EXECUTION
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
DOCUTECH DATA SYSTEMS, INC.
DOCUNET INC.
AND
DOCUTECH ACQUISITION CORP.
Dated September 9, 1997
TABLE OF CONTENTS
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ARTICLE 1 - CERTAIN DEFINITIONS...................................................................................2
ARTICLE 2 - THE MERGER...........................................................................................10
2.1. Delivery and Filing of Articles of Merger.........................................................10
2.2. Effective Time of the Merger......................................................................10
2.3. Certificate of Incorporation, By-laws and Board of Directors of Surviving
Corporation.....................................................................................11
2.4. Certain Information with Respect to the Capital Stock of the Company,
Purchaser and Newco.............................................................................11
2.5. Effect of Merger..................................................................................11
2.6. Manner of Conversion..............................................................................12
2.7. Delivery of Shares................................................................................13
2.8. Merger Consideration..............................................................................13
2.9. Delivery of Merger Consideration..................................................................17
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF SELLERS............................................................18
3.1. Organization; Qualification; Good Standing........................................................18
3.2. Authorization for Agreement.......................................................................19
3.3. Capitalization; Subsidiaries and Affiliates.......................................................19
3.4. Enforceability....................................................................................21
3.5. Matters Affecting Shares; Title to Shares.........................................................21
3.6. Predecessor Status; etc...........................................................................21
3.7. Spin-off by the Company...........................................................................21
3.8. Legal Proceedings.................................................................................21
3.9. Compliance with Laws..............................................................................22
3.10. Labor Matters.....................................................................................22
3.11. Employee Benefit Plans............................................................................23
3.12. Financial Statements..............................................................................25
3.13. Distributions.....................................................................................26
3.14. Absence of Undisclosed Liabilities................................................................26
3.15. Real Property.....................................................................................27
3.16. Tangible Personal Property........................................................................28
3.17. Contracts.........................................................................................29
3.18. Insurance.........................................................................................31
3.19. Proprietary Rights................................................................................31
3.20. Environmental Matters.............................................................................32
3.21. Permits...........................................................................................33
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3.22. Regulatory Filings................................................................................33
3.23. Taxes and Tax Returns.............................................................................33
3.24. Investment Portfolio..............................................................................36
3.25. Affiliate Transactions............................................................................36
3.26. Accounts, Power of Attorney.......................................................................36
3.27. Receivables.......................................................................................36
3.28. Officers and Directors............................................................................37
3.29. Corporate Records.................................................................................37
3.30. Broker's or Finders...............................................................................38
3.31. Customers.........................................................................................38
3.32. Investment Company................................................................................38
3.33. Absence of Changes................................................................................38
3.34. Accuracy and Completeness of Information..........................................................39
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF PURCHASER
AND NEWCO.....................................................................................40
4.1. Organization......................................................................................40
4.2. Authorization for Agreement.......................................................................40
4.3. Enforceability....................................................................................40
4.4. Litigation........................................................................................40
4.5. Registration Statement............................................................................40
4.6. Brokers or Finders................................................................................41
ARTICLE 5 - COVENANTS............................................................................................41
5.1. Good Faith........................................................................................41
5.2. Approvals.........................................................................................41
5.3. Cooperation; Access to Books and Records..........................................................41
5.4. Duty to Supplement................................................................................43
5.5. Information Required For Purchase Financing Transactions..........................................43
5.6. Performance of Conditions.........................................................................44
5.7. Conduct of Business...............................................................................44
5.8. Negative Covenants................................................................................45
5.9. Exclusive Negotiation.............................................................................47
5.10. Public Announcements..............................................................................48
5.11. Amendment of Schedules............................................................................48
5.12. Cooperation in Preparation of Registration Statement..............................................48
5.13. Examination of Final Financial Statement..........................................................49
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5.14. Lock-Up Agreements................................................................................50
5.15. Compliance with the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements
Act of 1976 (the "Xxxx-Xxxxx Act").............................................................50
5.16. Reorganization Status.............................................................................50
5.17. File Tax Returns..................................................................................50
ARTICLE 6 - CONDITIONS PRECEDENT TO CLOSING......................................................................51
6.1. Conditions Precedent to the Purchaser and Newco's Obligations.....................................51
6.2. Conditions Precedent to Company's and Sellers' Obligations........................................54
ARTICLE 7 - CLOSING..............................................................................................56
ARTICLE 8 - CONFIDENTIALITY AND COVENANT NOT TO COMPETE..........................................................56
8.1. Confidentiality...................................................................................56
8.2. Covenant Not To Compete...........................................................................57
8.3. Specific Enforcement; Extension of Period.........................................................58
8.4. Disclosure........................................................................................59
8.5. Interpretation....................................................................................59
8.6. Sellers' Acknowledgment...........................................................................59
8.7. Applicability of Section 8.2......................................................................60
ARTICLE 9 - SURVIVAL.............................................................................................60
9.1. Survival of Representations, Warranties, Covenants and Agreements.................................60
9.2. Intentionally Omitted.............................................................................60
9.3. Underwriter's Benefit.............................................................................60
ARTICLE 10 - INDEMNIFICATION.....................................................................................61
10.1. Sellers' Indemnification..........................................................................61
00.0X.Xx Indemnification of Projected Information.......................................................62
10.2. Purchaser's Indemnification.......................................................................62
10.3. Payment; Procedure for Indemnification............................................................62
10.4. Equitable Contribution Under the Securities Act...................................................65
10.5. Exclusiveness of Indemnification..................................................................66
10.6. Limitations on Indemnification....................................................................66
10.7. Value of DocuNet Common Stock.....................................................................66
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ARTICLE 11 - TERMINATION AND REMEDIES............................................................................67
11.1. Termination.......................................................................................67
11.2. Effect of Termination.............................................................................67
ARTICLE 12 - POST-CLOSING COVENANTS..............................................................................68
12.1. Maintenance and Access to Records.................................................................68
12.2. Disclosure........................................................................................68
12.3. Accounts Receivable...............................................................................68
ARTICLE 13 - TRANSFER RESTRICTIONS...............................................................................69
13.1. Transfer Restrictions.............................................................................69
ARTICLE 14 - SECURITIES LAWS REPRESENTATIONS.....................................................................70
14.1. Compliance with Law...............................................................................70
14.2. Economic Risk; Sophistication.....................................................................70
ARTICLE 15 - REGISTRATION RIGHTS.................................................................................71
15.1. Piggyback Registration Rights.....................................................................71
15.2. Registration Procedures...........................................................................71
15.3. Underwriting Agreement............................................................................72
15.4. Availability of Rule 144..........................................................................72
15.5. Survival..........................................................................................72
ARTICLE 16 - MISCELLANEOUS.......................................................................................72
16.1. Notices...........................................................................................72
16.2. No Third Party Beneficiaries......................................................................74
16.3. Schedules.........................................................................................74
16.4. Expenses..........................................................................................74
16.5. Further Assurances................................................................................74
16.6. Entire Agreement; Amendment.......................................................................75
16.7. Section and Paragraph Titles......................................................................75
16.8. Binding Effect....................................................................................75
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16.9. Counterparts.....................................................................................75
16.10. Severability.....................................................................................75
16.11. Governing Law....................................................................................75
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
the 9th day of September, 1997, by and among DOCUNET INC., a Pennsylvania
corporation ("Purchaser"), DOCUTECH ACQUISITION CORP., a Pennsylvania
corporation ("Newco"), DOCUTECH DATA SYSTEMS, INC., a Nebraska corporation (the
"Company"), and XXX XXXX, XXXXX XXXXXXXX and XXXX XXXXXXX (individually, a
"Seller", and together, the "Sellers"). Each of XXX XXXX and XXXX XXXXXXX shall
be referred to herein as a "Signatory Shareholder" and together as the
"Signatory Shareholders."
WHEREAS, Newco is a corporation duly organized and existing under
the laws of the Commonwealth of Pennsylvania, having been incorporated
solely for the purpose of completing the transactions set forth
herein, and is a wholly-owned subsidiary of Purchaser, a corporation
organized and existing under the laws of the Commonwealth of
Pennsylvania;
WHEREAS, the respective Boards of Directors of Newco and the
Company (which together are hereinafter collectively referred to as
"Constituent Corporations") deem it advisable and in the best
interests of the Constituent Corporations and their respective
stockholders that the Company merge with and into Newco pursuant to
this Agreement and the applicable provisions of the laws of the
Commonwealth of Pennsylvania and the State of Nebraska;
WHEREAS, Purchaser is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), with
each of the other Founding Companies (as defined herein) and their
respective stockholders in order to acquire additional document
management and related services companies;
WHEREAS, this Agreement, the Other Agreements and the Initial
Public Offering of DocuNet Common Stock (as defined herein) constitute
the "DocuNet Plan of Reorganization;"
WHEREAS, in consideration of the agreements of the Potential
Founding Companies (as defined herein) pursuant to the Other
Agreements, the Board of Directors of the Company has approved this
Agreement as part of the DocuNet Plan of Reorganization in order to
transfer the capital stock of the Company to Purchaser;
WHEREAS, the parties hereto intend for the merger transaction
contemplated herein to qualify as a reorganization under Section
368(a)(1)(A) and Section 368(a)(2)(D) of the Code.
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IN CONSIDERATION of the foregoing and the mutual promises, covenants and
agreements contained in this Agreement, the parties, intending to be legally
bound, hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
herein specified, unless the context otherwise requires:
1.1. Accounts shall have the meaning set forth in Section 3.26.
1.2. Adverse Claims shall mean, with respect to any asset, any security
interests, liens, encumbrances, pledges, trusts, charges, proxies, conditional
sales, title retention agreements, rights under any Contracts, liabilities and
any other burdens of any nature whatsoever attached to or adversely affecting
such asset.
1.3. Affiliate shall mean: (i) any Person that directly or indirectly
through one or more intermediaries controls, is controlled by or under common
control with the Person specified; (ii) any director, officer, or Subsidiary of
the Person specified; and (iii) the spouse, parents, children, siblings,
mothers-in-law, fathers-in law, sons-in-law, daughters-in-law, bothers-in-law,
and sisters-in-law of the Person specified. For purposes of this definition and
without limitation to the previous sentence, (x) "control" of a Person means the
power, direct or indirect, to direct or cause the direction of management and
policies of such Person, whether through ownership of voting securities, by
contract or otherwise, and (y) any Person owning more than ten percent (10%) or
more of the voting securities or similar interests of another Person shall be
deemed to be an Affiliate of that Person.
1.4. Accountants' CAWCA Report shall have the meaning set forth in Section
2.8(c).
1.4A. Accountants' CDA Report shall have the meaning set forth in Section
2.8(b).
1.4B. Adjusted Current Liabilities shall have the meaning set forth in
Section 2.8(b).
1.5. Affiliate Transaction shall have the meaning set forth in Section
3.25.
1.6. Articles of Merger shall mean those Articles or Certificates of Merger
with respect to the Merger substantially in the forms attached as Annex I hereto
or with such other changes therein as may be required by applicable state laws.
1.7. Balance Sheet Date shall mean December 31, 1996.
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1.7A. Base Purchase Price shall have the meaning set forth in Section
2.8(a).
1.8. Business shall mean the business of the Company or any of its
Subsidiaries as conducted as of the date hereof.
1.9. Capitalization Table shall mean the capitalization table set forth in
Section 2.7.
1.10. Cash Purchase Price shall have the meaning set forth in Section 2.9.
1.11. Claim Notice shall have the meaning set forth in Section 10.3(c).
1.12. Closing shall have the meaning set forth in Article 7.
1.13. [Intentionally omitted.]
1.14. Closing Date shall mean the date on which the Closing actually takes
place.
1.15. Closing Balance Sheet shall mean the balance sheet delivered by the
Company to the Purchaser as of the date immediately prior to the Closing Date in
accordance with Section 3.12(d).
1.16. Closing Debt Amount shall have the meaning set forth in Section
2.8(b).
1.17. Code shall mean the Internal Revenue Code of 1986 and the rules and
regulations promulgated thereunder, as amended and supplemented from time to
time, or any successors thereto.
1.17A. Combined Debt shall have the meaning set forth in Section 2.8(b).
1.18. Common Stock shall mean the common stock, $1.00 par value per share,
of the Company.
1.19. Confidential Information shall mean (i) with respect to any party to
this Agreement or any Affiliate of such party or any Potential Founding Company,
all financial, technical, commercial or other information, including but not
limited to Intellectual Property and information, materials, documents,
financial reports, business plans and marketing data that relate to the
business, strategies or operations of the parties hereto or a Potential Founding
Company, disclosed or otherwise made available by such party, such Affiliate or
Potential Founding Company (the "Discloser") to another party, affiliate or
Potential Founding Company (the "Recipient") in connection with the transactions
contemplated by this Agreement and (ii) each of the terms, conditions and other
provisions contained in this Agreement and in the agreements or documents to be
delivered pursuant to this Agreement. Notwithstanding the preceding sentence,
the definition of Confidential Information shall not include any information
that (i) is in the public
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domain at the time of disclosure to the Recipient or becomes part of the public
domain after such disclosure through no fault of the Recipient, (ii) is
possessed in writing by the Recipient at the time of disclosure to such
Recipient, (iii) is contained in the Registration Statement on Form S-1 to be
filed by Purchaser in connection with the Initial Public Offering or (iv) is
disclosed to a party or Potential Founding Company by any Person other than a
party to this Agreement or a Potential Founding Company; provided, that the
party to whom such disclosure has been made does not have actual knowledge that
such Person is prohibited from disclosing such information (either by reason of
contractual, or legal or fiduciary duty or obligation). For the purposes hereof,
public domain shall not include disclosure of information to a Potential
Founding Company or (except as otherwise provided herein) to any other person in
connection with the transactions contemplated hereby. Notwithstanding any
exception in this paragraph or elsewhere in this agreement, no Recipient shall
use any information regarding the software developed by DocuTech Data Services
Inc., whether developed for its own use, for DocuTech, Inc.'s use, or for sale
to customers, for the purpose of developing competitive software for use by
Recipient, affiliates of Recipient, or others or for sale by Recipient,
affiliates of Recipient, or by others.
1.20. Consents shall mean any consents, waivers, approvals, authorizations,
certifications or exemptions from any Person or under any Contract or
Requirement of Law, as applicable.
1.21. Constituent Corporations has the meaning set forth in the second
recital of this Agreement.
1.22. Contracts shall mean, with respect to any Person, any indentures,
indebtedness, contracts, leases, agreements, instruments, licenses, undertakings
and other commitments, whether written or oral, to which such Person is, or such
Person's properties are, bound.
1.23. Credit Acts shall mean (i) the Fair Debt Collection Practices Act, 16
U.S.C. ss.1692, et. seq., the Fair Credit Reporting Act, 16 U.S.C. ss.1681 et.
seq., and any other provision of the Consumer Credit Protection Act, in each
case, together with the rules and regulations promulgated thereunder, (ii) the
Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, 15 U.S.C.
ss.6101 et. seq., together with the rules and regulations promulgated
thereunder, (iii) the Telephone Consumer Protection Act of 1991, together with
the rules and regulations promulgated thereunder, and (iv) any Requirement of
Law of any jurisdiction relating to the subject matter covered by any of the
foregoing, all as amended and supplemented from time to time, or any successors
thereto.
1.24. DocuNet Common Stock shall mean the common stock, no par value per
share, of Purchaser.
1.25. Effective Time of the Merger shall mean the time as of which the
Merger becomes effective, which shall, in any case, occur on the Closing Date.
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1.26. Employee Benefit Plan shall mean any deferred compensation, pension,
profit sharing, stock option, stock purchase, savings, group insurance or
retirement plan, and all vacation pay, severance pay, incentive compensation,
consulting, bonus and other employee benefit or fringe benefit plans or
arrangements maintained by the Company or any ERISA Affiliate (including,
without limitation, health insurance, life insurance and other benefit plans
maintained for retirees) within the previous six plan years or with respect to
which contributions are or were (within such six year period) made or required
to be made by the Company or any ERISA Affiliate or with respect to which the
Company has any liability.
1.27. Environmental Laws shall mean all Requirements of Law relating to
pollution or protection of the environment (including, without limitation,
ambient air, surface water, groundwater, land, or surface or subsurface strata)
including, without limitation, Requirements of Law relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment and Requirements of Law relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of any of
the foregoing including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et. seq.
("CERCLA"), the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et.
seq., and the rules and regulations promulgated thereunder, all as amended and
supplemented from time to time, and together with any successors thereto. As
used in this Agreement, the term "hazardous substances" shall have the meaning
assigned to that term in CERCLA, and the rules and regulations promulgated
thereunder, as amended and supplemented from time to time, or any successors
thereto.
1.28. Escrow Agent shall mean the individual or entity named as the Escrow
Agent in the Escrow Agreement.
1.29. Escrow Agreement shall mean the Escrow Agreement between the Sellers,
the Purchaser and the Escrow Agent to hold the Escrow Amount pursuant to the
terms and conditions therein as referred to in Section 2.9, substantially in the
form attached hereto as Exhibit A.
1.30. Escrow Amount shall mean the amount of cash and/or the Value of the
DocuNet Common Stock deposited pursuant to the Escrow Agreement.
1.31. ERISA shall mean the Employment Retirement Income Security Act of
1974 and the rules and regulations promulgated thereunder, as amended and
supplemented from time to time, or any successors thereto.
1.32. ERISA Affiliate shall mean any Person that is included with the
Company in a controlled group or affiliated service group under Sections 414(b),
(c), (m) or (o) of the Code.
1.33. Final Debt Amount shall have the meaning set forth in Section 2.8(b).
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1.34. Financial Statements shall have the meaning set forth in Section
3.12(a).
1.35. Founding Companies shall mean those Potential Founding Companies that
enter into definitive acquisition or merger agreements or asset purchase
agreements with the Purchaser in anticipation of a simultaneous acquisition by
Purchaser and Initial Public Offering.
1.36. GAAP shall mean generally accepted accounting principles in the
United States set forth in the Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and in statements by the
Financial Accounting Standards Board or in such other statement by such other
entity as may be generally recognized as the successors for the aforementioned;
and shall also mean that the accounting principles observed in a current period
are comparable in all material respects to those applied in a preceding period
unless specific exemption is noted in the financial statements where a change of
accounting method, principle or presentation has occurred.
1.37. Governmental or Regulatory Authority shall mean any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the government of the United States or of any foreign country, any state or any
political subdivision of any such government (whether state, provincial, county,
city, municipal or otherwise).
1.38. Indemnifiable Losses shall mean all liabilities, obligations, claims,
demands, damages, penalties, settlements, causes of action, costs and expenses.
Indemnifiable Losses shall include, without limitation, the actual costs paid in
connection with an Indemnified Party's investigation and evaluation of any claim
or right asserted against such Indemnified Party and all reasonable attorneys',
experts' and accountants' fees, expenses and disbursements and court costs,
including, without limitation, those incurred in connection with the Indemnified
Party's enforcement of this Agreement and the indemnification provisions of
Article 10 of this Agreement.
1.39. Indemnified Party shall have the meaning set forth in Section
10.3(a).
1.40. Indemnifying Party shall have the meaning set forth in Section
10.3(a).
1.41. Indemnity Notice shall have the meaning set forth in Section 10.3(a).
1.42. Initial Public Offering shall mean the Purchaser's initial public
offering of the Purchaser's common stock registered under the Securities Act.
1.43. Initial Public Offering Price shall mean the price to the public of
the DocuNet Common Stock sold in the Initial Public Offering.
1.44. Intellectual Property shall mean all patents, patent rights, patent
applications, registered trademarks and service marks, trademark rights,
trademark applications, service xxxx rights, service xxxx applications, trade
names, registered copyrights, copyright
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rights and all intellectual, industrial or proprietary rights and trade secrets,
technology and know-how relating to the Business, in each case together with any
amendments, modifications and supplements thereto.
1.45. Interim Financial Statements shall have the meaning set forth in
Section 3.12(b).
1.46. Inventory shall mean all inventory incremental or relating to, or
used in connection with the Business including, without limitation, all
supplies, work in process and finished goods.
1.47. IRS means the Internal Revenue Service or any successor organization
thereto.
1.48. Knowledge shall mean with respect to any representation, warranty or
statement of any party in this Agreement that is qualified by such party's
"knowledge," the actual knowledge of such party or of any officer or director of
such party, or (i) in the case of any such officer or director, that knowledge
that a reasonably prudent officer or director should have if such person duly
performed his or her duties as an officer or director of such party or any of
such party's Subsidiaries, or made reasonable and diligent inquiry and exercised
due diligence with respect thereto, of the matter to which such qualification
applies, and (ii) in the case of any of the Sellers, that knowledge that such
Seller should have if such Seller made reasonable and diligent inquiry and
exercised due diligence with respect thereto.
1.49. Legal Proceeding shall mean any action, suit, arbitration, claim or
investigation by or before any Governmental or Regulatory Authority, any
arbitration or alternative dispute resolution panel, or any other legal,
administrative or other proceeding.
1.50. Material Adverse Effect shall mean an effect which is or would be
materially adverse to the Business and Properties (including Intellectual
Property), the prospects for the Business, or the condition (financial or
otherwise) or results of operation, of the Company.
1.51. Merger means the merger of the Company with and into Newco pursuant
to this Agreement and the applicable provisions of the laws of the Commonwealth
of Pennsylvania and other applicable state laws.
1.52. [Intentionally omitted.]
1.53. Newco Stock shall mean the common stock, $.01 par value per share, of
Newco.
1.54. Order shall mean any judgment, order, writ, decree, injunction or
other determination whatsoever of any Governmental or Regulatory Authority or
any other entity or
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body whose finding, ruling or holding is legally binding or is enforceable as a
matter of right (in any case, whether preliminary or final).
1.55. PBGC means the Pension Benefit Guaranty Corporation or any successor
organization thereto.
1.56. Permits shall mean all licenses, permits, certificates of authority,
authorizations, approvals, registrations, franchises, rights, orders,
qualifications and similar rights or approvals granted or issued by any
Governmental or Regulatory Authority relating to the Business of the Company or
any of its Subsidiaries.
1.57. Person shall mean any natural person, corporation, general
partnership, limited partnership, limited liability company, proprietorship,
joint venture, trust, association, union, entity, or other form of business
organization or any Governmental or Regulatory Authority whatsoever.
1.58. Potential Founding Company shall mean any person or entity entering
into a letter of intent with the Purchaser, or its Affiliates, to participate in
the simultaneous acquisition by Purchaser and Initial Public Offering.
1.59. Pricing shall mean the determination by Purchaser and the
Underwriters of the public offering price of the shares of DocuNet Common Stock
in the Initial Public Offering.
1.59A. Pricing Date shall mean the date on which the Pricing takes place.
1.60. Property shall mean the Real Property, Intellectual Property and
Tangible Personal Property of the Company.
1.61. Purchaser Financing Transaction shall mean the Initial Public
Offering, any other offering by the Purchaser or any of its Subsidiaries of any
securities, whether debt or equity, or any other financing or credit arrangement
sought by the Purchaser or any of its Subsidiaries.
1.62. Purchaser's CAWCA Response Notice shall have the meaning set forth in
Section 2.8(c).
1.62A. Purchaser's CDA Response Notice shall have the meaning set forth in
Section 2.8(b).
1.63. Real Property shall mean all real property leased to the Company or
any of its Subsidiaries.
1.64. Receivables shall have the meaning set forth in Section 3.27.
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1.65. Regulatory Approvals shall mean all Consents from all Governmental or
Regulatory Authorities.
1.66. Related Companies shall have the meaning set forth in Section 8.2(a).
1.67. Requirement of Law shall mean, with respect to any Person, such
Person's articles or certificate of incorporation, by-laws or other governing or
constitutive documents, if any, and any provision of law, statute, treaty, rule,
regulation, ordinance or pronouncement having the effect of law, or any Order,
to which, in each case, such Person or any of such Person's properties,
operations, business or assets is bound or subject.
1.68. Restricted Area shall have the meaning set forth in Section 8.2(a).
1.69. Restricted Business shall have the meaning set forth in Section
8.2(a).
1.70. Restricted Period shall mean, with respect to each Seller, the period
commencing on the Closing Date and ending on the later of (i) the first
anniversary of the date on which such Seller's employment with the Purchaser, if
any, expires, is not renewed, or is otherwise terminated, and (ii) the fifth
anniversary of the Closing Date, as such period may be extended pursuant to
Section 8.3(b); provided that the reference to "fifth anniversary" in this
clause (ii) shall be automatically changed to "fourth anniversary" if the
average closing price of the DocuNet Common Stock during any 20-trading day
period within the 60-day period prior to or following the date on which such
Seller's employment with the Purchaser terminates is less than 50% of the
Initial Public Offering Price (as adjusted proportionately for any stock splits,
stock dividends or reverse stock splits).
1.71. Securities Act shall mean the Securities Act of 1933 and the rules
and regulations promulgated thereunder, as amended and supplemented from time to
time, or any successors thereto.
1.72. Sellers' CDA Objection shall have the meaning set forth in Section
2.8(b).
1.73. [Intentionally omitted].
1.74. Shares shall mean shares of Common Stock of the Company.
1.75. Stock Purchase Price shall have the meaning set forth in Section 2.9.
1.76. Surviving Corporation shall mean Newco as the surviving party in the
Merger.
1.77. Subsidiary shall mean, with respect to any Person, any Person of
which securities or other ownership interests having ordinary voting power to
select a majority of the
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board of directors or other persons serving similar functions are at the time
directly or indirectly owned by such Person.
1.78. Tangible Personal Property shall have the meaning set forth in
Section 3.16.
1.79. Taxes shall mean (i) any tax, charge, fee, levy or other assessment
including, without limitation, any net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, payroll, employment,
social security, unemployment, excise, estimated, stamp, occupancy, occupation,
property or other similar taxes, including any interest or penalties thereon,
and additions to tax or additional amounts imposed by any federal, state, local
or foreign governmental authority, domestic or foreign (a "Taxing Authority") or
(ii) any liability for the payment of any taxes, interest, penalty, addition to
tax or like additional amount resulting from the application of Treasury
Regulation ss.1.1502-6 or comparable Requirement of Law.
1.80. Tax Returns shall mean any declaration, return, report, estimate,
information return, schedule, statements or other document filed or required to
be filed with, or when none is required to be filed with a Taxing Authority, the
statement or other document issued by, a Taxing Authority.
1.81. Trade Accounts Receivable shall mean, as of the applicable date, the
Company's trade accounts receivable associated with the Business.
1.82. Underwriter shall have the meaning set forth for that term in Section
2(a)(11) of the Securities Act.
