STOCK PURCHASE AGREEMENT
By and Among
Workflow Management, Inc.
▇▇▇▇-▇▇▇▇▇▇ Envelope Corp.
and
The Stockholder Named Therein
made effective as of October 5, 1998
TABLE OF CONTENTS
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered
into this 5th day of October, 1998, by and among Workflow Management, Inc., a
Delaware corporation ("Buyer"), ▇▇▇▇-▇▇▇▇▇▇ Envelope Corp., a New York
corporation (the "Company"), and ▇▇▇▇▇▇ ▇▇▇▇▇▇, the sole stockholder of the
Company ("Stockholder").
BACKGROUND
The Stockholder owns all of the issued and outstanding capital stock of
the Company. This Agreement contemplates a transaction in which the Buyer will
purchase from the Stockholder, and the Stockholder will sell to the Buyer, all
of the outstanding capital stock of the Company (the "Stock") for the cash
consideration set forth herein.
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, agree as follows:
1. STOCK PURCHASE
1.1 Stock. Subject to the terms and conditions of this Agreement, at
the Closing (as defined below), the Stockholder will sell to Buyer, and Buyer
will purchase from Stockholder, the Stock for the Purchase Price (as defined
below).
1.2 Purchase Price.
(a) For purposes of this Agreement, the "Purchase Price" shall
be the amounts payable to Stockholder by Buyer as set forth below in this
Section 1.2(a), which shall be payable in installments pursuant to Section
453(b) of the Internal Revenue Code of 1986, as amended ("Code"), in the
following manner:
(i) $10,855,424 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 be applied
first to satisfy the escrow obligations set forth in Section 1.4 and the balance
shall be paid to the Stockholder in cash at Closing.
(ii) Certain payments shall be made to Stockholder
based upon the "Gross Profit" of the Company, as specifically set forth in
Section 1.6 hereof. For purposes of the Code, interest shall be allocated to
such payments as set forth on Schedule 1.2(a)(ii).
(iii) In order to reimburse the Stockholder for
adverse Tax consequences he may suffer ("Incremental Taxes") as a result of
certain depreciation recapture that will occur in connection with the Section
338(h)(10) Election (as defined in Section 5.1(c)(i)), Buyer shall pay to
Stockholder such additional amount ("338 Payment") as will be determined in
accordance with the hypothetical formula calculation of Incremental Taxes set
forth on Schedule 1.2(a)(iii). The parties acknowledge that Schedule 1.2(a)(iii)
sets forth a calculation of the Incremental Taxes and corresponding 338 Payment
by way of example only and is not intended to provide the actual amount of the
338 Payment. The 338 Payment, as determined in a manner consistent with the
allocation of Purchase Price (as provided in Section 5.1(c)(ii)) and with the
formula calculation set forth on Schedule 1.2(a)(iii), shall be paid by the
Buyer to the Stockholder on the date that the Section 338 Forms (as defined in
Section 5.1(c)(i)) are filed pursuant to the terms and conditions of Section
5.1(c)(i).
(b) The Purchase Price assumes that the net worth of the
Company (total assets less total liabilities), calculated in accordance with
generally accepted accounting principles ("GAAP") consistently applied (but
subject to the revaluation of the Company's accounts receivable, accounts
payable and inventory as further set forth and described in Schedule 1.2(b)
("Asset Revaluation")) is equal to or greater than $2,343,509 (the "Net Worth
Target") as of the Closing; provided, however that notwithstanding anything in
GAAP to the contrary, the Net Worth Target shall be calculated for purposes of
this Agreement after giving effect to any expenses incurred by the Company or
the Stockholder in connection with the transactions contemplated by this
Agreement.
(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
Stockholder 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) In addition to the Purchase Price, the Company shall cause
to be paid to the Stockholder the following additional amounts at Closing:
(i) $59,002, which amount shall be paid to the
Stockholder in full satisfaction of all loans payable due from the Company to
the Stockholder; and
(ii) $242,006, which amount represents (and shall be
deemed to be) a distribution or dividend to the Stockholder of a portion of the
Company's current year "S" Corporation earnings.
1.3 Post-Closing Adjustment.
(a) The Cash Purchase Price shall be subject to adjustment
after the Closing Date as specified in this Section 1.3.
(b) Within one hundred twenty (120) days following the Closing
Date, Buyer shall cause Deloitte & Touche, LLP ("Buyer's Accountant") to audit
the Company's books to determine the Actual Company Net Worth (as defined below)
(the "Post-Closing Audit"). The parties acknowledge and agree that for purposes
of determining the audited net worth of the Company as of the Closing Date, the
value of the assets of the Company shall, except with the prior written consent
of Buyer, be calculated as provided in the last paragraph of Section 6.9. In the
event that the audited Company net worth as of the Closing Date was less than
the Certified Closing Net Worth, Buyer shall deliver a written notice (the
"Financial Adjustment Notice") to the Stockholder, setting forth (i) the audited
Company net worth (the "Actual Company Net Worth"), (ii) the amount of the Cash
Purchase Price that would have been payable at Closing pursuant to Section
1.2(c) had the Actual Company Net Worth been reflected on the Closing Financial
Certificate instead of the Certified Closing Net Worth, and (iii) the amount by
which the Cash Purchase Price would have been reduced at Closing had the Actual
Company Net Worth been used in the calculations pursuant to Section 1.2(c) (the
"Purchase Price Adjustment"). The Purchase Price Adjustment shall take account
of the reduction, if any, to the Cash Purchase Price already taken pursuant to
Section 1.2(c)(i). The parties acknowledge that the Purchase Price Adjustment is
intended to provide a dollar for dollar adjustment to the Purchase Price.
(c) The Stockholder shall have thirty (30) days from the
receipt of the Financial Adjustment Notice to notify Buyer if the Stockholder
disputes such Financial Adjustment Notice. If Buyer has not received notice of
such a dispute within such 30-day period, Buyer shall be entitled to receive
from the Stockholder (which may, at Buyer's sole discretion, be from the Pledged
Assets as defined in Section 1.4) the Purchase Price Adjustment. If, however,
the Stockholder has delivered notice of such a dispute to Buyer within such
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 Financial Certificate and
Financial Adjustment Notice (and related information) to determine the amount,
if any, of the Purchase Price Adjustment. Such independent accounting firm shall
be confirmed by the Stockholder and Buyer within five (5) days of its selection,
unless there is an actual conflict of interest. The independent accounting firm
shall be directed not to consider any agreements, contracts, commitments or
other documents (or summaries thereof) that were not delivered or made available
to Buyer's Accountant in connection with the transactions contemplated hereby.
The independent accounting firm shall make its determination of the Purchase
Price Adjustment, if any, within thirty (30) days of its selection. The
determination of the independent accounting firm shall be final and binding on
the parties hereto, and upon such determination, Buyer shall be entitled to
receive from the Stockholder (which may, at Buyer's sole discretion, be from the
Pledged Assets as defined in Section 1.4) the Purchase Price Adjustment. The
costs of the independent accounting firm shall be borne by the Buyer.
1.4 Escrow.
(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 Stockholder pursuant to Article 8, the Stockholder shall, and
by execution hereof does, transfer to Bankers Trust Company ("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 the Buyer, Stockholder and
Escrow Agent.
(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 Stockholder pursuant to Article 8 until
March 31, 1999 (the "Release Date"). Promptly following the Release Date, and
subject to the specific terms and conditions of the Escrow Agreement, the Escrow
Agent shall return or cause to be returned to the Stockholder the Pledged
Assets, 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
unresolved pending claim for indemnification made by Buyer, and (iii) any
indemnification obligations of the Stockholder paid 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 made available to the Stockholder the Purchase Price, as
adjusted pursuant to Section 1.2 and Section 1.3.
(b) Certificate Delivery Requirements. At the Closing, the
Stockholder shall deliver to Buyer the certificate (the "Certificate")
representing the Stock, duly endorsed in blank by the Stockholder, or
accompanied by blank stock powers duly executed by the Stockholder and with all
necessary transfer tax and other revenue stamps, acquired at the Stockholder's
expense, affixed and canceled. The Stockholder shall promptly cure any
deficiencies with respect to the endorsement of the Certificates or other
documents of conveyance with respect to the stock powers accompanying such
Certificates.
(c) No Further Ownership Rights in Capital Stock of the
Company. All cash to be delivered (including cash that constitutes Pledged
Assets) upon the surrender for exchange of shares of the Stock in accordance
with the terms hereof shall be deemed to have been delivered in full
satisfaction of all rights pertaining to such shares of Stock, and following the
Closing, the Stockholder shall have no further rights to, or ownership in,
shares of capital stock of the Company.
(d) Lost, Stolen or Destroyed Certificates. In the event any
certificates evidencing shares of the Stock shall have been lost, stolen or
destroyed, Buyer shall cause payment to be made in exchange for such lost,
stolen or destroyed certificates, upon the making of an affidavit of that fact
by the Stockholder, such cash as provided in Section 1.2.
(e) No Liability. Notwithstanding anything to the contrary in
this Section 1.5, none of the Company or any party hereto shall be liable to a
holder of shares of the Stock for any amount paid to a public official pursuant
to any applicable abandoned property, escheat or similar law.
1.6 Post-Closing Earn-Out.
(a) For a period of five consecutive years immediately
following the Closing Date ("Payment Period"), the Stockholder shall be entitled
to receive from the Buyer ten percent (10%) of the annual Gross Profit (as
defined herein) of the Company, on the specific terms and conditions set forth
in this Section 1.6 (such payments the "Earn-out"). As set forth in Section
1.6(c) below, Earn-outs shall be payable based on the Gross Profit of the
Company during the fiscal quarters of the Buyer. The first Earn-out due, if any,
shall be payable based on the Gross Profit of the Company during the period
beginning on the day following the Closing Date and ending on the last day of
the fiscal quarter of Buyer during which the Closing Date occurs. The final
Earn-out due, if any, shall be payable based on the Gross Profit of the Company
during the period beginning on the first day of the last fiscal quarter of Buyer
during the Payment Period and ending on the day that is five (5) years after the
Closing Date.
(b) Gross Profit for any period shall mean the amount of the
Company's "Net Sales" less "Cost of Goods Sold," in each case on an
unconsolidated basis and without giving effect to the results of operations of
any direct or indirect parent or subsidiary of the Company. "Net Sales" for any
period means the invoiced amount of goods sold by the Company during such
period, payment for which is actually received by the Company, less actual trade
discounts, returns, and freight to the extent not paid by customers. "Cost of
Goods Sold" for any period means the cost of goods sold as calculated under the
Company's accounting methods prior to the date of this Agreement consistently
applied (without giving effect to the Asset Revaluation).
