AGREEMENT AND PLAN OF MERGER
By and Among
SFI of Delaware, LLC
JWC Acquisition Corp.
Superior Graphics, Inc.
and
The Stockholders Named Therein
made effective as of March 18, 1999
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into this 18th day of March, 1999, by and among SFI of Delaware, LLC, a
Delaware limited liability company ("Buyer") whose sole member is Workflow
Management, Inc., a Delaware corporation ("Workflow"), JWC Acquisition Corp.,
a New York corporation and a newly formed, wholly owned subsidiary of the
Buyer ("Newco"), Superior Graphics, Inc. a New York corporation (the
"Company"), ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ (each a "Stockholder" and
collectively, the "Stockholders").
BACKGROUND
The Stockholders in the aggregate own all of the issued and outstanding
capital stock of the Company (the "Stock"). The respective Boards of Directors
of Newco and the Company (which together are sometimes referred to as the
"Constituent Corporations") deem it advisable and in the best interests of the
Constituent Corporations and their respective stockholders that Newco merge
with and into the Company (the "Merger") pursuant to this Agreement, the Plan
of Merger (defined below) and the applicable provisions of the laws of the
State of New York.
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, agree as follows:
1. PLAN OF REORGANIZATION
1.1 The Merger.
(a) The Merger. At the Effective Time (as defined in Section
2), Newco shall be merged with and into the Company pursuant to this Agreement
and a plan of merger (the "Plan of Merger") substantially in the form attached
as Schedule 1.1 hereto, and the separate corporate existence of Newco shall
cease. The Company, as it exists from and after the Effective Time, is
sometimes referred to as the "Surviving Corporation."
(b) Effects of the Merger. The Merger shall have the effects
provided therefor by the New York Business Corporation Law (the "State
Corporation Laws"). Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time (i) all the rights, privileges,
immunities, powers and franchises, of a public as well as of a private nature,
and all property, real, personal and mixed, and all debts due on whatever
account, including without limitation subscriptions to shares, and all other
chooses in action, and all and every other interest of or belonging to or due
to the Company or Newco shall be taken and deemed to be transferred to, and
vested in, the Surviving Corporation without further act or deed; and all
property, rights and privileges, immunities, powers and franchises and all and
every other interest shall be thereafter as effectually the property of the
Surviving Corporation, as they were of the Company and Newco, and (ii) all
debts, liabilities, duties and obligations of the Company and Newco shall
become the debts, liabilities and duties of the Surviving Corporation and the
Surviving Corporation shall thenceforth be responsible and liable for all the
debts, liabilities, duties and obligations of the Company and Newco and
neither the rights of creditors nor any liens upon the property of the Company
or Newco shall be impaired by the Merger, and may be enforced against the
Surviving Corporation; provided, however, that nothing in the foregoing shall
limit or otherwise qualify the indemnification obligations of the Stockholders
set forth in Article 8 of this Agreement.
(c) Articles of Incorporation; Bylaws; Directors and Officers.
The Articles of Incorporation of the Surviving Corporation from and after the
Effective Time shall be the Articles of Incorporation of Newco until
thereafter amended in accordance with the provisions therein and as provided
by the applicable provisions of the State Corporation Laws. The Bylaws of the
Surviving Corporation from and after the Effective Time shall be the Bylaws of
Newco in effect immediately prior to the Effective Time, continuing until
thereafter amended in accordance with their terms and the Articles of
Incorporation of the Surviving Corporation and as provided by the State
Corporation Laws. The initial directors of the Surviving Corporation shall
be: ▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇▇▇▇, ▇▇.; ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇; ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇▇▇▇▇, and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, in each case until their successors are
elected and qualified, and the initial officers of the Surviving Corporation
shall be ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ (President), ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ (Vice President,
Assistant Secretary), ▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇▇▇▇, ▇▇. (Vice President), ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇ (Vice President, Treasurer) and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ (Secretary) in each
case until their successors are duly elected and qualified.
(d) Conversion of Securities. At the Effective Time, by virtue
of the Merger and without any action on the part of Buyer, Newco, the Company
or any Stockholder, the shares of capital stock of each of the Constituent
Corporations shall be converted as follows:
(i) Each issued and outstanding share of capital stock of
Newco shall continue to be issued and outstanding and shall be converted into
one share of validly issued, fully paid and non-assessable share of common
stock of the Surviving Corporation. Each stock certificate of Newco
evidencing ownership of any such shares shall continue to evidence ownership
of such shares of capital stock of the Surviving Corporation.
(ii) All shares of capital stock of the Company that are
owned directly or indirectly by the Company shall be canceled and no
consideration shall be delivered in exchange therefor.
(iii) Subject to Sections 1.2, 1.3, and 1.4, each issued and
outstanding share of the Stock (other than shares to be canceled pursuant to
Section 1.1(d)(ii), if any), that is issued and outstanding immediately prior
to the Effective Time shall automatically be canceled and extinguished and
converted, without any action on the part of the holder thereof, into the
right to receive the Purchase Price (as defined in Section 1.2) divided by the
number of shares of Stock outstanding immediately prior to the Effective
Time. All such shares of Stock, when so converted, shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such shares shall
cease to have any rights with respect thereto, except the right to receive the
consideration set forth herein upon the surrender of such certificate in
accordance with Section 1.5 of this Agreement.
1.2 Purchase Price.
(a) For purposes of this Agreement, the "Purchase Price" shall
be the amounts payable to the Stockholders by Buyer as set forth below in this
Section 1.2(a), which shall be payable in installments in the following
manner:
(i) $8,133,396 of the Purchase Price shall be payable in
cash ("Cash Purchase Price"), as adjusted pursuant to this Section 1.2 and
Section 1.3. The Cash Purchase Price, as so adjusted, shall first be applied
to satisfy the escrow obligations set forth in Section 1.4 and the balance
shall be paid to the Stockholders in cash at the Effective Time in proportion
to their respective holdings of Stock as set forth on Schedule 1.2.
(ii) Certain other payments of the Purchase Price shall be
made to the Stockholders based upon the "Gross Profit" of the Company, as
specifically set forth in Section 1.7 hereof. For purposes of the Internal
Revenue Code of 1986, as amended ("Code"), 4.83% of such payments shall be
treated as interest for income tax purposes, which is equal to the Applicable
Federal Rate for Mid-Term Annual obligations as published by the Internal
Revenue Service for March 1999 in Revenue Ruling 99-11.
(iii) Buyer shall reimburse the Stockholders for adverse Tax
consequences they may suffer ("Incremental Taxes") in connection with the
Section 338(h)(10) Election (as defined in Section 5.1(c)(i)). The actual
amount of Incremental Taxes payable to the Stockholders with respect to the
Cash Purchase Price actually received by the Stockholders shall be determined
in a manner consistent with the allocation of Purchase Price (as provided in
Section 5.1(c)(ii)) and by applying the method set forth on Schedule
1.2(a)(iii) The actual amount of Incremental Taxes which are so determined
shall be paid by the Buyer to the Stockholders (in proportion to their
respective holdings of Stock as set forth on Schedule 1.2) no later than
fifteen (15) days after the date that the Section 338 Forms (as defined in
Section 5.1(c)(i)) are filed pursuant to the terms and conditions of
Section 5.1(c). In addition, with respect to the Earn-out payments only (as
defined and described in Section 1.7), if the Buyer makes a Section 338(h)(10)
Election (as more specifically set forth in Section 5.1), (x) the Buyer shall
pay to the Stockholders (in proportion to their respective holdings of Stock
as set forth on Schedule 1.2) an aggregate amount equal to 1.01% of each
annual Earn-out Payment actually received by the Stockholders together with
the payment of each such annual Earn-out Payment; and (y) the Buyer shall
assume and pay the Company's entity level New York State and/or New York City
tax liability, including interest for any late payment of such liability, that
may be imposed with respect to such Earn-out payments ("Earn-out Tax
Liability") but in no event shall such assumption of liability be deemed to be
"Purchase Price" as such term is used in this Agreement.
(b) The Purchase Price has been calculated based upon several
factors including the assumption that the net worth of the Company, calculated
in accordance with generally accepted accounting principles ("GAAP")
consistently applied with the Closing Balance Sheet and the cover letter
accompanying such Closing Balance Sheet prepared by the Company's independent
accountant (as defined in Section 1.2(d) below) ("Net Worth"), is equal to or
greater than $2,772,000 (the "Net Worth Target") as of the Closing. The
Stockholders represent to Buyer that the Net Worth of the Company exceeds the
Net Worth Target as of the Closing Date. The Company and the Stockholders are
permitted to distribute from the Company to the Stockholders immediately prior
to, or contemporaneously with, the Closing accounts receivable of the Company
to the extent the aggregate amount of such distributions do not reduce the Net
Worth below the Net Worth Target (any such assets "Distributed Assets").
Distributed Assets shall consist first of accounts receivable owed to the
Company by any persons or entities that are affiliates of the Stockholders (as
the term "affiliate" is defined under federal securities laws). If such
affiliate receivables exceed the total amount of the Distributed Assets, the
oldest affiliate receivables shall be distributed to the Stockholders up to
the aggregate amount of the Distributed Assets. To the extent the aggregate
amount of such affiliate receivables is less that the total amount of the
Distributed Assets, the oldest non-affiliate accounts receivable of the
Company shall be distributed to the Stockholders in an amount that, when
aggregated with the affiliate receivables, equals the total amount of the
Distributed Assets. The Distributed Assets are identified on Schedule 1.2(b)
attached hereto. Buyer acknowledges that it will have no right, title or
interest in or to the Distributed Assets by virtue of Buyer's purchase of the
Stock pursuant to the terms of this Agreement and that the Company will be
subject to the Accounts Receivable Assignment Agreement entered into by the
Stockholders and the Company contained in Schedule 1.2(b).
(c) If on the Closing Financial Certificate (as defined in
Section 6.9), the Certified Closing Net Worth (as defined in Section 6.9) is
less than the Net Worth Target, the Cash Purchase Price to be delivered to the
Stockholders may, at Buyer's election, be reduced either (i) at the Closing,
or (ii) after completion of the Post-Closing Audit (as defined in
Section 1.3), by the difference between the Net Worth Target and the Certified
Closing Net Worth set forth on the Closing Financial Certificate.
(d) The parties acknowledge that the Net Worth Target was
calculated based on a closing balance sheet of the Company, which is attached
to this Agreement as Schedule 1.2(d) ("Closing Balance Sheet") and which
reflects the Certified Closing Net Worth as determined in a manner consistent
with GAAP and the cover letter accompanying the Closing Balance Sheet prepared
by the Company's independent accountant. The parties further acknowledge that
the Closing Balance Sheet contains a deferred tax payable liability of
$658,000, which has been calculated based solely on the Company's estimated
deferred tax liability as of October 31, 1998 ("Deferred Tax Liability").
1.3 Post-Closing Adjustment
(a) The Cash Purchase Price shall be subject to adjustment after
the Closing Date as specified in this Section 1.3.
(b) Within one hundred eighty (180) days following the Closing
Date, Buyer, at its option, shall cause PriceWaterhouseCoopers ("Buyer's
Accountant") to audit the Closing Balance Sheet to determine whether the Net
Worth Target has been met (the "Post-Closing Audit"). The parties acknowledge
and agree that for purposes of determining the Net Worth of the Company as of
March 18, 1999 (the "Net Worth Calculation Date"), the value of the assets of
the Company shall, except with the prior written consent of Stockholders and
Buyer, be calculated as provided in Section 1.2(b) and the last paragraph of
Section 6.9. In the event that Buyer's Accountant determines that the actual
Company net worth as of the Net Worth Calculation Date, as determined in a
manner consistent with GAAP, the Closing Balance Sheet, and the cover letter
accompanying such Closing Balance Sheet prepared by the Company's independent
accountant (except that the actual amount of the Company's deferred tax
payable liability as of the Closing shall be used) was less than the Certified
Closing Net Worth, Buyer shall deliver a written notice (the "Financial
Adjustment Notice") to the Stockholders' Representative, as defined in
Section 1.6, setting forth (i) the determination made by Buyer's Accountant of
the actual Company net worth (the "Actual Company Net Worth"), (ii) the amount
of the Cash Purchase Price that would have been payable at the Effective Time
pursuant to Section 1.2(c) had the Actual Company Net Worth been reflected on
the Closing Financial Certificate instead of the Certified Closing Net Worth,
and (iii) the amount by which the Cash Purchase Price would have been reduced
at the Effective Time had the Actual Company Net Worth been used in the
calculations pursuant to Section 1.2(c) (the "Purchase Price Adjustment").
The Purchase Price Adjustment shall take account of the reduction, if any, to
the Cash Purchase Price already taken pursuant to Section 1.2(c)(i). In
addition, and notwithstanding anything in this Section 1.3 to the contrary, in
the event the Buyer's Accountant determines that (i) the Actual Company Net
Worth exceeds the Certified Closing Net Worth (any such excess the "Net Worth
Excess") and (ii) the Deferred Tax Liability reflected on the Closing Balance
Sheet exceeds the actual amount of the Company's deferred tax payable
liability as of the Net Worth Calculation Date as determined by the Buyer's
Accountant during the Post-Closing Audit (any such excess the "Deferred Tax
Excess"), then the Buyer shall pay to the Stockholders in cash an amount equal
to the lesser of (i) the Net Worth Excess or (ii) the Deferred Tax Excess.
The actual amount of the Company's deferred tax payable liability as of the
Net Worth Calculation Date as determined by the Buyer's Accountant during the
Post-Closing Audit shall include all Company level tax liability to the State
of New York and/or the City of New York with respect to the Distributed
Assets, which tax liability the Surviving Corporation shall pay.
(c) The Stockholders' Representative shall have thirty (30) days
from the receipt of the Financial Adjustment Notice to notify Buyer if the
Stockholders dispute such Financial Adjustment Notice or the determination of
the Deferred Tax Excess, if any. If Buyer has not received notice of such a
dispute within such thirty (30) day period, Buyer shall be entitled to receive
from the Stockholders (which shall, to the extent available, be from the
Pledged Assets as defined in Section 1.4) any Purchase Price Adjustment. If,
however, the Stockholders' Representative has delivered notice of such a
dispute to Buyer within such thirty (30) day period, then Buyer's Accountant
shall select an independent accounting firm that has not represented any of
the parties hereto within the preceding two (2) years to review the Company's
books, Closing Balance Sheet, Closing Financial Certificate and Financial
Adjustment Notice (and related information) to determine the amount, if any,
of the Purchase Price Adjustment and Deferred Tax Excess. Such independent
accounting firm shall be confirmed by the Stockholders' Representative and
Buyer within five (5) days of its selection, unless there is an actual
conflict of interest. The independent accounting firm shall be directed to
consider only those agreements, contracts, commitments or other documents (or
summaries thereof) that were either (i) delivered or made available to Buyer's
Accountant in connection with the transactions contemplated hereby, or
(ii) reviewed by Buyer's Accountant during the course of the Post-Closing
Audit. The independent accounting firm shall also be directed to determine
the Purchase Price Adjustment and Deferred Tax Excess, if any, in a manner
consistent with GAAP, the Closing Balance Sheet and the cover letter
accompanying such Closing Balance Sheet prepared by the Company's independent
accountant (except that the actual amount of the Company's deferred tax
payable liability as of Closing shall be used). The independent accounting
firm shall make its determination of the Purchase Price Adjustment and
Deferred Tax Excess, if any, within thirty (30) days of its selection. The
determination of the independent accounting firm shall be final and binding on
the parties hereto, and upon such determination, Buyer shall be entitled to
receive from the Stockholders (which shall, to the extent available, be from
the Pledged Assets as defined in Section 1.4) any Purchase Price Adjustment,
or, if applicable, the Stockholders shall be entitled to receive from the
Buyer an amount determined pursuant to the formula set forth in the last
sentence of Section 1.3(b). To the extent any Purchase Price Adjustment (as
finally determined pursuant to this Section 1.3) exceeds the Pledged Assets
(any such amount the "Pledged Asset Deficit"), the Stockholders shall
immediately pay to the Buyer in cash the amount of the Pledged Asset Deficit.
The costs of the independent accounting firm shall be borne by the party
(either Buyer or the Stockholders as a group) whose determination of the
Company's net worth at Closing was further from the determination of the
independent accounting firm, or equally by Buyer and the Stockholders in the
event that the determination by the independent accounting firm is equidistant
between the Certified Closing Net Worth and the Actual Company Net Worth.
1.4 Pledged Assets.
(a) As collateral security for the payment of any post-Closing
adjustment to the Cash Purchase Price under Section 1.3, or any
indemnification obligations of the Stockholders pursuant to Article 8, the
Stockholders shall, and by execution hereof do, transfer to ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇,
a Virginia professional corporation ("Escrow Agent") $800,000 (the "Pledged
Assets").
(b) The Pledged Assets shall be held by the Escrow Agent
pursuant to the terms and conditions set forth in the Escrow Agreement
("Escrow Agreement") dated as of the date hereof by and among Buyer, the
Company and the Stockholders.
(c) The Pledged Assets shall be available to satisfy any
Post-Closing adjustment to the Cash Purchase Price pursuant to Section 1.3 and
any indemnification obligations of the Stockholders pursuant to Article 8
until September 18, 1999 (the "Release Date"). Promptly following the Release
Date, subject to the terms and conditions of the Escrow Agreement, the Escrow
Agent shall return or cause to be returned to the Stockholders (in proportion
to their respective holdings of Stock as set forth on Schedule 1.2), the
Pledged Assets (including any interest earned thereon), less Pledged Assets
having an aggregate value equal to the amount of (i) any post-Closing
adjustment to the Cash Purchase Price under Section 1.3 (including any
post-Closing adjustment to the Cash Purchase Price that is subject to dispute
under the terms and conditions of Section 1.3), (ii) any pending claim for
indemnification against the Stockholders pursuant to Article 8, and (iii) any
indemnification obligations of the Stockholders finally determined to be owed
by the Stockholders pursuant to Article 8.
1.5 Exchange of Certificates and Payment of Cash.
(a) Buyer to Provide Cash. In exchange for the Stock, Buyer
shall cause to be paid to the Stockholders by wire transfer the Cash Purchase
Price, as adjusted pursuant to Section 1.2 and Section 1.3, and subject to
Section 1.4.
