must have been
performed and complied with in all material respects.
(b) Each document required to be delivered pursuant to Section 8.4 must
have been delivered, and each of the other covenants and obligations in Section
6.1 and Section 6.2, inclusive, must have been performed and complied with in
all respects.
8.3 CONSENTS
Each of the Consents identified in Section 3.2 of the Disclosure
Schedule must have been obtained and must be in full force and effect.
8.4 DELIVERIES AT CLOSING BY THE BUYER AND THE TRANSITORY SUBSIDIARY
The Buyer, Premier or the Transitory Subsidiary, as applicable, shall
execute and deliver to the Company or the Shareholders, as applicable, prior to
or at the Closing:
(a) Four Million Four Hundred Thirty-three Thousand Five Hundred
Seventy-seven Dollars ($4,433,577.00) by wire transfer to accounts specified by
the Shareholders and in amounts set forth in Schedule 8.4(a);
(b) the Buyer Note;
(c) the guaranty of ▇▇▇▇ ▇. ▇▇▇▇▇▇ in substantially the form attached
hereto as Exhibit 2.4(b);
(d) a certificate executed by the Buyer to the effect that, except as
otherwise stated in such certificate, each of the Buyer's representations and
warranties in this Agreement was accurate in all respects as of the date of this
Agreement and is accurate in all respects as of the Effective Time as if made on
the Effective Time; and
(e) the Articles of Merger;
(f) the Agreement and Plan of Merger;
(g) an opinion of Baker, Donelson, Bearman & ▇▇▇▇▇▇▇▇, dated as of the
Effective Time, in form and substance mutually agreeable to the Parties and
their respective counsel, which shall include an opinion regarding "prohibited
transactions" under ERISA;
(h) the employment agreements in substantially the form attached hereto
as Exhibit 7.4(f);
(i) the consulting agreement in substantially the form attached hereto
as Exhibit 7.4(i)
(j) the option agreements in substantially the form attached hereto as
Exhibit 7.4(j);
29
(k) the warrant agreements in substantially the form attached hereto as
Exhibit 7.4(k);
(l) the non-competition agreement in substantially the form attached
hereto as Exhibit 7.4(e);
(m) unless paid prior to Closing, wire transfers in the amounts and to
the accounts listed on Schedule 8.4(m);
(n) unless the parties hereto mutually agree to delay entry of the
agreements to a later date, stock option agreements in a form mutually agreeable
to the parties for that certain number of shares of the Buyer's common stock
equal to (a) the dollar amounts reflected on the attached Schedule 8.4(n)
divided by (b) the initial public offering price per share of the Buyer's common
stock. Such option agreements shall (i) provide for an exercise price per share
equal to the initial public offering price pre share of the Buyer's common stock
and (ii) with the exception of the $123,000 in fully vested options, shall vest
on the schedule of 25% after one year of service, an additional 25% after two
years of service and an additional 50% after three years of service. The terms
and conditions contained in such stock option agreements shall govern and, to
the extent inconsistent herewith, supersede the terms and conditions set forth
in this Agreement.
(o) such other documents as the Company or the Shareholders may
reasonably request for the purpose of (i) enabling his counsel to provide the
opinion referred to in Section 7.4, (ii) evidencing the accuracy of any
representation or warranty of the Buyer or the Transitory Subsidiary, (iii)
evidencing the performance by the Buyer or the Transitory Subsidiary of, or the
compliance by the Buyer or the Transitory Subsidiary with, any covenant or
obligation required to be performed or complied with by the Buyer or the
Transitory Subsidiary, (ii) evidencing the satisfaction of any condition
referred to in this Section 8, or (v) otherwise facilitating the consummation of
any of the transactions contemplated by this Agreement.
8.5 NO PROCEEDINGS
Since the date of this Agreement, with the exception of any exercise of
"dissenters' rights" under Tennessee law, there must not have been commenced or
Threatened against the Company or the Shareholders, or against any Person
affiliated with the Company or the Shareholders, any Proceeding (a) involving
any challenge to, or seeking damages or other relief in connection with, any of
the transactions contemplated by this Agreement, or (b) that may have the effect
of preventing, delaying, making illegal, or otherwise interfering with any of
the transactions contemplated by this Agreement.