(c) Earn-outs shall be paid quarterly in cash by the 45th day
of the Buyer's fiscal quarter immediately following the Buyer's fiscal quarter
for which an Earn-out is due. To the extent that the Company has a negative
Gross Profit during any quarter (such amount a "Gross Profit Loss"), the Gross
Profit Loss shall be carried forward to the subsequent quarterly period(s) and
aggregated with the Gross Profit (or Gross Profit Loss) for such subsequent
quarterly period(s) for purposes of determining the Earn-out, if any, due for
such subsequent quarterly period(s). All Gross Profit Losses shall continue to
be carried forward on a quarterly basis until such time as Gross Profits are
fully offset by the total amount of the Gross Profit Losses.
(d) In the event that, after the date of this Agreement, the
Company is merged (or otherwise consolidated) into Buyer, or any direct or
indirect subsidiary of Buyer (any such entity a "Merger Affiliate") such that
the Company is not the surviving corporation under applicable law, the Earn-out
shall only be payable with respect to the business and operations conducted by
the Company and without reference to the business and operations of the Merger
Affiliate. For purposes of calculating the Earn-out payable to the Stockholder
under this Section 1.6 after a merger or other consolidation by the Company and
a Merger Affiliate, the Buyer shall cause such Merger Affiliate to (i) conduct
the Company's former business and operations as a division of the Merger
Affiliate ("Company Division") and (ii) maintain separate and distinct financial
reporting systems as are necessary to accurately calculate the Gross Profit (or
Gross Profit Losses) of the Company Division.
(e) Except as otherwise expressly agreed to by Buyer and
Company, the Earn-out shall only be payable with respect to the business and
operations currently conducted by the Company (or by the Company Division) and
without reference to any other entity hereafter merged into or otherwise
consolidated with the Company. In the event that the Buyer causes any entity to
merge or otherwise consolidate into the Company such that the Company is the
surviving corporation under applicable law, the Company shall maintain such
financial reporting systems as are necessary to accurately calculate the Gross
Profit (or Gross Profit Losses) of the Company (or the Company Division) without
taking into account the results of any other operations of the Company or any
such other entity.
(f) Notwithstanding anything in this Section 1.6 to the
contrary, and subject to the terms and conditions of Section 8.7, Buyer shall
have the right to reduce any amounts otherwise payable as an Earn-out by the
amount of any indemnification obligations of the Stockholder under Article 8.
1.7 Accounting Terms. Except as otherwise expressly provided herein or
in the Schedules, all accounting terms used in this Agreement shall be
interpreted, and all financial statements, Schedules, certificates and reports
as to financial matters required to be delivered hereunder shall be prepared, in
accordance with GAAP consistently applied.
2. CLOSING
The consummation of the transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇,
LLP, New York, New York, on October 5 1998, providing that all conditions to
Closing shall have been satisfied or waived, or at such other time and date as
Buyer, the Company and the Stockholder may mutually agree, which date shall be
referred to as the "Closing Date."
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDER
To induce Buyer to enter into this Agreement and consummate the
transactions contemplated hereby, each of the Company and the Stockholder,
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 actual knowledge, after
reasonable investigation, of the Stockholder and the directors and officers of
the Company):
3.1 Due Organization. The Company is a corporation duly organized,
validly existing and is 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 Certificate of Incorporation and Bylaws of the Company.
Such Certificate 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. Stockholder has the full legal right and authority to enter
into this Agreement and the transactions contemplated hereby. 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 Stockholder 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 the
Stockholder, enforceable in accordance with its terms.
3.3 No Conflicts. Except as set forth in Schedule 3.3, the execution,
delivery and performance of this Agreement, the consummation of the transactions
contemplated hereby, and the fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of, any
of the Charter Documents;
(b) conflict with, or result in a default (or would constitute
a default but for any requirement of notice or lapse of time or both) under, any
document, agreement or other instrument to which the Company or the Stockholder
is a party or by which the Company or the Stockholder is bound, or result in the
creation or imposition of any lien, charge or encumbrance on any of the
Company's properties pursuant to (i) any law or regulation to which the Company
or the Stockholder or any of their respective property is subject, or (ii) any
judgment, order or decree to which the Company or the Stockholder is bound or
any of their respective property is subject;
(c) result in termination or any impairment of any permit,
license, franchise, contractual right or other authorization of the Company; or
(d) violate any law, order, judgment, rule, regulation, decree
or ordinance to which the Company or the Stockholder is subject or by which the
Company or the 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 one share
is issued and outstanding and no shares of preferred stock. The issued and
outstanding share of the capital stock of the Company has been duly authorized
and validly issued, is fully paid and nonassessable and is owned of record and
beneficially by the Stockholder free and clear of all Liens (defined below). The
issued and outstanding share of the capital stock of the Company was offered,
issued, sold and delivered by the Company in compliance with all applicable
state and federal laws concerning the issuance of securities. Such share was not
issued in violation of any preemptive rights. There are no voting agreements or
voting trusts with respect to the outstanding share of the capital stock of the
Company. For purposes of this Agreement, "Lien" means any mortgage, security
interest, pledge, hypothecation, assignment, deposit arrangement, encumbrance,
lien (statutory or otherwise), charge, preference, priority or other security
agreement, option, warrant, attachment, right of first refusal, preemptive,
conversion, put, call or other claim or right, restriction on transfer (other
than restrictions imposed by federal and state securities laws), or preferential
arrangement of any kind or nature whatsoever (including any restriction on the
transfer of any assets, any conditional sale or other title retention agreement,
any financing lease involving substantially the same economic effect as any of
the foregoing and the filing of any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction).
3.5 Transactions in Capital Stock; Accounting Treatment. 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, association or business entity, nor is
the Company, directly or indirectly, a participant in any joint venture,
partnership or other noncorporate entity.
(c) Except as set forth on Schedule 3.6(c), there are no
promissory notes that have been issued to, or are held by, the Company.
3.7 Complete Copies of Materials. The Company has delivered to Buyer
true and complete copies of each agreement, contract, commitment or other
document (or summaries thereof) that is referred to in the Schedules or that has
been requested by Buyer in writing.
3.8 Absence of Claims Against Company. The Stockholder does
not have any claims against the Company, except as set forth on Schedule 3.8.
3.9 Company Financial Conditions.
(a) The Company's net worth (i) as of the end of its most
recent fiscal year was not less than $1,119,432 (without giving effect to the
Asset Revaluation), and (ii) as of the Closing will not be less than the Net
Worth Target.
(b) The Company's sales for (i) its most recent fiscal year
ending December 31, 1997, were not less than $14,641,711 (excluding $247,767 in
bad debt reserve to be reversed in 1998), and (ii) the eight-month period ending
August 31, 1998 will not be less than $1,408,285 (including $299,973 of bad debt
reserve to be reversed in 1998);
(c) The Company's earnings before interest, taxes and
depreciation (after the addition of "add-backs" set forth on Schedule 3.9(c))
for its most recent fiscal year will not be less than $2,051,390.
(d) The sum of the Company's total outstanding long term and
short term indebtedness to (i) banks, (ii) ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ (such indebtedness not
to exceed $66,484), and (iii) all other financial institutions and creditors (in
each case including the current portions of such indebtedness, but excluding any
amounts due to the Stockholder, 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 $552,228.
For purposes of Section 3.9(a) and (c), calculation of amounts as of the Closing
shall be made in accordance with the last paragraph of Section 6.9.
3.10 Financial Statements. Schedule 3.10 includes (a) true, complete
and correct copies of the Company's reviewed balance sheet as of December 31,
1997 (the end of its most recent completed fiscal year), statement of income and
retained earnings and statement of cash flows for the year ended December 31,
1997 (collectively, the "Financials") and (b) true, complete and correct copies
of the Company's unaudited balance sheet (the "Interim Balance Sheet") as of
August 31, 1998 (the "Balance Sheet Date"), statement of income and retained
earnings and statement of cash flows for the eight-month period then ended
(collectively, the "Interim Financials," and together with the Financials, the
"Company Financial Statements"). Except as noted on the accountants' review
report accompanying the 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. Each
balance sheet included in the Company Financial Statements presents fairly the
financial condition of the Company as of the date indicated thereon, and each of
the statements of income and retained earnings and statements of cash flows
included in the Company Financial Statements presents fairly the results of its
operations for the periods indicated thereon. Since the dates of the Company
Financial Statements, there have been no material changes in the Company's
accounting policies other than as requested by Buyer to conform the Company's
accounting policies to GAAP.
3.11 Liabilities and Obligations.
(a) The Company is not liable for or subject to any liabilities
except for:
(i) those liabilities reflected on the Interim Balance
Sheet and not previously paid or discharged;
(ii) those liabilities arising in the ordinary course
of its business consistent with past practice under any contract, commitment or
agreement specifically disclosed on any Schedule to this Agreement or not
required to be disclosed thereon because of the term or amount involved or
otherwise; and
(iii) those liabilities incurred since the Balance
Sheet Date in the ordinary course of business consistent with past practice,
which liabilities are not, individually or in the aggregate, material.
(b) The Company has delivered to Buyer, in the case of those
liabilities which are not fixed or are contested, a reasonable estimate of the
maximum amount which may be payable.
(c) Schedule 3.11(c) also includes a summary description of
all plans or projects involving the opening of new operations, expansion of any
existing operations or the acquisition of any real property or existing
business, to which management of the Company has made any material expenditure
in the two-year period prior to the date of this Agreement, which if pursued by
the Company would require additional material expenditures of capital.
(d) For purposes of this Section 3.11, the term "liabilities"
shall include without limitation any direct or indirect liability, indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, either accrued, absolute, contingent, mature,
unmature or otherwise and whether known or unknown, fixed or unfixed, ▇▇▇▇▇▇ or
inchoate, liquidated or unliquidated, secured or unsecured. Schedule 3.11(d)
contains a complete list of all indebtedness of the Company.
3.12 Books and Records. The Company has made and kept books and records
and accounts, which, in reasonable detail, accurately and fairly reflect the
activities of the Company or have been adjusted to reasonably 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 August 31, 1998, of the accounts and notes
receivable of the Company (including without limitation receivables from and
advances to employees and the Stockholder), which includes an aging of all
accounts and notes receivable showing amounts due in 30-day aging categories
(collectively, the "Accounts Receivable"). All Accounts Receivable represent
valid obligations arising from sales actually made or services actually
performed in the ordinary course of business. The Accounts Receivable are
current and collectible net of any respective reserves shown on the Company's
books and records (which reserves are adequate and calculated consistent with
past practice). To the Company's knowledge, subject to such reserves, each of
the Accounts Receivable will be collected in full, without any set-off, on or
before March 31, 1999. There is no contest, claim, or right of set-off, other
than rebates and returns in the ordinary course of business, under any contract
with any obligor of an Account Receivable relating to the amount or validity of
such Account Receivable.