1.83. Unliquidated Indemnity Notice shall have the meaning set forth in
Section 10.3(b).
1.84. [Intentionally omitted.]
1.84A. Value shall have the meaning set forth in Section 2.8(b).
ARTICLE 2
THE MERGER
2.1. Delivery and Filing of Articles of Merger. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and filed
with the Secretary of State of the Commonwealth of Pennsylvania and the
Secretary of State of the State of Nebraska and stamped receipt copies of each
such filing to be delivered to Purchaser on or before the Closing Date.
2.2. Effective Time of the Merger. At the Effective Time of the Merger, the
Company shall be merged with and into Newco in accordance with the Articles of
Merger, the separate existence of the Company shall cease, Newco shall be the
surviving party in the Merger and
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Newco is sometimes hereinafter referred to as the Surviving Corporation. The
Merger will be effected in a single transaction.
2.3. Certificate of Incorporation, By-laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of Newco then in effect
shall be the Certificate of Incorporation of the Surviving Corporation
until changed as provided by law;
(ii) the By-laws of Newco then in effect shall become the By-laws
of the Surviving Corporation; and subsequent to the Effective Time of
the Merger, such By-laws shall be the By-laws of the Surviving
Corporation until they shall thereafter be duly amended;
(iii) the Board of Directors of the Surviving Corporation shall
consist of the following persons: Xxxxx Xxxxxx, Xxxx Xxxxx, Xxx Xxxx,
Xxxx Xxxxxxx and S. Xxxxx Xxxxx. The Board of Directors of the
Surviving Corporation shall hold office subject to the provisions of
the laws of the Commonwealth of Pennsylvania and of the Certificate of
Incorporation and Bylaws of the Surviving Corporation; and
(iv) the officers of the Surviving Corporation shall be the
persons set forth on Schedule 2.3 hereto, each of such officers to
serve, subject to the provisions of the Certificate of Incorporation
and By-laws of the Surviving Corporation, until his or her successor
is duly elected and qualified.
2.4. Certain Information with Respect to the Capital Stock of the Company,
Purchaser and Newco. The respective designations and numbers of outstanding
shares and voting rights of each class of outstanding capital stock of the
Company, Purchaser and Newco as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and
outstanding capital stock of the Company is as set forth on Schedule
2.4 hereto;
(ii) immediately prior to the Closing Date, the authorized
capital stock of Purchaser will consist of 40 million shares of
DocuNet Common Stock, of which the number of issued and outstanding
shares will be set forth in the Registration Statement, and 10 million
shares of preferred stock, $.01 par value, of which no shares will be
issued and outstanding;
(iii) as of the date of this Agreement, the authorized capital
stock of Newco consists of 1,000 shares of Newco Stock, of which one
hundred (100) shares are issued and outstanding.
2.5. Effect of Merger. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the Pennsylvania
Business Corporation Law and the law of the State of Nebraska. Except as herein
specifically set forth, the identity, existence,
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purposes, powers, objects, franchises, privileges, rights and immunities of the
Company shall continue unaffected and unimpaired by the Merger and the corporate
franchises, existence and rights of the Company shall be merged with and into
the Newco, and Newco, as the Surviving Corporation, shall be fully vested
therewith. At the Effective Time of the Merger, the separate existence of the
Company shall cease and, in accordance with the terms of this Agreement, the
Surviving Corporation shall possess all the rights, privileges, immunities and
franchises, of a public, as well as of a private, nature, and all property,
real, personal and mixed, and all debts due on whatever account, including
subscriptions to shares, and all taxes, including those due and owing and those
accrued, and all other choses in action, and all and every other interest of or
belonging to or due to the Company and Newco shall be taken and deemed to be
transferred to, and vested in, the Surviving Corporation without further act or
deed; and all property, rights and privileges, powers and franchises and all and
every other interest shall be thereafter as effectually the property of the
Surviving Corporation as they were of the Company and Newco; and the title to
any real estate, or interest therein, whether by deed or otherwise, under the
laws of the state of incorporation vested in the Company and Newco, shall not
revert or be in any way impaired by reason of the Merger. Except as otherwise
provided herein, the Surviving Corporation shall thenceforth be responsible and
liable for all the liabilities and obligations of the Company and Newco and any
claim existing, or action or proceeding pending, by or against the Company or
Newco may be prosecuted as if the Merger had not taken place, or the Surviving
Corporation may be substituted in their place. Neither the rights of creditors
nor any liens upon the property of the Company or Newco shall be impaired by the
Merger, and all debts, liabilities and duties of the Company and Newco shall
attach to the Surviving Corporation, and may be enforced against the Surviving
Corporation to the same extent as if said debts, liabilities and duties had been
incurred or contracted by such Surviving Corporation.
2.6. Manner of Conversion. The manner of converting the shares of (i)
outstanding capital stock of the Company ("Company Stock") and (ii) Newco Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) DocuNet Common Stock and (y) common stock of
the Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of
the Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) the right to receive
the number of shares of DocuNet Common Stock provided in Section 2.9
hereof with respect to such holder and (2) the right to receive the
amount of cash provided in Section 2.9 hereof with respect to such
holder (collectively, the "Merger Consideration");
(ii) all shares of Company Stock that are held by the Company as
treasury stock shall be canceled and retired and no shares of DocuNet
Common Stock or other consideration shall be delivered or paid in
exchange therefor; and
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(iii) each share of Newco Stock issued and outstanding
immediately prior to the Effective Time of the Merger, shall, by
virtue of the Merger and without any action on the part of Purchaser,
automatically be converted into one fully paid and non-assessable
share of common stock of the Surviving Corporation which shall
constitute all of the issued and outstanding shares of common stock of
the Surviving Corporation immediately after the Effective Time of the
Merger.
All DocuNet Common Stock received by the Sellers pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Articles 13
and 14 hereof, have the same rights as all the other shares of outstanding
DocuNet Common Stock. All voting rights of such DocuNet Common Stock received by
the Sellers shall be fully exercisable by the Sellers and the Sellers shall not
be deprived nor restricted in exercising those rights.
2.7. Delivery of Shares. The Sellers shall deliver to Purchaser at the
Closing the certificates representing Company Stock in the amount set forth
opposite their name (with the appropriate pro rata percentage of aggregate
Shares outstanding indicated) on the Capitalization Table on Schedule 2.7
attached hereto, duly endorsed in blank by the Sellers, or accompanied by blank
stock powers, and with all necessary transfer tax and other revenue stamps,
acquired at the Sellers' expense, affixed and canceled. The Sellers agree
promptly to cure any deficiencies with respect to the endorsement of the stock
certificates or other documents of conveyance with respect to such Company Stock
or with respect to the stock powers accompanying any Company Stock.
2.8. Merger Consideration. As full consideration for the Merger and the
Common Stock, the Purchaser shall pay and deliver or cause to be paid and
delivered to the Sellers, in the manner set forth in this Section 2, the Merger
Consideration consisting of the Base Purchase Price (as hereinafter defined),
less the Debt Adjustment (as hereinafter defined), the Working Capital
Adjustment (as hereinafter defined) and, subject to Section 2.8(e) below, the
Net Book Value of Assets and Liabilities Adjustment (as hereinafter defined), on
the terms and conditions set forth below:
(a) Base Purchase Price. Subject to Section 2.9(c), the Base Purchase
Price shall be Six Million Five Hundred Thousand dollars ($6,500,000),
subject to adjustments as set forth herein (the "Base Purchase Price").
(b) Debt Adjustment. The Base Purchase Price shall be reduced, at
Closing, by 70.65 cents for each $1.00 of Debt reflected on the Closing
Balance Sheet of the Company and DocuTech, Inc. (the "Closing Debt
Amount"). The Debt shall mean all of the liabilities of the Company and
DocuTech, Inc., contingent or otherwise, except Adjusted Current
Liabilities, in accordance with GAAP. The Adjusted Current Liabilities
shall mean all of the liabilities of the Company and DocuTech, Inc which
would be classified as current liabilities in accordance with GAAP, except
current amounts of principal, interest or penalties due and owing: (i)
under promissory notes or lines of credit to lending institutions; (ii) to
an employee or an Affiliate of the Company or DocuTech,
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Inc., or the Sellers; (iii) to a lessor under a capital lease; or (iv) on
account of Taxes or earned insurance premiums. Promptly following the
Closing and in order to verify the accuracy of the adjustment made at
Closing, the Purchaser agrees to cause the internal accounting staff and
the independent certified public accountant of the Purchaser (the
"Accountants") to verify the Closing Debt Amount. The Accountants shall
issue a report as to their determination of the Closing Debt Amount (the
"Accountants' CDA Report") promptly after their determination of such
amount and the Purchaser shall deliver the Accountants' CDA Report to the
Sellers not later than sixty (60) days following the Closing Date. The
determination of the Closing Debt Amount by the Accountants shall be
conclusive and binding upon the parties hereto unless the Sellers shall
object to the Accountants' CDA Report within fifteen (15) days following
their receipt of the Accountants' CDA Report. The Sellers' objection, if
any, to the Accountants' CDA Report (the "Sellers' CDA Objection") shall
set forth in reasonable detail the Seller's objection(s) to the
Accountants' CDA Report and the Sellers' calculation of the Closing Debt
Amount. Within ten (10) days after receipt of the Sellers' CDA Objection,
the Purchaser will notify the Sellers whether it accepts or disputes the
Sellers' adjustments, if any, which notification shall set forth in
reasonable detail the adjustments made by the Sellers which the Purchaser
continues to dispute (the "Purchaser's CDA Response Notice"). If the
Sellers do not object to the Accountants' CDA Report, or if the Purchaser
agrees to accept the Sellers' adjustments to the Accountants' CDA Report,
then the adjustment based on the then final Closing Debt Amount (the "Final
Debt Amount"), if any, shall be paid by the Sellers to the Purchaser in
immediately available funds within five (5) business days of such
acceptance. If such amount is not received by Purchaser within such time
period, it shall be paid from the Escrow Amount pursuant to the Escrow
Agreement and the Sellers shall be obligated to replenish the Escrow Amount
by depositing with the Escrow Agent upon such payment either cash in a like
amount or a number of shares of DocuNet Common Stock having an aggregate
Value (as defined below) equal to such amount. The term "Value" in respect
of a share of DocuNet Common Stock shall mean the lower of the Initial
Public Offering Price and the average closing price of the DocuNet Common
Stock during the 20 trading- day period ending immediately prior to the
applicable payment date. If the Sellers object to the Accountants' CDA
Report as set forth above and the Purchaser does not accept the Sellers'
proposed adjustments, then an independent accounting firm mutually
satisfactory to the Sellers and the Purchaser shall be engaged to determine
the amount of the Closing Debt Amount and the Final Debt Amount, based upon
the calculations of the independent accountants, and any adjustments of
Base Purchase Price based on the amount determined as provided above shall
be paid to the Purchaser in immediately available funds within five (5)
business days of the determination of such amount by such accounting firm.
If such amount is not received by Purchaser within such time period, such
amount shall be paid from the Escrow Amount pursuant to the Escrow
Agreement and the Sellers shall be obligated to replenish the Escrow Amount
by depositing with the Escrow Agent upon such payment either cash in a like
amount or a number of shares of DocuNet Common Stock having an aggregate
Value equal to such amount. The parties hereto agree to cooperate fully
with such independent accountants at their own cost and expense, including,
but not limited to,
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providing such independent accountants with access to, and copies of, all
books and records that they shall reasonably request. The Purchaser and the
Sellers shall each bear one-half of all of the costs and expenses of such
independent accounting firm, and if the parties hereto are unable to agree
upon an independent accounting firm, the Sellers and the Purchaser will
request that one be designated by the President of the Philadelphia office
of the American Arbitration Association.
(c) Working Capital Adjustment. The Base Purchase Price shall be
further reduced, at Closing, by 70.65 cents for each $1.00 that the
Combined Adjusted Working Capital of the Company and of DocuTech, Inc. (as
hereinafter defined) is less than $400,000 on the Closing Date (the
"Closing Adjusted Working Capital Amount"). The Combined Adjusted Working
Capital shall mean the current assets of the Company and of DocuTech, Inc.,
plus deferred revenue of DocuTech, Inc. and the Company and less Adjusted
Current Liabilities of the Company and DocuTech, Inc., calculated pursuant
to GAAP. Promptly following the Closing, and in order to verify the
accuracy of the adjustment made at the Closing, the Purchaser agrees to
cause the Accountants to verify the amount of the Closing Adjusted Working
Capital Amount. The Accountants shall issue a report as to their
determination of the Closing Adjusted Working Capital Amount (the
"Accountants' CAWCA Report") promptly after their determination of such
amount and the Purchaser shall deliver the Accountants' CAWCA Report to the
Sellers no later than sixty (60) days following the Closing Date. The
determination of the Closing Adjusted Working Capital Amount by the
Accountants shall be conclusive and binding upon the parties hereto unless
the Sellers shall object to the Accountants' CAWCA Report within fifteen
(15) days following their receipt of the Accountants' CAWCA Report. The
Sellers' objection, if any, to the Accountants' CAWCA Report (the "Sellers'
CAWCA Objection") shall set forth in reasonable detail the Sellers'
objection(s) to the Accountants' CAWCA Report and the Sellers' calculation
of the Closing Adjusted Working Capital Amount. Within ten (10) days after
receipt of the Sellers' CAWCA Objection, the Purchaser will notify the
Sellers whether it accepts or disputes the Sellers' adjustments, if any,
which notification shall set forth in reasonable detail the adjustments
made by the Sellers which the Purchaser continues to dispute (the
"Purchaser's CAWCA Response Notice"). If the Sellers do not object to the
Accountants' CAWCA Report, or if the Purchaser agrees to accept the
Sellers' adjustments to the Accountants' CAWCA Report, then the adjustment
based on the then final Closing Adjusted Working Capital Amount (the "Final
Adjusted Working Capital Amount"), if any, shall be paid by Sellers to the
Purchaser in immediately available funds within five (5) business days of
such acceptance. If such amount is not received by Purchaser within such
time period, such amount shall be paid from the Escrow Amount pursuant to
the Escrow Agreement and Sellers shall be obligated to replenish the Escrow
Amount by depositing with the Escrow Agent upon such payment either cash in
a like amount or a number of shares of DocuNet Common Stock having an
aggregate Value equal to such amount. If the Sellers object to the
Accountants' CAWCA Report as set forth above and the Purchaser does not
accept the Sellers' proposed adjustments, then an independent accounting
firm mutually satisfactory to the Sellers and the Purchaser shall be
engaged to determine the amount of the Closing
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Adjusted Working Capital Amount and the Final Adjusted Working Capital
Amount, based upon the calculations of the independent accountants, and any
adjustments of Base Purchase Price based on the amount determined as
provided above shall be paid to the Purchaser in immediately available
funds within five (5) business days of the determination of such amount by
such accounting firm. If such amount is not received by Purchaser within
such time period, such amount shall be paid from the Escrow Amount pursuant
to the Escrow Agreement and Sellers shall be obligated to replenish the
Escrow Amount by depositing with the Escrow Agent upon such payment either
cash in a like amount or a number of shares of DocuNet Common Stock having
an aggregate Value equal to such amount. The parties hereto agree to
cooperate fully with such independent accountants at their own cost and
expense, including, but not limited to, providing such independent
accountants with access to, and copies of, all books and records that they
shall reasonably request. The Purchaser and the Sellers shall each bear
one-half of all of the costs and expenses of such independent accounting
firm, and if the parties hereto are unable to agree upon an independent
accounting firm, the Sellers and Purchaser will request that one be
designated by the President of the Philadelphia office of the American
Arbitration Association.
(d) Net Book Value of Assets and Liabilities Adjustment. The Base
Purchase Price shall be further reduced, at Closing, by 70.65 cents for
each $1.00 that the Net Book Value of the Combined Acquired Assets and
Liabilities of the Company and of DocuTech, Inc., as reflected on the
Closing Balance Sheet, is less than $700,000 on the Closing Date (the
"Closing Net Book Value Amount"). The Net Book Value of the Combined
Acquired Assets and Liabilities shall mean the Assets of the Company and
DocuTech, Inc., plus the deferred revenue of the Company and DocuTech, Inc.
and less (i) any intangible assets recorded by the Surviving Corporation to
reflect the merger and (ii) Adjusted Current Liabilities of the Company and
DocuTech, Inc., calculated pursuant to GAAP. Promptly following the
Closing, and in order to verify the accuracy of the adjustment made at the
Closing, the Purchaser agrees to cause the Accountants to verify the amount
of the Closing Net Book Value Amount. The Accountants shall issue a report
as to their determination of the Closing Net Book Value Amount (the
"Accountants' CNBVA Report") promptly after their determination of such
amount and the Purchaser shall deliver the Accountants' CNBVA Report to the
Sellers not later than sixty (60) days following the Closing Date. The
determination of the Closing Net Book Value Amount by the Accountants shall
be conclusive and binding upon the parties hereto unless the Sellers shall
object to the Accountants' CNBVA Report within fifteen (15) days following
their receipt of the Accountants' CNBVA Report. The Sellers' objection, if
any, to the Accountants' CNBVA Report (the "Sellers' CNBVA Objection")
shall set forth in reasonable detail the Sellers' objection(s) to the
Accountants' CNBVA Report and the Sellers' calculation of the Closing Net
Book Value Amount. Within ten (10) days after receipt of the Sellers' CNBVA
Objection, the Purchaser will notify the Sellers whether it accepts or
disputes the Sellers' adjustments, if any, which notification shall set
forth in reasonable detail the adjustments made by the Sellers which the
Purchaser continues to dispute (the "Purchaser's CNBVA Response Notice").
If the Sellers do not object to the
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Accountants' CNBVA Report, or if the Purchaser agrees to accept the
Sellers' adjustments to the Accountants' CNBVA Report, then the adjustment
based on the then final Closing Net Book Value Amount (the "Final Net Book
Value Amount"), if any, shall be paid by Sellers to the Purchaser in
immediately available funds within five (5) business days of such
acceptance. If such amount is not received by Purchaser within such time
period, such amount shall be paid from the Escrow Amount pursuant to the
Escrow Agreement and Sellers shall be obligated to replenish the Escrow
Amount by depositing with the Escrow Agent upon such payment either cash in
a like amount or a number of shares of DocuNet Common Stock having an
aggregate Value equal to such amount. If the Sellers object to the
Accountants' CNBVA Report as set forth above and the Purchaser does not
accept the Sellers' proposed adjustments, then an independent accounting
firm mutually satisfactory to the Sellers and the Purchaser shall be
engaged to determine the amount of the Closing Net Book Value Amount and
the Final Net Book Value Amount, based upon the calculations of the
independent accountants, and any adjustments of Base Purchase Price based
on the amount determined as provided above shall be paid to the Purchaser
in immediately available funds within five (5) business days of the
determination of such amount by such accounting firm. If such amount is not
received by Purchaser within such time period, such amount shall be paid
from the Escrow Amount pursuant to the Escrow Agreement and Sellers shall
be obligated to replenish the Escrow Amount by depositing with the Escrow
Agent upon such payment either cash in a like amount or a number of shares
of DocuNet Common Stock having an aggregate Value equal to such amount. The
parties hereto agree to cooperate fully with such independent accountants
at their own cost and expense, including, but not limited to, providing
such independent accountants with access to, and copies of, all books and
records that they shall reasonably request. The Purchaser and the Sellers
shall each bear one-half of all of the costs and expenses of such
independent accounting firm, and if the parties hereto are unable to agree
upon an independent accounting firm, the Sellers and Purchaser will request
that one be designated by the President of the Philadelphia office of the
American Arbitration Association.
(e) Multiple Adjustments. Notwithstanding anything herein to the
contrary, if a payment is due from Sellers to Purchaser on account of the
Working Capital Adjustment and the Net Book Value of Assets and Liabilities
Adjustment, Sellers shall only be obligated to pay the greater of the two
adjustment amounts to Purchaser.
2.9. Delivery of Merger Consideration. On the Closing Date the Sellers, who
are the holders of all outstanding certificates representing shares of Company
Stock, shall, upon surrender of such certificates, receive the Merger
Consideration payable as follows:
(a) Stock Purchase Price. Subject to Section 2.9(c), a number of
shares of DocuNet Common Stock equal to (i) $3,753,750 (the "Stock Purchase
Price"), divided by (ii) the Initial Public Offering Price, shall be issued
at Closing to Sellers in the individual amount for each Seller as indicated
on Schedule 2.4 attached hereto.
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(b) Cash Purchase Price. In addition, an aggregate amount equal to the
Base Purchase Price less (i) the Stock Purchase Price and (ii) the
reductions, if any, to be made at Closing pursuant to Sections 2.8(b),
2.8(c) and 2.8(d), shall be payable at the Closing in cash to the Sellers
("Cash Purchase Price"). The specific amount of the Cash Purchase Price
shall be payable to each of the Sellers by a wire transfer to an account to
be designated by such DocuTech Shareholder in writing not less than three
(3) business days prior to the Closing, in the individual amount for each
DocuTech Shareholder as indicated on Schedule 2.9 attached hereto. If no
such designation is made, Purchaser will deliver a check in the appropriate
amount to the address of such DocuTech Shareholder as listed on the Books
and Records of the Company.
(c) Delivery into Escrow. Notwithstanding the foregoing, a number of
shares of DocuNet Common Stock equal to (i) $292,500 divided by (ii) the
Initial Offering Price be delivered at Closing to the Escrow Agent pursuant
to the Escrow Agreement by the Signatory Shareholders and $32,500 in cash
shall be delivered at Closing to the Escrow Agent pursuant to the Escrow
Agreement by Xxxxx Xxxxxxxx (together, the "Escrow Amount"), in the
individual amount for each Seller as indicated on Schedule 2.9 attached
hereto. The Escrow Amount shall be available to fund (but shall not be the
sole source of funding) any obligations of the Sellers under this Agreement
pursuant to the terms of the Escrow Agreement; provided, however, if the
amount of cash plus the value of the shares of DocuNet Common Stock (valued
at the Initial Public Offering Price) in the Escrow Amount falls below
$325,000 (the "Threshold Value") due to payment from the Escrow Amount
pursuant to Section 2.8 hereof, the Sellers shall contribute additional
cash or shares of DocuNet Common Stock to the Escrow Amount in an amount
necessary so that the amount of cash plus the value of the shares of
DocuNet Common Stock (valued at the Initial Public Offering Price) in the
Escrow Amount would equal the Threshold Value.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS
Except as set forth on the Disclosure Schedule delivered by the Company and
Sellers to the Purchaser on the date hereof (the "Disclosure Schedule"), the
section numbers of which are numbered to correspond to the section numbers of
this Agreement to which they refer, the Company and the Sellers hereby, jointly
and severally, represent and warrant to the Purchaser and Newco as follows:
3.1. Organization; Qualification; Good Standing.
(a) The Company and each of its Subsidiaries (i) are corporations duly
incorporated, validly existing and in good standing under the laws of the state
of their respective incorporation or organization, (ii) have the power and
authority to own and operate their respective properties and assets and to
transact their respective Businesses and (iii) are duly qualified and authorized
to do business and are in good standing in all jurisdictions where the
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failure to be duly qualified, authorized and in good standing would have a
Material Adverse Effect upon their respective Businesses, prospects, operations,
results of operations, assets, liabilities or condition (financial or
otherwise). Listed in the Disclosure Schedule is a true and complete list of all
jurisdictions in which the Company or any of its Subsidiaries is qualified to do
business.
(b) There is no Legal Proceeding or Order pending or, to the knowledge of
the Company or any of the Sellers, threatened against or affecting the Company
or any of its Subsidiaries revoking, limiting or curtailing, or seeking to
revoke, limit or curtail the Company's or any of its Subsidiaries' power,
authority or qualification to own, lease or operate their respective properties
or assets or to transact their respective Businesses.
(c) True and complete copies of the Company's and each of its Subsidiaries'
articles or certificate of incorporation, bylaws and other constitutive
documents are attached as part of the Disclosure Schedule. Except as set forth
in the Disclosure Schedule, the minute books of the Company and each of its
Subsidiaries, as heretofore made available to the Purchaser and Newco, are
correct and complete in all material respects.
3.2. Authorization for Agreement.
(a) The Company. The Company's execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby by the
Company: (i) are within the Company's corporate powers and duly authorized by
all necessary corporate and shareholder action on the part of the Company and
(ii) do not (A) require any action by or in respect of, or filing with, any
Governmental or Regulatory Authority, (B) contravene, violate or constitute,
with or without the passage of time or the giving of notice or both, a breach or
default under, any Requirement of Law applicable to the Company or any of its
properties or any Contract to which the Company or any of its properties is
bound or subject or (C) result in the creation of any Adverse Claim on any of
the Shares.
(b) Individual Sellers. Each Seller's execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
by each of the Sellers (i) are within the powers and authority of each of the
Sellers and (ii) do not (A) require any action by or in respect of, or filing
with, any Governmental or Regulatory Authority, (B) except as set forth in the
Disclosure Schedule, contravene, violate or constitute, with or without the
passage of time or the giving of notice or both, a breach or default under, any
Requirement of Law applicable any of them or any of their respective properties
or any Contract to which any of them or any of their respective properties is
bound or subject or (C) result in the creation of any Adverse Claim on any of
the Shares.
3.3. Capitalization; Subsidiaries and Affiliates.
(a) The Company. The authorized capital stock of the Company consists of
10,000 shares of a single class of common stock, having a par value of $1.00 per
share, all of which are issued and outstanding and collectively owned by the
Sellers as set forth in
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the Capitalization Table. The Company does not have any other authorized class
or classes of securities of any kind, whether debt or equity. All of the Shares
are validly issued, fully paid and non-assessable and have not been issued in
violation of applicable securities laws or of any preemptive rights or other
rights to subscribe for, purchase or otherwise acquire securities. The Company
does not hold any shares of its capital stock in its treasury or otherwise, and
no shares of the Company's capital stock are reserved by the Company for
issuance.
(b) Subsidiaries. Attached as part of the Disclosure Schedule is a complete
and accurate list of all the Company's Subsidiaries, showing the percentage of
Company's ownership or control of, as well as the identity of any other owners
and the percentage of each such other owner's ownership of, the outstanding
capital stock of, or other ownership interest in, each Subsidiary. The
authorized capital stock of each Subsidiary currently consists of a single class
of common stock, the number of authorized shares and par value of which are set
forth opposite each such Subsidiary's name in the Disclosure Schedule. No
Subsidiary has any other authorized class or classes of securities of any kind,
whether debt or equity. All of the outstanding capital stock of each Subsidiary
has been validly issued, is fully paid and nonassessable, is free of any Adverse
Claims, and has not been issued in violation of applicable securities laws or of
any preemptive rights or other rights to subscribe for, purchase or otherwise
acquire securities. No Subsidiary holds any shares of its capital stock in its
treasury or otherwise, and no shares of any Subsidiary's capital stock are
reserved by such Subsidiary for issuance. Except as set forth in the Disclosure
Schedule, neither the Company nor any Subsidiary owns or controls, directly or
indirectly, any debt, equity or other financial or ownership interest in any
other Person.