Neither the consummation nor the performance of any of the transactions
contemplated by this Agreement will, directly or indirectly (with or without
notice or lapse of time), materially contravene, or conflict with, or result in
a material violation of, or cause the Shareholders or any Person affiliated with
the Shareholders to suffer any material adverse consequence under, (a) any
applicable Legal Requirement or Order, or (b) any Legal Requirement or Order
that has been published, introduced, or otherwise proposed by or before any
Governmental Body.
9. TERMINATION
9.1 TERMINATION EVENTS
This Agreement may, by notice given prior to or at the Closing, be
terminated:
(a) by either the Buyer or the Company or the Shareholders if a
material Breach of any provision of this Agreement has been committed by the
other party and such Breach has not been waived;
(b) (i) by the Buyer if any of the conditions in Section 7 has not been
satisfied as of the Effective Time or if satisfaction of such a condition is or
becomes impossible (other than through the failure of the Buyer to comply with
its obligations under this Agreement) and the Buyer has not waived such
condition on or before the Effective Time; or
30
(ii) by the Company or the Shareholders, if any of the conditions in Section 8
has not been satisfied of the Effective Time or if satisfaction of such a
condition is or becomes impossible (other than through the failure of the
Company or the Shareholders to comply with their obligations under this
Agreement) and the Company or the Shareholders have not waived such condition on
or before the Effective Time;
(c) by mutual consent of the Buyer, the Company and the Shareholders.
9.2 EFFECT OF TERMINATION
Each party's right of termination under Section 9.1 is in addition to
any other rights it may have under this Agreement or otherwise, and the exercise
of a right of termination will not be an election of remedies. If this Agreement
is terminated pursuant to Section 9.1, all further obligations of the parties
under this Agreement will terminate, except that the obligations in Sections
11.1 and 11.3 will survive; provided, however, that if this Agreement is
terminated by a party because of the Breach of the Agreement by the other party
or because one or more of the conditions to the terminating party's obligations
under this Agreement is not satisfied as a result of the other party's failure
to comply with its obligations under this Agreement, the terminating party's
right to pursue all legal remedies will survive such termination unimpaired.
10. INDEMNIFICATION; REMEDIES
10.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE
All representations, warranties, covenants, and obligations contained
in this Agreement, the certificates delivered pursuant to Section 7.4(g) and
Section 8.4(d) and any other certificate or document delivered pursuant to this
Agreement will survive the Closing. The right to indemnification, payment of
Damages or other remedy based on such a breach of such representations,
warranties, covenants, and obligations will not be affected by any investigation
conducted by the Buyer. The waiver of any condition based on the accuracy of any
representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification, payment of
Damages, or other remedy based on such representations, warranties, covenants,
and obligations.
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY THE SHAREHOLDERS
The Shareholders will indemnify and hold harmless the Buyer, the
Company, the Transitory Subsidiary and their respective affiliates
(collectively, the "Indemnified Persons") from, and will pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage (including incidental
and consequential damages), expense (including costs of investigation and
defense and reasonable attorneys' fees) whether or not involving a third-party
claim (collectively, "Damages"), arising, directly or indirectly, from or in
connection with:
(a) any breach of any representation or warranty made by the Company or
the Shareholders in this Agreement, or any other certificate or document
delivered by the Company or the Shareholders pursuant to this Agreement;
(b) any breach of any representation or warranty made by the Company or
the Shareholders in this Agreement as if such representation or warranty were
made on and as of the Effective Time, other than any such breach that is
expressly identified in the certificate delivered pursuant to Section 7.4(g) as
having caused the condition specified in Section 7.1 not to be satisfied;
(c) any breach by the Company or the Shareholders of any covenant or
obligation of the Company or the Shareholders in this Agreement; and
31
(d) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such Person with either the Shareholders or the
Company (or any Person acting on their behalf) in connection with any of the
transactions contemplated by this Agreement.
The remedies provided in this Section 10.2 will not be exclusive of or
limit any other remedies that may be available to the Buyer or the other
Indemnified Persons.