3.15 Permits. The Company owns or holds all licenses, franchises,
permits and other governmental authorizations, including without limitation
permits, titles (including without limitation motor vehicle titles and current
registrations), fuel permits, licenses and franchises necessary for the
continued operation of its business as it is currently being conducted (the
"Permits"). The Permits are valid, and the Company has not received any notice
that any governmental authority intends to modify, cancel, terminate or fail to
renew any Permit. No present or former officer, manager, member 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 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 and from and to the public street
systems for all usual street, road and utility purposes.
(ii) To the Company's knowledge, all structures and
all structural, mechanical and other physical systems thereof that constitute
part of the Real Property, including but not limited to the walls, roofs and
structural elements thereof and the heating, ventilation, air conditioning,
plumbing, electrical, mechanical, sewer, waste water, storm water, paving and
parking equipment, systems and facility included therein, and other material
items at the Real Property (collectively, the "Tangible Assets"), are free of
defects and in good operating condition and repair. For purposes of this
Section, a defect shall mean a condition relating to the structures or any
structural, mechanical or physical system which requires an expenditure of more
than $10,000 to correct. No maintenance or repair to the Real Property, all
structures, facilities and improvements to the Real Property ("Structures") or
any Tangible Asset has been unreasonably deferred. To the Company's knowledge,
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) To the Company's knowledge, all water, sewer,
gas, electric, telephone and drainage facilities, and all other utilities
required by any applicable law or by the use and operation of the Real Property
in the conduct of the Company's business are installed to the property lines of
the Real Property, are connected pursuant to valid permits to municipal or
public utility services or proper drainage facilities, are fully operable and
are adequate to service the Real Property in the operation of the Company's
business and to permit full compliance with the requirements of all laws in the
operation of such business. To the Company's knowledge, 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) All present uses and operations of the Real
Property by the Company 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) Intentionally omitted.
(vi) 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 or occupancy by the Company, nor has the
Company or the Stockholder received notice of any pending or threatened special
assessment proceedings affecting any portion of the Real Property.
(vii) To the Company's knowledge, 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) 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, that would interfere with the Company's
quiet enjoyment of the Real Property.
(ix) Intentionally omitted.
(x) No portion of the Real Property is located in a
designated or recognized flood plain, flood plain district, flood hazard area or
area of similar characterization. The Company's use of the Real Property prior
to the date of this Agreement has not violated 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, accrued 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
operation granted to such party under such Lease. The Leases and the Company's
interests thereunder are free of all Liens.
(xiii) Except as otherwise set forth in Section 5.6,
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 the Stockholder or business or
personal affiliates of the Stockholder or of the Company.
(b) The Company currently owns or leases all personal property
necessary to conduct the business and operations of the Company as they are
currently being conducted.
(c) All of the trucks and other material, machinery and
equipment of the Company, including those listed on Schedule 3.17(a), are in
good working order and condition, ordinary wear and tear excepted. All leases
set forth on Schedule 3.17(a) are in full force and effect and constitute valid
and binding agreements of the Company, and the Company is not in breach of any
of their terms. All fixed assets used by the Company that are material to the
operation of its business are either owned by the Company or leased under an
agreement listed on Schedule 3.17(a).
(d) Schedule 3.17(a) identifies personal property located at
the Company's principal manufacturing facility at ▇▇-▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇, that is not owned by the Company, if any.
3.18 Intellectual Property.
(a) The Company is the true and lawful owner of, or is
licensed or otherwise possesses legally enforceable rights to use, the
registered and unregistered Marks (as defined below) listed on Schedule 3.18(a).
Such schedule lists (i) all of the Marks registered in the United States Patent
and Trademark Office ("PTO") or the equivalent thereof in any state of the
United States or in any foreign country, and (ii) all of the unregistered Marks,
that the Company now owns or is licensed or otherwise possesses legally
enforceable rights to use in connection with its business. The Marks listed on
Schedule 3.18(a) will not cease to be valid rights of the Company by reason of
the execution, delivery and performance of this Agreement or the consummation of
the transactions contemplated hereby. For purposes of this Section 3.18, the
term "▇▇▇▇" shall mean all right, title and interest in and to any United States
or foreign trademarks, service marks and trade names now held by the Company,
including any registration or application for registration of any trademarks and
services marks in the PTO or the equivalent thereof in any state of the United
States or in any foreign country, as well as any unregistered marks used by the
Company, and any trade dress (including logos, designs, company names, business
names, fictitious names and other business identifiers) used by the Company in
the United States or any foreign country.
(b) The Company does not own, is not licensed, and does not
otherwise possess legally enforceable rights to use, any Patents (as defined
below) or Copyrights (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; and the term
"Copyright" shall mean any United States or foreign copyright owned by the
Company as of the date of this Agreement, including any registration of
copyrights, in the United States Copyright Office or the equivalent thereof in
any foreign county, as well as any application for a United States or foreign
copyright registration made by the Company.
(c) The Company is the true and lawful owner of, or is
licensed or otherwise possesses legally enforceable rights to use, all rights in
the trade secrets, franchises, or similar rights (collectively, "Other Rights")
listed on Schedule 3.18(c). Those Other Rights constitute all of the Other
Rights that the Company now owns or is licensed to use. The Company owns or is
licensed to practice under all trade secrets, franchises or similar rights that
it owns, uses or practices under.
(d) The Marks and Other Rights listed on Schedules 3.18(a) and
3.18(c) are referred to collectively herein as the "Intellectual Property." The
Intellectual Property owned by the Company is referred to herein collectively as
the "Company Intellectual Property." All other Intellectual Property is referred
to herein collectively as the "Third Party Intellectual Property." Except as
indicated on Schedule 3.18(d), the Company has no obligations to compensate any
person for the use of any Intellectual Property nor has the Company granted to
any person any license, option or other rights to use in any manner any
Intellectual Property, whether requiring the payment of royalties or not.
(e) The Company is not, nor, to the Company's knowledge will
it be, as a result of the execution and delivery of this Agreement or the
performance of its obligations hereunder, in violation of any Third Party
Intellectual Property license, sublicense or agreement described in Schedule
3.18(a) or (c). No claims with respect to the Company Intellectual Property or
Third Party Intellectual Property are currently pending or, to the knowledge of
the Company, are threatened by any person, nor, to the Company's knowledge, do
any grounds for any claims exist: (i) to the effect that the manufacture, sale,
licensing or use of any product as now used, sold or licensed or proposed for
use, sale or license by the Company infringes on any copyright, patent,
trademark, service ▇▇▇▇ or trade secret; (ii) against the use by the Company of
any trademarks, trade names, trade secrets, copyrights, patents, technology,
know-how or computer software programs and applications used in the Company's
business as currently conducted by the Company; (iii) challenging the ownership,
validity or effectiveness of any of the Company Intellectual Property or other
trade secret material to the Company; or (iv) challenging the Company's license
or legally enforceable right to use of the Third Party Intellectual Property. To
the Company's knowledge, there is no unauthorized use, infringement or
misappropriation of any of the Company Intellectual Property by any third party.
Neither the Company nor any of its subsidiaries (x) has been sued or charged in
writing as a defendant in any claim, suit, action or proceeding which involves a
claim or infringement of trade secrets, any patents, trademarks, service marks,
or copyrights and which has not been finally terminated or been informed or
notified by any third party that the Company may be engaged in such infringement
or (y) has knowledge of any infringement liability with respect to, or
infringement by, the Company or any of its subsidiaries of any trade secret,
patent, trademark, service ▇▇▇▇, or copyright of another.
3.19 Significant Customers; Material Contracts and Commitments.
(a) Schedule 3.19(a) sets forth a complete and accurate list
of all Significant Customers and Significant Suppliers. For purposes of this
Agreement, "Significant Customers" are the twenty (20) customers that have
effected the most purchases, in dollar terms, from the Company during the past
four (4) fiscal quarters, and "Significant Suppliers" are the twenty (20)
suppliers who supplied the largest amount by dollar volume of products or
services to the Company during the twelve (12) months ending on the Balance
Sheet Date.
(b) Schedule 3.19(b) contains a complete and accurate list of
all contracts, commitments, leases, instruments, agreements, licenses or
permits, written or oral, to which the Company is a party or by which it or its
properties are bound (including without limitation contracts with Significant
Customers, joint venture or partnership agreements, contracts with any labor
organizations, employment agreements, consulting agreements, loan agreements,
indemnity or guaranty agreements, bonds, mortgages, options to purchase land,
liens, pledges or other security agreements) (i) to which the Company and any
affiliate of the Company or any officer, director or stockholder of the Company
are parties ("Related Party Agreements"); (ii) that may give rise to obligations
or liabilities exceeding, during the current term thereof, $10,000 or (iii) that
may generate revenues or income exceeding, during the current term thereof,
$10,000 (collectively with the Related Party Agreements, the "Material
Contracts"). The Company has delivered to Buyer true, complete and correct
copies of the Material Contracts.
(c) Except to the extent set forth on Schedule 3.19(c), (i)
none of the Company's Significant Customers has canceled or substantially
reduced or, to the knowledge of the Company, is currently attempting or
threatening to cancel or substantially reduce, any purchases from the Company,
(ii) none of the Company's Significant Suppliers has canceled or substantially
reduced or, to the knowledge of the Company, is currently attempting to cancel
or substantially reduce, the supply of products or services to the Company,
(iii) the Company has complied with all of its commitments and obligations and
is not in default under any of the Material Contracts, and no notice of default
has been received with respect to any thereof, and (iv) there are no Material
Contracts that were not negotiated at arm's length. The Company has not received
any material customer complaints concerning its products and/or services, nor
has it had any of its products returned by a purchaser thereof except for normal
warranty returns consistent with past history and those returns that would not
result in a reversal of any material revenue.
(d) Each Material Contract, except those terminated pursuant
to Section 5.6, 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 the Stockholder owns a
material interest, or (ii) guaranteed by the Company for the benefit of any
Person in which the Stockholder 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 (other than the Accounts Receivable) 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 unlawful or unauthorized receipt or possession of
any competitor or government proprietary or procurement sensitive information
related to the Company's business.
(h) Each of the Company's government contracts has been
issued, awarded or novated to the Company in the Company's name.
3.21 Inventory. The inventory of the Company consists of raw materials
and supplies, manufactured and purchased parts, goods in process and finished
goods, all of which is merchantable and fit for the purposes for which it was
procured or manufactured, and none of which is slow-moving, obsolete, damaged,
or defective, subject to a GAAP reserve for inventory set forth on the face of
the Interim Balance Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Company.
3.22 Insurance. Schedule 3.22 sets forth a complete and accurate list,
as of the Balance Sheet Date, of all insurance policies carried by the Company
and 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 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. The Company has
not received notice of any 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) To the Company's knowledge, there exist no conditions with respect
to the environment on or off the Real Property, whether or not yet discovered,
that could or do result in any damage, loss, cost, expense, claim, demand, order
or liability to or against the Company by any third party including, without
limitation, any condition resulting from the operation of the Company's business
and/or the operation of the business of any other property owner or operator in
the vicinity of the Real Property and/or any activity or operation formerly
conducted by any person or entity on or off the Real Property, except as set
forth in Schedule 3.23(b).