(c) Affiliates. Included in the Disclosure Schedule is a complete and
accurate list of all Persons (other than the Sellers or any of the Persons
described in the first sentence of Section 1.3, subpart (iii)) that are
Affiliates of the Company, detailing the nature of the relationship between the
Company and each such Person that causes such Person to be an Affiliate of the
Company.
(d) No Acquisitions. Since the Balance Sheet Date, neither the Company nor
any of its Subsidiaries has acquired, or agreed to acquire, whether by merger or
consolidation, by purchase of equity interests or assets, or otherwise, any
business or any other Person, or otherwise acquired, or agreed to acquire, any
assets that are material, either individually or in the aggregate, to the
Company and its Subsidiaries taken as a whole.
(e) No Other Securities. There are (i) no outstanding subscriptions,
warrants, options, rights, agreements, convertible securities or other
commitments or instruments pursuant to which the Company or any of its
Subsidiaries is or may become obligated to issue, sell, repurchase or redeem any
shares of capital stock or other securities, whether debt or equity, of the
Company or any of its Subsidiaries and (ii) no preemptive, contractual or
similar rights to purchase or otherwise acquire shares of capital stock of the
Company or of any of its Subsidiaries pursuant to any Requirement of Law
applicable to the Company or any such Subsidiary, as
-20-
applicable, or any Contract to which the Company or any such Subsidiary is a
party or may otherwise be bound or subject.
3.4. Enforceability. This Agreement has been duly executed and delivered by
the Company and each of the Sellers and constitutes the legal, valid and binding
obligation of the Company and each of the Sellers, enforceable against each of
them in accordance with its terms.
3.5. Matters Affecting Shares; Title to Shares. Each Seller has full legal
and beneficial title to his or her Shares and has full power, right and
authority to sell and deliver such Shares in accordance with this Agreement,
free of any Adverse Claims. There are no existing agreements, subscriptions,
options, warrants, calls, commitments, conversion rights or other rights of any
character to purchase or otherwise acquire from any Seller at any time, or upon
the happening of any event, any of the Shares.
3.6. Predecessor Status; etc. Included in the Disclosure Schedule is a
listing of all names of all predecessor companies for the past five years of the
Company, including the names of any entities from whom the Company previously
acquired material assets outside the ordinary course of business. Except as
disclosed in the Disclosure Schedule, the Company has not been a subsidiary or
division of another corporation or a part of an acquisition which was later
rescinded.
3.7. Spin-off by the Company. Except as set forth in the Disclosure
Schedule, there has not been any sale, spin-off or split-up of material assets
or subsidiaries of the Company or any other Affiliate, other than in the
ordinary course of business, within the preceding two years.
3.8. Legal Proceedings.
(a) Sellers. There is no Legal Proceeding or Order pending against, or to
the knowledge of any Seller, threatened against or affecting, any Seller or any
of his or her properties or otherwise, that could adversely affect or restrict
the ability of any Seller to consummate fully the transactions contemplated by
this Agreement or that in any manner could draw into question the validity of
this Agreement. None of the Sellers has knowledge of any fact, event, condition
or circumstance that could reasonably be expected to give rise to the
commencement of any Legal Proceeding or the entering of any Order against any of
the Sellers that could adversely affect or restrict the ability of any Seller to
consummate fully the transactions contemplated by this Agreement or that in any
manner could draw into question the validity of this Agreement.
(b) The Company and Subsidiaries. The Disclosure Schedule completely and
accurately lists and fully describes all Orders outstanding against the Company
or any of its Subsidiaries. In addition, the Disclosure Schedule completely and
accurately lists and fully describes each pending, and, to the Company's or any
of the Seller's knowledge, each threatened, Legal Proceeding that has been
commenced, brought or asserted by (i) the Companyor any of its Subsidiaries, as
the case may be, against any Person or (ii) any Person against the
-21-
Company or any of its Subsidiaries, as the case may be. Neither the Company nor
any of the Sellers have knowledge of the existence of any fact, event, condition
or circumstance that could reasonably be expected to give rise to the
commencement of any Legal Proceeding or the entering of any Order against either
the Company or any of its Subsidiaries by any Person.
3.9. Compliance with Laws. Each of the Company and its Subsidiaries is
operating in compliance with all Requirements of Law applicable to it or any of
its respective properties or to which the Company or any of its Subsidiaries or
any of their respective properties is bound or subject including, without
limitation, the Credit Acts. Except as set forth in the Disclosure Schedule,
since January 1, 1992, neither the Company or any of its Subsidiaries nor any of
the Sellers has received any notice from any Person concerning alleged
violations of, or the occurrence of any events or conditions resulting in
alleged noncompliance with, any Requirement of Law applicable to the Company or
any of its Subsidiaries or any of their respective properties or to which the
Company or any of its Subsidiaries or any of their respective properties is
bound or subject including, without limitation, any of the Credit Acts. None of
the Company, any of the Sellers, any of their respective Affiliates (other than
a Person who is an Affiliate solely by virtue of clause (iii) of the definition
thereof), or any of such Affiliates' respective Affiliates (other than a Person
who is an Affiliate solely by virtue of clause (iii) of the definition thereof)
has made any illegal kickback, bribe, gift or political contribution to or on
behalf of any customer, or to any officer, director, employee of any customer,
or to any other Person.
3.10. Labor Matters.
(a) Included in the Disclosure Schedule is a complete and accurate list of
all consulting or similar Contracts to which the Company or any of its
Subsidiaries is a party or may otherwise be bound or subject, and the
compensation to which each consultant is entitled under its respective Contract.
The Company and the Sellers have delivered or caused to be delivered to the
Purchaser and Newco true and complete copies of all such Contracts, each of
which is included in the Disclosure Schedule. Since the Balance Sheet Date,
neither the Company nor any of its Subsidiaries has increased the compensation
payable to its consultants or the rate of compensation payable to its
consultants. To the knowledge of the Company and the Sellers, no individuals
retained by the Company or any of its Subsidiaries as an independent contractor
or consultant would be reclassified by the IRS, the U.S. Department of Labor or
any other Governmental or Regulatory Authority as an employee of the Company or
of any of its Subsidiaries for any purpose whatsoever.
(b) Included in the Disclosure Schedule is a complete and accurate list of
the name of each employee of the Company and of each of its Subsidiaries,
together with such employee's position or function, the rate of hourly, monthly
or annual compensation (as the case may be) paid or to be paid to such employee
in 1995, 1996 and, to the extent known, 1997, any accrued sick leave or pay or
vacation and any incentive or bonus arrangement with respect to any such
employee. Except as is set forth in the Disclosure Schedule, since the Balance
Sheet Date, neither the Company nor any of its Subsidiaries has increased the
compensation payable to its employees or the rate of compensation payable to its
employees. The Disclosure Schedule also
-22-
identifies those employees with whom the Company or any of its Subsidiaries has
entered into an employment Contract or a Contract obligating the Company or any
such Subsidiary to pay severance or similar payments to any employee. The
Company and the Sellers have delivered or caused to be delivered to the
Purchaser and Newco true and complete copies of such Contracts, all of which are
attached to the Disclosure Schedule.
(c) To the knowledge of the Company or any of the Sellers, there are no
threatened or contemplated attempts to organize for collective bargaining
purposes any of the employees of the Company or any of its Subsidiaries. Neither
the Company nor any of its Subsidiaries is a party to or bound by any collective
bargaining agreement and no collective bargaining agreement covering any of such
employees is currently being negotiated.
(d) There is no, and since January 1, 1992 there has been no, work
stoppage, strike, slowdown, picketing or other labor disturbance or controversy
by or with respect to any of the employees of the Company or any of its
Subsidiaries. In addition, no dispute with or claim against the Company relating
to any labor or employment matter including, without limitation employment
practices, discrimination, terms and conditions of employment, or wages and
hours, is outstanding or, to either of the Company or the Sellers' knowledge, is
threatened. There is no claim or petition pending before, and at no time since
January 1, 1992 has there been, any claim or petition made to, any Governmental
or Regulatory Authority including, without limitation, the National Labor
Relations Board or the Equal Employment Opportunity Commission against the
Company or any of its Subsidiaries with respect to any labor or employment
matter.
3.11. Employee Benefit Plans.
(a) The Disclosure Schedule sets forth a complete and accurate list and
description of each Employee Benefit Plan. With respect to each Employee Benefit
Plan, the Company and the Sellers have delivered or caused to be delivered to
the Purchaser and Newco true and complete copies of (i) the plan document, trust
agreement and any other document governing such Employee Benefit Plan, (ii) the
summary plan description, (iii) all Form 5500 annual reports and attachments,
and (iv) the most recent IRS determination letter, if any, for such plan.
(b) Each of the Employee Benefit Plans has been operated and administered
in compliance with their respective terms and all applicable Requirements of Law
including, without limitation, ERISA and the Code. The Company has not incurred
any "accumulated funding deficiency" within the meaning of ERISA or incurred any
liability to the PBGC in connection with any Employee Benefit Plan (or other
class of benefits that the PBGC has elected to insure).
(c) Each Employee Benefit Plan that is intended to be tax qualified under
the Code is identified as such on the Disclosure Schedule attached to this
Agreement. Each such Employee Benefit Plan has received, or the Company has
applied for or will in a timely
-23-
manner apply for, a favorable determination letter from the IRS stating that
such Employee Benefit Plan meets the requirements of the Code and that any trust
or trusts associated therewith are tax exempt under the Code.
(d) The Company does not maintain any "defined benefit plan" covering
employees of the Company or any of its Subsidiaries within the meaning of
Section 3(35) of ERISA subject to Title IV of ERISA or any "Multiemployer Plan"
within the meaning of Section 401(a)(3) of ERISA.
(e) All contributions and payments of insurance premiums required to be
made with respect to the Employee Benefit Plans including, without limitation,
the payment of the applicable premiums on any insurance Contract funding an
Employee Benefit Plan, have been fully paid in such a manner as not to cause any
interest, penalties or other amounts that have not been satisfied or discharged
to be assessed against the Company or any of its Subsidiaries with respect
thereto.
(f) The Company has complied with the reporting and disclosure requirements
of ERISA applicable to the Employee Benefit Plans and the continuation coverage
requirements of the Code and ERISA applicable to any of the Employee Benefit
Plans.
(g) There has been no "prohibited transaction" or "reportable event" within
the meaning of the Code or ERISA within the last sixty (60) months, or breach of
fiduciary duty with respect to any of the Employee Benefit Plans that could
subject the Purchaser, the Surviving Corporation, the Company or any of their
respective Subsidiaries to any tax, penalty or other liability under the Code or
ERISA.
(h) No Employee Benefit Plan has been terminated within the past sixty (60)
months. There are no Legal Proceedings or claims with respect to any of the
Employee Benefit Plans (other than routine claims for benefits from eligible
participants or beneficiaries in the normal and ordinary course of business)
pending or, to the knowledge of the Company or any of the Sellers threatened,
and to the knowledge of the Company or any of the Sellers, there are no facts,
events, conditions or circumstances that could give rise to any such Legal
Proceeding or claim (other than routine claims for benefits from eligible
participants or beneficiaries in the normal and ordinary course).
(i) Neither the Company or any ERISA Affiliate has ever sponsored,
maintained or contributed to, or been obligated to contribute to, any employee
benefit plan subject to Title IV of ERISA or the minimum funding requirements of
Code Section 412.
(j) No Employee Benefit Plan provides post retirement medical benefits,
post retirement death benefits or any post retirement welfare benefits of any
fund whatsoever.
-24-
(k) There are no current or former employees of the Company or any of its
Subsidiaries who are on leave of absence under either of the Uniformed Services
Employment or Reemployment Rights Act or the Family Medical Leave Act.
(l) None of the Company, any of its Subsidiaries, or any of their
respective officers, directors or significant employees (as such term is defined
in Regulation S-K of the Securities Act), or any other Person has made any
statement or communication or provided any materials to any employee or former
employee of the Company of any of its Subsidiaries that provides for or could be
construed as a contract, agreement or commitment by the Purchaser or any of its
Affiliates to provide for any pension, welfare, or other employee benefit or
fringe benefit plan or arrangement to any such employee or former employee,
whether before or after retirement or separation or otherwise.
(m) The execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement will not result in any increase
in or acceleration of any obligation or liability under any Employee Benefit
Plan or to any employee or former employee of the Company or any of its
Subsidiaries.
3.12. Financial Statements.
(a) The Company and the Sellers have delivered or caused to be delivered to
the Purchaser and Newco a copy of the combined balance sheets of the Company and
DocuTech, Inc. as of December 31, 1995 and 1996 and the related combined
statements of operations, shareholders' equity and cash flows for the years then
ended, together with all proper exhibits, schedules and notes thereto
(collectively, the "Financial Statements"). A true and complete copy of the
Financial Statements is attached to the Disclosure Schedule. The Financial
Statements have been prepared in accordance with GAAP consistently applied
throughout the periods involved (except for changes required or permitted by
GAAP and noted thereon) and fairly represent the combined financial position of
the Company and DocuTech, Inc. and their Subsidiaries as of the date of such
Financial Statements and the combined results of operations and changes in
shareholders' equity and cash flows for the periods covered thereby.
(b) The Company and the Sellers have also delivered or caused to be
delivered to the Purchaser and Newco a true and complete copy of the unaudited
interim combined financial statements of the Company and DocuTech, Inc.
consisting of a combined balance sheet as of June 30, 1997 and the related
combined statements of operations, shareholders' equity and cash flows for the
six-month period then ended (collectively, the "Interim Financial Statements").
A true and complete copy of Interim Financial Statements is attached to the
Disclosure Schedule. The Interim Financial Statements are in accordance with the
books and records of the Company, DocuTech, Inc. and their Subsidiaries, all of
which have been maintained in accordance with good business practice and in the
normal and ordinary course of business, were prepared in accordance with GAAP
applied on a consistent basis (except for the absence of notes and subject to
normal year-end audit adjustments), and fairly present the financial position of
the Company, DocuTech, Inc. and their Subsidiaries as of the date thereof and
the combined
-25-
results of operations and changes in shareholders' equity and cash flows for the
periods covered thereby.
(c) Since the Balance Sheet Date, (i) the Company and each of its
Subsidiaries have operated, and each of the Sellers has caused the Company and
each of its Subsidiaries to operate, their respective Businesses in the normal
and ordinary course in a manner consistent with past practices, (ii) there has
been no development, event, condition, or circumstance that has had, or could
reasonably be expected to have, a Material Adverse Effect upon Company or any of
its Subsidiaries, except as disclosed on the Disclosure Schedule, (iv) neither
the Company nor any of its Subsidiaries has made or committed to make any
capital expenditure or capital addition or betterments in excess of an aggregate
of $10,000; and (v) neither the Company nor any of its Subsidiaries has made any
gift or contribution (charitable or otherwise) to any Person (other than gifts
made since the Balance Sheet Date which, in the aggregate, do not exceed
$5,000).
(d) On the Closing Date, the Company and the Sellers will also deliver or
caused to be delivered to the Purchaser and Newco a true and complete copy of
the Closing Balance Sheet. The Closing Balance Sheet will be in accordance with
the books and records of the Company, DocuTech, Inc. and their Subsidiaries, all
of which have been maintained in accordance with good business practice and in
the normal and ordinary course of business, and will be prepared in accordance
with GAAP applied on a consistent basis (except for the absence of notes and
subject to normal year-end audit adjustments).
3.13. Distributions. The Disclosure Schedule completely and accurately
lists and fully describes (i) all dividends, distributions, redemptions or
payments declared, accrued, accumulated or made in respect to any of the
Company's or any of its Subsidiaries' securities, whether debt or equity
(including, without limitation, the Shares), since January 1, 1992, (ii) any
other amounts paid or distributed since January 1, 1992 or required to be paid
or distributed to any Person in respect of any ownership, indebtedness or other
economic interest in the Company or any of its Subsidiaries, and (iii) any other
amounts to which any Person is entitled to receive pursuant to any dividend or
distribution right in respect of any such interest.
3.14. Absence of Undisclosed Liabilities. Except as and to the extent
reflected on, or fully reserved against in, the balance sheet of the Company set
forth in the Adjusted Balance Sheet at December 31, 1996, prepared in accordance
with GAAP and attached hereto as Schedule 3.14 (the "Company Balance Sheet"),
neither the Company nor any of its Subsidiaries has any liabilities or
obligations, whether direct or indirect, matured or unmatured, contingent or
otherwise, except for liabilities or obligations that were incurred consistently
with past business practice in or as a result of the normal and ordinary course
of business since December 31, 1996 ("Undisclosed Liabilities").
-26-
3.15. Real Property.
(a) Neither the Company nor any of its Subsidiaries owns any real property.
The Disclosure Schedule contains a complete and accurate list of all the
locations of all Real Property leased by the Company or any of the Subsidiaries
and the name and address of the lessor and, if a Person different than such
lessor, the manager thereof. The Company and the Sellers have delivered or
caused to be delivered to the Purchaser and Newco true and complete copies of
all Contracts related to Real Property (including, without limitation, all
leases and all management, service, supply, security, maintenance and similar
Contracts, and all attornment Contracts, subordination Contracts or similar
Contracts, and all other Contracts affecting or relating to the use and quiet
and peaceful enjoyment of the Real Property) to which the Company or any of its
Subsidiaries is a party or is otherwise bound or subject, and, in each case, all
amendments thereof, which relate to or affect any of the Real Property. Except
for the leases pertaining to the Real Property identified in and attached to the
Disclosure Schedule, none of the Sellers, the Company or any of its Subsidiaries
is a party to any Contract that commits or purports to commit the Company or any
of its Subsidiaries to purchase or otherwise acquire or lease any real property
including, without limitation, the Real Property.
(b) Each Contract relating to or affecting the Real Property (i) is in full
force and effect, (ii) affords the Company or such Subsidiary, as the case may
be, peaceful, undisturbed and exclusive possession of the applicable Real
Property, (iii) is free of all Adverse Claims, and (iv) constitutes a valid and
binding obligation of, and is enforceable in accordance with its terms against,
the respective parties thereto.
(c) The Company and each of its Subsidiaries has performed the obligations
required to be performed by it to date under all Contracts relating to or
affecting the Real Property and is not in default or breach thereof. In
addition, no party to any such Contract (i) has provided any notice to the
Company or any of its Subsidiaries of its intent to terminate or not renew any
such Contract, (ii) to the knowledge of the Company and the Sellers, has
threatened to terminate or not renew any such Contract or (iii) is, to the
knowledge of the Company and the Sellers, in breach or default under any
provision thereof, and, to the knowledge of the Company and the Sellers, no
event or condition has occurred, whether with or without the passage of time or
the giving of notice, or both, that would constitute such a breach or default.
(d) The Real Property is (i) in good condition and repair and there has
been no damage, destruction or loss to any of the Real Property that remains
unremedied to date (ordinary wear and tear excepted) and (ii) suitable to carry
out each of the Company's and its Subsidiaries' respective Business as conducted
thereon.
(e) There are no condemnation, appropriation or other proceedings involving
any taking of the Real Property pending, or to the knowledge of the Company or
any of the Sellers, threatened, against any of the Real Property.
-27-
(f) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Real Property, (ii) result in or give to any Person
any additional rights or entitlement to increased, additional, accelerated or
guaranteed rent or payments under any such Contract or (iii) result in the
creation or imposition of any Adverse Claim upon the Company or any of its
Subsidiaries or any of their respective assets under the terms of any such
Contract.
(g) The Disclosure Schedule indicates a summary description of all plans or
projects involving the opening of new physical locations, expansion of any
existing operating locations or the acquisition of any Real Property, the lease
of Real Property or acquisition of new businesses, with respect to which the
Company or any Subsidiary has made any expenditure in the two-years prior to the
date of this Agreement in excess of $10,000, or which if pursued by the Company
would require additional expenditures of capital in excess of $10,000.
3.16. Tangible Personal Property.
(a) The Company and each of its Subsidiaries owns or leases all such
properties as are presently used in the conduct of their respective Businesses
and operations. The Company and the Sellers have delivered or caused to be
delivered to the Purchaser and Newco true and complete copies of all material
Contracts (including, without limitation, leases and service, supply,
maintenance and similar Contracts) to which the Company and any of its
Subsidiaries is a party or is otherwise bound or subject, and all amendments
thereto, which relate to or affect any of the tangible personal property owned,
possessed or used by the Company or any of its Subsidiaries (the "Tangible
Personal Property"). A complete and accurate list of all such Contracts is set
forth in, and true and complete copies of such Contracts are attached to, the
Disclosure Schedule. Except (i) for those assets disposed of in the normal and
ordinary course of business since the Balance Sheet Date, (ii) with respect to
Tangible Personal Property that is leased or rented by the Company or any of its
Subsidiaries, and (iii) as otherwise set forth on the Disclosure Schedule, the
Company and each such Subsidiary, as the case may be, has good and valid title
to all of its Tangible Personal Property, including all items of Tangible
Personal Property reflected on the Company Balance Sheet, free of all Adverse
Claims.
(b) Since the Balance Sheet Date, neither the Company nor any of its
Subsidiaries has incurred or suffered any material physical damage, destruction,
theft or loss of their respective tangible items of material personal property,
whether owned or leased. All material Tangible Personal Property including,
without limitation, all computer hardware and software (including all operating
and application systems), is in good working order, condition and repair and
suitable to carry out each of the Company's and its Subsidiaries' respective
Businesses as conducted therewith.
(c) Each Contract relating to or affecting the Tangible Personal Property
(i) is in full force and effect, (ii) affords the Company or such Subsidiary, as
the case
-28-
may be, peaceful, undisturbed and exclusive possession of the applicable
Tangible Personal Property, (iii) is free of all Adverse Claims and (iv)
constitutes a valid and binding obligation of, and is enforceable in accordance
with its terms against, the respective parties thereto.
(d) The Company and each of its Subsidiaries has performed the obligations
required to be performed by it to date under all Contracts relating to or
affecting the Tangible Personal Property and is not in default or breach
thereof. In addition, no party to any such Contract (i) has provided any notice
to the Company or any of its Subsidiaries of its intent to terminate or not
renew any such Contract, (ii) to the knowledge of the Company and the Sellers,
has threatened to terminate or not renew any such Contract or (iii) is, to the
knowledge of the Company and the Sellers, in breach or default under any
provision thereof, and, to the knowledge of the Company and the Sellers, no
event or condition has occurred, whether with or without the passage of time or
the giving of notice, or both, that would constitute such a breach or default.
(e) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Tangible Personal Property, (ii) result in or give
to any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed rent or payments under any such Contract or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
such Contract.
3.17. Contracts.
(a) Attached to the Disclosure Schedule is a complete and accurate list of
each Contract described below to which either the Company or any of its
Subsidiaries or any of their respective properties is party or is otherwise
bound or subject:
(i) each Contract with the Company's or any of its Subsidiaries', as
applicable, customers (but only if such customers are among the Company's
twenty-five highest, in terms of dollar value of purchases, for the
twelve-month period ending on the Balance Sheet Date), dealers, brokers,
value added resellers or vendors (but only if such vendors are among the
Company's twenty-five highest, in terms of dollar value of sales, for the
twelve-month period ending on the Balance Sheet Date);
(ii) any Contract that creates a partnership or a joint venture or
arrangement that involves a sharing of profits (whether through equity
ownership, Contract or otherwise) with any other Person;
(iii) any Contract that purports to or has the effect of limiting
either the Company's or any such Subsidiaries' right to engage in, or
compete with any Person in, any business;
-29-
(iv) any Contract involving a pledge or encumbering of either
Company's or any of its Subsidiaries' assets or the incurrence by either
Company or any of its Subsidiaries of liabilities (other than liabilities
to render services to customers in the ordinary course of business) in any
one transaction or series of related transactions in excess of $10,000, or
that extend beyond one year from the date of this Agreement;
(v) any material Contract pursuant to which either the Company or any
of its Subsidiaries has created, incurred, assumed or guaranteed any
indebtedness other than for trade indebtedness incurred in the normal and
ordinary course of the Business;
(vi) any Contract not made in the normal and ordinary course of the
applicable Company's or Subsidiary's Business; and
(vii) any Contract that either (y) does not fit within one of the
foregoing categories described in (i) through (vi) above or (z) is not
otherwise identified in the Disclosure Schedule and that would be required
by Item 601(b)(10) of Regulation S-K promulgated under the Securities Act
to be attached as an exhibit to any registration statement on Form S-1
filed by either the Company or any of its Subsidiaries under the Act if the
Company were to file such a registration statement under the Act on the
date on which this representation and warranty is made.
(b) Each material Contract to which the Company or any of its Subsidiaries
or any of their respective properties is a party or is otherwise bound or
subject (i) is valid and binding on each of the parties thereto in accordance
with its terms, (ii) was made in the normal and ordinary course of the Business
and (iii) contains no provision or covenant prohibiting or limiting the ability
of the Company or any Subsidiary to operate their respective Businesses.
(c) No party to any material Contract to which the Company or any of its
Subsidiaries or any of their respective properties is a party or is otherwise
bound or subject (i) has provided any notice to the Company or any of its
Subsidiaries of its intent to terminate or withdraw its participation in any
such Contract, (ii) has, to the knowledge of the Company and the Sellers,
threatened to terminate or withdraw from participation in any such Contract or
(iii) is, to the knowledge of the Company and the Sellers, in breach or default
under any provision thereof, and, to the knowledge of the Company and the
Sellers, no event or condition has occurred, whether with or without the passage
of time or the giving of notice, or both, that would constitute such a breach or
default.
(d) Except as set forth in the Disclosure Schedule, no Consent of any party
to any material Contract to which the Company or any of its Subsidiaries or any
of their respective properties is a party or is otherwise bound or subject is
required in connection with the transactions contemplated by this Agreement.
(e) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person
-30-
any right of termination, non-renewal, cancellation, withdrawal, acceleration or
modification in or with respect to any material Contract to which the Company or
any of its Subsidiaries or any of their respective properties is a party or is
otherwise bound or subject, (ii) result in or give to any Person any additional
rights or entitlement to increased, additional, accelerated or guaranteed
payments under any such Contract or (iii) result in the creation or imposition
of any Adverse Claim upon the Company or any of its Subsidiaries or any of their
respective assets under the terms of any such Contract.