10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER
The Buyer will indemnify and hold harmless the Shareholders, and will
pay to Shareholders the amount of any Damages arising, directly or indirectly,
from or in connection with:
(a) any breach of any representation or warranty made by the Buyer or
the Transitory Subsidiary in this Agreement, or any other certificate or
document delivered by the Buyer or the Transitory Subsidiary pursuant to this
Agreement;
(b) any breach of any representation or warranty made by the Buyer or
the Transitory Subsidiary in this Agreement as if such representation or
warranty were made on and as of the Effective Time, other than any such breach
that is expressly identified in the certificate delivered pursuant to Section
8.4(d) as having caused the condition specified in Section 8.1 not to be
satisfied;
(c) any breach by the Buyer or the Transitory Subsidiary of any
covenant or obligation of the Buyer or the Transitory Subsidiary in this
Agreement;
(d) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such Person with either the Buyer or the
Transitory Subsidiary (or any Person acting on their behalf) in connection with
any of the transactions contemplated by this Agreement;
(e) any claim against ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ III acting in his capacity as
trustee of the ESOP based on a breach of his fiduciary duty as trustee;
provided, however, that no indemnification shall be owed if ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
III intentionally or knowingly breaches his fiduciary duties as trustee.
The remedies provided in this Section 10.3 will not be exclusive of or
limit any other remedies that may be available to the Company or the
Shareholders.
10.4 TIME LIMITATIONS
If the Closing occurs, the Shareholders will have no liability (for
indemnification or otherwise) with respect to any representation or warranty, or
covenant or obligation to be performed and complied with prior to the Effective
Time, other than those in Sections 3.3, 3.11, 3.13, and 3.19, unless on or
before the second anniversary of the Effective Time the Buyer notifies the
Shareholders of a claim specifying the factual basis of that claim in reasonable
detail to the extent then known by the Buyer. A claim by the Buyer or an
Indemnified Person with respect to Section 3.3, 3.11, 3.13, or 3.19, or a claim
by the Buyer or an Indemnified Person for indemnification or reimbursement based
upon any covenant or obligation to be performed and complied with after the
Effective Time, may be made at any time within the applicable statute of
limitations period. If the Closing occurs, the Buyer will have no liability (for
indemnification or otherwise) with respect to any representation or warranty, or
covenant or obligation to be performed and complied with by the Buyer prior to
the Effective Time, unless on or before second anniversary of the Effective Time
the Shareholders notify the Buyer of a claim specifying the factual basis of
that claim in reasonable detail to the extent then known by the Shareholders. A
claim by the Shareholders for indemnification or reimbursement based upon any
covenant or
32
obligation to be performed and complied with by the Buyer after the Effective
Time, may be made at any time within the applicable statute of limitations
period.
10.5 LIMITATIONS ON INDEMNIFICATION--THE SHAREHOLDERS
The Shareholders will have no liability (for indemnification or
otherwise) with respect to the matters described in clause (a), clause (b) or,
to the extent relating to any failure to perform or comply prior to the
Effective Time, clause (c) of Section 10.2 until the total of all Damages with
respect to such matters exceeds $25,000, and then only for the amount by which
such Damages exceed $25,000. However, the $25,000 limitation contained in the
preceding sentence will not apply to any breach of any of the Shareholders'
representations and warranties of which the Shareholders had Knowledge at any
time prior to the date on which such representation and warranty is made or any
intentional breach by the Shareholders of any covenant or obligation, and the
Shareholders will be liable for all Damages (subject to the limitations
contained in the next succeeding sentence) with respect to such breaches. At
such time as the indemnification threshold described in the first sentence of
this Section 10.5 is reached and at all times thereafter, or in the event of a
claim for indemnification to which the second sentence of this Section 10.5
applies, each of the Shareholders shall be liable to the Indemnified Persons
only for an amount equal to (i) the total amount of indemnification due pursuant
to Section 10.2 multiplied by (ii) a fraction, the numerator of which is the
number of Company Shares directly owned by such Shareholder in his individual
capacity immediately prior to the Effective Time (provided, however, that
Company Shares owned by the ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇. Irrevocable Charitable
Remainder Trust shall be allocated to ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇. for purpose of this
Section 10.5) and the denominator of which is 33,923. Each of the Shareholders'
total liability (for indemnification or otherwise) with respect to the matters
described in clause (a), clause (b) or, to the extent relating to any failure to
perform or comply prior to the Effective Time, clause (c) of Section 10.2, shall
be limited to the total consideration received by such Shareholder.