(b) Certificate Delivery Requirements. At the Closing, the
Stockholders shall deliver to Buyer the certificates (the "Certificates")
representing the Stock, duly endorsed in blank by the Stockholders, or
accompanied by blank stock powers duly executed by the Stockholders and with
all necessary transfer tax and other revenue stamps, acquired at the
Stockholders' expense, affixed and canceled. The Stockholders shall promptly
cure any deficiencies with respect to the endorsement of the Certificates or
other documents of conveyance with respect to the stock powers accompanying
such Certificates. The Certificates so delivered shall forthwith be
canceled. Until delivered as contemplated by this Section 1.5(b), each
Certificate shall be deemed at any time after the Effective Time to represent
the right to receive upon such surrender only the Purchase Price as provided
by this Article 1.
(c) No Further Ownership Rights in Capital Stock of the
Company. All cash to be delivered (including cash that constitutes Pledged
Assets) upon the surrender for exchange of shares of the Stock in accordance
with the terms hereof shall be deemed to have been delivered in full
satisfaction of all rights pertaining to such shares of Stock, and following
the Effective Time, the Stockholders shall have no further rights to, or
ownership in, shares of capital stock of the Company. After the Effective
Time, there shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of the shares of Stock which were
outstanding immediately prior to the Effective Time.
(d) Lost, Stolen or Destroyed Certificates. In the event any
certificates evidencing shares of the Stock shall have been lost, stolen or
destroyed, Buyer shall cause payment to be made in exchange for such lost,
stolen or destroyed certificates (upon the making of an affidavit of that fact
by the holder thereof), such cash as provided in Section 1.2.
1.6 Stockholders' Representative.
(a) Each holder of the Stock, by signing this Agreement,
designates ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ or, in the event that ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ is unable
or unwilling to serve, designates ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, to be the Stockholders'
Representative for purposes of this Agreement. The Stockholders shall be
bound by any and all actions taken by the Stockholders' Representative on
their behalf.
(b) Buyer shall be entitled to rely upon any communication or
writings given or executed by the Stockholders' Representative. All
communications or writings to be sent to Stockholders pursuant to this
Agreement may be addressed to the Stockholders' Representative and any
communication or writing so sent shall be deemed notice to all of the
Stockholders hereunder. The Stockholders hereby consent and agree that the
Stockholders' Representative is authorized to accept deliveries, including any
notice, on behalf of the Stockholders pursuant hereto.
(c) The Stockholders' Representative is hereby appointed and
constituted the true and lawful attorney-in-fact of each Stockholder, with
full power in his or her name and on his or her behalf to act according to the
terms of this Agreement in the absolute discretion of the Stockholders'
Representative; and in general to do all things and to perform all acts
including, without limitation, executing and delivering all agreements,
certificates, receipts, instructions and other instruments contemplated by or
deemed advisable in connection with Article 8 of this Agreement. This power
of attorney and all authority hereby conferred is granted subject to the
interest of the other Stockholders hereunder and in consideration of the
mutual covenants and agreements made herein, and shall be irrevocable and
shall not be terminated by any act of any Stockholder or by operation of law,
whether by such Stockholder's death or any other event.
1.7 Post-Closing Earn-Out.
(a) For (i) the period commencing the date after the Closing
Date and ending April 24, 1999 ("Initial Fiscal Period"), (ii) each of Buyer's
next four (4) fiscal years following the Initial Fiscal Period, and (iii) the
period commencing April 27, 2003 and ending on the date that is five (5) years
after the Closing Date (such periods individually an "Annual Earn-out
Period"), the Stockholders, as a group, shall be entitled to receive from the
Buyer seventeen percent (17%) of the annual Gross Profit (as defined herein)
of the Company for any Annual Earn-out Period ("Gross Profit Earn-out"), on
the specific terms and conditions set forth in this Section 1.7. In addition
to the foregoing, the Stockholders, as a group, shall be entitled to received
from the Buyer for each of the first five (5) fiscal years (complete twelve
(12) month periods following the Closing Date) (i) the sum of $48,984 for the
first fiscal year, $46,723 for the second fiscal year, $44,462 for the third
fiscal year, $42,201 for the fourth fiscal year and $39,940 for the fifth
fiscal year; provided, that, with respect to each such fiscal year, Total
Solution Graphics, Inc. shall be an independent contractor of the Company and
▇▇▇▇▇ ▇▇▇▇ shall provide all of the consultant services to the Company under
the terms of such independent contract ("▇▇▇▇ Earn-out") and (ii) the sum of
$32,656 for the first fiscal year, $31,148 for the second fiscal year, $29,641
for the third fiscal year, $28,134 for the fourth fiscal year and $26,627 for
the fifth fiscal year, provided, that, with respect to each such fiscal year,
End to End Inc. shall be an independent contractor of the Company and ▇▇▇▇
▇▇▇▇▇ shall provide all of the consultant services to the Company under the
terms of such independent contract ("▇▇▇▇▇ Earn-out") (the Gross Profit
Earn-out, the ▇▇▇▇ Earn-out and the ▇▇▇▇▇ Earn-out are herein collectively
referred to as the "Earn-out" and the payments are individually referred to as
"Earn-out Payment" and collectively referred to as "Earn-out Payments"). Any
Earn-out due shall be payable in cash by wire transfer within thirty (30) days
after the last day of the Annual Earn-out Period and shall be payable to the
Stockholders in proportion to their respective holdings of Stock as set forth
on Schedule 1.2.
(b) (i) "Gross Profit" of the Company for any period shall
mean the "Net Sales" (as hereinafter defined) of the Company for such period
less the "Cost of Goods Sold" allocable to such Net Sales of the Company as
determined in accordance with GAAP. The Gross Profit of the Company and the
Net Sales of the Company shall be determined without regard to the results of
operations of any direct or indirect parent or subsidiary of the Company and
without regard to the fact that they may be included on a consolidated basis
with the results of operations of any direct or indirect parent or subsidiary
of the Company. "Net Sales" of the Company for any period shall mean the
invoiced amount of goods sold by the Company during such period to the
Earn-out Accounts (as defined below), payment for which is actually received
by the Company, less actual trade discounts, returns, artwork to the extent
not paid by customers, and freight to the extent not paid by customers.
During any Annual Earn-out Period, the Net Sales of the Company shall include
the sale of all products by the Company to the Earn-out Accounts during such
period regardless of whether such products are being sold by the Company as of
the date of this Agreement.
(ii) "Earn-out Accounts" means those accounts of the
Company existing on the date hereof as identified on Schedule 1.7(b).
Earn-out Accounts consist of the accounts of the customers of the Company as
of the Closing Date and future accounts generated by certain special
relationship individuals (regardless of where such persons are employed) that
are specifically identified on Schedule 1.7(b). To the extent the Company's
accounts include entities ("Entities") controlled by independent contractors,
sales agents, consultants or other persons who perform selling services for
the Company ("Entity Accounts"), Earn-out Accounts shall not mean such Entity
Accounts but rather all of the underlying customers and accounts of such
Entities that are in existence as of the date hereof (to the extent such
customers and accounts are identified on Schedule 1.7(b)). If any Earn-out
Account is acquired by, merges into, or is otherwise consolidated with any
other person or entity (any such Earn-out Account an "Acquired Earn-out
Account" and any such person or entity into which an Earn-out Account is
merged or consolidated an "Acquiror"), then sales by the Company to an
Acquired Earn-out Account and to an Acquiror shall be included in Net Sales
for purposes of this Section 1.7.
(iii) "Cost of Goods Sold" for any period means the cost of
goods sold allocable to the Net Sales of the Company for such period as
determined in accordance with GAAP; provided, however, that Cost of Goods Sold
(i) shall not be reduced by any purchased discounts, bulk purchase discounts,
discounts for payment, special discounts or other similar incentives and
(ii) shall include (and be increased by) finder fees and similar selling
expenses incurred by the Company in the course of its sales to Earn-out
Accounts, as determined in a manner consistent with the Company's historical
calculation of cost of goods sold as reflected in the Company Financial
Statements (as defined in Section 3.10).
(c) To the extent that the Company has a negative Gross Profit
during any Annual Earn-out Period (such amount a "Gross Profit Loss"), the
Gross Profit Loss shall be carried forward to the subsequent Annual Earn-out
Period(s) and aggregated with the Gross Profit (or Gross Profit Loss) for such
subsequent Annual Earn-out Period(s) for purposes of determining the Earn-out,
if any, due for such subsequent Annual Earn-out Period(s). All Gross Profit
Losses shall continue to be carried forward on an annual basis until such time
as Gross Profits are fully offset by the total amount of the Gross Profit
Losses. Any Gross Profit Losses will not effect prior payments of Earn-outs
for Annual Earn-out Periods in which the Company had a Gross Profit.
(d) In the event that, after the date of this Agreement, the
Company is merged (or otherwise consolidated) into Buyer, Workflow or any
direct or indirect subsidiary of Buyer or Workflow (any such entity a "Merger
Affiliate") such that the Company is not the surviving corporation under
applicable law, the Buyer shall cause such Merger Affiliate to (i) conduct the
business of the Earn-out Accounts as a division of the Merger Affiliate
("Company Division") and (ii) maintain such financial records as are necessary
to accurately calculate the Gross Profit (or Gross Profit Losses) of the
Company Division. The business of the Company Division shall not consider any
other business or operations of the Merger Affiliate and shall not consider
the results of operations of any direct or indirect parent or subsidiary of
the Merger Affiliate.
(e) In the event that the Buyer or Workflow cause any entity to
merge or otherwise consolidate into the Company such that the Company is the
surviving corporation under applicable law, the Company shall maintain such
financial records as are necessary to accurately calculate the Gross Profit
(or Gross Profit Losses) of the Company (or the Company Division) with respect
to the Earn-out Accounts without taking into account the results of any other
operations of the Company or any such other entity.
(f) Notwithstanding anything in this Section 1.7 to the
contrary, Buyer shall have the right to reduce any amounts otherwise payable
as an Earn-out by the amount of (i) any indemnification obligations of the
Stockholders finally determined to be owed by the Stockholders under
Article 8, or (ii) any Pledged Asset Deficit owed by the Stockholders but not
paid under the terms and conditions of Section 1.3(c).
(g) Notwithstanding anything in this Section 1.7 to the
contrary, if the Buyer directly or indirectly takes any action which causes
the Net Sales of the Company to Earn-out Accounts to be transferred from the
Company to any affiliate of the Buyer, then Net Sales to Earn-out Accounts by
such affiliate shall continue to constitute Net Sales of the Company for
purposes of this Section 1.7.
1.8 Accounting Terms. Except as otherwise expressly provided herein
or in the Schedules, all accounting terms used in this Agreement shall be
interpreted, and all financial statements, Schedules, certificates and reports
as to financial matters required to be delivered hereunder shall be prepared
in accordance with GAAP consistently applied; provided that with respect to
any such financial statements (other than the Interim Financials), Schedules,
certificates and reports reflecting the Company's operations prior to the
Closing Date, they shall be prepared in accordance with GAAP consistently
applied taking into account the Company's prior practices and except that the
1996 and 1997 Company Financial Statements were not prepared in accordance
with GAAP.
2. CLOSING
The consummation of the transactions contemplated by this Agreement (the
"Closing") shall take place through the delivery of executed originals or
facsimile counterparts of all documents required hereunder on such date that
all conditions to Closing shall have been satisfied or waived, or at such
other time and date as Buyer, the Company and the Stockholders may mutually
agree, which date shall be referred to as the "Closing Date." The merger
shall become effective upon the filing of the articles of merger, certificate
of merger, or other appropriate documents executed in accordance with the
State Corporation Laws, together with any required officers' certificates with
the Secretary of State of the State of New York in accordance with the
provisions of the State Corporation Laws (the "Effective Time"). Unless
otherwise specifically agreed in writing by all the parties hereto, the
parties hereto shall cause the Closing Date and the Effective Time to occur on
the same day.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
To induce Buyer to enter into this Agreement and consummate the
transactions contemplated hereby, each of the Company and the Stockholders,
jointly and severally, represents and warrants to Buyer as follows (for
purposes of this Agreement, the phrases "knowledge of the Company" or the
"Company's knowledge," or words of similar import, mean the knowledge of the
Stockholders and the directors and officers of the Company, including facts of
which the directors and officers, in the reasonably prudent exercise of their
duties, should be aware):
3.1 Due Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation and is duly authorized and qualified to do business under
all applicable laws, regulations, ordinances and orders of public authorities
to own, operate and lease its properties and to carry on its business in the
places and in the manner as now conducted. Schedule 3.l hereto contains a
list of all jurisdictions in which the Company is authorized or qualified to
do business. The Company is in good standing as a foreign corporation in each
jurisdiction in which the character of the property owned, leased or operated
by the Company, or the nature of the business or activities conducted by the
Company, makes such qualification necessary. The Company has delivered to
Buyer true, complete and correct copies of the Articles of Incorporation and
Bylaws of the Company. Such Articles of Incorporation and Bylaws are
collectively referred to as the "Charter Documents." The Company is not in
violation of any Charter Documents. The minute books of the Company have been
made available to Buyer (and have been delivered, along with the Company's
original stock ledger and corporate seal, to Buyer) and are correct and,
except as set forth in Schedule 3.1, complete in all material respects.
3.2 Authorization; Validity. The Company has the full legal right,
corporate power and authority to enter into this Agreement and the
transactions contemplated hereby and to perform its obligations pursuant to
the terms of this Agreement. Each Stockholder has the full legal right and
authority to enter into this Agreement and the transactions contemplated
hereby and to perform its respective obligations pursuant to the terms of this
Agreement. The execution and delivery of this Agreement by the Company and
the performance by the Company of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the Company and
the Stockholders and this Agreement has been duly and validly authorized by
all necessary corporate action. This Agreement is a legal, valid and binding
obligation of the Company and each Stockholder, enforceable in accordance with
its terms.
3.3 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions contemplated hereby, and the
fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of, any of
the Charter Documents;
(b) except as set forth on Schedule 3.3(b), conflict with, or
result in a default (or would constitute a default but for any requirement of
notice or lapse of time or both) under, any document, agreement or other
instrument to which the Company or any Stockholder is a party or by which the
Company or any Stockholder is bound, or result in the creation or imposition
of any Lien (as defined in Section 3.4) on any of the Company's properties
pursuant to (i) any law or regulation to which the Company or any Stockholder
or any of their respective property is subject, or (ii) any judgment, order or
decree to which the Company or any Stockholder is bound or any of their
respective property is subject;
(c) except as set forth on Schedule 3.3(b), result in
termination or any impairment of any permit, license, franchise, contractual
right or other authorization of the Company; or
(d) violate any law, order, judgment, rule, regulation, decree
or ordinance to which the Company or any Stockholder is subject or by which
the Company or any Stockholder is bound including, without limitation, the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of ▇▇▇▇ (▇▇▇ "▇▇▇ ▇▇▇"), together
with all rules and regulations promulgated thereunder.
3.4 Capital Stock of the Company. The authorized capital stock of the
Company consists of 200 shares of common stock, no par value, of which 200
shares are issued and outstanding and no shares of preferred stock. All of
the issued and outstanding shares of the capital stock of the Company have
been duly authorized and validly issued, are fully paid and nonassessable and
are owned of record and beneficially by the Stockholders in the amounts set
forth in Schedule 1.2 free and clear of all Liens (defined below). All of the
issued and outstanding shares of the capital stock of the Company were
offered, issued, sold and delivered by the Company in compliance with all
applicable state and federal laws concerning the issuance of securities.
Further, none of such shares was issued in violation of any preemptive
rights. There are no voting agreements or voting trusts with respect to any
of the outstanding shares of the capital stock of the Company. For purposes
of this Agreement, "Lien" means any mortgage, security interest, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory
or otherwise), charge, preference, priority or other security agreement,
option, warrant, attachment, right of first refusal, preemptive, conversion,
put, call or other claim or right, restriction on transfer (other than
restrictions imposed by federal and state securities laws), or preferential
arrangement of any kind or nature whatsoever (including any restriction on the
transfer of any assets, any conditional sale or other title retention
agreement, any financing lease involving substantially the same economic
effect as any of the foregoing and the filing of any financing statement under
the Uniform Commercial Code or comparable law of any jurisdiction).
3.5 Transactions in Capital Stock. Except as set forth in
Schedule 3.5, no option, warrant, call, subscription right, conversion right
or other contract or commitment of any kind exists of any character, written
or oral, which may obligate the Company to issue, sell or otherwise become
outstanding any shares of capital stock. The Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. As a result of the transactions contemplated
by this Agreement, Buyer will be the record and beneficial owner of all
outstanding capital stock of the Company and rights to acquire capital stock
of the Company.
3.6 Subsidiaries, Stock, and Notes.
(a) Except as set forth on Schedule 3.6(a), the Company has no
subsidiaries. For purposes of this Agreement, "subsidiaries" means any
corporation, partnership, limited liability company, association or other
business entity of which a person (as defined in Section 10.13) owns, directly
or indirectly, more than 50% of the voting securities thereof.
(b) Except as set forth on Schedule 3.6(b), the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other
equity interest in any corporation, limited liability company, association or
other business entity, nor is the Company, directly or indirectly, a
participant in any joint venture, partnership or other non-corporate entity.
(c) Except as set forth on Schedule 3.6(c), there are no
promissory notes that have been issued to, or are held by, the Company.
3.7 Complete Copies of Materials. The Company has delivered to Buyer
true and complete copies of each agreement, contract, commitment or other
document (or summaries thereof) that is referred to in the Schedules or that
has been requested and received by Buyer.
3.8 Absence of Claims Against Company. No Stockholder has any claims
against the Company other than (i) for salary, employee benefits and other
payments due in the ordinary course of business as an employee of the Company,
or (ii) for amounts due to affiliates of the Stockholders in the ordinary
course of business, or (iii) for amounts under the Accounts Receivable
Assignment Agreement entered into by the Stockholders and Company contained in
Schedule 1.2(b).
3.9 Company Financial Conditions.
(a) The Company's net worth as of the Closing will not be less
than the Net Worth Target.
(b) The Company's gross sales for its fiscal year ending
December 31, 1997 were not materially less than $17,148,596.
(c) The sum of the Company's total outstanding long term and
short term indebtedness to (i) banks, (ii) the Stockholders, and (iii) all
other financial institutions and creditors (in each case including the current
portions of such indebtedness, but excluding trade payables and other accounts
payable incurred in the ordinary course of the Company's business consistent
with past practice) as of the Closing Date will not be more than $0.
For purposes of Section 3.9(a), calculation of amounts as of the Closing shall
be made in accordance with the last paragraph of Section 6.9.