3.18. Insurance. Attached to the Disclosure Schedule is a complete and
accurate list of all insurance policies held by the Company and by each of its
Subsidiaries identifying all of the following for each such policy: (i) the type
of insurance; (ii) the insurer; (iii) the policy number; (iv) the applicable
policy limits, (v) the applicable periodic premium; and (vi) the expiration
date. Each such insurance policy is valid and binding and is and has been in
effect since the date of its issuance. All premiums due thereunder have been
paid, and neither the Company nor any of its Subsidiaries has received any
notice of any increase in premiums or of any cancellation, non-renewal or
termination in respect of any such policy. None of the Company or any of its
Subsidiaries are in default under any such policy in any respect. To the
knowledge of the Company or any of the Sellers, no such insurer is the subject
of insolvency proceedings. Neither the Company nor the Person to whom any such
insurance policy has been issued has received notice that any insurer under any
policy referred to in the Disclosure Schedule is denying liability with respect
to a claim thereunder or defending under a reservation of rights clause. Each of
the Company and its Subsidiaries has notified its insurance carriers of all
litigation and claims and facts which could reasonably be expected to give rise
to a claim, all of which are disclosed in the Disclosure Schedule (including
worker's compensation claims). The liability insurance maintained by the Company
is and has at all times prior to the date of this Agreement been on an
"occurrence" basis.
3.19. Proprietary Rights.
(a) Attached to the Disclosure Schedule is a complete and accurate list and
full description of each item of the Company's and each of its Subsidiaries
Intellectual Property together with, in the case of registered Intellectual
Property: the (i) applicable registration number; (ii) filing, registration,
issue or application date; (iii) record owner; (iv) country; (v) title or
description; and (vi) remaining life. In addition, the Disclosure Schedule
identifies whether each item of Intellectual Property is owned by the Company or
any of its Subsidiaries or possessed and used by the Company or such Subsidiary
under any Contract. The Intellectual Property constitutes valid and enforceable
rights and does not infringe or conflict with the rights of any other Person;
provided that to the extent the foregoing relates to Intellectual Property used
but not owned by the Company, such representation and warranty is given solely
to the knowledge of the Company and the Sellers.
(b) There is neither pending, nor to the Company's or any of the Sellers'
knowledge, threatened, any Legal Proceeding against the Company or any of its
Subsidiaries contesting the validity or right of the Company or any such
Subsidiary to use any of
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the Intellectual Property, and neither the Company nor any such Subsidiary has
received any notice of infringement upon or conflict with any asserted right of
others nor, to the Company's and the Sellers' knowledge, is there a basis for
such a notice. To the Company's and the Seller's knowledge, no Person, is
infringing the Company's or any of its Subsidiaries rights to the Intellectual
Property.
(c) Except as otherwise provided in the Disclosure Schedule, neither the
Company nor any of its Subsidiaries has any obligation to compensate others for
the use of any Intellectual Property. In addition, except as otherwise provided
on the Disclosure Schedule, neither the Company nor any of its Subsidiaries has
granted any license or other right to use, in any manner, any of the
Intellectual Property, whether or not requiring the payment of royalties.
(d) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Intellectual Property, (ii) result in or give to
any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments under any such Contract or (iii) result in
the creation or imposition of any Adverse Claim upon the Company or any of its
Subsidiaries or any of their respective assets under the terms of any such
Contract.
3.20. Environmental Matters.
(a) The Company and each of its Subsidiaries, and the operation of each of
their respective Businesses is and has been in compliance with all applicable
Environmental Laws.
(b) There have occurred no and there are no events, conditions,
circumstances, activities, practices, incidents, or actions on the part of, or
caused by, the Company (or, to the knowledge of the Company and the Sellers,
caused by a third party) that may give rise to any common law or statutory
liability, or otherwise form the basis of any Legal Proceeding, Order or action
involving or relating to the Company or any of its Subsidiaries, based upon or
related to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substance or wastes.
(c) To the knowledge of the Company and the Sellers, there is no asbestos
contained in or forming a part of any building, structure or improvement
comprising a part of any of the Real Property. To the knowledge of the Company
and the Sellers, there are no polychlorinated biphenyls (PCBs) present, in use
or stored on any of the Real Property. To the knowledge of the Company and the
Sellers, no radon gas or the presence of radioactive decay products of radon are
present on, or underground at any of the Real Property at levels beyond the
minimum safe levels for such gas or products prescribed by applicable
Environmental Laws.
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3.21. Permits.
(a) The Company, each of its Subsidiaries, and each of their respective
employees, independent contractors and agents has obtained and holds in full
force, and the Disclosure Schedule sets forth a complete and accurate list of,
all Permits that are necessary or advisable for the operation of their
respective Businesses. Neither the Company, any of its Subsidiaries nor any such
employee, independent contractor or agent is in noncompliance with the terms of
any such Permit.
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
acceleration or modification in or with respect to any such Permit, (ii) result
in or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under any such Permit or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
Permit.
(c) Except as set forth in the Disclosure Schedule, there is no Order
outstanding against the Company or any of its Subsidiaries, nor is there now
pending, or to the Company's or any of the Sellers' knowledge, threatened, any
Legal Proceeding, which could adversely affect any Permit required to be
obtained and maintained by the Company or any of its Subsidiaries.
3.22. Regulatory Filings. The Company and each of its Subsidiaries has
filed all registrations, filings, reports, or submissions that are required by
any Requirement of Law. All such filings were made in compliance with applicable
Requirements of Law when filed and no deficiencies have been asserted by any
Governmental or Regulatory Authority with respect to such filings and
submissions that have not been finally resolved.
3.23. Taxes and Tax Returns.
(a) The Company and each of its Subsidiaries has duly and timely filed all
Tax Returns. Each such Tax Return is true, accurate and complete. The Company
and each of its Subsidiaries has paid in full all Taxes for the period covered
by such Tax Return. All Taxes not yet due and payable have been withheld or
reserved for or, to the extent that they relate to periods on or prior to the
date of the Company Balance Sheet, are reflected as a liability thereon. The
Company duly and properly filed an election to be an S corporation and such
election is currently in effect, under section 1362 of the Code and the rules
and regulations promulgated thereunder. Such election has been in effect without
interruption, including without limitation any inadvertent termination which has
been reinstated, since the Company was incorporated. Since the Company was
incorporated, all of the current and former stockholders of the Company are and
have been permitted stockholders under Section 1362 of the Code and the rules
and regulations promulgated thereunder. The Company has never had a taxable year
in which it was other than an S corporation. The Company's federal S election is
recognized and given effect or
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the Company has made an appropriate and timely election to be treated as an S
corporation for state income taxation purposes in Nebraska. Such election was
made in 1995 and was effective as of the date of incorporation.
(b) The Company and each of its Subsidiaries has complied with all
applicable Requirements of Law relating to the payment and withholding of Taxes
(including, without limitation, withholding of Taxes pursuant to Section 1441
and 1442 of the Code, or similar provisions under any foreign Requirements of
Law) and have, within the time and in the manner prescribed by applicable
Requirements of Law, withheld from employee wages and paid over, in a timely
manner, to the proper Taxing Authorities all amounts required to be so withheld
and paid over under applicable law.
(c) No deficiency for any Taxes has been asserted or assessed against the
Company or any of its Subsidiaries that has not been resolved and paid in full
or fully reserved for and identified on the Company Balance Sheet and, to the
knowledge of the Company and the Sellers, no deficiency for any Taxes has been
proposed that has not been fully reserved for and identified on the Company
Balance Sheet. Neither the Company nor any of its Subsidiaries has received any
outstanding and unresolved notices from the IRS or any other Taxing Authority of
any proposed examination or of any proposed change in reported information
relating to the Company or any such Subsidiary. Except as set forth in the
Disclosure Schedule (which sets forth the nature of the proceeding, the type of
Tax Return, the deficiencies proposed or assessed and the amount thereof, and
the taxable year in question), no Legal Proceeding or audit or similar foreign
proceedings is pending with regard to any of the Company's or any of its
Subsidiaries' Taxes or Tax Returns.
(d) No waiver or comparable consent given by the Company or any of its
Subsidiaries regarding the application of the statute of limitations with
respect to any Taxes or Tax Returns is outstanding, nor, to the knowledge of the
Company and the Sellers, is any request for any such waiver or consent pending.
(e) There are no liens or encumbrances of any kind for Taxes upon any
assets or properties of the Company or any of its Subsidiaries other than for
Taxes not yet due and payable.
(f) Neither the Company nor any of its Subsidiaries has requested any
extension of time within which to file any Tax Return, which Tax Return has not
since been filed.
(g) Neither the Company nor any of its Subsidiaries is a party to any
Contract providing for the allocation or sharing of Taxes. Neither of the
Company nor any of its Subsidiaries has made any election under Section 341(f)
of the Code.
(h) Neither the Company nor any of its Subsidiaries has agreed to make, nor
is any of them required to make, any adjustment under Section 481(a) of the Code
for any period ending after the Closing Date by reason of a change in accounting
method or
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otherwise and neither the Company nor any of its Subsidiaries has any knowledge
that the IRS has proposed such adjustment or change in accounting method.
(i) None of the assets of the Company or any of its Subsidiaries is
required to be treated as owned by any other person pursuant to the "safe harbor
lease" provisions of former Section 168(f)(8) of the Code.
(j) Neither the Company nor any of its Subsidiaries is a party to any
venture, partnership, Contract or arrangement under which it could be treated as
a partner for federal income tax purposes.
(k) Neither the Company nor any of its Subsidiaries has a permanent
establishment located in any tax jurisdiction other than the United States, nor
are any of them liable for the payment of Taxes levied by any jurisdiction
located outside the United States.
(l) Other than in respect of a period for which a Tax is not yet due, no
state of facts exists or has existed that would constitute grounds for the
assessment of any Tax liability with respect to a period that has not been
audited by the IRS or any other Taxing Authority.
(m) No power of attorney has been granted by the Company or any of its
Subsidiaries with respect to any matter relating to Taxes that is currently in
force.
(n) Neither the Company nor any of its Subsidiaries is or has been a United
States real property holding company (as defined in Section 897(c)(2) of the
Code) during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code.
(o) Neither the Company nor any of its Subsidiaries is a party to any
Contract or arrangement that would result in the payment of any "excess
parachute payment" within the meaning of Section 280G of the Code.
(p) All transactions that could give rise to an understatement of federal
income tax (within the meaning of Section 6662 of the Code or any predecessor
provision thereof) have been adequately disclosed on the Tax Returns required in
accordance with Section 6662(d)(2)(B) of the Code or any predecessor provision
thereto.
(q) No election under Code ss.338 (or any predecessory provisions) has been
made by or with respect to the Company or any of its Subsidiaries or any of
their respective assets or properties.
(r) No indebtedness of the Company or any of its Subsidiaries is "corporate
acquisition indebtedness" within the meaning of Code ss.279(b).
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3.24. Investment Portfolio. Except as set forth in the Disclosure Schedule
attached to this Agreement, the Company's and each of its Subsidiaries'
investment portfolio consists solely of investments in one or more of the
following: (i) interest bearing deposit accounts (including certificates of
deposit) that are insured by the Federal Deposit Insurance Corporation, (ii)
direct obligations of the United States of America with a maturity not greater
than one year, (iii) short term money market funds or (iv) commercial paper of
any corporation organized under the laws of any State of the United States or
any bank organized or licensed to conduct a banking business under the laws of
the United States or any State thereof having the highest short-term rating
given by Xxxxx'x Investor's Services, Inc. and Standard and Poor's Corporation.
3.25. Affiliate Transactions. The Disclosure Schedule lists and fully
describes each Contract, transaction or series of transactions, whether written
or oral (other than for the compensation arrangements described in the
Disclosure Schedule under Section numbers 3.10, 3.11 and 3.28), pursuant to
which the Company or any of its Subsidiaries is, or, at any time during the
previous five (5) years has been, a party or otherwise bound with any Affiliate
of any Seller, the Company, any Subsidiary of the Company (an "Affiliate
Transaction"). Each Affiliate Transaction has been entered into the normal and
ordinary course of the Business.
3.26. Accounts, Power of Attorney. The Disclosure Schedule completely and
accurately states the names and addresses of each bank, financial institution,
fund, investment or money manager, brokerage house and similar institution in
which the Company or any of its Subsidiaries maintains any account (whether
checking, savings, investment, trust or otherwise), lock box or safe deposit box
(collectively, the "Accounts"), and the account numbers and name of the Persons
having authority to affect transactions with respect thereto or other access
thereto. The Disclosure Schedule also sets forth the name of each person,
corporation, firm or other entity holding a general or special power of attorney
from the Company or any Subsidiary and a description of the terms of such power.
3.27. Receivables. Except as set forth in the Disclosure Schedule, since
the Balance Sheet Date, neither the Company nor any of its Subsidiaries has
written-off any accounts receivable, notes receivable or other miscellaneous
receivables owing to the Company or any of its Subsidiaries (the "Receivables").
All Receivables currently owing to the Company or any of its Subsidiaries are
completely and accurately listed and aged in the Disclosure Schedule attached to
this Agreement. The Receivables arose from bona fide transactions in the normal
and ordinary course of business and reflect credit terms consistent with past
practice. The Company and each of its Subsidiaries has good and valid title to
their respective Receivables, free of all Adverse Claims. Neither the Company
nor any of its Subsidiaries has sold, factored, securitized, or consummated any
similar transaction with respect to any of its Receivables. Subject to proper
reserves taken into account in accordance with GAAP as reflected on the
Disclosure Schedule, each Receivable is fully collectable in the normal and
ordinary course of business (i.e. without resort to litigation or assignment to
a collection agency), and are not subject to any dispute, counterclaim, defense,
set-off or Adverse Claim.
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3.28. Officers and Directors.
(a) The Disclosure Schedule accurately and completely lists the names of
the Company's and each of its Subsidiaries' respective directors, executive
officers, and any of their respective significant employees (as such term is
defined in Regulation S-K under the Securities Act) and the compensation payable
to each of them to serve as such.
(b) Except as set forth on the Disclosure Schedule attached to this
Agreement, none of the Sellers or any of the current directors, current
executive officers or current significant employees (as such term is defined in
Section 3.28(a)) of either the Company or any of its Subsidiaries has, within
the past five (5) years:
(i) (x) filed or had filed against him or her a petition under the
Federal bankruptcy laws or any state insolvency or similar law, or (y) had
a receiver, conservator, fiscal agent or similar officer appointed by a
court for the business, property or assets of such individual, or any
partnership in which he or she was a general partner or any other Person of
which he or she was a director or an executive officer or had a position
having similar powers and authority at or within two (2) years of the date
of such filing;
(ii) been convicted of, or pled guilty or no contest to, any crime
(other than traffic offenses and other minor offenses);
(iii) been named as a subject of any criminal Legal Proceeding (other
than for traffic offenses and other minor offenses);
(iv) been the subject of any Order or sanction relating to an alleged
violation of, or otherwise found by any Governmental or Regulatory
Authority to have violated: (x) any Requirement of Law relating to
securities or commodities, (y) any Requirement of Law respecting financial
institutions, insurance companies, or fiduciary duties owed to any Person,
(z) any Requirement of Law prohibiting fraud (including, without
limitation, mail fraud or wire fraud);
(v) been the subject of any Order enjoining or otherwise prohibiting
him or her from engaging in any type of business activity; or
(vi) been the subject of any Order or sanction by (x) a self-
regulatory organization (as defined in Section 3(a)(26) of the Exchange
Act), (y) a contract market designated pursuant to Section 5 of the
Commodity Exchange Act, as amended, or (z) any substantially equivalent
foreign authority or organization.
3.29. Corporate Records. The Company's and each of its Subsidiaries'
corporate books and records, minutes of the meetings of the stockholders or
directors, stock books, corporate seal (if any) and any other similar books and
records are complete and accurate.
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3.30. Broker's or Finders. Except as set forth in the Disclosure Schedule,
neither the Company, any of its Subsidiaries nor any of the Sellers has engaged
the services of any broker or finder with respect to the transactions
contemplated by this Agreement, and no Person has or will have, as a result of
the consummation of the transaction contemplated by this Agreement, any right,
interest or valid claim against or upon the Purchaser, Newco or the Surviving
Corporation for any commission, fee or other compensation as a finder or broker
thereof on account of any action on the part of the Company, its Subsidiaries or
the Sellers. Without degradation to any of the foregoing, the Company, its
Subsidiaries and the Sellers are solely responsible for the payment of the
commissions, fees and other compensation payable to the Person having any such
right, interest or claim on account of any action on the part of the Company,
its Subsidiaries or the Sellers, including, without limitation, the Persons
identified on the Disclosure Schedule.
3.31. Customers. The Disclosure Schedule accurately and completely lists
the names of the twenty-five largest customers (in terms of dollar value of
purchases) of the Company and each of its Subsidiaries and details the Company's
and each such Subsidiary's total revenue attributable to each such customer for
the 1994, 1995 and 1996 fiscal years and the current fiscal year to date. Except
as set forth in the Disclosure Schedule, there has been no adverse change in the
Company's or any of its Subsidiaries' business relationship with any such
customer that, in the aggregate, would have a Material Adverse Effect upon the
Company or any such Subsidiary.
3.32. Investment Company. Neither the Company nor any of its Subsidiaries
is an "investment company" within the meaning of the Investment Company Act of
1940 and the rules and regulations promulgated thereunder, as amended from time
to time, or any successors thereto.
3.33. Absence of Changes. Since the Balance Sheet Date, except as set forth
on the Disclosure Schedule there has not been with respect to the Company and
any Subsidiary:
(i) any event or circumstance (either singly or in the aggregate)
which would constitute a Material Adverse Effect;
(ii) any change in its authorized capital, or securities outstanding,
or ownership interests or any grant of any options, warrants, calls,
conversion rights or commitments;
(iii) any declaration or payment of any dividend or distribution in
respect of its capital stock or any direct or indirect redemption, purchase
or other acquisition of any of its capital stock, except any declaration of
dividends payable by any Subsidiary to the Company;
(iv) any increase in the compensation, bonus, sales commissions or fee
arrangement payable or to become payable by it to any of its respective
officers, directors, stockholders, employees, consultants or
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agents, except for ordinary and customary bonuses and salary increases for
employees in accordance with past practice;
(v) any work interruptions, labor grievances or claims filed, or any
similar event or condition of any character that would have a Material
Adverse Effect;
(vi) any distribution, sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of any of its respective
business to any person, including, without limitation, the Sellers and
their affiliates, other than distributions, sales or transfers in the
ordinary course of business to persons other than the Sellers and their
affiliates;
(vii) any cancellation, or agreement to cancel, any material
indebtedness or other material obligation owing to it, including without
limitation any indebtedness or obligation of any Sellers or any affiliate
thereof, other than the negotiation and adjustment of bills in the course
of good faith disputes with customers in a manner consistent with past
practice;
(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of its assets, property
or rights or requiring consent of any party to the transfer and assignment
of any such assets, property or rights;
(ix) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, rights or assets outside of the
ordinary course of business;
(x) any waiver of any of its material rights or claims;
(xi) any transaction by them outside the ordinary course of their
respective businesses; or
(xii) any cancellation or termination of a material Contract.
3.34. Accuracy and Completeness of Information. To the knowledge of the
Company and the Sellers, all information furnished, to be furnished or caused to
be furnished to the Purchaser and Newco by the Company or any of the Sellers
with respect to the Sellers, the Company or any of its Subsidiaries for the
purposes of or in connection with this Agreement, or any transaction
contemplated by this Agreement is or, if furnished after the date of this
Agreement, shall be true and complete in all material respects and does not,
and, if furnished after the date of this Agreement, shall not, contain any
untrue statement of material fact or fail to state any material fact necessary
to make such information not misleading.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND NEWCO
The Purchaser and Newco hereby, jointly and severally, represent and
warrant to the Sellers and the Company as follows:
4.1. Organization. The Purchaser and Newco each is a corporation duly
incorporated, validly existing and in good standing under the laws of the state
of its incorporation, (ii) has the power and authority to own and operate its
properties and assets and to transact its business as currently conducted and
(iii) is duly qualified and authorized to do business and is in good standing in
all jurisdictions where the failure to be duly qualified, authorized and in good
standing would have a material adverse effect upon the Purchaser's or Newco's,
as the case may be, businesses, prospects, operations, results of operations,
assets, liabilities or condition (financial or otherwise).
4.2. Authorization for Agreement. The execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
by the Purchaser and Newco (i) are within the Purchaser's and Newco's corporate
powers and duly authorized by all necessary corporate action on the part of the
Purchaser and Newco and (ii) do not (A) require any action by or in respect of,
or filing with, any governmental body, agency or official, except as set forth
in this Agreement or (B) contravene, violate or constitute, whether with or
without the passage of time or the giving of notice or both, a breach or a
default under, any Requirement of Law applicable to the Purchaser, Newco or any
of their properties or any Contract to which they or any of their properties are
bound, except filings and approvals in connection with the Initial Public
Offering.
4.3. Enforceability. This Agreement has been duly executed and delivered by
the Newco and Purchaser and constitutes the legal, valid and binding obligation
of the Purchaser and Newco, enforceable against the Purchaser and Newco in
accordance with its terms.
4.4. Litigation. There is no Legal Proceeding or Order pending against or,
to the knowledge of the Purchaser or Newco, threatened against or affecting, the
Purchaser, Newco or any of their properties or otherwise that could adversely
affect or restrict the ability of the Purchaser or Newco to consummate fully the
transactions contemplated by this Agreement or that in any manner draws into
question the validity of this Agreement.
4.5. Registration Statement. The Registration Statement on Form S-1 and any
amendment thereto which is filed with the Securities and Exchange Commission in
connection with the Initial Public Offering will have been prepared in all
material respects in compliance with the requirements of the Securities Act and
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein; provided, however, that insofar as
the foregoing relates to information in the Registration Statement that relates
to the Company, the
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Sellers or any of the other Founding Companies, such representation and warranty
shall be deemed based on the knowledge of the Purchaser.
4.6. Brokers or Finders. The Purchaser has not engaged the services of any
broker or finder with respect to the transactions contemplated by this
Agreement, and no Person has or will have, as a result of the consummation of
the transaction contemplated by this Agreement, any right, interest or valid
claim against or upon the Sellers for any commission, fee or other compensation
as a finder or broker thereof on account of any action on the part of the
Purchaser. Without degradation to any of the foregoing, the Purchaser is solely
responsible for the payment of the commissions, fees and other compensation
payable to any Person having any such right, interest or claim on account of any
action on the part of the Purchaser.
ARTICLE 5
COVENANTS
5.1. Good Faith. Each of the Company, the Sellers, Newco and the Purchaser
shall perform each and every of their respective obligations under this
Agreement and shall perform the transactions contemplated by this Agreement in
good faith and in a commercially reasonable manner.
5.2. Approvals. Each of the Company, the Sellers, Newco and the Purchaser
shall use their respective commercially reasonable best efforts to obtain all
Regulatory Approvals and Consents from such other third parties including,
without limitation, Consents required under any Contract or any Requirement of
Law, that are necessary or advisable in connection with the consummation of the
transactions contemplated by this Agreement. Each of the Sellers shall use his
or its commercially reasonable best efforts to cause the Company and all of its
Subsidiaries to cooperate with the Purchaser to the fullest extent practicable
in seeking to obtain all such Regulatory Approvals and Consents, and shall
provide, and shall cause the Company and all Subsidiaries to provide, such
information and communications to all Governmental or Regulatory Authorities as
they or the Purchaser may request from time to time in connection therewith.
Nothing contained herein shall require either of the Company, Newco or the
Purchaser to amend the provisions of this Agreement, to pay or cause any of
their respective Affiliates to pay any money, or to provide or cause any of
their respective Affiliates to provide any guaranty to obtain any such
Regulatory Approvals or Consents.
5.3. Cooperation; Access to Books and Records.
(a) The Company will, and each of the Sellers will and will cause the
Company and each of its Subsidiaries to, cooperate with the Newco and the
Purchaser in connection with the transactions contemplated by this Agreement and
any Purchaser Financing Transaction, including, without limitation, cooperating
in the determination of which Regulatory Approvals and Consents are required or
advisable to be obtained prior to the Closing Date. Until the Closing Date, the
Company will, and each of the Sellers will and will cause the Company and
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each of its Subsidiaries to, afford to the Purchaser, Newco and their agents,
legal advisors, accountants, auditors, commercial and investment banking
advisors and other authorized representatives, agents and advisors reasonable
access to all of the properties and books and records of the Company or any of
its Subsidiaries (including those in the possession or control or their
accountants, attorneys and any other third party), as the case may be, for the
purpose of permitting the Purchaser and Newco to make such investigation and
examination of the business and properties of the Company and any of its
Subsidiaries as the Purchaser or Newco, in its discretion, shall deem necessary,
appropriate or desirable. Any such investigation, access and examination shall
be conducted upon reasonable prior notice under the circumstances. The Company
will, and each of the Sellers will cause the Company and each of its
Subsidiaries to, cause each of their respective directors, officers, employees
and representatives, including, without limitation, their respective counsel and
accountants, to cooperate fully with the Purchaser and Newco, in connection with
such investigation, access and examination. The results of such investigation
and examination is for the Purchaser and Newco's sole benefit, and shall not (i)
impair or reduce any representation or warranty made by the Company or the
Sellers in this Agreement, (ii) relieve the Company or any Seller from its or
his or her obligations with respect to such representations and warranties
(including, without limitation, the Sellers' obligations under Article 10), or
(iii) mitigate the Company's and the Sellers' obligations to otherwise disclose
all material facts to the Purchaser and Newco with respect to the Company, each
of its Subsidiaries and their respective Businesses.