10.6 LIMITATIONS ON INDEMNIFICATION--BUYER
The Buyer will have no liability (for indemnification or otherwise)
with respect to the matters described in clause (a) or (b) of Section 10.3 until
the total of all Damages with respect to such matters exceeds $25,000, and then
only for the amount by which such Damages exceed $25,000. However, the $25,000
limitation contained in the preceding sentence will not apply to any breach of
any of the Buyer's representations and warranties of which the Buyer had
Knowledge at any time prior to the date on which such representation and
warranty is made or any intentional breach by the Buyer of any covenant or
obligation, and the Buyer will be liable for all Damages with respect to such
breaches.
10.7 RIGHT OF SET-OFF
Upon (i) agreement of the parties or (ii) a final determination of a
court of competent jurisdiction that amounts are owned by ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇.
to the Buyer, the Buyer may set off any amount to which it may be entitled under
this Section 10 against amounts otherwise payable under the Buyer Note. The
exercise of such right of set-off by the Buyer in good faith, whether or not
ultimately determined to be justified, will not constitute an event of default
under the Buyer Note or any instrument securing the Buyer Note. Neither the
exercise of nor the failure to exercise such right of set-off will constitute an
election of remedies or limit the Buyer in any manner in the enforcement of any
other remedies that may be available to it.
10.8 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
(a) Promptly after receipt by an indemnified party under Section 10.2
or 10.3, or of notice of the commencement of any Proceeding against it alleging
facts which, if true would constitute a breach of any representation, warranty
or covenant contained in this Agreement or which would otherwise trigger an
indemnification obligation under this Section 10, such indemnified party will,
if a claim is to be made against an indemnifying party under such Section, give
notice to the indemnifying party of the commencement of such claim, but the
failure to notify the indemnifying
33
party will not relieve the indemnifying party of any liability that it may have
to any indemnified party, except to the extent that the indemnifying party
demonstrates that the defense of such action is prejudiced by the indemnifying
party's failure to give such notice.
(b) If any Proceeding referred to in Section 10.8(a) is brought against
an indemnified party and it gives notice to the indemnifying party of the
commencement of such Proceeding, the indemnifying party will, unless the claim
involves Taxes, be entitled to participate in such Proceeding and, to the extent
that it wishes (unless (i) the indemnifying party is also a party to such
Proceeding and the indemnified party determines in good faith that joint
representation would be inappropriate, or (ii) the indemnifying party fails to
provide reasonable assurance to the indemnified party of its financial capacity
to defend such Proceeding and provide indemnification with respect to such
Proceeding), to assume the defense of such Proceeding with counsel reasonably
satisfactory to the indemnified party and, after notice from the indemnifying
party to the indemnified party of its election to assume the defense of such
Proceeding, the indemnifying party will not, as long as it diligently conducts
such defense, be liable to the indemnified party under this Section 10 for any
reasonable fees of other counsel or any other expenses with respect to the
defense of such Proceeding, in each case subsequently incurred by the
indemnified party in connection with the defense of such Proceeding, other than
reasonable costs of investigation. If the indemnifying party assumes the defense
of a Proceeding, (i) it will be conclusively established for purposes of this
Agreement that the claims made in that Proceeding are within the scope of and
subject to indemnification; (ii) no compromise or settlement of such claims may
be effected by the indemnifying party without the indemnified party's consent
unless (A) there is no finding or admission of any violation of Legal
Requirements or any violation of the rights of any Person and no effect on any
other claims that may be made against the indemnified party, and (B) the sole
relief provided is monetary damages that are paid in full by the indemnifying
party; and (iii) the indemnified party will have no liability with respect to
any compromise or settlement of such claims effected without its consent. If
notice is given to an indemnifying party of the commencement of any Proceeding
and the indemnifying party does not, within thirty (30) days after the
indemnified party's notice is given, give notice to the indemnified party of its
election to assume the defense of such Proceeding, the indemnifying party will
be bound by any determination made in such Proceeding or any compromise or
settlement effected by the indemnified party.