(c) The Company, and, to the Company's knowledge, any other person or
entity for whose conduct the Company is or may be held responsible, have not
generated, manufactured, refined, transported, treated, stored, handled,
disposed, transferred, produced, or processed any pollutant, toxic substance,
hazardous waste, hazardous material, hazardous substance, or oil as defined in
or pursuant to the Resource Conservation and Recovery Act, as amended, 42 U.S.C.
ss. 6901 et seq., the Comprehensive Environmental Response, Compensation, and
Liability Act, as amended, 42 U.S.C. ss. 9601 et seq., the Federal Clean Water
Act, as amended, 33 U.S.C. ss. 1251 et seq., or any other federal, state, or
local environmental law, regulation, ordinance, rule, or bylaw, whether existing
as of the date hereof, previously enforced, or subsequently enacted ("Hazardous
Material") or any solid waste at the Real Property, or at any other location,
except in compliance with all applicable Environmental Laws and except as listed
in Schedule 3.23(c).
(d) The Company has no knowledge of the releasing, spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, disposing, or dumping into the soil, surface waters, ground waters,
land, stream sediments, surface or subsurface strata, ambient air, sewer system,
or any environmental medium with respect to the Real Property ("Environmental
Condition") except as listed in Schedule 3.23(d).
(e) No Lien has been imposed on the Real Property by any governmental
entity at the federal, state, or local level in connection with the presence on
or off the Real Property of any Hazardous Material, except as listed in Schedule
3.23(e).
(f) The Company has not, and, to the Company's knowledge, any other
person or entity for whose conduct the Company is or may be held responsible has
not, (i) entered into or been subject to any consent decree, compliance order,
or administrative order with respect to the Real Property or any facilities or
operations thereon; (ii) received notice under the citizen suit provision of any
of the Environmental Laws in connection with the Real Property or any facilities
or operations thereon; (iii) received any request for information, notice,
demand letter, administrative inquiry, or formal or informal compliant or claim
with respect to any Environmental Condition relating to the Real Property or any
facilities or operations thereon; or (iv) been subject to or threatened with any
governmental or citizen enforcement action with respect to the Real Property or
any facilities or operations thereon, except as set forth in Schedule 3.23(f);
and the Company, and any other person or entity for whose conduct it is or may
be held responsible, have no reason to believe 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 Stockholder shall have an ongoing obligation to
provide immediately to Buyer copies of any additional such documents that come
into the possession or control of or become available to the Stockholder
subsequent to the date hereof.
(j) The Company has, at its sole cost and expense, taken or caused to
be taken all actions necessary to ensure that as of the Closing Date the Real
Property, all activities and operations thereon, and all alterations and
improvements thereto, comply with all applicable Environmental Laws and with any
and all agreements with governmental entities, court orders, and administrative
orders regarding Environmental Conditions.
3.24 Labor and Employment Matters. With respect to employees of and
service providers to the Company, except as set forth on Schedule 3.24:
(a) the Company is and has been in compliance in all material
respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including
without limitation any such laws respecting employment discrimination, workers'
compensation, family and medical leave, the Immigration Reform and Control Act,
and occupational safety and health requirements, and has not and is not engaged
in any unfair labor practice;
(b) there is not now, nor within the past three (3) years has
there been, any unfair labor practice complaint against the Company pending or,
to the Company's knowledge, threatened, before the National Labor Relations
Board or any other comparable authority;
(c) there is not now, nor within the past three (3) years has
there been, any labor strike, slowdown or stoppage actually pending or, to the
Company's knowledge, threatened, against or directly affecting the Company;
(d) to the Company's knowledge, no labor representation
organization effort exists nor has there been any such activity within the past
three (3) years;
(e) no grievance or arbitration proceeding arising out of or
under collective bargaining agreements is pending and, to the Company's
knowledge, no claims therefor exist or have been threatened;
(f) the employees of the Company are not and have never been
represented by any labor union, and no collective bargaining agreement is
binding and in force against the Company or currently being negotiated by the
Company; and
(g) all persons classified by the Company as independent
contractors do satisfy and have satisfied the requirements of law to be so
classified, and the Company has fully and accurately reported their compensation
on IRS Forms 1099 when required to do so.
3.25 Employee Benefit Plans.
(a) Definitions.
(i) "Benefit Arrangement" means any benefit
arrangement, obligation, custom, or practice, whether or not legally
enforceable, to provide benefits, other than salary, as compensation for
services rendered, to present or former directors, employees, agents, or
independent contractors, other than any obligation, arrangement, custom or
practice that is an Employee Benefit Plan, including, without limitation,
employment agreements, severance agreements, executive compensation
arrangements, incentive programs or arrangements, sick leave, vacation pay,
severance pay policies, plant closing benefits, salary continuation for
disability, consulting, or other compensation arrangements, workers'
compensation, retirement, deferred compensation, bonus, stock option or
purchase, hospitalization, medical insurance, life insurance, tuition
reimbursement or scholarship programs, any plans subject to Section 125 of the
Code, and any plans providing benefits or payments in the event of a change of
control, change in ownership, or sale of a substantial portion (including all or
substantially all) of the assets of any business or portion thereof, in each
case with respect to any present or former employees, directors, or agents.
(ii) "Company Benefit Arrangement" means any
Benefit Arrangement sponsored or maintained by the Company or with respect to
which the Company has or may have any liability (whether actual, contingent,
with respect to any of its assets or otherwise) as of the Closing Date, in each
case with respect to any present or former directors, employees, or agents of
the Company.
(iii) "Company Plan" means, as of the Closing Date,
any Employee Benefit Plan for which the Company is the "plan sponsor" (as
defined in Section 3(16)(B) of ERISA) or any Employee Benefit Plan maintained by
the Company or to which the Company is obligated to make payments, in each case
with respect to any present or former employees of the Company.
(iv) "Employee Benefit Plan" has the meaning given in
Section 3(3) of ERISA.
(v) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended, and all regulations and rules issued
thereunder, or any successor law.
(vi) "ERISA Affiliate" means any person that,
together with the Company, would be or was at any time treated as a single
employer under Section 414 of the Code or Section 4001 of ERISA and any general
partnership of which the Company is or has been a general partner.
(vii) "Multiemployer Plan" means any Employee Benefit
Plan described in Section 3(37) of ERISA. (viii) "Qualified Plan" means any
Employee Benefit Plan that meets, purports to meet, or is intended to meet the
requirements of Section 401(a) of the Code.
(ix) "Welfare Plan" means any Employee Benefit Plan
described in Section 3(1) of ERISA.
(b) Schedule 3.25(b) contains a complete and accurate list of
all Company Plans and Company Benefit Arrangements. Schedule 3.25(b)
specifically identifies all Company Plans (if any) that are Qualified Plans.
(c) With respect, as applicable, to Employee Benefit Plans and
Benefit Arrangements:
(i) true, correct, and complete copies of all the
following documents with respect to each Company Plan and Company Benefit
Arrangement, to the extent applicable, have been delivered to Buyer: (A) all
documents constituting the Company Plans and Company Benefit Arrangements,
including but not limited to, trust agreements, insurance policies, service
agreements, and formal and informal amendments thereto; (B) the most recent
Forms 5500 or 5500C/R and any financial statements attached thereto and those
for the prior three (3) years; (C) the last Internal Revenue Service
determination letter, the last IRS determination letter that covered the
qualification of the entire plan (if different), and the materials submitted by
the Company to obtain those letters; (D) the most recent summary plan
description; (E) the most recent written descriptions of all non-written
agreements relating to any such plan or arrangement; (F) all reports submitted
within the four (4) years preceding the date of this Agreement by third-party
administrators, actuaries, investment managers, consultants, or other
independent contractors; (G) all notices that were given within the three (3)
years preceding the date of this Agreement by the IRS, Department of Labor, or
any other governmental agency or entity with respect to any plan or arrangement;
and (H) employee manuals or handbooks containing personnel or employee relations
policies;
(ii) the ▇▇▇▇-▇▇▇▇▇▇ Envelope Corp. Profit Sharing
Plan (the "Company Profit Sharing Plan") is the only Qualified Plan. The Company
has never maintained or contributed to another Qualified Plan. The Company
Profit Sharing 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 the 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 Profit
Sharing 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, the Stockholder or any 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 may earn more than $100,000
in 1998, all officers and all directors, and lists all employment agreements
with such employees, officers and directors and the rate of compensation (and
the portions thereof attributable to salary, bonus, and other compensation
respectively) of each such person as of (a) the Balance Sheet Date and (b) the
date hereof.
(f) The Company has not declared or paid any bonus
compensation in contemplation of the transactions contemplated by this
Agreement.
3.26 Taxes.
(a) (i) The Company has timely filed all Tax Returns due on or
before the Closing Date, and all such Tax Returns are true, correct, and
complete in all respects.
(ii) The Company has paid in full on a timely basis
all Taxes owed by it, whether or not shown on any Tax Return.
(iii) The amount of the Company's liability for
unpaid Taxes as of the Balance Sheet Date did not exceed the amount of the
current liability accruals for Taxes (excluding reserves for deferred Taxes)
shown on the Interim Balance Sheet, and the amount of the Company's liability
for unpaid Taxes for all periods or portions thereof ending on or before the
Closing Date will not exceed the amount of the current liability accruals for
Taxes (excluding reserves for deferred Taxes) as such accruals are reflected on
the books and records of the Company on the Closing Date.
(iv) Except as set forth on Schedule 3.26, there are
no ongoing examinations or claims against the Company for Taxes, and no notice
of any audit, examination, or claim for Taxes, whether pending or threatened,
has been received.
(v) The Company has a taxable year ended on December
31, in each year commencing 1979.
(vi) The Company currently utilizes the accrual
method of accounting for income Tax purposes and such method of accounting has
not changed in the past 10 years. The Company has not agreed to, and is not and
will not be required to, make any adjustments under Code Section 481(a) as a
result of a change in accounting methods.
(vii) The Company has withheld and paid over to the
proper governmental authorities all Taxes required to have been withheld and
paid over, and complied with all information reporting and backup withholding
requirements, including maintenance of required records with respect thereto, in
connection with amounts paid to any employee, independent contractor, creditor,
or other third party.
(viii) Copies of (A) any Tax examinations, (B)
extensions of statutory limitations for the collection or assessment of Taxes
and (C) the Tax Returns of the Company for the last fiscal year have been
delivered to Buyer.
(ix) There are (and as of immediately following the
Closing there will be) no Liens on the assets of the Company relating to or
attributable to Taxes.
(x) To the Company's knowledge, there is no basis
for the assertion of any claim relating or attributable to Taxes which, if
adversely determined, would result in any Lien on the assets of the Company or
otherwise have an adverse effect on the Company or its business.