(b) The Purchaser will cooperate with the Company and Sellers in connection
with the transactions contemplated by this Agreement and any Purchaser Financing
Transaction, including, without limitation, cooperating in the determination of
which Regulatory Approvals and Consents are required or advisable to be obtained
prior to the Closing Date. Until the Closing Date, the Purchaser will afford to
the Company, Sellers and their agents, legal advisors and accountants reasonable
access to all of the properties and books and records of the Purchaser
(including those in the possession or control or their accountants, attorneys
and any other third party), as the case may be, for the purpose of permitting
the Company and Sellers to make such investigation and examination of the
business and properties of the Purchaser and any of its Subsidiaries as the
Company and Sellers, in its discretion, shall deem necessary, appropriate, or
desirable. Any such investigation, access and examination shall be conducted
upon reasonable prior notice under the circumstances. Purchaser will cause each
of its directors, officers, employees and representatives, including, without
limitation, its counsel and accountants, to cooperate fully with the Company and
Sellers, in connection with such investigation, access and examination. The
results of such investigation and examination is for the Company's and Sellers'
sole benefit, and shall not (i) impair or reduce any representation or warranty
made by the Purchaser in this Agreement, (ii) relieve the Purchaser from its
obligations with respect to such representations and warranties (including,
without limitation, the Purchaser's obligations under Article 10), or (iii)
mitigate the Purchaser's obligations to otherwise disclose all material facts to
the Company and the Sellers with respect to the Purchaser.
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5.4. Duty to Supplement.
(a) Promptly upon the Company's or any Seller's discovery of the occurrence
of any development, event, circumstance or condition that, individually or in
the aggregate, may have a Material Adverse Effect upon the Shares, or the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of the Company or any of its Subsidiaries,
the Sellers shall, and shall cause the Company or the applicable Subsidiary to,
as the case may be, notify the Purchaser and Newco of such development, event,
circumstance or condition. In the event that the Purchaser or Newco receives
such notice or otherwise discovers the fact of any such development, event,
circumstance or condition, the Purchaser or Newco shall be entitled, in its sole
discretion, to terminate this Agreement within ten (10) days after so
discovering without further obligation or liability upon the delivery of written
notice to the Sellers to that effect; provided, however, that before Purchaser
or Newco may exercise its termination right, it must afford the Company and
Sellers the opportunity to cure the matter giving rise to the termination right
(but for no longer than five days following the date Purchaser notifies the
Company or Seller of its intent to terminate) unless, in the judgement of the
managing underwriter of the Initial Public Offering, any such cure period might
adversely affect the Initial Public Offering.
(b) Promptly upon the Company's or any Seller's discovery of any fact,
event, condition or circumstance that causes any representation or warranty made
by the Company or the Sellers to the Purchaser and Newco in this Agreement to
become untrue or inaccurate at any time after the date of this Agreement, the
Sellers shall, and shall cause the Company and its Subsidiaries to, notify the
Purchaser of such fact, event, condition or circumstance.
5.5. Information Required For Purchase Financing Transactions. The Company
shall and shall cause its Subsidiaries to, and each of the Sellers shall and
shall cause the Company and its respective Subsidiaries to, furnish the
Purchaser and Newco with the following information:
(a) the Company's audited consolidated balance sheet as of December 31,
1996 and the related statements of operations, shareholders' equity and cash
flows for the year then ended, together with all proper exhibits, schedules and
notes thereto, audited by Xxxxxx Xxxxxxxx LLP, all of which shall be prepared in
accordance with GAAP consistently applied with prior periods and shall present
fairly the financial position of the Company and its Subsidiaries for the year
then ended and the results of operations and changes in shareholders' equity and
cash flows for the period covered thereby;
(b) any unaudited interim financial statements requested by the Purchaser,
Newco or any Underwriter to be included in any registration statement,
prospectus, document or other item, or any amendment or supplement thereof,
relating to any Purchaser Financing Transaction, all of which shall (i) be in
accordance with the books and records of the
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Company maintained in accordance with good business practice and in the normal
and ordinary course of business, (ii) be prepared in accordance with GAAP
applied on a consistent basis (except for the absence of notes and subject to
normal year-end audit adjustments), (iii) present fairly the financial position
of the Company and its Subsidiaries as of the date thereof and the results of
operations and changes in shareholders' equity and cash flows for the periods
covered thereby, and (iv) include comparable interim financial statements for
the prior year period; and
(c) such other written information with respect to themselves as the
Purchaser, Newco or any Underwriter may reasonably deem necessary, desirable or
appropriate in connection with any Purchaser Financing Transaction or the
preparation of any registration statement, prospectus, document or other item
relating thereto.
5.6. Performance of Conditions. The Company, each of the Sellers, Newco and
the Purchaser shall, and each of the Sellers shall cause the Company and each of
its Subsidiaries to, take all reasonable steps necessary or appropriate and use
all commercially reasonable efforts to effect as promptly as practicable the
fulfillment of the conditions required to be obtained that are necessary or
advisable for the Sellers, Newco and the Purchaser to consummate the
transactions contemplated by this Agreement including, without limitation, all
conditions precedent set forth in Article 6.
5.7. Conduct of Business. During the period of time from and after the date
of this Agreement to the Closing Date, the Company shall, and each of the
Sellers shall cause the Company and each of its Subsidiaries to, operate their
respective Businesses in the normal and ordinary course in a manner consistent
with past practice including, without limitation, to do the following:
(a) to carry on the Company's and each such Subsidiary's Business in
substantially the same manner as it has heretofore and not introduce any
material new method of management, operation or accounting;
(b) to maintain the Company's and each such Subsidiary's corporate
existence and all Permits, bonds, franchises and qualifications to do business;
(c) to comply with all Requirements of Law;
(d) to use its commercially reasonable best efforts to preserve intact the
Company's and each such Subsidiary's business relationships with its agents,
customers, employees, creditors and others with whom the Company or each such
Subsidiary has a business relationship;
(e) to preserve the Company's and each such Subsidiary's assets, properties
and rights (including, without limitation, those held under leases, the
Intellectual Property and Accounts) necessary or advisable to the profitable
conduct of their respective Businesses;
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(f) to pay when due all Taxes lawfully levied or assessed against the
Company or any such Subsidiary, as the case may be, before any penalty or
interest accrues on any unpaid portion thereof and to file all Tax Returns when
due (including after applicable extensions); provided that no such payment shall
be required which is being contested in good faith and by proper proceedings and
for which appropriate reserves as may be required by GAAP have been established;
(g) to maintain in full force and effect all policies of insurance adequate
(both in terms of coverage and amount of coverage) to insure against risks as
are customarily and prudently insured against by companies of established repute
engaged in the same or a similar business;
(h) to perform all material obligations under all Contracts to which the
Company or any such Subsidiary is a party or by which it or its properties are
bound or subject;
(i) to maintain present debt and lease instruments and not enter into new
or amended debt or lease instruments over Ten Thousand Dollars ($10,000),
without the knowledge and consent of the Purchaser, which consent shall not be
unreasonably withheld; and
(j) to collect accounts receivable in a manner consistent with past
practices.
5.8. Negative Covenants. During the period from and after the date of this
Agreement until the Closing Date, the Company shall not, and each of the Sellers
shall not cause the Company or any of its Subsidiaries to do, and shall not
permit the Company or any such Subsidiary to do, directly or indirectly, any of
the following without the express prior written consent of the Purchaser, which
consent shall not be unreasonably withheld.
(a) make or adopt any changes to or otherwise alter the Company's or any
such Subsidiary's certificate or articles of incorporation, by-laws or any other
governing or constitutive documents;
(b) purchase or enter into any Contract or commitment to purchase or lease
any real property;
(c) grant any salary increase or permit any advance to any director,
officer or employee or enter into any new, or amend or otherwise alter, any
Employee Benefit Plan, or any employment or consulting Contract, or any Contract
providing for the payment of severance;
(d) other than in the ordinary course of business, make any borrowings or
otherwise create, incur, assume or guaranty any indebtedness (except for the
endorsement of negotiable instruments for deposit or collection or similar
transactions in the normal and ordinary course of the Business), issue any
commercial paper or refinance any existing borrowings or
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indebtedness; provided that no borrowings may be made without Purchaser's
consent which include prepayment penalties or restrictions on prepayment;
(e) enter into any Permit other than in the normal and ordinary course of
business;
(f) enter into any Contract, other than in the ordinary course of the
Business; provided that any Contract permitted to be entered into pursuant to
this Section 5.8(f) shall not (i) involve a pledge of or encumbrance on any of
the Company's or any of its Subsidiaries' assets or the incurrence by the
Company or any of its Subsidiaries of liabilities (other than in the performance
of services for customers in the ordinary course of business) in any one
transaction or series of related transactions in excess of Ten Thousand Dollars
($10,000) and cause the aggregate commitment under all such new Contracts to
exceed One Hundred Thousand Dollars ($100,000), or (ii) involve a term of more
than one (1) year;
(g) make, or enter into any commitment to make, any contribution
(charitable or otherwise) to any Person;
(h) form any subsidiary or issue, grant, sell, redeem, subdivide, combine,
change or purchase any of the Company's or any of its Subsidiary's shares, notes
or other securities, whether debt or equity, or make any Contract or commitments
to do so;
(i) enter into any transaction with any Affiliate of any Seller, the
Company or any of its Subsidiaries including, without limitation the purchase,
sale or exchange of property with, the rendering of any service to, or the
making of any loans to, any such Affiliate (provided that the foregoing will not
restrict the Company's ability to pay dividends on its common stock to pay the
estimated tax liability of the Sellers with respect to the S corporation
income);
(j) pay any royalty or management fee;
(k) grant or issue any subscription, warrant, option or other right to
acquire any of the Company's or any of its Subsidiaries' securities, whether
debt or equity, and whether by conversion or otherwise, or make any commitment
to do so;
(l) merge or consolidate, or agree to merge or consolidate, with or into
any other Person or acquire or agree to acquire or be acquired by any Person;
(m) sell, lease, exchange, mortgage, pledge, hypothecate, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
hypothecate, transfer or otherwise dispose of, any of the Company's or any of
such Subsidiaries assets having an aggregate fair market value in excess of
$10,000 or more, except for the disposition of obsolete or worn-out assets in
the normal and ordinary course of business;
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(n) (i) change any of its methods of accounting in effect as at the Balance
Sheet Date, or (ii) make or rescind any express or deemed election relating to
Taxes, or change any of its methods of reporting income or deductions for income
tax purposes from those employed in the preparation of income Tax Returns for
the taxable year ended December 31, 1996, except, in either case, as may be
required by any applicable Requirement of Law, the IRS or GAAP;
(o) enter into any Contract or make any commitment to make any capital
expenditures or capital additions or betterments in excess of an aggregate of
$10,000;
(p) cause or permit the Company or any such Subsidiary to (i) terminate any
Employee Benefit Plan, (ii) permit any "prohibited transaction" involving any
Employee Benefit Plan, (iii) fail to pay to any Employee Benefit Plan any
contribution which it is obligated to pay under the terms of such Employee
Benefit Plan, whether or not such failure to pay would result in an "accumulated
funding deficiency" or (iv) allow or suffer to exist any occurrence of a
"reportable event" or any other event or condition, which presents a material
risk of termination by the PBGC of any Employee Benefit Plan. As used in this
Agreement, the terms "accumulated funding deficiency" and "reportable event"
shall have the respective meanings assigned to them in ERISA, and the term
"prohibited transaction" shall have the meaning assigned to it in the Code and
ERISA;
(q) enter into any transaction or conduct any operations not in the normal
and ordinary course of business;
(r) enter into any Contract or make any commitment to do any of the
foregoing; or
(s) waive any material rights or claims of the Company.
5.9. Exclusive Negotiation. Neither the Company nor any of the Sellers
shall: (i) provide any information about the Company or any of its Subsidiaries
or any of their respective Businesses to any Person (other than the Purchaser,
Newco, a Potential Founding Company or their representatives) with a view to
sell, exchange or dispose or solicit an offer for the acquisition of any of the
Shares or any material interest in the Company, any of its Subsidiaries or their
respective Businesses; (ii) solicit or accept any other offers for the sale,
exchange or other disposition of the Shares or any material interest in the
Company, its Subsidiaries or their respective Businesses; (iii) negotiate or
discuss with any Person (other than the Purchaser or any of its representatives)
the possible sale, exchange or other disposition of the Shares or any material
interest in the Company, any of its Subsidiaries or their respective Businesses;
or (iv) sell, exchange or otherwise dispose of any of the Shares or any material
interest in the Company, any of its Subsidiaries or any of their respective
Businesses, in any of the foregoing cases, whether by equity sale, merger,
consolidation, equity exchange, sale of assets or otherwise. The Company shall,
and each of the Sellers shall and shall cause the Company and each of its
Subsidiaries to, advise the Purchaser or Newco promptly of their or its receipt
of any written offer or written
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proposal concerning the Shares, the Company, any of its Subsidiaries, any part
of their respective Businesses or any material interest therein, and the terms
thereof.
5.10. Public Announcements. Prior to the Closing, neither the Company nor
the Sellers shall issue any public report, statement, press release or similar
item or make any other public disclosure with respect to the execution or
substance of this Agreement prior to the consultation with and approval of the
Purchaser. In addition, prior to Closing, before Purchaser issues a public
statement that refers to the Company or the Sellers (other than in the
Registration Statement) Purchaser will endeavor to consult with Sellers to the
extent time permits. Nothing contained herein shall restrict the ability of the
Company or Sellers from contacting a third party in order to obtain a Consent to
the transactions contemplated hereby.
5.11. Amendment of Schedules. Each party hereto agrees that, with respect
to the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing to supplement
or amend promptly the Disclosure Schedule or any other Schedules hereto with
respect to any matter hereafter arising or discovered which, if existing or
known at the date of this Agreement, would have been required to be set forth or
described in the Disclosure Schedule or any other Schedules, provided that no
amendment or supplement to the Disclosure Schedule prepared by the Company that
constitutes or reflects an event or occurrence that would have a Material
Adverse Effect shall be effective unless the Purchaser consents to such
amendment or supplement. For all purposes of this Agreement, including without
limitation for purposes of determining whether the conditions set forth in
Sections 6 and 7 have been fulfilled, the Schedules hereto shall be deemed to be
the Schedules as amended or supplemented pursuant to this Section 5.11. Except
as otherwise provided herein, no amendment of or supplement to a Schedule shall
be made later than 24 hours prior to the anticipated effectiveness of the
Registration Statement in connection with the Initial Public Offering (the
"Registration Statement").
5.12. Cooperation in Preparation of Registration Statement.
(a) The Company and Sellers shall furnish or cause to be furnished to the
Purchaser, Newco and the underwriters of the Initial Public Offering (the
"Underwriters") all of the information concerning the Company or the Sellers
reasonably requested by the Purchaser, Newco and the Underwriters, and will
cooperate with the Purchaser, Newco and the Underwriters in the preparation of,
any registration statement (or similar document) relating to the Purchaser
Financing Transaction and the prospectus (or similar document) included therein
(including audited financial statements, prepared in accordance with generally
accepted accounting principles). The Company and the Sellers agree promptly to
advise the Purchaser if at any time during the period in which a prospectus
relating to the Purchaser Financing Transaction is required to be delivered
under the Securities Act, any information contained in the prospectus concerning
the Company or the Sellers becomes incorrect or incomplete in any material
respect, and to provide the information needed to correct such inaccuracy. The
Purchaser agrees to use its commercially reasonable best efforts to prepare and
file the Registration Statement as promptly as practicable, to furnish the
Company with a copy thereof and each amendment thereto in
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substantially the form in which it is to be filed as promptly as reasonably
practicable prior to such filing (it being understood that neither the Company
nor the Sellers has any obligation to review the same other than with respect to
information regarding the Company or the Sellers) and to diligently seek to
cause the Registration Statement to be declared effective and the Initial Public
Offering to be completed. The Purchaser agrees that neither the Company nor the
Sellers shall have any responsibility for pro forma adjustments that may be made
to the Financial Statements.
(b) The Company and each of the Sellers acknowledge and agree (i) that,
prior to the execution and delivery of a definitive underwriting agreement, the
Underwriters have made no firm commitment, binding agreement, or promise or
other assurance of any kind, whether express or implied, oral or written, that
the Registration Statement will become effective or that the Initial Public
Offering pursuant thereto will occur at a particular price or within a
particular range of prices or occur at all, (ii) that none of the prospective
Underwriters of the Purchaser's common stock, in the Initial Public Offering nor
any officers, directors, agents or representatives of such Underwriters shall
have any liability to the Sellers, the Company or any other person affiliated or
associated with the Company for any failure of the Registration Statement to
become effective, the Initial Public Offering to occur at a particular price or
within a particular range of prices or occur at all, and (iii) the decision of
the Sellers to enter into this Agreement and, if applicable, to vote in favor of
or consent to the transactions contemplated hereby, has been or will be made
independent of, and without reliance upon, any statements, opinions or other
communications of, or due diligence investigation which have been or will be
made or performed by any prospective Underwriter, relative to the Purchaser or
the prospective Initial Public Offering. The Sellers acknowledge that shares of
DocuNet Common Stock received as a part of the Purchase Price, if any, will not
be issued pursuant to the Registration Statement; and, therefore, the
Underwriters shall have no obligation to the Sellers with respect to any
disclosure contained in the Registration Statement and no Seller may assert any
claim against the Underwriters relating to the Registration Statement on account
thereof.
5.13. Examination of Final Financial Statement. The Company shall provide
to Purchaser prior to the Closing Date unaudited consolidated balance sheets of
the Company for each month and fiscal quarter end between the date of this
Agreement and the Closing Date, and unaudited consolidated statements of income,
cash flows and retained earnings of the Company for such subsequent months and
fiscal quarters. In addition, the Company shall prepare and deliver to Purchaser
at Closing the Closing Balance Sheet. Such financial statements, which shall be
deemed to be Financial Statements (as defined herein), shall have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated (except for the absence of
notes and subject to normal year end adjustments). Such financial statements
shall present fairly the results of operations of the Subsidiaries for the
periods indicated thereon.
5.13A. Audit Opinion. The parties acknowledge that the Financial Statements
identified in Section 3.12(a) have been reviewed by Xxxxxx Xxxxxxxx LLP in
anticipation of rendering its unqualified opinion thereon prior to consummation
of the Initial Public Offering.
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5.14. Lock-Up Agreements. In connection with the Initial Public Offering,
for good and valuable consideration, the Company and each Seller hereby
irrevocably agree that for a period of 180 days after the date of the
effectiveness (the "Effective Date") of the Registration Statement, as the same
may be amended, not to (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of
(except pursuant to the Escrow Agreement), directly or indirectly, any shares of
DocuNet Common Stock or any securities convertible into or exercisable or
exchangeable for shares of DocuNet Common Stock, or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the DocuNet Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of DocuNet Common Stock or such other securities, in cash or otherwise without
the prior written consent of the Underwriters. Neither the Company nor the
Sellers, without the prior written consent of the Underwriters, shall exercise
any demand, mandatory, piggyback, optional or any other registration rights, if
any such rights exist, for a period of 180 days from the Effective Date. The
Company and each Seller agree that the foregoing shall be binding upon their
transferees, successors, assigns, heirs and personal representatives and shall
benefit and be enforceable by the underwriters in the Initial Public Offering.
In furtherance of the foregoing, the Purchaser and its transfer agent, are
hereby authorized to decline to make any transfer of securities if such transfer
would constitute a violation or breach of this Section 5.14.
5.15. Compliance with the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976 (the "Xxxx-Xxxxx Act"). All parties to this Agreement hereby recognize that
one or more filings under the Xxxx-Xxxxx Act may be required in connection with
the transactions contemplated herein. If it is determined by the parties to this
Agreement that filings under the Xxxx-Xxxxx Act are required, then: (i) each of
the parties hereto agrees to cooperate and use its best efforts to comply with
the Xxxx-Xxxxx Act; (ii) such compliance by the Sellers and the Company shall be
deemed a condition precedent in addition to the conditions precedent set forth
in Article 6 of this Agreement, and such compliance by Purchaser and Newco shall
be deemed a condition precedent in addition to the conditions precedent set
forth in Article 6 of this Agreement; and (iii) the parties agree to cooperate
and use their best efforts to cause all filings required under the Xxxx-Xxxxx
Act to be made. If filings under the Xxxx-Xxxxx Act are required, the costs and
expenses thereof (including filing fees) shall be borne by Purchaser or Newco.
The obligation of each party to consummate the transactions contemplated by this
Agreement is subject to the expiration or termination of the waiting period
under the Xxxx-Xxxxx Act, if applicable.
5.16. Reorganization Status. No party to this Agreement shall undertake any
actions not contemplated by this Agreement that would cause the merger to fail
to qualify as a reorganization as defined under Section 368(a)(1)(A) and Section
368(a)(2)(D) of the Code.
5.17. Final Tax Returns. The Signatory Shareholders shall arrange for the
timely filing of all federal and state income tax returns for periods ending
through the Closing Date and shall deliver a copy of each such return to the
Purchaser at least 45 days prior to the due date for the filing of such return
(including applicable extensions) for the review and approval of the
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Purchaser, which approval shall not be unreasonably withheld. The Signatory
Shareholders shall select the accountants responsible for the preparation of
such returns, which accountants are to be reasonably acceptable to the
Purchaser. The Signatory Shareholders shall be responsible for the costs of
preparing such returns, and such returns shall be prepared in a manner
consistent with all prior such returns. Purchaser shall cooperate with the
Signatory Shareholders and their accountants in providing access to all books,
records, and other information reasonably required to prepare such returns. If
the Purchaser objects to an item or items in a tax return submitted for
approval, it will notify the Signatory Shareholders of such a disagreement in
writing within ten days after the receipt of such return (the "Return Notice").
If the parties cannot reach agreement within ten days after the Signatory
Shareholders receive the Return Notice the issue shall be submitted to Xxxxxx
Xxxxxxxx LLP for its review, and the decision of Xxxxxx Xxxxxxxx LLP as to the
correct reporting of the item shall be final and conclusive and the tax return
shall be filed consistently with that decision; provided, however, that if the
Xxxxxx Xxxxxxxx LLP position has a negative financial impact on Signatory
Shareholders, Signatory Shareholders can require Xxxxxx Xxxxxxxx LLP and
Signatory Shareholders' accountant to choose a mutually agreeable third
independent accountant whose decision will be binding on the parties.
ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING
6.1. Conditions Precedent to the Purchaser and Newco's Obligations. The
Purchaser and Newco's obligation to consummate the transactions contemplated by
this Agreement is subject to the satisfaction of, or waiver in writing by the
Purchaser or Newco of, prior to or at the Closing, each and every of the
following conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties of the Company and the Sellers contained in this Agreement shall be
true and correct in all material respects on and as of the Closing Date with the
same force and effect as though such representations and warranties had been
made on and as of the Closing Date, except for those representations and
warranties which by their terms relate to an earlier date, which representations
and warranties shall be true and correct in all material respects with regard to
such earlier date. The Company and each of the Sellers shall deliver to the
Purchaser and Newco a certificate dated the Closing Date, certifying that all of
the Company's and the Sellers' representations and warranties contained in this
Agreement are true and correct on and as of the Closing Date as though such
representations and warranties had been made on and as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Company and each of the
Sellers shall have performed and complied in all material respects with each and
every covenant, agreement and condition required by this Agreement to be
performed or satisfied by the Company and each of the Sellers, as the case may
be, at or prior to the Closing Date. The Company and each of the Sellers shall
deliver to the Purchaser and Newco a certificate, dated the Closing Date,
certifying that the Company and the Sellers have fully performed and complied in
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all material respects with all the duties, obligations and conditions required
by this Agreement to be performed and complied with by them at or prior to the
Closing Date.
(c) Delivery of Documents. The Company and each of the Sellers shall have
delivered to the Purchaser and Newco all documents, certificates, instruments
and items (including, without limitation, certificates representing the Shares)
required to be delivered by him, her or it at or prior to the Closing Date
pursuant to this Agreement.
(d) Consents. All proceedings, if any, to have been taken and all Consents
including, without limitation, all Regulatory Approvals, necessary or advisable
in connection with the transactions contemplated by this Agreement shall have
been taken or obtained.
(e) Financing. The Registration Statement on Form S-1 relating to the
Initial Public Offering shall have been declared effective by the Securities and
Exchange Commission and the closing of the sale of DocuNet Common Stock to the
Underwriters in the Initial Public Offering shall have occurred simultaneously
with the Closing Date hereunder.
(f) Intentionally omitted.
(g) Closing Balance Sheet The Company shall have delivered to the Purchaser
a true and complete copy of the Closing Balance Sheet, together with a
certificate dated the Closing Date, signed by the Company's chief financial
officer that the Closing Balance Sheet is in accordance with the Books and
Records and with GAAP applied on a consistent basis (except for the absence of
notes and subject to normal year-end audit adjustments) and presents fairly the
financial position of the Company as of the Closing Date.
(h) No Material Adverse Change. From and after the date of this Agreement,
there shall not have occurred or be threatened any development, event,
circumstance or condition that could reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect upon the Shares, or the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of the Company or any of its Subsidiaries.
(i) No Legal Proceeding Affecting Closing. There shall not have been
instituted and there shall not be pending or threatened any Legal Proceeding,
and no Order shall have been entered (i) imposing or seeking to impose
limitations on the ability of the Purchaser or Newco to consummate the Merger;
(ii) imposing or seeking to impose limitations on the ability of the Purchaser
to combine and operate the business, operations and assets of the Company or any
of the Company's Subsidiaries with the Purchaser and Newco's business,
operations and assets; (iii) imposing or seeking to impose other sanctions,
damages or liabilities arising out of the transactions contemplated by this
Agreement on the Purchaser, Newco or any of the Purchaser or Newco's directors,
officers or employees; (iv) requiring or seeking to require divestiture by the
Newco or Purchaser of all or any material portion of the business, assets or
property of the
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Company or any of its Subsidiaries; or (v) restraining, enjoining or prohibiting
or seeking to restrain, enjoin or prohibit the consummation of transactions
contemplated by this Agreement.
(j) Secretary's Certificate. The Company shall have delivered to the
Purchaser a certificate or certificates dated as of the Closing Date and signed
on its behalf by its Secretary to the effect that (i)(A) the copy of the
Company's articles or certificate of incorporation attached to the certificate
is true, correct and complete, (B) no amendment to such articles or certificate
of incorporation has occurred since the date of the last amendment annexed (such
date to be specified), (C) a true and correct copy of the Company's bylaws as in
effect on the date thereof and at all times since the adoption of the resolution
referred to in (D) is annexed to such certificate, (D) the resolutions by the
Company's board of directors authorizing the actions taken in connection with
the Merger, including as applicable, without limitation, the execution, delivery
and performance of this Agreement were duly adopted and continue in force and
effect (a copy of such resolutions to be annexed to such certificate); (ii)
setting forth the Company's incumbent officers and including specimen signatures
on such certificate or certificates as their genuine signatures; and (iii) the
Company is in good standing in all jurisdictions where the ownership or lease of
property or the conduct of its business requires it to qualify to do business,
except for those jurisdictions where the failure to be duly qualified,
authorized and in good standing would not have a material adverse effect upon
the business, prospects, operations, results of operations, assets, liabilities
or condition (financial or otherwise) on the Company. The certification referred
to above in (iii) shall attach certificates of good standing certified by the
Secretaries of State or other appropriate officials of such states, dated as of
a date not more than a five (5) days prior to the Closing Date.