3.10 Financial Statements. Schedule 3.10 includes (a) true, complete
and correct copies of the Company's compiled balance sheet as of December 31,
1998 (the end of its most recent completed fiscal year) and December 31, 1997
and 1996 and income statement and schedule of retained earnings for the years
ended December 31, 1998, 1997 and 1996 (collectively, the "Compiled
Financials"), provided, however, that the cover letter to the Interim Balance
Sheet modifies the December 31, 1998 financial statements and (b) true,
complete and correct copies of the Company's compiled balance sheet (the
"Interim Balance Sheet") as of March 18, 1999 (the "Balance Sheet Date") and
income statement and schedule of retained earnings, for the period beginning
January 1, 1999 and ending on the Balance Sheet Date (collectively, the
"Interim Financials," and together with the Compiled Financials, the "Company
Financial Statements"). Except as noted on the compilation reports
accompanying the Compiled Financials and Interim Financials, the Company
Financial Statements have been prepared in accordance with GAAP consistently
applied, subject, in the case of the Interim Financials, (i) to normal
year-end audit adjustments, which individually or in the aggregate will not be
material, (ii) the exceptions stated on Schedule 3.10, and (iii) to the
omission of footnote information. Except as set forth on Schedule 3.10, each
balance sheet included in the Company Financial Statements presents fairly the
financial condition of the Company as of the date indicated thereon, and each
of the income statements and schedule of retained earnings included in the
Company Financial Statements presents fairly the results of its operations for
the periods indicated thereon. Since the dates of the Company Financial
Statements, there have been no material changes in the Company's accounting
policies other than as requested by Buyer to conform the Company's accounting
policies to GAAP.
3.11 Liabilities and Obligations.
(a) Except as set forth on Schedule 3.11(a), the Company is not
liable for or subject to any liabilities except for:
(i) those liabilities reflected on the Interim Balance
Sheet and not previously paid or discharged;
(ii) those liabilities arising in the ordinary course of
its business consistent with past practice under any contract, commitment or
agreement specifically disclosed on any Schedule to this Agreement or not
required to be disclosed thereon because of the term or amount involved or
otherwise; and
(iii) those liabilities incurred since the Balance Sheet
Date in the ordinary course of business consistent with past practice, which
liabilities are not, individually or in the aggregate, material.
(b) The Company has delivered to Buyer, in the case of those
liabilities which are not fixed or are contested, a reasonable estimate of the
maximum amount which may be payable.
(c) Schedule 3.11(c) also includes a summary description of all
plans or projects involving the opening of new operations, expansion of any
existing operations or the acquisition of any real property or existing
business, to which management of the Company has made any material expenditure
in the two-year period prior to the date of this Agreement, which if pursued
by the Company or the Surviving Corporation would require additional material
expenditures of capital.
(d) For purposes of this Section 3.11, the term "liabilities"
shall include without limitation any direct or indirect liability,
indebtedness, guaranty, endorsement, claim, loss, damage, deficiency, cost,
expense, obligation or responsibility, either accrued, absolute, contingent,
mature, unmature or otherwise and whether known or unknown, fixed or unfixed,
▇▇▇▇▇▇ or inchoate, liquidated or unliquidated, secured or unsecured.
3.12 Books and Records. The Company has made and kept books and records
and accounts, which, in reasonable detail, accurately and fairly reflect the
activities of the Company. The Company has not engaged in any transaction,
maintained any bank account, or used any corporate funds except for
transactions, bank accounts, and funds which have been and are reflected in
its normally maintained books and records.
3.13 Bank Accounts; Powers of Attorney. Schedule 3.13 sets forth a
complete and accurate list as of the date of this Agreement, of:
(a) the name of each financial institution in which the Company
has any account or safe deposit box;
(b) the names in which the accounts or boxes are held;
(c) the type of account;
(d) the name of each person authorized to draw thereon or have
access thereto; and
(e) the name of each person, corporation, firm or other entity
holding a general or special power of attorney from the Company and a
description of the terms of such power.
3.14 Accounts and Notes Receivable. The Company has delivered to Buyer
a complete and accurate list, as of a date not more than two (2) business days
prior to the date hereof, of the accounts and notes receivable of the Company
(including without limitation receivables from and advances to employees and
the Stockholders), which includes an aging of all accounts and notes
receivable showing amounts due in thirty (30) day aging categories
(collectively, the "Accounts Receivable"). On the Closing Date, the Company
will deliver to Buyer a complete and accurate list, as of a date not more than
two (2) business days prior to the Closing Date, of the Accounts Receivable
which is contained in Schedule 3.14. All Accounts Receivable represent valid
obligations arising from sales actually made or services actually performed in
the ordinary course of business. The Accounts Receivable are current and
collectible net of any respective reserves shown on the Company's books and
records (which reserves are adequate and calculated consistent with past
practice). Subject to such reserves, each of the Accounts Receivable will be
collected in full, without any set-off, within one hundred twenty (120) days
after the day on which it first became due and payable. There is no contest,
claim, or right of set-off, other than rebates and returns in the ordinary
course of business, under any contract with any obligor of an Account
Receivable relating to the amount or validity of such Account Receivable.
Notwithstanding anything in the foregoing to the contrary, no representations
or warranties are made with respect to accounts receivable of the Company
included within the Distributed Assets (as defined in Section 1.2(b)), and the
term "Accounts Receivable" as used in this Agreement shall not include any
such Distributed Assets.
3.15 Permits. The Company owns or holds all licenses, franchises,
permits and other governmental authorizations, including without limitation
permits, titles (including without limitation motor vehicle titles and current
registrations), fuel permits, licenses and franchises necessary for the
continued operation of its business as it is currently being conducted (the
"Permits"). The Permits are valid, and the Company has not received any
notice that any governmental authority intends to modify, cancel, terminate or
fail to renew any Permit. No present or former officer, director, stockholder
or employee of the Company or any affiliate thereof, or any other person,
firm, corporation or other entity, owns or has any proprietary, financial or
other interest (direct or indirect) in any Permits. The Company has conducted
and is conducting its business in compliance with the requirements, standards,
criteria and conditions set forth in the Permits and other applicable orders,
approvals, variances, rules and regulations and is not in violation of any of
the foregoing. The transactions contemplated by this Agreement will not
result in a default under, or a breach or violation of, or adversely affect
the rights and benefits afforded to the Company, by any Permit.
3.16 Real Property.
(a) For purposes of this Agreement, "Real Property" means all
interests in real property including, without limitation, fee estates,
leaseholds and subleaseholds, purchase options, easements, licenses, rights to
access, and rights of way, and all buildings and other improvements thereon,
owned or used by the Company, together with any additions thereto or
replacements thereof.
(b) Schedule 3.16(b) contains a complete and accurate
description of all Real Property leased to, or subleased by, the Company
(including street address, legal description (where known), owner, and
Company's use thereof) and, to the Company's knowledge, any claims,
liabilities, security interests, mortgages, liens, pledges, conditions,
charges, covenants, easements, restrictions, encroachments, leases, or
encumbrances of any nature thereon ("Encumbrances"). The Company does not own
any Real Property. The Real Property listed on Schedule 3.16 includes all
interests in real property necessary to conduct the business and operations of
the Company.
(c) Except as set forth in Schedule 3.16(c):
(i) The Company has good and valid rights of ingress and
egress to and from all Real Property from and to the public street systems for
all usual street, road and utility purposes.
(ii) All structures and all structural, mechanical and
other physical systems thereof that constitute part of the Real Property,
including but not limited to the walls, roofs and structural elements thereof
and the heating, ventilation, air conditioning, plumbing, electrical,
mechanical, sewer, waste water, storm water, paving and parking equipment,
systems and facility included therein, and other material items at the Real
Property (collectively, the "Tangible Assets"), are free of defects and in
good operating condition and repair, ordinary wear and tear excepted. For
purposes of this Section, a defect shall mean a condition relating to the
structures or any structural, mechanical or physical system which the Company
is required to repair at its expense and which requires an expenditure of more
than $1,000 to correct. To the knowledge of the Company, no maintenance or
repair to the Real Property, structures, facilities and improvements to the
Real Property ("Structures") or any Tangible Asset has been unreasonably
deferred. There is no water, chemical or gaseous seepage, diffusion or other
intrusion into said buildings, including any subterranean portions, that would
impair beneficial use of the Real Property, Structures or any Tangible Asset.
(iii) All water, sewer, gas, electric, telephone and
drainage facilities, and all other utilities required in the conduct of the
Company's business are connected pursuant to valid permits to municipal or
public utility services or facilities, or proper drainage facilities, are
operable and are adequate to service the Real Property in the operation of the
Company's business and to permit full compliance with the requirements of all
laws in the operation of such business. No fact or condition exists which
could result in the termination or material reduction of the current access
from the Real Property to existing roads or to sewer or other utility services
presently serving the Real Property.
(iv) To the knowledge of the Company (but without
independent verification and absent due diligence), the Real Property and all
present uses and operations of the Real Property comply with all applicable
statutes, rules, regulations, ordinances, orders, writs, injunctions,
judgments, decrees, awards or restrictions of any government entity having
jurisdiction over any portion of the Real Property (including, without
limitation, applicable statutes, rules, regulations, orders and restrictions
relating to zoning, land use, safety, health, employment and employment
practices and access by the handicapped) (collectively, "Laws"), covenants,
conditions, restrictions, easements, disposition agreements and similar
matters affecting the Real Property. The Company has obtained all approvals
of governmental authorities (including certificates of use and occupancy,
licenses and permits) required in connection with the construction, ownership,
use, occupation and operation of the Real Property.
(v) There are no pending or, to the Company's knowledge,
threatened condemnation, fire, health, safety, building, zoning or other land
use regulatory proceedings, lawsuits or administrative actions relating to any
portion of the Real Property or any other matters which do or may adversely
effect the current use, occupancy or value thereof, nor has the Company or any
of the Stockholders received notice of any pending or threatened special
assessment proceedings affecting any portion of the Real Property.
(vi) No portion of the Real Property or the Structures has
suffered any damage by fire or other casualty which has not heretofore been
completely repaired and restored to its original condition.
(vii) There are no parties other than the Company in
possession of any of the Real Property or any portion thereof, and there are
no leases, subleases, licenses, concessions or other agreements, written or
oral, granting to any party or parties the right of use or occupancy of any
portion of the Real Property or any portion thereof.
(viii) The Company is not a party to, and to the Company's
knowledge there are no, outstanding options or rights of first refusal to
purchase the Real Property, or any portion thereof or interest therein. The
Company has not transferred any air rights or development rights relating to the
Real Property.
(ix) the Company is not a party to any service contracts or
other agreements relating to the use or operation of the Real Property.
(x) No portion of the Real Property is located in a
wetlands area, as defined by Laws, or in a designated or recognized flood
plain, flood plain district, flood hazard area or area of similar
characterization. No commercial use of any portion of the Real Property will
violate any requirement of the United States Corps of Engineers or Laws
relating to wetlands areas.
(xi) All real property taxes and assessments that are due
and payable by the Company with respect to the Real Property have been paid or
will be paid at or prior to Closing.
(xii) All oral or written leases, subleases, licenses,
concession agreements or other use or occupancy agreements pursuant to which
the Company leases from any other party any real property, including all
amendments, renewals, extensions, modifications or supplements to any of the
foregoing or substitutions for any of the foregoing (collectively, the
"Leases") are valid and in full force and effect. The Company has provided
Buyer with true and complete copies of all of the Leases, all amendments,
renewals, extensions, modifications or supplements thereto, and all material
correspondence related thereto, including all correspondence pursuant to which
any party to any of the Leases declared a default thereunder or provided
notice of the exercise of any option granted to such party under such Lease.
The Leases and the Company's interests thereunder are free of all Liens.
(xiii) None of the Leases requires the consent or approval of
any party thereto in connection with the consummation of the transactions
contemplated hereby.
3.17 Personal Property.
(a) Schedule 3.17(a) sets forth a complete and accurate list of
all personal property included on the Interim Balance Sheet and all other
personal property owned or leased by the Company with a current book value in
excess of $5,000 both (i) as of the Balance Sheet Date and (ii) acquired since
the Balance Sheet Date, including in each case true, complete and correct
copies of leases for material equipment and an indication as to which assets
are currently owned, or were formerly owned, by any Stockholder or business or
personal affiliates of any Stockholder or of the Company.
(b) The Company currently owns or leases all personal property
and other assets necessary to conduct the business and operations of the
Company as they are currently being conducted, free and clear of all Liens
except for such Liens as are set forth on Schedule 3.17(a).
(c) All of the equipment of the Company, including those listed
on Schedule 3.17(a), are in good working order and condition, ordinary wear
and tear excepted. All leases set forth on Schedule 3.17(a) are in full force
and effect and constitute valid and binding agreements of the Company, and the
Company is not in breach of any of their terms. All fixed assets used by the
Company that are material to the operation of its business are either owned by
the Company or leased under an agreement listed on Schedule 3.17(a).
3.18 Intellectual Property.
(a) The Company is not the owner of, and is not licensed and
does not otherwise possesses legally enforceable rights to use, any registered
or unregistered Marks (as defined below). For purposes of this Section 3.18,
the term "▇▇▇▇" shall mean all right, title and interest in and to any United
States or foreign trademarks, service marks and trade names, including any
registration or application for registration of any trademarks and services
marks in the PTO or the equivalent thereof in any state of the United States
or in any foreign country, as well as any unregistered marks used by the
Company, and any trade dress (including logos, designs, company names,
business names, fictitious names and other business identifiers) used by the
Company in the United States or any foreign country.
(b) The Company is not the owner of, and is not licensed and
does not otherwise possesses legally enforceable rights to use, any rights in
Patents (as defined below) or in Copyright (as defined below). For purposes
of this Section 3.18, the term "Patent" shall mean any United States or
foreign patent to which the Company has title as of the date of this
Agreement, as well as any application for a United States or foreign patent
made by the Company; the term "Copyright" shall mean any United States or
foreign copyright owned by the Company as of the date of this Agreement,
including any registration of copyrights, in the United States Copyright
Office or the equivalent thereof in any foreign county, as well as any
application for a United States or foreign copyright registration made by the
Company.
(c) The Company is not the owner of, and is not licensed and
does not otherwise possesses legally enforceable rights to use, any rights in
trade secrets, franchises, or similar rights (collectively, "Other Rights").
(d) Marks, Patents, Copyrights, and Other Rights are referred to
collectively herein as the "Intellectual Property." Except as indicated on
Schedule 3.18(d), the Company has no obligations to compensate any person for
the use of any Intellectual Property nor has the Company granted to any person
any license, option or other rights to use in any manner any Intellectual
Property, whether requiring the payment of royalties or not.
(e) The Company is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its obligations
hereunder, in violation of any Intellectual Property license, sublicense or
agreement. No claims with respect to the Intellectual Property are currently
pending or, to the knowledge of the Company, are threatened by any person,
nor, to the Company's knowledge, do any grounds for any claims exist: (i) to
the effect that the manufacture, sale, licensing or use of any product as now
used, sold or licensed or proposed for use, sale or license by the Company
infringes on any copyright, patent, trademark, service ▇▇▇▇ or trade secret
and (ii) against the use by the Company of any trademarks, trade names, trade
secrets, copyrights, patents, technology, know-how or computer software
programs and applications used in the Company's business as currently
conducted by the Company. Neither the Company nor any of its subsidiaries (x)
has been sued or charged in writing as a defendant in any claim, suit, action
or proceeding which involves a claim or infringement of trade secrets, any
patents, trademarks, service marks, or copyrights and which has not been
finally terminated or been informed or notified by any third party that the
Company may be engaged in such infringement or (y) has knowledge of any
infringement liability with respect to, or infringement by, the Company or any
of its subsidiaries of any trade secret, patent, trademark, service ▇▇▇▇, or
copyright of another.
3.19 Significant Customers; Material Contracts and Commitments.
(a) Schedule 3.19(a) sets forth a complete and accurate list of
all Significant Customers and Significant Suppliers. For purposes of this
Agreement, "Significant Customers" are the twenty (20) customers that have
effected the most purchases, in dollar terms, from the Company during the
twelve (12) months ending on the Balance Sheet Date and "Significant
Suppliers" are the twenty (20) suppliers who supplied the largest amount by
dollar volume of products or services to the Company during the twelve (12)
months ending on the Balance Sheet Date.
(b) Except for purchase orders received in the ordinary course
of business, Schedule 3.19(b) contains a complete and accurate list of all
contracts, commitments, leases, instruments, agreements, licenses or permits,
written or oral, to which the Company is a party or by which it or its
properties are bound (including without limitation contracts with Significant
Customers, joint venture or partnership agreements, contracts with any labor
organizations, employment agreements, consulting agreements, loan agreements,
indemnity or guaranty agreements, bonds, mortgages, options to purchase land,
liens, pledges or other security agreements) (i) to which the Company and any
affiliate of the Company or any officer, director or stockholder of the
Company are parties ("Related Party Agreements"); (ii) that may give rise to
obligations or liabilities exceeding, during the current term thereof, $5,000
or (iii) that may generate revenues or income exceeding, during the current
term thereof, $5,000 (collectively with the Related Party Agreements, the
"Material Contracts"). The Company has delivered to Buyer true, complete and
correct copies of the Material Contracts. Schedule 3.19(b) designates whether
a Material Contract is written or oral. The Company has no obligation,
contractual or otherwise, to continue to make rental (or other) payments on
behalf of a personal acquaintance of the Stockholders with respect to real
property located in New Jersey (or elsewhere) and not used by the Company in
its business or operations. Except as otherwise expressly provided or
contemplated by this Agreement, or as set forth on Schedule 3.19(b), the
Company also has no obligation, contractual or otherwise, to pay any bonuses
or other payments after the Closing Date to any person or entity based on the
profits or other financial results of the Company.
(c) Except to the extent set forth on Schedule 3.19(c), (i) none
of the Company's Significant Customers has, except for ordinary course of
business purchase fluctuations, canceled or substantially reduced or, to the
knowledge of the Company, is currently attempting or threatening to cancel or
substantially reduce, any purchases from the Company, (ii) none of the
Company's Significant Suppliers has canceled or substantially reduced or, to
the knowledge of the Company, is currently attempting to cancel or
substantially reduce, the supply of products or services to the Company,
(iii) the Company has complied with all of its commitments and obligations and
is not in default under any of the Material Contracts, and no notice of
default has been received with respect to any thereof, and (iv) there are no
Material Contracts that were not negotiated at arm's length. The Company has
not received any material customer complaints concerning its products and/or
services, nor has it had any of its products returned by a purchaser thereof
except for normal warranty returns consistent with past history and those
returns that would not result in a reversal of any material revenue.