(xi) None of the Company's assets are treated as "tax
exempt use property" within the meaning of Section 168(h) of the Code.
(xii) There are no contracts, agreements, plans or
arrangements, including but not limited to the provisions of this Agreement,
covering any employee or former employee of the Company that, individually or
collectively, could give rise to the payment of any amount (or portion thereof)
that would not be deductible pursuant to Sections 280G, 404 or 162 of the Code.
(xiii) The Company has not filed any consent
agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2)
of the Code apply to any disposition of a subsection (f) asset (as defined in
Section 341(f)(4) of the Code) owned by the Company.
(xiv) Except as set forth in Schedule 3.26(a)(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, as adjusted as of the Closing Date.
(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 January 1, 1987, been a validly
electing S Corporation within the meaning of Section 1361 of the Code.
(ii) The Company does not have a net recognized
built-in gain within the meaning of Section 1374 of the Code.
(iii) The Company has not, in the past 10 years, (A)
acquired assets from another corporation in a transaction in which the Company's
Tax basis for the acquired assets was determined, in whole or in part, by
reference to the Tax basis of the acquired assets (or any other property) in the
hands of the transferor or (B) acquired the stock of any corporation which is a
qualified subchapter S subsidiary.
(c) For purposes of this Agreement:
(i) the term "Tax" shall include any tax or similar
governmental charge, impost or levy (including without limitation income taxes,
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipts
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
property taxes, withholding taxes, payroll taxes, minimum taxes or windfall
profit taxes) together with any related penalties, fines, additions to tax or
interest imposed by the United States or any state, county, local or foreign
government or subdivision or agency thereof; and
(ii) the term "Tax Return" shall mean any return
(including any information return), report, statement, schedule, notice, form,
estimate, or declaration of estimated tax relating to or required to be filed
with any governmental authority in connection with the determination,
assessment, collection or payment of any Tax.
3.27 Conformity with Law; Litigation.
(a) The Company has not violated any law or regulation or any
order of any court or federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over it.
(b) The Stockholder has not: (i) committed any criminal act
(except for minor traffic violations); (ii) engaged in acts of fraud,
dishonesty, gross negligence or moral turpitude; (iii) filed for personal
bankruptcy; or (iv) been an officer, director, manager, trustee or controlling
shareholder of a company that filed for bankruptcy or Chapter 11 protection.
(c) Except as set forth on Schedule 3.27(c), there are no
claims, actions, suits or proceedings, pending or, to the knowledge of the
Company, threatened against or affecting the Company at law or in equity, or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over it
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received. There are no judgments, orders, injunctions,
decrees, stipulations or awards (whether rendered by a court or administrative
agency or by arbitration) against the Company or against any of its properties
or business.
3.28 Relations with Governments. The Company has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office, nor has it otherwise taken any action that
would cause the Company to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
3.29 Absence of Changes. Since the Balance Sheet Date, the Company has
conducted its business in the ordinary course and, except as contemplated herein
or as set forth on Schedule 3.29, there has not been:
(a) any change, by itself or together with other changes, that
has affected adversely, or is likely to affect adversely, the business,
operations, affairs, prospects, properties, assets, profits or condition
(financial or otherwise) of the Company;
(b) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of the Company;
(c) any change in the authorized capital of the Company or in
its outstanding securities or any change in its ownership interests or any grant
of any options, warrants, calls, conversion rights or commitments;
(d) 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 the
Stockholder or any of the Company's officers, directors, 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) 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 Stockholder and his 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 Stockholder and his 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) any transaction by the Company outside the ordinary course
of business;
(n) any commitment to purchase a capital asset by the Company,
either individually or in the aggregate, exceeding $10,000;
(o) except as set forth in Schedule 3.29(o), any change in
accounting methods or practices (including any change in depreciation or
amortization policies or rates) by the Company or the revaluation by the Company
of any of its assets;
(p) any creation or assumption by the Company of any mortgage,
pledge, security interest or lien or other encumbrance on any asset (other than
liens arising under existing lease financing arrangements which are not material
and liens for Taxes not yet due and payable);
(q) any entry into, amendment of, relinquishment, termination
or non-renewal by the Company of any contract, lease transaction, commitment or
other right or obligation requiring aggregate payments by the Company in excess
of $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 Stockholder or the
Company contained in this Agreement, in the Schedules attached hereto or in any
certificate furnished or to be furnished by the Stockholder or the Company to
Buyer in connection herewith or pursuant hereto contains or will contain any
untrue statement of a material fact or intentionally omits or will omit to state
any material fact necessary in order to make any statement contained herein or
therein not misleading. There is no fact known to the Stockholder that has
specific application to the Stockholder or the Company (other than general
economic or industry conditions) and that materially adversely affects or, as
far as the Stockholder can reasonably foresee, materially threatens, the assets,
business, prospects, financial condition, or results of operations of the
Company that has not been set forth in this Agreement or any Schedule hereto.
3.31 Predecessor Status; Etc. Schedule 3.31 sets forth a listing of all
legal names, trade names, fictitious names or other names (including, without
limitation, any names of divisions or operations) of the Company and all of its
predecessor companies during the five-year period immediately preceding the
Closing, including without limitation the names of any entities from whom the
Company has acquired material assets. During the five-year period immediately
preceding the Closing, the Company has operated only under the names set forth
on Schedule 3.31 in the jurisdiction or jurisdictions set forth on Schedule 3.31
and has not been a subsidiary or division of another corporation or a part of an
acquisition which was later rescinded.
3.32 Location of Chief Executive Offices Schedule 3.32 sets forth the
location of the Company's chief executive offices.
3.33 Location of Equipment and Inventory All inventory and equipment
held on the date hereof by the Company is located at one of the locations shown
on Schedule 3.33. For purposes of this Agreement, (a) the term "inventory" shall
mean any inventory of whatever nature owned by the Company as of the date
hereof, and, in any event, shall include, but shall not be limited to, all
merchandise, inventory and goods wherever located, together with all goods,
supplies, incidentals, packaging materials and any other items used or usable in
manufacturing, processing, packaging or shipping the same, in all stages of
production -- from raw materials through work-in-process to finished goods; and
(b) the term "equipment" shall mean any equipment 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. Schedule 3.34 sets forth a description of
the Company's efforts to date to become Year 2000 Compliant and Ready (as
defined below) and the extent to which the Company is not currently Year 2000
Compliant and Ready. To the extent that the Company may not be Year 2000
Compliant and Ready at any time prior to January 1, 1999, the Company has no
knowledge 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 knowledge that its respective
vendors, suppliers and customers are not Year 2000 Compliant and Ready where the
failure to be Year 2000 Compliant and Ready would have a material adverse affect
on the business, operations, affairs, prospects, properties, assets, existing
and potential liabilities, obligations, profits or condition (financial or
otherwise) of the Company. For purposes of this Agreement, the term "Year 2000
Compliant and Ready," with respect to any person, means that the hardware and
software systems and components (including without limitation imbedded
microchips) owned, licensed or used by such person in connection with its
business operations will (without any additional cost or the need for human
intervention) (i) accurately process information involving any and all dates
before, during and/or after January 1, 2000, including without limitation
recognizing and processing input, providing output, storing information and
performing date-related calculations, all without creating any ambiguity as to
the century and without any other error or malfunction, (ii) operate accurately
without material interruption or malfunction on and in respect of any and all
dates before, during and/or after January 1, 2000 and (iii) where applicable,
respond to and process two digit year input without creating any ambiguity as to
the century.
4. REPRESENTATIONS OF BUYER
To induce the Company and the Stockholder to enter into this Agreement
and consummate the transactions contemplated hereby, Buyer represents and
warrants to the Company and the Stockholder as follows:
4.1 Due Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and is
duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted.
4.2 Authorization; Validity of Obligations. The representative of Buyer
executing this Agreement has all requisite power and authority to enter into and
bind Buyer to the terms of this Agreement. Buyer has the full legal right, power
and corporate authority to enter into this Agreement and the transactions
contemplated hereby. The execution and delivery of this Agreement by Buyer and
the performance by Buyer of the transactions contemplated herein has been duly
and validly authorized by the Board of Directors of Buyer and this Agreement has
been duly and validly authorized by all necessary corporate action. This
Agreement is a legal, valid and binding obligation of Buyer enforceable in
accordance with its terms.
4.3 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions herein contemplated hereby and
the fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of the
Buyer's Certificate of Incorporation or Bylaws;
(b) conflict with, or result in a default (or would constitute
a default but for a requirement of notice or lapse of time or both) under any
document, agreement or other instrument to which Buyer is a party, or result in
the creation or imposition of any lien, charge or encumbrance on any of Buyer's
properties pursuant to (i) any law or regulation to which Buyer or any of its
property is subject, or (ii) any judgment, order or decree to which Buyer is
bound or any of its property is subject;
(c) result in termination or any impairment of any material
permit, license, franchise, contractual right or other authorization of Buyer;
or
(d) violate any law, order, judgment, rule, regulation, decree
or ordinance to which Buyer is subject, or by which Buyer is bound (including,
without limitation, the HSR Act, together with all rules and regulations
promulgated thereunder).
4.4 Financial Ability. Buyer possesses sufficient funds on hand and/or
has commitments from financial institutions in an amount sufficient to enable
Buyer to pay to the Stockholder the Purchase Price.
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 Stockholder, on
the other, for certain tax matters following the Closing Date:
(i) The Stockholder 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. The Stockholder
shall pay to the Company on or before the due date of such Tax Returns the
amount of all Taxes shown as due on such Tax Returns to the extent that such
Taxes are not reflected in the current liability accruals for Taxes (excluding
reserves for deferred Taxes) shown on the Company's books and records as of the
Closing Date. Such Tax Returns shall be prepared and filed in accordance with
applicable law and in a manner consistent with past practices and shall be
subject to review and approval by Buyer. To the extent reasonably requested by
the Stockholder or required by law, Buyer and the Company shall participate in
the filing of any Tax Returns filed pursuant to this paragraph.
(ii) Except as provided in Section 5.1(a)(iii) with
respect to income Tax Returns for 1998, the Company shall prepare or cause to be
prepared and file or cause to be filed any Tax Returns for Tax periods which
begin before the Closing Date and end after the Closing Date. The Stockholder
shall pay to the Company within fifteen (15) days after the date on which Taxes
are paid with respect to such periods an amount equal to the portion of such
Taxes which relates to the portion of such taxable period ending on the Closing
Date to the extent such Taxes are not reflected in the current liability
accruals for Taxes (excluding reserves for deferred Taxes) shown on the
Company's books and records as of the Closing Date. For purposes of this Section
5.1, in the case of any Taxes that are imposed on a periodic basis (other than
income Taxes for 1998) 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) The Stockholder and Buyer agree that this
transaction is controlled by Section 1362(e)(6)(D) of the Code and Treasury
Regulation ss. 1.1362-3(b)(3) wherein the 1998 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 Stockholder
and Company shall file income Tax Returns for the 1998 calendar Tax year in a
manner consistent with the foregoing. In addition, the Stockholder's income Tax
Return for the 1998 calendar Tax year shall give full effect to the Asset
Revaluation.