(c) Notwithstanding the foregoing, if an indemnified party determines
in good faith that there is a reasonable probability that a Proceeding may
adversely affect it or its affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, the
indemnified party may, by notice to the indemnifying party, assume the exclusive
right to defend (at its own cost), compromise, or settle such Proceeding, but
the indemnifying party will not be bound by any determination of a Proceeding so
defended or any compromise or settlement effected without its consent (which may
not be unreasonably withheld).
(d) The Shareholders hereby consent to the non-exclusive jurisdiction
of any court in which a Proceeding is brought against any Indemnified Person for
purposes of any claim that an Indemnified Person may have under this Agreement
with respect to such Proceeding or the matters alleged therein, and agree that
process may be served on the Shareholders with respect to such a claim anywhere
in the world.
10.10 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS
A claim for indemnification for any matter not involving a third-party
claim may be asserted by notice as required in Section 11.4 within a reasonable
period of time after discovery of the alleged claim to the party from whom
indemnification is sought.
10.11 ACCOUNTS RECEIVABLE
(a) The Shareholders' responsibilities with respect to the Company's
accounts receivable are as described in Section 3.8 and this Section 10.11. On
August 31, 1998 the aggregate amounts owed under the Buyer Note shall be reduced
by the excess of the then outstanding account balances of all accounts
receivable of the Company that existed
34
as of the date of the Balance Sheet over the bad debt reserve as reflected in
the financial statements of the Company as of the date of the Balance Sheet.
(b) The Buyer shall cause ownership of all accounts receivable recorded on
the Balance Sheet which remain uncollected on August 31, 1998 to be transferred
to the ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇. For purposes of this Section, payments received
after the Effective Time from obligors of the accounts receivable referred to in
clause (a) above shall be applied first towards satisfaction of such accounts
receivable unless designated otherwise by the account debtor.
11. GENERAL PROVISIONS
11.1 EXPENSES
Except as otherwise expressly provided in this Agreement, the Company will
bear the expenses incurred in connection with the preparation, execution, and
performance of this Agreement and the transactions contemplated by this
Agreement, including all fees and expenses of the Shareholders' counsel and
accountants, all of which shall be paid by the Company prior to Closing. In the
event of termination of this Agreement, each party will be obligated to pay its
own expenses subject to any rights of such party arising from a breach of this
Agreement by another party.
11.2 PUBLIC ANNOUNCEMENTS
Any public announcements or similar publicity with respect to this
Agreement or the transactions contemplated by this Agreement will be issued, if
at all, at such time and in such manner as reasonably agreed to by the Buyer,
the Company and the Shareholders. Unless consented to by the Buyer in advance or
required by Legal Requirements, prior to the Closing the Shareholders shall, and
shall cause the Company to, keep this Agreement strictly confidential and may
not make any disclosure of this Agreement to any Person. The Company, the
Shareholders and the Buyer will consult with each other concerning the means by
which the Company's employees, customers, and suppliers and others having
dealings with the Company will be informed of the transactions contemplated by
this Agreement, and the Buyer will have the right to be present for any such
communication.
11.3 CONFIDENTIALITY
Between the date of this Agreement and the Effective Time, the Buyer and
the Shareholders will maintain in confidence, and will cause the directors,
officers, employees, agents, and advisors of the Buyer and the Company to
maintain in confidence, and not use to the detriment of another party or the
Company any written, oral, or other information obtained in confidence from
another party or the Company in connection with this Agreement or the
transactions contemplated by this Agreement, unless (a) such information is
already known to such party or to others not bound by a duty of confidentiality
or such information becomes publicly available through no fault of such party,
(b) the use of such information is necessary or appropriate in making any filing
or obtaining any consent or approval required for the consummation of the
transactions contemplated by this Agreement, (c) the furnishing or use of such
information is required by or necessary or appropriate in connection with legal
proceedings, or (d) the furnishing of such information by the Buyer to lenders
or other institutions providing financial accommodations to the Buyer.