(d) Each Material Contract, except those terminated pursuant to
Section 5.5, is valid and binding on the Company and is in full force and
effect and is not subject to any default thereunder by any party obligated to
the Company pursuant thereto. The Company has obtained all necessary
consents, waivers and approvals of parties to any Material Contracts that are
required in connection with any of the transactions contemplated hereby, or
are required by any governmental agency or other third party or are advisable
in order that any such Material Contract remain in effect without modification
after the transactions contemplated by this Agreement and without giving rise
to any right to termination, cancellation or acceleration or loss of any right
or benefit ("Third Party Consents"). All Third Party Consents are listed on
Schedule 3.19(d).
(e) The Company is not a "women's business enterprise" ("WBE")
or "woman-owned business concern" as defined in 48 C.F.R. ss. 52.204-5, or a
"minority business enterprise" ("MBE") or "minority-owned business concern" as
defined in 48 C.F.R. ss. 52.219-8, nor has it held itself out to be such to
any of its customers.
(f) The outstanding balance on all loans or credit agreements
either (i) between the Company and any person in which any of the Stockholders
owns a material interest, or (ii) guaranteed by the Company for the benefit of
any person in which any of the Stockholders owns a material interest, are set
forth in Schedule 3.19(f).
(g) The pledge, hypothecation or mortgage of all or
substantially all of the Company's assets (including, without limitation, a
pledge of the Company's contract rights under any Material Contract) will not,
except as set forth on Schedule 3.19(g), (i) result in the breach or violation
of, (ii) constitute a default under, (iii) create a right of termination
under, or (iv) result in the creation or imposition of (or the obligation to
create or impose) any lien upon any of the assets of the Company (other than a
lien created pursuant to the pledge, hypothecation or mortgage described at
the start of this Section 3.19(g)) pursuant to any of the terms and provisions
of, any Material Contract to which the Company is a party or by which the
property of the Company is bound.
3.20 Government Contracts.
(a) Except as set forth on Schedule 3.20, the Company is not a
party to any government contracts.
(b) The Company has not been suspended or debarred from bidding
on contracts or subcontracts for any agency or instrumentality of the United
States Government or any state or local government, nor, to the knowledge of
the Company, has any suspension or debarment action been threatened or
commenced. There is no valid basis for the Company's suspension or debarment
from bidding on contracts or subcontracts for any agency of the United States
Government or any state or local government.
(c) Except as set forth in Schedule 3.20, the Company has not
been, nor is it now being, audited or investigated by any government agency,
or the inspector general or auditor general or similar functionary of any
agency or instrumentality, nor, to the knowledge of the Company, has such
audit or investigation been threatened.
(d) The Company has no dispute pending before a contracting
office of, nor any current claim pending against, any agency or
instrumentality of the United States Government or any state or local
government, relating to a contract.
(e) The Company has not, with respect to any government
contract, received a cure notice advising the Company that it is or was in
default or would, if it failed to take remedial action, be in default under
such contract.
(f) The Company has not submitted any inaccurate, untruthful, or
misleading cost or pricing data, certification, bid, proposal, report, claim,
or any other information relating to a contract to any agency or
instrumentality of the United States Government or any state or local
government.
(g) No employee, agent, consultant, representative, or affiliate
of the Company is in receipt or possession of any competitor or government
proprietary or procurement sensitive information related to the Company's
business under circumstances where there is reason to believe that such
receipt or possession is unlawful or unauthorized.
(h) Each of the Company's government contracts has been issued,
awarded or novated to the Company in the Company's name.
3.21 Work In Process. The work in process on the Closing Balance Sheet
consists of goods in process and finished goods, all of which is merchantable
and fit for the purposes for which it was manufactured, and none of which is
slow-moving, obsolete, damaged, or defective (except as reserved for on the
Closing Balance Sheet).
3.22 Insurance. Schedule 3.22 sets forth a complete and accurate list,
as of the Balance Sheet Date, of all insurance policies carried by the Company
and all insurance loss runs or workmen's compensation claims received for the
past two (2) policy years. The Company has delivered to Buyer true, complete
and correct copies of all current insurance policies, all of which are in full
force and effect. All premiums payable under all such policies have been paid
when due (or within any grace period) and the Company is otherwise in full
compliance with the terms of such policies. Such policies of insurance are of
the type and in amounts customarily carried by persons conducting businesses
similar to that of the Company. To the knowledge of the Company, there have
been no threatened terminations of, or material premium increases with respect
to, any of such policies.
3.23 Environmental Matters.
(a) The Company and any other person or entity for whose conduct
the Company is or may be held responsible, have no liability under, have never
violated, and are presently in compliance with any and all environmental,
health or safety-related laws, regulations, ordinances or by-laws at the
federal, state and local level (the "Environmental Laws") applicable to the
Real Property and any facilities and operations thereon, except as listed in
Schedule 3.23(a).
(b) There exist no conditions with respect to the environment on
or off the Real Property, whether or not yet discovered, that could or do
result in any damage, loss, cost, expense, claim, demand, order or liability
to or against the Company by any third party including, without limitation,
any condition resulting from the operation of the Company's business and/or
the operation of the business of any other property owner or operator in the
vicinity of the Real Property and/or any activity or operation formerly
conducted by any person or entity on or off the Real Property, except as set
forth in Schedule 3.23(b).
(c) The Company, and any other person or entity for whose
conduct the Company is or may be held responsible, have not generated,
manufactured, refined, transported, treated, stored, handled, disposed,
transferred, produced, or processed any pollutant, toxic substance, hazardous
waste, hazardous material, hazardous substance, or oil as defined in or
pursuant to the Resource Conservation and Recovery Act, as amended, 42 U.S.C.
ss. 6901 et seq., the Comprehensive Environmental Response, Compensation, and
Liability Act, as amended, 42 U.S.C. ss. 9601 et seq., the Federal Clean Water
Act, as amended, 33 U.S.C. ss. 1251 et seq., or any other federal, state, or
local environmental law, regulation, ordinance, rule, or bylaw, whether
existing as of the date hereof, previously enforced, or subsequently enacted
("Hazardous Material") or any solid waste at the Real Property, or at any
other location, except in compliance with all applicable Environmental Laws
and except as listed in Schedule 3.23(c).
(d) The Company has no knowledge of the releasing, spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, disposing, or dumping into the soil, surface waters,
ground waters, land, stream sediments, surface or subsurface strata, ambient
air, sewer system, or any environmental medium with respect to the Real
Property ("Environmental Condition") except as listed in Schedule 3.23(d).
(e) No Lien has been imposed on the Real Property by any
governmental entity at the federal, state, or local level in connection with
the presence on or off the Real Property of any Hazardous Material, except as
listed in Schedule 3.23(e).
(f) The Company has not, and any other person or entity for
whose conduct the Company is or may be held responsible has not, (i) entered
into or been subject to any consent decree, compliance order, or
administrative order with respect to the Real Property or any facilities or
operations thereon; (ii) received notice under the citizen suit provision of
any of the Environmental Laws in connection with the Real Property or any
facilities or operations thereon; (iii) received any request for information,
notice, demand letter, administrative inquiry, or formal or informal compliant
or claim with respect to any Environmental Condition relating to the Real
Property or any facilities or operations thereon; or (iv) been subject to or
threatened with any governmental or citizen enforcement action with respect to
the Real Property or any facilities or operations thereon, except as set forth
in Schedule 3.23(f); and the Company, and any other person or entity for whose
conduct it is or may be held responsible, have no knowledge that any of the
above will be forthcoming.
(g) The Company has all permits necessary pursuant to
Environmental Laws for its activities and operations at the Real Property and
for any past or ongoing alterations or improvements at the Real Property,
which permits are listed in Schedule 3.23(g).
(h) None of the following exists at the Real Property:
(1) underground storage tanks, (2) asbestos-containing materials in any form
or condition, (3) materials or equipment containing polychlorinated biphenyls,
(4) lead paint, pipes or solder, or (5) landfills, surface impoundments or
disposal areas, except as listed in Schedule 3.23(h).
(i) The Company has provided to Buyer copies of all documents,
records and information in its possession or control or available to the
Company concerning Environmental Conditions relevant to the Real Property or
any facilities or operations thereon, whether generated by Company or others,
including, without limitation, environmental audits, environmental risk
assessments, or site assessments of the Real Property and/or any adjacent
property or other property in the vicinity of the Real Property owned or
operated by the Company or others, documentation regarding off-site disposal
of Hazardous Materials, spill control plans, and environmental agency reports
and correspondence. Furthermore, the Stockholders shall have an ongoing
obligation to immediately provide to Buyer copies of any additional such
documents that come into the possession or control of or become available to
the Stockholders subsequent to the date hereof.
(j) The Company has, at its sole cost and expense, taken or
caused to be taken all actions necessary to ensure that as of the Closing Date
the Real Property, all activities and operations thereon, and all alterations
and improvements thereto, comply with all applicable Environmental Laws and
with any and all agreements with governmental entities, court orders, and
administrative orders regarding Environmental Conditions.
3.24 Labor and Employment Matters. Except as set forth on Schedule
3.24, with respect to employees of and service providers to the Company:
(a) the Company is and has been in compliance in all material
respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including
without limitation any such laws respecting employment discrimination,
workers' compensation, family and medical leave, the Immigration Reform and
Control Act, and occupational safety and health requirements, and has not and
is not engaged in any unfair labor practice;
(b) there is not now, nor within the past three (3) years has
there been, any unfair labor practice complaint against the Company pending
or, to the Company's knowledge, threatened, before the National Labor
Relations Board or any other comparable authority;
(c) there is not now, nor within the past three (3) years has
there been, any labor strike, slowdown or stoppage actually pending or, to the
Company's knowledge, threatened, against or directly affecting the Company;
(d) to the Company's knowledge, no labor representation
organization effort exists nor has there been any such activity within the
past three (3) years;
(e) no grievance or arbitration proceeding arising out of or
under collective bargaining agreements is pending and, to the Company's
knowledge, no claims therefor exist or have been threatened;
(f) the employees of the Company are not and have never been
represented by any labor union, and no collective bargaining agreement is
binding and in force against the Company or currently being negotiated by the
Company; and
(g) all persons classified by the Company as independent
contractors do satisfy and have satisfied the requirements of law to be so
classified, and the Company has fully and accurately reported their
compensation on IRS Forms 1099 when required to do so.
3.25 Employee Benefit Plans.
(a) Definitions.
(i) "Benefit Arrangement" means any benefit arrangement,
obligation, custom, or practice, whether or not legally enforceable, to
provide benefits, other than salary, as compensation for services rendered, to
present or former directors, employees, agents, or independent contractors,
other than any obligation, arrangement, custom or practice that is an Employee
Benefit Plan, including, without limitation, employment agreements, severance
agreements, executive compensation arrangements, incentive programs or
arrangements, sick leave, vacation pay, severance pay policies, plant closing
benefits, salary continuation for disability, consulting, or other
compensation arrangements, workers' compensation, retirement, deferred
compensation, bonus, stock option or purchase, hospitalization, medical
insurance, life insurance, tuition reimbursement or scholarship programs, any
plans subject to Section 125 of the Code, and any plans providing benefits or
payments in the event of a change of control, change in ownership, or sale of
a substantial portion (including all or substantially all) of the assets of
any business or portion thereof, in each case with respect to any present or
former employees, directors, or agents.
(ii) "Company Benefit Arrangement" means any Benefit
Arrangement sponsored or maintained by the Company or with respect to which
the Company has or may have any liability (whether actual, contingent, with
respect to any of its assets or otherwise) as of the Closing Date, in each
case with respect to any present or former directors, employees, or agents of
the Company.
(iii) "Company Plan" means, as of the Closing Date, any
Employee Benefit Plan for which the Company is the "plan sponsor" (as defined
in Section 3(16)(B) of ERISA) or any Employee Benefit Plan maintained by the
Company or to which the Company is obligated to make payments, in each case
with respect to any present or former employees of the Company.
(iv) "Employee Benefit Plan" has the meaning given in
Section 3(3) of ERISA.
(v) "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended, and all regulations and rules issued thereunder, or
any successor law.
(vi) "ERISA Affiliate" means any person that, together with
the Company, would be or was at any time treated as a single employer under
Section 414 of the Code or Section 4001 of ERISA and any general partnership
of which the Company is or has been a general partner.
(vii) "Multiemployer Plan" means any Employee Benefit Plan
described in Section 3(37) of ERISA.
(viii) "Qualified Plan" means any Employee Benefit Plan that
meets, purports to meet, or is intended to meet the requirements of Section
401(a) of the Code.
(ix) "Welfare Plan" means any Employee Benefit Plan
described in Section 3(1) of ERISA.
(b) Schedule 3.25(b) contains a complete and accurate list of
all Company Plans and Company Benefit Arrangements. Schedule 3.25(b)
specifically identifies all Company Plans (if any) that are Qualified Plans.
(c) With respect, as applicable, to Employee Benefit Plans and
Benefit Arrangements, except as set forth on Schedule 3.25(c):
(i) true, correct, and complete copies of all the
following documents with respect to each Company Plan and Company Benefit
Arrangement, to the extent applicable, have been delivered to Buyer: (A) all
documents constituting the Company Plans and Company Benefit Arrangements,
including but not limited to, trust agreements, insurance policies, service
agreements, and formal and informal amendments thereto; (B) the most recent
Forms 5500 or 5500C/R and any financial statements attached thereto and those
for the prior three (3) years; (C) the last Internal Revenue Service
determination letter, the last IRS determination letter that covered the
qualification of the entire plan (if different), and the materials submitted
by the Company to obtain those letters; (D) the most recent summary plan
description; (E) all reports submitted within the four (4) years preceding the
date of this Agreement by third-party administrators, actuaries, investment
managers, consultants, or other independent contractors; (F) all notices that
were given within the three (3) years preceding the date of this Agreement by
the IRS, Department of Labor, or any other governmental agency or entity with
respect to any plan or arrangement; and (G) employee manuals or handbooks
containing personnel or employee relations policies;
(ii) the Superior Graphics Retirement Plan (the "Company
401(k) Plan") is the only Qualified Plan. The Company has never maintained or
contributed to another Qualified Plan. The Company 401(k) Plan qualifies
under Section 401(a) of the Code, and any trusts maintained pursuant thereto
are exempt from federal income taxation under Section 501 of the Code, and
nothing has occurred with respect to the design or operation of any Qualified
Plans that could cause the loss of such qualification or exemption or the
imposition of any liability, lien, penalty, or tax under ERISA or the Code;
(iii) the Company has never sponsored or maintained, had any
obligation to sponsor or maintain, or had any liability (whether actual or
contingent, with respect to any of its assets or otherwise) with respect to
any Employee Benefit Plan subject to Section 302 of ERISA or Section 412 of
the Code or Title IV of ERISA (including any Multiemployer Plan);
(iv) each Company Plan and each Company Benefit Arrangement
has been maintained in accordance with its constituent documents and with all
applicable provisions of the Code, ERISA and other laws, including federal and
state securities laws;
(v) there are no pending claims or lawsuits by, against,
or relating to any Employee Benefit Plans or Benefit Arrangements that are not
Company Plans or Company Benefit Arrangements that would, if successful,
result in liability of the Company or any Stockholder, and no claims or
lawsuits have been asserted, instituted or, to the knowledge of the Company,
threatened by, against, or relating to any Company Plan or Company Benefit
Arrangement, against the assets of any trust or other funding arrangement
under any such Company Plan, by or against the Company with respect to any
Company Plan or Company Benefit Arrangement, or by or against the plan
administrator or any fiduciary of any Company Plan or Company Benefit
Arrangement, and the Company does not have knowledge of any fact that could
form the basis for any such claim or lawsuit. The Company Plans and Company
Benefit Arrangements are not presently under audit or examination (nor has
notice been received of a potential audit or examination) by the IRS, the
Department of Labor, or any other governmental agency or entity, and no
matters are pending with respect to the Company 401(k) Plan under the IRS's
Voluntary Compliance Resolution program, its Closing Agreement Program, or
other similar programs;
(vi) no Company Plan or Company Benefit Arrangement
contains any provision or is subject to any law that would prohibit the
transactions contemplated by this Agreement or that would give rise to any
vesting of benefits, severance, termination, or other payments or liabilities
as a result of the transactions contemplated by this Agreement;
(vii) with respect to each Company Plan, there has occurred
no non-exempt "prohibited transaction" (within the meaning of Section 4975 of
the Code) or transaction prohibited by Section 406 of ERISA or breach of any
fiduciary duty described in Section 404 of ERISA that would, if successful,
result in any liability for the Company or any Stockholder, officer, director,
or employee of the Company;
(viii) all reporting, disclosure, and notice requirements of
ERISA and the Code have been fully and completely satisfied with respect to each
Company Plan and each Company Benefit Arrangement;
(ix) all amendments and actions required to bring the
Company Benefit Plans into conformity with the applicable provisions of ERISA,
the Code, and other applicable laws have been made or taken except to the
extent such amendments or actions (A) are not required by law to be made or
taken until after the Closing Date and (B) are disclosed on Schedule 3.25(c);
(x) payment has been made of all amounts that the Company
is required to pay as contributions to the Company Benefit Plans as of the
last day of the most recent fiscal year of each of the plans ended before the
date of this Agreement; all benefits accrued under any unfunded Company Plan
or Company Benefit Arrangement will have been paid, accrued, or otherwise
adequately reserved in accordance with GAAP as of the Balance Sheet Date; and
all monies withheld from employee paychecks with respect to Company Plans have
been transferred to the appropriate plan within 30 days of such withholding;
(xi) the Company has not prepaid or prefunded any Welfare
Plan through a trust, reserve, premium stabilization, or similar account, nor
does it provide benefits through a voluntary employee beneficiary association
as defined in Section 501(c)(9);
(xii) no statement, either written or oral, has been made by
the Company to any person with regard to any Company Plan or Company Benefit
Arrangement that was not in accordance with the Company Plan or Company
Benefit Arrangement and that could have an adverse economic consequence to the
Company;
(xiii) the Company has no liability (whether actual,
contingent, with respect to any of its assets or otherwise) with respect to any
Employee Benefit Plan or Benefit Arrangement that is not a Company Benefit
Arrangement or with respect to any Employee Benefit Plan sponsored or maintained
(or which has been or should have been sponsored or maintained) by any ERISA
Affiliate;
(xiv) all group health plans of the Company and its
affiliates have been operated in material compliance with the requirements of
Sections 4980B (and its predecessor) and 5000 of the Code, and the Company has
provided, or will have provided before the Closing Date, to individuals
entitled thereto all required notices and coverage pursuant to Section 4980B
with respect to any "qualifying event" (as defined therein) occurring before
or on the Closing Date;
(xv) no employee or former employee of the Company or
beneficiary of any such employee or former employee is, by reason of such
employee's or former employee's employment, entitled to receive any benefits,
including, without limitation, death or medical benefits (whether or not
insured) beyond retirement or other termination of employment as described in
Statement of Financial Accounting Standards No. 106, other than (i) death or
retirement benefits under a Qualified Plan, (ii) deferred compensation
benefits accrued as liabilities on the Interim Balance Sheet or (iii)
continuation coverage mandated under Section 4980B of the Code or other
applicable law.