(k) Opinion of Counsel of Seller. Xxxxxx X. Xxxxxx, counsel for the Company
and the Sellers, shall have delivered to the Purchaser and Newco their favorable
opinion, dated the Closing Date, as to the matters covered in Schedule 6.1(k).
In rendering such opinion, counsel may rely to the extent recited therein on
certificates of public officials and of officers of Seller as to matters of
fact, and as to any matter which involves other than federal or Nebraska law,
such counsel may rely upon the opinion of local counsel reasonably satisfactory
to the Purchaser and its counsel.
(l) Termination of Related Party Agreements. All existing agreements
between the Company and the Sellers, Affiliates of the Company or Sellers, other
than those, if any, set forth on Schedule 6.1(l), shall have been canceled.
(m) Employment Agreements. Each of the persons listed on Schedule 6.1(m)
shall have entered into an employment agreement (collectively, the "Employment
Agreements") with the Company substantially in the form of Exhibit C attached
hereto.
(n) Repayment of Indebtedness. Prior to the Closing Date, the Sellers shall
have repaid the Company (including the Subsidiaries) in full all amounts owing
by the Sellers or employees of the Company to the Company (including the
Subsidiaries).
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(o) FIRPTA Certificate. Each Seller shall have delivered to the Purchaser a
certificate to the effect that he or she is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
(p) Insurance. The Purchaser and Newco shall be named as an additional
named insured on all of the Company's insurance policies as of the Closing Date.
(q) Escrow Agreement. Each Seller and the Company shall have executed the
Escrow Agreement substantially in the form of Exhibit A attached hereto.
(r) Closing of DocuTech, Inc. Transaction. The purchase by Purchaser of all
of certain assets and assumption of certain liabilities of DocuTech, Inc.
pursuant to that certain Asset Purchase Agreement by and among Purchaser,
DocuTech, Inc. and Certain Sellers dated as of the date hereof.
6.2. Conditions Precedent to Company's and Sellers' Obligations. The
Company's and Sellers' obligations to consummate the transactions contemplated
by this Agreement are subject to the satisfaction of, or waiver in writing by
the Sellers of, prior to or at the Closing, each and every of the following
conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties of the Purchaser and Newco contained in this Agreement shall be true
and correct in all material respects on and as of the date of the Closing Date,
with the same force as though such representations and warranties had been made
on and as of the Closing Date except for those representations and warranties
that by their terms relate to an earlier date, which representations and
warranties shall be true and correct in all material respects with regard to
such earlier date. The Purchaser and Newco shall each deliver to the Sellers a
certificate, executed by a duly authorized officer of the Purchaser and Newco,
respectively, dated as of the Closing Date, certifying that all of its
representations and warranties contained in this Agreement are true and correct
on and as of the Closing Date as though such representations and warranties had
been made on and as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Purchaser and Newco shall
each have performed and complied in all material respects with each and every
covenant, agreement and condition required by this Agreement to be performed or
satisfied by them at or prior to the Closing Date. The Purchaser and Newco shall
each deliver to the Sellers a certificate, dated the Closing Date, certifying
that each of them has fully performed and complied in all material respects with
all the duties, obligations and conditions required by this Agreement to be
performed and complied with by it at or prior to the Closing Date.
(c) Delivery of Documents. The Purchaser and Newco shall have delivered to
the Sellers all documents, certificates, instruments and items required to be
delivered by them at or prior to the Closing.
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(d) No Legal Proceeding Affecting Closing. There shall not have been
instituted and there shall not be pending or threatened any Legal Proceeding,
and no Order shall have been entered (i) imposing or seeking to impose
limitations on the ability of the Sellers to consummate the Merger; (ii)
imposing or seeking to impose other sanctions, damages or liabilities arising
out of the transactions contemplated by this Agreement on the Company or any of
its Subsidiaries or any of their respective directors, officers or employees or
on any of the Sellers; or (iii) restraining, enjoining or prohibiting or seeking
to restrain, enjoin or prohibit the consummation of transactions contemplated by
this Agreement.
(e) Escrow Agreement. The Purchaser and Newco shall have executed the
Escrow Agreement substantially in the form of Exhibit A attached hereto.
(f) Employment Agreements. The Purchaser shall have entered into the
Employment Agreements with each of the persons listed on Schedule 6.1(m).
(g) Secretary's Certificate. The Purchaser and Newco shall each have
delivered to the Sellers a certificate or certificates dated as of the Closing
Date and signed on its behalf by its Secretary to the effect that (I)(A) the
copy of the Purchaser's or Newco's, as the case may be, articles or certificate
of incorporation attached to the certificate is true, correct and complete, (B)
no amendment to such articles or certificate of incorporation has occurred since
the date of the last amendment annexed (such date to be specified), (C) a true
and correct copy of the such entity's bylaws as in effect on the date thereof
and at all times since the adoption of the resolution referred to in (D) is
annexed to such certificate, (D) the resolutions by the entity's board of
directors authorizing the actions taken in connection with the Merger, including
as applicable, without limitation, the execution, delivery and performance of
this Agreement were duly adopted and continue in force and effect (a copy of
such resolutions to be annexed to such certificate) and (ii) setting forth the
incumbent officers of the entity and including specimen signatures on such
certificate or certificates of such officers executing this Agreement on behalf
of such entity as their genuine signatures.
(h) Financing. The registration statement on Form S-1 relating to the
Initial Public Offering shall have been declared effective by the Securities and
Exchange Commission and the closing of the sale of DocuNet Common Stock to the
Underwriters in the Initial Public Offering shall have occurred simultaneously
with the Closing Date hereunder.
(i) Opinion of Counsel of Purchaser. Pepper, Xxxxxxxx & Xxxxxxx LLP,
counsel for Purchaser, shall have delivered to the Company and Sellers their
favorable opinion, dated the Closing Date, as to the matters covered in Schedule
6.2(I). In rendering such opinion, counsel may rely to the extent recited
therein on certificates of public officials and of officers of Purchaser as to
matters of fact, and such opinion may be limited to federal laws and the laws of
the Commonwealth of Pennsylvania.
(j) Closing of DocuTech, Inc. Transaction. The purchase by Purchaser of all
of certain assets and assumption of certain liabilities of DocuTech, Inc.
pursuant to that
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certain Asset Purchase Agreement by and among Purchaser, DocuTech, Inc. and
Certain Sellers dated as of the date hereof.
ARTICLE 7
CLOSING
At or prior to the Pricing, the parties shall take all administrative
actions necessary to prepare to (i) effect the Merger (including, if permitted
by applicable state law, the filing with the appropriate state authorities of
the Articles of Merger which shall become effective at the Effective Time of the
Merger) and (ii) effect the conversion and delivery of Shares referred to in
Section 2.9 hereof and payment of consideration for the Shares; provided, that
such actions shall not include the actual completion of the Merger or the
conversion and delivery of the shares and certified check(s) referred to in
Article 2 hereof, each of which actions shall only be taken upon the Closing
Date as herein provided. In the event that there is no Closing Date and this
Agreement terminates, Purchaser hereby covenants and agrees to do all things
required by Pennsylvania law and all things which counsel for the Company advise
Purchaser are required by applicable laws of the State of Nebraska in order to
rescind the merger effected by the filing of the Articles of Merger as described
in this Section. The taking of the actions described in clauses (i) and (ii)
above shall take place on the Pricing Date at the offices of Pepper, Xxxxxxxx &
Xxxxxxx LLP, 3000 Two Xxxxx Square, 00xx xxx Xxxx Xxxxxxx, Xxxxxxxxxxxx, XX
00000. On the Closing Date (x) the Articles of Merger shall be or shall have
been filed with the appropriate state authorities so that they shall be or, as
of 8:00 a.m. EASTERN STANDARD TIME on the Closing Date, shall become effective
and the Merger shall thereby be effected, (y) all transactions contemplated by
this Agreement, including the conversion and delivery of shares, the delivery of
a certified check or checks in an amount equal to the cash portion of the
consideration which the Sellers shall be entitled to receive pursuant to the
Merger referred to in Article 2 hereof and (z) the closing with respect to the
Initial Public Offering shall occur and be deemed to be completed. The date on
which the actions described in the preceding clauses (x), (y) and (z) occurs
shall be referred to as the "Closing Date." Except as otherwise provided in
Article 11 hereof, during the period from the Pricing Date to the Closing Date,
this Agreement may only be terminated by the parties if the underwriting
agreement in respect of the Initial Public Offering is terminated pursuant to
the terms thereof.
ARTICLE 8
CONFIDENTIALITY AND COVENANT NOT TO COMPETE
8.1. Confidentiality.
(a) Each party to this Agreement shall use Confidential Information only in
connection with the transactions contemplated hereby (including the Initial
Public Offering) and shall not disclose any Confidential Information about any
other party to any Person unless the party desiring to disclose such
Confidential Information receives the prior written
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consent of the party about whom such Confidential Information pertains, except
(i) to any party's directors, officers, employees, agents, advisors and
representatives who have a need to know such Confidential Information for the
performance of their duties as employees, agents or representatives, (ii) to the
extent strictly necessary to obtain any Consents including, without limitation,
any Regulatory Approvals, that may be required or advisable to consummate the
transactions contemplated by this Agreement, (iii) to enforce such party's
rights and remedies under this Agreement, (iv) with respect to disclosures that
are compelled by any Requirement of Law or pursuant to any Legal Proceeding;
provided, that the party compelled to disclose Confidential Information
pertaining to any other party shall notify such other party thereof and use his
or its commercially reasonable efforts to cooperate with such other party to
obtain a protective order or other similar determination with respect to such
Confidential Information; (v) made to any party's legal counsel, independent
auditors, investment bankers or financial advisors under an obligation of
confidentiality; (vi) to other Founding Companies or Potential Founding
Companies; or (vii) as otherwise permitted by Section 5.10 of this Agreement.
(b) In the event that the transactions contemplated by this Agreement are
not consummated in accordance with the terms of this Agreement, each party
shall, upon the request of the other party, return to the other party or destroy
all Confidential Information and any copies thereof previously delivered by such
requesting party, except to the extent that such party deems such Confidential
Information necessary or desirable to enforce his or its rights under this
Agreement.
(c) The obligation of confidentiality contained in this Section 8.1 shall,
(i) from and after the date of this Agreement, supersede all of the obligations
contained in that certain letter agreement among the Purchaser, the Company and
the Sellers dated July 7, 1997, and (ii) survive the termination of this
Agreement, or the Closing, as applicable, for a period of two years after the
date of such termination or the Closing Date, respectively; provided, that, if
the Closing shall occur, then the Purchaser's obligation of confidentiality
shall terminate upon the Closing.
(d) The parties hereto acknowledge and agree that they may become aware of
potential acquisition targets of the Purchaser, including but not limited to the
Potential Founding Companies (collectively, the "Purchaser Targets"), in the
course of discussions with the Purchaser or a Potential Founding Company.
Accordingly, the parties hereto each agree not to directly or indirectly seek to
acquire or merge with, or pursue or respond to, with an intent to acquire or
merge with, any Purchaser Targets until the later of 300 days after the date of
this Agreement or 180 days after termination of this Agreement.
(e) The Purchaser will cause each of the Founding Companies other than the
Company to enter into a provision similar to this Section 8.1 requiring each
such Founding Company to keep confidential any information obtained by such
Founding Company.
8.2. Covenant Not To Compete. As a material inducement to the Purchaser and
Newco's consummation of the Merger, each of the Signatory Shareholders shall
not, during the
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Restricted Period, do any of the following, directly or indirectly, without the
prior written consent of the Purchaser in its sole discretion:
(a) compete, directly or indirectly, with the Purchaser, the Surviving
Corporation or the Company or any of their respective Affiliates or
Subsidiaries, or any of their respective successors or assigns, whether now
existing or hereafter created or acquired (collectively, the "Related
Companies"), or otherwise engage or participate, directly or indirectly, in any
business conducted by Purchaser or a Subsidiary (the "Restricted Business")
within any geographic area located within the United States of America, its
possessions or territories (the "Restricted Area");
(b) become interested (whether as owner, stockholder, lender, partner,
co-venturer, director, officer, employee, agent, consultant or otherwise),
directly or indirectly, in any Person that engages in the Restricted Business
within the Restricted Area; provided, that nothing contained in this Section
8.2(b) shall prohibit any DocuTech Shareholder from owing, as a passive
investor, not more than five percent (5%) of the outstanding securities of any
class of any publicly-traded securities of any publicly held Company listed on a
well-recognized national securities exchange or on an interdealer quotation
system of the National Association of Securities Dealers, Inc; or
(c) solicit, call on, divert, take away, influence, induce or attempt to do
any of the foregoing, in each case within the Restricted Area, with respect to
the Purchaser's, the Surviving Corporation's, the Company's or any of their
respective Related Companies' (A) customers or distributors or prospective
customers or distributors (wherever located) with respect to goods or services
that are competitive with those of the Purchaser, the Surviving Corporation, the
Company, or any of their respective Related Companies, (B) suppliers or vendors
or prospective suppliers or vendors (wherever located) to supply materials,
resources or services to be used in connection with goods or services that are
competitive with those of the Purchaser, the Surviving Corporation, the Company
or any of their respective Related Companies, (C) distributors, consultants,
agents, or independent contractors to terminate or modify any contract,
arrangement or relationship with the Purchaser, the Surviving Corporation, the
Company or any of their respective Related Companies or (D) employees (other
than family members) to leave the employ of the Purchaser, the Surviving
Corporation, the Company or any of their respective Related Companies.
8.3. Specific Enforcement; Extension of Period.
(a) Each of the Sellers acknowledges that any breach or threatened breach
by him or her of any provision of Sections 8.1 or 8.2, to the extent such
Section is applicable to such Seller, will cause continuing and irreparable
injury to the Purchaser, the Surviving Corporation, the Company and their
respective Related Companies for which monetary damages would not be an adequate
remedy. Accordingly, the Purchaser, the Surviving Corporation, the Company and
any of their respective Related Companies shall be entitled to injunctive relief
from a court of competent jurisdiction, including specific performance, with
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respect to any such breach or threatened breach. In connection therewith, none
of the Sellers shall, in any action or proceeding to so enforce any provision of
this Article 8 applicable to him, assert the claim or defense that an adequate
remedy at law exists or that injunctive relief is not appropriate under the
circumstances. The rights and remedies of the Purchaser, the Surviving
Corporation, the Company and any of their respective Related Companies set forth
in this Section 8.3 are in addition to any other rights or remedies to which the
Purchaser, the Surviving Corporation, the Company or any of their respective
Related Companies may be entitled, whether existing under this Agreement, at law
or in equity, all of which shall be cumulative.
(b) The periods of time set forth in this Article 8 shall not include, and
shall be deemed extended by, any time required for litigation to enforce the
relevant covenant periods. The term "time required for litigation" as used in
this Section 8.3(b) shall mean the period of time from the earlier of the
applicable Seller's first breach of the provisions of Sections 8.1 or 8.2 or
service of process upon the such Seller through the expiration of all appeals
related to such litigation.
8.4. Disclosure. Each of the Sellers acknowledges that the Purchaser,
Newco, the Company or any of their respective Related Companies may provide a
copy of this Agreement or any portion of this Agreement to any Person with,
through or on behalf of which any of the Sellers may, directly or indirectly,
breach or threaten to breach any of the provisions of Section 8.2.
8.5. Interpretation. It is the desire and intent of the Purchaser, Newco
and the Sellers that the provisions of this Article 8 shall be enforceable to
the fullest extent permissible under applicable law and public policy.
Accordingly, if any provision of this Article 8 shall be determined to be
invalid, unenforceable or illegal for any reason, then the validity and
enforceability of all of the remaining provisions of this Article 8 shall not be
affected thereby. If any particular provision of this Article 8 shall be
adjudicated to be invalid or unenforceable, then such provision shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such amendment to apply only to the operation of such provision
in the particular jurisdiction in which such adjudication is made; provided
that, if any provision contained in this Article 8 shall be adjudicated to be
invalid or unenforceable because such provision is held to be excessively broad
as to duration, geographic scope, activity or subject, then such provision shall
be deemed amended by limiting and reducing it so as to be valid and enforceable
to the maximum extent compatible with the applicable laws and public policy of
such jurisdiction, such amendment only to apply with respect to the operation of
such provision in the applicable jurisdiction in which the adjudication is made.
8.6. Sellers' Acknowledgment. Each of the Sellers acknowledges that he or
she has carefully read and considered the provisions of this Article 8. Each of
the Sellers acknowledges and understands that the restrictions contained in this
Article 8 may limit his ability to earn a livelihood in a business similar to
that of the Purchaser, Newco, the Company or any of their respective Related
Companies, but he nevertheless believes that he has received and will receive
sufficient consideration and other benefits to justify such restrictions. Each
of the Sellers
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also acknowledges and understands that these restrictions are reasonably
necessary to protect the Purchaser's, the Surviving Corporation's, the Company's
and their respective Related Companies' interests, and each Seller does not
believe that such restrictions will prevent him from earning a living in
businesses that are not competitive with those of the Purchaser, the Surviving
Corporation, the Company or any of their respective Related Companies during the
term of such restrictions in the Restricted Area.
8.7. Applicability of Section 8.2. Notwithstanding anything to the
contrary, the parties hereto acknowledge that Section 8.2 hereof shall not apply
to Xxxxx Xxxxxxxx.
ARTICLE 9
SURVIVAL
9.1. Survival of Representations, Warranties, Covenants and Agreements.
Subject to the last three (3) sentences of this Section 9.1, the representations
and warranties of the Sellers, the Company, Newco and the Purchaser contained in
this Agreement shall survive until the second anniversary of the Closing Date,
except that the representations and warranties set forth in each of Section
3.11, Section 3.20, Section 3.23 and Section 3.28 shall survive until the
expiration of the statute of limitations applicable to the subject matter
addressed thereunder. The covenants and agreements of the Sellers, the Company,
Newco and of the Purchaser contained in this Agreement will survive the Closing
until, by their own respective terms, they have been fully performed. Any breach
of a representation, warranty, covenant or agreement that would otherwise
terminate in accordance with this Article 9 will continue to survive if an
Indemnity Notice, an Unliquidated Indemnity Notice or a Claim Notice (as
applicable) shall have been given in good faith based on facts reasonably
expected to establish a valid claim under Article 10 on or prior to the date on
which such representation, warranty, covenant or agreement would have otherwise
terminated, until the related claim for indemnification has been satisfied or
otherwise resolved as provided in Article 10. Any representation or warranty
contained in this Agreement made by any party or any written information
furnished by any party that was made by such party fraudulently or with intent
to defraud or mislead or with gross negligence shall indefinitely survive the
Closing. Any representation or warranty made by the Sellers or the Company in
this Agreement or any written information furnished or caused to be furnished by
any of the Sellers or the Company to the Purchaser that is incorporated in, or
is the basis for omitting information from, the Registration Statement,
prospectus or other document, or any amendment or supplement thereof in
connection with any Purchaser Financing Transaction shall survive until the
expiration of all applicable statutes of limitations regarding claims brought by
investors in such Purchaser Financing Transaction alleging material
misstatements or omissions in such documents.
9.2. Intentionally Omitted.
9.3. Underwriter's Benefit. The Sellers' and the Company's representations
and warranties and covenants contained in this Agreement or any document,
instrument, certificate or other item furnished or to be furnished to the
Purchaser pursuant hereto or thereto or in
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connection with the transactions contemplated by this Agreement shall run to the
benefit of any Underwriter of the Purchaser's common stock subject to the
Initial Public Offering in addition to the benefit of the Purchaser.
Accordingly, any such Underwriter, and each person, if any, who controls any
such Underwriter within the meaning of the Securities Act or the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the
Commission thereunder, shall be (i) an intended beneficiary of this Agreement
and (ii) deemed to be an Indemnified Party for the purposes of the
indemnification provided for in Article 10.
ARTICLE 10
INDEMNIFICATION
10.1. Sellers' Indemnification. From and after the Closing Date, each of
the Sellers shall, jointly and severally, indemnify and hold harmless the
Purchaser, Newco, the Surviving Corporation and the Company and any of their
respective Subsidiaries, and each Person who controls (within the meaning of the
Securities Act) the Purchaser, Newco, the Surviving Corporation or, after the
Closing Date, the Company or any of its Subsidiaries, and each of their
respective directors, officers, employees, agents, successors and assigns and
legal and accounting representatives, from and against all Indemnifiable Losses
that may be imposed upon, incurred by or asserted against any of them resulting
from, related to, or arising out of (i) any misrepresentation, breach of any
warranty or non-fulfillment of any covenant to be performed by the Company or
any of the Sellers under this Agreement or any document, instrument, certificate
or other item required to be furnished to the Purchaser or Newco pursuant hereto
or thereto or in connection with the transactions contemplated by this
Agreement; (ii) any untrue statement of any material fact contained in any
registration statement, prospectus, document or other item, or any amendment or
supplement thereof, prepared, filed, distributed or executed in connection with
any Purchaser Financing Transaction, or any omission to state in any such
registration statement, prospectus, document, item, amendment or supplement a
material fact required to be stated therein or necessary to make the statements
therein not misleading, that is based upon any misrepresentation or breach of
any warranty made by the Company or any of the Sellers pursuant to this
Agreement or upon any untrue statement or omission contained in any written
information furnished or caused to be furnished by any of the Sellers to the
Purchaser or Newco (provided that the Seller hereby acknowledges that the
information concerning the Seller and the Company in the Registration Statement
shall be deemed to be provided to the Purchaser and Newco for the purposes
hereof); (iii) any liability or obligation of any of the Sellers, the Company or
any of its Subsidiaries other than liabilities reflected in the determination of
the Closing Debt Amount under Section 28(b) and Net Book Value of the Combined
Assets and Liabilities made under Section 2.8(c); (iv) any liability for payment
of Taxes that accrued or relate to the period of time prior to the Closing Date;
(v) any non-compliance with applicable Requirements of Law relating to bulk
sales, bulk transfers and the like or to fraudulent conveyances, fraudulent
transfers, preferential transfers and the like; (vi) any action, claim or demand
by any holder of the Company's securities, whether debt or equity, in such
holder's capacity as such, whether now existing or hereafter arising or
incurred; (vii) any non-compliance with the Worker Adjustment and Retraining
Act, 29 U.S.C. ss.2101, et. seq., as amended, and the rules and regulations
promulgated thereunder and any
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similar Requirement of Law; and (viii) any Legal Proceeding or Order arising out
of any of the foregoing even though such Legal Proceeding or Order may not be
filed, become final, or come to light until after the Closing Date.
10.1A. No Indemnification of Projected Information. Notwithstanding any
possible interpretation of Paragraph 10.1 or any other provision of this
Agreement, the failure of the Surviving Company or any successor to achieve
after the Closing Date any projected financial information, including, without
limitation, sales of software and costs of software development, in and of
itself shall not result in an Indemnifiable Loss to Purchaser, Newco, or the
Surviving Company.
10.2. Purchaser's Indemnification. From and after the Closing Date, the
Purchaser, Newco and the Surviving Corporation shall indemnify and hold harmless
the Sellers and each of their respective legal and accounting representatives,
successors and assigns from and against all Indemnifiable Losses imposed upon,
incurred by or asserted against, the Sellers resulting from, related to, or
arising out of: (i) any misrepresentation, breach of any warranty or
non-fulfillment of any covenant to be performed by the Purchaser or Newco under
this Agreement or any document, instrument, certificate or other item furnished
or to be furnished to the Sellers pursuant hereto or thereto or in connection
with the transactions contemplated by this Agreement; (ii) any liabilities
reflected in the determination of the Closing Debt Amount under Section 28(b)
and Net Book Value of the Combined Acquired Assets and Liabilities made under
Section 2.8(c); (iii) any untrue statement of any material fact contained in any
registration statement, prospectus, document or other item, or any amendment or
supplement thereof, prepared, filed, distributed or executed in connection with
any Purchaser Financing Transaction, or any omission to state in any such
registration statement, prospectus, document, item, amendment or supplement a
material fact required to be stated therein or necessary to make the statements
therein not misleading, that is based upon any misrepresentation or breach of
any warranty made by the Purchaser or Newco pursuant to this Agreement or upon
any untrue statement or omission contained in any information furnished or
caused to be furnished by the Purchaser or Newco; and (iv) any Legal Proceeding
or Order arising out of any of the foregoing even though such Legal Proceeding
or Order may not be filed, become final, or come to light until after the
Closing Date.
10.3. Payment; Procedure for Indemnification.
(a) In the event that the Person seeking indemnification under this Article
10 (the "Indemnified Party") shall suffer an Indemnifiable Loss, he, she or it
shall, within fourteen (14) days after obtaining Knowledge of the incurrence of
any such Indemnifiable Loss, give written notice to the party from whom
indemnification under this Article 10 is sought (the "Indemnifying Party") of
the amount of the Indemnifiable Loss, together with reasonably sufficient
information to enable the Indemnifying Party to determine the accuracy and
nature of the claimed Indemnifiable Loss (the "Indemnity Notice"). The failure
of any Indemnified Party to give the Indemnifying Party the Indemnity Notice
shall not release the Indemnifying Party of liability under this Article 10;
provided, however that the Indemnifying Party shall not be liable for
Indemnifiable Losses incurred by the Indemnified Party that would not have been
incurred but for
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the delay in the delivery of, or the failure to deliver, the Indemnity Notice.
Within thirty (30) days after the receipt by the Indemnifying Party of the
Indemnity Notice, the Indemnifying Party shall either (i) pay to the Indemnified
Party an amount equal to the Indemnifiable Loss or (ii) object to such claim, in
which case the Indemnifying Party shall give written notice to the Indemnified
Party of such objection together with the reasons therefor, it being understood
that the failure of the Indemnifying Party to so object shall preclude the
Indemnifying Party from asserting any claim, defense or counterclaim relating to
the Indemnifying Party's failure to pay any Indemnifiable Loss. The Indemnifying
Party's objection shall not, in and of itself, relieve the Indemnifying Party
from its obligations under this Article 10. In the event that the parties are
unable to resolve the subject of the Indemnity Notice, the issue shall be
submitted for determination to a neutral third party designated by the President
of the Philadelphia office of the American Arbitration Association.