(iv) Buyer and the Company on one hand and the
Stockholder 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.
(v) The Stockholder shall timely pay all transfer,
documentary, sales, use, stamp, registration and other Taxes and fees arising
from or relating to the transactions contemplated by this Agreement, and the
Stockholder shall, at his own expense, file all necessary Tax Returns and other
documentation with respect to all such transfer, documentary, sales, use, stamp,
registration, and other Taxes and fees. If required by applicable law, Buyer and
the Company will join in the execution of any such Tax Returns and other
documentation.
(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 Stockholder 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 Stockholder will not take or allow any action to be taken (other
than the sale of the Stock pursuant to this Agreement) that would result in the
termination of the Company's status as a validly electing S corporation within
the meaning of Sections 1361 and 1362 of the Code.
(c) The parties agree as follows with respect to Section
338(h)(10) of the Code:
(i) At the Buyer's option, the Company and
Stockholder 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"). Stockholder will include any income, gain, loss,
deduction, or other tax item resulting from the Section 338(h)(10) Election on
its Tax Returns to the extent permitted by applicable law. Buyer and Stockholder
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. Stockholder
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 Stockholder 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 the
applicable Treasury Regulations and in reporting the deemed sale of assets of
the Company in connection with the Section 338(h)(10) Election.
(iii) Buyer shall initially prepare a completed set
of IRS Forms 8023-A (and any comparable forms required to be filed under state,
local or foreign tax law) and any additional data or materials required to be
attached to Form 8023-A pursuant to the Treasury Regulations promulgated under
Section 338 of the Code. Buyer shall deliver said forms to Stockholder for
review no later than 45 days prior to the date the Section 338 Forms are
required to be filed. In the event Stockholder objects to the manner in which
the Section 338 Forms have been prepared, Stockholder 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 Stockholder shall submit such dispute to an independent accounting firm of
recognized national standing (the "Allocation Arbiter") selected by Buyer and
Stockholder, which firm shall not be the regular accounting firm of Buyer or
Stockholder. 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 Stockholder and not by independent review) only those
matters in dispute and will render a written report as to the disputed matters
and the resulting preparation of the Section 338 Forms shall be conclusive and
binding upon the parties.
(iv) No new elections with respect to Taxes, or any
changes in current elections with respect to Taxes, affecting the Company after
the Section 338(h)(10) Election shall be made after the date of this Agreement
without the prior written consent of the Buyer and the Stockholder.
(d) Buyer and Stockholder agree as follows with respect to the
allocation of Tax liabilities:
(i) Stockholder shall be responsible for all federal
income Taxes attributable to the Company for periods ending on or before the
Closing Date (including any Tax resulting from the Section 338(h)(10) Election).
Buyer shall be responsible for all federal income Taxes of the Company for
periods ending after the Closing Date.
(ii) Stockholder shall be liable for any state,
local, or foreign Tax attributable to an election under state, local, or foreign
law similar to the election available under Section 338(h)(10) of the Code.
Further, if a state, local or foreign jurisdiction does not have provisions
similar to the election available under Section 338(h)(10) of the Code,
Stockholder will be liable for any Tax imposed on the Company by such state,
local and/or foreign jurisdiction resulting from the transactions contemplated
by this Agreement. Finally, Stockholder will be liable for nonfederal income
Taxes of the Company ending on or before the Closing Date, and the Buyer and
Company will be liable for nonfederal income Taxes of the Company for periods
ending after the Closing Date.
5.2 Accounts Receivable. In the event that all Accounts Receivable are
not collected in full by March 31, 1999 (net of reserves specified in Section
3.14) then, at the request of the Company or Buyer, the Stockholder shall pay
the Company an amount equal to the Accounts Receivable not so collected, and
upon receipt of such payment the Company shall assign to the Stockholder making
the payment all of its 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 the Stockholder
with respect to the assigned Accounts Receivable equals (a) the payment made
therefor plus (b) the costs and expenses reasonably incurred by the Stockholder
in the collection of such assigned Accounts Receivable, the Stockholder shall
reassign to the Company all of such assigned Accounts Receivable as have not
been collected in full by the Stockholder and shall also thereafter promptly
remit any excess collections received by him. Upon the written request of the
Company, the Stockholder shall provide it with a status report concerning the
collection of assigned Accounts Receivable.
5.3 Intentionally omitted.
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; provided, however, that in the
event of such termination the Buyer shall make available to the Company's
employees such benefit plans and programs as are offered to similarly situated
employees of the Buyer's other direct and indirect subsidiaries.
5.5 Related Party Agreements. The Company and/or the Stockholder, as
the case may be, shall terminate any Related Party Agreements which Buyer
requests the Company or the Stockholder to terminate.
5.6 Cooperation; Consents and Releases.
(a) The Company, Stockholder, 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 Stockholder 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) The New York City Industrial Development Agency ("▇▇▇")
previously issued its Industrial Development Revenue Bonds (1984 ▇▇▇▇ ▇▇▇▇▇▇
Envelope Corp. Project) ("Bonds") pursuant to an Indenture of Mortgage and Trust
("Indenture") dated as of June 1, 1984, by and between the ▇▇▇ and J. ▇▇▇▇▇
▇▇▇▇▇▇▇▇ Bank & Trust Company, as Trustee ("Trustee"). Pursuant to a Lease
Agreement ("Lease") dated June 1, 1984, the ▇▇▇ leased certain real property
("Leased Premises"), more particularly described in the Lease, to ▇▇▇▇▇▇ Realty
Associates ("▇▇▇▇▇▇ Realty"), which Leased Premises ▇▇▇▇▇▇ Realty subleased to
the Company pursuant to a Sublease Agreement ("Sublease") dated June 1, 1984.
The Lease and the Sublease have been assigned to the ▇▇▇, the Trustee and the
holder of the Bonds. The Lease, the Sublease and any other documents which
evidence and/or secure the obligations of the Company to pay the Bonds and/or
perform any obligations with respect to the Bonds collectively are referred to
as the "Company Bond Documents." The Stockholder covenants to use best efforts
to obtain (as soon as practicable after the Closing) the consent of the ▇▇▇ to
the transactions contemplated by this Agreement, as required under the Company
Bond Documents. Stockholder further covenants to use best efforts to obtain (as
soon as practicable after Closing) the consent of the ▇▇▇ to any amendments or
modifications to the Lease and Sublease as agreed to by ▇▇▇▇▇▇ Realty and the
Company and reflected in such documents as are being entered into by ▇▇▇▇▇▇
Realty and the Company on the date hereof as identified in Article VI. In
addition, Stockholder shall use best efforts to cause (as soon as practicable
after Closing) the release of the Company's obligations (in a form reasonably
satisfactory to the Company) under the Company Bond Documents, including without
limitation the Corporate Guaranty Agreement dated June 1, 1984 from the Company
to the Trustee, the Pilot Guaranty Agreement dated June 1, 1984 from the Company
and ▇▇▇▇▇▇ Realty to the ▇▇▇, and the Letter of Representation and Indemnity
Agreement, dated as of June 26, 1984 from ▇▇▇▇▇▇ Realty, its partners and the
Company to the ▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇. In connection with the foregoing covenants,
Stockholder shall provide all such information as may be required by the ▇▇▇ in
order for such consents to be granted. The Stockholder shall be responsible for
the costs and expenses incurred by him in connection with fulfilling the
covenants set forth in this Section 5.6(d).
(e) The Company is an obligor under the indebtedness secured
by a mortgage dated June 27, 1984 by and among the ▇▇▇, ▇▇▇▇▇▇ Realty and Chase
Bank (previously Chemical Bank) ("Chase Mortgage"). Stockholder covenants to use
its best efforts to obtain (as soon as practicable after Closing) the consent of
Chase Bank to the transactions contemplated by this Agreement and the release by
Chase Bank of any and all indebtedness of the Company under and/or pursuant to
the terms of the Chase Mortgage and/or the indebtedness secured thereby. The
Stockholder shall be responsible for the costs and expenses incurred by him in
connection with fulfilling the covenants set forth in this Section 5.6(e).
(f) The Company, the Stockholder and Buyer shall file all
notices and other information and documents required under the HSR Act (as
defined in Section 3.3), if any, as promptly as practicable after the date
hereof.
5.7 Access to Information; Confidentiality; Public Disclosure.
(a) Between the date of this Agreement and the Closing Date,
the Company will afford to the officers and authorized representatives of Buyer
access to (i) all of the sites, properties, books and records of the Company and
(ii) such additional financial and operating data and other information as to
the business and properties of the Company as Buyer may from time to time
reasonably request, including without limitation, access upon reasonable request
to the Company's employees, customers, vendors, suppliers and creditors for due
diligence inquiry. No information or knowledge obtained in any investigation
pursuant to this Section 5.7 shall affect or be deemed to modify any
representation or warranty contained in this Agreement or the conditions to the
obligations of the parties to consummate the transactions contemplated herein.
(b) Buyer recognizes and acknowledges that it had in the past,
currently has, and in the future may possibly have, access to certain
confidential information of the Company, such as lists of customers, operational
policies, and pricing and cost policies that are valuable, special and unique
assets of the Company's business. Buyer agrees that, unless there is a Closing,
it will not disclose confidential information with respect to the Company to any
person, firm, corporation, association or other entity for any purpose or reason
whatsoever, except to authorized representatives of the Company and to counsel
and other advisers, provided that such advisers (other than counsel) agree to
the confidentiality provisions of this Section 5.7(b), unless (i) such
information becomes known to the public generally through no fault of Buyer,
(ii) disclosure is required by law or the order of any governmental authority
under color of law, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party, provided, that prior to disclosing any information pursuant to
clause (i), (ii) or (iii) above, Buyer shall give prior written notice thereof
to the Company and provide the Company with the opportunity to contest such
disclosure and shall cooperate with efforts to prevent such disclosure.
(c) Prior to the Closing Date, neither the Company nor the
Stockholder shall make any disclosure (whether or not in response to an inquiry)
of the subject matter of this Agreement unless previously approved by Buyer in
writing. Buyer agrees to keep the Company and the Stockholder apprised in
advance of any disclosure of the subject matter of this Agreement by Buyer prior
to the Closing Date.