(d) Schedule 3.25(d) hereto contains the most recent quarterly
listing of workers' compensation claims and a schedule of workers'
compensation claims of the Company for the last three (3) fiscal years.
(e) Schedule 3.25(e) hereto sets forth an accurate list, as of
the date hereof, of all employees of the Company who earned more than $70,000
in 1998 and who may earn more than $70,000 in 1999, all officers and all
directors, and lists all employment agreements with such employees, officers
and directors and the rate of compensation (and the portions thereof
attributable to salary, bonus, and other compensation respectively) of each
such person as of (a) the Balance Sheet Date and (b) the date hereof.
(f) The Company has not declared or paid any bonus compensation
in contemplation of the transactions contemplated by this Agreement.
3.26 Taxes.
(a) Except as set forth on Schedule 3.26(a):
(i) The Company has timely filed all Tax Returns due on or
before the Closing Date, and all such Tax Returns are true, correct, and
complete in all respects.
(ii) The Company has paid in full on a timely basis all
Taxes owed and payable by it, whether or not shown on any Tax Return.
(iii) The amount of the Company's liability for unpaid Taxes
as of the Balance Sheet Date did not exceed the amount of the current
liability accruals for Taxes (excluding reserves for deferred Taxes) shown on
the Interim Balance Sheet, and the amount of the Company's liability for
unpaid Taxes for all periods or portions thereof ending on or before the
Closing Date will not exceed the amount of the current liability accruals for
Taxes (excluding reserves for deferred Taxes) as such accruals are reflected
on the books and records of the Company on the Closing Date.
(iv) There are no ongoing examinations or claims against
the Company for Taxes, and no notice of any audit, examination, or claim for
Taxes, whether pending or threatened, has been received.
(v) The Company has a taxable year ended on December 31 of
each year.
(vi) The Company currently utilizes the cash method of
accounting for income Tax purposes and such method of accounting has not
changed.
(vii) The Company has withheld and paid over to the proper
governmental authorities all Taxes required to have been withheld and paid over,
and complied with all information reporting and backup withholding requirements,
including maintenance of required records with respect thereto, in connection
with amounts paid to any employee, independent contractor, creditor, or other
third party.
(viii) Copies of (A) any Tax examinations, (B) extensions of
statutory limitations for the collection or assessment of Taxes and (C) the Tax
Returns of the Company for the last fiscal year have been delivered to Buyer.
(ix) There are (and as of immediately following the Closing
there will be) no Liens on the assets of the Company relating to or
attributable to Taxes.
(x) To the Company's knowledge, there is no basis for the
assertion of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of the Company or otherwise
have an adverse effect on the Company or its business.
(xi) None of the Company's assets are treated as "tax
exempt use property" within the meaning of Section 168(h) of the Code.
(xii) There are no contracts, agreements, plans or
arrangements covering any employee or former employee of the Company that,
individually or collectively, could give rise to the payment of any amount (or
portion thereof) that would not be deductible pursuant to Sections 280G or 404
of the Code.
(xiii) The Company has not filed any consent agreement
under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the
Code apply to any disposition of a subsection (f) asset (as defined in Section
341(f)(4) of the Code) owned by the Company.
(xiv) The Company is not, and has not been at any time, a
party to a tax sharing, tax indemnity or tax allocation agreement, and the
Company has not assumed the tax liability of any other person under contract.
(xv) The Company is not, and has not been at any time, a
"United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code.
(xvi) The Company's tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal income tax
deductions is accurately reflected on the Company's tax books and records.
(xvii) The Company has not been a member of an affiliated
group filing a consolidated federal income Tax Return and does not have any
liability for the Taxes of another person under Treas. Reg. ss. 1.1502-6 (or any
similar provision of state, local or foreign law), as a transferee or successor,
by contract or otherwise.
(b) (i) The Company has since its incorporation been an S
Corporation within the meaning of Section 1361 of the Code.
(ii) The Company does not have a net recognizable built-in
gain within the meaning of Section 1374 of the Code.
(c) For purposes of this Agreement:
(i) the term "Tax" or "Taxes" shall include any tax or
similar governmental charge, impost or levy (including without limitation
income taxes, franchise taxes, transfer taxes or fees, sales taxes, use taxes,
gross receipts taxes, value added taxes, employment taxes, excise taxes, ad
valorem taxes, property taxes, withholding taxes, payroll taxes, minimum taxes
or windfall profit taxes) together with any related penalties, fines,
additions to tax or interest imposed by the United States or any state,
county, local or foreign government or subdivision or agency thereof; and
(ii) the term "Tax Return" shall mean any return (including
any information return), report, statement, schedule, notice, form, estimate,
or declaration of estimated tax relating to or required to be filed with any
governmental authority in connection with the determination, assessment,
collection or payment of any Tax.
3.27 Conformity with Law; Litigation.
(a) Except as set forth on Schedule 3.27(a), the Company has not
violated any law or regulation or any order of any court or federal, state,
municipal or other governmental department, commission, board, bureau, agency
or instrumentality having jurisdiction over it.
(b) No Stockholder has, at any time: (i) committed any criminal
act (except for minor traffic violations); (ii) filed for personal bankruptcy;
or (iii) been an officer, director, manager, trustee or controlling
shareholder of a company that filed for bankruptcy or Chapter 11 protection.
(c) Except as set forth on Schedule 3.27(c), there are no
claims, actions, suits or proceedings, pending or, to the knowledge of the
Company, threatened against or affecting the Company at law or in equity, or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
it and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received. There are no judgments, orders, injunctions,
decrees, stipulations or awards (whether rendered by a court or administrative
agency or by arbitration) against the Company or against any of its properties
or business.
3.28 Relations with Governments. Except as set forth on Schedule 3.28,
prior to the Closing Date, the Company has not made, offered or agreed to
offer anything of value to any governmental official, political party or
candidate for government office, nor has it otherwise taken any action that
would cause the Company to be in violation of the Foreign Corrupt Practices
Act of 1977, as amended, or any law of similar effect.
3.29 Absence of Changes. Since the Balance Sheet Date, the Company has
conducted its business in the ordinary course and, except as contemplated
herein or as set forth on Schedule 3.29, there has not been:
(a) any change, by itself or together with other changes, that
has affected adversely, or is likely to affect adversely, the business,
operations, affairs, prospects, properties, assets, profits or condition
(financial or otherwise) of the Company;
(b) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of the Company;
(c) any change in the authorized capital of the Company or in
its outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(d) except for distributions to the Stockholders of the
Distributed Assets (any such distributions a "Permitted Distribution"), any
declaration or payment of any dividend or distribution in respect of the
capital stock, or any direct or indirect redemption, purchase or other
acquisition of any of the capital stock of the Company;
(e) any increase in the compensation, bonus, sales commissions
or fee arrangements payable or to become payable by the Company to any of its
officers, directors, Stockholders, employees, consultants or agents, except
for ordinary and customary bonuses and salary increases for employees in
accordance with past practice, nor has the Company entered into or amended any
Company Benefit Arrangement, Company Plan, employment, severance or other
agreement relating to compensation or fringe benefits;
(f) any work interruptions, labor grievances or claims filed, or
any similar event or condition of any character, materially adversely
affecting the business or future prospects of the Company;
(g) except for any Permitted Distribution, any sale or transfer,
or any agreement to sell or transfer, any material assets, property or rights
of the Company to any person, including without limitation the Stockholders
and their affiliates;
(h) any cancellation, or agreement to cancel, any indebtedness
or other obligation owing to the Company, including without limitation any
indebtedness or obligation of the Stockholders and their affiliates, provided
that the Company may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice;
(i) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of the Company or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(j) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside of
the ordinary course of business of the Company;
(k) any waiver of any material rights or claims of the Company;
(l) any breach, amendment or termination of any material
contract, agreement, license, permit or other right to which the Company is a
party;
(m) except for any Permitted Distribution, any transaction by
the Company outside the ordinary course of business;
(n) any capital commitment by the Company, either individually
or in the aggregate, exceeding $10,000;
(o) any change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company or
the revaluation by the Company of any of its assets;
(p) any creation or assumption by the Company of any mortgage,
pledge, security interest or lien or other encumbrance on any asset (other
than liens arising under existing lease financing arrangements which are not
material and liens for Taxes not yet due and payable);
(q) any entry into, amendment of, relinquishment, termination or
non- renewal by the Company of any contract, lease transaction, commitment or
other right or obligation requiring payments by the Company, either
individually or in the aggregate, in excess of $10,000;
(r) any loan by the Company to any person or entity, incurring
by the Company of any indebtedness, guaranteeing by the Company of any
indebtedness, issuance or sale of any debt securities of the Company or
guaranteeing of any debt securities of others;
(s) the commencement or notice or, to the knowledge of the
Company, threat of commencement, of any lawsuit or proceeding against, or
investigation of, the Company or any of its affairs; or
(t) negotiation or agreement by the Company or any officer or
employee thereof to do any of the things described in the preceding clauses
(a) through (s) (other than negotiations with Buyer and its representatives
regarding the transactions contemplated by this Agreement).
3.30 Disclosure. All written agreements, lists, schedules,
instruments, exhibits, documents, certificates, reports, statements and other
writings furnished to Buyer pursuant hereto or in connection with this
Agreement or the transactions contemplated hereby, are and will be complete
and accurate in all material respects. No representation or warranty by the
Stockholders or the Company contained in this Agreement, in the Schedules
attached hereto or in any certificate furnished or to be furnished by the
Stockholders or the Company to Buyer in connection herewith or pursuant hereto
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary in order to make any statement
contained herein or therein not misleading.
3.31 Predecessor Status; Etc. Schedule 3.31 sets forth a listing of
all legal names, trade names, fictitious names or other names (including,
without limitation, any names of divisions or operations) of the Company and
all of its predecessor companies during the five-year period immediately
preceding the Closing, including without limitation the names of any entities
from whom the Company has acquired material assets. During the five (5) year
period immediately preceding the Closing, the Company has operated only under
the names set forth on Schedule 3.31 in the jurisdiction or jurisdictions set
forth on Schedule 3.31 and has not been a subsidiary or division of another
corporation or a part of an acquisition which was later rescinded.
3.32 Location of Chief Executive Offices. Schedule 3.32 sets forth the
location of the Company's chief executive offices.
3.33 Location of Equipment and Work In Process. Except as set forth in
Schedule 3.33, all work in process and equipment held on the date hereof by
the Company is located at one of the locations shown on Schedule 3.33. For
purposes of this Agreement, (a) the term "work in process" shall mean all
goods in process and finished goods (in all stages of production -- from raw
materials through work-in-process to finished goods) owned by the Company as
of the date hereof, wherever located, together with all supplies, incidentals,
packaging materials and any other items used or usable in manufacturing,
processing, packaging or shipping the same; and (b) the term "equipment" shall
mean any "equipment" of any nature owned by the Company as of the date hereof,
and, in any event, shall include, but shall not be limited to, all machinery,
equipment, furnishings, fixtures and vehicles owned by the Company as of the
date hereof, wherever located, together with all attachments, components,
parts, equipment and accessories installed thereon or affixed thereto.
3.34 Year 2000 Compliance. The Company shall be Year 2000 Compliant
and Ready (as defined below) on or before June 30, 1999. The cost, if any, to
be incurred in order to cause the Company to become Year 2000 Compliant and
Ready between the date hereof and June 30, 1999 shall not exceed $25,000.
Furthermore, to the extent the Company may not be Year 2000 Compliant and
Ready at any time prior to June 30, 1999, the Company has no reason to believe
that such status will result in a material adverse affect on the Company's
business, operations, affairs, prospects, properties, assets, existing and
potential liabilities, obligations, profits or condition (financial or
otherwise). In addition, the Company has no reason to believe that its
respective vendors, suppliers or customers of the Company are not Year 2000
Compliant and Ready where the failure to be Year 2000 Compliant and Ready
would have a material adverse affect on the business, operations, affairs,
prospects, properties, assets, existing and potential liabilities,
obligations, profits or condition (financial or otherwise) of the Company.
For purposes of this Agreement, the term "Year 2000 Compliant and Ready," with
respect to any person, means that the hardware and software systems and
components (including without limitation imbedded microchips) owned, licensed
or used by such person in connection with its business operations (excluding
systems of third parties such as telephones, electricity and elevators) will
(without any additional cost or the need for human intervention)
(i) accurately process information involving any and all dates before, during
and/or after January 1, 2000, including without limitation recognizing and
processing input, providing output, storing information and performing
date-related calculations, all without creating any ambiguity as to the
century and without any other error or malfunction, (ii) operate accurately
without material interruption or malfunction on and in respect of any and all
dates before, during and/or after January 1, 2000 and (iii) where applicable,
respond to and process two digit year input without creating any ambiguity as
to the century.
3.35 No Other Representations or Warranties. Except for
representations and warranties contained in this Agreement and in
certificates, Schedules, and other documents delivered by the Stockholders or
the Company in connection herewith, the Company and the Stockholders make no
representations or warranties, express or implied, written or oral.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
To induce the Company and the Stockholders to enter into this Agreement
and consummate the transactions contemplated hereby, Buyer represents and
warrants to the Company and the Stockholders as follows:
4.1 Due Organization. Buyer is a limited liability company duly
organized, validly existing and in good standing under the laws of the State
of Delaware, and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted.
4.2 Authorization; Validity of Obligations. The representative of
Buyer executing this Agreement has all requisite power and authority to enter
into and bind Buyer to the terms of this Agreement. Buyer has the full legal
right, power and authority to enter into this Agreement and the transactions
contemplated hereby. The execution and delivery of this Agreement by Buyer
and the performance by Buyer of the transactions contemplated herein has been
duly and validly authorized by the Board of Managers of Buyer and this
Agreement has been duly and validly authorized by all necessary action. This
Agreement is a legal, valid and binding obligation of Buyer enforceable in
accordance with its terms.
4.3 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions herein contemplated hereby and
the fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of the
Buyer's Operating Agreement;
(b) conflict with, or result in a default (or would constitute a
default but for a requirement of notice or lapse of time or both) under any
document, agreement or other instrument to which Buyer is a party, or result
in the creation or imposition of any lien, charge or encumbrance on any of
Buyer's properties pursuant to (i) any law or regulation to which Buyer or any
of its property is subject, or (ii) any judgment, order or decree to which
Buyer is bound or any of its property is subject;
(c) result in termination or any impairment of any material
permit, license, franchise, contractual right or other authorization of Buyer;
or
(d) violate any law, order, judgment, rule, regulation, decree
or ordinance to which Buyer is subject, or by which Buyer is bound (including,
without limitation, the HSR Act, together with all rules and regulations
promulgated thereunder).
4.4 Consideration. The Buyer presently has, and at all times until
paid will have, the financial resources available to Buyer in order to enable
Buyer to pay to the Stockholders the Cash Purchase Price and the Earn-out.
4.5 No Change. Buyer knows of no reason (financial, legal or
otherwise) why it would be unable to make the payments required to be paid by
Buyer to the Stockholders hereunder.
4.6 Reliance by Buyer. Buyer is relying on the representations,
warranties and covenants of the Company and the Stockholders contained in this
Agreement and in all certificates delivered by the Company and the
Stockholders in connection with the Closing and, after investigation, is not
relying on any other representation, fact or circumstance.
4.7 No Other Representations or Warranties. Except for
representations and warranties contained in this Agreement and in any other
documents delivered by the Buyer in connection herewith, the Buyer makes no
representations or warranties, express or implied, written or oral.
5. COVENANTS
5.1 Tax Matters.
(a) The following provisions shall govern the allocation of
responsibility as between the Company, on the one hand, and the Stockholders,
on the other, for certain tax matters following the Closing Date:
(i) Stockholders shall prepare or cause to be prepared and
file or cause to be filed, within the time and in the manner provided by law,
all Tax Returns of the Company for all periods ending on or before the Closing
Date that are due after the Closing Date. Stockholders shall pay to the
Surviving Corporation on or before the due date of such Tax Returns (as
extended) the amount of all Taxes shown as due on such Tax Returns to the
extent that such Taxes are not reflected in the current liability accruals for
Taxes (excluding reserves for deferred Taxes) shown on the Company's books and
records as of the Closing Date or as reflected in the Closing Balance Sheet
and the cover letter accompanying such Closing Balance Sheet from the
Company's independent account. Such Tax Returns shall be prepared and filed
in accordance with applicable law and in a manner consistent with past
practices and shall be subject to review and approval by Buyer (which approval
shall not be unreasonably withheld). To the extent reasonably requested by
the Stockholders or required by law, Buyer and the Surviving Corporation shall
participate in the filing of any Tax Returns filed pursuant to this
paragraph. Notwithstanding anything in the foregoing to the contrary, Buyer
expressly acknowledges that it is assuming (and shall pay) the Earn-out Tax
Liability. In the event that the Earn-out Tax Liability is imposed as a
result of Buyer's decision to make a Section 338(h)(10) Election, then Buyer
shall prepare and file the appropriate Tax Return(s) or amendments thereto
with the State and/or City of New York and shall pay any amounts owed to the
State and/or City of New York with respect to the Earn-out Tax Liability.