If the transactions contemplated by this Agreement are not consummated, the
obligations set forth in the preceding paragraph will remain in full force and
effect and each party will return or destroy as much of such written information
as the other party may reasonably request.
11.4 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by telecopier
(with written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt
35
requested, or (c) when received by the addressee, if sent by a nationally
recognized overnight delivery service (receipt requested), in each case to the
appropriate addresses and telecopier numbers set forth below (or to such other
addresses and telecopier numbers as a party may designate by notice to the other
parties):
The Company ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇.
or Shareholders ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, III
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
with a copy to: ▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇, P.C.
▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ & Manner
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Buyer: Master Graphics, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: Baker, Donelson, Bearman & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. Good
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
11.5 JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based on
any right arising out of, this Agreement may be brought against any of the
parties in the courts of the State of Tennessee, County of Davidson, or, if it
has or can acquire jurisdiction, in the United States District Court for the
Middle District of Tennessee, and each of the parties consents to the
jurisdiction of such courts (and of the appropriate appellate courts) in any
such action or proceeding and waives any objection to venue laid therein.
Process in any action or proceeding referred to in the preceding sentence may be
served on any party anywhere in the world.
36
11.6 FURTHER ASSURANCES
The parties agree (a) to furnish upon request to each other such further
information, (b) to execute and deliver to each other such other documents, and
(c) to do such other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this Agreement and the
documents referred to in this Agreement.
11.7 WAIVER
The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by any party in
exercising any right, power, or privilege under this Agreement or the documents
referred to in this Agreement will operate as a waiver of such right, power, or
privilege, and no single or partial exercise of any such right, power, or
privilege will preclude any other or further exercise of such right, power, or
privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
11.8 ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements between the parties with
respect to its subject matter (including any Letter of Intent between the Buyer
and the Shareholders) and constitutes (along with the documents referred to in
this Agreement) a complete and exclusive statement of the terms of the agreement
between the parties with respect to its subject matter. This Agreement may not
be amended except by a written agreement executed by the party to be charged
with the amendment.
11.9 ASSIGNMENTS, SUCCESSORS, AND NO-THIRD-PARTY RIGHTS
Neither party may assign any of its rights under this Agreement without
the prior consent of the other parties, which will not be unreasonably withheld,
except that the Buyer may assign any of its rights under this Agreement to any
Subsidiary of the Buyer. Subject to the preceding sentence, this Agreement will
apply to, be binding in all respects upon, and inure to the benefit of the
successors and permitted assigns of the parties. Nothing expressed or referred
to in this Agreement will be construed to give any Person other than the parties
to this Agreement any legal or equitable right, remedy, or claim under or with
respect to this Agreement or any provision of this Agreement. This Agreement
and all of its provisions and conditions are for the sole and exclusive benefit
of the parties to this Agreement and their successors and assigns. The Buyer
acknowledges that certain individual are granted rights pursuant to the
agreements attached hereto as Exhibits.
11.10 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid
or unenforceable only in part or degree will remain in full force and effect to
the extent not held invalid or unenforceable.
11.11 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections
37
of this Agreement. All words used in this Agreement will be construed to be of
such gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms.
11.12 TIME OF ESSENCE
With regard to all dates and time periods set forth or referred to in
this Agreement, time is of the essence.
11.13 GOVERNING LAW
This Agreement will be governed by the laws of the State of Tennessee
without regard to conflicts of laws principles.
11.14 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of which,
when taken together, will be deemed to constitute one and the same agreement.
38
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
MASTER GRAPHICS, INC.
By: /s/ ▇▇▇▇▇ ▇. Fair
-----------------------------------
Title: Senior Vice President/CFO
--------------------------------
MASTER ACQUISITIONSUB, INC.
By: /s/ ▇▇▇▇▇ ▇. Fair
-----------------------------------
Title: Secretary
--------------------------------
▇▇▇▇▇▇▇▇ PRINTING COMPANY
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, III
-----------------------------------
Title: President
--------------------------------
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇.
--------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇.
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, III
--------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, III