5.8 Conduct of Business Pending Closing. Between the date hereof and
the Closing Date, the Company will (except as requested or agreed by Buyer):
(a) carry on its business in substantially the same manner
as it has heretofore and not introduce any material new method of management,
operation or accounting;
(b) maintain its properties and facilities, including those
held under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(c) perform all of its obligations under agreements relating
to or affecting its respective assets, properties or rights;
(d) keep in full force and effect present insurance policies
or other comparable insurance coverage;
(e) use all commercially reasonable efforts to maintain and
preserve its business organization intact, retain its present officers and key
employees and maintain its relationships with suppliers, vendors, customers,
creditors and others having business relations with it;
(f) maintain compliance with all permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities;
(g) maintain present debt and lease instruments and not enter
into new or amended debt or lease instruments; and
(h) maintain present salaries and commission levels for all
officers, directors, employees, agents, representatives and independent
contractors, except for ordinary and customary bonuses and salary increases for
employees (other than the Stockholder) in accordance with past practice.
5.9 Prohibited Activities. Between the date hereof and the Closing
Date, the Company will not, without the prior written consent of Buyer:
(a) make any change in its Certificate 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) declare or pay any dividend, or make any distribution
(whether in cash, stock or property) in respect of its stock whether now or
hereafter outstanding, or split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, or purchase, redeem
or otherwise acquire or retire for value any shares of its stock;
(d) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, or guarantee any
indebtedness, except in the ordinary course of business and consistent with past
practice in an amount in excess of $10,000, 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) 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,
the Stockholder or any officer or director of the Company or (ii) 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) except with respect to the Asset Revaluation, 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
Stockholder 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 Stockholder, the Company, or any agent,
officer, director or any representative of the Company or the 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)
participate 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 the 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 the 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 Financial Records. Buyer shall cause to be maintained on an
ongoing basis such books and records as are necessary to calculate the Earn-out
(as defined in Section 1.6) on the terms and conditions set forth in Section
1.6.
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 Stockholder 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 Stockholder 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 the
Stockholder 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 Stockholder 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
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 Stockholder 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 Stockholder, dated the Closing Date, in a form
reasonably satisfactory to Buyer.
6.6 Charter Documents. Buyer shall have received (a) a copy of the
Certificate of Incorporation of the Company certified by an appropriate
authority in the state of its incorporation and (b) a copy of the Bylaws of the
Company certified by the Secretary of the Company, and such documents shall be
in form and substance reasonably acceptable to Buyer.
6.7 Quarterly Financial Statements. Buyer shall have received from the
Company completed quarterly financial statements in a form reasonably
satisfactory to Buyer.
6.8 Due Diligence Review. The Company shall have made such deliveries
as are called for by this Agreement. Buyer shall be fully satisfied in its sole
discretion with the results of its review of all of the Schedules, whether
delivered before or after the execution hereof, and such deliveries, and its
review of, and other due diligence investigations with respect to, the business,
operations, affairs, prospects, properties, assets, existing and potential
liabilities, obligations, profits and condition (financial or otherwise) of the
Company.
6.9 Delivery of Closing Financial Certificate. Buyer shall have
received a certificate (the "Closing Financial Certificate"), dated as of the
Closing Date, signed on behalf of the Company and by the Stockholder, setting
forth:
(a) the net worth of the Company as of the last day of its
most recent fiscal year (the "Certified Year-End Net Worth");
(b) the net worth of the Company as of the Closing Date (the
"Certified Closing Net Worth");
(c) the sales of the Company for the most recent fiscal year
preceding the Closing Date (the "Certified Year-End Sales");
(d) the sales of the Company for the eight-month period ending
on August 31, 1998 (the "Certified Closing Sales");
(e) the earnings of the Company before interest, taxes and
depreciation (after the addition of "add-backs" set forth on Schedule 3.9(c))
for the most recent fiscal year preceding the Closing Date (the "Certified
Year-End Profits");
(f) Intentionally omitted; and
(g) the sum of the Company's total outstanding long term and
short term indebtedness to (i) banks, (ii) ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ (such indebtedness not
to exceed $66,484), and (iii) all other financial institutions and creditors (in
each case including the current portion of such indebtedness, but excluding any
amounts due to the Stockholder, trade payables and other accounts payable
incurred in the ordinary course of the Company's business consistent with past
practice) as of the Closing Date (the "Certified Closing Long-Term Debt").
The parties acknowledge and agree that for purposes of determining the
Certified Closing Net Worth and the Certified Closing Profits, the Company shall
not take account of any increase in intangible assets (including without
limitation goodwill, franchises and intellectual property) accounted for after
December 31, 1997. In addition, the Certified Closing Net Worth shall be
calculated after giving effect to any expenses incurred by the Company or the
Stockholder in connection with the transactions contemplated by this Agreement.
6.10 FIRPTA Compliance. The Stockholder shall have delivered to Buyer a
properly executed statement in a form reasonably acceptable to Buyer for
purposes of satisfying Buyer's obligations under Treas. Reg. ss. 1.1445-2(b).
6.11 Employment Agreements. ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, and ▇▇▇▇▇
▇▇▇▇▇▇ each shall have entered into an employment agreement with the Company in
a form reasonably satisfactory to each of ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and
▇▇▇▇▇ ▇▇▇▇▇▇, respectively, and Buyer.
6.12 Certain Documents Regarding Real Property. The following documents
shall have been executed and delivered to Buyer in a form reasonably
satisfactory to each of the Company, Stockholder and ▇▇▇▇▇▇ Realty:
(a) Modification of Sublease by and between ▇▇▇▇▇▇ Realty and
the Company.
(b) Intentionally omitted.
(c) Intentionally omitted.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDER AND THE COMPANY
The obligation of the Stockholder 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 Stockholder.
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 Stockholder.
7.3 Consents and Approvals. All necessary consents of, and filings
with, any governmental authority or agency or third party relating to the
consummation by Buyer of the transactions contemplated herein, shall have been
obtained and made. Any waiting period applicable to the consummation of the
transactions contemplated by this Agreement under the HSR Act shall have expired
or been terminated, and no action by the Department of Justice or Federal Trade
Commission challenging or seeking to enjoin the consummation of the transactions
contemplated hereby shall be pending.
7.4 Employment Agreements. The Company shall have afforded each of
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇ an opportunity to enter into an
employment agreement with the Company in a form reasonably satisfactory to each
of ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇, respectively, and Buyer.
8. INDEMNIFICATION
8.1 General Indemnification.
(a) The Stockholder covenants and agrees to indemnify, defend, protect
and hold harmless Buyer, the Company, and their respective officers, directors,
stockholders, assigns, successors and affiliates (individually, an "Indemnified
Party" and collectively, "Indemnified Parties") from, against and in respect of
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 Stockholder or the Company set forth in this Agreement or any Schedule or
certificate, delivered by or on behalf of the Stockholder or the Company in
connection herewith; or
(ii) any nonfulfillment of any covenant or agreement
by the Stockholder 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;
provided, that, no indemnification claim which could have been asserted under
sub-section (i) or (ii) above but for materiality or knowledge qualifiers may be
asserted under this subsection (iii); or
(iv) the matters disclosed on Schedules 3.23
(environmental matters), 3.25 (employee benefit plans), 3.26 (taxes), 3.27
(conformity with law; litigation); or
(v) the failure of the Stockholder to (A) obtain
the consents of the ▇▇▇ contemplated by Section 5.6(d), (B) obtain the release
of the Company's obligations under the Company Bond Documents as contemplated by
Section 5.6(d) and (C) obtain the release of the Company's obligations under the
Chase Mortgage and the indebtedness secured thereby as contemplated by Section
5.6(e); or
(vi) Intentionally omitted; and
(vii) any and all Damages incident to any of the
foregoing or to the enforcement of this Section 8.1(a).
(b) Buyer covenants and agrees to indemnify, defend, protect
and hold harmless the Stockholder from, against and in respect of all Damages
suffered, sustained, incurred or paid by Stockholder 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) the business, operations or assets of the
Company following the Closing Date, or the actions or omissions of the Company's
directors, officers, stockholders, employees or agents (other than the
Stockholder) after the Closing Date; and
(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) subject to Section 5.2, there shall be no liability for
indemnification under Section 8.1 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 Stockholder or
Buyer set forth in this Agreement or representations and warranties made in
Sections 3.4 (capital stock of the Company), 3.5 (transactions in capital stock;
accounting treatment), 3.23 (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) or (v);
(b) the aggregate amount of the Stockholder's or Buyer's
liability under this Article 8 shall not exceed the Purchase Price; provided,
however, that the Stockholder's liability for Damages arising out of any
breaches of the representations made in Sections 3.23 (environmental matters),
3.25 (employee benefit plans) or 3.26 (taxes) or Damages described in Section
8.1(a)(ii) or (iv) shall not be subject to such limitation and shall not count
toward the limitation described in the first clause of this Section 8.2(b)
unless such Damages exceed the amount of liability the Stockholder would have
had in his capacity as a stockholder, officer or director of the Company under
applicable state law, in which event the limitation described in the first
clause of Section 8.2(b) shall apply;
(c) the indemnification obligations under this Article 8, or
under any certificate or writing furnished in connection herewith, shall
terminate at the date that is the later of clause (i) or (ii) of this Section
8.2(c):
(i)(1) except as to representations, warranties,
and covenants specified in clause (i)(2) of this Section 8.2(c), the third
anniversary of the Closing Date, or
(2) with respect to representations and warranties
contained in Sections 3.23 (environmental matters), 3.25 (employee benefit
plans), 3.26 (taxes), and the indemnification set forth in Section 8.1(a)(ii),
(iii), (iv) or (v), on (A) the date that is six (6) months after the expiration
of the longest applicable federal or state statute of limitation (including
extensions thereof), or (B) if there is no applicable statute of limitation, (x)
ten (10) years after the Closing Date if the Claim is related to the cost of
investigating, containing, removing, or remediating a release of Hazardous
Material into the environment, or (y) five (5) years after the Closing Date for
any other Claim covered by clause (i)(2)(B) of this Section 8.2(c); or
(ii) the final resolution of claims or demands
pending as of the relevant dates described in clause (i) of this Section 8.2(c)
(such claims referred to as "Pending Claims").
8.3 Indemnification Procedures All claims or demands for
indemnification under this Article 8 ("Claims") shall be asserted and resolved
as follows:
(a) In the event that any Indemnified Party (such term to
include the Stockholder for purposes of this Section 8.3 to the extent the
Stockholder is 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 thirty (30) days
after the date of delivery of the Claim Notice that the Indemnifying Party
disputes such Claim, with a detailed statement of the basis of such position,
the amount of such Claim shall be conclusively deemed a liability of the
Indemnifying Party hereunder. In case an objection is made in writing in
accordance with this Section 8.3(a), the Indemnified Party shall respond in a
written statement to the objection within thirty (30) days and, for sixty (60)
days thereafter, attempt in good faith to agree upon the rights of the
respective parties with respect to each of such Claims (and, if the parties
should so agree, a memorandum setting forth such agreement shall be prepared and
signed by both parties).