(ii) Except as set forth in Section 5.1(a)(v) with respect
to income Tax Returns for the Company for 1999, the Surviving Corporation
shall prepare or cause to be prepared and file or cause to be filed any Tax
Returns for Tax periods ending on or after the Closing Date. To the extent
the Buyer claims that Stockholders are responsible for any Taxes with respect
to such Tax periods, the Tax Returns for such Tax periods shall be subject to
the review and approval of Stockholders (which approval shall not be
unreasonably withheld). The Stockholders shall pay to the Surviving
Corporation within fifteen (15) days after the date on which Taxes are paid
with respect to such periods an amount equal to the portion of such Taxes
which relates to the portion of such taxable period ending on the Closing Date
to the extent such Taxes are not reflected in the current liability accruals
for Taxes (excluding reserves for deferred Taxes) shown on the Company's books
and records as of the Closing Date. For purposes of this Section 5.1, in the
case of any Taxes that are imposed on a periodic basis and are payable for a
Taxable period that includes (but does not end on) the Closing Date, the
portion of such Tax which relates to the portion of such Taxable period ending
on the Closing Date shall (x) in the case of any Taxes other than Taxes based
upon or related to income or receipts, be deemed to be the amount of such Tax
for the entire Taxable period multiplied by a fraction the numerator of which
is the number of days in the Taxable period ending on the Closing Date and the
denominator of which is the number of days in the entire Taxable period, and
(y) in the case of any Tax based upon or related to income or receipts be
deemed equal to the amount which would be payable if the relevant Taxable
period ended on the Closing Date. Any credits relating to a Taxable period
that begins before and ends after the Closing Date shall be taken into account
as though the relevant Taxable period ended on the Closing Date. All
determinations necessary to give effect to the foregoing allocations shall be
made in a manner consistent with prior practice of the Company.
(iii) Buyer and the Surviving Corporation on one hand and
Stockholders on the other hand shall (A) cooperate fully, as reasonably
requested, in connection with the preparation and filing of Tax Returns
pursuant to this Section 5.1 and any audit, litigation or other proceeding
with respect to Taxes; (B) make available to the other, as reasonably
requested, all information, records or documents with respect to Tax matters
pertinent to the Company for all periods ending prior to or including the
Closing Date; and (C) preserve information, records or documents relating to
Tax matters pertinent to the Company that are in their possession or under
their control until the expiration of any applicable statute of limitations or
extensions thereof.
(iv) The Stockholders shall timely pay all transfer,
documentary, sales, use, stamp, registration and other Taxes and fees arising
from or relating to the transactions contemplated by this Agreement except
those imposed upon the Buyer by applicable law, and the Stockholders shall, at
their own expense, file all necessary Tax Returns and other documentation with
respect to all such transfer, documentary, sales, use, stamp, registration,
and other Taxes and fees. If required by applicable law, Buyer and the
Surviving Corporation will join in the execution of any such Tax Returns and
other documentation.
(v) The Stockholders and Buyer agree that the Buyer's
purchase of the capital stock of the Company is controlled by
Section 1362(e)(6)(D) of the Code and Treasury Regulation ss. 1362-3(b)(3)
wherein the 1999 calendar tax year of the Company will be treated as two
taxable years for income Tax purposes and items of income, loss, deduction or
credit shall be assigned to the two short taxable years in accordance with the
Company's normal method of accounting under Treasury Regulation
ss. 1.1362-3(b)(3) on a "per books" method. The Stockholders and the Surviving
Corporation shall file income Tax Returns for the 1999 calendar tax year in a
manner consistent with the foregoing.
(b) The Company shall, prior to the Closing, maintain its status
as an S Corporation for federal and state income tax purposes. The Company
and the Stockholders will not revoke the Company's election to be taxed as an
S corporation within the meaning of Sections 1361 and 1362 of the Code. The
Company and the Stockholders will not take or allow any action to be taken
(other than the sale of the Stock pursuant to this Agreement) that would
result in the termination of the Company's status as a validly electing S
corporation within the meaning of Sections 1361 and 1362 of the Code.
(c) The parties agree as follows with respect to Section
338(h)(10) of the Code:
(i) At the Buyer's option, the Surviving Corporation and
Stockholders will join with Buyer in making a timely election under
Section 338(h)(10) of the Code (and any corresponding election under state,
local, and foreign tax law) with respect to the purchase and sale of the Stock
hereunder (a "Section 338(h)(10) Election"). Stockholders will include any
income, gain, loss, deduction, or other tax item resulting from the
Section 338(h)(10) Election on their Tax Returns to the extent permitted by
applicable law; provided, however, that Buyer shall be responsible for the
Earn-out Tax Liability as set forth in Section 5.1(a)(i) and 1.2(a)(iii).
Buyer and Stockholders shall cooperate fully with each other in the making of
such election. In particular, Buyer shall be responsible for the preparation
and filing of all Tax Returns and forms (the "Section 338 Forms") required
under applicable tax law to be filed in connection with making the Section
338 (h)(10) Election. Stockholders shall deliver to Buyer, within 90 days
prior to the date the Section 338 Forms are required to be filed, such
documents and other forms as reasonably requested by Buyer to properly
complete the Section 338 Forms.
(ii) Buyer and Stockholders shall allocate the Purchase
Price in the manner required by Section 338 of the Code and the Treasury
Regulations promulgated thereunder. Such allocation shall be used for
purposes of determining the modified aggregate deemed sales price under
Treasury Regulations and in reporting the deemed sale of assets of the Company
in connection with the Section 338(h)(10) Election.
(iii) Buyer shall initially prepare a completed set of IRS
Forms 8023 (and any comparable forms required to be filed under state, local
or foreign tax law) and any additional data or materials required to be
attached to Forms 8023 pursuant to the Treasury Regulations promulgated under
Section 338 of the Code. Buyer shall deliver said forms to Stockholders for
review no later than 45 days prior to the date the Section 338 Forms are
required to be filed. In the event the Stockholders object to the manner in
which the Section 338 Forms have been prepared, the Stockholders'
Representative shall notify Buyer within 10 days of receipt of the Section 338
Forms of such objection, and the parties shall endeavor within the next 15
days in good faith to resolve such dispute. If the parties are unable to
resolve such dispute within said 15 day period, Buyer and the Stockholders'
Representative shall submit such dispute to an independent accounting firm of
recognized national standing (the "Allocation Arbiter") selected by Buyer and
the Stockholders' Representative, which firm shall not be the regular
accounting firm of Buyer or the Stockholders. Promptly, but not later than 15
days after its acceptance of appointment hereunder, the Allocation Arbiter
will determine (based solely on presentations of Buyer and the Stockholders'
Representative and not by independent review) only those matters in dispute
and will render a written report as to the disputed matters and the resulting
preparation of the Section 338 Forms shall be conclusive and binding upon the
parties.
(iv) No new elections with respect to Taxes, or any changes
in current elections with respect to Taxes, affecting the Company or Surviving
Corporation after the Section 338(h)(10) Election shall be made after the date
of this Agreement without the prior written consent of the Buyer and the
Stockholders' Representative.
(d) Buyer and Stockholders agree as follows with respect to the
allocation of income Tax liabilities:
(i) Stockholders shall be responsible for all federal
income Taxes attributable to the Company for the period prior to the Closing
Date (including all Taxes resulting from the Section 338(h)(10) Election).
Buyer shall be responsible for all federal income Taxes of the Surviving
Corporation for the period after the Closing Date, including Taxes resulting
from a change in the accounting method of the Surviving Corporation after the
Closing Date.
(ii) The Stockholders shall be liable for any state, local,
or foreign Tax attributable to an election under state, local, or foreign law
similar to the election available under Section 338(h)(10) of the Code (other
than the Earn-out Tax Liability). Further, if a state, local or foreign
jurisdiction does not have provisions similar to the election available under
Section 338(h)(10) of the Code, Stockholders will be liable for any Tax
imposed on the Company or Surviving Corporation by such state, local and/or
foreign jurisdiction resulting from the transactions contemplated by this
Agreement (other than the Earn-out Tax Liability). Finally, Stockholders will
be liable for nonfederal income Taxes of the Company ending on or before the
Closing Date, and the Buyer and Surviving Corporation will be liable for
nonfederal income Taxes of the Company for the period ending after the Closing
Date, including Taxes resulting from a change in the accounting method of the
Company after the Closing Date and any Earn-out Tax Liability.
5.2 Accounts Receivable. In the event that all Accounts Receivable
are not collected in full (net of reserves specified in Section 3.14) within
one hundred twenty (120) days after the Closing then, at the request of the
Surviving Corporation or Buyer, the Stockholders shall pay (based on their
percentage ownership of the Company immediately prior to the Closing Date) the
Surviving Corporation an amount equal to the Accounts Receivable not so
collected, and upon receipt of such payment the Surviving Corporation shall
assign to the Stockholders (or their affiliate J&W Ventures LLC) making the
payment all rights with respect to the uncollected Accounts Receivable giving
rise to the payment and shall also thereafter promptly remit any excess
collections received by it with respect to such assigned Accounts Receivable.
If and when the amount subsequently collected by Stockholders with respect to
the assigned Accounts Receivable equals (a) the payment made therefor plus
(b) the costs and expenses reasonably incurred by the Stockholders in the
collection of such assigned Accounts Receivable, the Stockholders shall
reassign to the Surviving Corporation all of such assigned Accounts Receivable
as have not been collected in full by the Stockholders and shall also
thereafter promptly remit any excess collections received by them. Upon the
written request of the Surviving Corporation, the Stockholders shall provide
it with a status report concerning the collection of assigned Accounts
Receivable.
5.3 Removal of Guaranties. Within one hundred eighty days of the
Closing Date, the Stockholders shall use reasonable efforts to cause to be
removed, canceled or otherwise extinguished the guaranty given by the Company
prior to Closing with respect to the Axis Lease (as defined below), as
specifically identified on Schedule 5.3. Upon the expiration of the current
term and any renewal terms of the Axis Global Systems, LLC ("Axis Systems")
lease, dated November 1, 1997, with respect to premises located at ▇▇-▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ("Axis Lease"), the Stockholders shall not permit
Axis Systems to enter into a new lease or modification of the existing Axis
Lease that would continue the guaranty of the Surviving Corporation of any
obligations under such new or modified lease. In addition, the Stockholders
shall give written notice to the Buyer of any default declared by the landlord
under the Axis Lease within two (2) business days of the day on which the
Stockholders receive notice of such default from the landlord. The
Stockholders shall indemnify and hold Buyer and the Surviving Corporation
harmless with respect to the Company's guaranty of the Axis Lease as
specifically set forth in Section 8.1(a)(iv).
With respect to the Lease and Assignment of Lease, pursuant to which the
Company occupies its premises at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
("Company Lease"), the Buyer and the Surviving Corporation shall not enter
into a new lease or modification of the existing lease that would continue the
guaranty of the Stockholders of any obligations under such new or modified
lease. Buyer shall indemnify and hold Stockholders harmless with respect to
such guaranty as specifically set forth in Section 8.1(b)(iii).
5.4 Employee Benefit Plans. If reasonably requested by Buyer, the
Company shall terminate any Company Plan or Company Benefit Arrangement
substantially contemporaneously with the Closing.
5.5 Related Party Agreements. The Company and/or the Stockholders, as
the case may be, shall terminate any Related Party Agreements which Buyer
requests the Company or Stockholders to terminate prior to the Closing.
5.6 Cooperation.
(a) The Company, Stockholders, and Buyer shall each deliver or
cause to be delivered to the other on the Closing Date, and at such other
times and places as shall be reasonably agreed to, such instruments as the
other may reasonably request for the purpose of carrying out this Agreement.
In connection therewith, if required, the president or chief financial officer
of the Company shall execute any documentation reasonably required by Buyer's
independent public accountants (in connection with such accountant's audit of
the Company) or the Nasdaq National Market.
(b) The Stockholders and the Company shall cooperate and use
their reasonable efforts to have the present officers, directors and employees
of the Company cooperate with Buyer on and after the Closing Date in
furnishing information, evidence, testimony and other assistance in connection
with any filing obligations, actions, proceedings, arrangements or disputes of
any nature with respect to matters pertaining to all periods prior to the
Closing Date.
(c) Each party hereto shall cooperate in obtaining all consents
and approvals required under this Agreement to effect the transactions
contemplated hereby
(d) After the Closing Date, the Buyer shall cooperate with the
Stockholders as reasonably necessary to permit the Stockholders to collect the
Distributed Assets and Stockholders shall be entitled, as employees of the
Company after the Closing Date, to take action and to spend a reasonable
amount of time collecting the Distributed Assets. The Stockholders shall
incur all costs and expenses in connection with the collection of the
Distributed Assets. After the Closing Date, the Buyer shall permit the
Stockholders and their representatives reasonable access to such books and
records of the Company as may be necessary for the purpose of confirming and
reviewing the Closing Balance Sheet, for the purpose of preparing the
Company's final Tax Return for the period up to and including the Closing
Date, and for the purpose of reviewing or confirming any indemnification claim
against Stockholders.
5.7 Access to Information; Confidentiality; Public Disclosure.
(a) Between the date of this Agreement and the Closing Date, the
Company will afford to the officers and authorized representatives of Buyer
access to (i) all of the sites, properties, books and records of the Company
and (ii) such additional financial and operating data and other information as
to the business and properties of the Company as Buyer may from time to time
reasonably request, including without limitation, access upon reasonable
request to the Company's employees, customers, vendors, suppliers and
creditors for due diligence inquiry. No information or knowledge obtained in
any investigation pursuant to this Section 5.7 shall affect or be deemed to
modify any representation or warranty contained in this Agreement or the
conditions to the obligations of the parties to consummate the transactions
contemplated herein.
(b) Unless and until there is a Closing, Buyer, the Company and
the Stockholders shall be subject to the terms and conditions set forth in the
Confidentiality Agreement dated November 18, 1998, as amended by letter dated
December 15, 1998, between Workflow and the Company ("Confidentiality
Agreement"). In accordance therewith, the terms and conditions of the
Confidentiality Agreement are incorporated by reference herein and made a part
hereof.
5.8 Conduct of Business Pending Closing. Except as set forth on
Schedule 5.8, between the Net Worth Calculation Date and the Effective Time,
the Company will (except as requested or agreed by Buyer):
(a) carry on its business in substantially the same manner as it
has heretofore and not introduce any material new method of management,
operation or accounting;
(b) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present, ordinary
wear and tear excepted;
(c) perform all of its obligations under agreements relating to
or affecting its respective assets, properties or rights;
(d) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(e) use all commercially reasonable efforts to maintain and
preserve its business organization intact, retain its present officers and key
employees and maintain its relationships with suppliers, vendors, customers,
creditors and others having business relations with it;
(f) maintain compliance with all permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities;
(g) maintain present debt and lease instruments and not enter
into new or amended debt or lease instruments; and
(h) maintain present salaries and commission levels for all
officers, directors, employees, agents, representatives and independent
contractors, except for ordinary and customary bonuses and salary increases
for employees (other than employees who are also Stockholders) in accordance
with past practice.
5.9 Prohibited Activities. Except as set forth on Schedule 5.9,
between the Net Worth Calculation Date and the Effective Time, the Company
will not, without the prior written consent of Buyer:
(a) make any change in its Articles of Incorporation or Bylaws,
or authorize or propose the same;
(b) issue, deliver or sell, authorize or propose the issuance,
delivery or sale of any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind, or authorize or
propose any change in its equity capitalization, or issue or authorize the
issuance of any debt securities;
(c) except for any Permitted Distribution, declare or pay any
dividend, or make any distribution (whether in cash, stock or property) in
respect of its stock whether now or hereafter outstanding, or split, combine
or reclassify any of its capital stock or issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for shares
of its capital stock, or purchase, redeem or otherwise acquire or retire for
value any shares of its stock;
(d) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, or guarantee any
indebtedness, except in the ordinary course of business and consistent with
past practice in an amount individually in excess of $10,000 or collectively
in excess of $50,000, including contracts to provide services to customers;
(e) increase the compensation payable or to become payable to
any officer, director, Stockholder, employee, agent, representative or
independent contractor; make any bonus or management fee payment to any such
person; make any loans or advances; adopt or amend any Company Plan or Company
Benefit Arrangement; or grant any severance or termination pay;
(f) create or assume any mortgage, pledge or other lien or
encumbrance upon any assets or properties whether now owned or hereafter
acquired;
(g) except for any Permitted Distribution, sell, assign, lease,
pledge or otherwise transfer or dispose of any property or equipment except in
the ordinary course of business consistent with past practice;
(h) acquire or negotiate for the acquisition of (by merger,
consolidation, purchase of a substantial portion of assets or otherwise) any
business or the start-up of any new business, or otherwise acquire or agree to
acquire any assets that are material, individually or in the aggregate, to the
Company;
(i) merge or consolidate or agree to merge or consolidate with
or into any other corporation;
(j) waive any material rights or claims of the Company, provided
that the Company may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice;
(k) commit a breach of or amend or terminate any material
agreement, permit, license or other right;
(l) enter into any other transaction (i) that is not negotiated
at arm's length with a third party not affiliated with the Company or any
officer, director or Stockholder of the Company or (ii) except for any
Permitted Distribution, outside the ordinary course of business consistent
with past practice or (iii) prohibited hereunder;
(m) commence a lawsuit other than for routine collection of
bills;
(n) revalue any of its assets, including without limitation,
writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business consistent with past
practice;
(o) make any tax election other than in the ordinary course of
business and consistent with past practice, change any tax election, adopt any
tax accounting method other than in the ordinary course of business and
consistent with past practice, change any tax accounting method, file any Tax
Return (other than any estimated tax returns, payroll tax returns or sales tax
returns) or any amendment to a Tax Return, enter into any closing agreement,
settle any tax claim or assessment, or consent to any tax claim or assessment,
without the prior written consent of Buyer; or
(p) take, or agree (in writing or otherwise) to take, any of the
actions described in Sections 5.9(a) through (o) above, or any action which
would make any of the representations and warranties of the Company and the
Stockholders contained in this Agreement untrue or result in any of the
conditions set forth in Articles 6 and 7 not being satisfied.
5.10 Exclusivity. None of the Stockholders, the Company, or any agent,
officer, director or any representative of the Company or any Stockholder
will, during the period commencing on the date of this Agreement and ending
with the earlier to occur of the Closing or the termination of this Agreement
in accordance with its terms, directly or indirectly: (a) solicit, encourage
or initiate the submission of proposals or offers from any person for,
(b) engage in any discussions pertaining to, or (c) furnish any information to
any person other than Buyer relating to, any acquisition or purchase of all or
a material amount of the assets of, or any equity interest in, the Company or
a merger, consolidation or business combination of the Company. In addition
to the foregoing, if the Company or any Stockholder receives any unsolicited
offer or proposal, or has actual knowledge of any unsolicited offer or
proposal, relating to any of the above, the Company or such Stockholder shall
immediately notify Buyer thereof, including the identity of the party making
such offer or proposal and the specific terms of such offer or proposal.