(b) In the event that any Indemnified Party shall have reasonable grounds
to believe that an Indemnifiable Loss may be incurred, such Indemnified Party
shall promptly, and in any event, within fourteen (14) days after obtaining
sufficient information to articulate such grounds, give written notice to the
applicable Indemnifying Party thereof, together with such information as is
reasonably sufficient to describe the potential or contingent claim to the
extent then feasible (an "Unliquidated Indemnity Notice"). The failure of an
Indemnified Party to give the Indemnifying Party the Unliquidated Indemnity
Notice shall not release the Indemnifying Party of liability under this Article
10; provided, however that the Indemnifying Party shall not be liable for
Indemnifiable Losses incurred by the Indemnified Party that would not have been
incurred but for the delay in the delivery of, or the failure to deliver, the
Unliquidated Indemnity Notice. Promptly, but in any event within sixty (60) days
after the amount of such claim shall be finalized, resolved, or liquidated, the
Indemnified Party shall give the Indemnifying Party an Indemnity Notice, and the
Indemnifying Party's obligations under this Article 10 with respect to such
Indemnity Notice shall apply.
(c) In the event the facts giving rise to the claim for indemnification
under this Article 10 shall involve any action or threatened claim or demand by
any third party against the Indemnified Party, the Indemnified Party, within the
earlier of, as applicable, ten (10) days after receiving notice of the filing of
a lawsuit or fourteen (14) days after receiving notice of the existence of a
claim or demand giving rise to the claim for indemnification (which shall
include a notice from any Governmental Authority of an intent to audit with
respect to Taxes), shall send written notice of such claim to the Indemnifying
Party (the "Claim Notice"). The failure of the Indemnified Party to give the
Indemnifying Party the Claim Notice shall not release the Indemnifying Party of
liability under this Article 10; provided, however, that the Indemnifying Party
shall not be liable for Indemnifiable Losses incurred by the Indemnified Party
that would not have been incurred but for the delay in the delivery of, or the
failure to deliver, the Claim Notice. Subject to the provision contained in the
third sentence immediately following this sentence, and except for claims
resulting from, relating to or arising out of any Purchaser Financing
Transaction or the provisions of Section 3.23, the Indemnifying Party shall be
entitled to defend such claim in the name of the Indemnified Party at its own
expense and through counsel of its own choosing, but which is reasonably
satisfactory to the Indemnified Party; provided, that if the applicable claim or
demand is against, or if the defendants in any such Legal Proceeding shall
include, both the
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Indemnified Party and the Indemnifying Party and the Indemnified Party
reasonably concludes that there are defenses available to it that are different
or additional to those available to the Indemnifying Party or if the interests
of the Indemnified Party may be reasonably deemed to conflict with those of the
Indemnifying Party, then the Indemnified Party shall have the right to select
separate counsel and to assume the Indemnified Party's defense of such claim,
demand or Legal Proceeding at its own expense. The Indemnifying Party shall give
the Indemnified Party notice in writing within ten (10) days after receiving the
Claim Notice from the Indemnified Party in the event of litigation, or otherwise
within thirty (30) days, of its intent to do so. In the case of any claim
resulting from, relating to or arising out of any Purchaser Financing
Transaction or the provisions of Section 3.23, the Purchaser shall have right to
control the defense thereof at the Indemnifying Party's expense; provided,
however, that the Indemnifying Party shall have the right, at its own expense,
to retain its own counsel to participate in the defense of the claim and to
promote the defenses of the Indemnifying Party in the proceedings. Whenever the
Indemnifying Party is entitled to defend any claim hereunder, the Indemnified
Party may elect, by notice in writing to the Indemnifying Party, to continue to
participate through its own counsel, at its own expense, but the Indemnifying
Party shall have the right to control the defense of the claim or the
litigation; provided, that the Indemnifying Party retains counsel reasonably
satisfactory to the Indemnified Party and pursuant to an arrangement
satisfactory to the Indemnified Party; otherwise, the Indemnified Party shall
have the right to control the defense of the claim or the litigation.
Notwithstanding any other provision contained in this Agreement, the party
controlling the defense of the claim or the litigation shall not settle any such
claim or litigation without the written consent of the other party; provided,
that if the Indemnified Party is controlling the defense of the claim or the
litigation and shall have, in good faith, negotiated a settlement thereof, which
proposed settlement contains terms that are reasonable under the circumstances,
then the Indemnifying Party shall not withhold or delay the giving of such
consent (and in the event the Indemnifying Party and Indemnified Party are
unable to agree as to whether the proposed settlement terms are reasonable, the
Indemnifying Party and Indemnified Party will request that the disagreement be
resolved by a neutral third party designated by the President of the
Philadelphia office of the American Arbitration Association). In the event that
the Indemnifying Party is controlling the defense of the claim or the litigation
and shall have negotiated a settlement thereof, which proposed settlement is
substantively final and unconditional as to the parties thereto (other than the
consent of the Indemnified Party required under this Section 10.3(c)) and
contains an unconditional release of the Indemnified Party and does not include
the taking of any actions by, or the imposition of any restrictions on the part
of, the Indemnified Party and the Indemnified Party shall refuse to consent to
such settlement, the liability of the Indemnifying Party under this Article 10,
upon the ultimate disposition of such litigation or claim, shall be limited to
the amount of the proposed settlement; provided, however, that in the event the
proposed settlement shall require that the Indemnified Party make an admission
of liability, a confession of judgment, or shall contain any other non-financial
obligation which, in the reasonable judgment of the Indemnified Party, renders
such settlement unacceptable, then the Indemnified Party's failure to consent
shall not give rise to the limitation of Indemnifying Party's liability as
provided for in this Section 10.3(c), and the Indemnifying Party shall continue
to be liable to the full extent of such litigation or claim and provided
further, that notwithstanding any provision to the contrary,
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no Indemnifiable Losses with respect to Taxes shall be settled without the prior
written consent of the Purchaser, which shall not be unreasonably withheld.
(d) Notwithstanding any other provisions of this Agreement, the Signatory
Shareholders shall control all federal and state income tax controversies with
respect to periods ending on or before the Closing Date. The Signatory
Shareholders shall be permitted to resolve all such controversies to their own
satisfaction; provided, however, that if such resolution (or any later positions
consistent therewith) could result in a change to the income tax liabilities or
positions of Purchaser for periods after the Closing Date, or in an
Indemnifiable Loss with respect to Taxes, the Signatory Shareholders shall
obtain the advance written consent or Purchaser to such resolution which consent
shall not be unreasonably withheld. Should Purchaser receive any communications
from federal or state tax authorities with respect to tax periods ending on or
before the closing date, Purchaser shall notify the Signatory Shareholders of
such communication by facsimile within two business days after receipt, and
shall forward the original of such communication if in writing within five
business days.
10.4. Equitable Contribution Under the Securities Act. To provide for just
and equitable contribution to joint liability under the Securities Act in any
case in which the Purchaser, Newco, the Surviving Corporation, the Company, or
any controlling Person of the Purchaser or the Company (within the meaning of
the Securities Act) makes a claim for indemnification pursuant to Section
10.1(ii) but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that Section 10.1(ii) provides
for indemnification in such case, then, the Purchaser, Newco, the Surviving
Corporation, the Company, each controlling Person and each of the Sellers will
contribute to the aggregate Indemnifiable Losses to which the Purchaser, Newco,
the Surviving Corporation, the Company or any such controlling Person may be
subject (after contribution from others) as is appropriate to reflect the
relative fault of the Purchaser, Newco, the Surviving Corporation, the Company,
such controlling Person and such Seller in connection with the statements or
omissions which resulted in such Indemnifiable Losses, as well as the relative
benefit received by the Purchaser, Newco, the Surviving Corporation, the
Company, such controlling Person and such Seller as a result of the issuance of
the securities to which such Indemnifiable Losses relate, it being understood
that the parties acknowledge that the overriding equitable consideration to be
given effect in connection with this provision is the ability of one party or
the other to correct the statement or omission which resulted in such
Indemnifiable Losses, and that it would not be just and equitable if
contribution pursuant hereto were to be determined by pro rata allocation or by
any other method of allocation which does not take into consideration the
foregoing equitable considerations; provided, however, that, in any such case,
no Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) will be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
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10.5. Exclusiveness of Indemnification. The indemnification rights of the
parties under this Article 10 are exclusive of other rights and remedies that
the parties may have under this Agreement (but for this provision), at law or in
equity or otherwise.
10.6. Limitations on Indemnification. Purchaser, the Company, Newco, the
Surviving Corporation and the other Persons or entities indemnified pursuant to
Section 10.1 shall not assert any claim for indemnification hereunder against
the Sellers until such time as, the aggregate of all claims which such persons
may have against the Sellers shall exceed $37,500 (the "Indemnification
Threshold"), whereupon such claims shall be indemnified in full. Sellers shall
not assert any claim for indemnification hereunder against Purchaser, the
Company, Newco or the Surviving Corporation until such time as, the aggregate of
all claims which Sellers may have against Purchaser, the Company, Newco or the
Surviving Corporation shall exceed $37,500, whereupon such claims shall be
indemnified in full. The limitation of assertion of claims for indemnification
contained in this paragraph shall apply only to claims based upon inaccuracies
in, or breaches of, representations and warranties contained in this Agreement
or any document, instrument, certificate or other item required to be furnished
pursuant to this Agreement or in connection with the transaction contemplated by
this Agreement.
No person shall be entitled to indemnification under this Article 10 if and
to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Seller shall be liable
under this Article 10 or otherwise for an amount which exceeds the amount of
proceeds received by such Seller in connection with the transactions
contemplated herein. For purposes of the foregoing limitation, the DocuNet
Common Stock shall be valued at the Initial Public Offering Price.
No claim under this Article 10 shall be made unless an Indemnity Notice, an
Unliquidated Indemnity Notice or a Claim Notice (as applicable) has been given
prior to the applicable survival period.
10.7. Value of DocuNet Common Stock. Any shares of DocuNet Common Stock
used to satisfy an Indemnity Claim shall be valued at the lower of the Initial
Public Offering Price and the Value as of the date such shares are so used.
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ARTICLE 11
TERMINATION AND REMEDIES
11.1. Termination. This Agreement may be terminated, and the transactions
contemplated by this Agreement may be abandoned:
(a) at any time before the Closing, by the mutual written agreement among
the Company, the Sellers, Newco and the Purchaser;
(b) at any time before the Closing, by the Purchaser pursuant to Section
5.4(a), or if any of the Company's or any of the Seller's representations or
warranties contained in this Agreement were materially incorrect when made or
become materially incorrect;
(c) at any time before the Closing, by the Sellers holding a majority of
the Shares if any of the Purchaser's or Newco's representations or warranties
contained in this Agreement were materially incorrect when made or become
materially incorrect;
(d) at any time before the Closing, by the Sellers holding a majority of
the Shares, on the one hand, or by the Purchaser, on the other hand, upon any
material breach by such other party's covenants or agreements contained in this
Agreement and the failure of such other party to cure such breach, if curable,
within ten (10) days after written notice thereof is given by the non-breaching
party to the breaching party; or
(e) at any time after the date which is 270 days after the date of this
Agreement, by the Sellers holding a majority of the Shares, on the one hand, or
by the Purchaser on the other hand, upon notification to the non-terminating
party by the terminating party if the Closing shall not have occurred on or
before such date and such failure to consummate is not caused by a breach of
this Agreement by the terminating party.
11.2. Effect of Termination.
(a) Subject to Section 11.2(b) of this Agreement, if this Agreement is
validly terminated pursuant to Section 11.1, then this Agreement shall forthwith
become void, and, subject to such Section 11.2(b), there shall be no liability
under this Agreement on the part of the Company, any of the Sellers, Newco or
the Purchaser and all rights and obligations of each party to this Agreement
shall cease; provided, that (i) the provisions with respect to expenses in
Section 16.4 shall indefinitely survive any such termination, (ii) the
provisions with respect to confidentiality of Section 8.1 shall survive any such
termination until it, by its own terms, is no longer operative; (iii) the
provisions with respect to exclusivity of negotiations of Section 5.9 shall
survive for 180 days after such termination, but only if the termination is made
by Purchaser pursuant to Section 11.1(b) or Section 11.1(d); and (iv) this
Section 11.2 shall indefinitely survive such termination.
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(b) If this Agreement is validly terminated as a result of a
misrepresentation or a breach of any warranty made by any party to this
Agreement or as a result of a material breach by a party of any of such party's
covenants or agreements contained in this Agreement, or, if all conditions to
the obligations of a party at Closing contained in Article 6 of this Agreement
have been satisfied (or waived by the party entitled to waive such conditions)
and such party does not proceed with the Closing, then any and all rights and
remedies available to the non-breaching parties, whether under this Agreement,
at law or in equity or otherwise shall be preserved and shall survive the
termination of this Agreement.
ARTICLE 12
POST-CLOSING COVENANTS
12.1. Maintenance and Access to Records. For a period of three (3) years
after the Closing Date, the Purchaser shall, or shall cause the Surviving
Corporation and each of its Subsidiaries to, maintain all books and records
maintained by the Company or any such Subsidiary on or prior to the Closing Date
and shall permit the Sellers or their respective representatives and agents
access to all such books and records, and to the Surviving Corporation's and its
Subsidiaries' employees and auditors for the purpose of obtaining information
relating to periods on or prior to the Closing Date, upon reasonable notice by
the Sellers and on terms not disruptive to the business, operation or employees
of the Purchaser, the Surviving Corporation, the Company or any of their
respective Subsidiaries, to assist the Sellers in (i) completing any tax or
regulatory filings or financial statements required or appropriate to be made by
the Sellers after the Closing Date or in completing any other reasonable and
customary business objective, (ii) prosecuting or defending on behalf of the
Sellers, the Company or any of its Subsidiaries any litigation controlled by the
Sellers or (iii) complying with requests made of any of the Sellers by any
Taxing Authority or any Governmental or Regulatory Authority conducting an
audit, investigation or inquiry relating to the Company's or any of its
Subsidiaries' activities during periods prior to the Closing Date. Each of the
Sellers will hold all information provided to them pursuant to this Section 12.1
(and any information derived therefrom) in confidence to the same extent as
required by Section 8.1 of this Agreement with respect to Confidential
Information.
12.2. Disclosure. If, subsequent to the effective date of the registration
statement relating to the Initial Public Offering and prior to the 25th day
after the date of the final prospectus of Purchaser utilized in connection with
the Initial Public Offering, the Company or the Sellers become aware of any fact
or circumstance which would change (or, if after the Closing Date, would have
changed) a representation or warranty of Company or Sellers in this Agreement or
would affect any document delivered pursuant hereto in any material respect, the
Company and the Sellers shall promptly give notice of such fact or circumstance
to Purchaser.
12.3. Accounts Receivable. Immediately prior to Closing, the Company will
distribute to the Sellers as a dividend the receivables more than 100 days past
their original invoice date and all charged off receivables. In the event that
the Company or the Sellers makes a
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payment after the Closing Date to Purchaser in full satisfaction of an
uncollected Receivable, Purchaser will assign its rights to such Receivable to
the Company or the Sellers, as applicable.
ARTICLE 13
TRANSFER RESTRICTIONS
13.1. Transfer Restrictions. Except for transfers to immediate family
members who agree to be bound by the restrictions set forth in this Section 13.1
(or trusts for the benefit of the Sellers or family members, the trustees of
which so agree), for a period of one year from the Closing, except pursuant to
Article 15 hereof, none of the Sellers shall (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint, or otherwise dispose of (a) any
shares of DocuNet Common Stock received by the Sellers pursuant to this
Agreement, or (b) any interest (including, without limitation, an option to buy
or sell) in any such shares of DocuNet Common Stock, in whole or in part, and no
such attempted transfer shall be treated as effective for any purpose; or (ii)
engage in any transaction, whether or not with respect to any shares of DocuNet
Common Stock or any interest therein, the intent or effect of which is to reduce
the risk of owning the shares of DocuNet Common Stock acquired pursuant to this
Agreement (including, by way of example and not limitation, engaging in put,
call, short-sale, straddle or similar market transactions). The certificates
evidencing the DocuNet Common Stock delivered to the Sellers pursuant to Article
2 of this Agreement will bear a legend substantially in the form set forth below
and containing such other information as the Purchaser may deem necessary or
appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE
EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER,
ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION
PRIOR TO THE FIRST ANNIVERSARY OF CLOSING DATE. UPON THE WRITTEN
REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
ARTICLE 14
SECURITIES LAWS REPRESENTATIONS
The Sellers acknowledge that the shares of DocuNet Common Stock to be
delivered to the Sellers pursuant to this Agreement have not been and will not
be registered under
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the Securities Act or any other state securities laws, and therefore may not be
resold without compliance with the Securities Act. The DocuNet Common Stock to
be acquired by such Sellers pursuant to this Agreement is being acquired solely
for their own respective accounts, for investment purposes only, and with no
present intention of distributing, selling or otherwise disposing of it in
connection with a distribution.
14.1. Compliance with Law. The Sellers covenant, warrant and represent that
none of the shares of DocuNet Common Stock issued to such Sellers will be
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the Securities Act, the rules and regulations of the Securities and Exchange
Commission and applicable state securities laws. All the DocuNet Common Stock
shall bear the following legend in addition to any other legends required under
this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR ANY
STATE SECURITIES OR BLUE SKY LAWS. SUCH SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES
UNDER THE 1933 ACT AND ANY STATE SECURITIES OR BLUE SKY LAWS, UNLESS,
IN THE OPINION (WHICH SHALL BE IN FORM AND SUBSTANCE SATISFACTORY TO
THE CORPORATION) OF COUNSEL SATISFACTORY TO THE CORPORATION, SUCH
REGISTRATION IS NOT REQUIRED.
14.2. Economic Risk; Sophistication. The Sellers party hereto are able to
bear the economic risk of an investment in the DocuNet Common Stock acquired
pursuant to this Agreement and can afford to sustain a total loss of such
investment and have such knowledge and experience in financial and business
matters that they are capable of evaluating the merits and risks of the proposed
investment in the DocuNet Common Stock. The Sellers party hereto or their
respective purchaser representatives have had an adequate opportunity to ask
questions and receive answers from the officers of the Purchaser concerning any
and all matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of the Purchaser, the plans for the operations of the business of
the Purchaser, the business, operations and financial condition of the Founding
Companies, and any plans for additional acquisitions and the like. The Sellers
acknowledge receipt and review of the draft Registration Statement attached
hereto as Schedule 14.2 for informational purposes and subject to the
limitations of Section 5.12(b). The Seller acknowledges that such draft is
subject to completion and subject to change, and Seller acknowledges that his
purchaser representatives have had an adequate opportunity to ask questions and
receive answers from the officers of the Purchaser pertaining thereto.
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ARTICLE 15
REGISTRATION RIGHTS
15.1. Piggyback Registration Rights. Subject to Sections 5.14 and 15.5, at
any time following the Closing, whenever the Purchaser proposes to register any
DocuNet Common Stock for its own or others' account under the Securities Act for
a public offering, other than (i) any shelf registration of DocuNet Common
Stock; (ii) registrations of shares to be used solely as consideration for
acquisitions of additional businesses by the Purchaser; and (iii) registrations
relating to employee benefit plans, the Purchaser shall give each of the Sellers
prompt written notice of its intent to do so. Upon the written request of any of
the Sellers given within 30 days after receipt of such notice, Purchaser shall
cause to be included in such registration all of the DocuNet Common Stock which
any such Seller requests. However, if the Purchaser is advised in writing in
good faith by any managing underwriter of an underwritten offering of the
securities being offered pursuant to any registration statement under this
Section 15.1 that the number of shares to be sold by persons other than the
Purchaser is greater than the number of such shares which can be offered without
adversely affecting the offering, the Purchaser may reduce pro rata the number
of shares offered for the accounts of such persons (based upon the number of
shares held by such persons) to a number deemed satisfactory by such managing
underwriter or such managing underwriter can eliminate the participation of all
such persons in the offering, provided that, for each such offering made by the
Purchaser after the Initial Public Offering, a reduction shall be made first by
reducing the number of shares to be sold by persons other than the Purchaser,
the Sellers, the Founding Companies, the stockholders of the Founding Companies
and other stockholders (the "Other Stockholders") of the Company immediately
prior to the Initial Public Offering, and thereafter, if a further reduction is
required, by reducing the number of shares to be sold by the Sellers, the
Founding Companies, the stockholders of the Founding Companies and the Other
Stockholders, pro rata based upon the number of shares held by such persons.
15.2. Registration Procedures. All expenses incurred in connection with the
registrations under this Article 15 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts and fees, if any, of separate counsel engaged by the
Sellers) shall be borne by the Purchaser. In connection with registrations under
Section 15.1, the Purchaser shall (i) prepare and file with the Securities and
Exchange Commission as soon as reasonably practicable, a registration statement
with respect to the DocuNet Common Stock and use its best efforts to cause such
registration to promptly become and remain effective for a period of at least 90
days (or such shorter period during which holders shall have sold all DocuNet
Common Stock which they requested to be registered); (ii) use its best efforts
to register and qualify the DocuNet Common Stock covered by such registration
statement under applicable state securities laws as the holders shall reasonably
request for the distribution for the DocuNet Common Stock; and (iii) take such
other actions as are reasonable and necessary to comply with the requirements of
the Securities Act and the regulations thereunder.
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15.3. Underwriting Agreement. In connection with each registration pursuant
to Section 15.1 covering an underwritten registration public offering, the
Purchaser and each participating holder agree to enter into a written agreement
with the managing underwriters in such form and containing such provisions as
are customary in the securities business for such an arrangement between such
managing underwriters and companies of the Purchaser's size and investment
stature, including indemnification and the prohibition of sales or transfers of
such holders' common stock for an applicable lock-up period.
15.4. Availability of Rule 144. The Purchaser shall not be obligated to
register shares of DocuNet Common Stock held by any Seller at any time when the
resale provisions of Rule 144(k) (or any similar or successor Seller provision)
promulgated under the Securities Act are available to such Seller.
15.5. Survival. The provisions of this Article 15 shall survive the Closing
until December 31, 1999.
ARTICLE 16
MISCELLANEOUS
16.1. Notices. All notices required to be given to any of the parties of
this Agreement shall be in writing and shall be deemed to have been sufficiently
given, subject to the further provisions of this Section 16.1, for all purposes
when presented personally to such party or sent by certified or registered mail,
return receipt requested, with proper postage prepaid, or any national overnight
delivery service, with proper charges prepaid, to such party at its address set
forth below:
(a) If to the Company (prior to the Closing Date):
DocuTech Data Systems, Inc.
0000 Xxxxxxxxx Xxxxx
Xxxxxxx, XX 00000
Attention: Xxx Xxxx
with a copy to:
Xxxxxx X. Xxxxxx
Attorney at Law
0000 Xxxxxxx Xxxx
Xxxxx 000
Xxxxxxx, XX 00000
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(b) If to any of the following Sellers:
(i) If to Xxx Xxxx:
Xxx Xxxx
c/o DocuTech Data Systems, Inc.
0000 Xxxxxxxxx Xxxxx
Xxxxxxx, XX 00000
(ii) If to Xxxx Xxxxxxx:
Xxxx Xxxxxxx
c/o Xxxx Xxxxxxx
DocuTech Data Systems, Inc.
0000 Xxxxxxxxx Xxxxx
Xxxxxxx, XX 00000
(iii) If to Xxxxx Xxxxxxxx:
Xxxxx Xxxxxxxx
0000 Xxxxx 00xx Xxxxxx
Xxxxxxxxx 00
Xxxxxxx, XX 00000
with a copy to:
Xxxxxx X. Xxxxxxx, Esquire
Xxxxxxxx, Xxxxxxx & Whittsttuck, P.C.
0000 X Xxxxxx
Xxxxxxx, XX 00000
(c) If to the Purchaser or Newco:
DocuNet Inc.
000 Xxxxxx'x Xxxx Xxxx
Xxxxxxxxx, XX 00000
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with a copy to:
Pepper, Xxxxxxxx & Xxxxxxx LLP
0000 Xxx Xxxxx Xxxxxx
00xx & Xxxx Xxxxxxx
Xxxxxxxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxx, Esquire
Such notice shall be deemed to be received when delivered if delivered
personally, the next business day after the date sent if sent by a national
overnight delivery service, or three (3) business days after the date mailed if
mailed by certified or registered mail. Any notice of any change in such address
shall also be given in the manner set forth above. Whenever the giving of notice
is required, the giving of such notice may be waived in writing by the party
entitled to receive such notice.
16.2. No Third Party Beneficiaries. Except as is otherwise provided herein,
this Agreement is not intended to, and does not, create any rights in or confer
any benefits upon anyone other than the parties hereto.
16.3. Schedules. All schedules attached to this Agreement are incorporated
by reference into this Agreement for all purposes.
16.4. Expenses. The parties to this Agreement shall pay their own expenses
incident to the preparation, negotiation and execution of this Agreement
including, without limitation, all fees and costs and expenses of their
respective accountants and legal counsel. The parties acknowledge that all fees
and expenses of Xxxxxx Xxxxxxxx LLP incurred in auditing the Company's financial
statements in connection with the transactions contemplated hereby shall be the
responsibility of Purchaser, provided that, notwithstanding the foregoing,
Sellers shall be responsible to pay $5,000 of such fees and expenses
16.5. Further Assurances. The Sellers, the Surviving Corporation and the
Purchaser shall, at his or its own expense, from time to time upon the request
of the other, execute and deliver, or cause to be executed and delivered, at
such times as may reasonably be requested by the Purchaser, the Surviving
Corporation or the Sellers, such other documents, certificates and instruments
and take such actions as the Purchaser, the Surviving Corporation or the Sellers
deem reasonably necessary to consummate more fully the transactions contemplated
by this Agreement. In addition, the Sellers shall (i) provide or cause to be
provided such written information with respect to themselves or the Company,
(ii) execute and deliver or cause to be executed and delivered such other
documents, certificates or instruments, and (iii) take or cause to be taken such
actions, in each of the foregoing cases, as the Purchaser, the Surviving
Corporation, any Underwriter or any auditor reasonably deems necessary or
desirable to complete any audit of the Company's financial statements or in
connection with any Purchaser Financing Transaction; provided, that none of the
Sellers shall be required to execute any guaranty of any indebtedness or
instrument of indebtedness obtained by the Purchaser or any of its Subsidiaries.
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16.6. Entire Agreement; Amendment. This Agreement and any other documents,
instruments or other writings delivered or to be delivered pursuant to this
Agreement constitute the entire agreement among the parties with respect to the
subject matter of this Agreement and supersede all prior agreements,
understandings, and negotiations, whether written or oral, with respect to the
subject matter of this Agreement. None of the terms and provisions contained in
this Agreement can be changed without a writing signed by all parties hereto.