(b) (i) In the event that any Claim for which the Indemnifying
Party would be liable to an Indemnified Party hereunder is asserted against an
Indemnified Party by a third party (a "Third Party Claim"), the Indemnified
Party shall deliver a Claim Notice to the Indemnifying Party. The Indemnifying
Party shall have thirty (30) days from the date of delivery of the Claim Notice
to notify the Indemnified Party (A) whether the Indemnifying Party disputes
liability to the Indemnified Party hereunder with respect to the Third Party
Claim, and, if so, the basis for such a dispute, and (B) if such party does not
dispute liability, whether or not the Indemnifying Party desires, at the sole
cost and expense of the Indemnifying Party, to defend against the Third Party
Claim, provided that the Indemnified Party is hereby authorized (but not
obligated) to file any motion, answer or other pleading and to take any other
action which the Indemnified Party shall deem necessary or appropriate to
protect the Indemnified Party's interests.
(ii) In the event that 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 Company or
any subsidiary, the Indemnified Party shall have the right to control or assume
(as the case may be) the defense of any such Third Party Claim and the amount of
any judgment or settlement and the reasonable costs and expenses of defense
shall be included as part of the indemnification obligations of the Indemnifying
Party hereunder. If the Indemnified Party elects to exercise such right, the
Indemnifying Party shall have the right to participate in, but not control, the
defense of such Third Party Claim at the sole cost and expense of the
Indemnifying Party.
(c) Nothing herein shall be deemed to prevent the Indemnified
Party from making a Claim, and an Indemnified Party may make a Claim hereunder,
for potential or contingent Damages provided the Claim Notice sets forth the
specific basis for any such potential or contingent claim or demand to the
extent then feasible and the Indemnified Party has reasonable grounds to believe
that such Claim may be made.
(d) Subject to the provisions of Section 8.2, the Indemnified
Party's failure to give reasonably prompt notice as required by this Section 8.3
of any actual, threatened or possible claim or demand which may give rise to a
right of indemnification hereunder shall not relieve the Indemnifying Party of
any liability which the Indemnifying Party may have to the Indemnified Party
unless the failure to give such notice materially and adversely prejudiced the
Indemnifying Party.
(e) The parties will make appropriate adjustments for any Tax
benefits, Tax detriments or insurance proceeds in determining the amount of any
indemnification obligation under this Article 8, provided that no Indemnified
Party shall be obligated to continue pursuing any payment pursuant to the terms
of any insurance policy.
8.4 Survival of Representations Warranties and Covenants. All
representations, warranties and covenants made by the Company, the Stockholder,
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 Stockholder will survive the Closing
and will remain in effect until, and will expire upon, the termination of the
indemnification obligations as provided in Section 8.2. The representations of
Buyer will survive the Closing and will remain in effect until, and will expire
upon the third anniversary of the Closing Date.
8.5 Remedies Cumulative. The remedies set forth in this Article 8 are
cumulative and shall not be construed to restrict or otherwise affect any other
remedies that may be available to the Indemnified Parties under any other
agreement or pursuant to statutory or common law.
8.6 Right to Set Off. Subject to Section 8.7, 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 Stockholder under Section 8.1 hereof.
8.7 Offset Against Earn-out. Notwithstanding anything in this Agreement
to the contrary, Buyer's rights to indemnification from the Stockholder under
this Article VIII shall be subject to the following terms and conditions:
(a) For the period beginning on the Closing Date and ending on
the Release Date, the Buyer shall have the obligation to set off against the
Pledged Assets and the Earn-outs otherwise payable during such period any
amounts finally determined to be owed by Stockholder under Section 8.1(a).
(b) For the period beginning on the Release Date and ending on
October 24, 1999, the Buyer shall have the obligation to set off against the
Earn-outs otherwise payable during such period any amounts finally determined to
be owed by Stockholder under Section 8.1(a).
(c) For the period beginning October 25, 1999, and ending on
the last day of Buyer's fiscal quarter that ends in October 2002, in the event
the Stockholder shall owe any amounts to the Buyer pursuant to Section 8.1(a)
(any such amount the "Indemnification Obligation"), then the Buyer shall
determine the sum of Earn-outs paid or payable to Stockholder pursuant to
Section 1.6 for the prior four (4) fiscal quarters of Buyer ("Aggregate Fiscal
Period Earn-out"). If, and only, if, the amount of the Aggregate Fiscal Period
Earn-out equals or exceeds the Indemnification Obligation, then Buyer (i) shall
have the obligation to set off against the Earn-outs otherwise payable for the
subsequent four (4) fiscal periods of Buyer ("Post-Indemnification Fiscal
Period") the amount of the Indemnification Obligation, and (ii) shall not seek
other remedies against the Stockholder under Section 8.1(a) until after the end
of the Post-Indemnification Fiscal Period, and then only to the extent the
Indemnification Obligation exceeds the Earn-outs that would have been paid
during the Post-Indemnification Fiscal Period but for the Indemnification
Obligation.
9. NONCOMPETITION
9.1 Prohibited Activities. The Stockholder acknowledges that during the
course of his ownership of the Stock, he 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, Stockholder covenants
that he will not, for a period of four (4) years following the Closing Date, for
any reason whatsoever, directly or indirectly, for himself 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 location 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 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 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 the 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. The 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 Stockholder from acquiring as an investment not more than two
percent (2%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter.
9.2 Confidentiality. The Stockholder recognizes that by reason of his
ownership of the Stock, and his employment by the Company, he 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, the Stockholder covenants and agrees with the Company and Buyer
that he will not at any time, except in performance of Stockholder's 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
may learn or has learned by reason of his ownership of the Company or his
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 the 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 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, the Stockholder agrees that the foregoing
covenant may be enforced by Buyer in the event of breach by the 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 the 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 the Stockholder
against Buyer, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by Buyer of such covenants. The parties
expressly acknowledge that the terms and conditions of this Article 9 are
independent of the terms and conditions of any other agreements including, but
not limited to, any employment agreements entered into in connection with this
Agreement. It is specifically agreed that the period of four (4) years stated at
the beginning of this Article 9 during which the agreements and covenants of the
Stockholder made in this Article 9 shall be effective, shall be computed by
excluding from such computation any time during which the 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 the 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 Boards of Directors of Buyer and
the Company; or
(b) by the Stockholder 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 October 5, 1998, provided that the right to terminate this Agreement
under this Section 10.1(b) shall not be available to either party (with the
Stockholder 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 Stockholder 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
Stockholder 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 Stockholder and the Company as a group, on the one
hand, or by Buyer, on the other hand, if there shall be a final nonappealable
order of a federal or state court in effect preventing consummation of the
transactions contemplated by this Agreement; or there shall be any action taken,
or any statute, rule, regulation or order enacted, promulgated or issued or
deemed applicable to the transactions contemplated by this Agreement by any
governmental entity which would make the consummation of the transactions
contemplated by this Agreement illegal.
10.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 10.1, this Agreement shall forthwith become
ineffective, and there shall be no liability or obligation on the part of any
party hereto or its officers, directors or stockholders. Notwithstanding the
foregoing sentence, (i) the provisions of Articles 10 and 8, and Sections 5.7(b)
and 9.2, shall remain in full force and effect and survive any termination of
this Agreement; (ii) each party shall remain liable for any breach of this
Agreement prior to its termination; and (iii) in the event of termination of
this Agreement pursuant to Section 10.1(c) above, then notwithstanding the
provisions of Section 10.7 below, the breaching party (with the Stockholder and
the Company deemed to be a single party for purposes of this Article 10), shall
be liable to the other party to the extent of the expenses incurred by such
other party in connection with this Agreement and the transactions contemplated
hereby, as well as any damages in accordance with applicable law.
10.3 Successors and Assigns. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of Buyer, and the heirs and legal representatives of the Stockholder;
provided, however that Buyer may assign any of its rights or obligations under
this Agreement to any direct or indirect subsidiary of Buyer in its sole and
absolute discretion and without the consent of the Company or the Stockholder.
10.4 Entire Agreement; Amendment; Waiver. This Agreement sets forth the
entire understanding of the parties hereto with respect to the transactions
contemplated hereby. Each of the Schedules to this Agreement is incorporated
herein by this reference and expressly made a part hereof. Any and all previous
agreements and understandings between or among the parties regarding the subject
matter hereof, whether written or oral, are superseded by this Agreement. This
Agreement shall not be amended or modified except by a written instrument duly
executed by each of the parties hereto, or in accordance with Section 9.5. Any
extension or waiver by any party of any provision hereto shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
10.5 Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original, and all of
which counterparts taken together shall constitute but one and the same
instrument.
10.6 Brokers and Agents. Buyer, and the Company and the 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
Stockholder (and not the Company) has and will pay the fees, expenses and
disbursements of the Stockholder, the Company, and their agents,
representatives, financial advisers, accountants and counsel incurred in
connection with the subject matter of this Agreement.
10.8 Specific Performance; Remedies. Each party hereto acknowledges
that the other parties will be irreparably harmed and that there will be no
adequate remedy at law for any violation by any of them of any of the covenants
or agreements contained in this Agreement, including without limitation, the
confidentiality obligations set forth in Section 5.7(b) and the noncompetition
provisions set forth in Article 9. It is accordingly agreed that, in addition to
any other remedies which may be available upon the breach of any such covenants
or agreements, each party hereto shall have the right to obtain injunctive
relief to restrain a breach or threatened breach of, or otherwise to obtain
specific performance of, the other parties, covenants and agreements contained
in this Agreement.
10.9 Notices. Any notice, request, claim, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given if delivered personally or sent by
telefax (with confirmation of receipt), by registered or certified mail, postage
prepaid, or by recognized courier service, as follows:
If to Buyer or the Company to:
Workflow Management, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Vice President and General Counsel
(Telefax: (▇▇▇) ▇▇▇-▇▇▇▇)
with a required copy to:
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C.
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇ ▇. ▇▇▇▇▇, ▇▇, Esq. and T. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇., Esq.
(Telefax: (▇▇▇) ▇▇▇-▇▇▇▇)
If to the Stockholder to:
▇▇▇▇▇▇ ▇▇▇▇▇▇
▇ ▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(Telefax: (▇▇▇) ▇▇▇-▇▇▇▇)
with a required copy to:
▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
(Telefax: (▇▇▇) ▇▇▇-▇▇▇▇)
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so delivered, telefaxed, mailed or
dispatched and, if given by any other means, shall be deemed given only when
actually received by the addressees.
10.10 Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of Delaware. Any disputes
arising out of, in connection with or with respect to this Agreement, the
subject matter hereof, the performance or non-performance of any obligation
hereunder, or any of the transactions contemplated hereby shall be adjudicated
in a court of competent civil jurisdiction sitting in the City of 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.
10.13 Mutual Drafting; Construction. 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, an association, a trust or any 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 - WORKFLOW MANAGEMENT, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇
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Title: Vice President
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THE COMPANY - ▇▇▇▇ ▇▇▇▇▇▇
ENVELOPE CORP.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇
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Title: President
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STOCKHOLDER:
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
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