5.11 Notification of Certain Matters. Each party hereto shall give
prompt notice to the other parties hereto of (a) the occurrence or
non-occurrence of any event the occurrence or non-occurrence of which would be
likely to cause any representation or warranty of it contained herein to be
untrue or inaccurate in any material respect at or prior to the Closing and
(b) any material failure of such party to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by such party
hereunder. The delivery of any notice pursuant to this Section 5.11 shall
not, without the express written consent of the other parties be deemed to (x)
modify the representations or warranties hereunder of the party delivering
such notice, (y) modify the conditions set forth in Articles 6 and 7, or (z)
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
5.12 Notice to Bargaining Agents. Prior to the Closing Date, the
Company shall satisfy any requirement for notice of the transactions
contemplated by this Agreement under applicable collective bargaining
agreements, if requested by Buyer, and shall provide Buyer with proof that any
required notice has been sent.
5.13 Post-Closing Balance Sheet. Within fifteen (15) business days
after Closing, the Stockholders' Representative shall deliver to Buyer a
balance sheet of the Company as of the Closing Date prepared in accordance
with GAAP ("Post-Closing Balance Sheet"). Buyer shall cooperate with the
Stockholders' Representative in connection with the preparation of such
Post-Closing Balance Sheet.
5.14 Pay-off of Company Debt. The Company has paid off or otherwise
satisfied (or will do so prior to Closing) all liabilities of the Company to
the extent necessary to cause the representation and warranty set forth in
Section 3.9(d) of this Agreement to be true in all respects as of the Closing
Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligation of Buyer to effect the transactions contemplated by this
Agreement is subject to the satisfaction or waiver, at or before the Closing
Date, of the following conditions and deliveries:
6.1 Representations and Warranties; Performance of Obligations. All
of the representations and warranties of the Stockholders and the Company
contained in this Agreement shall be true, correct and complete on and as of
the Closing Date with the same effect as though such representations and
warranties had been made on and as of such date; all of the terms, covenants,
agreements and conditions of this Agreement to be complied with, performed or
satisfied by the Company and the Stockholders on or before the Closing Date
shall have been duly complied with, performed or satisfied; and a certificate
to the foregoing effects dated the Closing Date and signed on behalf of the
Company and by each of the Stockholders shall have been delivered to Buyer.
6.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
Buyer's proposed acquisition of the Company, or limiting or restricting
Buyer's conduct or operation of the business of the Company (or its own
business) following the transactions contemplated by this Agreement shall be
in effect, nor shall any proceeding brought by an administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending. There shall be no action,
suit, claim or proceeding of any nature pending or threatened against Buyer or
the Company, their respective properties or any of their officers or
directors, that could materially and adversely affect the business, assets,
liabilities, financial condition, results of operations or prospects of the
Company. A certificate to the foregoing effects dated the Closing Date and
signed on behalf of the Company and the Stockholders shall have been delivered
to Buyer.
6.3 No Material Adverse Change. There shall have been no material
adverse changes in the business, operations, affairs, prospects, properties,
assets, existing and potential liabilities, obligations, profits or condition
(financial or otherwise) of the Company, taken as a whole, since the Balance
Sheet Date; and Buyer shall have received a certificate signed by the Company
and each Stockholder dated the Closing Date to such effect.
6.4 Consents and Approvals. All necessary consents of, and filings
with, any governmental authority or agency or third party, relating to the
consummation by the Company and the Stockholders of the transactions
contemplated hereby, shall have been obtained and made. Any waiting period
applicable to the consummation of the transactions contemplated by this
Agreement under the HSR Act shall have expired or been terminated, and no
action by the Department of Justice or Federal Trade Commission challenging or
seeking to enjoin the consummation of the transactions contemplated hereby
shall be pending.
6.5 Opinion of Counsel. Buyer shall have received an opinion from
counsel to the Company and the Stockholders, dated the Closing Date, in a form
reasonably satisfactory to Buyer.
6.6 Charter Documents. Buyer shall have received (a) a copy of the
Articles of Incorporation of the Company certified by an appropriate authority
in the state of its incorporation and (b) a copy of the Bylaws of the Company
certified by the Secretary of the Company, and such documents shall be in form
and substance reasonably acceptable to Buyer.
6.7 Intentionally Omitted.
6.8 Intentionally Omitted.
6.9 Delivery of Closing Financial Certificate. Buyer shall have
received a certificate (the "Closing Financial Certificate"), dated as of the
Closing Date, signed on behalf of the Company and by each of the Stockholders,
setting forth:
(a) the net worth of the Company as of the Closing Date (the
"Certified Closing Net Worth");
(b) the sales of the Company for the fiscal year ending
December 31, 1997;
(c) the sum of the Company's total outstanding long term and
short term indebtedness to (i) banks, (ii) the Stockholders and (iii) all
other financial institutions and creditors (in each case including the current
portion of such indebtedness, but excluding trade payables and other accounts
payable incurred in the ordinary course of the Company's business consistent
with past practice) as of the Closing Date shall be $-0-.
The parties acknowledge and agree that for purposes of determining the
Certified Closing Net Worth, the Company shall not take account of any
increase in intangible assets (including without limitation goodwill,
franchises and intellectual property) accounted for after December 31, 1997.
6.10 Intentionally Omitted.
6.11 Stockholder Employment/Consulting Agreements. Each of the
Stockholders shall have entered into an employment agreement with the Company
in the forms attached hereto as Exhibits A-1 and A-2 (individually,
"Employment Agreement" and collectively, "Employment Agreements"). In
addition, the Company shall have entered into an independent contractor
agreement with an entity controlled by the Stockholders in the form attached
hereto as Exhibit B-1 ("Contractor Agreement").
6.12 Salesman Employment/Consulting Agreements Each of (i) ▇▇▇▇
▇▇▇▇▇, (ii) ▇▇▇▇▇ ▇▇▇▇, (iii) ▇▇▇▇▇ ▇▇▇▇▇, (iv) ▇▇▇▇ ▇▇▇▇ and (v) ▇▇▇▇▇▇ ▇▇▇▇,
or entities controlled by them, shall have entered into an employment
agreement or independent contractor agreement with the Company in a form
reasonably satisfactory to Buyer.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY
The obligation of the Stockholders and the Company to effect the
transactions contemplated by this Agreement are subject to the satisfaction or
waiver, at or before the Closing Date, of the following conditions and
deliveries:
7.1 Representations and Warranties; Performance of Obligations. All
of the representations and warranties of Buyer contained in this Agreement
shall be true, correct and complete on and as of the Closing Date with the
same effect as though such representations and warranties had been made as of
such date; all of the terms, covenants, agreements and conditions of this
Agreement to be complied with, performed or satisfied by Buyer on or before
the Closing Date shall have been duly complied with, performed or satisfied;
and a certificate to the foregoing effects dated the Closing Date and signed
by the President or any Vice President of Buyer shall have been delivered to
the Company and the Stockholders.
7.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
Buyer's proposed acquisition of the Company, or limiting or restricting
Buyer's conduct or operation of the business of the Company (or its own
business) following the transactions contemplated by this Agreement shall be
in effect, nor shall any proceeding brought by an administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending; and a certificate to the
foregoing effects dated the Closing Date and signed by the President or any
Vice President of Buyer shall have been delivered to the Company and the
Stockholders.
7.3 Consents and Approvals. All necessary consents of, and filings
with, any governmental authority or agency or third party relating to the
consummation by Buyer of the transactions contemplated herein, shall have been
obtained and made. Any waiting period applicable to the consummation of the
transactions contemplated by this Agreement under the HSR Act shall have
expired or been terminated, and no action by the Department of Justice or
Federal Trade Commission challenging or seeking to enjoin the consummation of
the transactions contemplated hereby shall be pending.
7.4 Stockholder Employment and Consulting Agreements. Each of the
Stockholders shall have entered into an Employment Agreement with the
Company. In addition, the Company shall have entered into the Contractor
Agreement with an entity controlled by the Stockholders.
8. INDEMNIFICATION
8.1 General Indemnification. Each Stockholder, jointly and severally,
covenants and agrees to indemnify, defend, protect and hold harmless Buyer,
Workflow and the Surviving Corporation and their respective officers,
directors, employees, stockholders, assigns, successors and affiliates
(individually, an "Indemnified Party" and collectively, "Indemnified
Parties") from, against and in respect of:
(a) all liabilities, losses, claims, damages, punitive damages,
causes of action, lawsuits, administrative proceedings (including informal
proceedings), investigations, audits, demands, assessments, adjustments,
judgments, settlement payments, deficiencies, penalties, fines, interest
(including interest from the date of such damages) and costs and expenses
(including without limitation reasonable attorneys' fees and disbursements of
every kind, nature and description) (collectively, "Damages") suffered,
sustained, incurred or paid by the Indemnified Parties in connection with,
resulting from or arising out of, directly or indirectly:
(i) any breach of any representation or warranty of the
Stockholders or the Company set forth in this Agreement or any Schedule or
certificate, delivered by or on behalf of any Stockholder or the Company in
connection herewith; or
(ii) any nonfulfillment of any covenant or agreement by the
Stockholders or, prior to the Closing Date, the Company, under this Agreement;
or
(iii) the business, operations or assets of the Company
prior to the Closing Date or the actions or omissions of the Company's
directors, officers, stockholders, employees or agents prior to the Closing
Date, other than Damages arising from matters expressly disclosed in the
Company Financial Statements, this Agreement or the Schedules to this
Agreement or reserved for in the Company Financial Statements; or
(iv) (A) the matters disclosed on Schedules 3.23
(environmental matters), 3.25 (employee benefit plans), 3.26 (taxes), and 3.27
(conformity with law; litigation), (B) the failure of the Company (prior to
the Closing Date) to pay income, sales or use taxes in the State of New
Jersey, (C) the failure of the Company (prior to the Closing Date) to file an
election to be taxed as an S corporation for New Jersey state Tax purposes,
(D) the failure of the Company (prior to the Closing Date) to pay sales and
use taxes in New York, (E) any breach or default by the Company (prior to the
Closing Date) under the Company Lease, or (F) any actions taken against the
Surviving Corporation pursuant to the Company's guaranty of the Axis Lease; or
(v) any and all Damages incident to any of the foregoing
or to the enforcement of this Section 8.1(a).
(b) Buyer and the Surviving Corporation covenant and agree to
indemnify defend, protect and hold harmless the Stockholders from, against and
in respect of all Damages suffered, sustained, incurred or paid by
Stockholders in connection with, resulting from or arising out of, directly or
indirectly:
(i) any breach of any representation or warranty of Buyer
set forth in this Agreement or any Schedule or certificate, delivered by or on
behalf of Buyer in connection herewith; or
(ii) any nonfulfillment of any covenant or agreement by
Buyer under this Agreement; or
(iii) any actions taken by the landlord against the
Stockholders as guarantors of the Company Lease with respect to any event
occurring after the Closing Date; or
(iv) any and all Damages incident to any of the foregoing
or to the enforcement of this Section 8.1(b).
8.2 Limitation and Expiration. Notwithstanding the above:
(a) there shall be no liability for indemnification under
Section 8.1(a) unless, and solely to the extent that, the aggregate amount of
Damages exceeds $75,000 (the "Indemnification Threshold"); provided, however,
that the Indemnification Threshold shall not apply to (i) adjustments to the
Cash Purchase Price as set forth in Sections 1.2 and 1.3; (ii) Damages arising
out of any breaches of the covenants of the Stockholders set forth in this
Agreement or representations and warranties made in Sections 3.4 (capital
stock of the Company), 3.5 (transactions in capital stock), 3.19 (significant
customers; material contracts and commitments), 3.23 (environmental matters),
3.25 (employee benefit plans), 3.26 (taxes), 3.27 (conformity with law;
litigation), or (iii) Damages described in Section 8.1(a)(iv);
(b) the aggregate amount of the Stockholders' liability under
this Article 8 shall not exceed the Purchase Price; provided, however, that
the Stockholders' liability for Damages arising out of any breaches of the
representations made in Sections 3.23 (environmental matters), 3.25 (employee
benefit plans) or 3.26 (taxes) or Damages described in Section 8.1(a)(ii) or
(iv) (except for Section 3.27 (conformity with law; litigation) in said
Section 8.1(a)(iv)) shall not be subject to such limitation and shall not
count toward the limitation described in the first clause of this Section
8.2(b);
(c) the indemnification obligations under this Article 8, or
under any certificate or writing furnished in connection herewith, shall
terminate at the date that is the later of clause (i) or (ii) of this Section
8.2(c):
(i) (1) except as to representations, warranties, and
covenants specified in clause (i)(2) or (3) of this Section 8.2(c), the third
anniversary of the Closing Date, or
(2) with respect to representations and warranties
contained in Sections 3.23 (environmental matters), 3.25 (employee benefit
plans), 3.26 (taxes), and the indemnification set forth in Section 8.1(a)(ii),
(iii) or (iv), on the date that is six (6) months after the expiration of six
(6) years after the Closing Date; or
(3) with respect to indemnification obligations of
the Buyer and the Surviving Corporation under Sections 8.1(b)(ii) and (iii),
on the date that is six (6) months after the expiration of six (6) years after
the Closing Date.
(ii) the final resolution of claims or demands pending as
of the relevant dates described in clause (i) of this Section 8.2(c) (such
claims referred to as "Pending Claims").
8.3 Indemnification Procedures All claims or demands for
indemnification under this Article 8 ("Claims") shall be asserted and resolved
as follows:
(a) In the event that any Indemnified Party (such term to
include the Stockholders for purposes of this Section 8.3 to the extent the
Stockholders are entitled to indemnification pursuant to Section 8.1(b)) has a
Claim against any party obligated to provide indemnification pursuant to
Section 8.1 hereof (the "Indemnifying Party") which does not involve a Claim
being asserted against or sought to be collected by a third party, the
Indemnified Party shall with reasonable promptness notify the Indemnifying
Party of such Claim, specifying the nature of such Claim and the amount or the
estimated amount thereof to the extent then feasible (the "Claim Notice"). If
the Indemnifying Party does not notify the Indemnified Party within forty-five
(45) days after the date of delivery of the Claim Notice that the Indemnifying
Party disputes such Claim, with a detailed statement of the basis of such
position, the amount of such Claim shall be conclusively deemed a liability of
the Indemnifying Party hereunder. In case an objection is made in writing in
accordance with this Section 8.3(a), the Indemnified Party shall respond in a
written statement to the objection within forty-five (45) days and, for sixty
(60) days thereafter, attempt in good faith to agree upon the rights of the
respective parties with respect to each of such Claims (and, if the parties
should so agree, a memorandum setting forth such agreement shall be prepared
and signed by both parties).
(b) (i) In the event that any Claim for which the Indemnifying
Party would be liable to an Indemnified Party hereunder is asserted against an
Indemnified Party by a third party (a "Third Party Claim"), the Indemnified
Party shall deliver a Claim Notice to the Indemnifying Party. The
Indemnifying Party shall have forty-five (45) days from the date of delivery
of the Claim Notice to notify the Indemnified Party (A) whether the
Indemnifying Party disputes liability to the Indemnified Party hereunder with
respect to the Third Party Claim, and, if so, the basis for such a dispute,
and (B) if such party does not dispute liability, whether or not the
Indemnifying Party desires, at the sole cost and expense of the Indemnifying
Party, to defend against the Third Party Claim, provided that the Indemnified
Party is hereby authorized (but not obligated) to file any motion, answer or
other pleading and to take any other action which the Indemnified Party shall
deem necessary or appropriate to protect the Indemnified Party's interests.
(ii) In the event that the Indemnifying Party timely
notifies the Indemnified Party that the Indemnifying Party does not dispute
the Indemnifying Party's obligation to indemnify with respect to the Third
Party Claim, the Indemnifying Party shall defend the Indemnified Party against
such Third Party Claim by appropriate proceedings, provided that, unless the
Indemnified Party otherwise agrees in writing, the Indemnifying Party may not
settle any Third Party Claim (in whole or in part) if such settlement does not
include a complete and unconditional release of the Indemnified Party. If the
Indemnified Party desires to participate in, but not control, any such defense
or settlement the Indemnified Party may do so at its sole cost and expense.
If the Indemnifying Party elects not to defend the Indemnified Party against a
Third Party Claim, whether by failure of such party to give the Indemnified
Party timely notice as provided herein or otherwise, then the Indemnified
Party, without waiving any rights against such party, may settle or defend
against such Third Party Claim in the Indemnified Party's sole discretion and
the Indemnified Party shall be entitled to recover from the Indemnifying Party
the amount of any settlement or judgment and, on an ongoing basis, all
indemnifiable costs and expenses of the Indemnified Party with respect
thereto, including interest from the date such costs and expenses were
incurred.
(iii) If at any time, in the reasonable opinion of the
Indemnified Party, notice of which shall be given in writing to the
Indemnifying Party, any Third Party Claim seeks material prospective relief
which could have an adverse effect on any Indemnified Party or the Surviving
Corporation or any subsidiary, the Indemnified Party shall have the right to
control or assume (as the case may be) the defense of any such Third Party
Claim and the amount of any judgment or settlement and the reasonable costs
and expenses of defense shall be included as part of the indemnification
obligations of the Indemnifying Party hereunder. If the Indemnified Party
elects to exercise such right, the Indemnifying Party shall have the right to
participate in, but not control, the defense of such Third Party Claim at the
sole cost and expense of the Indemnifying Party.
(c) Nothing herein shall be deemed to prevent the Indemnified
Party from making a Claim, and an Indemnified Party may make a Claim
hereunder, for potential or contingent Damages provided the Claim Notice sets
forth the specific basis for any such potential or contingent claim or demand
to the extent then feasible and the Indemnified Party has reasonable grounds
to believe that such Claim may be made.
(d) Subject to the provisions of Section 8.2, the Indemnified
Party's failure to give reasonably prompt notice as required by this Section
8.3 of any actual, threatened or possible claim or demand which may give rise
to a right of indemnification hereunder shall not relieve the Indemnifying
Party of any liability which the Indemnifying Party may have to the
Indemnified Party unless the failure to give such notice materially and
adversely prejudiced the Indemnifying Party.
(e) The amount of any claim by an Indemnified Party for
indemnification pursuant to this Article VIII shall be computed net of
insurance proceeds and tax benefits received by such Indemnified Party on
account of such claim, provided that no Indemnified Party shall be obligated
to continue pursuing any payment pursuant to the terms of any insurance
policy. Damages does not include any consequential damages or charges for any
management time of the Indemnified Party.