16.7. Section and Paragraph Titles. The section and paragraph titles used
in this Agreement are for convenience only and are not intended to define or
limit the contents or substance of any such section or paragraph.
16.8. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of each of the parties to this Agreement and their respective heirs,
personal representatives, and successors and permitted assigns. Neither the
Company, any of the Sellers nor the Purchaser shall have the right to assign
this Agreement without the prior written consent of the others, except that
Purchaser or Newco may assign its rights and obligations under this Agreement
prior to the Closing to any wholly-owned Subsidiary of the Purchaser or Newco;
provided that the DocuNet Common Stock to be issued in payment of a portion of
the purchase price shall be registered under Section 12 of the Securities
Exchange Act of 1934 at the time it is issued.
16.9. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute one and the same
instrument.
16.10. Severability. Any provision of this Agreement (other than those
contained in Article 8 of this Agreement, in which case, Section 8.5 of this
Agreement shall govern with respect to the invalidity, unenforceability, or
illegality of any such provision) that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such provision, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
16.11. Governing Law. This Agreement shall be governed and construed as to
its validity, interpretation and effect by the laws of the Commonwealth of
Pennsylvania notwithstanding the choice of law rules of Pennsylvania or any
other jurisdiction, except that the provisions in Section 8.2 hereof shall be
governed by Nebraska law.
[Signature Page Follows]
-75-
IN WITNESS WHEREOF, each of the Sellers, the Purchaser, Newco and the
Company have caused this Agreement to be duly executed as of the date first
written above.
DOCUNET INC.
By: /s/ Xxxxx X. Xxxxxx
_______________________________
Xxxxx X. Xxxxxx
Chairman of the Board of Directors
and Chief Executive Officer
DOCUNET ACQUISITION CORP.
By: /s/ S. Xxxxx Xxxxx
_______________________________
Name:
Title:
DOCUTECH DATA SYSTEMS, INC.
By: /s/ Xxx Xxxx
_______________________________
[--------------]
President
Witness: /s/ Xxx Xxxx
_______________________ _______________________________
Xxx Xxxx, Individually
Witness: /s/ Xxxx Xxxxxxx
_______________________ _______________________________
Xxxx Xxxxxxx, Individually
Witness: /s/ Xxxxx Xxxxxxxx
_______________________ _______________________________
Xxxxx Xxxxxxxx, Individually
-76-
Schedule 2.3
Officaers of Surviving Corporation
----------------------------------
DocuTech Acquisition Corp.
--------------------------
S. Xxxxx Xxxxx President
Xxxxxx X. Xxxxx Secretary
Xxxxx Xxxxx Treasurer
-77-
Schedule 2.4
Capitalization
--------------
To be delivered at a later date.
-78-
Schedule 2.7
Capitalization Table
--------------------
To be delivered at a later date.
-79-
Schedule 2.9
Distribution of Merger Consideration
------------------------------------
--------------------------------------------------------------------------------------------------------
% of % of
Aggregate Purchase % of Purchase
Purchase Price paid Price Paid in Aggregate Stock Escrow
Shareholder Price in Cash Stock Purchase Price Amount
--------------------------------------------------------------------------------------------------------
Xxx Xxxx 51% 25% 75% $2,486,250 $165,750 (stock)
--------------------------------------------------------------------------------------------------------
Xxxx Xxxxxxx 39% 50% 50% $1,267,500 $126,750 (stock)
--------------------------------------------------------------------------------------------------------
Xxxxx Xxxxxxxx 10% 100% --% -- $32,500 (cash)
--------------------------------------------------------------------------------------------------------
Total 100% $3,753,750 $325,000
--------------------------------------------------------------------------------------------------------
-80-
Schedule 6.1(k)
___________ __, 1997
DocuNet Inc.
000 Xxxxxx'x Xxxx Xxxx
Xxxxxxxxx, XX 00000
Ladies and Gentlemen:
We have acted as counsel to __________________, a ________________
corporation (the "Company"), in connection with the transactions contemplated by
that certain [Purchase Agreement] dated as of ____________ , 1997 (the "Purchase
Agreement"), among the Company, DocuNet Inc., a Pennsylvania corporation (the
"Purchaser"), and ("Stockholders"). This opinion is furnished to you pursuant to
Section ______________ of the Purchase Agreement.
In connection with rendering this opinion, we have examined the Purchase
Agreement and the Escrow Agreement (collectively the "Transaction Documents").
We have also examined the [Cenificate] [Articles] of Incorporation and Bylaws of
the Company. We have also made such examinations of laws, certificates of public
officials, instruments, documents, and corporate records and have made such
other investigations as we have deemed necessary in connection with the opinions
hereinafter set forth. In such examination we have assumed (i) the genuineness
of all signatures on certificates and documents other than those signed by the
Company and the Stockholders, (ii) the accuracy, completeness and authenticity
of all records and documents submitted to us as originals, (iii) the conformity
to the original of all documents submitted to us as certified, conformed Or
photostatic copies, and (iv) the legal capacity of all natural persons who are
parties to the Transaction Documents
Capitalized terms used herein and not otherwise defined herein have the
meanings set forth in the Purchase Agreement.
Our opinion is limited to the laws of the State of ______________ and the
federal laws of the United States and we do not purport to express any opinion
herein with respect to the laws of any other state or jurisdiction.
-81-
We note that the Transaction Documents contain clauses selecting
Pennsylvania law as governing law. For purposes of this opinion, we have
assumed, with your permission, that such clauses selected __________ law,
without regard for principles of choice of law, and that such documents are
being executed and delivered and will be performed in, and that the applicable
property is and will be held in, the State of ______________ .
Based on the foregoing and subject to the qualifications set forth herein,
it is our opinion that:
16.11.1.The Company is a corporation duly organized, validly existing and
ingood standing under the laws of the State of ________________ and has all
necessary corporate power and authority to enter into the Transaction Documents
and to consummate the transactions contemplated thereby.
16.11.2.The execution, delivery and performance of the Transaction
Documents have been duly authorized by all requisite Corporate action on the
part of the Company.
16.11.3.The Transaction Documents have been duly and validly executed by
the Company and the Stockholders and constitute the legal, valid and binding
obligations of the Company and the Stockholders, respectively, and are
enforceable against them in accordance with their respective terms.
16.11.4.Neither the execution and the delivery of the Transaction Documents
nor the consummation of the transactions contemplated thereby, violate the
[Certificates][Articles] of Incorporation or Bylaws of the Company.
All of the opinions set forth in this letter are further subject to: (i)
the effect of any applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other laws affecting or relating to creditors' rights,
(ii) as to any covenants not to compete the unenforceability of, or limitation
on, certain provisions when such provisions are found unreasonable in scope,
(iii) the requirement that to the extent that provisions of the Transaction
Documents and any other documents delivered in connection therewith permit the
parties to make certain determinations, such determinations may be subject to a
requirement that they be made on a reasonable basis and in good faith, (iv) the
effect of general principles of equity, equitable defenses and the discretion of
the court regarding the enforcement of remedies (regardless of whether
considered in a proceeding in equity or at law), and (v) the unenforceability of
or limitation on the enforceability of certain provisions, including without
limitation indemnification provisions, when such provisions are found to be
contrary to public policy.
This opinion is rendered as of the date hereof and we assume no obligation
to modify, update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention, or any changes in laws
which may hereafter occur.
-82-
Our option, as expressed herein, is solely for the benefit of the
addressees, their successors and assigns, and unless we give on prior written
consent. neither our opinion nor this opinion letter may be quoted in whole or
in part or be relied upon by any other person.
-83-
Schedule 6.1(1)
Related Party Agreements
------------------------
None.
-84-
Schedule 6.1(m)
Employment Agreements
---------------------
Xxx Xxxx
Xxxx Xxxxxxx
-85-
Schedule 6.2(i)
[__________________] __, 1997
[NAME AND ADDRESS]
Ladies and Gentlemen:
We have acted as counsel to DocuNet Inc., a Pennsylvania corporation (the
"Purchaser"], in connection with the transactions contemplated by that certain
[Purchase Agreement] dated as of _____________, 1997 (the "Purchase Agreement"),
among the Purchaser, __________________, a ____________ corporation (the
"Seller"), and ("Stockholders"). This opinion is furnished to you pursuant to
Section ____________ of the Purchase Agreement.
In connection with rendering this option, we have examined the Purchase
Agreement and the Escrow Agreement (collectively the "Transaction Documents").
We have also examined the Articles of Incorporation and Bylaws of the Purchaser.
We have also made such examinations of laws, certificates of public officials,
instruments, documents, and corporate records and have made such other
investigations as we have deemed necessary in connection with the opinions
hereinafter set forth. In such examination we have assumed (i) the genuineness
of all signatures on certificates and documents other than those signed by the
Purchaser, (ii) the accuracy, completeness and authenticity of all records and
documents submitted to us as originals, (iii) the conformity to the original of
all documents submitted to us as certified, conformed or photostatic copies, and
(iv) the legal capacity of all natural persons who are parties to the
Transaction Documents.
Capitalized terms used herein and not otherwise defined herein have the
meanings set forth in the Purchase Agreement.
Our opinion is limited to the laws of the Commonwealth of Pennsylvania and
the federal laws of the United States and we do not purport to express any
opinion herein with respect to the laws of any other state or jurisdiction.
Based on the foregoing and subject to the assumptions and qualifications
set forth herein, it is our opinion that.
-86-
16.11.5. The Purchaser is a corporation duly organized, validly existing
and presently subsisting under the laws of the Commonwealth of Pennsylvania and
has all necessary corporate power and authority to enter into the Transaction
Documents and to consummate the transactions contemplated thereby.
16 11.6. The execution, delivery and performance of the Transaction
Documents have been duly authorized by all requisite corporate action on the
part of the Purchaser.
16.11.7. The Transaction Documents have been duly and validly executed by
the Purchaser and constitute the legal, valid and binding obligations of the
Purchaser enforceable against it in accordance with their respective terms.
16.11.8. Neither the execution and the delivery of the Transaction
Documents, nor the consummation of the transactions contemplated thereby,
violate the Articles of Incorporation or Bylaws of the Purchaser.
All of the opinions set forth in this letter are further subject to: (i)
the effect of any applicable bankruptcy, insolvency reorgaruzation, fraudulent
conveyance, moratorium or other laws affecting or relating to creditors' rights,
(ii) as to any covenants not to compete, the unenforceability of, or limitation
on, certain provisions when such provisions are found unreasonable in scope,
(iii) the requirement that, to the extent that provisions of the Transaction
Documents and any other documents delivered in connection therewith permit the
parties to make certain determinations, such determinations may be subject to a
requirement that they be made on a reasonable basis and in good faith, (iv) the
effect of general principles of equity, equitable defenses and the discretion of
the court regarding the enforcement of remedies (regardless of whether
considered in a proceeding in equity or at law), and (v) the unenforceability of
or limitation on the enforceability of certain provisions, including without
limitation indemnification provisions, when such provisions are found to be
contrary to public policy.
This opinion is rendered as of the date hereof and we assume no obligation
to modify, update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention, or any changes in laws
which may hereafter occur.
Our opinion, as expressed herein, is solely for the benefit of the
addressees, their successors and assigns, and unless we give our prior written
consent, neither our opinion nor this opinion letter may be quoted in whole or
in part or be relied upon by any other person.
PEPPER, XXXXXXXX & XXXXXXX LLP
------------------------------
A Partner
-87-
EXHIBIT A
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") dated as of this ____ day of
______, 1997, by and among Xxx Xxxx, Xxxx Xxxxxxx and Xxxxx Xxxxxxxx
(collectively "Sellers," and each, a "Seller"), DocuNet Inc., a Pennsylvania
corporation ("Purchaser") and ______ (the "Escrow Agent"). The Purchaser, the
Sellers and the Escrow Agent are sometimes collectively referred to herein as
the "Parties" and individually as a "Party."
W I T N E S S E T H :
WHEREAS, pursuant to the Purchase Agreement (as hereinafter defined),
it is a condition to the consummation of the transactions contemplated thereby
that at the Closing, this Escrow Agreement be entered into by the Parties.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, and of other good and valuable
consideration, the Parties, intending to be legally bound, hereby agree as
follows:
1. Definitions. All defined or capitalized terms used in this Agreement
will have the meanings set forth in the Purchase Agreement unless such terms are
defined herein or unless the context clearly indicates to the contrary.
(a) Common Stock shall mean the common stock, $ ____ par value, of the
Purchaser.
(b) Market Price shall mean the average closing price of Common Stock
during the twenty (20) day trading period immediately preceding the Price
Determination Date.
(c) Price Determination Date shall mean any date on which (i) payment
of an Indemnity Amount (as hereinafter defined) is made, (ii) payment of a
Covered Amount (as hereinafter defined) is made or (iii) an additional deposit
of Common Stock to restore the Combined Value (as hereinafter defined) to the
Threshold Value is made.
(d) Purchase Agreement shall mean that certain Stock Purchase
Agreement, Asset Purchase Agreement or Agreement and Plan of Reorganization, as
the case may be, between the Seller and the Purchaser.
(e) Purchase Price shall mean the amount payable by the Purchaser
pursuant to Article 2 of the Purchase Agreement.
(f) Share Value shall mean the lesser of (i) the Initial Public
Offering Price or (ii) the Market Price.
2. Appointment of Escrow Agent. The Purchaser and the Sellers hereby
appoint the Escrow Agent as the escrow agent for the purposes set forth herein
and the Escrow Agent hereby accepts such appointment on the terms herein
provided. The Escrow Agent hereby acknowledges receipt from the other Parties of
an executed copy of the Purchase Agreement.
-1-
3. Deposit of Escrow Account. Pursuant to Article 2 of the Purchase
Agreement, there is being deposited into an account (the "Escrow Account")
maintained by the Escrow Agent either (i) a number of shares of Common Stock
valued at the Initial Public Offering Price, (ii) cash or (iii) a combination of
Common Stock and cash comprising part of the Purchase Price equal to $_______,
(the "Threshold Value"). The Escrow Account will be held, invested, reinvested
and disbursed by Escrow Agent in accordance with the terms hereof.
4. Additional Deposits. In the event that the combined (i) value of any
shares of Common Stock (valued at the Initial Public Offering Price) which may
be on deposit in the Escrow Account and (ii) the amount of cash which may be on
deposit in the Escrow Account ("Cash Value") (collectively, the "Combined
Value") falls below the Threshold Value, due to payment from the Escrow Account
pursuant to a Purchase Price adjustment pursuant to Article 2 of the Purchase
Agreement, the Sellers shall, within one (1) business day, deposit additional
shares of Common Stock or cash, as the case may be, to the Escrow Account in an
amount such that the Combined Value in the Escrow Account equals the Threshold
Value.
5. Pledge of Common Stock; Restriction on Transferability.
(a) In the event that the Escrow Account includes shares of Common
Stock, each Seller hereby pledges for the benefit of the Purchaser, and grants
the Purchaser a security interest in, such deposited Common Stock. In addition,
each Seller depositing Common Stock in the Escrow Account has also delivered to
the Escrow Agent stock powers endorsed in blank with respect to the deposited
Common Stock registered in the name of each Seller. The Escrow Agent shall hold
all such deposited Common Stock, not as an agent of each Seller, but rather as a
pledgeholder.
If blank stock powers with respect to any Common Stock deposited into
the Escrow Account and registered to a Seller are delivered by the Escrow Agent
to the Purchaser, such Seller shall promptly deliver to the Escrow Agent stock
powers endorsed in blank with respect to the remaining Common Stock on deposit
in the Escrow Account (together with stock powers with respect thereto endorsed
in blank), pledged to the Purchaser.
(b) In the event that the Escrow Account includes shares of Common
Stock, each such certificate representing Common Stock on deposit therein shall
have the following legend noted conspicuously thereon:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
LIEN IN FAVOR OF THE ISSUER PURSUANT TO THAT CERTAIN ESCROW
AGREEMENT DATED ________ ___, 1997 BY AND AMONG THE PURCHASER,
CERTAIN PERSONS, AND ___________ AS ESCROW AGENT. THIS
CERTIFICATE IS SUBJECT TO RESTRICTIONS ON TRANSFER UNTIL RELEASED
FROM SUCH RESTRICTIONS IN ACCORDANCE WITH THE TERMS OF SUCH
ESCROW AGREEMENT.
(c) Up until any disbursement of any shares of Common Stock deposited
into the Escrow Account, Sellers shall be entitled to vote said shares in any
meeting of shareholders, and shall be entitled to all dividends paid thereon.
-2-
6. Purpose of the Escrow Account.
(a) Adjustments to Purchase Price. To the extent provided in Article 2
of the Purchase Agreement, the Parties have specified a mechanism for the final
determination of the Purchase Price of the Company (the "Purchase Price
Provision"). The amounts that may be payable by the Sellers to the Purchaser
under the Purchase Price Provision are herein called the "Covered Amounts." One
purpose of the Escrow Account is, to the extent herein provided, to provide a
source of funds for the payment of the Covered Amounts.
(b) Indemnification. The Escrow Account further serves to secure the
indemnification obligations of the Sellers under Article 10 of the Purchase
Agreement (the "Indemnification Provision"). The amounts that may be payable to
the Purchaser under the Indemnification Provision are herein called the
"Indemnity Amounts."
7. Application of Escrow Account. The Escrow Account will be retained
by the Escrow Agent and shall be distributed as follows:
(a) Adjustments to Purchase Price. Upon the final determination of the
Purchase Price pursuant to Article 2 of the Purchase Agreement, the Sellers and
the Purchaser shall give a joint written notice to the Escrow Agent indicating
whether and to what extent the Escrow Account is to be disbursed to the
Purchaser and on receipt of such joint instructions, the Escrow Agent shall
disburse the Escrow Account in accordance with such instructions. The Sellers
and the Purchaser agree to cause the Escrow Account to be disbursed so as to
give effect to the final determination of the Purchase Price pursuant to Article
2 of the Purchase Agreement.
(b) Indemnification. In the event the Purchaser suffers an
Indemnifiable Loss and is entitled to payment of an Indemnity Amount, the
Sellers and Purchaser shall give a joint written notice to the Escrow Agent
directing that a combination of cash and Common Stock (valued at the Share
Value) equal to the Indemnity Amount be disbursed from the Escrow Account and on
receipt of such joint instructions, the Escrow Agent shall so disburse such
Indemnity Amount.
8. Investment of Escrow Account. As soon as possible after its receipt
of the Escrow Account, the Escrow Agent shall invest any cash deposited in the
Escrow Account (the "Cash Investment") as set forth on Exhibit "A" attached
hereto, or as otherwise directed in writing from time to time by the Sellers.
All income earned on the Cash Investment will be owned by the Sellers and shall
be distributed at least once every 365 days. The Escrow Agent will not be liable
or responsible for any loss resulting from any investment or reinvestment made
as provided in this Agreement at the written direction of the Sellers.
9. Liability of the Escrow Agent. The duties of the Escrow Agent
hereunder will be limited to the observance of the express provisions of this
Agreement. The Escrow Agent will not make any payment or disbursement from or
out of the Escrow Account except as provided by this Agreement. The Escrow Agent
may rely upon and act upon any instrument received by it pursuant to the
provisions of this Agreement which it reasonably believes to be in conformity
with the requirements of this Agreement. The Escrow Agent agrees to use the same
degree of care and skill as is customary for an escrow agent in similar
circumstances. The Escrow Agent will not be liable for any action taken or not
taken by it under the terms hereof in the absence of breach of its obligations
hereunder or gross negligence or willful misconduct on its part.
-3-
In receiving the amounts deposited into the Escrow Account, the Escrow
Agent acts only as a depository for the Purchaser and the Sellers and assumes no
responsibility except pursuant to the provisions of this Agreement. No
withdrawals shall be permitted from the Escrow Account except as provided herein
or as required by law or court order.
All of the terms and conditions in connection with the Escrow Agent's
duties and responsibilities, and the rights of the Purchaser and the Sellers or
anyone else, with respect to the Escrow Account, are contained solely in this
Agreement and in any signature card required by the Escrow Agent pertaining to
the Escrow Account, and the Escrow Agent is not expected or required to be
familiar with the provisions of any other agreement, and shall not be charged
with any responsibility or liability in connection with the observance of the
provisions of any such other agreement.
The Escrow Agent may act or refrain from acting in respect of any
matter referred to herein in full reliance upon and by and with the advice of
counsel which may be selected by it, and shall be fully protected in so acting
or in refraining from acting upon the advice of such counsel.
Except as herein expressly provided, none of the provisions of this
Agreement shall require the Escrow Agent to expend or risk its own funds or
otherwise incur financial liability or expense in the performance of any of its
duties hereunder.
The Escrow Agent is hereby authorized to comply with and obey all
orders, judgements, decrees or writs entered or issued by any court, and in the
event the Escrow Agent obeys or complies with any such order, judgment, decree
or writ of any court, in whole or in part, it shall not be liable to any of the
Parties hereto, nor to any other person or entity, by reason of such compliance,
notwithstanding that it shall be determined that any such order, judgment,
decree or writ be entered without jurisdiction or be invalid for any reason or
be subsequently reversed, modified, annulled or vacated.
Should any controversy arise between the Purchaser and the Sellers or
between the Sellers, the Purchaser and any other person or entity with respect
to this Agreement, or with respect to the ownership of or the right to receive
any sums from the Escrow Account, the Escrow Agent shall have the right to
institute a xxxx of interpleader in any court of competent jurisdiction to
determine the rights of the Parties.
The Purchaser and the Sellers agree that the Escrow Agent is acting
solely as an escrow agent hereunder and not as a trustee, and that the Escrow
Agent has no fiduciary duties, obligations or liabilities under this Agreement.
10. Indemnification of the Escrow Agent. The Sellers and the Purchaser
will indemnify and hold the Escrow Agent harmless from and against any and all
losses, costs, damages or expenses (including reasonable attorneys' fees) the
Escrow Agent may sustain by reason of its service as escrow agent hereunder,
except to the extent such loss, cost, damage or expense (including reasonable
attorneys' fees) was incurred solely by reason of such acts or omissions for
which the Escrow Agent is liable or responsible under Section 9 hereunder.
11. Fees of Escrow Agent. All fees, if any, of the Escrow Agent for
service as escrow agent hereunder shall be paid by the Purchaser.
-4-
12. Designations. The Sellers and the Purchaser may each, by notice to
the Escrow Agent, designate one or more persons who will execute notices and
from whom the Escrow Agent may take instructions hereunder or to whom the Escrow
Agent may give notices. Such designations may be changed from time to time upon
notice to Escrow Agent from the respective parties. The Escrow Agent will be
entitled to rely conclusively on any action taken by such persons or their
respective successor designees.
13. Resignation of the Escrow Agent. The Escrow Agent may resign as
escrow agent by giving each of the Parties not less than thirty (30) days' prior
written notice of the effective date of such resignation. If on or prior to the
effective date of such resignation the Escrow Agent has not received joint
written instructions from the parties hereto, it will thereupon deposit the
Escrow Account into the registry of a court of competent jurisdiction. The
Parties intend that a substitute escrow agent will be appointed to fulfill the
duties of the Escrow Agent hereunder for the remaining term of this Agreement in
the event of the Escrow Agent's resignation, and if the Purchaser and the
Sellers cannot agree on a substitute escrow agent, they will use their best
efforts to derive a procedure to appoint a substitute escrow agent.
14. Notices. All notices, requests, instructions and demands which may
be given by any party hereto to any other party in the course of the
transactions herein contemplated will be given to each party hereto, will be in
writing, will be delivered by posting in the United States mail, certified mail,
return receipt requested, addressed to the respective parties as set forth
below, and will be deemed given when actually received.
A. If to Purchaser:
DocuNet Inc.
000 Xxxxxx'x Xxxx Xxxx
Xxxxxxxxx, XX 00000
With a copy to:
Pepper, Xxxxxxxx & Xxxxxxx LLP
0000 Xxx Xxxxx Xxxxxx
00xx & Xxxx Xxxxxxx
Xxxxxxxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxx, Esquire
B. If to any of the Sellers, to their attention:
c/o DocuTech Inc.
0000 Xxxxxxxxx Xxxxx
Xxxxxxx, XX 00000
-5-
With a copy to:
Xxxxxx X. Xxxxxx
Attorney at Law
0000 Xxxxxxx Xxxx
Xxxxx 000
Xxxxxxx, XX 00000
C. If to the Escrow Agent:
With a copy to:
Copies of any notices sent by the Escrow Agent shall be sent to all
other parties hereto.
15. Binding Effect. This Agreement will be binding upon and inure to
the benefit of the parties hereto and their respective representatives,
successors and assigns.
16. Amendment and Termination. This Agreement may be amended or
canceled by and upon written notice to the Escrow Agent at any time given
jointly by the Purchaser and the Sellers, but the duties and responsibilities of
the Escrow Agent may not be increased without its consent.
17. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
19. Captions and Paragraph Headings. Captions and paragraph headings
used herein are for convenience only and are not part of this Agreement and will
not be used in construing it.
20. Term. The escrow established by this Agreement shall continue until
the earlier of (i) the mutual agreement of the Parties or (ii) one hundred
eighty (180) days following the Closing whereupon all amounts and shares of
Common Stock then on deposit in the Escrow Account shall be paid and delivered
to the Sellers; provided, however, that in the event there is an asserted but
unresolved claim ("Claim") pursuant to Article 2 or Article 10 of the Purchase
Agreement on such 180th day, then any combination of cash and Common Stock
(valued at the Share Value) equal, in combination, to the amount of any and all
such Claims shall remain in the Escrow Account. Such cash and/or Common Stock so
remaining in the Escrow Account shall remain subject to this Agreement until the
final resolution of the applicable Claim(s) that required the retention of such
cash and/or Common Stock; provided, however, that in all events all Common Stock
held in the Escrow Account shall be distributed to the Sellers within five (5)
years from the Closing and, to the extent such Common Stock is distributed,
Sellers shall replenish the Escrow Account with cash in a like amount, valued at
the Share Value.
-6-
IN WITNESS WHEREOF, the parties hereto have hereunto caused this
Agreement to be executed by their respective officers hereunto duly authorized,
as of the day and year first above written.
DOCUNET INC.
By:_____________________________________
Name:
Title:
----------------------------------------
Xxx Xxxx
----------------------------------------
Xxxx Xxxxxxx
----------------------------------------
Xxxxx Xxxxxxxx
[ESCROW AGENT]
By:_____________________________________
Name:
Title:
-7-