(f) If the Stockholders are required to make an indemnification
payment to the Buyer under this Article 8, such payment shall be deemed to be
the repayment from the Stockholders to the Buyer of the Purchase Price in the
order actually received by the Stockholders. In such event, the Stockholders
shall also repay to the Buyer a pro rata portion (allocable to the portion of
the Purchase Price repaid) of the Incremental Taxes paid to the Stockholders
pursuant to the provisions of Section 1.2(a)(iii).
(g) If the Stockholders are required to make an indemnification
payment to the Buyer under Section 8.1(a)(iv)(E) for a breach or default by
the Company prior to the Closing under the Company Lease, the Buyer agrees to
exert its reasonable best efforts to sublease (consistent with the terms of
the Company Lease) any excess space which is not then occupied or otherwise
needed by the Buyer in connection with the Company business (whether standing
alone or as a part of Buyer or an affiliated entity of Buyer) at the then fair
market value for said space in order to mitigate the Damages suffered by Buyer
with respect to such breach or default.
8.4 Survival of Representations Warranties and Covenants. All
representations, warranties and covenants made by the Company, the
Stockholders, and Buyer in or pursuant to this Agreement or in any document
delivered pursuant hereto shall be deemed to have been made on the date of
this Agreement (except as otherwise provided herein) and, if a Closing occurs,
as of the Closing Date. The representations of the Company and the
Stockholders will survive the Closing and will remain in effect until, and
will expire upon, the termination of the indemnification obligations as
provided in Section 8.2. The representations, warranties and covenants of
Buyer will survive the Closing and will remain in effect until, and will
expire upon, the termination of the indemnification obligations as provided in
Section 8.2; provided that Buyer's obligation to pay the Earn-out pursuant to
Section 1.7 shall not expire until the fifth anniversary of the Closing Date.
8.5 Exclusive Remedy. After the Closing, the remedies contained in
this Article VIII shall constitute the sole and exclusive remedies for money
damages available to any party under this agreement; provided that the
foregoing shall not limit in any way the parties' respective rights to seek
equitable remedies, including the remedies of specific performance and
injunctive relief.
8.6 Right to Set Off. Buyer shall have the right, but not the
obligation, to set off, in whole or in part, against the Pledged Assets or any
Earn-out, amounts finally determined under Section 8.3 to be owed to Buyer by
the Stockholders under Section 8.1 hereof.
9. NONCOMPETITION
9.1 Prohibited Activities. Each Stockholder acknowledges that during
the course of his or her ownership of the Stock, he or she developed
relationships on behalf of and acquired proprietary and confidential
information about the Company, including, but not limited to, its customers,
vendors, prices, sales strategies and other information, some of which may be
regarded and treated by the Company and Buyer as trade secrets. In order to
protect the Company's and/or Buyer's critical interest in these relationships
and information, Stockholders covenant that they will not, for a period of
four (4) years following the Closing Date, for any reason whatsoever, directly
or indirectly, for himself or herself or on behalf of or in conjunction with
any other person, persons, partnership, corporation, or business of whatever
nature:
(a) engage, as an officer, director, shareholder, owner,
partner, member, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or adviser, or as a sales
representative, in any business selling any products or services in direct
competition with the Company, within 50 miles of any locations where the
Company both has an office and conducts business ("Territory"). As used in
this subsection, "competition" shall mean engaging, directly or indirectly,
for himself or any other person or entity, in (i) any facet of the business of
the Company in which such Stockholder was engaged in prior to the Closing Date
or (ii) any facet of the business of the Company about which Stockholder
acquired proprietary or confidential information during the course of his or
her ownership of the Stock;
(b) hire or join with in a competitive business capacity, any
employee of the Company within the Territory;
(c) solicit or accept business which competes with the business
of the Company from any person who is, on the Closing Date, or that has been,
within one (1) year prior to the Closing Date, a customer of the Company; or
(d) acquire or enter into any agreement to acquire any
prospective acquisition candidate that was, to the knowledge of such
Stockholder, either called upon by the Company as a prospective acquisition
candidate or was the subject of an acquisition analysis by the Company within
3 years prior to the Closing Date. Each Stockholder, to the extent lacking
the knowledge described in the preceding sentence, shall immediately cease all
contact with such prospective acquisition candidate upon being informed that
the Company had called upon such candidate or made an acquisition analysis
thereof.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit the Stockholders from acquiring as an investment not more than one
percent (1%) of the capital stock of a competing business whose stock is
traded on a national securities exchange or over- the-counter. In addition,
notwithstanding anything in this Article 9 to the contrary, the provisions of
Section 9.1(a) and (c) shall not apply to those entities specifically
identified on Schedule 9.1 (such entities collectively "Affiliated Companies")
or to any Start-Up Business as hereinafter defined. "Start-Up Business" shall
mean any new business in which the Stockholders have a direct or indirect
interest and which does not, on the date of the commencement of its business
(i) compete with WMI Disclosed Businesses (as defined in the Employment
Agreements) or (ii) compete with any business Workflow is contemplating
entering into of which the Stockholders have knowledge; provided that in
either such case the Stockholders shall only devote such time and attention to
such Start-Up Business as are consistent with the time and attention
Stockholders devoted to the Affiliated Companies prior to the date of the
Closing. Notwithstanding anything herein to the contrary, the Affiliated
Companies shall only be engaged in those businesses and activities as are
generally described on Schedule 9.1. The Buyer acknowledges that neither the
Buyer nor the Surviving Corporation will have any ownership interest in the
Affiliated Companies after Closing. Additional rights of the Stockholders
with respect to the Affiliated Companies are set forth in the Employment and
related Agreements being entered into at Closing pursuant to Sections 6.11 and
7.4 of this Agreement.
9.2 Confidentiality. Each Stockholder recognizes that by reason of
his or her ownership of the Stock and his or her employment by the Company, he
or she has acquired confidential information and trade secrets concerning the
operation of the Company, the use or disclosure of which could cause the
Company or its affiliates or subsidiaries substantial loss and damages that
could not be readily calculated and for which no remedy at law would be
adequate. Accordingly, each Stockholder covenants and agrees with the Company
and Buyer that he or she will not at any time, except in performance of
Stockholders' obligations to the Company or with the prior written consent of
the Company pursuant to authority granted by a resolution of the Board of
Directors of the Company, directly or indirectly, disclose any secret or
confidential information that he or she may learn or has learned by reason of
his or her ownership of the Company or his or her employment by the Company,
or any of its subsidiaries and affiliates, or use any such information in a
manner detrimental to the interests of the Company or Buyer, unless (i) such
information becomes known to the public generally through no fault of any
Stockholder, (ii) disclosure is required by law or the order of any
governmental authority under color of law, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party, provided, that prior to
disclosing any information pursuant to clause (i), (ii) or (iii) above, the
Stockholder (as applicable) shall give prior written notice thereof to Buyer
and provide Buyer with the opportunity to contest such disclosure and shall
cooperate with efforts to prevent such disclosure. The term "confidential
information" includes, without limitation, information not previously
disclosed to the public or to the trade by the Company's or Buyer's management
with respect to the Company's or Buyer's, or any of their affiliates' or
subsidiaries', products, facilities, and methods, trade secrets and other
intellectual property, software, source code, systems, procedures, manuals,
confidential reports, product price lists, customer lists, financial
information (including the revenues, costs, or profits associated with any of
the Company's products), business plans, prospects, or opportunities but shall
exclude any information already in the public domain.
9.3 Damages. Because of the difficulty of measuring economic losses
to Buyer as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Buyer for which it
would have no other adequate remedy, each Stockholder agrees that the
foregoing covenant may be enforced by Buyer in the event of breach by such
Stockholder, by injunctions and restraining orders.
9.4 Reasonable Restraint. The parties agree that the foregoing
covenants in this Article 9 impose a reasonable restraint on each Stockholder
in light of the activities and business of Buyer on the date of the execution
of this Agreement, assuming the completion of the transactions contemplated
hereby.
9.5 Severability; Reformation. The covenants in this Article 9 are
severable and separate, and the unenforceability of any specific covenant
shall not affect the provisions of any other covenant. Moreover, in the event
any court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention
of the parties that such restrictions be enforced to the fullest extent which
the court deems reasonable, and the Agreement shall thereby be reformed.
9.6 Independent Covenant. All of the covenants in this Article 9
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any
Stockholder against Buyer, whether predicated on this Agreement or otherwise,
shall not constitute a defense to the enforcement by Buyer of such covenants;
provided, that (i) upon the termination of the Contractor Agreement without
cause, or (ii) upon the termination of the Employment Agreements without cause
or (iii) upon the failure of the Buyer to make payments, which in the
aggregate equal or exceed $250,000.00 under the terms of this Agreement, the
Employment Agreements or the Contractor Agreement, then, in any of such
events, the Stockholders shall have the option to (A) seek full contractual
damages in connection with any such event, in which event, they shall continue
to be bound by the terms and provisions of Article 9 of this Agreement, and/or
the comparable provisions of the Contractor Agreement, Confidentiality and
Non-competition Agreement and the Employment Agreements or (B) upon thirty
(30) days' prior written notice to the Company, waive their right to
contractual damages and their right to receive any additional amounts under
this Agreement, the Employment Agreements and the Contractor Agreement
(including such delinquent payments, if applicable), in which event, the
Stockholders may thereafter engage in any activity otherwise prohibited by
this Article 9. The parties expressly acknowledge that the terms and
conditions of this Article 9 are independent of the terms and conditions of
any other agreements including, but not limited to, any employment agreements
entered into in connection with this Agreement. It is specifically agreed
that the period of four (4) years stated at the beginning of this Article 9
during which the agreements and covenants of each Stockholder made in this
Article 9 shall be effective, shall be computed by excluding from such
computation any time during which any Stockholder is found by a court of
competent jurisdiction to have been in violation of any provision of this
Article 9. The covenants contained in Article 9 shall not be affected by any
breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
9.7 Materiality. The Company and each Stockholder hereby agree that
the covenants set forth in this Article 9 are a material and substantial part
of the transactions contemplated by this Agreement, supported by adequate
consideration.
10. GENERAL
10.1 Termination. This Agreement may be terminated at any time prior
to the Closing Date solely:
(a) by mutual consent of the Board of Managers of Buyer and the
board of directors of the Company; or
(b) by the Stockholders and the Company as a group, on the one
hand, or by Buyer, on the other hand, if the Closing shall not have occurred
on or before March 15, 1999, provided that the right to terminate this
Agreement under this Section 10.1(b) shall not be available to either party
(with the Stockholders and the Company deemed to be a single party for this
purpose) whose material misrepresentation, breach of warranty or failure to
fulfill any obligation under this Agreement has been the cause of, or resulted
in, the failure of the Closing to occur on or before such date; or
(c) by the Stockholders and the Company as a group, on the one
hand, or by Buyer, on the other hand, if there is or has been a material
breach, failure to fulfill or default on the part of the other party (with the
Stockholders and the Company deemed to be a single party for this purpose) of
any of the representations and warranties contained herein or in the due and
timely performance and satisfaction of any of the covenants, agreements or
conditions contained herein, and the curing of such default shall not have
been made or shall not reasonably be expected to occur before the Closing
Date; or
(d) by the Stockholders and the Company as a group, on the one
hand, or by Buyer, on the other hand, if there shall be a final nonappealable
order of a federal or state court in effect preventing consummation of the
transactions contemplated by this Agreement; or there shall be any action
taken, or any statute, rule, regulation or order enacted, promulgated or
issued or deemed applicable to the transactions contemplated by this Agreement
by any governmental entity which would make the consummation of the
transactions contemplated by this Agreement illegal.
10.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 10.1, this Agreement shall forthwith become
ineffective, and there shall be no liability or obligation on the part of any
party hereto or its officers, directors or stockholders except for a willful
breach.
10.3 Successors and Assigns. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall
be binding upon and shall inure to the benefit of the parties hereto, the
successors of Buyer, and the heirs and legal representatives of the
Stockholders. Notwithstanding anything in the foregoing to the contrary,
Buyer may assign any of its rights or obligations under this Agreement to
Workflow or any direct or indirect subsidiary of Workflow in its sole and
absolute discretion and without the consent of the Company or the
Stockholders; provided, however that in the event of such assignment Buyer and
such assignee, jointly and severally, shall continue to be liable to the
Stockholders for the payment of the Purchase Price.
10.4 Entire Agreement; Amendment; Waiver. This Agreement sets forth
the entire understanding of the parties hereto with respect to the
transactions contemplated hereby. Each of the Schedules to this Agreement is
incorporated herein by this reference and expressly made a part hereof. Any
and all previous agreements and understandings between or among the parties
regarding the subject matter hereof, whether written or oral, are superseded
by this Agreement. This Agreement shall not be amended or modified except by
a written instrument duly executed by each of the parties hereto, or in
accordance with Section 9.5. Any extension or waiver by any party of any
provision hereto shall be valid only if set forth in an instrument in writing
signed on behalf of such party.
10.5 Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original, and all
of which counterparts taken together shall constitute but one and the same
instrument.
10.6 Brokers and Agents. Except as set forth on Schedule 10.6, Buyer
and the Company and each Stockholder (as a group) each represents and warrants
to the other that it has not employed any broker or agent in connection with
the transactions contemplated by this Agreement and agrees to indemnify the
other against all losses, damages or expenses relating to or arising out of
claims for fees or commission of any broker or agent employed or alleged to
have been employed by such party.
10.7 Expenses. Buyer has and will pay the fees, expenses and
disbursements of Buyer and its agents, representatives, accountants and
counsel incurred in connection with the subject matter of this Agreement. The
Stockholders (and not the Company) have and will pay the fees, expenses and
disbursements of the Stockholders, the Company, and their agents,
representatives, financial advisers, accountants and counsel incurred in
connection with the subject matter of this Agreement (collectively the
"Stockholder Expenses"); provided, however, that the Company may pay the
Stockholder Expenses on behalf of the Stockholders to the extent any such
payment does not cause the Certified Closing Net Worth to be less than the Net
Worth Target.
10.8 Specific Performance; Remedies. Each party hereto acknowledges
that the other parties will be irreparably harmed and that there will be no
adequate remedy at law for any violation by any of them of any of the
covenants or agreements contained in this Agreement, including without
limitation, the confidentiality obligations set forth in Section 5.7(b) and
the noncompetition provisions set forth in Article 9. It is accordingly
agreed that, in addition to any other remedies which may be available upon the
breach of any such covenants or agreements, each party hereto shall have the
right to obtain injunctive relief to restrain a breach or threatened breach
of, or otherwise to obtain specific performance of, the other parties,
covenants and agreements contained in this Agreement.
10.9 Notices. Any notice, request, claim, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given if delivered personally or sent by
telefax (with confirmation of receipt), by registered or certified mail,
postage prepaid, or by recognized courier service, as follows:
If to Buyer, the Surviving Corporation or the Company to:
SFI of Delaware, LLC
c/o Workflow Management, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Vice President and General Counsel
(Telefax: (▇▇▇) ▇▇▇-▇▇▇▇)
with a required copy to:
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C.
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇ ▇. ▇▇▇▇▇, ▇▇, Esq. and T. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇., Esq.
(Telefax: (▇▇▇) ▇▇▇-▇▇▇▇)
If to any Stockholder to the Stockholders' Representative:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Superior Graphics Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
(Telefax: (▇▇▇) ▇▇▇-▇▇▇▇)
with a required copy to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Pitney, ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(Telefax: (▇▇▇) ▇▇▇-▇▇▇▇)
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such
notice, request, claim, demand, waiver, consent, approval or other
communication shall be deemed to have been given as of the date so delivered,
telefaxed, mailed or dispatched and, if given by any other means, shall be
deemed given only when actually received by the addressees.
10.10 Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of Delaware. Any
disputes arising out of, in connection with or with respect to this Agreement,
the subject matter hereof, the performance or non-performance of any
obligation hereunder, or any of the transactions contemplated hereby shall be
adjudicated in a court of competent civil jurisdiction sitting in New York,
New York and nowhere else. Each of the parties hereto hereby irrevocably
submits to the jurisdiction of such court for the purposes of any suit, civil
action or other proceeding arising out of, in connection with or with respect
to this Agreement, the subject matter hereof, the performance or
non-performance of any obligation hereunder, or any of the transactions
contemplated hereby (collectively, "Suit"). Each of the parties hereto hereby
waives and agrees not to assert by way of motion, as a defense or otherwise in
any such Suit, any claim that it is not subject to the jurisdiction of the
above courts, that such Suit is brought in an inconvenient forum, or that the
venue of such Suit is improper.
10.11 Severability. If any provision of this Agreement or the
application thereof to any person or circumstances is held invalid or
unenforceable in any jurisdiction, the remainder hereof, and the application
of such provision to such person or circumstances in any other jurisdiction,
shall not be affected thereby, and to this end the provisions of this
Agreement shall be severable. The preceding sentence is in addition to and
not in place of the severability provisions in Section 9.5.
10.12 Absence of Third Party Beneficiary Rights. No provision of this
Agreement is intended, nor will any provision be interpreted, to provide or to
create any third party beneficiary rights or any other rights of any kind in
any client, customer, affiliate, shareholder, employee or partner of any party
hereto or any other person or entity, except the parties executing this
Agreement.
10.13 Mutual Drafting. This Agreement is the mutual product of the
parties hereto, and each provision hereof has been subject to the mutual
consultation, negotiation and agreement of each of the parties, and shall not
be construed for or against any party hereto. As used in this Agreement, the
term "person" shall mean an individual, corporation, partnership, limited
liability company, association, trust or other entity or organization,
including a government or political subdivision or an agency or
instrumentality thereof.
10.14 Further Representations. Each party to this Agreement
acknowledges and represents that it has been represented by its own legal
counsel in connection with the transactions contemplated by this Agreement,
with the opportunity to seek advice as to its legal rights from such counsel.
Each party further represents that it is being independently advised as to the
tax consequences of the transactions contemplated by this Agreement and is not
relying on any representation or statements made by the other party as to such
tax consequences.
[Execution Page Following]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
BUYER - SFI OF DELAWARE, LLC
By: \s\ ▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇▇▇▇, ▇▇.
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▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇▇▇▇, ▇▇., President
JWC ACQUISITION CORP.
By: \s\ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President
SUPERIOR GRAPHICS, INC.
By: \s\ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, President
STOCKHOLDERS:
\s\ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, individually
\s\ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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▇▇▇▇ ▇▇▇▇▇▇▇▇▇, individually